<PAGE>
File Number 33-71058
811-8116
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 3
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4
ALLMERICA SELECT SEPARATE ACCOUNT OF STATE MUTUAL LIFE ASSURANCE COMPANY
OF AMERICA
(Exact Name of Trust)
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
440 Lincoln Street
Worcester Massachusetts 01653
(508) 855-1000
(Registrant's telephone number including area code)
Richard J. Baker, Vice President and Secretary
State Mutual Life Assurance Company of America
440 Lincoln Street
Worcester MA 01653
(Name and complete address of agent for service)
It is proposed that this filing will become effective:
on pursuant to paragraph (a) of Rule 485
___ ______________
___60 days after filing pursuant to paragraph (a) of Rule 485
___immediately after filing pursuant to paragraph (b) of Rule 485
X on OCTOBER 16, 1995 pursuant to paragraph (b) of Rule 485
___ ______________________
VARIABLE ANNUITY CONTRACTS
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940,
Registrant hereby declares that an indefinite amount of its securities is being
registered under the Securities Act of 1933. The Rule 24f-2 Notice for the
issuer's fiscal year ended December 31, 1994 was filed on February 21, 1995.
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
- ----------------- ---------------------
1. . . . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . . . "Special Terms"
3. . . . . . . . . . . . . . "Summary"; "Annual and Transaction Expenses"
4. . . . . . . . . . . . . . Omitted
5. . . . . . . . . . . . . . "Description of State Mutual, the Separate
Account, the Trust, VIPF and T. Rowe"
6. . . . . . . . . . . . . . "Charges and Deductions:
7. . . . . . . . . . . . . . "Description of the Contract"
8. . . . . . . . . . . . . . Omitted
9. . . . . . . . . . . . . . "Payment on Death"
10 . . . . . . . . . . . . . "Purchase Payments"; "Computation of Contract
Values and Annuity Payments"
11 . . . . . . . . . . . . . "Surrender"; "Partial Redemption"
12 . . . . . . . . . . . . . "Federal Tax Considerations"
13 . . . . . . . . . . . . . "Legal Matters"
14 . . . . . . . . . . . . . "Table of Contents of the Statement of
Additional Information"
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- ----------------- ----------------------------------------------
15 . . . . . . . . . . . . . "Cover Page"
16 . . . . . . . . . . . . . "Table of Contents"
17 . . . . . . . . . . . . . "General Information and History"
18 . . . . . . . . . . . . . "Services"
19 . . . . . . . . . . . . . "Underwriters"
20 . . . . . . . . . . . . . "Underwriters"
21 . . . . . . . . . . . . . "Performance Information"
22 . . . . . . . . . . . . . "Annuity Payments"
23 . . . . . . . . . . . . . "Financial Statements"
<PAGE>
PROSPECTUS SUPPLEMENT
ALLMERICA SELECT
(Supplement to prospectus dated May 1, 1995)
Effective October 16, 1995, State Mutual Life Assurance Company of America
converted from a Massachusetts mutual life insurance company to a Massachusetts
stock life company, and concurrently changed its name to FIRST ALLMERICA
FINANCIAL LIFE INSURANCE COMPANY ("Company"). The Company is a wholly-owned
subisidary of Allmerica Financial Corporation, 440 Lincoln Street, Worcester,
Massachusetts, 01653. The attached prospectus is hereby amended to delete the
name "State Mutual Life Assurance Company of America" and to substitute FIRST
ALLMERICA FINANCIAL LIFE INSURANCE COMPANY.
* * *
The following information is added at the end of the section entitled
"PERFORMANCE INFORMATION" beginning on page 30 of the Prospectus.
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDING DECEMBER 31, 1994
(Since Inception Date* of the Subaccounts Investing in the Named Funds)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Assuming Assuming NO
NAME OF FUND Complete Redemption Redemption of the
of the investment Investment
- -------------------------------------------------------------------------------
<S> <C> <C>
Money Market -4.38% 2.05%
Select Aggressive Growth -6.39% 0.04%
Select Growth -3.15% 3.28%
Select Growth and Income -3.41% 3.03%
Select Income -7.05% -0.62%
Select Int'l. Equity -10.82% -4.39%
Select Capital Appreciation N/A N/A
VIPF High Income N/A N/A
VIPF Equity-Income N/A N/A
VIPF Growth N/A N/A
T. Rowe Int'l Stock N/A N/A
- -------------------------------------------------------------------------------
*The inception dates for the Sub-Accounts are as follows: Money Market 4/18/94;
Select Aggressive Growth, Select Growth - 4/22/94; Select Growth and Income,
Select Income -- 4/21/94; Select International. Equity -- 5/2/94. No performance
information is given for the Select Capital Appreciation, VIPF High Income, VIPF
Equity-Income, VIPF Growth, and T. Rowe International Stock funds because the
Sub-Accounts investing in these funds did not begin operations until May 1,
1995.
</TABLE>
* * *
The following is added to the first page of the Prospectus:
The Allmerica Select variable annuity contracts ("Contracts") are obligations of
First Allmerica Financial Life Insurance Company and are distributed by its
subsidiary, Allmerica Investments, Inc. The Contracts are NOT deposits or
obligations of, or guaranteed or endorsed by, any bank or credit union. The
Contracts are NOT insured by the U.S. Government, the Federal Insurance Deposit
Corporation (FDIC), or any other federal agency. Investments in the Contracts
are subject to various risks, including the fluctuation of value and possible
loss of principal.
SUPPLEMENT DATED OCTOBER 16, 1995
<PAGE>
GROUP VARIABLE ANNUITY CONTRACTS
FUNDED THROUGH
ALLMERICA SELECT SEPARATE ACCOUNT
This Prospectus describes group variable annuity contracts including
certificates issued thereunder ("Contracts") offered by State Mutual Life
Assurance Company of America ("State Mutual"). The Contracts are funded through
State Mutual's Allmerica Select Separate Account, which invests in shares of
Allmerica Investment Trust ("Trust"), Variable Insurance Products Fund ("VIPF")
and T. Rowe Price International Series, Inc. ("T. Rowe"). The following
investment portfolios are available under the Contracts:
SELECT INTERNATIONAL EQUITY FUND
T. ROWE PRICE'S INTERNATIONAL STOCK PORTFOLIO
SELECT AGGRESSIVE GROWTH FUND
SELECT CAPITAL APPRECIATION FUND
SELECT GROWTH FUND
FIDELITY'S GROWTH PORTFOLIO
SELECT GROWTH AND INCOME FUND
FIDELITY'S EQUITY-INCOME PORTFOLIO
FIDELITY'S HIGH INCOME PORTFOLIO
SELECT INCOME FUND
MONEY MARKET FUND
The "SUMMARY" that follows provides basic information about the Contracts. More
detailed information can be found under the captions in the Prospectus. This
Prospectus generally describes only variable accumulation and variable annuity
features of the Contracts, except where fixed values or fixed annuity payments
are specifically mentioned.
Additional information is contained in a Statement of Additional Information
dated May 1, 1995 ("SAI"), filed with the Securities and Exchange Commission and
incorporated herein by reference. The Table of Contents of the SAI is on page
34 of this Prospectus. The SAI is available upon request and without charge
through Allmerica Investments, Inc., 440 Lincoln Street, Worcester,
Massachusetts 01653, 508-855-3590.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND AND T. ROWE PRICE
INTERNATIONAL SERIES, INC. FIDELITY'S HIGH INCOME PORTFOLIO INVESTS IN HIGHER
YIELDING, LOWER RATED DEBT SECURITIES (SEE "INVESTMENT OBJECTIVES AND POLICIES"
IN THIS PROSPECTUS). INVESTORS SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR
FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
May 1, 1995
<PAGE>
SUMMARY
WHAT IS THE ALLMERICA SELECT VARIABLE ANNUITY?
The Allmerica Select variable annuity contract ("Contract") is designed to help
you accumulate assets for your retirement or other important financial goals on
a tax-deferred basis. The Contract combines the concept of professional money
management with the attributes of an annuity contract. Features available
through the Contract include:
- A customized investment portfolio
- Experienced professional investment advisers
- Tax deferral on earnings
- Guarantees that can protect your family during the accumulation phase
- Income that can be guaranteed for life
The Contract has two phases, an accumulation phase and an annuity phase. During
the accumulation phase, your initial purchase payment and any additional
purchase payments you choose to make are allocated to the combination of
portfolios of securities ("Funds") you have selected under your Contract. Your
Contract's accumulated value is based on the investment performance of the
Funds. No income taxes are paid on any earnings under the Contract unless and
until accumulated values are withdrawn.
During the annuity phase, the Annuitant can receive income based on several
annuity plans. These plans include payment over a period of years or for the
rest of the Annuitant's life.
THE ACCUMULATION PHASE
During the accumulation phase, you select the Funds most appropriate for your
investment needs. Each Fund is professionally advised by an investment adviser
with experience managing the types of investments in the Fund. All investment
gains or losses will be reflected in the accumulated value under your Contract.
The accumulation phase provides certain protection and guarantees for the
beneficiary if the Annuitant should die before the annuity phase begins. See
discussion below under "What happens upon death during the accumulation phase?"
THE ANNUITY PHASE
You choose the annuity plan and the date for the annuity phase to begin.
Annuity payments may be on a variable basis (dependent upon the performance of
the Funds) or on a fixed basis (with payment amounts guaranteed). Among the
income options available during the annuity phase are:
- Lump sum
- At regular intervals over a specified number of years; or
- At regular intervals for the rest of the Annuitant's life, regardless
of how long he or she lives.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you and us - State Mutual Life Assurance Company of
America ("State Mutual"). Each Contract has a Contract Owner, an Annuitant and
a beneficiary. As Contract Owner, you make purchase payments, choose investment
allocations and select the Annuitant and beneficiary. The Annuitant is the
individual to receive annuity payments under the Contract. The beneficiary is
the person who receives any payment on death of the Contract Owner or Annuitant.
CAN I EXAMINE THE CONTRACT?
Yes. Your Contract will be delivered to you after your purchase. If you return
the Contract to State Mutual during the first 10 days from the date you received
it, the Contract will be cancelled. You will incur no fees to cancel and will
be entitled to the greater of (1) your entire purchase payment, or (2) the
accumulated value of the Contract plus any amounts deducted under the Contract
or by the Funds for taxes, charges or fees. See "RIGHT TO REVOKE CONTRACT."
-2-
<PAGE>
WHAT ARE MY INVESTMENT CHOICES?
You have a choice of eleven Funds:
- Select International Equity Fund
Managed by Bank of Ireland Asset Management Limited
- T. Rowe Price's International Stock Portfolio
Managed by Rowe Price-Fleming International, Inc.
- Select Aggressive Growth Fund
Managed by Nicholas-Applegate Capital Management
- Select Capital Appreciation Fund
Managed by Janus Capital Corporation
- Select Growth Fund
Managed by United Asset Management Corporation
- Fidelity's Growth Portfolio
Managed by Fidelity Management & Research Company
- Select Growth and Income Fund
Managed by John A. Levin & Co., Inc.
- Fidelity's Equity-Income Portfolio
Managed by Fidelity Management & Research Company
- Fidelity's High Income Portfolio
Managed by Fidelity Management & Research Company
- Select Income Fund
Managed by Standish, Ayer & Wood, Inc.
- Money Market Fund
Managed by Allmerica Asset Management, Inc.
This range of investment choices enables you to allocate your money among the
Funds to meet your particular investment needs. Because of your free-look right
under the Contract (see "RIGHT TO REVOKE CONTRACT"), for the first 14 days
following the date of issue, all Fund investments will be allocated to the Money
Market Fund. Thereafter, all amounts will be allocated according to your
investment choices. For a more detailed description of the Funds, see
"ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND AND T. ROWE PRICE
INTERNATIONAL SERIES, INC." and "INVESTMENT OBJECTIVES AND POLICIES."
State Mutual also offers a guaranteed account ("Fixed Account"). The Fixed
Account is part of the General Account of State Mutual and provides guarantees
of principal and a fixed interest rate. See APPENDIX A, "MORE INFORMATION ABOUT
THE FIXED ACCOUNT."
WHO ARE THE INVESTMENT ADVISERS AND HOW ARE THEY SELECTED?
Allmerica Investment Management Company, Inc. ("Manager") is the investment
manager of Allmerica Investment Trust and handles the day-to-day affairs of the
Trust. The Manager has entered into agreements with experienced investment
advisers ("Sub-Advisers"), who will manage the investments of the Funds. The
Sub-Advisers for the Funds, except for the Money Market Fund, are independent
and have been selected by the Manager in consultation with Rogers Casey &
Associates, a leading pension consulting firm. Rogers Casey & Associates
provides consulting services to pension plans representing over $175 billion in
total assets and, in its consulting capacity, monitors the investment
performance of over 1,000 investment advisers. Each independent Sub-Adviser was
selected by the Manager on the basis of strict objective and qualitative
criteria, with special emphasis on the Sub-Adviser's record in managing similar
portfolios. For the Money Market Fund, the Sub-Adviser is Allmerica Asset
Management, Inc., an indirect wholly owned subsidiary of State Mutual. See
"INVESTMENT ADVISORY SERVICES TO THE TRUST."
Fidelity Management & Research Company ("Fidelity Management") is the investment
manager of VIPF. Fidelity Management, a registered investment adviser under the
Investment Advisers Act of 1940, is one of America's largest investment
management organizations and has its principal business address at 82 Devonshire
Street, Boston MA. It is composed of a number of different companies, which
provide a variety of financial services and products. Fidelity Management is
the original Fidelity company, founded in 1946.
-3-
<PAGE>
It provides a number of mutual funds and other clients with investment research
and portfolio management services.
Rowe Price-Fleming International, Inc. ("Price-Fleming") is the investment
manager of T. Rowe. Price-Fleming, founded in 1979 as a joint venture between
T. Rowe Price Associates, Inc. and Robert Fleming Holdings, Limited, is one of
America's largest international mutual fund asset managers with approximately $9
billion under management in its offices in Baltimore, London, Tokyo and Hong
Kong.
CAN I MAKE TRANSFERS AMONG THE FUNDS?
Yes. You may transfer among the Funds, subject to certain limits. You will
incur no current taxes on transfers while your money remains in the Contract.
See "TRANSFER PRIVILEGE."
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of your purchase payments are flexible, subject to the
minimum and maximum purchase payments stated in "PURCHASE PAYMENTS."
WHAT IF I NEED MY MONEY BEFORE MY ANNUITY PHASE BEGINS?
You may surrender your Contract or make partial withdrawals any time before your
annuity phase begins, subject to the restrictions discussed in "SURRENDER" and
"PARTIAL REDEMPTION." Certain charges may apply, see "CHARGES AND DEDUCTIONS,"
and there may be a tax-penalty assessed under the Internal Revenue Code. See
"FEDERAL TAX CONSEQUENCES."
WHAT HAPPENS UPON DEATH DURING MY ACCUMULATION PHASE?
If the Annuitant dies during the accumulation phase and the Contract is not
continued (see "THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY"), the
beneficiary will receive the greatest of:
- Your total purchase payments under the Contract less any withdrawals
you may have made;
- The then current value of your Contract; or
- The amount that would have been payable on death of the Annuitant at
the most recent fifth Contract anniversary, adjusted to reflect new
purchase payments or withdrawals since that date.
If the Contract Owner dies before the Annuitant, the beneficiary will receive
the accumulated value of the Contract. See "PAYMENT ON DEATH."
WHAT ARE MY ANNUITY OPTIONS UNDER THE CONTRACT?
You may choose variable annuity payments based on the investment performance of
certain Funds, fixed-amount annuity payments, or a combination of fixed-amount
and variable annuity payments. Fixed-amount payments are guaranteed by State
Mutual. See "DESCRIPTION OF THE CONTRACT" for information about annuity payment
options, selecting the Annuity Date, and how annuity payments are calculated.
WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
At each Contract anniversary and upon surrender, State Mutual will deduct a $30
Contract Fee from your Contract. State Mutual reserves the right to waive the
Contract Fee for Contracts issued to a Trustee of a 401(k) plan or qualifying
under Section 403(b) of the Internal Revenue Code.
Should you decide to surrender your Contract, make partial withdrawals, or
receive payments under certain annuity options, you may be subject to a
contingent deferred sales charge. This charge will be between 1% and 6.5% of
purchase payments withdrawn, based on when the purchase payments were made.
A deduction for state and local premium taxes, if any, may be made as described
under "PREMIUM TAXES."
Currently, the first twelve transfers you make in a Contract year among Fund or
Fixed Account allocations will be free. There will be a charge of $25 for
additional transfers. State Mutual may limit the number of free transfers and
the number of total transfers in a Contract year to six.
State Mutual will deduct a daily Mortality and Expense Risk Charge and
Administrative Expense Charge equal to 1.25% and 0.15%, respectively, of the
average daily net assets invested in each Fund.
The Funds will incur certain management fees and expenses which are more fully
described in "OTHER CHARGES" and in the prospectus of the Funds, which
accompanies this Prospectus.
-4-
<PAGE>
For more information, see "CHARGES AND DEDUCTIONS."
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
There are several changes you can make after receiving your Contract:
- You may assign your ownership to someone else, except under certain
qualified plans.
- You may change the beneficiary, unless you have designated a
beneficiary irrevocably.
- You may change the allocation of purchase payments, with no tax
consequences under current law.
- You may make transfers of Contract value among your current
investments, subject to then current rules.
- You may cancel your Contract within 10 days of delivery, as discussed
above.
- You may select the form and timing of annuity payments.
-5-
<PAGE>
TABLE OF CONTENTS
SPECIAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
ANNUAL AND TRANSACTION EXPENSES. . . . . . . . . . . . . . . . . . . . 9
RIGHT TO REVOKE CONTRACT . . . . . . . . . . . . . . . . . . . . . . . 11
DESCRIPTION OF STATE MUTUAL, THE SEPARATE ACCOUNT, THE TRUST,
VIPF AND T. ROWE . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
STATE MUTUAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ALLMERICA SELECT SEPARATE ACCOUNT. . . . . . . . . . . . . . . . . . 12
THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
VIPF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
T. ROWE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . 13
INVESTMENT ADVISORY SERVICES TO THE TRUST. . . . . . . . . . . . . . 14
INVESTMENT ADVISORY SERVICES TO VIPF . . . . . . . . . . . . . . . . 15
INVESTMENT ADVISORY SERVICES TO T. ROWE. . . . . . . . . . . . . . . 15
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . 15
CONTINGENT DEFERRED SALES CHARGE . . . . . . . . . . . . . . . . . . 15
CONTRACT FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ANNUAL CHARGES AGAINST SEPARATE ACCOUNT. . . . . . . . . . . . . . . 17
TRANSFER CHARGE. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PREMIUM TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
OTHER CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
DESCRIPTION OF THE CONTRACT. . . . . . . . . . . . . . . . . . . . . 18
PURCHASE PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . 18
TRANSFER PRIVILEGE . . . . . . . . . . . . . . . . . . . . . . . . . 19
SURRENDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PARTIAL REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . 20
LIFE EXPECTANCY DISTRIBUTION . . . . . . . . . . . . . . . . . . . . 21
PAYMENT ON DEATH . . . . . . . . . . . . . . . . . . . . . . . . . . 21
THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY. . . . . . . . . . . 22
ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE. . . . . . . . . . 22
DESCRIPTION OF VARIABLE ANNUITY OPTIONS. . . . . . . . . . . . . . . 23
COMPUTATION OF CONTRACT VALUES AND ANNUITY PAYMENTS. . . . . . . . . 24
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . 25
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 30
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT . . . . . . . . . . . . . 31
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS. . . . . . . . . . . 31
FURTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 32
-6-
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION . . . . . 33
APPENDIX A - MORE INFORMATION ABOUT THE FIXED ACCOUNT. . . . . . . . . 34
APPENDIX B - EXCHANGE OFFER. . . . . . . . . . . . . . . . . . . . . . 35
-7-
<PAGE>
SPECIAL TERMS
CONTRACT OWNER: the person who may exercise all rights under the Contract,
subject to the consent of any irrevocable beneficiary. "You" in this Prospectus
refers to the Contract Owner. After the Annuity Date, the Annuitant will be the
Contract Owner.
ANNUITANT: the individual (1) to receive annuity payments under your Contract,
(2) on whose life the continuation of annuity payments may depend, and (3) on
whose death prior to the Annuity Date the beneficiary may receive payment.
FUNDS: the following investment portfolios of Allmerica Investment Trust: the
Select International Equity Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Growth Fund, Select Growth and Income Fund, Select
Income Fund and Money Market Fund; the following investment portfolios of
Variable Insurance Products Fund: Growth Portfolio, Equity-Income Portfolio and
High Income Portfolio; and the International Stock Portfolio of T. Rowe Price
International Series, Inc. State Mutual may designate additional eligible
mutual fund investments as Funds.
SEPARATE ACCOUNT: Allmerica Select Separate Account, a separate investment
account of State Mutual.
SUB-ACCOUNT: a subdivision of the Separate Account investing exclusively in the
shares of a given Fund.
GENERAL ACCOUNT: all the assets of State Mutual other than those held in a
separate investment account.
ACCUMULATED VALUE: the total value of your Contract, including your interest in
the Separate Account and in the Fixed Account, before annuity payments begin.
SURRENDER VALUE: the Accumulated Value of the Contract minus the Contract Fee
and any applicable contingent deferred sales charge.
ACCUMULATION UNIT: a measure of your interest in a Sub-Account before annuity
payments begin.
ANNUITY UNIT: a measure of the value of variable annuity payments under the
Contract.
ANNUITY DATE: the date on which annuity payments are to start.
VARIABLE ANNUITY: an annuity providing for payments that vary in amount with
the investment experience of certain Funds.
FIXED ANNUITY: an annuity providing for annuity payments that remain fixed in
amount.
VALUATION DATE: any day on which the net asset value of the shares of any Funds
and Accumulation Unit and Annuity Unit values of any Sub-Accounts are
determined. Valuation Dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no purchase payment, partial withdrawal, or surrender of a Contract
was received) when there is a sufficient degree of trading in a Fund's portfolio
securities such that the current net asset value of the Sub-Accounts may be
materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
-8-
<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The following tables show charges under your Contract, expenses of the Sub-
Accounts, and expenses of the Funds. In addition to the charges and expenses
described below, premium taxes are applicable in some states and deducted as
described under "PREMIUM TAXES."
CONTRACT CHARGES YEARS FROM
DATE OF PAYMENT CHARGE
--------------- ------
- -Contingent Deferred Sales Charge:
This charge may be assessed upon 0-1 6.5%
surrender, redemption or, in some 2 6.0%
cases, annuitization under a period 3 5.0%
certain option. The charge is a 4 4.0%
percentage of purchase payments 5 3.0%
applied to the amount surrendered 6 2.0%
(in excess of any amount that is free 7 1.0%
of charge) within the indicated time
periods.
- -Transfer Charge:
This charge is currently imposed for $25
transfers in excess of twelve transfers in a
Contract year. (State Mutual may limit the
number of free transfers in a Contract year
to six.)
- -Contract Fee:
The Fee is deducted annually and upon $30
surrender, prior to the annuity date.
SUB-ACCOUNT EXPENSES
(on annual basis as percentage of average daily
net assets)
- -Mortality and Expense Risk Charge: 1.25%
- -Administrative Expense Charge: 0.15%
-------
Total Asset Charge: 1.40%
FUND EXPENSES
(on annual basis as percentage of average daily
net assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER FUND TOTAL FUND
FUND FEE EXPENSES EXPENSES
- ---- ---------- ---------- ----------
<S> <C> <C> <C>
Select International Equity Fund..... 0.72% 0.78% 1.50%*
T. Rowe's International Stock
Portfolio............................ 1.05% 0.00% 1.05%#
Select Aggressive Growth Fund........ 1.00% 0.16% 1.16%*
Select Capital Appreciation Fund..... 1.00% 0.35% 1.35%*
Select Growth Fund................... 0.85% 0.18% 1.03%*
Fidelity's Growth Fund............... 0.62% 0.07% 0.69%+
Select Growth and Income Fund........ 0.75% 0.16% 0.91%*
Fidelity's Equity-Income Portfolio... 0.52% 0.06% 0.58%+
Fidelity's High Income Portfolio..... 0.61% 0.10% 0.71%+
Select Income Fund................... 0.58% 0.25% 0.83%*
Money Market Fund.................... 0.31% 0.14% 0.45%*
<FN>
*Under the Management Agreement with Allmerica Investment Trust, Allmerica
Investment Management Company, Inc. ("Manager") has declared a voluntary expense
limitation of 1.50% of average net assets for the Select International Equity
Fund, 1.35% for the Select Aggressive Growth Fund, 1.20% for the Select Growth
Fund, 1.10% for the Select Growth and Income Fund, 1.00% for the Select Income
Fund, and 0.60% for the Money Market Fund. Without the effect of the expense
limitation, in 1994 the total operation expenses of the Select International
Equity Fund and Select Income Fund would have been 1.78% and 0.85%,
respectively, of average net assets. The declaration of a voluntary expense
limitation in any year does not bind the Manager to declare future expense
limitations for any Fund.
+A portion of the brokerage commissions the Portfolio paid was used to reduce
the expenses. Without this reduction, total operating expenses would have been
0.60% for the Equity-Income Portfolio and 0.70% for the Growth Portfolio.
-9-
<PAGE>
#Price-Fleming has voluntarily agreed to limit the total operating expenses
(except interest, taxes, brokerage commissions, directors' fees and expenses and
extraordinary expenses) of the International Stock Portfolio to 1.05% of its
average daily net assets.
</TABLE>
The following examples demonstrate the cumulative expenses which would be paid
by the Contract Owner at 1-year, 3-year, 5-year and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-
Account and a 5% annual return on assets, as required by rules of the Securities
and Exchange Commission. Because the expenses of the Funds differ, separate
examples are used to illustrate the expenses incurred by a Contract Owner on an
investment in the various Sub-Accounts.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
(a) If, at the end of the applicable period, you surrender your Contract or
annuitize* under a variable period certain option of less than ten years or any
fixed period certain option, you would pay the following expenses on a $1,000
investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Select International Equity Fund......... $89 $137 $183 $329
T. Rowe's International Stock Portfolio.. $84 $124 $161 $286
Select Aggressive Growth Fund............ $85 $127 $167 $297
Select Capital Appreciation Fund......... $87 $133 $176 $315
Select Growth Fund....................... $84 $123 $160 $284
Fidelity's Growth Fund................... $81 $113 $144 $250
Select Growth and Income Fund............ $83 $120 $154 $272
Fidelity's Equity-Income Portfolio....... $80 $110 $138 $239
Fidelity's High Income Portfolio......... $81 $114 $145 $252
Select Income Fund....................... $82 $117 $151 $265
Money Market Fund........................ $78 $106 $131 $226
</TABLE>
(b) If, at the end of the applicable time period, you annuitize* under a life
option or a variable period certain option of ten years or longer, or if you do
not surrender or annuitize your Contract, you would pay the following expenses
on a $1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Select International Equity Fund......... $30 $92 $157 $329
T. Rowe's International Stock Portfolio.. $26 $79 $135 $286
Select Aggressive Growth Fund............ $27 $82 $140 $297
Select Capital Appreciation Fund......... $29 $88 $149 $315
Select Growth Fund....................... $26 $78 $134 $284
Fidelity's Growth Fund................... $22 $68 $117 $250
Select Growth and Income Fund............ $24 $75 $128 $272
Fidelity's Equity-Income Portfolio....... $21 $65 $111 $239
Fidelity's High Income Portfolio......... $22 $69 $118 $252
Select Income Fund....................... $24 $72 $124 $265
Money Market Fund........................ $20 $61 $105 $226
</TABLE>
- -----------------------------
As required in rules promulgated under the 1940 Act, the Contract Fee is
reflected in the examples by a method to show the "average" impact on an
investment in the Separate Account. The total Contract Fees collected are
divided by the total average net assets attributable to the Contracts. The
resulting percentage is 0.075%, and the amount of the Contract Fee is
assumed to be $.75 in the examples.
* The Contract Fee is not deducted after annuitization. No contingent
deferred sales charge is assessed at the time of annuitization under an
option including a life contingency or under a variable period certain
option of ten years or longer.
-10-
<PAGE>
CONDENSED FINANCIAL INFORMATION
State Mutual Life Assurance Company
Allmerica Select Separate Account
<TABLE>
<CAPTION>
1994
----
<S> <C>
Select Aggressive Growth
Net Asset Value:
Beginning of Period 1.000
End of Period 1.000
Number of Units Outstanding at End 958
Select Growth
Net Asset Value:
Beginning of Period 1.000
End of Period 1.032
Number of Units Outstanding at End 756
Select Growth & Income
Net Asset Value:
Beginning of Period 1.000
End of Period 1.030
Number of Units Outstanding at End 1,724
Select Income
Net Asset Value:
Beginning of Period 1.000
End of Period 0.993
Number of Units Outstanding at End 1,916
Money Market
Net Asset Value:
Beginning of Period 1.000
End of Period 1.020
Number of Units Outstanding at End 2,085
Select International Equity
Net Asset Value:
Beginning of Period 1.000
End of Period 0.956
Number of Units Outstanding at End 695
</TABLE>
RIGHT TO REVOKE CONTRACT
The Contract may be revoked at any time between the date of the application and
the date 10 days after receipt of the Contract. In order to revoke the
Contract, the Contract Owner must mail or deliver the Contract (if it has
already been received), to the principal office of State Mutual at 440 Lincoln
Street, Worcester, Massachusetts 01653, or to a State Mutual agent. Mailing or
delivery must occur on or before 10 days after receipt of the Contract for
revocation to be effective.
-11-
<PAGE>
Within seven days, State Mutual will return the greater of (1) the entire
purchase payment, or (2) the Accumulated Value plus any amounts deducted under
the Contract or by the Trust, VIPF or T. Rowe for taxes, charges or fees.
The liability of the Separate Account under this provision is limited to the
Contract Owner's Accumulated Value in the Separate Account on the date of
cancellation. Any additional amounts refunded to the Contract Owner will be
paid by State Mutual.
The refund of any purchase payment made by check may be delayed until the check
has cleared the Contract Owner's bank.
DESCRIPTION OF STATE MUTUAL, THE SEPARATE ACCOUNT,
THE TRUST, VIPF AND T. ROWE
STATE MUTUAL. State Mutual Life Assurance Company of America ("State Mutual"),
organized under the laws of Massachusetts in 1844, is the fifth oldest life
insurance company in America. As of December 31, 1994, State Mutual and its
subsidiaries had over $10 billion in combined assets and over $42 billion of
life insurance in force.
