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FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY
ALLMERICA ADVANTAGE VARIABLE ANNUITY
PROFILE THIS PROFILE IS A SUMMARY OF SOME OF THE MORE
MAY 1, 1998 IMPORTANT POINTS THAT YOU SHOULD KNOW AND CONSIDER
BEFORE PURCHASING THE ALLMERICA ADVANTAGE VARIABLE
ANNUITY CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED LATER IN THIS PROSPECTUS. PLEASE READ
THE PROSPECTUS CAREFULLY.
1. THE ALLMERICA ADVANTAGE VARIABLE ANNUITY CONTRACT
The Allmerica Advantage Variable Annuity contract is a contract between you and
First Allmerica Financial Life Insurance Company. It is designed to help you
accumulate assets for your retirement or other important financial goals on a
tax-deferred basis. The Allmerica Advantage Variable Annuity combines the
concept of professional money management with the attributes of an annuity
contract.
The Allmerica Advantage Variable Annuity offers a diverse selection of money
managers and investment options. You may allocate your payments among any of 18
investment portfolios, the Guarantee Period Accounts and the Fixed Account. This
range of investment choices enables you to allocate your money to meet your
particular investment needs.
Like all annuities, the contract has an ACCUMULATION PHASE and an ANNUITY PAYOUT
PHASE. During the ACCUMULATION PHASE you can make payments into the contract on
any frequency. Investment and interest gains accumulate tax deferred. You may
withdraw money from your contract during the ACCUMULATION PHASE. However, as
with other tax-deferred investments, you pay taxes on earnings and any untaxed
payments to the contract when you withdraw them. A federal tax penalty may apply
if you make a withdrawal prior to age 59 1/2.
During the ANNUITY PAYOUT PHASE you will receive regular payments from your
contract, provided you annuitize. Annuitization involves beginning a series of
payments from the capital that has built up in your contract. The amount of your
payments during the annuity payout phase will, in part, be determined by your
account's growth during the accumulation phase.
2. ANNUITY PAYMENTS
If you choose to annuitize your contract, you may select one of six annuity
options: (1) periodic payments for your lifetime; (2) periodic payments for your
lifetime, but for not less than 10 years; (3) periodic payments for your
lifetime with the guarantee that if payments to you are less than the
accumulated value, a refund of the remaining value will be paid: (4) periodic
payments for your lifetime and your survivor's lifetime; (5) periodic payments
for your lifetime and your survivor's lifetime with the payment to the survivor
being reduced to 2/3; and (6) periodic payments for a specified period of 1 to
30 years.
You also need to decide if you want your annuity payments on a variable basis
(i.e., subject to fluctuation based on investment performance), on a fixed basis
(with benefit payments guaranteed at a fixed amount), or on a combination
variable and fixed basis. Once payments begin, the annuity option cannot be
changed.
3. PURCHASING THIS CONTRACT
You can buy a contract through your financial representative, who can also help
you complete the proper forms. There is no fixed schedule for making payments
into this contract. Payments are not limited as to frequency, but there are
certain limitations as to amount. Currently, the initial payment must be at
least $600.
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In all cases, each subsequent payment must be at least $50. In addition, a
minimum of $1,000 is always required to establish a Guarantee Period Account.
4. INVESTMENT OPTIONS
You have full investment control over the contract. You may allocate money to
the following funds:
<TABLE>
<S> <C>
Select International Equity Fund Fidelity VIP Growth Portfolio
DGPF International Equity Series Equity Index Fund
Fidelity VIP Overseas Portfolio Select Growth and Income Fund
T. Rowe Price International Stock Fidelity VIP Equity-Income
Portfolio Portfolio
Select Aggressive Growth Fund Fidelity VIP II Asset Manager
Select Capital Appreciation Fund Portfolio
Select Value Opportunity Fund Fidelity VIP High Income Portfolio
Select Growth Fund Investment Grade Income Fund
Growth Fund Government Bond Fund
Money Market Fund
</TABLE>
You may also allocate money to the Fixed Account. The Fixed Account guarantees
principal and a minimum rate of interest (never less than 3% compounded
annually). In all states except New York, you also may allocate money to the
Guarantee Period Accounts which let you choose from among seven different
Guarantee Periods during which interest rates are guaranteed.
5. EXPENSES
Each year and upon surrender a $30.00 contract fee is deducted from your
contract. The contract fee is waived if the value of the contract is $50,000 or
more or if the contract is issued to and maintained by the Trustees of a 401(k)
plan. We also deduct insurance charges which amount to 1.45% annually of the
daily value of your contract value allocated to the variable investment options.
The insurance charges include a mortality and expense risk charge of 1.25% and
an administrative expense charge of 0.20%. There are also investment management
fees and other fund operating expenses that vary by fund.
If you decide to surrender your contract, make withdrawals or receive payments
under certain annuity options, we may impose a surrender charge between 1% and
8% of the payment withdrawn, based on when your payments were made. In states
where premium taxes are imposed, a premium tax charge will be deducted either
when withdrawals are made or annuity payments commence.
There is currently no charge for processing investment option transfers. We
reserve the right to assess a charge, not to exceed $25.00, for transfers after
your 12 free transfers.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" shows the total of the $30 contract
fee (which is represented as 0.05%), the 1.45% insurance charges and the
investment charges for each fund. The next two columns show you two examples of
the charges, in dollar amounts, you would pay under a contract. The examples
assume you invest $1,000 in a fund which earns 5% annually and that you withdraw
your money: (1) at the end of year 1, and (2) at the end of year 10. For year 1,
the Total Annual Charges are assessed as well as the surrender charges. For year
10, the
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example shows the aggregate of all the annual charges assessed for 10 years, but
there is no surrender charge. The premium tax is assumed to be 0% in both
examples.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL
EXPENSES AT
END OF
----------------
TOTAL ANNUAL TOTAL ANNUAL (2)
INSURANCE FUND TOTAL ANNUAL (1) 10
FUND CHARGES CHARGES CHARGES 1 YEAR YEARS
- ---------------------------------------------------- ------------ ------------ ------------ ------ -------
<S> <C> <C> <C> <C> <C>
Select International Equity Fund.................... 1.50% 1.12% 2.62% $100 $292
DGPF International Equity Series.................... 1.50% 0.90% 2.40% $98 $270
Fidelity VIP Overseas Portfolio..................... 1.50% 0.92% 2.42% $98 $272
T. Rowe Price International Stock Portfolio......... 1.50% 1.05% 2.55% $99 $285
Select Aggressive Growth Fund....................... 1.50% 0.98% 2.48% $99 $278
Select Capital Appreciation Fund.................... 1.50% 1.10% 2.60% $100 $290
Select Value Opportunity Fund....................... 1.50% 1.04% 2.54% $99 $284
Select Growth Fund.................................. 1.50% 0.93% 2.43% $98 $273
Growth Fund......................................... 1.50% 0.52% 2.02% $94 $231
Fidelity VIP Growth Portfolio....................... 1.50% 0.69% 2.19% $96 $249
Equity Index Fund................................... 1.50% 0.44% 1.94% $94 $223
Select Growth and Income Fund....................... 1.50% 0.77% 2.27% $97 $257
Fidelity VIP Equity-Income Portfolio................ 1.50% 0.58% 2.08% $95 $238
Fidelity VIP II Asset Manager Portfolio............. 1.50% 0.65% 2.15% $96 $245
Fidelity VIP High Income Portfolio.................. 1.50% 0.71% 2.21% $96 $251
Investment Grade Income Fund........................ 1.50% 0.54% 2.04% $95 $233
Government Bond Fund................................ 1.50% 0.67% 2.17% $96 $247
Money Market Fund................................... 1.50% 0.35% 1.84% $93 $214
</TABLE>
The charges reflect any applicable expense reimbursements or fee waivers. For
more information, see the Fee Table in the Prospectus for the Contract.
6. TAXES
You will not pay taxes until you withdraw money from your contract. During the
accumulation phase, earnings are withdrawn first and are taxed as ordinary
income. If you make a withdrawal prior to age 59 1/2, you may be subject to a
10% federal tax penalty on the earnings. Payments during the annuity payout
phase are considered partly a return of your investment and partly earnings. You
will be subject to income taxes on the earnings portion of each payment.
However, if your contract is funded with pre-tax or tax deductible dollars (such
as a pension or profit sharing plan contribution), then the entire payment will
be taxable.
7. WITHDRAWALS
You can withdraw money from your contract at any time during the accumulation
phase. Any payment invested for more than nine years can be withdrawn without a
surrender charge. For amounts invested nine years or less, you can withdraw,
without a charge, the GREATEST of: (1) 100% of cumulative earnings; (2) 10% of
the contract value per calendar year; or (3) if you are an Owner and also the
Annuitant, an amount based on your life expectancy. (Similarly, no surrender
charge will apply if an amount is withdrawn based on the Annuitant's life
expectancy and the Owner is a trust or other non-natural person.)
You may also withdraw all or a portion of your money without a surrender charge
if, after the contract is issued and before age 65, you become disabled. Under
New York contracts, the disability must also exist for a continuous period of at
least 4 months. In addition, except in New York where not permitted by state
law, the surrender charge will be waived if, after the contract is issued, you
are diagnosed with a fatal illness or confined to medical care facility until
the later of one year from the issue date or 90 days.
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Any withdrawal from a Guarantee Period Account ("GPA") prior to the end of the
guarantee period will be subject to a market value adjustment which may increase
or decrease the value in the account. This adjustment will never impact your
original investment, nor will earnings in the GPA amount to less than an
effective annual rate of 3%.
8. PERFORMANCE
The value of your contract will vary up or down depending on the investment
performance of the funds you choose. The following chart illustrates past
returns for each fund from the inception date of each Sub-Account. The
performance figures reflect the contract fee, the insurance charges, the
investment charges and all other expenses of the fund. They do not reflect the
surrender charges which would reduce such performance if applied. Past
performance is not a guarantee of future results.
<TABLE>
<CAPTION>
CALENDAR YEAR
-------------------------------------
FUND 1997 1996 1995
- --------------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Select International Equity Fund................................................. 3.11% 20.07% 17.82%
DGPF International Equity Series................................................. 5.04% 18.18% 12.15%
Fidelity VIP Overseas Portfolio.................................................. 9.92% 11.46% 8.00%
T. Rowe Price International Stock Portfolio...................................... 1.58% 12.90% 9.44%
Select Aggressive Growth Fund.................................................... 16.97% 16.72% 30.31%
Select Capital Appreciation Fund................................................. 12.60% 7.11% N/A
Select Value Opportunity Fund.................................................... 23.03% 26.57% 15.83%
Select Growth Fund............................................................... 32.11% 20.14% 22.71%
Growth Fund...................................................................... 23.32% 18.34% 30.81%
Fidelity VIP Growth Portfolio.................................................... 21.68% 12.93% 33.35%
Equity Index Fund................................................................ 30.49% 20.42% 34.15%
Select Growth and Income Fund.................................................... 20.73% 19.40% 28.38%
Fidelity VIP Equity-Income Portfolio............................................. 26.24% 12.51% 33.08%
Fidelity VIP II Asset Manager Portfolio.......................................... 18.89% 12.83% 15.19%
Fidelity VIP High Income Portfolio............................................... 15.95% 12.27% 18.79%
Investment Grade Income Fund..................................................... 7.84% 1.93% 16.06%
Government Bond Fund............................................................. 5.54% 1.89% 11.34%
Money Market Fund................................................................ 3.92% 3.71% 4.22%
</TABLE>
9. DEATH BENEFIT
If the annuitant dies during the accumulation phase, we will pay the beneficiary
a death benefit. The death benefit is equal to the GREATEST of: (a) the
accumulated value increased for any positive market value adjustment; (b) gross
payments decreased proportionately to reflect any prior withdrawals; or (c) the
death benefit that would have been payable on the most recent contract
anniversary, increased for subsequent payments and decreased proportionately for
subsequent withdrawals.
This guaranteed death benefit works in the following way assuming no withdrawals
are made: On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments. The higher of (a) or (b) will then be locked
in until the second anniversary, at which time the death benefit will be equal
to the greatest of (a) the Contract's then current Accumulated Value increased
by any positive Market Value Adjustment; (b) gross payments or (c) the locked-in
value of the death benefit at the first anniversary. The greatest of (a), (b) or
(c) will be locked in until the next Contract anniversary. This calculation will
then be repeated on each anniversary while the Contract remains in force and
prior to the Annuity Date. As noted above, the values of (b) and (c) will be
decreased proportionately if withdrawals are taken.
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10. OTHER INFORMATION
FREE LOOK PERIOD: If you cancel your contract within 10 days after receiving it
(or whatever period is required by your state), you will receive a refund in
accordance with the terms of the contract's "Right to Examine" provision.
DOLLAR COST AVERAGING: You may elect to automatically transfer money on a
periodic basis from the Money Market Fund, Government Bond Fund or Fixed Account
to one or more of the other investment options.
AUTOMATIC ACCOUNT REBALANCING: You may elect to automatically have your
contract's accumulated value periodically reallocated ("rebalanced") among your
chosen investment options to maintain your designated percentage allocation mix.
NO PROBATE: In most cases, the death benefit is payable to the beneficiary you
select without having to go through probate.
11. INQUIRIES
If you need more information about Allmerica Advantage, you may contact us at
1-800-533-7881 or send correspondence to:
Allmerica Advantage
First Allmerica Financial
P.O. Box 8632
Boston, Massachusetts 02266-8632
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FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY, WORCESTER, MA
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
This Prospectus describes interests under flexible payment 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 "Contract(s)."
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 a corresponding
investment portfolio of Allmerica Investment Trust ("Trust"), Variable Insurance
Products Fund ("Fidelity VIP"), Variable Insurance Products Fund II ("Fidelity
VIP II"), T. Rowe Price International Series, Inc. ("T. Rowe Price"), or
Delaware Group Premium Fund, Inc. ("DGPF"). The following Underlying Funds are
available under the Contract:
<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VIP
Select International Equity Fund Overseas Portfolio
Select Aggressive Growth Fund Equity-Income Portfolio
Select Capital Appreciation Fund Growth Portfolio
Select Value Opportunity Fund High Income Portfolio
Select Growth Fund FIDELITY VIP II
Growth Fund Asset Manager Portfolio
Equity Index Fund T. ROWE PRICE
Select Growth and Income Fund T. Rowe Price International Stock
Investment Grade Income Fund Portfolio
Government Bond Fund DGPF
Money Market Fund International Equity Series
</TABLE>
In most jurisdictions, values may also be allocated on a fixed basis to the
Fixed Account, which is part of the Company's 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. Amounts allocated to a Guarantee Period Account earn a
fixed rate of interest for the duration of the applicable Guarantee Period. The
interest earned in the Guarantee Period Account 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 allocations to the Guarantee Period Accounts in the accumulation
phase are held in the Company's Separate Account GPA.
Additional information is contained in a Statement of Additional Information
("SAI") dated May 1, 1998, filed with the Securities and Exchange Commission and
incorporated herein by reference. The Table of Contents of the SAI is on page 4
of this Prospectus. The SAI is available upon request and without charge through
Allmerica Investments, Inc., telephone 1-800-533-7881.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF THE
TRUST, FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE AND DGPF. THE FIDELITY VIP
HIGH INCOME PORTFOLIO INVESTS IN HIGHER YIELDING, HIGHER RISK, LOWER-RATED DEBT
SECURITIES (SEE "INVESTMENT OBJECTIVES AND POLICIES.") INVESTORS SHOULD RETAIN A
COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
DATED MAY 1, 1998
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THE CONTRACTS ARE OBLIGATIONS OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE
COMPANY, AND ARE DISTRIBUTED BY 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. INVESTMENTS IN THE
CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS................................... 4
SPECIAL TERMS........................................................................... 5
SUMMARY................................................................................. 7
ANNUAL AND TRANSACTION EXPENSES......................................................... 11
CONDENSED FINANCIAL INFORMATION......................................................... 15
PERFORMANCE INFORMATION................................................................. 17
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, THE TRUST,
FIDELITY VIP FUND, FIDELITY VIP II FUND, T. ROWE PRICE AND DGPF....................... 21
INVESTMENT OBJECTIVES AND POLICIES...................................................... 23
INVESTMENT ADVISORY SERVICES............................................................ 24
DESCRIPTION OF THE CONTRACT............................................................. 27
A. Payments......................................................................... 27
B. Right to Revoke Individual Retirement Annuity.................................... 28
C. Right to Revoke All Other Contracts.............................................. 28
D. Transfer Privilege............................................................... 28
Automatic Transfers and Automatic Account Rebalancing Options................... 28
E. Surrender........................................................................ 29
F. Withdrawals...................................................................... 30
Systematic Withdrawals.......................................................... 30
Life Expectancy Distributions................................................... 30
G. Death Benefit.................................................................... 31
Death of the Annuitant Prior to the Annuity Date................................ 31
Death of an Owner Who is Not Also the Annuitant Prior to the Annuity Date....... 31
Payment of the Death Benefit Prior to the Annuity Date.......................... 32
Death of the Annuitant On or After the Annuity Date............................. 32
H. The Spouse of the Owner as Beneficiary........................................... 32
I. Assignment....................................................................... 32
J. Electing the Form of Annuity and the Annuity Date................................ 33
K. Description of Variable Annuity Payout Options................................... 33
L. Annuity Benefit Payments......................................................... 34
The Annuity Unit................................................................ 34
Determination of the First and Subsequent Annuity Benefit Payments.............. 35
M. NORRIS Decision................................................................... 35
N. Computation of Values............................................................ 36
The Accumulation Unit........................................................... 36
Net Investment Factor........................................................... 36
CHARGES AND DEDUCTIONS.................................................................. 36
A. Variable Account Deductions...................................................... 37
Mortality and Expense Risk Charge............................................... 37
Administrative Expense Charge................................................... 37
Other Charges................................................................... 37
B. Contract Fee..................................................................... 37
C. Premium Taxes.................................................................... 38
D. Contingent Deferred Sales Charge................................................. 38
Charges for Surrender and Withdrawal............................................ 38
Reduction or Elimination of Surrender Charge.................................... 39
Withdrawal Without Surrender Charge............................................. 40
Surrenders...................................................................... 41
Charge at the Time Annuity Benefit Payments Begin............................... 41
E. Transfer Charge.................................................................. 41
GUARANTEE PERIOD ACCOUNTS............................................................... 41
</TABLE>
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<TABLE>
<S> <C>
FEDERAL TAX CONSIDERATIONS.............................................................. 43
A. Qualified and Non-Qualified Contracts............................................ 44
B. Taxation of the Contracts in General............................................. 44
Withdrawals Prior to Annuitization.............................................. 44
Annuity Payouts After Annuitization............................................. 45
Penalty on Distribution......................................................... 45
Assignments or Transfers........................................................ 45
Non-Natural Owners.............................................................. 45
Deferred Compensation Plans of State and Local Government and Tax-Exempt
Organizations................................................................. 46
C. Tax Withholding.................................................................. 46
D. Provisions Applicable to Qualified Employer Plans................................ 46
Corporate and Self-Employed Pension and Profit Sharing Plans.................... 46
Individual Retirement Annuities................................................. 46
Tax-Sheltered Annuities......................................................... 47
Texas Optional Retirement Program............................................... 47
REPORTS................................................................................. 47
LOANS (QUALIFIED CONTRACTS ONLY)........................................................ 47
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS....................................... 48
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................................... 48
VOTING RIGHTS........................................................................... 49
DISTRIBUTION............................................................................ 49
SERVICES................................................................................ 49
LEGAL MATTERS........................................................................... 50
FURTHER INFORMATION..................................................................... 50
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT.................................. A-1
APPENDIX B -- SURRENDER CHARGES AND THE MARKET VALUE
ADJUSTMENT.............................................................. B-1
APPENDIX C -- DIFFERENCES UNDER THE EXECANNUITY PLUS VARIABLE ANNUITY
(FORM A3018-94)......................................................... C-1
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY......................................................... 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE COMPANY.......................... 3
SERVICES................................................................................ 3
UNDERWRITERS............................................................................ 3
ANNUITY BENEFIT PAYMENTS................................................................ 4
EXCHANGE OFFER.......................................................................... 6
PERFORMANCE INFORMATION................................................................. 8
FINANCIAL STATEMENTS.................................................................... F-1
</TABLE>
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SPECIAL TERMS
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Sub-Accounts and of the value of all accumulations in the Fixed Account and
Guarantee Period Accounts credited to the Contract on any date before the
Annuity Date.
