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GROUP VARIABLE ANNUITY CONTRACTS
FUNDED THROUGH
ALLMERICA SELECT SEPARATE ACCOUNT
This Prospectus describes group variable annuity contracts including
certificates issued thereunder ("Contracts") offered by First Allmerica
Financial Life Insurance Company ("First Allmerica"). The Contracts are funded
through First Allmerica's Allmerica Select Separate Account, which invests in
shares of Allmerica Investment Trust ("Trust"), Variable Insurance Products Fund
("VIP") 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 International Stock Portfolio
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Growth Fund
Fidelity VIP Growth Portfolio
Select Growth and Income Fund
Fidelity VIP Equity-Income Portfolio
Fidelity VIP 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 April 30, 1996 ("SAI"), filed with the Securities and Exchange Commission
and incorporated herein by reference. The Table of Contents of the SAI is on
page 8 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.
THE ALLMERICA SELECT VARIABLE ANNUITY CONTRACTS ("CONTRACTS") ARE OBLIGATIONS
OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY AND ARE DISTRIBUTED
BY ALLMERICA INVESTMENTS, INC. THE CONTRACTS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT UNION.
THE
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CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS IN THE CONTRACTS
ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND POSSIBLE
LOSS OF PRINCIPAL.
APRIL 30, 1996
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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:
o A customized investment portfolio
o Experienced professional investment advisers
o Tax deferral on earnings
o Guarantees that can protect your family during the accumulation phase
o 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:
o Lump sum
o At regular intervals over a specified number of years; or
o 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 - First Allmerica Financial Life Insurance
Company ("First Allmerica"). 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 First Allmerica during the first 10 days from the date you
received it, the Contract will be canceled. 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."
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WHAT ARE MY INVESTMENT CHOICES?
You have a choice of eleven Funds:
o Select International Equity Fund
Managed by Bank of Ireland Asset Management Limited
o T. Rowe Price International Stock Portfolio
Managed by Rowe Price-Fleming International, Inc.
o Select Aggressive Growth Fund
Managed by Nicholas-Applegate Capital Management
o Select Capital Appreciation Fund
Managed by Janus Capital Corporation
o Select Growth Fund
Managed by Provident Investment Counsel
o Fidelity VIP Growth Portfolio
Managed by Fidelity Management & Research Company
o Select Growth and Income Fund
Managed by John A. Levin & Co., Inc.
o Fidelity VIP Equity-Income Portfolio
Managed by Fidelity Management & Research Company
o Fidelity VIP High Income Portfolio
Managed by Fidelity Management & Research Company
o Select Income Fund
Managed by Standish, Ayer & Wood, Inc.
o 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."
First Allmerica also offers a guaranteed account ("Fixed Account"). The Fixed
Account is part of the General Account of First Allmerica 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 RogersCasey
Consulting Inc., a leading pension consulting firm. RogersCasey Consulting, Inc.
provides consulting services to pension plans representing over $300 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 First Allmerica. See
"INVESTMENT ADVISORY SERVICES TO THE TRUST."
Fidelity Management & Research Company ("Fidelity Management") is the investment
manager of VIP. 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. It provides a number of mutual funds
and other clients with investment research and portfolio management services.
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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 $20 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:
o Your total purchase payments under the Contract less any withdrawals
you may have made;
o The then current value of your Contract; or
o 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 First
Allmerica. 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, First Allmerica will deduct a
$30 Contract Fee from your Contract. First Allmerica 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. First Allmerica may limit the number of free transfers and
the number of total transfers in a Contract year to six.
First Allmerica 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.
For more information, see "CHARGES AND DEDUCTIONS."
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CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
There are several changes you can make after receiving your Contract:
o You may assign your ownership to someone else, except under certain
qualified plans.
o You may change the beneficiary, unless you have designated a
beneficiary irrevocably.
o You may change the allocation of purchase payments, with no tax
consequences under current law.
o You may make transfers of Contract value among your current
investments, subject to then current rules.
o You may cancel your Contract within 10 days of delivery, as discussed
above.
o You may select the form and timing of annuity payments.
