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File Nos. ________
811-8814
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1933
Initial Registration
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18
SEPARATE ACCOUNT VA-K OF
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Exact Name of Registrant)
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Name of Depositor)
440 Lincoln Street
Worcester, MA 01653
(Address of Depositor's Principal Executive Offices)
(508) 855-1000
(Depositor's Telephone Number, including Area Code)
Abigail M. Armstrong, Secretary and Counsel
First Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective:
immediately upon filing pursuant to Paragraph (b) of Rule 485
---
on (date) pursuant to Paragraph (b) of Rule 485
---
60 days after filing pursuant to Paragraph (a) (1) of Rule 485
---
on (date) pursuant to Paragraph (a) (1) of Rule 485
---
this post-effective amendment designates a new effective date for
--- a previously filed post-effective amendment
VARIABLE ANNUITY POLICIES
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940 ("1940
Act"), Registrant hereby declares that an indefinite amount of its securities is
being registered under the Securities Act of 1933 ("1933 Act"). The Rule 24f-2
Notice for the issuer's fiscal year ended December 31, 1998 was filed on or
before March 30, 1999.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall become effective in accordance with section 8(a) of the Securities Act
of 1933 or until this Registration Statement shall become effective on such
date or dates as the Commission, acting pursuant to said section 8(a), may
determine.
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Registrant is making this filing in order to register a new single payment
immediate variable annuity contract, which is the purpose of this initial
Registration Statement under the Securities Act of 1933 and amendment under
the Investment Company Act of 1940. Registrant does not intend this filing to
delete or amend any currently effective prospectus, statement of additional
information, or supplements thereto, contained in any other registration
statement of the Registrant under the Securities Act of 1933.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
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<CAPTION>
<S><C>
FORM N-4 ITEM NO. CAPTION IN PROSPECTUSES
1.......................Cover Page
2.......................Special Terms
3.......................Summary of Fees and Expenses; Summary of the Contract Features
4.......................Condensed Financial Information
5.......................Description of the Companies, the Variable Accounts, the
Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price, and DGPF
6.......................Charges and Deductions
7.......................Description of the Contract
8.......................Electing the Annuity Income Date; Choosing an Income Option,
Description of Annuity Benefit Options; Variable Annuity Payments
9.......................Death Benefit
10......................Variable Annuity Payments; Distribution
11......................Withdrawals; Charge For Surrender and Withdrawal;
Texas Optional Retirement Program
12......................Federal Tax Considerations
13......................Legal Matters
14......................Statement of Additional Information-Table of Contents
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
15......................Cover Page
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16......................Table of Contents
17......................General Information and History
18......................Services
19......................Underwriters
20......................Underwriters
21......................Performance Information
22......................Annuity Benefit Payments
23......................Financial Statements
</TABLE>
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ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
WORCESTER, MASSACHUSETTS
This Prospectus provides important information about
the Allmerica Immediate Advantage Variable Annuity
contracts issued by Allmerica Financial Life
Insurance and Annuity Company (in all jurisdictions
except New York) or by First Allmerica Financial Life
Insurance Company (in New York). The Contract is a
single payment immediate combination variable and
fixed annuity offered on both a group and individual
PLEASE READ THIS basis.
PROSPECTUS CAREFULLY
BEFORE INVESTING AND
KEEP IT FOR FUTURE
REFERENCE.
The Contract offers a Variable Income Option, which
is supported by a legally segregated separate account
of the Company called the Variable Account. The
Variable Account is subdivided into Sub-Accounts.
Each Sub-Account invests exclusively in shares of the
following funds:
<TABLE>
<CAPTION>
ALLMERICA INVESTMENT TRUST FIDELITY VARIABLE INSURANCE PRODUCTS FUND
-------------------------------------------------- --------------------------------------------------
<C> <S> <C>
Select Emerging Markets Fund Overseas Portfolio
Select International Equity Fund Equity-Income Portfolio
Select Aggressive Growth Fund Growth Portfolio
Select Capital Appreciation Fund High Income Portfolio
Select Value Opportunity Fund
Select Growth Fund FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Select Strategic Growth Fund ---------------------------------------
Growth Fund Asset Manager Portfolio
Equity Index Fund
Select Growth and Income Fund T. ROWE PRICE INTERNATIONAL SERIES, INC.
Investment Grade Income Fund ----------------------------------
Government Bond Fund T. Rowe Price International Stock Portfolio
Money Market Fund
DELAWARE GROUP PREMIUM FUND, INC.
--------------------------------
DGPF International Equity Series
</TABLE>
The Company's General Account will support the
Fixed Income Option.
THIS ANNUITY IS A Statement of Additional Information dated
NOT: ________, 1999 containing more information about
- A BANK DEPOSIT OR this annuity is on file with the Securities and
OBLIGATION; Exchange Commission and is incorporated by
- FEDERALLY INSURED; reference into this Prospectus. A copy may be
- ENDORSED BY ANY obtained free of charge by calling Allmerica
BANK OR Investments, Inc. at 1-800-533-7881. The Table of
GOVERNMENTAL Contents of the Statement of Additional
AGENCY. Information is listed on page 3 of this
Prospectus.
This Prospectus and the Statement of Additional
Information can also be obtained from the
Securities and Exchange Commission's website
(http://www.sec.gov).
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED THAT THE INFORMATION IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DATED ________, 1999
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS........................................................................... 4
SUMMARY OF FEES AND EXPENSES............................................................ 6
SUMMARY OF CONTRACT FEATURES............................................................ 9
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS, THE TRUST,
FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE AND DGPF.................................. 13
INVESTMENT OBJECTIVES AND POLICIES...................................................... 14
DESCRIPTION OF THE CONTRACT............................................................. 17
A. Single Purchase Payment.......................................................... 17
B. Right to Cancel.................................................................. 17
C. Electing the Annuity Income Date................................................. 18
D. Choosing an Income Option........................................................ 18
E. Description of Annuity Benefit Options........................................... 19
F. Optional Features................................................................ 19
The Floor....................................................................... 20
The Ratchet..................................................................... 20
G. Variable Annuity Payments........................................................ 20
Net Investment Factor........................................................... 20
The Annuity Unit and Annuity Unit Value......................................... 21
Determination of the Number of Annuity Units.................................... 21
Dollar Amount of First Variable Annuity Payment................................. 21
Dollar Amount of Subsequent Variable Annuity Payments........................... 21
Payment of Annuity Payments..................................................... 22
H. Transfers of Annuity Units....................................................... 22
Automatic Account Rebalancing................................................... 22
I. Withdrawals...................................................................... 22
Present Value Determination..................................................... 23
J. Death Benefit.................................................................... 24
Death of an Owner or an Annuitant Before the Annuity Income Date................ 24
Payment of the Death Benefit.................................................... 24
The Spouse of the Deceased Owner as Beneficiary................................. 24
Death of the Owner or the Annuitant After the Annuity Income Date............... 24
K. General Restrictions on Payments................................................. 25
L. Telephone Authorization.......................................................... 25
M. Assignment........................................................................ 25
N. NORRIS Decision.................................................................. 25
CHARGES AND DEDUCTIONS.................................................................. 25
A. Variable Account Deductions...................................................... 26
Mortality and Expense Risk Charge............................................... 26
Administrative Expense Charge................................................... 26
Expenses of the Underlying Funds................................................ 26
B. Optional Feature Charges......................................................... 26
C. Premium Taxes.................................................................... 27
D. Transfer Charge.................................................................. 27
FEDERAL TAX CONSIDERATIONS.............................................................. 27
A. Annuity Contracts in General..................................................... 28
B. Tax on Annuity Payments.......................................................... 28
C. Tax on Withdrawals............................................................... 28
D. Exchanges........................................................................ 29
E. Tax Withholding.................................................................. 29
F. Diversification and Control of Underlying Assets................................. 29
</TABLE>
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<TABLE>
<S> <C>
STATEMENTS AND REPORTS.................................................................. 29
LOANS................................................................................... 30
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS....................................... 30
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................................... 31
VOTING RIGHTS........................................................................... 31
DISTRIBUTION............................................................................ 31
SERVICES................................................................................ 31
LEGAL MATTERS........................................................................... 32
YEAR 2000 COMPLIANCE.................................................................... 32
FURTHER INFORMATION..................................................................... 32
APPENDIX A -- CONDENSED FINANCIAL INFORMATION........................................... A-1
APPENDIX B -- EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS............. B-1
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY.........................................................
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE COMPANY..........................
SERVICES................................................................................
UNDERWRITERS............................................................................
ANNUITY BENEFIT PAYMENTS................................................................
EXCHANGE OFFER..........................................................................
PERFORMANCE INFORMATION.................................................................
FINANCIAL STATEMENTS.................................................................... F-1
</TABLE>
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SPECIAL TERMS
ANNUITANT: the person who must be alive for annuity payments to be made (unless
payments are guaranteed). Joint Annuitants are permitted and, unless otherwise
indicated, any reference to Annuitant shall include Joint Annuitants. In
contrast, the person to whom annuity payments are made is the Owner (or a person
requested by the Owner). The Annuitant and the Owner may be the same individual.
ANNUITY INCOME DATE: the date annuity payments begin. The Annuity Income Date
must be within twelve months of the Contract's Issue Date.
ANNUITY UNIT: a measure used to calculate annuity payments under a Variable
Income Option.
ASSUMED INVESTMENT RETURN (AIR): used to calculate the initial variable annuity
payment and to determine how the payment will change over time in response to
the investment performance of the selected Sub-Accounts.
BENEFICIARY: the person, persons or entity entitled to the Death Benefit upon
the death of the Owner prior to the Annuity Income Date or remaining annuity
payments, if any, upon the death of the Owner on or after the Annuity Income
Date.
CHANGE FREQUENCY: the frequency (monthly, quarterly, semi-annually or annually)
that the dollar value of an annuity payment under a Variable Income Option will
change due to investment performance.
COMPANY (OR WE, US OR OUR): Allmerica Financial Life Insurance and Annuity
Company (in all jurisdictions except New York) or First Allmerica Financial Life
Insurance Company (in New York).
CONTRACT VALUE: the Present Value of all remaining annuity payments. (See the
section entitled "Present Value Determination.")
CONTRACT YEAR: a period of twelve consecutive months starting on the Contract's
Issue Date or on any anniversary of the Issue Date.
DATE OF FIRST CHANGE: The date on which your variable annuity payment will
change in value for the first time.
FIXED INCOME OPTION: an income option with annuity payments that are fixed in
amount (unless a withdrawal is taken or as a result of the death of the first
Joint Annuitant).
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
ISSUE DATE: the date the Contract is issued and the date that is used to
determine Contract days, Contract months, Contract years and anniversaries.
NET PAYMENT: the Single Purchase Payment less any premium tax.
OWNER (OR YOU OR YOUR): the person, persons (Joint Owners) or entity entitled to
exercise the rights and privileges under this Contract. Unless otherwise
indicated, any reference to You and Your shall include Joint Owners.
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 Products 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
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Series, Inc. ("T. Rowe Price"); or a corresponding series of the Delaware Group
Premium Fund, Inc. ("DGPF").
UNDERLYING FUND: an investment portfolio of the Trust, Fidelity VIP, Fidelity
VIP II, T. Rowe Price or DGPF in which a Sub-Account invests.
VALUATION DATE: a day on which the net asset value of the 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.
VALUATION PERIOD: a period used in measuring the investment experience of a
Sub-Account. The Valuation Period begins at the close of one Valuation Date and
ends at the close of the next succeeding Valuation Date.
VARIABLE ACCOUNT: one of our separate accounts, which we call Separate Account
VA-K, consisting of assets segregated from our other assets. The investment
performance of the assets of each of our separate accounts (and, under the
Contract, each Sub-Account) is determined separately from our other assets and
the assets are not chargeable with liabilities arising out of any other business
which we may conduct.
VARIABLE INCOME OPTION: an income option providing for annuity payments varying
in amount in accordance with the investment experience of the Underlying Funds
selected.
VARIABLE INCOME OPTION RATE: the factor applied to the portion of the Net
Payment allocated to the Variable Income Option and used to determine the number
of Annuity Units in each annuity payment. The factor takes into account the
Issue Date, the Annuity Income Date, annuity benefit option (including any
optional features), the Assumed Investment Return, the Change Frequency and Date
of First Change.
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SUMMARY OF FEES AND EXPENSES
There are certain fees and expenses that you will bear under the Allmerica
Immediate Advantage Variable Annuity Contract. The purpose of the following
tables is to assist you in understanding these fees and expenses. The tables
show (1) charges under the Contract, including (2) annual expenses of the
Sub-Accounts, and (3) annual expenses of the Funds. Contract charges including
the annual Sub-Account expenses are specified under the terms of the Contract.
Annual Fund expenses are not fixed or specified under the terms of the Contract
and will vary from year to year. In addition to the charges and expenses
described below, premium taxes are applicable in some states and deducted as
described under "C. Premium Taxes" under CHARGES AND DEDUCTIONS.
<TABLE>
<CAPTION>
(1) CONTRACT CHARGES: CHARGE
- ------------------------------------------------------------------------------------------------------ ---------
<S> <C>
WITHDRAWAL CHARGE:
If you select either the Payment for a Certain Number of Years, Life Annuity with Payment for a
Certain Number of Years, or Life Annuity with Cash Back annuity benefit options, you may request
withdrawals which represent a percentage of the Present Value of the remaining guaranteed annuity
payments. See "I. Withdrawals" for additional information. The Assumed Investment Return you have
chosen (in the case of a Variable Income Option) or the interest rate (in the case of a Fixed Income
Option) used to determine the Present Value is adjusted in the following manner:
Adjustment to AIR or Interest Rate:
Within 5 years of Issue Date:
15 or more years of annuity payments being valued 1.00%
10-14 years of annuity payments being valued 1.50%
Less than 10 years of annuity payments being valued 2.00%
The adjustment to the Assumed Investment Return or the interest rate used to determine the Present
Value results in lower future annuity payments than if the adjustment had not been made.
TRANSFER CHARGE: None
We currently do not charge for processing transfers and guarantee that the first 12 transfers in a
Contract year will not be subject to a transfer charge. For each subsequent transfer, we reserve the
right to assess a charge, guaranteed never to exceed $25, to reimburse us for the costs of
processing the transfer.
OPTIONAL FEATURE CHARGE:
There is no periodic charge for the optional features. Instead, lower Variable Income Option Rates
are used to determine the initial annuity payment. As a result, the first annuity payment is lower
than it would have been had this feature not been selected. Future annuity payments will also be
lower except when the benefits under a feature provide a greater payment. See "B. Optional Feature
Charges" for additional information regarding the benefits and costs of these features.
(2) ANNUAL SUB-ACCOUNT EXPENSES:
- ------------------------------------------------------------------------------------------------------
(on an annual basis as a percentage of average daily net assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.20%
---------
Total Asset Charges: 1.45%
</TABLE>
(3) ANNUAL 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 as a percentage of
average daily net assets for the year ended December 31, 1998, as adjusted for
material changes. For more information concerning fees and expenses, see the
prospectuses of the Underlying Funds.
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<TABLE>
<CAPTION>
MANAGEMENT FEE OTHER TOTAL FUND EXPENSES
(AFTER ANY VOLUNTARY EXPENSES (AFTER (AFTER ANY WAIVERS/
FUND WAIVERS) ANY REIMBURSEMENTS) REIMBURSEMENTS)
- --------------------------------------------------- --------------------- --------------------- ----------------------
<S> <C> <C> <C>
Select Emerging Markets Fund(@).................... 1.00%(1)* 1.19% 2.19%(1)(2)*
Select International Equity Fund................... 0.90% 0.12% 1.02%(1)(2)
DGPF International Equity Series................... 0.82% 0.13% 0.95%(3)
Fidelity VIP Overseas Portfolio.................... 0.74% 0.17% 0.91%(4)
T. Rowe Price International Stock Portfolio........ 1.05% 0.00% 1.05%
Select Aggressive Growth Fund...................... 0.88% 0.07% 0.95%(1)(2)
Select Capital Appreciation Fund................... 0.94% 0.10% 1.04%(1)(2)
Select Value Opportunity Fund...................... 0.90%(1)* 0.08% 0.98%(1)(2)*
Select Growth Fund................................. 0.81%(**) 0.05% 0.86%(1)(2)**
Select Strategic Growth Fund@...................... 0.39%(*) 0.81% 1.20%(1)(2)*
Growth Fund........................................ 0.44% 0.05% 0.49%(1)(2)
Fidelity VIP Growth Portfolio...................... 0.59% 0.09% 0.68%(4)
Equity Index Fund.................................. 0.29% 0.07% 0.36%(1)
Select Growth and Income Fund...................... 0.68% 0.05% 0.73%(1)(2)
Fidelity VIP Equity-Income Portfolio............... 0.49% 0.09% 0.58%(4)
Fidelity VIP II Asset Manager Portfolio............ 0.54% 0.10% 0.64%(4)
Fidelity VIP High Income Portfolio................. 0.58% 0.12% 0.70%
Investment Grade Income Fund....................... 0.43% 0.09% 0.52%(1)
Government Bond Fund............................... 0.50% 0.14% 0.64%(1)
Money Market Fund.................................. 0.26% 0.06% 0.32%(1)
</TABLE>
(@) Select Emerging Markets Fund commenced operations on February 20, 1998.
Expenses shown are annualized.
(*) Amount has been adjusted to reflect a voluntary expense limitation currently
in effect for Select Emerging Markets Fund, Select Value Opportunity Fund and
Select Strategic Growth Fund. Without these adjustments, the Management Fees and
Total Fund Expenses would have been 1.35% and 2.54%, respectively, for Select
Emerging Markets Fund, 0.91% and 0.99%, respectively, for Select Value
Opportunity Fund, and 0.85% and 1.66%, respectively, for Select Strategic Growth
Fund.
(**) Effective June 1, 1998, the management fee rate for the Select Growth Fund
was revised. The Management Fee and Total Fund Expense ratios shown in the table
above have been adjusted to assume that the revised rates took effect January 1,
1998.
(1) Until further notice, Allmerica Financial Investment Management Services,
Inc. ("AFIMS") has declared a voluntary expense limitation of 1.35% of average
net assets for Select Aggressive Growth Fund and Select Capital Appreciation
Fund, 1.25% for Select Value Opportunity Fund, 1.50% for Select International
Equity Fund, 1.20% for Growth Fund and Select Growth Fund, 1.10% for Select
Growth and Income Fund, 1.00% for Investment Grade Income Fund and Government
Bond Fund, and 0.60% for Money Market Fund and Equity Index Fund. The total
operating expenses of these Funds of the Trust were less than their respective
expense limitations throughout 1998.
Until further notice, AFIMS has declared a voluntary expense limitation of 1.20%
of average daily net assets for the Select Strategic Growth Fund. In addition,
AFIMS has agreed to voluntarily waive its management fee to the extent that
expenses of the Select Emerging Markets Fund exceed 2.00% of the Fund's average
daily net assets, except that such waiver shall not exceed the net amount of
management fees earned by AFIMS from the Fund after subtracting fees paid by
AFIMS to a sub-advisor.
Until further notice, the Select Value Opportunity Fund's management fee rate
has been voluntarily limited to an annual rate of 0.90% of average daily net
assets, and total expenses are limited to 1.25% of average daily net assets.
The declaration of a voluntary management fee or expense limitation in any year
does not bind AFIMS to declare future expense limitations with respect to these
Funds. These limitations may be terminated at any time.
(2) These Funds have entered into agreements with brokers whereby the brokers
rebate a portion of commissions. Had these amounts been treated as reductions of
expenses, the total annual fund operating expenses would have been 2.19% for
Select Emerging Markets Fund, 0.92% for Select Aggressive Growth Fund,
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1.02% for Select Capital Appreciation Fund, 0.94% for Select Value Opportunity
Fund, 1.01% for Select International Equity Fund, 0.84% for Select Growth Fund,
1.14% for Select Strategic Growth Fund, 0.70% for Select Growth and Income Fund
and 0.46% for Growth Fund.
(3) Effective May 1, 1999, 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
0.95% that expired on April 30, 1999. The new limitation will be in effect
through October 31, 1999. For the fiscal year ended December 31, 1998, the
actual ratio of total annual expenses was 0.88%.
(4) A portion of the brokerage commissions that certain funds paid was used to
reduce fund expenses. In addition, certain funds, or Fidelity Management &
Research Company on behalf of certain funds, have entered into arrangements with
their custodian whereby credits realized as a result of uninvested cash balances
were used to reduce custodian expenses. Including these reductions, total
operating expenses would have been 0.89% for the Fidelity VIP Overseas
Portfolio; 0.57% for the Fidelity VIP Equity-Income Portfolio; 0.63% for the
Fidelity VIP II Asset Manager Portfolio and 0.66% for the Fidelity VIP Growth
Portfolio.
The Underlying Fund information above was provided by the Underlying Funds and
was not independently verified by the Company.
Expense limitations described above may not include extraordinary expenses, such
as litigation.
EXPENSE EXAMPLES. The following examples demonstrate the cumulative expenses
which an Owner would pay 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. 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.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND IS NOT A REPRESENTATION OF PAST OR FUTURE
RETURNS.
(1)(a) At the end of the applicable time period, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
FUNDS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund................................................. $ 36 $ 111 $ 187 $ 387
Select International Equity Fund............................................. $ 25 $ 76 $ 130 $ 277
DGPF International Equity Series............................................. $ 24 $ 74 $ 126 $ 270
Fidelity VIP Overseas Portfolio.............................................. $ 24 $ 73 $ 124 $ 266
T. Rowe Price International Stock Portfolio.................................. $ 25 $ 77 $ 131 $ 280
Select Aggressive Growth Fund................................................ $ 24 $ 74 $ 126 $ 270
Select Capital Appreciation Fund............................................. $ 25 $ 77 $ 131 $ 279
Select Value Opportunity Fund................................................ $ 24 $ 75 $ 128 $ 273
Select Growth Fund........................................................... $ 23 $ 71 $ 122 $ 261
Select Strategic Growth Fund................................................. $ 19 $ 60 $ 103 $ 223
Growth Fund.................................................................. $ 21 $ 66 $ 113 $ 243
Fidelity VIP Growth Portfolio................................................ $ 18 $ 56 $ 96 $ 209
Equity Index Fund............................................................ $ 22 $ 67 $ 115 $ 248
Select Growth and Income Fund................................................ $ 20 $ 63 $ 108 $ 232
Fidelity Equity-Income Portfolio............................................. $ 21 $ 65 $ 111 $ 239
Fidelity VIP II Asset Manager Portfolio...................................... $ 22 $ 66 $ 114 $ 245
Fidelity VIP High Income Portfolio........................................... $ 20 $ 61 $ 105 $ 226
Investment Grade Income Fund................................................. $ 21 $ 65 $ 111 $ 239
Government Bond Fund......................................................... $ 18 $ 55 $ 94 $ 205
Money Market Fund............................................................ $ 27 $ 81 $ 139 $ 295
</TABLE>
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SUMMARY OF CONTRACT FEATURES
WHAT IS THE ALLMERICA IMMEDIATE ADVANTAGE VARIABLE ANNUITY?
The Allmerica Immediate Advantage Variable Annuity contract ("Contract") is an
insurance contract designed to provide you, the Owner, with monthly annuity
income during the lifetime of the Annuitant or Joint Annuitants, or for a period
of years. The Contract combines the concept of professional money management
with the attributes of an annuity contract. Features available through the
Contract include:
- - A menu of investment options that you can customize to support your annuity
payments;
- - Underlying Funds managed by experienced professional investment advisers;
- - Income that you can receive for life;
- - Access to your money through withdrawals;
- - The ability to tailor your income stream by choosing from multiple annuity
benefit options and selecting the first date the amount of your payments will
change; and
- - Guarantees that can protect your beneficiaries and income stream.
You may allocate your Net Payment to the Fixed Income Option or the Variable
Income Option, or a combination of both. If you select the Variable Income
Option, you may allocate your money to the Sub-Accounts investing in the
Underlying Funds. You select the investment allocation most appropriate for your
income needs. As those needs change, you may also change your allocation without
incurring any tax consequences.
WHAT CHOICES DO I MAKE WHEN I PURCHASE THE CONTRACT?
At the time you apply for the Contract, you choose:
- - the date annuity payments begin, which must be within twelve months of the
Contract's Issue Date;
- - the annuity benefit option;
- - whether you want variable annuity payments based on the investment performance
of the Underlying Funds (the Variable Income Option), fixed annuity payments
with payment amounts guaranteed by the Company (the Fixed Income Option), or a
combination of fixed and variable annuity payments;
- - a Change Frequency, if you allocate any portion of the Net Payment to the
Variable Income Option (and you may select the first date your annuity payment
will change);
- - one of the available assumed investment returns ("AIR") for a Variable Income
Option; and
- - whether you want certain protections provided under optional features for a
Variable Income Option.
On the Annuity Income Date, you, or the payee you designate, will begin to
receive income based on one of the several annuity benefit options available
under the Contract.
THE FLOOR AND THE RATCHET. Two optional features are available if you select
the Variable Income Option:
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(1) The Floor provides that the amount of your monthly variable annuity payments
will never fall below a specified amount;
(2) The Ratchet provides that annuity payments will never decrease as a result
of investment performance.
The guarantees provided by both optional features will be reduced for
withdrawals and, upon the death of an Annuitant, joint life annuities with
survivor benefits of 66.67% and 50%.
For more information on these optional features, see "F. Optional Features"
under DESCRIPTION OF THE CONTRACT.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you, (the "Owner"), and us, Allmerica Financial Life
Insurance and Annuity Company (for contracts issued in all jurisdictions except
New York) or First Allmerica Financial Life Insurance Company (for contracts
issued in New York). Each Contract has an Owner (or Joint Owners), an Annuitant
(or Joint Annuitants) and one or more Beneficiaries. As Owner, you:
- - select the Annuitant(s)
- - choose the income option
- - choose the annuity benefit option
- - receive annuity payments (or designate someone else to receive annuity
payments)
- - select the Beneficiary(ies)
The Annuitant is the person whose life is used to determine the duration of
annuity payments involving a life contingency, unless payments are guaranteed
for a certain number of years. The Beneficiary is the person, persons or entity
entitled to the Death Benefit upon the death of the Owner prior to the Annuity
Income Date or remaining annuity payments, if any, upon the death of the Owner
on or after the Annuity Income Date. If the contract has Joint Owners and one
Owner dies, the surviving Joint Owner is the primary Beneficiary.
HOW MUCH CAN I INVEST?
You may make a single purchase payment to the Contract. This payment is subject
to a $75,000 minimum. The maximum single purchase payment is $5,000,000 without
our prior approval. No additional payments may be made.
WHAT ARE MY INVESTMENT CHOICES?
You may allocate the Net Payment to the Fixed Income Option, the Variable Income
Option, or a combination of both. Once selected, the Income Option may not be
changed. If you select the Variable Income Option, you can allocate the Net
Payment among the Sub-Accounts investing in the Underlying Funds.
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VARIABLE INCOME OPTION: You have a choice of Sub-Accounts investing in the
following Underlying Funds:
<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Select Emerging Markets Fund Overseas Portfolio
Select International Equity Fund Equity-Income Portfolio
Select Aggressive Growth Fund Growth Portfolio
Select Capital Appreciation Fund High Income Portfolio
Select Value Opportunity Fund FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Select Growth Fund Asset Manager Portfolio
Select Strategic Growth Fund T. ROWE PRICE INTERNATIONAL SERIES, INC.
Growth Fund T. Rowe Price International Stock Portfolio
Equity Index Fund DELAWARE GROUP PREMIUM FUND, INC.
Select Growth and Income Fund DGPF International Equity Series
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
</TABLE>
FOR A MORE DETAILED DESCRIPTION OF THE UNDERLYING FUNDS, SEE "INVESTMENT
OBJECTIVES AND POLICIES."
FIXED INCOME OPTION: If you select the Fixed Income Option, your money will be
supported by the General Account, which consists of all the Company's assets
other than those allocated to the Variable Account and any other separate
account.
CAN I MAKE TRANSFERS AMONG THE VARIABLE SUB-ACCOUNTS?
If you select the Variable Income Option, you may transfer among the
Sub-Accounts investing in the Underlying Funds. You will incur no current taxes
on transfers while your money remains in the Contract. See "H. Transfers of
Annuity Units" under DESCRIPTION OF THE CONTRACT.
WHAT IF I NEED TO MAKE A WITHDRAWAL?
You have the right, based on the annuity benefit option selected, to make
withdrawals. Each calendar year, you can request a withdrawal up to an amount
equal to ten times the value of an annuity payment. Each withdrawal reduces
future annuity payments.
Additionally, if you selected the Payment for a Certain Number of Years option,
the Life Annuity with Payment for a Certain Number of Years option, or the Life
Annuity with Cash Back option, you may request a Present Value Withdrawal, which
represents a percentage of the Present Value of the remaining guaranteed annuity
payments. Each Present Value Withdrawal reduces future guaranteed annuity
payments.
For a more detailed description of either withdrawal option, see "I.
Withdrawals" under DESCRIPTION OF THE CONTRACT.
WHAT HAPPENS UPON DEATH OF THE OWNER OR THE ANNUITANT?
Before the Annuity Income Date, if an Owner or an Annuitant dies, a death
benefit will be paid.
After the Annuity Income Date, if an Owner or an Annuitant dies, we will
continue to pay remaining annuity payments, if any, in accordance with the terms
of the annuity benefit option selected. See "J. Death Benefit" under DESCRIPTION
OF THE CONTRACT.
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WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
We 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 Fund. The Funds will incur certain
management fees and expenses that are described in "Other Charges" and in the
Fund prospectuses accompanying this Prospectus. Also, 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" under DESCRIPTION OF THE CONTRACT.
Under certain annuity options, you may request a Present Value Withdrawal, which
represents a percentage of the Present Value of the remaining guaranteed annuity
payments. Any Present Value Withdrawal available to you within five years of the
Issue Date is based on the adjusted Present Value of the annuity payments.
The adjustment to the AIR or the interest rate used to determine the Present
Value results in lower future annuity payments than if the adjustment had not
been made. See "I. Withdrawals" under DESCRIPTION OF THE CONTRACT for additional
information.
Subject to state availability, we offer two optional features, the Floor and the
Ratchet. While there is no periodic charge if you elect one of these optional
features, lower Variable Income Option Rates are used to determine your first
payment. See "F. Optional Features" under DESCRIPTION OF THE CONTRACT for
information about how these two optional features work.
For more information regarding the charges applied to your Contract, see CHARGES
AND DEDUCTIONS.
CAN I EXAMINE THE CONTRACT?
Your Contract will be delivered to you after your purchase. If you return the
Contract to the Company within ninety days of receipt, the Contract will be
canceled. See the "Right to Examine" provision on the cover of your Contract. If
you cancel the Contract within ninety days after you received it, you will
receive a refund of the Contract Value on the date the Contract is returned to
us, plus any premium tax deducted on the Issue Date. However, if state law
requires or if the Contract was issued as an Individual Retirement Annuity
("IRA"), and if you return the Contract within ten days after you have received
it, you will receive a refund of the Single Purchase Payment less any annuity
payments made and/or withdrawals taken. See "B. Right to Cancel" under
DESCRIPTION OF THE CONTRACT.
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
You can make several changes after receiving your Contract:
- - You may change the Beneficiary, unless you have designated a Beneficiary
irrevocably;
- - You may change the person(s) you have designated to receive your annuity
payments;
- - If you selected the Variable Income Option, you may make transfers among your
current investments without any tax consequences;
- - You may make withdrawals; and
- - You may cancel the Contract within ninety days of delivery.
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DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS,
THE TRUST, FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE, AND DGPF
THE COMPANIES. Allmerica Financial Life Insurance and Annuity Company
("Allmerica Financial") is a life insurance company organized under the laws of
Delaware in July 1974. Its Principal Office is located at 440 Lincoln Street,
Worcester, MA 01653, telephone 508-855-1000. Allmerica Financial 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, Allmerica
Financial is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1998,
Allmerica Financial had over $14 billion in assets and over $26 billion of life
insurance in force.
Effective October 1, 1995, Allmerica Financial changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company.
Allmerica Financial is a wholly owned subsidiary of First Allmerica Financial
Life Insurance Company that, in turn, is a wholly owned subsidiary of Allmerica
Financial Corporation ("AFC").
First Allmerica Financial Life Insurance Company ("First Allmerica"), organized
under the laws of Massachusetts in 1844, is among the five oldest life insurance
companies in America. As of December 31, 1998, First Allmerica and its
subsidiaries had over $27 billion in combined assets and over $48 billion of
life insurance in force. Effective October 16, 1995, First Allmerica converted
from a mutual life insurance company known as State Mutual Life Assurance
Company of America to a stock life insurance company and adopted its present
name. First Allmerica is a wholly owned subsidiary of AFC. First Allmerica's
principal office ("Principal Office") is located at 440 Lincoln Street,
Worcester MA 01653, telephone 508-855-1000.
First Allmerica is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
of Massachusetts. In addition, First Allmerica is subject to the insurance laws
and regulations of other states and jurisdictions in which it is licensed to
operate.
Both Allmerica Financial and First Allmerica are charter members 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 ACCOUNTS. Each Company maintains a separate account called
Separate Account VA-K (the "Variable Account"). The Variable Account of
Allmerica Financial was authorized by vote of our Board of Directors on November
1, 1990. The Variable Account of First Allmerica was authorized by vote of our
Board of Directors on November 1, 1990. Each Variable Account is registered with
the SEC as a unit investment trust under the 1940 Act. This registration does
not involve the supervision or management of investment practices or policies of
the Variable Accounts or the Company by the SEC.
Separate Account VA-K is a separate investment account of the Company. 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. Each Sub-Account is administered and accounted
for as part of our general business, 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. Obligations under
the Contracts are our obligations. Under Delaware and Massachusetts law, the
assets of the Variable Account may not be charged with any liabilities arising
out of any other business of the Company.
We reserve the right, subject to compliance with applicable law, to change the
names of the Variable Account and the Sub-Accounts. We also offer other variable
annuity contracts investing in the Variable Account which are not discussed in
this Prospectus. In addition the Variable Account may invest in other underlying
funds which are not available to the Contracts described in this Prospectus.
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ALLMERICA INVESTMENT TRUST. Allmerica Investment Trust (the "Trust") is an
open-end, diversified management investment company registered with the SEC
under the 1940 Act. Thirteen 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 Emerging Markets Fund,
Select Strategic Growth Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Growth Fund, Select Growth and Income Fund and Select
Value Opportunity Fund. Shares of the Trust are not offered to the general
public but solely to such variable accounts.
Allmerica Financial Investment Management Services, Inc. ("AFIMS") 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.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND. Fidelity Variable Insurance Products
Fund ("Fidelity VIP") managed by Fidelity Management & Research Company ("FMR"),
is an open-end, diversified management investment company 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.
FMR is one of America's largest investment management organizations and has its
principal business address at 82 Devonshire Street, Boston, Massachusetts. It
provides a number of mutual funds and other clients with investment research and
portfolio management services.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II. Fidelity Variable Insurance
Products Fund II ("Fidelity VIP II"), managed by FMR (see discussion above) is
an open-end, diversified management investment company 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"), is an open-end, diversified management investment company
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.
One of its affiliates, T. Rowe Price Associates, Inc., serves as the Sub-Adviser
to the Select Capital Appreciation Fund.
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 is available under the Contract, the International
Equity Series. The investment adviser for the International Equity Series is
Delaware International Advisers Ltd. ("Delaware International").
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Underlying 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 EMERGING MARKETS FUND -- The Select Emerging Markets Fund seeks long-term
growth of capital by investing in the world's emerging markets.
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<PAGE>
SELECT INTERNATIONAL EQUITY FUND -- The Select International Equity Fund 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 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 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 seeks
long-term growth 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 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 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.
SELECT STRATEGIC GROWTH FUND -- The Select Strategic Growth Fund seeks long-term
growth of capital by investing primarily in common stocks of established
companies.
GROWTH FUND -- The Growth Fund 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.
EQUITY INDEX FUND -- The Equity Index Fund 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.
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<PAGE>
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.
INVESTMENT GRADE INCOME FUND -- The Investment Grade Income Fund is invested in
a diversified portfolio of fixed income securities with the objective of seeking
as high a level of total return (including both income and capital appreciation)
as is consistent with prudent investment management.
GOVERNMENT BOND FUND -- The Government Bond Fund 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 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 MEET YOUR 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. THE INVESTMENT ADVISER OR SUB-ADVISER
OF AN UNDERLYING FUND MAY MANAGE OTHER MUTUAL FUNDS THAT HAVE SIMILAR NAMES,
GOALS, AND/OR STRATEGIES AS THOSE OF AN UNDERLYING FUND. DESPITE THESE
SIMILARITIES, THERE MAY BE DIFFERENCES BETWEEN THE UNDERLYING FUND AND THE OTHER
FUND MANAGED BY THE SAME ADVISER, WHICH COULD RESULT IN DIFFERENCES IN THE RISKS
AND RETURNS OF THE TWO FUNDS. NO REPRESENTATION IS MADE THAT ANY UNDERLYING FUND
IS SIMILAR TO OR DIFFERENT FROM OTHER FUNDS MANAGED BY THE SAME ADVISER. FOR
INFORMATION ON AN UNDERLYING FUND, CONSULT ITS PROSPECTUS.
If there is a material change in the investment objective of a Fund, you will be
notified of the change. If a portion of your Variable Income Option is allocated
to that Fund, you may transfer this amount without charge to another Fund. We
must receive your written request within 60 days of the latest of the:
- - effective date of the change in the investment objective or
- - receipt of the notice of your right to transfer.
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DESCRIPTION OF THE CONTRACT
Subject to certain restrictions discussed below, you have the right:
- - to select the annuity benefit option under which annuity payments are to be
made;
- - to determine whether those payments are to be made on a fixed basis (the Fixed
Income Option), a variable basis (the Variable Income Option), or a
combination fixed and variable basis;
- - to allocate any portion of the Net Payment to the Variable Income Option, and
you must choose:
- how to allocate the Net Payment;
- a Change Frequency (you may select the first date your annuity payment
will change);
- one of the available assumed investment returns for a Variable Income
Option (see "G. Variable Annuity Payments" below for details);
- if you wish to elect an optional feature -- the Floor or the Ratchet; and
- - to elect how the Beneficiary should receive annuity payments, if any.
A. SINGLE PURCHASE PAYMENT
You may make a single purchase payment to buy the Contract. This payment is
subject to a $75,000 minimum. The maximum single purchase payment is $5,000,000
without our prior approval. No additional payments may be made.
The Company issues the Contract when its underwriting requirements are met.
These requirements include receipt of the initial payment and allocation
instructions by the Company at its Principal Office. 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 Contracts.
Payments are to be made payable to the Company. The Net Payment is credited to
the Contract and allocated as requested as of the date that all issue
requirements are properly met. If all issue requirements are not completed
within five business days of the Company's receipt of the single purchase
payment, the payment will be returned immediately unless the Owner specifically
consents to the holding of it pending completion of the outstanding issue
requirements.
B. RIGHT TO CANCEL
If you return the Contract to the Company within 90 days of receipt, the
Contract will be cancelled.
If you purchase a Contract intended to qualify as an IRA or if you purchase the
Contract in a state that requires a full refund, you may cancel the Contract and
receive a refund as specified below.
Refund Within Ten Days of Receipt. If you return the Contract within ten
days (or longer if required by law) after you have received it, we will
refund the Single Purchase Payment less the total amount of all annuity
payments made or withdrawals taken.
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<PAGE>
Refund after Ten Days but Within Ninety Days. If you return the Contract
after ten days but within ninety days after the Issue Date, we will pay to
you the Contract Value as of the date the Contract is returned to us plus
any premium tax deducted on the Issue Date.
If you purchase a Contract that is not intended to qualify as an IRA or if you
purchase the Contract in a state that does not require a full refund, you may
cancel the Contract at any time within 90 days after receipt of the Contract and
receive a refund. If you return the Contract, we will pay to you the Contract
Value as of the date the Contract is returned to us plus any premium tax
deducted on the Issue Date. This amount may be more or less than the Single
Purchase Payment.
At the time the Contract is issued, the "Right to Examine" provision on the
cover of the Contract will specifically indicate what the refund will be and the
time period allowed to exercise the right to cancel.
In order to cancel the contract, you must mail or deliver the Contract to the
agent through whom it was purchased, to our Principal Office at 440 Lincoln
Street, Worcester, MA 01653, or to any local agent of the Company. Mailing or
delivery must occur within ten or ninety days, as applicable, after receipt of
the Contract for cancellation to be effective. We ordinarily will send you a
refund within seven days.
C. ELECTING THE ANNUITY INCOME DATE
Annuity payments under the Contract will begin on the Annuity Income Date. You
select the Annuity Income Date at the time of issue. The Annuity Income Date
must be within twelve months of the Contract's Issue Date. You may not select
the 29th, 30th or 31st day of the month for the Annuity Income Date.
The Internal Revenue Code (the "Code") and/or the terms of qualified plans may
impose limitations on the age at which annuity payments may commence and the
type of annuity benefit option that may be elected. You should carefully review
the Annuity Income Date and the annuity benefit options with your tax advisor.
See also FEDERAL TAX CONSIDERATIONS for further information.
D. CHOOSING AN INCOME OPTION
You may choose a Fixed Income Option, a Variable Income Option or a combination
of Fixed and Variable.
If you select a Fixed Income Option, each monthly annuity payment will be equal
to the first (unless a withdrawal is made or as a result of the death of the
first Joint Annuitant). Any portion of the Net Payment allocated to the Fixed
Income Option will become part of our General Account.
If you select a Variable Income Option, you will receive monthly annuity
payments based on the value of the Annuity Units in the chosen Sub-Account(s).
Since the value of an Annuity Unit in a Sub-Account reflects the investment
performance of the Sub-Account, the amount of annuity payments will vary. Under
this Contract, you may choose the frequency with which you want annuity payments
to vary (the Change Frequency), which may be monthly, quarterly, semi-annually,
or annually. The Change Frequency is the frequency that changes due to the
Sub-Account's investment performance will be reflected in the dollar value of a
variable annuity payment. For example, if a monthly Change Frequency is in
effect, payments may vary on a monthly basis. If a quarterly Change Frequency is
selected, the amount of each monthly payment may change every three months and
will be level within each three month cycle.
The amount of your annuity payment will change for the first time one Change
Frequency Cycle after the Issue Date. (For example, if a quarterly Change
Frequency is chosen, your annuity payments will change for the first time three
months after the Annuity Income Date.) However, if you would like the amount of
the payment to change sooner, you can indicate the desired month.