ACCUMULATION UNIT: a measure of the Owner's interest in a Sub-Account before
annuity benefit payments begin.
ANNUITANT: the person designated in the Contract upon whose life annuity benefit
payments are to be made.
ANNUITY DATE: the date on which annuity benefit payments begin as specified
pursuant to the Contract.
ANNUITY UNIT: a measure of the value of the periodic annuity benefit payments
under the Contract.
FIXED ACCOUNT: the part of the Company's General Account that guarantees
principal and a fixed minimum interest rate and to which all or a portion of a
payment or transfer under this Contract may be allocated.
FIXED ANNUITY PAYOUT: an Annuity in the payout phase providing for annuity
benefit payments which remain fixed in amount throughout the annuity benefit
payment period selected.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account which corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period and is supported by assets in a
non-unitized separate account.
GUARANTEED INTEREST RATE: the annual effective rate of interest, after daily
compounding, credited to a Guarantee Period Account.
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.
OWNER: the person, persons or entity entitled to exercise the rights and
privileges under this Contract. Joint Owners are permitted if one of the two is
the Annuitant.
SUB-ACCOUNT: a subdivision of the Variable Account. Each Sub-Account available
under the Contract invests exclusively in the shares of a corresponding fund of
Allmerica Investment Trust ("Trust"); a corresponding portfolio of the Variable
Insurance Product Fund ("Fidelity VIP"), the Variable Insurance Products Fund II
("Fidelity VIP II") or the T. Rowe Price International Stock Portfolio of T.
Rowe Price International Series, Inc. ("T. Rowe Price"); or a corresponding
series of the Delaware Group Premium Fund, Inc. ("DGPF").
SURRENDER VALUE: the Accumulated Value of the Contract on full surrender after
application of any Contract fee, contingent deferred sales charge, and Market
Value Adjustment.
UNDERLYING FUNDS (OR FUNDS): the Growth Fund, Investment Grade Income Fund,
Money Market Fund, Equity Index Fund, Government Bond Fund, Select International
Equity Fund, Select Aggressive Growth Fund, Select Capital Appreciation Fund,
Select Growth Fund, Select Growth and Income Fund and Select Value Opportunity
Fund of Allmerica Investment Trust; Fidelity VIP High Income Portfolio, Fidelity
VIP Equity-Income Portfolio, Fidelity VIP Growth Portfolio and Fidelity VIP
Overseas Portfolio of Variable Insurance Products Fund; the Fidelity VIP II
Asset Manager Portfolio of Variable Insurance Products Fund II;
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the T. Rowe Price International Stock Portfolio of T. Rowe Price International
Series, Inc.; and the 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 Funds is determined and unit values of the Sub-Accounts are
determined. Valuation Dates currently occur on each day on which the New York
Stock Exchange is open for trading, as well as each day otherwise required.
VARIABLE ACCOUNT: Separate Account VA-K, one of the Company's separate accounts,
consisting of assets segregated from other assets of the Company. The investment
performance of the assets of the Variable Account is determined separately from
the other assets of the Company, and are not chargeable with liabilities arising
out of any other business which the Company may conduct.
VARIABLE ANNUITY PAYOUT: an Annuity in the payout phase providing for payments
varying in amount in accordance with the investment experience of certain Funds.
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SUMMARY
WHAT IS THE ALLMERICA ADVANTAGE VARIABLE ANNUITY?
The Allmerica Advantage variable annuity contract is an insurance contract
designed to help you, the Owner, accumulate assets for your retirement or other
important financial goals on a tax-deferred basis. The Contract combines the
concept of professional money management with the attributes of an annuity
contract. Features available through the Contract include:
- - A customized investment portfolio;
- - Experienced professional investment advisers;
- - Tax deferral on earnings;
- - Guarantees that can protect your beneficiaries during the accumulation phase;
- - Income that can be guaranteed for life;
- - Issue age up to your 90th birthday.
The Contract has two phases, an accumulation phase and, if you choose to
annuitize, an annuity payout phase. During the accumulation phase, your initial
payment and any additional payments you choose to make may be allocated among
the Sub-Accounts investing in the Underlying Funds, the Guarantee Period
Accounts and the Fixed Account. You select the investment options most
appropriate for your investment needs. As those needs change, you may also
change your allocation without incurring any tax consequences. The Contract's
Accumulated Value is based on the investment performance of the Funds and any
accumulations in the Guarantee Period and Fixed Accounts. No income taxes are
paid on any earnings under the Contract unless and until Accumulated Values are
withdrawn. In addition, during the accumulation phase, your beneficiaries
receive certain protections and guarantees in the event of the Annuitant's
death. See discussion below "WHAT HAPPENS UPON DEATH DURING THE ACCUMULATION
PHASE?"
WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?
During the annuity payout phase, the Annuitant can receive income based on
several annuity payout options. You choose the annuity payout option and the
date for annuity benefit payments to begin. You also decide whether you want
variable annuity benefit payments based on the investment performance of certain
Funds, fixed annuity benefit payments with payment amounts guaranteed by the
Company, or a combination of fixed and variable annuity benefit payments. Among
the payout options available during the annuity payout phase are:
- - periodic payments for your lifetime (assuming you are the Annuitant);
- - periodic payments for your life and the life of another person selected by
you;
- - periodic payments for your lifetime with guaranteed payments continuing to
your beneficiary for ten years in the event that you die before the end of ten
years;
- - periodic payments over a specified number of years (1 to 30); under this
option you may reserve the right to convert remaining payments to a lump-sum
payout by electing a "commutable" option.
7
<PAGE>
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you, (the "Owner") and us, First Allmerica Financial
Life Insurance Company (the "Company"). Each Contract has an Owner (or an Owner
and a Joint Owner, in which case one of the two also must be the Annuitant), an
Annuitant and one or more beneficiaries. As Owner, you make payments, choose
investment allocations and select the Annuitant and beneficiary. The Annuitant
is the individual to receive annuity benefit payments under the Contract. The
beneficiary is the person who receives any payment on the death of the Owner or
Annuitant.
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of your payments are flexible, subject only to a $600
minimum for your initial payment and a $50 minimum for any additional payments.
(A lower initial payment amount is permitted for certain qualified plans and
where monthly payments are being forwarded directly from a financial
institution.) In addition, a minimum of $1,000 is always required to establish a
Guarantee Period Account.
WHAT ARE MY INVESTMENT CHOICES?
The Contract permits net payments to be allocated among the Sub-Accounts
investing in the Funds, the Guarantee Period Accounts (except in New York) and
in the Fixed Account.
VARIABLE ACCOUNT. You have a choice of Sub-Accounts investing in the following
18 Underlying Funds:
<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VIP
Select International Equity Fund Overseas Portfolio
Select Aggressive Growth Fund Equity-Income Portfolio
Select Capital Appreciation Fund Growth Portfolio
Select Value Opportunity Fund High Income Portfolio
Select Growth Fund FIDELITY VIP II
Growth Fund Asset Manager Portfolio
Equity Index Fund T. ROWE PRICE
Select Growth and Income Fund T. Rowe Price International Stock
Investment Grade Income Fund Portfolio
Government Bond Fund DGPF
Money Market Fund International Equity Series
</TABLE>
For a more detailed description of the Underlying Funds, see "INVESTMENT
OBJECTIVES AND POLICIES."
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. Values and benefits calculated on the basis of
Guarantee Period Account allocations, however, are obligations of the Company's
General Account. Amounts allocated to a Guarantee Period Account earn a
Guaranteed Interest Rate declared by the Company. The level of the Guaranteed
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company may offer up to nine Guarantee Periods ranging from two to ten years
in duration. Once declared, the Guaranteed Interest Rate will not change during
the duration of the Guarantee Period. If amounts allocated to a Guarantee Period
Account are transferred, surrendered or applied to any annuity option at any
time other than the day following the last day of the applicable Guarantee
Period, a Market Value Adjustment will apply that may increase or decrease the
Account's value; however, this adjustment will never be applied against your
principal. In addition, earnings in the GPA after application of the Market
Value Adjustment will not be less than an effective annual rate of 3%. For more
information about the Guarantee Period Accounts and the Market Value Adjustment,
see "GUARANTEE PERIOD ACCOUNTS."
8
<PAGE>
FIXED ACCOUNT. The Fixed Account is part of the General Account, which consists
of all the Company's assets other than those allocated to the Variable Account
and any other separate account. Allocations to the Fixed Account are guaranteed
as to principal and a minimum rate of interest. Additional excess interest may
be declared periodically at the Company's discretion. Furthermore, the initial
rate in effect on the date an amount is allocated to the Fixed Account will be
guaranteed for one year from that date. For more information about the Fixed
Account see APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
THE GUARANTEE PERIOD ACCOUNTS ARE NOT AVAILABLE IN NEW YORK.
CAN I MAKE TRANSFERS AMONG THE ACCOUNTS?
Yes. Prior to the Annuity Date, you may transfer among the Sub-Accounts
investing in the Underlying Funds, the Guarantee Period Accounts, and the Fixed
Account. You will incur no current taxes on transfers while your money remains
in the Contract. See "D. Transfer Privilege." The first 12 transfers in a
Contract year are guaranteed to be free of a transfer charge. For each
subsequent transfer in a Contract year, the Company does not currently charge
but reserves the right to assess a processing charge guaranteed never to exceed
$25.
WHAT IF I NEED MY MONEY BEFORE THE ANNUITY PAYOUT PHASE BEGINS?
You may surrender the Contract or make withdrawals any time before the annuity
payout phase begins. Each year you can take without a surrender charge the
greatest of 100% of cumulative earnings, 10% of the Contract's Accumulated Value
or, if you are both an Owner and the Annuitant, an amount based on your life
expectancy. (Similarly, no surrender charge will apply if an amount is withdrawn
based on the Annuitant's life expectancy and the Owner is a trust or other
non-natural person.) A 10% tax penalty may apply on all amounts deemed to be
income if you are under age 59 1/2. Additional amounts may be withdrawn at any
time but may be subject to the surrender charge for payments that have not been
invested in the Contract for more than nine years. (A Market Value Adjustment
may apply to any withdrawal made from a Guarantee Period Account prior to the
expiration of the Guarantee Period.)
In addition, except where prohibited by state law, you may withdraw all or a
portion of your money without a surrender charge if, after the Contract is
issued, you are admitted to a medical care facility, become disabled or are
diagnosed with a fatal illness. For details and restrictions, see "Reduction or
Elimination of Surrender Charge."
WHAT HAPPENS UPON DEATH DURING THE ACCUMULATION PHASE?
If the Annuitant, Owner or Joint Owner should die before the Annuity Date, a
death benefit will be paid to the beneficiary. Upon the death of the Annuitant
(or an Owner who is also an Annuitant), the death benefit is equal to the
GREATEST of:
- - The Accumulated Value increased by any positive Market Value Adjustment;
- - Gross payments decreased proportionately to reflect withdrawals;
- - The death benefit that would have been payable on the most recent Contract
anniversary, increased for subsequent payments and decreased proportionately
for subsequent withdrawals.
This guaranteed death benefit works in the following way assuming no withdrawals
are made. On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments. The higher of (a) or (b) will then be locked
in until the second anniversary, at which time the death benefit will be equal
to the greatest of (a) the Contract's then current Accumulated Value increased
by any positive Market Value Adjustment; (b) gross payments or (c) the locked-in
value of the death benefit at the first anniversary. The greatest of (a), (b) or
(c) will be locked in until the next Contract anniversary. This calculation will
then be repeated on each anniversary while the Contract
9
<PAGE>
remains in force and prior to the Annuity Date. As noted above, the values of
(b) and (c) will be decreased proportionately if withdrawals are taken.
At the death of an Owner who is not also the Annuitant during the accumulation
phase, the death benefit will equal the Accumulated Value of the Contract
increased by any positive Market Value Adjustment.
(If the Annuitant dies after the Annuity Date but before all guaranteed annuity
benefit payments have been made, the remaining payments will be paid to the
beneficiary at least as rapidly as under the annuity option in effect. See "G.
Death Benefit.")
WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
If the Accumulated Value is less than $50,000 on a Contract anniversary and at
surrender, the Company will deduct a $30 Contract fee from the Contract. The
Contract fee is waived for a Contract issued to and maintained by a trustee of a
401(k) plan.
Should you decide to surrender the Contract, make withdrawals, or receive
payments under certain annuity options, you may be subject to a contingent
deferred sales charge. If applicable, this charge will be between 1% and 8% of
payments withdrawn, based on when the payments were made.
Depending upon the state in which you live, a deduction for state and local
premium taxes, if any, may be made as described under "C. Premium Taxes."
The Company will deduct, on a daily basis, an annual mortality and expense risk
charge and administrative expense charge equal to 1.25% and 0.20%, respectively,
of the average daily net assets invested in each Portfolio. The Funds will incur
certain management fees and expenses described more fully in "Other Charges" and
in the Fund prospectuses accompanying this Prospectus.
For more information, see "CHARGES AND DEDUCTIONS."
CAN I EXAMINE THE CONTRACT?
Yes. The Contract will be delivered to you after your purchase. If you return
the Contract to the Company within ten days of receipt, the Contract will be
canceled. (There may be a longer period in certain states; see the "Right to
Examine" provision on the cover of the Contract.) If you cancel the Contract,
you will receive a refund of any amounts allocated to the Fixed and Guarantee
Period Accounts and the Accumulated Value of any amounts allocated to the
Sub-Accounts (plus any fees or charges that may have been deducted.) However,
for all New York Contracts and for any Contract issued as an Individual
Retirement Annuity ("IRA"), you will receive the greater of the amount described
above or your entire payment. See "B. Right to Revoke Individual Retirement
Annuity" and "C. Right to Revoke All Other Contracts."
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
There are several changes you can make after receiving the Contract:
- - You may assign your ownership to someone else, except under certain qualified
plans.
- - You may change the beneficiary, unless you have designated a beneficiary
irrevocably.
- - You may change your allocation of payments.
- - You may make transfers of Contract value among your current investments
without any tax consequences.
- - You may cancel the Contract within ten days of delivery (or longer if required
by law).
10
<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The following tables show charges under the Contract, expenses of the
Sub-Accounts, and expenses of the Funds. In addition to the charges and expenses
described below, premium taxes are applicable in some states and deducted as
described under "C. Premium Taxes."
<TABLE>
<CAPTION>
YEARS FROM
CONTRACT CHARGES: DATE OF PAYMENT CHARGE
- ------------------------------------------------------------------------------ --------------- ---------
<S> <C> <C>
CONTINGENT DEFERRED SALES CHARGE: 0-2 8%
This charge may be assessed upon surrender, withdrawal or annuitization under 3 7%
any commutable period certain option or a noncommutable period certain option 4 6%
of less than ten years. The charge is a percentage of payments applied to the 5 5%
amount surrendered (in excess of any amount that is without a surrender 6 4%
charge) within the indicated time period. 7 3%
8 2%
9 1%
More than 9 0%
TRANSFER CHARGE:
The Company currently makes no charge for processing transfers and guarantees None
that the first 12 transfers in a Contract year will not be subject to a
transfer charge. For each subsequent transfer, the Company reserves the right
to assess a charge, guaranteed never to exceed $25, to reimburse the Company
for the costs of processing the transfer.
CONTRACT FEE: $30
The fee is deducted annually and upon surrender prior to the Annuity Date when
Accumulated Value is less than $50,000. The fee is waived for Contracts issued
to and maintained by the trustee of a 401(k) plan.
SUB-ACCOUNT EXPENSES:
(on annual basis as percentage of average daily net assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.20%
---------
Total Asset Charge: 1.45%
</TABLE>
11
<PAGE>
UNDERLYING FUND EXPENSES:
In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Underlying Funds. The levels of fees and
expenses vary among the Underlying Funds. The following table shows the expenses
of the Underlying Funds for 1997. For more information concerning fees and
expenses, see the prospectuses of the Underlying Funds.