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TABLE OF CONTENTS
SPECIAL TERMS................................................................ 9
ANNUAL AND TRANSACTION EXPENSES.............................................. 10
RIGHT TO REVOKE CONTRACT .................................................... 12
DESCRIPTION OF FIRST ALLMERICA, THE SEPARATE ACCOUNT, THE TRUST,
VIP AND T. ROWE PRICE........................................................ 12
FIRST ALLMERICA............................................................ 13
ALLMERICA SELECT SEPARATE ACCOUNT.......................................... 13
THE TRUST.................................................................. 13
VIP........................................................................ 13
T. ROWE PRICE.............................................................. 13
INVESTMENT OBJECTIVES AND POLICIES......................................... 13
INVESTMENT ADVISORY SERVICES TO THE TRUST.................................. 14
INVESTMENT ADVISORY SERVICES TO VIP........................................ 15
INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE.............................. 16
CHARGES AND DEDUCTIONS ...................................................... 16
CONTINGENT DEFERRED SALES CHARGE........................................... 16
CONTRACT FEE............................................................... 18
ANNUAL CHARGES AGAINST SEPARATE ACCOUNT.................................... 18
TRANSFER CHARGE............................................................ 19
PREMIUM TAXES.............................................................. 19
OTHER CHARGES.............................................................. 19
DESCRIPTION OF THE CONTRACT................................................ 19
PURCHASE PAYMENTS.......................................................... 19
TRANSFER PRIVILEGE......................................................... 20
SURRENDER.................................................................. 20
PARTIAL REDEMPTION......................................................... 21
LIFE EXPECTANCY DISTRIBUTION .............................................. 21
PAYMENT ON DEATH .......................................................... 22
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 ................................................................ 29
REPORTS...................................................................... 30
PERFORMANCE INFORMATION...................................................... 30
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT ................................ 30
LEGAL MATTERS................................................................ 31
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS............................ 31
FURTHER INFORMATION.......................................................... 31
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TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION................. 32
APPENDIX A - MORE INFORMATION ABOUT THE FIXED ACCOUNT........................ 33
APPENDIX B - EXCHANGE OFFER.................................................. 33
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<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: Fidelity VIP
Growth Portfolio, Fidelity VIP Equity-Income Portfolio and Fidelity VIP High
Income Portfolio; and the T. Rowe Price International Stock Portfolio of T.
Rowe Price International Series, Inc. First Allmerica may designate
additional eligible mutual fund investments as Funds.
Separate Account: Allmerica Select Separate Account, a separate investment
account of First Allmerica.
Sub-Account: a subdivision of the Separate Account investing exclusively in the
shares of a given Fund.
General Account: all the assets of First Allmerica 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.
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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."
<TABLE>
<CAPTION>
Years from
Contract Charges date of Payment Charge
--------------- ------
<S> <C> <C>
- -Contingent Deferred Sales Charge:
This charge may be assessed upon surrender, redemption or, 0-1 6.5%
in some cases, annuitization 2 6.0%
under a period certain option. The charge is a percentage of 3 5.0%
purchase payments applied to the amount surrendered (in 4 4.0%
excess of any amount that is free of charge) within the 5 3.0%
indicated time 6 2.0%
periods. 7 1.0%
- -Transfer Charge:
This charge is currently imposed for transfers in excess of $25 twelve
transfers in a Contract year.