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E. DESCRIPTION OF ANNUITY BENEFIT OPTIONS
The Company currently provides the following annuity benefit options:
LIFE ANNUITY OPTIONS
- - SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life. Payments
cease with the last annuity payment due prior to the Annuitant's death.
- - JOINT LIFE ANNUITY WITH SURVIVOR BENEFIT -- Monthly payments during the Joint
Annuitants' lifetimes. Upon the first death, payments will continue to you or
the Beneficiary (whichever is applicable) for the survivor's remaining
lifetime based on the previously elected level of 100%, two-thirds (66.67%) or
one-half (50%) of the total number of Annuity Units for a Variable Income
Option or the annuity payment for a Fixed Income Option.
LIFE ANNUITY WITH PAYMENT FOR A CERTAIN NUMBER OF YEARS OPTIONS
- - SINGLE LIFE ANNUITY -- Monthly payments guaranteed for a specified number of
years and continuing thereafter during the Annuitant's lifetime. If the
Annuitant dies before all guaranteed payments have been made, the remaining
payments continue to you or the Beneficiary (whichever is applicable).
- - JOINT LIFE ANNUITY WITH SURVIVOR BENEFIT -- Monthly payments guaranteed for a
specified number of years and continuing during the Joint Annuitants'
lifetimes. Upon the first death, payments continue for the survivor's
remaining lifetime based on the previously elected level of 100%, two-thirds
(66.67%) or one-half (50%) of the total number of Annuity Units for a Variable
Income Option or the annuity payment for a Fixed Income Option. If the
surviving Annuitant dies before all guaranteed payments have been made, the
remaining payments continue to you or the Beneficiary (whichever is
applicable).
LIFE ANNUITY WITH CASH BACK OPTIONS
- - SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life. At the
Annuitant's death, any excess of the Net Payment, over the total amount of
annuity payments made and withdrawals taken, will be paid to you or the
Beneficiary (whichever is applicable).
- - JOINT LIFE ANNUITY WITH SURVIVOR BENEFIT -- Monthly payments during the Joint
Annuitants' lifetimes. Upon the first death, payments continue for the
survivor's remaining lifetime based on the previously elected level of 100%,
two-thirds (66.67%) or one-half (50%) of the total number of Annuity Units for
a Variable Income Option or the annuity payment for a Fixed Income Option. At
the surviving Annuitant's death, any excess of the Net Payment, over the total
amount of annuity payments made and withdrawals taken, will be paid to you or
the Beneficiary (whichever is applicable).
PAYMENT FOR A CERTAIN NUMBER OF YEARS OPTION
Monthly annuity payments for a chosen number of years ranging from five to
thirty are paid. The Payment for a Certain Number of Years option does not
involve a life contingency. In the computation of the annuity payments under
this option, the charge for annuity rate guarantees, which includes a factor for
mortality risks, is made.
F. OPTIONAL FEATURES
The following optional features are available under the Contract:
- - The Floor
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- - The Ratchet
THE FLOOR. If you elect a Variable Income Option, the Floor is an optional
feature that is available in most jurisdictions. The Floor guarantees that each
monthly annuity payment will never be less than a payment based on the value of
the Annuity Units on the Issue Date (the "Floor Amount"). The Floor Amount may
be less than the value of the first annuity payment.
The Floor is subject to the conditions outlined below:
If a withdrawal is taken while the Floor is in effect, the Floor Amount will be
reduced in the same manner that the withdrawal reduces the number of Annuity
Units.
After the death of the first Annuitant under a Joint Life Annuity with Survivor
Benefit option, the Floor Amount will be reduced to 66.67% or 50%, as may be
applicable.
There is no periodic charge for the Floor. However, because lower Variable
Income Option Rates will be used under the Floor, the first annuity payment will
be lower than it would have been without the Floor. Subsequent payments will
also be lower unless the guarantee provided by the Floor is triggered, at which
time payments may be higher than if the Floor had not been elected.
THE RATCHET. If you elect a Variable Income Option, the Ratchet is an optional
feature that is available in most jurisdictions. The Ratchet is only available
with an annual Change Frequency.
The Ratchet guarantees that annuity payments will never decrease as a result of
investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to equal
or exceed the value of the Annuity Units on the Issue Date, assuming no
withdrawals are taken (the "Initial Ratchet Amount"). All other annuity payments
are guaranteed to equal or exceed the amount of the last annuity payment in the
previous Change Frequency Cycle (the "Current Ratchet Amount"). Annuity payments
are limited so that they will not exceed the applicable Ratchet amount by more
than 10% of the Current Ratchet Amount.
The Ratchet is subject to the conditions outlined below:
- - If a withdrawal is taken, the Initial Ratchet Amount (if the withdrawal is
taken prior to the Date of First Change) or the Current Ratchet Amount (if the
withdrawal is taken at any other time) will be reduced in the same manner that
the withdrawal reduces the number of Annuity Units.
- - After the death of the first Annuitant under a Joint Life with Survivor
Benefit option, the Ratchet amount is adjusted to 66.67% or 50%, as may be
applicable.
There is no periodic charge for the Ratchet. However, lower Variable Income
Option Rates are used to determine the initial annuity payment. If the Ratchet
is in effect, the first annuity payment will be lower than it would have been
without the Ratchet. Subsequent payments will also be lower except when the
protection provided by this feature results in a greater benefit.
For an example of how the Floor and the Ratchet would affect annuity payments,
see "B. Optional Feature Charges" under CHARGES AND DEDUCTIONS.
G. VARIABLE ANNUITY PAYMENTS
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 of dividing (1) by (2) and
subtracting (3) and (4) where:
20
<PAGE>
(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 ANNUITY UNIT AND ANNUITY UNIT VALUE. The Annuity Unit is a measure used to
value the monthly annuity payments under a Variable Income Option. The value of
an Annuity Unit in each Sub-Account on its inception date 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 the Annuity Unit on the immediately preceding Valuation
Date multiplied by the product of:
(1) a discount factor equivalent to the Assumed Investment Return ("AIR") and
(2) the Net Investment Factor of the Sub-Account funding the annuity payments
for the applicable Valuation Period.
Subject to the chosen Change Frequency, annuity payments will increase if the
annualized Net Investment Factor during that period is greater than the AIR and
will decrease if it is less than the AIR. Where permitted by law, the Owner may
select an AIR of 3%, 5%, or 7%. A higher AIR will result in a higher initial
payment. However, subsequent payments will increase more slowly during periods
when actual investment performance exceeds the AIR and will decrease more
rapidly during periods when investment performance is less than the AIR.
DETERMINATION OF THE NUMBER OF ANNUITY UNITS. We have Variable Income Option
Rates that determine the dollar amount of the first monthly payment under each
Variable Income Option for each $1,000 of Net Payment. We calculate this amount
assuming there is no change in the Annuity Unit Value. We then divide the amount
of the first annuity payment attributable to a particular Sub-Account by the
Annuity Unit Value of that Sub-Account to determine the number of Annuity Units
credited to your Contract. This number of Annuity Units remains fixed under all
annuity benefit options, except Joint and Survivor annuity benefit options that
reduce the number of Annuity Units upon the first death. However, the number of
variable annuity units under any annuity benefit option could change if
transfers or withdrawals are made.
DOLLAR AMOUNT OF FIRST VARIABLE ANNUITY PAYMENT. The dollar amount of the first
variable annuity payment will equal the number of Annuity Units of each
Sub-Account multiplied by the value of an Annuity Unit of that Sub-Account on
the applicable Valuation Date. The benefit of any optional feature will be taken
into account.
DOLLAR AMOUNT OF SUBSEQUENT VARIABLE ANNUITY PAYMENTS. The dollar amount of
subsequent variable annuity payments will vary with the Annuity Unit Value of
the selected Sub-Account(s) on certain dates. The dollar amount of variable
annuity payments remains level until the Date of First Change and within each
Change Frequency cycle. On the Date of First Change and as of the start of each
Change Frequency cycle, the dollar amount of the variable annuity payment is
determined by multiplying the number of Annuity Units of each Sub-Account by the
Annuity Unit Value of that Sub-Account on the applicable Valuation Date. The
benefit of any optional feature will be taken into account.
For an illustration of the calculation of a variable annuity payment using a
hypothetical example, see "Annuity Payments" in the SAI.
21
<PAGE>
PAYMENT OF ANNUITY PAYMENTS. You will receive the annuity payments unless you
request in writing that payments be made to another person, persons, or entity.
If you (or, if there are Joint Owners, the surviving Joint Owner) die on or
after the Annuity Income Date, the Beneficiary will become the Owner of the
Contract. Any remaining guaranteed annuity payments will continue to the
Beneficiary in accordance with the terms of the annuity benefit option selected.
If there are Joint Owners on or after the Annuity Income Date, upon the first
Owner's death, any remaining guaranteed annuity payments will continue to the
surviving Joint Owner in accordance with the terms of the annuity benefit option
selected.
If the Annuitant dies on or after the Annuity Income Date, but before all
guaranteed annuity payments have been made, any remaining guaranteed payments
will continue to be paid to you or the payee you have designated. Unless
otherwise indicated by you, after the death of the Annuitant, the Present Value
of any remaining guaranteed annuity payments may be paid in a single sum to you.
For discussion of Present Value calculation, see "Present Value Determination"
below.
H. TRANSFERS OF ANNUITY UNITS
You may transfer among the available Sub-Accounts upon written or telephone
request to us. Transfers may be made (a) before the Annuity Income Date and
before the death of an Owner; or (b) after the Annuity Income Date and as long
as annuity payments are payable under the annuity benefit option selected. A
properly completed authorization form must be on file before telephone requests
will be honored. See "K. Telephone Authorization" under DESCRIPTION OF THE
CONTRACT for more information. A designated number of Annuity Units equal to the
dollar amount of the transfer requested will be exchanged for an equivalent
dollar amount of Annuity Units of another Sub-Account. Transfer values will be
based on the Annuity Unit Value next computed after receipt of the transfer
request.
Currently, we do not 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, we reserve the right to assess a charge, guaranteed
never to exceed $25, to reimburse us for the expense of processing transfers.
Any transfer made because of a material change in the investment objective of a
Sub-Account will not count towards the 12 free transfers, nor will we charge you
a transfer fee. As of the date of this Prospectus, transfers may be made to all
of the Sub-Accounts. However, we reserve the right to establish and impose
reasonable rules restricting transfers. All transfers are subject to our
consent.
AUTOMATIC ACCOUNT REBALANCING. You may request automatic rebalancing of
Sub-Account allocations on a monthly, bi-monthly, quarterly, semi-annual or
annual basis in accordance with your specified percentage allocations. Each
rebalancing will result in a change in the number of Annuity Units. As
frequently as you elect, we 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 we receive and record your
request to terminate.
I. WITHDRAWALS
You have the right, based on the annuity benefit option selected, to make
withdrawals. Withdrawals may be made (a) before the Annuity Income Date and
before the death of an Owner or an Annuitant, or (b) after the Annuity Income
Date and as long as annuity payments are payable under the annuity benefit
option selected. Two withdrawal options may be available to you: a Payment
Withdrawal Amount option or a Present Value Withdrawal option.
The minimum amount of a withdrawal is $100. Any withdrawal is normally payable
within seven days following our receipt of the withdrawal request.
22
<PAGE>
Withdrawals are not available under Qualified Plans, Contracts funding Section
457 Deferred Compensation Plans, and Contracts under which the Beneficiary has
elected to receive a lump sum instead of an income stream.
WITHDRAWALS AFTER THE ANNUITY INCOME DATE MAY HAVE ADVERSE TAX CONSEQUENCES. SEE
FEDERAL TAX CONSIDERATIONS, "C. TAX ON WITHDRAWALS".
We reserve the right to defer withdrawals of amounts allocated to our General
Account for a period not to exceed six months. Deferred amounts will receive
interest during the deferral period at a rate of at least 3%.
PAYMENT WITHDRAWAL AMOUNT OPTION. Once each calendar year, you may withdraw up
to 10 (the Payment Withdrawal Amount) times the value of the previous annuity
payment. If the withdrawal is taken prior to the Annuity Income Date, you may
withdraw up to 10 times the value of the previous annuity payment, if one were
to be paid, on the day we receive your request.
For the Payment for a Certain Number of Years annuity benefit option, the
withdrawal may not exceed the number of remaining guaranteed payments. Any
withdrawal proportionately reduces the number of Annuity Units (for Variable
Income Options) and/or the dollar amount (for Fixed Income Options) of each
future annuity payment. The proportionate reduction is calculated by multiplying
the number of Annuity Units or the dollar amount (whichever is applicable) in
each future annuity payment, determined immediately prior to the withdrawal, by
the following fraction:
Amount of the variable or fixed withdrawal
------------------------------------------------
Present Value of all remaining variable or fixed annuity
payments immediately prior to the withdrawal.
PRESENT VALUE WITHDRAWAL OPTION. In addition to the Payment Withdrawal Amount
Option, if you have elected the Payment for a Certain Number of Years, Life
Annuity with Payment for a Certain Number of Years or Life Annuity with Cash
Back annuity benefit option and there are remaining guaranteed payments, the
Owner may withdraw once each calendar year a portion of the adjusted Present
Value of those remaining guaranteed annuity payments (See "Present Value
Determination" below). Whenever a withdrawal is taken under this provision, we
record the percentage withdrawn. (See proportionate reduction calculation
below). Over the life of the Contract, the total percentage withdrawn cannot
exceed a maximum of 75% of the present value of the remaining guaranteed annuity
payments (the Present Value Withdrawal Amount).
Each withdrawal proportionately reduces the number of units in future guaranteed
variable annuity payments and the dollar amount for future guaranteed fixed
annuity payments. This proportionate reduction is calculated by multiplying the
number of Annuity Units or the dollar amount (whichever is applicable) in each
future annuity payment, determined immediately prior to the withdrawal, by the
following fraction:
Amount of the variable or fixed withdrawal
----------------------------------------------------------
Present Value of all remaining variable or fixed guaranteed annuity
payments immediately prior to the withdrawal.
If the Annuitant is still living after the guaranteed payments have been made,
the number of Annuity Units used in calculating the annuity payment prior to any
withdrawal will be restored as if no Present Value Withdrawal(s) had taken
place. However, the number of Annuity Units may be lower than the original
amount since they will be adjusted for any transfers, withdrawals taken under
the Payment Withdrawal Amount option, or adjusted after the death of the first
Joint Annuitant, if applicable.
PRESENT VALUE DETERMINATION. Present values of either all future annuity
payments or future guaranteed annuity payments are calculated based on the
Annuity 2000 Mortality Table (male, female or unisex rates as
23
<PAGE>
appropriate), and the interest rate or AIR used to determine the annuity
payments, increased by the following adjustments:
- - Death of the Annuitant -- 0.00% Adjustment
- - Withdrawals 5 or more years after Issue Date -- 0.00% Adjustment
- - Withdrawals within 5 years of Issue Date:
15 or more years of annuity payments being valued -- 1.00% Adjustment
10-14 years of annuity payments being valued -- 1.50% Adjustment
Less than 10 years of annuity payments being valued -- 2.00%
Adjustment
- - Determination of Contract Value* -- 0.00% Adjustment
*If an optional feature was selected, annuity payments used in determining this
Present Value will be the amount that would have been payable had you not
selected the optional feature.
J. DEATH BENEFIT
DEATH OF AN OWNER OR AN ANNUITANT BEFORE THE ANNUITY INCOME DATE
If an Owner or an Annuitant dies before the Annuity Income Date, we will pay a
death benefit equal to the Contract Value determined as of the Valuation Date on
which we receive due proof of death. The death benefit will be paid to the Owner
of the Contract. If there is no Owner or Joint Owner, we will pay the death
benefit to the Beneficiary.
PAYMENT OF THE DEATH BENEFIT
Unless you have specified otherwise, the death benefit generally will be paid in
one lump sum after receipt at the Principal Office of due proof of death.
Instead of payment in one lump sum, the person entitled to the death benefit
may, by written request, elect to receive a life annuity or an annuity for a
certain number of years not extending beyond such person's life expectancy with
annuity payments beginning no later than one year from the date of death.
THE SPOUSE OF THE DECEASED OWNER AS BENEFICIARY
The deceased Owner's spouse, if named as the sole Beneficiary, may by written
request continue the Contract in lieu of receiving the death benefit upon the
death of the Owner. Upon such election, the spouse becomes the Owner and
Annuitant. As of the date of such election, annuity payments will be adjusted to
reflect any change of Annuitant and Annuity Income Date. The new Annuity Income
Date must be within twelve months of the Issue Date. Any subsequent spouse of
the new Owner, if named as the Beneficiary, may not continue this Contract.
DEATH OF THE OWNER OR THE ANNUITANT AFTER THE ANNUITY INCOME DATE
If the Owner or the Annuitant dies after the Annuity Income Date, we will pay
the remaining annuity payments, if any, in accordance with the terms of the
annuity benefit option selected. Any remaining annuity payments will be paid to
the Owner of the Contract. If there is no Owner or Joint Owner, then the
Beneficiary will receive the payments and become the Owner of the Contract. The
Beneficiary may elect to receive the Present Value of any remaining payments in
one lump sum.
24
<PAGE>
K. GENERAL RESTRICTIONS ON PAYMENTS
For purposes of making annuity payments or payment of other benefits based on
the value of a Sub-Account, the value of an Annuity Unit is determined as of the
end of a Valuation Date, which is currently 4:00 p.m., Eastern time.
Withdrawals, transfers, or payment of a death benefit from amounts under a
Variable Income Option are usually paid within seven days of a request in proper
form or, in the case of a death benefit, after we have received all necessary
documentation.
We reserve the right to defer payment on withdrawals, transfers, or payment of a
death benefit from amounts in each Sub-Account in any period during which:
- - 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;
- - the SEC has by order permitted such suspension; or
- - an emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of a Sub-Account is not reasonably
practicable.
L. TELEPHONE AUTHORIZATION
In order for the Owner to be able to initiate transactions over the telephone, 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 we
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. Such procedures may include, among others, requiring some form of
personal identification prior to acting upon instructions received by telephone.
All telephone instructions are tape-recorded.
M. ASSIGNMENT
The Contract may not be assigned.
N. NORRIS DECISION
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a Contract issued in connection with an employer-sponsored benefit plan
affected by the NORRIS decision will be based on unisex rates.
25
<PAGE>
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.
A. VARIABLE ACCOUNT DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE. We assess a charge against the assets of
each Sub-Account to compensate for certain mortality and expense risks we have
assumed. The mortality risk arises from our guarantee that we will make annuity
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 benefit option selected), no matter how long the Annuitant lives and no
matter how long all Annuitants as a class live. The mortality charge is deducted
for any annuity benefit option selected on all Contracts, including those that
do not involve a life contingency, even though we do not bear direct mortality
risk with respect to variable annuity settlement options that do not involve
life contingencies. The expense risk arises from our guarantee that the charges
we make 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, we will absorb the losses. To the extent this
charge results in a profit to us, such profit will be available for use by us
for, among other things, the payment of distribution, sales and other expenses.
The mortality and expense risk charge is assessed daily at an annual rate of
1.25% of each Sub-Account's assets. This charge may not be increased.
ADMINISTRATIVE EXPENSE CHARGE. We assess each Sub-Account with a daily charge
at an annual rate of 0.20% of the average daily net assets of the Sub-Account.
The daily Administrative Expense Charge is assessed to help defray
administrative expenses incurred in the administration of the Sub-Account.
Deductions for the Administrative Expense Charge are designed to reimburse us
for the cost of administration and related expenses. The administrative
functions and expense assumed by us 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.
EXPENSES OF THE UNDERLYING FUNDS. 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. These fees and expenses may vary each year. They are not fixed
or specified under the terms of the Contract, and they are not the
responsibility of the Company. The prospectuses and SAI's of the Trust, Fidelity
VIP, Fidelity VIP II, T. Rowe Price and DGPF contain additional information
concerning expenses of the Underlying Funds.
B. OPTIONAL FEATURE CHARGES
Subject to state availability, we offer two optional features that you may elect
at issue. No periodic charges are assessed for these features. Instead, lower
Variable Income Option Rates are used to determine the amount of the first
annuity payment. As a result, the first annuity payment is lower than it would
have been had the feature not been selected. Future annuity payments will also
be lower except when the feature provides a greater benefit.
The chart below is intended to help you understand the benefits and costs of the
Floor Benefit and Ratchet Feature. We have used the Growth Fund to portray what
the annuity payments would have been if someone had purchased the Contract at
the inception of the Growth Fund. Even though the Contract was not available at
that
26
<PAGE>
time, this chart can help you understand how annuity payments work under the
Contract, how optional features work, and how payments are affected by a Fund's
total return. We have assumed that an investor purchased the Contract at age 65
and is male. We have further assumed that the investor selects a life only
annuity benefit option with an AIR of 3%. The reset frequency is annual for the
Ratchet Rider and monthly for the no rider and Floor Rider.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CONTRACT ANNUITY BENEFIT
<S> <C> <C> <C>
Month No Rider Floor Rider Ratchet Rider
0 426.75 384.08 362.74
1 445.83 401.25 362.74
2 452.78 407.5 362.74
3 454.33 408.9 362.74
4 448.81 403.93 362.74
5 431.76 388.59 362.74
6 444.27 399.84 362.74
7 472.99 425.7 362.74
8 483.62 435.26 362.74
9 489.09 440.18 362.74
10 516.03 464.43 362.74
11 549.09 494.18 362.74
12 530.04 477.04 399.01
13 554.01 498.61 399.01
14 559.55 503.59 399.01
15 524.18 471.76 399.01
16 572.45 515.21 399.01
17 544.54 490.09 399.01
18 563.35 507.02 399.01
19 580.79 522.71 399.01
20 555.31 499.78 399.01
21 620.19 558.17 399.01
22 641.49 577.34 399.01
23 658.91 593.02 399.01
24 652.88 587.59 438.91
25 654.98 589.48 438.91
26 683.16 614.84 438.91
27 724.95 652.45 438.91
28 738.78 664.9 438.91
29 729.44 656.49 438.91
30 544.71 490.24 438.91
31 506.36 455.72 438.91
32 543.7 489.33 438.91
33 568.66 511.8 438.91
34 611.51 550.35 438.91
35 610.24 549.22 438.91
36 602.34 542.11 482.8
37 602.48 542.23 482.8
38 639.39 575.45 482.8
39 625.31 562.78 482.8
40 601.5 541.35 482.8
41 622.52 560.27 482.8
42 627.69 564.92 482.8
43 617.94 556.14 482.8
44 628.55 565.7 482.8
45 670.33 603.3 482.8
46 649.42 584.47 482.8
47 659.93 593.93 482.8
48 686.21 617.59 531.08
49 715.66 644.1 531.08
50 698.33 628.5 531.08
51 756.31 680.68 531.08
52 776.77 699.09 531.08
53 776.87 699.18 531.08
54 748.45 673.6 531.08
55 755.63 680.07 531.08
56 755.96 680.36 531.08
57 699.49 629.54 531.08
58 709.21 638.29 531.08
59 725.36 652.82 531.08
60 710.18 639.16 584.19
61 776.79 699.11 584.19
62 779.76 701.78 584.19
63 771.61 694.45 584.19
64 698.89 629 584.19
65 658.33 592.5 584.19
66 653.03 587.73 584.19
67 696.37 626.73 584.19
68 721.18 649.06 584.19
69 762.06 685.86 584.19
70 818.26 736.43 584.19
71 834.44 751 584.19
72 834.3 750.87 642.61
73 871.35 784.22 642.61
74 826.26 743.64 642.61
75 869.56 782.6 642.61
76 896.47 806.82 642.61
77 871.81 784.63 642.61
78 898.44 808.6 642.61
79 851.5 766.35 642.61
80 969.68 872.71 642.61
81 940.68 846.62 642.61
82 955.25 859.73 642.61
83 925.83 833.25 642.61
84 932.14 838.92 706.87
85 940.81 846.73 706.87
86 915.59 824.03 706.87
87 946.02 851.42 706.87
88 927.17 834.46 706.87
89 938.11 844.3 706.87
90 945.25 850.72 706.87
91 984.31 885.88 706.87
92 993.76 894.38 706.87
93 999.63 899.67 706.87
94 976.52 878.87 706.87
95 999.44 899.5 706.87
96 958.09 862.28 777.56
97 981.91 883.72 777.56
98 983.21 884.89 777.56
99 984.51 886.06 777.56
100 1,013.41 912.07 777.56
101 999.48 899.53 777.56
102 1,012.77 911.49 777.56
103 997.03 897.33 777.56
104 1,014.46 913.02 777.56
105 1,045.76 941.18 777.56
106 1,021.17 919.05 777.56
107 966.59 869.93 777.56
108 978.09 880.28 831.38
109 982.21 883.99 831.38
110 958.92 863.03 831.38
111 984.87 886.38 831.38
112 1,018.30 916.47 831.38
113 984.5 886.05 831.38
114 997.29 897.56 831.38
115 967.07 870.36 831.38
116 972.3 875.07 831.38
117 982.61 884.35 831.38
118 1,016.84 915.16 831.38
119 1,043.55 939.19 831.38
120 1,063.14 956.83 903.67
121 1,109.09 998.18 903.67
122 1,124.17 1,011.75 903.67
123 1,156.60 1,040.94 903.67
124 1,155.25 1,039.72 903.67
125 1,190.77 1,071.69 903.67
126 1,173.10 1,055.79 903.67
127 1,217.13 1,095.42 903.67
128 1,236.10 1,112.49 903.67
129 1,271.77 1,144.59 903.67
130 1,290.20 1,161.18 903.67
131 1,294.61 1,165.14 903.67
132 1,310.14 1,179.12 994.04
133 1,333.95 1,200.56 994.04
134 1,330.79 1,197.72 994.04
135 1,247.73 1,122.95 994.04
136 1,270.78 1,143.70 994.04
137 1,325.83 1,193.25 994.04
138 1,362.76 1,226.49 994.04
139 1,442.60 1,298.34 994.04
140 1,421.91 1,279.72 994.04
141 1,496.98 1,347.28 994.04
142 1,504.19 1,353.77 994.04
143 1,438.80 1,294.92 994.04
144 1,487.78 1,339.00 1,093.44
145 1,580.28 1,422.25 1,093.44
146 1,630.45 1,467.41 1,093.44
147 1,729.70 1,556.73 1,093.44
148 1,676.26 1,508.63 1,093.44
149 1,743.86 1,569.47 1,093.44
150 1,647.70 1,482.93 1,093.44
151 1,681.77 1,513.59 1,093.44
152 1,703.28 1,532.96 1,093.44
153 1,695.68 1,526.11 1,093.44
154 1,832.40 1,649.16 1,093.44
155 1,910.31 1,719.28 1,093.44
156 1,911.70 1,720.53 1,202.79
157 1,864.45 1,678.01 1,202.79
158 1,914.90 1,723.41 1,202.79
159 1,888.97 1,700.07 1,202.79
160 1,554.17 1,398.76 1,202.79
161 1,618.71 1,456.84 1,202.79
162 1,747.93 1,573.13 1,202.79
163 1,846.49 1,661.84 1,202.79
164 1,945.44 1,750.90 1,202.79
</TABLE>
For a description of the optional features, see "F. Optional Features" under
DESCRIPTION OF THE CONTRACT, above.
C. PREMIUM TAXES
Some states and municipalities impose a premium tax on variable annuity
contracts. State premium taxes currently range up to 3.5%. We assess a charge
for state and municipal premium taxes, when applicable, and deduct the amount
paid as a premium tax charge. Our current practice is to deduct the premium tax
charge when the Single Purchase Payment is received.
D. TRANSFER CHARGE
We currently do not charge for processing transfers. We guarantee that the first
12 transfers in a Contract year will be free of transfer charge, but reserve the
right to assess a charge, guaranteed never to exceed $25, for each subsequent
transfer in a Contract year to reimburse us for the expense of processing
transfers. For more information, see "H. Transfers of Annuity Units" under
DESCRIPTION OF THE CONTRACT.
FEDERAL TAX CONSIDERATIONS
The following is a general discussion of the federal income tax consequences of
investing in this Contract. It is based upon the Company's understanding of
current U.S. federal tax laws and does not address any state or local tax
issues. THE DISCUSSION IS NOT INTENDED TO BE COMPLETE, NOR IS IT INTENDED AS TAX
ADVICE TO ANY INDIVIDUAL. YOU SHOULD CONSULT YOUR TAX ADVISOR ABOUT YOUR OWN
CIRCUMSTANCES, INCLUDING ANY POSSIBLE APPLICATION OF SPECIAL RULES NOT DISCUSSED
HERE.
27
<PAGE>
The Company intends to assess 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.
A. ANNUITY CONTRACTS IN GENERAL
Annuity contracts are a means of setting aside money for future needs and for
providing a series of periodic payments for life or a fixed number of years.
Congress has provided special rules in the Internal Revenue Code ("Code") for
how you will be taxed on these periodic payments. There are also special rules
for withdrawals from an annuity that are not in the form of periodic payments.
The rules may apply differently to Qualified Contracts (a retirement plan which
meets the requirements of Code Sections 401, 403, 408 or 408A) and to
Non-Qualified Contracts.
As the Contract Owner, you may be taxed when a distribution occurs, either as an
annuity payment or as a withdrawal.
B. TAX ON ANNUITY PAYMENTS
When amounts are received as annuity payments, a portion of each annuity payment
is treated as a partial return of your single purchase payment and will not be
taxed. The remaining portion of the annuity payment will be treated as ordinary
income. How the annuity payment is divided between taxable and non-taxable
portions depends upon the period over which the annuity payments are expected to
be made. Annuity payments received after you have received all of your single
purchase payment are fully includible in income.
The Code imposes a penalty tax of 10% of the amount includible in income upon
certain distributions from annuity contracts occurring before the owner reaches
age 59 1/2. One of the exceptions from this penalty applies to amounts received
as annuity payments under an immediate annuity. To qualify as an immediate
annuity, a contract must, among other things, provide for a series of
substantially equal periodic payments during the annuity period, and must have
an annuity starting date (that is, the Annuity Income Date) that is no later
than one year from the contract's issue date. We believe that the Contract
should be treated as an immediate annuity, so there should be no penalty
applicable to amounts paid as annuity payments, regardless of the age of the
Contract Owner.
C. TAX ON WITHDRAWALS
When you make a withdrawal, the amount you receive will not be divided into
taxable and non-taxable portions in the same way as an annuity payment. All
Non-Qualified contracts issued by the Company to you during the same calendar
year will be aggregated to determine the taxable amount of any withdrawal.
WITHDRAWALS FROM NON-QUALIFIED CONTRACTS
If the value of your Contract exceeds your single purchase payment, any
distributions (that is, any withdrawals) will be included in your taxable
income to the extent of earnings in your Contract. These distributions may
also be subject to a penalty tax equal to 10% of the amount that is
includible in income. Some distributions are exempt from the 10% penalty
tax, including: (1) distributions paid on or after you reach age 59 1/2; (2)
distributions paid on or after your death; and (3) distributions paid if you
become disabled (as defined in the Code).
The Code does not specifically address refunds or withdrawals from immediate
annuity contracts. The IRS has issued one private letter ruling concluding
that the right to make these withdrawals does not prevent an annuity
contract from qualifying as an immediate annuity. However, the ruling does
not
28
<PAGE>
clearly state the effect of an actual withdrawal on the tax treatment of
annuity payments made before and after the withdrawal. If, as a result of a
withdrawal, distributions from a Contract after the annuity starting date
were not substantially equal, there is a risk that the Contract could fail
to qualify as an immediate annuity. In that case, the portion includible in
income of each annuity payment received prior to your attaining age 59 1/2
would be subject to a 10% penalty tax (unless another exception to the
penalty tax is applied). While we currently believe that a withdrawal will
not adversely affect the favorable tax treatment of annuity payments
received before or after the withdrawal and we intend to perform our tax
reporting functions accordingly, there can be no assurance that the IRS will
not take a contrary position. You should obtain competent tax advice prior
to making a withdrawal from your Contract.
WITHDRAWALS FROM QUALIFIED CONTRACTS
No withdrawals may be made from a Qualified Contract.
D. EXCHANGES
You may exchange another annuity contract to acquire a Contract. For tax
purposes, the contract Issue Date will be the purchase date of the annuity
contract you exchange. Accordingly, in order for your Contract to qualify as an
immediate annuity, your Annuity Income Date must be no later than one year after
the purchase date of the contract you are exchanging.
If you exchange your Contract in exchange for another annuity contract with the
same Annuitant and Owner, the exchange will generally be treated as a tax-free
exchange. An exchange for a contract with a different Annuitant or Owner would
generally be treated as a taxable exchange.
E. TAX WITHHOLDING
The Company is required to withhold taxes from any payment made from
Non-Qualified and Qualified Contracts, including IRAs, unless you direct
otherwise. You may not direct the Company to refrain from withholding taxes on
certain distributions from a Qualified Contract that is part of a retirement
plan under Code Section 401 or 403. In addition, the Company is required to
report distributions from both Qualified and Non-Qualified Contracts to the IRS.
F. DIVERSIFICATION AND CONTROL OF UNDERLYING ASSETS
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order for the contract to be
treated as an annuity contract. The Underlying Funds have committed to us that
they will comply with these requirements.
In addition, Treasury regulations provide that a contract may not be treated as
an annuity contract for tax purposes if the contract owner has control over the
assets underlying the contract. The IRS has not yet issued guidance on whether
the degree of control you exercise over the underlying investments could cause
you to be considered the owner of the Fund shares. If you, rather than the
Company, were considered the owner of the Fund shares, your Contract would not
be treated as an annuity. We believe that we will be the owner of the Fund
shares for tax purposes; however, future IRS guidance may affect this conclusion
and may have retroactive effect. This may affect whether the Underlying Funds
will be able to continue to operate as described in the Funds' prospectus.
Moreover, we reserve the right, but have no obligation, to modify the Contracts
as we deem necessary or appropriate to ensure that the Contracts continue to
qualify as annuities for tax purposes.
STATEMENTS AND REPORTS
You are sent a report semi-annually which provides certain financial information
about the Underlying Funds. At least annually, but possibly as frequent as
quarterly, we will furnish a statement to you containing
29
<PAGE>
information about your Contract, including information as required by applicable
law, rules and regulations. We will also send a confirmation statement to you
each time a transaction is made. (Certain transactions made under recurring
payment plans such as Automatic Account Rebalancing may in the future be
confirmed quarterly rather than by immediate confirmations.) You should review
the information in all statements carefully. All errors or corrections must be
reported to us immediately to assure proper crediting to the Contract. We will
assume that all transactions are accurately reported on confirmation statements
and quarterly/annual statements unless you notify the Principal Office in
writing within 30 days after receipt of the statement.
LOANS
Loans will not be permitted under this contract.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve 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 our 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 or other investment medium for the Underlying Fund
shares held by a Sub-Account, in the event that Underlying Fund shares are
unavailable for investment, or if we determine 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 you in accordance with the 1940 Act.
We also reserve 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, we may, in
our 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 which we will determine.
Shares of the Underlying Funds also are issued to the separate accounts of the
Company and our 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 we nor any of the underlying
investment companies currently foresee any such disadvantages to either variable
life owners or variable annuity owners, we 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, we will bear the attendant
expenses.
If any of these substitutions or changes is made, we may endorse the Contracts
to reflect the substitution or change, and will notify you of all such changes.
If we deem 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 our other separate accounts.
30
<PAGE>
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
We reserve 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 you the benefit of, 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. Any such changes will apply uniformly to all
Contracts that are affected. You will be given written notice of such changes.
VOTING RIGHTS
We will vote Underlying Fund shares held by each Sub-Account in accordance with
instructions received from you. 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 us. Shares for
which no timely instructions are received will be voted in proportion to the
instructions that are received. We also will vote shares in a Sub-Account that
we own and which are not attributable to the 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 we
determine that we are permitted to vote shares in our own right, whether or not
such shares are attributable to the Contract, we reserve the right to do so.
The number of votes that you may cast will be determined by us as of the record
date established by the Underlying Fund. The number of Underlying Fund shares
will be determined by dividing the reserve held in each Sub-Account for the
Variable Annuity by the net asset value of one Underlying Fund share.
Ordinarily, 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
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 that are NASD members.
We pay commissions, not to exceed 5.0% of payments, to registered
representatives of Allmerica Investments, Inc. Alternative commission schedules
are available with varying initial commission amounts based on the Single
Purchase Payment, plus ongoing annual compensation of up to 4% of annuity
payments.
We intend to recoup commissions and other sales expenses through anticipated
profits from our General Account, which may include amounts derived from
mortality and expense risk charges. Commissions paid on the Contract, including
additional incentives or payments, do not result in any additional charge to you
or to the Variable Account. You may direct any inquiries to your financial
representative or to Annuity Client Services, Allmerica Financial Life Insurance
and Annuity Company, 440 Lincoln Street, Worcester, MA 01653, telephone
1-800-533-7881.
SERVICES
We receive fees from the investment advisers or other service providers of
certain Funds in return for providing certain services to Owners. Currently, we
receive 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 of 0.10% of the aggregate net asset value, respectively, of the
shares of such Funds held by the Variable Account. With respect to the T. Rowe
Price International Stock Portfolio, we receive service fees at an annual rate
of 0.15% of the
31
<PAGE>
aggregate net asset value of shares held by the Variable Account. We may in the
future render services for which we will receive compensation from the
investment advisers or other service providers of other Funds.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party,
or to which the assets of the Variable Account are subject. The Company and the
Principal Underwriter are not involved in any litigation that is of material
importance in relation to their total assets or that relates to the Variable
Account.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of our computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
Based on a third party assessment, we determined that significant portions of
its software required modification or replacement to enable its computer systems
to properly process dates beyond December 31, 1999. We are presently completing
the process of modifying or replacing existing software and believes that this
action will resolve the Year 2000 issue. However, if such modifications and
conversions are not made, or are not completed timely, or should there be
serious unanticipated interruptions from unknown sources, the Year 2000 issue
could have a material adverse impact on our operations. Specifically, we could
experience, among other things, an interruption in our ability to collect and
process premiums, process claim payments, safeguard and manage our invested
assets, accurately maintain policyholder information, accurately maintain
accounting records, and perform customer service. Any of these specific events,
depending on duration, could have a material adverse impact on the results of
operations and our financial position.
We have initiated formal communications with all of our suppliers to determine
the extent to which we are vulnerable to those third parties' failure to
remediate their own Year 2000 issue. Our total Year 2000 project cost and
estimates to complete the project include the estimated costs and time
associated with our involvement on a third party's Year 2000 issue, and are
based on presently available information. However, there can be no guarantee
that the systems of other companies on which our systems rely will be timely
converted, or that a failure to convert by another company, or a conversion that
is incompatible with our systems, would not have material adverse effect on us.
We do not believe that we have material exposure to contingencies related to the
Year 2000 issue for the products we have sold. Although we do not believe that
there is a material contingency associated with the Year 2000 project, there can
be no assurance that exposure for material contingencies will not arise.
The cost of the Year 2000 project will be expensed as incurred and is being
funded primarily through a reallocation of resources from discretionary projects
and a reduction in systems maintenance and support costs. Therefore, the Year
2000 project is not expected to result in any significant incremental technology
cost and is not expected to have a material effect on the results of operations.
We and our affiliates have incurred and expensed approximately $54 million
related to the assessment, plan development and substantial completion of the
Year 2000 project, through December 31, 1998. The total remaining cost of the
project is estimated between $20-30 million.
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.
