<PAGE>
File Nos. 33-71058
811-8116
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 15
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 25
ALLMERICA SELECT SEPARATE ACCOUNT OF
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Exact Name of Registrant)
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Name of Depositor)
440 Lincoln Street
Worcester, MA 01653
(Address of Depositor's Principal Executive Offices)
(508) 855-1000
(Depositor's Telephone Number, including Area Code)
Charles F. Cronin, Secretary
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester, MA 01653
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on December 14, 2000 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
VARIABLE ANNUITY CONTRACTS
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940 ("the
1940 Act"), Registrant hereby declares that an indefinite amount of its
securities is being registered under the Securities Act of 1933 ("the 1933
Act"). The Rule 24f-2 Notice for the issuer's fiscal year ended December 31,
1999 was filed on or before March 30, 2000.
<PAGE>
This Post-Effective Amendment No. 15 under the Securities Act of 1933 is
being filed for the purposes of adding a supplement to the Allmerica Select
Resource Prospectus B and revising the Statement of Additional Information of
the Allmerica Select Separate Account of Fist Allmerica Financial Life
Insurance Company dated May 1, 2000 and to generally update corporate
information for the Company and the Registrant in Part C. All other pertinent
information regarding this Registration Statement including the Prospectus
was previously filed in Registrant's Post-Effective Amendment No. 13 on April
28, 2000, and is incorporated by reference herein.
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUSES OF
ITEMS CALLED FOR BY FORM N-4
<TABLE>
<CAPTION>
FORM N-4 ITEM NO. CAPTION IN PROSPECTUSES
----------------- -----------------------
<S> <C>
1..........................Cover Page
2..........................Special Terms
3..........................Summary of Fees and Expenses; Summary of Contract Features
4..........................Condensed Financial Information; Performance Information
5..........................Description of the Companies, the Variable Accounts, and the Underlying
Investment Companies
6..........................Charges and Deductions
7..........................Description of the Contract
8..........................Electing the Form of Annuity and the Annuity Date; Description of Variable
Annuity Payout Options; Annuity Benefit Payments
9..........................Death Benefit
10.........................Payments; Computation of Values; Distribution
11.........................Surrender; Withdrawals; Charge For Surrender and Withdrawal; Withdrawal
Without Surrender Charge; Texas Optional Retirement Program
12.........................Federal Tax Considerations
13.........................Legal Matters
14.........................Statement of Additional Information -- Table of Contents
<CAPTION>
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
----------------- ----------------------------------------------
<S> <C>
15.........................Cover Page
16.........................Table of Contents
17.........................General Information and History
18 ........................Services
19.........................Underwriters
<PAGE>
20.........................Underwriters
21 ........................Performance Information
22 ........................Annuity Benefit Payments
23.........................Financial Statements
</TABLE>
<PAGE>
The Prospectus previously filed in Registrant's Post-Effective Amendment No. 13
on April 28, 2000 is incorporated by reference herein (herein referred to as
"Prospectus A").
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
(ALLMERICA SELECT RESOURCE I AND II)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
SUPPLEMENT TO PROSPECTUS DATED MAY 1, 2000
***
Twenty-three new Sub-Accounts will be available under the Contract. The
following information supplements the corresponding sections of the Prospectus.
Please consult the Prospectus for the full text of each supplemented section.
***
Allmerica Investment Trust is referred to throughout the prospectus as "the
Trust." Wherever this term is used to refer to Allmerica Investment Trust it
shall hereby be replaced by "AIT."
***
The fourth paragraph of the first page of the prospectus is being replaced in
its entirety with the following:
The Variable Account, known as the Allmerica Select Separate Account is
subdivided into Sub-Accounts. Each Sub-Account offered as an investment option
under this contract invests exclusively in shares of one of the following funds:
<PAGE>
<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VARIABLE INSURANCE PRODUCTS FUND
--------------------------- -----------------------------------------
AIT Equity Index Fund Fidelity VIP Equity-Income Portfolio
AIT Money Market Fund Fidelity VIP Growth Portfolio
AIT Select Aggressive Growth Fund FIDELITY VIP HIGH INCOME PORTFOLIO
AIT Select Capital Appreciation Fund ----------------------------------
AIT Select Emerging Markets Fund FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
AIT Select Growth Fund --------------------------------------------
AIT Select Growth and Income Fund Fidelity VIP II Contrafund(R)Portfolio
AIT Select International Equity Fund FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
AIT Select Investment Grade Income Fund ---------------------------------------------
AIT Select Strategic Growth Fund Fidelity VIP III Growth & Income Portfolio
AIT Select Strategic Income Fund Fidelity VIP III Mid Cap Portfolio
AIT Select Value Opportunity Fund FRANKLIN TEMPLETON VARIABLE INSURANCE
AIM VARIABLE INSURANCE FUNDS -------------------------------------
----------------------------- PRODUCTS TRUST (CLASS 2)
AIM V.I. Aggressive Growth Fund ------------------------
AIM V.I. Blue Chip Fund Franklin Small Cap Fund
AIM V.I. Value Fund Mutual Shares Securities Fund
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC. Templeton Pacific Growth Securities Fund
--------------------------------------------- INVESCO VARIABLE INVESTMENT FUNDS, INC.
(CLASS B) ---------------------------------------
--------- INVESCO VIF Dynamics Fund
Alliance Growth and Income Portfolio INVESCO VIF Health Sciences Fund
Alliance Premier Growth Portfolio JANUS ASPEN SERIES (SERVICE SHARES)
DEUTSCHE ASSET MANAGEMENT VIT FUNDS -----------------------------------
------------------------------------ Janus Aspen Aggressive Growth Portfolio
Deutsche VIT EAFE Equity Index Janus Aspen Growth Portfolio
Deutsche VIT Small Cap Index Janus Aspen Growth and Income Portfolio
Janus Aspen International Growth Portfolio
KEMPER VARIABLE SERIES
----------------------
KVS Dreman Financial Services Portfolio
Kemper Technology Growth Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
----------------------------------------
T. Rowe Price International Stock Portfolio
</TABLE>
***
Under the SPECIAL TERMS section of the prospectus, the definitions of the terms
Sub-Account and Underlying Fund (or Funds) are replaced in their entirety with
the following:
SUB-ACCOUNT: a subdivision of the Variable Account investing exclusively in the
shares of a corresponding fund of Allmerica Investment Trust ("AIT"), a
corresponding fund of AIM Variable Insurance Funds ("AVIF"), a corresponding
portfolio of Alliance Variable Products Series Fund, Inc. ("Alliance"), a
corresponding fund of Deutsche Asset Management VIT Funds ("Deutsche VIT"), a
corresponding portfolio of Fidelity Variable Insurance Products Fund ("Fidelity
VIP"), a corresponding portfolio of Fidelity Variable Insurance Products Fund II
("Fidelity VIP II"), a corresponding portfolio of Fidelity Variable Insurance
Products Fund III ("Fidelity VIP III"), a corresponding fund of Franklin
Templeton Variable Insurance Products Trust ("FT VIP"), a corresponding fund of
INVESCO Variable Investment Funds, Inc. ("INVESCO VIF"), a corresponding
portfolio of Janus Aspen Series ("Janus Aspen"), a corresponding portfolio of
Kemper Variable Series ("KVS"), or a corresponding portfolio of T.
Rowe Price International Series, Inc. ("T. Rowe Price").
UNDERLYING FUND (OR FUNDS): an investment portfolio of AIT, AVIF, Alliance,
Deutsche VIT, Fidelity VIP, Fidelity VIP II, Fidelity VIP III, FT VIP, INVESCO
VIF, Janus Aspen, KVS, or T. Rowe Price in which a Sub-Account invests.
***
Under SUMMARY OF FEES AND EXPENSES, the sections entitled (3) Annual Underlying
Fund Expenses and EXPENSE EXAMPLES are replaced in their entirety with the
following:
2
<PAGE>
(3) ANNUAL UNDERLYING FUND EXPENSES: Total expenses of the Underlying Funds are
not fixed or specified under the terms of the Contract and will vary from year
to year. The levels of fees and expenses also vary among the Underlying Funds.
The following table shows the expenses of the Underlying Funds as a percentage
of average net assets for the year ended December 31, 1999, as adjusted for any
material changes.
<TABLE>
<CAPTION>
OTHER TOTAL FUND
MANAGEMENT EXPENSES EXPENSES
FEE (AFTER ANY (AFTER ANY (AFTER ANY
VOLUNTARY WAIVERS/REIM- WAIVERS/REIM-
UNDERLYING FUND WAIVERS) 12B-1 FEES BURSEMENTS) BURSEMENTS)
--------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
AIT Equity Index Fund................................ 0.28% - 0.07% 0.35%(1)
AIT Money Market Fund................................ 0.24% - 0.05% 0.29%(1)
AIT Select Aggressive Growth Fund.................... 0.81%* - 0.06% 0.87%(1)(2)*
AIT Select Capital Appreciation Fund................. 0.90%* - 0.07% 0.97%(1)*
AIT Select Emerging Markets Fund..................... 1.35% - 0.57% 1.92%(1)(2)
AIT Select Growth Fund............................... 0.78% - 0.05% 0.83%(1)(2)
AIT Select Growth and Income Fund.................... 0.67% - 0.07% 0.74%(1)(2)
AIT Select International Equity Fund................. 0.89% - 0.13% 1.02%(1)(2)
AIT Select Investment Grade Income Fund.............. 0.43% - 0.07% 0.50%(1)
AIT Select Strategic Growth Fund..................... 0.85% - 0.35% 1.20%(1)(2)
AIT Select Strategic Income Fund..................... 0.60% - 0.17%** 0.77%(1)
AIT Select Value Opportunity Fund.................... 0.90% - 0.07% 0.97%(1)(2)
AIM V.I. Aggressive Growth Fund...................... 0.00% - 1.19% 1.19%(3)
AIM V.I. Blue Chip Fund.............................. 0.75% - 0.55% 1.30%
AIM V.I. Value Fund.................................. 0.61% - 0.15% 0.76%
Alliance Growth and Income Portfolio
(Class B)............................................ 0.63% 0.25% 0.09% 0.97%
Alliance Premier Growth Portfolio
(Class B)............................................ 1.00% 0.25% 0.04% 1.29%
Deutsche VIT EAFE Equity Index....................... 0.02% -- 0.63% 0.65%(4)
Deutsche VIT Small Cap Index......................... 0.00% -- 0.45% 0.45%(4)
Fidelity VIP Equity-Income Portfolio................. 0.48% - 0.09% 0.57%(5)
Fidelity VIP Growth Portfolio........................ 0.58% - 0.08% 0.66%(5)
Fidelity VIP High Income Portfolio................... 0.58% - 0.11% 0.69%
Fidelity VIP II Contrafund Portfolio................. 0.58% - 0.09% 0.67%(5)
Fidelity VIP III Growth & Income Portfolio........... 0.48% - 0.12% 0.60%(5)
Fidelity VIP III Mid Cap Portfolio................... 0.57% - 0.40% 0.97%(6)
Franklin Small Cap Fund (Class 2).................... 0.55% 0.25% 0.27% 1.07%(7)(8)
Mutual Shares Securities Fund (Class 2).............. 0.55% 0.25% 0.27% 1.07%(7)(9)
Templeton Pacific Growth Securities Fund
(Class 2)............................................ 1.00% 0.25% 0.08% 1.33%(7)
INVESCO VIF Dynamics Fund............................ 0.75% - 1.53% 2.28%(10)
INVESCO VIF Health Sciences Fund..................... 0.75% - 0.73% 1.48%(11)
Janus Aspen Aggressive Growth Portfolio
(Service Shares)..................................... 0.65% 0.25% 0.02% 0.92%(12)
Janus Aspen Growth Portfolio (Service Shares)........ 0.65% 0.25% 0.02% 0.92%(12)
Janus Aspen Growth and Income Portfolio
(Service Shares)..................................... 0.65% 0.25% 0.40% 1.30%(12)
Janus Aspen International Growth Portfolio
(Service Shares)..................................... 0.65% 0.25% 0.11% 1.01%(12)
KVS Dreman Financial Services Portfolio.............. 0.70% - 0.29% 0.99%(13)
Kemper Technology Growth Portfolio................... 0.51% - 0.44% 0.95%(13)(14)
T. Rowe Price International Stock Portfolio.......... 1.05% - 0.00% 1.05%
</TABLE>
3
<PAGE>
* Effective September 1, 1999, the management fee rates for the Select
Aggressive Growth Fund and Select Capital Appreciation Fund were revised. The
Management Fee and Total Fund Expense ratios shown in the table above have been
adjusted to assume that the revised rates took effect January 1, 1999.
** The Select Strategic Income Fund commenced operations on July 1, 2000. The
"other expenses" shown for the Fund are based on estimated amounts that will be
incurred in respect of shares of the Fund for the 2000 fiscal year.
(1) Until further notice, Allmerica Financial Investment Management Services,
Inc. ("AFIMS") has declared a voluntary expense limitation of 1.50% of average
net assets for the Select International Equity Fund, 1.35% for the Select
Aggressive Growth Fund and Select Capital Appreciation Fund, 1.25% for the
Select Value Opportunity Fund, 1.20% for the Select Growth Fund, 1.10% for the
Select Growth and Income Fund, 1.00% for the Select Investment Grade Income
Fund, and 0.60% for the Equity Index Fund and Money Market Fund. The total
operating expenses of these Funds of the Trust were less than their respective
expense limitations throughout 1999.
Until further notice, AFIMS has declared a voluntary expense limitation of 1.00%
of average net assets for the Select Strategic Income Fund.
Until further notice, AFIMS has declared a voluntary expense limitation of 1.20%
of average daily net assets for the Select Strategic Growth Fund. In addition,
AFIMS has agreed to voluntarily waive its management fee to the extent that
expenses of the Select Emerging Markets Fund exceed 2.00% of the Fund's average
daily net assets, except that such waiver shall not exceed the net amount of
management fees earned by AFIMS from the Fund after subtracting fees paid by
AFIMS to a sub-advisor.
Until further notice, the Select Value Opportunity Fund's management fee rate
has been voluntarily limited to an annual rate of 0.90% of average daily net
assets, and total expenses are limited to 1.25% of average daily net assets.
The total operating expenses of the funds were less than or equal to their
respective expense limitations throughout 1999 except the Select Strategic
Growth Fund which received a reimbursement of $813.00 in 1999 under its expense
limitation. However, this amount was not enough to make a difference in the
percentage shown for the Fund's total operating expenses and expense limitation
(both 1.20%).
The declaration of a voluntary management fee or expense limitation in any year
does not bind AFIMS to declare future expense limitations with respect to these
Funds. These limitations may be terminated at any time.
(2) These Funds have entered into agreements with brokers whereby the brokers
rebate a portion of commissions. These amounts have been treated as reductions
of expenses. Including these reductions to the operating expenses, total annual
fund operating expenses were 1.88% for the Select Emerging Markets Fund, 1.01%
for Select International Equity Fund, 0.84% for Select Aggressive Growth Fund,
0.88% for Select Value Opportunity Fund, 0.81% for Select Growth Fund, 1.17% for
Select Strategic Growth Fund, and 0.73% for Select Growth and Income Fund.
(3) Had there been no fee waivers or expense reimbursements, the Management Fee,
Other Expenses and Total Fund Expenses of the AIM V.I. Aggressive Growth Fund
would have been 0.80%, 1.62% and 2.42%, respectively.
(4) The Advisor has voluntarily undertaken to waive and reimburse its fee to the
Funds so that the Funds' total operating expenses will not exceed 0.45% for
Deutsche VIT Small Cap Index and 0.65% for Deutsche VIT EAFE Equity Index.
Without reimbursements to the Funds for the year ended 12/31/99, Management,
Other and Total Expenses would have been 0.35%, 0.83% and 1.18%, respectively
for Deutsche VIT Small Cap Index and 0.45%, 0.70% and 1.15%, respectively for
Deutsche VIT EAFE Equity Index.
4
<PAGE>
(5) A portion of the brokerage commissions that certain funds paid was used to
reduce fund expenses. In addition, through arrangements with certain funds', or
Fidelity Management & Research Company on behalf of certain funds', custodian
credits realized as a result of uninvested cash balances were used to reduce a
portion of the fund's expenses. Including these reductions, total operating
expenses presented in the table would have been 0.65% for the Fidelity VIP
Growth Portfolio, 0.56% for the Fidelity VIP Equity-Income Portfolio, 0.65% for
the Fidelity VIP II Contrafund Portfolio and 0.59% for the Fidelity VIP III
Growth & Income Portfolio.
(6) Fidelity Management & Research Company agreed to reimburse a portion of the
Fidelity VIP III Mid Cap Portfolio's expenses during the period. Without this
reimbursement, the Portfolio's management fee, other expenses and total fund
expenses would have been 0.57%, 2.77% and 3.34%.
(7) The Funds' Class 2 distribution plan or "rule 12b-1 plan" is described in
the Funds' prospectus. The fund administration fee of the Templeton Pacific
Growth Securities Fund is paid indirectly through the management fee. The
Franklin Small Cap Fund pays for similar services directly.
(8) On 2/8/00, a merger and reorganization was approved that combined the assets
of the Franklin Small Cap Fund with a similar fund of the Templeton Variable
Products Series Fund, effective 5/1/00. On 2/8/00, fund shareholders approved
new management fees, which apply to the combined fund effective 5/1/00. The
table shows restated total expenses based on the new fees and assets of the fund
as of 12/31/99, and not the assets of the combined fund. However, if the table
reflected both the new fees and the combined assets, the fund's expenses after
5/1/00 would be estimated to be the same.
(9)On 2/8/00, a merger and reorganization was approved that combined the assets
of the Mutual Shares Securities Fund with a similar fund of the Templeton
Variable Products Series Fund, effective 5/1/00. The table shows total expenses
based on the fund's assets as of 12/31/99, and not the assets of the combined
fund.
(10)The INVESCO VIF Dynamics Fund's actual Total Annual Fund Operating Expenses
were lower than the figures shown because its custodian fees were reduced under
an expense offset arrangement. Certain expenses were absorbed voluntarily by
INVESCO Funds Group,Inc. ("INVESCO") to ensure that the expenses for the Fund
did not exceed 1.15% of the Fund's average net assets pursuant to a commitment
between the Fund and INVESCO. This commitment may be changed at any time
following consultation with the board of directors. After absorption, the Fund's
Other Expenses and Total Fund Expenses for the fiscal year ended December 31,
1999 were 0.54% and 1.29% respectively of the Fund's average net assets. The
expense information presented in the table has been restated to reflect a change
in the administrative services fee.
(11) The INVESCO VIF Health Sciences Fund's actual Total Annual Fund Operating
Expenses were lower than the figures shown because its custodian fees were
reduced under an expense offset arrangement. Including the reduction for the
expense offset arrangement and voluntary expense waiver, the Fund's Management
Fees, Other Expenses and Total Fund Expenses would have been 0.75%, 0.50% and
1.25% respectively. Certain expenses of the Fund were absorbed voluntarily by
INVESCO in order to ensure that expenses for the Fund did not exceed 1.25% of
the Fund's average net expenses pursuant to a commitment between the Fund and
INVESCO. This commitment may be changed at any time following consultation with
the board of directors. The Fund's Management Fees, Other Expenses and Total
Fund Expenses for the fiscal year ended December 31, 1999, excluding any
voluntary expense waiver and expense offset arrangements, would have been 0.75%,
2.11% and 2.86% respectively.
5
<PAGE>
(12) Expenses are based on the estimated expenses that the new Service Shares
Class of each Portfolio expects to incur in its initial fiscal year.
(13) Pursuant to their respective agreements with KVS, the investment manager
and the accounting agent have agreed, for the one year period commencing on May
1, 2000, to limit their respective fees and to reimburse other expenses to the
extent necessary to limit total operating expenses of the KVS Dreman Financial
Services and the Kemper Technology Growth Portfolios to the amounts set forth in
the Total Fund Expenses column of the table above. Without taking into effect
these expense caps, for the KVS Dreman Financial Services and the Kemper
Technology Growth Portfolios of KVS, management fees are estimated to be 0.75%
and 0.75%, respectively. Other expenses are estimated to be 0.44% and 0.29%,
respectively; and total operating expenses would have been 1.19% and 1.04%,
respectively.
(14) The Kemper Technology Growth Portfolio commenced operations on May 1, 1999,
therefore "other expenses" are annualized. Actual expenses may be greater or
less than shown.
The Underlying Fund information above was provided by the Underlying Funds and
was not independently verified by the Company.
EXPENSE EXAMPLES: The following examples demonstrate the cumulative expenses
which an Owner would pay at 1-year, 3-year, 5-year and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-Account
and a 5% annual return on assets and assumes that the Underlying Fund expenses
listed above remain the same in each of the 1, 3, 5, and 10-year intervals. As
required by rules of the Securities and Exchange Commission ("SEC"), the
Contract fee is reflected in the examples by a method designed to show the
average impact on an investment in the Variable Account. The total Contract fees
collected are divided by the total average net assets attributable to the
Contracts. The resulting percentage is 0.04%, and the amount of the Contract fee
is assumed to be $0.40 in the examples. Because the expenses of the Underlying
Funds differ, separate examples are used to illustrate the expenses incurred by
an Owner on an investment in the various Sub-Accounts.