(First Allmerica 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%
</TABLE>
<TABLE>
<CAPTION>
Fund Expenses
(on annual basis as percentage of average daily net assets)
Management Other Fund Total Fund
Fund Fee Expenses Expenses
- ---- ----- --------- ---------
<S> <C> <C> <C>
Select International Equity Fund................ 1.00% 0.24% 1.24%
T. Rowe Price International Stock Portfolio..... 1.05% 0.00% 1.05%
Select Aggressive Growth Fund................... 1.00% 0.09% 1.09%*
Select Capital Appreciation Fund................ 0.93% 0.42% 1.35%*
Select Growth Fund............................... 0.85% 0.12% 0.97%
Fidelity VIP Growth Fund.......................... 0.61% 0.09% 0.70%
Select Growth and Income Fund................... 0.75% 0.10% 0.85%
Fidelity VIP Equity-Income Portfolio.............. 0.51% 0.10% 0.61%
Fidelity VIP High Income Portfolio................ 0.60% 0.11% 0.71%+
Select Income Fund.............................. 0.59% 0.20% 0.79%*
Money Market Fund............................... 0.29% 0.07% 0.36%
</TABLE>
*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 1995 the total operation expenses of the Select Capital
Appreciation Fund would have been 1.42%.
+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.
For the year ended December 31, 1995, Allmerica Investment voluntarily agreed
to reimburse the Select Capital Appreciation Fund in the amount of $8,520.
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%
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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 Price 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 VIP Growth Fund......................... $81 $113 $144 $250
Select Growth and Income Fund.................... $83 $120 $154 $272
Fidelity VIP Equity-Income Portfolio............. $80 $110 $138 $239
Fidelity VIP 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 Price 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 VIP Growth Fund......................... $22 $68 $117 $250
Select Growth and Income Fund.................... $24 $75 $128 $272
Fidelity VIP Equity-Income Portfolio............. $21 $65 $111 $239
Fidelity VIP High Income Portfolio............... $22 $69 $118 $252
Select Income Fund............................... $24 $72 $124 $265
Money Market Fund................................ $20 $61 $105 $226
</TABLE>
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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.
CONDENSED FINANCIAL INFORMATION
First Allmerica Financial Life Insurance Company
Allmerica Select Separate Account
1995 1994
---- ----
Select Aggressive Growth Fund
Unit Value:
Beginning of Period 1.000 1.000
End of Period 1.305 1.000
Number of Units Outstanding at End 2,393 958
of Period (in thousands)
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1995 1994
---- ----
Select Growth Fund
Unit Value:
Beginning of Period 1.032 1.000
End of Period 1.269 1.032
Number of Units Outstanding at End 2,177 756
of Period (in thousands)
Select Growth & Income Fund
Unit Value:
Beginning of Period 1.030 1.000
End of Period 1.324 1.030
Number of Units Outstanding at End 3,673 1,724
of Period (in thousands)
Select Income Fund
Unit Value:
Beginning of Period 0.993 1.000
End of Period 1.146 0.993
Number of Units Outstanding at End 4,114 1,916
of Period (in thousands)
Money Market Fund
Unit Value:
Beginning of Period 1.021 1.000
End of Period 1.065 1.020
Number of Units Outstanding at End 4,027 2,085
of Period (in thousands)
Select International Equity Fund
Unit Value:
Beginning of Period 0.956 1.000
End of Period 1.128 0.956
Number of Units Outstanding at End 1,900 695
of Period (in thousands)
Select Capital Appreciation Fund
Unit Value:
Beginning of Period 1.000 N/A
End of Period 1.383
Number of Units Outstanding at End 391
of Period (in thousands)
Fidelity VIP High Income Portfolio
Unit Value:
Beginning of Period 1.000 N/A
End of Period 1.096
Number of Units Outstanding at End 273
of Period (in thousands)
Fidelity VIP Equity Income Portfolio
Unit Value:
Beginning of Period 1.000 N/A
End of Period 1.191
Number of Units Outstanding at End 429
of Period (in thousands)
Fidelity VIP Growth Portfolio
Unit Value:
Beginning of Period 1.000 N/A
End of Period 1.235
Number of Units Outstanding at End 262
of Period (in thousands)
T. Rowe Price International Stock Portfolio
Unit Value:
Beginning of Period 1.000 N/A
End of Period 1.065
Number of Units Outstanding at End 265
of Period (in thousands)
RIGHT TO REVOKE CONTRACT
The Contract may be revoked at any time between the date of the application and
the date 10 days (or longer if required under state law) 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 First Allmerica at 440 Lincoln Street, Worcester, Massachusetts 01653, or to
a First Allmerica agent. Mailing or delivery must occur on or before 10 days
after receipt of the Contract for revocation to be effective.