State Mutual's principal office is located at 440 Lincoln Street, Worcester,
Massachusetts 01653, Telephone 508-855-1000 ("Principal Office"). State Mutual
is subject to the laws of the Commonwealth of Massachusetts governing insurance
companies, to regulation by the Commissioner of Insurance of Massachusetts and
to the insurance laws and regulations of other states and jurisdictions in which
it is licensed to operate.
ALLMERICA SELECT SEPARATE ACCOUNT. Allmerica Select Separate Account ("Separate
Account") is a separate investment account of State Mutual with eleven Sub-
Accounts. The assets used to fund the variable portions of the Contracts are
set aside in Sub-Accounts kept separate from the general assets of State Mutual.
Each Sub-Account is administered and accounted for as part of the general
business of State Mutual. However, the income, capital gains, or capital losses
of each Sub-Account are allocated to each Sub-Account, without regard to any
other income, capital gains, or capital losses of State Mutual. Under
Massachusetts law, the assets of the Separate Account may not be charged with
any liabilities arising out of any other business of State Mutual.
The Separate Account was authorized pursuant to a vote of the Board of Directors
of State Mutual on August 20, 1991. The Separate Account meets the definition
of "separate account" under federal securities laws and is registered with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act"). This registration does not involve
the supervision of management or investment practices or policies of the
Separate Account or State Mutual by the SEC.
State Mutual reserves the right, subject to compliance with applicable law, to
change the names of the Separate Account and the Sub-Accounts.
THE TRUST. The Trust is an open-end, diversified management investment company
registered with the SEC under the 1940 Act. This registration does not involve
supervision by the SEC of the investments or investment policy of the Trust or
its separate investment Funds.
The Trust under its former name, SMA Investment Trust, was established by State
Mutual as a Massachusetts business trust on October 11, 1984, for the purpose of
providing a vehicle for the investment of assets of various separate accounts
established by State Mutual or other affiliated insurance companies. Shares of
the Trust are not offered to the general public but solely to such separate
accounts. Seven different investment portfolios of the Trust are available
under the Contracts, each issuing a series of shares: the Select International
Equity Fund, Select Aggressive Growth Fund, Select Capital Appreciation Fund,
Select Growth Fund, Select Growth and Income Fund, Select Income Fund and Money
Market Fund ("Funds"). The assets of each Fund are held separate from the
assets of the other Funds. Each Fund operates as a separate investment vehicle
and the income or losses of one Fund have no effect on the investment
performance of another Fund. Dividends or capital gains distributions received
from a Fund are reinvested in additional shares of that Fund, which are retained
as assets of the corresponding Sub-Account.
Allmerica Investment Management Company, Inc. ("Manager") serves as investment
manager of the Trust. The Manager has entered into sub-advisory agreements with
other investment managers ("Sub-Advisers"), who manage the investments of the
Funds. See "INVESTMENT ADVISORY SERVICES TO THE TRUST."
VIPF. VIPF, managed by Fidelity Management & Research Company ("Fidelity
Management"), is an open-end, diversified, management investment company
organized as a Massachusetts business trust on November 13, 1981 and registered
with the Commission under the 1940 Act. Three of its investment
-12-
<PAGE>
portfolios are available under the Contracts: Growth Portfolio, Equity-Income
Portfolio and High Income Portfolio.
T. ROWE. T. Rowe, managed by Rowe Price-Fleming International, Inc. ("Price-
Fleming"), is an open-end, diversified, management investment company organized
as a Maryland corporation in 1994 and registered with the Commission under the
1940 Act. One of its investment portfolios is available under the Contracts:
the International Stock Portfolio.
INVESTMENT OBJECTIVES AND POLICIES. A summary of investment objectives of each
of the Funds is set forth below. MORE DETAILED INFORMATION REGARDING THE
INVESTMENT OBJECTIVES, RESTRICTIONS AND RISKS, EXPENSES PAID BY THE FUNDS, AND
OTHER RELEVANT INFORMATION REGARDING THE FUNDS MAY BE FOUND IN THE PROSPECTUSES
OF THE TRUST, VIPF AND T. ROWE WHICH ACCOMPANY THIS PROSPECTUS AND SHOULD BE
READ CAREFULLY BEFORE INVESTING. Also, the Statements of Additional Information
of the Funds are available upon request. There can be no assurance that the
investment objectives of the Funds can be achieved or that the value of a
Contract will equal or exceed the aggregate amount of the purchase payments made
under the Contract.
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. The Sub-Adviser for the Select International Equity Fund is
Bank of Ireland Asset Management Limited.
T. ROWE PRICE'S 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 seeks above-average capital appreciation by
investing primarily in common stocks of companies that are believed to have
significant potential for capital appreciation. The Sub-Adviser for the Select
Aggressive Growth Fund is Nicholas-Applegate Capital Management.
SELECT CAPITAL APPRECIATION FUND seeks long-term growth of capital in a manner
consistent with the preservation of capital. Realization of income is not a
significant investment consideration and any income realized on the Fund's
investments will be incidental to its primary objective. The Fund will invest
primarily in common stock of industries and companies which are experiencing
favorable demand for their products and services, and which operate in a
favorable competitive environment and regulatory climate. The Sub-Adviser for
the Select Capital Appreciation Fund is Janus Capital Corporation.
SELECT GROWTH FUND seeks to achieve growth of capital by investing in a
diversified portfolio consisting primarily of common stocks selected for their
long-term growth potential. The Sub-Adviser for the Select Growth Fund is
United Asset Management Corporation.
FIDELITY'S GROWTH PORTFOLIO 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 may also be found
in other types of securities, including bonds and preferred stocks.
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. The Sub-Adviser for the
Select Growth and Income Fund is John A. Levin & Co., Inc.
FIDELITY'S EQUITY-INCOME PORTFOLIO seeks reasonable income by investing
primarily in income-producing equity securities. In choosing these securities,
the Portfolio will also 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 Standard & Poor's 500 Composite Stock Price Index.
The Portfolio may invest in high yielding, lower-rated securities (commonly
referred to as "junk bonds") which are subject to greater risk than investments
in higher-rated securities. For a further discussion of
lower-rated securities, please see "Risks of Lower-Rated Debt Securities" in the
VIPF prospectus.
FIDELITY'S HIGH INCOME PORTFOLIO 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 are often considered to be speculative and involve
greater risk of default or price changes than securities assigned a high quality
rating. For more information about these lower-rated securities, see "Risks of
Lower-Rated Debt Securities" in the VIPF prospectus.
SELECT INCOME FUND seeks a high level of current income. The FUND will invest
primarily in investment grade, fixed-income securities. The Sub-Adviser for the
Select Income Fund is Standish, Ayer & Wood, Inc.
MONEY MARKET FUND seeks to obtain maximum current income consistent with the
preservation of capital and liquidity. Allmerica Asset Management, Inc. is the
Sub-Adviser of the Money Market Fund.
-13-
<PAGE>
If there is a material change in the investment policy of a Fund, the Contract
Owner will be notified of the change. No material changes in the investment
policy of the Separate Account or any Sub-Accounts will be made without approval
pursuant to the applicable state insurance laws. If the Contract Owner has
Accumulated Value allocated to that Fund, he or she may have the Accumulated
Value reallocated without charge to another Fund or to the Fixed Account, where
available, on written request received by State Mutual within sixty (60) days of
the later of (1) the effective date of such change in the investment policy or
(2) the receipt of the notice of the Contract Owner's right to transfer.
INVESTMENT ADVISORY SERVICES TO THE TRUST. The overall responsibility for the
supervision of the affairs of the Trust vests in the Trustees. The Trustees
have entered into a Management Agreement with Allmerica Investment Management
Company, Inc. ("Manager"), an indirectly wholly-owned subsidiary of State
Mutual, to handle the day-to-day affairs of the Trust. The Manager, subject to
review by the Trustees, is responsible for the general management of the Funds.
The Manager is also obligated to perform certain administrative and management
services for the Trust, furnishes to the Trust all necessary office space,
facilities and equipment, and pays the compensation, if any, of officers and
Trustees who are affiliated with the Manager.
Other than the expenses specifically assumed by the Manager under the Management
Agreement, all expenses incurred in the operation of the Trust are borne by it,
including fees and expenses associated with the registration and qualification
of the Trust's shares under the Securities Act of 1933, other fees payable to
the SEC, independent public accountant, legal and custodian fees, association
membership dues, taxes, interest, insurance premiums, brokerage commission, fees
and expenses of the Trustees who are not affiliated with the Manager, expenses
for proxies, prospectuses, reports to shareholders and other expenses.
Pursuant to the Management Agreement with the Trust, the Manager has entered
into agreements ("Sub-Adviser Agreements") with other investment advisers ("Sub-
Advisers") under which each Sub-Adviser manages the investments of one or more
of the Funds. Under the Sub-Adviser Agreement, the Sub-Adviser is authorized to
engage in portfolio transactions on behalf of the applicable Fund, subject to
such general or specific instructions as may be given by the Trustees. The
terms of a Sub-Adviser Agreement cannot be materially changed without the
approval of a majority in interest of the shareholders of the affected Fund.
Allmerica Asset Management, Inc., an indirect wholly owned subsidiary of State
Mutual, is the Sub-Adviser for the Money Market Fund. For the Select
International Equity Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Growth Fund, Select Growth and Income Fund and Select
Income Fund, the Sub-Advisers are independent and have been selected by the
Manager in consultation with Rogers Casey & Associates, a leading pension
consulting firm. The cost of such consultation is borne by the Manager. Rogers
Casey & Associates provides consulting services to pension plans representing
over $175 billion in total assets and, in its consulting capacity, monitors the
investment performance of over 1,000 investment advisers. Each independent Sub-
Adviser was selected by the Manager on the basis of strict objective and
qualitative criteria, with special emphasis on the Sub-Adviser's record in
managing similar portfolios. On-going performance of the independent Sub-
Advisers is monitored and evaluated by a committee which includes members who
may be affiliated or unaffiliated with State Mutual.
For providing its services under the Management Agreement, the Manager will
receive a fee, computed daily at an annual rate based on the average daily net
asset value of each Fund as follows: 1.00% for the Select International Equity
Fund, Select Capital Appreciation Fund and Select Aggressive Growth Fund, 0.85%
for the Select Growth Fund, 0.75% for the Select Growth and Income Fund, and
0.60% for the Select Income Fund. For the Money Market Fund, the fee will be
0.35% on net asset value up to $50,000,000; 0.25% on the next $200,000,000; and
0.20% on the remainder. The fee computed for each Fund will be paid from the
assets of such Fund.
The Manager is solely responsible for the payment of all fees for investment
management services to the Sub-Advisers, who will receive from the Manager a
fee, computed daily at an annual rate based on the average daily net asset value
of each Fund as follows:
<TABLE>
<CAPTION>
Sub-Adviser Fund Net Asset Value Rate
----------- ---- --------------- ----
<S> <C> <C> <C>
Bank of Ireland Asset Management Select International Equity First $50 million 0.45%
Limited Next $50 million 0.40%
Over $100 million 0.30%
Janus Capital Corporation Select Capital Appreciation First $100 million 0.60%
Over $100 million 0.55%
Nicholas-Applegate Capital Management Select Aggressive Growth * 0.60%
</TABLE>
-14-
<PAGE>
<TABLE>
<S> <C> <C> <C>
United Asset Management Corporation Select Growth First $50 million 0.50%
$50-150 million 0.45%
$150-250 million 0.35%
$250-350 million 0.30%
Over $350 million 0.25%
John A. Levin & Co., Inc. Select Growth and Income First $100 million 0.40%
Next $200 million 0.25%
Over $300 million 0.30%
Standish, Ayer & Wood, Inc. Select Income * 0.20%
Allmerica Asset Management, Inc. Money Market * 0.10%
- --------------
<FN>
* For the Select Aggressive Growth Fund, Select Income Fund and Money Market
Fund, each rate does not vary according to the level of assets in the Fund.
</TABLE>
INVESTMENT ADVISORY SERVICES TO VIPF. For managing investments and business
affairs, each Portfolio pays a monthly fee to Fidelity Management. The
Prospectus of VIPF contains additional information concerning the Portfolios,
including information concerning additional expenses paid by the Portfolios, and
should be read in conjunction with this Prospectus.
The High Income Portfolio pays a monthly fee to Fidelity Management at an annual
fee rate made up of the sum of two components:
1. A group fee rate based on the monthly average net assets of all the mutual
funds advised by Fidelity Management. On an annual basis this rate cannot
rise above 0.37%, and drops as total assets in all these funds rise.
2. An individual fund fee rate of 0.45% of the High Income Portfolio's average
net assets throughout the month. One-twelfth of the annual management fee
rate is applied to net assets averaged over the most recent month,
resulting in a dollar amount which is the management fee for that month.
The Growth and Equity-Income Portfolios' fee rates are each made of two
components:
1. A group fee rate based on the monthly average net assets of all of the
mutual funds advised by Fidelity Management. On an annual basis, this rate
cannot rise above 0.52%, and drops as total assets in all these mutual
funds rise.
2. An individual Portfolio fee rate of 0.30% for the Growth Portfolio and
0.20% for the Equity-Income Portfolio.
One-twelfth of the sum of these two rates is applied to the respective
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month.
Thus, the High Income Portfolio may have a fee as high as 0.82%. The Growth
Portfolio may have a fee of as high as 0.82% of its average net assets. The
Equity-Income Portfolio may have a fee as high as 0.72% of its average net
assets.
INVESTMENT ADVISORY SERVICES TO T. ROWE. To cover investment management and
operating expenses, the International Stock Portfolio pays Price-Fleming a
single, all-inclusive fee of 1.05% of its average daily net assets.
CHARGES AND DEDUCTIONS
Deductions under the Contracts and charges against the assets of the Sub-
Accounts are described below. Other deductions and expenses paid out of the
assets of the Funds are described in the Prospectuses and Statements of
Additional Information of the Trust, VIPF and T. Rowe.
CONTINGENT DEFERRED SALES CHARGE. No charge for sales expenses is deducted from
purchase payments at the time the purchase payments are made. For surrenders,
partial redemptions, variable annuity payments under Option V for periods of
less than ten years or any fixed period certain option, a contingent deferred
sales charge may be deducted from the Accumulated Value of the Contract.
However, the charge does not apply to (1) purchase payments redeemed more than
seven years from the date of receipt, (2) annuitization under an option
involving a life contingency (Options I, II, III, IV-A, IV-B or the
-15-
<PAGE>
comparable fixed annuity options) or under Option V for periods of ten years or
more, or (3) amounts discussed under "Withdrawal Without Charge," below.
For purposes of determining the contingent deferred sales charge, the Contract
value is divided into three categories: (1) New Purchase Payments - purchase
payments received by State Mutual during the seven years preceding the date of
the surrender; (2) Old Purchase Payments - purchase payments not defined as New
Purchase Payments; and (3) Earnings - the amount of Contract value in excess of
all purchase payments that have not been previously surrendered. For purposes
of determining the amount of any contingent deferred sales charge, surrenders
will be deemed to be taken first from Old Purchase Payments, then from New
Purchase Payments, and then from Earnings. Old Purchase Payments may be
withdrawn from the Contract at any time without the imposition of a contingent
deferred sales charge. If a withdrawal is attributable all or in part to New
Purchase Payments, a contingent deferred sales charge may apply.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the contingent
deferred sales charge is modified to effect an exchange of one Contract for
another Contract as provided in APPENDIX B, "EXCHANGE OFFER."
CHARGES FOR SURRENDER AND PARTIAL REDEMPTION. If a Contract is surrendered, or
if New Purchase Payments are redeemed, while the Contract is in force and before
the Annuity Date, a contingent deferred sales charge may be imposed. (For a
discussion of charges applicable on the Annuity Date, see "Charge at the Time
Annuity Payments Begin," below.) The charge does not apply to Old Purchase
Payments, nor to certain amounts discussed under "Withdrawal Without Charge,"
below. The amount of the charge will depend upon the number of years that the
New Purchase Payments, if any, to which the withdrawal is attributed have
remained credited under the Contract. Amounts withdrawn are deducted first from
Old Purchase Payments. Then, for the purpose of calculating surrender charges
for New Purchase Payments, all amounts withdrawn are assumed to be deducted
first from the earliest New Purchase Payment and then from the next earliest New
Purchase Payment and so on, until all New Purchase Payments have been exhausted
pursuant to the FIFO (first in, first out) method of accounting. Subsequent
withdrawals will be deducted from Earnings. (But see "TAXATION OF THE CONTRACTS
IN GENERAL" for a discussion of how withdrawals are treated for income tax
purposes. For tax purposes, certain partial redemptions will be deemed to come
first from earnings.)
The contingent deferred sales charge is applied as follows:
Years from date of Charge as Percentage
Purchase Payment to date of of New Purchase
Withdrawal Payments Withdrawn
----------------------------- ---------------------
0-1 6.5%
2 6.0%
3 5.0%
4 4.0%
5 3.0%
6 2.0%
7 1.0%
More than 7
The amount redeemed equals the amount requested by the Contract Owner plus the
charge, if any, which is applied against the amount requested. For example, if
the applicable charge is 6.5% and the Contract Owner has requested $200, the
Contract Owner will receive $200 and the charge will be $13 (assuming no
Withdrawal Without Charge, discussed below) for a total withdrawal of $213. The
charge is applied as a percentage of the New Purchase Payments redeemed, but in
no event will the total contingent deferred sales charge exceed a maximum limit
of 6.5% of total gross New Purchase Payments. Such total charge equals the
aggregate of all applicable contingent deferred sales charges for surrender,
partial redemptions, and annuitization.
WITHDRAWAL WITHOUT CHARGE. In each calendar year, State Mutual will waive the
contingent deferred sales charge, if any, on an amount equal to a percentage of
the Accumulated Value ("Withdrawal Without Charge"). The Withdrawal Without
Charge is equal to 10% of the Accumulated Value as of December 31 of the
previous calendar year ("Year-End Accumulated Value") or, if the Contract is in
its first calendar year, 10% of the total New Purchase Payments.
Old Purchase Payments will be included in calculating the Withdrawal Without
Charge. If more than one partial withdrawal is made during the year, on each
subsequent withdrawal State Mutual will waive the contingent deferred sales
charge, if any, until the entire Withdrawal Without Charge has been redeemed.
-16-
<PAGE>
In the event that a redemption of New Purchase Payments is made in excess of the
amount which may be redeemed free of charge, only the excess will be subject to
a contingent deferred sales charge.
If the Contract Owner and Annuitant are the same individual, State Mutual will
waive the contingent deferred sales charge, if any, on an amount equal to
greater of (2) the amount available under the Withdrawal Without Charge, or (2)
the amount calculated under State Mutual's life expectancy distribution (see
"LIFE EXPECTANCY DISTRIBUTION"), whether or not the withdrawal was part of such
distribution.
For example, an 81-year-old Contract Owner who is also the Annuitant would
receive 10.2%, rather than 10%, of the Year-End Accumulated Value under the life
expectancy distribution, which amount would not be subject to any contingent
deferred sales charge.
SURRENDERS. In the case of a complete surrender, the amount received by the
Contract Owner is equal to the entire Accumulated Value under the Contract, net
of the applicable contingent deferred sales charge on New Purchase Payments, the
Contract Fee, any tax withholding and any premium tax deducted as described
under "PREMIUM TAXES." Subject to the same rules that are applicable to partial
redemptions, State Mutual will not assess a contingent deferred sales charge on
an amount equal to the greater of the Withdrawal Without Charge or life
expectancy distribution, if applicable.
Where a Contract Owner who is trustee under a pension plan surrenders, in whole
or in part, a Contract on a terminating employee, the trustee will be permitted
to reallocate all or a part of the total Accumulated Value under the Contract to
other contracts issued by State Mutual and owned by the trustee, with no
deduction for any otherwise applicable contingent deferred sales charge. Any
such reallocation will be at the unit values for the Sub-Accounts as of the
Valuation Date on which a written, signed request is received at the Principal
Office.
For further information on surrender and partial redemption, including minimum
limits on amount redeemed and amount remaining under the Contract in the case of
partial redemption, and important tax considerations, see "SURRENDER," "PARTIAL
REDEMPTION," and FEDERAL TAX CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY PAYMENTS BEGIN. No contingent deferred sales charge
is imposed at the time of annuitization under any option involving a life
contingency (Options I, II, III, IV-A, IV-B or the comparable fixed annuity
options) or under a variable period certain option (Option V) involving a period
of ten years or longer. If the annuity option chosen is Option V for a period
of less than ten years or any fixed period option, a contingent deferred sales
charge will be deducted from the Accumulated Value of the Contract if the
Annuity Date occurs at any time during the surrender charge period. Such charge
is the same as that which would apply had the Contract been surrendered on the
Annuity Date.
CHARGE FOR COMMUTATION UNDER VARIABLE ANNUITY OPTION V. If the Annuitant elects
to receive the commuted value of a period certain variable annuity (Option V),
see "DESCRIPTION OF VARIABLE ANNUITY OPTIONS," the basis for calculating the
commuted value will assume that the Surrender Value, rather than the Accumulated
Value, had applied at the Annuity Date. The method of computation of the
commuted value is shown under "Annuity Payments" in the Statement of Additional
Information.
CONTRACT FEE. A Contract Fee will be deducted annually on the Contract
anniversary date and upon full surrender of the Contract. The Contract Fee is
$30. State Mutual reserves the right to waive the Contract Fee for Contracts
issued to a trustee of a 401(k) plan or qualifying under Section 403(b) of the
Internal Revenue Code.
Where Contract value has been allocated to more than one Sub-Account or to the
Fixed Account and one or more Sub-Accounts, a percentage of the total Contract
Fee will be deducted from the Contract value in each account. The portion of
the charge deducted from each account will be equal to the percentage which the
Contract value in that account represents of the total Accumulated Value under
the Contract. The deduction of the Contract Fee will result in cancellation of
a number of Accumulation Units equal in value to the percentage of the charge
deducted from that account.
ANNUAL CHARGES AGAINST SEPARATE ACCOUNT ASSETS. The following annual charges
are deducted against the assets of the Separate Account:
MORTALITY AND EXPENSE RISK CHARGE. State Mutual assesses each Sub-Account a
daily charge, based on the average daily net assets of the Sub-Account, of 1.25%
on an annual basis. This charge covers the mortality and expense risk which
State Mutual assumes for the variable interests in the Contracts. The mortality
risk arises from the Contract's guarantees respecting payment on death and State
Mutual's guarantee that it will make annuity payments according to annuity rate
provisions established at the time the Contract is issued for the life of the
Annuitant (or in accordance with the annuity option selected), no matter how
long the Annuitant lives and no matter how long all annuitants as a class
live. The
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expense risk arises from State Mutual's guarantee that charges will not be
increased beyond the limits specified in the contract, regardless of actual
costs of operations.
The charge is imposed during both the accumulation phase and the annuity phase
(if a variable annuity option has been selected). The mortality charge is
deducted for variable annuity options that do not involve a life contingency,
even though State Mutual does not bear direct mortality risk for such annuity
options.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, State Mutual will absorb the losses. If
expenses are less than the amounts provided to State Mutual by the charge, the
difference will be a profit to State Mutual. To the extent this charge results
in a profit to State Mutual, such profit will be available for use by State
Mutual for, among other things, the payment of distribution, sales and other
expenses.
ADMINISTRATIVE EXPENSE CHARGE. State Mutual assesses each Sub-Account a daily
charge, based on the average daily net assets of the Sub-Account, of 0.15% on an
annual basis. The charge is imposed during both the accumulation period and the
annuity period (if a variable annuity option is selected). The Administrative
Expense Charge reimburses State Mutual for expenses incurred in the
administration of the Sub-Accounts. Both the Contract Fee and the
Administrative Expense Charge are designed to recover actual administrative
costs.
The administrative functions and expense assumed by State Mutual in connection
with the Separate Account and the Contracts include, but are not limited to,
clerical, accounting, actuarial and legal services, rent, postage, telephone,
office equipment and supplies, expenses of preparing and printing registration
statements, expense of preparing and typesetting prospectuses and the cost of
printing prospectuses not allocable to sales expense, filing and other fees.
TRANSFER CHARGE. Currently, the first twelve transfers in a Contract year will
be free of charge. For the thirteenth and each subsequent transfer in a
Contract year, State Mutual will impose a charge of $25 to reimburse State
Mutual for the costs of processing the transfer. State Mutual reserves the
right to limit the number of free transfers and the number of total transfers in
a Contract year to six.
PREMIUM TAXES. Some states and municipalities impose a premium tax on variable
annuity policies. State premium taxes currently range up to 3.5%. State Mutual
pays state and municipal premium taxes, when applicable, and deducts the amount
paid as a premium tax charge. The current practice of State Mutual is to deduct
the premium tax charge in one of two ways:
(1) if the premium tax was paid by State Mutual when purchase payments were
received, to the extent permitted in your Contract the premium tax charge
is deducted on a pro rata basis when partial withdrawals are made, upon
surrender of the Contract, or when annuity payments begin (State Mutual
reserves the right instead to deduct the premium tax charge for these
Contracts at the time the purchase payments are received); or
(2) the premium tax charge is deducted when annuity payments begin.
OTHER CHARGES. Because the Sub-Accounts purchase shares of the Funds, the value
of the net assets of the Sub-Accounts will reflect the investment advisory fee
and other operating expenses incurred by the Funds. The Prospectuses and
Statements of Additional Information of the Trust, VIPF and T. Rowe contain
additional information concerning expenses of the Funds.
DESCRIPTION OF THE CONTRACT
The Contracts are designed for sale to individuals and for use with several
types of retirement plans. The right to benefits in Contracts issued under
retirement plans may be subject to the terms and conditions of the plans,
regardless of the terms and conditions of the Contracts.
PURCHASE PAYMENTS. Your initial purchase payment will be credited to the
Contract as of the date that the properly completed application which
accompanies the purchase payment is received by State Mutual at its Principal
Office. If an application is incomplete, the initial purchase payment will be
returned within five business days, unless the Contract Owner consents to State
Mutual's retention of the purchase payment until the application is made
complete. After a Contract is issued, Accumulation Units will be credited to
the Contract at the unit value computed as of the Valuation Date that a purchase
payment is received at the Principal Office.
Purchase payments are not limited as to frequency and number. The initial
purchase payment must be at least $10,000 or such smaller amount as meets State
Mutual's then current minimum requirements. Subsequent purchase payments must
be at least $50.
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Under a monthly automatic payment plan or a payroll deduction plan, the initial
purchase payment must be at least $500 and subsequent purchase payments must be
at least $50.
Under employer-sponsored retirement plans, State Mutual may issue a Contract on
an employee-participant with a minimum annual contribution of $300, if the
plan's average annual contribution per eligible plan participant is at least
$1,000.
State Mutual reserves the right to set maximum limits on the aggregate purchase
payments made under the Contract. Total purchase payments may not exceed the
maximum limit specified in the Contract. In addition, the Internal Revenue Code
("Code") imposes maximum limits on contributions under qualified annuity plans.
Purchase payments will be allocated among the Sub-Accounts and the Fixed
Account, according to the Contract Owner's instructions, except that, for the
first 14 days following the date of issue of the Contract, all Separate Account
allocations will be held in the Money Market Sub-Account because of your free-
look right (see "RIGHT TO REVOKE CONTRACT").
The amount of any purchase payment allocated to the Fixed Account must be at
least $500. Amounts less than $500 will be applied instead to the Money Market
Sub-Account. Purchase payments less than $50 that are allocable to any Sub-
Account may be applied instead to another Sub-Account according to State
Mutual's rules and procedures.
The Contract Owner may change allocation instructions for purchase payments or
transfers, as discussed below, by telephone or written notice to State Mutual at
its Principal Office. The privilege to initiate transactions by telephone is
made available to Contract Owners automatically unless they elect not to have
the privilege by checking a box on the application. The policy of SMA Life and
its agents and affiliates is that they will not be responsible for losses
resulting from acting upon telephone requests reasonably believed to be genuine.
SMA Life will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; otherwise, SMA Life may be liable for any
losses due to unauthorized or fraudulent instructions. The procedures SMA Life
follows for transactions initiated by telephone include requirements that
callers on behalf of a Contract Owner identify themselves by name and identify
the Annuitant by name, date of birth and social security number. All transfer
instructions by telephone are tape recorded.
TRANSFER PRIVILEGE. Subject to State Mutual's then current rules, a Contract
Owner may have amounts transferred among the Sub-Accounts or between a Sub-
Account and the Fixed Account. Currently, the first twelve transfers in a
Contract year are free of any charge. For the thirteenth and each subsequent
transfer in a Contract year, State Mutual will impose a charge of $25 to
reimburse it for the expense of processing transfers. State Mutual reserves the
right to limit to six the number of permitted transfers or free transfers in any
Contract year and to establish other reasonable transfer limitation rules. In
determining the number of permitted or free transfers, State Mutual will count
the transfer of amounts from any number of Sub-Accounts or the Fixed Account to
any number of other Sub-Accounts or the Fixed Account in the same day as only
one transfer. Any transfer from the Money Market Sub-Account to any other Sub-
Account will not be deemed a transfer.
The transfer privilege is subject to the following current limitations:
(1) Transfers from a Sub-Account
(a) must involve a minimum of $500 (except for systematic transfers,
discussed below), or the entire amount in the Sub-Account, if less,
(b) must not reduce the value of the Sub-Account from which the transfer
is to be made to less than $500 (in any request where the remaining
value would be less than $500, State Mutual reserves the right to
include such remaining value in the amount transferred), and
(c) after the Annuity Date, may be made only among the Select Growth and
Income Sub-Account, Select Income Sub-Account, and Money Market Sub-
Account.
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(2) Transfers from the Fixed Account
(a) may not be made prior to the maturity date applicable to such amount
(the "maturity date" is the end of a guaranteed period as described in
APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT"),
(b) may not be made after the Annuity Date,
(c) must leave a balance with respect to the amount subject to maturity of
at least $500, unless the entire amount is transferred.
A transfer to the Fixed Account must involve an amount of at least $500. Any
amount less than $500 will be transferred instead to the Money Market Sub-
Account.
Transfers from a Sub-Account are effected at the value next computed after
receipt of the transfer order. Transfers from the Fixed Account to a Sub-
Account are effected at the value next computed after the maturity date. For
any period between the maturity date and the next Valuation Date for the Sub-
Account, the amount to be transferred will remain in the Fixed Account at the
then current rate.