See Appendix F for the expense examples for Select Resource I Contracts.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE>
(1)(a) If, at the end of the applicable time period, you surrender your Contract
or annuitize* under any commutable period certain option or a noncommutable
fixed period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets, and no
Rider:**
<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
AIT Equity Index Fund............................................. $79 $106 $127 $211
AIT Money Market Fund............................................. $78 $104 $124 $204
AIT Select Aggressive Growth Fund................................. $83 $121 $154 $265
AIT Select Capital Appreciation Fund.............................. $84 $124 $159 $275
AIT Select Emerging Markets Fund.................................. $93 $151 $204 $365
AIT Select Growth Fund............................................ $83 $120 $152 $261
AIT Select Growth and Income Fund................................. $82 $117 $147 $251
AIT Select International Equity Fund.............................. $85 $125 $161 $280
AIT Select Investment Grade Income Fund........................... $80 $110 $135 $226
AIT Select Strategic Growth Fund.................................. $87 $130 $170 $297
AIT Select Strategic Income Fund.................................. $83 $118 $148 $254
AIT Select Value Opportunity Fund................................. $84 $124 $159 $275
AIM V.I. Aggressive Growth Fund.................................. $86 $130 $170 $296
AIM V.I. Blue Chip Fund $88 $133 $175 $307
AIM V.I. Value Fund $82 $118 $148 $253
Alliance Growth and Income Portfolio............................. $84 $124 $159 $275
Alliance Premier Growth Portfolio................................ $87 $133 $174 $306
Deutsche VIT EAFE Equity Index................................... $81 $115 $142 $242
Deutsche VIT Small Cap Index..................................... $80 $109 $132 $221
Fidelity VIP Equity-Income Portfolio.............................. $81 $112 $138 $234
Fidelity VIP Growth Portfolio..................................... $82 $115 $143 $243
Fidelity VIP High Income Portfolio............................... $82 $116 $144 $246
Fidelity VIP II Contrafund Portfolio.............................. $82 $115 $143 $244
Fidelity VIP III Growth & Income Portfolio........................ $81 $113 $140 $237
Fidelity VIP III Mid Cap Portfolio............................... $84 $124 $159 $275
Franklin Small Cap Fund........................................... $85 $127 $164 $285
Mutual Shares Securities Fund..................................... $85 $127 $164 $285
Templeton Pacific Growth Securities Fund......................... $88 $134 $176 $310
INVESCO VIF Dynamics Fund......................................... $97 $161 $221 $397
INVESCO VIF Health Sciences Fund.................................. $89 $138 $184 $324
Janus Aspen Aggressive Growth Portfolio........................... $84 $122 $156 $270
Janus Aspen Growth Portfolio...................................... $84 $122 $156 $270
Janus Aspen Growth and Income Portfolio........................... $88 $133 $175 $307
Janus Aspen International Growth Portfolio........................ $85 $125 $161 $279
KVS Dreman Financial Services Portfolio........................... $85 $124 $160 $277
Kemper Technology Growth Portfolio................................ $84 $123 $158 $273
T. Rowe Price International Stock Portfolio....................... $85 $126 $163 $283
</TABLE>
7
<PAGE>
(1)(b) If, at the end of the applicable time period, you surrender your Contract
or annuitize* under any commutable period certain option or a noncommutable
fixed period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets and
election of a Minimum Guaranteed Annuity Payout (M-GAP) Rider** with a ten-year
waiting period:
<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
AIT Equity Index Fund............................................ $81 $113 $140 $237
AIT Money Market Fund............................................ $80 $111 $137 $231
AIT Select Aggressive Growth Fund................................ $86 $128 $166 $290
AIT Select Capital Appreciation Fund............................. $87 $131 $171 $299
AIT Select Emerging Markets Fund................................. $96 $157 $216 $387
AIT Select Growth Fund........................................... $85 $127 $164 $286
AIT Select Growth and Income Fund................................ $85 $124 $160 $277
AIT Select International Equity Fund............................. $87 $132 $173 $304
AIT Select Investment Grade Income Fund.......................... $82 $117 $147 $252
AIT Select Strategic Growth Fund................................. $89 $137 $182 $321
AIT Select Strategic Income Fund................................. $85 $125 $161 $280
AIT Select Value Opportunity Fund................................ $87 $131 $171 $299
AIM V.I. Aggressive Growth Fund.................................. $89 $137 $182 $320
AIM V.I. Blue Chip Fund.......................................... $90 $140 $187 $331
AIM V.I. Value Fund.............................................. $85 $125 $161 $279
Alliance Growth and Income Portfolio............................. $87 $131 $171 $299
Alliance Premier Growth Portfolio................................ $90 $140 $187 $330
Deutsche VIT EAFE Equity Index................................... $84 $122 $155 $268
Deutsche VIT Small Cap Index..................................... $82 $116 $145 $247
Fidelity VIP Equity-Income Portfolio............................. $83 $119 $151 $260
Fidelity VIP Growth Portfolio.................................... $84 $122 $156 $269
Fidelity VIP High Income Portfolio.............................. $84 $123 $157 $272
Fidelity VIP II Contrafund Portfolio............................. $84 $122 $156 $270
Fidelity VIP III Growth & Income Portfolio....................... $83 $120 $153 $263
Fidelity VIP III Mid Cap Portfolio............................... $87 $131 $171 $299
Franklin Small Cap Fund.......................................... $88 $134 $176 $309
Mutual Shares Securities Fund.................................... $88 $134 $176 $309
Templeton Pacific Growth Securities Fund......................... $90 $141 $188 $334
INVESCO VIF Dynamics Fund........................................ $99 $167 $232 $418
INVESCO VIF Health Sciences Fund................................. $92 $145 $195 $348
Janus Aspen Aggressive Growth Portfolio.......................... $86 $129 $169 $294
Janus Aspen Growth Portfolio..................................... $86 $129 $169 $294
Janus Aspen Growth and Income Portfolio.......................... $90 $140 $187 $331
Janus Aspen International Growth Portfolio....................... $87 $132 $173 $303
KVS Dreman Financial Services Portfolio.......................... $87 $131 $172 $301
Kemper Technology Growth Portfolio............................... $87 $130 $170 $297
T. Rowe Price International Stock Portfolio...................... $88 $133 $175 $307
</TABLE>
8
<PAGE>
(2)(a) If, at the end of the applicable time period, you annuitize* under a life
option or a noncommutable fixed 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 and no
Rider:**
<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
AIT Equity Index Fund............................................. $18 $56 $97 $211
AIT Money Market Fund............................................. $18 $54 $94 $204
AIT Select Aggressive Growth Fund................................. $23 $72 $124 $265
AIT Select Capital Appreciation Fund.............................. $24 $75 $129 $275
AIT Select Emerging Markets Fund.................................. $34 $103 $175 $365
AIT Select Growth Fund............................................ $23 $71 $122 $261
AIT Select Growth and Income Fund................................. $22 $68 $117 $251
AIT Select International Equity Fund.............................. $25 $77 $131 $280
AIT Select Investment Grade Income Fund........................... $20 $61 $105 $226
AIT Select Strategic Growth Fund.................................. $27 $82 $140 $297
AIT Select Strategic Income Fund.................................. $22 $69 $118 $254
AIT Select Value Opportunity Fund................................. $24 $75 $129 $275
AIM V.I. Aggressive Growth Fund.................................. $27 $82 $140 $296
AIM V.I. Blue Chip Fund ......................................... $28 $85 $145 $307
AIM V.I. Value Fund ............................................. $22 $69 $118 $253
Alliance Growth and Income Portfolio............................. $24 $75 $129 $275
Alliance Premier Growth Portfolio................................ $28 $85 $144 $306
Deutsche VIT EAFE Equity Index................................... $21 $65 $112 $242
Deutsche VIT Small Cap Index..................................... $19 $59 $102 $221
Fidelity VIP Equity-Income Portfolio.............................. $20 $63 $108 $234
Fidelity VIP Growth Portfolio..................................... $21 $66 $113 $243
Fidelity VIP High Income Portfolio............................... $22 $67 $114 $246
Fidelity VIP II Contrafund Portfolio.............................. $21 $66 $113 $244
Fidelity VIP III Growth & Income Portfolio........................ $21 $64 $110 $237
Fidelity VIP III Mid Cap Portfolio............................... $24 $75 $129 $275
Franklin Small Cap Fund........................................... $25 $78 $134 $285
Mutual Shares Securities Fund..................................... $25 $78 $134 $285
Templeton Pacific Growth Securities Fund......................... $28 $86 $146 $310
INVESCO VIF Dynamics Fund......................................... $37 $114 $192 $397
INVESCO VIF Health Sciences Fund.................................. $30 $90 $154 $324
Janus Aspen Aggressive Growth Portfolio........................... $24 $74 $126 $270
Janus Aspen Growth Portfolio...................................... $24 $74 $126 $270
Janus Aspen Growth and Income Portfolio........................... $28 $85 $145 $307
Janus Aspen International Growth Portfolio........................ $25 $76 $131 $279
KVS Dreman Financial Services Portfolio........................... $25 $76 $130 $277
Kemper Technology Growth Portfolio................................ $24 $75 $128 $273
T. Rowe Price International Stock Portfolio....................... $25 $78 $133 $283
</TABLE>
9
<PAGE>
(2)(b) If, at the end of the applicable time period, you annuitize* under a life
option or a noncommutable fixed 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 and
election of a Minimum Guaranteed Annuity Payout (M-GAP) Rider** with a ten-year
waiting period:
<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
AIT Equity Index Fund............................................. $21 $64 $110 $237
AIT Money Market Fund............................................. $20 $62 $107 $231
AIT Select Aggressive Growth Fund................................. $26 $80 $136 $290
AIT Select Capital Appreciation Fund.............................. $27 $83 $141 $299
AIT Select Emerging Markets Fund.................................. $36 $111 $187 $387
AIT Select Growth Fund............................................ $26 $78 $134 $286
AIT Select Growth and Income Fund................................. $25 $76 $130 $277
AIT Select International Equity Fund.............................. $27 $84 $143 $304
AIT Select Investment Grade Income Fund........................... $22 $69 $117 $252
AIT Select Strategic Growth Fund.................................. $29 $89 $152 $321
AIT Select Strategic Income Fund.................................. $25 $77 $131 $280
AIT Select Value Opportunity Fund................................. $27 $83 $141 $299
AIM V.I. Aggressive Growth Fund................................... $29 $89 $152 $320
AIM V.I. Blue Chip Fund........................................... $30 $92 $157 $331
AIM V.I. Value Fund............................................... $25 $76 $131 $279
Alliance Growth and Income Portfolio.............................. $27 $83 $141 $299
Alliance Premier Growth Portfolio................................. $30 $92 $157 $330
Deutsche VIT EAFE Equity Index.................................... $24 $73 $125 $268
Deutsche VIT Small Cap Index...................................... $22 $67 $115 $247
Fidelity VIP Equity-Income Portfolio.............................. $23 $71 $121 $260
Fidelity VIP Growth Portfolio..................................... $24 $73 $126 $269
Fidelity VIP High Income Portfolio................................ $24 $74 $127 $272
Fidelity VIP II Contrafund Portfolio.............................. $24 $74 $126 $270
Fidelity VIP III Growth & Income Portfolio........................ $23 $72 $123 $263
Fidelity VIP III Mid Cap Portfolio................................ $27 $83 $141 $299
Franklin Small Cap Fund........................................... $28 $86 $146 $309
Mutual Shares Securities Fund..................................... $28 $86 $146 $309
Templeton Pacific Growth Securities Fund.......................... $30 $93 $159 $334
INVESCO VIF Dynamics Fund......................................... $40 $121 $204 $418
INVESCO VIF Health Sciences Fund.................................. $32 $98 $166 $348
Janus Aspen Aggressive Growth Portfolio........................... $26 $81 $139 $294
Janus Aspen Growth Portfolio...................................... $26 $81 $139 $294
Janus Aspen Growth and Income Portfolio........................... $30 $92 $157 $331
Janus Aspen International Growth Portfolio........................ $27 $84 $143 $303
KVS Dreman Financial Services Portfolio........................... $27 $83 $142 $301
Kemper Technology Growth Portfolio................................ $27 $82 $140 $297
T. Rowe Price International Stock Portfolio....................... $28 $85 $145 $307
</TABLE>
*The Contract fee is not deducted after annuitization. A surrender charge is
assessed at the time of annuitization if you elect a noncommutable fixed period
certain option of less than ten years or any commutable period certain option.
No charge is assessed if you elect any life contingency option or a
noncommutable period certain option of ten years or longer.
**If the Minimum Guaranteed Annuity Payout (M-GAP) Rider is exercised, you may
only annuitize under a fixed annuity payout option involving a life contingency
at the Company's guaranteed fixed annuity option rates listed under the Annuity
Option Tables in your Contract.
***
10
<PAGE>
WHAT ARE MY INVESTMENT CHOICES? under the SUMMARY OF CONTRACT FEATURES section
is replaced in its entirety by the following:
Prior to the Annuity Date, you may allocate payments among one or more of the
Sub-Accounts investing in the Underlying Funds (up to a total of seventeen at
any one time, in addition to the AIT Money Moarket Fund), the Guarantee Period
Accounts, and the Fixed Account. The thirty-seven Underlying Funds are:
- AIT Equity Index Fund
Managed by Allmerica Asset Management, Inc.
- AIT Money Market Fund
Managed by Allmerica Asset Management, Inc.
- AIT Select Aggressive Growth Fund
Managed by Nicholas-Applegate Capital Management, L.P.
- AIT Select Capital Appreciation Fund
Managed by T. Rowe Price Associates, Inc.
- AIT Select Emerging Markets Fund
Managed by Schroder Investment Management North America Inc.
- AIT Select Growth Fund
Managed by Putnam Investment Management, Inc.
- AIT Select Growth and Income Fund
Managed by J.P. Morgan Investment Management Inc.
- AIT Select International Equity Fund
Managed by Bank of Ireland Asset Management (U.S.) Limited
- AIT Select Investment Grade Income Fund
Managed by Allmerica Asset Management, Inc.
- AIT Select Strategic Growth Fund
Managed by TCW Investment Management Company
- AIT Select Strategic Income Fund
Managed by Western Asset Management Company
- AIT Select Value Opportunity Fund
Managed by Cramer Rosenthal McGlynn, LLC
- AIM V.I. Aggressive Growth Fund
Managed by A I M Advisors, Inc.
- AIM V.I. Blue Chip Fund
Managed by A I M Advisors, Inc.
11
<PAGE>
- AIM V.I. Value Fund
Managed by A I M Advisors, Inc.
- Alliance Growth and Income Portfolio
Managed by Alliance Capital Management L.P.
- Alliance Premier Growth Portfolio
Managed by Alliance Capital Management L.P.
- Deutsche VIT EAFE Equity Index
Managed by Bankers Trust Company
- Deutsche VIT Small Cap Index
Managed by Bankers Trust Company
- Fidelity VIP Equity-Income Portfolio
Managed by Fidelity Management & Research Company
- Fidelity VIP Growth Portfolio
Managed by Fidelity Management & Research Company
- Fidelity VIP High Income Portfolio
Managed by Fidelity Management & Research Company
- Fidelity VIP II Contrafund Portfolio
Managed by Fidelity Management & Research Company
- Fidelity VIP III Growth & Income Portfolio
Managed by Fidelity Management & Research Company
- Fidelity VIP III Mid Cap Portfolio
Managed by Fidelity Management & Research Company
- Franklin Small Cap Fund
Managed by Franklin Advisers, Inc.
- Mutual Shares Securities Fund
Managed by Franklin Mutual Advisers, LLC
- Templeton Pacific Growth Securities Fund
Managed by Franklin Advisers, Inc.
- INVESCO VIF Dynamics Fund
Managed by INVESCO Funds Group, Inc.
- INVESCO VIF Health Sciences Fund
Managed by INVESCO Funds Group, Inc.
- Janus Aspen Aggressive Growth Portfolio
Managed by Janus Capital
- Janus Aspen Growth Portfolio
Managed by Janus Capital
- Janus Aspen Growth and Income Portfolio
Managed by Janus Capital
12
<PAGE>
- Janus Aspen International Growth Portfolio
Managed by Janus Capital
- KVS Dreman Financial Services Portfolio
Managed by Scudder Kemper Investments, Inc.
- Kemper Technology Growth Portfolio
Managed by Scudder Kemper Investments, Inc.
- T. Rowe Price International Stock Portfolio
Managed by T. Rowe Price International, Inc.
Each Underlying Fund operates pursuant to different investment objectives and
this range of investment options enables you to allocate your money among the
Underlying Funds to meet your particular investment needs. For a more detailed
description of the Underlying Funds, see INVESTMENT OBJECTIVES AND POLICIES.
***
WHO ARE THE INVESTMENT ADVISERS OF THE UNDERLYING FUNDS AND HOW ARE THEY
SELECTED? is replaced in its entirety by the following:
WHO ARE THE INVESTMENT ADVISERS OF THE UNDERLYING FUNDS?
The following are the investment advisers of the Underlying Funds:
<TABLE>
<CAPTION>
FUND INVESTMENT ADVISER
---- ------------------
<S> <C>
AIT Equity Index Fund Allmerica Asset Management, Inc.
AIT Money Market Fund Allmerica Asset Management, Inc.
AIT Select Aggressive Growth Fund Nicholas-Applegate Capital Management, L.P.
AIT Select Capital Appreciation Fund T. Rowe Price Associates, Inc.
AIT Select Emerging Markets Fund Schroder Investment Management
North America Inc.
AIT Select Growth Fund Putnam Investment Management, Inc.
AIT Select Growth and Income Fund J. P. Morgan Investment Management Inc.
AIT Select International Equity Fund Bank of Ireland Asset Management (U.S.) Limited
AIT Select Investment Grade Income Fund Allmerica Asset Management, Inc.
AIT Select Strategic Growth Fund TCW Investment Management Company
AIT Select Strategic Income Fund Western Asset Management Company
AIT Select Value Opportunity Fund Cramer Rosenthal McGlynn, LLC
AIM V.I. Aggressive Growth Fund A I M Advisors, Inc.
AIM V.I. Blue Chip Fund A I M Advisors, Inc.
AIM V.I. Value Fund A I M Advisors, Inc.
Alliance Growth and Income Portfolio Alliance Capital Management L.P.
Alliance Premier Growth Portfolio Alliance Capital Management L.P.
Deutsche VIT EAFE Equity Index Bankers Trust Company
Deutsche VIT Small Cap Index Bankers Trust Company
Fidelity VIP Equity-Income Portfolio Fidelity Management & Research Company
Fidelity VIP Growth Portfolio Fidelity Management & Research Company
Fidelity VIP High Income Portfolio Fidelity Management & Research Company
Fidelity VIP II Contrafund Portfolio Fidelity Management & Research Company
Fidelity VIP III Growth & Income Portfolio Fidelity Management & Research Company
Fidelity VIP III Mid Cap Portfolio Fidelity Management & Research Company
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Franklin Small Cap Fund Franklin Advisers, Inc.
Mutual Shares Securities Fund Franklin Mutual Advisers, LLC
Templeton Pacific Growth Securities Fund Franklin Advisers, Inc.
INVESCO VIF Dynamics Fund INVESCO Funds Group, Inc.
INVESCO VIF Health Sciences Fund INVESCO Funds Group, Inc.
Janus Aspen Aggressive Growth Portfolio Janus Capital
Janus Aspen Growth Portfolio Janus Capital
Janus Aspen Growth and Income Portfolio Janus Capital
Janus Aspen International Growth Portfolio Janus Capital
KVS Dreman Financial Services Portfolio Scudder Kemper Investments, Inc.
Kemper Technology Growth Portfolio Scudder Kemper Investments, Inc.
T. Rowe Price International Stock Portfolio T. Rowe Price International, Inc.
</TABLE>
BARRA RogersCasey, Inc. ("BARRA RogersCasey"), a pension consulting firm,
assists AIT in the selection of investment advisers for the AIT Funds. BARRA
RogersCasey provides consulting services to pension plans representing hundreds
of billions of dollars in total assets and, in its consulting capacity, monitors
the investment performance of over 1000 investment advisers. BARRA RogersCasey
is wholly-controlled by BARRA, Inc. As a consultant, BARRA RogersCasey has no
discretionary or decision-making authority with respect to the Funds, and has no
responsibility for any investment advice or other services provided to the Funds
by Allmerica Financial Investment Management Services, Inc. ("AFIMS") or the
investment advisers.
For more information, see DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS,
AND THE UNDERLYING INVESTMENT COMPANIES.
***
The fifth and sixth sentences of the first paragraph under CAN I MAKE TRANSFERS
AMONG THE INVESTMENT OPTIONS? under the SUMMARY OF CONTRACT FEATURES is deleted
and replaced with the following:
Transfers may be made to and among all of the available Sub-Accounts as long as
no more than seventeen Sub-Accounts, in addition to the AIT Money Market Fund,
are utilized at any one time.
***
The description of the underlying investment companies under the DESCRIPTION OF
THE COMPANIES, THE VARIABLE ACCOUNTS, AND THE UNDERLYING INVESTMENT COMPANIES is
replaced in its entirety with the following:
THE UNDERLYING INVESTMENT COMPANIES
ALLMERICA INVESTMENT TRUST. Allmerica Investment Trust ("AIT") is an open-end,
diversified, management investment company registered with the SEC under the
1940 Act. AIT was established as a Massachusetts business trust on October 11,
1984, for the purpose of providing a vehicle for the investment of assets of
various separate accounts established by the Company or other affiliated
insurance companies. Twelve investment portfolios of AIT currently are available
under the Contract, each issuing a series of shares: Select Emerging Markets
Fund, Select Growth Fund, Select International Equity Fund, Select Aggressive
Growth Fund, Select Capital Appreciation Fund, Select Value Opportunity Fund,
Select Strategic Growth Fund, Select Strategic Income Fund, Equity Index Fund,
Select Growth and Income Fund, Select Investment Grade Income Fund and the Money
Market Fund. The assets of each Fund are held separate from the assets of the
other Funds. Each Fund operates as a separate investment vehicle and the income
or losses of one Fund have no effect on the investment performance of another
Fund. Shares of AIT are not offered to the general public but solely to such
variable accounts.
14
<PAGE>
The trustees have overall responsibility for the supervision of the affairs of
AIT. The Trustees have entered into a management agreement ("Management
Agreement") with Allmerica Financial Investment Management Services, Inc.,
("AFIMS") a wholly owned subsidiary of Allmerica Financial, to handle the
day-to-day affairs of AIT. AFIMS, subject to Trustee review, is responsible for
the general management of the Funds. AFIMS also performs certain administrative
and management services for AIT, furnishes to AIT all necessary office space,
facilities and equipment and pays the compensation, if any, of officers and
Trustees who are affiliated with AFIMS.
AFIMS has entered into agreements with investment advisers ("Sub-Advisers")
selected by AFIMS and the Trustees, in consultation with BARRA RogersCasey, Inc.
("BARRA RogersCasey") a pension consulting firm. The cost of such consultation
is borne by AFIMS. BARRA RogersCasey provides consulting services to pension
plans representing hundreds of billions of dollars in total assets and, in its
consulting capacity, monitors the investment performance of over 1000 investment
advisers. BARRA RogersCasey is wholly controlled by BARRA, Inc. As a consultant,
BARRA RogersCasey has no discretionary or decision-making authority with respect
to the Funds and has no responsibility for any investment advice or other
services provided to the Funds by AFIMS or the Sub-Advisers. Under each
Sub-Adviser agreement, the Sub-Adviser is authorized to engage in portfolio
transactions on behalf of the applicable Fund, subject to the Trustees' and/or
AFIMS' instructions. AFIMS is solely responsible for the payment of all fees for
investment management services.
Each independent Sub-Adviser is selected by using strict objective,
quantitative, and qualitative criteria, with special emphasis on the
Sub-Adviser's record in managing similar portfolios. In consultation with BARRA
RogersCasey, a committee monitors and evaluates the ongoing performance of all
of the Funds. The committee may recommend the replacement of a Sub-Adviser of
one of the Funds of AIT, or the addition or deletion of a Fund. The committee
includes members who may be affiliated or unaffiliated with the Company and AIT.
The Sub-Advisers (other than Allmerica Asset Management, Inc.) are not
affiliated with the Company or AIT.
Other than expenses specifically assumed by AFIMS under the Management
Agreement, AIT bears all expenses incurred in its operation including fees and
expenses associated with the registration and qualification of AIT's shares
under the Securities Act of 1933, other fees payable to the SEC, independent
public accountant fees, legal and custodian fees, association membership dues,
taxes, interest, insurance premiums, brokerage commissions, fees and expenses of
the Trustees who are not affiliated with AFIMS, expenses for proxies,
prospectuses, reports to shareholders and other expenses.
AIM VARIABLE INSURANCE FUNDS. AIM Variable Insurance Funds ("AVIF"), an
open-end, series, management investment company, was organized as a Maryland
corporation on January 22, 1993, changed to a Delaware business trust on May 1,
2000, and is registered with the SEC under the 1940 Act. The investment advisor
for the AIM V.I. Aggressive Growth Fund, AIM V.I. Blue Chip Fund and the AIM
V.I. Value Fund is A I M Advisors, Inc. ("AIM"). AIM was organized in 1976, and,
together with its subsidiaries, manages or advises over 120 investment company
portfolios encompassing a broad range of investment objectives.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC. Alliance Variable Products Series
Fund, Inc. ("Alliance") is registered with the SEC as an open-end, management
investment company under the 1940 Act. Two of its separate investment portfolios
are currently available under the Contract: the Alliance Growth and Income
Portfolio and the Alliance Premier Growth Portfolio. Alliance Capital
Management, L.P. ("Alliance Capital") serves as the investment adviser to
Alliance. Alliance Capital Management Corporation, the sole general partner of
Alliance Capital, is an indirect wholly owned subsidiary of The Equitable Life
Assurance Society of the United States, which is in turn a wholly owned
subsidiary of the Equitable Companies Incorporated, a holding company which is
controlled by AXA, a French insurance holding company.
15
<PAGE>
DEUTSCHE ASSET MANAGEMENT VIT FUNDS. Deutsche Asset Management VIT Funds
("Deutsche VIT") is an open-end management investment company which is
registered under the 1940 Act, as amended, and was organized as a Massachusetts
business trust on January 19, 1996. Bankers Trust Company is the investment
advisor for Deutsche VIT EAFE Equity Index and the Deutsche VIT Small Cap Index
which are available under the Contract.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND. Fidelity Variable Insurance Products
Fund ("Fidelity VIP"), managed by Fidelity Management & Research Company
("FMR"), is an open-end, diversified, management investment company organized as
a Massachusetts business trust on November 13, 1981 and registered with the SEC
under the 1940 Act. Three of its investment portfolios are available under the
Contract: the Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth
Portfolio, and Fidelity VIP High Income Portfolio.
Various Fidelity companies perform certain activities required to operate
Fidelity VIP. FMR is one of America's largest investment management
organizations, and has its principal business address at 82 Devonshire Street,
Boston, Massachusetts. It is composed of a number of different companies which
provide a variety of financial services and products. FMR is the original
Fidelity Company, founded in 1946. It provides a number of mutual funds and
other clients with investment research and portfolio management services. As
part of their operating expenses, the portfolios of Fidelity VIP pay a monthly
investment management fee to FMR for managing investment and business affairs.
The prospectus of Fidelity VIP contains additional information concerning the
portfolios, including information about additional expenses paid by the
portfolios, and should be read in conjunction with this Prospectus.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II. Fidelity Variable Insurance
Products Fund II ("Fidelity VIP II"), managed by FMR (see discussion above), is
an open-end, diversified management investment company organized as a
Massachusetts business trust on March 21, 1988, and registered with the SEC
under the 1940 Act. One of its investment portfolios is available under the
Contract: the Fidelity VIP II Contrafund Portfolio.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III. Fidelity Variable Insurance
Products Fund III ("Fidelity VIP III"), managed by FMR (see discussion above) is
an open-end, diversified management investment company registered with the SEC
under the 1940 Act. Two of its investment portfolios are available under the
Contract: the Fidelity VIP III Growth & Income Portfolio and Fidelity VIP III
Mid Cap Portfolio.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. Franklin Templeton
Variable Insurance Products Trust ("FT VIP") and the funds' investment managers
and their affiliates manage over $224 billion in assets (as of December 31,
1999). The investment adviser to the Franklin Small Cap Fund and the Templeton
Pacific Growth Securities Fund is Franklin Advisers, Inc. The investment adviser
to the Mutual Shares Securities Fund is Franklin Mutual Advisers, LLC.
INVESCO VARIABLE INVESTMENT FUNDS, INC. INVESCO Variable Investment Funds, Inc.
("INVESCO VIF") is an open-end, diversified, no-load management investment
company which was incorporated under the laws of Maryland on August 19, 1993.
The investment adviser to the INVESCO VIF Dynamics Fund and the INVESCO VIF
Health Sciences Fund is INVESCO Funds Group, Inc.
JANUS ASPEN SERIES. Janus Aspen Series ("Janus Aspen") is an open-end,
management investment company registered with the SEC. It was organized as a
Delaware business trust on May 20, 1993. Janus Capital is the investment adviser
of Janus Aspen. Four of its investment portfolios are available under the
Contract: Janus Aspen Aggressive Growth Portfolio, Janus Aspen Growth Portfolio,
Janus Aspen Growth and Income Portfolio and Janus Aspen International Growth
Portfolio.
16
<PAGE>
KEMPER VARIABLE SERIES. Kemper Variable Series ("KVS") is a series-type mutual
fund registered with the SEC as an open-end, management investment company. The
KVS Dreman Financial Services Portfolio and the Kemper Technology Growth
Portfolio are offered under the Contract. Scudder Kemper Investments, Inc.
serves as the investment adviser of KVS.
T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe Price International Series,
Inc. ("T. Rowe Price"), managed by T. Rowe Price International, Inc. ("T. Rowe
Price International"), is an open-end, diversified, management investment
company organized as a Maryland corporation in 1994 and registered with the SEC
under the 1940 Act. T. Rowe Price International, founded in 1979 as a joint
venture between T. Rowe Price Associates, Inc. and Robert Fleming Holdings,
Limited, is one the largest no-load international mutual fund asset managers
with approximately $42.5 billion (as of December 31, 1999) under management in
its offices in Baltimore, London, Tokyo, Hong Kong, Singapore and Buenos Aires.
One of its investment portfolios is available under the Contract: the T. Rowe
Price International Stock Portfolio.
***
The INVESTMENT OBJECTIVES AND POLICIES section of the prospectus is replaced in
its entirety by the following:
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Underlying Funds is set forth
below. MORE DETAILED INFORMATION REGARDING THE INVESTMENT OBJECTIVES,
RESTRICTIONS AND RISKS, EXPENSES PAID BY THE UNDERLYING FUNDS, AND OTHER
RELEVANT INFORMATION REGARDING THE UNDERLYING INVESTMENT COMPANIES MAY BE FOUND
IN THEIR RESPECTIVE PROSPECTUSES, WHICH ACCOMPANY THIS PROSPECTUS. PLEASE READ
THEM CAREFULLY BEFORE INVESTING. The Statements of Additional Information
("SAI") of the Underlying Funds are available upon request. There can be no
assurance that the investment objectives of the Underlying Funds can be achieved
or that the value of the Contract will equal or exceed the aggregate amount of
the purchase payments made under the Contract.