32
<PAGE>
APPENDIX A
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SEPARATE ACCOUNT VA-K
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
SUB-ACCOUNTS 1998 1997 1996 1995 1994 1993 1992
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECT INTERNATIONAL EQUITY FUND
Accumulation Unit Value:
Beginning of Period................. 1.398 1.355 1.127 0.956 1.000 N/A N/A
End of Period....................... 1.605 1.398 1.355 1.127 0.956 N/A N/A
Units Outstanding at End of Period (in
thousands).......................... 130,011 115,585 77,485 37,680 12,530 N/A N/A
DGPF INTERNATIONAL EQUITY SERIES
Accumulation Unit Value:
Beginning of Period................. 1.596 1.519 1.284 1.143 1.129 1.000 N/A
End of Period....................... 1.736 1.596 1.519 1.284 1.143 1.129 N/A
Units Outstanding at End of Period (in
thousands).......................... 68,279 62,134 44,416 34,692 26,924 6,681 N/A
FIDELITY VIP OVERSEAS PORTFOLIO
Accumulation Unit Value:
Beginning of Period................. 1.632 1.484 1.330 1.230 1.226 0.906 1.030
End of Period....................... 1.814 1.632 1.484 1.330 1.230 1.226 0.906
Units Outstanding at End of Period (in
thousands).......................... 59,052 56,689 63,050 65,256 59,774 25,395 6,728
T. ROWE PRICE INTERNATIONAL STOCK
PORTFOLIO
Accumulation Unit Value:
Beginning of Period................. 1.222 1.203 1.064 1.000 N/A N/A N/A
End of Period....................... 1.396 1.222 1.203 1.064 N/A N/A N/A
Units Outstanding at End of Period (in
thousands).......................... 68,367 59,832 35,915 10,882 N/A N/A N/A
SELECT AGGRESSIVE GROWTH FUND
Accumulation Unit Value:
Beginning of Period................. 2.305 1.970 1.686 1.292 1.342 1.139 1.000
End of Period....................... 2.513 2.305 1.970 1.686 1.292 1.342 1.139
Units Outstanding at End of Period (in
thousands).......................... 125,758 106,790 89,974 70,349 54,288 26,158 2,019
SELECT CAPITAL APPRECIATION FUND
Accumulation Unit Value:
Beginning of Period................. 1.670 1.482 1.383 1.000 N/A N/A N/A
End of Period....................... 1.875 1.670 1.482 1.383 N/A N/A N/A
Units Outstanding at End of Period (in
thousands).......................... 80,048 70,932 52,927 16,096 N/A N/A N/A
SELECT VALUE OPPORTUNITY FUND
Accumulation Unit Value:
Beginning of Period................. 1.945 1.580 1.249 1.075 1.167 1.000 N/A
End of Period....................... 2.011 1.945 1.580 1.249 1.075 1.167 N/A
Units Outstanding at End of Period (in
thousands).......................... 99,750 85,126 60,145 43,433 33,049 9,902 N/A
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
SUB-ACCOUNTS 1998 1997 1996 1995 1994 1993 1992
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECT GROWTH FUND
Accumulation Unit Value:
Beginning of Period................. 2.001 1.514 1.259 1.024 1.055 1.058 1.000
End of Period....................... 2.671 2.001 1.514 1.259 1.024 1.055 1.058
Units Outstanding at End of Period (in
thousands).......................... 121,005 96,643 62,633 47,078 38,415 26,064 3,039
GROWTH FUND
Accumulation Unit Value:
Beginning of Period................. 2.336 1.894 1.599 1.221 1.236 1.175 1.111
End of Period....................... 2.748 2.336 1.894 1.599 1.221 1.236 1.175
Units Outstanding at End of Period (in
thousands).......................... 164,914 156,173 135,573 116,008 102,399 72,609 34,373
FIDELITY VIP GROWTH PORTFOLIO
Accumulation Unit Value:
Beginning of Period................. 2.608 2.143 1.895 1.419 1.440 1.224 1.135
End of Period....................... 3.586 2.608 2.143 1.895 1.419 1.440 1.224
Units Outstanding at End of Period (in
thousands).......................... 149,009 148,211 142,450 116,485 90,717 49,136 18,253
EQUITY INDEX FUND
Accumulation Unit Value:
Beginning of Period................. 2.581 1.977 1.640 1.221 1.266 1.135 1.074
End of Period....................... 3.265 2.581 1.977 1.640 1.221 1.226 1.135
Units Outstanding at End of Period (in
thousands).......................... 107,625 85,344 57,428 39,534 29,176 22,466 9,535
SELECT GROWTH AND INCOME FUND
Accumulation Unit Value:
Beginning of Period................. 1.978 1.638 1.370 1.066 1.074 0.987 1.000
End of Period....................... 2.270 1.978 1.638 1.370 1.066 1.074 0.987
Units Outstanding at End of Period (in
thousands).......................... 119,107 103,543 82,434 63,841 51,098 31,846 4,711
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Accumulation Unit Value:
Beginning of Period................. 2.824 2.236 1.185 1.490 1.412 1.211 1.051
End of Period....................... 3.107 2.824 2.236 1.185 1.490 1.412 1.211
Units Outstanding at End of Period (in
thousands).......................... 187,989 180,001 167,000 139,145 104,356 61,264 17,855
FIDELITY VIP II ASSET MANAGER
PORTFOLIO
Accumulation Unit Value:
Beginning of Period................. 1.514 1.273 1.127 0.977 1.000 N/A N/A
End of Period....................... 1.717 1.514 1.273 1.127 0.977 N/A N/A
Units Outstanding at End of Period (in
thousands).......................... 69,704 55,551 42,415 33,444 20,720 N/A N/A
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
SUB-ACCOUNTS 1998 1997 1996 1995 1994 1993 1992
- -------------------------------------- ---------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY VIP HIGH INCOME PORTFOLIO
Accumulation Unit Value:
Beginning of Period................. 2.272 1.958 1.743 1.465 1.510 1.270 1.047
End of Period....................... 2.142 2.272 1.958 1.743 1.465 1.510 1.270
Units Outstanding at End of Period (in
thousands).......................... 97,829 76,343 53,956 38,042 27,041 13,583 3,625
INVESTMENT GRADE INCOME FUND
Accumulation Unit Value:
Beginning of Period................. 1.530 1.418 1.390 1.073 1.250 1.145 1.073
End of Period....................... 1.629 1.530 1.418 1.390 1.196 1.250 1.145
Units Outstanding at End of Period (in
thousands).......................... 102,088 86,816 79,054 69,168 57,454 48,488 15,428
GOVERNMENT BOND FUND
Accumulation Unit Value:
Beginning of Period................. 1.384 1.311 1.285 1.152 1.179 1.112 1.075
End of Period....................... 1.469 1.384 1.311 1.285 1.152 1.179 1.112
Units Outstanding at End of Period (in
thousands).......................... 48,930 35,261 30,921 31,710 32,519 60,265 29,844
MONEY MARKET FUND
Accumulation Unit Value:
Beginning of Period................. 1.214 1.167 1.124 1.077 1.051 1.035 1.013
End of Period....................... 1.262 1.214 1.167 1.124 1.077 1.051 1.035
Units Outstanding at End of Period (in
thousands).......................... 128,730 91,676 92,354 69,311 37,668 30,815 30,778
</TABLE>
A-3
<PAGE>
CONDENSED FINANCIAL INFORMATION
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-K
<TABLE>
<CAPTION>
SUB-ACCOUNTS 1998 1997 1996 1995 1994
- -------------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECT INTERNATIONAL EQUITY FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.398 1.355 1.128 0.956 1.000
End of Period..................................................... 1.605 1.398 1.355 1.128 0.956
Number of Units Outstanding at End of Period (in thousands)......... 9,713 8,076 5,068 2,093 446
DGPF INTERNATIONAL EQUITY SERIES
Accumulation Unit Value:
Beginning of Period............................................... 1.387 1.319 1.115 0.993 1.000
End of Period..................................................... 1.508 1.387 1.319 1.115 0.993
Number of Units Outstanding at End of Period (in thousands)......... 4,148 3,266 2,023 1,304 667
FIDELITY VIP OVERSEAS PORTFOLIO
Accumulation Unit Value:
Beginning of Period............................................... 1.298 1.180 1.058 0.978 1.000
End of Period..................................................... 1.443 1.298 1.180 1.058 0.978
Number of Units Outstanding at End of Period (in thousands)......... 4,358 3,601 3,114 2,804 1,697
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
Accumulation Unit Value:
Beginning of Period............................................... 1.222 1.203 1.064 1.000 N/A
End of Period..................................................... 1.396 1.222 1.203 1.064 N/A
Number of Units Outstanding at End of Period (in thousands)......... 5,670 4,536 2,506 542 N/A
SELECT AGGRESSIVE GROWTH FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.825 1.560 1.335 1.023 1.000
End of Period..................................................... 1.989 1.825 1.560 1.335 1.023
Number of Units Outstanding at End of Period (in thousands)......... 10,282 7,947 5,681 2,907 1,211
SELECT CAPITAL APPRECIATION FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.670 1.482 1.115 1.000 N/A
End of Period..................................................... 1.875 1.670 1.482 1.115 N/A
Number of Units Outstanding at End of Period (in thousands)......... 5,947 5,197 3,849 1,069 N/A
SELECT VALUE OPPORTUNITY FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.764 1.433 1.131 0.975 1.000
End of Period..................................................... 1.823 1.764 1.433 1.131 0.975
Number of Units Outstanding at End of Period (in thousands)......... 7,243 5,466 3,037 1,614 795
SELECT GROWTH FUND
Accumulation Unit Value:
Beginning of Period............................................... 2.064 1.562 1.229 1.057 1.000
End of Period..................................................... 2.756 2.064 1.562 1.229 1.057
Number of Units Outstanding at End of Period (in thousands)......... 8,389 5,589 2,645 1,278 406
GROWTH FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.986 1.610 1.359 1.037 1.000
End of Period..................................................... 2.336 1.986 1.610 1.359 1.037
Number of Units Outstanding at End of Period (in thousands)......... 9,224 7,404 4,652 2,436 947
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNTS 1998 1997 1996 1995 1994
- -------------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
FIDELITY VIP GROWTH PORTFOLIO
Accumulation Unit Value:
Beginning of Period............................................... 1.972 1.620 1.433 1.073 1.073
End of Period..................................................... 2.712 1.972 1.620 1.433 1.073
Number of Units Outstanding at End of Period (in thousands)......... 13,035 11,575 9,342 4,952 1,944
EQUITY INDEX FUND
Accumulation Unit Value:
Beginning of Period............................................... 2.187 1.675 1.390 1.035 1.000
End of Period..................................................... 2.766 2.187 1.675 1.390 1.035
Number of Units Outstanding at End of Period (in thousands)......... 8,479 5,712 2,417 947 189
SELECT GROWTH AND INCOME FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.911 1.582 1.324 1.030 1.000
End of Period..................................................... 2.193 1.911 1.582 1.324 1.030
Number of Units Outstanding at End of Period (in thousands)......... 7,519 6,124 3,759 2,173 832
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Accumulation Unit Value:
Beginning of Period............................................... 2.034 1.610 1.430 1.073 1.000
End of Period..................................................... 2.238 2.034 1.610 1.430 1.073
Number of Units Outstanding at End of Period (in thousands)......... 16,111 12,959 9,957 5,738 2,214
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Accumulation Unit Value:
Beginning of Period............................................... 1.527 1.284 1.137 0.985 1.000
End of Period..................................................... 1.732 1.527 1.284 1.137 0.985
Number of Units Outstanding at End of Period (in thousands)......... 3,514 3,125 2,735 2,025 1,240
FIDELITY VIP HIGH INCOME PORTFOLIO
Accumulation Unit Value:
Beginning of Period............................................... 1.543 1.330 1.184 0.995 1.000
End of Period..................................................... 1.455 1.543 1.330 1.184 0.995
Number of Units Outstanding at End of Period (in thousands)......... 14,203 9,794 5,635 2,530 985
INVESTMENT GRADE INCOME FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.267 1.174 1.151 0.990 1.000
End of Period..................................................... 1.348 1.267 1.174 1.151 0.990
Number of Units Outstanding at End of Period (in thousands)......... 5,160 3,889 2,854 1,677 1,677
GOVERNMENT BOND FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.199 1.136 1.113 0.998 1.000
End of Period..................................................... 1.273 1.199 1.136 1.113 0.998
Number of Units Outstanding at End of Period (in thousands)......... 2,605 1,694 1,629 1,098 363
MONEY MARKET FUND
Accumulation Unit Value:
Beginning of Period............................................... 1.149 1.105 1.064 1.020 1.000
End of Period..................................................... 1.195 1.149 1.105 1.064 1.020
Number of Units Outstanding at End of Period (in thousands)......... 8,683 8,628 7,379 4,194 1,837
</TABLE>
No information is shown above for Sub-Accounts that commenced operations after
December 31, 1998.
A-5
<PAGE>
APPENDIX B
EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS
Assume a payment of $250,000 is made by a 65 year old male. Further assume that
he selects a variable annuity payout option of Life with 10 years guaranteed. An
AIR of 3% and an annual change frequency is also selected. Assume that the
initial payment purchases 1,370 annuity units and the first monthly payment is
equal to $1,370. The following examples assume a gross return of 8%.
PRESENT VALUE WITHDRAWAL OPTION
1. Assume that the owner has taken no previous withdrawals would like to
take the maximum liquidity available at the beginning of the third
contract year.
Annuity Units before withdrawal = 1,370
Monthly Annuity Benefit before withdrawal = $1,506.24
Present Value of Future Guaranteed Annuity Benefit Payments =
$108,367.55
Discount Rate = 5% (3% AIR plus 2% Adjustment)
Maximum Liquidity = $81,275.66 ($108,367.55 * 75%)
Annuity Units after withdrawal = 342.50
Monthly Annuity Benefit after withdrawal = $376.56
Please note that the number of Annuity Units will increase to 1,370 after
the end of the guaranteed period.
2. Assume that the owner has taken no previous withdrawals and would like
to take the maximum liquidity available at the beginning of the eighth
contract year.
Annuity Units before withdrawal = 1,370
Monthly Annuity Benefit before withdrawal = $1,909.09
Present Value of Future Guaranteed Annuity Benefit Payments =
$53,409.64
Discount Rate = 3% (3% AIR)
Maximum Liquidity = $40,057.23 ($53,409.64 * 75%)
Annuity Units after withdrawal = 342.50
Monthly Annuity Benefit after withdrawal = $477.27
Please note that the number of Annuity Units will increase to 1,370 after
the end of the guaranteed period.
PAYMENT WITHDRAWAL AMOUNT OPTION
3. Assume that the owner has taken no previous withdrawals and would like
to take a withdrawal of 10 Monthly Annuity Benefit payments at the
beginning of the third contract year.
Annuity Units before withdrawal = 1,370
Monthly Annuity Benefit before withdrawal = $1,506.24
Withdrawal = $15,062.40
Present Value of Future Annuity Benefit Payments = $234,482.77
Discount Rate = 4% (3% AIR plus 1% Adjustment)
Annuity Units after withdrawal = 1,282.00 (1,370 * (1 -
(15,062.40/234,482.77)))
Monthly Annuity Benefit after withdrawal = $1,409.48
4. Assume that the owner has taken no previous withdrawals and would like
to take a withdrawal of 10 Monthly Annuity Benefit payments at the
beginning of the eighth contract year.
Annuity Units before withdrawal = 1,370
Monthly Annuity Benefit before withdrawal = $1,909.09
Withdrawal = $19,090.90
Present Value of Future Guaranteed Annuity Benefit Payments =
$268,826.18
Discount Rate = 3% (3% AIR)
Annuity Units after withdrawal = 1,272.71 (1,370* (1 -
(19,090.90/268,826.18)))
Monthly Annuity Benefit after withdrawal = $477.27
B-1
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
OF
INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACT FUNDED THROUGH
SUB-ACCOUNTS OF
SEPARATE ACCOUNT VA-K
INVESTING IN SHARES OF ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE
PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL
SERIES, INC., AND DELAWARE GROUP PREMIUM FUND, INC.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE
READ IN CONJUNCTION WITH THE ALLMERICA IMMEDIATE ADVANTAGE VARIABLE ANNUITY
PROSPECTUS FOR THE ABOVE SUB-ACCOUNTS OF SEPARATE ACCOUNT VA-K (EXECANNUITY
PLUS/ALLMERICA ADVANTAGE) DATED ________, 1999 ("THE PROSPECTUS"). THE
PROSPECTUS MAY BE OBTAINED FROM ANNUITY CLIENT SERVICES, FIRST ALLMERICA
FINANCIAL LIFE INSURANCE COMPANY, 440 LINCOLN STREET, WORCESTER,
MASSACHUSETTS 01653, TELEPHONE 1-800-533-7881.
DATED _______, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
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>
GENERAL INFORMATION AND HISTORY
Separate Account VA-K (the "Variable Account") is a separate investment account
of First Allmerica Financial Life Insurance Company (the "Company") established
by vote of its Board of Directors on August 20, 1991. The Company, organized
under the laws of Massachusetts in 1844, is among the five oldest life insurance
companies in America. As of December 31, 1998, the Company and its subsidiaries
had over $27 billion in combined assets and over $48 billion of life insurance
in force. Effective October 16, 1995, the Company converted from a mutual life
insurance company, known as State Mutual Life Assurance Company of America, to a
stock life insurance company and adopted its present name. The Company is a
wholly owned subsidiary of Allmerica Financial Corporation ("AFC"). The
Company's principal office (the "Principal Office") is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, telephone (508) 855-1000.
The Company is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
in Massachusetts. In addition, the Company is subject to the insurance laws and
regulations of other states and jurisdictions in which it is licensed to
operate.
Currently, 20 Sub-Accounts of the Variable Account are available under the
Allmerica Immediate Advantage Variable Annuity contract (the "Contract").
Each Sub-Account invests in a corresponding investment portfolio of Allmerica
Investment Trust (the "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 Trust is managed by Allmerica Financial Investment
Management Services, Inc. Fidelity VIP and Fidelity VIP II are managed by
Fidelity Management & Research Company ("FMR"). The T. Rowe Price
International Stock Portfolio of T. Rowe Price is managed by Rowe
Price-Fleming International, Inc. ("Price-Fleming"). The International Equity
Series of DGPF is managed by Delaware International Advisers Ltd.
("International Advisers").
2
<PAGE>
The Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF are
open-end, diversified management investment companies. Thirteen different
funds of the Trust are available under the Contract: the Select Emerging
Markets Fund, Growth Fund, Select Strategic 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. Four of the portfolios of Fidelity VIP are
available under the Contract: the Fidelity VIP High Income Portfolio,
Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth Portfolio, and
Fidelity VIP Overseas Portfolio. One portfolio of Fidelity VIP II is
available under the Contract: the Fidelity VIP II Asset Manager Portfolio.
One portfolio of T. Rowe Price is available under the Contract: the T. Rowe
Price International Stock Portfolio. The International Equity Series is the
only Series of DGPF available under the Contract. Each Fund, Portfolio and
Series available under the Contract (together, the "Underlying Funds") has
its own investment objectives and certain attendant risks.
TAXATION OF THE CONTRACT, THE VARIABLE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
contracts, other than for state and local premium taxes and similar assessments
when applicable. The Company reserves the right to impose a charge for any other
taxes that may become payable in the future in connection with the contracts or
the Variable Account.
The Variable Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Internal Revenue Code (the "Code") and files a consolidated
tax return with its affiliated companies.
The Company reserves the right to make a charge for any effect which the income,
assets or existence of the Contract or the Variable Account may have upon its
tax. Such charge for taxes, if any, will be assessed on a fair and equitable
basis in order to preserve equity among classes of Contract Owners ("Owners").
The Variable Account presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Variable Account. Underlying Fund shares owned by the Sub-Accounts are held on
an open account basis. A Sub-Account's ownership of Underlying Fund shares is
reflected on the records of the Underlying Fund and is not represented by any
transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998, and
the financial statements of Separate Account VA-K Allmerica Advantage Variable
Annuity and ExecAnnuity Plus Variable Annuity of the Company as of December 31,
1998 and for the periods indicated, included in this Statement of Additional
Information constituting part of this Registration Statement, have been so
included in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Contract.
3
<PAGE>
UNDERWRITERS
Allmerica Investments, Inc. ("Allmerica Investments"), a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. ("NASD"), serves as principal
underwriter and general distributor for the Contract pursuant to a contract with
Allmerica Investments, the Company and the Variable Account. Allmerica
Investments distributes the Contract on a best-efforts basis. Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653, was
organized in 1969 as a wholly owned subsidiary of the Company, and presently is
indirectly wholly owned by the Company.
The Contract offered by this Prospectus is offered continuously, and may be
purchased from NASD registered representatives of Allmerica Investments and from
certain independent broker-dealers which are NASD members and whose
representatives are authorized by applicable law to sell variable annuity
contracts.
Commissions are paid by the Company to its licensed insurance agents on sales
of the Contract. The Company intends to recoup the commission and other sales
expense through a combination of anticipated withdrawal and/or annuitization
charges, profits from the Company's general account, including the investment
earnings on amounts allocated to accumulate on a fixed basis in excess of the
interest credited on fixed accumulations by the Company, and the profit, if
any, from the mortality and expense risk charge.
All persons selling the Contract are required to be licensed by their respective
state insurance authorities for the sale of variable annuity policies.
Registered representatives of Allmerica Investments receive commissions of up to
5% (4% on contracts originally issued as part of a 401(k) plan) of payments.
Independent broker-dealers receive commission of 5%, a portion of which is paid
to their registered representatives.
The aggregate amounts of commissions paid to representatives of Allmerica
Investments, Inc. with respect to sales of the contracts were $3,517,207.62 in
1998, $3,098,375.76 in 1997 and $2,562,619.40 in 1996.
No commissions were paid for sales of Contract Form A3027-98 since it was not
offered until ____________.
Commissions are paid by the Company, and do not result in any charge to Owners
or to the Variable Account in addition to the charges described under "CHARGES
AND DEDUCTIONS" in the Prospectus.
4
<PAGE>
ANNUITY BENEFIT PAYMENTS
ILLUSTRATION OF VARIABLE ANNUITY BENEFIT PAYMENT CALCULATION USING
HYPOTHETICAL EXAMPLE. The determination of the Annuity Unit value and the
variable annuity benefit payment may be illustrated by the following
hypothetical example: Assume an Annuitant has 40,000 Accumulation Units in a
Variable Account, and that the value of an Accumulation Unit on the Valuation
Date used to determine the amount of the first variable annuity benefit
payment is $1.120000. Therefore, the Accumulation Value of the Contract is
$44,800 (40,000 x $1.120000). Assume also that the Owner elects an option for
which the first monthly payment is $6.57 per $1,000 of Accumulated Value
applied. Assuming no premium tax, the first monthly payment would be 44.800
multiplied by $6.57, or $294.34.
Next, assume that the Annuity Unit value for the assumed rate of 3.0% per annum
for the Valuation Date as of which the first payment was calculated was
$1.100000. When the Annuity Unit value of $1.100000 is divided into the
first monthly payment the number of Annuity Units represented by that payment is
determined to be 267.5818. The value of this same number of Annuity Units will
be paid in each subsequent month under most options. Assume further that the net
investment factor for the Valuation Period applicable to the next annuity
benefit payment is 1.000109. Multiplying this factor by .999919 (the one-day
adjustment factor for the assumed interest rate of 3.0% per annum) produces a
factor of 1.000109. This then is multiplied by the Annuity Unit value on the
immediately preceding Valuation Date (assumed here to be $1.105000). The result
is an Annuity Unit value of $1.105120 for the current monthly payment. The
current monthly payment then is determined by multiplying the number of Annuity
Units by the current Annuity Unit value, or 267.5818 times $1.105120, which
produces a current monthly payment of $295.71.
<TABLE>
<CAPTION>
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
ALLMERICA IMMEDIATE ALLMERICA ADVANTAGE EXEC ANNUITY PLUS '93 EXEC ANNUITY PLUS '91
ADVANTAGE (A3029-99) (A3025-96) (3021-93) (3018-91)
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
What are the Rates are current only - The first payment is The first payment is The first payment is
Annuitization Rates no guarantee rates. based on the greater of based on the greater of based on the greater of
that apply to variable the rates guaranteed in the rates guaranteed in the rates guaranteed in
annuity payments? the contract or the the contract or the the contract or the
current rates. current rates. current rates.
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
What is the Assumed The owner has a choice The Assumed Investment The Assumed Investment The Assumed Investment
Investment Return (AIR)? of 3%, 5% or 7% Return is 3.5% Return is 3.5% Return is 3.5%
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Are there any Optional Yes, both a Ratchet and No No No
Features that can be Floor Features can be
added to my contract? added.
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
If my contract has joint The surviving owner is The contract will never The contract will never The contract will never
owners, who is the always the primary have joint owners after have joint owners after have joint owners after
primary beneficiary on beneficiary. the Annuity Date. the Annuity Date. the Annuity Date.
the death of the first
owner?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Can I take withdrawals? Yes No No No
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Will a surrender charge No Yes, for any commutable Yes, for any commutable Yes, for any commutable
be assessed when I period certain options period certain options period certain options
annuitize? are any period certain are any period certain are any period certain
option under 10 years. option under 10 years. option under 10 years.
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Is a cash back annuity Yes No No No
option available?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Is a unit refund annuity No Yes No No
option available?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
How many investment 20 4 4 4
choices do I have?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Can I make transfers? Yes No No No
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Is Automatic Account Yes No No No
Rebalancing (AAR)
available?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Are commutable annuity No. But limited Commutable period Commutable period Commutable period
options available. commutation is available certain options are certain options are certain options are
for certain options. available. available. available.
(see Liquidity)
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
</TABLE>
5
<PAGE>
<TABLE>
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Can I choose to have my Yes (see Change No No No
variable annuity payments Frequency, page ____0
level for a certain
period of time?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Can I choose when I Yes (see Date of First No No No
would like the value of Change, page _____)
my variable annuity
payments to change for
the first time?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
What period certain 5-30 years 1-30 years 1-30 years 1-30 years
annuity options are
available?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Can I reverse my decision Yes. For 90 days after No No No
to annuitize? you have received your
contract you reverse
your decision to
annuitize. (see Right
to Examine Contract,
page___)
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Does the annuitant become No Yes Yes Yes
the owner of the contract
on the Annuity Date?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
What is the minimum $100 $50 $50 $50
annuity payment?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
Who will receive the The owner The annuitant The annuitant The annuitant
annuity payments?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
How frequently will I Monthly Monthly, Quarterly, Monthly, Quarterly, Monthly, Quarterly,
receive annuity Semi-annually, Annually Semi-annually, Annually Semi-annually, Annually
payments?
- ------------------------- ------------------------ ----------------------- ----------------------- -----------------------
</TABLE>
PERFORMANCE INFORMATION
The Contract was first offered to the public in 1999. However, in order to
help people understand how investment performance can affect money invested
in the Sub-Accounts, the Company may advertise "total return" and "average
annual total return" performance information based on (1) the periods that
the Sub-Accounts have been in existence and (2) the periods that the
Underlying Funds have been in existence. Performance results in Tables 1A and
2A are calculated with all charges assumed to be those applicable to the
Contract, the Sub-Accounts and the Underlying Funds. Both the total return
and yield figures are based on historical earnings and are not intended to
indicate future performance.
The "total return" of a 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 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.
6
<PAGE>
Quotations of average annual total return as shown in Table 1A and 2A 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% and the Underlying Fund charges which would be assessed
if the investment were completely withdrawn at the end of the specified
period.
The performance shown in Table 2A is calculated in exactly the same manner as
that in Table 1A; 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.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment in a
Sub-Account and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specified period, reduced
by the Sub-Account's asset charge.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission (the "SEC"). The quotations are
computed by finding the average annual compounded rates of return over the
specified periods that would equate the initial amount invested to the ending
redeemable values, according to the following formula:
(n)
P(1 + T) = ERV
Where: P = a hypothetical initial payment to the Variable Account
of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at
the end of the specified period
The calculation of Total Return includes the annual charges against the assets
of the Sub-Account. This charge is 1.45% on an annual basis. The calculation of
ending redeemable value assumes (1) the Contract was issued at the beginning of
the period, and (2) a complete surrender of the Contract at the end of the
period.
7
<PAGE>
PERFORMANCE TABLES
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF SUB-ACCOUNT
<TABLE>
<CAPTION>
FOR YEAR SINCE
SUB-ACCOUNT ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/98 5 YEARS SUB-ACCOUNT
- ---------------------------------------- -------------- -------- ------- ------------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund .......................
Select International Equity Fund ...................
DGPF International Equity Series ...................
Fidelity VIP Overseas Portfolio ....................
T. Rowe Price International Stock Portfolio ........
Select Aggressive Growth Fund ......................
Select Capital Appreciation Fund ...................
Select Value Opportunity Fund ......................
Select Growth Fund .................................
Select Strategic Growth Fund .......................
Growth Fund ........................................
Fidelity VIP Growth Portfolio ......................
Equity Index Fund ..................................
Select Growth and Income Fund ......................
Fidelity VIP Equity-Income Portfolio ...............
Fidelity VIP II Asset Manager Portfolio ............
Fidelity VIP High Income Portfolio .................
Investment Grade Income Fund ......................
Government Bond Fund ...............................
Money Market Fund ..................................
</TABLE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF UNDERLYING FUND
<TABLE>
<CAPTION>
FOR YEAR 10 YEARS OR
UNDERLYING FUND ENDED SINCE INCEPTION
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/98 5 YEARS IF LESS
- ---------------------------------------- -------------- -------- ------- --------
<S> <C> <C> <C> <C>
Select Emerging Markets Fund ........................ 2/20/98 N/A N/A -22.43%
Select International Equity Fund .................... 5/2/94 6.63% N/A 9.75%
DGPF International Equity Series .................... 10/29/92 0.80% 8.14% 9.13%
Fidelity VIP Overseas Portfolio ..................... 1/28/87 3.02% 7.26% 8.41%
T. Rowe Price International Stock Portfolio ......... 3/31/94 6.11% N/A 7.21%
Select Aggressive Growth Fund ....................... 8/21/92 0.89% 12.52% 16.02%
Select Capital Appreciation Fund .................... 4/28/95 4.12% N/A 17.48%
Select Value Opportunity Fund ....................... 4/30/93 -4.23% 10.69% 12.57%
Select Growth Fund .................................. 8/21/92 25.33% 19.80% 17.14%
Select Strategic Growth Fund ........................ 2/20/98 N/A N/A -3.67%
Growth Fund ......................................... 4/29/85 9.34% 16.55% 15.18%
Fidelity VIP Growth Portfolio ....................... 10/9/86 29.18% 19.24% 17.51%
Equity Index Fund ................................... 9/28/90 18.32% 21.05% 18.84%
Select Growth and Income Fund ....................... 8/21/92 6.60% 15.46% 13.50%
Fidelity VIP Equity-Income Portfolio ................ 10/9/86 1.79% 16.26% 13.73%
Fidelity VIP II Asset Manager Portfolio ............. 9/6/89 5.34% 9.47% 10.91%
Fidelity VIP High Income Portfolio .................. 9/19/85 -12.63% 6.34% 9.39%
Investment Grade Income Fund ....................... 4/29/85 -1.33% 4.49% 7.52%
Government Bond Fund ................................ 8/26/91 -1.54% 3.59% 4.95%
Money Market Fund ................................... 4/29/85 -3.52% 2.80% 4.08%
</TABLE>
8
<PAGE>
YIELD AND EFFECTIVE YIELD - THE MONEY MARKET SUB-ACCOUNT
Set forth below is yield and effective yield information for the Money Market
Sub-Account for the seven-day period ended December 31, 1998:
<TABLE>
<S> <C>
--------------------------
Yield 3.67%
--------------------------
Effective Yield 3.73%
--------------------------
</TABLE>
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the SEC. Under those methods, the yield quotation is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit of the Sub-Account at the beginning of the period, dividing
the difference by the value of the account at the beginning of the same
period to obtain the base period return, and then multiplying the return for
a seven-day base period by (365/7), with the resulting yield carried to the
nearest hundredth of one percent.
The Money Market Sub-Account computes effective yield by compounding the
unannualized base period return by using the formula:
(365/7)
Effective Yield = [(base period return + 1) ] - 1
FINANCIAL STATEMENTS
Financial Statements are included for First Allmerica Financial Life Insurance
Company and for its Separate Account VA-K.
9
<PAGE>
FIRST ALLMERICA
FINANCIAL LIFE
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
First Allmerica Financial Life Insurance Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, shareholder's equity
and cash flows present fairly, in all material respects, the financial position
of First Allmerica Financial Life Insurance Company and its subsidiaries (the
"Company") at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 1999, except for paragraph 2 of Note 18 and Note 20,
which are as of March 19, 1999 and April 1, 1999, respectively
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
----------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
REVENUES
Premiums................................... $2,303.9 $2,311.0 $2,236.3
Universal life and investment product
policy fees.............................. 296.6 237.3 197.2
Net investment income...................... 613.7 641.8 670.8
Net realized investment gains.............. 62.6 76.5 66.8
Other income............................... 142.6 117.6 108.4
-------- -------- --------
Total revenues......................... 3,419.4 3,384.2 3,279.5
-------- -------- --------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 2,050.2 2,004.6 1,957.0
Policy acquisition expenses................ 452.8 425.1 470.1
Sales practice litigation.................. 31.0 -- --
Loss from exiting reinsurance pools........ 25.3 -- --
Loss from cession of disability income
business................................. -- 53.9 --
Restructuring costs........................ 13.0 -- --
Other operating expenses................... 559.0 523.7 503.2
-------- -------- --------
Total benefits, losses and expenses.... 3,131.3 3,007.3 2,930.3
-------- -------- --------
Income before federal income taxes............. 288.1 376.9 349.2
-------- -------- --------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 67.6 83.3 96.8
Deferred................................... (15.4) 14.2 (15.7)
-------- -------- --------
Total federal income tax expense....... 52.2 97.5 81.1
-------- -------- --------
Income before minority interest................ 235.9 279.4 268.1
Minority interest.......................... (55.0) (79.4) (74.6)
-------- -------- --------
Net income..................................... $ 180.9 $ 200.0 $ 193.5
-------- -------- --------
-------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-1
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
-------------------------------------------------------- --------- ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$7,520.8 and $6,992.8)............................. $ 7,683.9 $ 7,253.5
Equity securities at fair value (cost of $253.1 and
$341.1)............................................ 397.1 479.0
Mortgage loans...................................... 562.3 567.5
Real estate......................................... 20.4 50.3
Policy loans........................................ 154.3 141.9
Other long-term investments......................... 142.7 148.3
--------- ---------
Total investments............................... 8,960.7 8,640.5
--------- ---------
Cash and cash equivalents............................. 504.0 213.9
Accrued investment income............................. 141.0 141.8
Deferred policy acquisition costs..................... 1,161.2 965.5
--------- ---------
Reinsurance receivables:
Future policy benefits.............................. 322.6 307.1
Outstanding claims, losses and loss adjustment
expenses........................................... 652.2 626.7
Other............................................... 161.6 106.4
--------- ---------
Total reinsurance receivables................... 1,136.4 1,040.2
--------- ---------
Deferred federal income taxes......................... 19.4 --
Premiums, accounts and notes receivable............... 510.5 554.4
Other assets.......................................... 530.6 373.0
Closed Block assets................................... 803.1 806.7
Separate account assets............................... 13,697.7 9,755.4
--------- ---------
Total assets.................................... $27,464.6 $22,491.4
--------- ---------
--------- ---------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,802.2 $ 2,598.5
Outstanding claims, losses and loss adjustment
expenses........................................... 2,815.9 2,825.0
Unearned premiums................................... 843.2 846.8
Contractholder deposit funds and other policy
liabilities........................................ 2,637.0 1,852.7
--------- ---------
Total policy liabilities and accruals........... 9,098.3 8,123.0
--------- ---------
Expenses and taxes payable............................ 681.9 662.6
Reinsurance premiums payable.......................... 50.2 37.7
Short-term debt....................................... 221.3 33.0
Deferred federal income taxes......................... -- 12.9
Long-term debt........................................ -- 2.6
Closed Block liabilities.............................. 872.0 885.6
Separate account liabilities.......................... 13,691.5 9,749.7
--------- ---------
Total liabilities............................... 24,615.2 19,507.1
--------- ---------
Minority interest..................................... 532.9 748.9
Commitments and contingencies (Notes 13 and 18)
SHAREHOLDER'S EQUITY
Common stock, $10 par value, 1 million shares
authorized, 500,000 shares issued and outstanding... 5.0 5.0
Additional paid-in capital............................ 444.0 453.7
Accumulated other comprehensive income................ 169.2 209.3
Retained earnings..................................... 1,698.3 1,567.4
--------- ---------
Total shareholder's equity...................... 2,316.5 2,235.4
--------- ---------
Total liabilities and shareholder's equity...... $27,464.6 $22,491.4
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-2
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
----------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
COMMON STOCK................................... $ 5.0 $ 5.0 $ 5.0
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............. 453.7 392.4 392.4
Contributed from parent.................... -- 61.3 --
Loss on change of interest -- Allmerica
P&C...................................... (9.7) -- --
-------- -------- --------
Balance at end of period................... 444.0 453.7 392.4
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Net unrealized appreciation on investments:
Balance at beginning of period............. 209.3 131.4 153.0
Appreciation (depreciation) during the
period:
Net (depreciation) appreciation on
available-for-sale securities............ (82.4) 170.9 (35.1)
Benefit (provision) for deferred federal
income taxes............................. 28.9 (59.8) 11.8
Minority interest.......................... 13.4 (33.2) 1.7
-------- -------- --------
(40.1) 77.9 (21.6)
-------- -------- --------
Balance at end of period................... 169.2 209.3 131.4
-------- -------- --------
RETAINED EARNINGS
Balance at beginning of period............. 1,567.4 1,367.4 1,173.9
Net income................................. 180.9 200.0 193.5
Dividend to shareholder.................... (50.0) -- --
-------- -------- --------
Balance at end of period................... 1,698.3 1,567.4 1,367.4
-------- -------- --------
Total shareholder's equity............. $2,316.5 $2,235.4 $1,896.2
-------- -------- --------
-------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
-------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Net income.................................. $180.9 $200.0 $193.5
------ ------ ------
Other comprehensive income:
Net (depreciation) appreciation on
available-for-sale securities........... (82.4) 170.9 (35.1)
Benefit (provision) for deferred federal
income taxes............................ 28.9 (59.8) 11.8
Minority interest......................... 13.4 (33.2) 1.7
------ ------ ------
Other comprehensive income.............. (40.1) 77.9 (21.6)
------ ------ ------
Comprehensive income...................... $140.8 $277.9 $171.9
------ ------ ------
------ ------ ------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
-------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 180.9 $ 200.0 $ 193.5
Adjustments to reconcile net income to
net cash provided by operating
activities:
Minority interest................... 55.0 79.4 74.6
Net realized gains.................. (62.7) (77.8) (66.8)
Net amortization and depreciation... 20.7 31.6 44.7
Deferred federal income taxes....... (15.4) 14.2 (15.7)
Loss from exiting reinsurance
pools............................... 25.3 -- --
Sales practice litigation expense... 31.0 -- --
Payment related to exiting
reinsurance pools................... (30.3) -- --
Loss from cession of disability
income business..................... -- 53.9 --
Payment related to cession of
disability income business.......... -- (207.0) --
Change in deferred acquisition
costs............................... (185.8) (189.7) (73.9)
Change in premiums and notes
receivable, net of reinsurance
payable............................. 56.7 (15.1) (16.8)
Change in accrued investment
income.............................. 0.8 7.1 16.7
Change in policy liabilities and
accruals, net....................... 168.1 (134.9) (184.3)
Change in reinsurance receivable.... (115.4) 27.2 123.8
Change in expenses and taxes
payable............................. (3.3) 49.4 26.0
Separate account activity, net...... (48.5) -- 5.2
Other, net.......................... (63.8) 20.4 38.5
-------- -------- --------
Net cash provided by (used in)
operating activities................ 13.3 (141.3) 165.5
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................. 1,929.1 2,892.9 3,985.8
Proceeds from disposals of equity
securities............................. 285.3 162.7 228.7
Proceeds from disposals of other
investments............................ 120.8 116.3 99.3
Proceeds from mortgages matured or
collected.............................. 171.2 204.7 176.9
Purchase of available-for-sale fixed
maturities............................. (2,588.4) (2,596.0) (3,771.1)
Purchase of equity securities........... (119.9) (67.0) (90.9)
Purchase of other investments........... (274.4) (175.0) (168.0)
Capital expenditures.................... (0.7) (15.3) (12.8)
Purchase of minority interest in
Citizens Corporation................... (195.9) -- --
Other investing activities, net......... 5.1 1.3 4.3
-------- -------- --------
Net cash (used in) provided by
investing activities................ (667.8) 524.6 452.2
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to
contractholder deposit funds........... 1,419.2 457.6 268.7
Withdrawals from contractholder deposit
funds.................................. (625.0) (647.1) (905.0)
Change in short-term debt............... 188.3 (5.4) 10.4
Change in long-term debt................ (2.6) (0.1) (0.1)
Dividend paid to parent................. (50.0) -- --
Dividends paid to minority
shareholders........................... -- (9.4) (3.9)
Additional paid-in capital.............. -- 0.1 --
Subsidiary treasury stock purchased, at
cost................................... (1.0) (140.0) (42.0)
-------- -------- --------
Net cash provided by (used in)
financing activities................ 928.9 (344.3) (671.9)
-------- -------- --------
Net change in cash and cash equivalents..... 274.4 39.0 (54.2)
Net change in cash held in the Closed
Block...................................... 15.7 (1.0) (6.5)
Cash and cash equivalents, beginning of
period..................................... 213.9 175.9 236.6
-------- -------- --------
Cash and cash equivalents, end of period.... $ 504.0 $ 213.9 $ 175.9
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid............................... $ 7.3 $ 3.6 $ 18.6
Income taxes paid........................... $ 133.5 $ 66.3 $ 72.0
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of First Allmerica Financial Life
Insurance Company ("FAFLIC", or the "Company"), a wholly owned subsidiary of
Allmerica Financial Corporation ("AFC"), include the accounts of its wholly
owned life insurance subsidiary Allmerica Financial Life Insurance and Annuity
Company ("AFLIAC"), its non-insurance subsidiaries (principally brokerage and
investment advisory subsidiaries), and Allmerica Property and Casualty
Companies, Inc. ("Allmerica P&C") (a 70.06%-owned non-insurance holding
company). The Closed Block (Note 1B) assets and liabilities at December 31, 1998
and 1997, and its results of operations subsequent to demutualization are
presented in the consolidated financial statements as single line items. Unless
specifically stated, all disclosures contained herein supporting the
consolidated financial statements at December 31, 1998 and 1997, and the years
then ended exclude the Closed Block related amounts. All significant
intercompany accounts and transactions have been eliminated.
On December 3, 1998, the Company acquired all of the outstanding common stock of
Citizens Corporation (formerly an 82.5% owned non-insurance subsidiary of
Hanover, a wholly owned subsidiary of Allmerica P&C) that it did not already own
in exchange for cash of $195.9 million (Note 3). The acquisition has been
recognized as a purchase. The minority interest acquired totaled $158.5 million.
A total of $40.8 million representing the excess of the purchase price over the
fair values of the net assets acquired, net of deferred taxes, has been
allocated to goodwill and is being amortized over a 40-year period.
Allmerica P&C and a wholly owned subsidiary of AFC merged on July 16, 1997.
Through the merger, AFC acquired all of the outstanding common stock of
Allmerica P&C that it did not already own in exchange for cash and stock. The
merger has been accounted for as a purchase. A total of $90.6 million,
representing the excess of the purchase price over the fair values of the net
assets acquired, net of deferred taxes, has been allocated to goodwill and is
being amortized over a 40-year period. Additional information pertaining to the
merger agreement is included in Note 2, significant transactions.
Minority interest relates to the Company's investment in Allmerica P&C and its
only significant subsidiary, The Hanover Insurance Company ("Hanover").
Hanover's wholly owned subsidiary is Citizens Corporation, the holding company
for Citizens Insurance Company of America ("Citizens"). Minority interest also
includes an amount related to the minority interest in Citizens Corporation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
B. CLOSED BLOCK
The Company established and began operating a closed block (the "Closed Block")
for the benefit of the participating policies included therein, consisting of
certain individual life insurance participating policies, individual deferred
annuity contracts and supplementary contracts not involving life contingencies
which were in force as of FAFLIC's demutualization on October 16, 1995; such
policies constitute the "Closed Block Business". The purpose of the Closed Block
is to protect the policy dividend expectations of such FAFLIC dividend paying
policies and contracts. Unless the Commissioner consents to an earlier
termination, the Closed Block will continue to be in effect until the date none
of the Closed Block policies are in force. FAFLIC allocated to the Closed Block
assets in an amount that is expected to produce cash flows which, together with
future revenues from the Closed Block Business, are reasonably sufficient to
support the Closed Block Business, including provision for payment of policy
benefits, certain future expenses and taxes and for
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
continuation of policyholder dividend scales payable in 1994 so long as the
experience underlying such dividend scales continues. The Company expects that
the factors underlying such experience will fluctuate in the future and
policyholder dividend scales for Closed Block Business will be set accordingly.
Although the assets and income allocated to the Closed Block inure solely to the
benefit of the holders of policies included in the Closed Block, the excess of
Closed Block liabilities over Closed Block assets as measured on a GAAP basis
represent the expected future post-tax income from the Closed Block which may be
recognized in income over the period the policies and contracts in the Closed
Block remain in force.
If the actual income from the Closed Block in any given period equals or exceeds
the expected income for such period as determined at the inception of the Closed
Block, the expected income would be recognized in income for that period.