Subject to State Mutual's then-current rules, the Contract Owner may apply for
systematic transfers (1) from the Money Market Sub-Account to one or more of the
other Sub-Accounts on a monthly, quarterly or semiannual schedule, or (2) to
reallocate Contract value among the Sub-Accounts on a quarterly, semiannual or
annual schedule. Each systematic transfer must be at least $100.
SURRENDER. At any time prior to the Annuity Date, a Contract Owner may
surrender the Contract and receive its Surrender Value, less any applicable tax
withholding or premium tax deduction described under "PREMIUM TAXES." The
Contract Owner must return the Contract and a signed, written request for
surrender, satisfactory to State Mutual, to the Principal Office. The Surrender
Value will be based on the Accumulated Value of the Contract as of the Valuation
Date on which the request and the Contract are received at the Principal Office.
A contingent deferred sales charge may be deducted when a Contract is
surrendered if purchase payments have been credited to the Contract during the
last seven full Contract years. See "CHARGES AND DEDUCTIONS." The Contract Fee
will be deducted upon surrender of the Contract.
Any amount surrendered is normally payable within seven days following State
Mutual's receipt of the surrender request. State Mutual reserves the right to
defer surrenders and partial redemptions of amounts in each Sub-Account in any
period during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by or in accordance with rules of the SEC, exists such
that disposal of portfolio securities or valuation of the assets of the Separate
Account is not reasonably practicable.
The right is reserved by State Mutual to defer surrenders and partial
redemptions of amounts allocated to the Fixed Account for a period not to exceed
six months.
The surrender rights of Contract Owners who are participants under Section
403(b) plans or the Texas Optional Retirement Program ("Texas ORP") are
restricted. See "PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX-EXEMPT ORGANIZATIONS"
and "TEXAS OPTIONAL RETIREMENT PROGRAM."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
PARTIAL REDEMPTION. At any time prior to the Annuity Date, a Contract Owner may
redeem a portion of the Accumulated Value of his or her Contract, subject to the
limits stated below. The Contract Owner must file a signed, written request for
redemption, satisfactory to State Mutual, at the Principal Office. The written
request must indicate the dollar amount the Contract Owner wishes to receive and
the Sub-Account from which such amount is to be redeemed. Where allocations
have been made to more than one Sub-Account, a percentage of the partial
redemption may be allocated to each such account. Amounts must first be
withdrawn from all allocations to Sub-Accounts before amounts allocated to the
Fixed Account may be withdrawn.
In a partial redemption, the amount redeemed equals the amount requested by the
Contract Owner plus any applicable contingent deferred sales charge, as
described under "CHARGES AND DEDUCTIONS." A partial redemption from a Sub-
Account will result in cancellation of a number of units equivalent in value to
the amount redeemed, computed as of the Valuation Date that the request is
received at the Principal Office.
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Each partial redemption must be in a minimum amount of $200. No partial
redemption will be permitted if the Accumulated Value remaining under the
Contract would be reduced to less than $1,000. Partial redemptions will be paid
in accordance with the time limitations described under "SURRENDER."
For important restrictions on withdrawals which are applicable to participants
under Section 403(b) plans or the Texas ORP, see "PUBLIC SCHOOL SYSTEMS AND
CERTAIN TAX-EXEMPT ORGANIZATIONS" and "TEXAS OPTIONAL RETIREMENT PROGRAM."
For important tax consequences which may result from partial redemptions, see
"FEDERAL TAX CONSIDERATIONS."
LIFE EXPECTANCY DISTRIBUTION. Prior to the Annuity Date, a Contract Owner who
is also the Annuitant may make a revocable election to take a series of
systematic withdrawals from the Contract according to a life expectancy
distribution ("LED") by returning a signed LED request form to the Principal
Office. (For information on how State Mutual waives the contingent deferred
sales charge on the Withdrawal Without Charge and LED, see "Withdrawal Without
Charge" under "CONTINGENT DEFERRED SALES CHARGE") The LED permits the Contract
Owner to make systematic withdrawals from the Contract over his or her lifetime
up to age 85. The amount withdrawn from the Contract changes each year because
life expectancy changes each year that a person lives. For example, actuarial
tables indicate that a person age 70 has a life expectancy of 16 years, but a
person who attains age 80 has a life expectancy of another 6.5 years.
If a Contract Owner elects the LED, a fraction of the Year-End Accumulated Value
is withdrawn from the Contract in each Contract year based on the Contract
Owner's then life expectancy. The numerator of the fraction is 1 (one) and the
denominator of the fraction is the remaining life expectancy of the Contract
Owner, as determined annually by State Mutual. The resulting fraction,
expressed as a percentage, is applied to the Year-End Accumulated Value to
determine the amount to be distributed during the year. The Contract Owner may
elect monthly, bimonthly, quarterly, semiannual or annual distributions, and may
terminate the LED at any time. The Contract Owner may also elect to receive
distributions under an LED which is determined on the joint life expectancy of
the Contract Owner and a beneficiary. State Mutual may also offer other
systematic withdrawal options.
If a Contract Owner makes withdrawals under the LED prior to age 59 1/2, the
withdrawals may be treated by the IRS as premature distributions from the
Contract. The payments would then be taxed on an "income first" basis, and be
subject to a 10% federal tax penalty. See "TAXATION OF THE CONTRACTS IN
GENERAL."
The LED will cease on the Annuity Date.
PAYMENT ON DEATH. If the Annuitant dies (or the Contract Owner predeceases the
Annuitant) prior to the Annuity Date while the Contract is in force, State
Mutual will pay the beneficiary, except where the Contract continues as provided
in "THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY," as follows:
Upon death of the Annuitant (including a Contract Owner who is also the
Annuitant), State Mutual will pay the beneficiary the greatest of (a) the
Accumulated Value under the Contract next determined following receipt of due
proof of death at the Principal Office, (b) the total amount of gross purchase
payments made under the Contract minus the amounts of all prior partial
withdrawals, or (c) the amount that would have been paid on death of the
Annuitant at the most recent fifth year contract anniversary, adjusted for
subsequent purchase payments and withdrawals after that date. Upon death of a
Contract Owner who is not the Annuitant, State Mutual will pay the beneficiary
the Accumulated Value of the Contract next determined following receipt of due
proof of death at the Principal Office.
Payment will be made to the beneficiary in one sum, except that the beneficiary
may, by written request, elect one of the following options:
1. The payment of the one sum may be delayed for a period not to exceed
five years from the date of death.
2. The payment may be made in installments. The first installment must
begin within one year from the date of death. Installments are
payable over a period certain not extended beyond the life expectancy
of the beneficiary.
3. All or a portion of the payment may be used to provide a life annuity
for the beneficiary. Annuity payments must begin within one year from
the date of death and are payable over a period not extended beyond
the life expectancy of the beneficiary. Any annuity payments will be
provided in accordance with the annuity options of the Contract.
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If there is more than one beneficiary, the payment on death will be paid to such
beneficiaries in one sum unless State Mutual consents to pay an annuity option
chosen by the beneficiaries.
With respect to any payment on death, the Accumulated Value under the Contract
shall be based on the unit values next computed after due proof of death has
been received at the Principal Office. If the beneficiary elects to receive the
payment in one sum, the payment will be paid within seven business days. If the
beneficiary has not elected an annuity option within one year from the date
notice of death is received by State Mutual, the payment will be made in one
sum. The payment will reflect any earnings or losses experienced during the
period and any withdrawals.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed annuity payments, any unpaid amounts or
installments will be paid to the beneficiary. State Mutual must pay the
remaining payments at least as rapidly as under the payment option in effect on
the date of the Annuitant's death. If there is more than one beneficiary, the
commuted value of the payments, computed on the basis of the assumed interest
rate incorporated in the annuity option table on which such payments are based,
shall be paid to the beneficiaries in one sum.
THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY. The Contract Owner's spouse,
if named as the beneficiary, may by written request continue the Contract in
lieu of receiving the amount payable upon death of the Contract Owner. Upon
such election, the spouse will become the new Contract Owner (and, if the
deceased Owner was also the Annuitant, the new Annuitant). All other rights and
benefits provided in the Contract will continue, except that any subsequent
spouse of such new Contract Owner will not be entitled to continue the Contract
upon such new Contract Owner's death.
ASSIGNMENT. The Contracts, other than those sold in connection with certain
qualified plans (see "FEDERAL TAX CONSIDERATIONS"), may be assigned by the
Contract Owner at any time prior to the Annuity Date and while the Annuitant is
alive. State Mutual will not be deemed to have knowledge of an assignment
unless it is made in writing and filed at the Principal Office. State Mutual
will not assume responsibility for determining the validity of any assignment.
If an assignment of the Contract is in effect on the Annuity Date, State Mutual
reserves the right to pay to the assignee, in one sum, that portion of the
Surrender Value of the Contract to which the assignee appears to be entitled.
State Mutual will pay the balance, if any, in one sum to the Contract Owner in
full settlement of all liability under the Contract. The interest of the
Contract Owner and of any beneficiary will be subject to any assignment.
ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE. Subject to certain
restrictions described below, the Contract Owner has the right to (1) select the
annuity option under which annuity payments are to be made, and (2) determine
whether payments are to be made on a fixed basis, a variable basis, or a
combination fixed and variable basis, and (3) reallocate variable annuity option
investments among the available Funds, subject to certain restrictions. Annuity
payments are determined according to the annuity tables in the Contract, by the
annuity option selected, and by the investment performance of the applicable
Sub-Accounts, if variable annuity payments are selected.
Under a variable annuity, a payment equal to the value of the fixed number of
Annuity Units in the Sub-Account(s) is made each month. Since the value of an
Annuity Unit in a Sub-Account will reflect the investment performance of the
Sub-Account, the amount of each payment will vary.
If a fixed annuity is selected, Accumulated Value will be transferred to the
General Account of State Mutual, and annuity payments will be fixed in amount.
For information about the General Account, see APPENDIX A, "MORE INFORMATION
ABOUT THE FIXED ACCOUNT."
The annuity option selected must produce an initial payment at least equivalent
to $20 a month. If a combination of fixed and variable payments is selected,
the initial payment on each basis must be at least equivalent to $20 a month.
If the annuity option selected does not produce initial payments which meet this
minimum, State Mutual will pay the Surrender Value or guaranteed payment on
death, as the case may be, in one sum. Once State Mutual begins making annuity
payments, the Contract Owner cannot make partial redemptions or surrender the
annuity benefit. Only beneficiaries entitled to receive remaining payments for
a "period certain" may elect to instead receive a lump sum settlement.
The Annuity Date is selected by the Contract Owner. The Annuity Date must be
within the Annuitant's life expectancy and on the first day of a month before
the Annuitant's 85th birthday. The Contract Owner may elect to change the
Annuity Date by sending a written request to the Principal Office at least one
month before the new Annuity Date.
State Mutual will determine life expectancy at the time the Annuity Date is
requested. The Internal Revenue Code imposes limitations on the age at which
distributions may commence. See "FEDERAL TAX CONSIDERATIONS."
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If the Contract Owner does not elect otherwise, annuity payments will be made in
accordance with Option I, a variable life annuity with ten years guaranteed.
Changes in either the Annuity Date or annuity option can be made up to one month
prior to the Annuity Date.
DESCRIPTION OF VARIABLE ANNUITY OPTIONS. State Mutual offers the variable
annuity options described below and provides fixed-amount annuity options which
are comparable to the variable annuity options. Other annuity options may be
offered by State Mutual.
Variable annuity options provide payments that vary according to investment
experience. The variable annuity options offered under the Contracts may be
funded through the Select Growth and Income Sub-Account, Select Income Sub-
Account, and Money Market Sub-Account.
Regardless of how purchase payments were allocated during the accumulation
period, the Contract Owner may choose any one of the variable annuity options
offered, a comparable fixed-amount option, or a variable annuity option in
combination with a comparable fixed-amount annuity option. Each annuity option
may be paid on a monthly, quarterly, semiannual or annual basis.
Under a variable life annuity option, payments are based on how long the payee
is expected to live and how the net investment results of the chosen Fund(s)
compare to an assumed rate of return (See "Determination of First and Subsequent
Annuity Payments"). If the payee outlives his or her life expectancy, payments
will continue for the life of the payee. If the payee dies, regardless of when
the death occurs in relation to the payee's life expectancy, payments will cease
with the last payment due prior to the payee's death. Therefore, under a life
annuity, it is possible for the payee to receive only one annuity payment if the
payee dies prior to the due date of the second annuity payment, two annuity
payments if the payee dies before the due date of the third annuity payment, and
so on. However, payments will continue during the lifetime of the payee, no
matter how long the payee lives.
OPTION I - VARIABLE LIFE ANNUITY WITH TEN YEARS GUARANTEED
Variable payments will be made during the lifetime of the payee. If the payee
dies before a guaranteed payment period of ten years, the annuity payments are
guaranteed to continue to the beneficiary until the end of the ten-year
guarantee period.
OPTION II - VARIABLE LIFE ANNUITY
Variable payments will be made for the life of the payee. Payments will cease
with the last payment due prior to the payee's death.
OPTION III - UNIT REFUND VARIABLE LIFE ANNUITY
Variable payments will be made during the lifetime of the payee. Upon death of
the payee, payments will continue to the beneficiary until the total number of
payments equals the dollar amount of the annuity value applied, divided by the
first annuity payment.
OPTION IV-A - JOINT AND SURVIVOR VARIABLE LIFE ANNUITY
A variable annuity payable jointly to two payees during their joint lifetime,
and then continuing during the lifetime of the survivor. The amount of each
payment to the survivor is based on the same number of Annuity Units which
applied during the joint lifetime of the two payees. One of the payees must be
either the Annuitant or the beneficiary. There is no minimum number of payments
under this option.
OPTION IV-B - JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY
A variable annuity payable jointly to two payees during their joint lifetime,
and then continuing thereafter during the lifetime of the survivor. However,
the amount of each payment to the survivor is based upon two-thirds of the
number of Annuity Units which applied during the joint lifetime of the two
payees. One of the payees must be the Annuitant or the beneficiary. There is
no minimum number of payments under this option.
OPTION V - PERIOD CERTAIN VARIABLE ANNUITY
A variable annuity payable for a stipulated number of from one to thirty years.
It should be noted that Option V does not involve a life contingency. Although
not contractually required to do so, State Mutual currently follows a practice
of permitting persons receiving payments under Option V to elect to convert to a
variable annuity involving a life contingency. State Mutual may discontinue or
change this practice at any time, but not with respect to Contract Owners who
have elected Option V prior to the date of any change in this practice.
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If the Annuitant dies before the completion of the period stipulated under
Option V, payments will continue to be paid to the beneficiary. The Annuitant
or the beneficiary may choose at any time to redeem the Contract and receive its
commuted value. The method of computation of the commuted value is shown under
"Annuity Payments" in the Statement of Additional Information. If the Annuitant
makes this election, the commuted value will be based on the remaining payments
that would have been payable had the Surrender Value, rather than the
Accumulated Value, been applied at the Annuity Date. See "Charge for
Commutation under Variable Annuity Option V" under "CONTINGENT DEFERRED SALES
CHARGE."
In the computation of the payments under this option (see "Determination of
First and Subsequent Annuity Payments"), the charge for annuity rate guarantees,
which includes a factor for mortality risks, is made.
See "FEDERAL TAX CONSIDERATIONS" for a discussion of the possible adverse tax
consequences of selecting Option V.
COMPUTATION OF CONTRACT VALUES AND ANNUITY PAYMENTS. Contract values and annuity
payments are computed as follows:
THE ACCUMULATION UNIT. Each purchase payment is allocated to the Sub-Accounts
or Fixed Account, as selected by the Contract Owner. Allocations to the Sub-
Accounts are credited to the Contract in the form of Accumulation Units.
Accumulation Units are credited separately for each Sub-Account. The number of
Accumulation Units of each Sub-Account credited to the Contract is equal to the
portion of the purchase payment allocated to the Sub-Account, divided by the
dollar value of the applicable Accumulation Unit as of the Valuation Date the
purchase payment is received at the Principal Office. A subsequent transfer,
partial redemption, surrender or split of Accumulation Unit value will change
the number of Accumulation Units. The number of Accumulation Units will not
change as a result of investment experience. The dollar value of an
Accumulation Unit of each Sub-Account varies from Valuation Date to Valuation
Date based on the investment experience of that Sub-Account and will reflect the
investment performance, expenses and charges of its Funds. On the first
Valuation Date, the value of an Accumulation Unit was set at $1.00 for each Sub-
Account. Allocations to the Fixed Account are not converted into Accumulation
Units, but are credited interest at a rate periodically set by State Mutual.
See APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
The Accumulated Value under the Contract is determined by (1) multiplying the
number of Accumulation Units in each Sub-Account by the dollar value of an
Accumulation Unit of that Sub-Account on the Valuation Date, (2) adding the
products, and (3) adding the amount of the accumulations in the Fixed Account,
if any.
ADJUSTED GROSS INVESTMENT RATE. At each Valuation Date an adjusted gross
investment rate for each Sub-Account for the Valuation Period then ended is
determined from the investment performance of that Sub-Account. Such rate is
(1) the investment income of that Sub-Account for the Valuation Period, plus
capital gains and minus capital losses of that Sub-Account for the Valuation
Period, whether realized or unrealized, adjusted for provisions made for taxes,
if any, divided by (2) the amount of that Sub-Account's assets at the beginning
of the Valuation Period. The adjusted gross investment rate may be either
positive or negative.
NET INVESTMENT RATE AND NET INVESTMENT FACTOR. The net investment rate for a
Sub-Account's variable accumulations for any Valuation Period is equal to the
adjusted gross investment rate of the Sub-Account for such Valuation Period
decreased by the equivalent for such period of a charge equal to 1.40% per
annum. This charge cannot be increased.
The net investment factor is l.000000 plus the applicable net investment rate.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of Accumulation Unit calculation using a hypothetical
example, see "Annuity Payments" in the Statement of Additional Information.
THE ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a measure
of the value of the Annuitant's annuity payments under a variable annuity
option. The value of an Annuity Unit in each Sub-Account initially was set at
$1.00. The value of an Annuity Unit under a Sub-Account on any Valuation Date
thereafter is equal to the value of such unit on the immediately preceding
Valuation Date, multiplied by the product of (1) the net investment factor of
the Sub-Account for the current Valuation Period, and (2) a factor to adjust
benefits to neutralize the assumed interest rate. The assumed interest rate,
discussed below, is incorporated in the variable annuity options offered in the
Contract.
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DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY PAYMENTS. The amount of the
first annuity payment is based on the annuity value applied and the annuity
option selected. The annuity value applied under an annuity option is the
amount described below, minus any applicable premium tax charge: (1) if
Option V is chosen with a period of 10 or more years - the Accumulated Value;
(2) if Option V is chosen with a period of less than 10 years - the Surrender
Value; (3) if any annuity option offered by State Mutual involving a life
contingency is chosen - the Accumulated Value; and (4) if a death benefit
annuity is payable at any time - the amount of the death benefit.
Annuity values will be based on a Valuation Date applied uniformly not more than
four weeks preceding the Annuity Date. Currently, the Valuation Date for
annuity values is the 15th date of the month preceding the Annuity Date, and
variable annuity payments are made on the first of the month based on unit
values as of the 15th day of the preceding month.
The Contract provides annuity rates which determine the dollar amount of the
first payment under each form of annuity for each $1,000 of applied annuity
value. Guaranteed variable life annuity rates in the Contract are based on a
modification of the 1983 Table "a" rates and are generally sex-distinct.
However, rates for Contracts subject to the United States Supreme Court decision
in Arizona Governing Committee v. Norris are unisex. The Norris decision
generally applies to employer-sponsored plans.
The amount of the first payment depends upon the form of annuity selected, the
sex (only if sex-distinct rates apply) and age of the Annuitant and the value of
the amount applied under the annuity option. The variable annuity options
offered by State Mutual are based on a 3 1/2% assumed interest rate. Variable
payments are affected by the assumed interest rate used in calculating the
annuity option rates. Variable annuity payments will increase over periods when
the actual net investment result of the Sub-Account(s) funding the annuity
exceeds the equivalent of the assumed interest rate for the period. Variable
Annuity Payments will decrease over periods when the actual net investment
result of the respective Sub-Account is less than the equivalent of the assumed
interest rate for the period.
The dollar amount of the first annuity payment under a particular option is
determined by multiplying (1) the Accumulated Value applied under that option
(after deduction for any applicable contingent deferred sales charge and premium
tax charge, if any) divided by $1,000, by (2) the applicable amount of the first
payment per $1,000 of value. The dollar amount of the first variable annuity
payment is then divided by the value of an Annuity Unit of the selected Sub-
Account(s) to determine the number of Annuity Units represented by the first
payment. In each subsequent annuity payment, the dollar amount of the variable
annuity payment is determined by multiplying this fixed number of Annuity Units
by the value of an Annuity Unit on the applicable Valuation Date.
After the first payment, the dollar amount of each variable annuity payment will
vary with subsequent variations in the value of the Annuity Unit of the selected
Sub-Account(s). The dollar amount of each fixed amount annuity payment is fixed
and will not change, except under the joint and two-thirds survivor annuity
option.
State Mutual may from time to time offer its Contract Owners both fixed and
variable annuity rates more favorable than those contained in the Contract. Any
such rates will be applied uniformly to all Contract Owners of the same class.
For an illustration of variable annuity payment calculation using a hypothetical
example, see "Annuity Payments" in the Statement of Additional Information.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Contract, on redemptions or
surrenders, on annuity payments, and on the economic benefit to the Annuitant or
beneficiary depends upon a variety of factors. The following discussion is
based upon State Mutual's understanding of current federal income tax laws as
they are interpreted as of the date of this Prospectus. No representation is
made regarding the likelihood of continuation of current federal income tax laws
or of current interpretations by the Internal Revenue Service.
It should be recognized that the following discussion of federal income tax
aspects of amounts received under variable annuity contracts is not exhaustive,
does not purport to cover all situations and is not intended as tax advice. A
qualified tax adviser should always be consulted with regard to the application
of law to individual circumstances.
State Mutual intends to make a charge for any effect which the income, assets,
or existence of the Contracts, the Separate Account or Sub-Accounts may have
upon State Mutual's tax. The Separate Account presently is not subject to tax,
but State Mutual reserves the right to assess a charge for
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taxes should the Separate Account at any time become subject to tax. Any charge
for taxes will be assessed on a fair and equitable basis in order to preserve
equity among classes of Contract Owners and with respect to each Separate
Account as though that Separate Account were a separate taxable entity.
The Separate Account is considered to be a part of and taxed with the operations
of State Mutual. State Mutual is taxed as a mutual life insurance company under
subchapter L of the Code. State Mutual files a consolidated tax return with its
affiliates.
The Internal Revenue Service has issued regulations relating to the
diversification requirements for variable annuity and variable life insurance
policies under Section 817(h) of the Code. The regulations provide that the
investments of a segregated asset account underlying a variable annuity contract
are adequately diversified if no more than 55% of the value of its assets is
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments. If the investments are not adequately diversified, the income on a
contract, for any taxable year of the contract owner, would be treated as
ordinary income received or accrued by the contract owner. It is anticipated
that the Funds of the Trust, VIPF and T. Rowe will comply with the
diversification requirements.
QUALIFIED AND NON-QUALIFIED CONTRACTS. From a federal tax viewpoint there are
two types of variable annuity contracts, "qualified" contracts and "non-
qualified" contracts. A qualified contract is one that is purchased in
connection with a retirement plan which meets the requirements of Sections 401,
403, 408, or 457 of the Code, while a non-qualified contract is one that is not
purchased in connection with one of the indicated retirement plans. The tax
treatment for certain partial redemptions or surrenders will vary according to
whether they are made from a qualified contract or a non-qualified contract.
For more information on the tax provisions applicable to specific types of
qualified contracts, see the discussions under the applicable headings, below.
TAXATION OF THE CONTRACTS IN GENERAL. State Mutual believes that the Contracts
described in this Prospectus will, with certain exceptions discussed in "SECTION
457 PLANS FOR STATE GOVERNMENTS AND TAX-EXEMPT ENTITIES," be considered
annuities under Section 72 of Code. This section provides for the taxation of
annuities. The following discussion concerns annuities subject to Section 72.
All non-qualified deferred annuity contracts issued by the same insurance
company to the same contract owner during the same calendar year will be treated
as a single contract in determining taxable distributions under Section 72(e).
Any increase in the Accumulated Value of the Contract is not taxable to the
Contract Owner until it is withdrawn, except in cases of assignment or certain
non-individual Contract Owners, as discussed below. If the Contract is
surrendered or amounts are withdrawn prior to the Annuity Date, to the extent of
the amount withdrawn any investment gain in value over the cost basis of the
Contract would be taxed as ordinary income. Under the current provisions of the
Code, amounts received under a non-qualified Contract prior to the Annuity Date
(including payments made upon the death of the Annuitant or Contract Owner), or
as non-periodic payments after the Annuity Date, are generally first
attributable to any investment gains credited to the Contract over the
taxpayer's basis (if any) in the Contract. Such amounts will be treated as
income subject to federal income taxation.
The tax treatment of partial redemptions or surrenders of non-qualified
Contracts offered by this Prospectus may vary according to whether the amount
redeemed or surrendered is allocable to an investment in the Contract made
before or after certain dates.
A 10% penalty tax may be imposed on the withdrawal of investment gains if the
withdrawal is made prior to age 59 1/2. The penalty tax will not be imposed
after age 59 1/2, or if the withdrawal follows the death of the Contract Owner
(or, if the Contract Owner is not an individual, the death of the primary
Annuitant as defined in the Code), or in the case of the "total disability" (as
defined in the Code) of the Contract Owner. Furthermore, under Section 72 of
the Code, this penalty tax will not be imposed, irrespective of age, if the
amount received is one of a series of "substantially equal" periodic payments
made at least annually for the life or life expectancy of the payee. This
requirement is met when the Contract Owner elects to have distributions made
over his or her life expectancy, or over the joint life expectancy of the
Contract Owner and beneficiary. The requirement that the amount be paid out as
one of a series of "substantially equal" periodic payments is met when the
number of units withdrawn to make each distribution is substantially the same.
In a recent private letter ruling, the Internal Revenue Service took the
position that where distributions from a variable annuity contract were
determined by amortizing the accumulated value of the contract over the
taxpayer's remaining life expectancy (such as under the Contract's LED (see
"LIFE EXPECTANCY DISTRIBUTION"), and could be changed or terminated at any time,
the distributions failed to qualify as part of a "series of substantially equal
payments" within the meaning of Section 72 of the Code. The distributions were
therefore subject to the 10% federal tax penalty. This private letter ruling
may be applicable to a Contract Owner who receives life expectancy distributions
prior to age 59 1/2. Subsequent
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private letter rulings, however, have treated LED-type withdrawal programs as
effectively avoiding the 10% penalty tax. The position of the IRS on this issue
is unclear.
If the Contract Owner transfers (assigns) the Contract to another individual as
a gift prior to the Annuity Date, the Code provides that the Contract Owner will
incur taxable income at the time of the transfer. An exception is provided for
certain transfers between spouses. The amount of taxable income upon such
taxable transfer is equal to the excess, if any, of the Surrender Value of the
Contract over the Contract Owner's cost basis at the time of the transfer. The
transfer is also subject to federal gift tax provisions. Where the Contract
Owner and Annuitant are different persons, the change of ownership of the
Contract to the Annuitant on the Annuity Date, as required under the Contract,
is a gift and will be taxable to the Owner as such. However, the Owner will not
incur taxable income. Rather the Annuitant will incur taxable income upon
receipt of annuity payments as discussed below.
When annuity payments are commenced under the Contract, generally a portion of
each payment may be excluded from gross income. The excludable portion is
generally determined by a formula that establishes the ratio that the cost basis
of the Contract bears to the expected return under the Contract. The portion of
the payment in excess of this excludable amount is taxable as ordinary income.
Once all cost basis in the Contract is recovered, the entire payment is taxable.
If the last payee dies before cost basis is recovered, a deduction for the
difference is allowed on the payee's final tax return.
TAX WITHHOLDING. The Code requires withholding with respect to payments or
distributions from annuities, unless a taxpayer elects not to have withholding.
In addition, the Code requires reporting to the Internal Revenue Service of the
amount of income received with respect to payment or distributions from
annuities.
PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS. The tax rules applicable to
qualified employer plans, as defined by the Code, vary according to the type of
plan and the terms and conditions of the plan itself. Therefore, the following
is general information about the use of the Contracts with various types of
qualified plans. The rights of any person to any benefits under such qualified
plans will be subject to the terms and conditions of the qualified plans
themselves regardless of the terms and conditions of the Contract.
A loan to a participant or beneficiary from plans qualified under Sections 401
and 403 or an assignment or pledge of an interest in such a plan is generally
treated as a distribution. This general rule does not apply to loans which
contain certain repayment terms and do not exceed a specified maximum amount, as
required under Section 72(p).
QUALIFIED EMPLOYEE PENSION AND PROFIT SHARING TRUSTS AND QUALIFIED ANNUITY
PLANS. When an employee (including a self-employed individual) or one or more
of the employee's beneficiaries receives a "lump sum" distribution (a
distribution from a qualified plan described in Code Section 401(a) within one
taxable year equal to the total amount payable with respect to such an employee)
the taxable portion of such distribution may qualify for special treatment under
a special five-year income averaging provision of the Code. The employee must
have had at least 5 years of participation under the plan, and the lump sum
distribution must be made after the employee has attained age 59 1/2 or on
account of his or her death, separation from the employer's service (in the case
of a common-law employee) or disability (in the case of a self-employed
individual). Such treatment can be elected for only one taxable year once the
individual has reached age 59 1/2. An employee who attained age 50 before
January 1, 1986 may elect to treat part of the taxable portion of the lump-sum
distribution as long-term capital gain and may also elect 10-year averaging
instead of five-year averaging.
State Mutual can provide prototype plans for certain of the pension or profit
sharing plans for review by your legal counsel. For information, ask your
agent.
SELF-EMPLOYED INDIVIDUALS. The Self-Employed Individuals Tax Retirement Act of
1962, as amended, frequently referred to as "H.R. 10", allows self-employed
individuals and partners to establish qualified pension and profit sharing
trusts and annuity plans to provide benefits for themselves and their employees.
These plans generally are subject to the same rules and requirements applicable
to corporate qualified plans, with some special restrictions imposed on "owner-
employees." An "owner-employee" is an employee who (1) owns the entire interest
in an unincorporated trade or business, or (2) owns more than 10% of either the
capital interest or profits interest in a partnership.
