<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. 5
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 10
SEPARATE ACCOUNT VA-K OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Exact Name of Registrant)
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
440 Lincoln Street
Worcester MA 01653
(Address of Principal Executive Office)
Richard J. Baker, Vice President and Secretary
First Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective:
immediately upon filing pursuant to Paragraph (b)
---
on (date) pursuant to Paragraph (b)
---
60 days after filing pursuant to Paragraph (a) (1)
---
X on (April 30, 1996) pursuant to Paragraph (a) (1)
---
on (date) pursuant to Paragraph (a) (2) 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, 1995 was filed on February 29, 1996.
<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 A
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
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 First Allmerica Financial Life Insurance Company, formally known as
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 April 30,
1996 as may be amended from time to time, which has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. The
Table of Contents for the Statement of Additional Information is listed on page
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, First Allmerica Financial Life Insurance Company, 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.
THE POLICIES ARE OBLIGATIONS OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
AND ARE DISTRIBUTED BY ITS SUBSIDIARY, ALLMERICA INVESTMENTS, INC., THE POLICIES
ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR
CREDIT UNION. THE POLICIES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS
IN THE POLICIES ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE
AND POSSIBLE LOSS OF PRINCIPAL.
DATED April 30, 1996
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>
<CAPTION>
<S> <C>
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
</TABLE>
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<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
H. Simplified Employee Pensions. . . . . . . . . . . . . . . . . . . . 28
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
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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<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, the Global Bond Fund 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 any commutable or a
noncommutable period certain option for less than 10 years.
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
-5-
<PAGE>
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."
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<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.
POLICY OWNER TRANSACTION EXPENSES
- ---------------------------------
Contingent Deferred Sales Charge Policy Year after date of Charge
The charge (as a percentage of Purchase Payment
payments, applied to the amount 0-3 7%
surrendered in excess of the 4 6%
amount, if any, which may be 5 5%
surrendered free of charge) will 6 4%
be assessed upon surrender, 7 3%
redemption, or annuitization more than 7 0%
under any commutable period
certain option or a
noncommutable period certain
less than 10 years.
Transfer Charge
The Company currently makes no None
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.
ANNUAL POLICY FEE
An annual Policy Fee, equal to $30
$30, is 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
Separate Account Administrative Charge 1.25%
Total Annual Expenses 0.15%
-----
1.40%
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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 Expenses 0.71% 0.72% 0.74% 0.66% 0.80% 0.70% 0.80% 0.80% 0.80%
(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 commutable period
certain option or a noncommutable period certain option of less than 10
years 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
Global Bond $88 $140 $173 $263
</TABLE>
(b) If you annuitize* under a life option or any noncommutable period certain
option of 10 years or more 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
Global Bond $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 or under any noncommutable period certain
option of 10 years or more. Under Policy Form B, the expenses above would
average a few dollars LESS.
-8-
<PAGE>
CONDENSED FINANCIAL INFORMATION
First Allmerica Financial Life Insurance Company
Separate Account VA-K
<TABLE>
<CAPTION>
1995
------
<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)
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Subaccount 206
Net Asset Value:
Beginning of Period 1.000
End of Period 0.991
Number of Units Outstanding at End
of Period (in thousands) 173
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
of Period (in thousands) 790
Subaccount 10 1.100
--
--
</TABLE>
* 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.
PERFORMANCE INFORMATION
The Contracts were first offered to the public in 1991. However, the Company
may advertise "Total Return" and "Average Total Return" performance
information based on the periods that the Underlying Funds have been in
existence. The results for any period prior to the Contracts being offered
will be calculated as if the Contracts had been offered during that period of
time, with all charges assumed to be those applicable to the Sub-Accounts and
the Underlying Funds.
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 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
-10-
<PAGE>
time period, and should not be considered as a representation of what may be
achieved in the future.
TOTAL RETURN FOR PERIODS ENDING DECEMBER 31, 1995
-------------------------------------------------
(Assuming COMPLETE redemption of the investment)
<TABLE>
<CAPTION>
Total Average
SUB- Return for Annual Total
ACCOUNT NAME year ended Return Since
------- ---- -----
12/31/95 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%
210 Global Bond
</TABLE>
Total Return for Periods Ending December 31, 1995
(Assuming NO redemption of the investment)
<TABLE>
<CAPTION>
Total Average Annual
SUB- Return for Total Return
ACCOUNT NAME year ended Since
------- ---- -----
12/31/95 Inception*
-------- ----------
<S> <C> <C> <C>
201 Equity/Income -1.58% 0.61%
202 High Yield -4.20% -2.04%
204 Money Market 2.24% 1.83%
205 Growth -4.87% -0.75%
206 Multiple -1.52% 0.85%
207 Int'l Equity -0.61% 0.16%
208 Value 1.87% 2.20%
209 Emerging Growth -- --
210 Global Bond -- --
</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,
1995 the Company and its subsidiaries had over _________ billion in combined
assets and over $__________ billion of life insurance in force. Effective
October 16, 1995, the Company converted from a mutual life insurance company
known as State Mutual Life Assurance Company of America to a stock life
insurance
-11-
<PAGE>
company and adopted its present anme. The Company is a wholly-owned subsidiary
of Allmerica Financial Corporation ("AFC"). The Company's principal office is
located at 440 Lincoln Street, Worcester, Massachusetts 01653, telephone
508-855-1000 (Principal Office).
The Company is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of
Insurance of Massachusetts. In addition, the Company is subject to the
insurance laws and regulations of other states and jurisdictions in which it
is licensed to operate.
THE SEPARATE ACCOUNT - Separate Account 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 ten 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, Global Bond 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 and
the Global Bond 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.
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.
-12-
<PAGE>
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.
Subaccount 210 invests solely in shares of the Global Bond Series. The
Global Series seeks current income consistent with preservation of principal
by investing primarily in fixed income securities that may also provide the
potential for capital appreciation. At least 65% of the Series's assets will
be invested in fixed income securities of issuers organized or having a
majority of their assets in or deriving a majority of their operating income
in at least three different countries, one of which may be the United States.
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.
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
-13-
<PAGE>
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 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
-14-
<PAGE>
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:
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.
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
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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
penal ty. 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,
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.
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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 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
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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 Service, First Allmerica Financial Life
Insurance 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 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.
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.
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.
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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 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."
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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 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.
Effiective November 1, 1995, automotic 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.
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.
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(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 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.
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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
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
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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 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
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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 life
contingency or a noncommutable period certain option of at least a 10 year
option is determined by multiplying (1) the Accumulated Value applied under
that option (after deduction for premium tax, if any) divided by $1,000, by
(2) the applicable amount of the first monthly payment per $1,000 of value.
For any commutable period certain options and for noncommutable period
certain options, the Surrender Value less any premium tax is applied. 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
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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 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
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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. 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
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until the due date of the individual's federal income tax return for
that year, not including extensions. However, for reporting purposes, the
Company will regard contributions as being applicable to the year made unless
it receives notice to the contrary.
All annuity payments and other distributions under an IRA will be taxed as
ordinary income unless the owner has made non-deductible contributions. In
addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70 1/2, and 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 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
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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.
LOANS (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 made from the Policy's
value on a pro-rata basis from all accounts. 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. When repayments are
received, they will be allocated in accordance with the contract owner's most
recent allocation instructions.
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.
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, (5) to change the methodology for determining the net investment
factor, (6) to change the names of the Separate Account or of the
Subaccounts. In no event will the changes described above be made without
notice to Policy Owners in accordance with the 1940 Act.
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
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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.
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.
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, Allmerica Financial Life
Insurance and Annuity Company ("Allmerica Financial 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.
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.
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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 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
Allmerica Financial 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
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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.
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PROSPECTUS B
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
FUNDED THROUGH SUBACCOUNTS OF
SEPARATE ACCOUNT VA-K INVESTING IN SHARES OF
DELAWARE GROUP PREMIUM FUND, INC.
This prospectus describes interests under flexible premium deferred
combination variable and fixed annuity contracts issued either on a group
basis or as individual contracts by First Allmerica Financial Life Insurance
Company ("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.") Participation in a group
contract will be accounted for by the issuance of a certificate describing
the individual's interest under the group contract. Participation in an
individual contract will be evidenced by the issuance of an individual
contract. Certificates and individual contracts are collectively referred to
herein as the "Contracts." The following is a summary of information about
these Contracts. More detailed information can be found under the referenced
captions in this Prospectus.
Contract values may accumulate on a variable basis in the contract's Variable
Account, known as Separate Account VA-K. The Assets of the Variable Account
are divided into sub-accounts, each investing exclusively in shares of an
underlying mutual fund.
In most jurisdictions, values may also be allocated on a fixed basis to the
Fixed Account, which is part of the General Account and during the
accumulation period to one or more of the Guarantee Period Accounts. Amounts
allocated to the Fixed Account earn interest at a guaranteed rate for one
year from the date allocated. Thereafter, the interest earned on that amount
is not guaranteed. Amounts allocated to a Guarantee Period Account earn a
fixed rate of interest for the duration of the applicable Guarantee Period.
The interest earned is guaranteed if held for the entire guarantee period.
If removed prior to the end of the Guarantee Period the value may be
increased or decreased by a market value adjustment. Assets supporting
allocation to the Guarantee Period Accounts in the accumulation phase are
held in the Company's Separate Account GPA.
DELAWARE GROUP PREMIUM FUND, INC.
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.
Certain additional information about the Policies is contained in a Statement of
Additional Information, dated ________ 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, First Allmerica Financial
Life Insurance Company, 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.
THE CONTRACTS ARE OBLIGATIONS OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE
COMPANY AND ARE DISTRIBUTED BY ITS SUBSIDIARY, ALLMERICA INVESTMENTS, INC.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK OR CREDIT UNION. THE CONTRACTS ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER
FEDERAL AGENCY. INVESTMENT IN THE CONTRACTS ARE SUBJECT TO VARIOUS RISKS,
INCLUDING THE FLUCTUATION OF VALUE AND POSSIBLE LOSS OF PRINCIPAL.
DATED APRIL 30, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION ................................. 3
SPECIAL TERMS ................................................................................ 4
SUMMARY ...................................................................................... 6
ANNUAL AND TRANSACTION EXPENSES .............................................................. 8
PERFORMANCE INFORMATION ...................................................................... 12
WHAT IS AN ANNUITY? .......................................................................... 15
RIGHT TO REVOKE OR SURRENDER ................................................................. 15
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT AND DGPF .................................... 16
VOTING RIGHTS ................................................................................ 19
CHARGES AND DEDUCTIONS ....................................................................... 19
A. Annual Charge Against Variable Account Assets .......................................... 19
B. Contract Fee ........................................................................... 20
C. Premium Taxes .......................................................................... 20
D. Contingent Deferred Sales Charge ....................................................... 21
E. Transfer Charge
DESCRIPTION OF CONTRACT ...................................................................... 24
A. Payments .............................................................................. 24
B. Transfer Privilege .................................................................... 25
C. Surrender ............................................................................. 25
D. Partial Redemption .................................................................... 26
E. Death Benefit ......................................................................... 26
F. The Spouse of the Contract Owner as Beneficiary ....................................... 27
G. Assignment ............................................................................. 27
H. Electing the Form of Annuity and Annuity Date .......................................... 27
I. Description of Variable Annuity Options .............................................. 28
J. Norris Decision ...................................................................... 29
K. Computation of Variable Account Values and Annuity Payments ........................... 29
GUARANTEED PERIOD ACCOUNTS ................................................................... 30
FEDERAL TAX CONSIDERATIONS ................................................................... 32
A. Qualified and Non-Qualified Contracts ................................................. 32
B. Taxation of the Contracts in General................................................... 32
C. Tax Withholding and Penalties ......................................................... 33
D. Provisions Applicable to Qualified Employee Benefit Plans ............................. 33
E. Qualified Employee Pension and Profit Sharing Trusts and Qualified Annuity Plans ...... 33
F. Self-Employed Individuals ............................................................. 34
G. Individual Retirement Account Plans ................................................... 34
H. Simplified Employee Pensions .......................................................... 35
I. Public School Systems and Certain Tax-Exempt Organizations ........................... 35
J. Texas Optional Retirement Program..................................................... 35
K. Section 457 Plans for State Governments and Tax-Exempt Entities ....................... 35
L. Non-individual Owners ................................................................ 35
REPORTS ...................................................................................... 36
</TABLE>
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TABLE OF CONTENTS (continued)
<TABLE>
<S> <C>
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT .................................................. 36
LEGAL MATTERS ................................................................................. 36
FURTHER INFORMATION ........................................................................... 36
APPENDIX A- MORE INFORMATION ABOUT THE FIXED ACCOUNT .......................................... 36
APPENDIX B - SURRENDER CHARGES AND THE MVA ADJUSTMENT ......................................... 38
APPENDIX C - THE DEATH BENEFIT................................................................. 45
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 .......................................................................... 9
</TABLE>
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE OR SOLICIT AN OFFER IN THAT STATE.
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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 Fixed Account and
Guarantee Period Accounts then credited to the Contract, on any date before
the Annuity Date.
ACCUMULATION UNIT: a measure of the Contract Owner's interest in a
Subaccount before annuity benefit payments begin.
ANNUITANT: the person designated in the Contract upon whose life annuity
benefit payments are to be made.
ANNUITY DATE: the date on which annuity benefit payments begin.
ANNUITY UNIT: a measure of the value of annuity benefit payments under a
variable annuity option.
FIXED ACCOUNT: the part of the Company's General Account that guarantees
principal and a fixed interest rate and to which all or a portion of a
payment or transfer under this Contract may be allocated.
FIXED AMOUNT ANNUITY: an Annuity providing for annuity benefit payments
which remain fixed in an amount throughout the annuity payment period
selected.
GUARANTEED INTEREST RATE: the annual effective rate of interest after daily
compounding credited to a Guarantee Period Account.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account which corresponds to a Guaranteed
Interest Rate for a specified Guarantee Period and is supported by assets in
a non-unitized separate account.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to
the end of its Guarantee Period.
SUBACCOUNT: a subdivision of the Variable Account. Each Subaccount available
under the Contract invests exclusively in the shares of a corresponding fund
of Delaware Group Premium Fund, Inc.
SURRENDER VALUE: the Accumulated Value of the Contract after application of
any Contract fee, contingent deferred sales charge, and Market Value
Adjustment applicable.
UNDERLYING FUNDS: The Equity-Income Series, the High Yield Series, the
Capital Reserves Series, Money Market Series, Growth Series, Multiple Strategy
Series, Value Series, Emerging Growth Series, International Equity Series and
Global Bond Series.
UNDERLYING INVESTMENT COMPANY: Delaware Group Premium Fund, Inc.
VALUATION DATE: a day on which the net asset value of the shares of any of
the Underlying Funds is determined and Unit values of the 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 Contract
was received) when there is a sufficient degree of trading in an Underlying
Fund's portfolio securities such that the current net asset value of the
Subaccounts may be materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
VARIABLE ACCOUNT: Separate Account VA-K, one of the Company's Separate
Accounts, consisting of assets segregated from other assets
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of the Company. The investment performance of the assets of the Variable
Account is determined separately from the other assets of the Company and are
not chargeable with liabilities arising out of any other business which the
Company may conduct.
VARIABLE ANNUITY: an Annuity providing for payments varying in amount in
accordance with the investment experience of certain Underlying Funds.
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SUMMARY
The Contracts 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 Contract Owners, Annuitants, and beneficiaries, are
cautioned that the rights of any person to any benefits under such Contracts
may be subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Contracts.
INVESTMENT OPTIONS. The Contracts permit net payments to be allocated among
the Subaccounts, the Guarantee Period Account s and the Fixed Account. THE
FIXED ACCOUNT AND/OR THE GUARANTEE PERIOD ACCOUNTS MAY NOT BE AVAILABLE IN
ALL STATES. SIMILARLY, NOT ALL SUBACCOUNTS MAY BE AVAILABLE IN ALL STATES.
Subaccounts - The Subaccounts are subdivisions of the Variable Account,
established as the Company's Separate Account, VA-K The Variable 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 contracts of
Variable Account by the Securities and Exchange Commission (the "SEC").
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 ten 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 SUBACCOUNT. The value of each Subaccount will vary daily
depending on the performance of the investments made by the respective
Underlying Funds. There can be no assurance that the investment objectives
of the Underlying Funds can be achieved or that the value of a Contract will
equal or exceed the aggregate amount of the purchase payments made under the
Contract. For more information about the Variable Account, the Company and
the investments of the Underlying Funds, see "DESCRIPTION OF THE COMPANY, THE
VARIABLE ACCOUNT, AND DGPF." The accompanying prospectus of DGPF
describe the investment objectives and risks of each of the Underlying Funds.
Dividends or capital gains distributions received from an Underlying Fund are
reinvested in additional shares of that Underlying Fund, which are retained
as assets of the Subaccount.
GUARANTEE PERIOD ACCOUNTS - Assets supporting the guarantees under the
Guarantee Period Accounts are held in the Company's Separate Account GPA , a
non-unitized insulated separate account. However, values and benefits
calculated on the basis of Guarantee Period Account allocations are
obligations of the Company's General Account. Amounts allocated to a
Guarantee Period Account earn a Guaranteed Interest Rate declared by the
Company. The level of the Guaranteed Interest Rate depends on the number of
years of the Guarantee Period selected. The Company currently makes available
seven Guarantee Periods ranging from three to ten years in duration
(excluding a four year Guarantee Period). Once declared, the Guaranteed
Interest Rate will not change during the duration of the Guarantee Period.
If amounts allocated to a Guarantee Period Account are transferred,
surrendered or applied to an annuity option at any time other than the last
day of the applicable Guarantee Period, a Market Value Adjustment will apply
that may increase or decrease the account's value. For more information
about the Guarantee Period Accounts and the Market Value Adjustment, see
"GUARANTEED PERIOD ACCOUNTS."