Further, any excess of the actual income over the expected income would also be
recognized in income to the extent that the aggregate expected income for all
prior periods exceeded the aggregate actual income. Any remaining excess of
actual income over expected income would be accrued as a liability for
policyholder dividends in the Closed Block to be paid to the Closed Block
policyholders. This accrual for future dividends effectively limits the actual
Closed Block income recognized in income to the Closed Block income expected to
emerge from operation of the Closed Block as determined at inception.
If, over the period the policies and contracts in the Closed Block remain in
force, the actual income from the Closed Block is less than the expected income
from the Closed Block, only such actual income (which could reflect a loss)
would be recognized in income. If the actual income from the Closed Block in any
given period is less than the expected income for that period and changes in
dividends scales are inadequate to offset the negative performance in relation
to the expected performance, the income inuring to shareholders of the Company
will be reduced. If a policyholder dividend liability had been previously
established in the Closed Block because the actual income to the relevant date
had exceeded the expected income to such date, such liability would be reduced
by this reduction in income (but not below zero) in any periods in which the
actual income for that period is less than the expected income for such period.
C. VALUATION OF INVESTMENTS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("Statement No. 115"), the Company is required to classify its investments into
one of three categories: held-to-maturity, available-for-sale or trading. The
Company determines the appropriate classification of debt securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Marketable equity securities and debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of shareholder's equity. The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by the Company to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which the Company believes may not be collectible in
full. In establishing reserves, the Company considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1997, the Company adopted a plan to dispose of all real estate assets by
the end of 1998. As of December 31, 1998, there were 7 properties remaining in
the Company's real estate portfolio, all of which are being actively marketed.
As a result of the plan, real estate held by the Company and real estate joint
ventures were written down to the estimated fair value less costs of disposal.
Depreciation is not recorded on these assets while they are held for disposal.
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other-than-temporary impairment of the value of a specific
investment or a group of investments is determined, a realized investment loss
is recorded. Changes in the valuation allowance for mortgage loans are included
in realized investment gains or losses.
D. FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including debt, investments such as
fixed maturities, mortgage loans and equity securities, investment and loan
commitments, swap contracts and interest rate futures contracts. These
instruments involve credit risk and also may be subject to risk of loss due to
interest rate fluctuation. The Company evaluates and monitors each financial
instrument individually and, when appropriate, obtains collateral or other
security to minimize losses.
Derivative financial instruments are accounted for under three different
methods: fair value accounting, deferral accounting and accrual accounting.
Interest rate swap contracts used to hedge interest rate risk are accounted for
using a combination of the fair value method and accrual method, with changes in
fair value reported in unrealized gains and losses in equity consistent with the
underlying hedged security, and the net payment or receipt on the swaps reported
in net investment income. Foreign currency swap contracts used to hedge foreign
currency exchange risk are accounted for using a combination of the fair value
method and accrual method, with changes in fair value reported in unrealized
gains and losses in equity consistent with the underlying hedged security, and
the net payment or receipt on the swaps reported in net investment income.
Futures contracts used to hedge interest rate risk are accounted for using the
deferral method, with gains and losses deferred in unrealized gains and losses
in equity and recognized in earnings in conjunction with the earnings
recognition of the underlying hedged item. Default swap contracts entered into
for investment purposes are accounted for using the fair value method, with
changes in fair value, if any, reported in realized investment gains and losses
in earnings. Premium paid to the Company on default swap contracts is reported
in net investment income in earnings. Other swap contracts entered into for
investment purposes are accounted for using the fair value method, with changes
in fair value reported in realized investment gains and losses in earnings. Any
ineffective swaps or futures hedges are recognized currently in realized
investment gains and losses in earnings.
E. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
F. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Property and casualty, group life and group health insurance business
acquisition costs are deferred and amortized over the terms of the insurance
policies. Acquisition costs related to universal life products, variable
annuities and contractholder deposit funds are deferred and amortized in
proportion to total estimated gross profits from investment yields, mortality,
surrender charges and expense margins over the expected life of the contracts.
This amortization is reviewed annually and adjusted retrospectively when the
Company revises its estimate of current or future gross profits to be realized
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
from this group of products, including realized and unrealized gains and losses
from investments. Acquisition costs related to fixed annuities and other life
insurance products are deferred and amortized, generally in proportion to the
ratio of annual revenue to the estimated total revenues over the contract
periods based upon the same assumptions used in estimating the liability for
future policy benefits.
Deferred acquisition costs for each life product and property and casualty line
of business are reviewed to determine if they are recoverable from future
income, including investment income. If such costs are determined to be
unrecoverable, they are expensed at the time of determination. Although
realization of deferred policy acquisition costs is not assured, the Company
believes it is more likely than not that all of these costs will be realized.
The amount of deferred policy acquisition costs considered realizable, however,
could be reduced in the near term if the estimates of gross profits or total
revenues discussed above are reduced. The amount of amortization of deferred
policy acquisition costs could be revised in the near term if any of the
estimates discussed above are revised.
G. PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is provided using the
straight-line or accelerated method over the estimated useful lives of the
related assets which generally range from 3 to 30 years. Amortization of
leasehold improvements is provided using the straight-line method over the
lesser of the term of the leases or the estimated useful life of the
improvements.
H. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of certain pension, variable annuity
and variable life insurance contractholders. Assets consist principally of
bonds, common stocks, mutual funds, and short-term obligations at market value.
The investment income, gains and losses of these accounts generally accrue to
the contractholders and, therefore, are not included in the Company's net
income. Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholder's equity or net investment income.
I. POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity products.
Such liabilities are established in amounts adequate to meet the estimated
future obligations of policies in force. The liabilities associated with
traditional life insurance products are computed using the net level premium
method for individual life and annuity policies, and are based upon estimates as
to future investment yield, mortality and withdrawals that include provisions
for adverse deviation. Future policy benefits for individual life insurance and
annuity policies are computed using interest rates ranging from 2 1/2% to 7 1/4%
for life insurance and 2 1/2% to 9 1/2% for annuities. Estimated liabilities are
established for group life and health policies that contain experience rating
provisions. Mortality, morbidity and withdrawal assumptions for all policies are
based on the Company's own experience and industry standards. Liabilities for
universal life include deposits received from customers and investment earnings
on their fund balances, less administrative charges. Universal life fund
balances are also assessed mortality and surrender charges.
Liabilities for outstanding claims, losses and loss adjustment expenses ("LAE")
are estimates of payments to be made on property and casualty and health
insurance for reported losses and LAE and estimates of losses and LAE incurred
but not reported. These liabilities are determined using case basis evaluations
and statistical analyses and represent estimates of the ultimate cost of all
losses incurred but not paid. These estimates are continually reviewed and
adjusted as necessary; such adjustments are reflected in current operations.
Estimated amounts of salvage and subrogation on unpaid property and casualty
losses are deducted from the liability for unpaid claims.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Premiums for property and casualty, group life, and accident and health
insurance are reported as earned on a pro-rata basis over the contract period.
The unexpired portion of these premiums is recorded as unearned premiums.
Contractholder deposit funds and other policy liabilities include investment
related products such as guaranteed investment contracts, deposit administration
funds and immediate participation guarantee funds and consist of deposits
received from customers and investment earnings on their fund balances.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, the Company
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
J. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life and health insurance and individual and group
annuity products, excluding universal life and investment-related products, are
considered revenue when due. Property and casualty and group life, accident and
health insurance premiums are recognized as revenue over the related contract
periods. Benefits, losses and related expenses are matched with premiums,
resulting in their recognition over the lives of the contracts. This matching is
accomplished through the provision for future benefits, estimated and unpaid
losses and amortization of deferred policy acquisition costs. Revenues for
investment-related products consist of net investment income and contract
charges assessed against the fund values. Related benefit expenses primarily
consist of net investment income credited to the fund values after deduction for
investment and risk charges. Revenues for universal life products consist of net
investment income, and mortality, administration and surrender charges assessed
against the fund values. Related benefit expenses include universal life benefit
claims in excess of fund values and net investment income credited to universal
life fund values. Certain policy charges that represent compensation for
services to be provided in future periods are deferred and amortized over the
period benefited using the same assumptions used to amortize capitalized
acquisition costs.
K. FEDERAL INCOME TAXES
AFC and its domestic subsidiaries file a consolidated United States federal
income tax return. Entities included within the consolidated group are
segregated into either a life insurance or non-life insurance company subgroup.
The consolidation of these subgroups is subject to certain statutory
restrictions on the percentage of eligible non-life tax losses that can be
applied to offset life company taxable income. Prior to the merger on July 16,
1997, Allmerica P&C and its subsidiaries filed a separate United States federal
income tax return.
The Board of Directors has delegated to AFC management, the development and
maintenance of appropriate federal income tax allocation policies and
procedures, which are subject to written agreement between the companies. The
Federal income tax for all subsidiaries in the consolidated return of AFC is
calculated on a separate return basis. Any current tax liability is paid to AFC.
Tax benefits resulting from taxable operating losses or credits of AFC's
subsidiaries are not reimbursed to the subsidiary until such losses or credits
can be utilized by the subsidiary on a separate return basis.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes, and for
other temporary taxable and deductible differences as defined by Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("Statement
No. 109"). These differences result primarily from loss and LAE reserves, policy
reserves, policy acquisition expenses, and unrealized appreciation or
depreciation on investments.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
L. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), which establishes
accounting and reporting standards for derivative instruments. Statement No. 133
requires that an entity recognize all derivatives as either assets or
liabilities at fair value in the statement of financial position, and
establishes special accounting for the following three types of hedges: fair
value hedges, cash flow hedges, and hedges of foreign currency exposures of net
investments in foreign operations. This statement is effective for fiscal years
beginning after June 15, 1999. The Company is currently assessing the impact of
the adoption of Statement No. 133.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SoP 98-1"). SoP 98-1 requires that
certain costs incurred in developing internal-use computer software be
capitalized and provides guidance for determining whether computer software is
to be considered for internal use. This statement is effective for fiscal years
beginning after December 15, 1998. In the second quarter, the Company adopted
SoP 98-1 effective January 1, 1998, resulting in an increase in pre-tax income
of $12.4 million through December 31, 1998. The adoption of SOP 98-1 did not
have a material effect on the results of operations or financial position for
the three months ended March 31, 1998.
In December 1997, the AICPA issued Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SoP 97-3").
SoP 97-3 provides guidance on when a liability should be recognized for guaranty
fund and other assessments and how to measure the liability. This statement
allows for the discounting of the liability if the amount and timing of the cash
payments are fixed and determinable. In addition, it provides criteria for when
an asset may be recognized for a portion or all of the assessment liability or
paid assessment that can be recovered through premium tax offsets or policy
surcharges. This statement is effective for fiscal years beginning after
December 15, 1998. The Company believes that the adoption of this statement will
not have a material effect on the results of operations or financial position.
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("Statement No. 131"). This statement
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that
selected information about those operating segments be reported in interim
financial statements. This statement supersedes Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement No. 131 requires
that all public enterprises report financial and descriptive information about
their reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This statement
is effective for fiscal years beginning after December 15, 1997. The Company
adopted Statement No. 131 for the first quarter of 1998, which resulted in
certain segment re-definitions, which have no impact on the consolidation
results of operations. (Note 12)
In June 1997, the FASB also issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("Statement No. 130"). Statement No.
130 which establishes standards for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
All items that are required to be recognized under accounting standards as
components of comprehensive income are to be reported in a financial statement
that is displayed with the same prominence as other financial statements. This
statement stipulates that comprehensive income reflect the change in equity of
an enterprise during a period from transactions and other events and
circumstances from non-owner sources. This statement is effective for fiscal
years beginning after December 15, 1997. The Company adopted
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Statement No. 130 for the first quarter of 1998, which resulted primarily in
reporting unrealized gains and losses on investments in debt and equity
securities in comprehensive income.
M. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. SIGNIFICANT TRANSACTIONS
On December 3, 1998 Citizens Acquisition Corporation, a wholly owned subsidiary
of the Allmerica P&C, completed a cash tender offer to acquire the outstanding
shares of Citizens Corporation common stock that AFC or its subsidiaries did not
already own at a price of $33.25 per share. Approximately 99.8% of publicly held
shares of Citizens Corporation common stock were tendered. On December 14, 1998,
the Company completed a short-form merger, acquiring all shares of common stock
of Citizens Corporation not purchased in its tender offer, through the merger of
its wholly owned subsidiary, Citizens Acquisition Corporation with Citizens
Corporation at a price of $33.25 per share. Total consideration for the
transactions amounted to $195.9 million. The acquisition has been recognized as
a purchase. The minority interest acquired totaled $158.5 million. A total of
$40.8 million representing the excess of the purchase price over the fair values
of the net assets acquired, net of deferred taxes, has been allocated to
goodwill and is being amortized over a 40-year period.
The Company's consolidated results of operations include minority interest in
Citizens prior to December 3, 1998. The unaudited pro forma information below
presents consolidated results of operation as if the acquisition had occurred at
the beginning of 1997.
The following unaudited pro forma information is not necessarily indicative of
the consolidated results of operations of the combined Company had the
acquisition occurred at the beginning of 1997, nor is it necessarily indicative
of future results.
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
Revenue................................................................................... $ 3,405.1 $ 3,366.3
---------- ----------
---------- ----------
Net realized capital gains included in revenue............................................ $ 59.8 $ 71.8
---------- ----------
---------- ----------
Income before taxes and minority interest................................................. 272.9 358.0
Income taxes.............................................................................. (47.2) (91.3)
Minority Interest:
Equity in earnings.................................................................... (42.6) (64.1)
---------- ----------
Net income................................................................................ $ 183.1 $ 202.6
---------- ----------
---------- ----------
</TABLE>
On October 29, 1998, the Company announced that had adopted a formal
restructuring plan for its Risk Management business. As part of this initiative,
the Company, in its Corporate Risk Management Services segment, has exited its
accident and health assumed reinsurance pool business, as well as its
administrative services only business. Additionally, it has commenced the
closing of nearly half of its nationwide Corporate Risk Management Services'
sales offices, eliminated certain staff and discontinued certain automation
initiatives. In addition to the aforementioned initiatives in the Corporate Risk
Management Services segment, the Property and Casualty segment is consolidating
its field support activities from fourteen regional branches into three hub
locations. As a result of the Company's restructuring initiative, it recognized
a pretax loss of $13.0 million, in the fourth quarter of 1998. Approximately
$5.5 million of this loss relates to severance and other employee related costs
resulting from the elimination of 339 positions, of which 129 employees had
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
been terminated as of December 31, 1998. In addition, contract terminations and
lease cancellations resulted in losses of approximately $4.1 million and $3.4
million, respectively. During 1998, the Company made payments of approximately
$1.6 million related to this restructuring initiative.
Effective July 1, 1998, the Company entered into a reinsurance agreement with a
highly rated reinsurer that cedes current and future underwriting losses,
including unfavorable development of prior year reserves, up to a $40.0 million
maximum, of which $19.7 million relating to the Company's accident and health
assumed reinsurance pool business has been utilized as of December 31, 1998.
These pools consist primarily of the Corporate Risk Management Services
segment's assumed stop loss business, small group managed care pools, long-term
disability and long-term care pools, student accident and special risk business.
The agreement is consistent with management's decision to exit this line of
business, which the Company expects to run-off over the next three years. As a
result of this transaction, the Company recognized a $25.3 million pre-tax loss
in the third quarter of 1998.
Effective January 1, 1998, the Company entered into an agreement with a highly
rated reinsurer to reinsure the mortality risk on the universal life and
variable universal life blocks of business. The agreement did not have a
material effect on its results of operations or financial position.
In 1998 and 1997, Allmerica P&C redeemed 3,289.5 and 5,735.3 shares,
respectively, of its issued and outstanding common stock owned by AFC for $125.0
million and $195.0 million, respectively, thereby increasing FAFLIC's ownership
of Allmerica P&C by 4.3% and 6.3%, respectively. The 1998 transaction consisted
of $124.0 million of securities and $1.0 million of cash. The 1997 transaction
consisted of $55.0 million of securities and $140.0 million of cash.
The merger of Allmerica P&C and a wholly owned subsidiary of AFC was consummated
on July 16, 1997. Through the merger, AFC acquired all of the outstanding common
stock of Allmerica P&C that FAFLIC did not already own in exchange for cash of
$425.6 million and approximately 9.7 million shares of AFC stock valued at
$372.5 million. At consummation of this transaction AFC owned 59.5% through
FAFLIC and 40.5% directly.
The merger has been accounted for as a purchase. Total consideration of
approximately $798.1 million has been allocated to the minority interest in the
assets and liabilities based on estimates of their fair values. The minority
interest acquired totaled $703.5 million. A total of $90.6 million representing
the excess of the purchase price over the fair values of the net assets
acquired, net of deferred taxes, has been allocated to goodwill and is being
amortized over a 40-year period.
On February 3, 1997, AFC Capital Trust (the "Trust"), a subsidiary business
trust of AFC, issued $300 million Series A Capital Securities, which pay
cumulative dividends at a rate of 8.207% semiannually commencing August 15,
1997. The Trust exists for the sole purpose of issuing the Capital Securities
and investing the proceeds thereof in an equivalent amount of 8.207% Junior
Subordinated Deferrable Interest Debentures due 2027 of AFC (the "Subordinated
Debentures"). Through certain guarantees, the Subordinated Debentures and the
terms of related agreements, AFC has irrevocably and unconditionally guaranteed
the obligations of the Trust under the Capital Securities. Net proceeds from the
offering of approximately $296.3 million funded a portion of the acquisition of
the 24.2 million publicly-held shares of Allmerica P&C pursuant to the merger on
July 16, 1997.
The Company's consolidated results of operations include minority interest in
Allmerica P&C prior to July 16, 1997. The unaudited pro forma information below
presents consolidated results of operations as if the merger and issuance of
Capital Securities had occurred at the beginning of 1996 and reflects
adjustments which include interest expense related to the assumed financing of a
portion of the cash consideration paid and amortization of goodwill.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following unaudited pro forma information is not necessarily indicative of
the consolidated results of operations of the combined Company had the merger
and issuance of Capital Securities occurred at the beginning of 1996, nor is it
necessarily indicative of future results.
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
Revenue................................................................................... $ 3,362.7 $ 3,246.4
---------- ----------
---------- ----------
Net realized capital gains included in revenue............................................ $ 63.0 $ 46.7
---------- ----------
---------- ----------
Income before taxes and minority interest................................................. 353.0 311.6
Income taxes.............................................................................. (89.6) (68.7)
Minority Interest:
Equity in earnings.................................................................... (75.5) (67.3)
---------- ----------
Net income................................................................................ $ 187.9 $ 175.6
---------- ----------
---------- ----------
</TABLE>
On April 14, 1997, the Company entered into an agreement in principle to cede
substantially all of the Company's individual disability income line of business
under a 100% coinsurance agreement with a highly rated reinsurer. The
coinsurance agreement became effective October 1, 1997. The transaction has
resulted in the recognition of a $53.9 million pre-tax loss in the first quarter
of 1997.
3. INVESTMENTS
A. SUMMARY OF INVESTMENTS
The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with Statement No. 115.
The amortized cost and fair value of available-for-sale fixed maturities and
equity securities were as follows:
<TABLE>
<CAPTION>
1998
--------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 192.8 $ 12.0 $ 24.5 $ 180.3
States and political subdivisions....... 2,408.9 83.0 5.2 2,486.7
Foreign governments..................... 107.9 7.7 4.5 111.1
Corporate fixed maturities.............. 4,293.3 167.8 81.9 4,379.2
Mortgage-backed securities.............. 517.9 11.5 2.8 526.6
-------- ---------- ---------- --------
Total fixed maturities.................. $7,520.8 $ 282.0 $ 118.9 $7,683.9
-------- ---------- ---------- --------
-------- ---------- ---------- --------
Equity securities....................... $ 253.1 $ 151.1 $ 7.1 $ 397.1
-------- ---------- ---------- --------
-------- ---------- ---------- --------
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997
--------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- -------- ---------- ---------- --------
U.S. Treasury securities and U.S.
government and agency securities....... $ 265.3 $ 9.5 $ 0.9 $ 273.9
<S> <C> <C> <C> <C>
States and political subdivisions....... 2,200.6 78.3 3.1 2,275.8
Foreign governments..................... 110.8 8.5 2.2 117.1
Corporate fixed maturities.............. 4,041.6 175.1 12.2 4,204.5
Mortgage-backed securities.............. 374.5 9.7 2.0 382.2
-------- ---------- ---------- --------
Total fixed maturities.................. $6,992.8 $ 281.1 $ 20.4 $7,253.5
-------- ---------- ---------- --------
-------- ---------- ---------- --------
Equity securities....................... $ 341.1 $ 141.9 $ 4.0 $ 479.0
-------- ---------- ---------- --------
-------- ---------- ---------- --------
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
In connection with AFLIAC's voluntary withdrawal of its license in New York,
AFLIAC agreed with the New York Department of Insurance to maintain, through a
custodial account in New York, a security deposit, the market value of which
will at all times equal 102% of all outstanding general account liabilities of
AFLIAC for New York policyholders, claimants and creditors. At December 31,
1998, the amortized cost and market value of assets on deposit in New York were
$268.5 million and $284.1 million, respectively. At December 31, 1997, the
amortized cost and market value of assets on deposit were $276.8 million and
$291.7 million, respectively.
In addition, fixed maturities, excluding those securities on deposit in New
York, with an amortized cost of $105.4 million and $105.1 million were on
deposit with various state and governmental authorities at December 31, 1998 and
1997, respectively.
There were no contractual fixed maturity investment commitments at December 31,
1998 and 1997, respectively.
The amortized cost and fair value by maturity periods for fixed maturities are
shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties, or the Company may have the right to put or sell the
obligations back to the issuers. Mortgage backed securities are included in the
category representing their ultimate maturity.
<TABLE>
<CAPTION>
1998
--------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------------------------------------------------------ --------- --------
<S> <C> <C>
Due in one year or less..................................... $ 384.7 $ 391.5
Due after one year through five years....................... 2,309.4 2,341.2
Due after five years through ten years...................... 2,173.3 2,199.6
Due after ten years......................................... 2,653.4 2,751.6
--------- --------
Total....................................................... $ 7,520.8 $7,683.9
--------- --------
--------- --------
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The proceeds from voluntary sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, PROCEEDS FROM GROSS GROSS
(IN MILLIONS) VOLUNTARY SALES GAINS LOSSES
- ------------------------------------------------------------ --------------- ------ ------
<S> <C> <C> <C>
1998
Fixed maturities............................................ $ 993.3 $ 18.2 $ 11.9
Equity securities........................................... $ 276.4 $ 76.3 $ 9.6
1997
Fixed maturities............................................ $1,894.8 $ 27.6 $ 16.2
Equity securities........................................... $ 145.5 $ 55.8 $ 1.3
1996
Fixed maturities............................................ $2,432.8 $ 19.3 $ 30.5
Equity securities........................................... $ 228.1 $ 56.1 $ 1.3
</TABLE>
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- ------
<S> <C> <C> <C>
1998
Net appreciation, beginning of year......................... $122.6 $ 86.7 $209.3
---------- ------ ------
Net (depreciation) appreciation on available-for-sale
securities................................................. (99.3) 4.4 (94.9)
Appreciation due to Allmerica P&C purchase of minority in
interest of Citizens....................................... 10.7 10.7 21.4
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 6.3 -- 6.3
Provision for deferred federal income taxes and minority
interest................................................... 38.7 (11.6) 27.1
---------- ------ ------
(43.6) 3.5 (40.1)
---------- ------ ------
Net appreciation, end of year............................... $ 79.0 $ 90.2 $169.2
---------- ------ ------
---------- ------ ------
1997
Net appreciation, beginning of year......................... $ 71.3 $ 60.1 $131.4
---------- ------ ------
Net appreciation (depreciation) on available-for-sale
securities................................................. 83.2 (5.9) 77.3
Appreciation due to AFC purchase of minority interest of
Allmerica P&C.............................................. 50.7 59.6 110.3
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (16.7) -- (16.7)
Provision for deferred federal income taxes and minority
interest................................................... (65.9) (27.1) (93.0)
---------- ------ ------
51.3 26.6 77.9
---------- ------ ------
Net appreciation, end of year............................... $122.6 $ 86.7 $209.3
---------- ------ ------
---------- ------ ------
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- ------
1996
<S> <C> <C> <C>
Net appreciation, beginning of year......................... $108.7 $ 44.3 $153.0
---------- ------ ------
Net (depreciation) appreciation on available-for-sale
securities................................................. (94.1) 35.9 (58.2)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 23.1 -- 23.1
Provision for deferred federal income taxes and minority
interest................................................... 33.6 (20.1) 13.5
---------- ------ ------
(37.4) 15.8 (21.6)
---------- ------ ------
Net appreciation, end of year............................... $ 71.3 $ 60.1 $131.4
---------- ------ ------
---------- ------ ------
</TABLE>
(1) Includes net appreciation on other investments of $0.8 million, $1.8
million, and $0.6 million in 1998, 1997, and 1996, respectively.
B. MORTGAGE LOANS AND REAL ESTATE
FAFLIC's mortgage loans and real estate are diversified by property type and
location. Real estate investments have been obtained primarily through
foreclosure. Mortgage loans are collateralized by the related properties and
generally are no more than 75% of the property's value at the time the original
loan is made.
The carrying values of mortgage loans and real estate investments net of
applicable reserves were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
Mortgage loans.............................................. $562.3 $567.5
Real estate held for sale................................... 20.4 50.3
------ ------
Total mortgage loans and real estate........................ $582.7 $617.8
------ ------
------ ------
</TABLE>
Reserves for mortgage loans were $11.5 million and $20.7 million at December 31,
1998 and 1997, respectively.
During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. At December 31, 1998, there were 7 properties
remaining in the Company's portfolio, which are being actively marketed. As a
result of the plan, during 1997 real estate assets with a carrying amount of
$54.7 million were written down to the estimated fair value less cost of
disposal of $50.3 million, and a net realized investment loss of $4.4 million
was recognized. Depreciation is not recorded on these assets while they are held
for disposal. There were no non-cash investing activities, including real estate
acquired through foreclosure of mortgage loans, in 1998 and 1997. During 1996,
non-cash investing activities included real estate acquired through foreclosure
of mortgage loans, which had a fair value of $0.9 million.
There were no contractual commitments to extend credit under commercial mortgage
loan agreements at December 31, 1998. These commitments generally expire within
one year.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ -------- ------
<S> <C> <C>
Property type:
Office building........................................... $304.4 $265.1
Residential............................................... 52.8 66.6
Retail.................................................... 108.5 132.8
Industrial/warehouse...................................... 110.0 107.2
Other..................................................... 18.5 66.8
Valuation allowances...................................... (11.5) (20.7)
-------- ------
Total....................................................... $582.7 $617.8
-------- ------
-------- ------
Geographic region:
South Atlantic............................................ $136.1 $173.4
Pacific................................................... 155.1 152.8
East North Central........................................ 80.5 102.0
Middle Atlantic........................................... 61.2 73.8
West South Central........................................ 54.7 34.9
New England............................................... 60.7 46.9
Other..................................................... 45.9 54.7
Valuation allowances...................................... (11.5) (20.7)
-------- ------
Total....................................................... $582.7 $617.8
-------- ------
-------- ------
</TABLE>
At December 31, 1998, scheduled mortgage loan maturities were as follows: 1999
- -- $84.7 million; 2000 -- $131.6 million; 2001 -- $33.9 million; 2002 -- $28.4
million; 2003 -- $42.5 million; and $241.2 million thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties and loans may be
refinanced. During 1998, the Company did not refinance any mortgage loans based
on terms which differed from those granted to new borrowers.
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets and
changes thereto are shown below.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 PROVISIONS WRITE-OFFS DECEMBER 31
- ------------------------------------------------------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1998
Mortgage loans.............................................. $20.7 $(6.8) $ 2.4 $11.5
----- ----- ----- -----
----- ----- ----- -----
1997
Mortgage loans.............................................. $19.6 $ 2.5 $ 1.4 $20.7
Real estate................................................. 14.9 6.0 20.9 --
----- ----- ----- -----
Total................................................... $34.5 $ 8.5 $22.3 $20.7
----- ----- ----- -----
----- ----- ----- -----
1996
Mortgage loans.............................................. $33.8 $ 5.5 $19.7 $19.6
Real estate................................................. 19.6 -- 4.7 14.9
----- ----- ----- -----
Total................................................... $53.4 $ 5.5 $24.4 $34.5
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Provisions on mortgages during 1998 reflect the release of redundant reserves.
Write-offs of $20.9 million to the investment valuation allowance related to
real estate in 1997 primarily reflect write downs to the estimated fair value
less costs to sell pursuant to the aforementioned 1997 plan of disposal.
The carrying value of impaired loans was $22.0 million and $30.5 million, with
related reserves of $6.0 million and $13.8 million as of December 31, 1998 and
1997, respectively. All impaired loans were reserved as of December 31, 1998 and
1997.
The average carrying value of impaired loans was $26.1 million, $30.8 million
and $50.4 million, with related interest income while such loans were impaired
of $3.2 million, $3.2 million and $5.8 million as of December 31, 1998, 1997 and
1996, respectively.
D. FUTURES CONTRACTS
The Company purchases long futures contracts and sells short futures contracts
on margin to hedge against interest rate fluctuations associated with the sale
of Guaranteed Investment Contracts ("GICs"). The Company is exposed to interest
rate risk from the time of sale of the GIC until the receipt of the deposit and
purchase of the underlying asset to back the liability. Futures contract
activity increased significantly in 1998 due to the increase in sale of GICs.
The Company's exposure to credit risk under futures contracts is limited to the
margin deposited with the broker. The Company only trades futures contracts with
nationally recognized brokers, which the Company believes have adequate capital
to ensure that there is minimal danger of default. The Company does not require
collateral or other securities to support financial instruments with credit
risk.
The notional amount of futures contracts outstanding at December 31, 1998 was
$92.7 million. There were no futures contracts outstanding at December 31, 1997.
The notional amounts of the contracts represent the extent of the Company's
investment but not the future cash requirements, as the Company generally
settles open positions prior to maturity. The maturity of all futures contracts
outstanding is less than one year. The fair value of futures contracts
outstanding was $92.5 million at December 31, 1998.
Gains and losses on hedge contracts related to interest rate fluctuations are
deferred and recognized in income over the period being hedged corresponding to
related guaranteed investment contracts. If instruments being hedged by futures
contracts are disposed, any unamortized gains or losses on such contracts are
included in the determination of the gain or loss from the disposition. Deferred
hedging gains (losses) were $(1.8) million in 1998. There were no deferred
hedging gains or losses in 1997. Gains and losses on hedge contracts that are
deemed ineffective by the Company are realized immediately. There were $0.1
million of gains realized on ineffective hedges in 1998. There was no gain or
loss in 1997 or 1996.
A reconciliation of the notional amount of futures contracts is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- --------------------------------------------------------------------------------- ----------- --------- ---------
<S> <C> <C> <C>
Contracts outstanding, beginning of year......................................... $ -- $ (33.0) $ 74.7
New contracts.................................................................... 1,117.5 (0.2) (1.1)
Contracts terminated............................................................. (1,024.8) 33.2 (106.6)
----------- --------- ---------
Contracts outstanding, end of year............................................... $ 92.7 $ -- $ (33.0)
----------- --------- ---------
----------- --------- ---------
</TABLE>
E. FOREIGN CURRENCY SWAP CONTRACTS
The Company enters into foreign currency swap contracts with swap counterparties
to hedge foreign currency exposure on specific fixed income securities. Interest
and principal related to foreign fixed income securities payable in foreign
currencies, at current exchange rates, are exchanged for the equivalent payment
in U.S dollars translated at a specific currency exchange rate. The primary risk
associated with these transactions is
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the inability of the counterparty to meet its obligation. The Company regularly
assesses the financial strength of its counterparties and generally enters into
forward or swap agreements with counterparties rated "A" or better by nationally
recognized rating agencies. The Company's maximum exposure to counterparty
credit risk is the difference between the foreign currency exchange rate, as
agreed upon in the swap contract, and the foreign currency spot rate on the date
of the exchange, as indicated by the fair value of the contract. The fair values
of the foreign currency swap contracts outstanding were $1.2 million and $1.3
million at December 31, 1998 and 1997, respectively. Changes in the fair value
of contracts are reported as an unrealized gain or loss, consistent with the
underlying hedged security. The Company does not require collateral or other
security to support financial instruments with credit risk.
The difference between amounts paid and received on foreign currency swap
contracts is reflected in the net investment income related to the underlying
assets and is not material in 1998, 1997 and 1996. Any gain or loss on the
termination of swap contracts is deferred and recognized with any gain or loss
on the hedged transaction. The Company had no deferred gain or loss on foreign
currency swap contracts in 1998 or 1997.
A reconciliation of the notional amount of foreign currency swap contracts is as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.............................................. $ 42.6 $ 47.6 $ 69.4
New contracts......................................................................... -- 5.0 --
Contracts expired..................................................................... -- (10.0) (21.8)
--------- --------- ---------
Contracts outstanding, end of year.................................................... $ 42.6 $ 42.6 $ 47.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
Expected maturities of foreign currency swap contracts outstanding at December
31, 1998 are $24.0 million in 1999, $8.3 million in 2000 and $10.3 million
thereafter. There are no expected maturities of such foreign currency swap
contracts in 2001, 2002 and 2003.
F. INTEREST RATE SWAP CONTRACTS
The Company enters into interest rate swap contracts to hedge exposure to
interest rate fluctuations. Specifically, for floating rate GIC liabilities that
are matched with fixed rate securities, the Company manages the interest rate
risk by hedging with interest rate swap contracts. Under these swap contracts,
the Company agrees to exchange, at specified intervals, the difference between
fixed and floating interest amounts calculated on an agreed-upon notional
principal amount. The use of interest rate swap contracts increased during 1998
due to the increase in floating rate GIC liabilities. As with foreign currency
swap contracts, the primary risk associated with these transactions is the
inability of the counterparty to meet its obligation. The Company regularly
assesses the financial strength of its counterparties and generally enters into
forward or swap agreements with counterparties rated "A" or better by nationally
recognized rating agencies. Because the underlying principal of swap contracts
is not exchanged, the Company's maximum exposure to counterparty credit risk is
the difference in payments exchanged, which at December 31, 1998 was a net
payable of $3.9 million. The Company does not require collateral or other
security to support financial instruments with credit risk.
The net amount receivable or payable is recognized over the life of the swap
contract as an adjustment to net investment income. The (decrease) or increase
in net investment income related to interest rate swap contracts was $(2.8)
million, $(0.4) million and $0.6 million for the years ended December 31, 1998,
1997, and 1996, respectively. The fair value of interest rate swap contracts
outstanding were $(28.3) million and $(2.3) million at December 31, 1998 and
1997, respectively. Changes in the fair value of contracts are reported as an
unrealized gain or loss, consistent with the underlying hedged security. Any
gain or loss on the termination of interest rate swap contracts accounted for as
hedges are deferred and recognized with the gain or loss on the
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
hedged transaction. The Company had no deferred gain or loss on interest rate
swap contracts in 1998 or 1997. A reconciliation of the notional amount of
interest rate swap contracts is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ---------------------------------------------------------------------------------- ---------- --------- ---------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.......................................... $ 244.1 $ 5.0 $ 17.5
New contracts..................................................................... 873.5 244.7 5.0
Contracts expired................................................................. (5.0) (5.6) (17.5)
---------- --------- ---------
Contracts outstanding, end of year................................................ $ 1,112.6 $ 244.1 $ 5.0
---------- --------- ---------
---------- --------- ---------
</TABLE>
Expected maturities of interest rate swap contracts outstanding at December 31,
1998 is $44.0 million in 2000, $234.5 million in 2002, $810.5 million in 2003
and $23.6 million thereafter. There are no expected maturities of interest rate
contracts in 1999 or 2001.
G. OTHER SWAP CONTRACTS
The Company enters into security return-linked and insurance portfolio-linked
swap contracts for investment purposes. Under the security return-linked
contracts, the Company agrees to exchange cash flows according to the
performance of a specified security or portfolio of securities. Under the
insurance portfolio-linked swap contracts, the Company agrees to exchange cash
flows according to the performance of a specified underwriter's portfolio of
insurance business. As with interest rate swap contracts, the primary risk
associated with these transactions is the inability of the counterparty to meet
its obligation. The Company regularly assesses the financial strength of its
counterparties and generally enters into forward or swap agreements with
counterparties rated "A" or better by nationally recognized rating agencies.
Because the underlying principal of swap contracts is not exchanged, the
Company's maximum exposure to counterparty credit risk is the difference in
payments exchanged, which at December 31, 1998, was not material to the Company.
The Company does not require collateral or other security to support financial
instruments with credit risk.
In 1998, the Company also entered into credit default swap agreements. Under the
terms of these agreements, the Company assumes the default risk of a specific
high credit quality issuer in exchange for a stated annual premium. In the case
of default, the Company will pay the counterparty par value for a pre-determined
security of the issuer. The primary risk associated with these transactions is
the default risk of the underlying companies. The Company regularly assesses the
financial strength of the underlying companies and generally enters into default
swap agreements for companies rated "A" or better by nationally recognized
rating agencies.
The swap contracts are marked to market with any gain or loss recognized
currently. The fair values of swap contracts outstanding were $(0.1) million at
December 31, 1998 and 1997. The net amount receivable or payable under
security-returned-linked and insurance portfolio-linked swap contracts is
recognized when the contracts are marked to market. The net increase (decrease)
in realized investment gains related to these contracts was $1.1 million in 1998
and $(1.6) million in 1997. There were no realized investment gains or losses on
other swap contracts recognized in 1996.
The stated annual premium under credit default swap contracts is recognized
currently in net investment income. The net increase to investment income
related to credit default swap contracts was $0.2 million in 1998. There was no
investment income recognized in 1997 and 1996.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the notional amount of other swap contracts is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Contracts outstanding, beginning of year............................................ $ 15.0 $ 58.6 $ --
New contracts....................................................................... 266.3 192.1 58.6
Contracts expired................................................................... (26.3) (211.6) --
Contracts terminated................................................................ -- (24.1) --
--------- --------- ---------
Contracts outstanding, end of year.................................................. $ 255.0 $ 15.0 $ 58.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
Expected maturities of other swap contracts outstanding at December 31, 1998 are
as follows: $115.0 million in 1999, $115.0 million in 2000 and $25.0 million in
2001. There are no expected maturities of such other swap contracts in 2002 or
2003.
H. OTHER
At December 31, 1998, FAFLIC had no concentration of investments in a single
investee exceeding 10% of shareholders' equity. At December 31, 1997, FAFLIC had
no concentration of investments in a single investee exceeding 10% of
shareholder's equity, except for investments with the U.S. Treasury with a
carrying value of $262.4 million.
4. INVESTMENT INCOME AND GAINS AND LOSSES
A. NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $530.8 $541.9 $553.8
Mortgage loans.............................................. 58.3 57.5 69.5
Equity securities........................................... 7.4 10.6 11.1
Policy loans................................................ 11.9 10.9 10.3
Real estate................................................. 7.2 20.1 40.8
Other long-term investments................................. (0.5) 12.4 19.9
Short-term investments...................................... 14.3 12.8 10.6
------ ------ ------
Gross investment income..................................... 629.4 666.2 716.0
Less investment expenses.................................... (15.7) (24.4) (45.2)
------ ------ ------
Net investment income....................................... $613.7 $641.8 $670.8
------ ------ ------
------ ------ ------
</TABLE>
At December 31, 1998, there was one mortgage loan on non-accrual status which
had an outstanding principal balance of $4.3 million. This loan was restructured
and fully impaired. There were no fixed maturities which were on non-accrual
status at December 31, 1998. The effect of non-accruals, compared with amounts
that would have been recognized in accordance with the original terms of the
investments, had no impact in 1998 and 1997, and reduced net income by $0.5
million in 1996.
The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $28.7 million, $40.3 million and $51.3 million at December 31,
1998, 1997 and 1996, respectively. Interest income on restructured mortgage
loans that would have been recorded in accordance with the original terms of
such loans amounted to $3.3 million, $3.9 million and $7.7 million in 1998, 1997
and 1996, respectively. Actual interest income on
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
these loans included in net investment income aggregated $3.3 million, $4.2
million and $4.5 million in 1998, 1997 and 1996, respectively.
There were no fixed maturities which were non-income producing for the year
ended December 31, 1998. There was one mortgage loan which was non-income
producing for the year ended December 31, 1998, which had an outstanding
principal balance of $4.3 million and was fully impaired.
Included in other long-term investments is a loss from limited partnerships of
$7.5 million in 1998, and income of $7.8 million and $13.7 million in 1997 and
1996, respectively.
B. REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Fixed maturities............................................ $ (11.8) $ 14.7 $ (9.7)
Mortgage loans.............................................. 8.8 (1.2) (2.4)
Equity securities........................................... 66.6 53.6 54.8
Real estate................................................. 13.7 12.8 21.1
Other....................................................... (14.7) (3.4) 3.0
--------- --------- ---------
Net realized investment gains............................... $ 62.6 $ 76.5 $ 66.8
--------- --------- ---------
--------- --------- ---------
</TABLE>
C. OTHER COMPREHENSIVE INCOME RECONCILIATION
The following table provides a reconciliation of gross unrealized gains to the
net balance shown in the Statement of Comprehensive Income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period, (net of
taxes and minority interest of $(20.8) million, $123.7
million and $10.7 million in 1998, 1997 and 1996,
respectively).............................................. $ (6.8) $ 115.5 $ (0.7)
Less: reclassification adjustment for gains included in net
income (net of taxes and minority interest of $21.5
million, $30.7 million and $24.2 million in 1998, 1997 and
1996, respectively)........................................ 33.3 37.6 20.9
--------- --------- ---------
Other comprehensive income.................................. $ (40.1) $ 77.9 $ (21.6)
--------- --------- ---------
--------- --------- ---------
</TABLE>
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about certain financial
instruments (insurance contracts, real estate, goodwill and taxes are excluded)
for which it is practicable to estimate such values, whether or not these
instruments are included in the balance sheet. The fair values presented for
certain financial instruments are estimates which, in many cases, may differ
significantly from the amounts which could be realized upon immediate
liquidation. In cases where market prices are not available, estimates of fair
value are based on discounted cash flow analyses, which utilize current interest
rates for similar financial instruments which have comparable terms and credit
quality. Included in the fair value of fixed maturities are swap contracts used
to hedge fixed maturities with a fair value of $(27.1) million at December 31,
1998. Fair values of interest rate futures were not material at December 31,
1997.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair value.
FIXED MATURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.
EQUITY SECURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans are
limited to the lesser of the present value of the cash flows or book value.