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INDIVIDUAL RETIREMENT ACCOUNT PLANS. Any individual who earns "compensation"
(as defined in the Code and including alimony) from employment or self-
employment, whether or not he or she is covered by another qualified plan, may
establish an individual retirement account or annuity plan ("IRA") for the
accumulation of retirement savings on a tax-deferred basis. Income from
investments is not included in "compensation." The assets of an IRA may be
invested in, among other things, annuity contracts, including the Contracts
offered by this Prospectus.
Contributions to an IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10 000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the above-described
limit on each. An individual with an IRA may establish an additional IRA for a
non-working spouse (one with income of $250 or less) if they file a joint
return. Contributions to the two IRAs together are deductible up to the lesser
of $2,250 or 100% of compensation.
No deduction is allowed for contributions made for the year in which the
individual attains age 70 1/2 and years thereafter. Contributions for that year
and for years thereafter will result in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70 1/2. Although these contributions may not be
deducted, taxes on their earnings are deferred until the earnings are
distributed. The maximum permissible non-deductible contribution is $2,000 for
an individual taxpayer and $2,250 for a taxpayer and non-working spouse. These
limits are reduced by the amount of any deductible contributions made by the
taxpayer.
Contributions may be made with respect to a particular year until the due date
of the individual's federal income tax return for that year, not including
extensions. However, for reporting purposes, State Mutual will regard
contributions as being applicable to the year made unless it receives notice to
the contrary.
All annuity payments and other distributions under an IRA will be taxed as
ordinary income unless the owner has made non-deductible contributions. In
addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70 1/2 and must be made
in accordance with Section 401(a)(9) of the Code. Failure to make distributions
as so required may result in certain adverse tax consequences to the individual.
Distributions from all of an individual's IRAs are treated as if they were a
distribution from one IRA and all distributions during the same taxable year are
treated as if they were one distribution. An individual who makes a non-
deductible contribution to an IRA or receives a distribution from an IRA during
the taxable year must provide certain information on the individual's tax return
to enable the Internal Revenue Service to determine the proportion of the IRA
balance which represents non-deductible contributions. If the required
information is provided, that part of the amount withdrawn which is
proportionate to the individual's aggregate non-deductible contributions over
the aggregate balance of all of the individual's IRAs, is excludable from
income.
Distributions which are a return of a non-deductible contribution are non-
taxable, as they represent a return of basis. If the required information is
not provided to the Internal Revenue Service, distributions from an IRA to which
both deductible and non-deductible contributions have been made are presumed to
be fully taxable.
SIMPLIFIED EMPLOYEE PENSIONS. Simplified employee pensions ("SEPs") may be
established under Code Section 408(k) if certain requirements are met. A SEP is
an IRA to which the employer contributes under a written formula. Currently, a
SEP may accept employer contributions each year up to $30,000 or 15% of
compensation (as defined), whichever is less. To establish SEPs the employer
must make a contribution for every employee age 21 and over who has performed
services for the employer for at least three of the five immediately preceding
calendar years and who has earned at least $300 (as indexed for inflation) for
the year.
The employer's contribution is excluded from the employee's gross income for the
taxable year for which it was made up to the $30,000/15% limit. In addition to
the employer's contribution, the employee may contribute 100% of the employee's
earned income, up to $2,000, to the SEP, but such contributions will be subject
to the rules described above in "INDIVIDUAL RETIREMENT ACCOUNT PLANS."
These plans are subject to the general employer's deduction limitations
applicable to all corporate qualified plans.
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PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX-EXEMPT ORGANIZATIONS. Under the
provisions of Section 403(b) of the Code, purchase payments made for annuity
contracts purchased for employees under annuity plans adopted by public school
systems and certain organizations which are tax exempt under Section 501(c)(3)
of the Code are excludable from the gross income of such employees to the extent
that the aggregate purchase payments for such annuity contracts in any year do
not exceed the maximum contribution permitted under the Code.
A Contract qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) may not begin before the employee
attains age 59 1/2 separates from service, dies, or becomes disabled. In the
case of hardship a Contract Owner may withdraw amounts contributed by salary
reduction, but not the earnings on such amounts. The distribution restrictions
are effective for years beginning after December 31, 1988, but only with respect
to amounts that were not held under the Contract as of that date. Even though a
distribution may be permitted under these rules (e.g., for hardship or after
separation from service), it may nonetheless be subject to a 10% penalty tax as
a premature distribution, in addition to income tax. Also, there is a mandatory
20% income tax withholding on any eligible rollover distribution, unless it is a
direct rollover to another qualified plan in accordance with IRS rules.
TEXAS OPTIONAL RETIREMENT PROGRAM. Under a Code Section 403(b) annuity contract
issued as a result of participation in the Texas Optional Retirement Program,
distributions may not be received except in the case of the participant's death,
retirement or termination of employment in the Texas public institutions of
higher education. These restrictions are imposed by reason of an opinion of the
Texas Attorney General interpreting the Texas laws governing the Optional
Retirement Program.
SECTION 457 PLANS FOR STATE GOVERNMENTS AND TAX-EXEMPT ENTITIES. Code Section
457 allows employees of a state, one of its political subdivisions, or certain
tax-exempt entities to participate in eligible government deferred compensation
plans. An eligible plan, by its terms, must not allow deferral of more than
$7,500 or 33-1/3% of a participant's includible compensation for the taxable
year, whichever is less. Includible compensation does not include amounts
excludable under the eligible deferred compensation plan or amounts paid into a
Code Section 403(b) annuity. The amount a participant may defer must be reduced
dollar-for-dollar by elective deferrals under a SEP, 401(k) plan or a deductible
employee contribution to a 501(c)(18) plan. Under eligible deferred
compensation plans the state, political subdivision, or tax-exempt entity will
be owner of the Contract.
If an employee also participates in another eligible plan or contributes to a
Code Section 403(b) annuity, a single limit of $7,500 will be applied for all
plans. Additionally, the employee must designate how much of the $7,500 or 33-
1/3% limitation will be allocated among the various plans. Contributions to an
eligible plan will serve to reduce the maximum exclusion allowance for a Code
Section 403(b) annuity.
Amounts received by employees under such plans generally are includible in gross
income in the year of receipt.
NON-INDIVIDUAL OWNERS. Non-individual Owners (e.g., a corporation) of deferred
annuity contracts generally will be currently taxed on any increase in the cash
surrender value of the deferred annuity attributable to contributions made after
February 28, 1986. This rule does not apply to immediate annuities or to
deferred annuities held by a qualified pension plan, an IRA, a 403(b) plan,
estates, employers with respect to terminated pension plans, or a nominee or
agent holding a contract for the benefit of an individual. Corporate-owned
annuities may result in exposure to the alternative minimum tax, to the extent
that income on the annuities increases the corporation's adjusted current
earnings.
VOTING RIGHTS
To the extent required by law, State Mutual will vote Fund shares held by each
Sub-Account in accordance with instructions received from Contract Owners and,
after the Annuity Date, from the Annuitants. Each person having a voting
interest in a Sub-Account will be provided with proxy materials of the Fund
together with a form with which to give voting instructions to State Mutual.
Shares for which no timely instructions are received will be voted in proportion
to the instructions which are received. State Mutual will vote in its
discretion shares attributable to its investment in a Sub-Account. 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 State Mutual
determines that it is permitted to vote shares in its own right, whether or not
such shares are attributable to the Contracts, State Mutual reserves the right
to do so.
The number of votes which a Contract Owner or Annuitant may cast will be
determined by State Mutual as of the record date established by the Fund.
During the accumulation period, the number of Fund shares attributable to each
Contract Owner will be determined by dividing the dollar value of the
Accumulation Units of the Sub-Account credited to the Contract by the net asset
value of one Fund share.
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During the annuity period, the number of Fund shares attributable to each
Annuitant will be determined by dividing the reserve held in each Sub-Account
for the Annuitant's variable annuity by the net asset value of one Fund share.
Ordinarily, the Annuitant's voting interest in the Fund will decrease as the
reserve for the variable annuity is depleted.
DISTRIBUTION
The Contracts offered by the Prospectus may be purchased from certain
independent broker-dealers which are registered under the Securities Exchange
Act of 1934 and members of the National Association of Securities Dealers, Inc.
("NASD"). The Contracts are also offered through Allmerica Investments, Inc.,
which is the principal underwriter and distributor of the Contracts. Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653, is a
registered broker-dealer, member of the NASD and an indirect wholly-owned
subsidiary of State Mutual.
State Mutual pays commissions not to exceed 5.5% of purchase payments to broker-
dealers which sell the Contracts. To the extent permitted by NASD rules,
promotional incentives or payments may also be provided to such broker-dealers
based on sales volumes, the assumption of wholesaling functions, or other sales-
related criteria. Additional payments may be made for other services not
directly related to the sale of the Contracts, including the recruitment and
training of personnel, production of promotional literature, and similar
services.
State Mutual intends to recoup commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges and profits from
State Mutual's General Account. Commissions paid on the Contracts, including
additional incentives or payments, do not result in any additional charge to
Contract Owners or to the Separate Account. Any contingent deferred sales
charges assessed on a Contract will be retained by State Mutual. Contract
Owners may direct any inquiries to their financial adviser or to Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653, 508-855-
3590.
REPORTS
A Contract Owner is sent a report semi-annually which states certain financial
information about the Funds. State Mutual will also furnish an annual report to
the Contract Owner containing a statement of his or her account, including unit
values and other information required by applicable law, rules and regulations.
PERFORMANCE INFORMATION
State Mutual from time to time may advertise the "total return" of the Sub-
Accounts and the "yield" and "effective yield" of the Money Market Sub-Account.
Both the total return and yield figures are based on historical earnings and are
not intended to indicate future performance.
The "total return" of a Sub-Account refers to the total of the income generated
by an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by certain charges, and expressed as a percentage of
the investment.
The "yield" of the Money Market Sub-Account 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 total return, yield, and effective yield figures are adjusted to reflect the
Sub-Account's asset charges. The total return figures also reflect the $30
annual Contract Fee and the contingent deferred sales charge which would be
assessed if the investment were completely redeemed at the end of the specific
period.
State Mutual may also advertise supplemental total return performance
information. Supplemental total return refers to the total of the income
generated by an investment in the Sub-Account and of the changes of value of the
principal invested (due to realized and unrealized capital gains or losses),
adjusted by the Sub-Account's annual asset charges, and expressed as a
percentage of the investment. Because it is assumed that the investment is NOT
redeemed at the end of the specified period, the withdrawal charge is NOT
included in the calculation of supplemental total return.
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond
Index or other unmanaged indices so that investors may compare the Sub-Account
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results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, such as Morningstar, Inc., who rank such investment
products on overall performance or other criteria; or (iii) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Sub-Account. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Sub-Account reflects only the performance of a
hypothetical investment in the Sub-Account during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies, characteristics and quality
of the portfolio of the Fund in which the Sub-Account invests and the market
conditions during the given time period, and should not be considered as a
representation of what may be achieved in the future.
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT
State Mutual reserves the right, subject to compliance with applicable law, to
(1) transfer assets from the Separate Account or any Sub-Account to another of
State Mutual's separate accounts or sub-accounts having assets of the same
class, (2) to operate the Separate Account or Sub-Accounts as a management
investment company under the 1940 Act or in any other form permitted by law, (3)
to deregister the Separate Account under the 1940 Act in accordance with the
requirements of the 1940 Act, and (4) to substitute the shares of any other
registered investment company for the Fund shares held by a Sub-Account, in the
event that Fund shares are unavailable for investment, or if State Mutual
determines that further investment in such Fund shares is inappropriate in view
of the purpose of the Sub-Account. In no event will the changes described above
be made without notice to Contract Owners in accordance with the 1940 Act.
State Mutual reserves the right, subject to compliance with applicable law, to
change the names of the Separate Account or any Sub-Accounts.
LEGAL MATTERS
There are no legal proceedings pending to which the Separate Account is a party.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
State Mutual reserves the right, subject to applicable law, to make additions
to, deletions from, or substitutions for the shares that are held in the Sub-
Accounts or that the Sub-Accounts may purchase. If the shares of any Fund are
no longer available for investment or if in State Mutual's judgment further
investment in any Fund should become inappropriate in view of the purposes of
the Separate Account or the affected Sub-Account, State Mutual may redeem the
shares of that Fund and substitute shares of another registered open-end
management company. State Mutual will not substitute any shares attributable to
a Contract interest in a Sub-Account without notice to the Contract Owner and
prior approval of the SEC and state insurance authorities, to the extent
required by the 1940 Act or other applicable laws. The Separate Account may, to
the extent permitted by law, purchase other securities for other contracts or
permit a conversion between contracts upon request by a Contract Owner.
State Mutual also reserves the right to establish additional Sub-Accounts, each
of which would invest in shares corresponding to a new Fund or in shares of
another investment company having a specified investment objective. Subject to
applicable law and any required SEC approval, State Mutual may, in its sole
discretion, establish new Sub-Accounts or eliminate one or more Sub-Accounts if
marketing needs, tax considerations or investment conditions warrant. Any new
Sub-Accounts may be made available to existing Contract Owners on a basis to be
determined by State Mutual.
Shares of the Funds are also issued to separate accounts of State Mutual and its
affiliates which issue variable life policies ("mixed funding") and other
variable annuities. It is conceivable that in the future such mixed funding may
be disadvantageous for variable life or variable annuity Contract Owners.
Although State Mutual, the Trust, VIPF and T. Rowe do not currently foresee any
such disadvantage to either variable life insurance or variable annuity Contract
Owners, State Mutual and the Trustees of the Trust, VIPF and T. Rowe intend to
monitor events in order to identify any material conflicts and to determine what
action, if any should be taken in response thereto. If the Trustees were to
conclude that separate funds should be established for variable life and
variable annuity separate accounts, State Mutual will bear the attendant
expenses.
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<PAGE>
If any of these substitutions or changes are made, State Mutual may by
appropriate endorsement change the Contract to reflect the substitution or
change and will notify Contract Owners of all such changes. If State Mutual
deems it to be in the best interest of Contract Owners, and subject to any
approvals that may be required under applicable law, the Separate Account or any
Sub-Account(s) may be operated as a management company under the 1940 Act, may
be deregistered under the 1940 Act if registration is no longer required, or may
be combined with other Sub-Accounts or other separate accounts of State Mutual.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted in this
Prospectus pursuant to the rules and regulations of the SEC. The omitted
information may be obtained from the SEC's principal office in Washington, D.C.,
upon payment of the SEC's prescribed fees.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History....................................... 2
Taxation of the Separate Account and SMA Life......................... 2
Services.............................................................. 3
Underwriters.......................................................... 3
Annuity Payments...................................................... 4
Performance Information............................................... 5
Financial Statements.................................................. 8
</TABLE>
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<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the General Account, including the Fixed Account, are not subject
to regulation under the provisions of the Securities Act of 1933 or the
Investment Company Act of 1940. Disclosures regarding the fixed portion of the
Contract and the Fixed Account may be subject to the provisions of the
Securities Act of 1933 concerning the accuracy and completeness of statements
made in the Prospectus. The disclosures in this APPENDIX A have not been
reviewed by the Securities and Exchange Commission.
The General Account of State Mutual is made up of all of the general assets of
State Mutual other than those allocated to any separate account. Allocations to
the Fixed Account become part of the assets of State Mutual and are used to
support insurance and annuity obligations.
A portion or all of purchase payments may be allocated to accumulate at a fixed
rate of interest in the Fixed Account. The amount of any purchase payment
allocated to the Fixed Account must be at least $500. Amounts less than $500
will be applied instead to the Money Market Sub-Account. Amounts allocated to
the Fixed Account are guaranteed by State Mutual as to principal and a minimum
rate of interest. Under the Contracts, the minimum interest which may be
credited on amounts allocated to the Fixed Account is 3.5% compounded annually.
Additional "excess interest" may or may not be credited at the sole discretion
of State Mutual. Initial and subsequent interest rates on amounts allocated to
the Fixed Account, either as purchase payments, transfers or amounts remaining
in the Fixed Account after the end of a guaranteed period ("maturity date"),
will be guaranteed for periods of one year.
An amount may not be transferred from the Fixed Account to a Sub-Account prior
to its maturity date or after the Annuity Date. The transfer must leave a
balance with respect to the amount subject to maturity of at least $500, unless
the entire amount is transferred. A transfer to the Fixed Account must involve
an amount of at least $500. Any amount less than $500 will be transferred
instead to the Money Market Sub-Account.
Prior to the maturity date, State Mutual will notify the Contract Owner of the
new interest rate applicable for the next one-year period applicable both to new
purchase payments and maturing amounts. Unless State Mutual receives in
writing, at least five business days prior to the maturity date, a request from
the Contract Owner to apply the maturing amount to a new guaranteed interest
rate period of one year or to a Sub-Account, the amount will be transferred
after the maturity date to the Money Market Sub-Account.
Transfers from the Fixed Account to a Sub-Account will be effected at the value
next computed after the maturity date. For any period between the maturity date
and the next Valuation Date for the Sub-Account, the amount to be transferred
will remain in the Fixed Account at the then current rate.
If the Contract Owner makes partial withdrawals from his or Contract, amounts
must first be withdrawn from all allocations to Sub-Accounts before amounts
allocated to the Fixed Account may be withdrawn. If a Contract is surrendered,
partially redeemed, or annuitized under any fixed period certain, a contingent
deferred sales charge is imposed if such event occurs before the purchase
payments attributable to the surrender, withdrawal or annuitization have been
credited to the Contract less than seven full Contract years. For the purpose
of calculating surrender charges, surrenders and redemptions are deemed made
pursuant to the FIFO ("first in, first out") method of accounting. However,
withdrawals from the Fixed Account will be made on a LIFO (last in, first out)
basis; i.e., withdrawals will be made first from amounts attributable to the
most recent purchase payment.
LOANS FROM THE FIXED ACCOUNT (QUALIFIED CONTRACTS ONLY). Loans will be
permitted only for Contracts issued to a plan qualified under Section 401(a),
401(k) or 403(b) of the Code. Loans are permitted only from a Contract's
accumulation in the Fixed Account. The maximum loan amount is the amount
determined under State Mutual's maximum loan formula for qualified plans. The
minimum loan amount is $1,000. Loans will be secured by a security interest in
the Contract. Loans are subject to applicable retirement legislation and their
taxation is determined under the Federal income tax laws. The amount borrowed
will be transferred to a fixed, minimum guarantee loan assets account in State
Mutual's General Account, where it will accrue interest at a specified rate
below the then current loan interest rate. Generally, loans must be repaid
within five (5) years.
The amount of payment on death, the amount payable on a full surrender and the
amount applied to provide an annuity on the Annuity Date will be reduced to
reflect any outstanding loan balance (plus accrued interest thereon). Partial
withdrawals may be restricted by the maximum loan limitation.
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APPENDIX B
EXCHANGE OFFER
A. VARIABLE CONTRACT EXCHANGE OFFER.
The Company reserves the right to suspend this exchange offer at any time. This
exchange offer applies to all variable annuity contracts issued by the Company
and its indirect wholly subsidiary SMA Life Assurance Company ("SMA Life"),
except for contracts A3018-94 and A3021-93 issued by the Company and contracts
A3021-93 and A3018-91 issued by SMA Life (and state variation forms thereof,
which together include all contracts sold as ExecAnnuity Plus). A variable
annuity contract to which this exchange offer applies may be exchanged at net
asset value for the Contract described in this Prospectus. To effect an
exchange, State Mutual should receive (1) a completed application for the
Contract, (2) written request for the exchange, (3) the contract to be exchanged
for the Contract, and (4) a signed Letter of Awareness.
CONTINGENT DEFERRED SALES CHARGE COMPUTATION. No surrender charge applicable to
the contracts to be exchanged will apply to the surrender effecting the
exchange. Where a contract, other than a Contract or Medallion contract,
discussed below, is exchanged for a Contract, the contingent deferred sales
charge under the acquired Contract will be computed as if prior purchase
payments for the exchanged contract had been made for the acquired Contract on
the date of issue of the exchanged contract. Where another Contract or
Medallion contract is exchanged for a new Contract, the contingent deferred
sales charge under the acquired Contract will be computed as if prior purchase
payments for the exchanged Contract or Medallion contract had been made for the
acquired Contract at least as early as the date on which they were made for the
exchanged Contract or Medallion contract. For those exchanged contracts for
which a front-end sales charge was deducted from each purchase payment, the
transferred accumulated values will be treated as "Old Payments" under the
Contract, so that no deferred sales charge will be assessed on aggregate
subsequent withdrawals from the Contract of up to the amount of the transferred
accumulated values. For additional purchase payments made under the Contract
after the transfer of accumulated value from the exchanged contract, the
contingent deferred sales charge will be computed based on the number of years
that the additional purchase payments to which the withdrawal is attributed have
been credited under the Contract, as provided in this Prospectus.
SUMMARY OF DIFFERENCES BETWEEN THE ACQUIRED CONTRACT AND EXCHANGED CONTRACTS.
The Contract and the variable contracts to which this exchange offer applies, if
other than another Contract or Medallion contract, differ substantially as
summarized below. There may be additional differences important to a person
considering an exchange, and the prospectuses of the Contract and the variable
contract to be exchanged should be reviewed carefully before the exchange is
made.
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under
the Contract, as described in this Prospectus, imposes higher charge percentages
against the excess amount redeemed and generally applies such percentages for a
greater number of years than the exchanged contracts. For certain classes of
exchanged contracts, new purchase payments, subject to the contingent deferred
sales charge under the Contract, would not have been subject to the charge under
the exchanged contract.
CONTRACT FEE AND ADMINISTRATIVE EXPENSE CHARGE. Under the Contract, State
Mutual deducts a Contract Fee, at a maximum of $30, on each policy anniversary
date and upon full surrender, when the Accumulated Value is $50,000 or less, and
assesses each Subaccount with a daily administrative expense charge at an annual
rate of 0.15% of the average daily net assets of the Subaccount. Depending on
the class of contracts to which this exchange offer is made, either no policy
fee is deducted or a policy fee of $9 is deducted twice a year. For certain
classes of contracts, a combined sales and administrative expense is deducted
from purchase payments. No administrative expense charge based on a percentage
of Subaccount assets is imposed under the contracts to which this exchange offer
is made.
TRANSFER CHARGE. No charges for transfers among the Subaccounts and the General
Account are imposed for contracts to which this exchange offer is made.
Currently, no such charge is imposed under the Contract and the first six
transfers in a Contract year are guaranteed to be free of any charge. However,
State Mutual reserves the right to assess a charge, guaranteed never to exceed
$25, for the seventh and each subsequent transfer in a Contract year.
DEATH BENEFIT. The Contract offers a "stepped-up death benefit" which is not
offered under the exchanged contract; namely, the minimum death benefit that
would have been payable on the most recent fifth year Contract Anniversary,
adjusted for subsequent purchase payments and withdrawals after that date. Upon
exchange for the Contract, the accumulated value of the exchanged contract
becomes the "purchase payment" for the Contract. Therefore, the prior
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<PAGE>
purchase payments made for the exchanged contract would not become a basis for
determining the gross payment (less redemptions) guarantee under the Contract.
Consequently, whether the initial minimum death benefit under the Contract
acquired in an exchange is greater than, equal to, or less than the death
benefit of the exchanged contract depends upon whether the accumulated value
transferred to the Contract is greater than, equal to, or less than the gross
payments (less redemptions) under the exchanged contract.
ANNUITY TABLES. The contracts to which this exchange offer is made contain more
favorable annuity tables than the Contract for use in determining the amount of
the first variable annuity payment under the annuity options offered. The
contracts and the Contract each provide minimum guarantees.
INVESTMENTS. Accumulated Value and purchase payments under the Contract may be
allocated to several underlying funds in addition to those permitted under the
exchanged contracts.
SUMMARY OF DIFFERENCES BETWEEN THE ACQUIRED CONTRACT AND MEDALLION CONTRACT.
Contracts A3019-94 and A3022-93 issued by the Company and contracts A3019-92 and
A3022-93 issued by SMA Life and state variations thereof, which together include
all contracts sold as Delaware Medallion ("Medallion"), differ with the Contract
in the following material ways (the prospectuses of the Contract and Medallion
contracts should be reviewed carefully before any exchange):
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under
the Contract, as described in this Prospectus, imposes lower charge percentages
against the excess amount redeemed.
DEATH BENEFIT. Upon exchange for the Contract, the accumulated value of
exchanged Medallion contract becomes the "purchase payment" for the Contract.
Therefore, the prior purchase payments made for the exchanged Medallion contract
would not become a basis for determining the gross payment (less redemptions)
guarantee under the Contract. Consequently, whether the initial minimum death
benefit under the Contract acquired in an exchange is greater than, equal to, or
less than the death benefit of exchanged Medallion depends upon whether the
accumulated value transferred to the Contract is greater than, equal to, or less
than the gross payments (less redemptions) under the exchanged Medallion
contract.
INVESTMENTS. Accumulated Value and purchase payments under the Contract and
Medallion contract are allocable to different underlying funds underlying
investment companies.
FIXED ACCOUNT. The Contract has a Fixed Account minimum guaranteed interest
rate of 3.5% compounded annually. The Medallion contract has a fixed account
minimum guaranteed interest rate of 3% compounded annually. Under the Contract,
amounts may not be transferred from the Fixed Account to a Sub-Account prior to
the end of the applicable one-year guaranteed period.
B. FIXED ANNUITY EXCHANGE OFFER.
This exchange offer also applies to all fixed annuity contracts issued by SMA
Life. A fixed annuity contract to which this exchange offer applies may be
exchanged at net asset value for the Contract described in this Prospectus,
subject to the same provisions for effecting the exchange and for applying the
Contract's contingent deferred sales charge as described above for variable
annuity contracts. This Prospectus should be read carefully before making such
exchange. Unlike a fixed annuity, the Contract's value is not guaranteed and
will vary depending on the investment performance of the underlying funds to
which it is allocated. The Contract has a different charge structure than a
fixed annuity contract, which includes not only a contingent deferred sales
charge that may vary from that of the class of contracts to which the exchanged
fixed contract belongs, but also Contract fees, mortality and expense risk
charges (for State Mutual's assumption of certain mortality and expense risks),
administrative expense charges, transfer charges (for transfers permitted among
Subaccounts and the General Account), and expenses incurred by the underlying
funds. Additionally, the interest rates offered under the General Account of
the Contract and the Annuity Tables for determining minimum annuity payments may
be different from those offered under the exchanged fixed contract.
C. EXERCISE OF "FREE-LOOK PROVISION" AFTER ANY EXCHANGE.
Persons who, under the terms of this exchange offer, exchange their contract for
the Contract and subsequently revoke the Contract within the time permitted, as
described in the sections of this Prospectus captioned "RIGHT TO REVOKE
CONTRACT" will have their exchanged contract automatically reinstated as of the
date of revocation. The refunded amount will be applied as the new current
accumulated value under the reinstated contract, which may be more or less than
it would have been had no exchange and reinstatement occurred. The refunded
amount will be
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allocated initially among the general account and subaccounts of the reinstated
contract in the same proportion that the value in the general account and the
value in each subaccount bore to the transferred accumulated value on the date
of the exchange of the contract for the Contract. For purposes of calculating
any contingent deferred sales charge under the reinstated contract, the
reinstated contract will be deemed to have been issued and to have
received past purchase payments as if there had been no exchange.
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Supplement to the Statement of Additonal Information
for Allmerica Select Account of
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Supplement to Statement of Additional Information dated October 16, 1995)
* * *
The first paragraph of Note 2 to the December 31, 1994 financial statements
of State Mutual Life Assurance Company of America, which appear at the end of
the Statement of Additional Information, has been replaced with the following
UNAUDITED
On February 28, 1995, State Mutual's Board of Directors adopted, pursuant to
Massachusetts insurance law, a plan of reorganization (the "Plan") whereby
State Mutual will convert from a Massachusetts mutual life insurance company
to a Massachusetts stock life company and will become a wholly- owned
subsidiary of Allmerica Financial Corporation ("AFC"). On June 30, 1995, the
policyholders approved the Plan and on August 2, 1995 (following a hearing on
the Plan), the Commissioner of the Massachusetts Division of Insurance
approved the Plan. In October, 1995, the closing of an initial public
offering of AFC Common Stock and other financings were completed, and certain
proceeds thereof were contributed to State Mutual which was concurrently
renamed First Allmerica Financial Life Insurance Company. As a result, all
conditions to the effectiveness of the Plan have been satisfied and the Plan
is effective.
* * *
SUPPLEMENT DATED OCTOBER 16, 1995
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
FOR
GROUP AND INDIVIDUAL VARIABLE ANNUITY CONTRACTS FUNDED THROUGH
ALLMERICA SELECT SEPARATE ACCOUNT
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS FOR THE SEPARATE ACCOUNT DATED MAY 1, 1995
("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ALLMERICA INVESTMENTS,
INC., 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653, (508) 855-3590.
DATED OCTOBER 16, 1995
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE CONTRACT, THE SEPARATE ACCOUNT AND THE
COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 9
GENERAL INFORMATION AND HISTORY
Allmerica Select Separate Account ("Separate Account") is a separate investment
account of First Allmerica Financial Life Insurance Company ("Company")
established pursuant to a vote by the Board of Directors dated August 20, 1991.
The Company was originally organized as a mutual life insurance company under
the laws of Massachusetts in 1844. In October, 1995, the Company converted from
a mutual life insurance company known as State Mutual Life Assurance Company of
America to a stock life insurance company under its present name. The Company
is a wholly-owned subsidiary of Allmerica Financial Corporation. Their
principal offices are located at 440 Lincoln Street, Worcester, Massachusetts
01653.
Currently, 11 Subaccounts of the Separate Account are available under the
Contracts. Each Subaccount invests in a corresponding investment portfolio of
Allmerica Investment Trust ("Trust"), Variable Insurance Products Fund ("VIPF")
or T. Rowe Price International Series, Inc. ("T. Rowe").
The Trust, VIPF and T. Rowe are open-end, diversified series investment
companies. Seven different funds of the Trust are available under the Policies:
Select International Equity Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Growth Fund, Select Growth and Income Fund, Select
Income Fund and Money Market Fund. Three of the portfolios of VIPF are
available under the Policies: the High Income Portfolio, Equity-Income Portfolio
and Growth Portfolio. One portfolio of T. Rowe is available under the Policies:
the International Stock Portfolio. Each Fund, Portfolio and Series available
under the Contracts has its own investment objectives and certain attendant
risks.
