<PAGE>
File No. 33-71054
811-8814
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1933
Post-Effective Amendment No. 4
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 9
SEPARATE ACCOUNT VA-K OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
(Exact Name of Registrant)
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
440 Lincoln Street
Worcester MA 01653
(Address of Principal Executive Office)
Richard J. Baker, Vice President and Secretary
State Mutual Life Assurance Company of America
440 Lincoln Street
Worcester MA 01653
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective:
___on _____________ pursuant to paragraph (a) of Rule 485
___60 days after filing pursuant to paragraph (a) of Rule 485
___immediately after filing pursuant to paragraph (b) of Rule 485
_X_on October 16, 1995 pursuant to paragraph (b) of Rule 485
VARIABLE ANNUITY POLICIES
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940,
Registrant hereby declares that an indefinite amount of its securities is
being registered under the Securities Act of 1933. The Rule 24f-2 Notice for
the issuer's fiscal year ended December 31, 1994 was filed on February 21,
1995.
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
- ----------------- ---------------------
1. . . . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . . . "Special Terms"
3. . . . . . . . . . . . . . "Summary"; "Annual and Transaction Expenses"
4. . . . . . . . . . . . . . "Condensed Financial Information"
5. . . . . . . . . . . . . . "Description of the Company, the Separate
Account and the Fund"
6. . . . . . . . . . . . . . "Charges and Deductions:
7. . . . . . . . . . . . . . "The Variable Annuity Policies"
8. . . . . . . . . . . . . . "The Variable Annuity Policies"
9. . . . . . . . . . . . . . "Death Benefit"
10 . . . . . . . . . . . . . "Purchase Payments"; "Computation of Policy
Values and Annuity Payments"
11 . . . . . . . . . . . . . "Surrender"; "Partial Redemption"
12 . . . . . . . . . . . . . "Federal Tax Considerations"
13 . . . . . . . . . . . . . "Legal Matters"
14 . . . . . . . . . . . . . "Table of Contents of the Statement of
Additional Information"
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- ----------------- ----------------------------------------------
15 . . . . . . . . . . . . . "Cover Page"
16 . . . . . . . . . . . . . "Table of Contents"
17 . . . . . . . . . . . . . "General Information and History"
18 . . . . . . . . . . . . . "Services"
19 . . . . . . . . . . . . . "Underwriters"
20 . . . . . . . . . . . . . "Underwriters"
21 . . . . . . . . . . . . . "Performance Information"
22 . . . . . . . . . . . . . "Annuity Payments"
23 . . . . . . . . . . . . . "Financial Statements"
<PAGE>
PROSPECTUS SUPPLEMENT
Separate Account VA-K
(Supplement to prospectus dated May 1, 1995)
Effective October 16, 1995, State Mutual Life Assurance Company of America
converted from a Massachusetts mutual life insurance company to a Massachusetts
stock life company, and concurrently changed its name to FIRST ALLMERICA
FINANCIAL LIFE INSURANCE COMPANY ("Company"). The Company is a wholly-owned
subsidiary of Allmerica Financial Corporation, 440 Lincoln Street, Worcester,
Massachusetts, 01653. The attached prospectus is hereby amended to delete the
name "State Mutual Life Assurance Company of America" and to substitute FIRST
ALLMERICA FINANCIAL LIFE INSURANCE COMPANY.
* * *
The following is inserted as the third paragraph, under the caption "B.
Transfer Privilege":
Effective November 1, 1995, automatic transfers may also be made from policy
value allocated to the Company's General Account (a) to one or more of the
Subaccounts or (b) in order to reallocate Policy value among the Subaccounts.
Automatic transfers from the General Account may be made on a monthly,
bimonthly, or quarterly basis, provided that: (i) the amount of each monthly
transfer cannot exceed 10% of policy value in the General Account as of the date
of the first transfer; (ii) each bimonthly transfer cannot exceed 20% of policy
value in the General Account as of the date of the first transfer; (iii) each
quarterly transfer cannot exceed 25% of policy value in the General Account as
of the date of the first transfer.
* * *
SUPPLEMENT DATED OCTOBER 16, 1995
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
GROUP VARIABLE ANNUITY POLICIES FUNDED THROUGH SUBACCOUNTS OF
SEPARATE ACCOUNT VA-K
INVESTING IN SHARES OF DELAWARE GROUP PREMIUM FUND, INC.
This Prospectus describes group variable annuity policies including certificates
issued thereunder (Policy Form A and Policy Form B collectively, the "Policies")
offered by State Mutual Life Assurance Company of America ("Company") to
individuals and businesses in connection with retirement plans which may or may
not qualify for special federal income tax treatment. (For information about the
tax status when used with a particular type of plan, see "FEDERAL TAX
CONSIDERATIONS.") The following is a summary of information about these
Policies. More detailed information can be found under the referenced captions
in this Prospectus.
This Prospectus generally describes only the variable accumulation and variable
annuity aspects of the Policies, except where fixed values or fixed annuity
payments are specifically mentioned. Certain additional information about the
Policies is contained in a Statement of Additional Information, dated May 1,
1995, as may be amended from time to time, which has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. The
Table of Contents for the Statement of Additional Information is listed on page
3 of this Prospectus. The Statement of Additional Information is available upon
request and without charge. To obtain the Statement of Additional Information,
fill out and return the attached request card or contact Annuity Customer
Services, State Mutual Life Assurance Company of America, 440 Lincoln Street,
Worcester, Massachusetts 01653.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
DELAWARE GROUP PREMIUM FUND, INC.
INVESTORS SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DATED MAY 1, 1995
Policy Form A and Policy Form B are identical, except as specifically noted.
Currently, Policy Form B may be offered in New York, and Policy Form A may be
offered in other states.
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . .3
SPECIAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
ANNUAL AND TRANSACTION EXPENSES. . . . . . . . . . . . . . . . . . . . . . . .7
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
WHAT IS AN ANNUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
RIGHT TO REVOKE OR SURRENDER . . . . . . . . . . . . . . . . . . . . . . . . 11
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT AND THE FUND. . . . . . . . 11
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
A. Contingent Deferred Sales Charge . . . . . . . . . . . . . . . . . . 14
B. Premium Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
C. Policy Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
D. Annual Charge Against Separate Account Assets. . . . . . . . . . . . 17
THE VARIABLE ANNUITY POLICIES. . . . . . . . . . . . . . . . . . . . . . . . 18
A. Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 18
B. Transfer Privilege . . . . . . . . . . . . . . . . . . . . . . . . . 19
C. Surrender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
D. Partial Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 20
E. Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
F. The Spouse of the Policy Owner as Beneficiary. . . . . . . . . . . . 21
G. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
H. Electing the Form of Annuity and Annuity Date. . . . . . . . . . . . 22
I. Description of Variable Annuity Options. . . . . . . . . . . . . . . 22
J. Norris Decision. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
K. Computation of Policy Values and Annuity Payments. . . . . . . . . . 23
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 25
A. Qualified and Non-Qualified Policies . . . . . . . . . . . . . . . . 25
B. Taxation of Policies in General. . . . . . . . . . . . . . . . . . . 25
C. Tax Withholding and Penalties. . . . . . . . . . . . . . . . . . . . 26
D. Provisions Applicable to Qualified Employee Benefit Plans. . . . . . 26
E. Qualified Employee Pension and Profit Sharing Trusts
and Qualified Annuity Plans . . . . . . . . . . . . . . . 27
F. Self-Employed Individuals. . . . . . . . . . . . . . . . . . . . . . 27
G. Individual Retirement Account Plans. . . . . . . . . . . . . . . . . 27
H. Simplified Employee Pensions . . . . . . . . . . . . . . . . . . . . 28
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<PAGE>
TABLE OF CONTENTS (CONTINUED)
I. Public School Systems and Certain Tax-Exempt Organizations . . . . . 28
J. Texas Optional Retirement Program. . . . . . . . . . . . . . . . . . 28
K. Section 457 Plans for State Governments and Tax-Exempt Entities. . . 28
L. Non-Individual Owners. . . . . . . . . . . . . . . . . . . . . . . . 29
REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
CHANGES IN OPERATIONS OF THE SEPARATE ACCOUNT. . . . . . . . . . . . . . . . 29
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
FURTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
APPENDIX A - MORE INFORMATION ABOUT THE GENERAL ACCOUNT. . . . . . . . . . . 29
APPENDIX B - EXCHANGE OFFER. . . . . . . . . . . . . . . . . . . . . . . . . 30
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . . . . . .2
TAXATION OF THE SEPARATE ACCOUNT AND THE COMPANY . . . . . . . . . . . . . . .2
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
-3-
<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Subaccounts and of the value of all accumulations in the General Account of the
Company then credited to the Policy, on any date before the date annuity
payments are to begin.
ACCUMULATION UNIT: a measure of the Policy Owner's interest in a Subaccount
before annuity payments begin.
ANNUITANT: the person designated in the Policy to whom the Annuity is to be
paid.
ANNUITY DATE: the date on which annuity payments begin.
ANNUITY UNIT: a measure of the value of the periodic annuity payments under the
Policy.
FIXED AMOUNT ANNUITY: an Annuity providing for payments which remain fixed in
amount throughout the annuity payment period.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate investment account.
POLICY OWNER: the owner of a Policy who may exercise all rights under the
Policy, subject to the consent of any irrevocable beneficiary. After the Annuity
Date, the Annuitant will be the Policy Owner.
SEPARATE ACCOUNT: Separate Account VA-K of the Company. Separate Account VA-K
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.
SUBACCOUNT: a subdivision of Separate Account VA-K. Each Subaccount available
under the Policies invests exclusively in the shares of a corresponding
investment series of Delaware Group Premium Fund, Inc.
SURRENDER VALUE: the Accumulated Value of the Policy minus any Policy fee and
contingent deferred sales charge applicable upon surrender.
UNDERLYING SERIES: the Equity/Income Series, High Yield Series, Capital
Reserves Series, Money Market Series, Growth Series, Multiple Strategy Series,
Value Series, Emerging Growth Series and International Equity Series of Delaware
Group Premium Fund, Inc.
VALUATION DATE: a day on which the net asset value of the shares of any of the
Underlying Series is determined and Unit values of the Subaccounts 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 Policy was
received) when there is a sufficient degree of trading in an Underlying Series
portfolio securities such that the current net asset value of the Subaccounts
may be materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
VARIABLE ANNUITY: an Annuity providing for payments varying in amount in
accordance with the investment experience of certain Underlying Series.
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<PAGE>
SUMMARY
INVESTMENT OPTIONS. The Policies permit net purchase payments to be allocated
among Subaccounts available under the Policies, which are subdivisions of
Separate Account VA-K ("Separate Account"), a separate account of the Company,
and a fixed interest account ("General Account") of the Company (together
"accounts"). The Separate Account is registered as a unit investment trust under
the Investment Company Act of 1940, as amended, (the "1940 Act") but such
registration does not involve the supervision of the management or investment
practices or policies of the Separate Account by the Securities and Exchange
Commission (the "SEC"). For information about the Separate Account and the
Company, see "DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUND."
For more information about the General Account see APPENDIX A, "MORE INFORMATION
ABOUT THE GENERAL ACCOUNT."
Each Subaccount available under the Policies invests its assets without sales
charge in a corresponding investment series of the Delaware Group Premium Fund,
Inc. (the "Fund"). The Fund is an open-end, diversified series investment
company. The Fund consists of nine different series: the Equity/Income Series,
High Yield Series, Capital Reserves Series, Money Market Series, Growth Series,
Multiple Strategy Series, Value Series, Emerging Growth Series and International
Equity Series ("Underlying Series"). Each Underlying Series operates pursuant to
different investment objectives, discussed below.
INVESTMENT IN THE SUBACCOUNTS. The value of each Subaccount will vary daily
depending on the performance of the investments made by the respective
Underlying Series.
There can be no assurance that the investment objectives of the Underlying
Series can be achieved or that the value of a Policy will equal or exceed the
aggregate amount of the purchase payments made under the Policy. For more
information about the investments of the Underlying Series, see "DESCRIPTION OF
THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUND." The accompanying prospectus
of the Fund describes the investment objectives and risks of each of the
Underlying Series.
Dividends or capital gains distributions received from an Underlying Series are
reinvested in additional shares of that Underlying Series, which are retained as
assets of the Subaccount.
TRANSFERS AMONG ACCOUNTS. Prior to the Annuity Date, the Policies permit amounts
to be transferred among the Subaccounts and between the General Account and the
Subaccounts, subject to certain limitations described under "Transfer
Privilege."
ANNUITY PAYMENTS. The Policy Owner may select variable annuity payments based on
certain Subaccounts, fixed-amount annuity payments, or a combination of
fixed-amount and variable annuity payments. Fixed-amount annuity payments are
guaranteed by the Company.
See "THE VARIABLE ANNUITY POLICIES" for information about annuity payment
options, selecting the Annuity Date, and how annuity payments are calculated.
REVOCATION RIGHTS. You may revoke the Policy at any time between the date of the
application and the date 10 days after receipt of the Policy. For more
information about revocation rights, see "RIGHT TO REVOKE OR SURRENDER."
PAYMENT MINIMUMS AND MAXIMUMS. Under the Policies, purchase payments are not
limited as to frequency and number, but no payments may be submitted within one
month of the Annuity Date. Generally, the initial purchase payment must be at
least $600 and subsequent payments must be at least $50. Under a monthly
automatic payment plan or a payroll deduction plan, each purchase payment must
be at least $50. However, in cases where the contribution on behalf of an
employee under an employer-sponsored retirement plan is less than $600 but more
than $300 annually, the Company may issue a Policy on the employee, if the
plan's average annual contribution per eligible plan participant is at least
$600.
The Company reserves the right to set maximum limits on the aggregate purchase
payments made under the Policy. In addition, the Internal Revenue Code imposes
maximum limits on contributions under qualified annuity plans.
CHARGES AND DEDUCTIONS. For a complete discussion of charges, see "CHARGES AND
DEDUCTIONS."
A. CONTINGENT DEFERRED SALES CHARGE. No sales charge is deducted from purchase
payments at the time the payments are made. However, depending on the length of
time that the payments to which the withdrawal is attributed have remained
credited under the Policy a contingent deferred sales charge of up to 8% may be
assessed for a surrender, partial redemption, or election of an annuity for a
specified number of years.
-5-
<PAGE>
B. ANNUAL POLICY FEE. A Policy Fee equal to $30 will be deducted from the
Accumulated Value under the Policy for administrative expense on the policy
anniversary, or upon full surrender of the Policy during the year, when the
Accumulated Value is $50,000 or less. The Policy Fee is currently waived for
policies issued to a trustee of a 401(k) plan, but the Company reserves the
right to impose the Policy Fee on such policies.
C. PREMIUM TAXES. A deduction for State and local premium taxes, if any, may be
made as described under "Premium Taxes."
D. SEPARATE ACCOUNT ASSET CHARGES. A daily charge, equivalent to 1.25% per
annum, is made on the value of each Subaccount at each Valuation Date. The
charge is retained for the mortality and expense risks the Company assumes. In
addition, to cover administrative expenses, the Company deducts a daily charge
of 0.15% per annum of the value of the average net assets in the Subaccounts
available under the Policies.
E. TRANSFER CHARGE. The Company currently makes no charge for transfers. The
Company guarantees that the first twelve transfers in a Policy year will be free
of charge. For the thirteenth and each subsequent transfer, the Company reserves
the right to assess a charge, guaranteed never to exceed $25, to reimburse the
Company for the costs of processing the transfer.
F. CHARGES OF THE UNDERLYING SERIES. In addition to the charges described
above, certain fees and expenses are deducted from the assets of the Underlying
Series. These charges vary among the Underlying Series, and may range from an
annual rate of 0.80% to an annual rate of 2.00% of average daily net assets.
SURRENDER OR PARTIAL REDEMPTION. At any time before the Annuity Date, the Policy
Owner has the right either to surrender the Policy in full and receive its
current value, minus the Policy Fee and any applicable contingent deferred sales
charge, or to redeem a portion of the Policy's value subject to certain limits
and any applicable contingent deferred sales charge. There may be tax
consequences for surrender or redemptions. For further information, see
"Surrender" and "Partial Redemption," "Contingent Deferred Sales Charge," and
"FEDERAL TAX CONSIDERATIONS."
DEATH BENEFIT. If the Annuitant or Policy Owner should die before the Annuity
Date, a death benefit will be paid to the beneficiary. Upon death of the
Annuitant, the death benefit is equal to the greatest of (a) the Accumulated
Value under the Policy, or (b) the sum of the gross payment(s) made under the
Policy reduced proportionally to reflect all partial redemptions, or (c) the
death benefit that would have been payable on the most recent fifth year Policy
Anniversary, increased for subsequent purchase payments and reduced
proportionally to reflect withdrawals after that date. Upon death of the Policy
Owner, the death benefit is equal to the Accumulated Value of the Policy.
SALES OF POLICIES. The Policies are sold by agents of the Company who are
authorized by applicable law to sell variable annuity policies. These agents are
registered representatives of broker-dealers which are members of the National
Association of Securities Dealers, Inc. See "Sales Expense."
-6-
<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The purpose of the following tables is to assist the Policy Owner in
understanding the various costs and expenses that a Policy Owner will bear
directly or indirectly under the Policies. The tables reflect charges under the
Policies, expenses of the Subaccounts, and expenses of the Underlying Series.
In addition to the charges and expenses described below, in some states premium
taxes may be applicable.
<TABLE>
<S> <C> <C>
POLICY OWNER TRANSACTION EXPENSES
Contingent Deferred Sales Charge Policy Year after date of Charge
The charge (as a percentage of payments, 0-3 7%
applied to the amount surrendered in 4 6%
excess of the amount, if any, which may 5 5%
be surrendered free of charge) will be 6 4%
assessed upon surrender, redemption, or 7 3%
annuitization under a period certain more than 7 0%
option, within the indicated time periods.
Transfer Charge
The Company currently makes no charge for None
transfers. The Company guarantees that the
first twelve transfers in a Policy year
will be free of charge. For the thirteenth
and each subsequent transfer, the Company
reserves the right to assess a charge,
guaranteed never to exceed $25, to reimburse
the Company for the costs of processing the
transfer.
ANNUAL POLICY FEE
An annual Policy Fee, equal to $30, is $30
deducted when Accumulated Value is $50,000
or less. The Policy Fee is currently
waived for policies issued to a trustee of
a 401(k) plan, but the Company reserves the
right to impose the Policy Fee on such
policies.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Separate Account Administrative Charge 0.15%
-------
Total Annual Expenses 1.40%
</TABLE>
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<PAGE>
DELAWARE GROUP PREMIUM FUND, INC.
<TABLE>
<CAPTION>
Equity/ High Capital Money Growth Multiple Value Emerging Int'l
Series Annual Expenses Income Yield Reserves Market Strategy Growth Equity
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.60% 0.60% 0.59% 0.49% 0.66% 0.60% 0.14% 0.08% 0.53%
Other Series Expenses 0.11% 0.12% 0.15% 0.17% 0.14% 0.10% 0.66% 0.72% 0.27%
Total Series Annual 0.71% 0.72% 0.74% 0.66% 0.80% 0.70% 0.80% 0.80% 0.80%
Expenses (After Expense
Reimbursement)
</TABLE>
The investment adviser for the Equity/Income, High Yield, Capital Reserves,
Money Market, Growth, Multiple Strategy, Value and Emerging Growth Series is
Delaware Management Company, Inc. The Investment Adviser for the International
Equity Series is Delaware International Advisers Ltd. The investment advisers
from the Series of the Fund have agreed voluntarily to waive their management
fees and reimburse each Series to limit certain expenses to 8/10 of 1% of the
average daily net assets. This waiver will be in effect through June 30, 1995.
The ratio of expenses to average daily net assets, shown in the table above for
the nine Series as 0.80%, reflects the investment adviser waiver and, in the
case of the Growth Series, reimbursement by its investment adviser for other
expenses of that Series. For the fiscal year ended December 31, 1994, before
waiver and/or reimbursement by the investment adviser, total Series expenses as
a percentage of average daily net assets were 0.88% for the Growth Series, 1.41%
for the Value Series, 1.47% for the Emerging Growth Series and 1.01% for the
International Equity Series.
The following Examples demonstrate the cumulative expenses which would be paid
by the Policy Owner at 1-year, 3-year, 5-year, and 10-year intervals under
certain contingencies. Each Example assumes a $1,000 investment in a Subaccount
and a 5% annual return on assets. Because the expenses of the Underlying Series
differ, separate Examples are used to illustrate the expenses incurred by a
Policy Owner on an investment in the various Subaccounts.
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.
(a) If you surrender your Policy or annuitize* under a period certain option at
the end of the applicable period, you would pay the following expenses on a
$1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Equity/Income $87 $137 $168 $253
High Yield $87 $138 $168 $254
Capital Reserves $87 $138 $169 $256
Money Market $87 $136 $165 $248
Growth $88 $140 $173 $263
Multiple Strategy $87 $137 $167 $252
Value $88 $140 $173 $263
Emerging Growth $88 $140 $173 $263
Int'l Equity $88 $140 $173 $263
</TABLE>
(b) If you annuitize* under a life option at the end of the applicable time
period or if you do NOT surrender or annuitize your Policy, you would pay
the following expenses on a $1,000 investment, assuming 5% annual return on
assets:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Equity/Income $22 $69 $118 $253
High Yield $22 $69 $118 $254
Capital Reserves $23 $70 $119 $256
Money Market $22 $67 $115 $248
Growth $23 $72 $123 $263
Multiple Strategy $22 $69 $117 $252
Value $23 $72 $123 $263
Emerging Growth $23 $72 $123 $263
Int'l Equity $23 $72 $123 $263
</TABLE>
Pursuant to requirements of the 1940 Act, the Policy Fee has been reflected in
the Examples by a method intended to show the "average" impact of the Policy Fee
on an investment in the Separate Account. The total Policy Fees collected under
the Policies by the Company are divided by the total average net assets
attributable to the Policies. The resulting percentage is 0.09%, and the amount
of the policy fee is assumed to be $.90 in the Examples. The Policy Fee is
deducted only when the accumulated value is $50,000 or less.
* The Policy Fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any Policy year under
an option including a life contingency. Under Policy Form B, the expenses above
would average a few dollars LESS.
-8-
<PAGE>
CONDENSED FINANCIAL INFORMATION
State Mutual Life Assurance Company
Separate Account VA-K
<TABLE>
<CAPTION>
1994
----
<S> <C>
Subaccount 201
Net Asset Value:
Beginning of Period 1.000
End of Period 1.006
Number of Units Outstanding at End 455
of Period (in thousands)
Subaccount 202
Net Asset Value:
Beginning of Period 1.000
End of Period 0.980
Number of Units Outstanding at End 287
of Period (in thousands)
Subaccount 203
Net Asset Value:
Beginning of Period 1.000
End of Period 0.991
Number of Units Outstanding at End 181
of Period (in thousands)
Subaccount 204
Net Asset Value:
Beginning of Period 1.000
End of Period 1.018
Number of Units Outstanding at End 302
of Period (in thousands)
Subaccount 205
Net Asset Value:
Beginning of Period 1.000
End of Period 1.008
Number of Units Outstanding at End 149
of Period (in thousands)
Subaccount 206
Net Asset Value:
Beginning of Period 1.000
End of Period 0.991
Number of Units Outstanding at End 173
of Period (in thousands)
Subaccount 207
Net Asset Value:
Beginning of Period 1.000
End of Period 1.004
Number of Units Outstanding at End 193
of Period (in thousands)
Subaccount 208
Net Asset Value:
Beginning of Period 1.000
End of Period 1.002
Number of Units Outstanding at End 82
of Period (in thousands)
Subaccount 209
Net Asset Value:
Beginning of Period 1.000
End of Period 1.022
Number of Units Outstanding at End 790
of Period (in thousands)
<FN>
* The date of inception of Subaccount 204 was 4/6/94. The date of inception
of Subaccounts 205, 206, and 207 was 4/19/94. The date of inception of
Subaccount 201 was 4/28/94. The date of inception of Subaccounts 208 and
209 was 5/10/94. The date of inception of Subaccount 202 was 5/20/94. The
date of inception of Subaccount 203 was 6/22/94.
</TABLE>
PERFORMANCE INFORMATION
The Company from time to time may advertise the "total return" of the
Subaccounts and the "yield" and "effective yield" of the Subaccount investing in
the Money Market Series of the Fund. 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 Subaccount refers to the total of the income generated
by an investment in the Subaccount and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by certain charges, and expressed as a percentage of
the investment.
The "yield" of the Subaccount investing in the Money Market Series of the Fund
refers to the income generated by an investment in the Subaccount 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
-9-
<PAGE>
investment in the Subaccount is assumed to be reinvested. Thus the "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The total return, yield, and effective yield figures are adjusted to reflect the
Subaccount's asset charges. The total return figures also reflect the $30 annual
Policy Fee and the contingent deferred sales load which would be assessed if the
investment were completely redeemed at the end of the specified period.
The Company may also advertise supplemental total return performance
information. Supplemental total return refers to the total of the income
generated by an investment in the Subaccount and of the changes of value of the
principal invested (due to realized and unrealized capital gains or losses),
adjusted by the Subaccounts annual asset charges, and expressed as a percentage
of the investment. Because it is assumed that the investment is NOT redeemed at
the end of the specified period, the contingent deferred sales load is NOT
included in the calculation of supplemental total return.
Performance information for a Subaccount 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 Subaccount
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 Morningstar, 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 Subaccount. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Subaccount reflects only the performance of a
hypothetical investment in the Subaccount during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies, characteristics and quality
of the portfolio of the Underlying Series in which the Subaccount 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.
-10-
<PAGE>
TOTAL RETURN FOR PERIODS ENDING DECEMBER 31, 1994
(Assuming COMPLETE redemption of the investment)
<TABLE>
<CAPTION>
Total Return Average Annual
SUB- for year ended Total Return
ACCOUNT NAME 12/31/94 Since Inception*
------- ---- -------- ----------------
<S> <C> <C> <C>
201 Equity/Income -7.88% -5.69%
202 High Yield -10.50% -8.34%
203 Capital Reserve -10.32% -7.19%
204 Money Market -4.06% -4.47%
205 Growth -11.17% -5.55%
206 Multiple Strategy -7.82% -7.15%
207 Int'l. Equity -5.05% -5.87%
208 Value -6.91% -6.14%
209 Emerging Growth -8.17% -4.10%
Total Return for Periods Ending December 31, 1994
(Assuming NO redemption of the investment)
<CAPTION>
Total Return Average Annual
SUB- for year ended Total Return
ACCOUNT NAME 12/31/94 Since Inception*
------- ---- -------- ----------------
<S> <C> <C> <C>
201 Equity/Income -1.58% 0.61%
202 High Yield -4.20% -2.04%
203 Capital Reserve -4.02% -0.89%
204 Money Market 2.24% 1.83%
205 Growth -4.87% 0.75%
206 Multiple Strategy -1.52% -0.85%
207 Int'l. Equity 1.25% 0.43%
208 Value -0.61% 0.16%
209 Emerging Growth -1.87% 2.20%
<FN>
*The date of inception of Subaccount 201 was 4/28/94. The date of inception of
Subaccount 202 was 5/20/94. The date of inception of Subaccount 203 was 6/22/94.
The date of inception of Subaccount 204 was 4/6/94. The date of inception of
Subaccounts 5, 6 and 7 was 4/19/94. The date of inception of Subaccounts 8 and
9 was 5/10/94.
</TABLE>
WHAT IS AN ANNUITY?
In general, an annuity is a policy 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," and the individual receiving the payments is called the "Annuitant."
Annuity payments may begin immediately after a lump sum purchase is made or may
begin after an investment period during which the amount necessary to provide
the desired amount of retirement income is accumulated.
Under an annuity policy, 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 Annuitant, regardless of
how long the Annuitant lives or how long all Annuitants 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 policy, regardless of actual
costs of operations.
The Policy Owner's purchase payments, less any applicable deductions, are
invested by the insurance company. After retirement, annuity payments are paid
to the Annuitant for life or for such other period chosen by the Policy Owner.
In the case of a "fixed" annuity, the value of these annuity payments is
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."
With a variable annuity, the value of the Policy and the annuity payments are
not guaranteed but will vary depending on the investment performance of a
portfolio of securities. Any investment gains or losses are reflected in the
value of the Policy and in the annuity payments. If the portfolio increases in
value, the value of the Policy increases. If the portfolio decreases in value,
the value of the Policy decreases.
RIGHT TO REVOKE OR SURRENDER
The Policy Owner may revoke the Policy at any time between the date of the
application and the date 10 days after receipt of the Policy. Within seven days
the Company will return the greater of (1) the entire purchase payment or (2)
the Accumulated Value plus any amounts deducted under the Policy or by the Fund
for taxes, charges or fees. In order to Revoke the Policy, the Policy Owner must
mail or deliver the Policy (if it has already been received) to the agent
through whom the Policy was purchased, to the principal 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 Policy for revocation to be effective.
The liability of the Separate Accounts under this provision is limited to the
Policy Owner's Accumulated value in each Separate Account on the date of
cancellation. Any additional amounts refunded to the Policy Owner will be paid
by the Company.
The refund of any premium paid by check may be delayed until the check has
cleared the Policy Owner's bank.