AIT EQUITY INDEX FUND -- seeks to provide investment results that correspond to
the aggregate price and yield performance of a representative selection of
United States publicly traded common stocks. The Equity Index Fund seeks to
achieve its objective by attempting to replicate the aggregate price and yield
performance of the Standard & Poor's Composite Index of 500 Stocks.
AIT MONEY MARKET FUND -- seeks maximum current income consistent with the
preservation of capital and liquidity. The Money Market Fund is invested in a
diversified portfolio of high-quality, short-term money market instruments.
AIT SELECT AGGRESSIVE GROWTH FUND -- seeks above-average capital appreciation by
investing primarily in common stocks of companies which are believed to have
significant potential for capital appreciation.
AIT SELECT CAPITAL APPRECIATION FUND -- seeks long-term growth of capital.
Realization of income is not a significant investment consideration and any
income realized on the Fund's investments will be incidental to its primary
objective. The Fund 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.
17
<PAGE>
AIT SELECT EMERGING MARKETS FUND -- seeks long-term growth of capital by
investing in the world's emerging markets.
AIT SELECT GROWTH FUND -- seeks to achieve growth of capital by investing in a
diversified portfolio consisting primarily of common stocks selected on the
basis of their long-term growth potential. The Sub-Adviser for the Select Growth
Fund is Putnam Investment Management, Inc.
AIT 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.
AIT SELECT INTERNATIONAL EQUITY FUND -- seeks maximum long-term total return
(capital appreciation and income). The Fund will invest primarily in common
stocks of established non-U.S. companies.
AIT SELECT INVESTMENT GRADE INCOME FUND -- seeks as high a level of total return
(including both income and capital appreciation) as is consistent with prudent
investment management. The Select Investment Grade Income Fund is invested in a
diversified portfolio of fixed income securities.
AIT SELECT STRATEGIC GROWTH FUND -- seeks long-term growth of capital by
investing primarily in common stocks of established companies.
AIT SELECT STRATEGIC INCOME FUND -- seeks to maximize total return, consistent
with prudent investment management and liquidity needs, by investing in various
types of fixed income securities.
AIT SELECT VALUE OPPORTUNITY FUND -- seeks long-term growth of capital by
investing principally in diversified portfolio of common stocks of small and
mid-size companies whose securities at the time of purchase are considered by
the Sub-Adviser to be undervalued.
AIM V.I. AGGRESSIVE GROWTH FUND -- seeks to achieve long-term growth of capital
by investing primarily in common stocks, convertible bonds, convertible
preferred stocks and warrants of small and medium sized companies.
AIM V.I. BLUE CHIP FUND -- seeks long-term growth of capital with a secondary
objective of current income. The Fund seeks to meet these objectives by
investing primarily in the common stocks of blue chip companies. The Fund may
invest in U.S. government securities, convertible securities, high quality debt
securities and foreign securities.
AIM V.I. VALUE FUND -- seeks to achieve long-term growth of capital by investing
primarily in equity securities judged by the Fund's investment advisor to be
undervalued relative to the investment advisor's appraisal of the current or
projected earnings of the companies issuing the securities, or relative to
current market values of assets owned by companies issuing the securities or
relative to the equity market generally. Income is a secondary objective.
ALLIANCE GROWTH AND INCOME PORTFOLIO (CLASS B) -- seeks reasonable current
income and reasonable opportunity for appreciation through investments
primarily in dividend paying common stocks of good quality. The Portfolio
invests primarily in stock of large, well established "blue chip" companies,
fixed income and convertible securities, and securities of foreign issuers.
ALLIANCE PREMIER GROWTH PORTFOLIO (CLASS B) -- seeks growth of capital by
pursuing aggressive investment policies. The Portfolio invests primarily in
equity securities in a small number (40-50) of intensely researched U.S.
companies.
DEUTSCHE VIT EAFE EQUITY INDEX -- seeks to match, as closely as possible, before
the deduction of expenses, the performance of the EAFE(R) Index. The Fund will
invest primarily in common stocks of companies that compose the EAFE(R) Index,
in approximately the same weightings as the EAFE(R) Index. The Fund may also use
stock index futures and options.
18
<PAGE>
DEUTSCHE VIT SMALL CAP INDEX -- seeks to match, as closely as possible (before
the deduction of expenses) the performance of the Russell 2000 index, which
emphasizes stocks of small U.S. companies. The Fund will invest primarily in
common stocks of companies that compose the Russell 2000 Index, in approximately
the same weightings as the Russell Index. The Fund may also use stock index
futures and options.
FIDELITY VIP EQUITY-INCOME PORTFOLIO -- seeks reasonable income by investing
primarily in income-producing equity securities. In choosing these securities,
the Portfolio also will consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield on the
securities comprising the S&P 500.
FIDELITY VIP 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 also may be found
in other types of securities, including bonds and preferred stocks.
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 the
Fidelity VIP prospectus.
FIDELITY VIP II CONTRAFUND(R) PORTFOLIO -- seeks long-term capital appreciation.
The Portfolio invests primarily in common stocks of domestic and foreign issuers
whose value is not fully recognized by the public. The Portfolio may invest in
either growth stocks or value stocks or both.
FIDELITY VIP III GROWTH & INCOME PORTFOLIO -- seeks high total return through a
combination of current income and capital appreciation. The Portfolio invests a
majority of its assets in common stocks of domestic and foreign issuers with a
focus on those that pay current dividends and show potential for capital
appreciation. The Portfolio may also invest in bonds, including lower-quality
debt securities, as well as stocks that are not currently paying dividends, but
offer prospects for future income or capital appreciation.
FIDELITY VIP III MID CAP PORTFOLIO -- seeks long-term growth of capital. The
Portfolio invests primarily in common stocks of domestic and foreign issuers
with medium market capitalizations. The Portfolio may invest in either growth
stocks or value stocks or both.
FRANKLIN SMALL CAP FUND (CLASS 2) -- seeks capital growth. The Fund invests
primarily in equity securities of small cap U.S. companies.
MUTUAL SHARES SECURITIES FUND (CLASS 2) -- seeks capital appreciation. Its
secondary goal is income. The fund invests primarily in equity securities of
companies the manager believes are available at market prices less than their
value based on certain recognized or objective criteria (intrinsic value).
TEMPLETON PACIFIC GROWTH SECURITIES FUND (CLASS 2) -- seeks long-term capital
growth. Under normal market conditions, the fund will invest at least 65% of its
total assets in equity securities that trade in Pacific Rim markets, including
emerging markets, and are issued by companies that have their principal
activities in the Pacific Rim.
INVESCO VIF DYNAMICS FUND -- seeks to buy securities that will increase in value
over the long term. The Fund invests in a variety of securities that present
opportunities for capital growth -- primarily common stocks of companies traded
on the U.S. securities exchanges, as well as over the counter. The Fund also may
invest in preferred stocks and debt instruments that are convertible into common
stocks, as well as in securities of foreign companies.
19
<PAGE>
INVESCO VIF HEALTH SCIENCES FUND -- seeks to make an investment grow. The fund
is aggressively managed and invests primarily in equity securities of companies
that develop, produce or distribute products or services related to health care.
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO (SERVICE SHARES) -- seeks long-term
growth of capital. The Portfolio invests primarily in common stocks of
medium-sized companies selected for their growth potential.
JANUS ASPEN GROWTH PORTFOLIO (SERVICE SHARES) -- seeks long-term growth of
capital in a manner consistent with the preservation of capital. The Portfolio
invests primarily in common stocks of larger, more established companies
selected for their growth potential.
JANUS ASPEN GROWTH AND INCOME PORTFOLIO (SERVICE SHARES) -- seeks long-term
capital growth and income. The Portfolio normally emphasizes investments in
common stocks.
JANUS ASPEN INTERNATIONAL GROWTH PORTFOLIO (SERVICE SHARES) -- seeks long-term
growth of capital. The Portfolio primarily in securities of issuers from at
least five different countries, excluding the United States. Although the
Portfolio intends to invest substantially all of its assets in issuers located
outside the United States, it may invest in U.S. issuers and it may at times
invest all of its assets in fewer than five countries, or even a single country.
KVS DREMAN FINANCIAL SERVICES PORTFOLIO -- seeks long-term capital appreciation
by investing primarily in common stocks and other equity securities of companies
in the financial services industry believed by the Portfolio's investment
manager to be undervalued.
KEMPER TECHNOLOGY GROWTH PORTFOLIO -- seeks growth of capital.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO -- seeks long-term growth of capital
through investments primarily in common stocks of established, non-U.S.
companies.
If there is a material change in the investment policy of a Fund, the Owner will
be notified of the change. If the Owner has Accumulated Value allocated to that
Fund, he or she may have the Accumulated Value reallocated without charge to
another Fund or to the Fixed Account, where available, on written request
received by the Company within sixty (60) days of the later of (1) the effective
date of such change in the investment policy, or (2) the receipt of the notice
of the Owner's right to transfer.
***
The first sentence of the fourth paragraph of A. Payments under DESCRIPTION OF
THE CONTRACT is deleted and replaced by the following:
Generally, unless otherwise requested, all payments will be allocated among the
investment options in the same proportion that the initial net payment is
allocated or, if subsequently changed, according to the most recent allocation
instructions. Prior to the Annuity Date, you may utilize up to seventeen
variable Sub-Accounts at any one time, in addition to the AIT Money Market Fund.
***
20
<PAGE>
The second and third sentences in the first paragraph of D. Transfer Privilege
under DESCRIPTION OF THE CONTRACT are deleted and replaced with the following:
Transfers may be made to and among all of the available Sub-Accounts as long as
no more than seventeen Sub-Accounts, in addition to the AIT Money Market Fund,
are utilized at any one time.
***
Under D. Transfer Privilege-Automatic Transfers (Dollar Cost Averaging) and
Automatic Account Rebalancing Options in the DESCRIPTION OF THE CONTRACT
section, the first sentence now reads as follows:
The Owner may elect automatic transfers of a predetermined dollar amount, not
less than $100, on a periodic basis (monthly, bi-monthly, quarterly,
semi-annually or annually) from either the Fixed Account, the Sub-Account
investing in the Money Market Fund or the Sub-Account investing in the Select
Investment Grade Income Fund (the "source accounts") to one or more of the
Sub-Accounts.
***
The fourth sentence of the third paragraph under ADDITION, DELETION OR
SUBSTITUTION OF INVESTMENTS reads as follows:
Although the Company and the underlying investment companies do not currently
foresee any such disadvantages to either variable life insurance owners or
variable annuity owners, the Company and the respective trustees intend to
monitor events in order to identify any material conflicts between such owners,
and to determine what action, if any, should be taken in response thereto.
***
The Performance Tables found in APPENDIX B and APPENDIX C are replaced in their
entirety by the following:
21
<PAGE>
<TABLE>
<CAPTION>
APPENDIX B
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF SUB-ACCOUNT*
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
--------------------------------------------------------------------------------------------------------------------
FOR YEAR SINCE
SUB-ACCOUNT ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS SUB-ACCOUNT
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIT Equity Index Fund ............................. N/A* N/A* N/A* N/A*
AIT Money Market Fund ............................. 10/8/92 -2.46% 3.35% 3.24%
AIT Select Aggressive Growth Fund ................. 9/8/92 29.83% 21.05% 18.89%
AIT Select Capital Appreciation Fund .............. 4/30/95 16.90% N/A 19.23%
AIT Select Emerging Markets Fund .................. 2/20/98 56.89% N/A 10.66%
AIT Select Growth Fund ............................ 9/8/92 21.09% 26.78% 18.71%
AIT Select Growth and Income Fund ................. 9/8/92 9.90% 19.45% 14.09%
AIT Select International Equity Fund .............. 5/3/94 23.04% 16.30% 13.38%
AIT Select Investment Grade Income Fund ........... N/A* N/A* N/A* N/A*
AIT Select Strategic Growth Fund .................. 2/20/98 7.91% N/A 2.27%
AIT Select Strategic Income Fund .................. N/A* N/A* N/A* N/A*
AIT Select Value Opportunity Fund ................. 2/20/98 -11.56% N/A -6.74%
AIM V.I. Aggressive Growth Fund ................... N/A* N/A* N/A* N/A*
AIM V.I. Blue Chip Fund ........................... N/A* N/A* N/A* N/A*
AIM V.I. Value Fund ............................... N/A* N/A* N/A* N/A*
Alliance Growth and Income Portfolio .............. N/A* N/A* N/A* N/A*
Alliance Premier Growth Portfolio ................. N/A* N/A* N/A* N/A*
Deutsche VIT EAFE Equity Index .................... N/A* N/A* N/A* N/A*
Deutsche VIT Small Cap Index ...................... N/A* N/A* N/A* N/A*
Fidelity VIP Equity-Income Portfolio .............. 5/1/95 -1.53% N/A 14.91%
Fidelity VIP Growth Portfolio ..................... 5/1/95 28.78% N/A 27.62%
Fidelity VIP High Income Portfolio ................ 5/1/95 0.21% N/A 7.46%
Fidelity VIP II Contrafund Portfolio .............. N/A* N/A* N/A* N/A*
Fidelity VIP III Growth & Income Portfolio ........ N/A* N/A* N/A* N/A*
Fidelity VIP III Mid Cap Portfolio ................ N/A* N/A* N/A* N/A*
Franklin Small Cap Fund ........................... N/A* N/A* N/A* N/A*
Mutual Shares Securities Fund ..................... N/A* N/A* N/A* N/A*
Templeton Pacific Growth Securities Fund .......... N/A* N/A* N/A* N/A*
INVESCO VIF Dynamics Fund ......................... N/A* N/A* N/A* N/A*
INVESCO VIF Health Sciences Fund .................. N/A* N/A* N/A* N/A*
Janus Aspen Aggressive Growth Portfolio ........... N/A* N/A* N/A* N/A*
Janus Aspen Growth Portfolio ...................... N/A* N/A* N/A* N/A*
Janus Aspen Growth and Income Portfolio ........... N/A* N/A* N/A* N/A*
Janus Aspen International Growth Portfolio ........ N/A* N/A* N/A* N/A*
KVS Dreman Financial Services Portfolio ........... N/A* N/A* N/A* N/A*
Kemper Technology Growth Portfolio ................ N/A* N/A* N/A* N/A*
T. Rowe Price International Stock Portfolio ....... 5/1/95 24.79% N/A 13.38%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
*This is a new Sub-Account so there are no historical figures available.
22
<PAGE>
<TABLE>
<CAPTION>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
------------------------------------------------------------------------------------------------------------------------
FOR YEAR SINCE
SUB-ACCOUNT ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS SUB-ACCOUNT
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIT Equity Index Fund ............................. N/A* N/A* N/A* N/A*
AIT Money Market Fund ............................. 10/8/92 3.71% 4.00% 3.38%
AIT Select Aggressive Growth Fund ................. 9/8/92 36.72% 21.63% 19.17%
AIT Select Capital Appreciation Fund .............. 4/30/95 23.61% N/A 19.73%
AIT Select Emerging Markets Fund .................. 2/20/98 63.41% N/A 13.62%
AIT Select Growth Fund ............................ 9/8/92 27.99% 27.29% 19.03%
AIT Select Growth and Income Fund ................. 9/8/92 16.77% 20.02% 14.41%
AIT Select International Equity Fund .............. 5/3/94 29.87% 16.91% 13.89%
AIT Select Investment Grade Income Fund ........... N/A* N/A* N/A* N/A*
AIT Select Strategic Growth Fund .................. 2/20/98 14.44% N/A 5.40%
AIT Select Strategic Income Fund .................. N/A* N/A* N/A* N/A*
AIT Select Value Opportunity Fund ................. 2/20/98 -6.03% N/A -3.88%
AIM V.I. Aggressive Growth Fund ................... N/A* N/A* N/A* N/A*
AIM V.I. Blue Chip Fund ........................... N/A* N/A* N/A* N/A*
AIM V.I. Value Fund ............................... N/A* N/A* N/A* N/A*
Alliance Growth and Income Portfolio .............. N/A* N/A* N/A* N/A*
Alliance Premier Growth Portfolio ................. N/A* N/A* N/A* N/A*
Deutsche VIT EAFE Equity Index .................... N/A* N/A* N/A* N/A*
Deutsche VIT Small Cap Index ...................... N/A* N/A* N/A* N/A*
Fidelity VIP Equity-Income Portfolio .............. 5/1/95 4.84% N/A 15.47%
Fidelity VIP Growth Portfolio ..................... 5/1/95 35.52% N/A 28.04%
Fidelity VIP High Income Portfolio ................ 5/1/95 6.64% N/A 8.11%
Fidelity VIP II Contrafund Portfolio .............. N/A* N/A* N/A* N/A*
Fidelity VIP III Growth & Income Portfolio ........ N/A* N/A* N/A* N/A*
Fidelity VIP III Mid Cap Portfolio ................ N/A* N/A* N/A* N/A*
Franklin Small Cap Fund ........................... N/A* N/A* N/A* N/A*
Mutual Shares Securities Fund ..................... N/A* N/A* N/A* N/A*
Templeton Pacific Growth Securities Fund .......... N/A* N/A* N/A* N/A*
INVESCO VIF Dynamics Fund ......................... N/A* N/A* N/A* N/A*
INVESCO VIF Health Sciences Fund .................. N/A* N/A* N/A* N/A*
Janus Aspen Aggressive Growth Portfolio ........... N/A* N/A* N/A* N/A*
Janus Aspen Growth Portfolio ...................... N/A* N/A* N/A* N/A*
Janus Aspen Growth and Income Portfolio ........... N/A* N/A* N/A* N/A*
Janus Aspen International Growth Portfolio ........ N/A* N/A* N/A* N/A*
KVS Dreman Financial Services Portfolio ........... N/A* N/A* N/A* N/A*
Kemper Technology Growth Portfolio ................ N/A* N/A* N/A* N/A*
T. Rowe Price International Stock Portfolio ....... 5/1/95 31.46% N/A 13.92%
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
*This is a new Sub-Account so there are no historical figures available.
23
<PAGE>
<TABLE>
<CAPTION>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
---------------------------------------------------------------------------------------------------------------------
10 YEARS OR
UNDERLYING FOR YEAR SINCE INCEPTION
FUND ENDED OF UNDERLYING FUND
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS IF LESS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIT Equity Index Fund ............................. 9/28/90 12.22% 25.75% 18.82%
AIT Money Market Fund ............................. 4/29/85 -2.46% 3.35% 3.65%
AIT Select Aggressive Growth Fund ................. 8/21/92 29.83% 21.05% 18.75%
AIT Select Capital Appreciation Fund .............. 4/28/95 16.90% N/A 19.23%
AIT Select Emerging Markets Fund .................. 2/20/98 56.89% N/A 10.66%
AIT Select Growth Fund ............................ 8/21/92 21.09% 26.78% 18.57%
AIT Select Growth and Income Fund ................. 8/21/92 9.90% 19.45% 13.99%
AIT Select International Equity Fund .............. 5/2/94 23.04% 16.30% 13.38%
AIT Select Investment Grade Income Fund ........... 4/29/85 -8.07% 5.40% 6.18%
AIT Select Strategic Growth Fund .................. 2/20/98 7.91% N/A 2.27%
AIT Select Strategic Income Fund .................. 7/1/00 N/A N/A N/A
AIT Select Value Opportunity Fund ................. 4/30/93 -11.56% 11.57% 9.93%
AIM V.I. Aggressive Growth Fund ................... 5/1/98 36.13% N/A 18.53%
AIM V.I. Blue Chip Fund ........................... 12/30/99 N/A N/A N/A
AIM V.I. Value Fund ............................... 5/5/93 21.58% 25.20% 21.14%
Alliance Growth and Income Portfolio* ............. 1/14/91 3.14% 21.59% 13.55%
Alliance Premier Growth Portfolio* ................ 6/26/92 23.63% 33.59% 24.07%
Deutsche VIT EAFE Equity Index .................... 8/26/97 19.31% N/A 13.17%
Deutsche VIT Small Cap Index ...................... 8/25/97 11.97% N/A 5.49%
Fidelity VIP Equity-Income Portfolio .............. 10/9/86 -1.53% 16.49% 12.85%
Fidelity VIP Growth Portfolio ..................... 10/9/86 28.78% 27.58% 18.14%
Fidelity VIP High Income Portfolio ................ 9/19/85 0.21% 8.77% 10.76%
Fidelity VIP II Contrafund Portfolio .............. 1/3/95 16.01% N/A 25.62%
Fidelity VIP III Growth & Income Portfolio ........ 12/31/96 1.34% N/A 19.26%
Fidelity VIP III Mid Cap Portfolio ................ 12/28/98 40.44% N/A 42.45%
Franklin Small Cap Fund* .......................... 11/1/95 87.18% N/A 27.38%
Mutual Shares Securities Fund* .................... 11/8/96 5.03% N/A 7.18%
Templeton Pacific Growth Securities Fund* ......... 1/27/92 28.28% -3.92% 0.70%
INVESCO VIF Dynamics Fund ......................... 8/25/97 46.92% N/A 27.81%
INVESCO VIF Health Sciences Fund .................. 5/22/97 -2.65% N/A 17.54%
Janus Aspen Aggressive Growth Portfolio* .......... 9/13/93 115.17% 33.79% 31.86%
Janus Aspen Growth Portfolio* ..................... 9/13/93 35.13% 27.50% 21.87%
Janus Aspen Growth and Income Portfolio* .......... 5/1/98 64.66% N/A 49.29%
Janus Aspen International Growth Portfolio* ....... 5/2/94 72.76% 30.84% 25.75%
KVS Dreman Financial Services Portfolio ........... 5/4/98 -11.87% N/A -9.34%
Kemper Technology Growth Portfolio ................ 5/3/99 N/A N/A 68.70%
T. Rowe Price International Stock Portfolio ....... 3/31/94 24.79% 13.11% 11.52%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
* These funds include a charge for 12b-1 fees ("Class 2 shares"). These
hypothetical performance figures are based upon the historical performance of
the non 12b-1 class of shares, but increased to reflect the effect of the 12b-1
fee on Class 2 shares performance.
24
<PAGE>
<TABLE>
<CAPTION>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
------------------------------------------------------------------------------------------------------------------
10 YEARS OR
SINCE INCEPTION
UNDERLYING FUND FOR YEAR OF UNDERLYING
INCEPTION DATE ENDED FUND
SUB-ACCOUNT INVESTING IN UNDERLYING FUND 12/31/99 5 YEARS IF LESS
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIT Equity Index Fund ............................. 9/28/90 18.72% 25.99% 18.82%
AIT Money Market Fund ............................. 4/29/85 3.71% 4.00% 3.78%
AIT Select Aggressive Growth Fund ................. 8/21/92 36.72% 21.63% 19.03%
AIT Select Capital Appreciation Fund .............. 4/28/95 23.61% N/A 19.72%
AIT Select Emerging Markets Fund .................. 2/20/98 63.41% N/A 13.62%
AIT Select Growth Fund ............................ 8/21/92 27.99% 27.29% 18.89%
AIT Select Growth and Income Fund ................. 8/21/92 16.77% 20.02% 14.31%
AIT Select International Equity Fund .............. 5/2/94 29.87% 16.91% 13.88%
AIT Select Investment Grade Income Fund ........... 4/29/85 -2.35% 5.89% 6.18%
AIT Select Strategic Growth Fund .................. 2/20/98 14.44% N/A 5.40%
AIT Select Strategic Income Fund .................. 7/1/00 N/A N/A N/A
AIT Select Value Opportunity Fund ................. 4/30/93 -6.03% 11.96% 10.03%
AIM V.I. Aggressive Growth Fund ................... 5/1/98 42.64% N/A 21.99%
AIM V.I. Blue Chip Fund ........................... 12/30/99 N/A N/A N/A
AIM V.I. Value Fund ............................... 5/5/93 28.08% 25.45% 21.25%
Alliance Growth and Income Portfolio* ............. 1/14/91 9.53% 21.86% 13.56%
Alliance Premier Growth Portfolio* ................ 6/26/92 30.64% 34.34% 24.77%
Deutsche VIT EAFE Equity Index .................... 8/26/97 18.47% N/A 7.84%
Deutsche VIT Small Cap Index ...................... 8/25/97 18.48% N/A 7.85%
Fidelity VIP Equity-Income Portfolio .............. 10/9/86 4.84% 16.97% 13.00%
Fidelity VIP Growth Portfolio ..................... 10/9/86 35.52% 27.94% 18.28%
Fidelity VIP High Income Portfolio ................ 9/19/85 6.64% 9.34% 10.88%
Fidelity VIP II Contrafund Portfolio .............. 1/3/95 22.51% N/A 25.94%
Fidelity VIP III Growth & Income Portfolio ........ 12/31/96 7.64% N/A 20.43%
Fidelity VIP III Mid Cap Portfolio ................ 12/28/98 46.95% N/A 48.90%
Franklin Small Cap Fund* .......................... 11/1/95 93.69% N/A 27.83%
Mutual Shares Securities Fund* .................... 11/8/96 11.53% N/A 8.54%
Templeton Pacific Growth Securities Fund* ......... 1/27/92 34.79% -3.39% 0.82%
INVESCO VIF Dynamics Fund ......................... 8/25/97 53.43% N/A 29.64%
INVESCO VIF Health Sciences Fund .................. 5/22/97 3.40% N/A 19.30%
Janus Aspen Aggressive Growth Portfolio* .......... 9/13/93 121.67% 33.98% 31.94%
Janus Aspen Growth Portfolio* ..................... 9/13/93 41.63% 27.74% 21.99%
Janus Aspen Growth and Income Portfolio* .......... 5/1/98 71.17% N/A 52.26%
Janus Aspen International Growth Portfolio* ....... 5/2/94 79.26% 31.05% 25.93%
KVS Dreman Financial Services Portfolio ........... 5/4/98 -6.38% N/A -5.98%
Kemper Technology Growth Portfolio ................ 5/3/99 N/A N/A 75.21%
T. Rowe Price International Stock Portfolio ....... 3/31/94 31.46% 13.61% 11.87%
------------------------------------------------------------------------------------------------------------------
</TABLE>
* These funds include a charge for 12b-1 fees ("Class 2 shares"). These
hypothetical performance figures are based upon the historical performance of
the non 12b-1 class of shares, but increased to reflect the effect of the 12b-1
fee on Class 2 shares performance.