Within seven days, First Allmerica 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, VIP or T. Rowe Price 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 First Allmerica.
The refund of any purchase payment made by check may be delayed until the check
has cleared the Contract Owner's bank.
DESCRIPTION OF FIRST ALLMERICA, THE SEPARATE ACCOUNT,
THE TRUST, VIP AND T. ROWE PRICE
FIRST ALLMERICA. First Allmerica Financial Life Insurance Company ("First
Allmerica"), organized under the laws of Massachusetts in 1844, is the fifth
oldest life insurance company in America. As of December 31, 1995, First
Allmerica and its subsidiaries had over $11 billion in combined assets and over
$35.2 billion of life insurance in force.
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THE COMPANY - The Company organized under the laws of Massachusetts in 1844,
is the fifth oldest life insurance company in America. As of December 31,
1995, the company and its subsidiaries had over $5 billion in combined assets
and over $18 billion of life insurance in force. Effective October 16, 1995,
the Company converted from a mutual life insurance company known as State
Mutual Life Assurance Company of America to a stock life insurance
company and adopted its present name. The Company is a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"). The Company's
principal office is located at 440 Lincoln Street, Worcester, Massachusetts
01653, telephone 508-855-1000 ("Principal Office")
The Company is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
of Massachusetts. In addition, the Company is subject to the insurance laws and
regulations of other states and jurisdictions in which it is licensed to
operate.
ALLMERICA SELECT SEPARATE ACCOUNT. Allmerica Select Separate Account ("Separate
Account") is a separate investment account of First Allmerica 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 First
Allmerica. Each Sub-Account is administered and accounted for as part of the
general business of First Allmerica. 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 First Allmerica.
Under Massachusetts law, the assets of the Separate Account may not be charged
with any liabilities arising out of any other business of First Allmerica.
The Separate Account was authorized pursuant to a vote of the Board of Directors
of First Allmerica 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 First Allmerica by the SEC.
First Allmerica 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 was established as a Massachusetts business trust on October 11, 1984,
for the purpose of providing a vehicle for the investment of assets of various
separate accounts established by First Allmerica 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."
VIP. VIP, 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 portfolios are
available under the Contracts: the Fidelity VIP Growth Portfolio, the Fidelity
VIP Equity-Income Portfolio and the Fidelity VIP High Income Portfolio.
T. ROWE PRICE. T. Rowe Price, 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 T. Rowe Price 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, VIP and T. Rowe Price 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.
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The T. Rowe Price International Stock Portfolio seeks long-term growth of
capital through investments primarily in common stocks of established,
non-U.S. companies.
Select Aggressive Growth Fund 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
Provident Investment Counsel.
Fidelity VIP 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 VIP 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 VIP prospectus.
Fidelity VIP 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 VIP 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.
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 First Allmerica 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 Trust has
entered into a Management Agreement with Allmerica Investment Management
Company, Inc. ("Manager"), an indirectly wholly-owned subsidiary of First
Allmerica, 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
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("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
First Allmerica, 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 RogersCasey
Consulting, Inc., a leading pension consulting firm. The cost of such
consultation is borne by the Manager. RogersCasey Consulting, Inc. provides
consulting services to pension plans representing over $300 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 First Allmerica.
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 Limited Select International Equity First $50 million 0.45%
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%
Provident Investment Counsel 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%
</TABLE>
- ----------
* 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.
INVESTMENT ADVISORY SERVICES TO VIP. For managing investments and business
affairs, each Portfolio pays a monthly fee to Fidelity Management. The
Prospectus of VIP 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.