DESCRIPTION OF THE COMPANY, THE
SEPARATE ACCOUNT, AND THE FUND
THE COMPANY - The Company, organized under the laws of Massachusetts in 1844, is
the fifth oldest life insurance company in America. As of December 31, 1994, the
Company and its subsidiaries had over $10 billion in combined assets and over
$42 billion of 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
-11-
<PAGE>
of Massachusetts governing insurance companies and to regulation by the
Commissioner of Insurance of Massachusetts. In addition, the Company is subject
to the insurance laws and regulations of other states and jurisdictions in which
it is licensed to operate.
THE SEPARATE ACCOUNT - Separate Account VA-K (the "Separate Account") is a
separate investment account of the Company. The assets used to fund the variable
portions of the Policies are set aside in the Subaccounts of the Separate
Account, and are kept separate and apart from the general assets of the Company.
There are nine Subaccounts available under the Policies. Each Subaccount is
administered and accounted for as part of the general business of the Company,
but the income, capital gains, or capital losses of each Subaccount are
allocated to such Subaccount, without regard to other income, capital gains, or
capital losses of the Company. Under Massachusetts law, the assets of the
Separate Account may not be charged with any liabilities arising out of any
other business of the Company.
The Separate Account was authorized by vote of the Board of Directors of the
Company on August 20, 1991. The Separate Account meets the definition of
"separate account" under federal securities laws and is registered with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). Such registration does
not involve the supervision of management or investment practices or policies of
the Separate Account or the Company by the Commission.
The Company offers other variable annuity contracts investing in the Separate
Account which are not discussed in this prospectus. The Separate Account also
invests in other underlying funds which are not available to the Policies
described in this prospectus.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Separate Account and the Subaccounts.
DELAWARE GROUP PREMIUM FUND, INC. - Delaware Group Premium Fund, Inc. (the
"Fund"), is an open-end, diversified management investment company registered
with the Commission under the 1940 Act. Such registration does not involve
supervision by the Commission of the investments or investment policy of the
Fund or its separate investment series.
The Fund was established to provide a vehicle for the investment of assets of
various separate accounts supporting variable insurance policies. The Fund
currently has nine investment portfolios ("Series"), each issuing a series of
shares: Equity/Income Series, High Yield Series, Capital Reserves Series, Money
Market Series, Growth Series, Multiple Strategy Series, Value Series, Emerging
Growth Series and International Equity Series. The assets of each Series are
held separate from the assets of the other Series. Each Series operates as a
separate investment vehicle, and the income or losses of one Series have no
effect on the investment performance of another Series. Shares of the Fund are
not offered to the general public but solely to separate accounts of life
insurance companies.
The investment adviser for the Equity/Income Series, High Yield Series, Capital
Reserves Series, Money Market Series, Growth Series and Multiple Strategy Series
is Delaware Management Company, Inc. (the "Delaware Management"). The investment
adviser for the International Equity Series is Delaware International Advisers
Ltd. ("Delaware International").
INVESTMENT OBJECTIVES AND POLICIES - A summary of investment objectives of each
of the Underlying Series is set forth below. More detailed information regarding
the investment objectives, restrictions and risks, expenses paid by the
Underlying Series, and other relevant information regarding the Underlying
Series may be found in the Prospectus of the Fund, which accompanies this
Prospectus and should be read carefully before investing. Also, the Statement of
Additional Information of the Fund is available upon request.
SUBACCOUNT 201 - invests solely in shares of the Equity/Income Series. This
Series seeks the highest possible total rate of return by selecting issues that
exhibit the potential for capital appreciation while providing higher than
average dividend income.
SUBACCOUNT 202 - invests solely in shares of the High Yield Series. This Series
seeks as high a current income as possible by investing in rated and unrated
corporate bonds (including high-yield bonds commonly known as junk bonds), U.S.
Government securities and commercial paper. Please read the Fund's prospectus
disclosure regarding the risk factors before investing in this Series.
SUBACCOUNT 203 - invests solely in shares of the Capital Reserves Series. This
Series seeks a high stable level of current income while minimizing fluctuations
in principal by investing in a diversified portfolio of short and
intermediate-term securities.
-12-
<PAGE>
SUBACCOUNT 204 - invests solely in shares of the Money Market Series. This
Series seeks the highest level of income consistent with the preservation of
capital and liquidity through investments in short-term money market
instruments.
SUBACCOUNT 205 - invests solely in shares of the Growth Series. This Series
seeks long-term capital appreciation by investing its assets in a diversified
portfolio of securities exhibiting the potential for significant growth.
SUBACCOUNT 206 - invests solely in shares of the Multiple Strategy Series. This
Series seeks a balance of capital appreciation, income and preservation of
capital. It uses a dividend-oriented valuation strategy to select securities
issued by established companies that are believed to demonstrate potential for
income and capital growth.
SUBACCOUNT 207 - invests solely in shares of the International Equity Series.
This Series seeks long-term growth without undue risk to principal by investing
primarily in equity securities of foreign issuers providing the potential for
capital appreciation and income.
SUBACCOUNT 208 - invests solely in shares of the Value Series. This Series seeks
capital appreciation by investing in small to mid-cap common stocks whose market
value appears low relative to their underlying value or future earnings and
growth potential. Emphasis will also be placed on securities of companies that
may be temporarily out of favor or whose value is not yet recognized by the
market.
SUBACCOUNT 209 - invests solely in shares of the Emerging Growth Series. This
Series seeks long-term capital appreciation by investing primarily in small-cap
common stocks and convertible securities of emerging and other growth-oriented
companies. These securities will have been judged to be responsive to changes in
the market place and to have fundamental characteristics to support growth.
Income is not an objective.
There is no assurance that the investment objectives of the Series will be met.
In the event of a material change in the investment policy of a Subaccount or
the Underlying Series in which it invests, you will be notified of the change.
No material changes in the investment policy of the Separate Account or any
Subaccounts will be made without approval pursuant to the applicable state
insurance laws. If you have Policy Value in that Subaccount, the Company will
transfer it without charge on written request by you to another Subaccount or to
the General Account. The Company must receive your 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 your right to transfer.
INVESTMENT ADVISORY SERVICES TO THE FUND - For managing the portfolios of the
Underlying Series and making the investment decisions, each investment adviser
is paid an annual fee by their respective Underlying Series. For Delaware
Management, this fee is equal to 5/10 of 1% of the average daily net assets of
the Money Market Series, 3/4 of 1% of the average daily net assets of the Growth
Series, Value Series and Emerging Growth Series, and 6/10 of 1% of the average
daily net assets of the Equity/Income Series, High Yield Series, Capital Reserve
Series, Multiple Strategy Series. For Delaware International, this fee is equal
to 3/4 of 1% of the average daily net assets of the International Equity Series.
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 Subaccounts or that the
Subaccounts may purchase. If the shares of any Underlying Series are no longer
available for investment or if in the Company's judgment further investment in
any Underlying Series should become inappropriate in view of the purposes of the
Separate Account or the affected Subaccount, the Company may redeem the shares
of that Underlying Series and substitute shares of another registered open-end
management company. The Company will not substitute any shares attributable to a
Policy interest in a Subaccount without notice to the Policy Owner and prior
approval of the Commission and state insurance authorities, to the extent
required by the 1940 Act or other applicable law. The Separate Account may, to
the extent permitted by law, purchase other securities for other policies or
permit a conversion between policies upon request by a Policy Owner.
The Company also reserves the right to establish additional Subaccounts of the
Separate Account, each of which would invest in shares corresponding to a new
Underlying Series or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required Commission
approval, the Company may, in its sole discretion, establish new Subaccounts or
eliminate one or more Subaccounts if marketing needs, tax considerations or
investment conditions warrant. Any new Subaccounts may be made available to
existing Policy Owners on a basis to be determined by the Company.
-13-
<PAGE>
Shares of the Underlying Series are sold to separate accounts of unaffiliated
insurance companies ("shared funding") which issue variable annuity and variable
life policies ("mixed funding"). It is conceivable that in the future such
shared funding or mixed funding may be disadvantageous for variable life Policy
Owners or variable annuity Policy Owners. Although the Company and the Fund do
not currently foresee any such disadvantages to either variable life insurance
Policy Owners or variable annuity Policy Owners, the Company and the Trustees of
the Fund 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 any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Policy to reflect the substitution or change
and will notify Policy Owners of all such changes. If the Company deems it to be
in the best interest of Policy Owners, and subject to any approvals that may be
required under applicable law, the Separate Account or any Subaccount(s) may be
operated as a management company under the 1940 Act, may be deregistered under
the 1940 Act if registration is no longer required, or may be combined with
other Subaccounts or other separate accounts of the Company.
VOTING RIGHTS
The Company will vote Underlying Series shares held by each Subaccount in
accordance with instructions received from Policy Owners and, after Annuity
Date, from the Annuitants. Each person having a voting interest in a Subaccount
will be provided with proxy materials of the Underlying Series 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 Subaccount that it
owns and which are not attributable to Policies in the same proportion. If the
1940 Act or any rules thereunder should be amended or if the present
interpretation of the 1940 Act or such rules should change, and as a result the
Company determines that it is permitted to vote shares in its own right, whether
or not such shares are attributable to the Policies, the Company reserves the
right to do so.
The number of votes which a Policy Owner or Annuitant may cast will be
determined by the Company as of the record date established by the Underlying
Series.
During the accumulation period, the number of Underlying Series shares
attributable to each Policy Owner will be determined by dividing the dollar
value of the Accumulation Units of the Subaccount credited to the Policy by the
net asset value of one Underlying Series share.
During the annuity period, the number of Underlying Series shares attributable
to each Annuitant will be determined by dividing the reserve held in each
Subaccount for the Annuitant's variable annuity by the net asset value of one
Underlying Series share. Ordinarily, the Annuitant's voting interest in the
Underlying Series will decrease as the reserve for the variable annuity is
depleted.
CHARGES AND DEDUCTIONS
Deductions under the Policies and charges against the assets of the Subaccounts
are described below. Other deductions and expenses paid out of the assets of the
Underlying Series are described in the Prospectus and Statement of Additional
Information of the Fund.
A. CONTINGENT DEFERRED SALES CHARGE.
No charge for sales expense is deducted from purchase payments at the time the
payments are made. However, a contingent deferred sales charge is deducted from
the Accumulated Value of the Policy in the case of surrender and/or partial
redemption of the Policy or at the time annuity payments begin, within certain
time limits described below.
For purposes of determining the contingent deferred sales charge, the Policy
Value is divided into three categories: (1) New Payments - purchase payments
received by the Company during the seven years preceding the date of the
surrender; (2) Old Payments - purchase payments not defined as New Payments; and
(3) Earnings - the amount of Policy Value in excess of all purchase payments
that have not been previously surrendered. For purposes of determining the
amount of any contingent deferred sales charge, surrenders will be deemed to be
taken first from Old Payments, then from New Payments. Old Payments may be
withdrawn from the Policy at any time without the imposition of a contingent
deferred sales charge. If a withdrawal is attributable all or in part to New
Payments, a contingent deferred sales charge may apply.
Except in New York, no contingent deferred sales charge is imposed, and no
commissions are paid, on Policies issued after December 20, 1993 where the
Policy Owner and Annuitant as of the date of application are both within the
following class of individuals:
All employees and registered representatives of any broker-dealer that has
entered into a sales agreement with the Company to sell the Policies; all
officers, directors, trustees and bona fide full-time employees (including
former officers and
-14-
<PAGE>
directors and former employees who had been employed for at least ten
years) of Delaware Management, its affiliates and subsidiaries, and of any
Underlying Series; and any spouses of the above persons or any children or
other legal dependents of the above persons who are under the age of 21.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the contingent
deferred sales charge is modified to effect certain exchanges of annuity
contracts for the Policies, as provided in APPENDIX B, "EXCHANGE OFFER."
CHARGES FOR SURRENDER AND PARTIAL REDEMPTION. If a Policy is surrendered, or if
New Payments are redeemed, while the Policy is in force and before the Annuity
Date, a contingent deferred sales charge may be imposed. The amount of the
charge will depend upon the number of years that the New Payments, if any, to
which the withdrawal is attributed have remained credited under the Policy.
Amounts withdrawn are deducted first from Old Payments. Then, for the purpose
of calculating surrender charges for New Payments, all amounts withdrawn are
assumed to be deducted first from the earliest New Payment and then from the
next earliest New Payment and so on, until all New Payments have been exhausted
pursuant to the first-in-first-out ("FIFO") method of accounting. (See "FEDERAL
TAX CONSIDERATIONS" for a discussion of how withdrawals are treated for income
tax purposes.)
The Contingent Deferred Sales Charges are as follows:
<TABLE>
<CAPTION>
Years from date Charge as
of Payment to Percentage
date of of New Payments
Withdrawal Withdrawn
---------- ---------
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
more than 7 0%
</TABLE>
The amount redeemed equals the amount requested by the Policy Owner plus the
charge, if any, which is applied against the amount requested. For example, if
the applicable charge is 7% and the Policy Owner has requested $200, the Policy
Owner will receive $200 and the charge will be $14 (assuming no Withdrawal
Without Charge Amount, discussed below) for a total withdrawal of $214. The
charge is applied as a percentage of the New Payments redeemed. Such total
charge equals the aggregate of all applicable contingent deferred sales charges
for surrender, partial redemptions, and annuitization.
WITHDRAWAL WITHOUT CHARGE AMOUNTS.
POLICY FORM A. Under Policy Form A, in each calendar year, the Company will
waive the contingent deferred sales charge, if any, on an amount ("Withdrawal
Without Charge Amount") equal to the greatest of (1), (2) or (3):
Where (1) is:
The Accumulated Value as of the Valuation Date coincident with or next
following the date of receipt of the request for withdrawal, reduced by total
gross payments not previously redeemed ("Cumulative Earnings").
Where (2) is:
10% of the Accumulated Value as of the Valuation Date coincident with or
next following the date of receipt of the request for withdrawal, reduced by the
total amount of any prior partial redemptions made in the same calendar year to
which no contingent deferred sales charge was applied.
Where (3) is:
The amount calculated under the Company's life expectancy distribution (see
"LED Distributions," below), whether or not the withdrawal was part of such
distribution (applies only if the Policy Owner and Annuitant are the same
individual).
For example, an 81-year-old Policy Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Withdrawal Without
Charge Amount of $1,530, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED distribution of 10.2% of Accumulated Value ($1,530).
POLICY FORM B. Under Policy Form B, the Withdrawal Without Charge Amount is the
greater of (1) 10% of the Accumulated Value as of December 31 of the previous
calendar year, or (2) the life expectancy distribution, if applicable. The
Withdrawal Without Charge Amount is deducted first from Old Payments, then from
the earliest New Payments and so on until all New Payments have been exhausted
pursuant to the FIFO (first-in-first-out) method of accounting.
-15-
<PAGE>
Under the Policies, the Withdrawal Without Charge Amount will first be deducted
from Cumulative Earnings. If the Withdrawal Without Charge Amount exceeds
Cumulative Earnings, the excess amount will be deemed withdrawn from payments
not previously redeemed on a last-in-first-out ("LIFO") basis. If more than one
partial withdrawal is made during the year, on each subsequent withdrawal the
Company will waive the contingent deferred sales load, if any, until the entire
Withdrawal Without Charge Amount has been redeemed.
LED DISTRIBUTIONS. Prior to the Annuity Date, a Policy Owner who is also the
Annuitant may elect to make a series of systematic withdrawals from the Policy
according to a life expectancy distribution ("LED"). The LED may be elected by
returning a properly signed LED request form to the Company's Principal Office.
The LED permits the Policy Owner to make systematic withdrawals from the Policy
over his or her lifetime. The amount withdrawn from the Policy changes each
year, because life expectancy changes each year that a person lives. For
example, actuarial tables indicate that a person age 70 has a life expectancy of
16 years, but a person who attains age 86 has a life expectancy of another 6.5
years.
If a Policy Owner elects the LED, in each policy year a fraction of the
Accumulated Value is withdrawn from the Policy based on the Policy Owner's then
life expectancy. The numerator of the fraction is 1 (one) and the denominator of
the fraction is the remaining life expectancy of the Policy Owner, as determined
annually by the Company. The resulting fraction, expressed as a percentage, is
applied to the Accumulated Value of the Policy at the beginning of the year to
determine the amount to be distributed during the year. The Policy Owner may
elect monthly, bimonthly, quarterly, semiannual, or annual distributions, and
may terminate the LED at any time. The Policy Owner may also elect to receive
distributions under an LED which is determined on the joint life expectancy of
the Policy Owner and a beneficiary. The Company may also offer other systematic
withdrawal options. The LED will cease on the Annuity Date.
If a Policy Owner makes withdrawals under the LED distribution prior to age
59 1/2, the withdrawals may be treated by the IRS as premature distributions
from the Policy. 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, B. Taxation of the Policies in General."
SURRENDERS. In the case of a complete surrender, the amount received by the
Policy Owner is equal to the entire Accumulated Value under the Policy, net of
the applicable contingent deferred sales charge on New Payments, the Policy Fee
and any applicable tax withholding. Subject to the same rules that are
applicable to partial redemptions, the Company will not assess a contingent
deferred sales charge on an amount equal to the greater of the Withdrawal
Without Charge Amount, described above, or the life expectancy distribution, if
applicable. Because Old Payments count in the calculation of the Withdrawal
Without Charge Amount, if Old Payments equal or exceed the Withdrawal Without
Charge Amount, the Company may assess the full applicable contingent deferred
sales charge on New Payments.
Where a Policy Owner who is trustee under a pension plan surrenders, in whole or
in part, a Policy on a terminating employee, the trustee will be permitted to
reallocate all or a part of the total Accumulated Value under the Policy to
other policies issued by the Company and owned by the trustee, with no deduction
for any otherwise applicable contingent deferred sales charge. Any such
reallocation will be at the unit values for the Subaccounts as of the valuation
date on which a written, signed request is received at the Company's Principal
Office.
For further information on surrender and partial redemption, including minimum
limits on amount redeemed and amount remaining under the Policy in the case of
partial redemption, and important tax considerations, see "Surrender" and
"Partial Redemption" under "THE VARIABLE ANNUITY POLICIES," and see "FEDERAL TAX
CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY PAYMENTS BEGIN. If a period certain option is chosen
(Option V or the comparable fixed annuity option), a contingent deferred sales
charge will be deducted from the Accumulated Value of the Policy if the Annuity
Date occurs at any time during the surrender charge period. Such charge is the
same as that which would apply had the policy been surrendered on the Annuity
Date.
No contingent deferred sales charge is imposed at the time of annuitization in
any policy year under an option involving a life contingency (Options I, II,
III, IV-A, IV-B or the comparable fixed annuity options) or involving a non-
commutable period certain of a duration of ten years or more.
SALES EXPENSE. The Company pays commissions on the Policies of up to 6.5% of
purchase payments to entities which sell the Policies. To the extent permitted
by NASD rules, expense reimbursement allowances and additional payments for
other services not directly related to the sale of the Policies,
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including the recruitment and training of personnel, production of promotional
literature, and similar services may also be made.
The Company intends to recoup the commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges, described above,
and the investment earnings on amounts allocated to accumulate on a fixed basis
in excess of the interest credited on fixed accumulations by the Company. There
is no additional charge to Policy Owners or the Separate Account. Any contingent
deferred sales charges assessed on a Policy will be retained by the Company.
B. PREMIUM TAXES.
Some states and municipalities impose a premium tax on variable annuity
policies. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by the Company when purchase payments were
received, to the extent permitted in your Policy the premium tax charge is
deducted on a pro rata basis when partial withdrawals are made, upon
surrender of the Policy, or when annuity payments begin (the Company
reserves the right instead to deduct the premium tax charge for these
Policies at the time the purchase payments are received); or
(2) the premium tax charge is deducted when annuity payments begin.
If no amount for premium tax was deducted at the time the purchase payment was
received, but subsequently tax is determined to be due prior to the Annuity
Date, the Company reserves the right to deduct the premium tax from the Policy
value at the time such determination is made.
C. POLICY FEE.
A $30 Policy Fee currently is deducted on the policy anniversary date and upon
full surrender of the Policy when the Accumulated Value is $50,000 or less. The
Policy Fee is not deducted after annuitization. The Policy Fee is currently
waived for policies issued to a trustee of a 401(k) plan, but the Company
reserves the right to impose the Policy Fee on such policies.
Where policy value has been allocated to more than one account (General Account
and/or one or more of the Subaccounts), a percentage of the total Policy Fee
will be deducted from the Policy Value in each account. The portion of the
charge deducted from each account will be equal to the percentage which the
Policy Value in that account represents of the total Accumulated Value under the
Policy. The deduction of the Policy Fee will result in cancellation of a number
of Accumulation Units equal in value to the percentage of the charge deducted
from that account.
D. ANNUAL CHARGES AGAINST SEPARATE ACCOUNT ASSETS.
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a charge of 1.25% on an
annual basis of the daily value of each Subaccount's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Policies. The charge is imposed during both the accumulation
period and the annuity period. The mortality risk arises from the Company's
special death benefit guarantee and its guarantee that it will make annuity
payments in accordance with annuity rate provisions established at the time the
Policy is issued for the life of the Annuitant (or in accordance with the
annuity option selected), no matter how long the Annuitant (or other payee)
lives and no matter how long all Annuitants as a class live. Therefore, the
mortality charge is deducted during the annuity phase on all contracts,
including those that do not involve a life contingency, even though the Company
does not bear direct mortality risk with respect to variable annuity settlement
options that do not involve life contingencies. The expense risk arises from the
Company's guarantee that the charges it makes will not exceed the limits
described in the Policies 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 .80% for mortality risk and .45%
for expense risk.
ADMINISTRATIVE EXPENSE CHARGE - The Company assesses each Subaccount available
under the Policies with a daily charge at an annual rate of 0.15% of the average
daily net assets of the Subaccount. The
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charge is imposed during both the accumulation period and the annuity period.
The daily Administrative Expense Charge is assessed to help defray
administrative expenses actually incurred in the administration of the
Subaccount, without profits. However, there is no direct relationship between
the amount of administrative expenses imposed on a given policy and the amount
of expenses actually attributable to that policy.
Deductions for the Policy Fee (described under B. POLICY 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 Policies 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.
TRANSFER CHARGE - The Company currently makes no charge for transfers. The
Company guarantees that the first twelve transfers in a Policy Year will be free
of charge, but reserves the right to assess a charge, guaranteed never to exceed
$25, for the thirteenth and each subsequent transfer in a Policy Year.
The Policy Owner may have automatic transfers of at least $100 a month made on a
periodic basis (a) from Subaccount 203 (which invests in the Capital Reserve
Series) or Subaccount 204 (which invests in the Money Market Series) to one or
more of the other Subaccounts, or (b) in order to reallocate Policy Value among
the Subaccounts. The first automatic transfer counts as one transfer towards the
twelve transfers which are guaranteed to be free in each policy year. For more
information, see "The Policy Transfer Privilege."
OTHER CHARGES - Because the Subaccounts purchase shares of the Fund, the value
of the net assets of the Subaccounts will reflect the investment advisory fee
and other expenses incurred by the Underlying Series. The Prospectus and
Statement of Additional Information of the Fund contain additional information
concerning expenses of the Underlying Series.
THE VARIABLE ANNUITY POLICIES
The Policies are designed for use in connection with several types of retirement
plans as well as for sale to individuals. Participants under such plans, as well
as Policy Owners, and beneficiaries, are cautioned that the rights of any person
to any benefits under such Policies may be subject to the terms and conditions
of the plans themselves, regardless of the terms and conditions of the Policies.
The Policies offered by the Prospectus may be purchased from representatives of
Allmerica Investments, Inc. and certain independent broker-dealers that are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc. (NASD). The principal
underwriter of the Policies is Allmerica Investments, Inc., 440 Lincoln Street,
Worcester, Massachusetts, 01653, an indirect wholly-owned subsidiary of the
Company. Policy Owners may direct any inquiries to Annuity Customer Services,
State Mutual Life Assurance Company of America, 440 Lincoln Street, Worcester,
Massachusetts 01653.
A. PURCHASE PAYMENTS.
Purchase payments are payable to the Company. The initial payment will be
credited to the Policy as of the date that the properly completed application
which accompanies the payment is received by the Company at its principal
office. If an application is incomplete, or does not specify how payments are to
be allocated among the Accounts, the initial purchase payment will be returned
within five business days. After a policy is issued, Accumulation Units will be
credited to the Policy at the unit value computed as of the Valuation Date that
a purchase payment is received at the Company's principal office.
Purchase payments are not limited as to frequency and number, but there are
certain limitations as to amount. Generally, the initial payment must be at
least $600. Under a salary deduction or a monthly automatic payment plan, the
minimum initial payment is $50. In all cases, each subsequent payment must be at
least $50. Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Policy on the employee, if the plan's average
annual contribution per eligible plan participant is at least $600. Total
payments may not exceed the maximum limit specified in the Policy. If the
payments are divided among two or more accounts, a net amount of at least $10 of
each payment must be allocated to each account.
Generally, payments will be allocated among the Subaccounts according to the
Policy Owner's
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instructions when the Policy is issued. However, for the first 14 days following
the date of issue, all Separate Account allocations will be held in Subaccount
204 (the Money Market Series). Thereafter, all amounts will be allocated
according to the Policy Owner's instructions. The Policy Owner may change
allocation instructions for new payments pursuant to written or telephone
request. If telephone requests are elected by the Policy Owner, a properly
completed authorization form must be on file before telephone requests will be
honored. The policy of the Company and its agents and affiliates is that they
will not be responsible for losses resulting from acting upon telephone requests
reasonably believed to be genuine. The Company will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine; otherwise,
the Company may be liable for any losses due to unauthorized or fraudulent
instructions. The procedures the Company follows for transactions initiated by
telephone include requirements that callers on behalf of a Policy Owner identify
themselves by name and identify the Annuitant by name, date of birth and social
security number. All transfer instructions by telephone are tape recorded.
B. TRANSFER PRIVILEGE.
At any time prior to the Annuity Date, subject to the Company's then current
rules, a Policy Owner may have amounts transferred among the Subaccounts or
between a Subaccount and the General Account. Transfer values will be effected
at the Accumulation Value next computed after receipt of the transfer order. The
Company will make transfers pursuant to written or telephone request. As
discussed in "A. Purchase Payments," a properly completed authorization form
must be on file before telephone requests will be honored.
Transfers involving the General Account are currently permitted only if:
(a) There has been at least a ninety (90) day period since the last
transfer from the General Account; and
(b) The amount transferred from the General Account in each transfer does
not exceed the lesser of $100,000 or 25% of the Accumulated Value
under the Policy.
These rules are subject to change by the Company.
The Policy Owner may have automatic transfers of at least $100 each made on a
periodic basis from Subaccount 203 (which invests in the Capital Reserve Series)
or Subaccount 204 (which invests in the Money Market Series) to one or more of
the other Subaccounts or reallocate policy value among the Subaccounts.
Automatic transfers may be made on a monthly, bimonthly, quarterly, semiannual
or annual schedule. The first automatic transfer counts as one transfer towards
the twelve transfers which are guaranteed to be free in each policy year.
The transfer privilege is subject to the consent of the Company. The Company
reserves the right to impose limitations on transfers including, but not limited
to: (1) the minimum amount that may be transferred, (2) the minimum amount
that may remain in a Subaccount following a transfer from that Subaccount, (3)
the minimum period of time between transfers involving the General Account, and
(4) the maximum amount that may be transferred each time from the General
Account.
Currently, the Company makes no charge for transfers. The first twelve transfers
in a Policy year are guaranteed to be free of any charge. For the thirteenth and
each subsequent transfer in a Policy year the Company reserves the right to
assess a charge, guaranteed never to exceed $25, to reimburse it for the expense
of processing transfers.
C. SURRENDER.
At any time prior to the Annuity Date, a Policy Owner may surrender the Policy
and receive its Accumulated Value, less applicable charges ("Surrender Amount").
The Policy Owner must return the Policy and a signed, written request for
surrender, satisfactory to the Company, to the Company's Principal Office. The
amount payable to the Policy Owner upon surrender will be based on the
Accumulated Value of the Policy as of the Valuation Date on which the request
and the Policy are received at the Company's Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted when
a Policy is surrendered if payments have been credited to the policy during the
last seven full policy years. See "CHARGES AND DEDUCTIONS." The Policy Fee will
be deducted upon surrender of the Policy.
After the Annuity Date, only Policies under which future annuity payments are
limited to a specified period (as specified in Annuity Option V) may be
surrendered. The Surrender Amount is the commuted value of any unpaid
installments, computed on the basis of the assumed interest rate incorporated in
such annuity payments. No contingent deferred sales charge is imposed after the
Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and partial redemptions of amounts in each Subaccount during
any period which (1) trading on the New York Stock Exchange is restricted
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as determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of each Separate Account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and partial redemptions
of amounts allocated to the Company's General Account for a period not to exceed
six months.
The surrender rights of Policy Owners who are participants under Section 403(b)
plans or who are participants in the Texas Optional Retirement Program (Texas
ORP) are restricted; see "FEDERAL TAX CONSIDERATIONS," "I. Public School Systems
and Certain Tax Exempt Organizations" and "J. Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
D. PARTIAL REDEMPTION.
At any time prior to the Annuity Date, a Policy Owner may redeem a portion of
the Accumulated Value of his or her Policy, subject to the limits stated below.
The Policy Owner must file a signed, written request for redemption,
satisfactory to the Company, at the Company's Principal Office. The written
request must indicate the dollar amount the Policy Owner wishes to receive and
the account from which such amount is to be redeemed. The amount redeemed equals
the amount requested by the Policy Owner plus any applicable contingent deferred
sales charge, as described under "CHARGES AND DEDUCTIONS."