POLICY LOANS
The carrying amount reported in the consolidated balance sheets approximates
fair value since policy loans have no defined maturity dates and are inseparable
from the insurance contracts.
INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under guaranteed investment type
contracts are estimated using discounted cash flow calculations using current
interest rates for similar contracts with maturities consistent with those
remaining for the contracts being valued. Other liabilities are based on
surrender values.
DEBT
The carrying value of short-term debt reported in the balance sheet approximates
fair value. The fair value of long-term debt was estimated using market quotes,
when available, and, when not available, discounted cash flow analyses.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------------------------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 504.0 $ 504.0 $ 213.9 $ 213.9
Fixed maturities.......................................... 7,683.9 7,683.9 7,253.5 7,253.5
Equity securities......................................... 397.1 397.1 479.0 479.0
Mortgage loans............................................ 562.3 587.1 567.5 597.0
Policy loans.............................................. 154.3 154.3 141.9 141.9
-------- -------- -------- --------
$9,301.6 $9,326.4 $8,655.8 $8,685.3
-------- -------- -------- --------
-------- -------- -------- --------
FINANCIAL LIABILITIES
Guaranteed investment contracts........................... $1,791.8 $1,830.8 $ 985.2 $1,004.7
Supplemental contracts without life contingencies......... 37.3 37.3 22.4 22.4
Dividend accumulations.................................... 88.4 88.4 87.8 87.8
Other individual contract deposit funds................... 61.6 61.1 57.9 55.7
Other group contract deposit funds........................ 700.4 704.0 714.8 715.5
Individual annuity contracts.............................. 1,110.6 1,073.6 907.4 882.2
Short-term debt........................................... 221.3 221.3 33.0 33.0
Long-term debt............................................ -- -- 2.6 2.6
-------- -------- -------- --------
$4,011.4 $4,016.5 $2,811.1 $2,803.9
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
6. CLOSED BLOCK
Included in other income in the Consolidated Statement of Income in 1998, 1997
and 1996 is a net pre-tax contribution from the Closed Block of $10.4 million,
$9.1 million and $8.6 million, respectively. Summarized financial information of
the Closed Block as of December 31, 1998 and 1997 and for the period ended
December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
Assets
Fixed maturities, at fair value (amortized cost of $399.1
and $400.1, respectively)............................... $414.2 $412.9
Mortgage loans............................................ 136.0 112.0
Policy loans.............................................. 210.9 218.8
Cash and cash equivalents................................. 9.4 25.1
Accrued investment income................................. 14.1 14.1
Deferred policy acquisition costs......................... 15.6 18.2
Other assets.............................................. 2.9 5.6
------ ------
Total assets................................................ $803.1 $806.7
------ ------
------ ------
Liabilities
Policy liabilities and accruals........................... $862.9 $875.1
Other liabilities......................................... 9.1 10.4
------ ------
Total liabilities........................................... $872.0 $885.5
------ ------
------ ------
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Revenues
Premiums................................................ $ 55.4 $ 58.3 $ 61.7
Net investment income................................... 53.3 53.4 52.6
Realized investment loss................................ 0.1 1.3 (0.7)
-------- -------- --------
Total revenues.............................................. 108.8 113.0 113.6
Benefits and expenses
Policy benefits......................................... 95.0 100.5 101.2
Policy acquisition expenses............................. 2.7 3.0 3.2
Other operating expenses................................ 0.7 0.4 0.6
-------- -------- --------
Total benefits and expenses................................. 98.4 103.9 105.0
-------- -------- --------
Contribution from the Closed Block.......................... $ 10.4 $ 9.1 $ 8.6
-------- -------- --------
-------- -------- --------
Cash flows
Cash flows from operating activities:
Contribution from the Closed Block...................... $ 10.4 $ 9.1 $ 8.6
Change in deferred policy acquisition costs, net........ 2.6 2.9 3.4
Change in premiums and other receivables................ 0.3 -- 0.2
Change in policy liabilities and accruals............... (13.5) (11.6) (13.9)
Change in accrued investment income..................... -- 0.2 2.3
Deferred Taxes.......................................... 0.1 (5.1) 1.0
Change in other assets.................................. 2.4 (2.9) (1.6)
Change in expenses and taxes payable.................... (2.9) (2.0) 1.7
Other, net.............................................. (0.1) (1.2) 1.4
-------- -------- --------
Net cash (used in) provided by operating activities....... (0.7) (10.6) 3.1
Cash flows from investing activities:
Sales, maturities and repayments of investments......... 83.6 161.6 188.1
Purchases of investments................................ (106.5) (161.4) (196.9)
Other, net.............................................. 7.9 11.4 12.2
-------- -------- --------
Net cash provided by (used in) investing activities....... (15.0) 11.6 3.4
-------- -------- --------
Net increase in cash and cash equivalents................... (15.7) 1.0 6.5
Cash and cash equivalents, beginning of year................ 25.1 24.1 17.6
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 9.4 $ 25.1 $ 24.1
-------- -------- --------
-------- -------- --------
</TABLE>
There are no valuation allowances on mortgage loans in the Closed Block at
December 31, 1998, 1997 or 1996, respectively.
Many expenses related to Closed Block operations are charged to operations
outside the Closed Block; accordingly, the contribution from the Closed Block
does not represent the actual profitability of the Closed Block operations.
Operating costs and expenses outside of the Closed Block are, therefore,
disproportionate to the business outside the Closed Block.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. DEBT
Short and long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ -----
<S> <C> <C>
Short-Term
Commercial paper........................................ $ 41.3 $32.6
Borrowings under bank credit facility................... 150.0 --
Repurchase agreements................................... 30.0 --
Other................................................... -- 0.4
------ -----
Total short-term debt....................................... $ 221.3 $33.0
------ -----
------ -----
Long-term debt.............................................. $ -- $ 2.6
------ -----
------ -----
</TABLE>
FAFLIC issues commercial paper primarily to manage imbalances between operating
cash flows and existing commitments. Commercial paper borrowing arrangements are
supported by a credit agreement. At December 31, 1998, the weighted average
interest rate for outstanding commercial paper was approximately 5.34%.
Effective December 4, 1998, the Company entered into a credit agreement that
expired on February 5, 1999. Borrowings under this agreement were unsecured and
incurred interest at a rate per annum equal to the eurodollar rate plus
applicable margin. Borrowings outstanding under this credit facility at December
31, 1998 were $150.0 million.
During 1998 and 1996, the Company utilized repurchase agreements to finance
certain investments. The 1996 repurchase agreements were settled by the end of
1996.
In October, 1995, AFC issued $200.0 million face amount of Senior Debentures for
proceeds of $197.2 million net of discounts and issuance costs. These securities
have an effective interest rate of 7.65%, and mature on October 16, 2025.
Interest is payable semiannually on October 15 and April 15 of each year. The
Senior Debentures are subject to certain restrictive covenants, including
limitations on issuance of or disposition of stock of restricted subsidiaries
and limitations on liens. AFC is in compliance with all covenants. The primary
source of cash for repayment of the debt by AFC is dividends from FAFLIC and
APY. Interest expense was $7.3 million, $3.6 million and $16.8 million in 1998,
1997 and 1996, respectively. Interest paid on the credit agreement was
approximately $0.7 million in 1998 and $2.8 million in 1997. Interest expense
during 1996 also included $11.0 million related to interest payments on
repurchase agreements. All interest expense is recorded in other operating
expenses.
8. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of SFAS No. 109. A summary of the federal income tax expense
(benefit) in the consolidated statements of income is shown below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------- ----- -------
<S> <C> <C> <C>
Federal income tax expense (benefit)
Current................................................. $ 67.6 $83.3 $ 96.8
Deferred................................................ (15.4) 14.2 (15.7)
------- ----- -------
Total....................................................... $ 52.2 $97.5 $ 81.1
------- ----- -------
------- ----- -------
</TABLE>
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The federal income taxes attributable to the consolidated results of operations
are different from the amounts determined by multiplying income before federal
income taxes by the expected federal income tax rate. The sources of the
difference and the tax effects of each were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Expected federal income tax expense......................... $100.9 $131.8 $122.3
Tax-exempt interest..................................... (38.9) (37.9) (35.3)
Differential earnings amount............................ -- -- (10.2)
Dividend received deduction............................. (5.1) (3.2) (1.6)
Changes in tax reserve estimates........................ 2.3 7.8 4.7
Tax credits............................................. (8.5) (2.7)
Other, net.............................................. 1.5 1.7 1.2
------ ------ ------
Federal income tax expense.................................. $ 52.2 $ 97.5 $ 81.1
------ ------ ------
------ ------ ------
</TABLE>
Until conversion to a stock life insurance company, FAFLIC, as a mutual company,
reduced its deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying the average
equity base of the FAFLIC/AFLIAC consolidated group, as determined for tax
purposes, by the estimate of an excess of an imputed earnings rate over the
average mutual life insurance companies' earnings rate. The differential
earnings amount for each tax year was subsequently recomputed when actual
earnings rates were published by the Internal Revenue Service (IRS). The
differential earnings amount included in 1996 related to an adjustment for the
1994 tax year based on the actual mutual life insurance companies' earnings rate
issued by the IRS in 1996. As a stock life company, FAFLIC is no longer required
to reduce its policyholder dividend deduction by the differential earnings
amount.
The deferred income tax (asset) liability represents the tax effects of
temporary differences attributable to the Company's consolidated federal tax
return group. Its components were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
Deferred tax (assets) liabilities
AMT carryforwards....................................... $ (16.8) $ (15.6)
Loss reserve discounting................................ (406.6) (391.6)
Deferred acquisition costs.............................. 345.8 291.8
Employee benefit plans.................................. (45.3) (48.0)
Investments, net........................................ 121.7 175.4
Bad debt reserve........................................ (1.8) (14.3)
Litigation reserve...................................... (10.9) --
Other, net.............................................. (5.5) 15.2
-------- --------
Deferred tax (asset) liability, net......................... $ (19.4) $ 12.9
-------- --------
-------- --------
</TABLE>
Gross deferred income tax assets totaled $486.9 million and $469.5 million at
December 31, 1998 and 1997, respectively. Gross deferred income tax liabilities
totaled $467.5 million and $482.4 million at December 31, 1998 and 1997,
respectively.
The Company believes, based on the its recent earnings history and its future
expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, the Company considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary. At December 31, 1998, there are available alternative
minimum tax credit carryforwards of $16.8 million.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's federal income tax returns are routinely audited by the IRS, and
provisions are routinely made in the financial statements in anticipation of the
results of these audits. The IRS has examined the FAFLIC/ AFLIAC consolidated
group's federal income tax returns through 1994. The IRS has also examined the
former Allmerica P&C consolidated group's federal income tax returns through
1991. The Company has appealed certain adjustments proposed by the IRS with
respect to the federal income tax returns for 1992,1993 and 1994 for the
FAFLIC/AFLIAC consolidated group. Also, certain adjustments proposed by the IRS
with respect to FAFLIC/ AFLIAC's federal income tax returns for 1982 and 1983
remain unresolved. If upheld, these adjustments would result in additional
payments; however, the Company will vigorously defend its position with respect
to these adjustments. In the Company's opinion, adequate tax liabilities have
been established for all years. However, the amount of these tax liabilities
could be revised in the near term if estimates of the Company's ultimate
liability are revised.
9. PENSION PLANS
FAFLIC provides retirement benefits to substantially all of its employees under
a defined benefit pension plan. This plan is based on a defined benefit cash
balance formula, whereby the Company annually provides an allocation to each
eligible employee based on a percentage of that employee's salary, similar to a
defined contribution plan arrangement. The 1998, 1997 and 1996 allocations were
based on 7.0% of each eligible employee's salary. In addition to the cash
balance allocation, certain transition group employees, who have met specified
age and service requirements as of December 31, 1994, are eligible for a
grandfathered benefit based primarily on the employees' years of service and
compensation during their highest five consecutive plan years of employment. The
Company's policy for the plans is to fund at least the minimum amount required
by the Employee Retirement Income Security Act of 1974.
Components of net periodic pension cost were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $ 19.0 $ 19.9 $ 19.0
Interest cost............................................... 25.5 23.5 21.9
Expected return on plan assets.............................. (34.9) (31.2) (28.3)
Recognized net actuarial loss (gain)........................ 0.4 0.1 (0.4)
Amortization of transition asset............................ (1.8) (1.9) (1.9)
Amortization of prior service cost.......................... (1.7) (2.0) (2.3)
------- ------- -------
Net periodic pension cost................................... $ 6.5 $ 8.4 $ 8.0
------- ------- -------
------- ------- -------
</TABLE>
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the status of the pension plan. At December 31,
1998 and 1997 the plan's assets exceeded its projected benefit obligations.
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
Change in benefit obligations:
Projected benefit obligation at beginning of year....... $370.4 $344.2
Service cost -- benefits earned during the year......... 19.0 19.9
Interest cost........................................... 25.5 23.5
Actuarial losses........................................ 20.4 0.3
Benefits paid........................................... (21.1) (17.5)
------ ------
Projected benefit obligation at end of year............. $414.2 $370.4
------ ------
------ ------
Change in plan assets:
Fair value of plan assets at beginning of year.......... $395.5 $347.8
Actual return on plan assets............................ 67.2 65.2
Benefits paid........................................... (21.1) (17.5)
------ ------
Fair value of plan assets at end of year................ 441.6 395.5
------ ------
Funded status of the plan............................... 27.4 25.1
Unrecognized transition obligation...................... (23.9) (26.2)
Unamortized prior service cost.......................... (11.0) (13.9)
Unrecognized net actuarial gains........................ (54.9) (44.9)
------ ------
Net pension liability............................... $(62.4) $(59.9)
------ ------
------ ------
</TABLE>
As a result of AFC's merger with APY, certain pension liabilities were reduced
by $11.7 million in 1997, to reflect their fair value as of the purchase date.
These pension liabilities were reduced by $10.3 million in 1998, which reflects
fair value, net of applicable amortization. Determination of the projected
benefit obligations was based on a weighted average discount rate of 6.5% and
7.0% in 1998 and 1997, respectively, and the assumed long-term rate of return on
plan assets was 9.0% in both 1998 and 1997. The actuarial present value of the
projected benefit obligations was determined using assumed rates of increase in
future compensation levels ranging from 5.0% to 5.5%. Plan assets are invested
primarily in various separate accounts and the general account of FAFLIC. Plan
assets also include 973,262 shares of AFC Common Stock at both December 31, 1998
and 1997, with a market value of $56.3 million and $48.6 million at December 31,
1998 and 1997, respectively.
The Company has a defined contribution 401(k) plan for its employees, whereby
the Company matches employee elective 401(k) contributions, up to a maximum
percentage determined annually by the Board of Directors. During 1998, 1997 and
1996, the Company matched 50% of employees' contributions up to 6.0% of eligible
compensation. The total expenses related to this plan was $5.6 million, $3.3
million and $5.5 million, in 1998, 1997 and 1996, respectively. In addition to
this plan, the Company has a defined contribution plan for substantially all of
its agents. The Plan expense in 1998, 1997 and 1996 was $3.0 million, $2.8
million and $2.0 million, respectively.
On January 1, 1998, substantially all of the aforementioned defined benefit and
defined contribution 401k plans were merged with the existing benefit plans of
FAFLIC. The merger of benefit plans resulted in a $5.9 million change of
interest adjustment to additional paid in capital during 1998. The change of
interest adjustment arose from FAFLIC's forgiveness of certain Allmerica P&C
benefit plan liabilities attributable to Allmerica P&C's minority interest.
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's pension plans, the Company currently provides
postretirement medical and death benefits to certain full-time employees and
dependents, under several plans sponsored by FAFLIC. Generally, employees become
eligible at age 55 with at least 15 years of service. Spousal coverage is
generally provided for up to two years after death of the retiree. Benefits
include hospital, major medical, and a payment at death equal to retirees' final
compensation up to certain limits. Effective January 1, 1996, the Company
revised these benefits so as to establish limits on future benefit payments and
to restrict eligibility to current employees. The medical plans have varying
copayments and deductibles, depending on the plan. These plans are unfunded.
The plan changes, effective January 1, 1996, resulted in a negative plan
amendment (change in eligibility and medical benefits) of $26.8 million and
curtailment (no future increases in life insurance) of $5.3 million. The
negative plan amendment will be amortized as prior service cost over the average
number of years to full eligibility (approximately 9 years or $3.0 million per
year). Of the $5.3 million curtailment gain, $3.3 million has been deducted from
unrecognized loss and $2.0 million has been recorded as a reduction of the net
periodic postretirement benefit expense.
The plans' funded status reconciled with amounts recognized in the Company's
consolidated balance sheet were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
Change in benefit obligation:
Accumulated postretirement benefit obligation at
beginning of year..................................... $ 71.8 $ 72.3
Service cost............................................ 3.1 3.0
Interest cost........................................... 5.1 4.6
Actuarial losses........................................ 7.6 (4.7)
Benefits paid........................................... (3.6) (3.4)
------ ------
Accumulated postretirement benefit obligation at end of
year.................................................. 84.0 71.8
Fair value of plan assets at end of year................ -- --
------ ------
Funded status of the plan............................... (84.0) (71.8)
Unamortized prior service cost.......................... (12.9) (15.3)
Unrecognized net actuarial losses....................... 7.5 0.8
------ ------
Accumulated postretirement benefit costs................ $(89.4) $(86.3)
------ ------
------ ------
</TABLE>
The components of net periodic postretirement benefit expense were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Service cost................................................ $ 3.1 $ 3.0 $ 3.2
Interest cost............................................... 5.1 4.6 4.6
Recognized net actuarial loss (gain)........................ 0.1 (0.1) 0.2
Amortization of prior service cost.......................... (2.4) (2.7) (3.0)
------ ------ ------
Net periodic postretirement benefit cost.................... $ 5.9 $ 4.8 $ 5.0
------ ------ ------
------ ------ ------
</TABLE>
As a result of AFC's merger with APY in 1997, certain postretirement liabilities
were reduced by $6.1 million to reflect their fair value as of the purchase
date. These postretirement liabilities were reduced by $5.4 million in 1998,
which reflects fair value, net of applicable amortization.
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For purposes of measuring the accumulated postretirement benefit obligation at
December 31, 1998, health care costs were assumed to increase 7.0% in 1999,
declining thereafter until the ultimate rate of 5.5% is reached in 2001 and
remains at that level thereafter. The health care cost trend rate assumption has
a significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation at December 31, 1998
by $5.7 million, and the aggregate of the service and interest cost components
of net periodic postretirement benefit expense for 1998 by $0.7 million.
Conversely, decreasing the assumed health care cost trend rates by one
percentage point in each year would decrease the accumulated postretirement
benefit obligation at December 31, 1998 by $5.2 million, and the aggregate of
the service and interest cost components of net periodic postretirement benefit
expense for 1998 by $0.6 million.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 6.5% and 7.0% at December 31, 1998 and
1997. In addition, the actuarial present value of the accumulated postretirement
benefit obligation was determined using an assumed rate of increase in future
compensation levels of 5.5% for FAFLIC agents.
On January 1, 1998, substantially all of the aforementioned postretirement
medical and death benefits plans were merged with the existing benefit plans of
FAFLIC. The merger of benefit plans resulted in a $3.8 million change of
interest adjustment to additional paid in capital during 1998. The change of
interest adjustment arose from FAFLIC's forgiveness of certain Allmerica P&C
benefit plan liabilities attributable to Allmerica P&C's minority interest.
11. DIVIDEND RESTRICTIONS
Massachusetts, Delaware, New Hampshire and Michigan have enacted laws governing
the payment of dividends to stockholders by insurers. These laws affect the
dividend paying ability of FAFLIC, AFLIAC, Hanover and Citizens, respectively.
Dividends from FAFLIC and Allmerica P&C (Hanover) are the primary source of cash
flow for AFC.
Massachusetts' statute limits the dividends an insurer may pay in any twelve
month period, without the prior permission of the Commonwealth of Massachusetts
Insurance Commissioner, to the greater of (i) 10% of its statutory policyholder
surplus as of the preceding December 31 or (ii) the individual company's
statutory net gain from operations for the preceding calendar year (if such
insurer is a life company), or its net income for the preceding calendar year
(if such insurer is not a life company). In addition, under Massachusetts law,
no domestic insurer shall pay a dividend or make any distribution to its
shareholders from other than unassigned funds unless the Commissioner shall have
approved such dividend or distribution. During 1998, FAFLIC paid dividends of
$50.0 million to AFC. No dividends were declared by FAFLIC to AFC during 1997 or
1996 During 1999, FAFLIC could pay dividends of $116.4 million to AFC without
prior approval of the Commissioner.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding December 31
or (ii) the individual company's statutory net gain from operations for the
preceding calendar year (if such insurer is a life company) or its net income
(not including realized capital gains) for the preceding calendar year (if such
insurer is not a life company). Any dividends to be paid by an insurer, whether
or not in excess of the aforementioned threshold, from a source other than
statutory earned surplus would also require the prior approval of the Delaware
Commissioner of Insurance. No dividends were declared by AFLIAC to FAFLIC during
1998, 1997 or 1996. During 1999, AFLIAC could pay dividends of $26.1 million to
FAFLIC without prior approval.
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pursuant to New Hampshire's statute, the maximum dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the New Hampshire Insurance Commissioner, is limited to 10% of
such insurer's statutory policyholder surplus as of the preceding December 31.
Hanover declared dividends to Allmerica P&C totaling, $125.0 million, $120.0
million and $105.0 million during 1998, 1997 and 1996, respectively. During
1999, the maximum dividend and other distributions that could be paid to
Allmerica P&C by Hanover, without prior approval of the Insurance Commissioner,
is approximately $1.6 million, which considers an extraordinary dividend of
$125.0 million declared on March 12, 1998. The allowable dividend without prior
approval will increase to $126.6 million on March 12, 1999.
Pursuant to Michigan's statute, the maximum dividends and other distributions
that an insurer may pay in any twelve month period, without prior approval of
the Michigan Insurance Commissioner, is limited to the greater of 10% of
policyholders' surplus as of December 31 of the immediately preceding year or
the statutory net income less realized gains, for the immediately preceding
calendar year. Citizens Insurance paid dividends to Citizens Corporation
totaling $200.0 million and $6.3 million during 1998 and 1996, respectively. A
$180.0 million extraordinary dividend was approved by the Commissioner in 1998.
No dividends were declared by Citizens Insurance during 1997. During 1999,
Citizens Insurance can declare no dividends to Citizens Corporation without
prior approval of the Michigan Insurance Commissioner as a result of the $180.0
million extraordinary dividend declared on December 21, 1998.
12. SEGMENT INFORMATION
The Company offers financial products and services in two major areas: Risk
Management and Retirement and Asset Accumulation. Within these broad areas, the
Company conducts business principally in four operating segments.
Effective January 1, 1998, the Company adopted Statement No. 131. Upon adoption,
the separate financial information of each segment was re-defined consistent
with the way results are regularly evaluated by the chief operating decision
maker in deciding how to allocate resources and in assessing performance. A
summary of the significant changes in reportable segments is included below.
The Risk Management group includes two segments: Property and Casualty and
Corporate Risk Management Services. The Property and Casualty segment includes
property and casualty insurance products, such as automobile insurance,
homeowners insurance, commercial multiple peril insurance, and workers'
compensation insurance. These products are offered by Allmerica P&C through its
operating subsidiaries, Hanover and Citizens. Substantially all of the Property
and Casualty segment's earnings are generated in Michigan and the Northeast
(Connecticut, Massachusetts, New York, New Jersey, New Hampshire, Rhode Island,
Vermont and Maine). The Corporate Risk Management Services segment includes
group life and health insurance products and services which assist employers in
administering employee benefit programs and in managing the related risks.
The Retirement and Asset Accumulation group includes two segments: Allmerica
Financial Services and Allmerica Asset Management. The Allmerica Financial
Services segment includes variable annuities, variable universal life and
traditional life insurance products distributed via retail channels as well as
group retirement products, such as defined benefit and 401(k) plans and
tax-sheltered annuities distributed to institutions. Through its Allmerica Asset
Management segment, the Company offers its customers the option of investing in
three types of GICs; the traditional GIC, the synthetic GIC and the floating
rate GIC. This segment is also a Registered Investment Advisor providing
investment advisory services, primarily to affiliates, and to other
institutions, such as insurance companies and pension plans. In addition to the
four operating segments, the Company has a Corporate segment, which consists
primarily of cash, investments, corporate debt, Capital Securities and corporate
overhead expenses. Corporate overhead expenses reflect costs not attributable to
a
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
particular segment, such as those generated by certain officers and directors,
Corporate Technology, Corporate Finance, Human Resources and the legal
department.
Significant changes to the Company's segmentation include a reclassification of
corporate overhead expenses from each operating segment into the Corporate
segment. Additionally, certain products (group retirement products, such as
401(k) plans and tax-sheltered annuities, group variable universal life) and
certain other non-insurance operations (telemarketing and trust services)
previously reported in the Allmerica Financial Institutional Services segment
were combined with the Allmerica Financial Services segment. Also, the Company
reclassified the GIC product line previously reported in the Allmerica Financial
Institutional Services segment into the Allmerica Asset Management segment.
Management evaluates the results of the aforementioned segments based on pre-tax
segment income. Pre-tax segment income is determined by adjusting net income for
net realized investment gains and losses, net gains and losses on disposals of
businesses, extraordinary items, the cumulative effect of accounting changes and
certain other items which management believes are not indicative of overall
operating trends. While these items may be significant components in
understanding and assessing the Company's financial performance, management
believes that the presentation of pre-tax segment income enhances its
understanding of the Company's results of operations by highlighting net income
attributable to the normal, recurring operations of the business. However,
pre-tax segment income should not be construed as a substitute for net income
determined in accordance with generally accepted accounting principles.
Summarized below is financial information with respect to business segments:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Segment revenues:
Risk Management
Property and Casualty................................... $2,204.8 $2,211.0 $2,145.8
Corporate Risk Management Services...................... 412.9 405.4 370.7
-------- -------- --------
Subtotal............................................ 2,617.7 2,616.4 2,516.5
-------- -------- --------
Retirement and Asset Accumulation
Allmerica Financial Services............................ 721.2 709.7 700.0
Allmerica Asset Management.............................. 121.7 91.1 110.5
-------- -------- --------
Subtotal............................................ 842.9 800.8 810.5
-------- -------- --------
Corporate................................................. 2.3 5.5 5.2
Intersegment revenues..................................... (7.6) (11.6) (13.8)
-------- -------- --------
Total segment revenues including Closed Block........... 3,455.2 3,411.1 3,318.4
-------- -------- --------
Adjustment to segment revenues:
Adjustment for Closed Block............................. (98.4) (102.6) (105.7)
Net realized gains...................................... 62.6 75.6 66.8
-------- -------- --------
Total revenues...................................... $3,419.4 $3,384.2 $3,279.5
-------- -------- --------
-------- -------- --------
</TABLE>
F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Segment income (loss) before income taxes and minority
interest:
Risk Management
Property and Casualty................................... $151.4 $172.9 $170.7
Corporate Risk Management Services...................... 7.8 27.0 28.3
------ ------ ------
Subtotal............................................ 159.2 199.9 199.0
------ ------ ------
Retirement and Asset Accumulation
Allmerica Financial Services............................ 166.6 134.6 106.8
Allmerica Asset Management.............................. 23.7 18.4 11.5
------ ------ ------
Subtotal............................................ 190.3 153.0 118.3
------ ------ ------
Corporate................................................. (45.3) (44.6) (36.6)
------ ------ ------
Segment income before income taxes and minority
interest.............................................. 304.2 308.3 280.7
------ ------ ------
Adjustments to segment income:
Net realized investment gains, net of amortization...... 53.9 78.7 69.6
Sales practice litigation expense....................... (31.0) -- --
Loss on exiting reinsurance pools....................... (25.3)
Gain from change in mortality assumptions............... -- 47.0 --
Loss on cession of disability income business........... -- (53.9) --
Restructuring costs..................................... (13.0) -- --
Other items............................................. (.7) (3.2) (1.1)
------ ------ ------
Income before taxes and minority interest................. $288.1 $376.9 $349.2
------ ------ ------
------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997 1998 1997
- ------------------------------------------------------------ --------- --------- -------- ------
DEFERRED
ACQUISITION
IDENTIFIABLE ASSETS COSTS
<S> <C> <C> <C> <C>
Risk Management
Property and Casualty................................... $ 5,649.0 $ 5,650.4 $ 164.9 $167.2
Corporate Risk Management Services...................... 567.8 619.8 2.6 2.9
--------- --------- -------- ------
Subtotal............................................ 6,216.8 6,270.2 167.5 170.1
Retirement and Asset Accumulation
Allmerica Financial Services............................ 19,407.3 15,159.2 993.1 794.5
Allmerica Asset Management.............................. 1,810.9 1,035.1 0.6 0.9
--------- --------- -------- ------
Subtotal............................................ 21,218.2 16,194.3 993.7 795.4
Corporate............................................... 29.6 26.9 -- --
--------- --------- -------- ------
Total............................................... $27,464.6 $22,491.4 $1,161.2 $965.5
--------- --------- -------- ------
--------- --------- -------- ------
</TABLE>
13. LEASE COMMITMENTS
Rental expenses for operating leases, principally with respect to buildings,
amounted to $34.9 million, $33.6 million and $34.9 million in 1998, 1997 and
1996, respectively. At December 31, 1998, future minimum rental payments under
non-cancelable operating leases were approximately $73.5 million, payable as
follows: 1999 -- $28.6 million; 2000 -- $21.0 million; 2001 -- $13.8 million;
2002 -- $6.9 million; and $3.2 million thereafter. It is expected that, in the
normal course of business, leases that expire will be renewed or replaced by
leases on other property and equipment; thus, it is anticipated that future
minimum lease commitments will not be less than the amounts shown for 1999.
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that may
arise from catastrophes or other events that cause unfavorable underwriting
results by reinsuring certain levels of risk in various areas of exposure with
other insurance enterprises or reinsurers. Reinsurance transactions are
accounted for in accordance with the provisions of SFAS No. 113, "Accounting and
Reporting for Reinsurance of Short Duration and Long Duration Contracts".
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policy. Reinsurance contracts
do not relieve the Company from its obligations to policyholders. Failure of
reinsurers to honor their obligations could result in losses to the Company;
consequently, allowances are established for amounts deemed uncollectible. The
Company determines the appropriate amount of reinsurance based on evaluation of
the risks accepted and analyses prepared by consultants and reinsurers and on
market conditions (including the availability and pricing of reinsurance). The
Company also believes that the terms of its reinsurance contracts are consistent
with industry practice in that they contain standard terms with respect to lines
of business covered, limit and retention, arbitration and occurrence. Based on
its review of its reinsurers' financial statements and reputations in the
reinsurance marketplace, the Company believes that its reinsurers are
financially sound.
The Company is subject to concentration of risk with respect to reinsurance
ceded to various residual market mechanisms. As a condition to the ability to
conduct certain business in various states, the Company is required to
participate in various residual market mechanisms and pooling arrangements which
provide various insurance coverages to individuals or other entities that are
otherwise unable to purchase such coverage voluntarily provided by private
insurers. These market mechanisms and pooling arrangements include the
Massachusetts Commonwealth Automobile Reinsurers ("CAR"), the Maine Workers'
Compensation Residual Market Pool ("MWCRP") and the Michigan Catastrophic Claims
Association ("MCCA"). At December 31, 1998, CAR was the only reinsurer which
represented 10% or more of the Company's reinsurance business. As a servicing
carrier in Massachusetts, the Company cedes a significant portion of its private
passenger and commercial automobile premiums to CAR. Net premiums earned and
losses and loss adjustment expenses ceded to CAR in 1998, 1997 and 1996 were
$34.3 million and $38.1 million, $32.3 million and $28.2 million, and $38.0
million and $21.8 million, respectively. The Company ceded to MCCA premiums
earned and losses and loss adjustment expenses in 1998, 1997 and 1996 of $3.7
million and $18.0 million, $9.8 million and $(0.8) million, and $50.5 million
and $(52.9) million, respectively.
On June 2, 1998, the Company recorded a $124.2 million one-time reduction of its
direct and ceded written premiums as a result of a return of excess surplus from
MCCA. This transaction had no impact on the total net premiums recorded by the
Company in 1998.
Because the MCCA is supported by assessments permitted by statute, and all
amounts billed by the Company to CAR, MWCRP and MCCA have been paid when due,
the Company believes that it has no significant exposure to uncollectible
reinsurance balances.
F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ---------- -------- --------
<S> <C> <C> <C>
Life and accident and health insurance premiums:
Direct.................................................. $ 416.6 $ 417.4 $ 389.1
Assumed................................................. 111.9 110.7 87.8
Ceded................................................... (189.8) (170.1) (138.9)
---------- -------- --------
Net premiums................................................ $ 338.7 $ 358.0 $ 338.0
---------- -------- --------
---------- -------- --------
Property and casualty premiums written:
Direct.................................................. $1,969.3 $2,068.5 $2,039.7
Assumed................................................. 58.8 103.1 108.7
Ceded................................................... (74.1) (179.8) (234.0)
---------- -------- --------
Net premiums................................................ $1,954.0 $1,991.8 $1,914.4
---------- -------- --------
---------- -------- --------
Property and casualty premiums earned:
Direct.................................................. $1,966.8 $2,046.2 $2,018.5
Assumed................................................. 64.5 102.0 112.4
Ceded................................................... (66.1) (195.1) (232.6)
---------- -------- --------
Net premiums................................................ $1,965.2 $1,953.1 $1,898.3
---------- -------- --------
---------- -------- --------
Life insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
Direct.................................................. $ 653.6 $ 656.4 $ 606.5
Assumed................................................. 67.9 61.6 44.9
Ceded................................................... (164.0) (158.8) (77.8)
---------- -------- --------
Net policy benefits, claims, losses and loss adjustment
expenses................................................... $ 557.5 $ 559.2 $ 573.6
---------- -------- --------
---------- -------- --------
Property and casualty benefits, claims, losses and loss
adjustment expenses:
Direct.................................................. $1,588.3 $1,464.9 $1,299.8
Assumed................................................. 62.7 101.2 85.8
Ceded................................................... (158.2) (120.6) (2.2)
---------- -------- --------
Net policy benefits, claims, losses, and loss adjustment
expenses................................................... $1,492.8 $1,445.5 $1,383.4
---------- -------- --------
---------- -------- --------
</TABLE>
15. DEFERRED POLICY ACQUISITION COSTS
The following reflects changes to the deferred policy acquisition asset:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year................................ $ 965.5 $ 822.7 $ 735.7
Acquisition expenses deferred........................... 641.2 617.7 547.4
Amortized to expense during the year.................... (452.8) (476.0) (470.1)
Adjustment to equity during the year.................... 7.3 (11.1) 9.7
Adjustment for cession of disability income insurance... -- (38.6) --
Adjustment for revision of universal and variable
universal life insurance mortality assumptions........ -- 50.8 --
-------- -------- --------
Balance at end of year...................................... $1,161.2 $ 965.5 $ 822.7
-------- -------- --------
-------- -------- --------
</TABLE>
F-37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.8 million recapitalization of deferred policy acquisition costs.
16. LIABILITIES FOR OUTSTANDING CLAIMS, LOSSES AND
LOSS ADJUSTMENT EXPENSES
The Company regularly updates its estimates of liabilities for outstanding
claims, losses and loss adjustment expenses as new information becomes available
and further events occur which may impact the resolution of unsettled claims for
its property and casualty and its accident and health lines of business. Changes
in prior estimates are recorded in results of operations in the year such
changes are determined to be needed.
The liability for future policy benefits and outstanding claims, losses and loss
adjustment expenses related to the Company's accident and health business was
$568.0 million, $533.6 million and $471.7 million at December 31, 1998, 1997 and
1996, respectively. Accident and health claim liabilities were re-estimated for
all prior years and were increased by $14.6 million in 1998, and decreased by
$0.2 million and $0.6 million in 1997 and 1996, respectively. The increase in
1998 resulted from the Company's reserve strengthening primarily in the assumed
reinsurance and stop loss only business.
The following table provides a reconciliation of the beginning and ending
property and casualty reserve for unpaid losses and loss adjustment expenses
(LAE):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Reserve for losses and LAE, beginning of the year........... $2,615.4 $2,744.1 $2,896.0
Incurred losses and LAE, net of reinsurance recoverable:
Provision for insured events of the current year........ 1,609.0 1,564.1 1,513.3
Decrease in provision for insured events of prior
years................................................. (127.2) (127.9) (141.4)
-------- -------- --------
Total incurred losses and LAE............................... 1,481.8 1,436.2 1,371.9
-------- -------- --------
Payments, net of reinsurance recoverable:
Losses and LAE attributable to insured events of current
year.................................................. 871.9 775.1 759.6
Losses and LAE attributable to insured events of prior
years................................................. 643.0 732.1 627.6
-------- -------- --------
Total payments.............................................. 1,514.9 1,507.2 1,387.2
-------- -------- --------
Change in reinsurance recoverable on unpaid losses.......... 15.0 (50.2) (136.6)
-------- -------- --------
Other (1)................................................... -- (7.5) --
-------- -------- --------
Reserve for losses and LAE, end of year..................... $2,597.3 $2,615.4 $2,744.1
-------- -------- --------
-------- -------- --------
</TABLE>
(1) Includes purchase accounting adjustments.
As part of an ongoing process, the property and casualty reserves have been
re-estimated for all prior accident years and were decreased by $127.2 million,
$127.9 million and $141.1 million in 1998, 1997, and 1996, respectively.
The decrease in favorable development on prior years' reserves of $0.7 million
in 1998 results from a $20.7 million decrease in favorable development at
Citizens, significantly offset by a $20.0 million increase in favorable
development at Hanover. The decrease in favorable development on prior year
reserves at Citizens in 1998, reflects a $13.8 million decrease in favorable
development, to $21.9 million, in the workers' compensation line. In addition,
favorable development in the commercial multiple peril line decreased $4.0
million, to
F-38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$0.3 million. These declines in favorable development are partially offset by
continued favorable development on prior year reserves in the personal
automobile line due to tort reform in Michigan, which became effective July 26,
1996. The new legislation requires judges rather than juries to determine if the
minimum threshold to allow pain and suffering damage settlements has been met.
The increase in favorable development at Hanover during 1998 reflects a $20.6
million increase in favorable development on prior year reserves, to $38.0
million, in the personal automobile line, as well as a $14.9 million increase to
$12.1 million in the commercial multiple peril line. These increases are
primarily attributable to the initiatives taken by the Company over the past two
years which are expected to reduce ultimate settlement costs. These increases
are partially offset by less favorable development in the workers' compensation
line where favorable development on prior year reserves decreased $19.2 million,
to $9.6 million.
The decrease in favorable development on prior years' reserves of $13.5 million
in 1997 results primarily from a $24.6 million decrease in favorable development
at Hanover to $58.4 million, partially offset by an $11.1 million increase in
favorable development at Citizens to $69.5 million. The decrease in Hanover's
favorable development of $24.6 million in 1997 reflects a decrease in favorable
development of $25.0 million, to $17.4 million, in the personal automobile line
as well as a decrease in favorable development of $8.5 million, to unfavorable
development of $2.8 million, in the commercial multiple peril line. These
decreases were partially offset by an increase in favorable development in the
workers' compensation line of $11.5 million, to $28.8 million. The increase in
favorable development at Citizens in 1997, reflects improved severity in the
workers' compensation line where favorable development increased $13.9 million,
to $35.7 million, and in the commercial multiple peril line where favorable
development increased $7.0 million, to $4.3 million. These increases are
partially offset by less favorable development in the personal automobile line,
where favorable development decreased $10.5 million, to $22.5 million in 1997.
This favorable development reflects the Regional Property and Casualty
subsidiaries' reserving philosophy consistently applied over these periods.
Conditions and trends that have affected development of the loss and LAE
reserves in the past may not necessarily occur in the future.
Due to the nature of the business written by the Regional Property and Casualty
subsidiaries, the exposure to environmental liabilities is relatively small and
therefore their reserves are relatively small compared to other types of
liabilities. Loss and LAE reserves related to environmental damage and toxic
tort liability, included in the total reserve for losses and LAE were $49.9
million, $53.1 million and $50.8 million, net of reinsurance of $14.2 million,
$15.7 million and $20.2 million in 1998, 1997 and 1996, respectively. The
Regional Property and Casualty subsidiaries do not specifically underwrite
policies that include this coverage, but as case law expands policy provisions
and insurers' liability beyond the intended coverage, the Regional Property and
Casualty subsidiaries may be required to defend such claims. The Company
estimated its ultimate liability for these claims based upon currently known
facts, reasonable assumptions where the facts are not known, current law and
methodologies currently available. Although these claims are not material, their
existence gives rise to uncertainty and is discussed because of the possibility,
however remote, that they may become material. The Company believes that,
notwithstanding the evolution of case law expanding liability in environmental
claims, recorded reserves related to these claims are adequate. In addition, the
Company is not aware of any litigation or pending claims that may result in
additional material liabilities in excess of recorded reserves. The
environmental liability could be revised in the near term if the estimates used
in determining the liability are revised.
17. MINORITY INTEREST
The Company's interest in Allmerica P&C is represented by ownership of 70.0%,
65.8% and 59.5% of the outstanding shares of common stock at December 31, 1998,
1997 and 1996, respectively. Earnings and
F-39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
shareholder's equity attributable to minority shareholders are included in
minority interest in the consolidated financial statements.
18. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company is not able to reasonably estimate the potential
effect on it of any such future assessments or voluntary payments.
LITIGATION
In July 1997, a lawsuit on behalf of a putative class was instituted in
Louisiana against AFC and certain of its subsidiaries, including FAFLIC, by
individual plaintiffs alleging fraud, unfair or deceptive acts, breach of
contract, misrepresentation, and related claims in the sale of life insurance
policies. In October 1997, the plaintiffs voluntarily dismissed the Louisiana
suit and filed a substantially similar action in Federal District Court in
Worcester, Massachusetts. In early November 1998, the Company and the plaintiffs
entered into a settlement agreement, to which the court granted preliminary
approval on December 4, 1998. A hearing was held on March 19, 1999 to consider
final approval of the settlement agreement. A decision by the court is expected
to be rendered in the near future. Accordingly, FAFLIC recognized a $31.0
million pre-tax expense during the third quarter of 1998 related to this
litigation. Although the Company believes that this expense reflects appropriate
recognition of its obligation under the settlement, this estimate assumes the
availability of insurance coverage for certain claims, and the estimate may be
revised based on the amount of reimbursement actually tendered by AFC's
insurance carriers, if any, and based on changes in the Company's estimate of
the ultimate cost of the benefits to be provided to members of the class.