TAXATION OF THE CONTRACT, SEPARATE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
Contract, other than for state and local premium taxes and similar assessments
when applicable. The Company
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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 Separate Account.
The Separate Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a mutual life insurance company under
subchapter L of the Code and files a consolidated tax return with its affiliated
companies.
The Company reserves the right to make a charge for any effect which the income,
assets, or existence of Contracts or the Separate Account may have upon its tax.
Such charge for taxes, if any, will be assessed on a fair and equitable basis in
order to preserve equity among classes of Contract Owners. The Separate Account
presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Separate Account. Trust shares owned by the Sub-Accounts are held on an open
account basis. A Sub-Account's ownership of Trust shares is reflected on the
records of the Trust and not represented by any transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1994 and
1993 and for each of the three years in the period ended December 31, 1994
and of Allmerica Select Separate Account of the Company as of December 31,
1994 and the period then ended, included in this Statement of Additional
Information constituting part of the Registration Statement, have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Contracts.
UNDERWRITERS
Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. (NASD), serves as principal underwriter for the Contracts
pursuant to a contract with the Company and the Separate Account. Allmerica
distributes the Contracts on a best efforts basis. Allmerica Investments, Inc.,
440 Lincoln Street, Worcester, Massachusetts 01653 was organized in 1969 as a
wholly-owned subsidiary of the Company and is an indirectly wholly-owned
subsidiary of the Company.
The Contracts offered by this Prospectus are offered continuously and may be
purchased from certain independent broker-dealers which are NASD members and
whose representatives are authorized by applicable law to sell variable annuity
contracts.
All persons selling the Contracts are required to be licensed by their
respective state insurance authorities for the sale of variable annuity
contracts. The Company pays commissions not to exceed 5.5% of purchase payments
to entities which sell the Contracts. To the extent permitted under NASD rules,
promotional incentives or payments may also be provided to such entities based
on sales volumes, the assumption of wholesaling functions, or other sales-
related criteria. Additional payments may be made for other services not
directly related to the sale of the Contracts, including the recruitment and
training of personnel, production of promotional literature, and similar
services.
Commissions paid by the Company do not result in any charge to Contract Owners
or to the Separate Account in addition to the charges described under "CHARGES
AND DEDUCTIONS" in
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the Prospectus. The Company intends to recoup the commission and other sales
expense through a combination of anticipated surrender, partial redemption,
and/or annuitization charges, 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.
The aggregate amount of commissions retained by Allmerica Investments, Inc. with
respect to sales of the Contracts in 1994 was $0.00. The aggregate amount of
commissions paid to independent broker-dealers in 1994 was $455,856.
ANNUITY PAYMENTS
The method by which the Accumulated Value under the Contract is determined is
described in detail under "COMPUTATION OF CONTRACT VALUES AND ANNUITY PAYMENTS"
in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the assets of a Sub-Account at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit value at the end of the current Valuation Period would be
calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
(1) Accumulation Unit Value - Previous Valuation Period. . . . . . . $ 1.135000
(2) Value of Assets - Beginning of Valuation Period. . . . . . . . . $5,000,000
(3) Excess of investment income and net gains over capital losses. . . . $1,675
(4) Adjusted Gross Investment Rate for the valuation period (3):(2). . 0.000335
(5) Annual Charge (one day equivalent of 1.40% per annum). . . . . . . 0.000038
(6) Net Investment Rate (4)-(5). . . . . . . . . . . . . . . . . . . . 0.000297
(7) Net Investment Factor 1.000000 + (6) . . . . . . . . . . . . . . . 1.000297
(8) Accumulation Unit Value - Current Period (1)x(7) . . . . . . . . $ 1.135337
</TABLE>
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
accumulated unit value at the end of the Valuation Period would have been
$1.134577.
The method for determining the amount of annuity payments is described in detail
under "COMPUTATION OF CONTRACT VALUES AND ANNUITY PAYMENT" in the Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY PAYMENT CALCULATION USING HYPOTHETICAL EXAMPLE.
The determination of the Annuity Unit value and the variable annuity payment may
be illustrated by the following hypothetical example: Assume an Annuitant has
40,000 Accumulation Units in a Separate Account, and that the value of an
Accumulation Unit on the Valuation Date used to determine the amount of the
first variable annuity payment is $1.120000. Therefore, the Accumulation Value
of the Contract is $44,800 (40,000 x $1.120000). Assume also that the Contract
Owner elects an option
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for which the first monthly payment is $6.57 per $1,000 of Accumulated Value
applied. Assuming no premium tax or contingent deferred sales charge, the first
monthly payment would be 44.800 multiplied by $6.57, or $294.34.
Next, assume that the Annuity Unit value for the assumed rate of 3-1/2% per
annum for the Valuation Date as of which the first payment was calculated was
$1.100000. Annuity Unit values will not be the same as Accumulation Unit values
because the former reflect the 3-1/2% assumed interest rate used in the annuity
rate calculations. When the Annuity Unit value of $1.100000 is divided into the
first monthly payment the number of Annuity Units represented by that payment is
determined to be 267.5818. The value of this same number of Annuity Units will
be paid in each subsequent month under most options. Assume further that the
net investment factor for the Valuation Period applicable to the next annuity
payment is 1.000190. Multiplying this factor by .999906 (the one-day adjustment
factor for the assumed interest rate of 3-1/2% per annum) produces a factor of
1.000096. This is then multiplied by the Annuity Unit value on the immediately
preceding Valuation Date (assumed here to be $1.105000). The result is an
Annuity Unit value of $1.105106 for the current monthly payment. The current
monthly payment is then determined by multiplying the number of Annuity Units by
the current Annuity Unit value, or 267.5818 times $1.105106, which produces a
current monthly payment of $295.71.
Method for Determining Variable Annuity Option V Redemption and Illustration
Using hypothetical Example. As discussed in the Prospectus under "DESCRIPTION
OF VARIABLE ANNUITY OPTIONS," the Annuitant, or the beneficiary if the Annuitant
has died, may choose at any time to redeem the Contract and receive its commuted
value. Commuted value is the present value of remaining payments commuted at 3
1/2% interest. However, if the Annuitant elects the redemption, the remaining
payments are deemed to be the remaining payments that would have been payable
had the Surrender Value, rather than the Accumulation Value, been applied at the
Annuity Date. The determination of the commuted value upon redemption by an
Annuitant may be illustrated by the following hypothetical example.
Assume an annuity period of 10 years or longer is elected. The number of
Annuity Units each payment is based on would be calculated using the Accumulated
Value. Assume this results in 267.5818 Annuity Units. Assume the commuted
value is requested with 60 monthly payments remaining and a current Annuity Unit
Value of $1.200000. Based on these assumptions, the dollar amount of remaining
payments would be $321.10 a month for 60 months. If the commuted value was
requested by a beneficiary, the value would be based on the present value at 3
1/2% interest of this stream of annuity payments. The commuted value would be
$17,725.39. However, if the commuted value is requested by an Annuitant, the
value is calculated as if the Surrender Value, not the Accumulated Value, had
been used to calculate the number of Annuity Units. Assume this results in 250
Annuity Units. Based on these assumptions, the dollar amount of remaining
payments would be $300 a month for 60 months. The present value at 3 1/2% of
all remaining payments would be $16,560.72.
PERFORMANCE INFORMATION
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to certain indices described in the prospectus under
"PERFORMANCE INFORMATION." In addition, The Company may provide advertising,
sales literature, periodic publications or other materials information on
various topics of interest to Contract owners and prospective Contract owners.
These topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as value investing, market timing, dollar cost
averaging, asset allocation, constant ratio transfer and account rebalancing),
the advantages and disadvantages of investing in tax-deferred and taxable
investments, customer profiles and hypothetical purchase and investment
scenarios, financial management and tax
-5-
<PAGE>
and retirement planning, and investment alternatives to certificates of deposit
and other financial instruments, including comparisons between the Contracts and
the characteristics of and market for such financial instruments.
The Contracts have been offered to the public only since March 15, 1994.
However, total return data may be advertised based on the period of time that
the Funds have been in existence. The results for any period prior to the
Contract being offered will be calculated as if the Contracts have been offered
during that period of time, with all charges assumed to be those applicable to
the Contracts.
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-Accounts asset charge and any applicable contingent deferred sales
charge which would be assessed upon complete redemption of the investment.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission. The quotations are computed by
finding the average annual compounded rates of return over the specified periods
that would equate the initial amount invested to the ending redeemable values,
according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment to the Separate Account of
$1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at the
end of the specified period
The calculation of Total Return includes the annual charges against the asset of
the Sub-Account. This charge is 1.40% on an annual basis. The calculation of
ending redeemable value assumes (1) the policy was issued at the beginning of
the period and (2) a complete surrender of the policy at the end of the period.
The deduction of the contingent deferred sales charge, if any, applicable at the
end of the period is included in the calculation, according to the following
schedule:
<TABLE>
<CAPTION>
Years from date of purchase Charge as percentage
--------------------------- --------------------
payment to date of withdrawal of New Purchase Payments
----------------------------- ------------------------
redeemed*
---------
<S> <C>
0-1 6.5%
2 6.0%
3 5.0%
4 4.0%
5 3.0%
6 2.0%
7 1.0%
More than 7 0.0%
*Subject to the maximum limit described in the prospectus.
</TABLE>
No contingent deferred sales charge is deducted upon expiration of the periods
specified above. In
-6-
<PAGE>
all Contract years, a certain amount (withdrawal without redemption charges," as
described in the prospectus) is not subject to the contingent sales load.
The calculations of Total Return include the deduction of the $30 Annual Policy
fee.
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return information in this section refers to the total of
the income generated by an investment in a 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 charges.
However, it is assumed that the investment is NOT redeemed at the end of each
period.
The quotations of Supplemental Total Return are computed by finding the average
annual compounded rates of return over the specified periods that would equate
the initial amount invested to the ending values, according to the following
formula:
n
P(1 + T) = EV
Where: P = a hypothetical initial payment to the Separate Account of
$1,000
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at the end of the
specified period
The calculation of Supplemental Total Return reflects the 1.40% annual charge
against the assets of the Sub-Accounts. The ending value assumes that the
policy is NOT redeemed at the end of the specified period, and there is
therefore no adjustment for the contingent deferred sales charge that would be
applicable if the policy was redeemed at the end of the period.
The calculations of Supplemental Total Return includes the deduction of the $30
Annual Policy fee.
YIELD AND EFFECTIVE YIELD - 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, 1994:
Yield 2.35%
Effective Yield 2.37%
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the Securities and Exchange Commission. Under those
methods, the yield quotation is computed by determining the net change
(exclusive of capital changes) in the value of a hypothetical pre-existing
account having a balance of one accumulation unit of the Sub-Account at the
beginning of the period, subtracting a charge reflecting the annual 1.40%
deduction for mortality and expense risk and the administrative charge, dividing
the difference by the value of the account at the beginning of the same period
to obtain the base period return, and then multiplying the return for a seven-
day base period by (365/7), with the resulting yield carried to the nearest
hundredth of one percent.
-7-
<PAGE>
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
The calculations of yield and effective yield do NOT reflect the $30 Annual
Policy fee.
-8-
<PAGE>
FINANCIAL STATEMENTS
Financial Statements are included for the Company and its Allmerica Select
Separate Account.
-9-
<PAGE>
STATE MUTUAL LIFE
ASSURANCE COMPANY
OF AMERICA
FINANCIAL STATEMENTS
DECEMBER 31, 1994 and 1993
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
December 31, 1994
Financial Statements
Report of Independent Accountants...................................... 1
Statement of Financial Position ...................................... 2
Statement of Operations and Contingency Reserves....................... 3
Statement of Cash Flows................................................ 4
Notes to Financial Statements.......................................... 5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
February 13, 1995, except as to Note 2,
which is as of February 28, 1995
To the Board of Directors and Policyholders of
State Mutual Life Assurance Company of America
In our opinion, the accompanying statement of financial position and the
related statements of operations and changes in contingency reserves and of
cash flows present fairly, in all material respects, the financial position
of State Mutual Life Assurance Company of America at December 31, 1994 and
1993, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the financial statements, the Company implemented a
new accounting pronouncement in 1993 and may adopt Statement of Financial
Accounting Standards No. 120, "Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts", and Financial Accounting Standards Board
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises", in 1996. If
these pronouncements are adopted, the financial statements for the year ended
December 31, 1994 will be retroactively restated for the effects of these
changes in accounting principles.
Price Waterhouse LLP
Boston, Massachusetts
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
STATEMENT OF FINANCIAL POSITION
as of December 31
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1994 1993
---- ----
<S> <C> <C>
Cash $ 21,931 $ 22,378
Investments:
Bonds 3,063,890 3,172,304
Stocks 14,638 48,713
Investments in subsidiaries 797,879 971,339
Mortgage loans 825,611 1,045,748
Policy loans 248,310 258,845
Real estate, including home office property 185,128 192,333
Short term investments 72,159 61,176
Other invested assets 45,978 22,180
---------- ----------
Total cash and investments 5,275,524 5,795,016
Premiums deferred and uncollected 95,890 91,434
Investment income due and accrued 84,066 89,756
Other assets 79,165 87,238
Assets held in separate accounts 1,096,032 922,069
---------- ----------
$6,630,677 $6,985,513
---------- ----------
---------- ----------
LIABILITIES AND CONTINGENCY RESERVES
Liabilities:
Policy liabilities:
Life reserves $ 965,896 $ 969,223
Annuity and other fund reserves 3,561,965 3,981,281
Accident and health reserves 50,096 45,424
Claims payable 122,677 112,509
Dividends payable 33,930 35,406
---------- ----------
Total policy liabilities 4,734,564 5,143,843
Expenses and taxes payable 137,676 99,301
Other liabilities 73,427 33,616
Asset valuation reserve 124,254 260,714
Obligations related to separate account business 1,095,430 921,648
---------- ----------
Total liabilities 6,165,351 6,459,122
---------- ----------
---------- ----------
Contingency reserves:
Special contingency reserves 26,522 25,238
General contingency reserves 438,804 501,153
---------- ----------
Total contingency reserves 465,326 526,391
---------- ----------
$6,630,677 $6,985,513
---------- ----------
---------- ----------
</TABLE>
The accompanying note are an integral part of these financial statements.
2
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS AND
CHANGES IN CONTINGENCY RESERVES
for the year ended December 31
(In thousands)
<TABLE>
<CAPTION>
REVENUE 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Premiums and other considerations:
Life $ 100,956 $ 92,314 $ 101,929
Annuities 950,980 762,724 768,050
Accident and health 225,132 246,842 338,534
Reinsurance commissions and reserve adjustments 10,117 10,853 11,700
---------- ---------- ----------
Total premiums and other considerations 1,287,185 1,112,733 1,220,213
Net investment income 406,071 520,508 503,754
Realized capital losses, net of tax (28,341) (33,334) (5,261)
Other revenue 43,651 29,121 14,849
---------- ---------- ----------
Total revenue 1,708,566 1,629,028 1,733,555
---------- ---------- ----------
POLICY BENEFITS AND OPERATING EXPENSES
Policy benefits:
Claims, surrenders and other benefits 1,697,943 1,314,540 1,459,941
Decrease in policy reserves (412,090) (175,726) (153,971)
Dividends to policyholders 33,233 32,773 25,955
---------- ---------- ----------
Total policy benefits 1,319,086 1,171,587 1,331,925
Operating and selling expenses 141,460 138,566 141,456
Taxes, except capital gains tax 33,747 18,664 14,565
Net transfers to separate accounts 173,607 185,374 141,183
---------- ---------- ----------
Total policy benefits and operating expenses 1,667,900 1,514,191 1,629,129
---------- ---------- ----------
NET INCOME 40,666 114,837 104,426
CONTINGENCY RESERVES AT BEGINNING OF YEAR 526,391 444,427 338,683
Unrealized capital gains (losses) on investments:
Unconsolidated subsidiaries (222,155) 47,292 101,155
Other investments 24,579 (14,159) (61,479)
---------- ---------- ----------
(197,576) 33,133 39,676
---------- ---------- ----------
Transfer from (to) asset valuation reserve 136,460 (25,173) (40,188)
Other adjustments (40,615) (40,833) 1,830
---------- ---------- ----------
CONTINGENCY RESERVES AT END OF YEAR $ 465,326 $ 526,391 $ 444,427
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
STATEMENT OF CASH FLOWS
for the year ended December 31
(In thousands)
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Premiums, deposits and other income $ 1,327,496 $ 1,120,816 $ 1,230,872
Allowances and reserve adjustments
on reinsurance ceded 10,862 11,773 8,836
Net investment income 372,428 432,631 443,668
Net repayments on policy loans 10,535 17,637 21,062
Benefits to policyholders and
beneficiaries (1,684,684) (1,313,978) (1,467,104)
Operating and selling expenses and
taxes (155,162) (111,125) (177,946)
Net transfers to separate accounts (160,623) (201,442) (135,921)
Dividends to policyholders (34,709) (27,777) (42,874)
Other sources (applications) 3,775 (40,938) 9,560
---------- ---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (310,082) (112,403) (109,847)
---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
New borrowings 932,497 116,800 261,000
Repayment of borrowings (932,497) (116,800) (261,000)
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- -- --
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Sales and maturities of long term investments:
Bonds 993,365 841,548 776,693
Stocks 1,835 4,361 2,948
Real estate and other invested assets 19,200 24,122 23,886
Repayment of mortgage principal 193,842 211,360 136,252
Capital gains tax (1,086) (2,232) --
Acquisition of long term investments:
Bonds (881,081) (887,976) (821,694)
Stocks (4,557) (62,318) (6,674)
Real estate and other invested assets (31,504) (3,931) (32,404)
Mortgage loans (1,529) (1,185) (6,313)
Other investing activities 32,133 (5,199) (743)
---------- ---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 320,618 118,550 71,951
---------- ---------- ----------
Net change in cash and short term investments 10,536 6,147 (37,896)
CASH AND SHORT TERM INVESTMENTS
Beginning of year 83,554 77,407 115,303
---------- ---------- ----------
End of year $ 94,090 $ 83,554 $ 77,407
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION - State Mutual Life Assurance Company
of America (State Mutual or the "Company") is presently organized as a mutual
life insurance company and accordingly, the Company's financial statements
have been prepared on the basis of accounting practices prescribed or
permitted by the Division of Insurance of the Commonwealth of Massachusetts
and in conformity with practices prescribed by the National Association of
Insurance Commissioners (NAIC), which are generally accepted accounting
principles for mutual life insurance companies. The Company is pursuing a
plan of reorganization which includes conversion to a stock life insurance
company. (Refer to Note 2 for a description of the reorganization.)
Certain reclassifications have been made to prior years amounts to conform
with the current year presentation.
ACCOUNTING FOR UNCONSOLIDATED SUBSIDIARIES - State Mutual's interest in
unconsolidated subsidiaries consists primarily of SMA Life Assurance Company
(SMA Life), a wholly owned life insurance company, a 57.4% interest in
Allmerica Property & Casualty Companies, Inc. (Allmerica P&C), a Delaware
domiciled business corporation which owns The Hanover Insurance Company
(Hanover), and several wholly owned non-insurance subsidiaries. Hanover owns
an 80.6% interest in Citizens Corporation, parent company of Citizens
Insurance Company of America (Citizens). Allmerica P&C is accounted for at
market value. During 1993, the Securities Valuation Office of the NAIC
instituted a discount to market values for subsidiaries previously carried at
market value. The discount applied to Allmerica P&C was determined to be
16%, to be phased in over a five year period (3% per year in 1993 to 1996
and 4% in 1997). SMA Life and the non-insurance subsidiaries are accounted
for under the equity method. The Company's equity in the earnings of
unconsolidated subsidiaries is reflected in net income. Any remaining
changes in Allmerica P&C's value and direct charges to SMA Life's surplus are
reflected in contingency reserves.
VALUATION OF INVESTMENTS - Investments in bonds are carried principally at
amortized cost in accordance with NAIC guidelines. Preferred stocks are
carried generally at cost and common stocks are carried at market value.
Policy loans are carried principally at unpaid principal balances.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts. Mortgage loans are reduced for losses expected by
management to be realized on transfers of mortgage loans to real estate (upon
foreclosure), on the disposition or settlement of mortgage loans and on
mortgage loans which management believes may not be collectible in full. In
determining the amount of the loss, management considers, among other things,
the estimated fair value of the underlying collateral.
Investment real estate and real estate acquired through foreclosure are
carried at the lower of depreciated cost or market value. Home office
property is carried at depreciated cost.
An asset valuation reserve (AVR) for bonds, mortgage loans, stocks, real
estate, and other invested assets is maintained by appropriations from
surplus in accordance with a formula specified by the NAIC and is classified
as a liability.
FINANCIAL INSTRUMENTS - In the normal course of business, the Company enters
into transactions involving various types of financial instruments including
investments such as bonds and stocks, investment and loan commitments,
foreign currency swaps, and futures contracts. These instruments involve
credit risk and also may be subject to risk of loss due to currency risk and
interest rate fluctuations. The Company evaluates and monitors each
financial instrument individually and, when appropriate, obtains collateral
or other security to minimize losses.
RECOGNITION OF PREMIUM INCOME AND ACQUISITION COSTS - In general, premiums
are recognized as revenue over the premium paying period of the policies;
commissions and other costs of acquiring the policies are charged to
operations when incurred.
SEPARATE ACCOUNTS - Separate account assets and liabilities represent
segregated funds administered and invested by the Company for the benefit of
certain variable life insurance policyholders and certain pension and annuity
contractholders.
5
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
Assets consist principally of bonds, common stocks, and short term
obligations at market value. The investment income, gains, and losses of
these accounts generally accrue to the contractholders and, therefore, are
not included in the Company's net income. Appreciation and depreciation of
the Company's interest in the separate accounts, including undistributed net
investment income, is reflected in contingency reserves.
INSURANCE RESERVES AND ANNUITY AND OTHER FUND RESERVES - Reserves for life
insurance, annuities, and accident and health insurance are established in
amounts adequate to meet the estimated future obligations of policies in
force based on accepted actuarial methods. These liabilities are computed
based upon mortality, morbidity and interest rate assumptions applicable to
these coverages, including a provision for adverse deviation. Interest rates
range from 2 1/2% to 6% for life insurance and 2% to 9 1/2% for annuities, and
mortality and morbidity assumptions reflect the Company's experience and
industry standards. The assumptions vary by plan, age at issue, year of
issue and duration.
Reserves for group accident and health claims include estimated provisions
for both reported and unreported claims incurred and related expenses.
Claims reserves are computed based on historical experience modified for
expected trends in frequency and severity. Other fund reserves are for
guaranteed investment contracts and other group and individual contract
deposit funds and consist of deposits received from customer's and investment
earnings on their fund balances.
Withdrawal characteristics of annuity and other fund reserves vary by
contract. At both December 31, 1994 and 1993, approximately 87% of the
contracts (included in both the general account and the separate accounts of
the Company) were not subject to discretionary withdrawal or were subject to
withdrawal at book value less surrender charge.
FEDERAL INCOME TAXES - State Mutual, its non-insurance domestic subsidiaries
and SMA Life file a consolidated United States Federal income tax return.
Entities included within the consolidated group are segregated into either a
life insurance or non-life insurance company subgroup. The consolidation of
these subgroups is subject to certain statutory restrictions on the
percentage of eligible non-life taxable operating losses that can be applied
to offset life company taxable income. Allmerica P&C and its subsidiaries
file a separate United States Federal income tax return.
The Federal income tax for the non-life insurance subsidiaries is calculated
on a separate return basis. Any current tax liability (benefit) is paid to
(reimbursed by) State Mutual. Tax benefits resulting from taxable operating
losses of the non-life subsidiaries are not reimbursed currently by State
Mutual. However, to the extent such losses are utilized by the consolidated
group, they are reflected as a liability of State Mutual.
The Federal income tax for the life companies is calculated on a line of
business basis, excluding the operating results of the non-insurance
subsidiaries and Allmerica P&C. The tax is allocated to each life company
based on its contribution to the taxable income or loss of each line of
business.
CAPITAL GAINS AND LOSSES - Realized capital gains and losses, net of
applicable capital gains tax or benefit, exclusive of those transferred to
the interest maintenance reserve (IMR), are included in the statement of
operations. Unrealized capital gains and losses are reflected as direct
credits or charges to contingency reserves. The IMR, which is included in
other liabilities, establishes a reserve for realized gains and losses, net
of tax, resulting from changes in interest rates on short and long term fixed
income investments. Net realized gains and losses charged to the IMR are
amortized into net investment income over the remaining life of the
investment sold.
DIVIDENDS TO POLICYHOLDERS - Certain life, health and annuity insurance
policies contain dividend payment provisions that enable the policyholder to
participate in the earnings of the Company. The amount of policyholders'
dividends to be paid is determined annually by the Board of Directors. The
aggregate amount of policyholders' dividends is related to the actual
interest, mortality, morbidity and expense experience for the year and the
Company's judgment as to the appropriate level of statutory surplus to be
retained.
Dividends on individual life insurance, individual accident and health
insurance, and individual annuity policies are provided on the basis of
amounts payable in the following calendar year. Dividends on all other
insurance are provided on the basis of amounts incurred for the current year.
6
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
PENDING ACCOUNTING PRONOUNCEMENT - In April 1993, the Financial Accounting
Standards Board (FASB) issued Interpretation No. 40, "Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises" (FIN 40), which establishes a different definition of generally
accepted accounting principles for mutual life insurance companies. Under the
Interpretation, financial statements of mutual life insurance companies which
are prepared on the basis of statutory accounting, will no longer be
characterized as in conformity with generally accepted accounting principles.
In January 1995, the FASB issued Statement of Financial Accounting Standards
No. 120, "Accounting and Reporting by Mutual Life Insurance Enterprises and
by Insurance Enterprises for Certain Long-Duration Participating Contracts"
(SFAS No. 120), and the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position No. 95-1, "Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises" (SOP 95-1). SFAS
No. 120 extends the requirements of SFAS No. 60, "Accounting and Reporting by
Insurance Enterprises," No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments," and No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts," to mutual
life insurance enterprises. SOP 95-1 establishes accounting for certain
participating life insurance contracts for mutual life insurance enterprises.
SFAS No. 120 requires mutual life insurance enterprises (and permits stock
life insurance enterprises) to apply the provisions of SOP 95-1 to those
contracts which meet the conditions in SFAS No. 120.
FIN 40, SFAS No. 120 and SOP 95-1 are all effective for financial statements
issued for fiscal years beginning after December 15, 1995.
In as much as the Company is pursuing a plan of reorganization which includes
conversion to a stock life insurance company, and would result in future
financial statements being prepared in accordance with generally accepted
accounting principles for stock life insurance companies, the new
pronouncement may not be applicable to future financial statements. If the
Company does not demutualize, the new pronouncement will be adopted in 1996,
by retroactive restatement of the earliest year presented. Management of the
Company has not yet determined the effect on its financial statements of
applying these new pronouncements.
ACCOUNTING CHANGES - In December 1992, the NAIC issued a statutory accounting
policy for accounting for postretirement benefits other than pensions for
current retirees and employees who have vested rights in those benefits. The
Company implemented this statutory requirement in 1993 and elected to
immediately recognize the unfunded postretirement benefit obligation and
reported the cumulative effect of this change as a direct charge to
contingency reserves (see Note 9 for additional information).
NOTE 2 - REORGANIZATION
On February 28, 1995, State Mutual's Board of Directors adopted, pursuant to
Massachusetts insurance law, a plan of reorganization (the "Plan") whereby
State Mutual will convert from a Massachusetts mutual life insurance company
to a Massachusetts stock life insurance company and will become a wholly
owned subsidiary of Allmerica Financial Corporation ("AFC"). Currently, the
unsatisfied conditions to the effectiveness of the Plan of Demutualization
are the approval of the Commissioner of the Massachusetts Division of
Insurance (the "Commissioner") of the Plan after a hearing thereon, the
approval of the policyholders of the Plan, the closing of an initial public
offering of AFC Common Stock and certain other conditions set forth in the
Plan. The Plan is also subject to the review of other insurance regulators.
The Plan will become effective on the date of the closing of the initial
public offering of the Common Stock of AFC.
Under the Plan, the eligible policyholders of State Mutual will receive
shares of Common Stock of AFC, policy credits or cash in exchange for the
policyholders' membership interest in State Mutual.
Under the Plan, State Mutual will establish and operate a closed block of
participating business for the benefit of the policies included therein (the
"Closed Block"). Such business (the" Closed Block Business") will contain
those classes of individual or joint life insurance participating policies,
individual deferred annuity contracts and supplementary contracts not
involving life contingencies which are in force on the effective date. The
Closed Block will continue in effect until no more policies included therein
are in force or until the Commissioner consents to the termination of the
Closed Block. The duration of the Closed Block is expected to be in excess
of 50 years.
7
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
State Mutual will allocate to the Closed Block an amount of assets expected
to produce cash flows which, together with anticipated revenues from the
Closed Block Business, are reasonably sufficient to support the Closed Block
Business, including provision for payments of claims, certain expenses and
taxes, and for continuation of 1994 dividend scales if experience underlying
such scales continues. Future changes in actual reinvestment rates over the
long term from assumed reinvestment rates, like changes in other assumptions
made in funding the Closed Block, may cause dividend scales to change.
To the extent that over time cash flows from the assets allocated to the
Closed Block and other experience related to the Closed Block Business are,
in the aggregate, more favorable than assumed in establishing the Closed
Block, total dividends paid to Closed Block policyholders in future years
will be greater than the total dividends that would have been paid to such
policyholders if the dividend scales payable in 1994 had been continued.
Conversely, to the extent that over time such cash flows and other experience
are, in the aggregate, less favorable than assumed in setting up the Closed
Block, total dividends paid to Closed Block policyholders in future years
will be less than the total dividends that would have been paid to such
policyholders if the dividend scales payable in 1994 had been continued. In
addition, if the assets allocated to the Closed Block, the cash flows
therefrom and the revenues from the Closed Block Business prove to be
insufficient to pay the benefits guaranteed under the policies and contracts
included in the Closed Block, State Mutual will be required to make such
payments from its general funds. Since the Closed Block will be funded to
provide for payment of guaranteed benefits on such policies and contracts
and, in addition, for continuation of dividends paid under 1994 dividend
scales, it will not be necessary to use general funds to pay guaranteed
benefits unless the Closed Block Business experiences very substantial
adverse deviations in investment, mortality, persistency or other experience
factors.