Where allocations have been made to more than one account, a percentage of the
partial redemption may be allocated to each such account. A partial redemption
from a Subaccount will result in cancellation of a number of units equivalent in
value to the amount redeemed, computed as of the Valuation Date that the request
is received at the Company's principal office.
Each partial redemption must be in a minimum amount of $200. No partial
redemption will be permitted if the Accumulated Value remaining under the Policy
would be reduced to less than $1,000.
Partial redemptions will be paid in accordance with the time limitations
described under "Surrender."
After the Annuity Date, only Policies under which future variable annuity
payments are limited to a specified period may be partially redeemed. A partial
redemption after the Annuity Date will result in cancellation of a number of
Annuity Units equivalent in value to the amount redeemed.
For important restrictions on withdrawals which are applicable to Policy Owners
who are participants under Section 403(b) plans or under the Texas ORP, see
"FEDERAL TAX CONSIDERATIONS," "I. Public School Systems and Certain Tax Exempt
Organizations" and "J. Texas Optional Retirement Program."
For important tax consequences which may result from partial redemptions, see
"FEDERAL TAX CONSIDERATIONS."
E. DEATH BENEFIT.
If the Annuitant dies (or a Policy Owner predeceases the Annuitant) prior to the
Annuity Date while the Policy is in force, a death benefit will be paid to the
beneficiary, except where the Policy continues as provided in "F. The Spouse of
the Policy Owner as Beneficiary". Upon death of the Annuitant (including a
Policy Owner who is also the Annuitant), the death benefit is equal to the
greatest of (a) the Accumulated Value under the Policy next determined following
receipt of due proof of death at the Principal Office, or (b) the total amount
of gross payment(s) made under the Policy reduced proportionally to reflect the
amount of all prior partial withdrawals, or (c) the death benefit that would
have been payable on the most recent fifth year policy anniversary, increased
for subsequent purchase payments and reduced proportionally to reflect
withdrawals after that date.
POLICY FORM A: Under Policy Form A, the guaranteed death benefit is reduced
proportionally to reflect partial withdrawals (in the same proportion that the
Accumulated Value was reduced by the withdrawals).
A partial withdrawal will reduce the gross payments available as a death benefit
under (b) in the same proportion that the Accumulated Value was reduced on the
date of withdrawal. For each withdrawal, the reduction is calculated by
multiplying the total amount of gross payments by a fraction, the numerator of
which is the amount of the partial withdrawal and the denominator of which is
the Accumulated Value immediately prior to the withdrawal. For example, if gross
payments total $8,000 and a $3,000 withdrawal is made when the Accumulated Value
is $12,000, the proportional reduction of gross payments available as a death
benefit is calculated as follows: The Accumulated Value is reduced by 1/4
(3,000 divided by 12,000); therefore, the gross amount available as a death
benefit under (b) will also be reduced by 1/4 (8,000
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times 1/4 equals $2,000), so that the $8,000 gross payments are reduced to
$6,000. Payments made after a withdrawal will increase the death benefit
available under (b) by the amount of the payment.
A partial withdrawal after the most recent fifth year Policy anniversary will
decrease the death benefit available under (c) in the same proportion that the
Accumulated Value was reduced on the date of the withdrawal. For example, if the
death benefit that would have been payable on the most recent fifth year Policy
anniversary is $12,000 and partial withdrawals totalling $5,000 are made
thereafter when the Accumulated Value is $15,000, the proportional reduction of
death benefit available under (c) is calculated as follows: The Accumulated
Value is reduced by 1/3 (5,000 divided by 15,000); therefore, the death benefit
that would have been payable on the most recent fifth year Policy anniversary
will also be reduced by 1/3 (12,000 times 1/3 or $4,000), so that the death
benefit available under (c) will be $8,000 ($12,000 minus $4,000). Payments made
after the most recent fifth year Policy anniversary will increase the death
benefit available under (c) by the amount of the payment.
POLICY FORM B: Under Policy Form B, partial withdrawals are subtracted from the
guaranteed death benefit. For example, if gross payments total $8,000 and a
$3,000 withdrawal is made, and no prior withdrawals had taken place, the
guaranteed minimum death benefit is $5,000 ($8,000 minus $3,000) or the
accumulated value, if higher. Future payments will increase the guaranteed
minimum death benefit dollar for dollar just as future withdrawals reduce it
dollar for dollar.
Additionally, the stepped-up death benefit under Policy Form B applies to the
most recent seventh year Policy anniversary. For example, if the death benefit
on the most recent seventh anniversary is $10,000 and a $3,000 withdrawal is
made, and prior payments were $5,000, the guaranteed minimum death benefit is
$7,000 ($10,000 minus $3,000). Future payments will increase the guaranteed
minimum death benefit dollar for dollar just as future withdrawals reduce it
dollar for dollar.
Upon death of a Policy Owner who is not the Annuitant, the death benefit is
equal to the Accumulated Value of the Policy next determined following receipt
of due proof of death received at the Principal Office.
The death benefit generally will be paid to the beneficiary in one sum. However,
the beneficiary may, by written request, elect one of the following options:
(1) The payment of the one sum may be delayed for a period not to exceed
five years from the date of death.
(2) The death benefit may be paid in installments. Payments must begin
within one year from the date of death, and are payable over a period
certain not extended beyond the life expectancy of the beneficiary.
(3) All or a portion of the death benefit may be used to provide a life
annuity for the beneficiary. Benefits must begin within one year from
the date of death and are payable over a period not extended beyond
the life expectancy of the beneficiary. Any annuity benefits will be
provided in accordance with the annuity options of the Policy.
If there is more than one beneficiary, the death benefit will be paid to such
beneficiaries in one sum unless the Company consents to pay an annuity option
chosen by the beneficiaries.
With respect to any death benefit, the Accumulated Value under the Policy shall
be based on the unit values next computed after due proof of death has been
received at the Company's principal office. If the beneficiary elects to receive
the death benefit in one sum, the death benefit will be paid within seven
business days. If the beneficiary (other than a spousal beneficiary of an IRA,
See "F. The Spouse of the Policy Owner as Beneficiary," below) has not elected
an annuity option within one year from the date notice of death is received by
the Company, the Company will pay the death benefit in one sum. The death
benefit will reflect any earnings or losses experienced during the period and
any withdrawals.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed monthly annuity payments, any unpaid amounts or
installments will be paid to the beneficiary. The Company must pay the remaining
payments at least as rapidly as under the payment option in effect on the date
of the Annuitant's death. If there is more than one beneficiary, the commuted
value of the payments, computed on the basis of the assumed interest rate
incorporated in the annuity option table on which such payments are based, shall
be paid to the beneficiaries in one sum.
F. THE SPOUSE OF THE POLICY OWNER AS BENEFICIARY.
If the Policy Owner's spouse is named as beneficiary ("spousal beneficiary") and
if the Policy Owner dies (and predeceases the Annuitant if such Policy Owner is
not the Annuitant) prior to the Annuity Date while the Policy is in force, at
the written request of the spousal beneficiary the death benefit will not be
paid and the spousal beneficiary will become the new
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Policy Owner (and, if the deceased Owner was also the Annuitant, the new
Annuitant). All other rights and benefits provided in the Policy will continue,
except that any subsequent spouse of such new Policy Owner will not be entitled
to continue the Policy upon such new Policy Owner's death.
G. ASSIGNMENT.
The Policy may be assigned by the Policy Owner at any time prior to the Annuity
Date and while the Annuitant is alive. However, Policies sold in connection with
IRA plans and certain other qualified plans are not assignable. Assignability of
a Policy issued in connection with an HR-10 Plan may be restricted. For more
information about these plans, see "FEDERAL TAX CONSIDERATIONS."
The Company will not be deemed to have knowledge of an assignment unless it is
made in writing and filed at the Company's principal office. The Company will
not assume responsibility for determining the validity of any assignment. If an
assignment of the Policy is in effect on the Annuity Date, the Company reserves
the right to pay to the assignee, in one sum, that portion of the Surrender
Value of the Policy to which the assignee appears to be entitled. The Company
will pay the balance, if any, in one sum to the Policy Owner in full settlement
of all liability under the Policy. The interest of the Policy Owner and of any
beneficiary will be subject to any assignment.
H. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE.
Subject to certain restrictions described below, the Policy Owner has the right
(1) to select the annuity option under which annuity payments are to be made,
and (2) to determine whether payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. Annuity payments are
determined according to the annuity tables in the Policy, by the annuity option
selected, and by the investment performance of the Account(s) selected.
To the extent a fixed annuity is selected, Accumulated Value will be transferred
to the General Account of the Company, and the annuity payments will be fixed in
amount. See APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number of
Annuity Units in the Subaccount(s) is made each month. Since the value of an
Annuity Unit in a Subaccount will reflect the investment performance of the
Subaccount, the amount of each monthly payment will vary.
The annuity option selected must produce an initial payment of at least $20. If
a combination of fixed and variable payments is selected, the initial payment on
each basis must be at least $20. The Company reserves the right to increase
these minimum amounts. If the annuity option(s) selected does not produce
initial payments which meet these minimums, the Company will pay the Accumulated
Value in one sum. Once the Company begins making annuity payments, the Annuitant
cannot make partial redemptions or surrender the annuity benefit, except in the
case where future annuity payments are limited to a "period certain" (only under
Option V or a comparable fixed option). Only beneficiaries entitled to receive
remaining payments for a "period certain" may elect to instead receive a lump
sum settlement.
The Annuity Date is selected by the Policy Owner. The Annuity Date may be the
first day of any month on or after the Annuitant's 50th birthday but before the
Annuitant's 85th birthday, with certain exceptions the Company may arrange. The
Policy Owner may elect to change the Annuity Date by sending a request to the
Company's Principal Office at least one month before the new Annuity Date. The
new Annuity Date must be the first day of any month occurring on or after the
Annuitant's 50th birthday but before the Annuitant's 85th birthday. The new
Annuity Date must be within the life expectancy of the Annuitant. The Company
shall determine such life expectancy at the time a change in Annuity Date is
requested. The Internal Revenue Code and the terms of qualified plans impose
limitations on the age at which annuity payments may commence and the type of
annuity option selected. See "FEDERAL TAX CONSIDERATIONS" for further
information.
If the Policy Owner does not elect otherwise, annuity payments will be made in
accordance with Option I, a variable life annuity with 120 monthly payments
guaranteed. Changes in either the Annuity Date or annuity option can be made up
to one month prior to the Annuity Date.
I. DESCRIPTION OF VARIABLE ANNUITY OPTIONS.
The Company currently provides the variable annuity options described below.
Variable annuity options may be funded through the Equity/Income Series, the
Capital Reserves Series and the Multiple Strategy Series.
The Company also provides fixed-amount annuity options which are comparable to
the variable annuity options. Regardless of how payments were allocated during
the accumulation period, any one of the variable annuity options or the
fixed-amount options may be selected, or any one of the variable annuity
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options may be selected in combination with any one of the fixed-amount annuity
options. Other annuity options may be offered by the Company.
OPTION I--Variable Life Annuity with 120 Monthly Payments Guaranteed
A variable annuity payable monthly during the lifetime of the payee with the
guarantee that if the payee should die before 120 monthly payments have been
paid, the monthly annuity payments will continue to the beneficiary until a
total of 120 monthly payments have been paid.
OPTION II--Variable Life Annuity
A variable annuity payable monthly only during the lifetime of the payee. It
would be possible under this option for the Annuitant to receive only one
annuity payment if the Annuitant dies prior to the due date of the second
annuity payment, two annuity payments if the Annuitant 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 Variable Life Annuity
A variable annuity payable monthly during the lifetime of the payee with the
guarantee that if (1) exceeds (2) then monthly variable 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 Variable Life Annuity
A monthly variable 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 number of Annuity Units which
applied during the joint lifetime of the two payees. One of the payees must be
either the person designated as the Annuitant in the Policy or the beneficiary.
There is no minimum number of payments under this option. See Option IV-B,
below.
OPTION IV-B--Joint and Two-thirds Survivor Variable Life Annuity
A monthly variable 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 number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be the person designated as
the Annuitant in the Policy or the beneficiary. There is no minimum number of
payments under this option. See Option IV-A, above.
OPTION V--Period Certain Variable Annuity
A monthly variable annuity payable for a stipulated number of from one to thirty
years.
It should be noted that Option V does not involve a life contingency. In the
computation of the payments under this option, the charge for annuity rate
guarantees, which includes a factor for mortality risks, is made. Although not
contractually required to do so, the Company currently follows a practice of
permitting persons receiving payments under Option V to elect to convert to a
variable annuity involving a life contingency. The Company may discontinue or
change this practice at any time, but not with respect to Policy Owners who have
elected Option V prior to the date of any change in this practice. See "FEDERAL
TAX CONSIDERATIONS" for a discussion of the possible adverse tax consequences of
selecting Option V.
J. NORRIS DECISION.
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a policy issued in connection with an employer-sponsored benefit plan
affected by the Norris decision will be based on the greater of (1) the
Company's unisex Non-Guaranteed Current Annuity Option Rates or (2) the
guaranteed male rates described in such Policy, regardless of whether the
Annuitant is male or female.
K. COMPUTATION OF POLICY VALUES AND ANNUITY PAYMENTS.
THE ACCUMULATION UNIT. Each net purchase payment is allocated to the account(s)
selected by the Policy Owner. Allocations to the Subaccounts are credited to the
Policy in the form of Accumulation Units. Accumulation Units are credited
separately for each Subaccount. The number of Accumulation Units of each
Subaccount credited to the Policy is equal to the
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portion of the net purchase payment allocated to the Subaccount, divided by the
dollar value of the applicable Accumulation Unit as of the Valuation Date the
payment is received at the Company's Principal Office. The number of
Accumulation Units resulting from each payment will remain fixed unless changed
by a subsequent split of Accumulation Unit value, a transfer, a partial
redemption, or surrender. The dollar value of an Accumulation Unit of each
Subaccount varies from Valuation Date to Valuation Date based on the investment
experience of that Subaccount and will reflect the investment performance,
expenses and charges of its Underlying Series. The value of an Accumulation Unit
was set at $1.00 on the first Valuation Date for each Subaccount.
Allocations to 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 under the Policy is determined by (1) multiplying the
number of Accumulation Units in each Subaccount by the value of an Accumulation
Unit of that Subaccount on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the General Account, if any.
ADJUSTED GROSS INVESTMENT RATE. At each Valuation Date an adjusted gross
investment rate for each Subaccount for the Valuation Period then ended is
determined from the investment performance of that Subaccount. Such rate is (1)
the investment income of that Subaccount for the Valuation Period, plus capital
gains and minus capital losses of that Subaccount for the Valuation Period,
whether realized or unrealized, adjusted for provisions made for taxes, if any,
divided by (2) the amount of that Subaccount's assets at the beginning of the
Valuation Period. The adjusted gross investment rate may be either positive or
negative.
NET INVESTMENT RATE AND NET INVESTMENT FACTOR. The net investment rate for a
Subaccount's variable accumulations for any Valuation Period is equal to the
adjusted gross investment rate of the Subaccount for such Valuation Period
decreased by the equivalent for such period of a charge equal to 1.40% per
annum. This charge cannot be increased.
The net investment factor is 1.000000 plus the applicable net investment rate.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of Accumulation Unit calculation using a hypothetical
example see "ANNUITY PAYMENTS" in the Statement of Additional Information.
THE ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a measure of
the value of the Annuitant's monthly annuity payments under a variable annuity
option. The value of an Annuity Unit in each Subaccount initially was set at
$1.00. The value of an Annuity Unit under a Subaccount on any Valuation Date
thereafter is equal to the value of such unit on the immediately preceding
Valuation Date, multiplied by the product of (1) the net investment factor of
the Subaccount for the current Valuation Period and (2) a factor to adjust
benefits to neutralize the assumed interest rate. The assumed interest rate,
discussed below, is incorporated in the variable annuity options offered in the
Policy.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY PAYMENTS. The first monthly
annuity payment is based upon the Accumulated Value as of a date not more than
four weeks preceding the date the first annuity payment is due. Currently,
variable annuity payments are made on the first of the month based on unit
values as of the 15th day of the preceding month.
The Policy provides annuity rates which determine the dollar amount of the first
monthly payment under each form of annuity for each $1,000 of applied value
(Accumulated Value applied under a specific annuity option to provide annuity
income payments, minus any applicable premium tax). The annuity rates in the
Policy are based on a modification of the 1983 Table on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "J. Norris Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3 1/2% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity payments will increase
over periods when the actual net investment result of the Subaccount(s) funding
the annuity exceeds the equivalent of the assumed interest rate for the period.
Variable Annuity Payments will decrease over periods when the actual net
investment result of the respective Subaccount is less than the equivalent of
the assumed interest rate for the period.
The dollar amount of the first monthly annuity payment under a particular option
is determined by multiplying (1) the Accumulated Value applied under
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that option (after deduction for any applicable contingent deferred sales charge
and premium tax, if any) divided by $1,000, by (2) the applicable amount of the
first monthly payment per $1,000 of value. The dollar amount of the first
monthly variable annuity payment is then divided by the value of an Annuity Unit
of the selected Subaccount(s) to determine the number of Annuity Units
represented by the first payment. This number of Annuity Units remains fixed
under all annuity options except the joint and two-thirds survivor annuity
option. In each subsequent month, the dollar amount of the variable annuity
payment is determined by multiplying this fixed number of Annuity Units by the
value of an Annuity Unit on the applicable Valuation Date.
After the first payment, the dollar amount of each monthly variable annuity
payment will vary with subsequent variations in the value of the Annuity Unit of
the selected Subaccount(s). The dollar amount of each fixed amount monthly
annuity payment is fixed and will not change, except under the joint and
two-thirds survivor annuity option.
The Company may from time to time offer its Policy Owners both fixed and
variable annuity rates more favorable than those contained in the Policy. Any
such rates will be applied uniformly to all Policy Owners of the same class.
For an illustration of variable annuity payment calculation using a hypothetical
example, see "ANNUITY PAYMENTS" in the Statement of Additional Information.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Policy, on redemptions or
surrenders, on annuity payments, and on the economic benefit to the Annuitant,
or beneficiary depends upon a variety of factors. The following discussion is
based upon the Company's understanding of current federal income tax laws as
they are interpreted as of the date of this Prospectus. No representation is
made regarding the likelihood of continuation of current federal income tax laws
or of current interpretations by the Internal Revenue Service (IRS).
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY POLICIES 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 Policies, the Separate Account or the Subaccounts may have upon
its 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 Policy 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 its
affiliates.
The Internal Revenue Service has issued regulations relating to the
diversification requirements for variable annuity and variable life insurance
contracts under Section 817(h) of the Internal Revenue Code ("Code"). The
regulations provide that the investments of a segregated asset account
underlying a variable annuity contract are adequately diversified if no more
than 55% of the value of its assets is represented by any one investment, no
more than 70% by any two investments, no more than 80% by any three investments,
and no more than 90% by any four investments. If the investments are not
adequately diversified, the income on a contract, for any taxable year of the
Policy Owner, would be treated as ordinary income received or accrued by the
Policy Owner. It is anticipated that the Underlying Series will comply with the
diversification requirements.
A. QUALIFIED AND NON-QUALIFIED POLICIES.
From a federal tax viewpoint there are two types of variable annuity Policies,
"qualified" Policies and "non-qualified" Policies. A qualified Policy is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, 408, or 457 of the Code, while a
non-qualified Policy is one that is not purchased in connection with one of the
indicated retirement plans. The tax treatment for certain partial redemptions or
surrenders will vary according to whether they are made from a qualified Policy
or a non-qualified Policy. For more information on the tax provisions applicable
to qualified Policies, see Sections D through J, below.
B. TAXATION OF THE POLICIES IN GENERAL.
The Company believes that the Policies described in this Prospectus will, with
certain exceptions (see K below), be considered annuity policies under Section
72 of the Internal Revenue Code (the "Code"). This section provides for the
taxation of annuities. The following discussion concerns annuities subject to
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Section 72. Section 72(e)(11)(A)(ii) requires that all non-qualified deferred
annuity policies issued by the same insurance company to the same Policy Owner
during the same calendar year be treated as a single Policy in determining
taxable distributions under Section 72(e).
With certain exceptions, any increase in the Accumulated Value of the Policy is
not taxable to the Policy Owner until it is withdrawn from the Policy. If the
Policy 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 Policy would be taxed as ordinary income. Under the current provisions of
the Code, amounts received under a non-qualified Policy prior to the Annuity
Date (including payments made upon the death of the Annuitant or Policy Owner),
or as non-periodic payments after the Annuity Date, are generally first
attributable to any investment gains credited to the Policy over the taxpayer's
basis (if any) in the Policy. Such amounts will be treated as income subject to
federal income taxation.
A 10% penalty tax may be imposed on the withdrawal of investment gains if the
withdrawal is made prior to age 59-1/2. The penalty tax will not be imposed
after age 59-1/2, or if the withdrawal follows the death of the Policy Owner
(or, if the Policy Owner is not an individual, the death of the primary
Annuitant, as defined in the Code), or in the case of the "total disability" (as
defined in the Code) of the Policy Owner. Furthermore, under Section 72 of the
Code, this penalty tax will not be imposed, irrespective of age, if the amount
received is one of a series of "substantially equal" periodic payments made at
least annually for the life or life expectancy of the payee. This requirement is
met when the Policy Owner elects to have distributions made over the Policy
Owner's life expectancy, or over the joint life expectancy of the Policy Owner
and beneficiary. The requirement that the amount be paid out as one of a series
of "substantially equal" periodic payments is met when the number of units
withdrawn to make each distribution is substantially the same.
In a private letter ruling, the IRS took the position that where distributions
from a variable annuity policy were determined by amortizing the accumulated
value of the policy over the taxpayer's remaining life expectancy (such as under
the Policy's life expectancy distribution ("LED") option), and the option could
be changed or terminated at any time, the distributions failed to qualify as
part of a "series of substantially equal payments" within the meaning of Section
72 of the Code. The distributions were therefore subject to the 10% federal
penalty tax. This private letter ruling may be applicable to a Policy Owner who
receives distributions under the LED option prior to age 59 1/2. Subsequent
private letter rulings, however, have treated LED-type withdrawal programs as
effectively avoiding the 10% penalty tax. The position of the IRS on this issue
is unclear.
If the Policy Owner transfers (assigns) the Policy to another individual as a
gift prior to the Annuity Date, the Code provides that the Policy Owner will
incur taxable income at the time of the transfer. An exception is provided for
certain transfers between spouses. The amount of taxable income upon such
taxable transfer is equal to the excess, if any, of the cash surrender value of
the Policy over the Policy Owner's cost basis at the time of the transfer. The
transfer will also subject the Owner to a gift tax. Where the Policy Owner and
Annuitant are different persons, the change of ownership of the Policy to the
Annuitant on the Annuity Date, as required under the Policy, is a gift and will
be taxable to the Owner as such. However, the Owner will not incur taxable
income. Rather the Annuitant will incur taxable income upon receipt of annuity
payments as discussed below.
When annuity payments are commenced under the Policy, 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 Policy bears to the expected return under the Policy. The portion of the
payment in excess of this excludable amount is taxable as ordinary income. Once
all cost basis in the Policy is recovered, the entire payment is taxable. If the
last Annuitant dies before cost basis is recovered, a deduction for the
difference is allowed on the Annuitant's final tax return.
C. TAX WITHHOLDING AND PENALTIES.
The Code requires withholding with respect to payments or distributions from
employee benefit plans, annuities, and IRAs, 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.
The tax treatment of certain partial redemptions or surrenders of the
non-qualified Policies offered by this Prospectus will vary according to whether
the amount redeemed or surrendered is allocable to an investment in the Policy
made before or after certain dates.
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS.
The tax rules applicable to qualified employer plans, as defined by the Code,
vary according to the type of plan and the terms and conditions of the plan
itself.
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Therefore, the following is general information about the use of the Policies
with various types of qualified plans. The rights of any person to any benefits
under such qualified plans will be subject to the terms and conditions of the
qualified plans themselves regardless of the terms and conditions of the Policy.
A loan to a participant or beneficiary from plans qualified under Sections 401
and 403 or an assignment or pledge of an interest in such a plan is generally
treated as a distribution. This general rule does not apply to loans which
contain certain repayment terms and do not exceed a specified maximum amount, as
required under Section 72(p).
E. QUALIFIED EMPLOYEE PENSION AND PROFIT SHARING TRUSTS AND QUALIFIED ANNUITY
PLANS.
When an employee (including a self-employed individual) or one or more of the
employee's beneficiaries receives a "lump sum" distribution (a distribution from
a qualified plan described in Code Section 401(a) within one taxable year equal
to the total amount payable with respect to such an employee) the taxable
portion of such distribution may qualify for special treatment under a special
five-year income averaging provision of the Code. The employee must have had at
least 5 years of participation under the plan, and the lump sum distribution
must be made after the employee has attained age 59 1/2 or on account of his or
her death, separation from the employer's service (in the case of a common-law
employee) or disability (in the case of a self-employed individual). Such
treatment can be elected for only one taxable year once the individual has
reached age 59 1/2. An employee who attained age 50 before January 1, 1986 may
elect to treat part of the taxable portion of a lump-sum distribution as
long-term capital gain and may also elect 10-year averaging instead of five-year
averaging.
The Company can provide prototype plans for certain of the pension or profit
sharing plans for review by your legal counsel. For information, ask your agent.
F. SELF-EMPLOYED INDIVIDUALS.
The Self-Employed Individuals Tax Retirement Act of 1962, as amended, frequently
referred to as "H.R. 10," allows self-employed individuals and partners to
establish qualified pension and profit sharing trusts and annuity plans to
provide benefits for themselves and their employees.
These plans generally are subject to the same rules and requirements applicable
to corporate qualified plans, with some special restrictions imposed on
"owner-employees." An "owner-employee" is an employee who (1) owns the entire
interest in an unincorporated trade or business, or (2) owns more than 10% of
either the capital interest or profits interest in a partnership.
G. INDIVIDUAL RETIREMENT ACCOUNT PLANS.
Any individual who earns "compensation" (as defined in the Code and including
alimony payable under a court decree) from employment or self-employment,
whether or not he or she is covered by another qualified plan, may establish an
Individual Retirement Account or Annuity plan ("IRA") for the accumulation of
retirement savings on a tax-deferred basis. Income from investments is not
included in "compensation." The assets of an IRA may be invested in, among
other things, annuity policies including the Policies offered by this
Prospectus.
Contributions to the IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10,000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the above-described
limit on each. An individual with an IRA may establish an additional IRA for a
non-working spouse if they file a joint return. Contributions to the two IRAs
together are deductible up to the lesser of $2,250 or 100% of compensation.
No deduction is allowed for contributions made for the year in which the
individual attains age 70 1/2 and years thereafter. Contributions for that year
and for years thereafter will result in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70 1/2. Although these contributions may not be deducted,
taxes on their earnings are deferred until the earnings are distributed. The
maximum permissible non-deductible contribution is $2,000 for an individual
taxpayer and $2,250 for a taxpayer and non-working spouse. These limits are
reduced by the amount of any deductible contributions made by the taxpayer.
Contributions may be made with respect to a particular year until the due date
of the individual's federal income tax return for that year, not including
extensions. However, for reporting purposes, the Company will regard
contributions as being applicable
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to the year made unless it receives notice to the contrary.
All annuity payments and other distributions under an IRA will be taxed as
ordinary income unless the owner has made non-deductible contributions. In
addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70 1/2, and failure to
make adequate distributions at this time may result in certain adverse tax
consequences to the individual.
Distributions from all of an individual's IRAs are treated as if they were a
distribution from one IRA and all distributions during the same taxable year are
treated as if they were one distribution. An individual who makes a
non-deductible contribution to an IRA or receives a distribution from an IRA
during the taxable year must provide certain information on the individual's tax
return to enable the IRS to determine the proportion of the IRA balance which
represents non-deductible contributions. If the required information is
provided, that part of the amount withdrawn which is proportionate to the
individual's aggregate non-deductible contributions over the aggregate balance
of all of the individual's IRAs, is excludable from income.
Distributions which are a return of a non-deductible contribution are
non-taxable, as they represent a return of basis. If the required information is
not provided to the IRS, distributions from an IRA to which both deductible and
non-deductible contributions have been made are presumed to be fully taxable.
H. SIMPLIFIED EMPLOYEE PENSIONS.
Employees may establish simplified employee pensions ("SEPs") under Code Section
408(k) if certain requirements are met. A SEP is an IRA to which the employer
contributes under a written formula. Currently, a SEP may accept employer
contributions each year up to $30,000 or 15% of compensation (as defined),
whichever is less. To establish SEPs the employer must make a contribution for
every employee age 21 and over who has performed services for the employer for
at least three of the five immediately preceding calendar years and who has
earned at least $300 for the year.
The employer's contribution is excluded from the employee's gross income for the
taxable year for which it was made up to the $30,000/15% limit. In addition to
the employer's contribution, the employee may contribute 100% of the employee's
earned income, up to $2,000, to the SEP, but such contributions will be subject
to the rules described above in "F. Individual Retirement Account Plans."
These plans are subject to the general employer's deduction limitations
applicable to all corporate qualified plans.
I. PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX-EXEMPT ORGANIZATIONS.
Under the provisions of Section 403(b) of the Code, payments made for annuity
policies purchased for employees under annuity plans adopted by public school
systems and certain organizations which are tax exempt under Section 501(c)(3)
of the Code are excludable from the gross income of such employees to the extent
that the aggregate purchase payments for such annuity policies in any year do
not exceed the maximum contribution permitted under the Code.