The Company has been named a defendant in various other legal proceedings
arising in the normal course of business. In the Company's opinion, based on the
advice of legal counsel, the ultimate resolution of these proceedings will not
have a material effect on the Company's consolidated financial statements.
However, liabilities related to these proceedings could be established in the
near term if estimates of the ultimate resolution of these proceedings are
revised.
RESIDUAL MARKETS
The Company is required to participate in residual markets in various states.
The results of the residual markets are not subject to the predictability
associated with the Company's own managed business, and are significant to the
workers' compensation line of business and both the private passenger and
commercial automobile lines of business.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
F-40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Although the Company does not believe that there is a material contingency
associated with the Year 2000 project, there can be no assurance that exposure
for material contingencies will not arise.
19. STATUTORY FINANCIAL INFORMATION
The Company and its insurance subsidiaries are required to file annual
statements with state regulatory authorities prepared on an accounting basis
prescribed or permitted by such authorities (statutory basis). Statutory surplus
differs from shareholder's equity reported in accordance with generally accepted
accounting principles primarily because policy acquisition costs are expensed
when incurred, investment reserves are based on different assumptions,
postretirement benefit costs are based on different assumptions and reflect a
different method of adoption, life insurance reserves are based on different
assumptions and income tax expense reflects only taxes paid or currently
payable. Statutory net income and surplus are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Statutory Net Income (Combined)
Property and Casualty Companies......................... $ 180.7 $ 190.3 $ 155.5
Life and Health Companies............................... 86.4 191.2 133.3
Statutory Shareholder's Surplus (Combined)
Property and Casualty Companies......................... $1,269.3 $1,279.6 $1,201.6
Life and Health Companies............................... 1,164.1 1,221.3 1,120.1
</TABLE>
20. SUBSEQUENT EVENT
On April 1, 1999, Allmerica P&C redeemed an additional 3,246.8 shares of its
issued and outstanding common stock owned by AFC for $125.0 million, thereby
increasing FAFLIC's ownership of Allmerica P&C by 4.8%. The 1999 transaction
consisted of $75.4 million of securities and $49.6 million of cash.
21. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT ACCOUNTANTS' REPORT (UNAUDITED)
AFC has proposed certain changes to its corporate structure. These changes
include transfer of FAFLIC's ownership of Allmerica P&C, as well as several
non-insurance subsidiaries, from FAFLIC to AFC. FAFLIC would retain its
ownership of AFLIAC and certain other subsidiaries. Under the proposal, AFC
would contribute to FAFLIC capital of $125.0 million and agree to maintain
FAFLIC's statutory surplus at specified levels during the following six years.
In addition, any dividend from FAFLIC to AFC during 2000 and 2001 would require
the prior approval of the Commonwealth of Massachusetts Insurance Commissioner
("the Commissioner"). This proposed transaction was approved by the Commissioner
on May 24, 1999.
In 1998, the net income of the subsidiaries, which is included in FAFLIC's net
income, to be transferred from FAFLIC to AFC under this proposal was $95.7
million. As of December 31, 1998, the total assets and total equity of these
subsidiaries were $4,033.0 million and $1,264.1 million, respectively.
On May 19, 1999, the Federal District Court in Worcester, Massachusetts issued
an order relating to the litigation mentioned in Note 18, above, certifying the
class for settlement purposes and granting final approval of the settlement
agreement.
On May 5, 1999 and May 11, 1999, Allmerica P&C redeemed 1,273.9 shares and
4,142.0 shares of its issued and outstanding common stock owned by AFC for $50.0
million and $175.0 million, respectively. The May 5, 1999 and May 11, 1999
transactions consisted of cash and short-term securities. After the May 11, 1999
transaction, FAFLIC's ownership of Allmerica P&C increased to 84.52%.
F-41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of First Allmerica Financial Life Insurance
Company and the Contractowners of the Separate Account VA-K Allmerica
Advantage Variable Annuity and ExecAnnuity Plus Variable Annuity of First
Allmerica Financial Life Insurance Company
In our opinion, the accompanying statements of assets and liabilities, and the
related statements of operations and changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts
constituting the Separate Account VA-K Allmerica Advantage Variable Annuity and
ExecAnnuity Plus Variable Annuity of First Allmerica Financial Life Insurance
Company at December 31, 1998, the results of each of their operations and the
changes in each of their net assets for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of First Allmerica Financial Life
Insurance Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating to overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
Funds, provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 26, 1999
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INVESTMENT
GRADE MONEY EQUITY GOVERNMENT
GROWTH INCOME MARKET INDEX BOND
------------ ----------- ------------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust........................... $ 21,826,646 $6,957,372 $ 10,375,288 $ 23,413,636 $3,315,626
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............. -- -- -- -- --
Investment in shares of T. Rowe Price
International Series, Inc.................. -- -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc.......................... -- -- -- -- --
Receivable from First Allmerica Financial
Life Insurance Company (Sponsor)........... -- -- -- 38,946 --
------------ ----------- ------------ -------------- ----------------
Total assets.............................. 21,826,646 6,957,372 10,375,288 23,452,582 3,315,626
LIABILITIES:
Payable to First Allmerica Financial Life
Insurance Company (Sponsor)................ 281,836 -- 33 -- --
------------ ----------- ------------ -------------- ----------------
Net assets................................ $ 21,544,810 $6,957,372 $ 10,375,255 $ 23,452,582 $3,315,626
------------ ----------- ------------ -------------- ----------------
------------ ----------- ------------ -------------- ----------------
Net asset distribution by category:
Qualified variable annuity contracts...... $ 14,626,276 $4,634,964 $ 6,888,691 $ 15,628,670 $1,862,448
Non-qualified variable annuity
contracts............................... 6,918,534 2,322,408 3,486,564 7,823,912 1,453,178
------------ ----------- ------------ -------------- ----------------
$ 21,544,810 $6,957,372 $ 10,375,255 $ 23,452,582 $3,315,626
------------ ----------- ------------ -------------- ----------------
------------ ----------- ------------ -------------- ----------------
Qualified units outstanding, December 31,
1998....................................... 6,262,251 3,437,335 5,764,875 5,650,027 1,463,251
Net asset value per qualified unit, December
31, 1998................................... $ 2.335626 $ 1.348418 $ 1.194942 $ 2.766123 $ 1.272815
Non-qualified units outstanding, December
31, 1998................................... 2,962,176 1,722,320 2,917,768 2,828,476 1,141,704
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 2.335626 $ 1.348418 $ 1.194942 $ 2.766123 $ 1.272815
<CAPTION>
SELECT SELECT
AGGRESSIVE SELECT GROWTH SELECT VALUE
GROWTH GROWTH AND INCOME OPPORTUNITY*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust........................... $ 20,453,722 $ 23,117,675 $16,452,617 $13,207,156
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............. -- -- -- --
Investment in shares of T. Rowe Price
International Series, Inc.................. -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc.......................... -- -- -- --
Receivable from First Allmerica Financial
Life Insurance Company (Sponsor)........... -- -- 32,492 --
------------ ------------ ------------ ------------
Total assets.............................. 20,453,722 23,117,675 16,485,109 13,207,156
LIABILITIES:
Payable to First Allmerica Financial Life
Insurance Company (Sponsor)................ -- -- -- --
------------ ------------ ------------ ------------
Net assets................................ $ 20,453,722 $ 23,117,675 $16,485,109 $13,207,156
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net asset distribution by category:
Qualified variable annuity contracts...... $ 14,495,089 $ 15,445,261 $ 9,707,170 $ 9,098,254
Non-qualified variable annuity
contracts............................... 5,958,633 7,672,414 6,777,939 4,108,902
------------ ------------ ------------ ------------
$ 20,453,722 $ 23,117,675 $16,485,109 $13,207,156
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Qualified units outstanding, December 31,
1998....................................... 7,286,861 5,604,880 4,427,258 4,989,938
Net asset value per qualified unit, December
31, 1998................................... $ 1.989209 $ 2.755681 $ 2.192592 $ 1.823320
Non-qualified units outstanding, December
31, 1998................................... 2,995,479 2,784,217 3,091,291 2,253,528
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 1.989209 $ 2.755681 $ 2.192592 $ 1.823320
</TABLE>
* Name changed. See Note 1.
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SELECT SELECT DGPF
INTERNATIONAL CAPITAL INTERNATIONAL FIDELITY VIP FIDELITY VIP FIDELITY VIP
EQUITY APPRECIATION EQUITY HIGH INCOME EQUITY-INCOME GROWTH
------------ ------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust........................... $15,591,157 $11,147,827 $ -- $ -- $ -- $ --
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............. -- -- -- 20,672,042 36,052,923 35,344,990
Investment in shares of T. Rowe Price
International Series, Inc.................. -- -- -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc.......................... -- -- 6,254,787 -- -- --
Receivable from First Allmerica Financial
Life Insurance Company (Sponsor)........... -- -- -- -- -- --
------------ ------------ ----------- ------------ ------------ ------------
Total assets.............................. 15,591,157 11,147,827 6,254,787 20,672,042 36,052,923 35,344,990
LIABILITIES:
Payable to First Allmerica Financial Life
Insurance Company (Sponsor)................ -- -- -- -- -- --
------------ ------------ ----------- ------------ ------------ ------------
Net assets................................ $15,591,157 $11,147,827 $6,254,787 $20,672,042 $36,052,923 $35,344,990
------------ ------------ ----------- ------------ ------------ ------------
------------ ------------ ----------- ------------ ------------ ------------
Net asset distribution by category:
Qualified variable annuity contracts...... $10,801,187 $ 7,775,538 $4,442,666 $13,257,676 $23,791,242 $23,923,730
Non-qualified variable annuity
contracts............................... 4,789,970 3,372,289 1,812,121 7,414,366 12,261,681 11,421,260
------------ ------------ ----------- ------------ ------------ ------------
$15,591,157 $11,147,827 $6,254,787 $20,672,042 $36,052,923 $35,344,990
------------ ------------ ----------- ------------ ------------ ------------
------------ ------------ ----------- ------------ ------------ ------------
Qualified units outstanding, December 31,
1998....................................... 6,728,831 4,147,763 2,946,096 9,109,025 10,631,627 8,822,677
Net asset value per qualified unit, December
31, 1998................................... $ 1.605210 $ 1.874634 $ 1.507984 $ 1.455444 $ 2.237780 $ 2.711618
Non-qualified units outstanding, December
31, 1998................................... 2,984,015 1,798,906 1,201,684 5,094,230 5,479,395 4,211,973
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 1.605210 $ 1.874634 $ 1.507984 $ 1.455444 $ 2.237780 $ 2.711618
<CAPTION>
FIDELITY T. ROWE
FIDELITY VIP II PRICE
VIP ASSET INTERNATIONAL
OVERSEAS MANAGER STOCK
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica
Investment Trust........................... $ -- $ -- $ --
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............. 6,286,148 6,085,273 --
Investment in shares of T. Rowe Price
International Series, Inc.................. -- -- 7,914,963
Investment in shares of Delaware Group
Premium Fund, Inc.......................... -- -- --
Receivable from First Allmerica Financial
Life Insurance Company (Sponsor)........... -- -- --
----------- ----------- -----------
Total assets.............................. 6,286,148 6,085,273 7,914,963
LIABILITIES:
Payable to First Allmerica Financial Life
Insurance Company (Sponsor)................ -- -- --
----------- ----------- -----------
Net assets................................ $6,286,148 $6,085,273 $7,914,963
----------- ----------- -----------
----------- ----------- -----------
Net asset distribution by category:
Qualified variable annuity contracts...... $4,222,956 $4,405,083 $5,033,626
Non-qualified variable annuity
contracts............................... 2,063,192 1,680,190 2,881,337
----------- ----------- -----------
$6,286,148 $6,085,273 $7,914,963
----------- ----------- -----------
----------- ----------- -----------
Qualified units outstanding, December 31,
1998....................................... 2,927,485 2,543,524 3,605,982
Net asset value per qualified unit, December
31, 1998................................... $ 1.442520 $ 1.731882 $ 1.395910
Non-qualified units outstanding, December
31, 1998................................... 1,430,269 970,152 2,064,128
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 1.442520 $ 1.731882 $ 1.395910
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INVESTMENT
GROWTH GRADE INCOME MONEY MARKET
------------------------ ---------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997
----------- ----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 199,572 $ 170,276 $ 372,511 $ 263,167 $ 564,432 $ 516,480
Mortality and expense risk fees............ (223,817) (137,518) (75,848) (48,741) (130,349) (119,272)
Administrative expense fees................ (36,436) (22,387) (12,348) (7,935) (21,220) (19,416)
----------- ----------- ---------- ---------- ------------ ------------
Net investment income (loss)............. (60,681) 10,371 284,315 206,491 412,863 377,792
----------- ----------- ---------- ---------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 186,327 2,308,885 -- -- -- --
Net realized gain (loss) from sales of
investments.............................. 41,417 138,749 22,115 9,652 -- --
----------- ----------- ---------- ---------- ------------ ------------
Net realized gain (loss)................... 227,744 2,447,634 22,115 9,652 -- --
Net unrealized gain (loss)................. 2,783,753 (384,729) 69,734 95,127 -- --
----------- ----------- ---------- ---------- ------------ ------------
Net realized and unrealized gain
(loss).................................. 3,011,497 2,062,905 91,849 104,779 -- --
----------- ----------- ---------- ---------- ------------ ------------
Net increase (decrease) in net assets from
operations............................... 2,950,816 2,073,276 376,164 311,270 412,863 377,792
----------- ----------- ---------- ---------- ------------ ------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 1,295,185 1,060,800 477,719 503,732 42,956,520 40,462,298
Withdrawals................................ (854,008) (358,269) (278,536) (265,487) (1,527,192) (692,901)
Contract benefits.......................... (139,181) (50,924) -- (29,778) (7,305) (6,827)
Contract charges........................... (5,051) (3,392) (805) (779) (2,579) (1,957)
Transfers between sub-accounts (including
fixed account), net...................... 3,331,381 4,382,510 1,501,451 960,713 (43,621,528) (41,635,156)
Other transfers from (to) the General
Account.................................. 267,895 104,494 (45,851) 96,701 2,251,241 3,255,231
----------- ----------- ---------- ---------- ------------ ------------
Net increase (decrease) in net assets from
contract transactions.................... 3,896,221 5,135,219 1,653,978 1,265,102 49,157 1,380,688
----------- ----------- ---------- ---------- ------------ ------------
Net increase (decrease) in net assets...... 6,847,037 7,208,495 2,030,142 1,576,372 462,020 1,758,480
NET ASSETS:
Beginning of year.......................... 14,697,773 7,489,278 4,927,230 3,350,858 9,913,235 8,154,755
----------- ----------- ---------- ---------- ------------ ------------
End of year................................ $21,544,810 $14,697,773 $6,957,372 $4,927,230 $ 10,375,255 $ 9,913,235
----------- ----------- ---------- ---------- ------------ ------------
----------- ----------- ---------- ---------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT
EQUITY INDEX GOVERNMENT BOND AGGRESSIVE GROWTH
------------------------ ---------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997
----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 211,978 $ 110,855 $ 154,509 $ 102,465 $ -- $ --
Mortality and expense risk fees............ (215,782) (97,460) (34,372) (22,062) (214,129) (144,461)
Administrative expense fees................ (35,127) (15,865) (5,596) (3,591) (34,858) (23,517)
----------- ----------- ---------- ---------- ----------- -----------
Net investment income (loss)............. (38,931) (2,470) 114,541 76,812 (248,987) (167,978)
----------- ----------- ---------- ---------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 561,319 332,299 -- -- -- 1,126,096
Net realized gain (loss) from sales of
investments.............................. 222,393 113,305 18,037 (2,027) 120,729 143,103
----------- ----------- ---------- ---------- ----------- -----------
Net realized gain (loss)................... 783,712 445,604 18,037 (2,027) 120,729 1,269,199
Net unrealized gain (loss)................. 3,420,684 1,411,233 22,198 22,859 1,626,872 774,210
----------- ----------- ---------- ---------- ----------- -----------
Net realized and unrealized gain
(loss).................................. 4,204,396 1,856,837 40,235 20,832 1,747,601 2,043,409
----------- ----------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets from
operations............................... 4,165,465 1,854,367 154,776 97,644 1,498,614 1,875,431
----------- ----------- ---------- ---------- ----------- -----------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 1,870,086 1,081,244 341,848 213,001 1,667,973 1,341,539
Withdrawals................................ (1,165,798) (264,978) (183,152) (96,612) (1,107,960) (305,223)
Contract benefits.......................... (196,777) (10,484) (230) (28,876) (5,407) (39,679)
Contract charges........................... (4,591) (2,279) (486) (544) (6,478) (5,007)
Transfers between sub-accounts (including
fixed account), net...................... 5,748,639 5,663,963 946,095 (27,766) 3,440,969 2,409,882
Other transfers from (to) the General
Account.................................. 548,442 115,645 24,821 25,505 461,145 366,667
----------- ----------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets from
contract transactions.................... 6,800,001 6,583,111 1,128,896 84,708 4,450,242 3,768,179
----------- ----------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets...... 10,965,466 8,437,478 1,283,672 182,352 5,948,856 5,643,610
NET ASSETS:
Beginning of year.......................... 12,487,116 4,049,638 2,031,954 1,849,602 14,504,866 8,861,256
----------- ----------- ---------- ---------- ----------- -----------
End of year................................ $23,452,582 $12,487,116 $3,315,626 $2,031,954 $20,453,722 $14,504,866
----------- ----------- ---------- ---------- ----------- -----------
----------- ----------- ---------- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT GROWTH SELECT VALUE
SELECT GROWTH AND INCOME OPPORTUNITY*
------------------------ ------------------------ -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 14,598 $ 33,246 $ 175,980 $ 119,664 $ 110,850 $ 52,859
Mortality and expense risk fees............ (204,657) (93,924) (172,330) (108,204) (142,544) (83,766)
Administrative expense fees................ (33,316) (15,290) (28,054) (17,614) (23,204) (13,636)
----------- ----------- ----------- ----------- ----------- ----------
Net investment income (loss)............. (223,375) (75,968) (24,404) (6,154) (54,898) (44,543)
----------- ----------- ----------- ----------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 167,479 582,419 50,575 985,230 41,478 1,269,781
Net realized gain (loss) from sales of
investments.............................. 176,074 58,851 134,894 62,028 26,427 50,672
----------- ----------- ----------- ----------- ----------- ----------
Net realized gain (loss)................... 343,553 641,270 185,469 1,047,258 67,905 1,320,453
Net unrealized gain (loss)................. 4,813,123 1,458,284 1,752,366 545,994 319,879 154,795
----------- ----------- ----------- ----------- ----------- ----------
Net realized and unrealized gain
(loss).................................. 5,156,676 2,099,554 1,937,835 1,593,252 387,784 1,475,248
----------- ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets from
operations............................... 4,933,301 2,023,586 1,913,431 1,587,098 332,886 1,430,705
----------- ----------- ----------- ----------- ----------- ----------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 1,762,877 835,614 916,420 1,048,608 1,013,793 785,030
Withdrawals................................ (1,154,143) (404,348) (709,978) (193,939) (592,743) (191,683)
Contract benefits.......................... (46,068) (16,279) (158,824) (46,768) (6,487) (23,501)
Contract charges........................... (5,919) (2,603) (3,598) (2,639) (3,938) (2,276)
Transfers between sub-accounts (including
fixed account), net...................... 5,348,619 4,485,020 2,191,454 2,856,741 2,413,513 2,887,091
Other transfers from (to) the General
Account.................................. 743,351 484,042 641,774 497,850 408,183 404,673
----------- ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets from
contract transactions.................... 6,648,717 5,381,446 2,877,248 4,159,853 3,232,321 3,859,334
----------- ----------- ----------- ----------- ----------- ----------
Net increase (decrease) in net assets...... 11,582,018 7,405,032 4,790,679 5,746,951 3,565,207 5,290,039
NET ASSETS:
Beginning of year.......................... 11,535,657 4,130,625 11,694,430 5,947,479 9,641,949 4,351,910
----------- ----------- ----------- ----------- ----------- ----------
End of year................................ $23,117,675 $11,535,657 $16,485,109 $11,694,430 $13,207,156 $9,641,949
----------- ----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------- ----------
</TABLE>
*Name changed. See Note 1.
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT SELECT CAPITAL DGPF
INTERNATIONAL EQUITY APPRECIATION INTERNATIONAL EQUITY
------------------------ ----------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 191,221 $ 254,851 $ -- $ -- $ 175,659 $ 97,768
Mortality and expense risk fees............ (165,897) (112,688) (115,691) (85,778) (67,460) (44,469)
Administrative expense fees................ (27,006) (18,345) (18,833) (13,963) (10,981) (7,240)
----------- ----------- ----------- ---------- ---------- ----------
Net investment income (loss)............. (1,682) 123,818 (134,524) (99,741) 97,218 46,059
----------- ----------- ----------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- 354,949 1,690,159 -- -- --
Net realized gain (loss) from sales of
investments.............................. 92,023 43,796 152,396 19,575 37,951 53,177
----------- ----------- ----------- ---------- ---------- ----------
Net realized gain (loss)................... 92,023 398,745 1,842,555 19,575 37,951 53,177
Net unrealized gain (loss)................. 1,717,818 (336,142) (486,273) 1,077,745 277,546 14,007
----------- ----------- ----------- ---------- ---------- ----------
Net realized and unrealized gain
(loss).................................. 1,809,841 62,603 1,356,282 1,097,320 315,497 67,184
----------- ----------- ----------- ---------- ---------- ----------
Net increase (decrease) in net assets from
operations............................... 1,808,159 186,421 1,221,758 997,579 412,715 113,243
----------- ----------- ----------- ---------- ---------- ----------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 911,710 820,658 977,644 785,054 450,397 353,682
Withdrawals................................ (543,238) (295,438) (481,265) (126,447) (251,355) (135,450)
Contract benefits.......................... (35,297) (13,488) (6,055) (9,343) -- (16,256)
Contract charges........................... (4,110) (3,317) (3,180) (2,879) (1,772) (1,293)
Transfers between sub-accounts (including
fixed account), net...................... 1,774,816 3,234,322 676,351 944,363 1,017,275 1,372,115
Other transfers from (to) the General
Account.................................. 388,199 493,701 83,210 385,023 99,261 173,166
----------- ----------- ----------- ---------- ---------- ----------
Net increase (decrease) in net assets from
contract transactions.................... 2,492,080 4,236,438 1,246,705 1,975,771 1,313,806 1,745,964
----------- ----------- ----------- ---------- ---------- ----------
Net increase (decrease) in net assets...... 4,300,239 4,422,859 2,468,463 2,973,350 1,726,521 1,859,207
NET ASSETS:
Beginning of year.......................... 11,290,918 6,868,059 8,679,364 5,706,014 4,528,266 2,669,059
----------- ----------- ----------- ---------- ---------- ----------
End of year................................ $15,591,157 $11,290,918 $11,147,827 $8,679,364 $6,254,787 $4,528,266
----------- ----------- ----------- ---------- ---------- ----------
----------- ----------- ----------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-6
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP
HIGH INCOME EQUITY-INCOME GROWTH
------------------------ ------------------------ ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 1,101,337 $ 555,516 $ 374,220 $ 278,988 $ 117,962 $ 104,466
Mortality and expense risk fees............ (229,389) (135,349) (383,718) (258,842) (344,329) (236,352)
Administrative expense fees................ (37,342) (22,034) (62,466) (42,137) (56,054) (38,476)
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss)............. 834,606 398,133 (71,964) (21,991) (282,421) (170,362)
----------- ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 699,808 68,659 1,331,782 1,402,693 3,085,629 467,608
Net realized gain (loss) from sales of
investments.............................. (41,596) 32,656 347,489 366,416 319,274 226,022
----------- ----------- ----------- ----------- ----------- -----------
Net realized gain (loss)................... 658,212 101,315 1,679,271 1,769,109 3,404,903 693,630
Net unrealized gain (loss)................. (2,709,154) 1,123,721 1,360,035 3,031,743 6,094,613 3,146,128
----------- ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gain
(loss).................................. (2,050,942) 1,225,036 3,039,306 4,800,852 9,499,516 3,839,758
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets from
operations............................... (1,216,336) 1,623,169 2,967,342 4,778,861 9,217,095 3,669,396
----------- ----------- ----------- ----------- ----------- -----------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 2,062,177 1,482,581 2,398,189 1,864,708 2,265,258 2,174,564
Withdrawals................................ (987,162) (405,233) (1,518,197) (843,227) (1,842,522) (568,844)
Contract benefits.......................... (107,858) (55,849) (137,044) (120,661) (153,105) (96,880)
Contract charges........................... (4,164) (2,968) (10,250) (8,408) (11,095) (9,149)
Transfers between sub-accounts (including
fixed account), net...................... 5,202,627 4,366,702 5,061,840 3,887,991 2,328,047 1,913,947
Other transfers from (to) the General
Account.................................. 607,069 610,675 935,806 761,386 713,595 609,613
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets from
contract transactions.................... 6,772,689 5,995,908 6,730,344 5,541,789 3,300,178 4,023,251
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets...... 5,556,353 7,619,077 9,697,686 10,320,650 12,517,273 7,692,647
NET ASSETS:
Beginning of year.......................... 15,115,689 7,496,612 26,355,237 16,034,587 22,827,717 15,135,070
----------- ----------- ----------- ----------- ----------- -----------
End of year................................ $20,672,042 $15,115,689 $36,052,923 $26,355,237 $35,344,990 $22,827,717
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-7
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP II T. ROWE PRICE
OVERSEAS ASSET MANAGER INTERNATIONAL STOCK
---------------------- ---------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 92,957 $ 64,086 $ 151,996 $ 122,118 $ 91,052 $ 50,810
Mortality and expense risk fees............ (69,675) (51,919) (65,673) (50,747) (83,667) (55,400)
Administrative expense fees................ (11,343) (8,451) (10,691) (8,262) (13,621) (9,018)
---------- ---------- ---------- ---------- ---------- ----------
Net investment income (loss)............. 11,939 3,716 75,632 63,109 (6,236) (13,608)
---------- ---------- ---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 273,979 254,403 455,989 306,331 32,136 71,981
Net realized gain (loss) from sales of
investments.............................. 44,391 74,812 59,196 57,413 43,338 20,604
---------- ---------- ---------- ---------- ---------- ----------
Net realized gain (loss)................... 318,370 329,215 515,185 363,744 75,474 92,585
Net unrealized gain (loss)................. 200,255 25,917 92,247 281,812 794,299 (71,013)
---------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain
(loss).................................. 518,625 355,132 607,432 645,556 869,773 21,572
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets from
operations............................... 530,564 358,848 683,064 708,665 863,537 7,964
---------- ---------- ---------- ---------- ---------- ----------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 436,787 384,685 447,933 421,034 476,174 543,817
Withdrawals................................ (334,149) (115,779) (551,001) (145,853) (231,411) (148,536)
Contract benefits.......................... (27,009) (21,985) (68,728) -- (13,764) (16,280)
Contract charges........................... (2,070) (1,994) (1,417) (1,159) (1,792) (1,105)
Transfers between sub-accounts (including
fixed account), net...................... 833,047 322,382 701,410 232,270 1,103,994 1,742,909
Other transfers from (to) the General
Account.................................. 175,177 72,543 102,018 45,740 174,146 401,385
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets from
contract transactions.................... 1,081,783 639,852 630,215 552,032 1,507,347 2,522,190
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets...... 1,612,347 998,700 1,313,279 1,260,697 2,370,884 2,530,154
NET ASSETS:
Beginning of year.......................... 4,673,801 3,675,101 4,771,994 3,511,297 5,544,079 3,013,925
---------- ---------- ---------- ---------- ---------- ----------
End of year................................ $6,286,148 $4,673,801 $6,085,273 $4,771,994 $7,914,963 $5,544,079
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-8
<PAGE>
SEPARATE ACCOUNT VA-K (ALLMERICA ADVANTAGE VARIABLE ANNUITY
AND EXECANNUITY PLUS VARIABLE ANNUITY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Separate Account VA-K, which funds the Allmerica Advantage and ExecAnnuity
Plus variable annuity contracts in addition to other contracts (the Delaware
Medallion variable annuity contracts), is a separate investment account of First
Allmerica Financial Life Insurance Company (the Company). The Company is a
wholly-owned subsidiary of Allmerica Financial Corporation (AFC). Separate
Account VA-K was established on April 1, 1994 for the purpose of separating from
the general assets of the Company those assets used to fund certain variable
annuity contracts issued by the Company. Under applicable insurance law, the
assets and liabilities of Separate Account VA-K are clearly identified and
distinguished from the other assets and liabilities of the Company. Separate
Account VA-K cannot be charged with liabilities arising out of any other
business of the Company.
Separate Account VA-K is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). Separate Account VA-K
currently offers eighteen Sub-Accounts under the Allmerica Advantage and
ExecAnnuity Plus variable annuity contracts. Each Sub-Account invests
exclusively in a corresponding investment portfolio of Allmerica Investment
Trust (the Trust) managed by Allmerica Financial Investment Management Services,
Inc. (AFIMS) (successor to Allmerica Investment Management Company, Inc.), a
wholly-owned subsidiary of the Company; or of the Variable Insurance Products
Fund (Fidelity VIP) or the Variable Insurance Products Fund II (Fidelity VIP II)
managed by Fidelity Management & Research Company (FMR); or of the Delaware
Group Premium Fund, Inc. (DGPF) managed by Delaware International Advisers Ltd.;
or of the T. Rowe Price International Series, Inc. (T. Rowe Price) managed by T.
Rowe Price-Fleming International, Inc. The Trust, Fidelity VIP, Fidelity VIP II,
DGPF, and T. Rowe Price (the Funds) are open-end, management investment
companies registered under the 1940 Act.
Separate Account VA-K funds 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 Section 401, 403, or 408 of the Internal Revenue Code (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 according to whether they are made from a
qualified contract or a non-qualified contract.
Effective January 9, 1998, Small Mid-Cap Value Fund was renamed Select Value
Opportunity Fund.
Certain prior year balances have been reclassified to conform with current
year presentation.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS -- Security transactions are recorded on the trade date.
Investments held by the Sub-Accounts are stated at the net asset value per share
of the respective investment portfolio of the Funds. Net realized gains and
losses on securities sold are determined using the average cost method.
Dividends and capital gain distributions are recorded on the ex-dividend date
and are reinvested in additional shares of the respective investment portfolio
of the Funds at net asset value.
FEDERAL INCOME TAXES -- The Company is taxed as a "life insurance company"
under Subchapter L of the Code and files a consolidated federal income tax
return. The Company anticipates no tax liability resulting from the operations
of Separate Account VA-K. Therefore, no provision for income taxes has been
charged against Separate Account VA-K.
SA-9
<PAGE>
SEPARATE ACCOUNT VA-K (ALLMERICA ADVANTAGE VARIABLE ANNUITY
AND EXECANNUITY PLUS VARIABLE ANNUITY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Funds at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
-----------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
INVESTMENT PORTFOLIO SHARES COST PER SHARE
- ---------------------------------------- ----------- ----------- ---------
<S> <C> <C> <C>
Growth................................ 7,726,246 $19,023,514 $2.825
Investment Grade Income............... 6,146,088 6,772,352 1.132
Money Market.......................... 10,375,288 10,375,288 1.000
Equity Index.......................... 6,870,198 18,057,344 3.408
Government Bond....................... 3,104,519 3,286,179 1.068
Select Aggressive Growth.............. 8,314,521 17,116,546 2.460
Select Growth......................... 9,521,283 16,823,487 2.428
Select Growth and Income.............. 9,248,239 13,540,851 1.779
Select Value Opportunity*............. 7,838,075 12,211,483 1.685
Select International Equity........... 10,110,997 13,233,511 1.542
Select Capital Appreciation........... 6,797,456 10,354,774 1.640
DGPF International Equity............. 379,538 5,580,260 16.480
Fidelity VIP High Income.............. 1,792,892 21,670,302 11.530
Fidelity VIP Equity-Income............ 1,418,290 29,243,967 25.420
Fidelity VIP Growth................... 787,720 24,334,362 44.870
Fidelity VIP Overseas................. 313,524 5,605,653 20.050
Fidelity VIP II Asset Manager......... 335,092 5,255,546 18.160
T. Rowe Price International Stock..... 545,108 6,989,022 14.520
</TABLE>
* Name changed. See Note 1.
NOTE 4 -- RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum based on the average daily net
assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account 0.20% per annum based on the
average daily net assets of each Sub-Account for administrative expenses. These
charges are deducted from the daily value of each Sub-Account and are paid to
the Company on a daily basis.
For contracts issued on Form A3018-94, (ExecAnnuity Plus) a contract fee is
deducted on the contract anniversary and upon full surrender of the contract
when the accumulated value is $50,000 or less. The fee is the lesser of $30 or
3% of the accumulated value on the contract anniversary or full surrender date.
For contracts issued on Form A3025-96 (Allmerica Advantage), a contract fee of
$30 is deducted on the contract anniversary and upon full surrender when the
accumulated value is less than $50,000. The fee is currently waived for all
contracts (ExecAnnuity Plus and Allmerica Advantage) issued to and maintained by
the trustee of a 401(k) plan.
SA-10
<PAGE>
SEPARATE ACCOUNT VA-K (ALLMERICA ADVANTAGE VARIABLE ANNUITY
AND EXECANNUITY PLUS VARIABLE ANNUITY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- RELATED PARTY TRANSACTIONS (CONTINUED)
Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned
subsidiary of the Company, is principal underwriter and general distributor of
Separate Account VA-K, and does not receive any compensation for sales of the
contracts. Commissions are paid to registered representatives of Allmerica
Investments by the Company. The current series of contracts have a contingent
deferred sales charge and no deduction is made for sales charges at the time of
the sale. For the years ended December 31, 1998 and 1997, the Company received
$172,668 and $112,096, respectively, for contingent deferred sales charges
applicable to Separate Account VA-K.
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS
Transactions from contractowners and sponsor were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
--------------------------- ----------------------------
UNITS AMOUNT UNITS AMOUNT
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Growth
Issuance of Units.......................... 3,196,609 $ 6,772,868 3,856,709 $ 6,807,108
Redemption of Units........................ (1,373,701) (2,876,647) (1,107,973) (1,671,889)
------------ ------------ ------------ -------------
Net increase (decrease).................. 1,822,908 $ 3,896,221 2,748,736 $ 5,135,219
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Investment Grade Income
Issuance of Units.......................... 2,044,414 $ 2,696,090 1,749,993 $ 2,065,954
Redemption of Units........................ (773,878) (1,042,112) (714,488) (800,852)
------------ ------------ ------------ -------------
Net increase (decrease).................. 1,270,536 $ 1,653,978 1,035,505 $ 1,265,102
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Money Market
Issuance of Units.......................... 48,203,810 $ 54,962,039 48,644,659 $ 52,132,820
Redemption of Units........................ (48,148,881) (54,912,882) (47,395,744) (50,752,132)
------------ ------------ ------------ -------------
Net increase (decrease).................. 54,929 $ 49,157 1,248,915 $ 1,380,688
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Equity Index
Issuance of Units.......................... 4,063,578 $ 9,923,583 4,341,062 $ 7,761,304
Redemption of Units........................ (1,295,473) (3,123,582) (1,048,062) (1,178,193)
------------ ------------ ------------ -------------
Net increase (decrease).................. 2,768,105 $ 6,800,001 3,293,000 $ 6,583,111
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Government Bond
Issuance of Units.......................... 2,440,242 $ 3,015,884 988,942 $ 1,104,697
Redemption of Units........................ (1,529,683) (1,886,988) (923,062) (1,019,989)
------------ ------------ ------------ -------------
Net increase (decrease).................. 910,559 $ 1,128,896 65,880 $ 84,708
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Select Aggressive Growth
Issuance of Units.......................... 3,742,763 $ 7,274,206 3,615,384 $ 5,729,756
Redemption of Units........................ (1,407,342) (2,823,964) (1,349,496) (1,961,577)
------------ ------------ ------------ -------------
Net increase (decrease).................. 2,335,421 $ 4,450,242 2,265,888 $ 3,768,179
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
SA-11
<PAGE>
SEPARATE ACCOUNT VA-K (ALLMERICA ADVANTAGE VARIABLE ANNUITY
AND EXECANNUITY PLUS VARIABLE ANNUITY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
--------------------------- ----------------------------
UNITS AMOUNT UNITS AMOUNT
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Select Growth
Issuance of Units.......................... 4,160,290 $ 9,729,097 3,637,661 $ 6,526,459
Redemption of Units........................ (1,360,001) (3,080,380) (693,697) (1,145,013)
------------ ------------ ------------ -------------
Net increase (decrease).................. 2,800,289 $ 6,648,717 2,943,964 $ 5,381,446
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Select Growth and Income
Issuance of Units.......................... 2,568,312 $ 4,993,792 3,020,023 $ 5,126,925
Redemption of Units........................ (1,170,883) (2,116,544) (658,695) (967,072)
------------ ------------ ------------ -------------
Net increase (decrease).................. 1,397,429 $ 2,877,248 2,361,328 $ 4,159,853
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Select Value Opportunity*
Issuance of Units.......................... 2,771,415 $ 5,006,786 2,948,039 $ 4,567,624
Redemption of Units........................ (994,406) (1,774,465) (518,267) (708,290)
------------ ------------ ------------ -------------
Net increase (decrease).................. 1,777,009 $ 3,232,321 2,429,772 $ 3,859,334
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Select International Equity
Issuance of Units.......................... 2,894,703 $ 4,527,204 3,815,598 $ 5,231,183
Redemption of Units........................ (1,258,209) (2,035,124) (807,150) (994,745)
------------ ------------ ------------ -------------
Net increase (decrease).................. 1,636,494 $ 2,492,080 3,008,448 $ 4,236,438
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Select Capital Appreciation
Issuance of Units.......................... 1,891,659 $ 3,122,674 2,194,137 $ 3,142,169
Redemption of Units........................ (1,142,204) (1,875,969) (845,948) (1,166,398)
------------ ------------ ------------ -------------
Net increase (decrease).................. 749,455 $ 1,246,705 1,348,189 $ 1,975,771
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
DGPF International Equity
Issuance of Units.......................... 1,486,205 $ 2,175,924 1,702,945 $ 2,323,514
Redemption of Units........................ (604,270) (862,118) (460,013) (577,550)
------------ ------------ ------------ -------------
Net increase (decrease).................. 881,935 $ 1,313,806 1,242,932 $ 1,745,964
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Fidelity VIP High Income
Issuance of Units.......................... 6,929,705 $ 10,678,702 5,269,060 $ 7,412,189
Redemption of Units........................ (2,520,698) (3,906,013) (1,109,363) (1,416,281)
------------ ------------ ------------ -------------
Net increase (decrease).................. 4,409,007 $ 6,772,689 4,159,697 $ 5,995,908
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Fidelity VIP Equity-Income
Issuance of Units.......................... 5,589,831 $ 11,872,225 5,374,700 $ 9,755,802
Redemption of Units........................ (2,438,089) (5,141,881) (2,372,916) (4,214,013)
------------ ------------ ------------ -------------
Net increase (decrease).................. 3,151,742 $ 6,730,344 3,001,784 $ 5,541,789
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
* Name changed. See Note 1.
SA-12
<PAGE>
SEPARATE ACCOUNT VA-K (ALLMERICA ADVANTAGE VARIABLE ANNUITY
AND EXECANNUITY PLUS VARIABLE ANNUITY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
--------------------------- ----------------------------
UNITS AMOUNT UNITS AMOUNT
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Fidelity VIP Growth
Issuance of Units.......................... 3,232,147 $ 7,273,604 4,152,143 $ 7,285,409
Redemption of Units........................ (1,772,972) (3,973,426) (1,919,113) (3,262,158)
------------ ------------ ------------ -------------
Net increase (decrease).................. 1,459,175 $ 3,300,178 2,233,030 $ 4,023,251
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Fidelity VIP Overseas
Issuance of Units.......................... 1,414,651 $ 1,993,759 1,131,666 $ 1,415,776
Redemption of Units........................ (657,938) (911,976) (644,595) (775,924)
------------ ------------ ------------ -------------
Net increase (decrease).................. 756,713 $ 1,081,783 487,071 $ 639,852
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Fidelity VIP II Asset Manager
Issuance of Units.......................... 1,093,306 $ 1,742,931 890,693 $ 1,251,997
Redemption of Units........................ (704,485) (1,112,716) (500,670) (699,965)
------------ ------------ ------------ -------------
Net increase (decrease).................. 388,821 $ 630,215 390,023 $ 552,032
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
T. Rowe Price International Stock
Issuance of Units.......................... 1,891,293 $ 2,454,236 2,394,797 $ 2,924,911
Redemption of Units........................ (756,997) (946,889) (364,946) (402,721)
------------ ------------ ------------ -------------
Net increase (decrease).................. 1,134,296 $ 1,507,347 2,029,851 $ 2,522,190
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
</TABLE>
NOTE 6 -- DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Code, a variable annuity
contract, other than a contract issued in connection with certain types of
employee benefit plans, will not be treated as an annuity contract for federal
income tax purposes for any period for which the investments of the segregated
asset account on which the contract is based are not adequately diversified. The
Code provides that the "adequately diversified" requirement may be met if the
underlying investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by the Secretary of
The Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that Separate Account VA-K satisfies the current
requirements of the regulations, and it intends that Separate Account VA-K will
continue to meet such requirements.
SA-13
<PAGE>
SEPARATE ACCOUNT VA-K (ALLMERICA ADVANTAGE VARIABLE ANNUITY
AND EXECANNUITY PLUS VARIABLE ANNUITY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of shares of the Funds by Separate
Account VA-K during the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
- ------------------------------------------------------- ------------ -----------
<S> <C> <C>
Growth............................................... $ 5,529,743 $ 1,231,144
Investment Grade Income.............................. 2,685,220 746,927
Money Market......................................... 25,099,230 24,637,905
Equity Index......................................... 8,540,182 1,260,655
Government Bond...................................... 2,749,701 1,506,264
Select Aggressive Growth............................. 5,172,621 971,366
Select Growth........................................ 7,667,840 1,075,019
Select Growth and Income............................. 4,158,083 1,293,546
Select Value Opportunity*............................ 3,958,148 739,247
Select International Equity.......................... 3,233,279 742,881
Select Capital Appreciation.......................... 3,834,744 1,032,404
DGPF International Equity............................ 1,949,443 538,419
Fidelity VIP High Income............................. 10,384,049 2,076,946
Fidelity VIP Equity-Income........................... 10,122,961 2,132,799
Fidelity VIP Growth.................................. 7,730,499 1,627,113
Fidelity VIP Overseas................................ 1,855,003 487,302
Fidelity VIP II Asset Manager........................ 1,851,543 689,707
T. Rowe Price International Stock.................... 2,012,101 478,854
------------ -----------
Totals............................................. $108,534,390 $43,268,498
------------ -----------
------------ -----------
</TABLE>
* Name changed. See Note 1.