FIXED ACCOUNT - The Fixed Account is part of the General Account which
consists of all the Company's assets other than those allocated to the
Variable Account and any other separate account. Allocations to the Fixed
Account are guaranteed as to principal and minimum rate of interest.
Additional excess interest may be declared periodically at the Company's
discretion. Furthermore, the initial rate in effect on the date an amount is
allocated to the Fixed Account will be guaranteed for one year from that
date. For more information about the Fixed Accounts see Appendix A, "MORE
INFORMATION ABOUT THE FIXED ACCOUNT."
TRANSFERS BETWEEN ACCOUNTS. Prior to the Annuity Date, the Contracts permit
amounts to be transferred among and between the Subaccounts, the Guarantee
Period Accounts and the Fixed Account, subject to certain limitations
described under "Transfer Privilege."
ANNUITY BENEFIT PAYMENTS. The owner of a Contract ("Contract Owner") may
select variable annuity benefit payments based on one or more of certain
Subaccounts, fixed-amount annuity benefit payments, or a combination of
fixed-amount and variable annuity benefit payments. Fixed-amount annuity
benefit payments are guaranteed by the Company.
-6-
<PAGE>
See "DESCRIPTION OF CONTRACT" for information about annuity benefit payment
options, selecting the Annuity Date, and how annuity benefit payments are
calculated.
REVOCATION RIGHTS. The Contract Owner may revoke the Contract any time
within 10 days after receipt of the Contract. For more information about
revocation rights, see "RIGHT TO REVOKE OR SURRENDER."
PAYMENT MINIMUMS AND MAXIMUMS. Under the Contracts, 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 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 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 Contract 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 Contract. 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
payments at the time they are made. However, depending on the length of
time that the payments to which the withdrawal is attributed have remained
credited under the Contract a contingent deferred sales charge of up to 8%
may be assessed for a surrender, partial redemption, or election of an
annuity for a commutable period certain option of any duration or any period
certain option of less than 10 years.
B. ANNUAL CONTRACT FEE. A Contract Fee equal of $30 will be deducted from
the Accumulated Value under the Contract for administrative expense on the
Contract anniversary, or upon full surrender of the Contract during the year,
when the Accumulated Value is $50,000 or less. The Contract Fee is waived
for Contracts issued to and maintained by the trustee of a 401(k) plan.
C. PREMIUM TAXES. A deduction for State and local premium taxes, if any,
may be made as described under "Premium Taxes."
D. VARIABLE 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 0.20% per annum of the value of the average net assets in the
Subaccounts.
E. TRANSFER CHARGE. The Company currently makes no charge for transfers.
The Company guarantees that the first twelve transfers in a Contract year
will be free of charge. For each subsequent transfer the Company reserves
the right to assess a charge, guaranteed never to exceed $25, to reimburse
the Company for the cost of processing the transfer. If the Contract Owner
has elected automatic transfers, the first automatic transfer will count as
one transfer towards the twelve transfers which are guaranteed to be free of
charge.
F. CHARGES OF THE UNDERLYING FUND. In addition to the charges described
above, certain fees and expenses are deducted from the assets of the
Underlying Funds. These charges vary among the Underlying Funds.
SURRENDER OR PARTIAL REDEMPTION. At any time before the Annuity Date, the
Contract Owner has the right either to surrender the Contract in full and
receive its current value, minus the Contract Fee and any applicable
contingent deferred sales charge, and adjusted for any positive or negative
Market Value Adjustment or to redeem a portion of the Contract's value
subject to certain limits and any applicable contingent deferred sales charge
and/or Market Value Adjustment. 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, Contract Owner or Joint Owner should die
before the Annuity Date, a death benefit will be paid to the beneficiary.
Upon the death of the Annuitant (or an Owner if that Owner is also the
Annuitant), the death benefit is equal to the greatest of : (a) the
Accumulated Value increased by any positive Market Value Adjustment; (b)
gross payments accumulated daily at 5% starting on the date each payment was
applied, reduced proportionately to reflect withdrawals. (for each
withdrawal the proportionate reduction is calculated as the death benefit
under this option immediately prior to the withdrawal, multiplied by the
withdrawal amount, and divided by the Accumulated Value immediately prior to
the withdrawal); or(c) the death benefit that would have been payable on the
most recent Contract Anniversary, increased for subsequent purchase payments
and reduced proportionally to reflect withdrawals after that date. If an
Owner who is not also the Annuitant dies prior to annuitization, the death
benefit will equal the Accumulated Value of the Contract determined following
receipt of due proof of death at the Principal Office. If the Annuitant dies
after the Annuity Date but before all guaranteed annuity benefit payments
have been made, the remaining payments will be paid to the beneficiary at
least as rapidly as under the annuity option in effect. See "Death Benefit."
-7-
<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
POLICY OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Contingent Deferred Sales Charge Policy Year after date of Charge
The charge (as a percentage of payments, applied to the amount Purchase Payment
surrendered in excess of the amount, if any, which may be surrendered 0-1 7%
free of charge) will be assessed upon surrender, redemption, or 2 6%
annuitization under any commutable period certain option or a 3 5%
noncommutable period certain less than 10 years. 4 4%
5 3%
6 2%
7 1%
more than 7 0%
Transfer Charge None
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.
ANNUAL POLICY FEE $30
An annual Policy Fee, equal to $30, is 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>
-8-
<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 Expenses 0.71% 0.72% 0.74% 0.66% 0.80% 0.70% 0.80% 0.80% 0.80%
(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.
-9-
<PAGE>
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 annuities* under a commutable period
certain option or a noncommutable period certain option of less than 10
years 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 Reserve $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
International Equity $88 $140 $173 $263
Global Bond $88 $140 $173 $263
</TABLE>
(b) If you annuities* under a life option or any noncommutable period certain
option of 10 years or more at the end of the applicable time period or if
you do NOT surrender or annuities your Policy, you would pay the following
expenses on a $1,000 investment, assuming an annual 5% 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 Reserve $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
International Equity $23 $72 $123 $263
Global Bond $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 or under any noncommutable period certain
option of 10 years or more. Under Policy Form B, the expenses above would
average a few dollars LESS.
-10-
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
CONDENSED FINANCIAL INFORMATION
Separate Account VA-K
1995
----
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)
* 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.
-11-
<PAGE>
PERFORMANCE INFORMATION
The Contracts were first offered to the public in ____. However, the Company
may advertise "Total Return" and "Averge total Return" performance information
based on the periods that the Underling Funds have been in existence. The
results for any period prior to the Contracts being offered will be calculated
as if the Contracts had been offered during that period of time, with all
charges assumed to be those appicable to the SubAccounts and the Underlying
Funds. Both the total return and yield figures are based on historical
earnings and are not intended to indicate future performance.
The "total return" of a 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 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.
-12-
<PAGE>
TOTAL RETURN FOR PERIOD ENDING DECEMBER 31, 1995
ASSUMING COMPLETE REDEMPTION OF THE INVESTMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SubAccount Name Total Return for year ended Average Total Return
12/31/95 since Inception
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
201 Equity - Income
- -------------------------------------------------------------------------------------------------------------------
202 High Yield
- -------------------------------------------------------------------------------------------------------------------
203 Capital Reserve
- -------------------------------------------------------------------------------------------------------------------
204 Money Market
- -------------------------------------------------------------------------------------------------------------------
205 Growth
- -------------------------------------------------------------------------------------------------------------------
206 Multiple Strategy
- -------------------------------------------------------------------------------------------------------------------
207 International Equity
- -------------------------------------------------------------------------------------------------------------------
208 Value
- -------------------------------------------------------------------------------------------------------------------
209 Emerging Growth
- -------------------------------------------------------------------------------------------------------------------
210 Global
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Dates of Inception of the Underlying Funds are:
-13-
<PAGE>
TOTAL RETURN FOR PERIOD ENDING DECEMBER 31, 1995
ASSUMING COMPLETE REDEMPTION OF THE INVESTMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Sub-Account Name Total Return for Year Ended Average Annual Return
12/31/95 Since Inception
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
201 Equity-Income
- -------------------------------------------------------------------------------------------------------------------
202 High Yield
- -------------------------------------------------------------------------------------------------------------------
203 Capital Reserves
- -------------------------------------------------------------------------------------------------------------------
204 Money Market
- -------------------------------------------------------------------------------------------------------------------
205 Growth
- -------------------------------------------------------------------------------------------------------------------
206 Multiple Strategy
- -------------------------------------------------------------------------------------------------------------------
207 International Equity
- -------------------------------------------------------------------------------------------------------------------
208 Value
- -------------------------------------------------------------------------------------------------------------------
209 Emerging Growth
- -------------------------------------------------------------------------------------------------------------------
210 Global
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The dates of inception of the Underlying Funds are:
-14-
<PAGE>
WHAT IS AN ANNUITY?
In general, an annuity is a contract designed to provide a retirement income in
the form of periodic payments for the lifetime of the purchaser or an individual
chosen by the purchaser. The retirement income payments are called "annuity
benefit payments" and the individual receiving the payments is called the
"Annuitant." Annuity benefit payments begin on the annuity date.
Under an annuity contract, 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 Contract, regardless of actual
costs of operations.
The Contract Owner's payments, less any applicable deductions, are invested by
the insurance company. After retirement, annuity benefit payments are paid to
the Annuitant for life or for such other period chosen by the Contract Owner.
In the case of a "fixed" annuity, the value of these annuity benefit 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 FIXED
ACCOUNT." With a variable annuity, the value of the Contract and the annuity
benefit 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 Contract and in the annuity payments. If the
portfolio increases in value, the value of the Contract increases. If the
portfolio decreases in value, the value of the Contract decreases.
RIGHT TO REVOKE OR SURRENDER
A Contract Owner may revoke the Contract within 10 days after receipt of the
Contract. In order to revoke the Contract, the Contract Owner must mail or
deliver the Contract to the principal office of the Company at 440 Lincoln
Street, Worcester, Massachusetts 01653, or to an agent of the Company. Mailing
or delivery must occur on or before 10 days after receipt of the Contract for
revocation to be effective. Within seven days, the Company will send the
Contract Owner a refund of the greater of (1) gross payments or (2) the
Accumulated Value plus any amounts deducted under the Contract or by the
Underlying Funds for taxes, charges or fees.
If on the date of revocation the Surrender Value of the Contract exceeds gross
payments, the Company will treat the revocation request as a
-15-
<PAGE>
request for surrender (see "Surrender") and will pay the Contract Owner the
Surrender Value of the Contract.
The liability of the Variable Account under this provision is limited to the
Contract Owner's Accumulated Value in the Variable Account on the date of
cancellation. Any additional amounts refunded to the Contract Owner will be
paid by the Company.
The refund of any premium paid by check may be delayed until the check has
cleared the Contract Owner's bank.
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
AND DGPF
THE COMPANY - The Company organized under the laws of Massachusetts in 1844, is
the fifth oldest life insurance company in America. As of December 31, 1995,
the company and its subsidiaries had over $ billion in combined assets and over
$ of life insurance in force. Effective October 16, 1995, the Company
converted from a mutual life insurance company known as State Mutual Life
Assurance Company of America to a stock life insurance company and adopted its
present name. The Company is a wholly-owned subsidiary of Allmerica Financial
Corporation ("AFC"). The Company's principal office is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, telephone 508-855-1000 ("Principal
Office")
The Company is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
of Massachusetts. In addition, the Company is subject to the insurance laws and
regulations of other states and jurisdictions in which it is licensed to
operate.
THE VARIABLE ACCOUNT - The Variable Account is a separate investment account of
the Company referred to as Separate Account VA-K. The assets used to fund the
variable portions of the Contracts are set aside in the Subaccounts of the
Variable Account, and are kept separate and apart from the general assets of the
Company. There are currently 18 Subaccounts available under the Contracts.
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 Variable Account may not be charged with any liabilities
arising out of any other business of the Company.
The Variable Account was authorized by vote of the Board of Directors of the
Company on August 20, 1991. The Variable Account meets the definition of
"separate account" under federal securities law and is registered with the
Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). The registration of the
Variable Account and the Underlying Investment Companies does not involve the
supervision by the Commission of management or investment practices or Contracts
of the Variable Account, the Company, the Underlying Investment Companies or the
Underlying Funds.
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. ("Delaware Management")/ The investment
adviser for the International Equity Series and the Global Bond is Delaware
International Advisers Ltd. ("Delaware International")
-16-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES - A summary of investment objectives of each
of the Underlying Funds is set forth below. More detailed information regarding
the investment objectives, restrictions and risks, expenses paid by the
Underlying Series, and other relevant information regarding the Underlying Funds
may be found in the Prospectus of the Funds, 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.
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.
SUBACCOUNT 210 - invests solely in shares of the Global Bond Series. This Series
seeks current income consistent with preservation of principal by investing
primarily in fixed income securities that may also provide the potential for
capital appreciation. At lease 65% of the series assets will be invested in
fixed income securities of issuers organized or having a majority of their
assets in or deriving a majority of the operating income in at least three
different countries, one of which may be the United States.
There is no assurance that the investment objectives of the Underlying Funds
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 Funds and making the investment decisions, each investment adviser is
paid an annual fee by their respective Underlying Funds. 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
and of the Global Bond Series.
In the event of a material change in the investment policy of a Subaccount or
the Underlying Fund in which it invests, the Contract Owner will be notified of
the change. No material changes in the investment policy of the Variable
Account or any Subaccounts will be made without
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ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS - The Company reserves the
right, subject to applicable law, to make
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<PAGE>
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 Fund are no longer available for investment or if in the Company's
judgment further investment in any Underlying Fund should become inappropriate
in view of the purposes of the Variable Account or the affected Subaccount,
the Company may redeem the shares of that Underlying Fund and substitute
shares of another registered open-end management company. The Company will
not substitute any shares attributable to a Contract interest in a
Subaccount without notice to the Contract Owner and prior approval of the
Commission and state insurance authorities, to the extent required by the
1940 Act or other applicable law. The Variable Account may, to the extent
permitted by law, purchase other securities for other contracts or permit a
conversion between contracts upon request by a Contract Owner.
The Company also reserves the right to establish additional Subaccounts of the
Variable Account, each of which would invest in shares corresponding to a new
Underlying Fund or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required 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 Contract Owners on a basis to be determined by the Company.
Shares of the Underlying Funds are also issued to other unaffiliated
insurance companies ("shared funding") and which issue variable annuities and
variable life policies ("mixed funding"). It is conceivable that in the future
such mixed funding or shared funding may be disadvantageous for variable life
Contract Owners or variable annuity Contract Owners. Although the Company and
the Underlying Investment Companies do not currently foresee any such
disadvantages to either variable life insurance Contract Owners or variable
annuity Contract Owners, the Company and the respective Trustees intend to
monitor events in order to identify any material conflicts between such Contract
Owners and to determine what action, if any, should be taken in response
thereto. If the Trustees were to conclude that separate funds should be
established for variable life and variable annuity separate accounts, the
Company will bear the attendant expenses.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Contract to reflect the substitution or
change and will notify Contract Owners of all such changes. If the Company
deems it to be in the best interest of Contract Owners, and subject to any
approvals that may be required under applicable law, the Variable 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 Fund shares held by each Subaccount in
accordance with instructions received from Contract Owners and, after the
Annuity Date, from the Annuitants. Each person having a voting interest in a
Subaccount will be provided with proxy materials of the Underlying Fund together
with a form with which to give voting instructions to the Company. Shares for
which no timely instructions are received will be voted in proportion to the
instructions which are received. The Company will also vote shares in a
Subaccount that it owns and which are not attributable to Contracts in the same
proportion. If the 1940 Act or any rules thereunder should be amended or if the
present interpretation of the 1940 Act or such rules should change, and as a
result the Company determines that it is permitted to vote shares in its own
right, whether or not such shares are attributable to the Contract, the Company
reserves the right to do so.
The number of votes which a Contract Owner or Annuitant may cast will be
determined by the Company as of the record date established by the Underlying
Fund. During the accumulation period, the number of Underlying Fund shares
attributable to each Contract Owner will be determined by dividing the dollar
value of the Accumulation Units of the Subaccount credited to the Contract by
the net asset value of one Underlying Fund share.
During the annuity period, the number of Underlying Fund shares attributable to
each Annuitant will be determined by dividing the reserve held in each
Subaccount for the Annuitant's variable annuity by the net asset value of one
Underlying Fund share. Ordinarily, the Annuitant's voting interest in the
Underlying Fund will decrease as the reserve for the variable annuity is
depleted.
CHARGES AND DEDUCTIONS
Deductions under the Contracts and charges against the assets of the Subaccounts
are described below. Other deductions and expenses paid out of the assets of
the Underlying Funds are described in the Prospectus and Statement of Additional
Information of the Trust, VIP, VIP II, T. Rowe and DGPF.
A. ANNUAL CHARGES AGAINST VARIABLE 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
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assets to cover the mortality and expense risk which the Company assumes in
relation to the variable portion of the Contracts. The charge is imposed
during both the accumulation period and the annuity period. The mortality
risk arises from the Company's guarantee that it will make annuity benefit
payments in accordance with annuity rate provisions established at the time
the Contract is issued for the life of the Annuitant (or in accordance with
the annuity 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 Contracts and in this
Prospectus.
If the charge for mortality and expense risks is not sufficient to cover
actual mortality experience and expenses, the Company will absorb the losses.
If expenses are less than the amounts provided to the Company by the charge,
the difference will be a profit to the Company. To the extent this charge
results in a profit to the Company, such profit will be available for use by
the Company for, among other things, the payment of distribution, sales and
other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The
Company estimates that a reasonable allocation might be .80% for mortality
risk and .45% for expense risk.