<TABLE>
<CAPTION>
MANAGEMENT FEE TOTAL FUND EXPENSES
(AFTER ANY VOLUNTARY OTHER FUND (AFTER ANY APPLICABLE
FUND WAIVER) EXPENSES LIMITATIONS)
- -------------------------------------------------------- --------------------- ----------------- ---------------------
<S> <C> <C> <C>
Select International Equity Fund........................ 0.92%* 0.20% 1.12%(1)(4)
DGPF International Equity Series........................ 0.75% 0.15% 0.90%(2)
Fidelity VIP Overseas Portfolio......................... 0.75% 0.17% 0.92%(3)
T. Rowe Price International Stock Portfolio............. 1.05% 0.00% 1.05%
Select Aggressive Growth Fund........................... 0.89%* 0.09% 0.98%(1)(4)
Select Capital Appreciation Fund........................ 0.95%* 0.15% 1.10%(1)
Select Value Opportunity Fund........................... 0.90%** 0.14% 1.04%(1)(4)
Select Growth Fund...................................... 0.85% 0.08% 0.93%(1)(4)
Growth Fund............................................. 0.46%* 0.06% 0.52%(1)
Fidelity VIP Growth Portfolio........................... 0.60% 0.09% 0.69%(3)
Equity Index Fund....................................... 0.31% 0.13% 0.44%(1)
Select Growth and Income Fund........................... 0.70%* 0.07% 0.77%(1)(4)
Fidelity VIP Equity-Income Portfolio.................... 0.50% 0.08% 0.58%(3)
Fidelity VIP II Asset Manager Portfolio................. 0.55% 0.10% 0.65%(3)
Fidelity VIP High Income Portfolio...................... 0.59% 0.12% 0.71%
Investment Grade Income Fund............................ 0.44%* 0.10% 0.54%(1)
Government Bond Fund.................................... 0.50% 0.17% 0.67%
Money Market Fund....................................... 0.27% 0.08% 0.35%(1)
</TABLE>
* Effective September 1, 1997, the management fee rates for these funds were
revised. The management fees ratios shown in the table above have been adjusted
to assume that the revised rates took effect on January 1, 1997.
** The Select Value Opportunity Fund was formerly known as the "Small-Mid Cap
Value Fund." Effective April 1, 1997, the management fee rate of the former
Small-Mid Cap Value Fund was revised. In addition, effective April 1, 1997 and
until further notice, the management fee for this fund has been voluntarily
limited to an annual rate of 0.90% of average daily net assets. The management
fee ratio shown above for the Select Value Opportunity Fund has been adjusted to
assume that the revised rate and the voluntary limitation took effect on January
1, 1997. Had the voluntary limitation of 0.90% not been effective on January 1,
1997 and had the management fee rate revision discussed above been effective on
January 1, 1997, the management fee ratio and the total fund expense ratio would
have been 0.95% and 1.09%, respectively. The management fee limitation may be
terminated at any time.
(1) Until further notice, Allmerica Financial Investment Management Services,
Inc. ("Manager") has declared a voluntary expense limitation of 1.50% of average
net assets for the Select International Equity Fund, 1.35% for the Select
Aggressive Growth Fund and Select Capital Appreciation Fund, 1.25% for the
Select Value Opportunity Fund, 1.20% for the Growth Fund and Select Growth Fund,
1.10% for the Select Growth and Income Fund, 1.00% for the Investment Grade
Income Fund, and Government Bond Fund, and 0.60% for the Money Market Fund and
Equity Index Fund. The total operating expenses of the trust were less than
their respective expense limitations throughout 1997. The declaration of a
voluntary expense limitation in any year does not bind the Manager to declare
future expense limitations with respect to these funds.
(2) Effective July 1, 1997, Delaware International Advisers Ltd., the investment
adviser for the International Equity Series, has agreed to limit total annual
expenses of the fund to 0.95%. This limitation replaces a prior limitation of
0.80% that expired on June 30, 1997. The new limitation will be in effect
through October 31,
12
<PAGE>
1998. The fee ratios shown above have been adjusted to assume that the new
voluntary limitation took effect on January 1, 1997. In 1997, the actual ratio
of total expenses of the International Equity Series was 0.85% and the actual
management fee was 0.70%.
(3) A portion of the brokerage commissions the Portfolio paid was used to reduce
Fund expenses. In addition, certain funds entered into arrangements with their
custodian and transfer agent whereby credits realized as a result of uninvested
cash balances were used to reduce custodian and transfer agent expenses.
Including these reductions, total operating expenses would have been 0.90% for
the Fidelity VIP Overseas Portfolio; 0.57% for the Fidelity VIP Equity-Income
Portfolio; 0.64% for the Fidelity VIP II Asset Manager Portfolio and 0.67% for
the Fidelity VIP Growth Portfolio.
(4) These Funds have entered into agreements with brokers whereby the brokers
rebate a portion of commissions. Had these amounts been treated as reductions of
expenses, the total operating expenses would have been 1.10% for Select
International Equity Fund, 0.91% for Select Growth Fund, 0.74% for Select Growth
and Income Fund, 0.93% for Select Aggressive Growth Fund, 0.98% for Select Value
Opportunity Fund and 0.50% for the Growth Fund .
EXAMPLES. The following examples demonstrate the cumulative expenses which
would be paid by the Owner at 1-year, 3-year, 5-year and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-Account
and a 5% annual return on assets, as required by rules of the Securities and
Exchange Commission (the "SEC"). Because the expenses of the Underlying Funds
differ, separate examples are used to illustrate the expenses incurred by an
Owner on an investment in the various Sub-Accounts.
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.
(1) If, at the end of the applicable time period, you surrender the Contract or
annuitize* under a commutable variable period certain option or a non-commutable
period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
10
FUND 1 YEAR 3 YEARS 5 YEARS YEARS
- ----------------------------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Select International Equity Fund............................................. $100 $148 $187 $292
DGPF International Equity Series............................................. $98 $142 $176 $270
Fidelity VIP Overseas Portfolio.............................................. $98 $142 $177 $272
T. Rowe Price International Stock Portfolio.................................. $99 $146 $184 $285
Select Aggressive Growth Fund................................................ $99 $144 $180 $278
Select Capital Appreciation Fund............................................. $100 $148 $186 $290
Select Value Opportunity Fund................................................ $99 $146 $183 $284
Select Growth Fund........................................................... $98 $143 $178 $273
Growth Fund.................................................................. $94 $131 $157 $231
Fidelity VIP Growth Portfolio................................................ $96 $136 $166 $249
Equity Index Fund............................................................ $94 $129 $153 $223
Select Growth and Income Fund................................................ $97 $138 $170 $257
Fidelity VIP Equity-Income Portfolio......................................... $95 $133 $160 $238
Fidelity VIP II Asset Manager Portfolio...................................... $96 $135 $164 $245
Fidelity VIP High Income Portfolio........................................... $96 $137 $167 $251
Investment Grade Income Fund................................................. $95 $132 $158 $233
Government Bond Fund......................................................... $96 $135 $166 $247
Money Market Fund............................................................ $93 $126 $150 $214
</TABLE>
13
<PAGE>
(2) If you annuitize* under a life option or any non-commutable period certain
option of ten years or more at the end of the applicable time period or if you
do NOT surrender or annuitize the Contract, you would pay the following expenses
on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
3 10
FUND 1 YEAR YEARS 5 YEARS YEARS
- ----------------------------------------------------------------------------- ------ ------ ------- -------
<S> <C> <C> <C> <C>
Select International Equity Fund............................................. $26 $80 $137 $292
DGPF International Equity Series............................................. $24 $74 $126 $270
Fidelity VIP Overseas Portfolio.............................................. $24 $74 $127 $272
T. Rowe Price International Stock Portfolio.................................. $26 $78 $134 $285
Select Aggressive Growth Fund................................................ $25 $76 $130 $278
Select Capital Appreciation Fund............................................. $26 $80 $136 $290
Select Value Opportunity Fund................................................ $25 $78 $133 $284
Select Growth Fund........................................................... $24 $75 $128 $273
Growth Fund.................................................................. $20 $62 $107 $231
Fidelity VIP Growth Portfolio................................................ $22 $68 $116 $249
Equity Index Fund............................................................ $19 $60 $103 $223
Select Growth and Income Fund................................................ $23 $70 $120 $257
Fidelity VIP Equity-Income Portfolio......................................... $21 $64 $110 $238
Fidelity VIP II Asset Manager Portfolio...................................... $22 $66 $114 $245
Fidelity VIP High Income Portfolio........................................... $22 $68 $117 $251
Investment Grade Income Fund................................................. $20 $63 $108 $233
Government Bond Fund......................................................... $22 $67 $115 $247
Money Market Fund............................................................ $19 $57 $ 99 $214
</TABLE>
Pursuant to requirements of the Investment Company Act of 1940 (the "1940 Act"),
the Contract fee has been reflected in the examples by a method intended to show
the "average" impact of the Contract fee on an investment in the Variable
Account. The total Contract fees collected under the Contracts by the Company
are divided by the total average net assets attributable to the Contracts. The
resulting percentage is 0.05% and the amount of the Contract fee is assumed to
be $0.50 in the examples. The Contract fee is deducted only when the accumulated
value is less than $50,000. Lower costs apply to Contracts issued and maintained
as part of a 401(k) plan.
* The Contract fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any Contract year under
an option including a life contingency or under any noncommutable period certain
option of ten years or more.
14
<PAGE>
CONDENSED FINANCIAL INFORMATION
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-K
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C>
SUB-ACCOUNTS 1997 1996 1995 1994
- -------------------------------------------------------------------- --------- --------- --------- ---------
SELECT INTERNATIONAL EQUITY FUND
Unit Value:
Beginning of Period............................................... 1.355 1.128 0.956 1.000
End of Period..................................................... 1.398 1.355 1.128 0.956
Units Outstanding at End of Period
(in thousands)..................................................... 8,076 5,068 2,093 446
DGPF INTERNATIONAL EQUITY SERIES
Unit Value:
Beginning of Period............................................... 1.319 1.115 0.993 1.000
End of Period..................................................... 1.387 1.319 1.115 0.993
Units Outstanding at End of Period
(in thousands)..................................................... 3,266 2,023 1,304 667
FIDELITY VIP OVERSEAS PORTFOLIO
Unit Value:
Beginning of Period............................................... 1.180 1.058 0.978 1.000
End of Period..................................................... 1.298 1.180 1.058 0.978
Units Outstanding at End of Period
(in thousands)..................................................... 3,601 3,114 2,804 1,697
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
Unit Value:
Beginning of Period............................................... 1.203 1.064 1.000 N/A
End of Period..................................................... 1.222 1.203 1.064 N/A
Units Outstanding at End of Period
(in thousands)..................................................... 4,536 2,506 542 N/A
SELECT AGGRESSIVE GROWTH FUND
Unit Value:
Beginning of Period............................................... 1.560 1.335 1.023 1.000
End of Period..................................................... 1.825 1.560 1.335 1.023
Units Outstanding at End of Period
(in thousands)..................................................... 7,947 5,681 2,907 1,211
SELECT CAPITAL APPRECIATION FUND
Unit Value:
Beginning of Period............................................... 1.482 1.115 1.000 N/A
End of Period..................................................... 1.670 1.482 1.115 N/A
Units Outstanding at End of Period
(in thousands)..................................................... 5,197 3,849 1,069 N/A
SELECT VALUE OPPORTUNITY FUND
Unit Value:
Beginning of Period............................................... 1.433 1.131 0.975 1.000
End of Period..................................................... 1.764 1.433 1.131 0.975
Units Outstanding at End of Period
(in thousands)..................................................... 5,466 3,037 1,614 795
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
SUB-ACCOUNTS 1997 1996 1995 1994
- -------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
SELECT GROWTH FUND
Unit Value:
Beginning of Period............................................... 1.562 1.229 1.057 1.000
End of Period..................................................... 2.064 1.562 1.229 1.057
Units Outstanding at End of Period
(in thousands)..................................................... 5,589 2,645 1,278 406
GROWTH FUND
Unit Value:
Beginning of Period............................................... 1.610 1.359 1.037 1.000
End of Period..................................................... 1.986 1.610 1.359 1.037
Units Outstanding at End of Period
(in thousands)..................................................... 7,404 4,652 2,436 947
FIDELITY VIP GROWTH PORTFOLIO
Unit Value:
Beginning of Period............................................... 1.620 1.433 1.073 1.073
End of Period..................................................... 1.972 1.620 1.433 1.073
Units Outstanding at End of Period
(in thousands)..................................................... 11,575 9,342 4,952 1,944
EQUITY INDEX FUND
Unit Value:
Beginning of Period............................................... 1.675 1.390 1.035 1.000
End of Period..................................................... 2.187 1.675 1.390 1.035
Units Outstanding at End of Period
(in thousands)..................................................... 5,712 2,417 947 189
SELECT GROWTH AND INCOME FUND
Unit Value:
Beginning of Period............................................... 1.582 1.324 1.030 1.000
End of Period..................................................... 1.911 1.582 1.324 1.030
Units Outstanding at End of Period
(in thousands)..................................................... 6,124 3,759 2,173 832
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Unit Value:
Beginning of Period............................................... 1.610 1.430 1.073 1.000
End of Period..................................................... 2.034 1.610 1.430 1.073
Units Outstanding at End of Period
(in thousands)..................................................... 12,959 9,957 5,738 2,214
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Unit Value:
Beginning of Period............................................... 1.284 1.137 0.985 1.000
End of Period..................................................... 1.527 1.284 1.137 0.985
Units Outstanding at End of Period
(in thousands)..................................................... 3,125 2,735 2.025 1,240
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
SUB-ACCOUNTS 1997 1996 1995 1994
- -------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
FIDELITY VIP HIGH INCOME PORTFOLIO
Unit Value:
Beginning of Period............................................... 1.330 1.184 0.995 1.000
End of Period..................................................... 1.543 1.330 1.184 0.995
Units Outstanding at End of Period
(in thousands)..................................................... 9,794 5,635 2,530 985
INVESTMENT GRADE INCOME FUND
Unit Value:
Beginning of Period............................................... 1.174 1.151 0.990 1.000
End of Period..................................................... 1.267 1.174 1.151 0.990
Units Outstanding at End of Period
(in thousands)..................................................... 3,889 2,854 1,677 1,677
GOVERNMENT BOND FUND
Unit Value:
Beginning of Period............................................... 1.136 1.113 0.998 1.000
End of Period..................................................... 1.199 1.136 1.113 0.998
Units Outstanding at End of Period
(in thousands)..................................................... 1,694 1,629 1,098 363
MONEY MARKET FUND
Unit Value:
Beginning of Period............................................... 1.105 1.064 1.020 1.000
End of Period..................................................... 1.149 1.105 1.064 1.020
Units Outstanding at End of Period
(in thousands)..................................................... 8,628 7,379 4,194 1,837
</TABLE>
PERFORMANCE INFORMATION
The Contract was first offered to the public in 1997. The Company, however, may
advertise "total return" and "average annual total return" performance
information based on the periods that the Sub-Accounts have been in existence
and the periods that the Underlying Funds have been in existence. Performance
results for all periods shown below are calculated with all charges assumed to
be those applicable to the Sub-Accounts, the Underlying Funds, and, in Tables 1A
and 2A, assuming that the Contract is surrendered at the end of the applicable
period and, alternatively, in Tables 1B and 2B, assuming that it is not
surrendered at the end of the applicable period. Both the total return and yield
figures are based on historical earnings and are not intended to indicate future
performance.
The total return of a Sub-Account refers to the total of the income generated by
an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Variable Account charges, and expressed as a
percentage.
The average annual total return represents the average annual percentage change
in the value of an investment in the Sub-Account over a given period of time. It
represents averaged figures as opposed to the actual performance of a
Sub-Account, which will vary from year to year.
The yield of the Sub-Account investing in the Money Market Fund refers to the
income generated by an investment in the Sub-Account over a seven-day period
(which period will be specified in the advertisement). This income is then
"annualized" by assuming that the income generated in the specific week is
generated over a 52-week period. This annualized yield is shown as a percentage
of the investment. The "effective yield" calculation is similar but, when
annualized, the income earned by an investment in the Sub-Account is
17
<PAGE>
assumed to be reinvested. Thus the effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment.
The yield of a Sub-Account investing in a Fund other than the Money Market Fund
refers to the annualized income generated by an investment in the Sub-Account
over a specified 30-day or one-month period. The yield is calculated by assuming
that the income generated by the investment during that 30-day or one-month
period is generated each period over a 12-month period and is shown as a
percentage of the investment.
Quotations of average annual total return as shown in Table 1A are calculated in
the manner prescribed by the SEC and show the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year period or for a period covering the time the Sub-Account has been in
existence, if less than the prescribed periods. The calculation is adjusted to
reflect the deduction of the annual Sub-Account asset charge of 1.45%, the $30
annual Contract fee, Underlying Fund charges and the contingent deferred sales
charge which would be assessed if the investment were completely withdrawn at
the end of the specified period. Quotations of supplemental average total
returns, as shown in Table 1B, are calculated in exactly the same manner and for
the same periods of time except that it does not reflect the contingent deferred
sales charge but assumes that the Contract is not surrendered at the end of the
periods shown.
The performance shown in Tables 2A and 2B is calculated in exactly the same
manner as those in Tables 1A and 1B respectively; however, the period of time is
based on the Underlying Fund's lifetime, which may predate the Sub-Account's
inception date. These performance calculations are based on the assumption that
the Sub-Account corresponding to the applicable Underlying Fund was actually in
existence throughout the stated period and that the contractual charges and
expenses during that period were equal to those currently assessed under the
Contract.
For more detailed information about these performance calculations, including
actual formulas, see the SAI.
PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF A
HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE TIME PERIOD ON WHICH THE
CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF
THE INVESTMENT OBJECTIVES AND POLICIES AND RISK CHARACTERISTICS OF THE
UNDERLYING FUND IN WHICH THE SUB-ACCOUNT INVESTS AND THE MARKET CONDITIONS
DURING THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED AS A REPRESENTATION
OF WHAT MAY BE ACHIEVED IN THE FUTURE.
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (1) the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman
Aggregate Bond Index or other unmanaged indices so that investors may compare
the Sub-Account results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(2) other groups of variable annuity separate accounts or other investment
products tracked by Lipper 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, who rank such investment products on
overall performance or other criteria; or (3) the Consumer Price Index (a
measure for inflation) to assess the real rate of return from an investment in
the Sub-Account. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of the Company's relative financial
strength and operating performance in comparison to the norms of the life/health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues and
do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the Underlying
Funds.