A Policy qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) may not begin before the employee
attains age 59 1/2, separates from service, dies, or becomes disabled. In the
case of hardship a Policy Owner may withdraw amounts contributed by salary
reduction, but not the earnings on such amounts. Even though a distribution may
be permitted under these rules (e.g., for hardship or after separation from
service), it may nonetheless be subject to a 10% penalty tax as a premature
distribution, in addition to income tax. Also, there is a mandatory 20% income
tax withholding on any eligible rollover distribution, unless it is a direct
rollover to another qualified plan in accordance with IRS rules.
The distribution restrictions are effective for years beginning after December
31, 1988, but only with respect to amounts that were not held under the Policy
as of that date.
J. TEXAS OPTIONAL RETIREMENT PROGRAM.
Under a Code Section 403(b) annuity policy issued as a result of participation
in the Texas Optional Retirement Program, distributions may not be received
except in the case of the participant's death, retirement or termination of
employment in the Texas public institutions of higher education. These
restrictions are imposed by reason of an opinion of the Texas Attorney General
interpreting the Texas laws governing the Optional Retirement Program.
K. SECTION 457 PLANS FOR STATE GOVERNMENTS AND TAX-EXEMPT ENTITIES.
Code Section 457 allows employees of a state, one of its political subdivisions,
or certain tax-exempt entities to participate in eligible government deferred
compensation plans. An eligible plan, by its terms, must not allow deferral of
more than $7,500 or 33
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1/3% of a participant's includible compensation for the taxable year, whichever
is less. Includible compensation does not include amounts excludable under the
eligible deferred compensation plan or amounts paid into a Code Section 403(b)
annuity. The amount a participant may defer must be reduced dollar-for-dollar by
elective deferrals under a SEP, 401(k) plan or a deductible employee
contribution to a 501(c)(18) plan. Under eligible deferred compensation plans
the state, political subdivision, or tax-exempt entity will be owner of the
Policy.
If an employee also participates in another eligible plan or contributes to a
Code Section 403(b) annuity, a single limit of $7,500 will be applied for all
plans. Additionally, the employee must designate how much of the $7,500 or 33
1/3% limitation will be allocated among the various plans. Contributions to an
eligible plan will serve to reduce the maximum exclusion allowance for a Code
Section 403(b) annuity.
Amounts received by employees under such plans generally are includible in gross
income in the year of receipt.
L. NON-INDIVIDUAL OWNERS.
Non-individual Owners (e.g., a corporation) of deferred annuity contracts
generally will be currently taxed on any increase in the cash surrender value of
the deferred annuity attributable to contributions made after February 28, 1986.
This rule does not apply to immediate annuities or to deferred annuities held by
a qualified pension plan, an IRA, a 403(b) plan, estates, employers with respect
to terminated pension plans, or a nominee or agent holding a contract for the
benefit of an individual. Corporate-owned annuities may result in exposure to
the alternative minimum tax, to the extent that such corporate-owned annuities
result in an increase in a corporation's book income. For tax years beginning
after 1989, corporate-owned annuities may result in exposure to the alternative
minimum tax, to the extent that income on the annuities increases the
corporation's adjusted current earnings.
REPORTS
A Policy Owner is sent a report semi-annually which states certain financial
information about the Underlying Series. The Company will also furnish an annual
report to the Policy Owner containing a statement of his or her account,
including unit values and other information required by applicable law, rules
and regulations.
CHANGES IN OPERATION OF THE
SEPARATE ACCOUNT
The Company reserves the right, subject to compliance with applicable law, to
(1) transfer assets from any Separate Account or Subaccount to another of the
Company's separate accounts or Subaccounts having assets of the same class, (2)
to operate the Separate Account or any Subaccount as a management investment
company under the 1940 Act or in any other form permitted by law, (3) to
deregister the Separate Account under the 1940 Act in accordance with the
requirements of the 1940 Act and (4) to substitute the shares of any other
registered investment company for the Underlying Series shares held by a
Subaccount, in the event that Underlying Series shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Series shares is inappropriate in view of the purpose of the
Subaccount. In no event will the changes described above be made without notice
to Policy Owners in accordance with the 1940 Act.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Separate Account or of the Subaccounts.
LEGAL MATTERS
There are no legal proceedings pending to which the Separate Account is a party.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted from
this Prospectus pursuant to the rules and regulations of the Commission. The
omitted information may be obtained from the Commission's principal office in
Washington, D.C., upon payment of the Commission's prescribed fees.
APPENDIX A
MORE INFORMATION ABOUT THE
GENERAL ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the General Account are not generally subject to regulation under
the provisions of the Securities Act of 1933 or the Investment Company Act of
1940. Disclosures regarding the fixed portion of the annuity contract and the
General Account may be subject to the provisions of the Securities Act of 1933
concerning the accuracy and completeness of statements made in the Prospectus.
The disclosures in this APPENDIX A have not been reviewed by the Securities and
Exchange Commission.
-29-
<PAGE>
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 purchase payments may be allocated to accumulate at a
fixed rate of interest in the General Account. Such net amounts are guaranteed
by the Company as to principal and a minimum rate of interest. Under the
Policies, the minimum interest which may be credited on amounts allocated to the
General Account is 3% compounded annually. Additional "Excess Interest" may or
may not be credited at the sole discretion of the Company.
If a Policy is surrendered, or if an Excess Amount is redeemed, while the Policy
is in force and before the Annuity Date, a contingent deferred sales charge is
imposed if such event occurs before the payments attributable to the surrender
or withdrawal have been credited to the Policy less than seven full policy
years.
LOANS FROM THE GENERAL ACCOUNT (QUALIFIED POLICIES ONLY)
Loans will be permitted only for TSAs and Policies issued to a plan qualified
under Section 401(a) and 401(k) of the Code. Loans are permitted only from a
Policy's accumulation in the General Account. If the accumulation in the General
Account, as of the date the Company receives the loan request, does not permit
the loan, the Company will make a pro-rata transfer from the Subaccounts to the
General Account sufficient to permit the loan, based on the amounts in the
Subaccounts on the date the Company receives the loan request. A pro-rata
transfer means the Company will allocate the transfer among the Subaccounts in
the same proportion that the Policy Value in each Subaccount bears to the total
Policy Value, less debt, on the date of the transfer. The maximum loan amount is
the amount determined under the Company's maximum loan formula for qualified
plans. The minimum loan amount is $1,000. Loans will be secured by a security
interest in the Policy. Loans are subject to applicable retirement legislation
and their taxation is determined under the Federal income tax laws. The amount
borrowed will be transferred to a fixed, minimum guarantee loan assets account
in the Company's General Account, where it will accrue interest at a specified
rate below the then current loan interest rate. Generally, loans must be repaid
within five (5) years.
The amount of the death benefit, the amount payable on a full surrender and the
amount applied to provide an annuity on the Annuity Date will be reduced to
reflect any outstanding loan balance (plus accrued interest thereon). Partial
withdrawals may be restricted by the maximum loan limitation.
APPENDIX B
EXCHANGE OFFER
A. VARIABLE CONTRACT EXCHANGE OFFER.
The Company reserves the right to suspend this exchange offer at any time. This
exchange offer applies to all variable annuity contracts issued by the Company
and its indirect wholly owned subsidiary, SMA Life Assurance Company ("SMA
Life"), except for contracts A3018-94 and A3021-93 issued by the Company and
contracts A3021-93 and A3018-91 issued by SMA Life (and state variation forms
thereof, which together include all contracts sold as ExecAnnuity Plus). A
variable annuity contract to which this exchange offer applies may be exchanged
at net asset value for the Policy described in this Prospectus. To effect an
exchange, the Company should receive (1) a completed application for the Policy,
(2) written request for the exchange, (3) the contract to be exchanged for the
Policy, and (4) a signed Letter of Awareness.
CONTINGENT DEFERRED SALES CHARGE COMPUTATION. No surrender charge applicable to
the contracts to be exchanged will apply to the surrender effecting the
exchange. Where a contract, other than a Policy or variable annuity contracts
A3020-94 and A3020-92 and state variations thereof ("contract A3020"), is
exchanged for a Policy, the contingent deferred sales charge under the acquired
Policy will be computed as if prior purchase payments for the exchanged contract
had been made for the acquired Policy on the date of issue of the exchanged
contract. Where another Policy or contract A3020 is exchanged for a new Policy,
the contingent deferred sales charge under the acquired Policy will be computed
as if prior purchase payments for the exchanged Policy or contract A3020 had
been made for the acquired Policy at least as early as the date on which they
were made for the exchanged Policy or contract A3020. For those exchanged
contracts for which a front-end sales charge was deducted from each purchase
payment, the transferred accumulated values will be treated as "Old Payments"
under the Policy, so that no deferred sales charge will be assessed on aggregate
subsequent withdrawals from the Policy of up to the amount of the transferred
accumulated values. For additional purchase payments made under the Policy after
the transfer of accumulated value from the exchanged contract, the contingent
deferred sales charge will be computed based on the number of years that the
additional purchase payments to which the withdrawal is attributed have been
credited under the Policy, as provided in this Prospectus.
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<PAGE>
SUMMARY OF DIFFERENCES BETWEEN THE POLICY AND EXCHANGED CONTRACTS. The Policy
and the variable contracts to which this exchange offer applies, if other than
another Policy or contract A3020, differ substantially as summarized below.
There may be additional differences important to a person considering an
exchange, and the prospectuses of the Policy and the variable contract to be
exchanged should be reviewed carefully before the exchange is made.
CONTINGENT DEFERRED SALES CHARGE. Except for A3019-91 and A3019-94, which have
the same charge, the contingent deferred sales charge under the Policy, as
described in this Prospectus, imposes higher charge percentages against the
excess amount redeemed and generally applies such percentages for a greater
number of years than the exchanged contracts. For certain classes of exchanged
contracts, new purchase payments, subject to the contingent deferred sales
charge under the Policy, would not have been subject to the charge under the
exchanged contract.
POLICY FEE AND ADMINISTRATIVE EXPENSE CHARGE. Under the Policy, the Company
deducts a Policy Fee, at a maximum of $30, on each policy anniversary date and
upon full surrender, when the Accumulated Value is $50,000 or less, and assesses
each Subaccount with a daily administrative expense charge at an annual rate of
0.15% of the average daily net assets of the Subaccount. Depending on the class
of contracts to which this exchange offer is made, either no policy fee is
deducted or a policy fee of $9 is deducted twice a year. For certain classes of
contracts, a combined sales and administrative expense is deducted from purchase
payments. No administrative expense charge based on a percentage of Subaccount
assets is imposed under the contracts to which this exchange offer is made.
TRANSFER CHARGE. No charges for transfers among the Subaccounts and the General
Account are imposed for contracts to which this exchange offer is made.
Currently, no such charge is imposed under the Policy and the first twelve
transfers in a Policy year are guaranteed to be free of any charge. However, the
Company reserves the right to assess a charge, guaranteed never to exceed $25,
for the seventh and each subsequent transfer in a Policy year.
DEATH BENEFIT. The Policy offers a "stepped-up death benefit" which is not
offered under the exchanged contract; namely, the minimum death benefit that
would have been payable on the most recent fifth year Policy Anniversary for new
Policies, reduced proportionally by withdrawals (in the same proportion that the
Accumulated Value was reduced by a withdrawal), or seventh Policy Anniversary
for original Policies, increased for subsequent purchase payments and reduced by
withdrawals after that date. Upon exchange for the Policy, the accumulated value
of the exchanged contract becomes the "purchase payment" for the Policy.
Therefore, the prior purchase payments made for the exchanged contract would not
become a basis for determining the gross payment (less redemptions) guarantee
under the Policy. Consequently, whether the initial minimum death benefit under
the Policy acquired in an exchange is greater than, equal to, or less than the
death benefit of the exchanged contract depends upon whether the accumulated
value transferred to the Policy is greater than, equal to, or less than the
gross payments (less redemptions) under the exchanged contract.
ANNUITY TABLES. The contracts to which this exchange offer is made contain more
favorable annuity tables than the Policy for use in determining the amount of
the first variable annuity payment under the annuity options offered. The
contracts and the Policy each provide minimum guarantees.
INVESTMENTS. Accumulated Value and purchase payments under the Policy may be
allocated to several underlying funds in addition to those permitted under the
exchanged contracts.
SUMMARY OF DIFFERENCES BETWEEN THE POLICY AND CONTRACT A3020. The Policy and
contract A3020 differ in the following material ways (the prospectuses of the
Policy and contract A3020 should be reviewed carefully before any exchange):
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under the
Policy, as described in this Prospectus, imposes higher charge percentages
against the excess amount redeemed.
DEATH BENEFIT. The Policy offers a "stepped-up death benefit," which is the
minimum death benefit that would have been payable on the most recent fifth year
Policy Anniversary for new Policies, reduced proportionally by withdrawals (in
the same proportion that the Accumulated Value was reduced by a withdrawal), or
seventh year Policy Anniversary for original Policies, increased for subsequent
purchase payments and reduced by withdrawals after that date. Under contract
A3020, the stepped-up death benefit applies to the most recent fifth year. Upon
exchange for the Policy, the accumulated value of exchanged contract A3020
becomes the "purchase payment" for the Policy. Therefore, the prior purchase
payments made for exchanged contract A3020 would not become a basis for
determining the gross payment (less redemptions) guarantee under the Policy.
Consequently, whether the initial minimum death benefit under the Policy
acquired in an exchange is greater than, equal to, or less than the death
benefit of exchanged contract A3020 depends upon whether
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<PAGE>
the accumulated value transferred to the Policy is greater than, equal to, or
less than the gross payments (less redemptions) under exchanged contract A3020.
INVESTMENTS. Accumulated Value and purchase payments under the Policy and
contract A3020 are allocable to different underlying funds and underlying
investment companies.
FIXED ACCOUNT. The Policy has a Fixed Account minimum guaranteed interest rate
of 3% compounded annually. Contract A3020 has a fixed account minimum guaranteed
interest rate of 3.5% compounded annually. Under contract A3020, amounts may not
be transferred from the fixed account to a Sub-Account prior to the end of the
applicable one-year guaranteed period.
B. FIXED ANNUITY EXCHANGE OFFER.
This exchange offer also applies to all fixed annuity contracts issued by SMA
Life. A fixed annuity contract to which this exchange offer applies may be
exchanged at net asset value for the Policy described in this Prospectus,
subject to the same provisions for effecting the exchange and for applying the
Policy's contingent deferred sales charge as described above for variable
annuity contracts. This Prospectus should be read carefully before making such
exchange. Unlike a fixed annuity, the Policy's value is not guaranteed and will
vary depending on the investment performance of the underlying funds to which it
is allocated. The Policy has a different charge structure than a fixed annuity
contract, which includes not only a contingent deferred sales charge that may
vary from that of the class of contracts to which the exchanged fixed contract
belongs, but also Policy fees, mortality and expense risk charges (for the
Company's assumption of certain mortality and expense risks), administrative
expense charges, transfer charges (for transfers permitted among Subaccounts and
the General Account), and expenses incurred by the underlying funds.
Additionally, the interest rates offered under the General Account of the Policy
and the Annuity Tables for determining minimum annuity payments may be different
from those offered under the exchanged fixed contract.
C. EXERCISE OF "FREE-LOOK PROVISION" AFTER ANY EXCHANGE.
Persons who, under the terms of this exchange offer, exchange their contract for
the Policy and subsequently revoke the Policy within the time permitted, as
described in the sections of this Prospectus captioned "RIGHT TO REVOKE OR
SURRENDER," will have their exchanged contract automatically reinstated as of
the date of revocation. The refunded amount will be applied as the new current
accumulated value under the reinstated contract, which may be more or less than
it would have been had no exchange and reinstatement occurred. The refunded
amount will be allocated initially among the general account and subaccounts of
the reinstated contract in the same proportion that the value in the general
account and the value in each subaccount bore to the transferred accumulated
value on the date of the exchange of the contract for the Policy. For purposes
of calculating any contingent deferred sales charge under the reinstated
contract, the reinstated contract will be deemed to have been issued and to have
received past purchase payments as if there had been no exchange.
-32-
<PAGE>
Supplement to the Statement of Additional Information
for Separate Account VA-K
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Supplement to Statement of Additional Information dated October 16, 1995)
***
The first paragraph of Note 2 to the December 31, 1994 financial statements
of State Mutual Life Assurance Company of America, which appear at the end of
the Statement of Additional Information, has been replaced with the following
UNAUDITED
- ---------
On February 28, 1995, State Mutual's Board of Directors adopted, pursuant to
Massachusetts insurance law, a plan of reorganization (the "Plan") whereby
State Mutual will convert from a Massachusetts mutual life insurance company
to a Massachusetts stock life company and will become a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"). On June 30, 1995, the
policyholders approved the Plan and on August 2, 1995 (following a hearing on
the Plan), the Commissioner of the Massachusetts Division of Insurance
approved the Plan. In October, 1995, the closing of an initial public
offering of AFC Common Stock and other financings were completed, and certain
proceeds thereof were contributed to State Mutual which was concurrently
renamed First Allmerica Financial Life Insurance Company. As a result, all
conditions to the effectiveness of the Plan have been satisfied and the Plan
is effective.
***
SUPPLEMENT DATED OCTOBER 16, 1995
<PAGE>
SMDELMED.SAI
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
for
Group and Individual Variable Annuity Policies Funded through Subaccounts of
Separate Account VA-K
Investing in shares of Delaware Group Premium Fund, Inc.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS OF THE SEPARATE ACCOUNT DATED May 1,
1995 ("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ANNUITY
CUSTOMER SERVICES, FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY, 440
LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653
DATED OCTOBER 16, 1995
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . 2
TAXATION OF THE CONTRACT, THE SEPARATE ACCOUNT AND THE
COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . 2
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . 8
GENERAL INFORMATION AND HISTORY
Separate Account VA-K ("Separate Account") is a separate investment account
of First Allmerica Financial Life Insurance Company ("the Company")
established pursuant to a vote by the Board of Directors dated August 20,
1991. The Company was originally organized as a mutual life insurance
company under the laws of Massachusetts in 1844. In October, 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 under its
present name. The Company is a wholly-owned subsidiary of Allmerica
Financial Corporation. Their principal offices are located at 440 Lincoln
Street, Worcester, Massachusetts 01653.
Currently, nine Subaccounts of the Separate Account are available under the
Policies. Each Subaccount invests in a corresponding investment portfolio of
Delaware Group Premium Fund, Inc. (the "Fund").
The Fund is an open-end, diversified series investment company. The Fund
currently consists of nine different investment portfolios: the Equity/Income
Series, High Yield Series, Capital Reserves Series, Money Market Series,
Growth Series, Multiple Strategy Series, Value Series, Emerging Growth Series
and International Equity Series ("Underlying Series"). Each Underlying
Series has its own investment objectives and certain attendant risks.
TAXATION OF THE POLICIES, SEPARATE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with
the Policies, other than for state and local premium taxes and similar
assessments when applicable. The Company reserves the right to impose a
charge for any other taxes that may become payable in the future in
connection with the Policies or the Separate Account.
The Separate Account is considered to be a part of and taxed with the operations
of the Company.
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<PAGE>
The Company is taxed as a mutual life insurance company under subchapter L of
the Code and files a consolidated tax return with its affiliated companies.
The Company reserves the right to make a charge for any effect which the
income, assets, or existence of Policies or the Separate Account may have
upon its tax. Such charge for taxes, if any, will be assessed on a fair and
equitable basis in order to preserve equity among classes of Policy Owners.
The Separate Account presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of
the Separate Account. Fund shares owned by the Subaccounts are held on an
open account basis. A Subaccount's ownership of Fund shares is reflected on
the records of the Fund and not represented by any transferable stock
certificates.
EXPERTS. The financial statements of the Company as of December 31, 1994 and
1993 and for each of the three years in the period ended December 31, 1994
and of Separate Account VA-K Delaware Medallion of the Company as of December
31, 1994 and the period then ended, included in this Statement of Additional
Information constituting part of the Registration Statement, have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under
the Policies.
UNDERWRITERS
Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. (NASD), serves as principal underwriter and general distributor
for the Policies pursuant to a contract between Allmerica Investments, Inc.,
the Company and the Separate Account. Allmerica Investments, Inc.
distributes the Policies on a best efforts basis. Allmerica Investments,
Inc., 440 Lincoln Street, Worcester, Massachusetts 01653 was organized in
1969 as a wholly-owned subsidiary of the Company and is, at present,
indirectly wholly-owned by the Company.
The Policies offered by this Prospectus are offered continuously and may be
purchased from certain independent broker-dealers which are NASD members and
whose representatives are authorized by applicable law to sell variable
annuity policies.
All persons selling the Policies are required to be licensed by their
respective state insurance authorities for the sale of variable annuity
policies. Commissions are paid by the Company on sales of the Policies. For
the first $100 million of total purchase payments, commissions will equal
7.00% of purchase payments; thereafter, commissions will equal 6.75% of
purchase payments. Commissions not to exceed 6.5% of purchase payments will
be paid to entities which sell the Policies. The remaining commissions
payable by the Company on sales of the Policies will be paid, pursuant to a
Wholesaler Agreement among the Company, Allmerica Investments, Inc. and
Delaware Distributors, Inc. ("Delaware Distributors"), to Delaware
Distributors, a registered broker-dealer under the Securities Exchange Act of
1934, a member of the NASD and an affiliate of Delaware Management Company,
Inc. and the Fund. To the extent permitted under NASD rules, expense
reimbursement allowances may be paid and additional payments for other
services not directly related to the sale of the Policies, including the
recruitment and training of personnel, production of promotional literature
and similar services may be made.
-3-
<PAGE>
Commissions paid by the Company do not result in any charge to Policy Owners
or to the Separate Account in addition to the charges described under
"CHARGES AND DEDUCTIONS" in the Prospectus. The Company intends to recoup
the commission and other sales expense through a combination of anticipated
surrender, partial redemption and/or annuitization charges, the investment
earnings on amounts allocated to accumulate on a fixed basis in excess of the
interest credited on fixed accumulations by the Company, and the profit, if
any, from the mortality and expense risk charge.
The aggregate amount of commissions paid with respect to sales of the
Policies was $162,010.08 for independent broker-dealers and $14,309.12 for
Delaware Distributors, Inc. in 1994. Sales of the Policies began in April
1994.
ANNUITY PAYMENTS
The method by which the Accumulated Value under the Policy is determined is
described in detail under "K. Computation of Policy Values and Annuity Payments"
in the Prospectus.
Illustration of Accumulation Unit Calculation Using Hypothetical Example.
The Accumulation Unit calculation for a daily Valuation Period may be
illustrated by the following hypothetical example: Assume that the assets of
a Subaccount at the beginning of a one-day Valuation Period were $5,000,000;
that the value of an Accumulation Unit on the previous date was $1.135000;
and that during the Valuation Period, the investment income and net realized
and unrealized capital gains exceed net realized and unrealized capital
losses by $1,675. The Accumulation Unit value at the end of the current
Valuation Period would be calculated as follows:
<TABLE>
<S> <C>
(1) Accumulation Unit Value - Previous Valuation Period...............$ 1.135000
(2) Value of Assets - Beginning of Valuation Period...................$5,000,000
(3) Excess of investment income and net gains over capital losses.........$1,675
(4) Adjusted Gross Investment Rate for the valuation period (3):(2).....0.000335
(5) Annual Charge (one day equivalent of 1.40% per annum)...............0.000038
(6) Net Investment Rate (4)-(5).........................................0.000297
(7) Net Investment Factor 1.000000 + (6)................................1.000297
(8) Accumulation Unit Value - Current Period (1)x(7)..................$ 1.135337
</TABLE>
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
accumulated unit value at the end of the Valuation Period would have been
$1.134577.
The method for determining the amount of annuity payments is described in detail
under "K. Computation of Policy Values and Annuity Payments" in the Prospectus.
Illustration of Variable Annuity Payment Calculation Using Hypothetical
Example. The determination of the Annuity Unit value and the variable
annuity payment may be illustrated by the following hypothetical example:
Assume an Annuitant has 40,000 Accumulation Units in a Separate Account, and
that the value of an Accumulation Unit on the Valuation Date used to
determine the
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<PAGE>
amount of the first variable annuity payment is $1.120000. Therefore, the
Accumulation Value of the Contract is $44,800 (40,000 x $1.120000). Assume
also that the Contract Owner elects an option for which the first monthly
payment is $6.57 per $1,000 of Accumulated Value applied. Assuming no premium
tax or contingent deferred sales charge, the first monthly payment would be
44.800 multiplied by $6.57, or $294.34.
Next, assume that the Annuity Unit value for the assumed rate of 3-1/2% per
annum for the Valuation Date as of which the first payment was calculated was
$1.100000. Annuity Unit values will not be the same as Accumulation Unit
values because the former reflect the 3-1/2% assumed interest rate used in
the annuity rate calculations. When the Annuity Unit value of $1.100000 is
divided into the first monthly payment the number of Annuity Units
represented by that payment is determined to be 267.5818. The value of this
same number of Annuity Units will be paid in each subsequent month under most
options. Assume further that the net investment factor for the Valuation
Period applicable to the next annuity payment is 1.000190. Multiplying this
factor by .999906 (the one-day adjustment factor for the assumed interest
rate of 3-1/2% per annum) produces a factor of 1.000096. This is then
multiplied by the Annuity Unit value on the immediately preceding Valuation
Date (assumed here to be $1.105000). The result is an Annuity Unit value of
$1.105106 for the current monthly payment. The current monthly payment is
then determined by multiplying the number of Annuity Units by the current
Annuity Unit value, or 267.5818 times $1.105106, which produces a current
monthly payment of $295.71.
PERFORMANCE INFORMATION
Performance information for a Subaccount may be compared, in reports and
promotional literature, to certain indices described in the prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other materials information on
various topics of interest to Policy Owners and prospective Policy Owners.
These topics may include the relationship between sectors of the economy and
the economy as a whole and its effect on various securities markets,
investment strategies and techniques (such as value investing, market timing,
dollar cost averaging, asset allocation, constant ratio transfer and account
rebalancing), the advantages and disadvantages of investing in tax-deferred
and taxable investments, customer profiles and hypothetical purchase and
investment scenarios, financial management and tax and retirement planning,
and investment alternatives to certificates of deposit and other financial
instruments, including comparisons between the Policies and the
characteristics of and market for such financial instruments.
The Policies have been offered since April 1, 1994. However, total return
data may be advertised based on the period of time that the Underlying Series
have been in existence. The results for any period prior to the Policies
being offered will be calculated as if the Policies had been offered during
that period of time, with all charges assumed to be those applicable to the
Policies.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment
in a Subaccount and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specified period,
reduced by the Subaccounts asset charge and any applicable contingent
deferred sales charge which would be assessed upon complete redemption of the
investment.
Total Return figures are calculated by standardized methods prescribed by
rules of the Securities and Exchange Commission. The quotations are computed
by finding the average annual compounded rates of return over the specified
periods that would equate the initial amount invested to the ending
redeemable values, according to the following formula:
-5-
<PAGE>
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at the end of the
specified period
The calculation of Total Return includes the annual charges against the asset
of the Subaccount. This charge is 1.40% on an annual basis. The calculation
of ending redeemable value assumes (1) the policy was issued at the beginning
of the period and (2) a complete surrender of the policy at the end of the
period. The deduction of the contingent deferred sales charge, if any,
applicable at the end of the period is included in the calculation, according
to the following schedule:
<TABLE>
<CAPTION>
Policy year from date of Charge as percentage of New
payment in which surrender occurs Purchase Payments redeemed*
--------------------------------- ---------------------------
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
</TABLE>
*Subject to the maximum limit described in the prospectus.
No contingent deferred sales charge is deducted upon expiration of the
periods specified above. In all Policy Years after the first Policy Year, an
amount equal to 10% of the Accumulated Value under the Policy (or a greater
amount under a life expectancy distribution option, if applicable) is not
subject to the contingent sales load.
The calculations of Total Return include the deduction of the $30 Annual
Policy fee.
TOTAL RETURN TABLE
<TABLE>
<CAPTION>
Total Return for Periods Ending December 31, 1994
-------------------------------------------------
(Assuming COMPLETE redemption of the investment)
Total Return for Average Annual
SUB- year ended Total Return Since
ACCOUNT NAME 12/31/94 Inception*
- ------- ---- ---------------- ------------------
<S> <C> <C> <C>
201 Equity/Income -7.88% -5.89%
202 High Yield -10.50% -8.34%
203 Capital Reserve -10.32% -7.19%
204 Money Market -4.06% -4.47%
205 Growth -11.17% -5.55%
206 Multiple Strategy -7.82% -7.15%
207 Int'l. Equity -5.05% -5.87%
208 Value -6.91% -6.14%
209 Emerging Growth -8.17% -4.10%
</TABLE>
*The date of inception of Subaccount 201 was 4/28/94. The date of inception
of Subaccount 202 was 5/20/94. The date of inception of Subaccount 203 was
6/22/94. The date of inception of Subaccount 204 was 4/6/94. The date of
inception of Subaccounts 5, 6 and 7 was 4/19/94. The date of inception of
Subaccounts 8 and 9 was 5/10/94.
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<PAGE>
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return information in this section refers to the total
of the income generated by an investment in a Subaccount and of the changes
of value of the principal invested (due to realized and unrealized capital
gains or losses) for a specified period reduced by the Subaccount's asset
charges. However, it is assumed that the investment is NOT redeemed at the
end of each period.