ADMINISTRATIVE EXPENSE CHARGE - The Company assesses each Subaccount with a
daily charge at an annual rate of 0.15% of the average daily net assets of
the Subaccount. The 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 contract and
the amount of expenses actually attributable to that contract.
Deductions for the Contract Fee (described under B. CONTRACT FEE) and for the
Administrative Expense Charge are designed to reimburse the Company for the
cost of administration and related expenses and are not expected to be a
source of profit. The administrative functions and expense assumed by the
Company in connection with the Variable Account and the Contracts 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.
B. CONTRACT FEE.
A $30 Contract Fee currently is deducted on the Contract anniversary date and
upon full surrender of the Contract when the Accumulated Value is $50,000 or
less. The Contract Fee is waived for Contracts issued to and maintained by
the Trustee of a 401(k) plan. Where Contract value has been allocated to
more than one account, a percentage of the total Contract Fee will be
deducted from the Value in each account. The portion of the charge deducted
from each account will be equal to the percentage which the Value in that
account bears to the Accumulated Value under the Contract. The deduction of
the Contract Fee from a Subaccount will result in cancellation of a number of
Accumulation Units equal in value to the percentage of the charge deducted
from that account.
C. PREMIUM TAXES.
Some states and municipalities impose a premium tax on variable annuity
Contracts. State premium taxes currently range up to 3.5%.
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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, the premium tax charge is deducted on a pro rata basis when
partial withdrawals are made, upon surrender of the Contract, or when
annuity payments begin (the Company reserves the right instead to deduct
the premium tax charge for these Contracts at the time the purchase
payments are received); or
(2) the premium tax charge is deducted when annuity benefit payments begin.
In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law.
If no amount for premium tax was deducted at the time the 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 Contract
value at the time such determination is made.
D. CONTINGENT DEFERRED SALES CHARGE.
No charge for sales expense is deducted from payments at the time the payments
are made. However, a contingent deferred sales charge is deducted from the
Accumulated Value of the Contract in the case of surrender and/or partial
redemption of the Contract or at the time annuity benefit payments begin,
within certain time limits described below.
For purposes of determining the contingent deferred sales charge, the
Accumulated Value is divided into three categories: (1) New Payments -
payments received by the Company during the nine years preceding the date of the
surrender; (2) Old Payments - Accumulated payments not defined as New Payments;
and (3) Earnings - the amount of Contract Value in excess of all 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 Contract 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.
CHARGES FOR SURRENDER AND PARTIAL REDEMPTION. If a Contract is surrendered, or
if New Payments are redeemed, while the Contract 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 Contract.
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 of Charge as Percentage of New
Payment Payments Withdrawn
------- ------------------
<S> <C>
0-1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%
</TABLE>
The amount redeemed equals the amount requested by the Contract Owner plus the
charge, if any. The charge is applied as a percentage of the New Payments
redeemed, but in no event will the total contingent deferred sales charge exceed
a maximum limit of 8% of total gross New Payments. Such total charge equals the
aggregate of all applicable contingent deferred sales charges for surrender,
partial redemptions, and annuitization.
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGES. Where permitted by law, the
Company will waive the contingent deferred sales charge
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in the event that an Owner (or the Annuitant, if the Owner is not an
individual) is: (a) admitted to a medical care facility after the issue date
of the Contract and remains confined there until the later of one year after
the issue date or 90 consecutive days; (b) first diagnosed by a licensed
physician as having a fatal illness after the issue date of the contract; or
(c) physically disabled after the issue date of the Contract and before
attaining age 65. The Company may require proof of such disability and
continuing disability, including written confirmation of receipt and approval
of any claim for Social Security Disability Benefits and reserves the right
to obtain an examination by a licensed physician of its choice and at its
expense.
For purposes of the above provision, "medical care facility" means any state
licensed facility (or, in a state that does not require licensing, a facility
that is operating pursuant to state law), providing medically necessary
inpatient care which is prescribed by a licensed "physician" in writing and
based on physical limitations which prohibit daily living in a non-institutional
setting; "fatal illness" means a condition diagnosed by a licensed physician
which is expected to result in death within two years of the diagnosis; and
"physician" means a person other than the Owner, Annuitant or a member of one of
their families who is state licensed to give medical care or treatment and is
acting within the scope of that license.
Where contingent deferred sales charges have been waived under any one of three
situations discussed above, no additional payments under this Contract will be
accepted.
Where permitted by law, no contingent deferred sales charge is imposed (and no
commissions will be paid) on contracts issued where both the Contract Owner and
the Annuitant on the date of issue are within the following class of
individuals: (a) any employee of the Company located at its home office or at
off-site locations if such employees are on the Company's home office payroll;
(b) any director of the Company; (c) any retiree who elected to retire on
his/her retirement date; (d) the immediate family members of those persons
identified in (a) through (c) above residing in the same household; and (e) any
beneficiary who receives a death benefit under a deceased employee's or
retiree's progress sharing plan.
For purposes of the above class of individuals, "the Company" incudes affiliates
and subsidiaries; "immediate family members" means children, siblings, parents
and grandparents; "retirement date" means an employee's early, normal or late
retirement date as defined in the Company's Pension Plan or any successor plan;
and "progress sharing" means the First Allmerica Life Insurance Company
Employee's Incentive and Profit Sharing Plan or any successor plan.
In addition, from time to time the Company may also reduce the amount of the
contingent deferred sales, the period during which it applies, or both, when
Contracts are sold to individuals or groups of individuals in a manner that
reduces sales expenses. The Company will consider (a) the size and type of
group; (b) the total amount of payments to be received; (c) other transactions
where sales expenses are likely to be reduced. Any reduction or elimination in
the amount or duration of the contingent deferred sales charge will not
discriminate unfairly between purchasers of this Contract. The Company will not
make any changes to this charge where prohibited by law.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the contingent
deferred sales charges is modified to effect certain exchanges of the annuity
contracts for the Contracts. See Appendix B, "Exchange Offer"
WITHDRAWAL WITHOUT SURRENDER CHARGE. In each calendar year, the Company will
waive the contingent deferred sales charge, if any, on an amount ("Withdrawal
Without Surrender Charge") 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 calender 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 Annuitant is also an Owner)
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For example, an 81 year old Contract Owner/Annuitant with an Accumulated Value
of $15,000, of which $1,000 is Cumulative Earnings, would have a Free Withdrawal
Amount of $1,530, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED distribution of 10.2% of Accumulated Value ($1,530).
The Withdrawal Without Surrender Charge will first be deducted from Cumulative
Earnings. If the Withdrawal Without Surrender Charge exceeds Cumulative
Earnings, the excess amount will be deemed withdrawn from payments not
previously 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 Surrender Charge has been redeemed. Amounts withdrawn from a
Guarantee Period Account prior to the end of the applicable Guarantee Period
will be subject to a Market Value Adjustment.
LED DISTRIBUTIONS. Prior to the Annuity Date a Contract Owner who is also the
Annuitant may elect to make a series of systematic withdrawals from the Contract
according to a life expectancy distribution ("LED") option, by returning a
properly signed LED request form to the Company's Principal Office. The LED
option permits the Contract Owner to make systematic withdrawals from the
Contract over his or her lifetime. The amount withdrawn from the Contract
changes each year, because life expectancy changes each year that a person
lives. For example, actuarial tables indicate that a person age 70 has a life
expectancy of 16 years, but a person who attains age 86 has a life expectancy of
another 6.5 years.
If a Contract Owner elects the LED option, in each contract year a fraction of
the Accumulated Value is withdrawn based on the Contract 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 Contract Owner, as determined
annually by the Company. The resulting fraction, expressed as a percentage, is
applied to the Accumulated Value at the beginning of the year to determine the
amount to be distributed during the year. The Contract Owner may elect monthly,
bimonthly, quarterly, semiannual, or annual distributions, and may terminate the
LED option at any time. The Contract Owner may also elect to receive
distributions under an LED option which is determined on the joint life
expectancy of the Contract Owner and a beneficiary. The Company may also offer
other systematic withdrawal options.
If a Contract 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 Contract. 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 Contracts in General." The LED will cease
on the Annuity Date.
SURRENDERS. In the case of a complete surrender, the amount received by the
Contract Owner is equal to the entire Accumulated Value under the Contract, net
of the applicable contingent deferred sales charge on New Payments, the Contract
Fee and any applicable tax withholding and adjusted for any applicable market
value adjustment. Subject to the same rules 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 Surrender Charge
Amount, described above, or the life expectancy distribution, if applicable.
Where a Contract Owner who is trustee under a pension plan surrenders, in whole
or in part, a Contract on a terminating employee, the trustee will be permitted
to reallocate all or a part of the total Accumulated Value under the Contract to
other contracts 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 Contract in the case of
partial redemption, and important tax considerations, see "Surrender" and
"Partial Redemption" under "DESCRIPTION OF CONTRACT,"" and see "FEDERAL TAX
CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If any commutable period
certain option or a non-commutable period certain option for less than ten
years is chosen, a contingent deferred sales charge will be deducted from the
Accumulated Value of the Contract if the Annuity Date occurs at any time when
the surrender charge would still apply had the Contract been surrendered on the
Annuity Date.
No contingent deferred sales charge is imposed at the time of annuitization in
any Contract year under an option involving a life contingency or for any non-
commutable period certain option for ten years or more. However, a Market Value
Adjustment may apply. See Appendix B.
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If an owner of a fixed annuity Contract issued by the Company wishes to elect a
variable annuity option, the Company may permit such owner to exchange, at the
time of annuitization, the fixed Contract for a Contract offered in this
Prospectus. The proceeds of the fixed Contract, minus any contingent deferred
sales charge applicable under the fixed Contract if a period certain option is
chosen, will be applied towards the variable annuity option desired by the
owner. The number of Annuity Units under the option will be calculated using
the Annuity Unit values as of the 15th of the month preceding the Annuity Date.
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, 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.
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, 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.
DESCRIPTION OF THE CONTRACT
The Contracts 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 Contract Owners, Annuitants, and beneficiaries, are cautioned
that the rights of any person to any benefits under such Contracts may be
subject to the terms and conditions of the plans themselves, regardless of the
terms and conditions of the Contracts.
The Contracts offered by the Prospectus may be purchased from representatives of
Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. (NASD). Allmerica Investments, Inc., 440 Lincoln Street,
Worcester, Massachusetts, 01653, is indirectly wholly-owned by the Company. The
Contracts also may be purchased from certain independent broker-dealers which
are NASD members.
Contract Owners may direct any inquiries to Annuity Customer Services, First
Allmerica Financial Life Insurance Company, 440 Lincoln Street, Worcester,
Massachusetts 01653.
A. PAYMENTS.
The Company's underwriting requirements, which include receipt of the initial
payment and allocation instructions by the Company at its Principal Office, must
be met before a Contract can be issued. These requirements may also include the
proper completion of an application. Where permitted, the Company may issue a
contract without completion of an application for certain classes of annuity
contracts. Payments are to be made payable to the Company. A net payment is
equal to the payment received less the amount of any applicable premium tax.
The initial net payment will be credited to the contract as of the date that all
underwriting requirements are properly met. If all underwriting requirements
are not complied with within five business days of the Company's receipt of the
initial payment, the payment will be immediately returned unless the Owner
specifically consents to the holding of the initial payment until completion of
any outstanding underwriting requirements. Subsequent payments will be credited
as of the Valuation Date received at the Principal Office.
Payments are not limited as to frequency and number, but there are certain
limitations as to amount. Currently, the initial payment must be at least $600.
Under a salary deduction or 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 employee-sponsored
retirement plan is less that $600 but more than $300 annually, the Company may
issue a contract on the employee, if the plan's average annual contribution per
eligible plan participant is at least $600. The minimum allocation to a
Guarantee Period Account is $1,000. If less than $1,000 is allocated to a
Guarantee Period Account, the Company reserves the right to apply that amount to
the Sub-account-(the Money Market Fund of the Trust).
Generally, unless otherwise requested, all payments will be allocated among the
accounts in the same proportion that the initial net payment was allocated, or,
if subsequently changed, according to the most recent allocation instructions.
However, any portion of the initial net payment and of additional net payments
received during the contracts's first fifteen days measured from the date of
issue, allocated to any subaccount and/or any fixed investment account, will be
held in Subaccount 204 (the Money Market Series) until the end of the fifteen
day period. Thereafter, these amounts will be allocated as requested.
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The Contract Owner may change allocation instructions for new payments pursuant
to a written or telephone request. If telephone requests are elected by the
Contract Owner, a properly completed authorization must be on file before
telephone requests will be honored. The policy of the Company and its agents
and affiliates is that they will not be responsible for losses resulting from
acting upon telephone requests reasonably believed to be genuine. The Company
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; otherwise, the Company may be liable for any losses due
to unauthorized or fraudulent instructions. The procedures the Company follows
for transactions initiated by telephone include requirements that callers on
behalf of a Contract 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 a Contract Owner may have amounts
transferred among all accounts. Transfer values will be effected at the
Accumulation Value (adjusted for any Market Value Adjustment, if applicable)
next computed after receipt of the transfer order. The Company will make
transfers pursuant to written or telephone requests. As discussed in "A.
Payments," a properly completed authorization form must be on file before
telephone requests will be honored.
Transfers to a Guarantee Period Account must be at least $1,000. If the amount
to be transferred to a Guarantee Period Account is less than $1,000, the Company
may transfer that amount to the Money Market Series.
The Contract Owner may have automatic transfers of at least $100 each made on a
periodic basis from the Subaccounts investing in the Capital Reserves Series
or the Money Market Series, or from the Fixed Account to one or more of the
other Subaccounts or reallocate Contract values 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 Contract year.
The Company currently makes no charge for transfers. The Company guarantees
that the first twelve transfers in a Contract year will be free of charge.
For each subsequent transfer, the Company reserves the right to assess a
charge, guaranteed never to exceed $25, to reimburse the Company for the
costs of processing the transfer.
If the Contract Owner has elected automatic transfers, the first automatic
transfer will count as one transfer towards the twelve transfers which are
guaranteed to be free of charge.
C. SURRENDER.
At any time prior to the Annuity Date, a Contract Owner may surrender the
Contract and receive its Accumulated Value, less applicable charges and adjusted
for any market value adjustment ("Surrender Amount"). The Contract Owner must
return the Contract and a signed, written request for surrender, satisfactory to
the Company, to the Company's Principal Office. The amount payable to the
Contract Owner upon surrender will be based on the Contract's Accumulated Value
as of the Valuation Date on which the request and the Contract are received at
the Company's Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted when
a Contract is surrendered if payments have been credited to the Contract during
the last nine full contract years. See "CHARGES AND DEDUCTIONS." The Contract
Fee will be deducted upon surrender of the Contract.
After the Annuity Date, only Contracts under which future annuity payments are
limited to a specified period (as specified in the Period Certain Annuity Option
) 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 in any
period during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of 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 Fixed Account and Guarantee Period
Accounts for a period not to exceed six months.
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The surrender rights of Contract 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 Contract Owner may redeem a portion of
the Accumulated Value of his or her Contract, subject to the limits stated
below. The Contract 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 Contract Owner wishes to receive and
the accounts from which such amount is to be redeemed. The amount redeemed
equals the amount requested by the Contract Owner plus any applicable contingent
deferred sales charge, as described under "CHARGES AND DEDUCTIONS." In addition,
amounts redeemed from a Guarantee Period Account prior to the end of the
applicable Guarantee Period will be subject to a Market Value Adjustment, as
described under "GUARANTEED PERIOD ACCOUNTS".
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 $100. No partial
redemption will be permitted if the Accumulated Value remaining under the
Contract 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 Contracts under which future variable annuity
benefit 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 Contract
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 Contract Owner predeceases the Annuitant) prior to
the Annuity Date while the Contract is in force, the Company will pay the
beneficiary a death benefit, except where the Contract continues as provided in
"F. THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY."
Upon death of the Annuitant (including an Owner who is also the Annuitant), the
death benefit is equal to the greatest of (a) the Accumulated Value under the
Contract increased for any positive Market Value Adjustment , (b) gross payments
accumulated daily at the 5% starting on the date each payment is applied,
reduced proportionately to reflect withdrawals. For each withdrawal, the
proportionate reduction is calculated as the death benefit under this option
immediately prior to the withdrawal multiplied by the withdrawal amount and
divided by the Accumulated Value immediately prior to the withdrawal; or (c)
the death benefit that would have been payable on the most recent contract
anniversary, increased for subsequent payments and reduced proportionally to
reflect withdrawals after that date.
If an Owner who is not also the Annuitant dies before the Annuity Date, the
death benefit will be the Accumulated Value increased for any positive Market
Value Adjustment. The death benefit will never be reduced by a negative Market
Value Adjustment. The death benefit will generally be paid to the Beneficiary
in one sum within 7 days of the receipt of due proof of death unless the Owner
has specified a death benefit annuity option. Instead, the Beneficiary may, by
written Request, elect to:
(a) defer distribution of the death benefit for a period no more than 5
years from the date of death; or
(b) receive a life annuity or an annuity for a period certain not extending
beyond the Beneficiary's life expectancy. Annuity benefit payments must
begin within one year from the
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date of death.
If distribution of the death benefit is deferred under (a) or (b) above, any
value in the Guarantee Period Accounts will be transferred to the Money Market
Sub-Account. The excess, if any, of the death benefit over the Accumulated Value
will also be added to the Money Market Sub-Account. The Beneficiary may, by
Written Request, effect transfers and withdrawals during the deferral period
(and prior to annuitization under (b)), but may not make additional payments.
If there are multiple Beneficiaries, the consent of all is required.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed annuity benefit 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.