18
<PAGE>
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR SINCE
ENDED INCEPTION OF
NAME OF UNDERLYING FUND 12/31/97 SUB-ACCOUNT
- ------------------------------------------------------------- ----------- ------------
Select International Equity Fund............................. -4.32% 8.22%
<S> <C> <C>
DGPF International Equity Series............................. -2.53% 7.89%
Fidelity VIP Overseas Portfolio.............................. 2.01% 5.89%
T. Rowe Price International Stock Portfolio.................. -5.74% 5.40%
Select Aggressive Growth Fund................................ 8.97% 16.56%
Select Capital Appreciation Fund............................. 4.60% 19.18%
Select Value Opportunity Fund................................ 15.03% 15.45%
Select Growth Fund........................................... 24.11% 20.63%
Growth Fund.................................................. 15.32% 19.33%
Fidelity VIP Growth Portfolio................................ 13.68% 19.10%
Equity Index Fund............................................ 22.49% 22.60%
Select Growth and Income Fund................................ 12.73% 18.05%
Fidelity VIP Equity-Income Portfolio......................... 18.24% 20.13%
Fidelity VIP II Asset Manager Portfolio...................... 10.89% 11.05%
Fidelity VIP High Income Portfolio........................... 7.95% 11.20%
Investment Grade Income Fund................................. 0.07% 5.17%
Government Bond Fund......................................... -2.06% 3.54%
Money Market Fund............................................ -3.57% 2.26%
</TABLE>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR SINCE
ENDED INCEPTION OF
NAME OF UNDERLYING FUND 12/31/97 SUB-ACCOUNT
- --------------------------------------------------------------- ---------- ------------
Select International Equity Fund............................... 3.11% 9.53%
<S> <C> <C>
DGPF International Equity Series............................... 5.04% 9.19%
Fidelity VIP Overseas Portfolio................................ 9.92% 7.25%
T. Rowe Price International Stock Portfolio.................... 1.58% 7.76%
Select Aggressive Growth Fund.................................. 16.97% 17.62%
Select Capital Appreciation Fund............................... 12.60% 21.11%
Select Value Opportunity Fund.................................. 23.03% 16.53%
Select Growth Fund............................................. 32.11% 21.59%
Growth Fund.................................................... 23.32% 20.33%
Fidelity VIP Growth Portfolio.................................. 21.68% 20.10%
Equity Index Fund.............................................. 30.49% 23.53%
Select Growth and Income Fund.................................. 20.73% 19.08%
Fidelity VIP Equity-Income Portfolio........................... 26.24% 21.11%
Fidelity VIP II Asset Manager Portfolio........................ 18.89% 12.28%
Fidelity VIP High Income Portfolio............................. 15.95% 12.40%
Investment Grade Income Fund................................... 7.84% 6.56%
Government Bond Fund........................................... 5.54% 4.98%
Money Market Fund.............................................. 3.92% 3.75%
</TABLE>
19
<PAGE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
10 YEARS OR
FOR YEAR SINCE
ENDED INCEPTION
NAME OF UNDERLYING FUND 12/31/97 5 YEARS IF LESS*
- --------------------------------------------------- ----------- ---------- --------------
Select International Equity Fund................... -4.32% N/A 8.21%
<S> <C> <C> <C>
DGPF International Equity Series................... -2.53% 9.30% 9.11%
Fidelity VIP Overseas Portfolio.................... 2.01% 11.81% 8.01%
T. Rowe Price International Stock Portfolio........ -5.74% N/A 5.10%
Select Aggressive Growth Fund...................... 8.97% 14.50% 17.43%
Select Capital Appreciation Fund................... 4.60% N/A 19.13%
Select Value Opportunity Fund...................... 15.03% N/A 14.59%
Select Growth Fund................................. 24.11% 12.85% 14.23%
Growth Fund........................................ 15.32% 14.08% 15.40%
Fidelity VIP Growth Portfolio...................... 13.68% 15.73% 15.47%
Equity Index Fund.................................. 22.49% 17.27% 17.82%
Select Growth and Income Fund...................... 12.73% 14.28% 13.23%
Fidelity VIP Equity-Income Portfolio............... 18.24% 17.89% 15.05%
Fidelity VIP II Asset Manager Portfolio............ 10.89% 10.67% 10.99%
Fidelity VIP High Income Portfolio................. 7.95% 11.61% 11.15%
Investment Grade Income Fund....................... 0.07% 5.12% 7.58%
Government Bond Fund............................... -2.06% 3.55% 5.01%
Money Market Fund.................................. -3.57% 2.27% 4.23%
</TABLE>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
10 YEARS OR
FOR YEAR SINCE
ENDED INCEPTION
NAME OF UNDERLYING FUND 12/31/97 5 YEARS IF LESS*
- --------------------------------------------------- ---------- ---------- --------------
Select International Equity Fund................... 3.11% N/A 9.52%
<S> <C> <C> <C>
DGPF International Equity Series................... 5.04% 9.98% 9.63%
Fidelity VIP Overseas Portfolio.................... 9.92% 12.44% 8.01%
T. Rowe Price International Stock Portfolio........ 1.58% N/A 6.47%
Select Aggressive Growth Fund...................... 16.97% 15.08% 17.79%
Select Capital Appreciation Fund................... 12.60% N/A 21.06%
Select Value Opportunity Fund...................... 23.03% N/A 15.23%
Select Growth Fund................................. 32.11% 13.46% 14.65%
Growth Fund........................................ 23.32% 14.66% 15.40%
Fidelity VIP Growth Portfolio...................... 21.68% 16.28% 15.47%
Equity Index Fund.................................. 30.49% 17.79% 17.92%
Select Growth and Income Fund...................... 20.73% 14.86% 13.66%
Fidelity VIP Equity-Income Portfolio............... 26.24% 18.40% 15.05%
Fidelity VIP II Asset Manager Portfolio............ 18.89% 11.32% 11.04%
Fidelity VIP High Income Portfolio................. 15.95% 12.24% 11.15%
Investment Grade Income Fund....................... 7.84% 5.92% 7.58%
Government Bond Fund............................... 5.54% 4.40% 5.37%
Money Market Fund.................................. 3.92% 3.17% 4.23%
</TABLE>
20
<PAGE>
* The inception dates of the Underlying Funds are: 4/29/85 for Growth Fund,
Investment Grade Income Fund and Money Market Fund; 9/28/90 for Equity Index
Fund; 8/26/91 for Government Bond Fund; 8/21/92 for Select Aggressive Growth
Fund, Select Growth Fund and Select Growth and Income Fund; 4/30/93 for Select
Value Opportunity Fund; 5/02/94 for Select International Equity Fund; 4/28/95
for Select Capital Appreciation Fund; 10/09/86 for Fidelity VIP Equity-Income
Portfolio and Fidelity VIP Growth Portfolio; 9/19/85 for Fidelity VIP High
Income Portfolio; 1/28/87 for Fidelity VIP Overseas Portfolio; 9/06/89 for
Fidelity VIP II Asset Manager Portfolio; 10/29/92 for DGPF International Equity
Series; and 3/31/94 for the T. Rowe Price International Stock Portfolio.
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, THE TRUST,
FIDELITY VIP FUND, FIDELITY VIP II FUND, T. ROWE PRICE AND DGPF
THE COMPANY. The Company is a life insurance company organized under the laws
of Delaware in July, 1974. Its Principal Office is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, telephone 508-855-1000. The Company is
subject to the laws of the state of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1997, the
Company had over $9.4 billion in assets and over $26.6 billion of life insurance
in force.
Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirect wholly owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica"), which in turn is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company on October 16, 1995, and adopted its
present name. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1997, First Allmerica and its subsidiaries
(including the Company) had over $16.3 billion in combined assets and over $43.8
billion in life insurance in force.
The Company is a chartered member of the Insurance Marketplace Standards
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE 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 Sub-Accounts of the
Variable Account, and are kept separate and apart from the general assets of the
Company. There are 18 Sub-Accounts available under the Contracts. Each
Sub-Account is administered and accounted for as part of the general business of
the Company, but the income, capital gains, or capital losses of each
Sub-Account are allocated to such Sub-Account, without regard to other income,
capital gains, or capital losses of the Company. Under Delaware 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 November 1, 1990. The Variable Account meets the definition of a
"separate account" under federal securities law and is registered with the SEC
as a unit investment trust under the 1940 Act. Such registration does not
involve the supervision by the SEC of management or investment practices or
policies of the Variable Account or the Company.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Variable Account and the Sub-Accounts.
21
<PAGE>
ALLMERICA INVESTMENT TRUST. Allmerica Investment Trust ("Trust") is an
open-end, diversified management investment company registered with the SEC
under the 1940 Act. The Trust was established as a Massachusetts business trust
on October 11, 1984, for the purpose of providing a vehicle for the investment
of assets of various separate accounts established by the Company or other
affiliated insurance companies. Eleven investment portfolios of the Trust are
currently available under the Contract, each issuing a series of shares: the
Growth Fund, Investment Grade Income Fund, Money Market Fund, Equity Index Fund,
Government Bond Fund, Select International Equity Fund, Select Aggressive Growth
Fund, Select Capital Appreciation Fund, Select Growth Fund, Select Growth and
Income Fund and Select Value Opportunity Fund. The assets of each Fund are held
separate from the assets of the other Funds. Each Fund operates as a separate
investment vehicle and the income or losses of one Fund have no effect on the
investment performance of another Fund. Shares of the Trust are not offered to
the general public but solely to such variable accounts.
Allmerica Financial Investment Management Services, Inc. serves as the
investment adviser of the Trust and has entered into sub-advisory agreements
with other investment managers ("Sub-Advisers") who manage the investments of
the Funds. See "Investment Advisory Services to the Trust."
VARIABLE INSURANCE PRODUCTS FUND. Variable Insurance Products Fund ("Fidelity
VIP") managed by Fidelity Management & Research Company ("FMR"), is an open-end,
diversified management investment company organized as a Massachusetts business
trust on November 13, 1981, and registered with the SEC under the 1940 Act. Four
of its investment portfolios are available under the Contract: Fidelity VIP High
Income Portfolio, Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth
Portfolio and Fidelity VIP Overseas Portfolio.
Various Fidelity companies perform certain activities required to operate
Fidelity VIP. FMR, is one of America's largest investment management
organizations and has its principal business address at 82 Devonshire Street,
Boston, MA. It is composed of a number of different companies, which provide a
variety of financial services and products. FMR is the original Fidelity
company, founded in 1946. It provides a number of mutual funds and other clients
with investment research and portfolio management services. As part of their
operating expenses, the Portfolios of Fidelity VIP pay an investment management
fee to FMR. See "Investment Advisory Services to Fidelity VIP and Fidelity VIP
II."
VARIABLE INSURANCE PRODUCTS FUND II. Variable Insurance Products Fund II
("Fidelity VIP II"), managed by FMR (see discussion above) is an open-end,
diversified management investment company organized as a Massachusetts business
trust on March 21, 1988, and registered with the SEC under the 1940 Act. One of
its investment portfolios is available under the Contract: Fidelity VIP II Asset
Manager Portfolio.
T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Series,
Inc. ("T. Rowe Price"), managed by Rowe Price-Fleming International, Inc.
("Price-Fleming") (See "Investment Advisory Services to T. Rowe Price"), is an
open-end, diversified management investment company organized as a Maryland
corporation in 1994 and registered with the SEC under the 1940 Act. One of its
investment portfolios is available under the Contracts: the T. Rowe Price
International Stock Portfolio.
DELAWARE GROUP PREMIUM FUND, INC. Delaware Group Premium Fund, Inc. ("DGPF") is
an open-end, diversified, management investment company registered with the SEC
under the 1940 Act. DGPF was established to provide a vehicle for the investment
of assets of various separate accounts supporting variable insurance contracts.
One investment portfolio ("Series") is available under the Contract, the
International Equity Series. The investment adviser for the International Equity
Series is Delaware International Advisers Ltd. ("Delaware International"). See
"Investment Advisory Services to DGPF."
22
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Underlying Funds is set forth
below. The Underlying Funds are listed by general investment risk
characteristics. MORE DETAILED INFORMATION REGARDING THE INVESTMENT OBJECTIVES,
RESTRICTIONS AND RISKS, EXPENSES PAID BY THE UNDERLYING FUNDS AND OTHER RELEVANT
INFORMATION REGARDING THE UNDERLYING INVESTMENT COMPANIES MAY BE FOUND IN THEIR
RESPECTIVE PROSPECTUSES, WHICH ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING. The Statements of Additional Information of the
Underlying Funds are available upon request. There can be no assurance that the
investment objectives of the Underlying Funds can be achieved.
SELECT INTERNATIONAL EQUITY FUND OF THE TRUST -- The Select International Equity
Fund of the Trust seeks maximum long-term total return (capital appreciation and
income) primarily by investing in common stocks of established non-U.S.
companies.
DGPF INTERNATIONAL EQUITY SERIES -- The International Equity Series of DGPF
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.
FIDELITY VIP OVERSEAS PORTFOLIO -- The Overseas Portfolio of Fidelity VIP seeks
long-term growth of capital primarily through investments in foreign securities
and provides a means for aggressive investors to diversify their own portfolios
by participating in companies and economies outside of the United States.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO -- The T. Rowe Price International
Stock Portfolio seeks long-term growth of capital through investments primarily
in common stocks of established, non-U.S. companies.
SELECT AGGRESSIVE GROWTH FUND -- The Select Aggressive Growth Fund of the Trust
seeks above-average capital appreciation by investing primarily in common stocks
of companies which are believed to have significant potential for capital
appreciation.
SELECT CAPITAL APPRECIATION FUND -- The Select Capital Appreciation Fund of the
Trust seeks long-term growth of capital in a manner consistent with the
preservation of capital. Realization of income is not a significant investment
consideration and any income realized on the Fund's investments will be
incidental to its primary objective. The Fund invests primarily in common stock
of industries and companies which are believed to be experiencing favorable
demand for their products and services, and which operate in a favorable
competitive environment and regulatory climate.
SELECT VALUE OPPORTUNITY FUND -- The Select Value Opportunity Fund of the Trust
seeks long-term growth by investing principally in a diversified portfolio of
common stocks of small and mid-size companies whose securities at the time of
purchase are considered by the Sub-Adviser to be undervalued.
SELECT GROWTH FUND -- The Select Growth Fund of the Trust seeks to achieve
long-term growth of capital by investing in a diversified portfolio consisting
primarily of common stocks selected on the basis of their long-term growth
potential.
GROWTH FUND -- The Growth Fund of the Trust is invested in common stocks and
securities convertible into common stocks that are believed to represent
significant underlying value in relation to current market prices. The objective
of the Growth Fund is to achieve long-term growth of capital. Realization of
current investment income, if any, is incidental to this objective.
FIDELITY VIP GROWTH PORTFOLIO -- The Growth Portfolio of Fidelity VIP seeks to
achieve capital appreciation. The Portfolio normally purchases common stocks,
although its investments are not restricted to any one type of security. Capital
appreciation also may be found in other types of securities, including bonds and
preferred stocks.
23
<PAGE>
EQUITY INDEX FUND -- The Equity Index Fund of the Trust seeks to provide
investment results that correspond to the aggregate price and yield performance
of a representative selection of United States publicly traded common stocks.
The Equity Index Fund seeks to achieve its objective by attempting to replicate
the aggregate price and yield performance of the Standard & Poor's Composite
Index of 500 Stocks.
SELECT GROWTH AND INCOME FUND -- The Select Growth and Income Fund seeks a
combination of long-term growth of capital and current income. The Fund will
invest primarily in dividend-paying common stocks and securities convertible
into common stocks.
FIDELITY VIP EQUITY-INCOME PORTFOLIO -- The Equity-Income Portfolio of Fidelity
VIP seeks reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Portfolio also will consider the
potential for capital appreciation. The Portfolio's goal is to achieve a yield
which exceeds the composite yield on the securities comprising the S&P 500.
FIDELITY VIP II ASSET MANAGER PORTFOLIO -- The Asset Manager Portfolio of
Fidelity VIP II seeks high total return with reduced risk over the long term by
allocating its assets among domestic and foreign stocks, bonds and short-term
money market instruments.
FIDELITY VIP HIGH INCOME PORTFOLIO -- The High Income Portfolio of Fidelity VIP
seeks to obtain a high level of current income by investing primarily in
high-yielding, lower-rated fixed-income securities (commonly referred to as
"junk bonds"), while also considering growth of capital. These securities often
are considered to be speculative, and involve greater risk of default or price
changes than securities assigned a high quality rating. See the Fidelity VIP
prospectus.
INVESTMENT GRADE INCOME FUND -- The Investment Grade Income Fund of the Trust is
invested in a diversified portfolio of fixed income securities with the
objective of seeking as high a level of total return (including both income and
capital appreciation) as is consistent with prudent investment management.
GOVERNMENT BOND FUND -- The Government Bond Fund of the Trust has the investment
objectives of seeking high income, preservation of capital and maintenance of
liquidity, primarily through investments in debt instruments issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, and in
related options, futures and repurchase agreements.
MONEY MARKET FUND -- The Money Market Fund of the Trust is invested in a
diversified portfolio of high-quality, short-term money market instruments with
the objective of obtaining maximum current income consistent with the
preservation of capital and liquidity.
CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR TO
THOSE OF OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE SUB-ACCOUNTS WHICH
BEST WILL MEET INDIVIDUAL NEEDS AND OBJECTIVES, CAREFULLY READ THE PROSPECTUSES
OF THE TRUST, FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE AND DGPF, ALONG WITH
THIS PROSPECTUS. IN SOME STATES, INSURANCE REGULATIONS MAY RESTRICT THE
AVAILABILITY OF PARTICULAR SUB-ACCOUNTS.
If there is a material change in the investment policy of a Fund, the Owner will
be notified of the change. If the Owner has accumulated Value allocated to that
Fund, he or she may have the Accumulated Value reallocated without charge to
another Fund or to the Fixed Account, where available, on written request
received by the Company within sixty (60) days of the later of (1) the effective
date of such change in the investment policy, or (2) the receipt of the notice
of the Owner's right to transfer.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISORY SERVICES TO THE TRUST. The Trustees have overall
responsibility for the supervision of the affairs of the Trust. The Trustees
have entered into an agreement ("Management Agreement") with
24
<PAGE>
Allmerica Financial Investment Management Services, Inc. ("Manager") to handle
the day-to-day affairs of the Trust. The Manager, subject to review by the
Trustees, is responsible for the general management of the Funds of the Trust.
The Manager also performs certain administrative and management services for the
Trust, furnishes to the Trust all necessary office space, facilities and
equipment, and pays the compensation, if any, of officers and Trustees who are
affiliated with the Manager.
Other than the expenses specifically assumed by the Manager under the Management
Agreement, all expenses incurred in the operation of the Trust are borne by it,
including fees and expenses associated with the registration and qualification
of the Trust's shares under the Securities Act of 1933 ("1933 Act"), other fees
payable to the SEC, independent public accountant, legal and custodian fees,
association membership dues, taxes, interest, insurance premiums, brokerage
commissions, fees and expenses of the Trustees who are not affiliated with the
Manager, expenses for proxies, prospectuses, reports to shareholders, and other
expenses.