NOTE 3 - INVESTMENTS
BONDS - The carrying value and fair value of investments in
bonds, are as follows:
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
<S> <C> <C> <C> <C>
Federal government bonds $ 13,250 $ 246 $ 534 $ 12,962
State, local and government agency bonds 550 7 -- 557
Foreign government bonds 70,217 1,126 6,510 64,833
Corporate securities 2,939,333 22,052 96,285 2,865,100
Mortgage-backed securities 40,540 58 1,895 38,703
---------- -------- -------- ----------
Total $3,063,890 $ 23,489 $105,224 $2,982,155
---------- -------- -------- ----------
---------- -------- -------- ----------
December 31, 1993
-----------------
Federal government bonds $ 19,442 $ 1,484 $ 40 $ 20,886
State, local and government agency bonds 12,048 235 -- 12,283
Foreign government bonds 64,951 4,417 14 69,354
Corporate securities 3,075,146 182,272 18,589 3,238,829
Mortgage-backed securities 717 43 -- 760
---------- -------- -------- ----------
Total $3,172,304 $188,451 $ 18,643 $3,342,112
---------- -------- -------- ----------
---------- -------- -------- ----------
</TABLE>
8
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
The carrying value and fair value by contractual maturity at December 31,
1994, are shown below. Actual maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties or the Company may have the
right to put or sell the obligation back to the issuer. Mortgage-backed
securities are classified based on expected maturities.
<TABLE>
<CAPTION>
Carrying Fair
(In thousands) Value Value
----- -----
<S> <C> <C>
Due in one year or less $ 566,301 $ 567,013
Due after one year through five years 1,691,897 1,651,469
Due after five years through ten years 607,819 571,345
Due after ten years 197,873 192,328
---------- ----------
Total $3,063,890 $2,982,155
---------- ----------
---------- ----------
</TABLE>
MORTGAGE LOANS AND REAL ESTATE Mortgage loans and real estate investments
are diversified by property type and location. Real estate investments,
except home office, have been obtained primarily through foreclosure.
Mortgage loans are collateralized by the related properties and are generally
no more than 75% of the property value at the time the original loan is made.
Mortgage loan and real estate investments, including home office of $67,920
thousand and $61,363 thousand at December 31, 1994 and 1993, respectively,
were distributed by the following types and geographic regions at December 31:
<TABLE>
<CAPTION>
(In thousands)
Property Type 1994 1993
- ------------- ---- ----
<S> <C> <C>
Office buildings $ 445,222 $ 514,575
Residential 148,155 233,459
Retail 168,536 197,496
Industrial/Warehouse 93,323 135,766
Other 155,503 156,785
---------- ----------
Total $1,010,739 $1,238,081
---------- ----------
---------- ----------
Geographic Region
- -----------------
South Atlantic $ 263,883 $ 342,345
Pacific 189,547 212,371
New England 142,371 142,263
West South Central 99,065 141,375
Middle Atlantic 108,531 113,716
East North Central 71,937 114,694
East South Central 48,232 66,139
West North Central 72,919 82,883
Mountain 14,254 22,295
---------- ----------
Total $1,010,739 $1,238,081
---------- ----------
---------- ----------
</TABLE>
FUTURES CONTRACTS - State Mutual purchases and sells futures contracts on
margin to hedge against interest rate fluctuations and their effect on the
net cash flows from the sales of guaranteed investment contracts. Because
the Company purchases and sells futures contracts through brokers who assume
the risk of loss, the Company's exposure to credit risk under futures
contracts is limited to the margin deposited with the broker. The maturity of
all futures contracts outstanding is less than one year.
Gains and losses on hedge contracts related to interest rate fluctuations are
deferred and recognized in income over the period being hedged corresponding
to related guaranteed investment contracts. The amount of hedging gains
(losses) explicitly deferred were $(7,658) thousand, $6,953 thousand and
$4,976 thousand for the years ended December 31, 1994,
9
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
1993 and 1992, respectively. Gains and losses on hedges that are deemed
ineffective by management are immediately recognized into income.
A reconciliation of notional amounts for all futures contracts outstanding
for the year ended December 31 is as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---- ----
<S> <C> <C>
Contracts outstanding, January 1 $ 141,700 $ 120,000
New contracts 816,000 493,300
Contracts expired -- --
Contracts terminated (831,000) (471,600)
--------- ---------
Contracts outstanding, December 31 $ 126,700 $ 141,700
--------- ---------
--------- ---------
</TABLE>
FOREIGN CURRENCY SWAP CONTRACTS - The Company enters into foreign currency
swap contracts to hedge the exposure to currency risks on fixed maturity
investments. Interest and principal related to foreign fixed maturity
investments payable in foreign currencies, at market currency exchange rates,
are exchanged for the equivalent payment translated at a specific currency
exchange rate. The Company's maximum exposure to counterparty credit risk is
the difference between the foreign currency exchange rates, as agreed upon in
the swap contract, and the foreign currency spot rate on the date of
exchange. State Mutual recognizes net interest received or paid over the life
of the swap contract as an adjustment to net investment income. The decrease
in net investment income related to foreign currency swap contracts was
$(1,400) thousand, $(800) thousand and $(200) thousand for the years ended
December 31, 1994, 1993 and 1992, respectively.
The contractual amounts and maturity dates of foreign currency swap contracts
were as follows:
<TABLE>
<CAPTION>
December 31, 1994
-----------------
After
(In thousands) 1995 1996 1997 1998 1998 Total
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Currency:
Swiss franc $14,100 $10,600 $ -- $ -- $ 6,600 $ 31,300
Canadian dollar -- -- -- -- 15,000 15,000
British pound sterling -- -- 8,200 -- 18,800 27,000
Italian lire -- 20,000 -- -- -- 20,000
Other -- 5,400 10,000 -- 10,000 25,400
------- ------- ------- ------- ------- --------
Balance, December 31 $14,100 $36,000 $18,200 $ -- $50,400 $118,700
------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- --------
December 31, 1993
-----------------
After
(In thousands) 1994 1995 1996 1997 1997 Total
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Currency:
Swiss franc $ 5,000 $14,100 $10,600 $ -- $ 6,600 $ 36,300
Canadian dollar -- -- -- -- 15,000 15,000
British pound sterling -- -- -- 8,200 18,800 27,000
Italian lire -- -- 20,000 -- -- 20,000
Other 10,100 -- 5,400 10,000 5,000 30,500
------- ------- ------- ------- ------- --------
Balance, December 31 $15,100 $14,100 $36,000 $18,200 $45,400 $128,800
------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- --------
</TABLE>
10
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
A reconciliation of the contractual amounts of foreign currency swap
contracts outstanding for the year ended December 31 is as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---- ----
<S> <C> <C>
Contracts outstanding, January 1 $128,800 $ 95,000
New contracts 10,100 50,700
Contracts expired (15,100) (16,900)
Contracts terminated (5,100) --
-------- --------
Contracts outstanding, December 31 $118,700 $128,800
-------- --------
-------- --------
</TABLE>
NET INVESTMENT INCOME - The components of net investment income for the year
ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Bonds $261,176 $276,077 $285,415
Stocks 1,305 1,062 938
Investments in subsidiaries 37,478 107,603 67,239
Mortgage loans 87,670 114,831 130,480
Real estate 50,431 48,072 47,061
Policy loans 14,457 15,282 16,271
Other investments 2,765 (264) 2,649
Short term investments 359 2,284 1,045
-------- -------- --------
455,641 564,947 551,098
Less investment expenses 52,123 45,556 47,405
-------- -------- --------
Net investment income, before IMR amortization 403,518 519,391 503,693
IMR amortization 2,553 1,117 61
-------- -------- --------
Net investment income $406,071 $520,508 $503,754
-------- -------- --------
-------- -------- --------
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES - Realized capital gains (losses) on
investments for the year ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Bonds $ 2,144 $ 4,953 $ 1,855
Stocks 84 87 472
Mortgage loans (21,351) (12,709) 49
Real estate (8,990) (11,743) (5,799)
Other 2,505 (2,734) (572)
-------- -------- --------
(25,608) (22,146) (3,995)
Less Federal income tax 1,086 2,232 961
-------- -------- --------
Net realized capital losses before transfer to IMR (26,694) (24,378) (4,956)
Net realized capital gains transferred to IMR (1,647) (8,956) (305)
-------- -------- --------
Net realized capital losses $(28,341) $(33,334) $ (5,261)
-------- -------- --------
-------- -------- --------
</TABLE>
Proceeds from voluntary sales of investments in bonds during 1994, 1993 and
1992 were $222,644 thousand, $222,865 thousand and $136,458 thousand,
respectively. Gross gains of $3,753 thousand, $3,337 thousand and $1,504
thousand and gross losses of $2,945 thousand, $1,300 thousand and $1,159
thousand, respectively, were realized on those sales.
11
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
NOTE 4 - INVESTMENTS IN SUBSIDIARIES
Summarized financial information concerning all unconsolidated subsidiaries
as of December 31 is as follows:
<TABLE>
<CAPTION>
Property & Casualty
(In thousands) Life Insurance Insurance Non-Insurance
-------------- --------- -------------
<S> <C> <C> <C>
1994
- ----
Assets $4,072,045 $4,337,564 $ 74,597
Liabilities 3,882,722 3,347,785 29,883
Equity in net income (loss) 6,403 42,753 (11,678)
1993
- ----
Assets $3,504,724 $4,200,463 $ 70,014
Liabilities 3,322,508 3,240,364 26,479
Equity in net income (loss) 19,782 95,741 (7,920)
</TABLE>
The Company provides management, operating personnel, facilities and other
services to various subsidiaries and affiliates. Reimbursements for such
services and facilities amounted to $261,913 thousand, $225,044 thousand and
$112,777 thousand in 1994, 1993 and 1992, respectively. Net amounts
receivable from subsidiaries and affiliates were $37,514 thousand and $30,188
thousand at December 31, 1994 and 1993, respectively.
NOTE 5 - FAIR VALUE DISCLOSURES OF FINANCIAL INFORMATION
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure of fair value information
about certain financial instruments (insurance contracts, real estate,
goodwill and taxes are excluded) for which it is practicable to estimate such
values, whether or not these instruments are included in the balance sheet.
The fair values presented for certain financial instruments are estimates
which, in many cases, may differ significantly from the amounts which could
be realized upon immediate liquidation. In cases where market prices are not
available, estimates of fair value are based on discounted cash flow analyses
which utilize current interest rates for similar financial instruments which
have comparable terms and credit quality. Fair values of futures contracts
and foreign currency swaps were not material to State Mutual as of December 31,
1994 and 1993.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
FINANCIAL ASSETS:
CASH AND SHORT TERM INVESTMENTS - The carrying amounts reported in the
statement of financial position approximate fair value.
BONDS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models using
discounted cash flow analyses.
STOCKS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models.
MORTGAGE LOANS - Fair values are estimated by discounting the future
contractual cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings. The fair value of below
investment grade mortgage loans is limited to the lesser of the present value
of future cash flows or book value.
POLICY LOANS - The carrying amount reported in the statement of financial
position approximates fair value since policy loans have no defined maturity
dates and are inseparable from the insurance contracts.
12
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
FINANCIAL LIABILITIES:
INVESTMENT CONTRACTS (WITHOUT MORTALITY/MORBIDITY FEATURES) - Fair values
for the Company's liabilities under guaranteed investment type contracts are
estimated using discounted cash flow calculations using current interest
rates for similar contracts with maturities consistent with those remaining
for the contracts being valued. Other liabilities are based on surrender
values.
The estimated fair values of the financial instruments as of December 31 were
as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 21,931 $ 21,931 $ 22,378 $ 22,378
Short term investments 72,159 72,159 61,176 61,176
Bonds 3,063,890 2,982,155 3,172,304 3,342,112
Stocks 14,638 14,638 48,713 48,713
Mortgage loans 825,611 814,047 1,045,748 1,077,707
Policy loans 248,310 248,310 258,845 258,845
Financial Liabilities:
Guaranteed investment contracts $2,170,643 $2,134,046 $2,463,938 $2,582,392
Other group contract deposit funds 980,327 969,627 1,087,732 1,116,800
Supplemental contracts without life contingencies 8,647 8,647 11,013 11,013
Dividend accumulations 84,482 84,482 84,808 84,808
Other individual contract deposit funds 107,400 106,893 124,081 122,908
Individual annuity contracts 8,185 7,943 -- --
</TABLE>
NOTE 6 - BORROWED MONEY
State Mutual issues commercial paper primarily to manage imbalances between
operating cash flows and existing commitments. Commercial paper borrowing
arrangements are supported by various lines of credit. As of December 31,
1994, State Mutual has approximately $165,000 thousand in unused committed
lines of credit provided by U.S. banks. These lines of credit generally have
terms of less than one year, and require the Company to pay annual commitment
fees ranging from 0.10% to 0.125% of the available credit. Interest that
would be charged for usage of these lines of credit is based upon negotiated
arrangements.
State Mutual has no borrowed money outstanding at December 31, 1994 and 1993.
Interest expense related to borrowed money was $2,485 thousand, $154
thousand and $580 thousand for the years ended December 31, 1994, 1993 and
1992, respectively.
NOTE 7 - FEDERAL INCOME TAXES
The federal income tax provisions (benefit) for 1994, 1993 and 1992 were
$17,476 thousand, $9,265 thousand and $(208) thousand, respectively, which
include taxes applicable to realized capital gains of $1,086 thousand, $2,232
thousand and $961 thousand.
The effective federal income tax rates were 30.1%, 7.5% and (0.2)% in 1994,
1993 and 1992, respectively. The differences between the federal statutory
rate and the Company's effective tax rates are primarily related to:
decreases in taxable income for the utilization of net operating loss
carryforwards and write-offs of mortgage loans and real estate; increases in
taxable income for differences in policyholder liabilities for federal income
tax purposes and financial reporting purposes, the accrual of market
discounts on investments and the deferral of policy acquisition costs for
federal tax purposes. The
13
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
policyholder dividends adjustment affecting mutual life insurance companies
resulted in an increase in taxable income in 1994 and 1992 and a decrease in
taxable income in 1993. At December 31, 1994, the Company has no available
net operating loss carryforwards; however, there are available alternative
minimum tax credit carryforwards of $1,540 thousand.
The Company's Federal income tax returns are routinely audited by the
Internal Revenue Service (IRS) and provisions are routinely made in the
financial statements in anticipation of the results of these audits. The
Internal Revenue Service (IRS) has completed its examination of all of the
Company's federal income tax returns through 1988. Deficiencies asserted
with respect to tax years 1977 through 1981 have been paid and recorded and
the Company has filed a recomputation of such years with appeals claiming a
refund with respect to certain agreed upon issues, but has not recognized any
benefit in its financial statements. The Company is currently considering
its response to certain adjustments proposed by the IRS with respect to the
Company's federal income tax returns for 1982 and 1983. If upheld, these
proposed adjustments would result in additional payments; however, the
Company will vigorously defend its position with respect to these
adjustments. In management's opinion, adequate tax liabilities have been
established for all years.
NOTE 8 - PENSION PLANS
The Company provides retirement benefits to substantially all of its
employees and all agents hired prior to 1982 under defined benefit pension
plans. Through December 31, 1994, retirement benefits were based primarily
on years of service and compensation. Benefit accruals under the defined
benefit formula were frozen for most employees (but not for eligible agents)
effective December 31, 1994. In their place, the Company plans to adopt a
defined benefit cash balance formula, under which the Company would annually
provide a contribution to each eligible employee as a percentage of that
employee's salary, similar to a defined contribution plan arrangement.
Employees would then be allowed to direct the investment of their awards and
to borrow against them. Adoption of the defined benefit cash balance formula
is subject to the resolution of certain technical and design issues, and may
be subject to receipt of a favorable determination letter from the IRS that
the Company's pension plans, as amended to reflect the cash balance formula,
will continue to satisfy the requirements of Section 401(a) of the Internal
Revenue Code. The Company's funding policy is to contribute annually the
minimum contribution determined using the net unit credit cost method and
applicable regulations of the Employee Retirement Income Security Act of
1974. The Company's accounting policy follows FASB Statement No. 87,
"Employers' Accounting for Pensions".
Components of net pension expense (benefit) for the years ended December 31,
were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 5,403 $ 3,980 $ 3,222
Interest accrued on projected benefit
obligations 11,706 11,675 9,948
Actual return on plan assets (1,671) (13,942) (13,071)
Net amortization and deferral (10,399) 302 (1,192)
-------- -------- --------
Net pension expense (benefit) $ 5,039 $ 2,015 $ (1,093)
-------- -------- --------
-------- -------- --------
</TABLE>
14
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
The following table summarizes the status as of December 31, of the Company's
pension plans. The plans' assets exceeded accumulated benefits. The net
pension asset is included in the statement of financial position with Other
Assets.
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $140,230 $153,244
-------- --------
-------- --------
Accumulated benefit obligation $141,727 $154,058
-------- --------
-------- --------
Pension asset included in Other Assets:
Projected benefit obligation for service rendered to date $153,334 $171,506
Plan assets at fair value 154,209 161,224
-------- --------
Plan assets in excess (deficit) of projected benefit obligation 875 (10,282)
Unrecognized net loss from past experience 41,438 45,945
Unrecognized prior service cost (12,568) 403
Unamortized transition asset (18,184) (19,466)
-------- --------
Net pension asset $ 11,561 $ 16,600
-------- --------
-------- --------
</TABLE>
Determination of the projected benefit obligation was based on a weighted
average discount rate of 8.5% in 1994 and 7% in 1993. The assumed long-term
rate of return on plan assets was 9% for both years. The actuarial present
value of the projected benefit obligation was determined using assumed rates
of increase in future compensation levels ranging from 5.5% to 6% for both
years. Updated mortality tables were used in 1993 to reflect the longer life
expectancy of retirees. Plan assets are invested primarily in various
separate accounts and the general account of State Mutual.
The Company has a Profit Sharing and 401(k) Plan for which substantially all
employees are eligible. The Company also has a similar integrated defined
contribution plan for substantially all of its agents. Effective for plan
years beginning after 1994, the profit sharing formula for employees has been
discontinued and a 401(k) match feature has been added to the continuing
401(k) plan for the employees.
NOTE 9 - OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's pension plans, the Company currently provides
postretirement medical and death benefits to certain full-time employees and
dependents, under a plan sponsored by State Mutual. Generally, employees
become eligible at age 55 with at least 15 years of service. Spousal
coverage is generally provided for up to two years after death of the
retiree. Benefits include hospital, major medical and a payment at death
equal to retirees' final compensation up to certain limits. The medical
plans have varying copayments and deductibles, depending on the plan. This
plan is unfunded.
Effective January 1, 1993, the Company adopted the statutory accounting
policy for employers' accounting for postretirement benefits other than
pensions for its postretirement benefit plans. The accounting policy
requires companies to recognize the estimated future cost of providing health
and other postretirement benefits on an accrual basis. Previously, such
costs were generally recognized as an expense when paid. The Company elected
to immediately record the transition obligation in the amount of $23,495
thousand as a direct charge to contingency reserves. The cost for benefits
earned during 1993, subsequent to adoption, and charged to operating expenses
was approximately $1,600 thousand more than the expense that would have been
recorded under the previous accounting method.
15
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
The status of the Company's plan at December 31, was as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $20,156 $21,143
Active employees eligible to retire 7,512 5,806
------- -------
Accumulated postretirement benefit obligation accrued 27,668 26,949
Unrecognized actuarial loss (772) (1,800)
------- -------
Net postretirement benefit liability $26,896 $25,149
------- -------
------- -------
</TABLE>
The components of net periodic postretirement benefit expense
for the years ended December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
---- ----
<S> <C> <C>
Service cost $1,291 $1,400
Interest cost on accumulated postretirement benefit obligation 2,051 1,932
Amortization of unrecognized (gain) loss 214 --
------ ------
Net periodic postretirement benefit expense $3,556 $3,332
------ ------
------ ------
</TABLE>
For purposes of measuring the accumulated postretirement benefit obligation
at December 31, 1994, health care costs were assumed to increase 11%,
declining thereafter to an ultimate rate of 6% over seven years. At
December 31, 1993, health care costs were assumed to increase 12%, declining
to an ultimate rate of 5.5% over eight years. The weighted average discount
rate used in determining the accumulated postretirement benefit obligation was
8.5% and 7.0% at December 31, 1994 and 1993, respectively.
For purposes of measuring the accumulated postretirement benefit obligation
at January 1, 1993 (the transition adjustment), health care costs were
assumed to increase 15% for pre-1965 retirees and 13% for post-1965 retirees,
declining thereafter to 6% over 10 years for pre-1965 retirees and 8 years
for post-1965 retirees. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation at January 1,
1993 was 8.5%.
The health care costs trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost trend
rate by 1% in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1994 by $1,800 thousand, and the estimated
service cost and interest cost components of net periodic postretirement
benefit costs for 1994 by $265 thousand.
NOTE 10 - CONTINGENCY RESERVES
Other adjustments to contingency reserves for the years ended December 31 are
as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Change in non-admitted assets:
Demutualization costs $(10,299) $ (4,000) $ --
Other (3,711) 171 (372)
-------- -------- ------
Total change in non-admitted assets (14,010) (3,829) (372)
Transition adjustment for post retirement benefit obligation -- (23,495) --
Prior year taxes (3,383) (13,915) --
Prior year expense (13,827) -- --
FAS 87 adjustment for non-qualified pension plans (7,132) -- --
Other miscellaneous changes (2,263) 406 2,202
-------- -------- ------
Total other adjustments $(40,615) $(40,833) $1,830
-------- -------- ------
-------- -------- ------
</TABLE>
16
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
NOTE 11 - REINSURANCE
The Company participates in reinsurance to reduce overall risks, including
exposure to large losses and to permit recovery of a portion of direct
losses. Reinsurance contracts do not relieve the Company from its obligation
to its policyholders. Reinsurance financial data for the years ended
December 31, is as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C>
Reinsurance premiums assumed $ 62,127 $40,289 $ 35,679
Reinsurance premiums ceded $105,142 $81,545 $ 64,366
Deduction from insurance liability
including reinsurance recoverable on unpaid claims $ 90,244 $83,768 $106,774
</TABLE>
The Company assumes from SMA Life approximately 10% of the individual life
business of SMA Life. Premiums assumed by State Mutual aggregated $7,771
thousand, $9,000 thousand and $9,586 thousand in 1994, 1993 and 1992,
respectively. The Company also has entered into reinsurance agreements
whereby the Company cedes to SMA Life certain insurance risks related to
individual accident and health business, premium income and related expenses.
Premiums ceded pursuant to these agreements aggregated $3,788 thousand,
$4,190 thousand and $4,614 thousand in 1994, 1993 and 1992, respectively.
NOTE 12 - DIVIDEND RESTRICTIONS
Delaware, New Hampshire and Michigan have enacted laws governing the payment
of dividends and other distributions to stockholders by insurers. These laws
affect the dividend paying ability of SMA Life, Hanover and Citizens,
respectively.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its statutory policyholders' surplus as of the
preceding December 31 or (ii) the individual company's statutory net gain
from operations for the preceding calendar year (if such insurer is a life
company) or its net income (not including realized capital gains) for the
preceding calendar year (if such insurer is not a life company). Any
dividends to be paid by an insurer, whether or not in excess of the
aforementioned threshold, from a source other than earned surplus would also
require the prior approval of the Delaware Commissioner of Insurance. While
SMA Life is currently operating on a profitable basis, it has a negative
earned surplus position and, accordingly, is precluded from paying dividends
to State Mutual without the approval of the Delaware Commissioner of
Insurance.
Pursuant to New Hampshire's statute, extraordinary dividends and other
distributions may only be paid from statutory policyholders' surplus,
excluding dividends paid, as of the December 31st preceding. An
extraordinary dividend or distribution includes any dividend or distribution
of cash or other property, whose fair market value together with that of
other dividends or distributions made within the preceding 12 months exceeds
10% of such insurers surplus as regards policyholders as of December 31, next
preceding. Based on the 1994 statutory financial statements of Hanover, the
maximum dividend that may be paid to Allmerica P&C at January 1, 1995 without
prior approval from the New Hampshire Commissioner of Insurance is $92,400
thousand.
Under the Michigan Insurance Code, cash dividends may be paid by Citizens
only from earnings and policyholders' surplus. In addition, a Michigan
insurer may not pay an "extraordinary" dividend to its stockholders without
prior approval of the Michigan Insurance Commissioner. An extraordinary
dividend or distribution is defined as a dividend or distribution of cash or
other property whose fair market value, together with that of other dividends
and distributions made within the preceding 12 months, exceeds the greater of
10% of policyholders' surplus as of December 31 of the preceding year or the
statutory net income less realized gains, for the immediately preceding
calendar year. At January 1, 1995, Citizens could pay dividends of $32,700
thousand without approval of the Michigan Insurance Commissioner.
17
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
NOTE 13 - LITIGATION
The Company has been named a defendant in various legal proceedings arising
in the normal course of business. In the opinion of management, based on the
advice of legal counsel, the ultimate resolution of these proceedings will
not have a material effect on the Company's financial statements.
18
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SELECT SELECT SELECT
AGGRESSIVE GROWTH GROWTH GROWTH & INCOME
SUB-ACCOUNT 301 SUB-ACCOUNT 302 SUB-ACCOUNT 303
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment Trust..... $ 959,121 $ 781,746 $1,774,051
Receivable from State Mutual Life Assurance
Company of America (Sponsor)....................... -- -- 2,182
---------- ---------- ----------
Total assets....................................... 959,121 781,746 1,776,233
LIABILITIES:
Payable to State Mutual Life Assurance
Company of America (Sponsor) ......................... 923 775 ---
--------- ---------- ----------
Net assets ........................................ $ 958,198 $ 780,971 $1,776,233
========= ========== ==========
Net asset distribution by category:
Qualified variable annuity policies ................. $ 273,543 $ 327,099 $ 957,354
Non-qualified variable annuity policies ............. 684,655 453,872 814,805
Value of investment by State Mutual Life Assurance
Company of America (Sponsor) ....................... --- --- ---
Value of annuitant mortality fluctuation reserve .... --- --- 4,074
--------- ---------- ----------
$ 958,198 $ 780,971 $1,776,233
========= ========== ==========
Qualified units outstanding, December 31, 1994 ........ 273,428 316,704 929,227
Net asset value per qualified unit, December 31, 1994.. $1.000421 $ 1.032821 $ 1.030270
Non-qualified units outstanding, December 31, 1994 .... 684,366 439,449 794,819
Net asset value per non-qualified unit, December 31,
1994 ................................................. $1.000421 $ 1.032821 $ 1.030270
</TABLE>
The accompanying notes are an integral part of these financial statements.
52
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SELECT MONEY SELECT
INCOME MARKET INTERNATIONAL EQUITY
SUB-ACCOUNT 304 SUB-ACCOUNT 305 SUB-ACCOUNT 306
- -----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
$1,904,569 $2,127,430 $665,578
--- 704 ---
---------- ---------- --------
1,904,569 2,128,134 665,578
87 --- 625
---------- ---------- --------
$1,904,482 $2,128,134 $664,953
========== ========== ========
$1,222,437 $1,319,709 $159,400
680,038 804,425 505,458
--- --- 95
2,007 4,000 ---
---------- ---------- --------
$1,904,482 $2,128,134 $664,953
========== ========== ========
1,230,015 1,293,167 166,714
$ .993840 $ 1.020525 $.956129
686,272 792,166 528,750
$ .993840 $ 1.020525 $.956129
</TABLE>
53
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SELECT AGGRESSIVE SELECT GROWTH SELECT GROWTH &
GROWTH SUB-ACCOUNT SUB-ACCOUNT INCOME SUB-ACCOUNT
301(c) 302(c) 303(b)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................... --- $ 2,361 $ 62,053
EXPENSES:
Mortality and expense risk fees ......................... $ 2,781 4,439 8,039
Administrative expense charges .......................... 334 533 965
------- ------- --------
Total expenses ....................................... 3,115 4,972 9,004
------- ------- --------
Net investment income (loss) ............................ (3,115) (2,611) 53,049
------- ------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss)................................. 101 1,654 2,358
Net unrealized gain (loss) .............................. 10,676 (1,748) (70,428)
------- ------- --------
Net realized and unrealized gain (loss) on investments ..... 10,777 (94) (68,070)
------- -------- --------
Net increase(decrease) in net assets from
operations ................................................ $7,662 $(2,705) $ (15,021)
====== ======= =========
</TABLE>
(a) For the period April 6, 1994 (date of initial investment) to
December 31, 1994.
(b) For the period April 19, 1994 (date of initial investment) to
December 31, 1994.
(c) For the period April 28, 1994 (date of initial investment) to
December 31, 1994.
(d) For the period May 27, 1994 (date of initial investment) to
December 31, 1994.
The accompanying notes are an integral part of these financial statements.