With respect to any death benefit, the Accumulated Value under the Contract
shall be based on the unit values next computed after due proof of the
Annuitant's 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 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.
F. THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY.
The Contract Owner's spouse, if named as the sole beneficiary, may by written
request continue the Contract in lieu of receiving the amount payable upon death
of the Contract Owner. Upon such election, the spouse will become the Owner and
Annuitant subject to the following: (a) any value in the Guarantee Period
Accounts will be transferred to the Money Market Subaccount; (b) the excess, if
any, of the death benefit over the Contract's Accumulated Value will also be
added to the Money Market Subaccount. Additional payments may be made; however,
a Surrender charge will apply to these amounts. All other rights and benefits
provided in the Contract will continue, except that any subsequent spouse of
such new Contract Owner will not be entitled to continue the Contract upon such
new Owner's death.
G. ASSIGNMENT.
The Contracts, other than those sold in connection with certain qualified plans,
may be assigned by the Contract Owner at any time prior to the Annuity Date and
while the Annuitant is alive (see "FEDERAL TAX CONSIDERATIONS"). The Company
will not be deemed to have knowledge of an assignment unless it is made in
writing and filed at the Principal Office. The Company will not assume
responsibility for determining the validity of any assignment. If an assignment
of the Contract is in effect on the Annuity Date, the Company reserves the right
to pay to the assignee, in one sum, that portion of the Surrender Value of the
Contract to which the assignee appears to be entitled. The Company will pay the
balance, if any, in one sum to the Contract Owner in full settlement of all
liability under the Contract. The interest of the Contract 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 Contract Owner has the
right (1) to select the annuity option under which annuity benefit payments are
to be made, and (2) to determine whether payments are to be made on a fixed
basis, a variable basis, or a combination fixed and variable basis. Annuity
benefit payments are determined according to the annuity tables in the Contract,
by the annuity option selected, and by the investment performance of the
Account(s) selected.
To the extent a fixed annuity is selected, the Accumulated Value adjusted for
any applicable Market Value Adjustment, will be transferred to the Fixed Account
of the Company, and the annuity benefit payments will be fixed in amount. See
APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number of
Annuity Units in the Subaccount(s) is made monthly, quarterly, semiannually or
annually. Since the value of an Annuity Unit in a Subaccount will reflect the
investment performance of the Subaccount, the amount of each annuity benefit
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 an
initial payments which meet these minimums, a single payment will be made. Once
the Company begins making annuity payments, the Annuitant cannot make partial
redemptions or surrender the annuity benefit, except in the case where
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future annuity payments are limited to a "period certain." 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 Contract Owner. The Annuity Date may be the
first day of any month before the Annuitant's 85th birthday, with certain
exceptions the Company may arrange. The Contract 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 before the Annuitant's 85th birthday and 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 Contract Owner does not elect otherwise, a variable life annuity with
periodic payments for 10 years guaranteed will be purchased. 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 provides the variable annuity options described below. Currently,
Variable annuity options may be funded through the Growth Fund, the Money Market
Fund, the Equity Index Fund, or the Select Growth and Income Fund.
The Company also provides these same options funded through the fixed account
(fixed-amount annuity option). 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 options
may be selected in combination with any one of the fixed-amount annuity options.
Other annuity options may be offered by the Company.
A Variable Life Annuity with Payments Guaranteed for 10 years. A variable
annuity payable periodically during the lifetime of the payee with the guarantee
that if the payee should die before all guaranteed payments have been made, the
remaining annuity benefit payments will continue to the beneficiary.
A Variable Life Annuity payable periodically during the lifetime of the payee
only. It would be possible under this option for the Annuitant to receive only
one annuity benefit 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 benefit payment, and so on. However, payments
will continue during the lifetime of the payee, no matter how long the payee
lives.
A Unit Refund Variable Life Annuity is an annuity payable periodically during
the lifetime of the payee with the guarantee that if (1) exceeds (2) then
periodic 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 payment (which determines the
greatest number of payments payable to the beneficiary), and
(2) is the number of payments paid prior to the death of the payee,
Joint and Survivor Variable Life Annuity is payable jointly to two payees during
their joint lifetimes, 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 Contract
or the beneficiary. There is no minimum number of payments under this option.
Joint and Two-thirds Survivor Variable Life Annuity is a 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
periodic 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 Contract or the
beneficiary. There is no minimum number of payments under this option.
Period Certain Variable Annuity is a variable annuity, with periodic payments
for a stipulated number of years ranging from one to thirty.
It should be noted that the Period Certain Option does not involve a life
contingency. In the computation of the payments under this option, the charge
for annuity rate guarantees, which includes a factor for mortality risks, is
made. Although not contractually required to do so, the Company currently
follows a practice of permitting persons receiving payments under the Period
Certain Option to elect to convert to a variable annuity involving a life
contingency. The Company may discontinue or change this practice at any time,
but not with respect to election of the option made prior to the date of any
change in this practice. See "FEDERAL TAX CONSIDERATIONS" for
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a discussion of the possible adverse tax consequences of selecting a Period
Certain Option.
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 Contract issued in connection with an employer-sponsored
benefit plan affected by the NORRIS decision will be based on the greater of (1)
the Company's unisex Non-Guaranteed Current Annuity Option Rates or (2) the
guaranteed unisex rates described in such Contract, regardless of whether the
Annuitant is male or female.
K. COMPUTATION OF VALUES AND ANNUITY PAYMENTS.
THE ACCUMULATION UNIT. Each net payment is allocated to the account(s) selected
by the Contract Owner. Allocations to the Subaccounts are credited to the
Contract 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 Contract is equal to the portion of the net 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
Funds. The value of an Accumulation Unit was set at $1.00 on the first
Valuation Date for each Subaccount.
Allocations to the Guarantee Period Account and the Fixed Account are not
converted into Accumulation Units, but are credited interest at a rate
periodically set by the Company. See .
The Accumulated Value under the Contract 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 Fixed 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 FACTOR
The Net Investment Factor is an index that measures the investment performance
of a Sub-Account from one Valuation Period to the next. This factor is equal to
1.000000 plus the result from dividing (a) by (b) and subtracting (c) and (d)
where:
(a) is the investment income of a Sub-Account for the Valuation
Period, including realized or unrealized capital gains and losses
during the Valuation Period, adjusted for provisions made for taxes,
if any;
(b) is the value of that Sub-Account's assets at the beginning of the
Valuation Period;
(c) is a charge for motality and expense risks equal to 1.25% on an
annual basis of the daily value of the Sub-Account's assets, and
(d) is an administrative change of .15% on an annual basis of the
daily value of the Sub-Account's assets.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of Accumulation Unit calculation using a hypothetical
example see "ANNUITY PAYMENTS" in the Statement of Additional Information.
Subject to compliance with applicable state and federal law, the Company
reserves the right to change the methodology for determining the net
investment factor.
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ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a measure of
the value of the Annuitant's periodic annuity benefit 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
Contract.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY BENEFIT PAYMENTS. The first
periodic annuity payment is based upon the Accumulated Value as of a date not
more than four weeks preceding the date that the first annuity payment is due.
Currently, variable annuity payments are made on the first of a month based on
unit values as of the 15th day of the preceding month.
The Contract provides annuity rates which determine the dollar amount of the
first monthly payment under each form of annuity for each $1,000 of applied
value. For Life Option and Noncommutable Period Certain Options of 10 or more
years, the annuity value is the Accumulated Value less any premium taxes. For
commutable period certain options or any period certain option less than 10
years, the value is surrender value less any premium tax. For a death benefit
annuity, the annuity value will be the amount of the death benefit. The annuity
rates in the Contract are based on a modification of the 1983 Table on rates.
The amount of the first periodic 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 periodic annuity payment under life annuity
options and non-commutable period certain options of 10 years or more is
determined by multiplying (1) the Accumulated Value applied under that option
(after application of any Market Value Adjustment and less premium tax, if any)
divided by $1,000, by (2) the applicable amount of the first monthly payment per
$1,000 of value. For commutable period certain options and any period certain
option of less than 10 years, the Surrender Value less premium taxes, if any, is
used rather than the Accumulated Value. The dollar amount of the first variable
annuity benefit 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. For each
subsequent payment, the dollar amount of the variable annuity benefit payment is
determined by multiplying this fixed number of Annuity Units by the value of an
Annuity Unit on the applicable Valuation Date.
After the first payment, the dollar amount of each periodic variable annuity
benefit 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
annuity benefit 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 Contract Owners both fixed and
variable annuity rates more favorable than those contained in the Contract. Any
such rates will be applied uniformly to all Contract 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.
GUARANTEE PERIOD ACCOUNTS
Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Company's Fixed Account are
not registered as an investment company under the provisions of the Securities
Act of 1933 or the Investment Company Act of 1940. Accordingly, the staff of
the Commission has not reviewed the disclosures in this Prospectus relating to
the Guarantee Period Accounts or the Fixed Account. Nevertheless, disclosures
regarding the Guarantee Period Accounts and the Fixed Account of this annuity
Contract or any benefits offered under these accounts may be subject to the
provisions of the Securities Act of 1933 relating to the accuracy and
completeness of statements made in the Prospectus.
Investment Options - In most jurisdictions, there are currently seven Guarantee
period Accounts available under this Contract with Guarantee Periods of three,
five, six, seven, eight, nine and ten years. Each Guarantee Period Account
established for the Contract Owner is accounted for separately in a non-unitized
segregated account. Each Guarantee Period Account provides for the accumulation
of interest at a Guaranteed Interest Rate. The Guaranteed Interest Rate on
amounts allocated or transferred to a Guarantee Period Account is determined
from time-to-time by the Company in accordance with market conditions; however,
once an interest rate is in effect for a
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Guarantee Period Account, the Company may not change it during the duration
of the Guarantee Period. In no event will the Guaranteed Rate off Interest
be less than 3%.
To the extent permitted by law, the Company reserves the right at any time to
offer Guarantee Periods with durations that differ from those which were
available when a Contract was initially issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Contract owners may allocate net payments or make transfers from any of the
subaccounts, the Fixed Account or an existing Guarantee Period Account to
establish a new Guarantee Period at any time prior to the Annuity Date.
Transfers from a Guarantee Period Account on any date other than on the day
following the expiration of that Guarantee Period will be subject to a Market
Value Adjustment. The Company establishes a separate investment account each
time the Contract Owner allocates or transfers amounts to a Guarantee Period
Account except that amounts allocated to the same Guarantee Period on the same
day will be treated as one Guarantee Period Account. The minimum that may be
allocated to establish a Guarantee Period Account is $1,000. If less than
$1,000 is allocated, the Company reserves the right to apply that amount to the
Money Market Account. The Contract Owner may allocate amounts to any of the
Guarantee Periods available.
At least 45 days, but not more that 75 days prior to the end of a Guarantee
Period, the Company will notify the Contract Owner in writing of the expiration
of that Guarantee Period. At the end of a Guarantee Period the Owner may
transfer amounts to the subaccounts, the Fixed Amount or establish a new
Guarantee Period Account of any duration then offered by the Company without a
Market Value Adjustment. If reallocation instructions are not received at the
Principal Office before the end of a Guarantee Period Account value will be
automatically applied to a new Guarantee period Account with the same duration
unless less than $1,000 remains in the Guarantee Period Account on the
expirations date or the Guarantee Period would extend beyond the Annuity Date or
is no longer available. In such cases, the Guarantee Period Account value will
be transferred to the Money Market subaccount.
Market Value Adjustment - No Market Value Adjustment will be applied to
transfers, withdrawals, or a surrender from a Guarantee Period Account on the
expiration of the Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See " Death Benefit". A Market
Value Adjustment will apply to all other transfers or withdrawals, or a
surrender. Amounts applied under an annuity option are treated as withdrawals
when calculating the Market Value Adjustment. The Market Value Adjustment will
be determined by multiplying the amount taken form each Guarantee Period Account
before deduction of any Surrender Charge by the market value factor. The market
value factor for each Guarantee Period Account is equal to:
[(1+i)/(1+j)]n/365 -1
where:
i is the Guaranteed Interest Rate expressed as a decimal (for example: 3% =
0.03) being credited to the current Guarantee Period;
j is the new Guaranteed Interest Rate, expressed as a decimal, for a
Guarantee Period with a duration equal to the number of years remaining in
the current Guarantee Period, rounded to the next higher number of whole years.
If that rate is not available, the Company will use a suitable rate or
index allowed by the Department of Insurance; and
n is the number of days remaining from the Effective Valuation Date to the
end of the current Guarantee Period.
If the Guaranteed Interest Rate being credited is lower than the current
Guaranteed Interest Rate, the Market Value Adjustment will decrease the
Guarantee Period Account value. Similarly, if the Guaranteed Interest Rate
being credited is higher than the current Guaranteed Interest Rate, the Market
Value Adjustment will increase the Guarantee Period Account value. The Market
Value Adjustment will never result in a change to the value more than the
interest earned in excess of the Minimum Guarantee Period Account Interest Rate
(see Specifications page) compounded annually from the beginning of the current
Guarantee Period. For examples of how the Market Value Adjustment works, See
Appendix _______.
Withdrawal - Prior to the Annuity Date, the Contract Owner may make withdrawals
of amounts held in the Guarantee Period Accounts. Withdrawals from these
accounts will be made in the same manner and be subject to the same rules as set
forth under "Partial Redemptions" and "Surrender." In addition, the following
provisions also apply to withdrawals from a Guarantee Period Account: a) a
market value adjustment will apply to all withdrawals, including Withdrawals
without Surrender Charge, unless made at the end of the Guarantee Period; and b)
the Company reserves the right to defer payments of amounts withdrawn from a
Guarantee Period Account for up to six ;months from the date it receives the
withdrawal request. If deferred for 30 days or ;more, the Company will pay
interest on the amount deferred at a rate of at least 3%.
In the event that a Market Value Adjustment applies to a withdrawal of a portion
of the value of a Guarantee Period Account, it will be
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calculated on the amount requested and deducted or added to the amount
remaining in the Guarantee Period Account. If the entire amount in a
Guarantee Period Account is requested, the adjustment will be made to the
amount payable. If a Contingent Deferred Sales Charge applies to the
withdrawal, it will be calculated as set forth under "Contingent Deferred
Sales Charge" after application of the Market Value Adjustment.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Contract, on redemptions or
surrenders, on annuity payments, and on the economic benefit to the Contract
Owner, Annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the Internal
Revenue Service (IRS).
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER SHOULD ALWAYS BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income, assets, or
existence of the Contracts, the Separate Account or 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 Contract 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 mutual 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
Contract Owner, would be treated as ordinary income received or accrued by the
Contract Owner. It is anticipated that the Funds of the Allmerica Investment
Trust, the Portfolios of VIP and VIP II, the Portfolio of T. Rowe and the Series
of DGPF will comply with the diversification requirements.
A. QUALIFIED AND NON-QUALIFIED CONTRACTS.
From a federal tax viewpoint there are two types of variable annuity Contracts,
"qualified" Contracts and "non-qualified" Contracts. A qualified Contract is
one that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, 408, or 457 of the Code, while a
non-qualified Contract is one that is not purchased in connection with one of
the indicated retirement plans. The tax treatment for certain partial
redemptions or surrenders will vary according to whether they are made from a
qualified Contract or a non-qualified Contract. For more information on the tax
provisions applicable to qualified Contracts, see Sections D through J, below.
B. TAXATION OF THE CONTRACTS IN GENERAL.
The Company believes that the Contracts described in this Prospectus will, with
certain exceptions (see K below), be considered annuity Contracts 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
Section 72. Section 72(e)(11)(A)(ii) requires that all non-qualified deferred
annuity Contracts issued by the same insurance company to the same Contract
Owner during the same calendar year be treated as a single Contract in
determining taxable distributions under Section 72(e).
With certain exceptions, any increase in the Accumulated Value of the Contract
is not taxable to the Contract Owner until it is withdrawn from the Contract.
If the Contract 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 Contract would be taxed as ordinary income. Under the
current provisions of the Code, amounts received under a non-qualified Contract
prior to the Annuity Date (including payments made upon the death of the
Annuitant or Contract Owner), or as non-periodic payments after the Annuity
Date, are generally first attributable to any investment gains credited to the
Contract over the taxpayer's basis (if any) in the Contract. Such amounts will
be treated as income subject to federal income taxation.
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<PAGE>
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 Contract Owner
(or, if the Contract 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 Annuitant. 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 Contract Owner elects to have distributions made over the
Contract Owner's life expectancy, or over the joint life expectancy of the
Contract 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 contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy (such as
under the Contract'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 Contract
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 Contract Owner transfers (assigns) the Contract to another individual as
a gift prior to the Annuity Date, the Code provides that the Contract 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 Surrender Value of the
Contract over the Contract Owner's cost basis at the time of the transfer. The
transfer is also subject to federal gift tax provisions. Where the Contract
Owner and Annuitant are different persons, the change of ownership of the
Contract to the Annuitant on the Annuity Date, as required under the Contract,
is a gift and will be taxable to the Contract Owner as such. However, the
Contract 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 Contract, 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 Contract bears to the expected return under the Contract. The portion of
the payment in excess of this excludable amount is taxable as ordinary income.
Once all cost basis in the Contract 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.
In certain situations, the Code provides for a tax penalty if, prior to death,
disability or attainment of age 59 1/2, a Contract Owner makes a withdrawal or
receives any amount under the Contract, unless the distribution is in the form
of a life annuity (including life expectancy distributions). The penalty is 10%
of the amount includible in income by the Contract Owner.
The tax treatment of certain partial redemptions or surrenders of the
non-qualified Contracts offered by this Prospectus will vary according to
whether the amount redeemed or surrendered is allocable to an investment in the
Contract 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. Therefore, the following is general information about the use of the
Contracts 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 Contract.