For providing its services under the Management Agreement, the Manager will
receive a fee, computed daily at an annual rate based on the average daily net
asset value of each Fund of the Trust as follows:
<TABLE>
<S> <C> <C>
Select International Equity Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Aggressive Growth Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Capital Appreciation Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Value Opportunity Fund First $100 million 1.00%
Next $150 million 0.85%
Next $250 million 0.80%
Next $250 million 0.75%
Over $750 million 0.70%
Select Growth Fund * 0.85%
Growth Fund First $250 million 0.60%
Next $250 million 0.40%
Over $500 million 0.35%
Equity Index Fund First $50 million 0.35%
Next $200 million 0.30%
Over $250 million 0.25%
Select Growth and Income Fund First $100 million 0.75%
Next $150 million 0.70%
Over $250 million 0.65%
Investment Grade Income Fund First $50 million 0.50%
Next $50 million 0.45%
Over $100 million 0.40%
Government Bond Fund * 0.50%
Money Market Fund First $50 million 0.35%
Next $200 million 0.25%
Over $250 million 0.20%
</TABLE>
* For the Government Bond Fund and the Select Growth Fund, the rate applicable
to the Manager does not vary according to the level of assets in the Fund.
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<PAGE>
The Manager's fee, computed for each Fund, will be paid from the assets of such
Fund. Pursuant to the Management Agreement with the Trust, the Manager has
entered into agreements ("Sub-Adviser Agreements") with other investment
advisers ("Sub-Advisers") under which each Sub-Adviser manages the investments
of one or more of the Funds of the Trust. Under the Sub-Adviser Agreement, the
Sub-Adviser is authorized to engage in portfolio transactions on behalf of the
applicable Fund, subject to such general or specific instructions as may be
given by the Trustees. The terms of a Sub-Adviser Agreement cannot be materially
changed without the approval of a majority in interest of the shareholders of
the affected Fund. The Manager is solely responsible for the payment of all fees
for investment management services to the Sub-Advisers. Allmerica Asset
Management, Inc., the Sub-Adviser for the Equity Index Fund, the Investment
Grade Income Fund, the Government Bond Fund and the Money Market Fund, is an
indirect wholly owned subsidiary of AFC and an affiliate of the Company.
The prospectus of the Trust contains additional information concerning the
Funds, including information about additional expenses paid by the Funds, and
should be read in conjunction with this Prospectus.
INVESTMENT ADVISORY SERVICES TO FIDELITY VIP AND FIDELITY VIP II FUNDS -- For
managing investments and business affairs, each Portfolio pays a monthly fee to
FMR. The prospectuses of Fidelity VIP and VIP II contain additional information
concerning the Portfolios, including information about additional expenses paid
by the Portfolios, and should be read in conjunction with this Prospectus.
The Fidelity VIP High Income Portfolio pays a monthly fee to FMR at an annual
fee rate made up of the sum of two components:
1. A group fee rate based on the monthly average net assets of all the mutual
funds advised by FMR. On an annual basis this rate cannot rise above 0.37%,
and drops as total assets in all these funds rise.
2. An individual fund fee rate of 0.45% of the Fidelity VIP High Income
Portfolio's average net assets throughout the month.
One-twelfth of the annual management fee rate is applied to net assets averaged
over the most recent month, resulting in a dollar amount which is the management
fee for that month.
The fee rates of the Fidelity VIP Equity-Income, Fidelity VIP Growth, Fidelity
VIP II Asset Manager and Fidelity VIP Overseas Portfolios each are made of two
components:
1. A group fee rate based on the monthly average net assets of all of the
mutual funds advised by FMR. On an annual basis, this rate cannot rise above
0.52%, and drops as total assets in all these mutual funds rise.
2. An individual Portfolio fee rate of 0.20% for the Fidelity VIP Equity-Income
Portfolio, 0.30% for the Fidelity VIP Growth Portfolio, 0.25% for the
Fidelity VIP II Asset Manager Portfolio and 0.45% for the Fidelity VIP
Overseas Portfolio.
One-twelfth of the sum of these two rates is applied to the respective
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month.
Thus, the Fidelity VIP High Income Portfolio may have a fee as high as 0.82% of
its average net assets. The Fidelity VIP Equity-Income Portfolio may have a fee
as high as 0.72% of its average net assets. The Fidelity VIP Growth Portfolio
may have a fee as high as 0.82% of its average net assets. The Fidelity VIP II
Asset Manager Portfolio may have a fee as high as 0.77% of its average net
assets. The Fidelity VIP Overseas Portfolio may have a fee as high as 0.97% of
its average net assets. The actual fee rate may be less depending on the total
assets in the funds advised by FMR.
INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE. The Investment Adviser for the
T. Rowe Price International Stock Portfolio is Rowe Price-Fleming International,
Inc. ("Price-Fleming"). Price-Fleming, founded in 1979 as a joint venture
between T. Rowe Price Associates, Inc. and Robert Fleming Holdings, Limited, is
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<PAGE>
one of America's largest international mutual fund asset managers with
approximately $30 billion under management in its offices in Baltimore, London,
Tokyo, Hong Kong, Singapore and Buenos Aires. To cover investment management and
operating expenses, the T. Rowe Price International Stock Portfolio pays Price-
Fleming a single, all-inclusive fee of 1.05% of its average daily net assets.
INVESTMENT ADVISORY SERVICES TO DGPF. Each Series of DGPF pays an investment
adviser an annual fee for managing the Portfolios and making the investment
decisions for the Series. The investment adviser for the International Equity
Series is Delaware International Advisers Ltd. ("Delaware International"). The
annual fee paid by the International Equity Series to Delaware International is
equal to 0.75% of the average daily net assets of the Series.
DESCRIPTION OF THE CONTRACT
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 also may include the
proper completion of an application; however, where permitted, the Company may
issue a Contract without completion of an application and/or signature for
certain classes of 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
issue requirements are properly met. If all issue requirements are not complied
with within five business days of the Company's receipt of the initial payment,
the payment will be returned unless the Owner specifically consents to the
holding of the initial payment until completion of any outstanding issue
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 employer-sponsored
retirement plan is less than $600 but more than $300 annually, the Company may
issue a Contract on the employee if the plan's average annual contribution per
eligible plan participant is at least $600. The minimum allocation to a
Guarantee Period Account is $1,000. If less than $1,000 is allocated to a
Guarantee Period Account, the Company reserves the right to apply that amount to
the Money Market Fund.
Generally, unless otherwise requested, all payments will be allocated among the
accounts in the same proportion that the initial net payment is allocated or, if
subsequently changed, according to the most recent allocation instructions. To
the extent permitted by state law, however, if the Contract is issued as an IRA
or is issued in New York, any portion of the initial net payment and additional
net payments received during the Contract's first 15 days measured from the
issue date, allocated to any Sub-Account and/or any Guarantee Period Account,
will be held in the Money Market Fund until the end of the 15-day period.
Thereafter, these amounts will be allocated as requested.
The Owner may change allocation instructions for new payments pursuant to a
written or telephone request. If telephone requests are elected by the 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
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<PAGE>
on behalf of an 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. RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY.
An individual purchasing a Contract intended to qualify as an IRA may revoke the
Contract at any time within ten days after receipt of the Contract and receive a
refund. In order to revoke the Contract, the Owner must mail or deliver the
Contract to the agent through whom the Contract was purchased, to the Principal
Office at 440 Lincoln Street, Worcester, MA 01653, or to an authorized
representative. Mailing or delivery must occur within ten days after receipt of
the Contract for revocation to be effective.
Within seven days, the Company will provide a refund equal to the greater of (1)
gross payments, or (2) gross payments allocated to the Fixed Account and the
Guarantee Period Accounts plus the Accumulated Value of any amounts allocated to
the Variable Account plus any amounts deducted under the Contract or by the
Underlying Funds for taxes, charges or fees.
The liability of the Variable Account under this provision is limited to the
Owner's Accumulated Value in the Sub-Accounts on the date of cancellation. Any
additional amounts refunded to the Owner will be paid by the Company.
C. RIGHT TO REVOKE ALL OTHER CONTRACTS.
In New York, an Owner may revoke the Contract at any time within ten days after
receipt of the Contract, and receive a refund as described under "B. Right to
Revoke Individual Retirement Annuity," above.
In all other states, an Owner may return the Contract at any time within ten
days (or the number of days required by state law if more than ten) after
receipt of the Contract. The Company will pay to the Owner an amount equal to
the sum of (1) the difference between the amount paid, including fees, and any
amount allocated to the Variable Account, and (2) the Accumulated Value of
amounts allocated to the Variable Account as of the date the request is
received. If the Contract was purchased as an IRA, the IRA revocation right
described above may be utilized in lieu of the special surrender right.
D. TRANSFER PRIVILEGE.
Prior to the Annuity Date, the Owner may transfer amounts among available
accounts at any time upon written or telephone request to the Company. As
discussed in "A. Payments," a properly completed authorization form must be on
file before telephone requests will be honored. Transfer values will be based on
the Accumulated Value next computed after receipt of the transfer request.
Transfers to a Guarantee Period Account must be at least $1,000. If the amount
to be transferred to a Guarantee Period Account is less than $1,000, the Company
may transfer that amount to the Money Market Fund.
Currently, the Company makes no charge for transfers. The first 12 transfers in
a Contract year are guaranteed to be free of any transfer charge. For each
subsequent transfer in a Contract year, the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse it for the expense of
processing transfers.
AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING) AND AUTOMATIC ACCOUNT REBALANCING
OPTIONS. The Owner may elect automatic transfers of a predetermined dollar
amount, not less than $100, on a periodic basis (monthly, bi-monthly, quarterly,
semi-annually or annually) from the Money Market Fund, the Government Bond Fund
or the Fixed Account (the "source account") to one or more Underlying Funds.
Automatic transfers may not be made into the Fixed Account, the Guarantee Period
Accounts or, if applicable, the Fund being used as the source account. If an
automatic transfer would reduce the balance in the source account to
28
<PAGE>
less than $100, the entire balance will be transferred proportionately to the
chosen Funds. Automatic transfers will continue until the amount in the source
account on a transfer date is zero or the Owner's request to terminate the
option is received by the Company. If additional amounts are allocated to the
source account after its balance has fallen to zero, this option will not
restart automatically, and the Owner must provide a new request to the Company.
The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, quarterly, semi-annual or annual basis in accordance with percentage
allocations specified by the Owner. As frequently as specified by the Owner, the
Company will review the percentage allocations in the Funds and, if necessary,
transfer amounts to ensure conformity with the designated percentage allocation
mix. If the amount necessary to re-establish the mix on any scheduled date is
less than $100, no transfer will be made. Automatic Account Rebalancing will
continue until the Owner's request to terminate or change the option is received
by the Company. As such, subsequent payments allocated in a manner different
from the percentage allocation mix in effect on the date the payment is received
will be allocated in accordance with the existing mix on the next scheduled date
unless the Owner's timely request to change the allocation mix is received by
the Company.
The Company reserves the right to limit the number of Funds that may be utilized
for automatic transfers and rebalancing, and to discontinue either option upon
advance written notice. Currently, Dollar Cost Averaging and Automatic Account
Rebalancing may not be in effect simultaneously. Either option may be elected
when the Contract is purchased or at a later date.
E. SURRENDER.
At any time prior to the Annuity Date, the Owner may surrender the Contract and
receive an amount equal to the Surrender Value. The Owner must return the
Contract and a signed, written request for surrender, satisfactory to the
Company, to the Principal Office. The amount payable to the 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 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 a Contract under which a commutable period certain
option has been elected 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 benefit payments. No contingent deferred sales
charge is imposed after the Annuity Date.
Any amount surrendered normally is payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and withdrawals of amounts in each Sub-Account in any period
during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has, by order, permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of a separate account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and withdrawals of
amounts allocated to the Company's Fixed Account and Guarantee Period Accounts
for a period not to exceed six months.
The surrender rights of Owners who are participants under Section 403(b) plans
or who are participants in the Texas Optional Retirement Program ("Texas ORP")
are restricted; see "Tax-Sheltered Annuities" and "Texas Optional Retirement
Program."
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<PAGE>
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
F. WITHDRAWALS.
At any time prior to the Annuity Date, the Owner may withdraw a portion of the
Accumulated Value of his or her Contract, subject to the limits stated below.
The Owner must submit a signed, written request for withdrawal, satisfactory to
the Company, to the Principal Office. The written request must indicate the
dollar amount the Owner wishes to receive and the accounts from which such
amount is to be withdrawn. The amount withdrawn equals the amount requested by
the Owner plus any applicable contingent deferred sales charge, as described
under "CHARGES AND DEDUCTIONS." In addition, amounts withdrawn from a Guarantee
Period Account prior to the end of the applicable Guarantee Period will be
subject to a Market Value Adjustment, as described under "GUARANTEE PERIOD
ACCOUNTS."
Where allocations have been made to more than one account, a percentage of the
withdrawal may be allocated to each such account. A withdrawal from a
Sub-Account will result in cancellation of a number of units equivalent in value
to the amount withdrawn, computed as of the Valuation Date that the request is
received at the Principal Office.
Each withdrawal must be in a minimum amount of $100. No withdrawal will be
permitted if the Accumulated Value remaining under the Contract would be reduced
to less than $1,000. Withdrawals will be paid in accordance with the time
limitations described under "E. Surrender."
For important restrictions on withdrawals which are applicable to Owners who are
participants under Section 403(b) plans or under the Texas ORP, see
"Tax-Sheltered Annuities" and "Texas Optional Retirement Program."
For important tax consequences which may result from withdrawals, see "FEDERAL
TAX CONSIDERATIONS."
SYSTEMATIC WITHDRAWALS. The Owner may elect an automatic schedule of
withdrawals (systematic withdrawals) from amounts in the Sub-Accounts and/or the
Fixed Account on a monthly, bi-monthly, quarterly, semi-annual or annual basis.
Systematic withdrawals from Guarantee Period Accounts are not available. The
minimum amount of each automatic withdrawal is $100, and will be subject to any
applicable withdrawal charges. If elected at the time of purchase, the Owner
must designate in writing the specific dollar amount of each withdrawal and the
percentage of this amount which should be taken from each designated Sub-Account
and/or the Fixed Account. Systematic withdrawals then will begin on the date
indicated on the application. If elected after the issue date, the Owner may
elect, by written request, a specific dollar amount and the percentage of this
amount to be taken from each designated Sub-Account and/or the Fixed Account, or
the Owner may elect to withdraw a specific percentage of the Accumulated Value
calculated as of the withdrawal dates, and may designate the percentage of this
amount which should be taken from each account. The first withdrawal will take
place on the date the written request is received at the Principal Office or, if
later, on a date specified by the Owner.
If a withdrawal would cause the remaining Accumulated Value to be less than
$1,000, systematic withdrawals will be discontinued. Systematic withdrawals will
cease automatically on the Annuity Date. The Owner may change or terminate
systematic withdrawals by written request only to the Principal Office.
LIFE EXPECTANCY DISTRIBUTIONS. Prior to the Annuity Date an Owner who also is
the Annuitant may elect to make a series of systematic withdrawals from the
Contract according to a life expectancy distribution ("LED") option by returning
a properly signed LED request form to the Principal Office. The LED option
permits the 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.
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<PAGE>
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 an Owner elects the LED option, in each calendar year a fraction of the
Accumulated Value is withdrawn based on the 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 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 Owner also may elect to receive distributions under an LED
option which is determined on the joint life expectancy of the Owner and a
beneficiary The Owner may elect monthly, bi-monthly, quarterly, semi-annual, or
annual distributions, and may terminate the LED option at any time. The LED
option will terminate automatically on the maximum Annuity Date permitted under
the Contract, at which time an Annuity Option must be elected. The Company also
may offer other systematic withdrawal options.
Where the Owner is a trust or other non-natural person, the Owner may elect the
LED option based on the Annuitant's life expectancy.
If an Owner makes withdrawals under the LED option prior to age 59 1/2, the
withdrawals may be treated by the Internal Revenue Service ("IRS") as premature
distributions from the Contract. The payments then would be taxed on an "income
first" basis and be subject to a 10% federal tax penalty. For more information,
see "FEDERAL TAX CONSIDERATIONS" and "B. Taxation of the Contracts in General."
G. DEATH BENEFIT.
In the event that the Annuitant, Owner or Joint Owner, if applicable, dies while
the Contract is in force, the Company will pay the beneficiary a death benefit,
except where the Contract is continued as provided in "H. The Spouse of the
Owner as Beneficiary." The amount of the death benefit and the time requirements
for receipt of payment may vary depending upon whether the Annuitant or an Owner
dies first, and whether death occurs prior to or after the Annuity Date.
DEATH OF THE ANNUITANT PRIOR TO THE ANNUITY DATE. At the death of the Annuitant
(including an Owner who is also the Annuitant), the benefit is equal to the
greatest of (a) the Accumulated Value under the Contract increased by any
positive Market Value Adjustment; (b) gross payments, decreased 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.
This guaranteed death benefit works in the following way assuming no withdrawals
are made: On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments. The higher of (a) or (b) will then be locked
in until the second anniversary, at which time the death benefit will be equal
to the greatest of (a) the Contract's then current Accumulated Value increased
by any positive Market Value Adjustment; (b) gross payments or (c) the locked-in
value of the death benefit at the first anniversary. The greatest of (a), (b) or
(c) will be locked in until the next Contract anniversary. This calculation will
then be repeated on each anniversary while the Contract remains in force and
prior to the Annuity Date. As noted above, the values of (b) and (c) will be
decreased proportionately if withdrawals are taken. See APPENDIX C, "DIFFERENCES
UNDER THE EXECANNUITY PLUS VARIABLE ANNUITY (FORM A3018-94)" for specific
examples of death benefit calculations.
DEATH OF AN OWNER WHO IS NOT ALSO THE ANNUITANT PRIOR TO THE ANNUITY DATE. If
an Owner who is not also the Annuitant dies before the Annuity Date, the death
benefit will be the Accumulated Value increased by
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<PAGE>
any positive Market Value Adjustment. The death benefit never will be reduced by
a negative Market Value Adjustment.
PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit
generally will be paid to the beneficiary in one sum within seven business days
of the receipt of due proof of death at the Principal Office unless the Owner
has specified a death benefit annuity option. Instead of payment in one sum, the
beneficiary may, by written request, elect to:
(1) defer distribution of the death benefit for a period no more than five
years from the date of death; or
(2) receive a life annuity or an annuity for a period certain not extending
beyond the beneficiary's life expectancy, with annuity benefit payments
beginning one year from the date of death.