54
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SELECT INCOME MONEY MARKET SELECT INTERNATIONAL
SUB-ACCOUNT SUB-ACCOUNT EQUITY SUB-ACCOUNT
304(b) 305(a) 306(d)
- -----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
$ 63,856 $58,424 $ 1,445
8,363 16,667 1,716
1,003 2,000 206
-------- ------- --------
9,366 18,667 1,922
-------- ------- --------
54,490 39,757 (477)
-------- ------- --------
(513) --- 1,992
(65,115) --- (13,999)
-------- ------- --------
(65,628) --- (12,007)
-------- ------- --------
$(11,138) $39,757 $(12,484)
======== ======= ========
</TABLE>
55
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SELECT AGRESSIVE GROWTH SELECT GROWTH SELECT GROWTH & INCOME
SUB-ACCOUNT 301 SUB-ACCOUNT 302 SUB-ACCOUNT 303
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
4/28/94* TO 12/31/94 4/28/94* TO 12/31/94 4/19/94* TO 12/31/94
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) ........................ $ (3,115) $(2,611) $ 53,049
Net realized gain (loss) from security transactions.. 101 1,654 2,358
Net unrealized gain (loss) on investments ........... 10,676 (1,748) (70,428)
-------- -------- ----------
Net increase (decrease) in net assets from
operations ................................................. 7,662 (2,705) (15,021)
FROM CAPITAL TRANSACTIONS:
Net purchase payments .................................... 23,204 16,647 100,298
Terminations ............................................. (1,482) (1,544) (6,891)
Annuity benefits ......................................... --- --- ---
Other transfers from (to) the General Account of
State Mutual Life Assurance Company of America (Sponsor). 928,814 768,573 1,697,847
Net increase in investment by State Mutual
Life Assurance Company of America(Sponsor) --- --- ---
-------- --------- ----------
Net increase in net assets from capital transactions ..... 950,536 783,676 1,791,254
-------- --------- ----------
Net increase in net assets .............................. 958,198 780,971 1,776,233
NET ASSETS:
Beginning of period ...................................... --- --- ---
-------- -------- ----------
End of period ............................................ $958,198 $780,971 $1,776,233
======== ======== ==========
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
56
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SELECT INCOME MONEY MARKET SELECT INTERNATIONAL EQUITY
SUB-ACCOUNT 304 SUB-ACCOUNT 305 SUB-ACCOUNT 306
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
4/19/94* TO 12/31/94 4/06/94* TO 12/31/94 5/27/94* TO 12/31/94
- -----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
$ 54,490 $ 39,757 $ (477)
(513) --- 1,992
(65,115) --- (13,999)
--------- ----------- ---------
(11,138) 39,757 (12,484)
174,228 7,935,472 18,216
(15,373) (53,224) (60)
--- --- ---
1,756,765 (5,793,871) 659,181
--- --- 100
---------- --------- --------
1,915,620 2,088,377 677,437
---------- --------- --------
1,904,482 2,128,134 664,953
--- --- ---
---------- ---------- --------
$1,904,482 $2,128,134 $664,953
========== ========== ========
</TABLE>
57
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994
NOTE 1 - ORGANIZATION
Allmerica Select Separate Account (Allmerica Select) is a separate
investment account of State Mutual Life Assurance Company of America (the
Company). Allmerica Select was established on April 1, 1994 for the purpose
of separating from the general assets of the Company those assets used to
fund certain variable annuity policies issued by the Company. Under
applicable insurance law, the assets and liabilities of Allmerica Select are
clearly identified and distinguished from the other assets and liabilities of
the Company. Allmerica Select cannot be charged with liabilities arising out
of any other business of the Company.
Allmerica Select is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). Allmerica Select
currently offers six Sub-Accounts. Each Sub-Account invests exclusively in a
corresponding investment portfolio of the Allmerica Investment Trust (the
Trust) managed by Allmerica Investment Management Company, Inc., a
wholly-owned subsidiary of the Company. The Trust is an open-end,
diversified series management investment company registered under the 1940
Act.
Allmerica Select has two types of variable annuity policies, "qualified"
policies and "non-qualified" policies. A qualified policy is one that is
purchased in connection with a retirement plan which meets the requirements of
Section 401, 403, 408, or 457 of the Internal Revenue Code, while a
non-qualified policy is one that is not purchased in connection with one of the
indicated retirement plans. The tax treatment for certain partial redemptions
or surrenders will vary according to whether they are made from a qualified
policy or a non-qualified policy.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Investments - Security transactions are recorded on the trade date.
Investments in shares of the Trust are stated at the net asset value per share
of the respective investment portfolio of the Trust. Net realized gains and
losses on securities sold are determined on the average cost method. Dividends
and capital gain distributions are recorded on the ex-dividend date and are
reinvested in additional shares of the respective investment portfolio of the
Trust at net asset value.
Federal Income Taxes -The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code and files a consolidated
Federal Income Tax return. The Company anticipates no tax liability
resulting from the operations of Allmerica Select. Therefore, no provision
for income taxes has been charged against Allmerica Select.
Annuitant Mortality Fluctuation Reserve - A strengthening reserve required
for doing business in the state of New York. The purpose of the reserve is to
provide for future mortality experience which is less favorable than that
assumed in pricing the annuity. This reserve is funded by the Company.
58
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994, CONTINUED
NOTE 3 - INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Trust at December 31, 1994 were as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PORTFOLIO INFORMATION
SUB- INVESTMENT NUMBER OF AGGREGATE NET ASSET VALUE
ACCOUNT PORTFOLIO SHARES COST PER SHARE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
301 Select Aggressive Growth 686,557 $ 948,445 $1.397
302 Select Growth 711,325 783,494 1.099
303 Select Growth & Income 1,727,411 1,844,479 1.027
304 Select Income 2,047,924 1,969,684 0.930
305 Money Market 2,127,430 2,127,430 1.000
306 Select International Equity 691,150 679,577 0.963
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum based on the average daily
net assets of each Sub-Account at each valuation date for mortality and
expense risks. The Company also charges each Sub-Account .15% per annum
based on the average daily net assets of each Sub-Account for administrative
expenses. These charges are deducted from the daily value of each
Sub-Account but are paid to the Company on a monthly basis. Net purchase
payments represent gross purchase payments less applicable premium taxes.
A contract fee is currently deducted on the policy anniversary date and
upon full surrender of the policy. The contract fee is $30. For the period
ended December 31, 1994, there were no contract fees deducted from
accumulated value in the Sub-Accounts.
Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned
subsidiary of the Company, is principal underwriter and general distributor
of Allmerica Select, and does not receive any compensation for sales of the
Allmerica Select policies. Commissions are paid by the Company to registered
representatives of broker-dealers who are registered under the Securities
Exchange Act of 1934 and are members of the National Association of
Securities Dealers. As the current series of policies have a contingent
deferred sales charge, no deduction is made for sales charges at the time of
the sale.
59
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994, CONTINUED
NOTE 5 - POLICYOWNERS AND SPONSOR TRANSACTIONS
Transactions from policyowners and sponsor were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED DECEMBER 31,1994
UNITS AMOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sub-Account 301
Issuance of units ........... 959,605 $ 952,354
Redemption of units ......... (1,811) (1,818)
------- ----------
Net increase ................ 957,794 $ 950,536
======= ==========
Sub-Account 302
Issuance of units ........... 758,002 $ 785,560
Redemption of units ......... (1,849) (1,884)
--------- ----------
Net increase ................ 756,153 $ 783,676
========= ==========
Sub-Account 303
Issuance of units ........... 1,730,638 $ 1,798,192
Redemption of units ......... (6,592) (6,938)
----------- ----------
Net increase ................ 1,724,046 $ 1,791,254
=========== ===========
Sub-Account 304
Issuance of units ........... 1,931,971 $ 1,931,241
Redemption of units ......... (15,684) (15,621)
---------- ----------
Net increase ................ 1,916,287 $ 1,915,620
========== ===========
Sub-Account 305
Issuance of units .......... 7,881,195 $ 7,940,059
Redemption of units ........ (5,795,862) (5,851,682)
----------- -----------
Net increase ............... 2,085,333 $ 2,088,377
=========== ===========
Sub-Account 306
Issuance of units .......... 700,918 $ 682,730
Redemption of units ........ (5,454) (5,293)
----------- ----------
Net increase ............... 695,464 $ 677,437
=========== ==========
</TABLE>
60
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1994, CONTINUED
NOTE 6 - DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a
variable annuity contract, other than a contract issued in connection with
certain types of employee benefit plans, will not be treated as an annuity
contract for federal income tax purposes for any period for which the
investments of the segregated asset account on which the contract is based
are not adequately diversified. The Code provides that the "adequately
diversified" requirement may be met if the underlying investments satisfy
either a statutory safe harbor test or diversification requirements set forth
in regulations issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h)
of the Code. The Company believes that Allmerica Select satisfies the
current requirements of the regulations, and it intends that Allmerica
Select will continue to meet such requirements.
NOTE 7 - PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the Trust shares by Allmerica
Select during the period ended December 31, 1994 were as follows:
<TABLE>
<CAPTION>
SUB-
ACCOUNT INVESTMENT PORTFOLIO PURCHASES SALES
- ------- -------------------- --------- -----
<S> <C> <C> <C>
301 Select Aggressive Growth ...... $1,030,466 $ 82,123
302 Select Growth ................. 877,243 95,403
303 Select Growth & Income ........ 1,937,568 95,447
304 Select Income ................. 2,150,321 180,123
305 Money Market .................. 6,816,921 4,689,492
306 Select International Equity 742,207 64,622
----------- ----------
Totals......................... $13,554,726 $5,207,210
=========== ==========
</TABLE>
61
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of State Mutual Life
Assurance Company of America and Policyowners
of Allmerica Select Separate Account
of State Mutual Life Assurance Company
of America
In our opinion, the accompanying statements of assets and liabilities and
the related statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of the Select
Aggressive Growth, Select Growth, Select Growth & Income, Select Income,
Money Market and Select International Equity Sub-Accounts (constituting the
Allmerica Select Separate Account of State Mutual Life Assurance Company of
America) at December 31, 1994, the results of each of their operations and
the changes in each of their net assets for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of State Mutual Life Assurance Company of
America's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at December 31, 1994 by
correspondence with the Trust, provide a reasonable basis for the opinion
expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 13, 1995
62
<PAGE>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
FINANCIAL STATEMENTS INCLUDED IN PART A
None
FINANCIAL STATEMENTS INCLUDED IN PART B
Financial Statements for the Company
Financial Statements for Allmerica Select Separate Account
FINANCIAL STATEMENTS INCLUDED IN PART C
None
(B) EXHIBITS
Exhibit 1 - Vote of Board of Directors Authorizing Establishment of
Registrant dated August 20, 1991 was previously filed on May 11,
1992, in Registration Statement No. 33-47858, and is incorporated
herein by reference.
Exhibit 2 - Not Applicable. Pursuant to Rule 26a-2, the Insurance Company
may hold the assets of the Registrant NOT pursuant to a trust
indenture or other such instrument.
Exhibit 3 - Underwriting and Administrative Services Agreement was previously
filed on November 1, 1993 and is herein incorporated by
reference. Broker's Agreement was previously filed on August 14,
1992 in Registration Statement No. 33-47216 and is incorporated
herein by reference.
Exhibit 4 - Specimen Generic Policy Form A3020-94 GRC was previously filed on
November 1, 1993, and is incorporated herein by reference.
Exhibit 5 - Specimen Generic Application Form was previously filed on
November 1, 1993, and is herein incorporated by reference.
Exhibit 6 - The Depositor's restated Articles of Incorporation and Bylaws.
Exhibit 7 - Not Applicable.
Exhibit 8 - AUV Calculation Services Agreement with The Shareholder Services
Group dated March 31, 1995 was previously filed on May 1, 1995
and is herein incorporated by reference.
Exhibit 9 - Consent and Opinion of Counsel.
Exhibit 10 - Consent of Independent Accountants.
Exhibit 11 - None.
Exhibit 12 - None.
Exhibit 13 - Not applicable.
Exhibit 14 - Not Applicable.
<PAGE>
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR.
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION
----------------- --------------------
<S> <C>
Michael P. Angelini, Esq., Director Bowditch & Dewey
311 Main Street
Worcester, MA 01608
David A. Barrett, Director Consultant
MCCM, Inc. and The Medical Center of
Central Massachusetts
11 Shattuck Street
Worcester, MA 01605
Gail L. Harrison, Director Senior Vice President
The Wexler Group
Suite 600, 1317 F Street, N.W.
Washington, DC 20004
J. Terrence Murray, Director Chairman, President and Chief Executive
Officer
Fleet/Norstar Financial Group, Inc.
50 Kennedy Plaza
Providence, RI 02903
Guy W. Nichols, Director Woods Hole Oceanographic
Institution
25 Research Drive
Westborough, MA 01582
John F. O'Brien, Director President and Chief Executive
Officer First Allmerica Financial Life
Insurance Company
440 Lincoln Street
Worcester, MA 01653
Dr. John L. Sprague, Director President
John L. Sprague Associates
One Cranberry Hill
Lexington, MA 02173
Robert G. Stachler, Esq., Director Taft, Stettinius & Hollister
1800 Star Bank Center
425 Walnut Street
Cincinnati, OH 45202
Herbert M. Varnum, Director Chairman and Chief Executive
Officer Quabaug Corporation
17 School Street
North Brookfield, MA 01535
Richard Manning Wall, Esq., Director General Counsel and Asst. to the
Chairman Flexcon Company, Inc.
Flexcon Industrial Park
Spencer, MA 01562
</TABLE>
<PAGE>
The principal business address of all the following Directors and Officers is:
440 Lincoln Street
Worcester, Massachusetts 01653
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
---- --------------------
<S> <C>
Barry Z. Aframe Vice President and Counsel
Bruce C. Anderson Vice President and Assistant Secretary
Richard J. Baker Vice President and Secretary
Whitworth F. Bird, Jr., M.D. Vice President and Medical Director
William P. Bishop Vice President
Lawrence E. Blanchard Vice President
Alan R. Boyer Vice President
Mark R. Colborn Vice President and Controller
Lisa M. Coleman Vice President
Deborah A. Culhane Vice President
Dix F. Davis Vice President
Valentina T. Dingle Vice President
Denzil C. Drewry Vice President
Leonard D. Driscoll Vice President
Bruce A. Emond Vice President
Edward W. Ford Vice President
Bruce H. Freedman Vice President
Thomas E. Hardy Vice President
William Hayward Vice President
Brian L. Hirst Vice President and Actuary
Kruno Huitzingh Vice President and Chief Information Officer
Richard E. Johnson Vice President
John P. Kavanaugh Vice President
John F. Kelly Senior Vice President, General Counsel and
Assistant Secretary
Kathleen M. Klein Vice President
Richard H. Kremer Vice President
Jeffrey P. Lagarce Vice President
Walter M. Laliberte Vice President
Frank A. LoPiccolo Vice President
Joseph W. MacDougall, Jr. Vice President, Associate General Counsel and
Assistant Secretary
<PAGE>
William H. Mawdsley Vice President and Actuary
Roderick A. McGarry, II Vice President
John W. Nunley Vice President
John F. O'Brien Director, President and Chief Executive
Officer
Stephen Parker Vice President
Edward J. Parry, III Vice President and Treasurer
Jean S. Peters Vice President
Richard M. Reilly Vice President
Rachelle Reisberg Vice President
Larry C. Renfro Vice President
Winifred "Una" Rice Vice President
Stephen P. Rutman Vice President
Henry P. St. Cyr Vice President and Assistant Treasurer
Eric A. Simonsen Vice President and Chief Financial Officer
Mark T. Smith Vice President
Philip E. Soule Vice President
Ann K. Tripp Vice President
James S. Wakefield Vice President
Jerome F. Weihs Vice President
Diane E. Wood Vice President
</TABLE>
Item 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT. Registrant is a
separeate account of First Allmerica Financial Life Insurance Company (formerly
State Mutual Life Insurance Company of America; the "Company"). The following
enttites are under common control with the Company:
<TABLE>
<CAPTION>
NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
Allmerica Asset Management, Inc. 440 Lincoln Street Investment advisory
Worcester MA 01653 services
Allmerica Employees Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Financial Life 440 Lincoln Street Life insurance,
Insurance and Annuity Worcester MA 01653 accident & health
Company (formerlySMA Life insurance, annuities,
Assurance Company) variable annuities
and variable life
insurance
Allmerica Financial Services 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester, MA 01653
<PAGE>
Allmerica Institutional 440 Lincoln Street Accounting, marketing
Services, Inc. Worcester MA 01653 and shareholder
services for
investment companies
Allmerica Funds 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Investment Services, Inc. 440 Lincoln Street Holding Company
(formerly Allmerica Financial Worcester, MA 01653
Services, Inc.)
Allmerica Investment Management 440 Lincoln Street Investment Advisory
Company, Inc. Worcester MA 01653 Services
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail
Worcester MA 01653 broker-dealer
Allmerica Investment Trust 440 Lincoln Street Investment Company
(formerly SMA Investment Trust) Worcester MA 01653
Allmerica Property and Casualty 440 Lincoln Street Holding Company
Companies, Inc. Worcester MA 01653
Allmerica Realty Advisors, Inc. 440 Lincoln Street Investment Advisory
Worcester MA 01653 services
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services, Inc. 440 Lincoln Street Service Company
Worcester MA 01653
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose
Worcester MA 01653 national trust
company
AMGRO, Inc. 472 Lincoln Street Premium financing
Worcester MA 01653
APC Funding Corp. 440 Lincoln Street Special purpose
Worcester MA 01653 funding vehicle for
commercial paper
Beltsville Drive Limited 440 Lincoln Street Real estate
Partnership Worcester MA 01653 partnership
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company 645 West Grand River Multi-line fire &
of America Howell MI 48843 casualty insurance
Citizens Insurance Company of Ohio 645 West Grand River Multi-line fire &
Howell MI 48843 casualty insurance
Citizens Management, Inc. 645 West Grand River Services management
Howell MI 48843 company
Greendale Special Placements Fund 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
<PAGE>
The Hanover American Insurance 100 North Parkway Multi-line fire &
Company Worcester MA 01653 casualty insurance
The Hanover Insurance Company 100 North Parkway Multi-line fire &
Worcester MA 01605 casualty insurance
Hanover Texas Insurance 801 East Campbell Incorporated Branch
Management Company, Inc. Road Office of The Hanover
Richardson TX 75081 Insurance Company
Hanover Lloyd's Insurance Company 801 East Campbell Multi-line fire &
Road casualty insurance
Richardson TX 75081
Hollywood Center, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Linder Skokie Real Estate 440 Lincoln Street General business
Corporation Worcester MA 01653 corporation
Lloyds Credit Corporation 440 Lincoln Street Premium financing
Worcester MA 01653 service franchises
Logan Wells Water Company, Inc. 603 Heron Drive Water Company,
Bridgeport NJ serving land
08014 development
investment
Massachusetts Bay Insurance 100 North Parkway Multi-line fire &
Company Worcester MA 01653 casualty
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Somerset Square, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Sterling Risk Management 100 North Parkway Risk management
Services, Inc. Worcester MA 01605 services
</TABLE>
Item 27. NUMBER OF CONTRACT OWNERS.
As of December 31, 1994, there were 75 Contract holders of qualified
Contracts and 109 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 any breach of the director's duty of loyalty to the Company or its
policyholders;
2. for acts or omissions not in good faith, or which involve intentional
misconduct or a knowing violation of law;
3. for liability, if any, imposed on directors of insurance companies pursuant
to M.G.L.A. c. 156B Section 61 or M.G.L.A. c.156B Section 62;
4. for any transactions from which the director derived an improper personal
benefit.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
- VEL Account, VEL II Account, Inheiritage Account, Separate Accounts
VA-A, VA-B, VA-C,
<PAGE>
VA-G, VA-H, VA-K, VA-P and Allmerica Select Separate Account of
Allmerica Fiancial Life Insruance and Annuity Company (formerly SMA
Life Assurance Company)
- VEL II Account, Inheiritage Account, Separate Account I and Separate
Account VA-K of the Company
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
<TABLE>
<CAPTION>
NAME POSITION OR OFFICE WITH UNDERWRITER
---- -----------------------------------
<S> <C>
Abigail M. Armstrong Secretary and Counsel
Philip J. Coffey Vice President
Bob A. Freelove Vice President
John F. Kelly Director
Eric S. Levy Assistant Vice President and Chief
Financial Officer
John F. O'Brien Director
Stephen Parker President and CEO
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Ronald K. Smith Vice President
Mark Steinberg Senior Vice President
Robert T. Stemple Vice President and Controller
</TABLE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are
maintained by the Company at 440 Lincoln Street, Worcester, Massachusetts or on
behalf of the Company by the Shareholder Services Group, Inc., 290 Donald Lynch
Boulevard, Marlborough, Massachusetts.
Item 31. MANAGEMENT SERVICES.
Effective March 31, 1995, the Company has engaged The Shareholder Services
Group, Inc., 53 State Street, Boston, Massachusetts to provide daily unit value
calculations and related services for the Company's separate accounts.
Item 32. UNDERTAKINGS.
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
(b) The registrant hereby undertakes to include as part of the application to
purchase a Contract a space that the applicant can check to request 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
<PAGE>
Directors, Officers and Controlling Persons of Registrant under any registration
statement, underwriting agreement or otherwise, Registrant has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a Director, Officer or Controlling Person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, Officer or Controlling Person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Item 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(B)
PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM.
Registrant, a separate account of the Company states that it is (a) relying on
Rule 6c-7 under the 1940 Act with respect to withdrawal restrictions under the
Texas Optional Retirement Program ("Program") and (b) relying on the "no-action"
letter (Ref. No. IP-6-88) issued on November 28, 1988 to the American Council of
Life Insurance, in applying the withdrawal restrictions of Internal Revenue Code
Section 403(b)(11). Registrant has taken the following steps in reliance on the
letter:
1. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in the prospectus
of each registration statement used in connection with the offer of the
Company's variable contracts.
2. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in sales
literature used in connection with the offer of the Company's variable
contracts.
3. Sales Representatives who solicit participants to purchase the variable
contracts have been instructed to specifically bring the redemption
restrictions imposed by the Program and by Section 403(b)(11) to the
attention of potential participants.
4. A signed statement acknowledging the participant's understanding of (i) the
restrictions on redemption imposed by the Program and by Section 403(b)(11)
and (ii) the investment alternatives available under the employer's
arrangement will be obtained from each participant who purchases a variable
annuity contract prior to or at the time of purchase.
Registrant hereby represents that it will not act to deny or limit a transfer
request except to the extent that a Service-Ruling or written opinion of
counsel, specifically addressing the fact pattern involved and taking into
account the terms of the applicable employer plan, determines that denial or
limitation is necessary for the variable annuity contracts to meet the
requirements of the Program or of Section 403(b). Any transfer request not so
denied or limited will be effected as expeditiously as possible.
<PAGE>
EXHIBIT TABLE
Exhibit 6 - Company's restated Articles of Incorporation and Bylaws
Exhibit 9 - Consent and Opinion of Counsel
Exhibit 10- Consent of Independent Accountants
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Registrant has duly caused the Post-Effective Amendment to
its Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, all in the City of Worcester and Commonwealth of
Massachusetts on the 10th day of October, 1995. Registrant certifies that it
meets the requirement of Securities Act Rule 485(b) for effectiveness of this
Post-Effective Amendment to its Registration Statement.
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
ALLMERICA SELECT ACCOUNT
Attest: /s/ Richard J. Baker
-----------------------------
Richard J. Baker
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
SIGNATURE TITLE DATE
/s/ John F. O'Brien Director, President and October 10, 1995
- ---------------------- Chief Executive Officer
John F. O'Brien
/s/ Eric A. Simonsen Vice President and
- ----------------------- Chief Financial Officer
Eric A. Simonsen
/s/ Mark R. Colborn Vice President and
- ---------------------- Controller
Mark R. Colborn
Michael P. Angelini, Esq.
Mr. David A. Barrett
Ms. Gail L. Harrison
Mr. J. Terrence Murray
Mr. Guy W. Nichols A majority of the Directors
Dr. John L. Sprague
Robert G. Stachler, Esq.
Mr. Herbert M. Varnum
Richard Manning Wall, Esq.
Richard J,. Baker, by signing his name hereto, does hereby sign this document on
behalf of each of the above-named Directors of State Mutual Life Assurance
Company of America pursuant to the Powers of Attorney duly executed by such
persons.
/s/ Richard J. Baker
- -----------------------
Richard J. Baker
Attorney-In-Fact
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
FEDERAL IDENTIFICATION
NO. 04-186 7050
MICHAEL JOSEPH CONNOLLY
SECRETARY OF STATE
ONE ASHBURTON PLACE, BOSTON, MASS: 02108
RESTATED ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 175
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles of organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to
the Commonwealth of Massachusetts.
-----------
We, John F. O'Brien
PRESIDENT
and Richard J. Baker
SECRETARY
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Name of Corporation)
located at 440 Lincoln Street, Worcester, Massachusetts
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
do hereby certify that the following restatement of the articles of organization
of the corporation was duly adopted at a meeting held on June 30, 1995, by
vote of
. . . . . . . shares of . . . . . . . . . . , out of . . . . . . . . . . . . . .
(Class of Stock)
. . . . . . . shares of . . . . . . . . . . , out of . . . . . . . . . . . . . .
(Class of Stock)
. . . . . . . shares of . . . . . . . . . . , out of . . . . shares outstanding,
(Class of Stock)
being at least two-thirds of the policyholders present in person or by proxy or
mail and entitled to vote
1. The name by which the corporation shall be known is; -
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
2. The purposes for which the corporation is formed are as follows: -
SEE PAGE 2A
<PAGE>
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized to issue is as follows:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
----------------- --------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
- -------------- ---------------- ---------------- ----------
<S> <C> <C> <C>
Preferred -- -- --
Common -- 1,000,000 $10.00
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established:
N/A
*5. The restrictions, if any, imposed by the articles of organization upon
the transfer of shares of stock of any class are as follows:
Transfer is subject in certain circumstances to approval of the
commissioner of insurance of The Commonwealth of Massachusetts.
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary
dissolution, or for limiting, defining, or regulating the powers of
the corporation, or of its directors or stockholders, or of any class
of stockholders:
See pages 6A through D hereof.
*If there are no provisions, state "None".
<PAGE>
Foregoing restated articles of organization effect no amendments to the articles
of organization of the corporation as heretofore amended, except amendments to
the following articles. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(*If there are no such amendments, state "None".)
Briefly describe amendments in space below:
To effect amendments related to the conversion of the corporation
from a mutual life insurance company to a stock life insurance
company including change of name to "First Allmerica Financial
Life Insurance Company", the authorization of 1,000,000 shares of
Common Stock, $10.00 par value, the restatement and amendment of
corporate purposes, and the addition of Article 6 provisions.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this
day of October in the year 1995
/s/ John F. O'Brien
. . . . . . . . . . . . . . . . . . . . . . . President/Vice President
/s/ Richard J. Baker
. . . . . . . . . . . . . . . . . . . . . . . Secretary
SEE PAGE 7A
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
I hereby approve the within restated
articles of organization and, the filing
fee in the amount of $ having
been paid, said articles are deemed to have
been filed with me this
day of October, 1995.
MICHAEL JOSEPH CONNOLLY
SECRETARY OF STATE
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT
TO:
Richard J. Baker, Esq.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
440 Lincoln Street
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Worcester, MA 01653
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(508)-855-1000
Telephone . . . . . . . . . . . . . . . . . . . . . . . .
Copy Mailed
<PAGE>
Article 2. CORPORATE PURPOSES
The Corporation is constituted for the purpose of transacting on the
stock plan, and when qualified and licensed by law to do so, the kinds of
insurance now or hereafter described in or permitted by Clauses 6th and 16th
of Section 47 and Sections 47A and 54G of Chapter 175 of the General Laws of
The Commonwealth of Massachusetts and any acts in amendment thereof or in
addition thereto, and such other kinds of insurance as may be permitted now
or hereafter to be transacted by insurance corporations organized or
authorized to transact any of the kinds of insurance now or hereafter
described or permitted by said Clauses of Section 47 and Sections 47A and
54G; and including any form of insurance which may be permitted by paragraphs
(b) and (g) of Section 51 of said Chapter 175; and any acts in amendment
thereof or in addition thereto; thus including the authority pursuant to said
Clauses of Section 47 and Sections 47A and 54G; and including, pursuant to
the provisions of paragraph (g) of said Section 51, authority to write such
other form or forms of insurance coverage not included in the provisions of
said Section 47 and Sections 47A and 54G, and not contrary to the law, as
the Commissioner of Insurance, in his or her discretion, may authorize and
license subject to such terms and conditions as he or she may from time to
time prescribe.
The Board of Directors may permit the issuance of participating
policies, and may permit the policyholders of the Company from time to time
to participate in the profits of its operations through the payment of
dividends. The Board of Directors shall have the power to make reasonable
classification or classifications of policies and to take such other action,
in accordance with the law, as may be necessary or desirable to carry into
effect any participation by policyholders in the profits of the operations of
the Company. No policyholder shall have any right to participate in the
profits of the operations of the Company unless and until the Directors of
the Company, in the exercise of their discretion, affirmatively authorize
such participation, and then only to the extent so authorized.
-2A-
<PAGE>
ARTICLE 6
Other Lawful Provisions
6.1 The corporation may carry on any business, operation or activity
referred to in Article 2 to the same extent as might an individual, whether as
principal, agent, contractor or otherwise, and either alone or in conjunction or
a joint venture or other arrangement with any corporation, association, trust,
firm or individual.
6.2 The corporation may carry on any business, operation or activity
through a wholly or partly owned subsidiary.
6.3 The corporation may be a partner in any business enterprise which it
would have power to conduct by itself.
6.4 The directors may make, amend or repeal the by-laws in whole or in
part, except with respect to any provision thereof which by law or the by-laws
requires action by the stockholders.
6.5 Meetings of the stockholders may be held anywhere in the United
States.
6.6 Except as otherwise provided by law, no stockholder shall have any
right to examine any property or any books, accounts or other writings of the
corporation if there is reasonable ground for belief that such examination will
for any reason be adverse to the interests of the corporation, and a vote of the
directors refusing permission to make such examination and setting forth that in
the opinion of the directors such examination would be adverse to the interests
of the corporation shall be prima facie evidence that such examination would be
adverse to the interests of the corporation. Every such examination shall be
subject to such reasonable regulations as the directors may establish in regard
thereto.
6.7 The directors may specify the manner in which the accounts of the
corporation shall be kept and may determine what constitutes net earnings,
profits and surplus, what amounts, if any, shall be reserved for any corporate
purpose, and what amounts, if any, shall be declared as dividends. Unless the
board of directors otherwise specifies, the excess of the consideration for any
share of its capital stock with par value issued by it over such par value shall
be surplus. The board of directors may allocate to capital stock less than all
of the consideration for any share of its capital stock without par value issued
by it, in which case the balance of such consideration shall be surplus. All
surplus shall be available for any corporate purpose, including the payment of
dividends.
-6A-
<PAGE>
6.8 The purchase or other acquisition or retention by the corporation of
shares of its own capital stock shall not be deemed a reduction of its capital
stock. Upon any reduction of capital or capital stock, no stockholder shall
have any right to demand any distribution from the corporation, except as and to
the extent that the stockholders shall have provided at the time of authorizing
such reduction.