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.
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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 gains 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 Contracts including the Contracts 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 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
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<PAGE>
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.
Employers 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
Contracts purchased for employees under annuity plans adopted by public school
systems and certain organizations which are tax exempt under Section 501(c)(3)
of the Code are excludable from the gross income of such employees to the extent
that the aggregate purchase payments for such annuity Contracts in any year do
not exceed the maximum contribution permitted under the Code.
A Contract 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 Contract 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.
The distribution restrictions are effective for years beginning after December
31, 1988, but only with respect to amounts that were not held under the Contract
as of that date.
J. TEXAS OPTIONAL RETIREMENT PROGRAM.
Under a Code Section 403(b) annuity contract 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 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 Contract.
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.
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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 income on the annuities
increases the corporation's adjusted current earnings.
LOANS (QUALIFIED CONTRACTS ONLY)
Loans will be permitted only for TSAs and Contracts issued to a plan qualified
under Section 401(a) and 401(k) of the Code. Loans are made from the Policy's
value on a pro-rata basis from all accounts. 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 Contract. 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. When repayments are received, they will be allocated in
accordance with the contract owner's most recent allocation instructions.
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.
REPORTS
A Contract Owner is sent a report semi-annually which states certain financial
information about the Underlying Funds. The Company will also furnish an annual
report to the Contract Owner containing a statement of his or her account,
including unit values and other information as required by applicable law, rules
and regulations.
CHANGES IN OPERATION OF THE VARIABLE 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 variable accounts or Subaccounts having assets of the same class, (2)
to operate the variable 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 Variable account under the 1940 Act in accordance with the
requirements of the 1940 Act and (4) to substitute the shares of any other
registered investment company for the Underlying Fund shares held by a
Subaccount, in the event that Underlying Fund shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Fund shares is inappropriate in view of the purpose of the
Subaccount (5) to change the methodology for determining the net investment
fact or and (6) to change the names of the Variable account or of the
Subaccounts. In no event will the changes described above be made without
notice to Contract Owners in accordance with the 1940 Act.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable 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 in 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 FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed 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 Fixed
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
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<PAGE>
Securities and Exchange Commission.
The Fixed Account is made up of all of the general assets of the Company other
than those allocated to the separate account. Allocations to the Fixed Account
become part of the assets of the Company and are used to support insurance and
annuity obligations. A portion or all of net purchase payments may be allocated
to accumulate at a fixed rate of interest in the Fixed Account. Such net
amounts are guaranteed by the Company as to principal and a minimum rate of
interest. Under the Contracts, the minimum interest which may be credited on
amounts allocated to the Fixed Account is 3% compounded annually. Additional
"Excess Interest" may or may not be credited at the sole discretion of the
Company.
If a Contract is surrendered, or if an Excess Amount is redeemed, while the
Contract 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 Contract less than nine full
contract years.
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APPENDIX B
SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: SURRENDER CHARGES
FULL SURRENDER
Assume a Purchase Payment of $50,000 is made on the Date of Issue and no
additional Purchase Payments are made. Assume there are no partial withdrawals
and that the free withdrawal amount is equal to the greater of 15% of the
current Account Value or the accumulated earnings in the contract. The table
below presents examples of the surrender charge resulting from a full surrender
of the Participant's Account, based on hypothetical Account Values.
<TABLE>
<CAPTION>
Hypothetical Free Surrender
Account Account Withdrawal Charge Surrender
Year Value Amount Percentage Charge
---- ----- ------ ---------- ------
<S> <C> <C> <C> <C>
1 54,000.00 8,100.00 7% 3,213.00
2 58,320.00 8,748.00 6% 2,974.32
3 62,985.60 12,985.60 5% 2,500.00
4 68,024.45 18,024.45 4% 2,000.00
5 73,466.40 23,466.40 3% 1,500.00
6 79,343.72 29,343.72 2% 1,000.00
7 85,691.21 35,691.21 1% 500.00
8 92,546.51 42,546.51 0% 0.00
</TABLE>
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<PAGE>
PARTIAL WITHDRAWAL
Assume a Purchase Payment of $50,000 is made on the Date of Issue and no
additional Purchase Payments are made. Assume that the free withdrawal amount
is equal to the greater of 15% of the current Account Value or the accumulated
earnings in the contract and there are partial withdrawals as detailed below.
The table below presents examples of the surrender charge resulting from partial
surrenders of the Participant's Account, based on hypothetical Account Values.
<TABLE>
<CAPTION>
Hypothetical Free Surrender
Account Account Partial Withdrawal Charge Surrender
Year Value Withdrawal Amount Percentage Charge
---- ----- ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
1 54,000.00 0.00 8,100.00 7% 0.00
2 58,320.00 0.00 8,748.00 6% 0.00
3 62,985.60 0.00 12,985.60 5% 0.00
4 68,024.45 30,000.00 18,024.45 4% 479.02
5 41,066.40 10,000.00 6,159.96 3% 115.20
6 33,551.72 5,000.00 5,032.76 2% 0.00
7 30,835.85 10,000.00 4,625.38 1% 53.75
8 22,502.72 15,000.00 3,375.41 0% 0.00
</TABLE>
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<PAGE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is:
n/365
[(1+i)/(1+j)] -1
The following examples assume:
1. The Purchase Payment was allocated to a ten year guarantee period
with a guaranteed interest rate of 8%.
2. The date of surrender is seven years (2555 days) from the expiration
date.
3. The value of the Guarantee Period Account is equal to $62,985.60 at
the end of three years.
4. No transfers of partial withdrawals affecting this Guarantee Period
Account have been made.
5. Surrender charges, if any, are calculated in the same manner as
shown in the examples in Part 1.
NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10
n/365
The market value factor = [(1+i)/(1+j)] -1
2555/365
= [(1+.08)/(1+.10)] -1
7
= (.98182) -1
= -.12054
The market value adjustment = the market value factor multiplied by
the withdrawal
= -.12054*$62,985.60
= -$7,592.11
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
n/365
The market value factor = [(1+i)/(1+j)] -1
2555/365
= [(1+.08)/(1+.07)] -1
7
= (1.0093) -1
= .06694
The market value adjustment = the market value factor multiplied by
the withdrawal
= .06694*$62,985.60
= $4,216.26
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<PAGE>
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11
n/365
The market value factor = [(1+i)/(1+j)] -1
2555/365
= [(1+.08)/(1+.11)] -1
7
= (.97297) -1
= -.17454
The market value adjustment = Minimum of the market value factor
multiplied by the withdrawal or the
negative of the excess interest earned
over 3%
= Min(-.17454*$62,985.60 or -$8,349.25)
= Min(-$10,993.51 or -$8,349.25)
= -$8,349.25
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
n/365
The market value factor = [(1+i)/(1+j)] -1
2555/365
= [(1+.08)/(1+.06)] -1
7
= (1.01887) -1
= .13981
The market value adjustment = Minimum of the market value factor
multiplied by the withdrawal or the
excess interest earned over 3%
= Min(.13981*$62,985.60 or $8,349.25)
= Min($8,806.02 or $8,349.25)
= $8,349.25
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<PAGE>
APPENDIX C
THE DEATH BENEFIT
PART 1: DEATH OF THE ANNUITANT
DEATH BENEFIT ASSUMING NO WITHDRAWALS
Assume a Purchase Payment of $50,000 is made on the Date of Issue and no
additional Purchase Payments are made. Assume there are no partial withdrawals
and that the Death Benefit Effective Annual Yield is equal to 5%. The table
below presents examples of the Death Benefit based on the hypothetical Account
Values.
<TABLE>
<CAPTION>
Hypothetical
Hypothetical Market Hypothetical
Account Value Death Death Death Death
Year Value Adjustment Benefit (a) Benefit (b) Benefit (c) Benefit
---- ----- ---------- ------------ ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
1 53,000.00 0.00 53,000.00 52,500.00 50,000.00 53,000.00
2 53,530.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 58,883.00 0.00 58,883.00 57,881.25 55,125.00 58,883.00
4 52,994.70 500.00 53,494.70 60,775.31 58,883.00 60,775.31
5 58,294.17 0.00 58,294.17 63,814.08 60,775.31 63,814.08
6 64,123.59 500.00 64,623.59 67,004.78 63,814.08 67,004.78
7 70,535.95 0.00 70,535.95 70,355.02 67,004.78 70,535.95
8 77,589.54 500.00 78,089.54 73,872.77 70,535.95 78,089.54
9 85,348.49 0.00 85,348.49 77,566.41 78,089.54 85,348.49
10 93,883.34 0.00 93,883.34 81,444.73 85,348.49 93,883.34
</TABLE>
Death Benefit (a) is the Account Value increase by any positive Market Value
Adjustment
Death Benefit (b) is the gross payments accumulated daily at the Death Benefit
Effective Annual Yield reduced proportionately to reflect withdrawals.
Death Benefit (c) is the death benefit that would have payable on the most
recent contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c)
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<PAGE>
DEATH BENEFIT ASSUMING PARTIAL WITHDRAWALS
Assume a Purchase Payment of $50,000 is made on the Date of Issue and no
additional Purchase Payments are made. Assume there are partial withdrawals as
detailed in the table below and that the Death Benefit Effective Annual Yield is
equal to 5%. The table below presents examples of the Death Benefit based on
the hypothetical Account Values.
<TABLE>
<CAPTION>
Hypothetical
Hypothetical Market Hypothetical
Account Partial Value Death Death Death Death
Year Value Withdrawal Adjustment Benefit (a) Benefit (b) Benefit (c) Benefit
---- ----- ---------- ---------- ----------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 53,000.00 0.00 0.00 53,000.00 52,500.00 50,000.00 53,000.00
2 53,530.00 0.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 3,883.00 50,000.00 0.00 3,883.00 3,816.94 3,635.18 3,883.00
4 3,494.70 0.00 500.00 3,994.70 4,007.79 3,883.00 4,007.79
5 3,844.17 0.00 0.00 3,844.17 4,208.18 4,007.79 4,208.18
6 4,228.59 0.00 500.00 4,728.59 4,418.59 4,208.18 4,728.59
7 4,651.45 0.00 0.00 4,651.45 4,639.51 4,728.59 4,728.59
8 5,116.59 0.00 500.00 5,616.59 4,871.49 4,728.59 5,616.59
9 5,628.25 0.00 0.00 5,628.25 5,115.07 5,616.59 5,628.25
10 691.07 5,000.00 0.00 691.07 599.51 628.25 691.07
</TABLE>
Death Benefit (a) is the Account Value increase by any positive Market Value
Adjustment
Death Benefit (b) is the gross payments accumulated daily at the Death Benefit
Effective Annual Yield reduced proportionately to reflect withdrawals.
Death Benefit (c) is the death benefit that would have payable on the most
recent contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c)
46
<PAGE>
PART 2: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT
Assume a Purchase Payment of $50,000 is made on the Date of Issue and no
additional Purchase Payments are made. Assume there are no partial withdrawals
and that the Death Benefit Effective Annual Yield is equal to 5%. The table
below presents examples of the Death Benefit based on the hypothetical Account
Values.
<TABLE>
<CAPTION>
Hypothetical
Hypothetical Market Hypothetical
Account Value Death
Year Value Adjustment Benefit
---- ----- ---------- -------
<S> <C> <C> <C>
1 53,000.00 0.00 53,000.00
2 53,530.00 500.00 54,030.00
3 58,883.00 0.00 58,883.00
4 52,994.70 500.00 53,494.70
5 58,294.17 0.00 58,294.17
6 64,123.59 500.00 64,623.59
7 70,535.95 0.00 70,535.95
8 77,589.54 500.00 78,089.54
9 85,348.49 0.00 85,348.49
10 93,883.34 0.00 93,883.34
</TABLE>
The hypothetical Death Benefit is the Account Value increase by any positive
Market Value Adjustment.
47
<PAGE>
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
APRIL 30, 1996 ("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM
ANNUITY CUSTOMER SERVICES, FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY,
440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653.
----------------------------------------
DATED April 30, 1996
<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 of the Board of Directors on August 20, 1991.
The Company, organized under the laws of Massachusetts in 1844, is the fifth
oldest life insurance company in America. As of December 31, 1995, the
Company and its subsidiaries had over $___ billion in combined assets and
over $___ billion of life insurance in force. Effective October 16, 1995, the
Company converted from a mutual life insurance company, known as State Mutual
Life Assurance Company of America, to a stock life insurance company and
adopted its present name. The Company is a wholly-owned subsidiary of
Allmerica Financial Corporation ("AFC"). The Company's principal office is
located at 440 Lincoln Street, Worcester, Massachusetts 01653, telephone
508-855-1000 ("Principal Office").
The Company is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of
Insurance in Massachusetts. In addition, the Company is subject to the
insurance laws and regulations of other state and jurisdictions in which it
is licensed to operate.
Currently, ten 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,
Global Bond 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
-2-
<PAGE>
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. 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 change 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, 1995 and
1995 and for each of the three years in the period ended December 31, 1995
and of Separate Account VA-K Delaware Medallion of First Allmerica Financial
Life Insurance Company as of December 31, 1995 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.
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
-3-
<PAGE>
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 $_________ for independent broker-dealers $_________ for
Delaware Distributors, Inc. in 1995. Sales of the Policies began in April
1995.
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 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 amount of the
first variable annuity payment is $1.120000. Therefore, the Accumulation
Value of the Contract if $44,800 (40,000x$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 sale 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
-4-
<PAGE>
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.
Policy Form A has 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:
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
-5-
<PAGE>
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:
POLICY YEAR FROM DATE OF CHARGE AS PERCENTAGE OF NEW
PAYMENT IN WHICH SURRENDER OCCURS PURCHASE PAYMENTS REDEEMED*
--------------------------------- ---------------------------
0-1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%
*Subject to the maximum limit described in the prospectus.
No contingent deferred sale 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
Total Return for Periods Ending December 31, 1995
- ---------------------------------------------------
(Assuming COMPLETE redemption of the re-investment)
<TABLE>
<CAPTION>
TOTAL RETURN FOR AVERAGE ANNUAL
SUB- YEAR ENDED TOTAL RETURN SINCE
ACCOUNT NAME (2/31/95) 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%
210 Global Bond -- --
</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. The date of Inception of Subaccount 10 was
______________.
-6-
<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 period 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.
Total Return for Periods Ending December 31, 1995
(Assuming NO redemption of the investment)
<TABLE>
<CAPTION>
TOTAL RETURN FOR AVERAGE ANNUAL
SUB- YEAR ENDED TOTAL RETURN
ACCOUNT NAME 12/31/95 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%
210 Global Bond -- --
</TABLE>
-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, 1995:
Yield 2.33%
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 calculation of yield and effective yield do NOT reflect the $30 Annual
Policy fee.
FINANCIAL STATEMENTS
Financial Statements are included for First Allmerica Financial Life
Insurance Company and for the Subaccounts of Separate Account VA-K investing
in shares of the Underlying Series.
-8-
<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
None - will be filed pursuant to Rule 485(b) on or before April 30, 1996
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.
Schedule of Sales Commissions was previously filed on April 1,
1991, on Registration Statement No. 33-39702, and is herein
incorporated by reference.
Exhibit 4 - Specimen Generic Policy Form B
Exhibit 5 - Application Form A was previously filed on October 18, 1994 and
is herein incorporated by reference.
Specimen Generic Application Form B
Exhibit 6 - The Depositor's Articles of Incorporation and Bylaws were
previously filed on May 11, 1992, in its Registration Statement No.
33-47858, and are incorporated herein by reference.
Exhibit 7 - Not Applicable.
Exhibit 8 - AUV Calculation Services Agreement with The Shareholder Services
Group dated March 31, 1995, was previously filed in Registration
Statement No. ________ and is herein incorporated by reference.
Exhibit 9 - Consent and Opinion of Counsel.
Exhibit 10 - Consent of Independent Accountants will be filed pursuant to
Rule 485(b) on or before April 30, 1996
Exhibit 11 - None.
Exhibit 12 - None.
Exhibit 14- Not Applicable.
Other Exhibits:
Exhibit 15- Power of Attorney
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR.
NAME AND POSITION PRINCIPAL OCCUPATION
----------------- --------------------
Michael P. Angelini, Esq., Director Bowditch & Dewey
311 Main Street
Worcester, MA 01608
David A. Barrett, Director Consultant
MCCM, Inc. and The Medical Center
of Central Massachusetts
<PAGE>
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
State Mutual Life Assurance
Company of America
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
Judith H. Fleming Vice President
Edward W. Ford Vice President
Bruce H. Freedman Vice President
Bradford K. Gallagher 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
<PAGE>
Joseph W. MacDougall, Jr. Vice President, Associate General
Counsel and Assistant Secretary
William H. Mawdsley Vice President and Actuary
Roderick A. McGarry, II Vice President
Ruben P. Moreno 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. See attached
organization chart.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
Allmerica Asset 440 Lincoln Street Investment advisory
Management, Inc. Worcester MA 01653 services
Allmerica Employees 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester MA 01653
Allmerica Financial 440 Lincoln Street Insurance Agency
Services Insurance Worcester, MA 01653
Agency, Inc.
<PAGE>
Allmerica Institutional 440 Lincoln Street Accounting, marketing
Services, Inc. Worcester MA 01653 and shareholder services
(formerly 440 Financial for investment companies
Group of Worcester, Inc.)
Allmerica Funds 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Investment 440 Lincoln Street Holding Company
Services, Inc. Worcester, MA 01653
(formerly Allmerica
Financial Services, Inc.)