If distribution of the death benefit is deferred under (1) or (2), any value in
the Guarantee Period Accounts will be transferred to the Sub-Account investing
in the Money Market Fund. The excess, if any, of the death benefit over the
Accumulated Value also will be added to the Money Market Fund. The beneficiary
may, by written request, effect transfers and withdrawals during the deferral
period and prior to annuitization under (2), but may not make additional
payments. The death benefit will reflect any earnings or losses experienced
during the deferral period. If there are multiple beneficiaries, the consent of
all is required.
With respect to the death benefit, the Accumulated Value under the Contract will
be based on the unit values next computed after due proof of the death has been
received.
DEATH OF THE ANNUITANT ON OR AFTER THE ANNUITY DATE. If the Annuitant's death
occurs on or after the Annuity Date but before completion of all guaranteed
annuity benefit payments, any unpaid amounts or installments will be paid to the
beneficiary. The Company must pay out the remaining payments at least as rapidly
as under the payment option in effect on the date of the Annuitant's death.
H. THE SPOUSE OF THE OWNER AS BENEFICIARY.
The Owner's spouse, if named as the sole beneficiary, may by written request
continue the Contract in lieu of receiving the amount payable upon death of the
Owner. Upon such election, the spouse will become the Owner and Annuitant
subject to the following: (1) any value in the Guarantee Period Accounts will be
transferred to the Money Market Fund; (2) the excess, if any, of the death
benefit over the Contract's Accumulated Value also will be added to the Money
Market Fund. This value never will be subject to a surrender charge when
withdrawn. Additional payments may be made; however, a surrender charge will
apply to these amounts if they have not been invested in the Contract for more
than nine years. All other rights and benefits provided in the Contract will
continue, except that any subsequent spouse of such new Owner will not be
entitled to continue the Contract upon such new Owner's death.
I. ASSIGNMENT.
The Contract, other than those sold in connection with certain qualified plans,
may be assigned by the Owner at any time prior to the Annuity Date and while the
Annuitant is alive. The Company will not be deemed to have knowledge of an
assignment unless it is made in writing and filed at the Principal Office. The
Company will not assume responsibility for determining the validity of any
assignment. If an assignment of the Contract is in effect on the Annuity Date,
the Company reserves the right to pay to the assignee, in one sum, that portion
of the Surrender Value of the Contract to which the assignee appears to be
entitled. The Company will pay the balance, if any, in one sum to the Owner in
full settlement of all liability under the Contract. The interest of the Owner
and of any beneficiary will be subject to any assignment.
For important tax liability which may result from assignments, see "FEDERAL TAX
CONSIDERATIONS."
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J. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE.
The Annuity Date is selected by the Owner. To the extent permitted in your
state, the Annuity Date may be the first day of any month (1) before the
Annuitant's 85th birthday, if the Annuitant's age on the issue date of the
Contract is 75 or under, or (2) within ten years from the issue date of the
Contract and before the Annuitant's 90th birthday, if the Annuitant's age on the
issue date is between 76 and 90. The Owner may elect to change the Annuity Date
by sending a request to the Principal Office at least one month before the
Annuity date. The new Annuity Date must be the first day of any month occurring
before the Annuitant's 90th birthday, and must be within the life expectancy of
the Annuitant. The Company shall determine such life expectancy at the time a
change in Annuity Date is requested. The Internal Revenue Code (the "Code") and
the terms of qualified plans impose limitations on the age at which annuity
benefit payments may commence and the type of annuity option selected. See
"FEDERAL TAX CONSIDERATIONS" for further information.
Subject to certain restrictions described below, the Owner has the right (1) to
select the annuity 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 accounts
selected.
To the extent a fixed annuity payout is selected, Accumulated Value will be
transferred to the Fixed Account of the Company, and the annuity benefit
payments will be fixed in amount. See APPENDIX A, "MORE INFORMATION ABOUT THE
FIXED ACCOUNT."
Under a variable annuity payout, a payment equal to the value of the fixed
number of Annuity Units in the Sub-Accounts is made monthly, quarterly,
semi-annually or annually. Since the value of an Annuity Unit in a Sub-Account
will reflect the investment performance of the Sub-Account, the amount of each
annuity benefit payment will vary.
The annuity option selected must produce an initial payment of at least $50 (a
lower amount may be required in some states). The Company reserves the right to
increase this minimum amount. If the annuity options selected does not produce
an initial payment which meet this minimum, a single payment may be made. Once
the Company begins making annuity benefit payments, the Annuitant cannot make
withdrawals or surrender the annuity benefit, except where the Annuitant has
elected a commutable period certain option. Beneficiaries entitled to receive
remaining payments under either a commutable or non-commutable "period certain"
option may elect instead to receive a lump sum settlement. See "K. Description
of Variable Annuity Options."
If the Owner does not elect otherwise, a variable life annuity with periodic
payments for ten 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.
K. DESCRIPTION OF VARIABLE ANNUITY PAYOUT OPTIONS.
The Company provides the variable annuity payout options described below.
Currently, variable annuity options may be funded through the Sub-Accounts
investing in the Select Growth and Income Fund, the Equity Index Fund, the
Growth Fund and the Money Market Fund.
The Company also provides these same options funded through the Fixed Account
(fixed annuity payout). Regardless of how payments were allocated during the
accumulation period, any of the variable payout options or the fixed payout
options may be selected, or any of the variable options may be selected in
combination with any of the fixed options. Other annuity options may be offered
by the Company. IRS regulations may not permit certain of the available annuity
options when used in connection with certain qualified Contracts.
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VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR TEN YEARS. This variable
annuity is payable periodically during the lifetime of the payee with the
guarantee that if the payee should die before all payments have been made, the
remaining annuity benefit payments will continue to the beneficiary.
VARIABLE LIFE ANNUITY PAYABLE PERIODICALLY DURING LIFETIME OF THE ANNUITANT
ONLY. 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 benefit payment, two annuity benefit payments if the Annuitant
dies before the due date of the third annuity benefit payment, and so on.
Payments will continue, however, during the lifetime of the Annuitant, no matter
how long he or she lives.
UNIT REFUND VARIABLE LIFE ANNUITY. This is an annuity payable periodically
during the lifetime of the payee with the guarantee that if (1) exceeds (2),
then periodic variable annuity benefit payments will continue to the beneficiary
until the number of such payments equals the number determined in (1).
Where: (1) is the dollar amount of the Accumulated Value divided by the dollar
amount of the first payment, and
(2) is the number of payments paid prior to the death of the payee.
JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is payable
jointly to two payees during their joint lifetime, and then continues thereafter
during the lifetime of the survivor. The amount of each payment to the survivor
is based on the same number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be either the person
designated as the Annuitant or the beneficiary in the Contract. There is no
minimum number of payments under this option.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is
payable jointly to two payees during their joint lifetime, and then continues
thereafter during the lifetime of the survivor. The amount of each periodic
payment to the survivor, however, is based upon two-thirds of the number of
Annuity Units which applied during the joint lifetime of the two payees. One of
the payees must be the person designated as the Annuitant in the Contract or the
beneficiary. There is no minimum number of payments under this option.
PERIOD CERTAIN VARIABLE ANNUITY. This variable annuity has periodic payments
for a stipulated number of years ranging from one to 30, and may be commutable
or non-commutable. A commutable option provides the Annuitant with the right to
request a lump sum payment of any remaining balance after annuity payments have
commenced. Under a non-commutable period certain option, the Annuitant may not
request a lump sum payment. See "ANNUITY BENEFIT PAYMENT" in the SAI.
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 a period
certain option to elect to convert to a variable annuity involving a life
contingency. The Company may discontinue or change this practice at any time,
but not with respect to election of the option made prior to the date of any
change in this practice.
L. ANNUITY BENEFIT PAYMENTS.
THE ANNUITY UNIT. On and after the Annuity Date, the Annuity Unit is a measure
of the value of the Annuitant's monthly annuity benefit payments under a
variable annuity option. The value of an Annuity Unit in each Sub-Account
initially was set at $1.00. The value of an Annuity Unit under a Sub-Account on
any Valuation Date thereafter is equal to the value of such unit on the
immediately preceding Valuation Date, multiplied by the product of (1) the net
investment factor of the Sub-Account 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.
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DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY BENEFIT PAYMENTS. The first
periodic annuity benefit payment is based upon the Accumulated Value as of a
date not more than four weeks preceding the date that the first annuity benefit
payment is due. Variable annuity benefit payments are due on the first of a
month, which is the date the payment is to be received by the Annuitant, and
currently are 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 periodic payment under each form of annuity for each $1,000 of applied
value. For life contingency options and non-commutable period certain options of
ten or more years, (six or more under New York Contracts), the annuity value is
the Accumulated Value less any premium taxes and adjusted for any Market Value
Adjustment. For commutable period certain options or any period certain option
less than ten years, (less than six under New York Contracts), the value is 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 rates in the Contract
are based on a modification of the 1983(a) Individual Mortality Table on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "M. 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 3.5% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity benefit payments will
increase over periods when the actual net investment result of the Sub-Accounts
funding the annuity exceeds the equivalent of the assumed interest rate for the
period. Variable annuity benefit payments will decrease over periods when the
actual net investment result of the respective Sub-Account is less than the
equivalent of the assumed interest rate for the period.
The dollar amount of the first periodic annuity benefit payment under life
annuity options and non-commutable period certain options of ten years or more
(six or more under New York Contracts) 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 ten
years (less than six years under New York Contracts), 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 Sub-Accounts 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 benefit 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 Sub-Accounts. 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.
From time to time, the Company may offer Owners both fixed and variable annuity
rates more favorable than those contained in the Contract. Any such rates will
be applied uniformly to all Owners of the same class.
For an illustration of a variable annuity benefit payment calculation using a
hypothetical example, see "ANNUITY BENEFIT PAYMENTS" in the SAI.
M. 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
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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.
N. COMPUTATION OF VALUES.
THE ACCUMULATION UNIT. Each net payment is allocated to the accounts selected
by the Owner. Allocations to the Sub-Accounts are credited to the Contract in
the form of Accumulation Units. Accumulation Units are credited separately for
each Sub-Account. The number of Accumulation Units of each Sub-Account credited
to the Contract is equal to the portion of the net payment allocated to the
Sub-Account, divided by the dollar value of the applicable Accumulation Unit as
of the Valuation Date the payment is received at the Principal Office. The
number of Accumulation Units resulting from each payment will remain fixed
unless changed by a subsequent split of Accumulation Unit value, a transfer, a
withdrawal or surrender. The dollar value of an Accumulation Unit of each
Sub-Account varies from Valuation Date to Valuation Date based on the investment
experience of that Sub-Account, and will reflect the investment performance,
expenses and charges of its Underlying Funds. The value of an Accumulation Unit
was set at $1.00 on the first Valuation Date for each Sub-Account.
Allocations to the Guarantee Period Accounts and the Fixed Account are not
converted into Accumulation Units, but are credited interest at a rate
periodically set by the Company.
The Accumulated Value under the Contract is determined by (1) multiplying the
number of Accumulation Units in each Sub-Account by the value of an Accumulation
Unit of that Sub-Account on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the Fixed Account and Guarantee Period
Accounts, if any.
NET INVESTMENT FACTOR. The Net Investment Factor is an index that measures the
investment performance of a Sub-Account from one Valuation Period to the next.
This factor is equal to 1.000000 plus the result from dividing (1) by (2) and
subtracting (3) and (4) where:
(1) is the investment income of a Sub-Account for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;
(2) is the value of that Sub-Account's assets at the beginning of the
Valuation Period;
(3) is a charge for mortality and expense risks equal to 1.25% on an annual
basis of the daily value of the Sub-Account's assets; and
(4) is an administrative charge equal to 0.20% on an annual basis of the
daily value of the Sub-Account's assets.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of an Accumulation Unit calculation using a hypothetical
example see the SAI.
CHARGES AND DEDUCTIONS
Deductions under the Contract and charges against the assets of the Sub-Accounts
are described below. Other deductions and expenses paid out of the assets of the
Underlying Funds are described in the prospectuses and SAIs of the Trust,
Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF.
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A. VARIABLE ACCOUNT DEDUCTIONS.
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a daily charge equal to an
annual rate of 1.25% of the value of each Sub-Account's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Contract. The charge is imposed during both the accumulation
phase and the annuity phase. The mortality risk arises from the Company's
guarantee that it will make annuity benefit payments in accordance with annuity
rate provisions established at the time the Contract is issued for the life of
the Annuitant (or in accordance with the annuity 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 Contract and in this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be 0.80% for mortality risk and
0.45% for expense risk.
ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account with a
daily charge equal to an annual rate of 0.20% of the average daily net assets of
the Sub-Account. The charge is imposed during both the accumulation phase and
the annuity phase. The daily administrative expense charge is assessed to help
defray administrative expenses actually incurred in the administration of the
Sub-Account, without profits. There is no direct relationship, however, between
the amount of administrative expenses imposed on a given Contract and the amount
of expenses actually attributable to that Contract.
Deductions for the Contract fee (see B. below) and for the administrative
expense charge are designed to reimburse the Company for the cost of
administration and related expenses and are not expected to be a source of
profit. The administrative functions and expense assumed by the Company in
connection with the Variable Account and the Contract include, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and supplies, expenses of preparing and printing
registration statements, expense of preparing and typesetting prospectuses and
the cost of printing prospectuses not allocable to sales expense, filing and
other fees.
OTHER CHARGES. Because the Sub-Accounts purchase shares of the Underlying
Funds, the value of the net assets of the Sub-Accounts will reflect the
investment advisory fee and other expenses incurred by the Underlying Funds. The
prospectus and SAI for the Fund contains additional information concerning
expenses of the Underlying Funds.
B. CONTRACT FEE.
A $30 Contract fee currently is deducted on the Contract anniversary date and
upon full surrender of the Contract if the Accumulated Value on any of these
dates is less than $50,000. The Contract fee is 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 Sub-Account will result in cancellation of a number of
Accumulation Units equal in value to the percentage of the charge deducted from
that account.
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Where permitted by law, the Contract fee also may be waived for Contracts where,
on the date of issue, either the Owner or the Annuitant is within the class of
"eligible persons" as defined under the "Reduction and Elimination of Surrender
Charge" provision below.
C. PREMIUM TAXES.
Some states and municipalities impose a premium tax on variable annuity
contracts. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
1. if the premium tax was paid by the Company when payments were received,
the premium tax charge is deducted on a pro-rata basis when withdrawals
are made, upon surrender of the Contract, or when annuity benefit
payments begin (the Company reserves the right instead to deduct the
premium tax charge for these Contracts at the time the 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 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. A contingent deferred sales charge, however, is deducted from the
Accumulated Value in the case of surrender and/or a withdrawal or at the time
annuity benefit payments begin, within certain time limits described below.
For purposes of determining the 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) the amount available under the Withdrawal Without Surrender Charge
provision. See "Withdrawal Without Surrender Charge" below. For purposes of
determining the amount of any contingent deferred sales charge, surrenders will
be deemed to be taken first from amounts available as a Withdrawal Without
Surrender Charge, if any, then from Old Payments, and then from New Payments.
Amounts available as a Withdrawal Without Surrender Charge, followed by Old
Payments, may be withdrawn from the Contract at any time without the imposition
of a 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 WITHDRAWAL. If the Contract is surrendered, or if New
Payments are withdrawn 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.
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.)
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The contingent deferred sales charges are as follows:
<TABLE>
<CAPTION>
YEARS FROM CHARGE AS PERCENTAGE OF
DATE OF PAYMENT NEW PAYMENTS WITHDRAWN
- ---------------- ---------------------------
<S> <C>
less than 2 8%
3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
Thereafter 0%
</TABLE>
The amount withdrawn equals the amount requested by the Owner plus the
contingent deferred sales charge, if any. The charge is applied as a percentage
of the New Payments withdrawn, but in no event will the total contingent
deferred sales charge exceed a maximum limit of 8.0% of total gross New
Payments. Such total charge equals the aggregate of all applicable contingent
deferred sales charges for surrender, withdrawals and annuitization.
REDUCTION OR ELIMINATION OF SURRENDER CHARGE. The Company will waive the
contingent deferred sales charge in the event that the Owner (or the Annuitant,
if the Owner is not an individual) becomes physically disabled after the issue
date of the Contract and before attaining age 65. Under New York Contracts, the
disability also must exist for a continuous period of at least 4 months. The
Company may require proof of such disability and continuing disability,
including written confirmation of receipt and approval of any claim for Social
Security Disability Benefits and reserves the right to obtain an examination by
a licensed physician of its choice and at its expense. In addition, except in
New York where not permitted by state law, the Company will waive the contingent
deferred sales charge in the event that an Owner (or the Annuitant, if the Owner
is not an individual) is: (1) admitted to a medical care facility and remains
confined there until the later of one year after the issue date or 90
consecutive days or (2) first diagnosed by a licensed physician as having a
fatal illness after the issue date of the Contract.
For purposes of the above provision, "medical care facility" means any
state-licensed facility or, in a state that does not require licensing, a
facility that is operating pursuant to state law, providing medically necessary
inpatient care which is prescribed by a licensed "physician" in writing and
based on physical limitations which prohibit daily living in a non-institutional
setting; "fatal illness" means a condition diagnosed by a licensed "physician"
which is expected to result in death within two years of the diagnosis; and
"physician" means a person other than the Owner, Annuitant or a member of one of
their families who is state licensed to give medical care or treatment and is
acting within the scope of that license.
Where contingent deferred sales charges have been waived under any one of three
situations discussed above, no additional payments under the Contract will be
accepted unless required by state law.
In addition, where permitted under state law, from time to time the Company may
allow a reduction in or elimination of the contingent deferred sales charges,
the period during which the charges apply, or both, and/or credit additional
amounts on Contracts, when Contracts are sold to individuals or groups of
individuals in a manner that reduces sales expenses. The Company will consider
factors such as the following: (1) the size and type of group or class, and the
persistency expected from that group or class; (2) the total amount of payments
to be received, and the manner in which payments are remitted; (3) the purpose
for which the Contracts are being purchased, and whether that purpose makes it
likely that costs and expenses will be reduced; (4) other transactions where
sales expenses are likely to be reduced; or (5) the level of commissions paid to
registered representatives, selling broker-dealers or certain financial
institutions with respect to Contracts within the same group or class (for
example, broker-dealers who offer the Contract in connection
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with financial planning services offered on a fee-for-service basis). The
Company also may reduce or waive the contingent deferred sales charge, and/or
credit additional amounts on contracts, where either the Owner or the Annuitant
on the date of issue is within the following classes of individuals ("eligible
persons"): (1) 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;
(2) any director of the Company; (3) any retiree who elected to retire on his/
her retirement date; (4) the immediate family members of those persons
identified in (1) through (3) above residing in the same household; and (5) any
beneficiary who receives a death benefit under a deceased employees or retiree's
progress sharing plan. For purposes of the above class of individuals, "the
Company" includes 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 Financial Life Insurance Company Employee's Matched Savings Plan or
any successor plan.