25
<PAGE>
<TABLE>
<CAPTION>
APPENDIX C
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
---------------------------------------------------------------------------------------------------------------------
FOR YEAR
SUB-ACCOUNT ENDED SINCE INCEPTION
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS OF SUB-ACCOUNT
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIT Equity Index Fund .............................. N/A* N/A* N/A* N/A*
AIT Money Market Fund .............................. 4/7/94 -2.48% 3.32% 3.39%
AIT Select Aggressive Growth Fund .................. 4/21/94 29.87% 21.08% 18.30%
AIT Select Capital Appreciation Fund ............... 4/30/95 16.93% N/A 19.25%
AIT Select Emerging Markets Fund ................... 2/20/98 56.87% N/A 10.65%
AIT Select Growth Fund ............................. 4/21/94 21.11% 26.80% 23.88%
AIT Select Growth and Income Fund .................. 4/21/94 9.89% 19.44% 17.52%
AIT Select International Equity Fund ............... 5/3/94 23.04% 16.30% 13.38%
AIT Select Investment Grade Income Fund ............ N/A* N/A* N/A* N/A*
AIT Select Strategic Growth Fund ................... 2/20/98 7.90% N/A 2.26%
AIT Select Strategic Income Fund ................... N/A* N/A* N/A* N/A*
AIT Select Value Opportunity Fund .................. 2/20/98 -11.57% N/A -6.75%
AIM V.I. Aggressive Growth Fund .................... N/A* N/A* N/A* N/A*
AIM V.I. Blue Chip Fund ............................ N/A* N/A* N/A* N/A*
AIM V.I. Value Fund ................................ N/A* N/A* N/A* N/A*
Alliance Growth and Income Portfolio ............... N/A* N/A* N/A* N/A*
Alliance Premier Growth Portfolio .................. N/A* N/A* N/A* N/A*
Deutsche VIT EAFE Equity Index ..................... N/A* N/A* N/A* N/A*
Deutsche VIT Small Cap Index ....................... N/A* N/A* N/A* N/A*
Fidelity VIP Equity-Income Portfolio ............... 5/1/95 -1.52% N/A 14.92%
Fidelity VIP Growth Portfolio ...................... 5/1/95 28.81% N/A 27.64%
Fidelity VIP High Income Portfolio ................. 5/1/95 0.18% N/A 7.42%
Fidelity VIP II Contrafund Portfolio ............... N/A* N/A* N/A* N/A*
Fidelity VIP III Growth & Income Portfolio ......... N/A* N/A* N/A* N/A*
Fidelity VIP III Mid Cap Portfolio ................. N/A* N/A* N/A* N/A*
Franklin Small Cap Fund ............................ N/A* N/A* N/A* N/A*
Mutual Shares Securities Fund ...................... N/A* N/A* N/A* N/A*
Templeton Pacific Growth Securities Fund ........... N/A* N/A* N/A* N/A*
INVESCO VIF Dynamics Fund .......................... N/A* N/A* N/A* N/A*
INVESCO VIF Health Sciences Fund ................... N/A* N/A* N/A* N/A*
Janus Aspen Aggressive Growth Portfolio ............ N/A* N/A* N/A* N/A*
Janus Aspen Growth Portfolio ....................... N/A* N/A* N/A* N/A*
Janus Aspen Growth and Income Portfolio ............ N/A* N/A* N/A* N/A*
Janus Aspen International Growth Portfolio ......... N/A* N/A* N/A* N/A*
KVS Dreman Financial Services Portfolio ............ N/A* N/A* N/A* N/A*
Kemper Technology Growth Portfolio ................. N/A* N/A* N/A* N/A*
---------------------------------------------------------------------------------------------------------------------
</TABLE>
*This is a new Sub-Account so there are no historical figures available.
26
<PAGE>
<TABLE>
<CAPTION>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
------------------------------------------------------------------------------------------------------------------------
FOR YEAR SINCE
SUB-ACCOUNT ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS SUB-ACCOUNT
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIT Equity Index Fund .............................. N/A* N/A* N/A* N/A*
AIT Money Market Fund .............................. 4/7/94 3.71% 4.00% 3.85%
AIT Select Aggressive Growth Fund .................. 4/21/94 36.72% 21.63% 18.76%
AIT Select Capital Appreciation Fund ............... 4/30/95 23.61% N/A 19.73%
AIT Select Emerging Markets Fund ................... 2/20/98 63.41% N/A 13.62%
AIT Select Growth Fund ............................. 4/21/94 27.99% 27.29% 24.29%
AIT Select Growth and Income Fund .................. 4/21/94 16.77% 20.02% 17.98%
AIT Select International Equity Fund ............... 5/3/94 29.87% 16.91% 13.89%
AIT Select Investment Grade Income Fund ............ N/A* N/A* N/A* N/A*
AIT Select Strategic Growth Fund ................... 2/20/98 14.44% N/A 5.40%
AIT Select Strategic Income Fund ................... N/A* N/A* N/A* N/A*
AIT Select Value Opportunity Fund .................. 2/20/98 -6.03% N/A -3.87%
AIM V.I. Aggressive Growth Fund .................... N/A* N/A* N/A* N/A*
AIM V.I. Blue Chip Fund ............................ N/A* N/A* N/A* N/A*
AIM V.I. Value Fund ................................ N/A* N/A* N/A* N/A*
Alliance Growth and Income Portfolio ............... N/A* N/A* N/A* N/A*
Alliance Premier Growth Portfolio .................. N/A* N/A* N/A* N/A*
Deutsche VIT EAFE Equity Index ..................... N/A* N/A* N/A* N/A*
Deutsche VIT Small Cap Index ....................... N/A* N/A* N/A* N/A*
Fidelity VIP Equity-Income Portfolio ............... 5/1/95 4.84% N/A 15.47%
Fidelity VIP Growth Portfolio ...................... 5/1/95 35.51% N/A 28.04%
Fidelity VIP High Income Portfolio ................. 5/1/95 6.64% N/A 8.11%
Fidelity VIP II Contrafund Portfolio ............... N/A* N/A* N/A* N/A*
Fidelity VIP III Growth & Income Portfolio ......... N/A* N/A* N/A* N/A*
Fidelity VIP III Mid Cap Portfolio ................. N/A* N/A* N/A* N/A*
Franklin Small Cap Fund ............................ N/A* N/A* N/A* N/A*
Mutual Shares Securities Fund ...................... N/A* N/A* N/A* N/A*
Templeton Pacific Growth Securities Fund ........... N/A* N/A* N/A* N/A*
INVESCO VIF Dynamics Fund .......................... N/A* N/A* N/A* N/A*
INVESCO VIF Health Sciences Fund ................... N/A* N/A* N/A* N/A*
Janus Aspen Aggressive Growth Portfolio ............ N/A* N/A* N/A* N/A*
Janus Aspen Growth Portfolio ....................... N/A* N/A* N/A* N/A*
Janus Aspen Growth and Income Portfolio ............ N/A* N/A* N/A* N/A*
Janus Aspen International Growth Portfolio ......... N/A* N/A* N/A* N/A*
KVS Dreman Financial Services Portfolio ............ N/A* N/A* N/A* N/A*
Kemper Technology Growth Portfolio ................. N/A* N/A* N/A* N/A*
T. Rowe Price International Stock Portfolio ........ 5/1/95 31.46% N/A 13.91%
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
*This is a new Sub-Account so there are no historical figures available.
27
<PAGE>
<TABLE>
<CAPTION>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
---------------------------------------------------------------------------------------------------------------------
10 YEARS OR
UNDERLYING FOR YEAR SINCE INCEPTION
FUND ENDED OF UNDERLYING FUND
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS IF LESS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIT Equity Index Fund .............................. 9/28/90 12.22% 25.75% 18.82%
AIT Money Market Fund .............................. 4/29/85 -2.48% 3.32% 3.61%
AIT Select Aggressive Growth Fund .................. 8/21/92 29.87% 21.08% 18.77%
AIT Select Capital Appreciation Fund ............... 4/28/95 16.93% N/A 19.25%
AIT Select Emerging Markets Fund ................... 2/20/98 56.87% N/A 10.65%
AIT Select Growth Fund ............................. 8/21/92 21.11% 26.80% 18.59%
AIT Select Growth and Income Fund .................. 8/21/92 9.89% 19.44% 13.98%
AIT Select International Equity Fund ............... 5/2/94 23.04% 16.30% 13.37%
AIT Select Investment Grade Income Fund ............ 4/29/85 -8.07% 5.40% 6.18%
AIT Select Strategic Growth Fund ................... 2/20/98 7.90% N/A 2.26%
AIT Select Strategic Income Fund ................... 7/1/00 N/A N/A N/A
AIT Select Value Opportunity Fund .................. 4/30/93 -11.57% 11.56% 9.93%
AIM V.I. Aggressive Growth Fund .................... 5/1/98 36.14% N/A 18.54%
AIM V.I. Blue Chip Fund ............................ 12/30/99 N/A N/A N/A
AIM V.I. Value Fund ................................ 5/5/93 21.58% 25.20% 21.14%
Alliance Growth and Income Portfolio* .............. 1/14/91 3.12% 21.59% 13.55%
Alliance Premier Growth Portfolio* ................. 6/26/92 23.63% 33.59% 24.07%
Deutsche VIT EAFE Equity Index ..................... 8/26/97 19.31% N/A 13.17%
Deutsche VIT Small Cap Index ....................... 8/25/97 11.97% N/A 5.49%
Fidelity VIP Equity-Income Portfolio ............... 10/9/86 -1.52% 16.51% 12.86%
Fidelity VIP Growth Portfolio ...................... 10/9/86 28.81% 27.59% 18.16%
Fidelity VIP High Income Portfolio ................. 9/19/85 0.18% 8.74% 10.74%
Fidelity VIP II Contrafund Portfolio ............... 1/3/95 16.01% N/A 25.62%
Fidelity VIP III Growth & Income Portfolio ......... 12/31/96 1.34% N/A 19.26%
Fidelity VIP III Mid Cap Portfolio ................. 12/28/98 40.45% N/A 42.45%
Franklin Small Cap Fund* ........................... 11/1/95 87.18% N/A 27.38%
Mutual Shares Securities Fund* ..................... 11/8/96 5.03% N/A 7.18%
Templeton Pacific Growth Securities Fund* .......... 1/27/92 28.28% -3.92% 0.70%
INVESCO VIF Dynamics Fund .......................... 8/25/97 46.92% N/A 27.81%
INVESCO VIF Health Sciences Fund ................... 5/22/97 -2.65% N/A 17.54%
Janus Aspen Aggressive Growth Portfolio* ........... 9/13/93 115.17% 33.79% 31.86%
Janus Aspen Growth Portfolio* ...................... 9/13/93 35.13% 27.50% 21.87%
Janus Aspen Growth and Income Portfolio* ........... 5/1/98 64.66% N/A 49.29%
Janus Aspen International Growth Portfolio* ........ 5/2/94 72.76% 30.84% 25.75%
KVS Dreman Financial Services Portfolio ............ 5/4/98 -11.87% N/A -9.34%
Kemper Technology Growth Portfolio ................. 5/3/99 N/A N/A 68.70%
T. Rowe Price International Stock Portfolio ........ 3/31/94 24.80% 13.12% 11.53%
---------------------------------------------------------------------------------------------------------------------
</TABLE>
* These funds include a charge for 12b-1 fees ("Class 2 shares"). These
hypothetical performance figures are based upon the historical performance of
the non 12b-1 class of shares, but increased to reflect the effect of the 12b-1
fee on Class 2 shares performance.
28
<PAGE>
<TABLE>
<CAPTION>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
------------------------------------------------------------------------------------------------------------------
10 YEARS OR
SINCE INCEPTION
UNDERLYING FUND FOR YEAR OF UNDERLYING
INCEPTION DATE ENDED FUND
SUB-ACCOUNT INVESTING IN UNDERLYING FUND 12/31/99 5 YEARS IF LESS
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIT Equity Index Fund .............................. 9/28/90 18.72% 25.99% 18.82%
AIT Money Market Fund .............................. 4/29/85 3.71% 4.00% 3.78%
AIT Select Aggressive Growth Fund .................. 8/21/92 36.72% 21.63% 19.03%
AIT Select Capital Appreciation Fund ............... 4/28/95 23.61% N/A 19.72%
AIT Select Emerging Markets Fund ................... 2/20/98 63.41% N/A 13.62%
AIT Select Growth Fund ............................. 8/21/92 27.99% 27.29% 18.89%
AIT Select Growth and Income Fund .................. 8/21/92 16.77% 20.02% 14.31%
AIT Select International Equity Fund ............... 5/2/94 29.87% 16.91% 13.88%
AIT Select Investment Grade Income Fund ............ 4/29/85 -2.35% 5.89% 6.18%
AIT Select Strategic Growth Fund ................... 2/20/98 14.44% N/A 5.40%
AIT Select Strategic Income Fund ................... 7/1/00 N/A N/A N/A
AIT Select Value Opportunity Fund .................. 4/30/93 -6.03% 11.96% 10.03%
AIM V.I. Aggressive Growth Fund .................... 5/1/98 42.64% N/A 21.99%
AIM V.I. Blue Chip Fund ............................ 12/30/99 N/A N/A N/A
AIM V.I. Value Fund ................................ 5/5/93 28.08% 25.45% 21.25%
Alliance Growth and Income Portfolio* .............. 1/14/91 9.53% 21.86% 13.56%
Alliance Premier Growth Portfolio* ................. 6/26/92 30.64% 34.34% 24.77%
Deutsche VIT EAFE Equity Index ..................... 8/26/97 18.47% N/A 7.84%
Deutsche VIT Small Cap Index ....................... 8/25/97 18.48% N/A 7.85%
Fidelity VIP Equity-Income Portfolio ............... 10/9/86 4.84% 16.97% 13.00%
Fidelity VIP Growth Portfolio ...................... 10/9/86 35.52% 27.94% 18.28%
Fidelity VIP High Income Portfolio ................. 9/19/85 6.64% 9.34% 10.88%
Fidelity VIP II Contrafund Portfolio ............... 1/3/95 22.51% N/A 25.94%
Fidelity VIP III Growth & Income Portfolio ......... 12/31/96 7.64% N/A 20.43%
Fidelity VIP III Mid Cap Portfolio ................. 12/28/98 46.95% N/A 48.90%
Franklin Small Cap Fund* ........................... 11/1/95 93.69% N/A 27.83%
Mutual Shares Securities Fund* ..................... 11/8/96 11.53% N/A 8.54%
Templeton Pacific Growth Securities Fund* .......... 1/27/92 34.79% -3.39% 0.82%
INVESCO VIF Dynamics Fund .......................... 8/25/97 53.43% N/A 29.64%
INVESCO VIF Health Sciences Fund ................... 5/22/97 3.40% N/A 19.30%
Janus Aspen Aggressive Growth Portfolio* ........... 9/13/93 121.67% 33.98% 31.94%
Janus Aspen Growth Portfolio* ...................... 9/13/93 41.63% 27.74% 21.99%
Janus Aspen Growth and Income Portfolio* ........... 5/1/98 71.17% N/A 52.26%
Janus Aspen International Growth Portfolio* ........ 5/2/94 79.26% 31.05% 25.93%
KVS Dreman Financial Services Portfolio ............ 5/4/98 -6.38% N/A -5.98%
Kemper Technology Growth Portfolio ................. 5/3/99 N/A N/A 75.21%
T. Rowe Price International Stock Portfolio ........ 3/31/94 31.46% 13.61% 11.87%
------------------------------------------------------------------------------------------------------------------
</TABLE>
* These funds include a charge for 12b-1 fees ("Class 2 shares"). These
hypothetical performance figures are based upon the historical performance of
the non 12b-1 class of shares, but increased to reflect the effect of the 12b-1
fee on Class 2 shares performance.
***
29
<PAGE>
The expense examples under APPENDIX F - DIFFERENCES UNDER THE ALLMERICA SELECT
RESOURCE I CONTRACT are being replaced in their entirety with the
following:
8. Because of the differences between the free withdrawal provisions and the
application of the Contract fee, the following examples apply to the
Allmerica Select Resource I contract rather than the examples on pages 8,
9 and 10 of this prospectus:
<TABLE>
<CAPTION>
1(a) WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
AIT Equity Index Fund ................................. $77 $102 $125 $213
AIT Money Market Fund ................................. $76 $100 $121 $206
AIT Select Aggressive Growth Fund ..................... $82 $117 $151 $267
AIT Select Capital Appreciation Fund .................. $83 $120 $156 $277
AIT Select Emerging Markets Fund ...................... $93 $149 $203 $367
AIT Select Growth Fund ................................ $82 $116 $149 $263
AIT Select Growth and Income Fund ..................... $81 $114 $145 $253
AIT Select International Equity Fund .................. $84 $122 $159 $282
AIT Select Investment Grade Income Fund ............... $78 $106 $132 $229
AIT Select Strategic Growth Fund ...................... $85 $127 $168 $299
AIT Select Strategic Income Fund ...................... $81 $114 $146 $256
AIT Select Value Opportunity Fund ..................... $83 $120 $156 $277
AIM V.I. Aggressive Growth Fund ....................... $85 $127 $167 $298
AIM V.I. Blue Chip Fund ............................... $86 $130 $173 $309
AIM V.I. Value Fund ................................... $81 $114 $146 $255
Alliance Growth and Income Portfolio .................. $83 $120 $156 $277
Alliance Premier Growth Portfolio ..................... $86 $130 $172 $308
Deutsche VIT EAFE Equity Index ........................ $80 $111 $140 $244
Deutsche VIT Small Cap Index .......................... $78 $105 $130 $223
Fidelity VIP Equity-Income Portfolio .................. $79 $108 $136 $236
Fidelity VIP Growth Portfolio ......................... $80 $111 $141 $245
Fidelity VIP High Income Portfolio .................... $80 $112 $142 $248
Fidelity VIP II Contrafund Portfolio .................. $80 $111 $141 $246
Fidelity VIP III Growth & Income Portfolio ............ $79 $109 $137 $239
Fidelity VIP III Mid Cap Portfolio .................... $83 $120 $156 $277
Franklin Small Cap Fund ............................... $84 $124 $161 $287
Mutual Shares Securities Fund ......................... $84 $124 $161 $287
Templeton Pacific Growth Securities Fund .............. $87 $131 $174 $312
INVESCO VIF Dynamics Fund ............................. $96 $159 $220 $398
INVESCO VIF Health Sciences Fund ...................... $88 $136 $182 $326
Janus Aspen Aggressive Growth Portfolio ............... $83 $119 $154 $272
Janus Aspen Growth Portfolio .......................... $83 $119 $154 $272
Janus Aspen Growth and Income Portfolio ............... $86 $130 $173 $309
Janus Aspen International Growth Portfolio ............ $84 $122 $158 $281
KVS Dreman Financial Services Portfolio ............... $83 $121 $157 $279
Kemper Technology Growth Portfolio .................... $83 $120 $155 $275
T. Rowe Price International Stock Portfolio ........... $84 $123 $160 $285
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
1(b) WITH SURRENDER CHARGE AND WITH ELECTION OF A MINIMUM
GUARANTEED ANNUITY PAYOUT RIDER(1) WITH A TEN-YEAR
WAITING PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
AIT Equity Index Fund ....................................... $79 $109 $137 $239
AIT Money Market Fund ....................................... $79 $107 $134 $233
AIT Select Aggressive Growth Fund ........................... $85 $125 $164 $291
AIT Select Capital Appreciation Fund ........................ $86 $128 $169 $301
AIT Select Emerging Markets Fund ............................ $95 $156 $215 $389
AIT Select Growth Fund ...................................... $84 $124 $162 $288
AIT Select Growth and Income Fund ........................... $83 $121 $157 $279
AIT Select International Equity Fund ........................ $86 $129 $171 $306
AIT Select Investment Grade Income Fund ..................... $81 $114 $145 $254
AIT Select Strategic Growth Fund ............................ $88 $135 $180 $323
AIT Select Strategic Income Fund ............................ $84 $122 $159 $282
AIT Select Value Opportunity Fund ........................... $86 $128 $169 $301
AIM V.I. Aggressive Growth Fund ............................. $88 $135 $180 $322
AIM V.I. Blue Chip Fund ..................................... $89 $138 $185 $333
AIM V.I. Value Fund ......................................... $84 $122 $158 $281
Alliance Growth and Income Portfolio ........................ $86 $128 $169 $301
Alliance Premier Growth Portfolio ........................... $89 $138 $184 $332
Deutsche VIT EAFE Equity Index .............................. $82 $118 $153 $270
Deutsche VIT Small Cap Index ................................ $80 $112 $143 $249
Fidelity VIP Equity-Income Portfolio ........................ $82 $116 $149 $262
Fidelity VIP Growth Portfolio ............................... $83 $119 $153 $271
Fidelity VIP High Income Portfolio .......................... $83 $120 $155 $274
Fidelity VIP II Contrafund Portfolio ........................ $83 $119 $154 $272
Fidelity VIP III Growth & Income Portfolio .................. $82 $117 $150 $265
Fidelity VIP III Mid Cap Portfolio .......................... $86 $128 $169 $301
Franklin Small Cap Fund ..................................... $87 $131 $174 $311
Mutual Shares Securities Fund ............................... $87 $131 $174 $311
Templeton Pacific Growth Securities Fund .................... $89 $139 $186 $336
INVESCO VIF Dynamics Fund ................................... $99 $166 $231 $420
INVESCO VIF Health Sciences Fund ............................ $91 $143 $194 $349
Janus Aspen Aggressive Growth Portfolio ..................... $85 $127 $166 $296
Janus Aspen Growth Portfolio ................................ $85 $127 $166 $296
Janus Aspen Growth and Income Portfolio ..................... $89 $138 $185 $333
Janus Aspen International Growth Portfolio .................. $86 $129 $171 $305
KVS Dreman Financial Services Portfolio ..................... $86 $129 $170 $303
Kemper Technology Growth Portfolio .......................... $85 $127 $168 $299
T. Rowe Price International Stock Portfolio ................. $86 $130 $173 $309
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
2(a) WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
AIT Equity Index Fund .................................... $18 $57 $98 $213
AIT Money Market Fund .................................... $18 $55 $95 $206
AIT Select Aggressive Growth Fund ........................ $24 $73 $125 $267
AIT Select Capital Appreciation Fund ..................... $25 $76 $130 $277
AIT Select Emerging Markets Fund ......................... $34 $104 $176 $367
AIT Select Growth Fund ................................... $23 $72 $123 $263
AIT Select Growth and Income Fund ........................ $22 $69 $118 $253
AIT Select International Equity Fund ..................... $25 $77 $132 $282
AIT Select Investment Grade Income Fund .................. $20 $62 $106 $229
AIT Select Strategic Growth Fund ......................... $27 $83 $141 $299
AIT Select Strategic Income Fund ......................... $23 $70 $119 $256
AIT Select Value Opportunity Fund ........................ $25 $76 $130 $277
AIM V.I. Aggressive Growth Fund .......................... $27 $82 $141 $298
AIM V.I. Blue Chip Fund .................................. $28 $86 $146 $309
AIM V.I. Value Fund ...................................... $23 $69 $119 $255
Alliance Growth and Income Portfolio ..................... $25 $76 $130 $277
Alliance Premier Growth Portfolio ........................ $28 $85 $145 $308
Deutsche VIT EAFE Equity Index ........................... $21 $66 $113 $244
Deutsche VIT Small Cap Index ............................. $19 $60 $103 $223
Fidelity VIP Equity-Income Portfolio ..................... $21 $64 $109 $236
Fidelity VIP Growth Portfolio ............................ $22 $66 $114 $245
Fidelity VIP High Income Portfolio ....................... $22 $67 $115 $248
Fidelity VIP II Contrafund Portfolio ..................... $22 $67 $114 $246
Fidelity VIP III Growth & Income Portfolio ............... $21 $65 $111 $239
Fidelity VIP III Mid Cap Portfolio ....................... $25 $76 $130 $277
Franklin Small Cap Fund .................................. $26 $79 $135 $287
Mutual Shares Securities Fund ............................ $26 $79 $135 $287
Templeton Pacific Growth Securities Fund ................. $28 $87 $147 $312
INVESCO VIF Dynamics Fund ................................ $38 $114 $193 $398
INVESCO VIF Health Sciences Fund ......................... $30 $91 $155 $326
Janus Aspen Aggressive Growth Portfolio .................. $24 $74 $127 $272
Janus Aspen Growth Portfolio ............................. $24 $74 $127 $272
Janus Aspen Growth and Income Portfolio .................. $28 $86 $146 $309
Janus Aspen International Growth Portfolio ............... $25 $77 $132 $281
KVS Dreman Financial Services Portfolio .................. $25 $76 $131 $279
Kemper Technology Growth Portfolio ....................... $24 $75 $129 $275
T. Rowe Price International Stock Portfolio .............. $25 $78 $134 $285
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
2(B) WITHOUT SURRENDER CHARGE AND WITH ELECTION OF A
MINIMUM GUARANTEED
ANNUITY PAYOUT RIDER(1) WITH A TEN-YEAR WAITING PERIOD 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
AIT Equity Index Fund ................................... $21 $65 $111 $239
AIT Money Market Fund ................................... $20 $63 $108 $233
AIT Select Aggressive Growth Fund ....................... $26 $80 $137 $291
AIT Select Capital Appreciation Fund .................... $27 $83 $142 $301
AIT Select Emerging Markets Fund ........................ $37 $111 $188 $389
AIT Select Growth Fund .................................. $26 $79 $135 $288
AIT Select Growth and Income Fund ....................... $25 $76 $131 $279
AIT Select International Equity Fund .................... $28 $85 $144 $306
AIT Select Investment Grade Income Fund ................. $22 $69 $118 $254
AIT Select Strategic Growth Fund ........................ $29 $90 $153 $323
AIT Select Strategic Income Fund ........................ $25 $77 $132 $282
AIT Select Value Opportunity Fund ....................... $27 $83 $142 $301
AIM V.I. Aggressive Growth Fund ......................... $29 $90 $153 $322
AIM V.I. Blue Chip Fund ................................. $30 $93 $158 $333
AIM V.I. Value Fund ..................................... $25 $77 $132 $281
Alliance Growth and Income Portfolio .................... $27 $83 $142 $301
Alliance Premier Growth Portfolio ....................... $30 $93 $158 $332
Deutsche VIT EAFE Equity Index .......................... $24 $74 $126 $270
Deutsche VIT Small Cap Index ............................ $22 $68 $116 $249
Fidelity VIP Equity-Income Portfolio .................... $23 $71 $122 $262
Fidelity VIP Growth Portfolio ........................... $24 $74 $127 $271
Fidelity VIP High Income Portfolio ...................... $24 $75 $128 $274
Fidelity VIP II Contrafund Portfolio .................... $24 $74 $127 $272
Fidelity VIP III Growth & Income Portfolio .............. $23 $72 $124 $265
Fidelity VIP III Mid Cap Portfolio ...................... $27 $83 $142 $301
Franklin Small Cap Fund ................................. $28 $86 $147 $311
Mutual Shares Securities Fund ........................... $28 $86 $147 $311
Templeton Pacific Growth Securities Fund ................ $31 $94 $160 $336
INVESCO VIF Dynamics Fund ............................... $40 $122 $205 $420
INVESCO VIF Health Sciences Fund ........................ $32 $98 $167 $349
Janus Aspen Aggressive Growth Portfolio ................. $27 $82 $140 $296
Janus Aspen Growth Portfolio ............................ $27 $82 $140 $296
Janus Aspen Growth and Income Portfolio ................. $30 $93 $158 $333
Janus Aspen International Growth Portfolio .............. $28 $84 $144 $305
KVS Dreman Financial Services Portfolio ................. $27 $84 $143 $303
Kemper Technology Growth Portfolio ...................... $27 $83 $141 $299
T. Rowe Price International Stock Portfolio ............. $28 $86 $146 $309
</TABLE>
(1) If the Minimum Guaranteed Annuity Payout (M-GAP) Rider is exercised, you may
only annuitize under a fixed annuity payout option involving a life contingency
at the Company's guaranteed annuity option rates listed under the Annuity Option
Tables in your Contract.