Allmerica Investment 440 Lincoln Street Investment Advisory
Management Company, Inc. Worcester MA 01653 Services
Allmerica Investments, 440 Lincoln Street Securities, retail broker-
Inc. Worcester MA 01653 dealer
Allmerica Investment Trust 440 Lincoln Street Investment Company
(formerly SMA Investment Worcester MA 01653
Trust)
Allmerica Property and 440 Lincoln Street Holding Company
Casualty Companies, Inc. Worcester MA 01653
Allmerica Realty Advisors, 440 Lincoln Street Investment Advisory
Inc. 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, 440 Lincoln Street Limited purpose national
N.A. Worcester MA 01653 trust company
AMGRO, Inc. 472 Lincoln Street Premium financing
Worcester MA 01653
APC Funding Corp. 440 Lincoln Street Special purpose funding
Worcester MA 01653 vehicle for commercial
paper
Beltsville Drive Limited 440 Lincoln Street Real estate partnership
Partnership Worcester MA 01653
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company 645 West Grand River Multi-line fire &
of America Howell MI 48843 casualty insurance
Citizens Insurance Company 645 West Grand River Multi-line fire &
of Ohio Howell MI 48843 casualty insurance
Citizens Management, Inc. 645 West Grand River Services management
Howell MI 48843 company
Greendale Special 440 Lincoln Street Massachusetts Grantor
Placements Fund Worcester MA 01653 Trust
The Hanover American 100 North Parkway Multi-line fire &
Insurance Company Worcester MA 01653 casualty insurance
<PAGE>
The Hanover Insurance 100 North Parkway Multi-line fire &
Company Worcester MA 01605 casualty insurance
Hanover Texas Insurance 801 East Campbell Incorporated Branch
Management Company, Inc. Road Office of The Hanover
Richardson TX 75081 Insurance Company
Hanover Lloyd's Insurance 801 East Campbell Multi-line fire &
Company Road casualty insurance
Richardson TX 75081
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, 603 Heron Drive Water Company, serving
Inc. 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
Allmerica Financial Life 440 Lincoln Street Life insurance, accident
Insurance and Annuity Worcester MA 01653 & health insurance,
Company annuities, variable
annuities and variable
life insurance
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, 1995, there were ___ Policyowners of qualified Policies and
___ 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 mutual insurance companies
pursuant to M.G.L.A. c. 156B Section 61 or M.G.L.A. c.156B Section 62;
4. for any transactions from which the director derived an improper personal
benefit.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
<PAGE>
- 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
- Inheiritage Account, VEL II Account, Separate Account I and Allmerica
Select Separate Account and of First Alliance
- 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
Bradford K. Gallagher Director
John F. Kelly Director
Eric S. Levy Assistant Vice President and Chief Financial Officer
James R. McAuliffe Director
Ruben P. Moreno Vice President
John F. O'Brien Director
Stephen Parker Senior Vice President
Edward J. Parry, III Treasurer
Richard M. Reilly Director, President and Chief Executive Officer
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 First Data Investor Services Group, Inc. at 4400
Computer Drive, Westboro, Massachusetts 01581.
Item 31. MANAGEMENT SERVICES.
Effective March 31, 1995, the Company has engaged The Shareholder Services
Group, Inc., 53 State Street, Boston, Massachusetts to provide daily unit value
calculations and related services for the Company's separate accounts.
Item 32. UNDERTAKINGS.
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
(b) The registrant hereby undertakes to include in the prospectus a postcard
that the applicant can remove to send for a Statement of Additional Information.
<PAGE>
(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 State Mutual Life Assurance Company of
America ("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 4 - Specimen Generic Policy Form B
Exhibit 5 - Specimen Generic Policy Application Form B
Exhibit 9 - Consent and Opinion of Counsel
Exhibit 15- Power of Attorney
<PAGE>
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint John F.
O'Brien, Richard J. Baker and Joseph W. MacDougall,Jr., and each of them singly,
our true and lawful attorneys, with full power to them and each of them, to sign
for us, and in our names and in any and all capacities, any and all Registration
Statements (including post-effective amendments) to be filed, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and each of them, acting
alone, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys or any of them may lawfully do or cause to be
done by virtue hereof. Witness our hands and common seal on the date set forth
below, which signatures may be signed in counterpart.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John F. O'Brien President, Chief Executive February 27, 1996
- ------------------------- Officer, and Director
John F. O'Brien
/s/ Michael P. Angelini Director February 27, 1996
- -------------------------
Michael P. Angelini
/s/ David A. Barrett Director February 27, 1996
- -------------------------
David A. Barrett
/s/ Gail L. Harrison Director February 27, 1996
- -------------------------
Gail L. Harrison
/s/ J. Terrence Murray Director February 27, 1996
- -------------------------
J. Terrence Murray
/s/ Guy W. Nichols Director February 27, 1996
- -------------------------
Guy W. Nichols
/s/ John L. Sprague Director February 27, 1996
- -------------------------
John L. Sprague
/s/ Robert G. Stachler Director February 27, 1996
- -------------------------
Robert G. Stachler
/s/ Herbert M. Varnum Director February 27, 1996
- -------------------------
Herbert M. Varnum
/s/ Richard M. Wall Director February 27, 1996
- -------------------------
Richard M. Wall
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Worcester and Commonwealth of Massachusetts, on the 27 day of
February, 1996.
First Allmerica Financial Life
Insurance Company
Separate Account VA-K
(Registrant)
By: /s/ Richard J. Baker
-----------------------------------
Richard J. Baker
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE Title DATE
- --------- ----- ----
<S> <C> <C>
/s/ John F. O'Brien Director, President and February 27, 1996
- ----------------------- Chief Executive Officer
John F. O'Brien
/s/ Eric A. Simonsen Vice President and February 27, 1996
- ----------------------- Chief Financial Officer
Eric A. Simonsen
/s/ Mark R. Colborn Vice President and February 27, 1996
- ----------------------- Controller
Mark R. Colborn
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.
</TABLE>
Richard J,. Baker, by signing his name hereto, does hereby sign this document on
behalf of each of the above-named Directors of First Allmerica Financial Life
Insurance Company pursuant to the Powers of Attorney duly executed by such
persons and attached hereto as Exhibit 15.
/s/ Richard J. Baker
- -----------------------
Richard J. Baker
Attorney-In-Fact
<PAGE>
DELAWARE MEDALLION III LOGO
VARIABLE ANNUITY APPLICATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
440 Lincoln Street, Worcester, MA 01653
1 ANNUITANT
First MI Last
- --------------------------------------------------------------------------------
Street Address Apt.
- --------------------------------------------------------------------------------
City State Zip
- --------------------------------------------------------------------------------
Daytime Telephone / / Male Date of Birth
( ) / / Female / /
- --------------------------------------------------------------------------------
S.S.#
- --------------------------------------------------------------------------------
2 OWNER Complete This Section Only if:
(Check one and fill in below.)
/ / The owner is other than the annuitant, or
/ / This is a joint owner with the annuitant.
First MI Last
- --------------------------------------------------------------------------------
Street Address Apt.
- --------------------------------------------------------------------------------
City State Zip
- --------------------------------------------------------------------------------
S.S.#/Tax I.D.# Date of Birth Date of Trust
/ / / /
- --------------------------------------------------------------------------------
3 BENEFICIARY
Primary Relationship to Annuitant
- --------------------------------------------------------------------------------
Contingent Relationship to Annuitant
- --------------------------------------------------------------------------------
4 TYPE OF PLAN
/ / Nonqualified / / 403(b) TSA*
/ / Nonqualified Def. Comp. / / 408(b) IRA
/ / 401(a) Pension/Prof. Sh.* / / 408(k) SEP-IRA*
/ / 401(k) Profit Sharing* / / 457 Def. Comp.
* Attach required additional forms.
5 INITIAL PAYMENT
Initial Payment $_____________________
If IRA or SEP-IRA application, the applicant has received a
Disclosure Buyer's Guide and this payment is a (check one):
/ / Rollover / / Trustee to Trustee Transfer
/ / Regular or SEP-IRA Payment for Tax Year ______
6 ALLOCATION OF PAYMENTS
% International Equity
- -----------
% Value
- -----------
% Emerging Growth
- -----------
% Growth
- -----------
% Multiple Strategy
- -----------
% Equity/Income
- -----------
% High Yield
- -----------
% Global Bond
- -----------
% Capital Reserves
- -----------
% Money Market
- -----------
% Fixed Account (Not available in OR)
- -----------
%
- ----------- -----------------------------------
%
- ----------- -----------------------------------
Guarantee Period Accounts
($1,000 minimum per Account)
% 3 Year
- -----------
% 5 Year
- -----------
% 6 Year
- -----------
% 7 Year
- -----------
% 8 Year
- -----------
% 9 Year
- -----------
% 10 Year
- -----------
100 % (All allocations must total 100%.)
- -----------
- --------------------------------------------------------------------------------
/ / I elect Automatic Account Rebalancing among the above accounts (excluding
Fixed and Guarantee Period Accounts) starting on the 16th day after issue
date and continuing every:
/ / 1 / / 2 / / 3 / / 6 / / 12 Months
NOTE: If the contract applied for provides for a full refund of the initial
payment under its "Right to Examine" provision, that portion of each payment
not allocated to the Fixed Account will be allocated solely to the Money
Market account during its first 15 days. Reallocation will then be made as
specified.
7 REPLACEMENT
Will the proposed contract replace or change any existing annuity or
insurance policy?
/ / NO / / YES (If yes, list company name and policy number)
- -------------------------------------------------------------------------
8 TELEPHONE TRANSFER
I/We authorize and direct Allmerica Financial Life Insurance and Annuity
Company to accept telephone instructions from any person who can furnish
proper identification to effect transfers and future payment allocation
changes. I/We agree to hold harmless and indemnify Allmerica Financial Life
Insurance and Annuity Company and its affiliates and their collective
directors, officers, employees and agents against any claim arising from such
action.
/ / I/We DO NOT accept this telephone transfer privilege.
<PAGE>
9 DOLLAR COST AVERAGING
Please transfer $_____________ from (check ONE source account:)
$100 minimum)
/ / Fixed Account / / Capital Reserves / / Money Market
Every / / 1 / / 2 / / 3 / / 6 / / 12 Months
To: $____________ International Equity
$____________ Value
$____________ Emerging Growth
$____________ Growth
$____________ Multiple Strategy
$____________ Equity/Income
$____________ High Yield
$____________ Global Bond
$____________ Capital Reserves
$____________ Money Market
$_____________________________
Dollar Cost Averaging begins on the 16th day after the issue date and ends
when the source account value is exhausted.
DOLLAR COST AVERAGING INTO THE FIXED OR GUARANTEE PERIOD ACCOUNTS IS NOT
AVAILABLE.
10 MONTHLY AUTOMATIC PAYMENTS (MAP)
/ / I wish to authorize monthly automatic deductions from my checking account
for application to this contract.
MAP AUTHORIZATION (FORM 1968) AND VOIDED CHECK MUST BE ATTACHED.
11 SYSTEMATIC WITHDRAWALS
Please withdraw $_______________
($100 minimum)
Every / / 1 / / 2 / / 3 / / 6 / / 12 Months
(Systematic withdrawals from the Guarantee Period Accounts are not
available.)
% From
- -------- ------------------------------------------------
% From
- -------- ------------------------------------------------
% From
- -------- ------------------------------------------------
% From
- -------- ------------------------------------------------
% From
- -------- ------------------------------------------------
100 % TOTAL
- --------
/ / Do NOT Withhold Federal Income Taxes
/ / Do NOT Withhold at 10% or __________ (% or $)
Systematic withdrawals begin on the 16th day after the issue date.
/ / I wish to use Electronic Funds Transfer. I authorize the Company to
electronically correct any overpayment or erroneous credits made to my
account.
A VOIDED CHECK MUST BE ATTACHED.
12 OPTIONAL BILLING REMINDERS
/ / I wish to receive periodic reminders that I can include with future
remittances.
PAYMENT REMINDER REQUEST (FORM SML-1203) MUST BE ATTACHED.
13 REMARKS
________________________________________________________________________________
________________________________________________________________________________
14 SIGNATURES
I/We represent to the best of my/our knowledge and belief that the statements
made in this application are true and complete. I/We agree to all terms and
conditions as shown on the front and back. It is indicated and agreed that
the only statements which are to be construed as the basis of the contract
are those contained in this application. I/We acknowledge receipt of a
current prospectus describing the contract applied for. I/WE UNDERSTAND THAT
ALL PAYMENTS AND VALUES BASED ON THE VARIABLE ACCOUNTS MAY FLUCTUATE AND ARE
NOT GUARANTEED AS TO DOLLAR AMOUNT; AND ALL PAYMENTS AND VALUES BASED ON THE
GUARANTEE PERIOD ACCOUNTS ARE SUBJECT TO A MARKET VALUE ADJUSTMENT FORMULA,
THE OPERATIONS OF WHICH MAY RESULT IN EITHER AN UPWARD OR DOWNWARD
ADJUSTMENT. I/We understand that unless I/we elect otherwise, the Annuity
Date will be the earlier of the date, if any, selected by the Owner, or the
later of the Annuitant's 85th birthday or the birthday following the tenth
contract anniversary, not to exceed age 90.
- -------------------------------------- ---------------------------------------
Signature of Owner Signed at (City and State) Date
- --------------------------------------
Signature of Joint Owner
15 REGISTERED REPRESENTATIVE/DEALER INFORMATION
Does the contract applied for replace an existing annuity or life insurance
policy?
/ / Yes / / No If yes, attach replacement forms as required.
I certify that (1) the information provided by the owner has been accurately
recorded; (2) a current prospectus was delivered; (3) no written sales
materials other than those approved by the Principal Office were used; and
(4) I have reasonable grounds to believe the purchase of the contract applied
for is suitable for the owner.
( ) / /
- ----------------------------------------- -------------------------
Signature of Registered Representative Telephone TR Code
- ------------------------------------------------ ------------------------------
Printed Name of Registered Representative Printed Name of Broker/Dealer
( )
- -------------------------------------------------- -----------------------------
Branch Office Street Address for Contract Delivery Telephone
<PAGE>
EXHIBIT 3
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
February 26, 1996
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester, MA 01653
Gentlemen:
In my capacity as Counsel of First Allmerica Financial Life Insurance Company
(the "Company"), I have participated in the preparation of the Post-Effective
Amendment to the Registration Statement for Separate Account 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>
PLEASE READ THIS CONTRACT CAREFULLY
ANNUITY BENEFIT PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED
ON THE INVESTMENT PERFORMANCE OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE
AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. PLEASE REFER TO THE VALUE OF
THE VARIABLE ACCOUNT SECTION FOR ADDITIONAL INFORMATION.
VALUES REMOVED FROM A GUARANTEE PERIOD ACCOUNT PRIOR TO THE END OF ITS GUARANTEE
PERIOD MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT THAT MAY INCREASE OR DECREASE
THE VALUES. A NEGATIVE MARKET VALUE ADJUSTMENT WILL NEVER BE APPLIED TO THE
DEATH BENEFIT. A POSITIVE MARKET VALUE ADJUSTMENT, IF APPLICABLE, WILL BE ADDED
TO THE DEATH BENEFIT WHEN THE BENEFIT PAID IS THE CONTRACT'S ACCUMULATED VALUE.
PLEASE REFER TO THE MARKET VALUE ADJUSTMENT SECTION FOR ADDITIONAL INFORMATION.
RIGHT TO EXAMINE CONTRACT
The Owner may cancel this contract by returning it to the Company or one of its
authorized representatives within ten days after receipt. If returned, the
Company will refund an amount equal to the sum of (1) gross payments, less any
amounts allocated to the Variable Account, (2) the Accumulated Value of amounts
allocated to the Variable Account on the date the returned contract is received
at the Principal Office and (3) any fees or other charges imposed on the amounts
allocated to the Variable Account. If, however, the contract is issued as an
Individual Retirement Annuity (IRA), the Company will refund the greater of the
above or the gross payments.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
This is a legal contract between Allmerica Financial Life Insurance and Annuity
Company (the Company) and the Owner and is issued in consideration of the
initial payment shown on the Specifications page. Additional payments are
permitted and may be made either to the Principal Office or to an authorized
representative of the Company. Payments may be allocated to Variable Sub-
Accounts, the Fixed Account or Guarantee Period Accounts. While this contract
is in effect, the Company agrees to pay annuity benefits to the Annuitant
beginning on the Annuity Date or to pay a death benefit to the Beneficiary if
either the Owner or Annuitant dies prior to the Annuity Date.
/s/ John F. O'Brien /s/ Richard J. Baker
President Secretary
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY
NON-PARTICIPATING
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
OWNER AND BENEFICIARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
VALUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
WITHDRAWAL AND SURRENDER . . . . . . . . . . . . . . . . . . . . . . . . . . .10
DEATH BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
ANNUITY BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
ANNUITY OPTION TABLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
2
<PAGE>
SPECIFICATIONS
Annuitant: Contract Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Issue Date: Contract Type:
Annuitant Sex: Annuitant Date of Birth:
Owner: Owner Date of Birth:
Joint Owner: Joint Owner Date of Birth:
Annuity Date: [The earlier of the date, if any, Beneficiary:
selected by the Owner or the later
of annuitant's age 85 or birthday following the
tenth contract anniversary not to exceed 90]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Minimum Fixed Account Guaranteed Interest Rate: [3%] Minimum Additional Payment: [$50]
Minimum Guarantee Period Account Interest Rate: [3% ] Minimum Guarantee Period Account Allocation: [$1,000]
Death Benefit Effective Annual Yield: [5%] Minimum Withdrawal Amount: [$100]
Minimum Annuity Benefit Payment: [$50] Minimum Accumulated Value After Withdrawal: [$1,000]
</TABLE>
Maximum Alternative Annuity Date: No later than the first of the month
preceding the Annuitant's [90th]
birthday and within life expectancy
Surrender Charge Table:
Years Measured From Surrender Charge as a
Date of Payment Percent of the Payments
To Date of Withdrawal Withdrawn
------------------------------------------------------
[Less than: 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%]
Withdrawal without Surrender Charge: [15%]
Mortality and Expense Risk Charge: [1.25%] on an annual basis of the daily
value of the Sub-Account assets.