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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 Fidelity VIP Growth and Fidelity VIP 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 Fidelity Growth
Portfolio and 0.20% for the Fidelity VIP 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 Fidelity VIP High Income Portfolio may have a fee as high as
0.82%. The Fidelity VIP Growth Portfolio may have a fee of as high as 0.82%
of its average net assets. The Fidelity VIP Equity-Income Portfolio may
have a fee as high as 0.72% of its average net assets.
INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE. 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, VIP 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 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 First Allmerica 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.)
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<PAGE>
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 0.0%
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, First Allmerica 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 First Allmerica will waive the contingent deferred sales
charge, if any, until the entire Withdrawal Without Charge has been redeemed.
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<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, First Allmerica
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 First Allmerica'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, First Allmerica 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 First Allmerica 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. First Allmerica 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. First Allmerica 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
First Allmerica assumes for the variable interests in the Contracts. The
mortality risk arises from the Contract's guarantees respecting payment on death
and First Allmerica'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 expense risk arises from First Allmerica'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 First Allmerica 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, First Allmerica will absorb the losses. If
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<PAGE>
expenses are less than the amounts provided to First Allmerica by the charge,
the difference will be a profit to First Allmerica. To the extent this charge
results in a profit to First Allmerica, such profit will be available for use by
First Allmerica for, among other things, the payment of distribution, sales and
other expenses.
Administrative Expense Charge. First Allmerica 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 First Allmerica 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 First Allmerica 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, First Allmerica will impose a charge of $25 to reimburse First Allmerica
for the costs of processing the transfer. First Allmerica 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%. First
Allmerica pays state and municipal premium taxes, when applicable, and deducts
the amount paid as a premium tax charge. The current practice of First Allmerica
is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by First Allmerica 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 (First Allmerica
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, VIP 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 First Allmerica 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 First
Allmerica'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 First
Allmerica's then current minimum requirements. Subsequent purchase payments must
be at least $50.
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, First Allmerica 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.
First Allmerica 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
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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 First
Allmerica'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 Allmerica
Financial 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
Allmerica Financial Life Insurance and Annuity Company and its agents and
affiliates is that they will not be responsible for losses resulting from acting
upon telephone requests reasonably believed to be genuine. Allmerica Financial
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; otherwise, Allmerica Financial may be liable for any
losses due to unauthorized or fraudulent instructions. The procedures Allmerica
Financial 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 First Allmerica'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, First Allmerica will impose a charge of $25 to
reimburse it for the expense of processing transfers. First Allmerica 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, First Allmerica 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, First Allmerica 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.
(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 First Allmerica'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 First Allmerica, to the Principal Office. The
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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 First
Allmerica's receipt of the surrender request. First Allmerica 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 First Allmerica 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 First Allmerica, 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.
Each partial redemption must be in a minimum amount of $100. No partial
redemption will be permitted if the Accumulated Value remaining under the
Contract would be reduced to less than $1,000. Partial redemptions will be paid
in accordance with the time limitations described under "SURRENDER."
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 First Allmerica 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 First Allmerica. 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. First Allmerica 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
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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, First
Allmerica 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), First Allmerica 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, First Allmerica 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.
If there is more than one beneficiary, the payment on death will be paid to such
beneficiaries in one sum unless First Allmerica 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 First Allmerica, 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. First Allmerica 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. First Allmerica will not be deemed to have knowledge of an assignment
unless it is made in writing and filed at the Principal Office. First Allmerica
will not assume responsibility for determining the validity of any assignment.
If an assignment of the Contract is in effect on the Annuity Date, First
Allmerica 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. First Allmerica 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.
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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 First Allmerica, 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, First Allmerica will pay the Surrender Value or guaranteed payment on
death, as the case may be, in one sum. Once First Allmerica 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.
First Allmerica 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."
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. First Allmerica 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 First Allmerica.