The total contract fees collected under the Contracts by the Company are divided
by the total average net assets attributable to the Contracts. The resulting
percentage is 0.060%, and the amount of the contract fee is assumed to be $0.60
in the Examples.
SUPPLEMENT DATED DECEMBER 14, 2000
33
<PAGE>
The Prospectus previously filed in Registrant's Post-Effective Amendment No. 13
on April 28, 2000 is incorporated by reference herein (herein referred to as
"Prospectus B").
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
OF
INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS FUNDED THROUGH
SUB-ACCOUNTS OF
ALLMERICA SELECT SEPARATE ACCOUNT
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE ALLMERICA SELECT RESOURCE I AND II PROSPECTUS FOR
ALLMERICA SELECT SEPARATE ACCOUNT DATED MAY 1, 2000, AS REVISED DECEMBER 14,
2000 ("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ANNUITY CLIENT
SERVICES, FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY, 440 LINCOLN STREET,
WORCESTER, MASSACHUSETTS 01653, TELEPHONE 1-800-366-1492.
DATED MAY 1, 2000, AS REVISED DECEMBER 14, 2000
FAFLIC Allmerica Select Resource I & II
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
GENERAL INFORMATION AND HISTORY...........................................................................2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE COMPANY............................................3
SERVICES..................................................................................................3
UNDERWRITERS..............................................................................................4
ANNUITY BENEFIT PAYMENTS..................................................................................4
EXCHANGE OFFER............................................................................................5
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAM...............................................8
PERFORMANCE INFORMATION...................................................................................9
FINANCIAL STATEMENTS......................................................................................F-1
</TABLE>
GENERAL INFORMATION AND HISTORY
Allmerica Select Separate Account (the "Variable Account") is a separate
investment account of First Allmerica Financial Life Insurance Company (the
"Company") established by vote of its Board of Directors on August 20, 1991. The
Company, organized under the laws of Massachusetts in 1844, is among the five
oldest life insurance companies in America. As of December 31, 1999, the Company
and its subsidiaries had over $25 billion in combined assets and over $43
billion of life insurance in force. Effective October 16, 1995, the Company
converted from a mutual life insurance company, known as State Mutual Life
Assurance Company of America, to a stock life insurance company and adopted its
present name. The Company is a wholly owned subsidiary of Allmerica Financial
Corporation ("AFC"). The Company's principal office (the "Principal Office") is
located at 440 Lincoln Street, Worcester, Massachusetts 01653, telephone (508)
855-1000.
The Company is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
in Massachusetts. In addition, the Company is subject to the insurance laws and
regulations of other states and jurisdictions in which it is licensed to
operate.
Currently, 37 Sub-Accounts of the Variable Account are available under the
Allmerica Select Resource II contract and the Allmerica Select Resource I
contract, a predecessor contract no longer being sold (the "Contract"). Each
Sub-Account invests in a corresponding investment portfolio of Allmerica
Investment Trust ("AIT"), AIM Variable Insurance Funds ("AVIF"), Alliance
Variable Products Series Fund, Inc. ("Alliance"), Deutsche Asset Management VIT
Funds ("Deutsche VIT"), Fidelity Variable Insurance Products Fund ("Fidelity
VIP"), Fidelity Variable Insurance Products Fund II ("Fidelity VIP II"),
Fidelity Variable Insurance Products Fund III ("Fidelity VIP III"), Franklin
Templeton Variable Insurance Products Trust ("FT VIP"), INVESCO Variable
Investment Funds, Inc. ("INVESCO VIF"), Janus Aspen Series ("Janus Aspen"),
Kemper Variable Series ("KVS"), and T. Rowe Price International Series, Inc.
("T. Rowe Price").
AIT, AVIF, Alliance, Deutsche VIT, Fidelity VIP, Fidelity VIP II, Fidelity VIP
III, FT VIP, INVESCO VIF, Janus Aspen, KVS, and T. Rowe Price, are open-end,
diversified management investment companies. Twelve different funds of AIT are
available under the Contract: the Equity Index Fund, Money Market Fund, Select
Aggressive Growth Fund, Select Capital Appreciation Fund, Select Emerging
Markets Fund, Select Growth Fund, Select Growth and Income Fund, Select
International Equity Fund, Select Investment Grade Income Fund, Select
Strategic Growth Fund, Select Strategic Income Fund and Select Value
Opportunity Fund. Three
2
<PAGE>
funds of AVIF are available under the Contract: the AIM V.I. Aggressive Growth
Fund, AIM V.I. Blue Chip Fund and the AIM V.I. Value Fund. Two portfolios of
Alliance are available under the Contract: the Alliance Growth and Income
Portfolio and the Alliance Premier Growth Portfolio. Two funds of Deutsche VIT
are available under the Contract: the Deutsche VIT EAFE Equity Index and the
Deutsche VIT Small Cap Index. Three portfolios of Fidelity VIP are available
under the Contract: the Fidelity VIP Equity-Income Portfolio, Fidelity VIP
Growth Portfolio and the Fidelity VIP High Income Portfolio. One portfolio of
Fidelity VIP II is available under the Contract: the Fidelity VIP II Contrafund
Portfolio. Two Fidelity VIP III portfolios are available under the Contract:
the Fidelity VIP III Growth & Income Portfolio and the Fidelity VIP III Mid Cap
Portfolio. Three FT VIP funds are available under the Contract: the Franklin
Small Cap Fund, Mutual Shares Securities Fund and the Templeton Pacific Growth
Securities Fund. Two funds of INVESCO VIF are available under the Contract: the
INVESCO VIF Dynamics Fund and the INVESCO VIF Health Sciences Fund. Four Janus
Aspen portfolios are available under the Contract: the Janus Aspen Aggressive
Growth Portfolio, Janus Aspen Growth Portfolio, Janus Aspen Growth and Income
Portfolio and the Janus Aspen International Growth Portfolio. Two KVS
portfolios are available under the Contract: the KVS Dreman Financial Services
Portfolio and the Kemper Technology Growth Portfolio. The T. Rowe Price
International Stock Portfolio of T. Rowe Price is available under the Contract.
Each fund and portfolio available under the Contract (together, the "Underlying
Funds") has its own investment objectives and certain attendant risks.
TAXATION OF THE CONTRACT, THE VARIABLE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with
the Contract, other than for state and local premium taxes and similar
assessments when applicable. The Company reserves the right to impose a charge
for any other taxes that may become payable in the future in connection with
the Contract or the Variable Account.
The Variable Account is considered to be a part of and taxed with the
operations of the Company. The Company is taxed as a life insurance company
under subchapter L of the Internal Revenue Code (the "Code"), and files a
consolidated tax return with its affiliated companies.
The Company reserves the right to make a charge for any effect which the
income, assets or existence of the Contract or the Variable Account may have
upon its tax. Such charge for taxes, if any, will be assessed on a fair and
equitable basis in order to preserve equity among classes of Contract Owners
("Owners"). The Variable Account presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Variable Account. Underlying Fund shares owned by the Sub-Accounts are held on
an open account basis. A Sub-Account's ownership of Underlying Fund shares is
reflected on the records of the Underlying Fund and is not represented by any
transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999, and
the financial statements of the Allmerica Select Separate Account of the
Company as of December 31, 1999 and for the periods indicated, included in this
Statement of Additional Information constituting part of this Registration
Statement, have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Contract.
3
<PAGE>
UNDERWRITERS
Allmerica Investments, Inc. ("Allmerica Investments"), a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. ("NASD"), serves as principal
underwriter and general distributor for the Contract pursuant to a contract
with Allmerica Investments, the Company and the Variable Account. Allmerica
Investments distributes the Contract on a best-efforts basis. Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653 was
organized in 1969 as a wholly owned subsidiary of First Allmerica and presently
is indirectly wholly owned by First Allmerica.
The Contract offered by this Prospectus is 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 Contract are required to be licensed by their
respective state insurance authorities for the sale of variable annuity
contracts. The Company pays commissions, not to exceed 7.0% of purchase
payments, to entities which sell the Contract. To the extent permitted by NASD
rules, promotional incentives or payments also may 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 Contract, including the recruitment and
training of personnel, production of promotional literature and similar
services.
Commissions paid by the Company do not result in any charge to Owners or to the
Variable Account in addition to the charges described under "CHARGES AND
DEDUCTIONS" in the Prospectus. The Company intends to recoup the commission and
other sales expense through a combination of anticipated surrender, withdrawal
and/or annuitization charges, profits from the Company's general account,
including the investment earnings on amounts allocated to accumulate on a fixed
basis in excess of the interest credited on fixed accumulations by the Company,
and the profit, if any, from the mortality and expense risk charge.
The aggregate amounts of commissions paid to Allmerica Investments for sales of
all contracts funded by Allmerica Select Separate Account (including contracts
not described in the Prospectus) for the years 1997, 1998 and 1999 were
$1,394,498, $2,436,973 and $2,589,970.
No commissions were retained by Allmerica Investments for sales of all
contracts funded by Allmerica Select Separate Account (including contracts not
described in the Prospectus) for the years 1997, 1998 and 1999.
ANNUITY BENEFIT PAYMENTS
The method by which the Accumulated Value under the Contract is determined is
described in detail under "Computation of Values" in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated
by the following hypothetical example: Assume that the assets of a Sub-Account
at the beginning of a one-day Valuation Period were $5,000,000; that the value
of an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit Value at the end of the current Valuation Period would be
calculated as follows:
4
<PAGE>
<TABLE>
<S> <C> <C>
(1) Accumulation Unit Value -- Previous Valuation Period........................................$ 1.135000
(2) Value of Assets -- Beginning of Valuation Period............................................$5,000,000
(3) Excess of Investment Income and Net Gains Over Capital Losses...................................$1,675
(4) Adjusted Gross Investment Rate for the Valuation Period (3) divided by ( 2)...................0.000335
(5) Annual Charge (one-day equivalent of 1.40% per annum).........................................0.000039
(6) Net Investment Rate (4) - (5)................................................................0.000296
(7) Net Investment Factor 1.000000 + (6)..........................................................1.000296
(8) Accumulation Unit Value -- Current Period (1) x (7)......................................... $1.135336
</TABLE>
5
<PAGE>
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains of $1,675, the
Accumulation Unit Value at the end of the Valuation Period would have been
$1.134576.
The method for determining the amount of annuity benefit payments is described
in detail under "Annuity Benefit Payments" in the Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY BENEFIT PAYMENT CALCULATION USING HYPOTHETICAL
EXAMPLE. The determination of the Annuity Unit Value and the variable annuity
benefit payment may be illustrated by the following hypothetical example:
Assume an Annuitant has 40,000 Accumulation Units in a Variable Account, and
that the value of an Accumulation Unit on the Valuation Date used to determine
the amount of the first variable annuity benefit payment is $1.120000.
Therefore, the Accumulated Value of the Contract is $44,800 (40,000 x
$1.120000). Assume also that the Owner elects an option for which the first
monthly payment is $6.57 per $1,000 of Accumulated Value applied. Assuming no
premium tax or surrender charge, the first monthly payment would be $44.80
($44,800 divided by $1,000) multiplied by $6.57, or $294.34.
Next, assume that the Annuity Unit Value for the assumed interest rate of 3.5%
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 3.5% 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 benefit payment is 1.000190. Multiplying this factor by .999906 (the
one-day adjustment factor for the assumed interest rate of 3.5% per annum)
produces a factor of 1.000096. This then is multiplied by the Annuity Unit
Value on the immediately preceding Valuation Date (assumed here to be
$1.105000). The result is an Annuity Unit Value of $1.105106 for the current
monthly payment. The current monthly payment then is determined by multiplying
the number of Annuity Units by the current Annuity Unit Value, or 267.5818
times $1.105106, which produces a current monthly payment of $295.71.
METHOD FOR DETERMINING COMMUTED VALUE ON VARIABLE ANNUITY PERIOD CERTAIN
OPTIONS AND ILLUSTRATION USING HYPOTHETICAL EXAMPLE. The Contract offers both
commutable and non-commutable fixed period certain annuity options and
commutable variable period certain options. A commutable option gives the
Annuitant the right to exchange any remaining payments for a lump sum payment
based on the commuted value. The Commuted Value is the present value of
remaining payments calculated at 3.5% interest. The determination of the
Commuted Value may be illustrated by the following hypothetical example.
Assume a commutable period certain option is elected. The number of Annuity
Units on which each payment is based would be calculated using the Surrender
Value less any premium tax rather than the Accumulated Value. Assume this
results in 250.0000 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
$300 a month for 60 months. The present value at 3.5% of all remaining payments
would be $16,560.72.
EXCHANGE OFFER
A. VARIABLE ANNUITY CONTRACT EXCHANGE OFFER
The Company will permit Owners of certain variable annuity contracts issued by
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC"), described
below, to exchange their contracts at net asset value for the variable annuity
contracts described in the Prospectus, which is issued on Form No. A3025-96 or
a state variation thereof ("new Contract"). The Company reserves the right to
suspend this exchange offer at any time.
6
<PAGE>
This offer applies to the exchange of Elective Payment Variable Annuity
contracts issued by AFLIAC on Forms A3012-79 and A3013-79 ("Elective Payment
Exchanged Contract," all such contracts having numbers with a "JQ" or "JN"
prefix), and Single Payment Variable Annuity contracts issued on Forms A3014-79
and A3015-79 ("Single Payment Exchanged Contract," all such contracts having
numbers with a "KQ" or "KN" prefix). These contracts are referred to
collectively as the "Exchanged Contract." To effect an exchange, the Company
should receive (1) a completed application for the new Contract, (2) the
contract being exchanged, and (3) a signed Letter of Awareness.
SURRENDER CHARGE COMPUTATION. No surrender charge otherwise applicable to the
Exchanged Contract will be assessed as a result of the exchange. Instead, the
surrender charge under the new Contract will be computed as if the payments
that had been made to the Exchanged Contract were made to the new Contract, as
of the date of issue of the Exchanged Contract. Any additional payments to the
new Contract after the exchange will be subject to the surrender charge
computation outlined in the new Contract and the Prospectus; i.e., the charge
will be computed based on the number of years that the additional payment (or
portion of that payment) that is being withdrawn has been credited to the new
Contract.
SUMMARY OF DIFFERENCES BETWEEN THE EXCHANGED CONTRACT AND THE NEW CONTRACT. The
new Contract and the Exchanged Contract differ substantially as summarized
below. There may be additional differences important to a person considering an
exchange, and the Prospectuses for the new Contract and the Exchanged Contract
should be reviewed carefully before the exchange request is submitted to the
Company.
SURRENDER CHARGE. The surrender charge under the new Contract, as described in
the Prospectus, imposes higher charge percentages against the excess amount
redeemed than the Exchanged Contract and, in the case of a Single Payment
Exchanged Contract, applies the charge for a greater number of years. In
addition, if an Elective Payment Exchanged Contract was issued more than nine
years before the date of an exchange under this offer, additional payments to
the Exchanged Contract would not be subject to a surrender charge. New payments
to the new Contract may be subject to a charge if withdrawn prior to the
surrender charge period described in the Prospectus.
CONTRACT FEE. Under the new Contract, the Company deducts a $30 fee on each
Contract anniversary and at surrender if the Accumulated Value is less than
$50,000. This fee is waived if the new Contract is part of a 401(k) plan. No
Contract fees are charged on the Single Payment Exchanged Contract. A $9
semi-annual fee is charged on the Elective Payment Variable Exchanged Contract
if the Accumulated Value is $10,000 or less.
VARIABLE ACCOUNT ADMINISTRATIVE EXPENSE CHARGE. Under the new Contract, the
Company assesses each Sub-Account a daily administrative expense charge at an
annual rate of 0.15% of the average daily net assets of the Sub-Account. No
administrative expense charge based on a percentage of Sub-Account assets is
imposed under the Exchanged Contract.
TRANSFER CHARGE. No charge for transfers is imposed under the Exchanged
Contract. Currently, no transfer charge is imposed under the new Contract;
however, the Company reserves the right to assess a charge not to exceed $25
for each transfer after the twelfth in any Contract year.
ANNUITY TABLES. The Exchanged Contract contains higher guaranteed annuity
rates.
INVESTMENTS. Accumulated Values and payments under the new Contract
may be allocated to significantly more investment options than are
available under the Exchanged Contract.
DEATH BENEFIT. The Exchanged Contract offers a death benefit that is guaranteed
to be the greater of a Contract's Accumulated Value or gross payments made
(less withdrawals). At the time an exchange is processed, the Accumulated Value
of the Exchanged Contract becomes the "payment" for the new Contract.
7
<PAGE>
Therefore, prior purchase payments made under the Exchanged Contract (if higher
than the Exchanged Contract's Accumulated Value) no longer are a basis for
determining the death benefit under the new Contract. Consequently, whether the
initial minimum death benefit under the new Contract is greater than, equal to,
or less than, the death benefit of the Exchanged Contract depends on whether
the Accumulated Value transferred to the new Contract is greater than, equal
to, or less than, the gross payments under the Exchanged Contract. In addition,
under the Exchanged Contract, the amount of any prior withdrawals is subtracted
from the value of the death benefit. Under the new Contract, where there is a
reduction in the death benefit amount due to a prior withdrawal, the value of
the death benefit is reduced in the same proportion that the new Contract's
Accumulated Value was reduced on the date of the withdrawal.
B. FIXED ANNUITY EXCHANGE OFFER
This exchange offer also applies to all fixed annuity contracts issued by the
Company's subsidiary, AFLIAC. 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 new Contract's surrender charge as described above for
variable annuity contracts. This Prospectus should be read carefully before
making such exchange. Unlike a fixed annuity, the new Contract's value is not
guaranteed and will vary depending on the investment performance of the
Underlying Funds to which it is allocated. The new Contract has a different
charge structure than a fixed annuity contract, which includes not only a
surrender 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 the Company's assumption of certain mortality and expense
risks), administrative expense charges, transfer charges (for transfers
permitted among Sub-Accounts and the Fixed Account), and expenses incurred by
the Underlying Funds. Additionally, the interest rates offered under the Fixed
Account of the new Contract and the Annuity Tables for determining minimum
annuity benefit 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 new Contract and subsequently cancel the new Contract within the time
permitted, as described in the sections of this Prospectus captioned "Right to
Cancel Individual Retirement Annuity" and "Right to Cancel All Other
Contracts," will have their exchanged contract automatically reinstated as of
the date of cancellation. 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 Fixed Account and
Sub-Accounts of the reinstated contract in the same proportion that the value
in the Fixed Account and the value in each Sub-Account bore to the transferred
Accumulated Value on the date of the exchange of the contract for the new
Contract. For purposes of calculating any surrender charge under the reinstated
contract, the reinstated contract will be deemed to have been issued and to
have received past purchase payments as if there had been no exchange.
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAM
To the extent permitted by law, the Company reserves the right to offer an
Enhanced Automatic Transfer (Dollar Cost Averaging) Program from time to time.
If an Owner elects automatic transfers while the enhanced program is in effect,
the Company will credit an enhanced interest rate to eligible payments made to
the Enhanced Automatic Transfer Program. Eligible payments:
- must be new payments to the Contract, including the initial payment,
- must be allocated to the Fixed Account, which will be the source
account,
8
<PAGE>
- must be automatically transferred out of the Fixed Account to one or
more Sub-Accounts over a specified time period and
- will receive the enhanced rate while they remain in the Fixed Account.
Any new eligible payments made to an existing Enhanced Automatic Transfer
program will start a new Enhanced Automatic Transfer program. In this case, the
following rules apply:
- The money remaining in the Fixed Account from the original program
will be combined with the new eligible payment to determine the new
monthly transfer amount.
- The new monthly transfer amount will be transferred out of the Fixed
Account in accordance with the allocation instructions specified for
the new payment. If no allocation instructions are specified with the
new eligible payment, the allocation instructions for the original
eligible payment will be used. The new monthly transfer amount will
be transferred out of the Fixed Account on a LIFO (last-in, first-out
basis) to the selected Sub-Accounts on the date designated for the
new eligible payment.
- A new enhanced interest rate may be applied to the new eligible
payment, while the money remaining in the Fixed Account from the
original program will continue to receive the enhanced rate in effect
at the time the older payment was received.
PERFORMANCE INFORMATION
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to certain indices described in the Prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other material information on
various topics of interest to Owners and prospective 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 Contract and the characteristics of and
market for such financial instruments. Total return data and supplemental total
return information may be advertised based on the period of time that an
Underlying Fund or an underlying Sub-Account has been in existence, even if
longer than the period of time that the Contract has been offered. The results
for any period prior to a Contract being offered will be calculated as if the
Contract had been offered during that period of time, with all charges assumed
to be those applicable to the Contract.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment in
a Sub-Account and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specified period,
reduced by the Sub-Account's asset charge and any applicable surrender charge
which would be assessed upon complete withdrawal of the investment.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission ("SEC"). The quotations are computed
by finding the average annual compounded rates of return over the specified
periods that would equate the initial amount invested to the ending redeemable
values, according to the following formula:
8
<PAGE>
<TABLE>
<S> <C> <C>
P(1 + T) (n) = ERV
Where: P = a hypothetical initial payment to the Variable Account of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at the end of the specified period
</TABLE>
The calculation of Total Return includes the annual charges against the assets
of the Sub-Account. This charge is 1.40% on an annual basis. The calculation of
ending redeemable value assumes (1) the Contract was issued at the beginning of
the period, and (2) a complete surrender of the Contract at the end of the
period. The deduction of the surrender charge, if any, applicable at the end of
the period is included in the calculation, according to the following schedule:
<TABLE>
<CAPTION>
YEARS FROM DATE OF PAYMENT TO CHARGE AS PERCENTAGE OF NEW
DATE OF WITHDRAWAL PURCHASE PAYMENTS WITHDRAWN*
------------------ ---------------------------
<S> <C>
0 - 1 6.5%
2 6.0%
3 5.0%
4 4.0%
5 3.0%
6 2.0%
7 1.0%
More than 7 0.0%
</TABLE>
* Subject to the maximum limit described in the Prospectus.
No surrender charge is deducted upon expiration of the periods specified above.
In each calendar year, a certain amount (withdrawal without surrender charge
amount, as described in the Prospectus) is not subject to the surrender charge.
The calculations of Total Return include the deduction of the $30 annual
Contract 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.
It is assumed, however, that the investment is NOT withdrawn 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:
10
<PAGE>
<TABLE>
<S> <C> <C>
P(1 + T)(n) = EV
Where: P = a hypothetical initial payment to the Variable 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
</TABLE>
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
Contract is NOT surrendered at the end of the specified period, and therefore
there is no adjustment for the surrender charge that would be applicable if the
Contract was surrendered at the end of the period. The calculation of
supplemental total return does not include the deduction of the $30 annual
Contract fee.
YIELD AND EFFECTIVE YIELD - THE MONEY MARKET SUB-ACCOUNT
Set forth below is yield and effective yield information for the Money Market
Sub-Account for the seven-day period ended December 31, 1999:
Yield 4.64%
Effective Yield 4.75%
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the SEC. Under those methods, the yield quotation is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit of the Sub-Account at the beginning of the period, dividing
the difference by the value of the account at the beginning of the same period
to obtain the base period return, and then multiplying the return for a
seven-day base period by (365/7), with the resulting yield carried to the
nearest hundredth of one percent.
The Money Market Sub-Account computes effective yield by compounding the
unannualized base period return by using the formula:
(365/7)
Effective Yield = [ (base period return + 1) ] - 1
The calculations of yield and effective yield reflect the $30 annual Contract
fee.
FINANCIAL STATEMENTS
Financial Statements are included for First Allmerica Financial Life Insurance
Company and for its Allmerica Select Separate Account.