SA-14
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Financial Statements Included in Part A
None
Financial Statements Included in Part B
Financial Statements for First Allmerica Financial Life Insurance Company
Financial Statements for Separate Account VA-K of First Allmerica Financial
Life Insurance Company
Financial Statements Included in Part C
None
(b) EXHIBITS
EXHIBIT 1 Vote of Board of Directors Authorizing Establishment of
Registrant dated August 20, 1991 was previously filed on April
24, 1998 in Registration Statement No. 33-71052/811-8814,
Post-Effective Amendment No. 9, and is incorporated by
reference herein.
EXHIBIT 2 Not Applicable. Pursuant to Rule 26a-2, the Insurance
Company may hold the assets of the Registrant NOT pursuant to
a trust indenture or other such instrument.
EXHIBIT 3 (a) Underwriting and Administrative Services Agreement was
previously filed on April 24, 1998 in Registration
Statement No. 33-71052/811-8814, Post-Effective Amendment
No. 9, and is incorporated by reference herein.
(b) Sales Agreements were previously filed on April 24, 1998
in Registration Statement No. 33-71052/811-8814,
Post-Effective Amendment No. 9, and are incorporated
by reference herein.
(c) General Agent's Agreement was previously filed on April
24, 1998 in Registration Statement No. 33-71052/811-8814,
Post-Effective Amendment No. 9, and is incorporated by
reference herein.
(d) IVA Commission Schedule is filed herewith. Career Agent
Agreement with Commission Schedule was previously filed
on April 24, 1998 in Registration Statement
No. 33-71052/811-8814, Post-Effective Amendment No. 9,
and is incorporated by reference herein.
(e) Registered Representative's Agreement was previously filed
on April 24, 1998 in Registration Statement
No. 33-71052/811-8814, Post-Effective Amendment No. 9,
and is incorporated by reference herein.
EXHIBIT 4 Draft Contract Form A3029-99 is filed herewith.
EXHIBIT 5 Application Form 10999 is filed herewith.
<PAGE>
EXHIBIT 6 The Depositor's Articles of Incorporation and Bylaws, as
amended to reflect its name change, were previously filed on
October 1, 1995 in Registration Statement
No. 33-71052/811-8814, Post-Effective Amendment No. 4, and
are incorporated by reference herein. The Depositor's Revised
Bylaws were previously filed on April 30, 1996 in
Registration Statement No. 33-71052/811-8814, Post-Effective
Amendment No. 5, and are incorporated by reference herein.
EXHIBIT 7 Not Applicable.
EXHIBIT 8 (a) Fidelity Services Agreement was previously filed on April
30, 1996 in Registration Statement No. 33-71052/811-8814,
Post-Effective Amendment No. 5, and is incorporated by
reference herein.
(b) An Amendment to the Fidelity Service Agreement, effective
as of January 1, 1997, was previously filed on May 1, 1997
in Registration Statement No. 33-71052/811-8814,
Post-Effective Amendment No. 8, and is incorporated by
reference herein.
(c) Fidelity Service Contract, effective January 1, 1997, was
previously filed on May 1, 1997 in Registration Statement
No. 33-71052/811-8814, Post-Effective Amendment No. 8,
and is incorporated by reference herein.
(d) T. Rowe Price Service Agreement was previously filed on
April 24, 1998 in Registration Statement
No. 33-71052/811-8814, Post-Effective Amendment No. 9,
and is incorporated by reference herein.
(e) BFDS Agreements for lockbox and mailroom services were
previously filed on April 24, 1998 in Registration
Statement No. 33-71052/811-8814, Post-Effective
Amendment No. 9, and are incorporated by reference herein.
(f) Directors' Power of Attorney was previously filed on
April 23, 1999 in Registration Statement
No. 33-71052/811-8814, Post-Effective Amendment No. 10,
and is incorporated by reference herein.
EXHIBIT 9 Opinion of Counsel is filed herewith.
EXHIBIT 10 Consent of Independent Accountants is filed herewith.
EXHIBIT 11 None.
EXHIBIT 12 None.
EXHIBIT 13 Not Applicable.
EXHIBIT 14 Not Applicable.
EXHIBIT 15 (a) Participation Agreement with Allmerica Investment Trust
was previously filed on April 24, 1998 in Registration
Statement No. 33-71052/811-8814, Post-Effective
Amendment No. 9, and is incorporated by reference herein.
(b) Participation Agreement, as amended, with Variable
Insurance Products Fund was previously filed on April 24,
1998 in Registration Statement No. 33-71052/811-8814,
Post-Effective Amendment No. 9, and is incorporated by
reference herein.
(c) Participation Agreement, as amended, with Variable
Insurance Products Fund II was previously filed on April
24, 1998 in Registration Statement No. 33-71052/811-8814,
Post-Effective Amendment No. 9, and is incorporated by
reference herein.
<PAGE>
(d) Form of Participation Agreement with Delaware Group Premium
Fund, Inc. was previously filed on April 24, 1998 in
Post-Effective Amendment No. 9, and is incorporated by
reference herein.
(e) Participation Agreement with T. Rowe Price International
Series, Inc. was previously filed on April 24, 1998 in
Post-Effective Amendment No. 9, and is incorporated by
reference herein.
ITEM 25. DIRECTORS AND PRINCIPAL OFFICERS OF THE DEPOSITOR
The principal business address of all the following Directors and Officers is:
440 Lincoln Street
Worcester, Massachusetts 01553
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AND POSITION WITH COMPANY PRINCIPAL OCCUPATION(s) DURING PAST FIVE YEARS
- ------------------------------ ----------------------------------------------
<S> <C>
Bruce C. Anderson Director (since 1996), Vice President
Director, Vice President and (since 1984) and Assistant Secretary (since
Assistant Secretary 1992) of First Allmerica
Warren E. Barnes Vice President (since 1996) and Corporate
Vice President and Controller (since 1998) of First Allmerica
Corporate Controller
Robert E. Bruce Director and Chief Information Officer
Director, Vice President and (since 1997) and Vice President (since
Chief Information Officer 1995) of First Allmerica; and Corporate
Manager (1979 to 1995) of Digital Equipment
Corporation
Mary Eldridge Secretary (since 1999) of Allmerica Financial;
Secretary Secretary (since 1999) of Allmerica Investments,
Inc.; and Secretary (since 1999) of Allmerica
Financial Investment Management Services, Inc.
John P. Kavanaugh Director and Chief Investment Officer
Director, Vice President and (since 1996) and Vice President (since
Chief Investment Officer 1991) of First Allmerica; and Vice
President (since 1998) of Allmerica
Financial Investment Management Services,
Inc.
John F. Kelly Director (since 1996), Senior Vice
Director, Senior Vice President, President (since 1986), General Counsel
General Counsel and Assistant (since 1981) and Assistant Secretary (since
Secretary 1991) of First Allmerica; Director (since
1985) of Allmerica Investments, Inc.; and
Director (since 1990) of Allmerica
Financial Investment Management Services,
Inc.
J. Barry May Director (since 1996) of First Allmerica;
Director Director and President (since 1996) of The
Hanover Insurance Company; and Vice
President (1993 to 1996) of the Hanover
Insurance Company
<PAGE>
James R. McAuliffe Director (since 1996) of First Allmerica;
Director Director (since 1992), President (since
1994) and Chief Executive Officer (since
1996) of Citizens Insurance Company of
America
John F. O'Brien Director, President and Chief Executive
Director, President and Chief Officer (since 1989) of First Allmerica;
Executive Officer Director (since 1989) of Allmerica
Investments, Inc.; and Director and
Chairman of the Board (since 1990) of
Allmerica Financial Investment Management
Services, Inc.
Edward J. Parry, III Director and Chief Financial Officer (since
Director, Vice President, 1996) and Vice President and Treasurer
Chief Financial Officer and (since 1993) of First Allmerica; Treasurer
Treasurer (since 1993) of Allmerica Investments,
Inc.; and Treasurer (since 1993) of
Allmerica Financial Investment Management
Services, Inc.
Richard M. Reilly Director (since 1996) and Vice President
Director and Vice President (since 1990) of First Allmerica; Director
(since 1990) of Allmerica Investments,
Inc.; and Director and President (since
1998) of Allmerica Financial Investment
Management Services, Inc.
Robert P. Restrepo, Jr. Director and Vice President (since 1998) of
Director and Vice President First Allmerica; Chief Executive Officer
(1996 to 1998) of Travelers Property &
Casualty; Senior Vice President (1993 to
1996) of Aetna Life & Casualty Company
Eric A. Simonsen Director (since 1996) and Vice President
Director and Vice President (since 1990) of First Allmerica; Director
(since 1991) of Allmerica Investments,
Inc.; and Director (since 1991) of
Allmerica Financial Investment Management
Services, Inc.
Phillip E. Soule Director (since 1996) and Vice President
Director and Vice President (since 1987) of First Allmerica
</TABLE>
<PAGE>
ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
<TABLE>
<CAPTION>
<S><C>
Allmerica Financial Corporation
Delaware
| | | | | | |
______________________________________________________________________________________________________________
Financial 100% 100% 100% 100% 100% 100%
Profiles, Inc. Allmerica, Inc. Allmerica First Allmerica AFC Capital Allmerica First Sterling
Funding Corp. Financial Life Trust I Services Limited
Insurance Corporation
Company
California Massachusetts Massachusetts Massachusetts Delaware Massachusetts Bermuda
| |
30% _________________ _____________
| |
100% 100%
SMA First Sterling
Financial Corp. Reinsurance
Company
Limited
Massachusetts Bermuda
|
______________________________________________________________________________________________________________________
| | | | | |
70% 100% 99.2% 100% 100% 100%
Allmerica Sterling Risk Allmerica Allmerica Allmerica Allmerica
Property Management Trust Investments, Financial Financial Life
& Casualty Services, Inc. Company, N.A. Inc. Investment Insurance and
Companies, Inc. Management Annuity Company
Services, Inc.
Federally
Delaware Delaware Chartered Massachusetts Massachusetts Delaware
|
___________________________________________________________________________
| | | |
100% 100% 100% 100%
APC The Hanover Allmerica Citizens
Funding Corp. Insurance Financial Insurance
Company Insurance Company of
Brokers, Inc. Illinois
Massachusetts New Hampshire Massachusetts Illinois
|
______________________________________________________________________________________________________________________
| | | | |
100% 100% 100% 100% 82.5% 100%
Allmerica Allmerica The Hanover Hanover Texas Citizens Massachusetts
Financial Plus American Insurance Corporation Bay Insurance
Benefit Insurance Insurance Management Company
Insurance Agency, Inc. Company Company, Inc.
Company
Pennsylvania Massachusetts New Hampshire Texas Delaware New Hampshire
|
________________________________________________________
| | |
100% 100% 100%
Citizens Citizens Insurance Citizens
Insurance Company of Insurance
Company of Ohio America Company of the
Midwest
Ohio Michigan Indiana
|
_______________
100%
Citizens
Management Inc.
Michigan
</TABLE>
<TABLE>
<CAPTION>
<S><C>
Allmerica Financial Corporation
Delaware
| | | | | | |
_______________________________________________________________________________________________________________________
Financial 100% 100% 100% 100% 100% 100%
Profiles, Inc. Allmerica, Inc. Allmerica First Allmerica AFC Capital Allmerica First Sterling
Funding Corp. Financial Life Trust I Services Limited
Insurance Corporation
Company
California Massachusetts Massachusetts Massachusetts Delaware Massachusetts Bermuda
| |
_____________________________________________________________________________________________________________________
| | | | |
100% 100% 100% 100% 100%
Allmerica Allmerica Allmerica Allmerica Allmerica
Investment Asset Financial Services Asset Benefits
Management Management, Insurance Management, Inc.
Company, Inc. Inc. Agency, Inc. Limited
Massachusetts Massachusetts Massachusetts Bermuda Florida
________________ _________________________________
Allmerica Equity Greendale AAM
Index Pool Special Equity Fund
Placements
Fund
Massachusetts Massachusetts Massachusetts
_____________________________________
| | -------------- Grantor Trusts established for the benefit of First
100% 100% Allmerica, Allmerica Financial Life, Hanover and
Allmerica AMGRO, Inc. Citizens
Financial Allmerica Allmerica
Alliance Investment Trust Securities
Insurance Trust
Company
Massachusetts Massachusetts
New Hampshire Massachusetts
|
_______________
|
100% -------------- Affiliated Management Investment Companies
Lloyds
Credit Hanover Lloyd's
Corporation Insurance
Company
Massachusetts Texas
-------------- Affiliated Lloyd's plan company, controlled by
Underwriters for the benefit of The Hanover
Insurance Company
AAM AAM
Growth & High
Income Fund Yield Fund,
L.P. L.L.C.
Delaware Massachusetts
-------------- L.P. or L.L.C. established for the benefit of
First Allmerica, Allmerica
Financial Life, Hanover and
Citizens
</TABLE>
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
AAM Growth & Income Fund, L.P. 440 Lincoln Street Limited Partnership
Worcester MA 01653
AFC Capital Trust I 440 Lincoln Street Statutory Business Trust
Worcester MA 01653
Allmerica Asset Management Limited 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Asset Management, Inc. 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Benefits, Inc. 440 Lincoln Street Non-insurance medical services
Worcester MA 01653
Allmerica Equity Index Pool 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
Allmerica Financial Alliance Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance
Allmerica Financial Benefit Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance
Allmerica Financial Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Allmerica Financial Insurance Brokers, 440 Lincoln Street Insurance Broker
Inc. Worcester MA 01653
Allmerica Financial Life Insurance and 440 Lincoln Street Life insurance, accident and
Annuity Company (formerly known Worcester MA 01653 health insurance, annuities,variable
as SMA Life Assurance Company) annuities and variable life insurance
Allmerica Financial Services Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Funding Corp. 440 Lincoln Street Special purpose funding vehicle
Worcester MA 01653 for commercial paper
Allmerica, Inc. 440 Lincoln Street Common employer for Allmerica
Worcester MA 01653 Financial Corporation entities
Allmerica Financial Investment 440 Lincoln Street Investment advisory services
Management Services, Inc. Worcester MA 01653
(formerly known as Allmerica
Institutional Services, Inc.)
Allmerica Investment Management 440 Lincoln Street Investment advisory services
Company, Inc. Worcester MA 01653
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-dealer
Worcester MA 01653
<PAGE>
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Plus Insurance Agency, Inc. 440 Lincoln Street Insurance Agency
Worcester MA 01653
Allmerica Property & Casualty 440 Lincoln Street Holding Company
Companies, Inc. Worcester MA 01653
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services Corporation 440 Lincoln Street Internal administrative services
Worcester MA 01653 provider to Allmerica Financial
Corporation entities
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national trust
Worcester MA 01653 company
AMGRO, Inc. 100 North Parkway Premium financing
Worcester MA 01605
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company of America 645 West Grand River Multi-line property and casualty
Howell MI 48843 insurance
Citizens Insurance Company of Illinois 333 Pierce Road Multi-line property and casualty
Itasca IL 60143 insurance
Citizens Insurance Company of the 3950 Priority Way South Multi-line property and casualty
Midwest Drive, Suite 200 insurance
Indianapolis IN 46280
Citizens Insurance Company of Ohio 8101 N. High Street Multi-line property and casualty
P.O. Box 342250 insurance
Columbus OH 43234
Citizens Management, Inc. 645 West Grand River Services management company
Howell MI 48843
5421 Avenida Encinas
Financial Profiles Carlsbad, CA 92008 Computer software company
First Allmerica Financial Life 440 Lincoln Street Life, pension, annuity, accident
Insurance Company (formerly State Worcester MA 01653 and health insurance company
Mutual Life Assurance Company of
America)
<PAGE>
First Sterling Limited 440 Lincoln Street Holding Company
Worcester MA 01653
First Sterling Reinsurance Company 440 Lincoln Street Reinsurance Company
Limited Worcester MA 01653
Greendale Special Placements Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
The Hanover American Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance
The Hanover Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
Hanover Texas Insurance Management 801 East Campbell Road Attorney-in-fact for Hanover
Company, Inc. Richardson TX 75081 Lloyd's Insurance Company
Hanover Lloyd's Insurance Company 801 East Campbell Road Multi-line property and casualty
Richardson TX 75081 insurance
Lloyds Credit Corporation 440 Lincoln Street Premium financing service
Worcester MA 01653 franchises
Massachusetts Bay Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Sterling Risk Management Services, Inc. 440 Lincoln Street Risk management services
Worcester MA 01653
</TABLE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 30, 1999, there were 5,819 Contract holders of qualified
Contracts and 1,625 Contract holders of non-qualified Contracts.
ITEM 28. INDEMNIFICATION
To the fullest extent permissible under Massachusetts General Laws, no
director shall be personally liable to the Company or any policyholder for
monetary damages for any breach of fiduciary duty as a director,
notwithstanding any provision of law to the contrary; provided, however,
that this provision shall not eliminate or limit the liability of a
director:
1. for and breach of the director's duty of loyalty to the Company or its
policyholders;
2. for acts or omissions not in good faith, or which involve intentional
misconduct or a knowing violation of law;
3. for liability, if any, imposed on directors of mutual insurance
companies pursuant to M.G.L.A. c. 156B Section 61 or M.G.L.A. c.156B
Section 62;
4. for any transactions from which the director derived an improper
personal benefit.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
X VEL Account, VEL II Account, VEL Account III, Select Account III,
Inheiritage Account, Separate Accounts VA-A, VA-B, VA-C, VA-G,
VA-H, VA-K, VA-P, Allmerica Select Separate Account II, Group VEL
Account, Separate Account KG, Separate Account KGC, Fulcrum
Separate Account, Fulcrum Variable Life Separate Account, and
Allmerica Select Separate Account of Allmerica Financial Life
Insurance and Annuity Company
X Inheiritage Account, VEL II Account, Separate Account I, Separate
Account VA-K, Separate Account VA-P, Allmerica Select Separate
Account II, Group VEL Account, Separate Account KG, Separate
Account KGC, Fulcrum Separate Account, and Allmerica Select
Separate Account of First Allmerica Financial Life Insurance
Company.
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors
and Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
<TABLE>
<CAPTION>
NAME POSITION OR OFFICE WITH UNDERWRITER
---- -----------------------------------
<S> <C>
Emil J. Aberizk, Jr. Vice President
Edward T. Berger Vice President and Chief Compliance Officer
Richard F. Betzler, Jr. Vice President
Mary Eldridge Secretary
Philip L. Heffernan Vice President
John F. Kelly Director
Daniel Mastrototaro Vice President
William F. Monroe, Jr. Vice President
David J. Mueller Vice President and Controller
John F. O'Brien Director
Stephen Parker President, Director and Chief Executive Officer
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Mark G. Steinberg Senior Vice President
</TABLE>
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Each account, book or other document required to be maintained by Section
31(a) of the 1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained by
the Company at 440 Lincoln Street, Worcester, Massachusetts.
ITEM 31. MANAGEMENT SERVICES
The Company provides daily unit value calculations and related services for
the Company's separate accounts.
ITEM 32. UNDERTAKINGS
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to
file with the Securities and Exchange Commission ("SEC") such
supplementary and periodic information, documents, and reports as may
be prescribed by any rule or regulation of the SEC heretofore or
hereafter duly adopted pursuant to authority conferred in that section.
(b) The Registrant hereby undertakes to include in the prospectus a
postcard that the applicant can remove to send for a Statement of
Additional Information.
(c) The Registrant hereby undertakes to deliver a Statement of Additional
Information promptly upon written or oral request, according to the
requirements of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act may
be permitted to Directors, Officers and Controlling Persons of
Registrant under any registration statement, underwriting agreement or
otherwise, Registrant has been advised that, in the opinion of the SEC,
such indemnification is against public policy as expressed in the 1933
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a Director, Officer or
Controlling Person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such Director, Officer or
Controlling Person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
(e) The Company hereby represents that the aggregate fees and charges under
the Policies are reasonable in relation to the services rendered,
expenses expected to be incurred, and risks assumed by the Company.
<PAGE>
ITEM 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(b)
PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Registrant, a separate account of First Allmerica Financial Life
Insurance Company ("Company"), states that it is (a) relying on
Rule 6c-7 under the 1940 Act with respect to withdrawal
restrictions under the Texas Optional Retirement Program
("Program") and (b) relying on the "no-action" letter (Ref. No.
IP-6-88) issued on November 28, 1988 to the American Council of
Life Insurance, in applying the withdrawal restrictions of Internal
Revenue Code Section 403(b)(11). Registrant has taken the following
steps in reliance on the letter:
1. Appropriate disclosures regarding the redemption/withdrawal
restrictions imposed by the Program and by Section 403(b)(11) have
been included in the prospectus of each registration statement used
in connection with the offer of the Company's variable contracts.
2. Appropriate disclosures regarding the redemption/withdrawal
restrictions imposed by the Program and by Section 403(b)(11) have
been included in sales literature used in connection with the offer
of the Company's variable contracts.
3. Sales Representatives who solicit participants to purchase the
variable contracts have been instructed to specifically bring the
redemption/withdrawal restrictions imposed by the Program and by
Section 403(b)(11) to the attention of potential participants.
4. A signed statement acknowledging the participant's
understanding of (i) the restrictions on redemption/withdrawal
imposed by the Program and by Section 403(b)(11) and (ii) the
investment alternatives available under the employer's arrangement
will be obtained from each participant who purchases a variable
annuity contract prior to or at the time of purchase.
Registrant hereby represents that it will not act to deny or limit
a transfer request except to the extent that a Service-Ruling or
written opinion of counsel, specifically addressing the fact
pattern involved and taking into account the terms of the
applicable employer plan, determines that denial or limitation is
necessary for the variable annuity contracts to meet the
requirements of the Program or of Section 403(b). Any transfer
request not so denied or limited will be effected as expeditiously
as possible.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this initial Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Worcester, and Commonwealth of Massachusetts, on
the 1st day of June, 1999.
SEPARATE ACCOUNT VA-K OF
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
By: /s/ Mary Eldridge
--------------------------------
Mary Eldridge, Secretary
Pursuant to the requirements of the Securities Act of 1933, this initial
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Warren E. Barnes Vice President and Corporate Controller June 1, 1999
- ---------------------------
Warren E. Barnes
Edward J. Parry III* Director, Vice President, Chief Financial
- ------------------------------------ Officer and Treasurer June 1, 1999
Richard M. Reilly* Director and Vice President June 1, 1999
- ------------------------------------
John F. O'brien* Director, President and Chief Executive June 1, 1999
- ------------------------------------ Officer
Bruce C. Anderson* Director and Vice President June 1, 1999
- ------------------------------------
Robert E. Bruce* Director, Vice President and Chief June 1, 1999
- ------------------------------------ Information Officer
John P. Kavanaugh* Director, Vice President and June 1, 1999
- ------------------------------------ Chief Investment Officer
John F. Kelly* Director, Senior Vice President and June 1, 1999
- ------------------------------------ General Counsel
J. Barry May* Director June 1, 1999
- ------------------------------------
James R. Mcauliffe* Director June 1, 1999
- ------------------------------------
Robert P. Restrepo, Jr.* Director and Vice President June 1, 1999
- ------------------------------------
Eric A. Simonsen* Director and Vice President June 1, 1999
- ------------------------------------
Phillip E. Soule* Director and Vice President June 1, 1999
- ------------------------------------
</TABLE>
* Sheila B. St. Hilaire, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named Directors and Officers of the
Registrant pursuant to the Power of Attorney dated April 1, 1999 duly executed
by such persons.
/s/ Sheila B. St. Hilaire
- ------------------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact
<PAGE>
EXHIBIT TABLE
Exhibit 3(d) IVA Commission Schedule
Exhibit 4 Draft Contract Form A3029-99
Exhibit 5 Application Form 10999
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
<PAGE>
COMMISSIONS:
3 Options that include an upfront payment based on the single
premium and a renewal paid quarterly based on monthly payments
at an annual rate shown below:
Option: Upfront: Renewal:
B 4.25% 9.0% (0.75% monthly rate)
C 3.00% 24.00% (2% monthly rate)
D 1.00% 48.00% (4% monthly rate)
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the
Variable Income Options may increase or decrease and are not guaranteed as to
fixed dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it (the
"Free Look Period"). It can be mailed or delivered either to us or the
representative who sold it. If you return the contract, we will pay to you
the Contract Value on the date the contract is returned to us plus any
premium tax deducted on the Issue Date. This amount may be more or less than
the Single Purchase Payment.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications
page. The Net Payment may be allocated to the Fixed Income Option or the
Variable Income Option or a combination of both. If you select the Variable
Income Option, you can allocate the Net Payment among the Variable
Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an Annuitant Dies prior to
Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS ........................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION ................................ 5
DEFINITIONS .............................................................. 6
OWNER, ANNUITANT AND BENEFICIARY ......................................... 8
ANNUITY BENEFIT .......................................................... 10
OVERVIEW ..................................................... 10
VARIABLE INCOME OPTIONS ...................................... 11
WITHDRAWALS ................................................. 14
DEATH OF OWNER OR ANNUITANT ............................................... 17
BEFORE THE ANNUITY INCOME DATE .............................. 17
AFTER THE ANNUITY INCOME DATE ................................ 17
GENERAL PROVISIONS ....................................................... 18
FORM A3029-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the
Variable Income Options may increase or decrease and are not guaranteed as to
fixed dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it. It
can be mailed or delivered either to us or the representative who sold it. If
you return the contract within 10 days after you have received it ("the Free
Look Period"), we will refund the Single Purchase Payment less the total
amount of all annuity payments made or withdrawals taken. If you return the
contract after the expiration of the "Free Look Period" but within 90 days
after the Issue Date, we will pay to you the Contract Value on the date the
contract is returned to us plus any premium tax deducted on the Issue Date.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications
page. The Net Payment may be allocated to the Fixed Income Option or the
Variable Income Option or a combination of both. If you select the Variable
Income Option, you can allocate the Net Payment among the Variable
Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an Annuitant Dies prior to
Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.4-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS .................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION ......................... 5
DEFINITIONS ........................................................ 6
OWNER, ANNUITANT AND BENEFICIARY ................................... 8
ANNUITY BENEFIT .................................................... 10
OVERVIEW .............................................. 10
VARIABLE INCOME OPTIONS ................................ 11
WITHDRAWALS ............................................ 14
DEATH OF OWNER OR ANNUITANT ......................................... 17
BEFORE THE ANNUITY INCOME DATE ......................... 17
AFTER THE ANNUITY INCOME DATE .......................... 17
GENERAL PROVISIONS .................................................. 18
FORM A3029-99 2
<PAGE>
SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C>
ContractType:Non-qualified Single Purchase Payment Amount:
Contract Number:zz00600000 Net Payment:
Owner:John Doe Owner's Date of Birth: 10/25/1960
Joint Owner:Jack Doe Joint Owner's Date of Birth: 07/12/1960
Annuitant:Mary Doe Annuitant's Date of Birth: 03/19/1945
Joint Annuitant:Michael Doe Joint Annuitant's Date of Birth: 08/20/1954
Annuitant's Sex:Female Payee:Jane Doe
Joint Annuitant's Sex:Male Payee's Address :1 Main St, Anywhere, USA
Primary Beneficiary:Surviving Joint Owner, if any
1st Contingent Beneficiary(ies):Michael Doe
2nd Contingent Beneficiary(ies):Jack Doe
Issue Date:04/01/1999
Annuity Income Date:10/01/1999
Annuity Benefit Option: Joint Life Annuity with a Survivor Benefit Option (See page 5)
Survivor Benefit Percentage: 50%
Frequency of Annuity Payments: Monthly
Mortality Table: Annuity 2000
Percentage under a Fixed Income Option: 30%
Dollar Amount of Fixed Income: $
Percentage under a Variable Income Option: 70%
Assumed Investment Return: 5%
Change Frequency: Monthly
Date of First Change: xx/xx/xxxx
Income Option Rate: 4.5
Optional Feature:
The Ratchet:
Initial Ratchet Amount: $100
Ratchet Maximum Benefit Increase Percentage: 10%
If you had not selected this feature, the Income Option Rate above would have been 5.0.
The Floor:
Floor Amount: $100
If you had not selected this feature, the Income Option Rate above would have been 5.0.
</TABLE>
FORM A8029-99 3
<PAGE>
SPECIFICATIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Owner:John Doe Contract Number:zz00600000
Joint Owner:Jack Doe
Single Purchase Amount:$25,000.00
Payment Withdrawal Amount: 10 times the previous annuity payment.
But not more than the remaining guaranteed payments.
Present Value Withdrawal Amount: 75% of Present Value of remaining guaranteed annuity
payments.
Mortality and Expense Risk Charge: 1.25% on an annual basis of the daily value of the
Sub-Account assets.
Administrative Charge: .20% on an annual basis of the daily value of the
Sub-Account assets.
Variable Allocation of Net Payment on Issue Date:
Sub-Account Name Percentage of Net Payment Number of Units
- ----------------------------------------- --------------------------- ----------------
Select Aggr. Growth
Select Capital Appr.
Select Value Opp.
Select Emerging Markets
Select Int'l Equity
DGPF Int'l Equity Series
Fidelity VIP Overseas
T. Rowe Price Int'l
Select Growth
Select Strategic Growth
Growth Fund
Fidelity VIP Growth
Equity Index Fund
Select Gr. & Inc.
Fidelity VIP Eq. Inc.
Fidelity VIP Asset Mgr
Fidelity VIP High Inc
Investment Grade Income Fund
Government Bond Fund
Allmerica Money Market
</TABLE>
FORM A8029-99 4
<PAGE>
SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C>
ContractType:Non-qualified Joint Annuitant:Michael Doe
Contract Number:zz00600000
Owner:John Doe Annuitant's Sex:Female
Joint Owner:Jack Doe Joint Annuitant's Sex:Male
Annuitant:Mary Doe Primary Beneficiary:Surviving Joint Owner, if any
1st Contingent Beneficiary(ies):Michael Doe
2nd Contingent Beneficiary(ies):Jack Doe Single Purchase Payment Amount:
Net Payment:
Issue Date:04/01/1999
Annuity Income Date:10/01/1999 Owner's Date of Birth:10/25/1960
Joint Owner's Date of Birth:07/12/1960
Annuitant's Date of Birth:03/19/1945
Joint Annuitant's Date of Birth:08/20/1954
Payee:Jane Doe
Payee's Address :1 Main St, Anywhere, USA
Annuity Benefit Option: Joint Life Annuity with a Survivor Benefit Option (See page
5)
Survivor Benefit Percentage: 50%
Frequency of Annuity Payments: Monthly
Mortality Table: Annuity 2000
Percentage under a Fixed Income Option: 30%
Dollar Amount of Fixed Income: $
Percentage under a Variable Income Option: 70%
Assumed Investment Return: 5%
Change Frequency: Monthly
Date of First Change: xx/xx/xxxx
Income Option Rate: 4.5
Optional Feature:
The Ratchet:
Initial Ratchet Amount: $100
Ratchet Maximum Benefit Increase Percentage: 10%
If you had not selected this feature, the Income Option Rate above would have been 5.0.
The Floor:
Floor Amount: $100
If you had not selected this feature, the Income Option Rate above would have been 5.0.
</TABLE>
FORM A8029-99 3
<PAGE>
SPECIFICATIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Owner:John Doe Contract Number:zz00600000
Joint Owner:Jack Doe
Single Purchase Amount:$25,000.00
Payment Withdrawal Amount: 10 times the previous annuity payment.
But not more than the remaining guaranteed payments.
Present Value Withdrawal Amount: 75% of Present Value of remaining guaranteed annuity
payments.
Mortality and Expense Risk Charge: 1.25% on an annual basis of the daily value of the
Sub-Account assets.
Administrative Charge: .20% on an annual basis of the daily value of the
Sub-Account assets.
Variable Allocation of Net Payment on Issue Date:
Sub-Account Name Percentage of Net Payment Number of Units
- -------------------------------------- ------------------------- -----------------
Select Aggr. Growth
Select Capital Appr.
Select Value Opp.
Select Emerging Markets
Select Int'l Equity
DGPF Int'l Equity Series
Fidelity VIP Overseas
T. Rowe Price Int'l
Select Growth
Select Strategic Growth
Growth Fund
Fidelity VIP Growth
Equity Index Fund
Select Gr. & Inc.
Fidelity VIP Eq. Inc.
Fidelity VIP Asset Mgr
Fidelity VIP High Inc
Investment Grade Income Fund
Government Bond Fund
Allmerica Money Market
</TABLE>
FORM A8029-99 4
<PAGE>
SPECIFICATIONS
<TABLE>
<CAPTION>
<S> <C>
ContractType:Non-qualified Issue Date:04/01/1999
Contract Number:zz00600000 Annuity Income Date:10/01/1999
Owner:John Doe
Joint Owner:Jack Doe
Annuitant:Mary Doe
Joint Annuitant:Michael Doe
Annuitant's Sex:Female
Joint Annuitant's Sex:Male
Primary Beneficiary:Surviving Joint Owner, if any
1st Contingent Beneficiary(ies):Michael Doe
2nd Contingent Beneficiary(ies):Jack Doe
Single Purchase Payment Amount:
Net Payment:
Owner's Date of Birth:10/25/1960
Joint Owner's Date of Birth:07/12/1960
Annuitant's Date of Birth:03/19/1945
Joint Annuitant's Date of Birth:08/20/1954
Payee:Jane Doe
Payee's Address :1 Main St, Anywhere, USA
Annuity Benefit Option: Joint Life Annuity with a Survivor Benefit Option (See page 5)
Survivor Benefit Percentage: 50%
Frequency of Annuity Payments: Monthly
Mortality Table: Annuity 2000
Percentage under a Fixed Income Option: 30%
Dollar Amount of Fixed Income: $
Percentage under a Variable Income Option: 70%
Assumed Investment Return: 5%
Change Frequency: Monthly
Date of First Change: xx/xx/xxxx
Income Option Rate: 4.5
Optional Feature:
The Ratchet:
Initial Ratchet Amount: $100
Ratchet Maximum Benefit Increase Percentage: 10%
If you had not selected this feature, the Income Option Rate above would have been 5.0.
The Floor:
Floor Amount: $100
If you had not selected this feature, the Income Option Rate above would have been 5.0.
</TABLE>
FORM A8029-99 3
<PAGE>
SPECIFICATIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Owner:John Doe Contract Number:zz00600000
Joint Owner:Jack Doe
Single Purchase Amount:$25,000.00
Payment Withdrawal Amount: 10 times the previous annuity payment.
But not more than the remaining guaranteed payments.
Present Value Withdrawal Amount: 75% of Present Value of remaining guaranteed annuity
payments.
Mortality and Expense Risk Charge: 1.25% on an annual basis of the daily value of the
Sub-Account assets.
Administrative Charge: .20% on an annual basis of the daily value of the
Sub-Account assets.
Variable Allocation of Net Payment on Issue Date:
Sub-Account Name Percentage of Net Payment Number of Units
- --------------------------------- ------------------------- ----------------
Select Aggr. Growth
Select Capital Appr.
Select Value Opp.
Select Emerging Markets
Select Int'l Equity
DGPF Int'l Equity Series
Fidelity VIP Overseas
T. Rowe Price Int'l
Select Growth
Select Strategic Growth
Growth Fund
Fidelity VIP Growth
Equity Index Fund
Select Gr. & Inc.
Fidelity VIP Eq. Inc.
Fidelity VIP Asset Mgr
Fidelity VIP High Inc
Investment Grade Income Fund
Government Bond Fund
Allmerica Money Market
</TABLE>
FORM A8029-99 4
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Payment for a Certain Number of Years:
We will provide annuity payments, beginning on the Annuity
Income Date, for the period of time shown on the
Specifications Page.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Payment for a Certain Number of Years, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, for the period of time shown on the
Specifications Page.
The Ratchet is an optional feature you have selected that is applicable only
to the Variable Income Option. It guarantees that annuity payments will never
decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Payment for a Certain Number of Years, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, for the period of time shown on the
Specifications Page.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. If you take a
withdrawal from the contract, the Floor Amount will be reduced in the same
manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant. We may
require satisfactory proof that the Annuitant is alive
before any annuity payment is made.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant. We may
require satisfactory proof that the Annuitant is alive
before any annuity payment is made.
The Ratchet is an optional feature you have selected that is applicable only
to the Variable Income Option. It guarantees that annuity payments will never
decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant. We may
require satisfactory proof that the Annuitant is alive
before any annuity payment is made.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. If you take a
withdrawal from the contract, the Floor Amount will be reduced in the same
manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants.
Upon the death of an Annuitant, the number of Annuity
Units (for Variable Income Options) and/or the dollar
amount (for Fixed Income Options) of each payment will be
adjusted by the Survivor Benefit Percentage.
The Survivor Benefit Percentage is the percentage of
Annuity Units or dollars of each payment paid during the
survivor's life, which may be less than or equal to that
paid when both individuals are living. This percentage is
only applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants.
Upon the death of an Annuitant, the number of Annuity
Units (for Variable Income Options) and/or the dollar
amount (for Fixed Income Options) of each payment will be
adjusted by the Survivor Benefit Percentage.
The Survivor Benefit Percentage is the percentage of
Annuity Units or dollars of each payment paid during the
survivor's life, which may be less than or equal to that
paid when both individuals are living. This percentage is
only applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are
alive before any annuity payment is made.
The Ratchet is an optional feature you have selected that is applicable only
to the Variable Income Option. It guarantees that annuity payments will never
decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle. Upon the death of the
first Annuitant, the Current Ratchet Amount is adjusted by multiplying it by
the Survivor Benefit Percentage.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants.
Upon the death of an Annuitant, the number of Annuity
Units (for Variable Income Options) and/or the dollar
amount (for Fixed Income Options) of each payment will be
adjusted by the Survivor Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. Upon the death of the
first Annuitant, the Floor Amount is adjusted by multiplying it by the
Survivor Benefit Percentage. If you take a withdrawal from the contract, the
Floor Amount will be reduced in the same manner that the withdrawal reduces
the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity with Payment for a Certain Number of Years:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant with a
guarantee that if, at the Annuitant's death, annuity
payments have been made for less than the number of years
elected, then annuity payments will continue thereafter to
you (or the payee you designate) for the remainder of the
period. We may require satisfactory proof that the
Annuitant is alive before any annuity payment is made.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity with Payment for a Certain Number of Years, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant with a
guarantee that if, at the Annuitant's death, annuity
payments have been made for less than the number of years
elected, then annuity payments will continue thereafter to
you (or the payee you designate) for the remainder of the
period. We may require satisfactory proof that the
Annuitant is alive before any annuity payment is made.
The Ratchet is an optional feature you have selected that is applicable only
to the Variable Income Option. It guarantees that annuity payments will never
decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity with Payment for a Certain Number of Years, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant with a
guarantee that if, at the Annuitant's death, annuity
payments have been made for less than the number of years
elected, then annuity payments will continue thereafter to
you (or the payee you designate) for the remainder of the
period. We may require satisfactory proof that the
Annuitant is alive before any annuity payment is made.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. If you take a
withdrawal from the contract, the Floor Amount will be reduced in the same
manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with Payment for a Certain Number of
Years:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants
with a guarantee that if, upon the death of both
Annuitants, annuity payments have been made for less than
the number of years elected, then annuity payments will
continue thereafter to you (or the payee you designate)
for the remainder of the period. Upon the death of an
Annuitant, the number of Annuity Units (for Variable
Income Options) and/or the dollar amount (for Fixed Income
Options) of each payment will be adjusted by the Survivor
Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with Payment for a Certain Number of
Years, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants
with a guarantee that if, upon the death of both
Annuitants, annuity payments have been made for less than
the number of years elected, then annuity payments will
continue thereafter to you (or the payee you designate)
for the remainder of the period. Upon the death of an
Annuitant, the number of Annuity Units (for Variable
Income Options) and/or the dollar amount (for Fixed Income
Options) of each payment will be adjusted by the Survivor
Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made. The Ratchet is an optional feature you have selected
that is applicable only to the Variable Income Option. It guarantees that
annuity payments will never decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle. Upon the death of the
first Annuitant, the Current Ratchet Amount is adjusted by multiplying it by
the Survivor Benefit Percentage.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with Payment for a Certain Number
of Years, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants
with a guarantee that if, upon the death of both
Annuitants, annuity payments have been made for less than
the number of years elected, then annuity payments will
continue thereafter to you (or the payee you designate)
for the remainder of the period. Upon the death of an
Annuitant, the number of Annuity Units (for Variable
Income Options) and/or the dollar amount (for Fixed Income
Options) of each payment will be adjusted by the Survivor
Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. Upon the death of the
first Annuitant, the Floor Amount is adjusted by multiplying it by the
Survivor Benefit Percentage. If you take a withdrawal from the contract, the
Floor Amount will be reduced in the same manner that the withdrawal reduces
the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity with Cash Back:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant with a
guarantee that at the Annuitant's death, you (or the payee
you designate) will receive any excess of the Net Payment
applied over the total amount of annuity payments made and
withdrawals taken. We may require satisfactory proof that
the Annuitant is alive before any annuity payment is made.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity with Cash Back, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant with a
guarantee that at the Annuitant's death, you (or the payee
you designate) will receive any excess of the Net Payment
applied over the total amount of annuity payments made and
withdrawals taken. We may require satisfactory proof that
the Annuitant is alive before any annuity payment is made.
The Ratchet is an optional feature you have selected that is applicable only
to the Variable Income Option. It guarantees that annuity payments will never
decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Single Life Annuity with Cash Back, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, during the life of the sole Annuitant with a
guarantee that at the Annuitant's death, you (or the payee
you designate) will receive any excess of the Net Payment
applied over the total amount of annuity payments made and
withdrawals taken. We may require satisfactory proof that
the Annuitant is alive before any annuity payment is made.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. If you take a
withdrawal from the contract, the Floor Amount will be reduced in the same
manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with Cash Back:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants
with a guarantee that, upon the death of both Annuitants,
you (or the payee you designate) will receive any excess
of the Net Payment applied over the total amount of
annuity payments made and withdrawals taken. Upon the
death of an Annuitant, the number of Annuity Units (for
Variable Income Options) and/or the dollar amount (for
Fixed Income Options) of each payment will be adjusted by
the Survivor Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
FORM A3029-99 5
<PAGE>
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with Cash Back, with a Ratchet:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants
with a guarantee that, upon the death of both Annuitants,
you (or the payee you designate) will receive any excess
of the Net Payment applied over the total amount of
annuity payments made and withdrawals taken. Upon the
death of an Annuitant, the number of Annuity Units (for
Variable Income Options) and/or the dollar amount (for
Fixed Income Options) of each payment will be adjusted by
the Survivor Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
The Ratchet is an optional feature you have selected that is applicable only
to the Variable Income Option. It guarantees that annuity payments will never
decrease as a result of investment performance.