Administrative Charge: [.15%] on an annual basis of the daily value of the
Sub-Account assets.
Contract Fee: [$30, if the Accumulated Value is less than $50,000].
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
[(1-800-533-2124)]
3
<PAGE>
SPECIFICATIONS (continued)
Annuitant: Contract Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Initial Net Payment:
Initial Net Payment Allocation:
VARIABLE SUB-ACCOUNTS
[International Equity - 207
Value - 208
Emerging Growth - 209
Growth - 205
Multiple Strategy - 206
Equity/Income - 201
High Yield - 202
Global Bond - 210
Capital Reserves - 203
Money Market - 204]
FIXED ACCOUNT
Initial Interest Rate:
GUARANTEE PERIOD ACCOUNTS
GUARANTEED
GUARANTEE INTEREST EXPIRATION
PERIOD RATE DATE
--------- ---------- ----------
[2 years
3 years
4 years
5 years
6 years
7 years
8 years
9 years
10 years]
-----
100% TOTAL
4
<PAGE>
DEFINITIONS
ACCUMULATED The value of all accounts in this contract before
VALUE the Annuity Date. As long as the Accumulated
Value is greater than zero, the contract will stay
in effect.
ACCUMULATION A measure used to calculate the value of a Sub-
UNIT Account before annuity benefit payments begin.
ANNUITY DATE The date annuity benefit payments begin. The
Annuity Date is shown on the Specifications page,
unless the Owner elects an alternative Annuity
Date.
ANNUITY UNIT A measure used to calculate annuity benefit
payments under a variable annuity option.
BENEFICIARY The person, persons or entity entitled to the death benefit.
COMPANY First Allmerica Financial Life Insurance Company
CONTRACT YEAR A period of one year computed from the date of issue or from
an anniversary of the date of issue.
EFFECTIVE The Valuation Date on or immediately following the
VALUATION DATE day a payment, request for transfer, withdrawal or
surrender, or proof of death is received at the
Principal Office.
FIXED ACCOUNT The part of the Company's General Account to which
all or a portion of a payment or transfer may be
allocated.
FUND Each separate investment series eligible for
investment by a Sub-Account of the Variable
Account.
GENERAL ACCOUNT All assets of the Company that are not allocated
to a Separate Account.
GUARANTEED The annual effective rate of interest after daily
INTEREST RATE compounding credited to a Guarantee Period
Account.
GUARANTEE PERIOD The number of years that a Guaranteed Interest
Rate may be credited to a Guarantee Period
Account. The Guarantee Period may range from two
to ten years.
GUARANTEE PERIOD An account which corresponds to a Guaranteed
ACCOUNT Interest Rate for a specified Guarantee Period and
is supported by assets in a Separate Account.
MARKET VALUE A positive or negative adjustment assessed if any
ADJUSTMENT portion of a Guarantee Period Account is withdrawn
or transferred prior to the end of its Guarantee Period.
OWNER The person, persons or entity entitled to exercise
the rights and privileges under this contract.
Joint owners are permitted if one of the two is
the annuitant.
PRINCIPAL OFFICE The Company's office at 440 Lincoln Street,
Worcester, Massachusetts, 01653.
PRO RATA How a payment or withdrawal may be allocated among
the accounts. A Pro Rata allocation or withdrawal
will be made in the same proportion that the value
of each account bears to the Accumulated Value.
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SEPARATE ACCOUNT A segregated account established by the Company.
The assets are not commingled with the Company's
general assets and obligations.
SUB-ACCOUNT A Variable Account subdivision that invests
exclusively in shares of a corresponding Fund.
SURRENDER VALUE The amount payable to the Owner on full surrender
after application of any Surrender Charge, Market
Value Adjustment and contract fee.
TELEPHONE A request by telephone to the Principal Office. A
REQUEST signed authorization must be on file for such
requests to be honored.
VALUATION DATE A day the values of all units are determined.
Valuation Dates occur at the close of business on
each day the New York Stock Exchange is open for trading.
VALUATION PERIOD The interval between two consecutive Valuation Dates.
VARIABLE ACCOUNT The Company's Separate Account, consisting of Sub-Accounts
that invest in the underlying Funds.
WRITTEN REQUEST A request or notice in writing satisfactory to the
OR WRITTEN Company and filed at the Principal Office.
NOTICE
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OWNER AND BENEFICIARY
OWNER During the lifetime of the Annuitant and before
the Annuity Date, the Owner will be as shown on
the Specifications page unless changed in
accordance with the terms of this contract. On
and after the Annuity Date, the Annuitant will be
the Owner unless the Owner immediately prior to
the Annuity Date is not a person. In that case,
ownership will remain the same on and after the
Annuity Date.
The Owner may exercise all rights and options
granted in this contract or by the Company,
subject to the consent of any irrevocable
Beneficiary. Where the contract is owned jointly,
the consent of both is required in order to
exercise any ownership rights.
ASSIGNMENT The Owner may be changed at any time prior to the Annuity
Date and while the Annuitant is alive. Only the Owner
may assign this contract. An absolute assignment will
transfer ownership to the assignee. This contract may
also be collaterally assigned as security. The
limitations on ownership rights while the collateral
assignment is in effect are stated in the assignment.
Additional limitations may exist for contracts issued
under provisions of the Internal Revenue Code.
An assignment will take place only when the Company has
received Written Notice and recorded the change at the
Principal Office. The Company will not be deemed to know
of the assignment until it has received Written Notice.
When recorded, the assignment will take effect as of the
date it was signed. The assignment will be subject to
payments made or actions taken by the Company before the
change was recorded.
The Company will not be responsible for the validity of
any assignment nor the extent of any assignee's interest.
The interests of the Annuitant and the Beneficiary will
be subject to any assignment.
BENEFICIARY The Beneficiary is as named on the Specifications page
unless subsequently changed. The Owner may declare any
Beneficiary to be revocable or irrevocable. A revocable
Beneficiary may be changed at any time. An irrevocable
Beneficiary must consent in writing to any change.
Unless otherwise indicated, the Beneficiary will be
revocable.
A Beneficiary change must be made in writing on a
Beneficiary designation form and will be subject to the
rights of any assignee of record. When the Company
receives the form, the change will take place as of the
date it was signed, even if the Owner or Annuitant is
then deceased. Any rights created by the change will be
subject to payments made or actions taken by the Company
before the change was recorded.
All death benefits provided by this contract will be
divided equally among the surviving Beneficiaries of the
same class, unless the Owner directs otherwise. If there
is no surviving Beneficiary, the deceased Beneficiary's
interest will pass to the Owner or the Owner's estate.
PROTECTION OF To the extent allowed by law, this contract and any
PROCEEDS payments made under it will be exempt from the claims of
creditors. Neither the Annuitant nor the Beneficiary can
assign, transfer, commute, anticipate or encumber the
proceeds or payments unless given that right by the Owner.
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<PAGE>
PAYMENTS
The Initial Payment is shown on the Specifications page.
ADDITIONAL Prior to the Annuity Date, the Owner may make
PAYMENTS additional payments of at least the Minimum
Additional Payment (see Specifications page).
Total payments made may not exceed $5,000,000
without the Company's consent.
NET PAYMENTS Each Net Payment is equal to the gross payment
less the amount of any applicable premium tax.
The Company reserves the right to deduct the
amount of the premium tax from the Accumulated
Value at a later date rather than when the tax
is first incurred. In no event will an amount
be deducted for premium taxes before the Company
has incurred a tax liability under applicable
state law.
NET PAYMENT The initial Net Payment is allocated as shown on
ALLOCATIONS the Specifications page. Additional Net
Payments will be allocated in the same
proportion as the initial Net Payment, unless
changed by the Owner's Written or Telephone
Request.
If the Right To Examine Contract provision
provides for a full refund of all payments, any
portion of a Net Payment allocated to a Sub-
Account or a Guarantee Period Account will be
held in the Money Market Sub-Account during the
contract's first fifteen days. After fifteen
days, these amounts will be allocated as
requested.
The minimum that may be allocated to a Guarantee
Period Account is shown on the Specifications
page. If less is allocated to a Guarantee
Period Account, the Company reserves the right
to apply that amount to the Money Market Sub-
Account.
VALUES
VALUE OF THE The value of a Sub-Account on a Valuation Date
VARIABLE ACCOUNT is determined by multiplying the Accumulation
Units in that Sub-Account by the Accumulation
Unit value as of the Valuation Date.
Accumulation Units are credited when an amount
is allocated to a Sub-Account. The number of
Accumulation Units credited equals that amount
divided by the applicable Accumulation Unit
Value as of the Effective Valuation Date.
ACCUMULATION The value of a Sub-Account Accumulation Unit as
UNIT VALUES of any Valuation Date is determined by
multiplying the value of an Accumulation Unit
for the preceding Valuation Date by the net
investment factor for that Valuation Period.
NET INVESTMENT The net investment factor measures the
FACTOR investment performance of a Sub-Account from one
Valuation Period to the next. This factor is
equal to 1.000000 plus the result from dividing
(a) by (b) and subtracting (c) and (d) where:
(a) is the investment income of a Sub-Account for the
Valuation Period, including realized or unrealized
capital gains and losses during the Valuation Period,
adjusted for provisions made for taxes, if any;
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<PAGE>
(b) is the value of that Sub-Account's assets at the
beginning of the Valuation Period;
(c) is the Mortality and Expense Risk Charge (see
Specifications page); and
(d) is the Administrative Charge (see Specifications page).
The Company assumes the risk that actual
mortality and expenses may exceed the amount
provided for such costs and guarantees that the
charge for mortality and expense risks and the
administrative charge will not be increased.
Subject to applicable state and federal laws,
these charges may be decreased or the method
used to determine the net investment factor may
be changed.
VALUE OF THE Allocations to the Fixed Account are credited
FIXED ACCOUNT interest at rates periodically set by the
Company. The Company guarantees that the rate
of interest in effect when an amount is
allocated to the Fixed Account will remain in
effect for that amount for one year.
Thereafter, the rate of interest for that amount
will be the Company's current interest rate, but
no less than the Minimum Fixed Account
Guaranteed Interest Rate (see Specifications page).
The value of the Fixed Account on any date is
the sum of allocations to the Fixed Account plus
interest compounded and credited daily at the
rates applicable to those allocations. The
value of the Fixed Account will be at least
equal to the minimum required by law in the
state in which this contract is delivered.
VALUE OF THE A Guarantee Period Account will be established
GUARANTEE PERIOD on the date a Net Payment or transfer is
ACCOUNTS allocated to a specific Guarantee Period.
Amounts allocated to the same Guarantee Period
on the same day will be treated as one Guarantee
Period Account. The interest rate in effect
when an amount is allocated is guaranteed for
the duration of the Guarantee Period. Additional
amounts allocated to Guarantee Periods of the
same or different durations will result in
additional Guarantee Period Accounts, each with
its own Guaranteed Interest Rate and expiration
date.
The value of a Guarantee Period Account on any
date is the sum of the allocation to that
Guarantee Period Account plus interest
compounded and credited daily at the rate
applicable to that allocation.
GUARANTEED The Company will periodically set Guaranteed
INTEREST RATES Interest Rates for each available Guarantee
Period. These rates will be guaranteed for the
duration of the respective Guarantee Periods. A
Guaranteed Interest Rate will never be less than
the Minimum Guarantee Period Account Interest
Rate (see Specifications page.)
RENEWAL At least 45 days, but not more than 75 days
GUARANTEE prior to the end of a Guarantee Period, the
PERIODS Company will notify the Owner in writing of the
expiration of that Guarantee Period. The Owner
may transfer amounts to the Sub-Accounts, the
Fixed Account or establish a new Guarantee
Period Account of any duration then offered by
the Company as of the day following the
expiration of the Guarantee Period without a
Market Value Adjustment. Guaranteed Interest
Rates corresponding to the available Guarantee
Periods may be higher or lower than the previous
Guaranteed Interest Rate. If reallocation
instructions are not received at the Principal
Office before the end of a Guarantee Period,
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<PAGE>
the Guarantee Period Account value will be
automatically applied to a new Guarantee Period
Account with the same Guarantee Period unless:
(a) less than the Minimum Guarantee Period Account
Allocation (see Specifications page) remains in the
Guarantee Period Account on the expiration date; or
(b) the Guarantee Period would extend beyond the Annuity
Date or is no longer available.
In such cases, the Guarantee Period Account
value will be transferred to the Money Market
Sub-Account.
CONTRACT FEE The Company will deduct a contract fee (see
Specifications page) Pro Rata on each contract
anniversary prior to the Annuity Date and when
the contract is surrendered. If the contract is
issued to and maintained by the Trustee of a
401(k) Plan, the Company will waive the contract
fee, but reserves the right to impose a fee of
not more than $30.
TRANSFERS
Prior to the Annuity Date, the Owner may transfer amounts
among accounts by Written or Telephone Request to the
Principal Office. Transfers to a Guarantee Period Account
will be subject to the Minimum Guarantee Period Account
Allocation (see Specifications page). If less would be
allocated to a Guarantee Period Account, the Company may
transfer that amount to the Money Market Sub-Account.
Any transfer from a Guarantee Period Account prior to the
end of its Guarantee Period will be subject to a Market
Value Adjustment. In the case of a partial transfer of a
Guarantee Period Account the Market Value Adjustment will
be applied to the value remaining in the account.
There is no charge for the first twelve transfers per
contract year. A transfer charge of up to $25 may be
imposed on each additional transfer.
WITHDRAWAL AND SURRENDER
The Owner may, by Written Request, withdraw a part of the
Accumulated Value of this contract or surrender it for
its Surrender Value prior to the Annuity Date.
Any withdrawal must be at least the Minimum Withdrawal
Amount (see Specifications page). A withdrawal will not
be permitted if the Accumulated Value remaining in the
contract would be less than the Minimum Accumulated Value
After Withdrawal (see Specifications page). The Written
Request must indicate the dollar amount to be paid and
the accounts from which it is to be withdrawn.
When surrendered, this contract terminates and the
Company has no further liability under it. The Surrender
Value will be based on the Accumulated Value on the
Effective Valuation Date.
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Amounts taken from the Variable Account will be paid
within 7 days of the date a Written Request is received
(plus any period of extension under applicable laws,
rules and regulations governing variable annuities).
Amounts taken from the Fixed Account or the Guarantee
Period Accounts will normally be paid within 7 days of
receipt of a Written Request. The Company may defer
payment for up to six months from the receipt date. If
deferred for 30 days or more, the amount payable will be
credited interest at a rate of at least 3%.
WITHDRAWAL WITHOUT In each calendar year, withdrawals up to the greater of
SURRENDER CHARGE (a) or (b) may be made without a surrender charge where:
(a) is cumulative earnings, calculated as the Accumulated
Value as of the Effective Valuation Date reduced by
total gross payments not previously withdrawn; and
(b) is a percent (see Specifications page) of the
Accumulated Value as of the Effective Valuation Date
reduced by any prior withdrawal without surrender charge
made in the same calendar year.
The withdrawal without surrender charge will first be
deducted from cumulative earnings even if it is based
upon (b) above. To the extent that it exceeds cumulative
earnings, the excess will be considered withdrawn on a
(last-in, first-out basis from payments not previously
withdrawn. Amounts withdrawn from a Guarantee Period
Account prior to the end of the applicable Guarantee
Period will be subject to a Market Value Adjustment.
LIFE EXPECTANCY In each calendar year, the amount of the life
DISTRIBUTION expectancy distribution available under the
BENEFIT Company's then current life expectancy
distribution rules that exceeds the withdrawal
without surrender charge may also be withdrawn
without charge. Life expectancy distribution is
available only if the Annuitant is an Owner.
WITHDRAWAL WITH Any amounts withdrawn or surrendered in excess
SURRENDER CHARGE of the withdrawal without surrender charge or
life expectancy distribution benefit may be
subject to a surrender charge.
These amounts will be taken on a first-in,
first-out basis from payments not previously
considered withdrawn. The Company will compute
applicable charges using the Surrender Charge
Table (see Specifications page) until the total
amount withdrawn equals the amount of the
withdrawal requested plus the withdrawal charge
or, if a surrender, until all remaining payments
have been exhausted. The surrender charge will
then be deducted from the Accumulated Value in
the same manner as the withdrawals.
WAIVER OF The surrender charge will be waived if an Owner,
SURRENDER CHARGE or the Annuitant if the Owner is not a person
is:
(a) admitted to a "medical care facility" after the issue
date of the contract and remains confined there until
the later of one year after the issue date or 90
consecutive days;
(b) first diagnosed by a licensed "physician" as having a
"fatal illness" after the issue date of the contract; or
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<PAGE>
(c) physically disabled after the issue date of the
contract and before attaining age 65. The Company may
require proof of continuing disability, including
written confirmation of receipt and approval of any
claim for Social Security Disability Benefits, and
reserves the right to obtain an examination by a
licensed physician of its choice and at its expense.
"Medical care facility" means any state licensed
facility providing medically necessary inpatient
care which is prescribed by a licensed
"physician" in writing and based on physical
limitations which prohibit daily living in a
non-institutional setting. "Fatal illness"
means a condition diagnosed by a licensed
"physician" which is expected to result in death
within two years of the diagnosis. "Physician"
means a person other than the Owner, the
Annuitant or a member of one of their families
who is state licensed to give medical care or
treatment and is acting within the scope of that
license.