The quotations of Supplemental Total Return are computed by finding the
average annual compounded rates of return over the specified periods that
would equate the initial amount invested to the ending values, according to
the following formula:
n
P(1 + T) = EV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at the end of the specified
period
The calculation of Supplemental Total Return reflects the 1.40% annual charge
against the assets of the Subaccounts. The ending value assumes that the
policy is NOT redeemed at the end of the specified period, and there is
therefore no adjustment for the contingent deferred sales charge that would
be applicable if the policy was redeemed at the end of the period.
The calculations of Supplemental Total Return includes the deduction of the
$30 Annual Policy fee.
SUPPLEMENTAL TOTAL RETURN TABLE
The following table includes Supplemental Total Return information for the
Sub-Accounts offered under the Policies since inception of the offering of
the Policies. However, as it is assumed that the Policy is NOT redeemed at
the end of each period, Supplemental Total Return is NOT adjusted for any
otherwise applicable contingent deferred sales charge.
<TABLE>
<CAPTION>
Total Return for Periods Ending December 31, 1994
-------------------------------------------------
(Assuming NO redemption of the investment)
Total Return for Average Annual Total
SUB- year ended Return
ACCOUNT NAME 12/31/94 Since Inception*
- ------- ---- ---------------- --------------------
<S> <C> <C> <C>
201 Equity/Income -1.58% 0.61%
202 High Yield -4.20% -2.04%
203 Capital Reserve -4.02% -0.89%
204 Money Market 2.24% 1.83%
205 Growth -4.87% 0.75%
206 Multiple Strategy -1.52% -0.85%
207 Int'l. Equity -1.25% 0.43%
208 Value -0.61% 0.18%
209 Emerging Growth -1.87% 2.20%
</TABLE>
*The date of inception of Subaccount 201 was 4/28/94. The date of inception
of Subaccount 202 was 5/20/94. The date of inception of Subaccount 203 was
6/22/94. The date of inception of Subaccount 204 was 4/6/94. The date of
inception of Subaccounts 5, 6 and 7 was 4/19/94. The date of inception of
Subaccounts 8 and 9 was 5/10/94.
-7-
<PAGE>
YIELD AND EFFECTIVE YIELD - SUBACCOUNT 204 (INVESTS IN THE MONEY MARKET
SERIES OF THE FUND)
Set forth below is yield and effective yield information for Subaccount 204
for the seven-day period ended December 31, 1994:
Yield 2.23%
Effective Yield 3.13%
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the Securities and Exchange Commission. Under those
methods, the yield quotation is computed by determining the net change
(exclusive of capital changes) in the value of a hypothetical pre-existing
account having a balance of one accumulation unit of the Subaccount at the
beginning of the period, subtracting a charge reflecting the annual 1.40%
deduction for mortality and expense risk and the administrative charge,
dividing the difference by the value of the account at the beginning of the
same period to obtain the base period return, and then multiplying the return
for a seven-day base period by (365/7), with the resulting yield carried to
the nearest hundredth of one percent.
Subaccount 204 computes effective yield by compounding the unannualized base
period return by using the formula:
(365/7)
Effective Yield = [(base period return + 1) ] - 1
The calculations of yield and effective yield do NOT reflect the $30 Annual
Policy fee.
FINANCIAL STATEMENTS
Financial Statements are included for the Company and for the Subacccounts of
Separate Account VA-K investing in shares of the Underlying Series.
-8-
<PAGE>
STATE MUTUAL LIFE
ASSURANCE COMPANY
OF AMERICA
FINANCIAL STATEMENTS
DECEMBER 31, 1994 and 1993
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
December 31, 1994
Financial Statements
Report of Independent Accountants...................................... 1
Statement of Financial Position ...................................... 2
Statement of Operations and Contingency Reserves....................... 3
Statement of Cash Flows................................................ 4
Notes to Financial Statements.......................................... 5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
February 13, 1995, except as to Note 2,
which is as of February 28, 1995
To the Board of Directors and Policyholders of
State Mutual Life Assurance Company of America
In our opinion, the accompanying statement of financial position and the
related statements of operations and changes in contingency reserves and of
cash flows present fairly, in all material respects, the financial position
of State Mutual Life Assurance Company of America at December 31, 1994 and
1993, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the financial statements, the Company implemented a
new accounting pronouncement in 1993 and may adopt Statement of Financial
Accounting Standards No. 120, "Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts", and Financial Accounting Standards Board
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises", in 1996. If
these pronouncements are adopted, the financial statements for the year ended
December 31, 1994 will be retroactively restated for the effects of these
changes in accounting principles.
Price Waterhouse LLP
Boston, Massachusetts
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
STATEMENT OF FINANCIAL POSITION
as of December 31
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1994 1993
---- ----
<S> <C> <C>
Cash $ 21,931 $ 22,378
Investments:
Bonds 3,063,890 3,172,304
Stocks 14,638 48,713
Investments in subsidiaries 797,879 971,339
Mortgage loans 825,611 1,045,748
Policy loans 248,310 258,845
Real estate, including home office property 185,128 192,333
Short term investments 72,159 61,176
Other invested assets 45,978 22,180
---------- ----------
Total cash and investments 5,275,524 5,795,016
Premiums deferred and uncollected 95,890 91,434
Investment income due and accrued 84,066 89,756
Other assets 79,165 87,238
Assets held in separate accounts 1,096,032 922,069
---------- ----------
$6,630,677 $6,985,513
---------- ----------
---------- ----------
LIABILITIES AND CONTINGENCY RESERVES
Liabilities:
Policy liabilities:
Life reserves $ 965,896 $ 969,223
Annuity and other fund reserves 3,561,965 3,981,281
Accident and health reserves 50,096 45,424
Claims payable 122,677 112,509
Dividends payable 33,930 35,406
---------- ----------
Total policy liabilities 4,734,564 5,143,843
Expenses and taxes payable 137,676 99,301
Other liabilities 73,427 33,616
Asset valuation reserve 124,254 260,714
Obligations related to separate account business 1,095,430 921,648
---------- ----------
Total liabilities 6,165,351 6,459,122
---------- ----------
---------- ----------
Contingency reserves:
Special contingency reserves 26,522 25,238
General contingency reserves 438,804 501,153
---------- ----------
Total contingency reserves 465,326 526,391
---------- ----------
$6,630,677 $6,985,513
---------- ----------
---------- ----------
</TABLE>
The accompanying note are an integral part of these financial statements.
2
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS AND
CHANGES IN CONTINGENCY RESERVES
for the year ended December 31
(In thousands)
<TABLE>
<CAPTION>
REVENUE 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Premiums and other considerations:
Life $ 100,956 $ 92,314 $ 101,929
Annuities 950,980 762,724 768,050
Accident and health 225,132 246,842 338,534
Reinsurance commissions and reserve adjustments 10,117 10,853 11,700
---------- ---------- ----------
Total premiums and other considerations 1,287,185 1,112,733 1,220,213
Net investment income 406,071 520,508 503,754
Realized capital losses, net of tax (28,341) (33,334) (5,261)
Other revenue 43,651 29,121 14,849
---------- ---------- ----------
Total revenue 1,708,566 1,629,028 1,733,555
---------- ---------- ----------
POLICY BENEFITS AND OPERATING EXPENSES
Policy benefits:
Claims, surrenders and other benefits 1,697,943 1,314,540 1,459,941
Decrease in policy reserves (412,090) (175,726) (153,971)
Dividends to policyholders 33,233 32,773 25,955
---------- ---------- ----------
Total policy benefits 1,319,086 1,171,587 1,331,925
Operating and selling expenses 141,460 138,566 141,456
Taxes, except capital gains tax 33,747 18,664 14,565
Net transfers to separate accounts 173,607 185,374 141,183
---------- ---------- ----------
Total policy benefits and operating expenses 1,667,900 1,514,191 1,629,129
---------- ---------- ----------
NET INCOME 40,666 114,837 104,426
CONTINGENCY RESERVES AT BEGINNING OF YEAR 526,391 444,427 338,683
Unrealized capital gains (losses) on investments:
Unconsolidated subsidiaries (222,155) 47,292 101,155
Other investments 24,579 (14,159) (61,479)
---------- ---------- ----------
(197,576) 33,133 39,676
---------- ---------- ----------
Transfer from (to) asset valuation reserve 136,460 (25,173) (40,188)
Other adjustments (40,615) (40,833) 1,830
---------- ---------- ----------
CONTINGENCY RESERVES AT END OF YEAR $ 465,326 $ 526,391 $ 444,427
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
STATEMENT OF CASH FLOWS
for the year ended December 31
(In thousands)
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Premiums, deposits and other income $ 1,327,496 $ 1,120,816 $ 1,230,872
Allowances and reserve adjustments
on reinsurance ceded 10,862 11,773 8,836
Net investment income 372,428 432,631 443,668
Net repayments on policy loans 10,535 17,637 21,062
Benefits to policyholders and
beneficiaries (1,684,684) (1,313,978) (1,467,104)
Operating and selling expenses and
taxes (155,162) (111,125) (177,946)
Net transfers to separate accounts (160,623) (201,442) (135,921)
Dividends to policyholders (34,709) (27,777) (42,874)
Other sources (applications) 3,775 (40,938) 9,560
---------- ---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (310,082) (112,403) (109,847)
---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
New borrowings 932,497 116,800 261,000
Repayment of borrowings (932,497) (116,800) (261,000)
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- -- --
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Sales and maturities of long term investments:
Bonds 993,365 841,548 776,693
Stocks 1,835 4,361 2,948
Real estate and other invested assets 19,200 24,122 23,886
Repayment of mortgage principal 193,842 211,360 136,252
Capital gains tax (1,086) (2,232) --
Acquisition of long term investments:
Bonds (881,081) (887,976) (821,694)
Stocks (4,557) (62,318) (6,674)
Real estate and other invested assets (31,504) (3,931) (32,404)
Mortgage loans (1,529) (1,185) (6,313)
Other investing activities 32,133 (5,199) (743)
---------- ---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 320,618 118,550 71,951
---------- ---------- ----------
Net change in cash and short term investments 10,536 6,147 (37,896)
CASH AND SHORT TERM INVESTMENTS
Beginning of year 83,554 77,407 115,303
---------- ---------- ----------
End of year $ 94,090 $ 83,554 $ 77,407
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION - State Mutual Life Assurance Company
of America (State Mutual or the "Company") is presently organized as a mutual
life insurance company and accordingly, the Company's financial statements
have been prepared on the basis of accounting practices prescribed or
permitted by the Division of Insurance of the Commonwealth of Massachusetts
and in conformity with practices prescribed by the National Association of
Insurance Commissioners (NAIC), which are generally accepted accounting
principles for mutual life insurance companies. The Company is pursuing a
plan of reorganization which includes conversion to a stock life insurance
company. (Refer to Note 2 for a description of the reorganization.)
Certain reclassifications have been made to prior years amounts to conform
with the current year presentation.
ACCOUNTING FOR UNCONSOLIDATED SUBSIDIARIES - State Mutual's interest in
unconsolidated subsidiaries consists primarily of SMA Life Assurance Company
(SMA Life), a wholly owned life insurance company, a 57.4% interest in
Allmerica Property & Casualty Companies, Inc. (Allmerica P&C), a Delaware
domiciled business corporation which owns The Hanover Insurance Company
(Hanover), and several wholly owned non-insurance subsidiaries. Hanover owns
an 80.6% interest in Citizens Corporation, parent company of Citizens
Insurance Company of America (Citizens). Allmerica P&C is accounted for at
market value. During 1993, the Securities Valuation Office of the NAIC
instituted a discount to market values for subsidiaries previously carried at
market value. The discount applied to Allmerica P&C was determined to be
16%, to be phased in over a five year period (3% per year in 1993 to 1996
and 4% in 1997). SMA Life and the non-insurance subsidiaries are accounted
for under the equity method. The Company's equity in the earnings of
unconsolidated subsidiaries is reflected in net income. Any remaining
changes in Allmerica P&C's value and direct charges to SMA Life's surplus are
reflected in contingency reserves.
VALUATION OF INVESTMENTS - Investments in bonds are carried principally at
amortized cost in accordance with NAIC guidelines. Preferred stocks are
carried generally at cost and common stocks are carried at market value.
Policy loans are carried principally at unpaid principal balances.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts. Mortgage loans are reduced for losses expected by
management to be realized on transfers of mortgage loans to real estate (upon
foreclosure), on the disposition or settlement of mortgage loans and on
mortgage loans which management believes may not be collectible in full. In
determining the amount of the loss, management considers, among other things,
the estimated fair value of the underlying collateral.
Investment real estate and real estate acquired through foreclosure are
carried at the lower of depreciated cost or market value. Home office
property is carried at depreciated cost.
An asset valuation reserve (AVR) for bonds, mortgage loans, stocks, real
estate, and other invested assets is maintained by appropriations from
surplus in accordance with a formula specified by the NAIC and is classified
as a liability.
FINANCIAL INSTRUMENTS - In the normal course of business, the Company enters
into transactions involving various types of financial instruments including
investments such as bonds and stocks, investment and loan commitments,
foreign currency swaps, and futures contracts. These instruments involve
credit risk and also may be subject to risk of loss due to currency risk and
interest rate fluctuations. The Company evaluates and monitors each
financial instrument individually and, when appropriate, obtains collateral
or other security to minimize losses.
RECOGNITION OF PREMIUM INCOME AND ACQUISITION COSTS - In general, premiums
are recognized as revenue over the premium paying period of the policies;
commissions and other costs of acquiring the policies are charged to
operations when incurred.
SEPARATE ACCOUNTS - Separate account assets and liabilities represent
segregated funds administered and invested by the Company for the benefit of
certain variable life insurance policyholders and certain pension and annuity
contractholders.
5
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
Assets consist principally of bonds, common stocks, and short term
obligations at market value. The investment income, gains, and losses of
these accounts generally accrue to the contractholders and, therefore, are
not included in the Company's net income. Appreciation and depreciation of
the Company's interest in the separate accounts, including undistributed net
investment income, is reflected in contingency reserves.
INSURANCE RESERVES AND ANNUITY AND OTHER FUND RESERVES - Reserves for life
insurance, annuities, and accident and health insurance are established in
amounts adequate to meet the estimated future obligations of policies in
force based on accepted actuarial methods. These liabilities are computed
based upon mortality, morbidity and interest rate assumptions applicable to
these coverages, including a provision for adverse deviation. Interest rates
range from 2 1/2% to 6% for life insurance and 2% to 9 1/2% for annuities, and
mortality and morbidity assumptions reflect the Company's experience and
industry standards. The assumptions vary by plan, age at issue, year of
issue and duration.
Reserves for group accident and health claims include estimated provisions
for both reported and unreported claims incurred and related expenses.
Claims reserves are computed based on historical experience modified for
expected trends in frequency and severity. Other fund reserves are for
guaranteed investment contracts and other group and individual contract
deposit funds and consist of deposits received from customer's and investment
earnings on their fund balances.
Withdrawal characteristics of annuity and other fund reserves vary by
contract. At both December 31, 1994 and 1993, approximately 87% of the
contracts (included in both the general account and the separate accounts of
the Company) were not subject to discretionary withdrawal or were subject to
withdrawal at book value less surrender charge.
FEDERAL INCOME TAXES - State Mutual, its non-insurance domestic subsidiaries
and SMA Life file a consolidated United States Federal income tax return.
Entities included within the consolidated group are segregated into either a
life insurance or non-life insurance company subgroup. The consolidation of
these subgroups is subject to certain statutory restrictions on the
percentage of eligible non-life taxable operating losses that can be applied
to offset life company taxable income. Allmerica P&C and its subsidiaries
file a separate United States Federal income tax return.
The Federal income tax for the non-life insurance subsidiaries is calculated
on a separate return basis. Any current tax liability (benefit) is paid to
(reimbursed by) State Mutual. Tax benefits resulting from taxable operating
losses of the non-life subsidiaries are not reimbursed currently by State
Mutual. However, to the extent such losses are utilized by the consolidated
group, they are reflected as a liability of State Mutual.
The Federal income tax for the life companies is calculated on a line of
business basis, excluding the operating results of the non-insurance
subsidiaries and Allmerica P&C. The tax is allocated to each life company
based on its contribution to the taxable income or loss of each line of
business.
CAPITAL GAINS AND LOSSES - Realized capital gains and losses, net of
applicable capital gains tax or benefit, exclusive of those transferred to
the interest maintenance reserve (IMR), are included in the statement of
operations. Unrealized capital gains and losses are reflected as direct
credits or charges to contingency reserves. The IMR, which is included in
other liabilities, establishes a reserve for realized gains and losses, net
of tax, resulting from changes in interest rates on short and long term fixed
income investments. Net realized gains and losses charged to the IMR are
amortized into net investment income over the remaining life of the
investment sold.
DIVIDENDS TO POLICYHOLDERS - Certain life, health and annuity insurance
policies contain dividend payment provisions that enable the policyholder to
participate in the earnings of the Company. The amount of policyholders'
dividends to be paid is determined annually by the Board of Directors. The
aggregate amount of policyholders' dividends is related to the actual
interest, mortality, morbidity and expense experience for the year and the
Company's judgment as to the appropriate level of statutory surplus to be
retained.
Dividends on individual life insurance, individual accident and health
insurance, and individual annuity policies are provided on the basis of
amounts payable in the following calendar year. Dividends on all other
insurance are provided on the basis of amounts incurred for the current year.
6
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
PENDING ACCOUNTING PRONOUNCEMENT - In April 1993, the Financial Accounting
Standards Board (FASB) issued Interpretation No. 40, "Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises" (FIN 40), which establishes a different definition of generally
accepted accounting principles for mutual life insurance companies. Under the
Interpretation, financial statements of mutual life insurance companies which
are prepared on the basis of statutory accounting, will no longer be
characterized as in conformity with generally accepted accounting principles.
In January 1995, the FASB issued Statement of Financial Accounting Standards
No. 120, "Accounting and Reporting by Mutual Life Insurance Enterprises and
by Insurance Enterprises for Certain Long-Duration Participating Contracts"
(SFAS No. 120), and the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position No. 95-1, "Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises" (SOP 95-1). SFAS
No. 120 extends the requirements of SFAS No. 60, "Accounting and Reporting by
Insurance Enterprises," No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments," and No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts," to mutual
life insurance enterprises. SOP 95-1 establishes accounting for certain
participating life insurance contracts for mutual life insurance enterprises.
SFAS No. 120 requires mutual life insurance enterprises (and permits stock
life insurance enterprises) to apply the provisions of SOP 95-1 to those
contracts which meet the conditions in SFAS No. 120.
FIN 40, SFAS No. 120 and SOP 95-1 are all effective for financial statements
issued for fiscal years beginning after December 15, 1995.
In as much as the Company is pursuing a plan of reorganization which includes
conversion to a stock life insurance company, and would result in future
financial statements being prepared in accordance with generally accepted
accounting principles for stock life insurance companies, the new
pronouncement may not be applicable to future financial statements. If the
Company does not demutualize, the new pronouncement will be adopted in 1996,
by retroactive restatement of the earliest year presented. Management of the
Company has not yet determined the effect on its financial statements of
applying these new pronouncements.
ACCOUNTING CHANGES - In December 1992, the NAIC issued a statutory accounting
policy for accounting for postretirement benefits other than pensions for
current retirees and employees who have vested rights in those benefits. The
Company implemented this statutory requirement in 1993 and elected to
immediately recognize the unfunded postretirement benefit obligation and
reported the cumulative effect of this change as a direct charge to
contingency reserves (see Note 9 for additional information).
NOTE 2 - REORGANIZATION
On February 28, 1995, State Mutual's Board of Directors adopted, pursuant to
Massachusetts insurance law, a plan of reorganization (the "Plan") whereby
State Mutual will convert from a Massachusetts mutual life insurance company
to a Massachusetts stock life insurance company and will become a wholly
owned subsidiary of Allmerica Financial Corporation ("AFC"). Currently, the
unsatisfied conditions to the effectiveness of the Plan of Demutualization
are the approval of the Commissioner of the Massachusetts Division of
Insurance (the "Commissioner") of the Plan after a hearing thereon, the
approval of the policyholders of the Plan, the closing of an initial public
offering of AFC Common Stock and certain other conditions set forth in the
Plan. The Plan is also subject to the review of other insurance regulators.
The Plan will become effective on the date of the closing of the initial
public offering of the Common Stock of AFC.
Under the Plan, the eligible policyholders of State Mutual will receive
shares of Common Stock of AFC, policy credits or cash in exchange for the
policyholders' membership interest in State Mutual.
Under the Plan, State Mutual will establish and operate a closed block of
participating business for the benefit of the policies included therein (the
"Closed Block"). Such business (the" Closed Block Business") will contain
those classes of individual or joint life insurance participating policies,
individual deferred annuity contracts and supplementary contracts not
involving life contingencies which are in force on the effective date. The
Closed Block will continue in effect until no more policies included therein
are in force or until the Commissioner consents to the termination of the
Closed Block. The duration of the Closed Block is expected to be in excess
of 50 years.
7
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
State Mutual will allocate to the Closed Block an amount of assets expected
to produce cash flows which, together with anticipated revenues from the
Closed Block Business, are reasonably sufficient to support the Closed Block
Business, including provision for payments of claims, certain expenses and
taxes, and for continuation of 1994 dividend scales if experience underlying
such scales continues. Future changes in actual reinvestment rates over the
long term from assumed reinvestment rates, like changes in other assumptions
made in funding the Closed Block, may cause dividend scales to change.
To the extent that over time cash flows from the assets allocated to the
Closed Block and other experience related to the Closed Block Business are,
in the aggregate, more favorable than assumed in establishing the Closed
Block, total dividends paid to Closed Block policyholders in future years
will be greater than the total dividends that would have been paid to such
policyholders if the dividend scales payable in 1994 had been continued.
Conversely, to the extent that over time such cash flows and other experience
are, in the aggregate, less favorable than assumed in setting up the Closed
Block, total dividends paid to Closed Block policyholders in future years
will be less than the total dividends that would have been paid to such
policyholders if the dividend scales payable in 1994 had been continued. In
addition, if the assets allocated to the Closed Block, the cash flows
therefrom and the revenues from the Closed Block Business prove to be
insufficient to pay the benefits guaranteed under the policies and contracts
included in the Closed Block, State Mutual will be required to make such
payments from its general funds. Since the Closed Block will be funded to
provide for payment of guaranteed benefits on such policies and contracts
and, in addition, for continuation of dividends paid under 1994 dividend
scales, it will not be necessary to use general funds to pay guaranteed
benefits unless the Closed Block Business experiences very substantial
adverse deviations in investment, mortality, persistency or other experience
factors.
NOTE 3 - INVESTMENTS
BONDS - The carrying value and fair value of investments in
bonds, are as follows:
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
<S> <C> <C> <C> <C>
Federal government bonds $ 13,250 $ 246 $ 534 $ 12,962
State, local and government agency bonds 550 7 -- 557
Foreign government bonds 70,217 1,126 6,510 64,833
Corporate securities 2,939,333 22,052 96,285 2,865,100
Mortgage-backed securities 40,540 58 1,895 38,703
---------- -------- -------- ----------
Total $3,063,890 $ 23,489 $105,224 $2,982,155
---------- -------- -------- ----------
---------- -------- -------- ----------
December 31, 1993
-----------------
Federal government bonds $ 19,442 $ 1,484 $ 40 $ 20,886
State, local and government agency bonds 12,048 235 -- 12,283
Foreign government bonds 64,951 4,417 14 69,354
Corporate securities 3,075,146 182,272 18,589 3,238,829
Mortgage-backed securities 717 43 -- 760
---------- -------- -------- ----------
Total $3,172,304 $188,451 $ 18,643 $3,342,112
---------- -------- -------- ----------
---------- -------- -------- ----------
</TABLE>
8
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
The carrying value and fair value by contractual maturity at December 31,
1994, are shown below. Actual maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties or the Company may have the
right to put or sell the obligation back to the issuer. Mortgage-backed
securities are classified based on expected maturities.
<TABLE>
<CAPTION>
Carrying Fair
(In thousands) Value Value
----- -----
<S> <C> <C>
Due in one year or less $ 566,301 $ 567,013
Due after one year through five years 1,691,897 1,651,469
Due after five years through ten years 607,819 571,345
Due after ten years 197,873 192,328
---------- ----------
Total $3,063,890 $2,982,155
---------- ----------
---------- ----------
</TABLE>
MORTGAGE LOANS AND REAL ESTATE Mortgage loans and real estate investments
are diversified by property type and location. Real estate investments,
except home office, have been obtained primarily through foreclosure.
Mortgage loans are collateralized by the related properties and are generally
no more than 75% of the property value at the time the original loan is made.
Mortgage loan and real estate investments, including home office of $67,920
thousand and $61,363 thousand at December 31, 1994 and 1993, respectively,
were distributed by the following types and geographic regions at December 31:
<TABLE>
<CAPTION>
(In thousands)
Property Type 1994 1993
- ------------- ---- ----
<S> <C> <C>
Office buildings $ 445,222 $ 514,575
Residential 148,155 233,459
Retail 168,536 197,496
Industrial/Warehouse 93,323 135,766
Other 155,503 156,785
---------- ----------
Total $1,010,739 $1,238,081
---------- ----------
---------- ----------
Geographic Region
- -----------------
South Atlantic $ 263,883 $ 342,345
Pacific 189,547 212,371
New England 142,371 142,263
West South Central 99,065 141,375
Middle Atlantic 108,531 113,716
East North Central 71,937 114,694
East South Central 48,232 66,139
West North Central 72,919 82,883
Mountain 14,254 22,295
---------- ----------
Total $1,010,739 $1,238,081
---------- ----------
---------- ----------
</TABLE>
FUTURES CONTRACTS - State Mutual purchases and sells futures contracts on
margin to hedge against interest rate fluctuations and their effect on the
net cash flows from the sales of guaranteed investment contracts. Because
the Company purchases and sells futures contracts through brokers who assume
the risk of loss, the Company's exposure to credit risk under futures
contracts is limited to the margin deposited with the broker. The maturity of
all futures contracts outstanding is less than one year.
Gains and losses on hedge contracts related to interest rate fluctuations are
deferred and recognized in income over the period being hedged corresponding
to related guaranteed investment contracts. The amount of hedging gains
(losses) explicitly deferred were $(7,658) thousand, $6,953 thousand and
$4,976 thousand for the years ended December 31, 1994,
9
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
1993 and 1992, respectively. Gains and losses on hedges that are deemed
ineffective by management are immediately recognized into income.
A reconciliation of notional amounts for all futures contracts outstanding
for the year ended December 31 is as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---- ----
<S> <C> <C>
Contracts outstanding, January 1 $ 141,700 $ 120,000
New contracts 816,000 493,300
Contracts expired -- --
Contracts terminated (831,000) (471,600)
--------- ---------
Contracts outstanding, December 31 $ 126,700 $ 141,700
--------- ---------
--------- ---------
</TABLE>
FOREIGN CURRENCY SWAP CONTRACTS - The Company enters into foreign currency
swap contracts to hedge the exposure to currency risks on fixed maturity
investments. Interest and principal related to foreign fixed maturity
investments payable in foreign currencies, at market currency exchange rates,
are exchanged for the equivalent payment translated at a specific currency
exchange rate. The Company's maximum exposure to counterparty credit risk is
the difference between the foreign currency exchange rates, as agreed upon in
the swap contract, and the foreign currency spot rate on the date of
exchange. State Mutual recognizes net interest received or paid over the life
of the swap contract as an adjustment to net investment income. The decrease
in net investment income related to foreign currency swap contracts was
$(1,400) thousand, $(800) thousand and $(200) thousand for the years ended
December 31, 1994, 1993 and 1992, respectively.
The contractual amounts and maturity dates of foreign currency swap contracts
were as follows:
<TABLE>
<CAPTION>
December 31, 1994
-----------------
After
(In thousands) 1995 1996 1997 1998 1998 Total
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Currency:
Swiss franc $14,100 $10,600 $ -- $ -- $ 6,600 $ 31,300
Canadian dollar -- -- -- -- 15,000 15,000
British pound sterling -- -- 8,200 -- 18,800 27,000
Italian lire -- 20,000 -- -- -- 20,000
Other -- 5,400 10,000 -- 10,000 25,400
------- ------- ------- ------- ------- --------
Balance, December 31 $14,100 $36,000 $18,200 $ -- $50,400 $118,700
------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- --------
December 31, 1993
-----------------
After
(In thousands) 1994 1995 1996 1997 1997 Total
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Currency:
Swiss franc $ 5,000 $14,100 $10,600 $ -- $ 6,600 $ 36,300
Canadian dollar -- -- -- -- 15,000 15,000
British pound sterling -- -- -- 8,200 18,800 27,000
Italian lire -- -- 20,000 -- -- 20,000
Other 10,100 -- 5,400 10,000 5,000 30,500
------- ------- ------- ------- ------- --------
Balance, December 31 $15,100 $14,100 $36,000 $18,200 $45,400 $128,800
------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- --------
</TABLE>
10
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
A reconciliation of the contractual amounts of foreign currency swap
contracts outstanding for the year ended December 31 is as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---- ----
<S> <C> <C>
Contracts outstanding, January 1 $128,800 $ 95,000
New contracts 10,100 50,700
Contracts expired (15,100) (16,900)
Contracts terminated (5,100) --
-------- --------
Contracts outstanding, December 31 $118,700 $128,800
-------- --------
-------- --------
</TABLE>
NET INVESTMENT INCOME - The components of net investment income for the year
ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Bonds $261,176 $276,077 $285,415
Stocks 1,305 1,062 938
Investments in subsidiaries 37,478 107,603 67,239
Mortgage loans 87,670 114,831 130,480
Real estate 50,431 48,072 47,061
Policy loans 14,457 15,282 16,271
Other investments 2,765 (264) 2,649
Short term investments 359 2,284 1,045
-------- -------- --------
455,641 564,947 551,098
Less investment expenses 52,123 45,556 47,405
-------- -------- --------
Net investment income, before IMR amortization 403,518 519,391 503,693
IMR amortization 2,553 1,117 61
-------- -------- --------
Net investment income $406,071 $520,508 $503,754
-------- -------- --------
-------- -------- --------
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES - Realized capital gains (losses) on
investments for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Bonds $ 2,144 $ 4,953 $ 1,855
Stocks 84 87 472
Mortgage loans (21,351) (12,709) 49
Real estate (8,990) (11,743) (5,799)
Other 2,505 (2,734) (572)
-------- -------- --------
(25,608) (22,146) (3,995)
Less Federal income tax 1,086 2,232 961
-------- -------- --------
Net realized capital losses before transfer to IMR (26,694) (24,378) (4,956)
Net realized capital gains transferred to IMR (1,647) (8,956) (305)
-------- -------- --------
Net realized capital losses $(28,341) $(33,334) $ (5,261)
-------- -------- --------
-------- -------- --------
</TABLE>
Proceeds from voluntary sales of investments in bonds during 1994, 1993 and
1992 were $222,644 thousand, $222,865 thousand and $136,458 thousand,
respectively. Gross gains of $3,753 thousand, $3,337 thousand and $1,504
thousand and gross losses of $2,945 thousand, $1,300 thousand and $1,159
thousand, respectively, were realized on those sales.