Annuity payments made prior to the Date of First Change are guaranteed to
equal or exceed the Initial Ratchet Amount shown on the Specifications Page.
All other annuity payments are guaranteed to equal or exceed the Current
Ratchet Amount. The Current Ratchet Amount equals the amount of the last
annuity payment in the previous Change Frequency Cycle. Upon the death of the
first Annuitant, the Current Ratchet Amount is adjusted by multiplying it by
the Survivor Benefit Percentage.
From one Change Frequency Cycle to the next, annuity payments are limited so
that they will not exceed the applicable ratchet amount by more than the
Ratchet Maximum Benefit Increase Percentage (see Specifications Page).
If you take a withdrawal from the contract, the Initial Ratchet Amount (if
the withdrawal is taken prior to the Date of First Change) or the Current
Ratchet Amount (if the withdrawal is taken at any other time) will be reduced
in the same manner that the withdrawal reduces the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION
Joint Life Annuity with a Survivor Benefit, with Cash Back, with a Floor:
We will provide annuity payments, beginning on the Annuity
Income Date, during the joint lifetime of both Annuitants
with a guarantee that, upon the death of both Annuitants,
you (or the payee you designate) will receive any excess
of the Net Payment applied over the total amount of
annuity payments made and withdrawals taken. Upon the
death of an Annuitant, the number of Annuity Units (for
Variable Income Options) and/or the dollar amount (for
Fixed Income Options) of each payment will be adjusted by
the Survivor Benefit Percentage.
The Survivor Benefit Percentage is the percentage of Annuity Units or dollars
of each payment paid during the survivor's life, which may be less than or
equal to that paid when both individuals are living. This percentage is only
applicable after the death of the first Annuitant.
We may require satisfactory proof that the Annuitants are alive before any
annuity payment is made.
The Floor is an optional feature you have selected that is applicable only to
the Variable Income Option. While variable annuity payments may increase or
decrease, this feature guarantees that they will never fall below the Floor
Amount.
The Floor Amount is shown on the Specifications Page. Upon the death of the
first Annuitant, the Floor Amount is adjusted by multiplying it by the
Survivor Benefit Percentage. If you take a withdrawal from the contract, the
Floor Amount will be reduced in the same manner that the withdrawal reduces
the Annuity Units.
There is no periodic charge for this feature. Instead, lower Income Option
Rates are used to determine your first variable annuity payment. As a result,
the first annuity payment is lower than it would have been had this feature
not been selected. Future annuity payments will also be lower except when the
protection provided by this feature results in a greater benefit.
FORM A3029-99 5
<PAGE>
DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
Annuitant The person who must be alive for annuity
payments to be made (unless payments are
guaranteed). Joint Annuitants are permitted
and unless otherwise indicated, any reference
to Annuitant shall include joint Annuitants.
Annuity Income Date The date annuity payments begin. The Annuity
Income Date is shown on the Specifications Page.
Annuity Unit A measure used to calculate annuity payments under
a Variable Income Option.
Beneficiary The person, persons or entity entitled to the Death
Benefit upon the death of the Owner prior to the
Annuity Income Date or remaining annuity payments, if
any, upon the death of the Owner on or after the
Annuity Income Date.
Change Frequency How often changes (due to investment performance) will be
reflected in the dollar value of the variable annuity
payments. For example, if you choose an annual Change
Frequency, the dollar value of variable annuity payments
will remain constant within each one-year period.
Company, we, us or Allmerica Financial Life Insurance and Annuity Company.
our
Contract Value The Present Value of all remaining annuity payments.
Contract Year A one-year period based on the Issue Date or an anniversary
thereof.
Date of First Change The date on which your variable annuity payment will change
in value for the first time.
Effective Valuation Date The Valuation Date on or immediately following the day we
receive the Single Purchase Payment, request for
transfer, withdrawal, or proof of death.
Fund Each separate investment company, investment series or
portfolio eligible for investment by a Sub-Account of the
Variable Account.
General Account All assets of the Company that are not allocated to a
Separate Account.
Net Payment The Single Purchase Payment less any premium tax.
FORM A3029-99 6
<PAGE>
Owner, you or your The person, persons or entity entitled to
exercise the rights and privileges under this contract.
Joint Owners are permitted and unless otherwise indicated,
any reference to you and your shall include joint Owners.
Premium Tax The amount of tax, if any, imposed by a State or other
governmental entity upon our receipt of the Single Purchase
Payment.
Pro Rata The way a withdrawal is deducted from the accounts.
To determine how the withdrawal is made, assume an annuity
payment is made on the date of the withdrawal. Compare the
value of the payment from each account to the total
annuity payment. The withdrawal from each account will be
made in the same proportion.
Request A request or notice made by you, in a manner consistent with
our current procedures, which is received by us.
Separate Account A segregated account established by us. The assets in
a Separate Account are not commingled with our general
assets and obligations and are not subject to claims arising
out of any other business we may conduct.
State The state or jurisdiction in which this contract is issued.
Sub-Account A Variable Account subdivision that corresponding Fund.
Valuation Date A day the values of all units are determined. Valuation
Dates occur on each day the New York Stock Exchange is
open for trading.
Valuation Period The period of time between two consecutive Valuation Dates.
Variable Account The Company's Separate Account, consisting of Sub-Accounts
that invest in the underlying Funds.
FORM A3029-99 7
<PAGE>
OWNER, ANNUITANT AND BENEFICIARY
Owner The Owner is shown on the Specifications Page. Upon the death
of an Owner prior to the Annuity Income Date, a Death
Benefit is paid.
You may exercise all rights and options granted in this contract
or by us, subject to the consent of any irrevocable Beneficiary
(where applicable). Where there are joint Owners, the consent of
both is required in order to exercise any ownership rights.
Assignment You may not assign this contract.
Annuitant The Annuitant is as shown on the Specifications Page. Upon the death of
an Annuitant prior to the Annuity Income Date, a Death Benefit is paid.
Beneficiary The Beneficiary is as shown on the Specifications Page unless subsequently
changed. You may declare any Beneficiary to be revocable or
irrevocable. A revocable Beneficiary may be changed at any time (a)
before the Annuity Income Date and before the death of an Owner or
Annuitant; or (b) after the Annuity Income Date and before the death of
the Annuitant. An irrevocable Beneficiary must consent in writing to any
change of beneficiary. Unless otherwise indicated, the Beneficiary will
be revocable.
A Beneficiary change must be made by Request. When we receive the Request,
the change will take place as of the date it was signed, even if an Owner or
an Annuitant dies after the form is signed but prior to our receipt of the
Request. Any rights created by the change will be subject to payments we
made or actions taken before the change was recorded.
All benefits payable to the Beneficiary under this contract will be divided
equally among the surviving Beneficiaries of the same class (see
your Specifications Page), unless you direct otherwise. If there is no
surviving Beneficiary in a particular class, then the benefit is divided
equally among the surviving Beneficiaries of the next class. If
there is no surviving Beneficiary, the deceased Beneficiary's interest will
pass to you or your estate. If your contract has Joint Owners, and one Owner
dies, the surviving joint Owner is the primary Beneficiary. This is confirmed
on the Specifications page.
FORM A3029-99 8
<PAGE>
Once entitled to benefits under this contract, the Beneficiary may transfer
or commute the annuity payments or any values provided as long as he or she has
been given that right by you.
Protection of Proceeds To the extent allowed by law, this contract and any payments made
under it will be exempt from the claims of creditors.
FORM A3029-99 9
<PAGE>
ANNUITY BENEFIT
OVERVIEW
Single Purchase The Single Purchase Payment is shown on the Specifications Page. No
Payment additional payments may be made.
Net Payment The Net Payment is equal to the Single Purchase Payment reduced by any
applicable Premium Tax. The Net Payment is allocated as shown on the
Specifications Page.
Income Options The Income Option you selected is shown on the Specifications Page. Income
Options may be Fixed, Variable or combination Fixed and Variable.
The Fixed Income Option provides a guaranteed amount of income. The Fixed
Income Option is funded through the General Account.
The Variable Income Option provides income which will vary over time. The
investment performance of the selected Sub-Accounts causes changes in Annuity
Unit Values, which result in fluctuating payments.
A combination Fixed and Variable Income Option provides a portion of income that
is guaranteed in amount and a portion that will vary in amount.
Any portion of your Net Payment allocated to the Fixed Income Option
will always remain allocated to the Fixed Income Option. Similarly, any
portion of your Net Payment allocated to the Variable Income Option will always
remain allocated to the Variable Income Option, but you can reallocate this
variable portion of your contract among the various Sub-Accounts. See the
"Transfers" provision for additional information.
Payment of Annuity Annuity Payments are paid to you. By Request you may direct that
Payments payments be made to another person, persons or entity.
FORM A3029-99 10
<PAGE>
VARIABLE INCOME OPTIONS
Assumed Investment The Assumed Investment Return ("AIR") is used to calculate the initial variable
Return annuity payment and to determine how the payment will change over time in
response to the investment performance of the selected Sub-Accounts. If the
actual performance of any selected Sub-Account (as measured by the Net
Investment Factor) is equal to the AIR, the annuity payment attributable to that
Sub-Account will be constant. If the actual performance is greater than the
AIR, the annuity payment will increase. If the actual performance is less than
the AIR, the annuity payment will decrease.
Net Investment Factor The Net Investment Factor 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 (which may be positive or
negative) from dividing (a) by (b) and subtracting (c) and (d) where:
(a) is the investment income of a Sub-Account
for the Valuation Period, including
realized or unrealized capital gains and
losses during the Valuation Period,
adjusted for provisions made for taxes, if any;
(b) is the value of that Sub-Account's assets at
the beginning of the Valuation Period;
(c) is the Mortality and Expense Risk Charge
applicable to the current Valuation
Period (see Specifications Page)
plus any adjustment for an optional feature;
and
(d) is the Administrative Charge applicable to
the current Valuation Period (see Specifications Page).
We guarantee that the amount of each variable annuity payment will not be
affected by changes in our mortality and expense experience. We assume the risk
that actual mortality experience and expenses may exceed the amounts provided
under the contract. We guarantee that the mortality and expense risk and the
administrative charges will not be increased. Subject to applicable State
and federal laws, these charges may be decreased or the method used to
determine the Net Investment Factor may be changed.
FORM A3029-99 11
<PAGE>
Annuity Unit Values A Sub-Account Annuity Unit Value on any Valuation Date is equal to
its value on the preceding Valuation Date multiplied by the product of:
(a) a discount factor equivalent to the Assumed Investment
Return and
(b) the Net Investment Factor of the
Sub-Account for the applicable Valuation
Period.
The value of an Annuity Unit as of any
date other than a Valuation Date is
equal to its value as of the preceding
Valuation Date.
Determination of the We have annuity option rates that determine the dollar amount of the first
Number of Annuity periodic payment under each Variable Income Option for each $1,000 of Net
Units Payment. We calculate this amount assuming there is no change in the Annuity
Unit Value. We then divide the amount of the first annuity payment attributable
to a particular Sub-Account by the Annuity Unit Value of that Sub-Account
to determine the number of Annuity Units. This number of Annuity Units
remains fixed under all annuity benefit options except the Joint Life Annuity
with a Survivor Benefit Options that reduce the number of Annuity Units upon
the first death. However, the number of variable annuity units under any Annuity
Benefit Option could change if transfers or withdrawals are made.
Dollar Amount of First The dollar amount of the first variable annuity payment will equal the number of
Variable Annuity Payment Annuity Units of each Sub-Account multiplied by the value of
an Annuity Unit of that Sub-Account on the applicable Valuation Date. The
benefit of any optional feature will be taken into account.
Dollar Amount of Subsequent The dollar amount of each subsequent variable annuity payment will vary
Variable Annuity Payments with the Annuity Unit Value of the selected Sub-Account(s) on certain dates.
The dollar amount of variable annuity payments remains level until the Date of
First Change and within each Change Frequency cycle. On the Date of First
Change and as of the start of each Change Frequency cycle the dollar amount
of the variable annuity payment is determined by multiplying the number of
Annuity Units of each Sub-Account by the Annuity Unit Value of that Sub-Account
on the applicable Valuation Date. The benefit of any optional feature will be
taken into account.
FORM A3029-99 12
<PAGE>
Transfers You may make transfers among the Sub-Accounts by Request to us. Transfers
may be made (a) before the Annuity Income Date and before the death of an
Owner or an Annuitant; or (b) after the Annuity Income Date as long as annuity
payments are payable under the Annuity Benefit Option selected.
Transfers may increase or decrease the number of Annuity Units in each
subsequent payment.
There is no charge for the first twelve transfers per Contract Year. A transfer
charge of up to $25 may be imposed on each additional transfer.
We reserve the right to establish and impose reasonable rules restricting
transfers. All transfers are subject to our consent.
FORM A3029-99 13
<PAGE>
WITHDRAWALS
You have the right, based on the Annuity Benefit Option selected, to make
withdrawals. Withdrawals may be made (a) before the Annuity Income Date and
before the death of an Owner or an Annuitant; or (b) after the Annuity
Income Date and as long as annuity payments are payable under the Annuity
Benefit Option selected. If the Death Benefit is applied under an Annuity
Benefit Option, withdrawals may also be made in accordance with this provision.
Amounts withdrawn that were applied under a Variable Income Option will be
paid within 7 days of the date we receive your Request. We reserve the
right to delay payments subject to applicable laws, rules and regulations
governing variable annuities.
Amounts withdrawn that were applied under a Fixed Income Option will
normally be paid within 7 days of the date we receive your Request. We may
defer payment for up to six months from the receipt date. If deferred for 30
days or more, the amount payable will be credited interest at a rate of at least
3% or the appropriate rate mandated by the State.
Your Request must indicate the dollar amount to be paid and we will withdraw
that amount on a Pro-Rata basis.
One Request for withdrawal under a provision(s) may be made each calendar
year:
Payment Withdrawal Each calendar year, you can request a withdrawal up to an amount equal to:
Amount Option
(a) the Payment Withdrawal Amount (see
Specifications Page) multiplied by the value
of an annuity payment, if one were to be paid,
on the date we receive your Request (if the
withdrawal is taken prior to the Annuity
Income Date), or
(b) the Payment Withdrawal Amount (see
Specifications Page) multiplied by the
previous annuity payment (if the
withdrawal is taken after the Annuity
Income Date).
Each withdrawal proportionately reduces the number of Annuity Units (for
Variable Income Options) and/or the dollar amount (for Fixed Income Options)
of each future annuity payment. The proportionate reduction is calculated by
multiplying the number of Annuity Units or the dollar amount (whichever is
applicable) of each future annuity payment by the following:
FORM A3029-99 14
<PAGE>
Amount of the variable or fixed withdrawal
--------------------------------------------
Present Value of all remaining variable or fixed annuity
payments immediately prior to the withdrawal
Present Value Over the life of the contract when there are remaining guaranteed annuity
Withdrawal Option payments, you may request withdrawals which represent a percentage of the
Present Value of those remaining guaranteed payments.
Each withdrawal proportionately reduces any remaining guaranteed payments (for
Variable Income Options) and/or the dollar amount of each future annuity
payment (for Fixed Income Options). The proportionate reduction is calculated by
multiplying the number of Annuity Units or the dollar amount (whichever is
applicable) of each future annuity payment by the following:
Amount of the variable or fixed withdrawal
------------------------------------------
Present Value of all remaining variable or fixed guaranteed annuity
payments immediately prior to the withdrawal
Whenever a withdrawal is taken under this provision, we record the percentage
withdrawn. (See proportionate reduction calculation above.) The total percentage
withdrawn over the life of the contract cannot exceed the Present Value
Withdrawal Amount (see Specifications Page).
If an Annuitant is still living after the guaranteed payments have been paid,
the number of Annuity Units (for Variable Income Options) or dollars (for
Fixed Income Options) will increase to the number of Annuity Units/dollars
payable prior to any Present Value Withdrawals, adjusted upon the death of
the first Annuitant, if applicable, or for transfers, or for any withdrawals
taken under the Payment Withdrawal Amount Option.
FORM A3029-99 15
<PAGE>
Present Value For a variety of purposes, it is at times necessary to determine the Present
Value of either all future annuity payments or of future guaranteed
annuity payments. Present Values are calculated based on the Mortality
Table used by us to determine your benefit (see Specifications Page),
male, female or unisex rates as appropriate, and the interest rate (for
Fixed Income Options) or AIR (for Variable Income Options) used to
determine the annuity payments increased by the following adjustments:
Adjustment
Death of Annuitant 0.00%
Withdrawals
5 or more years after Issue Date 0.00%
Within 5 years of Issue Date:
15 or more years of annuity payments being valued 1.00%
10-14 years of payments being valued 1.50%
Less than 10 years of payments being valued 2.00%
Determination of Contract Value* 0.00%
* If an optional feature, was selected, annuity payments used in determining
this Present Value will be the amount that would have been payable had you not
selected the optional feature.
FORM A3029-99 16
<PAGE>
DEATH OF OWNER OR ANNUITANT
BEFORE THE ANNUITY INCOME DATE
Death Benefit If an Owner or an Annuitant dies, we will pay a Death Benefit equal
to the Contract Value. The Contract Value will be determined as of the
Effective Valuation Date.
The Death Benefit will be paid to the Owner of the contract. If there is no
Owner or Joint Owner, we will pay the Death Benefit to the Beneficiary.
Payment of the Death Unless You have specified otherwise, the Death Benefit will be paid within 7
days of the Effective Valuation Date. Alternatively, the person entitled
to the Death Benefit may, by Request, elect to receive an annuity over
his or her life expectancy (or over a period not extending beyond such
life expectancy), with distributions beginning within one year from the
date of death.
If the sole Beneficiary is the deceased Owner's spouse, the Beneficiary may
elect to continue the contract as the Owner and Annuitant. As of the date of
such election, annuity payments will be adjusted to reflect any change of
Annuitant and Annuity Income Date. The new Annuity Income Date must be within
twelve months of the Issue Date (see the Specifications Page). Any subsequent
spouse of the new Owner, if named as the Beneficiary, may not continue this
contract.
AFTER THE ANNUITY INCOME DATE
Remaining Annuity If the Owner or the Annuitant dies, we will pay remaining annuity payments, if any,
Payments in accordance with the terms of the Annuity Benefit Option selected.
Any remaining annuity payments will be paid to the Owner of the contract. If
there is no Owner or Joint Owner, then the Beneficiary will receive the
payments and become the Owner of the contract.
Lump Sum Option The Beneficiary may elect to receive the Present Value of any
remaining payments in one lump sum.
FORM A3029-99 17
</TABLE>
<PAGE>
GENERAL PROVISIONS
<TABLE>
<S> <C>
Entire Contract The entire contract consists of this contract, any application attached
at issue, Specifications page and endorsements.
Misstatement of Age If the age or sex of an individual is misstated, we will adjust all benefits
Or Sex payable to that which would be available at the correct age or sex. Any
underpayments already made by us will be paid immediately. Any overpayments will
be deducted from future annuity payments.
Failure to Notify Company After the Annuity Income Date and once notified of the Annuitant's death,
of Annuitant Death we reserve the right to recover any overpaid annuity payments.
Modifications Only the President or Vice President of the Company may modify or waive any
provisions of this contract. Agents or Brokers are not authorized to do so.
Incontestability We will not contest this contract.
Minimums All values and benefits available under this contract equal or exceed those
required by the State in which the contract is delivered.
Annual Report We will send you an annual report of the Sub-Accounts and any other
notices, reports or documents required by law to be delivered to you.
Addition, Deletion, or We reserve the right, subject to compliance with applicable law, to add to,
Substitution of delete from, or substitute for the shares of a Fund that are held by the
Investments Sub-Accounts or that the Sub-Accounts may purchase. We also reserve the right
to eliminate the shares of any Fund no longer available for investment or if we
believe further investment in the Fund is no longer appropriate for the
purposes of the Sub-Accounts.
We will not substitute shares attributable to any interest in a Sub-Account without
notice to you and prior approval of the Securities and Exchange Commission as
required by the Investment Company Act of 1940. This will not prevent the Variable
Account from purchasing other securities for other series or classes of contracts, or
from permitting a conversion between series or classes of contracts on the basis of
requests made by you.
</TABLE>
FORM A3029-99 18
<PAGE>
<TABLE>
<S> <C>
We reserve the right, subject to compliance with applicable laws, to establish
additional Separate Accounts and Sub-Accounts and to make them available to any
class or series of contracts as we consider appropriate. Each new Separate Account
or Sub-Account will invest in a new investment company, or in shares of another
open-end investment company, or such other investments as may be permitted under
applicable law. We also reserve the right to eliminate or combine existing
Sub-Accounts and to transfer the assets of any Sub-Accounts to any other Sub-Accounts.
In the event of any substitution or change, we may, by appropriate notice, make such
changes in this and other contracts as may be necessary or appropriate to reflect the
substitution or change. If we consider it to be in the best interests of the owners,
the Variable Account or any Sub-Account may be operated as a management company under
the Investment Company Act of 1940 or in any other form permitted by law, or may be
deregistered under the Act in the event registration is no longer required, or may be
combined with our other accounts.
Changes in Law We reserve the right to make any changes to provisions of the contract to comply with,
or give you the benefit of, any federal or State statute, rule, or regulation.
Change of Name Subject to compliance with applicable law, We reserve the right to change the names of
the Variable Account or the Sub-Accounts.
Federal Tax The Variable Account is not currently subject to tax, but we reserve the right to
Considerations assess a charge for taxes if the Variable Account becomes subject to tax.
Splitting of Units We reserve the right to split the value of a unit, either to increase or decrease
the number of units. Any splitting of units will have no material effect on the
benefits, provisions or investment return of this contract or upon you, the Annuitant,
any Beneficiary, or us.
Insulation of Separate The investment performance of Separate Account assets is determined separately from
Account our other assets. The assets of a Separate Account equal to the reserves and
liabilities of the contracts supported by the account will not be charged with
liabilities from any other business that we may conduct.
</TABLE>
FORM A3029-99 19
<PAGE>
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029-99
PLEASE READ THIS CONTRACT CAREFULLY
IMPORTANT: THE INITIAL INTEREST RATE, ALTHOUGH GUARANTEED TO BE A MINIMUM, IS
GUARANTEED ONLY FOR A LIMITED PERIOD OF TIME.
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it (the
"Free Look Period"). It can be mailed or delivered either to us or the
representative who sold it. If you return the contract, we will pay to you the
Contract Value on the date the contract is returned to us plus any premium tax
deducted on the Issue Date. This amount may be more or less than the Single
Purchase Payment.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.FL-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
Annuities are not FDIC insured. Annuities are not obligations of the financial
institution. The financial institution does not guarantee performance by the
insurer issuing the annuity.
FORM A3029.FL-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
IMPORTANT: THE INITIAL INTEREST RATE, ALTHOUGH GUARANTEED TO BE A MINIMUM, IS
GUARANTEED ONLY FOR A LIMITED PERIOD OF TIME.
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it. It can
be mailed or delivered either to us or the representative who sold it. If you
return the contract within 10 days after you have received it ("the Free Look
Period"), we will refund the Single Purchase Payment less the total amount of
all annuity payments made or withdrawals taken. If you return the contract after
the expiration of the "Free Look Period" but within 90 days after the Issue
Date, we will pay to you the Contract Value on the date the contract is returned
to us plus any premium tax deducted on the Issue Date.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.FL-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
Annuities are not FDIC insured. Annuities are not obligations of the financial
institution. The financial institution does not guarantee performance by the
insurer issuing the annuity.
FORM A3029.FL-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it (the
"Free Look Period"). It can be mailed or delivered either to us or the
representative who sold it. If you return the contract, we will pay to you the
Contract Value on the date the contract is returned to us plus any premium tax
deducted on the Issue Date. This amount may be more or less than the Single
Purchase Payment.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.FL-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
Annuities are not FDIC insured. Annuities are not obligations of the financial
institution. The financial institution does not guarantee performance by the
insurer issuing the annuity.
FORM A3029.FL-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it. It can
be mailed or delivered either to us or the representative who sold it. If you
return the contract within 10 days after you have received it ("the Free Look
Period"), we will refund the Single Purchase Payment less the total amount of
all annuity payments made or withdrawals taken. If you return the contract after
the expiration of the "Free Look Period" but within 90 days after the Issue
Date, we will pay to you the Contract Value on the date the contract is returned
to us plus any premium tax deducted on the Issue Date.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.FL-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
Annuities are not FDIC insured. Annuities are not obligations of the financial
institution. The financial institution does not guarantee performance by the
insurer issuing the annuity.
FORM A3029.FL-99 2
<PAGE>
SPECIFICATIONS
<TABLE>
<S> <C>
Contract Type: Non-qualified Single Purchase Payment Amount:
Contract Number: zz00600000 Net Payment:
Owner: John Doe Owner's Date of Birth: 10/25/1960
Joint Owner: Jack Doe Joint Owner's Date of Birth: 07/12/1960
Annuitant: Mary Doe Annuitant's Date of Birth: 03/19/1945
Joint Annuitant: Michael Doe Joint Annuitant's Date of Birth: 08/20/1954
Annuitant's Sex: Female Payee: Jane Doe
Joint Annuitant's Sex: Male Payee's Address: 1 Main St, Anywhere, USA
Primary Beneficiary: Surviving Joint Owner, if any
1st Contingent Beneficiary(ies): Michael Doe
2nd Contingent Beneficiary(ies): Jack Doe
Issue Date: 04/01/1999
Annuity Income Date: 10/01/1999
Annuity Benefit Option: Joint Life Annuity with a Survivor Benefit Option (See page 5)
Survivor Benefit Percentage: 50%
Frequency of Annuity Payments: Monthly
Mortality Table: Annuity 2000
Percentage under a Fixed Income Option: 30%
Dollar Amount of Fixed Income: $
Percentage under a Variable Income Option: 70%
Assumed Investment Return: 5%
Change Frequency: Monthly
Date of First Change: xx/xx/xxxx
Income Option Rate: 4.5
Optional Feature:
The Ratchet:
Initial Ratchet Amount: $100
Ratchet Maximum Benefit Increase Percentage: 10%
If you had not selected this feature, the Income Option Rate above would have been 5.0.
The Floor:
Floor Amount: $100
If you had not selected this feature, the Income Option Rate above would have been 5.0.
</TABLE>
FORM A8029-99 3
<PAGE>
SPECIFICATIONS (CONTINUED)
<TABLE>
<S> <C>
Owner: John Doe Contract Number: zz00600000
Joint Owner: Jack Doe
Single Purchase Amount: $25,000.00
Payment Withdrawal Amount: 10 times the previous annuity payment.
But not more than the remaining guaranteed payments.
Present Value Withdrawal Amount: 75% of Present Value of remaining guaranteed annuity payments.
Mortality and Expense Risk Charge: 1.25% on an annual basis of the daily value of the Sub-Account assets.
Administrative Charge: .20% on an annual basis of the daily value of the Sub-Account assets.
Variable Allocation of Net Payment on Issue Date:
Sub-Account Name Percentage of Net Payment Number of Units
- ---------------- ------------------------- ---------------
Select Aggr. Growth
Select Capital Appr.
Select Value Opp.
Select Emerging Markets
Select Int'l Equity
DGPF Int'l Equity Series
Fidelity VIP Overseas
T. Rowe Price Int'l
Select Growth
Select Strategic Growth
Growth Fund
Fidelity VIP Growth
Equity Index Fund
Select Gr. & Inc.
Fidelity VIP Eq. Inc.
Fidelity VIP Asset Mgr
Fidelity VIP High Inc
Investment Grade Income Fund
Government Bond Fund
Allmerica Money Market
</TABLE>
FORM A8029-99 4
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
The Owner may cancel this contract by returning it to the Company or one of its
authorized representatives within twenty days after receipt. If returned, the
Company will refund gross payments.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS.............................................................. 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION.................................. 5
DEFINITIONS................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................ 8
ANNUITY BENEFIT............................................................. 10
OVERVIEW....................................................... 10
VARIABLE INCOME OPTIONS........................................ 11
WITHDRAWALS.................................................... 14
DEATH OF OWNER OR ANNUITANT................................................. 17
BEFORE THE ANNUITY INCOME DATE................................. 17
AFTER THE ANNUITY INCOME DATE.................................. 17
GENERAL PROVISIONS.......................................................... 18
FORM A3029-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
The Owner may cancel this contract by returning it to the Company or one of its
authorized representatives within twenty days after receipt. If returned, the
Company will refund gross payments.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.4-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
FORM A3029-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it (the
"Free Look Period"). It can be mailed or delivered either to us or the
representative who sold it. If you return the contract, we will pay to you the
Contract Value on the date the contract is returned to us plus any premium tax
deducted on the Issue Date. This amount may be more or less than the Single
Purchase Payment.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029-99-GRC
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
FORM A3029-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it. It can
be mailed or delivered either to us or the representative who sold it. If you
return the contract within 10 days after you have received it ("the Free Look
Period"), we will refund the Single Purchase Payment less the total amount of
all annuity payments made or withdrawals taken. If you return the contract after
the expiration of the "Free Look Period" but within 90 days after the Issue
Date, we will pay to you the Contract Value on the date the contract is returned
to us plus any premium tax deducted on the Issue Date.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029-99-GRC
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
FORM A3029-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it (the
"Free Look Period"). It can be mailed or delivered either to us or the
representative who sold it. If you return the contract, we will pay to you the
Contract Value on the date the contract is returned to us plus any premium tax
deducted on the Issue Date. This amount may be more or less than the Single
Purchase Payment.
If the refund is not paid within thirty days from the date the contract is
received by the Company or its authorized representative, the amount will be
increased by ten percent (10%).
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.WA-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
FORM A3029-99 2
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
Annuity payments and other values provided by this contract under the Variable
Income Options may increase or decrease and are not guaranteed as to fixed
dollar amount.
RIGHT TO EXAMINE CONTRACT
You may return this contract within 90 days after you have received it. It can
be mailed or delivered either to us or the representative who sold it. If you
return the contract within 10 days after you have received it ("the Free Look
Period"), we will refund the Single Purchase Payment less the total amount of
all annuity payments made or withdrawals taken. If you return the contract after
the expiration of the "Free Look Period" but within 90 days after the Issue
Date, we will pay to you the Contract Value on the date the contract is returned
to us plus any premium tax deducted on the Issue Date.
If the refund is not paid within thirty days from the date the contract is
received by the Company or its authorized representative, the amount will be
increased by ten percent (10%).
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
Phone Number: 1-800-533-7881
This is a legal contract between you and the Company and is issued in
consideration of the Single Purchase Payment shown on the Specifications page.
The Net Payment may be allocated to the Fixed Income Option or the Variable
Income Option or a combination of both. If you select the Variable Income
Option, you can allocate the Net Payment among the Variable Sub-Accounts.
Single Payment Immediate Variable and Fixed Annuity
Annuity Payments Payable on the Annuity Income Date
Death Benefit Payable if an Owner or an
Annuitant Dies prior to Annuity Income Date
This contract does not participate in the profits or surplus of the Company
FORM A3029.WA-99
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS............................................................... 3
DESCRIPTION OF YOUR ANNUITY BENEFIT OPTION................................... 5
DEFINITIONS.................................................................. 6
OWNER, ANNUITANT AND BENEFICIARY............................................. 8
ANNUITY BENEFIT.............................................................. 10
OVERVIEW........................................................ 10
VARIABLE INCOME OPTIONS......................................... 11
WITHDRAWALS..................................................... 14
DEATH OF OWNER OR ANNUITANT.................................................. 17
BEFORE THE ANNUITY INCOME DATE.................................. 17
AFTER THE ANNUITY INCOME DATE................................... 17
GENERAL PROVISIONS........................................................... 18
FORM A3029-99 2
<PAGE>
IMMEDIATE ADVANTAGE ALLMERICA FINANCIAL LIFE INSURANCE
VARIABLE ANNUITY APPLICATION AND ANNUITY COMPANY
"ALLMERICA FINANCIAL"
440 LINCOLN STREET, WORCESTER, MA 01653
<TABLE>
<CAPTION>
<S> <C>
PLEASE PRINT CLEARLY
- -----------------------------------------------------------------------------
1. OWNER
- -----------------------------------------------------------------------------
Name
-----------------------------------------------------------------------
First MI Last
Address
----------------------------------------------------------------------
City State Zip
---------------------------------- --------- ----------------
Social Security/Tax ID# / /Male / /Female
------------------------------
Daytime Phone ( ) Date of Birth/Trust / /
--------------------- --------------------
- -----------------------------------------------------------------------------
JOINT OWNER
- -----------------------------------------------------------------------------
Name
-----------------------------------------------------------------------
First MI Last
Address
----------------------------------------------------------------------
City State Zip
---------------------------------- --------- ----------------
Social Security/Tax ID# / /Male / /Female
------------------------------
Daytime Phone ( ) Date of Birth/Trust / /
--------------------- --------------------
- -----------------------------------------------------------------------------
2. ANNUITANT*
- -----------------------------------------------------------------------------
Name
------------------------------------------------------------------------
First MI Last
Social Security # / / Male / /Female
-------------------------------
Date of Birth / /
----------------------------------
- -----------------------------------------------------------------------------
JOINT ANNUITANT*
- -----------------------------------------------------------------------------
Name
------------------------------------------------------------------------
First MI Last
Social Security # / / Male / /Female
-------------------------------
Date of Birth / /
----------------------------------
*Birth Certificate for Annuitant and Joint Annuitant is required.
- ----------------------------------------------------------------------------------------------------------------
3. BENEFICIARY PRIMARY BENEFICIARY IS ALWAYS THE SURVIVING JOINT OWNER, IF ANY
- ----------------------------------------------------------------------------------------------------------------
1st Contingent(s) Relationship to Owner 2nd Contingent(s) Relationship to Owner
- ------------------------------------------------------- --------------------------------------------------
Relationship to Owner Relationship to Owner
- ----------------------------------------------------------------------------------------------------------------
4. SINGLE PURCHASE PAYMENT MINIMUM $75,000
- ----------------------------------------------------------------------------------------------------------------
Single Purchase Payment $ (Make check payable to Allmerica Financial)
---------------------------------------------
If multiple checks are received separate contracts may be issued.
- ----------------------------------------------------------------------------------------------------------------
5. TYPE OF PLAN TO BE ISSUED
- ----------------------------------------------------------------------------------------------------------------
/ /Non Qualified / /IRA If IRA, Roth IRA or SEP-IRA this payment is a:
/ /401(a)* / /Roth IRA* / /Rollover / /Trustee to Trustee Transfer
/ /401(k)* / /SEP-IRA* / /Conversion
/ /403(b) TSA* / /457*
*Attach required forms Existing Case #________________________
- ----------------------------------------------------------------------------------------------------------------
6. REPLACEMENT
- ----------------------------------------------------------------------------------------------------------------
Will the proposed contract replace or change an existing annuity or life insurance policy? / /No / /Yes*
*Attach required forms
If yes, list company name(s) and policy number(s).
- ----------------------------------------------------------------------------------------------------------------
7. SINGLE PURCHASE PAYMENT ALLOCATION
- ----------------------------------------------------------------------------------------------------------------
TOTAL FIXED AND VARIABLE MUST EQUAL 100%
How much of your purchase payment would you like allocated to the Fixed Income Option? ______________%
How would you like the remainder allocated under the Variable Income Option?
_________% Select Aggressive Growth _________% Select Strategic Growth
_________% Select Capital Appreciation _________% Allmerica Growth
_________% Select Value Opportunity _________% Allmerica Equity Index
_________% Select Emerging Markets _________% Fidelity VIP Equity-Income
_________% T. Rowe Price International _________% Select Growth & Income
_________% Fidelity VIP Overseas _________% Fidelity VIP II Asset Manager
_________% Select International Equity _________% Fidelity VIP High Income
_________% Delaware International Equity _________% Allmerica Investment Grade Income
_________% Fidelity VIP Growth _________% Allmerica Government Bond
_________% Select Growth _________% Allmerica Money Market
<PAGE>
- ----------------------------------------------------------------------------------------------------------------
8. ANNUITY BENEFIT OPTION
- ----------------------------------------------------------------------------------------------------------------
1. / /Payment for Certain Number of Years: _______________ years (5 - 30)
2. / /Life Annuity
/ /Single Life / /Joint Lives with Survivor Benefit of: / /100% / /66 2/3% / /50%
Payment Guarantee: / /None / /Certain Number of Years: _______________ years (5 - 30) / /Cash Back
3. If Variable Income Option is selected in Section 7 you must choose:
Assumed Investment Return: / /3% / /5% / /7%
Optional Features: / /None / /Floor / /Ratchet
- ----------------------------------------------------------------------------------------------------------------
9. PAYEE
- ----------------------------------------------------------------------------------------------------------------
If annuity payment is to be made to someone other than Owner(s), indicate name and address below.
- ----------------------------------------------------------------------------------------------------------------
NOTE: Tax liabilities are the responsibility of the Owner(s).
- ----------------------------------------------------------------------------------------------------------------
10. ANNUITY INCOME DATE
- ----------------------------------------------------------------------------------------------------------------
A. Date of first payment (must be between 30 days and 12 months from issue date) _____ /_____ /_____
(the day must be the 1st through 28th only) month day year
B. If Variable Income Option is selected in Section 7:
1. How frequently would you like the amount of your annuity payment to change?
/ /Monthly / /Quarterly / /Semiannually / /Annually
2. The amount of your annuity payment will change for the first time one cycle after the date of first payment.
If you would like it to change sooner please indicate the month. ____________________
- ----------------------------------------------------------------------------------------------------------------
11. AUTOMATIC ACCOUNT REBALANCING (AAR)
- ----------------------------------------------------------------------------------------------------------------
I/We elect Automatic Account Rebalancing of the Variable allocation selected in Section 7 every:
/ /1 / /2 / /3 / /6 / /12 Months
- ----------------------------------------------------------------------------------------------------------------
12. TELEPHONE AUTHORIZATION
- ----------------------------------------------------------------------------------------------------------------
I/We authorize and direct Allmerica Financial to accept telephone instructions from any person who can furnish
proper identification to effect transfers and obtain values. Neither Allmerica Financial nor its affiliates and
their collective directors, officers, employees and agents will be responsible for any claim arising from such
action if Allmerica Financial acted on instructions in good faith in reliance on this authorization.
/ / I/We DO NOT authorize this telephone privilege.
- ----------------------------------------------------------------------------------------------------------------
13. REMARKS
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
14. SIGNATURES
- ----------------------------------------------------------------------------------------------------------------
I/We represent to the best of my/our knowledge and belief that the statements made in this application are true
and complete. I/We agree to all terms and conditions as shown on this application. It is indicated and agreed
that the only statements which are to be construed as the basis of the contract are those contained in this
application. I/We acknowledge receipt of a current prospectus describing the contract applied for. If IRA,
Roth IRA, or SEP-IRA application, I/we received a Disclosure Buyer's Guide. I/WE UNDERSTAND THAT ALL ANNUITY
PAYMENTS BASED ON THE VARIABLE INCOME OPTION MAY FLUCTUATE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNTS.
- ----------------------------------------------------------------------------------------------------------------
Signature of Owner Date Signature of Joint Owner Date
- ----------------------------------------------------------------------------------------------------------------
Signed at City and State
- ----------------------------------------------------------------------------------------------------------------
15. REGISTERED REPRESENTATIVE INFORMATION
- ----------------------------------------------------------------------------------------------------------------
Does the contract applied for replace an existing annuity or life insurance policy? / /Yes / /No
If yes, attach replacement forms as required.
I CERTIFY THAT (1) THE INFORMATION PROVIDED BY THE OWNER(S) HAS BEEN ACCURATELY RECORDED; (2) A CURRENT
PROSPECTUS WAS DELIVERED; (3) NO WRITTEN SALES MATERIAL OTHER THAN THOSE APPROVED BY THE PRINCIPAL OFFICE WERE
USED; AND (4) I HAVE REASONABLE GROUNDS TO BELIEVE THE PURCHASE OF THE CONTRACT APPLIED FOR IS SUITABLE FOR
THE OWNER(S).
Date Signature of Registered Representative % TR Print Full Name Code Agency
- ----------------------------------------------------------------------------------------------------------------
Date Signature of Registered Representative % TR Print Full Name Code Agency
- ----------------------------------------------------------------------------------------------------------------
Date Signature of Registered Representative % TR Print Full Name Code Agency
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
June 1, 1999
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester, MA 01653
RE: SEPARATE ACCOUNT VA-K (EXECANNUITY PLUS/ALLMERICA ADVANTAGE)
OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Gentlemen:
In my capacity as Assistant Vice President and Counsel of First Allmerica
Financial Life Insurance Company (the "Company"), I have participated in the
preparation of this initial Registration Statement for Separate Account VA-K
on Form N-4 under the Securities Act of 1933 and an amendment under the
Investment Company Act of 1940, with respect to the Company's qualified and
non-qualified variable annuity contracts.
I am of the following opinion:
1. Separate Account VA-K is a separate account of the Company validly
existing pursuant to the Massachusetts Insurance Code and the regulations
issued thereunder.
2. The assets held in Separate Account VA-K are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The variable annuity contracts, when issued in accordance with the
Prospectuses contained in the initial Registration Statement and upon
compliance with applicable local law, will be legal and binding
obligations of the Company in accordance with their terms and when
sold will be legally issued, fully paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to this initial
Registration Statement of Separate Account VA-K on Form N-4 filed under the
Securities Act of 1933 and amendment under the Investment Company Act of 1940.
Very truly yours,
/s/ John C. Donlon, Jr.
John C. Donlon, Jr.
Assistant Vice President and Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this initial Registration Statement of Separate Account
VA-K Allmerica Advantage Variable Annuity and ExecAnnuity Plus Variable
Annuity of First Allmerica Financial Life Insurance Company on Form N-4 of
our report dated February 2, 1999, except for paragraph 2 of Note 18 and Note
20, which are as of March 19, 1999 and April 1, 1999, respectively, relating
to the financial statements of First Allmerica Financial Life Insurance
Company, and our report dated March 26, 1999, relating to the financial
statements of Separate Account VA-K Allmerica Advantage Variable Annuity and
ExecAnnuity Plus Variable Annuity of First Allmerica Financial Life Insurance
Company, both of which appear in such Statement of Additional Information. We
also consent to the reference to us under the heading "Experts" in such
Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 29, 1999