Finally, if permitted under state law, contingent deferred sales charges will be
waived under a Section 403(b) Contract where the amount withdrawn is being
contributed to a life insurance policy issued by the Company as part of the
individual's Section 403(b) plan.
Any reduction or elimination in the amount or duration of the contingent
deferred sales charge will not discriminate unfairly among purchasers of the
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 charge is modified to effect certain exchanges of existing
annuity contracts issued by the Company for the Contract. See "EXCHANGE OFFER"
in the SAI.
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: 100% of Cumulative Earnings (calculated as the Accumulated
Value as of the Valuation Date the Company receives the
withdrawal request, or the following day, reduced by total
gross payments not previously withdrawn);
Where (2) is: 10% of the Accumulated Value as of the Valuation Date the
Company receives the withdrawal request, or the following
day, reduced by the total amount of any prior withdrawals
made in the same calendar year to which no contingent
deferred sales charge was applied; and
Where (3) is: The amount calculated under the Company's life expectancy
distribution option (see "Life Expectancy Distributions")
whether or not the withdrawal was part of such distribution
(applies only if Annuitant is also an Owner).
For example, an 81-year-old Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Withdrawal Without
Surrender Charge of $1,530 which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED of 10.2% of Accumulated Value ($1,530).
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The Withdrawal Without Surrender Charge first will be deducted from Cumulative
Earnings. If the Withdrawal Without Surrender Charge exceeds Cumulative
Earnings, the excess amount will be deemed withdrawn from payments not
previously withdrawn on a last-in first-out ("LIFO") basis. If more than one
withdrawal is made during the year, on each subsequent withdrawal the Company
will waive the contingent deferred sales charge, if any, until the entire
Withdrawal Without Surrender Charge has been withdrawn. Amounts withdrawn from a
Guarantee Period Account prior to the end of the applicable Guarantee Period
will be subject to a Market Value Adjustment.
SURRENDERS. In the case of a complete surrender, the amount received by the
Owner is equal to the entire Accumulated Value under the Contract, net of the
applicable 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 applicable to withdrawals, the Company
will not assess a contingent deferred sales charge on an amount equal to the
Withdrawal Without Surrender Charge Amount, described above.
Where an Owner who is trustee under a pension plan surrenders, in whole or in
part, a Contract on a terminating employee, the trustee will be permitted to
reallocate all or a part of the Accumulated Value under the Contract to other
contracts issued by the Company and owned by the trustee, with no deduction for
any otherwise applicable contingent deferred sales charge. Any such reallocation
will be at the unit values for the Sub-Accounts as of the Valuation Date on
which a written, signed request is received at the Principal Office.
For further information on surrender and withdrawal, including minimum limits on
amount withdrawn and amount remaining under the Contract in the case of
withdrawal, and important tax considerations, see "E. Surrender" and "F.
Withdrawals" under "DESCRIPTION OF THE CONTRACT," and see "FEDERAL TAX
CONSIDERATIONS"
CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If 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. A Market Value
Adjustment, however, may apply. See "GUARANTEE PERIOD ACCOUNTS." If the Owner of
a fixed annuity contract issued by the Company wishes to elect a variable
annuity option, the Company may permit such Owner to exchange, at the time of
annuitization, the fixed contract for a Contract offered in this Prospectus. The
proceeds of the fixed contract, minus any 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 processing transfers. The Company
guarantees that the first 12 transfers in a Contract year will be free of
transfer charge, but reserves the right to assess a charge, guaranteed never to
exceed $25, for each subsequent transfer in a Contract year. For more
information, see "D. Transfer Privilege."
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 (the "1933 Act") or the 1940 Act. Accordingly, the staff of the SEC
has not
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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 the Contract or any fixed benefits
offered under these accounts may be subject to the provisions of the 1933 Act
relating to the accuracy and completeness of statements made in the Prospectus.
INVESTMENT OPTIONS. Except under New York Contracts, Guarantee Periods ranging
from two through ten years may be available. Each Guarantee Period established
for the 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. Once an interest rate is in effect
for a Guarantee Period Account, however, the Company may not change it during
the duration of the Guarantee Period. In no event will the Guaranteed Interest
Rate be less than 3%.
To the extent permitted by law, the Company reserves the right at any time to
offer Guarantee Periods with durations that differ from those which were
available when a Contract initially was issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Owners may allocate net payments or make transfers from any of the Sub-Accounts,
the Fixed Account or an existing Guarantee Period Account to establish a new
Guarantee Period Account at any time prior to the Annuity Date. Transfers from a
Guarantee Period Account, on any date other than on the day following the
expiration of that Guarantee Period, will be subject to a Market Value
Adjustment. The Company establishes a separate investment account each time the
Owner allocates or transfers amounts to a Guarantee Period except that amounts
allocated to the same Guarantee Period on the same day will be treated as one
Guarantee Period Account. The minimum that may be allocated to establish a
Guarantee Period Account is $1,000. If less than $1,000 is allocated, the
Company reserves the right to apply that amount to the Money Market Fund. The
Owner may allocate amounts to any of the Guarantee Periods available.
At least 45 days, but not more than 75 days, prior to the end of a Guarantee
Period, the Company will notify the Owner in writing of the expiration of that
Guarantee Period. At the end of a Guarantee Period the Owner may transfer
amounts to the Sub-Accounts, the Fixed Account or establish a new Guarantee
Period Account of any duration then offered by the Company without a Market
Value Adjustment. If reallocation instructions are not received at the Principal
Office before the end of a Guarantee Period, the account value automatically
will be applied to a new Guarantee Period Account with the same duration unless
(1) less than $1,000 would remain in the Guarantee Period Account on the
expiration date, or (2) 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 Fund. Where amounts have been
renewed automatically in a new Guarantee Period, it is the Company's current
practice to give the Owner an additional 30 days to transfer out of the
Guarantee Period Account without application of a Market Value Adjustment. This
practice may be discontinued or changed at the Company's discretion.
MARKET VALUE ADJUSTMENT. No Market Value Adjustment will be applied to
transfers, withdrawals, or a surrender from a Guarantee Period Account on the
expiration of its Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See "G. Death Benefit." All
other transfers, withdrawals, or a surrender prior to the end of a Guarantee
Period will be subject to a Market Value Adjustment, which may increase or
decrease the account value. Amounts applied under an annuity option are treated
as withdrawals when calculating the Market Value Adjustment. The Market Value
Adjustment will be determined by multiplying the amount taken from each
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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.
Based on the application of this formula, the value of a Guarantee Period
Account will increase after the Market Value Adjustment is applied if the then
current market rates are lower than the rate being credited to the Guarantee
Period Account. Similarly, the value of a Guarantee Period Account will decrease
after the Market Value Adjustment is applied if the then current market rates
are higher than the rate being credited to the Guarantee Period Account. The
Market Value Adjustment is limited, however, so that even if the account value
is decreased after application of a Market Value Adjustment, it will equal or
exceed the Owner's principal plus 3% earnings per year less applicable Contract
fees. Conversely, if the then current market rates are lower and the account
value is increased after the Market Value Adjustment is applied, the increase in
value is also affected by the minimum guaranteed rate of 3% such that the amount
that will be added to the Guarantee Period Account is limited to the difference
between the amount earned and the 3% minimum guaranteed earnings. For examples
of how the Market Value Adjustment works, see APPENDIX B.
WITHDRAWALS. Prior to the Annuity Date, the Owner may make withdrawals of
amounts held in the Guarantee Period Accounts. Withdrawals from these accounts
will be made in the same manner and be subject to the same rules as set forth
under "E. Surrender" and "F. Withdrawals." In addition, the following provisions
also apply to withdrawals from a Guarantee Period Account: (1) a Market Value
Adjustment will apply to all withdrawals, including Withdrawals Without
Surrender Charge, unless made at the end of the Guarantee Period; and (2) the
Company reserves the right to defer payments of amounts withdrawn from a
Guarantee Period Account for up to six months from the date it receives the
withdrawal request. If deferred for 30 days or more, the Company will pay
interest on the amount deferred at a rate of at least 3%.
In the event that a Market Value Adjustment applies to a withdrawal of a portion
of the value of a Guarantee Period Account, it will be calculated on the amount
requested and deducted or added to the amount remaining in the Guarantee Period
Account. If the entire amount in a Guarantee Period Account is requested, the
adjustment will be made to the amount payable. If a contingent deferred sales
charge applies to the withdrawal, it will be calculated as set forth under "D.
Contingent Deferred Sales Charge" after application of the Market Value
Adjustment.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of the Contract, on withdrawals
or surrenders, on annuity benefit payments, and on the economic benefit to the
Owner, Annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the IRS. In
addition, this discussion does not address state or local tax consequences that
may be associated with the Contract.
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IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS, AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER ALWAYS SHOULD BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income, assets, or
existence of the Contract, the Variable Account or the Sub-Accounts may have
upon its tax. The Variable Account presently is not subject to tax, but the
Company reserves the right to assess a charge for taxes should the Variable
Account at any time become subject to tax. Any charge for taxes will be assessed
on a fair and equitable basis in order to preserve equity among classes of
Owners and with respect to each separate account as though that separate account
were a separate taxable entity.
The Variable Account is considered a part of and taxed with the operations of
the Company. The Company is taxed as a life insurance company under Subchapter L
of the Code. The Company files a consolidated tax return with its affiliates.
The IRS has issued regulations relating to the diversification requirements for
variable annuity and variable life insurance contracts under Section 817(h) of
the 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 the Contract, for any taxable year
of the Owner, would be treated as ordinary income received or accrued by the
Owner. It is anticipated that the Funds of the Trust, the Portfolios of Fidelity
VIP and VIP II, the Portfolio of T. Rowe Price and the Series of DGPF will
comply with the current diversification requirements. In the event that future
IRS regulations and/or rulings would require Contract modifications in order to
remain in compliance with the diversification standards, the Company will make
reasonable efforts to comply, and it reserves the right to make such changes as
it deems appropriate for that purpose.
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, or 408 of the Code, while a non-qualified
contract is one that is not purchased in connection with one of the indicated
retirement plans. The tax treatment for certain withdrawals or surrenders will
vary, depending on whether they are made from a qualified contract or a non-
qualified contract. For more information on the tax provisions applicable to
qualified contracts, see Section D below.
B. TAXATION OF THE CONTRACTS IN GENERAL.
The Company believes that the Contract described in this Prospectus will, with
certain exceptions (see "Non-Natural Owners" below), be considered an annuity
contract under Section 72 of the Code. This section governs the taxation of
annuities. The following discussion concerns annuities subject to Section 72.
WITHDRAWALS PRIOR TO ANNUITIZATION. With certain exceptions, any increase in
the Contract's Accumulated Value is not taxable to the Owner until it is
withdrawn from the Contract. If the Contract is surrendered or amounts are
withdrawn prior to the Annuity Date, any withdrawal of investment gain in value
over the cost basis of the Contract will be taxed as ordinary income. Under the
current provisions of the Code, amounts received under an annuity contract prior
to annuitization (including payments made upon the death of the annuitant or
owner), generally are first attributable to any investment gains credited to the
contract over the taxpayer's "investment in the contract." Such amounts will be
treated as gross income subject to federal income taxation. "Investment in the
contract" is the total of all payments to the contract which were not
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excluded from the Owner's gross income less any amounts previously withdrawn
which were not included in income. Section 72(e)(11)(A)(ii) requires that all
non-qualified deferred annuity contracts issued by the same insurance company to
the same owner during a single calendar year be treated as one contract in
determining taxable distributions.
ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments are
commenced under the Contract, generally a portion of each payment may be
excluded from gross income. The excludable portion generally is determined by a
formula that establishes the ratio that the investment in the Contract bears to
the expected return under the Contract. The portion of the payment in excess of
this excludable amount is taxable as ordinary income. Once all the investment in
the Contract is recovered, the entire payment is taxable. If the Annuitant dies
before the investment in the Contract is recovered, a deduction for the
difference is allowed on the Annuitant's final tax return.
PENALTY ON DISTRIBUTION. A 10% penalty tax may be imposed on the withdrawal of
investment gains if the withdrawal is made prior to age 59 1/2. The penalty tax
will not be imposed on withdrawals taken on or after age 59 1/2, or if the
withdrawal follows the death of the Owner (or, if the Owner is not an
individual, the death of the primary Annuitant, as defined in the Code) or, in
the case of the Owner's "total disability" (as defined in the Code).
Furthermore, under Section 72 of the Code, this penalty tax will not be imposed,
irrespective of age, if the amount received is one of a series of "substantially
equal" periodic payments made at least annually for the life or life expectancy
of the payee. This requirement is met when the Owner elects to have
distributions made over the Owner's life expectancy, or over the joint life
expectancy of the Owner and beneficiary. The requirement that the amount be paid
out as one of a series of "substantially equal" periodic payments is met when
the number of units withdrawn to make each distribution is substantially the
same. Any modification, other than by reason of death or disability, of
distributions which are part of a series of substantially equal periodic
payments that occurs before the Owner's age 59 1/2 or five years, will subject
the Owner to the 10% penalty tax on the prior distributions. In addition to the
exceptions above, the penalty tax will not apply to withdrawals from a qualified
Contract made to an employee who has terminated employment after reaching age
55.
In a Private Letter Ruling, the IRS took the position that where distributions
from a variable annuity contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy (such as
under the Contract's 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, therefore, were subject to the 10% federal penalty tax. This
Private Letter Ruling may be applicable to an 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.
ASSIGNMENTS OR TRANSFERS. If the Owner transfers (assigns) the Contract to
another individual as a gift prior to the Annuity Date, the Code provides that
the Owner will incur taxable income at the time of the transfer. An exception is
provided for certain transfers between spouses. The amount of taxable income
upon such taxable transfer is equal to any investment gain in value over the
Owner's cost basis at the time of the transfer. The transfer also is subject to
federal gift tax provisions. Where the Owner and Annuitant are different
persons, the change of ownership of the Contract to the Annuitant on the Annuity
Date, as required under the Contract, is a gift and will be taxable to the Owner
as such; however, the Owner will not incur taxable income. Instead, the
Annuitant will incur taxable income upon receipt of annuity benefit payments as
discussed above.
NON-NATURAL OWNERS. As a general rule, deferred annuity contracts owned by
"non-natural persons" (e.g., a corporation) are not treated as annuity contracts
for federal tax purposes, and the investment income attributable to
contributions made after February 28, 1986 is taxed as ordinary income that is
received or accrued by the owner during the taxable year. This rule does not
apply to annuity contracts purchased with a single payment when the annuity date
is no later than a year from the issue date or to deferred annuities owned by
qualified employer plans, estates, employers with respect to a terminated
pension plan, and entities other
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than employers, such as a trust, holding an annuity as an agent for a natural
person. This exception, however, will not apply in cases of any employer who is
the owner of an annuity contract under a non-qualified deferred compensation
plan.
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. Under Section 457 of the Code, deferred compensation plans
established by governmental and certain other tax-exempt employers for their
employees may invest in annuity contracts. Contributions and investment earnings
are not taxable to employees until distributed; however, with respect to
payments made after February 28, 1986, a Contract owned by a state or local
government or a tax-exempt organization will not be treated as an annuity under
Section 72 as well. In addition, plan assets are treated as property of the
employer, and are subject to the claims of the employer's general creditors.
C. TAX WITHHOLDING.
The Code requires withholding with respect to payments or distributions from
non-qualified contracts and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified contracts. In addition, the Code requires reporting to the IRS
of the amount of income received with respect to payment or distributions from
annuities.
The tax treatment of certain withdrawals or surrenders of the non-qualified
Contracts offered by this Prospectus will vary according to whether the amount
withdrawn or surrendered is allocable to an investment in the Contract made
before or after certain dates.
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS.
The tax rules applicable to qualified retirement plans, as defined by the Code,
are complex and vary according to the type of plan. Benefits under a qualified
plan may be subject to that plan's terms and conditions irrespective of the
terms and conditions of any annuity contract used to fund such benefits. As
such, the following is simply a general description of various types of
qualified plans that may use the Contract. Before purchasing any annuity
contract for use in funding a qualified plan, more specific information should
be obtained.
Qualified Contracts may include special provisions (endorsements) changing or
restricting rights and benefits otherwise available to Owners of non-qualified
Contracts. Individuals purchasing a qualified Contract should carefully review
any such changes or limitations which may include restrictions to ownership,
transferability, assignability, contributions, and distributions.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT SHARING
PLANS. Sections 401(a), 401(k) and 403(a) of the Code permit business employers
and certain associations to establish various types of tax-favored retirement
plans for employees. The Self-Employed Individuals' Tax Retirement Act of 1962,
as amended, permits self-employed individuals to establish similar plans for
themselves and their employees. Employers intending to use qualified Contracts
in connection with such plans should seek competent advice as to the suitability
of the Contracts to their specific needs and as to applicable Code limitations
and tax consequences.
The Company can provide prototype plans for certain pension or profit sharing
plans for review by the plan's legal counsel. For information, ask your
financial representative.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity ("IRA"). Note: This term covers all IRAs permitted
under Section 408(b) of the Code, including Roth IRAs. IRAs are subject to
limits on the amounts that may be contributed, the persons who may be eligible,
and on the time when distributions may commence. In addition, certain
distributions from other types of retirement plans may be "rolled over," on a
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tax-deferred basis, to an IRA. Purchasers of an IRA Contract will be provided
with supplementary information as may be required by the IRS or other
appropriate agency, and will have the right to revoke the Contract as described
in this Prospectus. See "B. Right to Revoke Individual Retirement Annuity."
Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) or SIMPLE IRA plans for their employees using
IRAs. Employer contributions that may be made to such plans are larger than the
amounts that may be contributed to regular IRAs and may be deductible to the
employer.