11
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
NOTE 4 - INVESTMENTS IN SUBSIDIARIES
Summarized financial information concerning all unconsolidated subsidiaries
as of December 31 is as follows:
<TABLE>
<CAPTION>
Property & Casualty
(In thousands) Life Insurance Insurance Non-Insurance
-------------- --------- -------------
<S> <C> <C> <C>
1994
- ----
Assets $4,072,045 $4,337,564 $ 74,597
Liabilities 3,882,722 3,347,785 29,883
Equity in net income (loss) 6,403 42,753 (11,678)
1993
- ----
Assets $3,504,724 $4,200,463 $ 70,014
Liabilities 3,322,508 3,240,364 26,479
Equity in net income (loss) 19,782 95,741 (7,920)
</TABLE>
The Company provides management, operating personnel, facilities and other
services to various subsidiaries and affiliates. Reimbursements for such
services and facilities amounted to $261,913 thousand, $225,044 thousand and
$112,777 thousand in 1994, 1993 and 1992, respectively. Net amounts
receivable from subsidiaries and affiliates were $37,514 thousand and $30,188
thousand at December 31, 1994 and 1993, respectively.
NOTE 5 - FAIR VALUE DISCLOSURES OF FINANCIAL INFORMATION
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure of fair value information
about certain financial instruments (insurance contracts, real estate,
goodwill and taxes are excluded) for which it is practicable to estimate such
values, whether or not these instruments are included in the balance sheet.
The fair values presented for certain financial instruments are estimates
which, in many cases, may differ significantly from the amounts which could
be realized upon immediate liquidation. In cases where market prices are not
available, estimates of fair value are based on discounted cash flow analyses
which utilize current interest rates for similar financial instruments which
have comparable terms and credit quality. Fair values of futures contracts
and foreign currency swaps were not material to State Mutual as of December 31,
1994 and 1993.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
FINANCIAL ASSETS:
CASH AND SHORT TERM INVESTMENTS - The carrying amounts reported in the
statement of financial position approximate fair value.
BONDS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models using
discounted cash flow analyses.
STOCKS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models.
MORTGAGE LOANS - Fair values are estimated by discounting the future
contractual cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings. The fair value of below
investment grade mortgage loans is limited to the lesser of the present value
of future cash flows or book value.
POLICY LOANS - The carrying amount reported in the statement of financial
position approximates fair value since policy loans have no defined maturity
dates and are inseparable from the insurance contracts.
12
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
FINANCIAL LIABILITIES:
INVESTMENT CONTRACTS (WITHOUT MORTALITY/MORBIDITY FEATURES) - Fair values
for the Company's liabilities under guaranteed investment type contracts are
estimated using discounted cash flow calculations using current interest
rates for similar contracts with maturities consistent with those remaining
for the contracts being valued. Other liabilities are based on surrender
values.
The estimated fair values of the financial instruments as of December 31 were
as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 21,931 $ 21,931 $ 22,378 $ 22,378
Short term investments 72,159 72,159 61,176 61,176
Bonds 3,063,890 2,982,155 3,172,304 3,342,112
Stocks 14,638 14,638 48,713 48,713
Mortgage loans 825,611 814,047 1,045,748 1,077,707
Policy loans 248,310 248,310 258,845 258,845
Financial Liabilities:
Guaranteed investment contracts $2,170,643 $2,134,046 $2,463,938 $2,582,392
Other group contract deposit funds 980,327 969,627 1,087,732 1,116,800
Supplemental contracts without life contingencies 8,647 8,647 11,013 11,013
Dividend accumulations 84,482 84,482 84,808 84,808
Other individual contract deposit funds 107,400 106,893 124,081 122,908
Individual annuity contracts 8,185 7,943 -- --
</TABLE>
NOTE 6 - BORROWED MONEY
State Mutual issues commercial paper primarily to manage imbalances between
operating cash flows and existing commitments. Commercial paper borrowing
arrangements are supported by various lines of credit. As of December 31,
1994, State Mutual has approximately $165,000 thousand in unused committed
lines of credit provided by U.S. banks. These lines of credit generally have
terms of less than one year, and require the Company to pay annual commitment
fees ranging from 0.10% to 0.125% of the available credit. Interest that
would be charged for usage of these lines of credit is based upon negotiated
arrangements.
State Mutual has no borrowed money outstanding at December 31, 1994 and 1993.
Interest expense related to borrowed money was $2,485 thousand, $154
thousand and $580 thousand for the years ended December 31, 1994, 1993 and
1992, respectively.
NOTE 7 - FEDERAL INCOME TAXES
The federal income tax provisions (benefit) for 1994, 1993 and 1992 were
$17,476 thousand, $9,265 thousand and $(208) thousand, respectively, which
include taxes applicable to realized capital gains of $1,086 thousand, $2,232
thousand and $961 thousand.
The effective federal income tax rates were 30.1%, 7.5% and (0.2)% in 1994,
1993 and 1992, respectively. The differences between the federal statutory
rate and the Company's effective tax rates are primarily related to:
decreases in taxable income for the utilization of net operating loss
carryforwards and write-offs of mortgage loans and real estate; increases in
taxable income for differences in policyholder liabilities for federal income
tax purposes and financial reporting purposes, the accrual of market
discounts on investments and the deferral of policy acquisition costs for
federal tax purposes. The
13
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
policyholder dividends adjustment affecting mutual life insurance companies
resulted in an increase in taxable income in 1994 and 1992 and a decrease in
taxable income in 1993. At December 31, 1994, the Company has no available
net operating loss carryforwards; however, there are available alternative
minimum tax credit carryforwards of $1,540 thousand.
The Company's Federal income tax returns are routinely audited by the
Internal Revenue Service (IRS) and provisions are routinely made in the
financial statements in anticipation of the results of these audits. The
Internal Revenue Service (IRS) has completed its examination of all of the
Company's federal income tax returns through 1988. Deficiencies asserted
with respect to tax years 1977 through 1981 have been paid and recorded and
the Company has filed a recomputation of such years with appeals claiming a
refund with respect to certain agreed upon issues, but has not recognized any
benefit in its financial statements. The Company is currently considering
its response to certain adjustments proposed by the IRS with respect to the
Company's federal income tax returns for 1982 and 1983. If upheld, these
proposed adjustments would result in additional payments; however, the
Company will vigorously defend its position with respect to these
adjustments. In management's opinion, adequate tax liabilities have been
established for all years.
NOTE 8 - PENSION PLANS
The Company provides retirement benefits to substantially all of its
employees and all agents hired prior to 1982 under defined benefit pension
plans. Through December 31, 1994, retirement benefits were based primarily
on years of service and compensation. Benefit accruals under the defined
benefit formula were frozen for most employees (but not for eligible agents)
effective December 31, 1994. In their place, the Company plans to adopt a
defined benefit cash balance formula, under which the Company would annually
provide a contribution to each eligible employee as a percentage of that
employee's salary, similar to a defined contribution plan arrangement.
Employees would then be allowed to direct the investment of their awards and
to borrow against them. Adoption of the defined benefit cash balance formula
is subject to the resolution of certain technical and design issues, and may
be subject to receipt of a favorable determination letter from the IRS that
the Company's pension plans, as amended to reflect the cash balance formula,
will continue to satisfy the requirements of Section 401(a) of the Internal
Revenue Code. The Company's funding policy is to contribute annually the
minimum contribution determined using the net unit credit cost method and
applicable regulations of the Employee Retirement Income Security Act of
1974. The Company's accounting policy follows FASB Statement No. 87,
"Employers' Accounting for Pensions".
Components of net pension expense (benefit) for the years ended December 31,
were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 5,403 $ 3,980 $ 3,222
Interest accrued on projected benefit
obligations 11,706 11,675 9,948
Actual return on plan assets (1,671) (13,942) (13,071)
Net amortization and deferral (10,399) 302 (1,192)
-------- -------- --------
Net pension expense (benefit) $ 5,039 $ 2,015 $ (1,093)
-------- -------- --------
-------- -------- --------
</TABLE>
14
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
The following table summarizes the status as of December 31, of the Company's
pension plans. The plans' assets exceeded accumulated benefits. The net
pension asset is included in the statement of financial position with Other
Assets.
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $140,230 $153,244
-------- --------
-------- --------
Accumulated benefit obligation $141,727 $154,058
-------- --------
-------- --------
Pension asset included in Other Assets:
Projected benefit obligation for service rendered to date $153,334 $171,506
Plan assets at fair value 154,209 161,224
-------- --------
Plan assets in excess (deficit) of projected benefit obligation 875 (10,282)
Unrecognized net loss from past experience 41,438 45,945
Unrecognized prior service cost (12,568) 403
Unamortized transition asset (18,184) (19,466)
-------- --------
Net pension asset $ 11,561 $ 16,600
-------- --------
-------- --------
</TABLE>
Determination of the projected benefit obligation was based on a weighted
average discount rate of 8.5% in 1994 and 7% in 1993. The assumed long-term
rate of return on plan assets was 9% for both years. The actuarial present
value of the projected benefit obligation was determined using assumed rates
of increase in future compensation levels ranging from 5.5% to 6% for both
years. Updated mortality tables were used in 1993 to reflect the longer life
expectancy of retirees. Plan assets are invested primarily in various
separate accounts and the general account of State Mutual.
The Company has a Profit Sharing and 401(k) Plan for which substantially all
employees are eligible. The Company also has a similar integrated defined
contribution plan for substantially all of its agents. Effective for plan
years beginning after 1994, the profit sharing formula for employees has been
discontinued and a 401(k) match feature has been added to the continuing
401(k) plan for the employees.
NOTE 9 - OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's pension plans, the Company currently provides
postretirement medical and death benefits to certain full-time employees and
dependents, under a plan sponsored by State Mutual. Generally, employees
become eligible at age 55 with at least 15 years of service. Spousal
coverage is generally provided for up to two years after death of the
retiree. Benefits include hospital, major medical and a payment at death
equal to retirees' final compensation up to certain limits. The medical
plans have varying copayments and deductibles, depending on the plan. This
plan is unfunded.
Effective January 1, 1993, the Company adopted the statutory accounting
policy for employers' accounting for postretirement benefits other than
pensions for its postretirement benefit plans. The accounting policy
requires companies to recognize the estimated future cost of providing health
and other postretirement benefits on an accrual basis. Previously, such
costs were generally recognized as an expense when paid. The Company elected
to immediately record the transition obligation in the amount of $23,495
thousand as a direct charge to contingency reserves. The cost for benefits
earned during 1993, subsequent to adoption, and charged to operating expenses
was approximately $1,600 thousand more than the expense that would have been
recorded under the previous accounting method.
15
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
The status of the Company's plan at December 31, was as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $20,156 $21,143
Active employees eligible to retire 7,512 5,806
------- -------
Accumulated postretirement benefit obligation accrued 27,668 26,949
Unrecognized actuarial loss (772) (1,800)
------- -------
Net postretirement benefit liability $26,896 $25,149
------- -------
------- -------
</TABLE>
The components of net periodic postretirement benefit expense
for the years ended December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---- ----
<S> <C> <C>
Service cost $1,291 $1,400
Interest cost on accumulated postretirement benefit obligation 2,051 1,932
Amortization of unrecognized (gain) loss 214 --
------ ------
Net periodic postretirement benefit expense $3,556 $3,332
------ ------
------ ------
</TABLE>
For purposes of measuring the accumulated postretirement benefit obligation
at December 31, 1994, health care costs were assumed to increase 11%,
declining thereafter to an ultimate rate of 6% over seven years. At
December 31, 1993, health care costs were assumed to increase 12%, declining
to an ultimate rate of 5.5% over eight years. The weighted average discount
rate used in determining the accumulated postretirement benefit obligation was
8.5% and 7.0% at December 31, 1994 and 1993, respectively.
For purposes of measuring the accumulated postretirement benefit obligation
at January 1, 1993 (the transition adjustment), health care costs were
assumed to increase 15% for pre-1965 retirees and 13% for post-1965 retirees,
declining thereafter to 6% over 10 years for pre-1965 retirees and 8 years
for post-1965 retirees. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation at January 1,
1993 was 8.5%.
The health care costs trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost trend
rate by 1% in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1994 by $1,800 thousand, and the estimated
service cost and interest cost components of net periodic postretirement
benefit costs for 1994 by $265 thousand.
NOTE 10 - CONTINGENCY RESERVES
Other adjustments to contingency reserves for the years ended December 31 are
as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Change in non-admitted assets:
Demutualization costs $(10,299) $ (4,000) $ --
Other (3,711) 171 (372)
-------- -------- ------
Total change in non-admitted assets (14,010) (3,829) (372)
Transition adjustment for post retirement benefit obligation -- (23,495) --
Prior year taxes (3,383) (13,915) --
Prior year expense (13,827) -- --
FAS 87 adjustment for non-qualified pension plans (7,132) -- --
Other miscellaneous changes (2,263) 406 2,202
-------- -------- ------
Total other adjustments $(40,615) $(40,833) $1,830
-------- -------- ------
-------- -------- ------
</TABLE>
16
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
NOTE 11 - REINSURANCE
The Company participates in reinsurance to reduce overall risks, including
exposure to large losses and to permit recovery of a portion of direct
losses. Reinsurance contracts do not relieve the Company from its obligation
to its policyholders. Reinsurance financial data for the years ended
December 31, is as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C>
Reinsurance premiums assumed $ 62,127 $40,289 $ 35,679
Reinsurance premiums ceded $105,142 $81,545 $ 64,366
Deduction from insurance liability
including reinsurance recoverable on unpaid claims $ 90,244 $83,768 $106,774
</TABLE>
The Company assumes from SMA Life approximately 10% of the individual life
business of SMA Life. Premiums assumed by State Mutual aggregated $7,771
thousand, $9,000 thousand and $9,586 thousand in 1994, 1993 and 1992,
respectively. The Company also has entered into reinsurance agreements
whereby the Company cedes to SMA Life certain insurance risks related to
individual accident and health business, premium income and related expenses.
Premiums ceded pursuant to these agreements aggregated $3,788 thousand,
$4,190 thousand and $4,614 thousand in 1994, 1993 and 1992, respectively.
NOTE 12 - DIVIDEND RESTRICTIONS
Delaware, New Hampshire and Michigan have enacted laws governing the payment
of dividends and other distributions to stockholders by insurers. These laws
affect the dividend paying ability of SMA Life, Hanover and Citizens,
respectively.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its statutory policyholders' surplus as of the
preceding December 31 or (ii) the individual company's statutory net gain
from operations for the preceding calendar year (if such insurer is a life
company) or its net income (not including realized capital gains) for the
preceding calendar year (if such insurer is not a life company). Any
dividends to be paid by an insurer, whether or not in excess of the
aforementioned threshold, from a source other than earned surplus would also
require the prior approval of the Delaware Commissioner of Insurance. While
SMA Life is currently operating on a profitable basis, it has a negative
earned surplus position and, accordingly, is precluded from paying dividends
to State Mutual without the approval of the Delaware Commissioner of
Insurance.
Pursuant to New Hampshire's statute, extraordinary dividends and other
distributions may only be paid from statutory policyholders' surplus,
excluding dividends paid, as of the December 31st preceding. An
extraordinary dividend or distribution includes any dividend or distribution
of cash or other property, whose fair market value together with that of
other dividends or distributions made within the preceding 12 months exceeds
10% of such insurers surplus as regards policyholders as of December 31, next
preceding. Based on the 1994 statutory financial statements of Hanover, the
maximum dividend that may be paid to Allmerica P&C at January 1, 1995 without
prior approval from the New Hampshire Commissioner of Insurance is $92,400
thousand.
Under the Michigan Insurance Code, cash dividends may be paid by Citizens
only from earnings and policyholders' surplus. In addition, a Michigan
insurer may not pay an "extraordinary" dividend to its stockholders without
prior approval of the Michigan Insurance Commissioner. An extraordinary
dividend or distribution is defined as a dividend or distribution of cash or
other property whose fair market value, together with that of other dividends
and distributions made within the preceding 12 months, exceeds the greater of
10% of policyholders' surplus as of December 31 of the preceding year or the
statutory net income less realized gains, for the immediately preceding
calendar year. At January 1, 1995, Citizens could pay dividends of $32,700
thousand without approval of the Michigan Insurance Commissioner.
17
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
NOTE 13 - LITIGATION
The Company has been named a defendant in various legal proceedings arising
in the normal course of business. In the opinion of management, based on the
advice of legal counsel, the ultimate resolution of these proceedings will
not have a material effect on the Company's financial statements.
18
<PAGE>
SEPARATE ACCOUNT VA-K
DELAWARE MEDALLION
<PAGE>
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1994
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Sub-Account Sub-Account Sub-Account
201 202 203
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Delaware Group Premium Fund, Inc. .... $ 456,397 $ 278,680 $ 178,079
Accrued Investment Income..................................... -- 2,746 1,029
Receivable from State Mutual Life Assurance
Company of America (Sponsor)................................ 1,376 -- 10
------------- ------------- -------------
Total assets.............................................. 457,773 281,426 179,118
LIABILITIES:
Payable to State Mutual Life Assurance Company
of America (Sponsor)....................................... -- 329 --
------------- ------------- -------------
Net assets.............................................. $ 457,773 $ 281,097 $ 179,118
------------- ------------- -------------
------------- ------------- -------------
Net asset distribution by category:
Qualified variable annuity policies........................ $ 80,077 $ 1,808 --
Non-qualified variable annuity policies.................... 376,219 279,289 $ 178,902
Value of annuitant mortality fluctuation reserve........... 1,477 -- 216
------------- ------------- -------------
$ 457,773 $ 281,097 $ 179,118
------------- ------------- -------------
------------- ------------- -------------
Qualified units outstanding, December 31, 1994................ 79,592 1,846 --
Net asset value per qualified unit, December 31, 1994......... $ 1.006095 $ .979552 $ --
Non-qualified units outstanding, December 31, 1994............ 375,408 285,119 180,727
Net asset value per non-qualified unit, December 31, 1994..... $ 1.006095 $ .979552 $ .991098
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Sub-Account Sub-Account Sub-Account
204 205 206
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Delaware Group Premium Fund, Inc. .... $ 306,149 $ 150,808 $ 171,252
Accrued Investment Income..................................... 1,999 -- --
Receivable from State Mutual Life Assurance
Company of America (Sponsor)................................ -- -- 145
------------- ------------- -------------
Total assets.............................................. 308,148 150,808 171,397
LIABILITIES:
Payable to State Mutual Life Assurance Company
of America (Sponsor)....................................... 536 184 --
------------- ------------- -------------
Net assets.............................................. $ 307,612 $ 150,624 $ 171,397
------------- ------------- -------------
------------- ------------- -------------
Net asset distribution by category: $ 23,755 $ 11,999 $ 57,970
Qualified variable annuity policies........................ 283,857 138,625 113,122
Non-qualified variable annuity policies.................... -- -- 305
Value of annuitant mortality fluctuation reserve........... ------------- ------------- -------------
$ 307,612 $ 150,624 $ 171,397
------------- ------------- -------------
------------- ------------- -------------
Qualified units outstanding, December 31, 1994................ 23,327 11,909 58,470
Net asset value per qualified unit, December 31, 1994......... $ 1.018346 $ 1.007537 $ .991464
Non-qualified units outstanding, December 31, 1994............ 278,743 137,588 114,403
Net asset value per non-qualified unit, December 31, 1994..... $ 1.018346 $ 1.007537 $ .991464
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Sub-Account Sub-Account Sub-Account
207 208 209
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Delaware Group Premium Fund, Inc. .... $ 194,249 $ 82,066 $ 808,317
Accrued Investment Income..................................... -- -- --
Receivable from State Mutual Life Assurance
Company of America (Sponsor)................................ -- -- --
------------- ------------- -------------
Total assets.............................................. 194,249 82,066 808,317
LIABILITIES:
Payable to State Mutual Life Assurance Company
of America (Sponsor)....................................... 214 94 481
------------- ------------- -------------
Net assets.............................................. $ 194,035 $ 81,972 $ 807,836
------------- ------------- -------------
------------- ------------- -------------
Net asset distribution by category: $ 6,489 $ 12,981 $ 134,727
Qualified variable annuity policies........................ 187,546 68,991 673,109
Non-qualified variable annuity policies.................... -- -- --
Value of annuitant mortality fluctuation reserve........... ------------- ------------- -------------
$ 194,035 $ 81,972 $ 807,836
------------- ------------- -------------
------------- ------------- -------------
Qualified units outstanding, December 31, 1994................ 6,461 12,960 131,820
Net asset value per qualified unit, December 31, 1994......... $ 1.004301 $ 1.001594 $ 1.022048
Non-qualified units outstanding, December 31, 1994............ 186,743 68,882 658,588
Net asset value per non-qualified unit, December 31, 1994..... $ 1.004301 $ 1.001594 $ 1.022048
</TABLE>
<PAGE>
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Sub-Account Sub-Account Sub-Account
201 (c) 202 (e) 203 (f)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................. $ 4,115 $ 13,166 $ 5,148
EXPENSES:
Mortality and expense risk fees........................... 1,577 1,555 902
Administrative expense charges............................ 189 187 108
------------- ------------- -------------
Total expenses.......................................... 1,766 1,742 1,010
------------- ------------- -------------
Net investment income (loss).............................. 2,349 11,424 4,138
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss)................................. (688) (599) (431)
Net unrealized gain (loss)............................... (7,982) (13,447) (5,626)
------------- ------------- -------------
Net realized and unrealized gain (loss) on investments.... (8,670) (14,046) (6,057)
------------- ------------- -------------
Net increase(decrease) in net assets from operations...... $ (6,321) $ (2,622) $ (1,919)
------------- ------------- -------------
------------- ------------- -------------
<FN>
(a) For the period April 6, 1994 (date of initial investment) to December 31, 1994.
(b) For the period April 19, 1994 (date of initial investment) to December 31, 1994.
(c) For the period April 28, 1994 (date of initial investment) to December 31, 1994.
(d) For the period May 10, 1994 (date of initial investment) to December 31, 1994.
(e) For the period May 20, 1994 (date of initial investment) to December 31, 1994.
(f) For the period June 22, 1994 (date of initial investment) to December 31, 1994.
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Sub-Account Sub-Account Sub-Account
204 (a) 205 (b) 206 (b)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................. $ 7,403 -- $ 1,131
EXPENSES:
Mortality and expense risk fees........................... 2,247 $ 890 221
Administrative expense charges............................ 270 106 26
------------- ------------- -------------
Total expenses.......................................... 2,517 996 247
------------- ------------- -------------
Net investment income (loss).............................. 4,886 (996) 884
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss)................................. -- (1,184) 533
Net unrealized gain (loss)............................... -- (1,376) (2,476)
------------- ------------- -------------
-- (2,560) (1,943)
Net realized and unrealized gain (loss) on investments.... ------------- ------------- -------------
$ 4,886 $ (3,556) $ (1,059)
------------- ------------- -------------
Net increase(decrease) in net assets from operations......... ------------- ------------- -------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Sub-Account Sub-Account Sub-Account
207 (b) 208 (d) 209 (d)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................. -- -- --
EXPENSES:
Mortality and expense risk fees........................... $ 774 $ 323 $ 726
Administrative expense charges............................ 93 39 87
------------- ------------- -------------
Total expenses.......................................... 867 362 813
------------- ------------- -------------
Net investment income (loss).............................. (867) (362) (813)
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss)................................. 202 24 314
Net unrealized gain (loss)............................... (1,825) 224 16,678
------------- ------------- -------------
(1,623) 248 16,992
Net realized and unrealized gain (loss) on investments.... ------------- ------------- -------------
$ (2,490) $ (114) $ 16,179
------------- ------------- -------------
Net increase(decrease) in net assets from operations......... ------------- ------------- -------------
</TABLE>
<PAGE>
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Sub-Account 201 Sub-Account 202 Sub-Account 203
For the Period For the Period For the Period
4/28/94* to 12/31/94 5/20/94* to 12/31/94 6/22/94* to 12/31/94
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss)............................... $ 2,349 $ 11,424 $ 4,138
Net realized gain (loss) from security transactions........ (688) (599) (431)
Net unrealized gain (loss) on investments.................. (7,982) (13,447) (5,626)
------------- ------------- -------------
Net increase (decrease) in net assets from operations...... (6,321) (2,622) (1,919)
FROM CAPITAL TRANSACTIONS:
Net purchase payments........................................ 47,639 34 22,500
Terminations................................................. -- (18,704) (80)
Annuity benefits............................................. -- -- --
Other transfers from (to) the General Account of State Mutual
Life Assurance Company of America (Sponsor)................ 416,455 302,389 158,617
------------- ------------- -------------
Net increase in net assets from capital transactions......... 464,094 283,719 181,037
------------- ------------- -------------
Net increase in net assets................................... 457,773 281,097 179,118
NET ASSETS:
Beginning of period.......................................... -- -- --
------------- ------------- -------------
End of period................................................ $ 457,773 $ 281,097 $ 179,118
------------- ------------- -------------
------------- ------------- -------------
<FN>
* Date of initial investment.
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Sub-Account 204 Sub-Account 205 Sub-Account 206
For the Period For the Period For the Period
4/6/94* to 12/31/94 4/19/94* to 12/31/94 4/19/94* to 12/31/94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss)............................... $ 4,886 $ (996) $ 884
Net realized gain (loss) from security transactions........ -- (1,184) 533
Net unrealized gain (loss) on investments.................. -- (1,376) (2,476)
------------- ------------- -------------
Net increase (decrease) in net assets from operations...... 4,886 (3,556) (1,059)
FROM CAPITAL TRANSACTIONS:
Net purchase payments........................................ 2,603,547 15,231 856
Terminations................................................. (2,571) (13,006) (80)
Annuity benefits............................................. -- -- --
Other transfers from (to) the General Account of State Mutual
Life Assurance Company of America (Sponsor)................ (2,298,250) 151,955 171,680
------------- ------------- -------------
Net increase in net assets from capital transactions......... 302,726 154,180 172,456
------------- ------------- -------------
Net increase in net assets................................... 307,612 150,624 171,397
NET ASSETS:
Beginning of period.......................................... -- -- --
------------- ------------- -------------
End of period................................................ $ 307,612 $ 150,624 $ 171,397
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Sub-Account 207 Sub-Account 208 Sub-Account 209
For the Period For the Period For the Period
4/19/94* to12/31/94 5/10/94* to 12/31/94 5/10/94* to 12/31/94
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss)............................... $ (867) $ (362) $ (813)
Net realized gain (loss) from security transactions........ 202 24 314
Net unrealized gain (loss) on investments.................. (1,825) 224 16,678
------------- ------------- -------------
Net increase (decrease) in net assets from operations...... (2,490) (114) 16,179
FROM CAPITAL TRANSACTIONS:
Net purchase payments........................................ 3,503 60 88
Terminations................................................. (17,812) -- (13,289)
Annuity benefits............................................. -- -- --
Other transfers from (to) the General Account of State Mutual
Life Assurance Company of America (Sponsor)................ 210,834 82,026 804,858
------------- ------------- -------------
Net increase in net assets from capital transactions......... 196,525 82,086 791,657
------------- ------------- -------------
Net increase in net assets................................... 194,035 81,972 807,836
NET ASSETS:
Beginning of period.......................................... -- -- --
------------- ------------- -------------
End of period................................................ $ 194,035 $ 81,972 $ 807,836
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
<PAGE>
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994
NOTE 1 - ORGANIZATION
Separate Account VA-K - Delaware Medallion (VA-K) is a separate investment
account of State Mutual Life Assurance Company of America (the Company). VA-K
was established on April 1, 1994 for the purpose of separating from the general
assets of the Company those assets used to fund certain variable annuity
policies issued by the Company. Under applicable insurance law, the assets and
liabilities of VA-K are clearly identified and distinguished from the other
assets and liabilities of the Company. VA-K cannot be charged with liabilities
arising out of any other business of the Company.