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
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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, First Allmerica currently follows a
practice of permitting persons receiving payments under Option V to elect to
convert to a variable annuity involving a life contingency. First Allmerica 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.
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 First Allmerica. 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
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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.
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 First Allmerica 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 First Allmerica 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 life contingency option
or a variable period certain option for 10 years or more is determined by
multiplying (1) the Accumulated Value applied under that option (after deduction
for premium tax charge, if any) divided by $1,000, by (2) the applicable amount
of the first payment per $1,000 of value. If a variable period certain for less
than 10 years or any fixed period certain option is chosen, the surrender value
less any premium tax will be applied. 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.
First Allmerica 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 First Allmerica'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
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qualified tax adviser should always be consulted with regard to the application
of law to individual circumstances.
First Allmerica 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 First Allmerica's tax. The Separate Account presently is not subject
to tax, but First Allmerica reserves the right to assess a charge for taxes
should the Separate Account at any time become subject to tax. Any charge for
taxes will be assessed on a fair and equitable basis in order to preserve equity
among classes of Contract Owners and with respect to each Separate Account as
though that Separate Account were a separate taxable entity.
The Separate Account is considered to be a part of and taxed with the operations
of First Allmerica. First Allmerica is taxed as a mutual life insurance company
under subchapter L of the Code. First Allmerica 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, VIP and T. Rowe Price 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. First Allmerica 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 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.
-26-
<PAGE>
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.
First Allmerica 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.
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.
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<PAGE>
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, First Allmerica 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.
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
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<PAGE>
$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.
Loans (Qualified Policies Only)
Loans will be permitted only for TSAs and Policies issued to a plan qualified
under Section 401(a) and 401(k) of the Code. Loans are made from the Policy's
value on a pro-rata basis from all accounts. The maximum loan amount is the
amount determined under the Company's maximum loan formula for qualified plans.
The minimum loan amount is $1,000. Loans will be secured by a security interest
in the Policy. Loans are subject to applicable retirement legislation and their
taxation is determined under the Federal income tax laws. The amount borrowed
will be transferred to a fixed, minimum guarantee loan assets account in the
Company's General Account, where it will accrue interest at a specified rate
below the then current loan interest rate. Generally, loans must be repaid
within five (5) years. When repayments are received, they will be allocated in
accordance with the contract owner's most recent allocation instructions.
The amount of the death benefit, the amount payable on a full surrender and the
amount applied to provide an annuity on the Annuity Date will be reduced to
reflect any outstanding loan balance (plus accrued interest thereon). Partial
withdrawals may be restricted by the maximum loan limitation.
VOTING RIGHTS
To the extent required by law, First Allmerica 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 First Allmerica.
Shares for which no timely instructions are received will be voted in proportion
to the instructions which are received. First Allmerica 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 First Allmerica
determines that it is permitted to vote shares in its own right, whether or not
such shares are attributable to the Contracts, First Allmerica reserves the
right to do so.
The number of votes which a Contract Owner or Annuitant may cast will be
determined by First Allmerica 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.
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 First Allmerica.
First Allmerica pays commissions not to exceed 5.5% of purchase payments to
broker-dealers which sell the Contracts.
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<PAGE>
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.
First Allmerica intends to recoup commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges and profits from
First Allmerica'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 First Allmerica. 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. First Allmerica 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
The Contracts were first offered to the public in 1994. However, the Company
may advertise "Total Return" and Average Total Return.
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.