11
<PAGE>
FIRST ALLMERICA
FINANCIAL LIFE
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
First Allmerica Financial Life Insurance Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, shareholder's equity
and cash flows present fairly, in all material respects, the financial position
of First Allmerica Financial Life Insurance Company (the "Company") at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 1, 2000
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums................................... $ 954.5 $1,969.5 $1,980.4
Universal life and investment product
policy fees.............................. 359.3 296.6 237.3
Net investment income...................... 503.1 593.9 619.5
Net realized investment gains.............. 100.3 60.9 76.3
Other income............................... 107.3 100.0 81.5
-------- -------- --------
Total revenues......................... 2,024.5 3,020.9 2,995.0
-------- -------- --------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 1,056.3 1,803.0 1,763.9
Policy acquisition expenses................ 240.9 449.6 421.8
Sales practice litigation.................. -- 31.0 --
Loss from cession of disability income
business................................. -- -- 53.9
Restructuring costs........................ -- 9.0 --
Other operating expenses................... 346.3 419.7 404.0
-------- -------- --------
Total benefits, losses and expenses.... 1,643.5 2,712.3 2,643.6
-------- -------- --------
Income from continuing operations before
federal income taxes.......................... 381.0 308.6 351.4
-------- -------- --------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 88.7 74.6 74.4
Deferred................................... 4.3 (15.4) 14.2
-------- -------- --------
Total federal income tax expense....... 93.0 59.2 88.6
-------- -------- --------
Income from continuing operations before
minority interest............................. 288.0 249.4 262.8
Minority interest.......................... (39.9) (55.0) (79.4)
-------- -------- --------
Income from continuing operations.............. 248.1 194.4 183.4
(Loss) income from operations of discontinued
business (less applicable income taxes
(benefit) of $(10.1), $(7.0) and $8.9 for the
years ended December 31, 1999, 1998 and 1997,
respectively) (17.2) (13.5) 16.6
Loss on disposal of group life and health
business, including provision of $72.2 for
operating losses during phase-out period for
the year ended December 31, 1999 (less
applicable income tax benefit of $16.4) (30.5) -- --
-------- -------- --------
Net income..................................... $ 200.4 $ 180.9 $ 200.0
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-1
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998
------------------------------------ --------- ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$3,721.6 and $7,520.8)............................ $ 3,660.7 $ 7,683.9
Equity securities at fair value (cost of $27.9 and
$253.1)........................................... 51.4 397.1
Mortgage loans...................................... 521.2 562.3
Policy loans........................................ 170.5 154.3
Real estate and other long-term investments......... 177.0 163.1
--------- ---------
Total investments............................... 4,580.8 8,960.7
--------- ---------
Cash and cash equivalents............................. 279.3 504.0
Accrued investment income............................. 73.3 141.0
Deferred policy acquisition costs..................... 1,219.5 1,161.2
Reinsurance receivable on unpaid losses, benefits and
unearned premiums................................... 480.3 1,136.4
Deferred federal income taxes......................... 18.1 19.4
Premiums, accounts and notes receivable............... 81.0 510.5
Other assets.......................................... 199.6 530.6
Closed Block assets................................... 772.3 803.1
Separate account assets............................... 17,629.6 13,697.7
--------- ---------
Total assets.................................... $25,333.8 $27,464.6
========= =========
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,825.0 $ 2,802.2
Outstanding claims, losses and loss adjustment
expenses.......................................... 218.8 2,815.9
Unearned premiums................................... 6.6 843.2
Contractholder deposit funds and other policy
liabilities....................................... 2,025.5 2,637.0
--------- ---------
Total policy liabilities and accruals........... 5,075.9 9,098.3
--------- ---------
Expenses and taxes payable............................ 512.0 681.9
Reinsurance premiums payable.......................... 17.9 50.2
Trust instruments supported by funding obligations.... 50.6 --
Short-term debt....................................... -- 221.3
Closed Block liabilities.............................. 842.1 872.0
Separate account liabilities.......................... 17,628.9 13,691.5
--------- ---------
Total liabilities............................... 24,127.4 24,615.2
--------- ---------
Minority interest..................................... -- 532.9
Commitments and contingencies (Notes 16 and 21)
SHAREHOLDER'S EQUITY
Common stock, $10 par value, 1 million shares
authorized, 500,001 shares issued and outstanding... 5.0 5.0
Additional paid-in capital............................ 569.0 444.0
Accumulated other comprehensive (loss) income......... (14.9) 169.2
Retained earnings..................................... 647.3 1,698.3
--------- ---------
Total shareholder's equity...................... 1,206.4 2,316.5
--------- ---------
Total liabilities and shareholder's equity...... $25,333.8 $27,464.6
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-2
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
COMMON STOCK................................... $ 5.0 $ 5.0 $ 5.0
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............. 444.0 453.7 392.4
Capital contribution from parent........... 125.0 -- 61.3
Loss on change of interest-Allmerica P&C... -- (9.7) --
-------- -------- --------
Balance at end of period................... 569.0 444.0 453.7
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Net unrealized (depreciation) appreciation
on investments:
Balance at beginning of period............. 169.2 209.3 131.4
(Depreciation) appreciation during the
period:
Net (depreciation) appreciation on
available-for-sale securities.......... (298.2) (82.4) 170.9
Benefit (provision) for deferred federal
income taxes........................... 105.0 28.9 (59.8)
Minority interest........................ 31.8 13.4 (33.2)
-------- -------- --------
Distribution of subsidiaries (Note 3)...... (22.7) -- --
-------- -------- --------
(184.1) (40.1) 77.9
-------- -------- --------
Balance at end of period................... (14.9) 169.2 209.3
-------- -------- --------
RETAINED EARNINGS
Balance at beginning of period............. 1,698.3 1,567.4 1,367.4
Net income................................. 200.4 180.9 200.0
Dividend to shareholder.................... -- (50.0) --
Distribution of subsidiaries (Note 3)...... (1,251.4) -- --
-------- -------- --------
Balance at end of period................... 647.3 1,698.3 1,567.4
-------- -------- --------
Total shareholder's equity............. $1,206.4 $2,316.5 $2,235.4
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------- ------- ------
<S> <C> <C> <C>
Net income.................................. $ 200.4 $ 180.9 $200.0
Other comprehensive (loss) income:
Net (depreciation) appreciation on
available-for-sale securities......... (298.2) (82.4) 170.9
Benefit (provision) for deferred federal
income taxes.......................... 105.0 28.9 (59.8)
Minority interest....................... 31.8 13.4 (33.2)
Distribution of subsidiaries (Note 3)... (22.7) -- --
------- ------- ------
Other comprehensive (loss) income... (184.1) (40.1) 77.9
------- ------- ------
Comprehensive (loss) income................. $ (16.3) $ 140.8 $277.9
======= ======= ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- --------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 200.4 $ 180.9 $ 200.0
Adjustments to reconcile net income to
net cash provided by operating
activities:
Minority interest................... 39.9 55.0 79.4
Net realized gains.................. (100.9) (62.7) (77.8)
Net amortization and depreciation... 31.5 20.7 31.6
Deferred federal income taxes....... 20.7 (15.4) 14.2
Sales practice litigation expense... -- 31.0 --
Loss from exiting reinsurance
pools............................. -- 25.3 --
Payment related to exiting
reinsurance pools................. -- (30.3) --
Loss from cession of disability
income business................... -- -- 53.9
Payment related to cession of
disability income business........ -- -- (207.0)
Loss from disposal of group life and
health business................... 30.5 -- --
Change in deferred acquisition
costs............................. (181.6) (185.8) (189.7)
Change in premiums and notes
receivable, net of reinsurance
payable........................... (41.8) 56.7 (15.1)
Change in accrued investment
income............................ 8.3 0.8 7.1
Change in policy liabilities and
accruals, net..................... (15.6) 168.1 (134.9)
Change in reinsurance receivable.... (46.3) (115.4) 27.2
Change in expenses and taxes
payable........................... 79.4 (3.3) 49.4
Separate account activity, net...... 5.5 (48.5) --
Other, net.......................... 18.5 (63.8) 20.4
--------- --------- ---------
Net cash provided by (used in)
operating activities.......... 48.5 13.3 (141.3)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and
maturities of available-for-sale
fixed maturities.................. 2,801.0 1,715.2 2,892.9
Proceeds from disposals of equity
securities........................ 422.9 285.3 162.7
Proceeds from disposals of other
investments....................... 30.3 120.8 116.3
Proceeds from mortgages matured or
collected......................... 131.2 171.2 204.7
Purchase of available-for-sale fixed
maturities........................ (2,227.3) (2,374.5) (2,596.0)
Purchase of equity securities....... (78.9) (119.9) (67.0)
Purchase of other investments....... (140.6) (274.4) (175.0)
Capital expenditures................ (29.2) (22.3) (15.3)
Purchase of minority interest in
Citizens Corporation.............. -- (195.9) --
Distribution of subsidiaries........ (202.2) -- --
Other investing activities, net..... -- 26.7 1.3
--------- --------- ---------
Net cash provided by (used in)
investing activities.......... 707.2 (667.8) 524.6
--------- --------- ---------
</TABLE>
F-5
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to
contractholder deposit funds...... 1,514.6 1,419.2 457.6
Withdrawals from contractholder
deposit funds..................... (2,037.5) (625.0) (647.1)
Change in trust agreements supported
by funding agreements............. 50.6 -- --
Change in short-term debt........... (180.9) 188.3 (5.4)
Change in long-term debt............ -- (2.6) (0.1)
Dividend paid to shareholder........ -- (50.0) (9.4)
Contribution from parent............ 36.0 -- 0.1
Subsidiary treasury stock purchased,
at cost........................... (350.0) (1.0) (140.0)
--------- --------- ---------
Net cash (used in) provided by
financing activities.......... (967.2) 928.9 (344.3)
--------- --------- ---------
Net change in cash and cash equivalents..... (211.5) 274.4 39.0
Net change in cash held in the Closed
Block...................................... (13.2) 15.7 (1.0)
Cash and cash equivalents, beginning of
period..................................... 504.0 213.9 175.9
--------- --------- ---------
Cash and cash equivalents, end of period.... $ 279.3 $ 504.0 $ 213.9
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ 3.1 $ 7.3 $ 3.6
Income taxes paid....................... $ 24.0 $ 135.3 $ 66.3
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
First Allmerica Financial Life Insurance Company ("FAFLIC" or the "Company") is
organized as a stock life insurance company, and is a wholly-owned subsidiary of
Allmerica Financial Corporation ("AFC").
Prior to July 1, 1999, the consolidated financial statements of FAFLIC included
the accounts of its wholly-owned life insurance subsidiary Allmerica Financial
Life Insurance and Annuity Company ("AFLIAC"), its non-insurance subsidiaries
(principally brokerage and investment advisory services), Allmerica Property and
Casualty Companies, Inc. ("Allmerica P&C") (an 85.0%-owned non-insurance holding
company), and various other non-insurance subsidiaries.
Effective July 1, 1999, AFC made certain changes to its corporate structure
(Note 3). These changes included the transfer of the Company's ownership of
Allmerica P&C and its subsidiaries, as well as several other non-insurance
subsidiaries from the Company to AFC. In exchange, AFC contributed capital to
the Company and agreed to maintain the Company's statutory surplus at specified
levels during the following 6 years. Comparability between current and prior
period financial statements and footnotes has been significantly impacted by the
Company's divestiture of these subsidiaries during 1999, as disclosed in Note 3.
The Closed Block (Note 1B) assets and liabilities at December 31, 1999 and 1998
are presented in the consolidated balance sheets as single line items. The
contribution from the Closed Block is included in the consolidated statements of
income in other income. Unless specifically stated, all disclosures contained
herein supporting the consolidated financial statements at December 31, 1999,
1998 and 1997, and the years then ended exclude the Closed Block related
amounts. All significant intercompany accounts and transactions have been
eliminated.
On or about December 3, 1998, the Company acquired all of the outstanding common
stock of Citizens Corporation (formerly an 82.5% owned non-insurance subsidiary
of The Hanover Insurance Company ("Hanover"), a wholly-owned subsidiary of
Allmerica P&C) that it did not already own in exchange for cash of $195.9
million (Note 4). The acquisition has been recognized as a purchase. The
minority interest acquired totaled $158.5 million. A total of $40.8 million
representing the excess of the purchase price over the fair values of the net
assets acquired, net of deferred taxes, has been allocated to goodwill and is
being amortized over a 40-year period.
Prior to the July 1, 1999 changes in AFC's corporate structure, minority
interest relates to the Company's investment in Allmerica P&C and its only
significant subsidiary, Hanover. Hanover's wholly-owned subsidiary is Citizens
Corporation, the holding company for Citizens. Minority interest also includes
an amount related to the minority interest in Citizens Corporation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
B. CLOSED BLOCK
The Company established and began operating a closed block ("the Closed Block")
for the benefit of the participating policies included therein, consisting of
certain individual life insurance participating policies,
F-7
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
individual deferred annuity contracts and supplementary contracts not involving
life contingencies which were in force as of FAFLIC's demutualization on
October 16, 1995; such policies constitute the "Closed Block Business". The
purpose of the Closed Block is to protect the policy dividend expectations of
such FAFLIC dividend paying policies and contracts. Unless the Commonwealth of
Massachusetts Insurance Commissioner ("the Insurance Commissioner") consents to
an earlier termination, the Closed Block will continue to be in effect until the
date none of the Closed Block policies are in force. FAFLIC allocated to the
Closed Block assets in an amount that is expected to produce cash flows which,
together with future revenues from the Closed Block Business, are reasonably
sufficient to support the Closed Block Business, including provision for payment
of policy benefits, certain future expenses and taxes and for continuation of
policyholder dividend scales payable in 1994 so long as the experience
underlying such dividend scales continues. The Company expects that the factors
underlying such experience will fluctuate in the future and policyholder
dividend scales for Closed Block Business will be set accordingly.
Although the assets and income allocated to the Closed Block inure solely to the
benefit of the holders of policies included in the Closed Block, the excess of
Closed Block liabilities over Closed Block assets as measured on a GAAP basis
represent the expected future post-tax income from the Closed Block which may be
recognized in income over the period the policies and contracts in the Closed
Block remain in force.
If the actual income from the Closed Block in any given period equals or exceeds
the expected income for such period as determined at the inception of the Closed
Block, the expected income would be recognized in income for that period.
Further, any excess of the actual income over the expected income would also be
recognized in income to the extent that the aggregate expected income for all
prior periods exceeded the aggregate actual income. Any remaining excess of
actual income over expected income would be accrued as a liability for
policyholder dividends in the Closed Block to be paid to the Closed Block
policyholders. This accrual for future dividends effectively limits the actual
Closed Block income recognized in income to the Closed Block income expected to
emerge from operation of the Closed Block as determined at inception.
If, over the period the policies and contracts in the Closed Block remain in
force, the actual income from the Closed Block is less than the expected income
from the Closed Block, only such actual income (which could reflect a loss)
would be recognized in income. If the actual income from the Closed Block in any
given period is less than the expected income for that period and changes in
dividends scales are inadequate to offset the negative performance in relation
to the expected performance, the income inuring to shareholders of the Company
will be reduced. If a policyholder dividend liability had been previously
established in the Closed Block because the actual income to the relevant date
had exceeded the expected income to such date, such liability would be reduced
by this reduction in income (but not below zero) in any periods in which the
actual income for that period is less than the expected income for such period.
C. VALUATION OF INVESTMENTS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("Statement No. 115"), the Company is required to classify its investments into
one of three categories: held-to-maturity, available-for-sale or trading. The
Company determines the appropriate classification of debt securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Debt securities and marketable equity securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of shareholders' equity. The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income.
F-8
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by the Company to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which the Company believes may not be collectible in
full. In establishing reserves, the Company considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
During 1997, the Company adopted a plan to dispose of all real estate assets. As
of December 31, 1999, there were 2 properties remaining in the Company's real
estate portfolio, both of which are being actively marketed. These assets are
carried at the estimated fair value less costs of disposal. Depreciation is not
recorded on these assets while they are held for disposal.
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other than temporary impairment of the value of a specific
investment or a group of investments is determined, a realized investment loss
is recorded. Changes in the valuation allowance for mortgage loans are included
in realized investment gains or losses.
D. FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including debt, investments such as
fixed maturities, mortgage loans and equity securities, investment and loan
commitments, swap contracts and interest rate futures contracts. These
instruments involve credit risk and also may be subject to risk of loss due to
interest rate fluctuation. The Company evaluates and monitors each financial
instrument individually and, when appropriate, obtains collateral or other
security to minimize losses.
Derivative financial instruments are accounted for under three different
methods: fair value accounting, deferral accounting and accrual accounting.
Interest rate swap contracts used to hedge interest rate risk are accounted for
using a combination of the fair value method and accrual method, with changes in
fair value reported in unrealized gains and losses in equity consistent with the
underlying hedged security, and the net payment or receipt on the swaps reported
in net investment income. Foreign currency swap contracts used to hedge the
foreign currency exchange risk associated with investment securities are
accounted for using a combination of the fair value method and accrual method,
with changes in fair value reported in unrealized gains and losses in equity
consistent with the underlying hedged security, and the net payment or receipt
on the swaps reported in net investment income. Foreign currency swap contracts
used to hedge foreign currency exchange risk associated with funding agreements
are accounted for using the fair value method, with changes in fair value
reported in other operating income consistent with the underlying hedged trust
obligation liability. Futures contracts used to hedge interest rate risk are
accounted for using the deferral method, with gains and losses deferred in
unrealized gains and losses in equity and recognized in earnings in conjunction
with the earnings recognition of the underlying hedged item. Default swap
contracts entered into for investment purposes are accounted for using the fair
value method, with changes in fair value, if any, reported in realized
investment gains and losses in earnings. Premium paid to the Company on default
swap contracts is reported in net investment income in earnings. Other swap
contracts entered into for investment purposes are accounted for using the fair
value method, with changes in fair value reported in realized investment gains
and
F-9
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
losses in earnings. Any ineffective swaps or futures hedges are recognized
currently in realized investment gains and losses in earnings.
E. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
F. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Property and casualty, group life and group health insurance business
acquisition costs are deferred and amortized over the terms of the insurance
policies. Acquisition costs related to universal life products, variable
annuities and contractholder deposit funds are deferred and amortized in
proportion to total estimated gross profits from investment yields, mortality,
surrender charges and expense margins over the expected life of the contracts.
This amortization is reviewed annually and adjusted retrospectively when the
Company revises its estimate of current or future gross profits to be realized
from this group of products, including realized and unrealized gains and losses
from investments. Acquisition costs related to fixed annuities and other life
insurance products are deferred and amortized, generally in proportion to the
ratio of annual revenue to the estimated total revenues over the contract
periods based upon the same assumptions used in estimating the liability for
future policy benefits.
Deferred acquisition costs for each life product and property and casualty line
of business are reviewed to determine if they are recoverable from future
income, including investment income. If such costs are determined to be
unrecoverable, they are expensed at the time of determination. Although
realization of deferred policy acquisition costs is not assured, the Company
believes it is more likely than not that all of these costs will be realized.
The amount of deferred policy acquisition costs considered realizable, however,
could be reduced in the near term if the estimates of gross profits or total
revenues discussed above are reduced. The amount of amortization of deferred
policy acquisition costs could be revised in the near term if any of the
estimates discussed above are revised.
G. PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is provided using the
straight-line or accelerated method over the estimated useful lives of the
related assets which generally range from 3 to 30 years. Amortization of
leasehold improvements is provided using the straight-line method over the
lesser of the term of the leases or the estimated useful life of the
improvements.
H. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of certain pension, variable annuity
and variable life insurance contractholders. Assets consist principally of
bonds, common stocks, mutual funds, and short-term obligations at market value.
The investment income, gains and losses of these accounts generally accrue to
the contractholders and, therefore, are not included in the Company's net
income. Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholder's equity or net investment income.
F-10
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I. POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity products.
Such liabilities are established in amounts adequate to meet the estimated
future obligations of policies in force. The liabilities associated with
traditional life insurance products are computed using the net level premium
method for individual life and annuity policies, and are based upon estimates as
to future investment yield, mortality and withdrawals that include provisions
for adverse deviation. Future policy benefits for individual life insurance and
annuity policies are computed using interest rates ranging from 2 1/2% to 6.0%
for life insurance and 2% to 9 1/2% for annuities. Estimated liabilities are
established for group life and health policies that contain experience rating
provisions. Mortality, morbidity and withdrawal assumptions for all policies are
based on the Company's own experience and industry standards. Liabilities for
universal life, variable universal life and variable annuities include deposits
received from customers and investment earnings on their fund balances, less
administrative charges. Universal life fund balances are also assessed mortality
and surrender charges. Liabilities for variable annuities include a reserve for
benefit claims in excess of a guaranteed minimum fund value.
Liabilities for outstanding claims, losses and loss adjustment expenses ("LAE")
are estimates of payments to be made on property and casualty and health
insurance for reported losses and LAE and estimates of losses and LAE incurred
but not reported. These liabilities are determined using case basis evaluations
and statistical analyses and represent estimates of the ultimate cost of all
losses incurred but not paid. These estimates are continually reviewed and
adjusted as necessary; such adjustments are reflected in current operations.
Estimated amounts of salvage and subrogation on unpaid property and casualty
losses are deducted from the liability for unpaid claims.
Premiums for property and casualty insurance are reported as earned on a
pro-rata basis over the contract period. The unexpired portion of these premiums
is recorded as unearned premiums.
Contractholder deposit funds and other policy liabilities include
investment-related products such as guaranteed investment contracts ("GICs"),
deposit administration funds and immediate participation guarantee funds and
consist of deposits received from customers and investment earnings on their
fund balances.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, the Company
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
J. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life and health insurance and individual and group
annuity products, excluding universal life and investment-related products, are
considered revenue when due. Property and casualty insurance premiums are
recognized as revenue over the related contract periods. Benefits, losses and
related expenses are matched with premiums, resulting in their recognition over
the lives of the contracts. This matching is accomplished through the provision
for future benefits, estimated and unpaid losses and amortization of deferred
policy acquisition costs. Revenues for investment-related products consist of
net investment income and contract charges assessed against the fund values.
Related benefit expenses include annuity benefit claims in excess of a
guaranteed minimum fund value, and net investment income credited to the fund
values after deduction for investment and risk charges. Revenues for universal
life products consist of net investment income, with mortality, administration
and surrender charges assessed against the fund values. Related benefit expenses
include universal life benefit claims in excess of fund values and net
investment income credited to universal life fund values. Certain policy charges
that represent compensation for services
F-11
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to be provided in future periods are deferred and amortized over the period
benefited using the same assumptions used to amortize capitalized acquisition
costs.
K. FEDERAL INCOME TAXES
AFC and its domestic subsidiaries (including certain non-insurance operations)
file a consolidated United States federal income tax return. Entities included
within the consolidated group are segregated into either a life insurance or
non-life insurance company subgroup. The consolidation of these subgroups is
subject to certain statutory restrictions on the percentage of eligible non-life
tax losses that can be applied to offset life company taxable income. Prior to
the merger on July 16, 1997, Allmerica P&C and its subsidiaries filed a separate
United States federal income tax return.
The Board of Directors has delegated to AFC management, the development and
maintenance of appropriate federal income tax allocation policies and
procedures, which are subject to written agreement between the companies. The
Federal income tax for all subsidiaries in the consolidated return of AFC is
calculated on a separate return basis. Any current tax liability is paid to AFC.
Tax benefits resulting from taxable operating losses or credits of AFC's
subsidiaries are not reimbursed to the subsidiary until such losses or credits
can be utilized by the subsidiary on a separate return basis.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes, and for
other temporary taxable and deductible differences as defined by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement No. 109"). These differences result primarily from loss and LAE
reserves, policy reserves, policy acquisition expenses, and unrealized
appreciation or depreciation on investments.
L. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), which establishes
accounting and reporting standards for derivative instruments. Statement No. 133
requires that an entity recognize all derivatives as either assets or
liabilities at fair value in the statement of financial position, and
establishes special accounting for the following three types of hedges: fair
value hedges, cash flow hedges, and hedges of foreign currency exposures of net
investments in foreign operations. This statement is effective for fiscal years
beginning after June 15, 2000. The Company is currently assessing the impact of
the adoption of Statement No. 133.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SoP 98-1"). SoP 98-1 requires that
certain costs incurred in developing internal-use computer software be
capitalized and provides guidance for determining whether computer software is
to be considered for internal use. This statement is effective for fiscal years
beginning after December 15, 1998. In the second quarter of 1998, the Company
adopted SoP 98-1 effective January 1, 1998, resulting in an increase in pre-tax
income of $12.4 million through December 31, 1998. The adoption of SOP 98-1 did
not have a material effect on the results of operations or financial position
for the three months ended March 31, 1998.
In December 1997, the AICPA issued Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SoP 97-3").
SoP 97-3 provides guidance on when a liability should be recognized for guaranty
fund and other assessments and how to measure the liability. This statement
allows for the discounting of the liability if the amount and timing of the cash
payments are fixed
F-12
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and determinable. In addition, it provides criteria for when an asset may be
recognized for a portion or all of the assessment liability or paid assessment
that can be recovered through premium tax offsets or policy surcharges. This
statement is effective for fiscal years beginning after December 15, 1998. The
adoption of this statement did not have a material effect on the results of
operations or financial position of the Company.
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("Statement No. 131"). This statement
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that
selected information about those operating segments be reported in interim
financial statements. This statement supersedes Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement No. 131 requires
that all public enterprises report financial and descriptive information about
their reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This statement
is effective for fiscal years beginning after December 15, 1997. The Company
adopted Statement No. 131 for the first quarter of 1998, which resulted in
certain segment re-definitions, which have no impact on the consolidation
results of operations (See Note 15).
In June 1997, the FASB also issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("Statement No. 130"). Statement
No. 130 establishes standards for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
All items that are required to be recognized under accounting standards as
components of comprehensive income are to be reported in a financial statement
that is displayed with the same prominence as other financial statements. This
statement stipulates that comprehensive income reflect the change in equity of
an enterprise during a period from transactions and other events and
circumstances from non-owner sources. This statement is effective for fiscal
years beginning after December 15, 1997. The Company adopted Statement No. 130
for the first quarter of 1998, which resulted primarily in reporting unrealized
gains and losses on investments in debt and equity securities in comprehensive
income.
M. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation, resulting primarily from the reporting of Discontinued Operations
as disclosed in Note 2.
2. DISCONTINUED OPERATIONS
During the second quarter of 1999, the Company approved a plan to exit its group
life and health insurance business, consisting of its Employee Benefit Services
("EBS") business, its Affinity Group Underwriters ("AGU") business and its
accident and health assumed reinsurance pool business ("reinsurance pool
business"). During the third quarter of 1998, the Company ceased writing new
premium in the reinsurance pool business, subject to certain contractual
obligations. Prior to 1999, these businesses comprised substantially all of the
former Corporate Risk Management Services segment. Accordingly, the operating
results of the discontinued segment, including its reinsurance pool business,
have been reported in the Consolidated Statements of Income as discontinued
operations in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" ("APB Opinion No. 30"). In the third quarter of 1999,
the operating results from the discontinued segment were adjusted to reflect the
recording of additional reserves related to accident claims from prior years. On
October 6, 1999, the Company entered into an agreement with Great-West Life and
Annuity Insurance Company of Denver,
F-13
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which provides for the sale of the Company's EBS business effective March 1,
2000. The Company has recorded a $30.5 million loss, net of taxes, on the
disposal of its group life and health business. Subsequent to the June 30, 1999
measurement date, operations from the discontinued business generated losses of
approximately $8.7 million, net of taxes.
As permitted by APB Opinion No. 30, the Consolidated Balance Sheets have not
been segregated between continuing and discontinued operations. At December 31,
1999, the discontinued segment had assets of approximately $531.1 million
consisting primarily of invested assets, premiums and fees receivable, and
reinsurance recoverables, and liabilities of approximately $482.5 million
consisting primarily of policy liabilities. Revenues for the discontinued
operations were $361.1 million, $398.5 million, and $389.2 million for the years
ended December 31, 1999, 1998 and 1997, respectively.
3. REORGANIZATION OF AFC CORPORATE STRUCTURE
AFC has made certain changes to its corporate structure effective July 1, 1999.
These changes included transfer of the Company's ownership of Allmerica P&C and
all of its subsidiaries, as well as certain other non-insurance subsidiaries,
from FAFLIC to AFC, referred to as the "distribution of subsidiaries". The
Company retained its ownership of its primary insurance subsidiary, AFLIAC and
certain broker dealer and investment management and advisory subsidiaries. AFC
contributed capital to FAFLIC in the amount of $125.0 million, consisting of
cash and securities of $36.0 million and $89.0 million, respectively, and agreed
to maintain the Company's statutory surplus at specified levels during the
following six years. In addition, any dividend from FAFLIC to AFC during 2000
and 2001 requires the prior approval of the Commonwealth of Massachusetts
Insurance Commissioner. This transaction was approved by the Commissioner on
May 24, 1999.
The equity of the subsidiaries transferred from FAFLIC on July 1, 1999 was
$1,274.1 million. As of June 30, 1999, the transferred subsidiaries had total
assets of $5,334.1 million, including cash and cash equivalents of $202.2
million, and total revenue of $1,196.5 million.
The Company's consolidated results of operations in 1999 include $107.2 million
of net income associated with these subsidiaries through June 30, 1999. The
unaudited pro forma information below presents consolidated results of
operations as if the reorganization had occurred at the beginning of 1998.
The following unaudited pro forma information is not necessarily indicative of
the consolidated results of operations of the Company had the transfer occurred
at the beginning of 1998, nor is it necessarily indicative of future results.
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- ------ ------
<S> <C> <C>
Revenue..................................................... $828.0 $750.2
====== ======
Net realized capital (losses) gains included in revenue..... (11.8) 19.6
====== ======
Income from continuing operations before taxes.............. 192.1 141.2
Income taxes................................................ 51.2 41.2
------ ------
Net income from continuing operations....................... $140.9 100.0
(Loss) from operations of discontinued business (less
applicable income taxes (benefit) of $(10.4), $(7.0) and
$8.9 for the years ended December 31, 1999, 1998 and 1997,
respectively............................................... (17.2) (13.5)
</TABLE>
F-14
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- ------ ------
<S> <C> <C>
(Loss) on disposal of group life and health business,
including provision of $72.2 for operating losses during
phase-out period for the tear ended December 31, 1999 (less
applicable income tax benefit of $16.4).................... (30.5) --
------ ------
Net income.................................................. $ 93.2 $ 86.5
====== ======
</TABLE>
4. ACQUISITION OF MINORITY INTEREST OF CITIZENS CORPORATION
On December 3, 1998 Citizens Acquisition Corporation, a wholly-owned subsidiary
of the Allmerica P&C, completed a cash tender offer to acquire the outstanding
shares of Citizens Corporation common stock that AFC or its subsidiaries did not
already own at a price of $33.25 per share. Approximately 99.8% of publicly held
shares of Citizens Corporation common stock were tendered. On December 14, 1998,
the Company completed a short-form merger, acquiring all shares of common stock
of Citizens Corporation not purchased in its tender offer, through the merger of
its wholly-owned subsidiary, Citizens Acquisition Corporation with Citizens
Corporation at a price of $33.25 per share. Total consideration for the
transactions amounted to $195.9 million. The acquisition has been recognized as
a purchase. The minority interest acquired totaled $158.5 million. A total of
$40.8 million representing the excess of the purchase price over the fair values
of the net assets acquired, net of deferred taxes, has been allocated to
goodwill and is being amortized over a 40-year period.
The Company's consolidated results of operations include minority interest in
Citizens Corporation prior to December 3, 1998. The unaudited pro forma
information below presents consolidated results of operation as if the
acquisition had occurred at the beginning of 1997.
The following unaudited pro forma information is not necessarily indicative of
the consolidated results of operations of the combined Company had the
acquisition occurred at the beginning of 1997, nor is it necessarily indicative
of future results.
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997
------------- -------- --------
<S> <C> <C>
Revenue..................................................... $3,006.6 $2,977.1
======== ========
Net realized capital gains included in revenue.............. $ 58.1 $ 71.6
======== ========
Income before taxes and minority interest................... 293.4 332.5
Income taxes................................................ (54.2) (82.4)
Minority Interest:
Equity in earnings........................................ (42.6) (64.1)
-------- --------
Net income.................................................. $ 196.6 $ 186.0
======== ========
</TABLE>
5. OTHER SIGNIFICANT TRANSACTIONS
Effective January 1, 1999, Allmerica P&C entered into a whole account aggregate
excess of loss reinsurance agreement with a highly rated reinsurer. The
reinsurance agreement provides accident year coverage for the three years 1999
to 2001 for the Company's property and casualty business, and is subject to
cancellation or commutation annually at the Company's option. The program covers
losses and allocated loss adjustment
F-15
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
expenses, including those incurred but not yet reported, in excess of a
specified whole account loss and allocated LAE ratio. The annual and aggregate
coverage limits for losses and allocated LAE are $150.0 million and $300.0
million, respectively. The effect of this agreement on results of operations in
each reporting period is based on losses and allocated LAE ceded, reduced by a
sliding scale premium of 50.0-67.0% depending on the size of the loss, and
increased by a ceding commission of 20.0% of ceded premium. In addition, net
investment income is reduced for amounts credited to the reinsurer. Prior to the
AFC corporate reorganization, the Company recognized a net benefit of $16.9
million as a result of this agreement, based on year-to-date and annual
estimates of losses and allocated loss adjustment expenses for accident year
1999.
On October 29, 1998, the Company announced that it had adopted a formal
restructuring plan for its Risk Management business. As part of this initiative,
the segment consolidated its property and casualty field support activities from
fourteen regional branches into three hub locations. As a result of the
Company's restructuring initiative, it recognized a pretax loss of $9.0 million,
in the fourth quarter of 1998.
Approximately $4.8 million of this loss relates to severance and other employee
related costs resulting from the elimination of 306 positions, of which 207 and
106 employees had been terminated as of December 31, 1999 and 1998,
respectively. In addition, lease cancellations and contract terminations
resulted in losses of approximately $2.5 million and $1.7 million, respectively.
The Company made payments of approximately $4.2 million and $0.1 million through
June 30, 1999 and in 1998, respectively, related to this restructuring
initiative.
Effective July 1, 1998, the Company entered into a reinsurance agreement with a
highly rated reinsurer that cedes current and future underwriting losses,
including unfavorable development of prior year reserves, up to a $40.0 million
maximum, relating to the Company's reinsurance pool business. These pools
consist primarily of the Company's assumed stop loss business, small group
managed care pools, long-term disability and long-term care pools, student
accident and special risk business. The agreement is consistent with
management's decision to exit this line of business, which the Company expects
to run-off over the next three years. As a result of this transaction, the
Company recognized a $25.3 million pre-tax loss in the third quarter of 1998.
This loss is reported in 1999 as part of the discontinued operations of the
Company.
Effective January 1, 1998, the Company entered into an agreement with a highly
rated reinsurer to reinsure the mortality risk on substantially all of the
universal life and variable universal life blocks of business. The agreement did
not have a material effect on its results of operations or financial position.
In 1999, 1998 and 1997, Allmerica P&C redeemed 8,662.7, 3,289.5 and 5,735.3
shares, respectively, of its issued and outstanding common stock owned by AFC
for $350.0 million, $125.0 million and $195.0 million, respectively, thereby
increasing the Company's total ownership to 84.5% as of June 30, 1999. The
increases in the Company's ownership of Allmerica P&C through June 30, 1999, and
for 1998 and 1997 were 14.5%, 4.3% and 6.3%, respectively. The 1999 transaction
consisted of cash and cash equivalents. The 1998 transaction consisted of $124.0
million of securities and $1.0 million of cash. The 1997 transaction consisted
of $55.0 million of securities and $140.0 million of cash.
The merger of Allmerica P&C and a wholly-owned subsidiary of AFC was consummated
on July 16, 1997. Through the merger, AFC acquired all of the outstanding common
stock of Allmerica P&C that FAFLIC did not already own in exchange for cash of
$425.6 million and approximately 9.7 million shares of AFC stock valued at
$372.5 million. At consummation of this transaction AFC owned 59.5% through
FAFLIC and 40.5% directly. The merger has been recognized as a purchase. Total
consideration of approximately $798.1 million
F-16
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
has been allocated to the minority interest in the assets and liabilities based
on estimates of their fair values. The minority interest acquired totaled $703.5
million. A total of $90.6 million representing the excess of the purchase price
over the fair values of the net assets acquired, net of deferred taxes, has been
allocated to goodwill and is being amortized over a 40-year period.
On April 14, 1997, the Company entered into an agreement in principle to cede
substantially all of the Company's individual disability income line of business
under a 100% coinsurance agreement with a highly rated reinsurer. The
coinsurance agreement became effective October 1, 1997. The transaction has
resulted in the recognition of a $53.9 million pre-tax loss in the first quarter
of 1997.
6. INVESTMENTS
A. SUMMARY OF INVESTMENTS
The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with Statement No. 115.
The amortized cost and fair value of available-for-sale fixed maturities and
equity securities were as follows:
<TABLE>
<CAPTION>
1999
-------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 62.6 $ 1.0 $ 0.5 $ 63.1
States and political subdivisions....... 13.5 0.1 0.1 13.5
Foreign governments..................... 80.0 2.1 0.1 82.0
Corporate fixed maturities.............. 3,206.5 63.2 116.9 3,152.8
Mortgage-backed securities.............. 359.0 1.3 11.0 349.3
-------- ------ ------ --------
Total fixed maturities.................. $3,721.6 $ 67.7 $128.6 $3,660.7
======== ====== ====== ========
Equity securities....................... $ 27.9 $ 24.7 $ 1.2 $ 51.4
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 192.8 $ 12.0 $ 24.5 $ 180.3
States and political subdivisions....... 2,408.9 83.0 5.2 2,486.7
Foreign governments..................... 107.9 7.7 4.5 111.1
Corporate fixed maturities.............. 4,293.3 167.8 81.9 4,379.2
Mortgage-backed securities.............. 517.9 11.5 2.8 526.6
-------- ------ ------ --------
Total fixed maturities.................. $7,520.8 $282.0 $118.9 $7,683.9
======== ====== ====== ========
Equity securities....................... $ 253.1 $151.1 $ 7.1 $ 397.1
======== ====== ====== ========
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
F-17
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with AFLIAC's voluntary withdrawal of its license in New York,
AFLIAC agreed with the New York Department of Insurance to maintain, through a
custodial account in New York, a security deposit, the market value of which
will at all times equal 102% of all outstanding general account liabilities of
AFLIAC for New York policyholders, claimants and creditors. At December 31,
1999, the amortized cost and market value of these assets on deposit in New York
were $196.4 million and $193.0 million, respectively. At December 31, 1998, the
amortized cost and market value of assets on deposit were $268.5 million and
$284.1 million, respectively. In addition, fixed maturities, excluding those
securities on deposit in New York, with an amortized cost of $18.3 million and
$105.4 million were on deposit with various state and governmental authorities
at December 31, 1999 and 1998, respectively.
There were no contractual fixed maturity investment commitments at December 31,
1999.
The amortized cost and fair value by maturity periods for fixed maturities are
shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties, or the Company may have the right to put or sell the
obligations back to the issuers. Mortgage backed securities are included in the
category representing their ultimate maturity.
<TABLE>
<CAPTION>
1999
-------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
------------- --------- --------
<S> <C> <C>
Due in one year or less..................................... $ 224.4 $ 225.7
Due after one year through five years....................... 1,324.0 1,328.4
Due after five years through ten years...................... 1,409.1 1,369.9
Due after ten years......................................... 764.1 736.7
-------- --------
Total....................................................... $3,721.6 $3,660.7
======== ========
</TABLE>
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
------------- ---------- ------------- ------
<S> <C> <C> <C>
1999
Net appreciation, beginning of year......................... $ 79.0 $ 90.2 $169.2
------ ------ ------
Net (depreciation) appreciation on available-for-sale
securities................................................. (254.4) (122.3) (376.7)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 78.5 -- 78.5
Provision for deferred federal income taxes and minority
interest................................................... 72.1 64.7 136.8
Distribution of subsidiaries (See Note 3)................... (5.6) (17.1) (22.7)
------ ------ ------
(109.4) (74.7) (184.1)
------ ------ ------
Net appreciation, end of year............................... $(30.4) $ 15.5 $(14.9)
====== ====== ======
</TABLE>
F-18
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
------------- ---------- ------------- ------
<S> <C> <C> <C>
1998
Net appreciation, beginning of year......................... $122.6 $ 86.7 $209.3
------ ------ ------
Net (depreciation) appreciation on available-for-sale
securities................................................. (99.3) 4.4 (94.9)
Appreciation due to Allmerica P&C purchase of minority in
interest of Citizens....................................... 10.7 10.7 21.4
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 6.3 -- 6.3
Provision for deferred federal income taxes and minority
interest................................................... 38.7 (11.6) 27.1
------ ------ ------
(43.6) 3.5 (40.1)
------ ------ ------
Net appreciation, end of year............................... $ 79.0 $ 90.2 $169.2
====== ====== ======
1997
Net appreciation, beginning of year......................... $ 71.3 $ 60.1 $131.4
------ ------ ------
Net appreciation (depreciation) on available-for-sale
securities................................................. 83.2 (5.9) 77.3
Appreciation due to AFC purchase of minority interest of
Allmerica P&C.............................................. 50.7 59.6 110.3
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (16.7) -- (16.7)
Provision for deferred federal income taxes and minority
interest................................................... (65.9) (27.1) (93.0)
------ ------ ------
51.3 26.6 77.9
------ ------ ------
Net appreciation, end of year............................... $122.6 $ 86.7 $209.3
====== ====== ======
</TABLE>
(1) Includes net (depreciation) appreciation on other investments of $(1.1)
million, $0.8 million, and $1.8 million, in 1999, 1998, and 1997, respectively.
B. MORTGAGE LOANS AND REAL ESTATE
FAFLIC's mortgage loans are diversified by property type and location. Real
estate investments have been obtained primarily through foreclosure. Mortgage
loans are collateralized by the related properties and generally are no more
than 75% of the property's value at the time the original loan is made.
The carrying values of mortgage loans and real estate investments net of
applicable reserves were $533.6 million and $582.7 million at December 31, 1999
and 1998, respectively. Reserves for mortgage loans were $5.8 million and $11.5
million at December 31, 1999 and 1998, respectively.
During 1997, the Company committed to a plan to dispose of all real estate
assets. At December 31, 1999, there were 2 properties remaining in the Company's
real estate portfolio which are being actively marketed. Depreciation is not
recorded on these assets while they are held for disposal.
There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1999, 1998 and 1997.
There were no material contractual commitments to extend credit under commercial
mortgage loan agreements at December 31, 1999.
F-19
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- ------ ------
<S> <C> <C>
Property type:
Office building........................................... $301.5 $304.4
Residential............................................... 50.3 52.8
Retail.................................................... 92.2 108.5
Industrial/warehouse...................................... 83.6 110.0
Other..................................................... 11.8 18.5
Valuation allowances...................................... (5.8) (11.5)
------ ------
Total....................................................... $533.6 $582.7
====== ======
Geographic region:
South Atlantic............................................ $132.2 $136.1
Pacific................................................... 133.6 155.1
East North Central........................................ 62.5 80.5
Middle Atlantic........................................... 50.3 61.2
West South Central........................................ 90.8 54.7
New England............................................... 40.7 60.7
Other..................................................... 29.3 45.9
Valuation allowances...................................... (5.8) (11.5)
------ ------
Total....................................................... $533.6 $582.7
====== ======
</TABLE>
At December 31, 1999, scheduled mortgage loan maturities were as follows: 2000
-- $108.1 million; 2001 -- $33.9 million; 2002 -- $27.5 million; 2003 -- $40.6
million; 2004 -- $76.4 million; and $234.7 million thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties and loans may be
refinanced. During 1999, the Company did not refinance any mortgage loans based
on terms which differed from those granted to new borrowers.
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets and
changes thereto are shown below.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 PROVISIONS WRITE-OFFS DECEMBER 31
------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
1999
Mortgage loans.............................................. $11.5 $(2.4) $ 3.3 $ 5.8
===== ===== ===== =====
1998
Mortgage loans.............................................. $20.7 $(6.8) $ 2.4 $11.5
===== ===== ===== =====
1997
Mortgage loans.............................................. $19.6 $ 2.5 $ 1.4 $20.7
Real estate................................................. 14.9 6.0 20.9 --
----- ----- ----- -----
Total....................................................... $34.5 $ 8.5 $22.3 $20.7
===== ===== ===== =====
</TABLE>
F-20
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Provisions on mortgages during 1999 and 1998 reflect the release of redundant
specific reserves. Write-offs of $20.9 million to the investment valuation
allowance related to real estate in 1997 primarily reflect write downs to the
estimated fair value less costs to sell pursuant to the aforementioned 1997 plan
of disposal.
The carrying value of impaired loans was $18.0 million and $22.0 million, with
related reserves of $0.8 million and $6.0 million as of December 31, 1999 and
1998, respectively. All impaired loans were reserved for as of December 31, 1999
and 1998.
The average carrying value of impaired loans was $21.0 million, $26.1 million
and $30.8 million, with related interest income while such loans were impaired
of $2.1 million, $3.2 million and $3.2 million as of December 31, 1999, 1998 and
1997, respectively.
D. FUTURES CONTRACTS
The Company purchases long futures contracts and sells short futures contracts
on margin to hedge against interest rate fluctuations associated with the sale
of Guaranteed Investment Contracts ("GICs") and other funding agreements. The
Company is exposed to interest rate risk from the time of sale of the GIC until
the receipt of the deposit and purchase of the underlying asset to back the
liability. The Company only trades futures contracts with nationally recognized
brokers, which the Company believes have adequate capital to ensure that there
is minimal danger of default. The Company does not require collateral or other
securities to support financial instruments with credit risk.
The notional amount of futures contracts outstanding was $37.1 million and $92.7
million at December 31, 1999 and 1998, respectively. The notional amounts of the
contracts represent the extent of the Company's investment but not future cash
requirements, as the Company generally settles open positions prior to maturity.
The maturity of all futures contracts outstanding is less than one year. The
fair value of futures contracts outstanding was $36.8 million and $92.5 million
at December 31, 1999 and 1998, respectively.
Gains and losses on hedge contracts related to interest rate fluctuations are
deferred and recognized in income over the period being hedged corresponding to
related guaranteed investment contracts. If instruments being hedged by futures
contracts are disposed, any unamortized gains or losses on such contracts are
included in the determination of the gain or loss from the disposition. Deferred
hedging losses were $0.9 million and $1.8 million in 1999 and 1998,
respectively. Gains and losses on hedge contracts that are deemed ineffective by
the Company are realized immediately. There was $0.1 million of gains realized
on ineffective hedges in 1998. There were no gains or losses in 1999 and 1997.
A reconciliation of the notional amount of futures contracts is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- --------- --------- ------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.................... $ 92.7 $ -- $(33.0)
New contracts............................................... 947.0 1,117.5 (0.2)
Contracts terminated........................................ (1,002.6) (1,024.8) 33.2
--------- --------- ------
Contracts outstanding, end of year.......................... $ 37.1 $ 92.7 $ --
========= ========= ======
</TABLE>
E. FOREIGN CURRENCY SWAP CONTRACTS
The Company enters into foreign currency swap contracts with swap counterparties
to hedge foreign currency exposure on specific fixed income securities.
Additionally, in 1999, the Company entered into a foreign
F-21
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
currency swap contract to hedge foreign currency exposure on specific fixed rate
funding agreements. Interest and principal related to foreign fixed income
securities and liabilities payable in foreign currencies, at current exchange
rates, are exchanged for the equivalent payment in U.S dollars translated at a
specific currency exchange rate. The primary risk associated with these
transactions is the inability of the counterparty to meet its obligation. The
Company regularly assesses the financial strength of its counterparties and
generally enters into forward or swap agreements with counterparties rated "A"
or better by nationally recognized rating agencies. The Company's maximum
exposure to counterparty credit risk is the difference between the foreign
currency exchange rate, as agreed upon in the swap contract, and the foreign
currency spot rate on the date of the exchange, as indicated by the fair value
of the contract. The fair values of the foreign currency swap contracts
outstanding were $(4.7) million and $1.2 million at December 31, 1999 and 1998,
respectively. Changes in the fair value of contracts hedging fixed income
securities are reported as an unrealized gain or loss, consistent with the
underlying hedged security. Changes in fair value of contracts hedging fixed
rate funding agreements are reported as other operating income, consistent with
the underlying hedged liability. The net decrease in other operating income
related to these contracts was $2.6 million in 1999. The Company does not
require collateral or other security to support financial instruments with
credit risk.
The difference between amounts paid and received on foreign currency swap
contracts is reflected in the net investment income related to the underlying
assets and is not material in 1999, 1998 and 1997. Any gain or loss on the
termination of swap contracts is deferred and recognized with any gain or loss
on the hedged transaction. The Company had no deferred gain or loss on foreign
currency swap contracts in 1999 or 1998.
A reconciliation of the notional amount of foreign currency swap contracts is as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------ ----- ------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.................... $ 42.6 $42.6 $ 47.6
New contracts............................................... 52.9 -- 5.0
Contracts expired........................................... (24.0) -- (10.0)
------ ----- ------
Contracts outstanding, end of year.......................... $ 71.5 $42.6 $ 42.6
====== ===== ======
</TABLE>
Expected maturities of foreign currency swap contracts outstanding at
December 31, 1999 are $8.3 million in 2000, $52.9 million in 2001 and $10.3
million thereafter. There are no expected maturities of such foreign currency
swap contracts in 2002, 2003 and 2004.
F. INTEREST RATE SWAP CONTRACTS
The Company enters into interest rate swap contracts to hedge exposure to
interest rate fluctuations. Specifically, for floating rate GIC liabilities that
are matched with fixed rate securities, the Company manages the interest rate
risk by hedging with interest rate swap contracts. Under these swap contracts,
the Company agrees to exchange, at specified intervals, the difference between
fixed and floating interest amounts calculated on an agreed-upon notional
principal amount. As with foreign currency swap contracts, the primary risk
associated with these transactions is the inability of the counterparty to meet
its obligation. The Company regularly assesses the financial strength of its
counterparties and generally enters into forward or swap agreements with
counterparties rated "A" or better by nationally recognized rating agencies.
Because the underlying principal of swap contracts is not exchanged, the
Company's maximum exposure to counterparty credit risk is the difference in
payments exchanged, which at December 31, 1999 and 1998 were net payables of
$4.2 million and $3.9 million, respectively. The Company does not require
collateral or other security to support financial instruments with credit risk.
F-22
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net amount receivable or payable is recognized over the life of the swap
contract as an adjustment to net investment income. The decrease in net
investment income related to interest rate swap contracts was $7.0 million, $2.8
million and $0.4 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The fair value of interest rate swap contracts outstanding was
$33.1 million and $(28.3) million at December 31, 1999 and 1998, respectively.
Changes in the fair value of contracts are reported as an unrealized gain or
loss, consistent with the underlying hedged security. Any gain or loss on the
termination of interest rate swap contracts accounted for as hedges are deferred
and recognized with the gain or loss on the hedged transaction. The Company had
no deferred gain or loss on interest rate swap contracts in 1999 or 1998.
A reconciliation of the notional amount of interest rate swap contracts is as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- ------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.................... $1,112.6 $ 244.1 $ 5.0
New contracts............................................... 905.4 873.5 244.7
Contracts terminated........................................ (888.5) -- --
Contracts expired........................................... (80.0) (5.0) (5.6)
Distribution of subsidiaries (Note 3)....................... (23.6) -- --
-------- -------- ------
Contracts outstanding, end of year.......................... $1,025.9 $1,112.6 $244.1
======== ======== ======
</TABLE>
Expected maturities of interest rate swap contracts outstanding at December 31,
1999 are $44.0 million in 2000, $43.1 million in 2001, $83.5 million in 2002,
$536.0 million in 2003, and $319.3 million in 2004. There are no expected
maturities of such interest rate swap contracts thereafter.