VA-K is registered as a unit investment trust under the Investment Company
Act of 1940, as amended (the 1940 Act). VA-K currently offers nine Sub-Accounts
under the Delaware Medallion policies. Each Sub-Account invests exclusively in
a corresponding investment portfolio of the Delaware Group Premium Fund, Inc.
(DGPF), managed by Delaware Management Company, Inc., or Delaware International
Advisors, Ltd. DGPF is an open-end, diversified series management investment
company registered under the 1940 Act.
Separate Account VA-K has two types of variable annuity policies, "qualified"
policies and "non-qualified" policies. A qualified policy is one that is
purchased in connection with a retirement plan which meets the requirements of
Section 401, 403, 408, or 457 of the Internal Revenue Code, while a
non-qualified policy is one that is not purchased in connection with one of the
indicated retirement plans. The tax treatment for certain partial redemptions
or surrenders will vary according to whether they are made from a qualified
policy or a non-qualified policy.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Investments - Security transactions are recorded on the trade date.
Investments in shares of DGPF are stated at the net asset value per share of the
respective investment portfolio of DGPF. Net realized gains and losses on
securities sold are determined on the average cost method. Dividends and
capital gain distributions are recorded on the ex-dividend date and are
reinvested in additional shares of the respective investment portfolio of DGPF
at net asset value.
Federal Income Taxes -The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code and files a consolidated Federal
Income Tax return. The Company anticipates no tax liability resulting from the
operations of VA-K. Therefore, no provision for income taxes has been charged
against VA-K.
Annuitant Mortality Fluctuation Reserve - A strengthening reserve required
for doing business in the state of New York. The purpose of this reserve is to
provide for future mortality experience which is less favorable than that
assumed in pricing the annuity. This reserve is funded by the Company.
<PAGE>
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994, CONTINUED
NOTE 3 - INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in DGPF at December 31, 1994 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Portfolio Information
Sub- Investment Number of Aggregate Net Asset
Account Portfolio Shares Cost Value Per Share
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
201 Equity Income............. 39,756 $ 464,379 $ 11.48
202 High Yield................ 32,632 292,127 8.54
203 Capital Reserves.......... 19,148 183,705 9.30
204 Money Market.............. 30,615 306,149 10.00
205 Growth.................... 12,835 152,184 11.75
206 Multiple Strategies....... 13,506 173,728 12.68
207 International Equities.... 16,392 196,074 11.85
208 Value..................... 7,975 81,842 10.29
209 Emerging Growth........... 79,559 791,639 10.16
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum based on the average daily net
assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account .15% per annum based on the
average daily net assets of each Sub-Account for administrative expenses. These
charges are deducted from the daily value of each Sub-Account but are paid to
the Company on a monthly basis. Net purchase payments represent gross purchase
payments less applicable premium taxes.
A policy fee is currently deducted on the policy anniversary date and upon
full surrender of the policy when the accumulated value is $50,000 or less. The
policy fee is $30. The policy fee is currently waived for policies originally
issued as part of a 401(k) plan. For the period ended December 31, 1994, there
were no policy fees deducted from accumulated value in the Sub-Accounts.
Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned
subsidiary of the Company, is principal underwriter and general distributor of
VA-K, and does not receive any compensation for sales of the VA-K - Delaware
Medallion policies. Commissions are paid by the Company to registered
representatives of broker-dealers who are registered under the Securities
Exchange Act of 1934 and are members of the National Association of Securities
Dealers. As the current series of policies have a contingent deferred sales
charge, no deduction is made for sales charges at the time of the sale.
<PAGE>
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994, CONTINUED
NOTE 5 - POLICYOWNERS AND SPONSOR TRANSACTIONS
Transactions from policyowners and sponsor were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PERIOD ENDED DECEMBER 31, 1994
UNITS AMOUNT
- -------------------------------------------------------------------------------
<S> <C> <C>
Sub-Account 201
Issuance of units........ 490,513 $ 499,742
Redemption of units...... (35,513) (35,648)
----------- -----------
Net increase............. 455,000 $ 464,094)
----------- -----------
----------- -----------
Sub-Account 202
Issuance of units........ 306,020 $ 302,430
Redemption of units...... (19,055) (18,711)
----------- -----------
Net increase............. 286,965 $ 283,719
----------- -----------
----------- -----------
Sub-Account 203
Issuance of units........ 208,909 $ 209,117
Redemption of units...... (28,182) (28,080)
----------- -----------
Net increase............. 180,727 $ 181,037
----------- -----------
----------- -----------
Sub-Account 204
Issuance of units........ 2,590,101 $ 2,613,450
Redemption of units...... (2,288,031) (2,310,724)
----------- -----------
Net increase............. 302,070 $ 302,726
----------- -----------
----------- -----------
Sub-Account 205
Issuance of units........ 224,449 $ 227,170
Redemption of units...... (74,952) (72,990)
----------- -----------
Net increase............. 149,497 $ 154,180
----------- -----------
----------- -----------
Sub-Account 206
Issuance of units........ 172,954 $ 172,536
Redemption of units...... (81) (80)
----------- -----------
Net increase............. 172,873 $ 172,456
----------- -----------
----------- -----------
</TABLE>
<PAGE>
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994, CONTINUED
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1994
UNITS AMOUNT
- -------------------------------------------------------------------------------
<S> <C> <C>
Sub-Account 207
Issuance of units........ 254,950 $ 258,568
Redemption of units...... (61,746) (62,043)
----------- -----------
Net increase............. 193,204 $ 196,525
----------- -----------
----------- -----------
Sub-Account 208
Issuance of units........ 127,209 $ 127,330
Redemption of units...... (45,367) (45,244)
----------- -----------
Net increase............. 81,842 $ 82,086
----------- -----------
----------- -----------
Sub-Account 209
Issuance of units........ 803,511 $ 805,231
Redemption of units...... (13,103) (13,574)
----------- -----------
Net increase............. 790,408 $ 791,657
----------- -----------
----------- -----------
</TABLE>
NOTE 6 - DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a
variable annuity contract, other than a contract issued in connection with
certain types of employee benefit plans, will not be treated as an annuity
contract for federal income tax purposes for any period for which the
investments of the segregated asset account on which the contract is based are
not adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations issued
by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that VA-K satisfies the current requirements of
the regulations, and it intends that VA-K will continue to meet such
requirements.
<PAGE>
SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994, CONTINUED
NOTE 7 - PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the DGPF shares by VA-K during
the period ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Sub-
Account Investment Portfolio Purchases Sales
- ------- -------------------- ----------- -----------
<S> <C> <C> <C>
201 Equity Income............. $ 518,974 $ 53,907
202 High Yield................ 312,846 20,120
203 Capital Reserves.......... 208,822 24,685
204 Money Market.............. 2,681,427 2,375,278
205 Growth.................... 287,584 134,216
206 Multiple Strategies....... 305,669 132,474
207 International Equities.... 322,671 126,799
208 Value..................... 146,036 64,218
209 Emerging Growth........... 814,782 23,457
----------- -----------
Totals.................... $ 5,598,811 $ 2,955,154
----------- -----------
----------- -----------
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of State Mutual Life
Assurance Company of America and Policyowners
of Separate Account VA-K - Delaware Medallion
of State Mutual Life Assurance Company
of America
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of Sub-Accounts 201, 202, 203,
204, 205, 206, 207, 208 and 209 (constituting the Separate Account VA-K -
Delaware Medallion of State Mutual Life Assurance Company of America) at
December 31, 1994, the results of each of their operations and the changes in
each of their net assets for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of State Mutual Life Assurance Company of America's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1994 by correspondence with the Fund, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 13, 1995
<PAGE>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
FINANCIAL STATEMENTS INCLUDED IN PART A
None
FINANCIAL STATEMENTS INCLUDED IN PART B
Financial Statements for the Company
Financial Statements for Separate Account VA-K
FINANCIAL STATEMENTS INCLUDED IN PART C
None
(b) EXHIBITS
Exhibit 1 - Vote of Board of Directors Authorizing Establishment of Registrant
dated August 20, 1991 was previously filed on May 11, 1992, in
Registration Statement No. 33-47858, and is herein incorporated by
reference.
Exhibit 2 - Not Applicable. Pursuant to Rule 26a-2, the Insurance Company may
hold the assets of the Registrant NOT pursuant to a trust indenture
or other such instrument.
Exhibit 3 - Underwriting and Administrative Services Agreement was previously
filed on November 1, 1993 and is herein incorporated by reference.
Form of Wholesaling Agreement was previously filed on March 27,
1992 in Registration Statement No. 33-44830 and is incorporated
herein by reference. Broker's Agreement and Specimen Schedule of
Sales Commissions for Variable Annuity Policies was previously
filed on December 21, 1991, and are herein incorporated by
reference.
Exhibit 4 - Form of Policy was previously filed on October 18, 1994 and is
herein incorporated by reference.
Exhibit 5 - Form of Application was previously filed on October 18, 1994 and is
herein incorporated by reference.
Exhibit 6 - The Depositor's restated Articles of Incorporation and Bylaws
Exhibit 7 - Not Applicable.
Exhibit 8 - AUV Calculation Services Agreement with The Shareholder Services
Group dated March 31, 1995 was previously filed on May 1, 1995 and
is herein incorporated by reference.
Exhibit 9 - Consent and Opinion of Counsel.
Exhibit 10 - Consent of Independent Accountants.
Exhibit 11 - None.
Exhibit 12 - None.
Exhibit 13 - None
Exhibit 14 - Not Applicable.
<PAGE>
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR.
NAME AND POSITION PRINCIPAL OCCUPATION
Michael P. Angelin1, Esq., Director Bowditch & Dewey
311 Main Street
Worcester, MA 01608
David A. Barrett, Director Consultant
MCCM, Inc. and The Medical Center of
Central Massachusetts
11 Shattuck Street
Worcester, MA 01605
Gail L. Harrison, Director Senior Vice President
The Wexler Group
Suite 600, 1317 F Street, N.W.
Washington, DC 20004
J. Terrence Murray, Director Chairman, President and Chief Executive
Officer
Fleet/Norstar Financial Group, Inc.
50 Kennedy Plaza
Providence, RI 02903
Guy W. Nichols, Director Woods Hole Oceanographic Institution
25 Research Drive
Westborough, MA 01582
John F. O'Brien, Director President and Chief Executive Officer
First Allmerica Financial Life
Insurance Company
440 Lincoln Street
Worcester, MA 01653
Dr. John L. Sprague, Director President
John L. Sprague Associates
One Cranberry Hill
Lexington, MA 02173
Robert G. Stachler, Esq., Director Taft, Stettinius & Hollister
1800 Star Bank Center
425 Walnut Street
Cincinnati, OH 45202
Herbert M. Varnum, Director Chairman and Chief Executive Officer
Quabaug Corporation
17 School Street
North Brookfield, MA 01535
Richard Manning Wall, Esq., Director General Counsel and Asst. to the
Chairman
Flexcon Company, Inc.
Flexcon Industrial Park
Spencer, MA 01562
<PAGE>
The principal business address of all the following Directors and Officers is:
440 Lincoln Street
Worcester, Massachusetts 01653
NAME PRINCIPAL OCCUPATION
Barry Z. Aframe Vice President and Counsel
Bruce C. Anderson Vice President and Assistant Secretary
Richard J. Baker Vice President and Secretary
Whitworth F. Bird, Jr., M.D. Vice President and Medical Director
William P. Bishop Vice President
Lawrence E. Blanchard Vice President
Alan R. Boyer Vice President
Mark R. Colborn Vice President and Controller
Lisa M. Coleman Vice President
Deborah A. Culhane Vice President
Dix F. Davis Vice President
Valentina T. Dingle Vice President
Denzil C. Drewry Vice President
Leonard D. Driscoll Vice President
Bruce A. Emond Vice President
Edward W. Ford Vice President
Bruce H. Freedman Vice President
Thomas E. Hardy Vice President
William Hayward Vice President
Brian L. Hirst Vice President and Actuary
Kruno Huitzingh Vice President and Chief Information Officer
Richard E. Johnson Vice President
John P. Kavanaugh Vice President
John F. Kelly Senior Vice President, General Counsel and
Assistant Secretary
Kathleen M. Klein Vice President
Richard H. Kremer Vice President
Jeffrey P. Lagarce Vice President
Walter M. Laliberte Vice President
Frank A. LoPiccolo Vice President
Joseph W. MacDougall, Jr. Vice President, Associate General Counsel and
Assistant Secretary
<PAGE>
William H. Mawdsley Vice President and Actuary
Roderick A. McGarry, II Vice President
John W. Nunley Vice President
John F. O'Brien Director, President and Chief Executive Officer
Stephen Parker Vice President
Edward J. Parry, III Vice President and Treasurer
Jean S. Peters Vice President
Richard M. Reilly Vice President
Rachelle Reisberg Vice President
Larry C. Renfro Vice President
Winifred "Una" Rice Vice President
Stephen P. Rutman Vice President
Henry P. St. Cyr Vice President and Assistant Treasurer
Eric A. Simonsen Vice President and Chief Financial Officer
Mark T. Smith Vice President
Philip E. Soule Vice President
Ann K. Tripp Vice President
James S. Wakefield Vice President
Jerome F. Weihs Vice President
Diane E. Wood Vice President
Item 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT. Registrant is a
separate account of First Allmerica Financial Life Insurance Company
(formerly State Mutual Life Inslurance Company of America; the Company ).
The following entities are under common control with the Company:
NAME ADDRESS TYPE OF BUSINESS
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
Allmerica Asset Management, 440 Lincoln Street Investment advisory
Inc. Worcester MA 01653 services
Allmerica Employees Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Financial Life 440 Lincoln Street Life insurance, accident
Insurance and Annuity Worcester MA 01653 & health insurance,
Company (formerly SMA Life annuities, variable
Assurance Company) annuities and variable
life insurance
<PAGE>
Allmerica Financial Services 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester, MA 01653
Allmerica Institutional 440 Lincoln Street Accounting, marketing
(formerly 440 Financial Worcester MA 01653 services for investment
Group of Worcester, Inc.) and shareholder
companies
Allmerica Funds 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Investment Services, 440 Lincoln Street Holding Company
Inc. (formerly Allmerica Worcester, MA 01653
Financial Services, Inc.)
Allmerica Investment Management 440 Lincoln Street Investment Advisory
Company, Inc. Services Worcester MA 01653
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail
Worcester MA 01653 broker-dealer
Allmerica Investment Trust 440 Lincoln Street Investment Company
(formerly SMA Investment Trust) Worcester MA 01653
Allmerica Property and Casualty 440 Lincoln Street Holding Company
Companies, Inc. Worcester MA 01653
Allmerica Realty Advisors, Inc. 440 Lincoln Street Investment Advisory
Worcester MA 01653 services
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services, Inc. 440 Lincoln Street Service Company
Worcester MA 01653
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose
Worcester MA 01653 national trust company
AMGRO, Inc. 472 Lincoln Street Premium financing
Worcester MA 01653
APC Funding Corp. 440 Lincoln Street Spec. purpose funding
Worcester MA 01653 vehicle for commercial
paper
Beltsville Drive Limited 440 Lincoln Street Real estate partnership
Partnership Worcester MA 01653
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company of 645 West Grand River Multi-line fire &
America Howell MI 48843 casualty insurance
Citizens Insurance Company of 645 West Grand River Multi-line fire &
Ohio Howell MI 48843 casualty insurance
<PAGE>
Citizens Management, Inc. 645 West Grand River Services management
Howell MI 48843 company
Greendale Special Placements 440 Lincoln Street Massachusetts Grantor
Fund Worcester MA 01653 Trust
The Hanover American Insurance 100 North Parkway Multi-line fire &
Company Worcester MA 01653 casualty insurance
The Hanover Insurance Company 100 North Parkway Multi-line fire &
Worcester MA 01605 casualty insurance
Hanover Texas Insurance 801 East Campbell Road Incorporated Branch
Management Company, Inc. Richardson TX 75081 Office of The Hanover
Inurance Company
Hanover Lloyd's Insurance Company 801 East Campbell Road Multi-line fire &
Richardson TX 75081 casualty insurance
Hollywood Center, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Linder Skokie Real Estate 440 Lincoln Street General business
Corporation Worcester MA 01653 corporation
Lloyds Credit Corporation 440 Lincoln Street Premium financing
Worcester MA 01653 service franchises
Logan Wells Water Company, Inc. 603 Heron Drive Water Co., serving
Bridgeport NJ 08014 land development
investment
Massachusetts Bay Insurance 100 North Parkway Multi-line fire &
Company Worcester MA 01653 casualty
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Somerset Square, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Sterling Risk Management 100 North Parkway Risk management
Services, Inc. Worcester MA 01605 services
Item 27. NUMBER OF CONTRACTOWNERS.
As of December 31, 1994, there were 20 Policyowners of qualified Policies and
54 Policyowners of non-qualified Policies.
Item 28. INDEMNIFICATION.
To the fullest extent permissible under Massachusetts General Laws, no
director shall be personally liable to the Company or any policyholder for
monetary damages for any breach of fiduciary duty as a director,
notwithstanding any provision of law to the contrary; provided, however, that
this provision shall not eliminate or limit the liability of a director:
1. for and breach of the director's duty of loyalty to the Company or its
policyholders;
2. for acts or omissions not in good faith, or which involve intentional
misconduct or a knowing violation of law;
3. for liability, if any, imposed on directors of insurance companies pursuant
to M.G.L.A. c. 156B
<PAGE>
Section 61 or M.G.L.A. c.156B Section 62;
4. for any transactions from which the director derived an improper personal
benefit.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
- VEL Account, VEL II Account, Inheiritage Account, Separate Accounts
VA-A, VA-B, VA-C, VA-G, VA-H, VA-K, VA-P and Allmerica Select Separate
Account of Allmerica Financial Life Insurance and Annuity Company
(formerly SMA Life Assurance Company)
- Inheiritage Account, VEL II Account, Separate Account I and Allmerica
Select Separate Account of the Company
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
NAME POSITION OR OFFICE WITH UNDERWRITER
Abigail M. Armstrong Secretary and Counsel
Philip J. Coffey Vice President
Bob A. Freelove Vice President
John F. Kelly Director
Eric S. Levy Assistant Vice President and Chief Financial
Officer
John F. O'Brien Director
Stephen Parker President and CEO
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Ronald K. Smith Vice President
Mark Steinberg Senior Vice President
Robert T. Stemple Vice President and Controller
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3
thereunder are maintained by the Company at 440 Lincoln Street, Worcester,
Massachusetts or on behalf of the Company by The Shareholder Services Group,
Inc., 290 Donald Lynch Boulevard, Marlborough, Massachusetts.
Item 31. MANAGEMENT SERVICES.
Effective March 31, 1995, the Company has engaged The Shareholder Services
Group, Inc., 53 State Street, Boston, Massachusetts to provide daily unit
value calculations and related services for the Company's separate accounts.
Item 32. UNDERTAKINGS.
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any
<PAGE>
rule or regulation of the Commission heretofore or hereafter duly adopted
pursuant to authority conferred in that section.
(b) The registrant hereby undertakes to include in the prospectus a postcard
that the applicant can remove to send for a Statement of Additional
Information.
(c) The registrant hereby undertakes to deliver a Statement of Additional
Information promptly upon written or oral request, according to the
requirements of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act may
be permitted to Directors, Officers and Controlling Persons of Registrant
under any registration statement, underwriting agreement or otherwise,
Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a Director, Officer or
Controlling Person of Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Director, Officer or Controlling
Person in connection with the securities being registered, Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of
such issue.
Item 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION
403(B) PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM.
Registrant, a separate account of the Company, states that it is (a) relying
on Rule 6c-7 under the 1940 Act with respect to withdrawal restrictions under
the Texas Optional Retirement Program ("Program") and (b) relying on the
"no-action" letter (Ref. No. IP-6-88) issued on November 28, 1988 to the
American Council of Life Insurance, in applying the withdrawal restrictions
of Internal Revenue Code Section 403(b)(11). Registrant has taken the
following steps in reliance on the letter:
1. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in the prospectus of
each registration statement used in connection with the offer of the
Company's variable contracts.
2. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in sales
literature used in connection with the offer of the Company's variable
contracts.
3. Sales Representatives who solicit participants to purchase the variable
contracts have been instructed to specifically bring the redemption
restrictions imposed by the Program and by Section 403(b)(11) to the
attention of potential participants.
4. A signed statement acknowledging the participant's understanding of (i)
the restrictions on redemption imposed by the Program and by Section
403(b)(11) and (ii) the investment alternatives available under the
employer's arrangement will be obtained from each participant who purchases a
variable annuity contract prior to or at the time of purchase.
Registrant hereby represents that it will not act to deny or limit a transfer
request except to the extent that a Service-Ruling or written opinion of
counsel, specifically addressing the fact pattern involved and taking into
account the terms of the applicable employer plan, determines that denial or
limitation is necessary for the variable annuity contracts to meet the
requirements of the Program or of Section 403(b). Any transfer request not
so denied or limited will be effected as expeditiously as possible.
<PAGE>
EXHIBIT TABLE
Exhibit 6- Company s restated Articles of Incorporation and Bylaws
Exhibit 9 - Consent and Opinion of Counsel
Exhibit 10- Consent of Independent Accountants
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Registrant has duly caused the Post-Effective Amendment
to its Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, all in the City of Worcester and Commonwealth of
Massachusetts on the 10th day of October, 1995. Registrant certifies that it
meets the requirement of Securities Act Rule 485(b) for effectiveness of this
Post-Effective Amendment to its Registration Statement.
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
SEPARATE ACCOUNT VA-K
Attest: /s/ Richard J. Baker
-----------------------------
Richard J. Baker
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ John F. O'Brien
- ---------------------------- Director, President and October 10, 1995
John F. O'Brien Chief Executive Officer
/s/ Eric A. Simonsen
- ---------------------------- Vice President and
Eric A. Simonsen Chief Financial Officer
/s/ Mark R. Colborn
- ---------------------------- Vice President and
Mark R. Colborn Controller
Michael P. Angelini, Esq.
Mr. David A. Barrett
Ms. Gail L. Harrison
Mr. J. Terrence Murray
Mr. Guy W. Nichols A majority of the Directors
Dr. John L. Sprague
Robert G. Stachler, Esq.
Mr. Herbert M. Varnum
Richard Manning Wall, Esq.
Richard J,. Baker, by signing his name hereto, does hereby sign this document
on behalf of each of the above-named Directors of State Mutual Life Assurance
Company of America pursuant to the Powers of Attorney duly executed by such
persons.
/s/ Richard J. Baker
- -----------------------------
Richard J. Baker
Attorney-In-Fact
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
FEDERAL IDENTIFICATION
NO. 04-1867650
-------------------
MICHAEL JOSEPH CONNOLLY
SECRETARY OF STATE
ONE ASHBURTON PLACE, BOSTON, MASS: 02108
RESTATED ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 175
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles of organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to
the Commonwealth of Massachusetts.
-----------
We,
John F. O'Brien PRESIDENT
and Richard J. Baker SECRETARY
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Name of Corporation)
located at 440 Lincoln Street, Worcester, Massachusetts
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
do hereby certify that the following restatement of the articles of organization
of the corporation was duly adopted at a meeting held on June 30, 1995,
by vote of
. . . . . . . shares of . . . . . . . . . . , out of . . . . . . . . . . . . . .
(Class of Stock)
. . . . . . . shares of . . . . . . . . . . , out of . . . . . . . . . . . . . .
(Class of Stock)
. . . . . . . shares of . . . . . . . . . . , out of . . . . shares outstanding,
(Class of Stock)
being at least two-thirds of the policyholders present in person or by proxy or
mail and entitled to vote
1. The name by which the corporation shall be known is; -
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
2. The purposes for which the corporation is formed are as follows: -
SEE PAGE 2A
<PAGE>
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized to issue is as follows:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
----------------- --------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
- -------------- ---------------- ---------------- ----------
<S> <C> <C> <C>
Preferred -- -- --
Common -- 1,000,000 $10.00
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established:
N/A
*5. The restrictions, if any, imposed by the articles of organization upon
the transfer of shares of stock of any class are as follows:
Transfer is subject in certain circumstances to approval of the
commissioner of insurance of The Commonwealth of Massachusetts.
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary
dissolution, or for limiting, defining, or regulating the powers of
the corporation, or of its directors or stockholders, or of any class
of stockholders:
See pages 6A through D hereof.
*If there are no provisions, state "None".
<PAGE>
Foregoing restated articles of organization effect no amendments to the articles
of organization of the corporation as heretofore amended, except amendments to
the following articles. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(*If there are no such amendments, state "None".)
Briefly describe amendments in space below:
To effect amendments related to the conversion of the corporation
from a mutual life insurance company to a stock life insurance
company including change of name to "First Allmerica Financial
Life Insurance Company", the authorization of 1,000,000 shares of
Common Stock, $10.00 par value, the restatement and amendment of
corporate purposes, and the addition of Article 6 provisions.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this
day of in the year 19
/s/ John F. O'Brien President/Vice President
. . . . . . . . . . . . . . . . . . . . . . .
/s/ Richard J. Baker Secretary
. . . . . . . . . . . . . . . . . . . . . . .
SEE PAGE 7A
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
I hereby approve the within restated
articles of organization and, the filing
fee in the amount of $ having
been paid, said articles are deemed to have
been filed with me this
day of October, 1995.
MICHAEL JOSEPH CONNOLLY
SECRETARY OF STATE
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT
TO: Richard J. Baker, Esq.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
440 Lincoln Street
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Worcester, MA 01653
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone 508-855-1000
. . . . . . . . . . . . . . . . . . . . . . . .
Copy Mailed
<PAGE>
Article 2. CORPORATE PURPOSES
The Corporation is constituted for the purpose of transacting on the
stock plan, and when qualified and licensed by law to do so, the kinds of
insurance now or hereafter described in or permitted by Clauses 6th and 16th
of Section 47 and Sections 47A and 54G of Chapter 175 of the General Laws of
The Commonwealth of Massachusetts and any acts in amendment thereof or in
addition thereto, and such other kinds of insurance as may be permitted now
or hereafter to be transacted by insurance corporations organized or
authorized to transact any of the kinds of insurance now or hereafter
described or permitted by said Clauses of Section 47 and Sections 47A and
54G; and including any form of insurance which may be permitted by paragraphs
(b) and (g) of Section 51 of said Chapter 175; and any acts in amendment
thereof or in addition thereto; thus including the authority pursuant to said
Clauses of Section 47 and Sections 47A and 54G; and including, pursuant to
the provisions of paragraph (g) of said Section 51, authority to write such
other form or forms of insurance coverage not included in the provisions of
said Section 47 and Sections 47A and 54G, and not contrary to the law, as
the Commissioner of Insurance, in his or her discretion, may authorize and
license subject to such terms and conditions as he or she may from time to
time prescribe.
The Board of Directors may permit the issuance of participating
policies, and may permit the policyholders of the Company from time to time
to participate in the profits of its operations through the payment of
dividends. The Board of Directors shall have the power to make reasonable
classification or classifications of policies and to take such other action,
in accordance with the law, as may be necessary or desirable to carry into
effect any participation by policyholders in the profits of the operations of
the Company. No policyholder shall have any right to participate in the
profits of the operations of the Company unless and until the Directors of
the Company, in the exercise of their discretion, affirmatively authorize
such participation, and then only to the extent so authorized.
-2A-
<PAGE>
ARTICLE 6
Other Lawful Provisions
6.1 The corporation may carry on any business, operation or activity
referred to in Article 2 to the same extent as might an individual, whether as
principal, agent, contractor or otherwise, and either alone or in conjunction or
a joint venture or other arrangement with any corporation, association, trust,
firm or individual.
6.2 The corporation may carry on any business, operation or activity
through a wholly or partly owned subsidiary.
6.3 The corporation may be a partner in any business enterprise which it
would have power to conduct by itself.
6.4 The directors may make, amend or repeal the by-laws in whole or in
part, except with respect to any provision thereof which by law or the by-laws
requires action by the stockholders.
6.5 Meetings of the stockholders may be held anywhere in the United
States.
6.6 Except as otherwise provided by law, no stockholder shall have any
right to examine any property or any books, accounts or other writings of the
corporation if there is reasonable ground for belief that such examination will
for any reason be adverse to the interests of the corporation, and a vote of the
directors refusing permission to make such examination and setting forth that in
the opinion of the directors such examination would be adverse to the interests
of the corporation shall be prima facie evidence that such examination would be
adverse to the interests of the corporation. Every such examination shall be
subject to such reasonable regulations as the directors may establish in regard
thereto.
6.7 The directors may specify the manner in which the accounts of the
corporation shall be kept and may determine what constitutes net earnings,
profits and surplus, what amounts, if any, shall be reserved for any corporate
purpose, and what amounts, if any, shall be declared as dividends. Unless the
board of directors otherwise specifies, the excess of the consideration for any
share of its capital stock with par value issued by it over such par value shall
be surplus. The board of directors may allocate to capital stock less than all
of the consideration for any share of its capital stock without par value issued
by it, in which case the balance of such consideration shall be surplus. All
surplus shall be available for any corporate purpose, including the payment of
dividends.
-6A-
<PAGE>
6.8 The purchase or other acquisition or retention by the corporation of
shares of its own capital stock shall not be deemed a reduction of its capital
stock. Upon any reduction of capital or capital stock, no stockholder shall
have any right to demand any distribution from the corporation, except as and to
the extent that the stockholders shall have provided at the time of authorizing
such reduction.