6.9 The directors shall have the power to fix form time to time their
compensation. No person shall be disqualified from holding any office by reason
of any interest. In the absence of fraud, any director, officer or stockholder
of this corporation individually, or any individual having any interest in any
concern which is a stockholder of this corporation, or any concern in which any
of such directors, officers, stockholders or individuals has an interest, may be
a party to, or may be pecuniarily or otherwise interested in, any contract,
transaction or other act of the corporation, and
(1) such contract, transaction or act shall not be in any way invalidated
or otherwise affected by that fact;
(2) no such director, officer, stockholder or individual shall be liable
to account to the corporation for any profit or benefit realized
through any such contract, transaction or act; and
(3) any such director of the corporation may be counted in determining the
existence of a quorum at any meeting of the directors or of any
committee thereof which shall authorize any such contract, transaction
or act, and may vote to authorize the same;
provided, however, that any contract, transaction or act in which any director
or officer of the corporation is so interested individually or as a director,
officer, trustee or member of any concern which is not a subsidiary or affiliate
of the corporation, or in which any directors or officers are so interested as
holders, collectively, of a majority of shares of capital stock or other
beneficial interest at the time outstanding in any concern which is not a
subsidiary or affiliate of the corporation, shall be duly authorized or ratified
by a majority of the directors who are not so interested, to whom the nature of
such interest has been disclosed and who have made any findings required by law;
the term "interest" including personal interest and interest as a
director, officer, stockholder, shareholder, trustee, member or beneficiary
of any concern;
-6B-
<PAGE>
the term "concern" meaning any corporation, association, trust,
partnership, firm, person or other entity other than the corporation; and
the phrase "subsidiary or affiliate" meaning a concern in which a majority
of the directors, trustees, partners or controlling persons is elected or
appointed by the directors of the corporation, or is constituted of the
directors or officers of the corporation.
To the extent permitted by law, the authorizing or ratifying vote of the holders
of shares representing a majority of the votes of the capital stock of the
corporation outstanding and entitled to vote for the election of directors at
any annual meeting or a special meeting duly called for the purpose (whether
such vote is passed before or after judgment rendered in a suit with respect to
such contract, transaction or act) shall validate any contract, transaction or
act of the corporation, or of the board of directors or any committee thereof,
with regard to all stockholders of the corporation, whether or not of record at
the time of such vote, and with regard to all creditors and other claimants
under the corporation; provided, however, that
A. with respect to the authorization or ratification of contracts,
transactions or acts in which any of the directors, officers or
stockholders of the corporation have an interest, the nature of such
contracts, transactions or acts and the interest of any director,
officer or stockholder therein shall be summarized in the notice of
any such annual or special meeting, or in a statement or letter
accompanying such notice, and shall be fully disclosed at any such
meeting;
B. the stockholders so voting shall have made any findings required by
law;
C. the stockholders so interested may vote at any such meeting except to
the extent otherwise provided by law; and
D. any failure of the stockholders to authorize or ratify such contract,
transaction or act shall not be deemed in any way to invalidate the
same or to deprive the corporation, its directors, officers or
employees of its or their right to proceed with or enforce such
contract, transaction or act.
If the corporation has more than one class or series of capital stock
outstanding, the vote required by this paragraph shall be governed by the
provisions of the Articles of Organization applicable to such classes or series.
-6C-
<PAGE>
No contract, transaction or act shall be avoided by reason of any provision of
this paragraph 6.9 which would be valid but for such provision or provisions.
6.10 A director of the corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that exculpation from liability is not permitted
under the Massachusetts Business Corporation Law as in effect at the time such
liability is determined. No amendment or repeal of this paragraph 6.10 shall
apply to or have any effect on the liability or alleged liability of any
director of the corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
6.11 The corporation shall have all powers granted to corporations by the
laws of The Commonwealth of Massachusetts, provided that no such power shall
include any activity inconsistent with the Business Corporation Law or the
general laws of said Commonwealth.
-6D-
<PAGE>
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, the undersigned,
constituting a majority of the board of directors have hereto signed our names
this 19th day of September in the year 1995.
/s/ John F. O'Brien
- -------------------------------
John F. O'Brien
- -------------------------------
Michael P. Angelini
/s/ David A. Barrett
- -------------------------------
David A. Barrett
/s/ Gail L. Harrison
- -------------------------------
Gail L. Harrison
/s/ J. Terrence Murray
- -------------------------------
J. Terrence Murray
/s/ Guy W. Nichols
- -------------------------------
Guy W. Nichols
/s/ Robert G. Stachler
- -------------------------------
Robert G. Stachler
/s/ John L. Sprague
- -------------------------------
John L. Sprague
/s/ Richard Manning Wall
- -------------------------------
Richard Manning Wall
/s/ Herbert M. Varnum
- -------------------------------
Herbert M. Varnum
-7A-
<PAGE>
EXHIBIT D
AMENDED AND RESTATED
BY-LAWS
of
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Section 1. ARTICLES OF ORGANIZATION
The name and purposes of the corporation shall be as set forth in the
Articles of Organization. These By-laws, the powers of the corporation and of
its directors and stockholders, or of any class of stockholders if there shall
be more than one class of stock, and all matters concerning the conduct and
regulation of the business and affairs of the corporation shall be subject to
such provisions in regard thereto, if any, as are set forth in the Articles of
Organization as from time to time in effect.
Section 2. STOCKHOLDERS
2.1. ANNUAL MEETING. The annual meeting of stockholders shall be held
at 10:00 A.M. on the third Tuesday in March in each year (unless that day be a
legal holiday at the place where the meeting is to be held in which case the
meeting shall be held at the same hour on the next succeeding day not a legal
holiday) or at such other date and time as shall be determined from time to time
by the board of directors. Purposes for which an annual meeting is to be held,
additional to those prescribed by law, by the Articles of Organization or by
these By-laws, may be specified by the president or by the directors.
2.2. SPECIAL MEETINGS. A special meeting of the stockholders may be
called at any time by the president or by the directors. Each call of a meeting
shall state the place, date, hour and purposes of the meeting.
2.3. PLACE OF MEETINGS. All meetings of the stockholders shall be held at
the principal office of the corporation in Massachusetts or, to the extent
permitted by the Articles of Organization, at such other place within the United
States as shall be fixed by the president or the directors. Any adjourned
session of any meeting of the stockholders shall be held at the same city or
town as the initial session, or within Massachusetts, in either case at the
place designated in the vote of adjournment.
<PAGE>
2.4. NOTICE OF MEETINGS. A written notice of each meeting of
stockholders, stating the place, date and hour and the purposes of the
meeting, shall be given at least seven days before the meeting to each
stockholder entitled to vote there at and to each stockholder who, by law, by
the Articles of Organization or by these By-laws, is entitled to notice, by
leaving such notice with him or at his residence or usual place of business,
or by mailing it, postage prepaid, addressed to such stockholder at his
address as it appears in the records of the corporation. Such notice shall
be given by the clerk or an assistant clerk or by an officer designated by
the directors. Whenever notice of a meeting is required to be given to a
stockholder under any provision of the Business Corporation Law of the
Commonwealth of Massachusetts or of the Articles of Organization or these
By-laws, a written waiver thereof, executed before or after the meeting by
such stockholder or his attorney before or after the meeting by such
stockholder or his attorney thereunto authorized and filed with the records
of the meeting, shall be deemed equivalent to such notice.
2.5. QUORUM OF STOCKHOLDERS. At any meeting of the stockholders, a quorum
as to any matter shall consist of a majority of the votes entitled to be cast on
the matter, except when a larger quorum is required by law, by the Articles of
Organization or by these By-laws. Stock owned directly or indirectly by the
corporation, if any, shall not be deemed outstanding for this purpose. Any
meeting may be adjourned from time to time by a majority of the votes properly
cast upon the question, whether or not a quorum is present, and the meeting may
be held as adjourned without further notice.
2.6. ACTION BY VOTE. When a quorum is present at any meeting, a
plurality of the votes properly cast for election to any office shall elect to
such office, and a majority of the votes properly cast upon any question other
than an election to an office shall decide the question, except when a larger
vote is required by law, by the Articles of Organization or by these By-laws.
no ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
2.7. VOTING. Stockholders entitled to vote shall have one vote for each
share of stock entitled to vote held by them of record according to the records
of the corporation, unless otherwise provided by the Articles of Organization.
The corporation shall not, directly or indirectly, vote any share of its own
stock.
-2-
<PAGE>
2.8. ACTION BY WRITING. Any action required or permitted to be taken at
any meeting of the stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of the meetings of stockholders.
Such consents shall be treated for all purposes as a vote at a meeting.
2.9. PROXIES. To the extent permitted by law, stockholders entitled to
vote may vote either in person or by proxy. Except to the extent permitted by
law, no proxy dated more than six months before the meeting named therein shall
be valid. Unless otherwise specifically limited by their terms, such proxies
shall entitle the holders thereof to vote at any adjournment of such meeting but
shall not be valid after the final adjournment of such meeting.
Section 3. BOARD OF DIRECTORS
3.1. NUMBER. At the annual meeting of stockholders such stockholders
as have the right to vote for the election of directors shall fix the number
of directors at not less than seven nor more than fifteen directors and shall
elect the number of directors so fixed. The number of directors may be
increased at any time or from time to time either by the stockholders or by
the directors by vote of a majority of the directors then in office. The
number of directors may be decreased to any number permitted by law at any
time or from time to time either by the stockholders or by the directors by a
vote of a majority of the directors then in office, but only to eliminate
vacancies existing by reason of the death, resignation, removal or
disqualification of one or more directors. No director need be a
stockholder.
3.2. TENURE. Except as otherwise provided by law, by the Articles of
Organization or by these By-laws, each director shall hold office until the next
annual meeting of the stockholders and until his successor is duly elected and
qualified, or until he sooner dies, resigns, is removed or becomes disqualified.
3.3. POWERS. Except as reserved to the stockholders by law, by the
Articles of Organization or by these By-laws, the business of the corporation
shall be managed by the directors who shall have and may exercise all the powers
of the corporation. In particular, and without limiting the generality of the
foregoing, the directors may at any time issue all or from time to time any part
of the unissued capital stock of the corporation from time to time authorized
under the Articles of Organization and may determine, subject to any
requirements of law, the consideration for which stock is to be issued and the
manner of allocating such consideration between capital and surplus.
-3-
<PAGE>
3.4. COMMITTEES. The directors may, by vote of a majority of the
directors then in office, elect from their number an executive committee and
other committees and delegate to any such committee or committees some or all of
the powers of the directors except those which by law, by the Articles of
Organization or these By-laws they are prohibited from delegating. Except as
the directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the directors or such
rules, its business shall be conducted as nearly as may be in the same manner as
is provided by these By-laws for the conduct of business by the directors.
3.5. REGULAR MEETINGS. Regular meetings of the directors may be held
without call or notice at such places and at such times as the directors may
from time to time determine, provided that reasonable notice of the first
regular meeting following any such determination shall be given to absent
directors. A regular meeting of the directors may be held without call or
notice immediately after and at the same place as the annual meeting of the
stockholders.
3.6. SPECIAL MEETINGS. Special meetings of the directors may be held at
any time and at any place designated in the call of the meeting, when called by
the chairman of the board, if any, the president or the secretary, reasonable
notice thereof being given to each director by the secretary or an assistant
secretary, or by the officer calling the meeting.
3.7. NOTICE. It shall be sufficient notice to a director to send notice
by mail at least forty-eight hours or by telegram at least twenty-four hours
before the meeting addressed to him at his usual or last known business or
residence address or to give notice to him in person or by telephone at least
twenty-four hours before the meeting. Notice of a meeting need not be given to
any director if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any director who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
3.8. QUORUM. At any meeting of the directors a majority of the directors
then in office shall constitute a quorum. Any meeting may be adjourned from
time to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
3.9. ACTION BY VOTE. When a quorum is present at any meeting, a
majority of the directors present may take any action, except when a larger vote
is required by law, by the Articles of Organization or by these By-laws.
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<PAGE>
3.10. ACTION BY WRITING. Unless the Articles of Organization otherwise
provide, any action required or permitted to be taken at any meeting of the
directors may be taken without a meeting if all the directors consent to the
action in writing and the written consents are filed with the records of the
meetings of the directors. Such consents shall be treated for all purposes as a
vote taken at a meeting.
3.11. PRESENCE THROUGH COMMUNICATIONS EQUIPMENT. Unless otherwise
provided by law or the Articles of Organization, members of the board of
directors may participate in a meeting of such board by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time and
participation by such means shall constitute presence in person at a meeting.
Section 4. OFFICERS AND AGENTS
4.1. ENUMERATION; QUALIFICATION. The officers of the corporation
shall be a president, a treasurer, a secretary, and such other officers, as
the directors from time to time, may in their discretion elect or appoint.
The corporation may also have such agents, if any, as the directors from time
to time, may in their discretion appoint. Any officer may be but none need
be a director or stockholder. Any two or more offices may be held by the
same person. Any officer may be required by the directors to give bond for
the faithful performance of his duties to the corporation in such amount and
with such sureties as the directors may determine.
4.2. POWERS. Subject to law, to the Articles of Organization and to the
other provisions of these By-laws, each officer shall have, in addition to the
duties and powers herein set forth, such duties and powers as are commonly
incident to his office and such duties and powers as the directors may from time
to time designate.
4.3. ELECTION. The president, the treasurer and the secretary shall be
elected annually by the directors. Other officers, if any, may be elected or
appointed by the board of directors at any other time.
4.5. TENURE. Except as otherwise provided by law or by the Articles of
Organization or by these By-laws, the president, the treasurer and the secretary
and other officers shall hold office until their respective successors are
chosen and qualified, unless a shorter period shall have been specified by the
terms of his election or appointment, or in each case until he sooner dies,
resigns, is removed or becomes disqualified.
-5-
<PAGE>
4.5 CHIEF EXECUTIVE OFFICER. The chief executive officer of the
corporation shall be the chairman of the board, if any, the president or such
other officer as is designated by the directors and shall, subject to the
control of the directors, have general charge and supervision of the business of
the corporation. If no such designation is made, the president shall be the
chief executive officer. Unless the board of directors otherwise specifies, if
there is no chairman of the board, the chief executive officer shall preside, or
designate the person who shall preside, at all meetings of the stockholders and
of the board of directors.
4.6 CHAIRMAN OF THE BOARD. If a chairman of the board of directors is
elected, he shall have the duties and powers specified in these By-laws and
shall have such other duties and powers as may be determined by the directors.
Unless the board of directors otherwise specifies, the chairman of the board
shall preside, or designate the person who shall preside, at all meetings of the
stockholders and of the board of directors.
4.7 PRESIDENT AND VICE PRESIDENTS. The president shall have the duties
and powers specified in these By-laws and shall have such other duties and
powers as may be determined by the directors.
Any vice presidents shall have such duties and powers as shall be
designated from time to time by the directors.
4.8 TREASURER AND ASSISTANT TREASURERS. Except as the directors shall
otherwise determine, the treasurer shall be the chief financial and accounting
officer of the corporation and shall be in charge of its funds and valuable
papers, books of account and accounting records, and shall have such other
duties and powers as may be designated from time to time by the directors.
Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the directors.
4.9 SECRETARY AND ASSISTANT SECRETARY. The secretary shall record all
proceedings of the stockholders in a book or series of books to be kept
therefor, which book or books shall be kept at the principal office of the
corporation or at the office of its transfer agent or of its secretary and
shall be open at all reasonable times to the inspection of any stockholder.
In the absence of the secretary from any meeting of stockholders, an assitant
secretary, or if there be none or he is absent, a temporary secretary chosen
at the meeting, shall record the proceedings thereof in the aforesaid book.
Unless a transfer agent has been appointed the secretary shall keep or cause
to be kept the stock and transfer records of the corporation, which shall
contain the names and record addresses of all stockholders
-6-
<PAGE>
and the amount of stock held by each. The secretary shall keep a true record of
the proceedings of all meetings of the directors and in his absence from any
such meeting an assistant secretary, or if there be none or he is absent, a
temporary secretary chosen at the meeting, shall record the proceedings thereof.
Any assistant secretaries shall have such other duties and powers as shall
be designated from time to time by the directors.
4.10 POWERS. The chief executive officer, Chairman of the board,
President or any one of the Vice Presidents, including any Executive Vice
President, Senior Vice President, Second Vice President or Assistant Vice
President, and such other employees of the Company specifically authorized by
the chief executive officer shall have authority to transfer securities, to
execute releases, extensions, partial releases, and assignments without recourse
of mortgages, and to execute deeds and other instruments or documents on behalf
of the Company, and whenever necessary to affix the seal of the Company to the
same. The chief executive officer, Chairman of the Board, the President, any
Executive Vice President, Senior Vice President, Vice President, Second Vice
President, or Assistant Vice President may, whenever necessary, delegate
authority to perform any of the acts referred to in this paragraph to any person
pursuant to a special power of attorney.
The Treasurer shall have charge of all moneys and securities of the Company
and shall collect all proceeds from investments which the Company's records
establish to be due.
The Treasurer or an Assistant Treasurer shall have authority to transfer
securities; to execute releases, extensions, partial releases, and assignments
without recourse of mortgages; to execute deeds and other instruments or
documents on behalf of the Company, whenever necessary to affix the seal of the
company to the same; and shall have power to vote, on behalf of the Company, in
any case where the Company, as holder of any security, is entitled to vote.
Section 5. RESIGNATIONS AND REMOVALS
Any director or officer may resign at any time by delivering his
resignation in writing to the chairman of the board, if any, the president, the
treasurer or the secretary. In addition, a director may resign by delivering
his resignation in writing to a meeting of the directors. Such resignation
shall be effective upon receipt unless specified to be effective at some other
time. A director (including persons elected by directors to fill vacancies in
the board) may be removed from office (a) with or without cause by the vote of
the holders of a majority of the shares issued and outstanding and entitled to
vote in the election of directors, provided that the directors of a class
elected by a particular class of stockholders may be removed only
-7-
<PAGE>
by the vote of the holders of a majority of the shares of such class, or (b)
with cause by the vote of a majority of the directors then in office. The
directors may remove any officer elected by them with or without cause by the
vote of a majority of the directors then in office. A director or officer may
be removed for cause only after reasonable notice and opportunity to be heard
before the body proposing to remove him. No director or officer removed, shall
have any right to any compensation as such director or officer for any period
following his resignation or removal, or any right to damages on account of such
removal, whether his compensation be by the month or by the year or otherwise;
unless the body acting on the removal, shall in their or its discretion provide
for compensation.
Section 6. VACANCIES
Any vacancy in the board of directors, including a vacancy resulting from
the enlargement of the board, may be filled by the stockholders or, in the
absence of stockholder action, by the directors by vote of a majority of the
directors then in office. The directors shall elect a successor if the office
of the president, treasurer or secretary becomes vacant and may elect a
successor if any other office becomes vacant. Each such successor
shall hold office for the unexpired term and in the case of the president,
treasurer and secretary until his successor is chosen and qualified, or in each
case until he sooner dies, resigns, is removed or becomes disqualified. The
directors shall have and may exercise all their powers notwithstanding the
existence of one or more vacancies in their number.
Section 7. CAPITAL STOCK
7.1. NUMBER AND PAR VALUE. The total number of shares and the par value,
if any, of each class of stock which the corporation is authorized to issue
shall be as stated in the Articles of Organization.
7.2. SHARES REPRESENTED BY CERTIFICATES AND UNCERTIFICATED SHARES. The
board of directors may provide by resolution that some or all of any or all
classes and series of shares shall be uncertificated shares. Unless such a
resolution has been adopted, a stockholder shall be entitled to a certificate
stating the number and the class and the designation of the series, if any, of
the shares held by him, in such form as shall, in conformity to law, be
prescribed from time to time by the directors. Such certificate shall be signed
by the chairman of the board, if any, the president or a vice president and by
the treasurer or an assistant treasurer. Such signatures may be facsimiles if
the certificate is signed by a transfer agent, or by a registrar, other than a
director, officer or employee of the corporation. In case any officer who has
signed or whose
-8-
<PAGE>
facsimile signature has been placed on such certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the time of its
issue.
7.3. LOSS OF CERTIFICATES. In the case of the alleged loss or
destruction or the mutilation of a certificate of stock, a duplicate certificate
may by issued in place thereof, upon such conditions as the directors may
prescribe.
Section 8. TRANSFER OF SHARES OF STOCK
8.1. TRANSFER ON BOOKS. Subject to the restrictions, if any, stated or
noted on the stock certificates, shares of stock may be transferred on the
books of the corporation by the surrender to the corporation or its transfer
agent of the certificate therefor properly endorsed or accompanied by a
written assignment and power of attorney properly executed, with necessary
transfer stamps affixed, and with such proof of the authenticity of signature
as the directors or the transfer agent of the corporation may reasonably
require. Except as may be otherwise required by law, by the Articles of
Organization or by these By-laws, the corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock
for all purposes, including the payment of dividends and the right to receive
notice and to vote with respect thereto, regardless of any transfer, pledge
or other disposition of such stock until the shares have been transferred on
the books of the corporation in accordance with the requirements of these
By-laws.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
8.2 RECORD DATE AND CLOSING TRANSFER BOOKS. The directors may fix in
advance a time, which shall not be more than sixty days before the date of
any meeting of stockholders or the date for the payment of any dividend or
making of any distribution to stockholders or the last day on which the
consent or dissent of stockholders may be effectively expressed for any
purpose, as the record date for determining the stockholders having the right
to notice of and to vote at such meeting and any adjournment thereof or the
right to receive such dividend or distribution or the right to give such
consent or dissent, and in such case only stockholders of record on such
record date shall have such right, notwithstanding any transfer of stock on
the books of the corporation after the record date; or without fixing such
record date the directors may for any of such purposes close the transfer
books for all or any part of such period. If no record date is fixed and the
transfer books are not closed:
(1) The record date for determining stockholders having the right to
notice of or to vote at a meeting of stockholders shall
-9-
<PAGE>
be at the close of business on the date next preceding the day on which notice
is given.
(2) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
acts with respect thereto.
Section 9. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the extent legally permissible, indemnify each of
its directors and officers (including persons who serve at its request as
directors, officers or trustees of another organization, or in any capacity with
respect to any employee benefit plan) against all liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees, reasonably incurred by him in connection with
the defense or disposition of any action, suit or other proceeding, whether
civil or criminal, in which he may be involved or with which he may be
threatened, while in office or thereafter, by reason of his being or having been
such a director or officer, except with respect to any matter as to which he
shall have been adjudicated in any proceeding not to have acted in good faith
in the reasonable belief that his action was in the best interest of the
corporation (any person serving another organization in one or more of the
indicated capacities at the request of the corporation who shall have acted
in good faith in the reasonable belief that his action was in the best
interest of such other organization to be deemed as having acted in such
manner with respect to the corporation) or, to the extent that such matter
relates to service with respect to any employee benefit plan, in the best
interest of the participants or beneficiaries of such employee benefit plan;
provided, however, that as to any matter disposed of by a compromise payment
by such director or officer, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses
shall be provided unless such compromise shall be approved as in the best
interest of the corporation, after notice that it involves such indemnification:
(a) by a disinterested majority of the directors then in office; or (b) by a
majority of the disinterested directors then in office, provided that there has
been obtained an opinion in writing of independent legal counsel to the effect
that such director or officer appears to have acted in good faith in the
reasonable belief that his action was in the best interest of the corporation;
or (c) by the holders of a majority of the outstanding stock at the time
entitled to vote for directors, voting as a single class, exclusive of any stock
owned by any interested director or officer. Expenses, including counsel fees,
reasonably incurred by any director or officer in connection with the defense or
disposition of any such action, suit or other proceeding may be paid from time
to time by the corporation in advance of the final disposition thereof upon
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<PAGE>
receipt of an undertaking by such director or officer to repay the amounts so
paid to the corporation if it is ultimately determined that indemnification for
such expenses is not authorized under this section. The right of
indemnification hereby provided shall not be exclusive of or affect any other
rights to which any director or officer may be entitled. As used in this
section, the terms "director" and "officer" include the relevant individual's
heirs, executors and administrators, and an "interested" director or officer is
one against whom in such capacity the proceedings in question or another
proceeding on the same or similar grounds is then pending. Nothing contained in
this section shall affect any rights to indemnification to which corporate
personnel other than directors and officers may be entitled by contract or
otherwise under law.
Section 10. CORPORATE SEAL
The seal of the corporation shall, subject to alteration by the directors,
consist of a flat-faced circular die with the word "Massachusetts", together
with the name of the corporation and the year of its organization, cut or
engraved thereon.
Section 11. EXECUTION OF PAPERS
The chief executive officer, Chairman of the Board, President or any one of
the Vice Presidents, including any Executive Vice President, Senior Vice
President, Second Vice President or Assistant Vice President, and such other
employees of the Company specifically authorized by the chief executive officer
shall have authority to transfer securities, to execute releases, extensions,
partial releases, and assignments without recourse of mortgages; and to execute
deeds and other instruments or documents on behalf of the Company, and whenever
necessary to affix the seal of the company to the same. The chief executive
officer, Chairman of the Board, the President, any Executive Vice President,
Senior Vice President, Vice President, Second Vice President, Vice President,
Second Vice President, or Assistant Vice President may, whenever necessary,
delegate authority to perform any of the acts referred to in this paragraph to
any person pursuant to a special power of attorney.
Section 12. FISCAL YEAR
The fiscal year of the corporation shall end on December 31.
Section 13. AMENDMENTS
These By-laws may be altered amended or repealed at any annual or special
meeting of the stockholders called for the purpose, of which the notice shall
specify the subject matter of the proposed alteration, amendment or repeal or
the sections to be affected thereby, by vote of the stockholders. These By-laws
may also be altered, amended or repealed by vote of a majority of
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<PAGE>
the directors then in office, except that the directors shall not take any
action which provides for indemnification of directors nor any action to amend
this Section 13, and except that the directors shall not take any action unless
permitted by law.
Any By-law so altered, amended or repealed by the directors may be further
altered or amended or reinstated by the stockholders in the above manner.
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
October 10, 1995
State Mutual Life Assurance Company of America
440 Lincoln Street
Worcester MA 01653
Gentlemen:
In my capacity as Counsel of State Mutual Life Assurance Company of America (the
"Company"), I have participated in the preparation of the Post-Effective
Amendment to the Registration Statement for Allmerica Select Separate Account on
Form N-4 under the Securities Act of 1933 and the Investment Company Act of
1940, with respect to the Company's group and individual variable annuity
contracts.
I am of the following opinion:
1. Allmerica Select Separate Account 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 Allmerica Select Separate Account are not chargeable
with liabilities arising out of any other business the Company may conduct.
3. The group and individual variable annuity contracts, when issued in
accordance with the Prospectus contained in the Registration Statement and
upon compliance with applicable local law, will be legal and binding
obligations of the Company in accordance with their terms and when sold
will be legally issued, fully paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Post-
Effective Amendment to the Registration Statement of Allmerica Select Separate
Account filed under the Securities Act of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 3 to the Registration
Statement on Form N-4 of our report dated February 13, 1995, except as to
Note 2, which is as of February 28, 1995, relating to the financial
statements of State Mutual Life Assurance Company of America and our report
dated February 13, 1995, relating to the financial statements of the
Allmerica Select Separate Account of State Mutual Life Assurance Company of
America, both of which appear in such Statement of Additional Information.
We also consent to the reference to us under the heading "Experts" in such
Statement of Additional Information.
/s/ Price Waterhouse LLP
Boston, Massachusetts
October 16, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 158
<NAME> ALLMERICA SELECT SEPARATE ACCOUNT SUB-ACCOUNT 301
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 948,445
<INVESTMENTS-AT-VALUE> 959,121
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 959,121
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 923
<TOTAL-LIABILITIES> 923
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 957,794
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,676
<NET-ASSETS> 958,198
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 3,115
<NET-INVESTMENT-INCOME> (3,115)
<REALIZED-GAINS-CURRENT> 101
<APPREC-INCREASE-CURRENT> 10,676
<NET-CHANGE-FROM-OPS> 7,662
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 959,605
<NUMBER-OF-SHARES-REDEEMED> 1,811
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 958,198
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 479,099
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> (0.003)
<PER-SHARE-GAIN-APPREC> .003
<PER-SHARE-DIVIDEND> 0.0
<PER-SHARE-DISTRIBUTIONS> 0.0
<RETURNS-OF-CAPITAL> 0.0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 159
<NAME> ALLMERICA SELECT SEPARATE ACCOUNT SUB-ACCOUNT 302
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 783,494
<INVESTMENTS-AT-VALUE> 781,746
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 781,746
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 775
<TOTAL-LIABILITIES> 775
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 756,153
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,748)
<NET-ASSETS> 780,971
<DIVIDEND-INCOME> 2,361
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 4,972
<NET-INVESTMENT-INCOME> (2,611)
<REALIZED-GAINS-CURRENT> 1,654
<APPREC-INCREASE-CURRENT> (1,748)
<NET-CHANGE-FROM-OPS> (2,705)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 758,002
<NUMBER-OF-SHARES-REDEEMED> 1,849
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 780,971
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 390,486
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> (0.003)
<PER-SHARE-GAIN-APPREC> .036
<PER-SHARE-DIVIDEND> 0.0
<PER-SHARE-DISTRIBUTIONS> 0.0
<RETURNS-OF-CAPITAL> 0.0
<PER-SHARE-NAV-END> 1.033
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 160
<NAME> ALLMERICA SELECT SEPARATE ACCOUNT SUB-ACCOUNT 303
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 1,844,479
<INVESTMENTS-AT-VALUE> 1,774,051
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<TOTAL-ASSETS> 1,776,233
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<TOTAL-LIABILITIES> 0
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<SHARES-COMMON-STOCK> 1,724,046
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (70,428)
<NET-ASSETS> 1,776,233
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<OTHER-INCOME> 0
<EXPENSES-NET> 9,004
<NET-INVESTMENT-INCOME> 53,049
<REALIZED-GAINS-CURRENT> 2,358
<APPREC-INCREASE-CURRENT> (70,428)
<NET-CHANGE-FROM-OPS> (15,021)
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<NUMBER-OF-SHARES-SOLD> 1,730,638
<NUMBER-OF-SHARES-REDEEMED> 6,592
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,776,233
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<PER-SHARE-NAV-BEGIN> 1.000
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<PER-SHARE-GAIN-APPREC> (.001)
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 161
<NAME> ALLMERICA SELECT SEPARATE ACCOUNT SUB-ACCOUNT 304
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 1,969,684
<INVESTMENTS-AT-VALUE> 1,904,569
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (65,115)
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<EXPENSES-NET> 9,366
<NET-INVESTMENT-INCOME> 54,490
<REALIZED-GAINS-CURRENT> (513)
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<NUMBER-OF-SHARES-SOLD> 1,931,971
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<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.028
<PER-SHARE-GAIN-APPREC> (.034)
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<PER-SHARE-NAV-END> .994
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 162
<NAME> ALLMERICA SELECT SEPARATE ACCOUNT SUB-ACCOUNT 305
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 2,127,430
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 2,128,134
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 163
<NAME> ALLMERICA SELECT SEPARATE ACCOUNT SUB-ACCOUNT 306
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 679,577
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<NET-INVESTMENT-INCOME> (477)
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<PER-SHARE-NAV-END> .956
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</TABLE>