First Allmerica 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
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.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
-----------------------------------------------------------------
(Assuming COMPLETE redemption of the investment)
FOR YEAR 10 YEARS OR
ENDED SINCE
NAME OF FUND 12/31/95 3 YEARS 5 YEARS INCEPTION*
------------ -------- ------- ------- -----------
<S> <C> <C> <C> <C>
Money Market -2.06% 1.23% 2.55% 4.42%
Select Aggressive Growth 24.05% 12.73% N/A 17.67%
Select Growth 16.45% 4.50% N/A 7.47%
Select Growth and Income 22.11% 10.26% N/A 9.13%
Select Income 8.93% 4.32% N/A 4.13%
Select Int'l. Equity 11.55% N/A N/A 4.01%
Select Capital Appreciation N/A N/A N/A 31.72%
Fidelity VIP High Income 12.53% 9.70% 16.93% 9.90%
Fidelity VIP Equity-Income 26.70% 16.71% 19.32% 11.74%
Fidelity VIP Growth 26.96% 14.43% 18.79% 13.22%
T. Rowe Price Int'l Stock 3.21% N/A N/A 2.16%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
-----------------------------------------------------------------
(Assuming NO redemption of the investment)
<TABLE>
<CAPTION>
FOR YEAR 10 YEARS OR
ENDED SINCE
NAME OF FUND 12/31/95 3 YEARS 5 YEARS INCEPTION*
------------ -------- ------- ------- -----------
<S> <C> <C> <C> <C>
Money Market 4.38% 2.81% 3.08% 4.42%
Select Aggressive Growth 30.49% 14.01% N/A 18.48%
Select Growth 22.88% 5.99% N/A 8.46%
Select Growth and Income 28.55% 11.60% N/A 10.09%
Select Income 15.36% 5.81% N/A 5.20%
Select Int'l. Equity 17.99% N/A N/A 7.47%
Select Capital Appreciation N/A N/A N/A 38.22%
Fidelity VIP High Income 19.03% 11.07% 17.25% 9.90%
Fidelity VIP Equity-Income 33.20% 17.92% 19.62% 11.74%
Fidelity VIP Growth 33.46% 15.69% 19.09% 13.22%
T. Rowe Price Int'l Stock 9.62% N/A N/A 5.80%
</TABLE>
*The inception dates for the Underlying Funds are: 4/29/85 for Money Market;
8/21/92 for Select Aggressive Growth, Select Growth, Select Income, and
Select Growth and Income; 5/01/94 for Select International Equity; 10/09/86
for Fidelity VIP Growth; 9/19/85 for Fidelity VIP High Income; 3/31/94 for
the T. Rowe Price International Stock; 4/28/95 for the Select Capital
Appreciation Fund.
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT
First Allmerica reserves the right, subject to compliance with applicable law,
to (1) transfer assets from the Separate Account or any Sub-Account to another
of First Allmerica's separate accounts or sub-accounts having assets of the same
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<PAGE>
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 First Allmerica
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.
First Allmerica 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
First Allmerica 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 First Allmerica's judgment
further investment in any Fund should become inappropriate in view of the
purposes of the Separate Account or the affected Sub-Account, First Allmerica
may redeem the shares of that Fund and substitute shares of another registered
open-end management company. First Allmerica 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.
First Allmerica 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, First Allmerica 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 First Allmerica.
Shares of the Funds are also issued to separate accounts of First Allmerica 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 First Allmerica, the Trust, VIP and T. Rowe Price do not currently
foresee any such disadvantage to either variable life insurance or variable
annuity Contract Owners, First Allmerica and the Trustees of the Trust, VIP
and T. Rowe Price 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, First
Allmerica will bear the attendant expenses.
If any of these substitutions or changes are made, First Allmerica may by
appropriate endorsement change the Contract to reflect the substitution or
change and will notify Contract Owners of all such changes. If First Allmerica
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 First
Allmerica.
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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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 First Allmerica is made up of all of the general assets
of First Allmerica other than those allocated to any separate account.
Allocations to the Fixed Account become part of the assets of First Allmerica
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 First Allmerica 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 First Allmerica. 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, First Allmerica 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 First Allmerica 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.
APPENDIX B
EXCHANGE OFFER
A. Variable Contract Exchange Offer.
First Allmerica reserves the right to suspend this exchange offer at any time.