No additional payments are permitted after this
provision becomes effective.
MARKET VALUE A transfer, withdrawal or surrender from a
ADJUSTMENT Guarantee Period Account at the end of its
Guarantee Period will not be subject to a Market
Value Adjustment. A Market Value Adjustment
will apply to all other transfers or
withdrawals, or a surrender. Amounts applied
under an annuity option are treated as
withdrawals when calculating the Market Value
Adjustment. The Market Value Adjustment will be
determined by multiplying the amount taken from
each Guarantee Period Account before deduction
of any Surrender Charge by the market value
factor. The market value factor for each
Guarantee Period Account is equal to:
[(1+i)/(1+j)]n/365 -1
where:
i is the Guaranteed Interest Rate expressed as
a decimal (for example: 3% = 0.03) being
credited to the current Guarantee Period;
j is the new Guaranteed Interest Rate,
expressed as a decimal, for a
Guarantee Period with a duration
equal to the number of years
remaining in the current Guarantee
Period, rounded to the next higher
number of whole years. If that rate
is not available, the Company will
use a suitable rate or index allowed
by the Department of Insurance; and
n is the number of days remaining from the
Effective Valuation Date to the end of the
current Guarantee Period.
If the Guaranteed Interest Rate being credited
is lower than the current Guaranteed Interest
Rate, the Market Value Adjustment will decrease
the Guarantee Period Account value. Similarly,
if the Guaranteed Interest Rate being credited
is higher than the current Guaranteed Interest
Rate, the Market Value Adjustment will increase
the Guarantee Period Account value. The Market
Value Adjustment will never result in a change
to the value more than the interest earned in
excess of the Minimum Guarantee Period Account
Interest Rate (see Specifications page)
compounded annually from the beginning of the
current Guarantee Period.
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DEATH BENEFIT
At the death of the Annuitant, Owner or joint Owner,
whichever occurs first, the Company will pay to the
Beneficiary a death benefit determined as of the
Effective Valuation Date upon receipt at the Principal
Office of proof of death. If the Annuitant is also an
Owner and dies, the Annuitant's death benefit will apply.
ANNUITANT'S DEATH If the Annuitant dies before the Annuity Date, the death
BENEFIT BEFORE THE benefit will be the greatest of:
ANNUITY DATE
(a) the Accumulated Value increased by any positive Market
Value Adjustment;
(b) gross payments accumulated daily at the Death Benefit
Effective Annual Yield shown on the Specifications page,
starting on the Effective Valuation Date of each gross
payment, reduced proportionately to reflect withdrawals.
For each withdrawal, the proportionate reduction is
calculated as the death benefit under this option
immediately prior to the withdrawal multiplied by the
withdrawal amount and divided by the Accumulated Value
immediately prior to the withdrawal; or,
(c) the death benefit that would have been payable on the
most recent contract anniversary, increased for
subsequent payments, and decreased proportionately for
subsequent withdrawals.
OWNER'S DEATH If an Owner who is not also the Annuitant dies before the
BENEFIT BEFORE Annuity Date, the death benefit will be the Accumulated
THE ANNUITY DATE Value increased by any positive Market Value Adjustment.
PAYMENT OF THE The death benefit will be paid to the Beneficiary within
DEATH BENEFIT 7 days of the Effective Valuation Date unless the Owner
BEFORE THE has specified a death benefit annuity option. Instead,
ANNUITY DATE the Beneficiary may, by Written Request, elect to:
(a) defer distribution of the death benefit for a period
no more than 5 years from the date of death ; or
(b) receive a life annuity or an annuity for a period
certain not extending beyond the Beneficiary's life
expectancy. Annuity benefit payments must begin within
one year from the date of death .
If distribution of the death benefit is deferred under
(a) or (b), any value in the Guarantee Period Accounts
will be transferred to the Money Market Sub-Account. The
excess, if any, of the death benefit over the Accumulated
Value will also be added to the Money Market Sub-Account.
The Beneficiary may, by Written Request, effect transfers
and withdrawals, but may not make additional payments.
If there are multiple Beneficiaries, the consent of all
is required.
If the sole Beneficiary is the deceased Owner's spouse,
the Beneficiary may, by Written Request, continue the
contract and become the new Owner and Annuitant subject
to the following:
(a) any value in the Guarantee Period Accounts will be
transferred to the Money Market Sub-Account.
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(b) the excess, if any, of the death benefit over the
contract's Accumulated Value will also be added to the
Money Market Sub-Account;
(c) additional payments may be made. A surrender charge will
apply only to these additional payments; and
(d) any subsequent spouse of the new Owner, if named as the
Beneficiary, may not continue the contract.
DEATH BENEFIT AND If the Annuitant dies after the Annuity Date but before
PAYMENT AFTER THE all guaranteed annuity benefit payments have been made,
ANNUITY DATE the remaining payments will be paid to the Beneficiary at
least as rapidly as under the annuity option in effect on
the Annuitant's death.
ANNUITY BENEFIT
ANNUITY OPTIONS Annuity options are available on a fixed, variable or
combination fixed and variable basis. The annuity options
described below or any alternative option offered by the
Company may be chosen. If no option is chosen, monthly
benefit payments under a variable life annuity with
payments guaranteed for 10 years will be made.
The Owner may also elect to have the death benefit
applied under a life annuity or a period certain annuity
not extending beyond the Beneficiary's life expectancy.
Such an election may not be altered by the Beneficiary.
Fixed annuity options are funded through the Fixed
Account. Variable annuity options may be funded through
one or more of the Sub-Accounts. Not all Sub-Accounts
may be made available.
ANNUITY BENEFIT Annuity benefit payments may be received on a
PAYMENTS monthly, quarterly, semiannual or annual basis.
If the first payment would be less than the
Minimum Annuity Benefit Payment (see
Specifications page), a single payment will be
made instead. The Company reserves the right to
increase the minimum payment amount to not more
than $500, subject to applicable state
regulations. Satisfactory proof of the payee's
date of birth must be received at the Principal
Office before annuity benefit payments begin.
Where a life annuity option has been elected,
the Company may require satisfactory proof that
the payee is alive before any payment is made.
ANNUITY VALUE The amount of the first annuity benefit payment
under all available options except period
certain options will depend on the age of the
payee or payees on the Annuity Date and the
annuity value applied. Period certain options
are based on the duration of payments and the
annuity value.
For life annuity options and non-commutable
period certain options with a duration of 10
years or more, the annuity value will be the
Accumulated Value and may include any applicable
Market Value Adjustment less any premium tax.
For commutable period certain options or any
period certain option less than 10 years, the
annuity value will be the Surrender Value less
any premium tax. For a death benefit annuity,
the annuity value will be the amount of the
death benefit. The annuity value applied under
a variable annuity option is based on the
Accumulation Unit value on a Valuation Date not
more than four weeks, uniformly applied, before
the Annuity Date.
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ANNUITY UNIT A Sub-Account Annuity Unit value on any
VALUES Valuation Date is equal to its value on the
preceding Valuation Date multiplied by the
product of:
(a) a discount factor equivalent to the assumed
interest rate; and
(b) the net investment factor of the Sub-Account funding
the annuity benefit payments for the applicable
Valuation Period.
The value of an Annuity Unit as of any date
other than a Valuation Date is equal to its
value as of the preceding Valuation Date.
Each variable annuity benefit payment is equal
to the number of Annuity Units multiplied by the
applicable value of an Annuity Unit, except that
under a Joint and Two-Thirds Option, payments to
the surviving payee are based on two-thirds the
number of Annuity Units that applied when both
payees were living. Variable annuity benefit
payments will increase or decrease with the
value of annuity units. The Company guarantees
that the amount of each variable annuity benefit
payment will not be affected by changes in
mortality and expense experience.
NUMBER OF The number of Annuity Units determining the
ANNUITY UNITS benefit payable is equal to the amount of the
first annuity benefit payment divided by the
value of the Annuity Unit as of the Valuation
Date used to calculate the amount of the first
payment. Once annuity benefit payments begin,
the number of Annuity Units will not change
unless a split is made.
ANNUITY BENEFIT VARIABLE OR FIXED LIFE ANNUITY WITH PAYMENTS
PAYMENT OPTIONS GUARANTEED FOR 10 YEARS: Periodic annuity
benefit payments during the payee's life. If
the payee dies before all guaranteed payments
have been made, the remaining payments will be
made to the Beneficiary.
VARIABLE OR FIXED LIFE ANNUITY: Periodic
annuity benefit payments during the payee's
life.
UNIT REFUND VARIABLE OR FIXED LIFE ANNUITY:
Periodic annuity benefit payments during the
payee's life. If the payee dies and the annuity
value initially applied to purchase the option,
divided by the first payment, exceeds the number
of payments made before the payee's death,
payments will continue to the Beneficiary until
the number of payments equals the Annuity Value
divided by the first payment.
JOINT AND SURVIVOR VARIABLE OR FIXED LIFE
ANNUITY: Periodic annuity benefit payments
during the joint lifetime of two payees with
payments continuing during the lifetime of the
survivor. One of the payees must be the
Annuitant or, if the Annuitant is not living
when payments begin, one of the payees must be
the Beneficiary.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE OR FIXED
LIFE ANNUITY: Periodic annuity benefit
payments during the joint lifetime of two payees
with payments continuing during the lifetime of
the survivor at two-thirds the amount payable
when both payees were living. One of the payees
must be the Annuitant or, if the Annuitant is
not living when payments begin, one of the
payees must be the Beneficiary.
VARIABLE OR FIXED ANNUITY FOR A PERIOD CERTAIN:
Periodic annuity benefit payments for a chosen
number of years. The number of years
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selected may be from 1 to 30. If the payee dies before
the end of the period, remaining payments will
continue to the Beneficiary.
ANNUITY TABLES The first annuity benefit payment will be based on the
greater of the guaranteed annuity rates shown in the
following tables or the Company's non-guaranteed current
annuity option rates applicable to this class of
contracts. Second and subsequent annuity benefit
payments, when based on the investment experience of the
Variable Account, may increase or decrease.
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ANNUITY OPTION TABLES
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
Age Life Annuity with Life Unit Refund
Nearest Payments Guaranteed Annuity Life Annuity
Birthday for 10 Years
- --------------------------------------------------------------------------------
50 4.22 4.24 4.14
51 4.28 4.31 4.19
52 4.34 4.37 4.25
53 4.41 4.44 4.31
54 4.48 4.52 4.37
55 4.55 4.59 4.43
56 4.63 4.68 4.50
57 4.71 4.76 4.57
58 4.80 4.86 4.65
59 4.89 4.96 4.73
60 4.98 5.06 4.82
61 5.08 5.18 4.90
62 5.19 5.30 5.00
63 5.30 5.43 5.10
64 5.42 5.56 5.20
65 5.55 5.71 5.31
66 5.68 5.87 5.43
67 5.81 6.04 5.55
68 5.96 6.22 5.68
69 6.11 6.41 5.81
70 6.26 6.62 5.96
71 6.43 6.84 6.11
72 6.60 7.08 6.27
73 6.77 7.34 6.44
74 6.95 7.62 6.62
75 7.13 7.91 6.81
- --------------------------------------------------------------------------------
These tables are based on an annual interest rate of 3 1/2%
and the 1983(a) Individual Mortality Table.
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ANNUITY OPTION TABLES (CONTINUED)
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Joint and Two-Thirds Survivor Life
Joint and Survivor Life Annuity Annuity
Older Age Older Age
- ---------------------------------------------------------------------------------------------------
50 55 60 65 70 75 80 50 55 60 65 70 75 80
- ----------------------------------------------------------------------------------------------------
Y 50 3.91 3.97 4.02 4.05 4.07 4.09 4.10 4.25 4.40 4.57 4.76 4.96 5.18 5.39
O
U 55 4.18 4.26 4.32 4.36 4.39 4.41 4.60 4.80 5.02 5.26 5.50 5.75
N
G 60 4.54 4.65 4.73 4.78 4.81 5.08 5.35 5.63 5.92 6.21
E
R 65 5.04 5.19 5.29 5.35 5.74 6.10 6.46 6.82
A 70 5.75 5.95 6.08 6.67 7.15 7.62
G 75 6.77 7.06 8.04 8.69
E 80 8.29 10.05
</TABLE>
These tables are based on an annual interest rate of 3 1/2%
and the 1983(a) Individual Mortality Table.
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
Number of Variable or Fixed Annuity Number of Variable or Fixed Annuity
Years for a Period Certain Years for a Period Certain
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1 84.65 16 6.76
2 43.05 17 6.47
3 29.19 18 6.20
4 22.27 19 5.97
5 18.12 20 5.75
6 15.35 21 5.56
7 13.38 22 5.39
8 11.90 23 5.24
9 10.75 24 5.09
10 9.83 25 4.96
11 9.09 26 4.84
12 8.46 27 4.73
13 7.94 28 4.63
14 7.49 29 4.53
15 7.10 30 4.45
These tables are based on an annual interest rate of 3 1/2%.
18
<PAGE>
GENERAL PROVISIONS
ENTIRE CONTRACT The entire contract consists of this contract, any
application attached at issue and any endorsements.
MISSTATEMENT OF If a payee's age is misstated, the Company will adjust
AGE all annuity benefit payments to those that the annuity
value applied would have purchased at the correct age.
Any underpayments already made by the Company will be
paid immediately. Any overpayments will be deducted
from future annuity benefits.
MODIFICATIONS Only the President, a Vice President or Secretary of the
Company may modify or waive any provisions of this
contract. Agents or Brokers are not authorized to do so.
INCONTESTABILITY The Company cannot contest this contract.
CHANGE OF ANNUITY The Owner may change the Annuity Date by Written Request
DATE at any time after the contract has been issued. The
request must be received at the Principal Office at least
one month before the new Annuity Date. The alternative
Annuity Date must be the first of any month prior to the
Maximum Alternative Annuity Date shown on the
Specifications page and must be within the life
expectancy of the Annuitant. The Company will determine
life expectancy at the time a change in the Annuity Date
is requested.
MINIMUMS All values, benefits or settlement options available
under this contract equal or exceed those required by the
state in which the contract is delivered.
ANNUAL REPORT The Company will furnish an annual report to the Owner
containing a statement of the number and value of
Accumulation Units credited to the Sub-Accounts, the
value of the Fixed Account and the Guarantee Period
Accounts and any other information required by applicable
law, rules and regulations.
ADDITION, DELETION, The Company reserves the right, subject to compliance
OR SUBSTITUTION OF with applicable law, to add to, delete from, or
INVESTMENTS substitute for the shares of a Fund that are held by the
Sub-Accounts or that the Sub-Accounts may purchase. The
Company also reserves the right to eliminate the shares
of any Fund no longer available for investment or if the
Company believes further investment in the Fund is no
longer appropriate for the purposes of the Sub-Accounts.
The Company will not substitute shares attributable to
any interest in a Sub-Account without notice to the Owner
and prior approval of the Securities and Exchange
Commission as required by the Investment Company Act of
1940. This will not prevent the Variable Account from
purchasing other securities for other series or classes
of contracts, or from permitting a conversion between
series or classes of contracts on the basis of requests
made by Owners.
The Company reserves the right, subject to compliance
with applicable laws, to establish additional Guarantee
Period Accounts and Sub-Accounts and to make them
available to any class or series of contracts as the
Company considers appropriate. Each new Sub-Account will
invest in a new investment company or in shares of
another open-end investment company. The Company also
reserves the right to eliminate or combine existing
Sub-Accounts and to transfer the assets of any
Sub-Accounts to any other Sub-Accounts. In the event of
any substitution or change, the Company may, by
appropriate notice,
19
<PAGE>
make such changes in this and other
contracts as may be necessary or appropriate to reflect
the substitution or change. If the Company considers it
to be in the best interests of contract Owners, the
Variable Account or any Sub-Account may be operated as a
management company under the Investment Company Act of
1940, or may be deregistered under that Act in the event
registration is no longer required, or may be combined
with other accounts of the Company.
CHANGE OF NAME Subject to compliance with applicable law, the Company
reserves the right to change the names of the Variable
Account or the Sub-Accounts.
FEDERAL TAX The Variable Account is not currently subject to tax, but
CONSIDERATIONS the Company reserves the right to assess a charge for
taxes if the Variable Account becomes subject to tax.
SPLITTING OF UNITS The Company reserves the right to split the value of a
unit, either to increase or decrease the number of units.
Any splitting of units will have no material effect on
the benefits, provisions or investment return of this
contract or upon the Owner, the Annuitant, any
Beneficiary, or the Company.
INSULATION OF The investment performance of Separate Account assets is
SEPARATE ACCOUNT determined separately from the other assets of the
Company. The assets of a Separate Account equal to the
reserves and liabilities of the contracts supported by
the account will not be charged with liabilities from any
other business that the Company may conduct.
VOTING RIGHTS The Company will notify Owners with voting interests of
any shareholders' meeting at which Fund shares held by
each Sub-Account will be voted and will provide proxy
materials together with a form to be used to give voting
instructions to the Company. The Company will vote Fund
shares for which no timely instructions have been
received in the same proportion as shares of that Fund
for which instructions have been received.
Prior to the Annuity Date, the number of shares is
determined by dividing the dollar value of the
Sub-Account Accumulation Units by the net asset value of
one Fund share. After the Annuity Date, the number of
Fund shares is determined by dividing the reserves held
in each Sub-Account to meet the annuity obligations by
the net asset value of one Fund share.
Flexible Payment Deferred Variable and Fixed Annuity
Annuity Benefits Payable to Annuitant on the Annuity Date
Death Benefit Payable to Beneficiary if either Owner or
Annuitant Dies prior to Annuity Date
Non-Participating
20