TAX-SHELTERED ANNUITIES ("TSAS"). Under the provisions of Section 403(b) of the
Code, payments made to contracts purchased for employees under annuity plans
adopted by public school systems and certain organizations which are tax-exempt
under Section 501(c)(3) of the Code are excludable from the gross income of such
employees to the extent that total annual payments do not exceed the maximum
contribution permitted under the Code. Purchasers of TSA contracts should seek
competent advice as to eligibility, limitations on permissible payments and
other tax consequences associated with the contracts.
Withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) made to a TSA contract after December
31, 1988, may not begin before the employee attains age 59 1/2, separates from
service, dies or becomes disabled. In the case of hardship, an Owner may
withdraw amounts contributed by salary reduction, but not the earnings on such
amounts. Even though a distribution may be permitted under these rules (e.g.,
for hardship or after separation from service), it may be subject to a 10%
penalty tax as a premature distribution, in addition to income tax.
TEXAS OPTIONAL RETIREMENT PROGRAM. Distributions under a TSA contract issued to
participants in the Texas Optional Retirement Program may not be received except
in the case of the participant's death, retirement or termination of employment
in the Texas public institutions of higher education. These additional
restrictions are imposed under the Texas Government Code and a prior opinion of
the Texas Attorney General.
REPORTS
An Owner is sent a report semi-annually which states certain financial
information about the Underlying Funds. The Company also will furnish an annual
report to the Owner containing a statement of his or her account, including
Accumulation Unit values and other information as required by applicable law,
rules and regulations.
LOANS (QUALIFIED CONTRACTS ONLY)
Loans are available to Owners of TSA Contracts (i.e., contracts issued under
Section 403(b) of the Code) and to Contracts issued to plans qualified under
Sections 401(a) and 401(k) of the Code. Loans are subject to provisions of the
Code and to applicable qualified retirement plan rules. Tax advisors and plan
fiduciaries should be consulted prior to exercising loan privileges.
Loaned amounts will be withdrawn first from Sub-Account and Fixed Account values
on a pro-rata basis until exhausted. Thereafter, any additional amounts will be
withdrawn from the Guarantee Period Accounts (pro rata by duration and LIFO
within each duration), subject to any applicable Market Value Adjustments. The
maximum loan amount will be determined under the Company's maximum loan formula.
The minimum loan amount is $1,000. Loans will be secured by a security interest
in the Contract and the amount borrowed will be transferred to a loan asset
account within the Company's General Account, where it will accrue interest at a
specified rate below the then-current loan rate. Generally, loans must be repaid
within five years or less, and repayments must be made quarterly and in
substantially equal amounts. Repayments will be allocated pro rata in accordance
with the most recent payment allocation, except that any allocations to a
Guarantee Period Account will be allocated instead to the Money Market Fund.
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ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Underlying Funds no longer are available for investment or if, in the Company's
judgment, further investment in any Underlying Fund should become inappropriate
in view of the purposes of the Variable Account or the affected Sub-Account, the
Company may withdraw the shares of that Underlying Fund and substitute shares of
another registered open-end management company. The Company will not substitute
any shares attributable to the Contract interest in a Sub-Account without notice
to the Owner and prior approval of the SEC and state insurance authorities, to
the extent required by the 1940 Act or other applicable law. The Variable
Account may, to the extent permitted by law, purchase other securities for other
contracts or permit a conversion between contracts upon request by an Owner.
The Company also reserves the right to establish additional sub-accounts of the
Variable Account, each of which would invest in shares corresponding to a new
underlying fund or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required SEC approval,
the Company may, in its sole discretion, establish new sub-accounts or eliminate
one or more Sub-Accounts if marketing needs, tax considerations or investment
conditions warrant. Any new sub-accounts may be made available to existing
Owners on a basis to be determined by the Company.
Shares of the Underlying Funds also are issued to separate accounts of the
Company and its affiliates which issue variable life contracts ("mixed
funding"). Shares of the Funds also are issued to other unaffiliated insurance
companies ("shared funding"). It is conceivable that in the future such mixed
funding or shared funding may be disadvantageous for variable life owners or
variable annuity owners. Although neither the Company nor any of the underlying
investment companies currently foresee any such disadvantages to either variable
life owners or variable annuity owners, the Company and the respective trustees
intend to monitor events in order to identify any material conflicts between
such owners, and to determine what action, if any, should be taken in response
thereto. If the trustees were to conclude that separate funds should be
established for variable life and variable annuity separate accounts, the
Company will bear the attendant expenses.
If any of these substitutions or changes is made, the Company may endorse the
Contracts to reflect the substitution or change, and will notify Owners of all
such changes. If the Company deems it to be in the best interest of Owners, and
subject to any approvals that may be required under applicable law, the Variable
Account or any Sub-Accounts may be operated as a management company under the
1940 Act, may be deregistered under the 1940 Act if registration is no longer
required, or may be combined with other Sub-Accounts or other separate accounts
of the Company.
The Company reserves the right, subject to compliance with applicable law, to:
(1) transfer assets from the Variable Account or any of its Sub-Accounts to
another of the Company's separate accounts or sub-accounts having assets of the
same class; (2) to operate the Variable Account or any Sub-Account as a
management investment company under the 1940 Act or in any other form permitted
by law; (3) to deregister the Variable Account under the 1940 Act in accordance
with the requirements of the 1940 Act; (4) to substitute the shares of any other
registered investment company for the Underlying Fund shares held by a
Sub-Account, in the event that Underlying Fund shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Fund shares is inappropriate in view of the purpose of the
Sub-Account; (5) to change the methodology for determining the net investment
factor; and (6) to change the names of the Variable Account or of the
Sub-Accounts. In no event will the changes described above be made without
notice to Owners in accordance with the 1940 Act.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves the right, without the consent of Owners, to suspend sales
of the Contract as presently offered, and to make any change to provisions of
the Contract to comply with, or give Owners the benefit of,
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any federal or state statute, rule or regulation, including but not limited to
requirements for annuity contracts and retirement plans under the Code and
pertinent regulations or any state statute or regulation.
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Sub-Account in
accordance with instructions received from Owners and, after the Annuity Date,
from the Annuitants. Each person having a voting interest in a Sub-Account will
be provided with proxy materials of the Underlying Fund, together with a form
with which to give voting instructions to the Company. Shares for which no
timely instructions are received will be voted in proportion to the instructions
which are received. The Company also will vote shares in a Sub-Account that it
owns and which are not attributable to Contract in the same proportion. If the
1940 Act or any rules thereunder should be amended or if the present
interpretation of the 1940 Act or such rules should change, and as a result the
Company determines that it is permitted to vote shares in its own right, whether
or not such shares are attributable to the Contract, the Company reserves the
right to do so.
The number of votes which an Owner or Annuitant may cast will be determined by
the Company as of the record date established by the Underlying Fund. During the
accumulation period, the number of Underlying Fund shares attributable to each
Owner will be determined by dividing the dollar value of the Accumulation Units
of the Sub-Account credited to the Contract by the net asset value of one
Underlying Fund share. During the annuity period, the number of Underlying Fund
shares attributable to each Annuitant will be determined by dividing the reserve
held in each Sub-Account for the Annuitant's Variable Annuity by the net asset
value of one Underlying Fund share. Ordinarily, the Annuitant's voting interest
in the Underlying Fund will decrease as the reserve for the Variable Annuity is
depleted.
DISTRIBUTION
The Contracts offered by this Prospectus may be purchased from representatives
of Allmerica Investments, Inc., a registered broker-dealer under the Securities
and Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. ("NASD"). Allmerica Investments, Inc., 440 Lincoln Street,
Worcester, MA 01653, is also the principal underwriter and distributor and is an
indirect wholly owned subsidiary of First Allmerica. The Contract also may be
purchased from certain independent broker-dealers which are NASD members.
The Company pays commissions, not to exceed 5.0% of payments, to registered
representatives of Allmerica Investments, Inc. Alternative commission schedules
are available with lower initial commission amounts based on payments, plus
ongoing annual compensation of up to 1% of Contract value. Managers who
supervise the agents will receive overriding commissions ranging up to no more
than 2% of payments.
The Company intends to recoup commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges and profits from
the Company's General Account. Commissions paid on the Contract, including
additional incentives or payments, do not result in any additional charge to
Owners or to the Variable Account. Any contingent deferred sales charges
assessed on the Contract will be retained by the Company except for amounts it
may pay to Allmerica Investments, Inc. for services it performs and expenses it
may incur as principal underwriter and general distributor. Owners may direct
any inquiries to their financial representative or to Annuity Client Services,
First Allmerica Financial Life Insurance Company, 440 Lincoln Street, Worcester,
MA 01653, Telephone 1-800-533-7881.
SERVICES
The Company receives fees from the investment advisers or other service
providers of certain Underlying Funds in return for providing certain services
to Owners. Currently, the Company receives service fees with respect to the
Fidelity VIP Overseas Portfolio, Fidelity VIP Equity-Income Portfolio, Fidelity
VIP Growth Portfolio, Fidelity VIP High Income Portfolio, and Fidelity VIP II
Asset Manager Portfolio, at an annual rate
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of 0.10% of the aggregate net asset value, respectively, of the shares of such
Underlying Funds held by the Variable Account. With respect to the T. Rowe Price
International Stock Portfolio, the Company receives service fees at an annual
rate of 0.15% per annum of the aggregate net asset value of shares held by the
Variable Account. The Company may in the future render services for which it
will receive compensation from the investment advisers or other service
providers of other Underlying Funds.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party.
FURTHER INFORMATION
A Registration Statement under the 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted in this Prospectus pursuant to the rules and
regulations of the SEC. The omitted information may be obtained from the SEC's
principal office in Washington, D.C., upon payment of the SEC's prescribed fees.
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APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account 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 Securities and
Exchange Commission.
The Fixed Account is part of the Company's General Account which is made up of
all of the general assets of the Company other than those allocated to separate
accounts. Allocations to the Fixed Account become part of the assets of the
Company and are used to support insurance and annuity obligations. A portion or
all of net payments may be allocated to accumulate at a fixed rate of interest
in the Fixed Account. Such net amounts are guaranteed by the Company as to
principal and a minimum rate of interest. Under the 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 amount in excess of the Withdrawal
Without Surrender Charge is withdrawn 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 for at least 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 payment of $50,000 is made on the issue date and no
additional payments are made. Assume there are no withdrawals and that the
Withdrawal Without Surrender Charge Amount is equal to the greater of 10% of the
current Accumulated Value or the accumulated earnings in the Contract. The table
below presents examples of the surrender charge resulting from a full surrender,
based on Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE CHARGE AMOUNT PERCENTAGE CHARGE
- ------------- -------------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C>
1 $ 54,000.00 $ 5,400.00 8% $ 3,888.00
2 58,320.00 8,320.00 8% 4,000.00
3 62,985.60 12,985.60 7% 3,500.00
4 68,024.45 18,024.45 6% 3,000.00
5 73,466.40 23,466.40 5% 2,500.00
6 79,343.72 29,343.72 4% 2,000.00
7 85,691.21 35,691.21 3% 1,500.00
8 92,546.51 42,546.51 2% 1,000.00
9 99,950.23 49,950.23 1% 500.00
10 107,946.25 57,946.25 0% 0.00
</TABLE>
WITHDRAWALS -- Assume a payment of $50,000 is made on the issue date and no
additional payments are made. Assume that the Withdrawal Without Surrender
Charge Amount is equal to the greater of 10% of the current Accumulated Value or
the accumulated earnings in the Contract and there are withdrawals as detailed
below. The table below presents examples of the surrender charge resulting from
withdrawals, based on Hypothetical Accumulated Value.
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE WITHDRAWALS CHARGE AMOUNT PERCENTAGE CHARGE
- ------------- ------------ ------------ ----------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
1 $ 54,000.00 $0.00 $ 5,400.00 8% $ 0.00
2 58,320.00 0.00 8,320.00 8% 0.00
3 62,985.60 0.00 12,985.60 7% 0.00
4 68,024.45 30,000.00 18,024.45 6% 718.53
5 41,066.40 10,000.00 4,106.68 5% 294.67
6 33,551.72 5,000.00 3,355.17 4% 65.79
7 30,835.85 10,000.00 3,083.59 3% 207.49
8 22,502.72 15,000.00 2,250.27 2% 254.99
9 8,102.94 0.00 810.29 1% 0.00
10 8,751.17 0.00 1,248.45 0% 0.00
</TABLE>
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<PAGE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)] to the power of n/365 - 1
The following examples assume:
1. The payment was allocated to a ten-year Guarantee Period Account with a
Guaranteed Interest Rate of 8%.
2. The date of surrender is seven years (2,555 days) from the expiration date.
3. The value of the Guarantee Period Account is equal to $62,985.60 at the end
of three years.
4. No transfers of 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
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.10)] to the power of 2555/365 - 1
= (.98182) to the power of 7 - 1
= -.12054
The market value = the market value factor multiplied by the withdrawal
adjustment
= -.12054 X $62,985.60
= -$7,592.11
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.07)] to the power of 2555/365 - 1
= (1.0093) to the power of 7 - 1
= .06694
The market value = the market value factor multiplied by the withdrawal
adjustment
= .06694 X $62,985.60
= $4,216.26
</TABLE>
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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
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.11)] to the power of 2555/365 - 1
= (.97297) to the power of 7 - 1
= -.17454
The market value = Minimum of the market value factor multiplied by the
adjustment withdrawal or the negative of the excess interest earned
over 3%
= Minimum (-.17454 X $62,985.60 or -$8,349.25)
= Minimum (-$10,993.51 or -$8,349.25)
= -$8,349.25
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.06)] to the power of 2555/365 - 1
= (1.01887) to the power of 7 - 1
= .13981
The market value = Minimum of the market value factor multiplied by the
adjustment withdrawal or the excess interest earned over 3%
= Minimum of (.13981 X $62,985.60 or $8,349.25)
= Minimum of ($8,806.02 or $8,349.25)
= $8,349.25
</TABLE>
B-3
<PAGE>
APPENDIX C
DIFFERENCES UNDER THE EXECANNUITY PLUS VARIABLE ANNUITY
(FORM A3018-94)
1. The Guarantee Period Accounts are not available under Form A3018.1-94 or
A3018.44-94 (referred to collectively as Form 3018-94). Note: the Guarantee
Period Accounts are not available in New York under either A3018-94 or
A3025-96GRC.
2. The waiver of surrender charge offered under the Allmerica Advantage
Contract (Form A3025-96GRC) for disability prior to age 65, fatal illness or
confinement to a medical care facility is not available under A3018-94. Note:
only the disability waiver is available in New York under A3025-96GRC.
3. The Owner, if a natural person, and the Annuitant must be the same under
Form A3018-94 and joint Owners are not permitted. Under A3025-96, the Owner and
the Annuitant may be different and joint Owners are permitted if one of the two
joint Owners is also the Annuitant.
4. The death benefit under A3018-94 that is payable upon the death of the
Owner/Annuitant is "stepped up" every fifth year rather than annually. Stated
another way, the highest accumulated value on any fifth year anniversary is
locked in rather than the highest accumulated value on any policy anniversary.
In addition, under the death benefit in 3018-94, gross payments are simply
reduced by subsequent withdrawals by subtracting the amount of the withdrawal
from the total gross payments. Under A3025-96, gross payments are reduced
proportionately by withdrawals (in the same proportion that the Accumulated
Value is reduced by the withdrawal.)
5. A3018-94 allows the Owner, in each calendar year, to withdraw without a
surrender charge the greater of (1) 10% of the Accumulated Value as of December
31 of the prior calendar year (in the first calendar, the amount is 10% of gross
payments), and (2) the life expectancy distribution. The Withdrawal Without
Surrender Charge amount is deducted first from Old Payments, then from New
Payments in the order that such payments were received pursuant to the FIFO
(first-in-first-out) method of accounting.
6. The following transfer provision applies to Form A3018-94:
At any time prior to the Annuity Date, subject to the Company's current rules,
an Owner may have amounts transferred among the Sub-Accounts or from the
Sub-Accounts to the General Account. Transfer values will be effected at the
Accumulation Value next computed after receipt of the transfer request. The
Company will make transfers pursuant to a written request, or, if a properly
completed authorization, is on file pursuant to a telephone request.
Except for General Account transfers made under the automatic transfer option
(Dollar Cost Averaging), transfers from the General Account will only be
permitted if there has been at least a ninety (90) day period since the last
transfer from the General Account and 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.
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 must remain in a Sub-Account following a transfer; (3) the minimum
period of time between transfers involving the General Account; and (4) the
maximum amount that may be transferred.
AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING) AND AUTOMATIC ACCOUNT
REBALANCING. The Owner may elect automatic transfers of a predetermined amount,
not less than $100, on a periodic basis (monthly, bimonthly, or quarterly) from
the Money Market Fund or the Government Bond Fund (the "source account") to one
or more of the Sub-Accounts. Automatic transfers may not be made into the
General Account or, if applicable, the Sub-Account being used as the source
account. The General Account also may be used as the
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<PAGE>
source account from which periodic automatic transfers will be made to any of
the Sub-Accounts provided that (1) the amount of each monthly transfer cannot
exceed 10% of the Policy value in the General Account as of the date of the
first transfer; (2) each bimonthly transfer cannot exceed 20% of the Policy
value in the General Accounts of the date of the first transfer; and (3) each
quarterly transfer cannot exceed 25% of Policy value in the General Account as
of the date of the first transfer. If an automatic transfer would reduce the
balance in the source account to less than $100, the entire balance will be
transferred proportionately to the chosen Sub-Accounts. Automatic transfers will
continue until the amount in the source account on a transfer date is zero or
the Owner's request to terminate the option is received by the Company. If
additional amounts are allocated to the source account after its balance has
fallen to zero, this option will not restart automatically and the Owner must
provide a new request to the Company.
The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, quarterly, semi-annual or annual basis in accordance with percentage
allocations specified by the Owner. As frequently as requested by the Owner, the
Company will review the percentage allocations in the Sub-Accounts and, if
necessary, transfer amounts to ensure conformity with the designated percentage
allocation mix. If the amount necessary to re-establish the mix on any scheduled
date is less than $100, no transfer will be made. Automatic Account Rebalancing
will continue until the Owner's request to terminate the option is received by
the Company.
The Company reserves the right to limit the number of Sub-Accounts that may be
utilized for automatic transfers and rebalancing, and to discontinue either
option upon advance written notice. The first automatic transfer and all
subsequent transfers of that request in the same Policy year count as one
transfer towards the 12 transfers which are guaranteed to be free of a transfer
charge each Policy year. Currently automatic transfers and automatic rebalancing
may not be in effect simultaneously.
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