This exchange offer applies to all variable annuity contracts issued by First
Allmerica and its indirect wholly owned subsidiary Allmerica Financial Life
Insurance and Annuity Company ("Allmerica Financial"), except for contracts
A3018-94 and A3021-93 issued by the Company and contracts A3021-93 and A3018-91
issued by Allmerica Financial (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, First Allmerica
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
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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, First
Allmerica 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,
First Allmerica 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 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 First Allmerica and contracts A3019-92
and A3022-93 issued by Allmerica Financial 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
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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
Allmerica Financial. 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 First Allmerica'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 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
recei ved past purchase payments as if there had been no exchange.
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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 APRIL 30, 1996
("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ALLMERICA INVESTMENTS,
INC., 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653, (508) 855-3590.
DATED APRIL 30, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY............................................... 2
TAXATION OF THE CONTRACT, THE SEPARATE ACCOUNT AND FIRST ALLMERICA............ 2
SERVICES...................................................................... 3
UNDERWRITERS.................................................................. 3
ANNUITY PAYMENTS.............................................................. 3
PERFORMANCE INFORMATION....................................................... 5
FINANCIAL STATEMENTS.......................................................... 8
GENERAL INFORMATION AND HISTORY
Allmerica Select Separate Account ("Separate Account") is a separate investment
account of First Allmerica Financial Life Insurance Company ("First Allmerica")
authorized pursuant to a vote of the Board of Directors on August 20, 1991.
First Allmerica, 440 Lincoln Street, Worcester, Massachusetts, is a mutual life
insurance company organized under the laws of Massachusetts in 1844.
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 ("VIP")
or T. Rowe Price International Series, Inc. ("T. Rowe Price").
The Trust, VIP and T. Rowe Price 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 VIP are available under the Policies: the Fidelity
VIP High Income Portfolio, Fidelity VIP Equity-Income Portfolio and
Fidelity VIP Growth Portfolio. One portfolio of T. Rowe Price 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 FIRST ALLMERICA
First Allmerica 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. First Allmerica 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 First Allmerica. First Allmerica is taxed as a life insurance company
under subchapter L of the Code and files a consolidated tax return with its
affiliated companies.
First Allmerica reserves the right to make a charge for any effect which the
income, assets, or existence of Contracts or the
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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. First Allmerica 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 First Allmerica as of December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995 and
of Allmerica Select Separate Account of First Allmerica as of December 31, 1995
and for the periods indicated, included in this Statement of Additional Informa-
tion 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 First Allmerica included herein should be considered
only as bearing on the ability of First Allmerica 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 First Allmerica 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 First Allmerica and is an indirectly wholly-owned
subsidiary of First Allmerica.
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. First Allmerica 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 First Allmerica 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 the Prospectus. First Allmerica intends to recoup
the commission and other sales expense through a combination of anticipated
surrender, partial redemption, and/or annuitization charges, profits from First
Allmerica'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 First Allmerica, 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 1995 was $0.00 and $0.00 in
1994. The aggregate amount of commissions paid to independent
broker-dealers in 1995 was $8,979,395.64 and 7,542,837.54 in 1994.
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.
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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:
(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
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 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
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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, First Allmerica 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 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:
P(1 + T)to the power of n = 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
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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:
Charge as percentage
Years from date of purchase of New Purchase Payments
payment to date of withdrawal redeemed*
----------------------------- ---------
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.
No contingent deferred sales charge is deducted upon expiration of the periods
specified above. In 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:
P(1 + T)to the power of n = 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.
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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, 1995:
Yield 5.69%
Effective Yield 5.53%
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.
The Money Market Sub-Account computes effective yield by compounding the
unannualized base period return by using the formula:
Effective Yield = [(base period return + 1)(365/7)] - 1
The calculations of yield and effective yield do not reflect the $30 Annual
Policy fee.
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FINANCIAL STATEMENTS
Financial Statements are included for First Allmerica Financial Life Insurance
Company and its Allmerica Select Separate Account.
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