6.9 The directors shall have the power to fix form time to time their
compensation. No person shall be disqualified from holding any office by reason
of any interest. In the absence of fraud, any director, officer or stockholder
of this corporation individually, or any individual having any interest in any
concern which is a stockholder of this corporation, or any concern in which any
of such directors, officers, stockholders or individuals has an interest, may be
a party to, or may be pecuniarily or otherwise interested in, any contract,
transaction or other act of the corporation, and
(1) such contract, transaction or act shall not be in any way invalidated
or otherwise affected by that fact;
(2) no such director, officer, stockholder or individual shall be liable
to account to the corporation for any profit or benefit realized
through any such contract, transaction or act; and
(3) any such director of the corporation may be counted in determining the
existence of a quorum at any meeting of the directors or of any
committee thereof which shall authorize any such contract, transaction
or act, and may vote to authorize the same;
provided, however, that any contract, transaction or act in which any director
or officer of the corporation is so interested individually or as a director,
officer, trustee or member of any concern which is not a subsidiary or affiliate
of the corporation, or in which any directors or officers are so interested as
holders, collectively, of a majority of shares of capital stock or other
beneficial interest at the time outstanding in any concern which is not a
subsidiary or affiliate of the corporation, shall be duly authorized or ratified
by a majority of the directors who are not so interested, to whom the nature of
such interest has been disclosed and who have made any findings required by law;
the term "interest" including personal interest and interest as a
director, officer, stockholder, shareholder, trustee, member or beneficiary
of any concern;
-6B-
<PAGE>
the term "concern" meaning any corporation, association, trust,
partnership, firm, person or other entity other than the corporation; and
the phrase "subsidiary or affiliate" meaning a concern in which a majority
of the directors, trustees, partners or controlling persons is elected or
appointed by the directors of the corporation, or is constituted of the
directors or officers of the corporation.
To the extent permitted by law, the authorizing or ratifying vote of the holders
of shares representing a majority of the votes of the capital stock of the
corporation outstanding and entitled to vote for the election of directors at
any annual meeting or a special meeting duly called for the purpose (whether
such vote is passed before or after judgment rendered in a suit with respect to
such contract, transaction or act) shall validate any contract, transaction or
act of the corporation, or of the board of directors or any committee thereof,
with regard to all stockholders of the corporation, whether or not of record at
the time of such vote, and with regard to all creditors and other claimants
under the corporation; provided, however, that
A. with respect to the authorization or ratification of contracts,
transactions or acts in which any of the directors, officers or
stockholders of the corporation have an interest, the nature of such
contracts, transactions or acts and the interest of any director,
officer or stockholder therein shall be summarized in the notice of
any such annual or special meeting, or in a statement or letter
accompanying such notice, and shall be fully disclosed at any such
meeting;
B. the stockholders so voting shall have made any findings required by
law;
C. the stockholders so interested may vote at any such meeting except to
the extent otherwise provided by law; and
D. any failure of the stockholders to authorize or ratify such contract,
transaction or act shall not be deemed in any way to invalidate the
same or to deprive the corporation, its directors, officers or
employees of its or their right to proceed with or enforce such
contract, transaction or act.
If the corporation has more than one class or series of capital stock
outstanding, the vote required by this paragraph shall be governed by the
provisions of the Articles of Organization applicable to such classes or series.
-6C-
<PAGE>
No contract, transaction or act shall be avoided by reason of any provision of
this paragraph 6.9 which would be valid but for such provision or provisions.
6.10 A director of the corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that exculpation from liability is not permitted
under the Massachusetts Business Corporation Law as in effect at the time such
liability is determined. No amendment or repeal of this paragraph 6.10 shall
apply to or have any effect on the liability or alleged liability of any
director of the corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
6.11 The corporation shall have all powers granted to corporations by the
laws of The Commonwealth of Massachusetts, provided that no such power shall
include any activity inconsistent with the Business Corporation Law or the
general laws of said Commonwealth.
-6D-
<PAGE>
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, the undersigned,
constituting a majority of the board of directors have hereto signed our names
this 19th day of September in the year 1995.
/s/ John F. O'Brien
- -------------------------------
John F. O'Brien
- -------------------------------
Michael P. Angelini
/s/ David A. Barrett
- -------------------------------
David A. Barrett
/s/ Gail L. Harrison
- -------------------------------
Gail L. Harrison
/s/ J. Terrence Murray
- -------------------------------
J. Terrence Murray
/s/ Guy W. Nichols
- -------------------------------
Guy W. Nichols
/s/ Robert G. Stachler
- -------------------------------
Robert G. Stachler
/s/ John L. Sprague
- -------------------------------
John L. Sprague
/s/ Richard Manning Wall
- -------------------------------
Richard Manning Wall
/s/ Herbert M. Varnum
- -------------------------------
Herbert M. Varnum
-7A-
<PAGE>
AMENDED AND RESTATED
BY-LAWS
of
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Section 1. ARTICLES OF ORGANIZATION
The name and purposes of the corporation shall be as set forth in the
Articles of Organization. These By-laws, the powers of the corporation and of
its directors and stockholders, or of any class of stockholders if there shall
be more than one class of stock, and all matters concerning the conduct and
regulation of the business and affairs of the corporation shall be subject to
such provisions in regard thereto, if any, as are set forth in the Articles of
Organization as from time to time in effect.
Section 2. STOCKHOLDERS
2.1. ANNUAL MEETING. The annual meeting of stockholders shall be held
at 10:00 A.M. on the third Tuesday in March in each year (unless that day be a
legal holiday at the place where the meeting is to be held in which case the
meeting shall be held at the same hour on the next succeeding day not a legal
holiday) or at such other date and time as shall be determined from time to time
by the board of directors. Purposes for which an annual meeting is to be held,
additional to those prescribed by law, by the Articles of Organization or by
these By-laws, may be specified by the president or by the directors.
2.2. SPECIAL MEETINGS. A special meeting of the stockholders may be
called at any time by the president or by the directors. Each call of a meeting
shall state the place, date, hour and purposes of the meeting.
2.3. PLACE OF MEETINGS. All meetings of the stockholders shall be held at
the principal office of the corporation in Massachusetts or, to the extent
permitted by the Articles of Organization, at such other place within the United
States as shall be fixed by the president or the directors. Any adjourned
session of any meeting of the stockholders shall be held at the same city or
town as the initial session, or within Massachusetts, in either case at the
place designated in the vote of adjournment.
<PAGE>
2.4. NOTICE OF MEETINGS. A written notice of each meeting of
stockholders, stating the place, date and hour and the purposes of the
meeting, shall be given at least seven days before the meeting to each
stockholder entitled to vote there at and to each stockholder who, by law, by
the Articles of Organization or by these By-laws, is entitled to notice, by
leaving such notice with him or at his residence or usual place of business,
or by mailing it, postage prepaid, addressed to such stockholder at his
address as it appears in the records of the corporation. Such notice shall
be given by the clerk or an assistant clerk or by an officer designated by
the directors. Whenever notice of a meeting is required to be given to a
stockholder under any provision of the Business Corporation Law of the
Commonwealth of Massachusetts or of the Articles of Organization or these
By-laws, a written waiver thereof, executed before or after the meeting by
such stockholder or his attorney before or after the meeting by such
stockholder or his attorney thereunto authorized and filed with the records
of the meeting, shall be deemed equivalent to such notice.
2.5. QUORUM OF STOCKHOLDERS. At any meeting of the stockholders, a quorum
as to any matter shall consist of a majority of the votes entitled to be cast on
the matter, except when a larger quorum is required by law, by the Articles of
Organization or by these By-laws. Stock owned directly or indirectly by the
corporation, if any, shall not be deemed outstanding for this purpose. Any
meeting may be adjourned from time to time by a majority of the votes properly
cast upon the question, whether or not a quorum is present, and the meeting may
be held as adjourned without further notice.
2.6. ACTION BY VOTE. When a quorum is present at any meeting, a
plurality of the votes properly cast for election to any office shall elect to
such office, and a majority of the votes properly cast upon any question other
than an election to an office shall decide the question, except when a larger
vote is required by law, by the Articles of Organization or by these By-laws.
no ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
2.7. VOTING. Stockholders entitled to vote shall have one vote for each
share of stock entitled to vote held by them of record according to the records
of the corporation, unless otherwise provided by the Articles of Organization.
The corporation shall not, directly or indirectly, vote any share of its own
stock.
-2-
<PAGE>
2.8. ACTION BY WRITING. Any action required or permitted to be taken at
any meeting of the stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of the meetings of stockholders.
Such consents shall be treated for all purposes as a vote at a meeting.
2.9. PROXIES. To the extent permitted by law, stockholders entitled to
vote may vote either in person or by proxy. Except to the extent permitted by
law, no proxy dated more than six months before the meeting named therein shall
be valid. Unless otherwise specifically limited by their terms, such proxies
shall entitle the holders thereof to vote at any adjournment of such meeting but
shall not be valid after the final adjournment of such meeting.
Section 3. BOARD OF DIRECTORS
3.1. NUMBER. At the annual meeting of stockholders such stockholders
as have the right to vote for the election of directors shall fix the number
of directors at not less than seven nor more than fifteen directors and shall
elect the number of directors so fixed. The number of directors may be
increased at any time or from time to time either by the stockholders or by
the directors by vote of a majority of the directors then in office. The
number of directors may be decreased to any number permitted by law at any
time or from time to time either by the stockholders or by the directors by a
vote of a majority of the directors then in office, but only to eliminate
vacancies existing by reason of the death, resignation, removal or
disqualification of one or more directors. No director need be a
stockholder.
3.2. TENURE. Except as otherwise provided by law, by the Articles of
Organization or by these By-laws, each director shall hold office until the next
annual meeting of the stockholders and until his successor is duly elected and
qualified, or until he sooner dies, resigns, is removed or becomes disqualified.
3.3. POWERS. Except as reserved to the stockholders by law, by the
Articles of Organization or by these By-laws, the business of the corporation
shall be managed by the directors who shall have and may exercise all the powers
of the corporation. In particular, and without limiting the generality of the
foregoing, the directors may at any time issue all or from time to time any part
of the unissued capital stock of the corporation from time to time authorized
under the Articles of Organization and may determine, subject to any
requirements of law, the consideration for which stock is to be issued and the
manner of allocating such consideration between capital and surplus.
-3-
<PAGE>
3.4. COMMITTEES. The directors may, by vote of a majority of the
directors then in office, elect from their number an executive committee and
other committees and delegate to any such committee or committees some or all of
the powers of the directors except those which by law, by the Articles of
Organization or these By-laws they are prohibited from delegating. Except as
the directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the directors or such
rules, its business shall be conducted as nearly as may be in the same manner as
is provided by these By-laws for the conduct of business by the directors.
3.5. REGULAR MEETINGS. Regular meetings of the directors may be held
without call or notice at such places and at such times as the directors may
from time to time determine, provided that reasonable notice of the first
regular meeting following any such determination shall be given to absent
directors. A regular meeting of the directors may be held without call or
notice immediately after and at the same place as the annual meeting of the
stockholders.
3.6. SPECIAL MEETINGS. Special meetings of the directors may be held at
any time and at any place designated in the call of the meeting, when called by
the chairman of the board, if any, the president or the secretary, reasonable
notice thereof being given to each director by the secretary or an assistant
secretary, or by the officer calling the meeting.
3.7. NOTICE. It shall be sufficient notice to a director to send notice
by mail at least forty-eight hours or by telegram at least twenty-four hours
before the meeting addressed to him at his usual or last known business or
residence address or to give notice to him in person or by telephone at least
twenty-four hours before the meeting. Notice of a meeting need not be given to
any director if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any director who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
3.8. QUORUM. At any meeting of the directors a majority of the directors
then in office shall constitute a quorum. Any meeting may be adjourned from
time to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
3.9. ACTION BY VOTE. When a quorum is present at any meeting, a
majority of the directors present may take any action, except when a larger vote
is required by law, by the Articles of Organization or by these By-laws.
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<PAGE>
3.10. ACTION BY WRITING. Unless the Articles of Organization otherwise
provide, any action required or permitted to be taken at any meeting of the
directors may be taken without a meeting if all the directors consent to the
action in writing and the written consents are filed with the records of the
meetings of the directors. Such consents shall be treated for all purposes as a
vote taken at a meeting.
3.11. PRESENCE THROUGH COMMUNICATIONS EQUIPMENT. Unless otherwise
provided by law or the Articles of Organization, members of the board of
directors may participate in a meeting of such board by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
Section 4. OFFICERS AND AGENTS
4.1. ENUMERATION; QUALIFICATION. The officers of the corporation
shall be a president, a treasurer, a secretary, and such other officers, as
the directors from time to time, may in their discretion elect or appoint.
The corporation may also have such agents, if any, as the directors from time
to time, may in their discretion appoint. Any officer may be but none need
be a director or stockholder. Any two or more offices may be held by the
same person. Any officer may be required by the directors to give bond for
the faithful performance of his duties to the corporation in such amount and
with such sureties as the directors may determine.
4.2. POWERS. Subject to law, to the Articles of Organization and to the
other provisions of these By-laws, each officer shall have, in addition to the
duties and powers herein set forth, such duties and powers as are commonly
incident to his office and such duties and powers as the directors may from time
to time designate.
4.3. ELECTION. The president, the treasurer and the secretary shall be
elected annually by the directors. Other officers, if any, may be elected or
appointed by the board of directors at any other time.
4.5. TENURE. Except as otherwise provided by law or by the Articles of
Organization or by these By-laws, the president, the treasurer and the secretary
and other officers shall hold office until their respective successors are
chosen and qualified, unless a shorter period shall have been specified by the
terms of his election or appointment, or in each case until he sooner dies,
resigns, is removed or becomes disqualified.
-5-
<PAGE>
4.5 CHIEF EXECUTIVE OFFICER. The chief executive officer of the
corporation shall be the chairman of the board, if any, the president or such
other officer as is designated by the directors and shall, subject to the
control of the directors, have general charge and supervision of the business of
the corporation. If no such designation is made, the president shall be the
chief executive officer. Unless the board of directors otherwise specifies, if
there is no chairman of the board, the chief executive officer shall preside, or
designate the person who shall preside, at all meetings of the stockholders and
of the board of directors.
4.6 CHAIRMAN OF THE BOARD. If a chairman of the board of directors is
elected, he shall have the duties and powers specified in these By-laws and
shall have such other duties and powers as may be determined by the directors.
Unless the board of directors otherwise specifies, the chairman of the board
shall preside, or designate the person who shall preside, at all meetings of the
stockholders and of the board of directors.
4.7 PRESIDENT AND VICE PRESIDENTS. The president shall have the duties
and powers specified in these By-laws and shall have such other duties and
powers as may be determined by the directors.
Any vice presidents shall have such duties and powers as shall be
designated from time to time by the directors.
4.8 TREASURER AND ASSISTANT TREASURERS. Except as the directors shall
otherwise determine, the treasurer shall be the chief financial and accounting
officer of the corporation and shall be in charge of its funds and valuable
papers, books of account and accounting records, and shall have such other
duties and powers as may be designated from time to time by the directors.
Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the directors.
4.9 SECRETARY AND ASSISTANT SECRETARY. The secretary shall record all
proceedings of the stockholders in a book or series of books to be kept
therefor, which book or books shall be kept at the principal office of the
corporation or at the office of its transfer agent or of its secretary and
shall be open at all reasonable times to the inspection of any stockholder.
In the absence of the secretary from any meeting of stockholders, an assitant
secretary, or if there be none or he is absent, a temporary secretary chosen
at the meeting, shall record the proceedings thereof in the aforesaid book.
Unless a transfer agent has been appointed the secretary shall keep or cause
to be kept the stock and transfer records of the corporation, which shall
contain the names and record addresses of all stockholders
-6-
<PAGE>
and the amount of stock held by each. The secretary shall keep a true record of
the proceedings of all meetings of the directors and in his absence from any
such meeting an assistant secretary, or if there be none or he is absent, a
temporary secretary chosen at the meeting, shall record the proceedings thereof.
Any assistant secretaries shall have such other duties and powers as shall
be designated from time to time by the directors.
4.10 POWERS. The chief executive officer, Chairman of the board,
President or any one of the Vice Presidents, including any Executive Vice
President, Senior Vice President, Second Vice President or Assistant Vice
President, and such other employees of the Company specifically authorized by
the chief executive officer shall have authority to transfer securities, to
execute releases, extensions, partial releases, and assignments without recourse
of mortgages, and to execute deeds and other instruments or documents on behalf
of the Company, and whenever necessary to affix the seal of the Company to the
same. The chief executive officer, Chairman of the Board, the President, any
Executive Vice President, Senior Vice President, Vice President, Second Vice
President, or Assistant Vice President may, whenever necessary, delegate
authority to perform any of the acts referred to in this paragraph to any person
pursuant to a special power of attorney.
The Treasurer shall have charge of all moneys and securities of the Company
and shall collect all proceeds from investments which the Company's records
establish to be due.
The Treasurer or an Assistant Treasurer shall have authority to transfer
securities; to execute releases, extensions, partial releases, and assignments
without recourse of mortgages; to execute deeds and other instruments or
documents on behalf of the Company, whenever necessary to affix the seal of the
company to the same; and shall have power to vote, on behalf of the Company, in
any case where the Company, as holder of any security, is entitled to vote.
Section 5. RESIGNATIONS AND REMOVALS
Any director or officer may resign at any time by delivering his
resignation in writing to the chairman of the board, if any, the president, the
treasurer or the secretary. In addition, a director may resign by delivering
his resignation in writing to a meeting of the directors. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. A director (including persons elected by directors to fill vacancies in
the board) may be removed from office (a) with or without cause by the vote of
the holders of a majority of the shares issued and outstanding and entitled to
vote in the election of directors, provided that the directors of a class
elected by a particular class of stockholders may be removed only
-7-
<PAGE>
by the vote of the holders of a majority of the shares of such class, or (b)
with cause by the vote of a majority of the directors then in office. The
directors may remove any officer elected by them with or without cause by the
vote of a majority of the directors then in office. A director or officer may
be removed for cause only after reasonable notice and opportunity to be heard
before the body proposing to remove him. No director or officer removed, shall
have any right to any compensation as such director or officer for any period
following his resignation or removal, or any right to damages on account of such
removal, whether his compensation be by the month or by the year or otherwise;
unless the body acting on the removal, shall in their or its discretion provide
for compensation.
Section 6. VACANCIES
Any vacancy in the board of directors, including a vacancy resulting from
the enlargement of the board, may be filled by the stockholders or, in the
absence of stockholder action, by the directors by vote of a majority of the
directors then in office. The directors shall elect a successor if the office
of the president, treasurer or secretary becomes vacant and may elect a
successor if any other office becomes vacant. Each such successor
shall hold office for the unexpired term and in the case of the president,
treasurer and secretary until his successor is chosen and qualified, or in each
case until he sooner dies, resigns, is removed or becomes disqualified. The
directors shall have and may exercise all their powers notwithstanding the
existence of one or more vacancies in their number.
Section 7. CAPITAL STOCK
7.1. NUMBER AND PAR VALUE. The total number of shares and the par value,
if any, of each class of stock which the corporation is authorized to issue
shall be as stated in the Articles of Organization.
7.2. SHARES REPRESENTED BY CERTIFICATES AND UNCERTIFICATED SHARES. The
board of directors may provide by resolution that some or all of any or all
classes and series of shares shall be uncertificated shares. Unless such a
resolution has been adopted, a stockholder shall be entitled to a certificate
stating the number and the class and the designation of the series, if any, of
the shares held by him, in such form as shall, in conformity to law, be
prescribed from time to time by the directors. Such certificate shall be signed
by the chairman of the board, if any, the president or a vice president and by
the treasurer or an assistant treasurer. Such signatures may be facsimiles if
the certificate is signed by a transfer agent, or by a registrar, other than a
director, officer or employee of the corporation. In case any officer who has
signed or whose
-8-
<PAGE>
facsimile signature has been placed on such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the time of its
issue.
7.3. LOSS OF CERTIFICATES. In the case of the alleged loss or
destruction or the mutilation of a certificate of stock, a duplicate certificate
may by issued in place thereof, upon such conditions as the directors may
prescribe.
Section 8. TRANSFER OF SHARES OF STOCK
8.1. TRANSFER ON BOOKS. Subject to the restrictions, if any, stated or
noted on the stock certificates, shares of stock may be transferred on the
books of the corporation by the surrender to the corporation or its transfer
agent of the certificate therefor properly endorsed or accompanied by a
written assignment and power of attorney properly executed, with necessary
transfer stamps affixed, and with such proof of the authenticity of signature
as the directors or the transfer agent of the corporation may reasonably
require. Except as may be otherwise required by law, by the Articles of
Organization or by these By-laws, the corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock
for all purposes, including the payment of dividends and the right to receive
notice and to vote with respect thereto, regardless of any transfer, pledge
or other disposition of such stock until the shares have been transferred on
the books of the corporation in accordance with the requirements of these
By-laws.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
8.2 RECORD DATE AND CLOSING TRANSFER BOOKS. The directors may fix in
advance a time, which shall not be more than sixty days before the date of
any meeting of stockholders or the date for the payment of any dividend or
making of any distribution to stockholders or the last day on which the
consent or dissent of stockholders may be effectively expressed for any
purpose, as the record date for determining the stockholders having the right
to notice of and to vote at such meeting and any adjournment thereof or the
right to receive such dividend or distribution or the right to give such
consent or dissent, and in such case only stockholders of record on such
record date shall have such right, notwithstanding any transfer of stock on
the books of the corporation after the record date; or without fixing such
record date the directors may for any of such purposes close the transfer
books for all or any part of such period. If no record date is fixed and the
transfer books are not closed:
(1) The record date for determining stockholders having the right to
notice of or to vote at a meeting of stockholders shall
-9-
<PAGE>
be at the close of business on the date next preceding the day on which notice
is given.
(2) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
acts with respect thereto.
Section 9. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the extent legally permissible, indemnify each of
its directors and officers (including persons who serve at its request as
directors, officers or trustees of another organization, or in any capacity with
respect to any employee benefit plan) against all liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees, reasonably incurred by him in connection with
the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, in which he may be involved or with which he may be
threatened, while in office or thereafter, by reason of his being or having been
such a director or officer, except with respect to any matter as to which he
shall have been adjudicated in any proceeding not to have acted in good faith
in the reasonable belief that his action was in the best interest of the
corporation (any person serving another organization in one or more of the
indicated capacities at the request of the corporation who shall have acted
in good faith in the reasonable belief that his action was in the best
interest of such other organization to be deemed as having acted in such
manner with respect to the corporation) or, to the extent that such matter
relates to service with respect to any employee benefit plan, in the best
interest of the participants or beneficiaries of such employee benefit plan;
provided, however, that as to any matter disposed of by a compromise payment
by such director or officer, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses
shall be provided unless such compromise shall be approved as in the best
interest of the corporation, after notice that it involves such indemnification:
(a) by a disinterested majority of the directors then in office; or (b) by a
majority of the disinterested directors then in office, provided that there has
been obtained an opinion in writing of independent legal counsel to the effect
that such director or officer appears to have acted in good faith in the
reasonable belief that his action was in the best interest of the corporation;
or (c) by the holders of a majority of the outstanding stock at the time
entitled to vote for directors, voting as a single class, exclusive of any stock
owned by any interested director or officer. Expenses, including counsel fees,
reasonably incurred by any director or officer in connection with the defense or
disposition of any such action, suit or other proceeding may be paid from time
to time by the corporation in advance of the final disposition thereof upon
-10-
<PAGE>
receipt of an undertaking by such director or officer to repay the amounts so
paid to the corporation if it is ultimately determined that indemnification for
such expenses is not authorized under this section. The right of
indemnification hereby provided shall not be exclusive of or affect any other
rights to which any director or officer may be entitled. As used in this
section, the terms "director" and "officer" include the relevant individual's
heirs, executors and administrators, and an "interested" director or officer is
one against whom in such capacity the proceedings in question or another
proceeding on the same or similar grounds is then pending. Nothing contained in
this section shall affect any rights to indemnification to which corporate
personnel other than directors and officers may be entitled by contract or
otherwise under law.
Section 10. CORPORATE SEAL
The seal of the corporation shall, subject to alteration by the directors,
consist of a flat-faced circular die with the word "Massachusetts", together
with the name of the corporation and the year of its organization, cut or
engraved thereon.
Section 11. EXECUTION OF PAPERS
The chief executive officer, Chairman of the Board, President or any one of
the Vice Presidents, including any Executive Vice President, Senior Vice
President, Second Vice President or Assistant Vice President, and such other
employees of the Company specifically authorized by the chief executive officer
shall have authority to transfer securities, to execute releases, extensions,
partial releases, and assignments without recourse of mortgages; and to execute
deeds and other instruments or documents on behalf of the Company, and whenever
necessary to affix the seal of the company to the same. The chief executive
officer, Chairman of the Board, the President, any Executive Vice President,
Senior Vice President, Vice President, Second Vice President, Vice President,
Second Vice President, or Assistant Vice President may, whenever necessary,
delegate authority to perform any of the acts referred to in this paragraph to
any person pursuant to a special power of attorney.
Section 12. FISCAL YEAR
The fiscal year of the corporation shall end on December 31.
Section 13. AMENDMENTS
These By-laws may be altered amended or repealed at any annual or special
meeting of the stockholders called for the purpose, of which the notice shall
specify the subject matter of the proposed alteration, amendment or repeal or
the sections to be affected thereby, by vote of the stockholders. These By-laws
may also be altered, amended or repealed by vote of a majority of
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<PAGE>
the directors then in office, except that the directors shall not take any
action which provides for indemnification of directors nor any action to amend
this Section 13, and except that the directors shall not take any action unless
permitted by law.
Any By-law so altered, amended or repealed by the directors may be further
altered or amended or reinstated by the stockholders in the above manner.
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
October 10, 1995
State Mutual Life Assurance Company of America
440 Lincoln Street
Worcester MA 01653
Gentlemen:
In my capacity as Counsel of State Mutual Life Assurance Company of America (the
"Company"), I have participated in the preparation of the Post-Effective
Amendment to the Registration Statement for Separate Account VA-K on Form N-4
under the Securities Act of 1933 and the Investment Company Act of 1940, with
respect to the Company's group variable annuity policies.
I am of the following opinion:
1. Separate Account VA-K is a separate account of the Company validly existing
pursuant to the Massachusetts Insurance Code and the regulations issued
thereunder.
2. The assets held in Separate Account VA-K are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The group variable annuity policies, when issued in accordance with the
Prospectus contained in the Registration Statement and upon compliance with
applicable local law, will be legal and binding obligations of the Company
in accordance with their terms and when sold will be legally issued, fully
paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to this Post-
Effective Amendment to the Registration Statement of Separate Account VA-K filed
under the Securities Act of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 4 to the Registration
Statement on Form N-4 of our report dated February 13 1995, except as to Note 2,
which is as of February 28, 1995, relating to the financial statements of State
Mutual Life Assurance Company of America and our report dated February 13, 1995,
relating to the financial statements of Separate Account VA-K Delaware Medallion
of State Mutual Life Assurance Company of America, both of which appear in such
Statement of Additional Information. We also consent to the reference to us
under the heading "Experts" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Boston, Massachusetts
October 16, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
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<NUMBER> 149
<NAME> SM SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION SUB-ACCOUNT 201
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 464,379
<INVESTMENTS-AT-VALUE> 456,397
<RECEIVABLES> 1,376
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
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<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 0
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<PAID-IN-CAPITAL-COMMON> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (7,982)
<NET-ASSETS> 457,773
<DIVIDEND-INCOME> 4,115
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1,766
<NET-INVESTMENT-INCOME> 2,349
<REALIZED-GAINS-CURRENT> (688)
<APPREC-INCREASE-CURRENT> (7,982)
<NET-CHANGE-FROM-OPS> (6,321)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 490,513
<NUMBER-OF-SHARES-REDEEMED> 35,513
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 457,773
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 228,887
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.005
<PER-SHARE-GAIN-APPREC> 0.001
<PER-SHARE-DIVIDEND> 0.0
<PER-SHARE-DISTRIBUTIONS> 0.0
<RETURNS-OF-CAPITAL> 0.0
<PER-SHARE-NAV-END> 1.006
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<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 150
<NAME> SM SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION SUB-ACCOUNT 202
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 292,127
<INVESTMENTS-AT-VALUE> 278,680
<RECEIVABLES> 0
<ASSETS-OTHER> 2,746
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 281,426
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 329
<TOTAL-LIABILITIES> 329
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 286,965
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (13,447)
<NET-ASSETS> 281,097
<DIVIDEND-INCOME> 13,166
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1,742
<NET-INVESTMENT-INCOME> 11,424
<REALIZED-GAINS-CURRENT> (599)
<APPREC-INCREASE-CURRENT> (13,447)
<NET-CHANGE-FROM-OPS> (2,622)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 306,020
<NUMBER-OF-SHARES-REDEEMED> 19,055
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 281,097
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 151
<NAME> SM SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION SUB-ACCOUNT 203
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 152
<NAME> SM SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION SUB-ACCOUNT 204
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 153
<NAME> SM SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION SUB-ACCOUNT 205
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 154
<NAME> SM SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION SUB-ACCOUNT 206
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 155
<NAME> SM SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION SUB-ACCOUNT 207
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 156
<NAME> SM SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION SUB-ACCOUNT 208
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
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<NAME> SM SEPARATE ACCOUNT VA-K - DELAWARE MEDALLION SUB-ACCOUNT 209
<S> <C>
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</TABLE>