G. OTHER SWAP CONTRACTS
The Company enters into insurance portfolio-linked and credit default swap
contracts for investment purposes. Under the insurance portfolio-linked swap
contracts, the Company agrees to exchange cash flows according to the
performance of a specified underwriter's portfolio of insurance business. As
with interest rate swap contracts, the primary risk associated with insurance
portfolio-linked swap contracts is the inability of the counterparty to meet its
obligation. Under the terms of the credit default swap contracts, the Company
assumes the default risk of a specific high credit quality issuer in exchange
for a stated annual premium. In the case of default, the Company will pay the
counterparty par value for a pre-determined security of the issuer. The primary
risk associated with these transactions is the default risk of the underlying
companies. The Company regularly assesses the financial strength of its
counterparties and the underlying companies in default swap contracts, and
generally enters into forward or swap agreements with counterparties rated "A"
or better by nationally recognized rating agencies. Because the underlying
principal of swap contracts is not exchanged, the Company's maximum exposure to
counterparty credit risk is the difference in payments exchanged, which at
December 31, 1999, was not material to the Company. The Company does not require
collateral or other security to support financial instruments with credit risk.
The swap contracts are marked to market with any gain or loss recognized
currently. The fair values of swap contracts outstanding were $(0.3) million and
$(0.1) million at December 31, 1999 and 1998, respectively. The net amount
receivable or payable under insurance portfolio-linked swap contracts is
recognized when the contracts are marked to market. The net (decrease) increase
in realized investment gains related to these contracts was $(0.2) million, $1.0
million and $(1.4) million for the years ended December 31, 1999, 1998 and 1997,
respectively.
F-23
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The stated annual premium under credit default swap contracts is recognized
currently in net investment income. The net increase to investment income
related to credit default swap contracts was $0.4 million and $0.2 million for
the years ended December 31, 1999 and 1998, respectively. There was no net
investment income recognized in 1997.
A reconciliation of the notional amount of other swap contracts is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------- ------ -------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.................... $ 255.0 $ 15.0 $ 58.6
New contracts............................................... 50.0 266.3 192.1
Contracts expired........................................... (115.0) (26.3) (211.6)
Contracts terminated........................................ -- -- (24.1)
------- ------ -------
Contracts outstanding, end of year.......................... $ 190.0 $255.0 $ 15.0
======= ====== =======
</TABLE>
Expected maturities of other swap contracts outstanding at December 31, 1999 are
as follows: $140.0 million in 2000 and $50.0 million in 2001. There are no
expected maturities of such other swap contracts in 2002, 2003, 2004 and
thereafter.
H. OTHER
At December 31, 1999 and 1998, FAFLIC had no concentration of investments in a
single investee exceeding 10% of shareholder's equity.
7. INVESTMENT INCOME AND GAINS AND LOSSES
A. NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $415.7 $509.6 $523.3
Mortgage loans.............................................. 45.5 57.6 57.1
Equity securities........................................... 1.7 7.2 10.5
Policy loans................................................ 12.7 11.9 10.9
Real estate and other long-term investments................. 14.4 7.0 31.5
Short-term investments...................................... 26.6 15.6 9.9
------ ------ ------
Gross investment income..................................... 516.6 608.9 643.2
Less investment expenses.................................... (13.5) (15.0) (23.7)
------ ------ ------
Net investment income....................................... $503.1 $593.9 $619.5
====== ====== ======
</TABLE>
At December 31, 1999, the company had fixed maturities with a carrying value of
$1.0 million on non-accrual status. There were no mortgage loans on non-accrual
status at December 31, 1999. At December 31, 1998, there was one mortgage loan
on non-accrual status which had an outstanding principal balance of $4.3
million. This loan was restructured and fully impaired. There were no fixed
maturities on non-accrual status at December 31, 1998. The effect of
non-accruals, compared with amounts that would have been recognized in
F-24
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accordance with the original terms of the investments, was a reduction in net
income by $1.4 million in 1999, and had no impact in 1998 and 1997.
The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $18.8 million, $28.7 million and $40.3 million at
December 31, 1999, 1998 and 1997, respectively. Interest income on restructured
mortgage loans that would have been recorded in accordance with the original
terms of such loans amounted to $2.5 million, $3.3 million and $3.9 million in
1999, 1998 and 1997, respectively. Actual interest income on these loans
included in net investment income aggregated $1.8 million, $3.3 million and $4.2
million in 1999, 1998 and 1997, respectively.
There were no mortgage loans which were non-income producing for the year ended
December 31, 1999. There were, however, fixed maturities with a carrying value
of $0.3 million which were non-income producing for the year ended December 31,
1999.
Included in other long-term investments is income from limited partnerships of
$6.6 million in 1999, losses of $6.3 million in 1998, and income of $7.6 million
in 1997.
B. NET REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------ ------ -----
<S> <C> <C> <C>
Fixed maturities............................................ $(52.0) $(11.6) $14.2
Mortgage loans.............................................. 2.5 8.8 (1.2)
Equity securities........................................... 141.3 63.7 53.5
Real estate and other....................................... 8.5 -- 9.8
------ ------ -----
Net realized investment gains............................... $100.3 $ 60.9 $76.3
====== ====== =====
</TABLE>
The proceeds from voluntary sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
PROCEEDS FROM
FOR THE YEARS ENDED DECEMBER 31, VOLUNTARY GROSS GROSS
(IN MILLIONS) SALES GAINS LOSSES
------------- ------------- ------ ------
<S> <C> <C> <C>
1999
Fixed maturities............................................ $1,480.5 $ 9.2 $ 27.1
Equity securities........................................... 421.2 149.0 7.6
1998
Fixed maturities............................................ $ 979.2 $ 17.9 $ 11.3
Equity securities........................................... 258.7 72.8 9.0
1997
Fixed maturities............................................ $1,870.7 $ 27.0 $ 15.9
Equity securities........................................... 144.9 55.5 1.2
</TABLE>
F-25
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. OTHER COMPREHENSIVE (LOSS) INCOME RECONCILIATION
The following table provides a reconciliation of gross unrealized (losses) gains
to the net balance shown in the Consolidated Statements of Comprehensive (Loss)
Income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- ------
<S> <C> <C> <C>
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during period,
(includes $22.7 resulting from the distribution of
subsidiaries in 1999, net of taxes (benefit) and minority
interest of $(103.3) million, $(20.8) million and $123.7
million in 1999, 1998 and 1997, respectively).............. $ (121.9) $ (6.8) $115.5
Less: reclassification adjustment for (losses) gains
included in net income (net of taxes and minority interest
of $33.5 million, $21.5 million and $30.7 million in 1999,
1998 and 1997, respectively)............................... (62.2) 33.3 37.6
-------- -------- ------
Other comprehensive (loss) income........................... $ (184.1) $ (40.1) $ 77.9
======== ======== ======
</TABLE>
8. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about certain financial
instruments (insurance contracts, real estate, goodwill and taxes are excluded)
for which it is practicable to estimate such values, whether or not these
instruments are included in the balance sheet. The fair values presented for
certain financial instruments are estimates which, in many cases may differ
significantly from the amounts which could be realized upon immediate
liquidation. In cases where market prices are not available, estimates of fair
value are based on discounted cash flow analyses which utilize current interest
rates for similar financial instruments which have comparable terms and credit
quality. Included in the fair value of fixed maturities are swap contracts used
to hedge fixed maturities with a fair value of $31.1 million and $(27.1) million
at December 31, 1999 and 1998, respectively. In addition, the Company held
futures contracts with a carrying value of $(0.9) million and $(1.8) million at
December 31, 1999 and 1998, respectively. The fair value of these contracts was
$36.8 million and $92.5 million at December 31, 1999 and 1998, respectively.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair value.
FIXED MATURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.
F-26
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EQUITY SECURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans is
limited to the lesser of the present value of the cash flows or book value.
POLICY LOANS
The carrying amount reported in the consolidated balance sheets approximates
fair value since policy loans have no defined maturity dates and are inseparable
from the insurance contracts.
INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under guaranteed investment type
contracts are estimated using discounted cash flow calculations using current
interest rates for similar contracts with maturities consistent with those
remaining for the contracts being valued. Liabilities under individual fixed
annuity contracts are estimated based on current surrender values, supplemental
contracts without life contingencies reflect current fund balances, and other
individual contract funds represent the present value of future policy benefits.
All other liabilities are based on surrender values.
TRUST INSTRUMENTS SUPPORTED BY FUNDING OBLIGATIONS
Fair values are estimated using discounted cash flow calculations using current
interest rates for similar contracts with maturities consistent with those
remaining for the contracts being valued.
DEBT
The carrying value of short-term debt reported in the balance sheet approximates
fair value.
F-27
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 279.3 $ 279.3 $ 504.0 $ 504.0
Fixed maturities.......................................... 3,660.7 3,660.7 7,683.9 7,683.9
Equity securities......................................... 51.4 51.4 397.1 397.1
Mortgage loans............................................ 521.2 521.9 562.3 587.1
Policy loans.............................................. 170.5 170.5 154.3 154.3
-------- -------- -------- --------
$4,683.1 $4,683.8 $9,301.6 $9,326.4
======== ======== ======== ========
FINANCIAL LIABILITIES
Guaranteed investment contracts........................... $1,316.0 $1,341.4 $1,791.8 $1,830.8
Supplemental contracts without life contingencies......... 48.8 48.8 37.3 37.3
Dividend accumulations.................................... 88.1 88.1 88.4 88.4
Other individual contract deposit funds................... 48.4 48.2 61.6 61.1
Other group contract deposit funds........................ 602.9 583.5 700.4 704.0
Individual fixed annuity contracts........................ 1,092.5 1,057.1 1,110.6 1,073.6
Trust instruments supported by funding obligations........ 50.6 49.6 -- --
Short-term debt........................................... -- -- 221.3 221.3
-------- -------- -------- --------
$3,247.3 $3,216.7 $4,011.4 $4,016.5
======== ======== ======== ========
</TABLE>
F-28
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. CLOSED BLOCK
Included in other income in the Consolidated Statements of Income in 1999, 1998
and 1997 is a net pre-tax contribution from the Closed Block of $13.8 million,
$10.4 million and $9.1 million, respectively. Summarized financial information
of the Closed Block as of December 31, 1999 and 1998 and for the periods ended
December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- ------ ------
<S> <C> <C>
Assets
Fixed maturities, at fair value (amortized cost of $387.4 and $399.1
respectively).......................................................... $372.9 $414.2
Mortgage loans........................................................... 136.3 136.0
Policy loans............................................................. 201.1 210.9
Cash and cash equivalents................................................ 22.6 9.4
Accrued investment income................................................ 14.0 14.1
Deferred policy acquisition costs........................................ 13.1 15.6
Other assets............................................................. 12.3 2.9
------ ------
Total assets............................................................... $772.3 $803.1
====== ======
Liabilities
Policy liabilities and accruals.......................................... $835.2 $862.9
Other liabilities........................................................ 6.9 9.1
------ ------
Total liabilities.......................................................... $842.1 $872.0
====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------ ------ ------
<S> <C> <C> <C>
Revenues
Premiums and other income................................................ $ 52.1 $ 55.4 $ 58.3
Net investment income.................................................... 53.8 53.3 53.4
Realized investment (loss) gain.......................................... (0.6) 0.1 1.3
------ ------ ------
Total revenues............................................................. 105.3 108.8 113.0
------ ------ ------
Benefits and expenses
Policy benefits.......................................................... 88.9 95.0 100.5
Policy acquisition expenses.............................................. 2.5 2.7 3.0
Other operating expenses................................................. 0.1 0.7 0.4
------ ------ ------
Total benefits and expenses................................................ 91.5 98.4 103.9
------ ------ ------
Contribution from the Closed Block......................................... $ 13.8 $ 10.4 $ 9.1
====== ====== ======
</TABLE>
F-29
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------- ------- -------
<S> <C> <C> <C>
Cash flows
Cash flows from operating activities:
Contribution from the Closed Block........................ $ 13.8 $ 10.4 $ 9.1
Change in:
Deferred policy acquisition costs, net.................. 2.5 2.6 2.9
Premiums and other receivables.......................... -- 0.3 --
Policy liabilities and accruals......................... (13.1) (13.5) (11.6)
Accrued investment income............................... 0.1 - 0.2
Deferred taxes.......................................... -- 0.1 (5.1)
Other assets............................................ (8.3) 2.4 (2.9)
Expenses and taxes payable.............................. (2.9) (2.9) (2.0)
Other, net.............................................. 0.8 (0.1) (1.2)
------- ------- -------
Net cash used in operating activities..................... (7.1) (0.7) (10.6)
Cash flows from investing activities:
Sales, maturities and repayments of investments......... 139.0 83.6 161.6
Purchases of investments................................ (128.5) (106.5) (161.4)
Other, net.............................................. 9.8 7.9 11.4
------- ------- -------
Net cash provided by (used in) investing activities....... 20.3 (15.0) 11.6
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 13.2 (15.7) 1.0
Cash and cash equivalents, beginning of year................ 9.4 25.1 24.1
------- ------- -------
Cash and cash equivalents, end of year...................... $ 22.6 $ 9.4 $ 25.1
======= ======= =======
</TABLE>
There were no valuation allowances on mortgage loans in the Closed Block at
December 31, 1999, 1998 or 1997, respectively.
Many expenses related to Closed Block operations are charged to operations
outside the Closed Block; accordingly, the contribution from the Closed Block
does not represent the actual profitability of the Closed Block operations.
Operating costs and expenses outside of the Closed Block are, therefore,
disproportionate to the business outside the Closed Block.
10. DEBT
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- ------ ------
<S> <C> <C>
Short-term
Commercial paper.......................................... $ -- $ 41.3
Borrowings under bank credit facility..................... -- 150.0
Repurchase agreements..................................... -- 30.0
------ ------
Total short-term debt....................................... $ -- $221.3
====== ======
</TABLE>
F-30
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FAFLIC issues commercial paper primarily to manage imbalances between operating
cash flows and existing commitments. Commercial paper borrowing arrangements are
supported by a credit agreement. At December 31, 1999, there was no commercial
paper outstanding.
Effective December 4, 1998, the Company entered into a credit agreement that
expired on February 5, 1999. Borrowings under this agreement were unsecured and
incurred interest at a rate per annum equal to the eurodollar rate plus
applicable margin. Borrowings outstanding under this credit facility at
December 31, 1998 were $150.0 million. These borrowings were repaid in February
1999.
The company utilizes repurchase agreements to finance certain transactions and
had approximately $30 million in such agreements outstanding at December
31,1998. There were no repurchase agreements outstanding at December 31, 1999.
In 1999, there was no interest expense related to borrowings under the credit
agreement. Interest expense related to borrowings under the credit agreement was
approximately $0.7 million and $2.8 million in 1998 and 1997, respectively. All
interest expense is recorded in other operating expenses.
In October, 1995, AFC issued Senior Debentures with a face value of $200.0
million, pay interest at a rate of 7 5/8%, and mature on October 16, 2025. The
primary source of cash for repayment of the debt by AFC is dividends from FAFLIC
and Allmerica P&C.
11. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of SFAS No. 109. A summary of the federal income tax expense
(benefit) on continuing operations in the consolidated statements of income is
shown below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------ ------ ------
<S> <C> <C> <C>
Federal income tax expense (benefit)
Current................................................... $88.7 $ 74.6 $74.4
Deferred.................................................. 4.3 (15.4) 14.2
----- ------ -----
Total....................................................... $93.0 $ 59.2 $88.6
===== ====== =====
</TABLE>
The federal income taxes attributable to the consolidated results of continuing
operations are different from the amounts determined by multiplying income
before federal income taxes by the statutory federal income tax rate. The
sources of the difference and the tax effects of each were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- ------ ------
<S> <C> <C> <C>
Expected federal income tax expense on continuing
operations................................................ $133.9 $107.9 $122.9
Tax-exempt interest....................................... (24.2) (38.9) (37.9)
Dividend received deduction............................... -- (5.1) (3.2)
Changes in tax reserve estimates.......................... (8.7) 2.3 7.8
Tax credits............................................... (8.5) (8.5) (2.7)
Other, net................................................ 0.5 1.5 1.7
------ ------ ------
Federal income tax expense on continuing operations......... $ 93.0 $ 59.2 $ 88.6
====== ====== ======
</TABLE>
F-31
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The deferred income tax (asset) liability represents the tax effects of
temporary differences attributable to the Company's consolidated federal tax
return group. Its components were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- -------- --------
<S> <C> <C>
Deferred tax (assets) liabilities
AMT carryforwards......................................... $ -- $ (16.8)
Loss reserve discounting.................................. (283.5) (406.6)
Deferred acquisition costs................................ 355.7 345.8
Employee benefit plans.................................... (52.0) (45.3)
Investments, net.......................................... (19.5) 121.7
Bad debt reserve.......................................... -- (1.8)
Litigation reserve........................................ (6.0) (10.9)
Discontinued operations................................... (11.7) --
Other, net................................................ (1.1) (5.5)
------- -------
Deferred tax asset, net..................................... $ (18.1) $ (19.4)
======= =======
</TABLE>
Gross deferred income tax assets totaled $515.8 million and $486.9 millions at
December 31, 1999 and 1998, respectively. Gross deferred income tax liabilities
totaled $497.7 million and $467.5 million at December 31, 1999 and 1998,
respectively.
The Company believes, based on the its recent earnings history and its future
expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, the Company considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary. At December 31, 1999 there are no available
alternative minimum tax credit carryforwards.
The Company's federal income tax returns are routinely audited by the Internal
Revenue Services ("IRS"), and provisions are routinely made in the financial
statements in anticipation of the results of these audits. The IRS has examined
the FAFLIC/AFLIAC consolidated group's federal income tax returns through 1994.
The IRS has also examined the former Allmerica P&C consolidated group's federal
income tax returns through 1994. The Company has appealed certain adjustments
proposed by the IRS with respect to the federal income tax returns for 1992,
1993 and 1994 for the FAFLIC/AFLIAC consolidated group. Also, certain
adjustments proposed by the IRS with respect to FAFLIC/AFLIAC's federal income
tax returns for 1982 and 1983 remain unresolved. If upheld, these adjustments
would result in additional payments; however, the Company will vigorously defend
its position with respect to these adjustments. In the Company's opinion,
adequate tax liabilities have been established for all years. However, the
amount of these tax liabilities could be revised in the near term if estimates
of the Company's ultimate liability are revised.
12. PENSION PLANS
FAFLIC, as the common employer for all AFC Companies ("affiliated Companies"),
provides multiple benefit plans to employees and agents of these affiliated
Companies, including retirement plans. The salaries of employees and agents
covered by these plans and the expenses of these plans are charged to the
affiliated Companies in accordance with an intercompany cost sharing agreement.
F-32
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FAFLIC provides retirement benefits to substantially all of its employees under
a defined benefit pension plan. This plan is based on a defined benefit cash
balance formula, whereby the Company annually provides an allocation to each
eligible employee based on a percentage of that employee's salary, similar to a
defined contribution plan arrangement. The 1999, 1998 and 1997 allocations were
based on 7.0% of each eligible employee's salary. In addition to the cash
balance allocation, certain transition group employees, who have met specified
age and service requirements as of December 31, 1994, are eligible for a
grandfathered benefit based primarily on the employees' years of service and
compensation during their highest five consecutive plan years of employment. The
Company's policy for the plans is to fund at least the minimum amount required
by the Employee Retirement Income Security Act of 1974.
Components of net periodic pension cost were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $ 19.3 $ 19.0 $ 19.9
Interest cost............................................... 26.5 25.5 23.5
Expected return on plan assets.............................. (38.9) (34.9) (31.2)
Recognized net actuarial loss............................... 0.4 0.4 0.1
Amortization of transition asset............................ (1.4) (1.8) (1.9)
Amortization of prior service cost.......................... (2.2) (1.7) (2.0)
------- ------- -------
Net periodic pension cost................................. $ 3.7 $ 6.5 $ 8.4
======= ======= =======
</TABLE>
In 1999, subsequent to the AFC corporate reorganization, approximately $1.7
million of the net periodic pension cost was allocated to the distributed
subsidiaries.
The following table summarizes the status of the plan. At December 31, 1999 and
1998 the plans' assets exceeded their projected benefit obligations.
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- -------- --------
<S> <C> <C>
Change in benefit obligations:
Projected benefit obligation at beginning of year......... $ 414.2 $ 370.4
Service cost -- benefits earned during the year........... 19.3 19.0
Interest cost............................................. 26.5 25.5
Actuarial (gains) losses.................................. (44.4) 20.4
Benefits paid............................................. (22.9) (21.1)
------- -------
Projected benefit obligation at end of year............. 392.7 414.2
------- -------
</TABLE>
F-33
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- -------- --------
<S> <C> <C>
Change in plan assets:
Fair value of plan assets at beginning of year............ 441.6 395.5
Actual return on plan assets.............................. 51.9 67.2
Benefits paid............................................. (22.9) (21.1)
Fair value of plan assets at end of year................ 470.6 441.6
Funded status of the plan................................. 77.9 27.4
Unrecognized transition obligation........................ (21.6) (23.9)
Unamortized prior service cost............................ (12.0) (11.0)
Unrecognized net actuarial gains.......................... (101.6) (54.9)
------- -------
Net pension liability................................... $ (57.3) $ (62.4)
======= =======
</TABLE>
As a result of AFC's merger with Allmerica P&C in 1997, certain pension
liabilities were reduced to reflect their fair value as of the merger date.
These pension liabilities were reduced by $8.9 million and $10.3 million in 1999
and 1998, respectively, which reflects fair value, net of applicable
amortization.
Determination of the projected benefit obligations was based on a weighted
average discount rate of 7.75% and 6.5% in 1999 and 1998, respectively, and the
assumed long-term rate of return on plan assets was 9.0% in both 1999 and 1998.
The actuarial present value of the projected benefit obligations was determined
using assumed rates of increase in future compensation levels ranging from 5.0%
to 5.5%. Plan assets are invested primarily in various separate accounts and the
general account of FAFLIC. Plan assets also include 796,462 shares and 973,262
shares of AFC Common Stock at December 31, 1999 and 1998, respectively, with a
market value of $44.3 million and $56.3 million at December 31, 1999 and 1998,
respectively.
The Company has a defined contribution 401(k) plan for its employees, whereby
the Company matches employee elective 401(k) contributions, up to a maximum
percentage determined annually by the Board of Directors. During 1999, 1998 and
1997, the Company matched 50% of employees' contributions up to 6.0% of eligible
compensation. The total expense related to this plan was $5.9 million, $5.6
million and $3.3 million in 1999, 1998 and 1997, respectively. In 1999,
subsequent to the AFC corporate reorganization, approximately $1.4 million of
the 401(k) expense was allocated to the distributed subsidiaries. In addition to
this plan, the Company has a defined contribution plan for substantially all of
its agents. The plan expense in 1999, 1998 and 1997 was $3.1 million, $3.0
million and $2.8 million, respectively.
On January 1, 1998, substantially all of the defined benefit and defined
contribution 401(k) plans previously provided by the affiliated Companies were
merged with the existing benefit plans of FAFLIC. The merger of benefit plans
resulted in a $5.9 million change of interest adjustment to additional paid-in
capital during 1998. The change of interest adjustment arose from FAFLIC's
forgiveness of certain Allmerica P&C benefit plan liabilities attributable to
Allmerica P&C's minority interest.
13. OTHER POSTRETIREMENT BENEFIT PLANS
FAFLIC, as the common employer for all AFC Companies ("affiliated Companies"),
provides multiple postretirement medical and death benefit plans to employees,
agents and retirees of these affiliated Companies. The costs of these plans are
charged to the affiliated Companies in accordance with an intercompany cost
sharing agreement.
F-34
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Generally, employees become eligible at age 55 with at least 15 years of
service. Spousal coverage is generally provided for up to two years after death
of the retiree. Benefits include hospital, major medical, and a payment at death
equal to retirees' final compensation up to certain limits. Effective
January 1, 1996, the Company revised these benefits so as to establish limits on
future benefit payments and to restrict eligibility to current employees. The
medical plans have varying copayments and deductibles, depending on the plan.
These plans are unfunded.
The plans' funded status reconciled with amounts recognized in the Company's
Consolidated Balance Sheets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
------------- -------- --------
<S> <C> <C>
Change in benefit obligation:
Accumulated postretirement benefit obligation at beginning
of year................................................... $ 84.0 $ 71.8
Service cost................................................ 2.9 3.1
Interest cost............................................... 4.6 5.1
Actuarial (gains) losses.................................... (21.2) 7.6
Benefits paid............................................... (3.5) (3.6)
------- -------
Accumulated postretirement benefit obligation at end of
year.................................................... 66.8 84.0
------- -------
Fair value of plan assets at end of year.................... -- --
------- -------
Funded status of the plan................................... (66.8) (84.0)
Unamortized prior service cost.............................. (9.8) (12.9)
Unrecognized net actuarial (gains) losses................... (13.8) 7.5
------- -------
Accumulated postretirement benefit costs.................. $ (90.4) $ (89.4)
======= =======
</TABLE>
The components of net periodic postretirement benefit expense were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Service cost................................................ $ 2.9 $ 3.1 $ 3.0
Interest cost............................................... 4.6 5.1 4.6
Recognized net actuarial loss (gain)........................ 0.1 0.1 (0.1)
Amortization of prior service cost.......................... (2.3) (2.4) (2.7)
------ ------ ------
Net periodic postretirement benefit cost.................... $ 5.3 $ 5.9 $ 4.8
====== ====== ======
</TABLE>
In 1999, subsequent to the AFC corporate reorganization, approximately $1.1
million of the net periodic postretirement cost was allocated to the distributed
subsidiaries.
As a result of AFC's merger with Allmerica P&C in 1997, certain postretirement
liabilities were reduced to reflect their fair value as of the merger date.
These postretirement liabilities were reduced by $4.6 million and $5.4 million
in 1999 and 1998, respectively, which reflects fair value, net of applicable
amortization.
For purposes of measuring the accumulated postretirement benefit obligation at
December 31, 1999, health care costs were assumed to increase 6.0% in 2000,
declining thereafter until the ultimate rate of 5.5% is reached in 2001 and
remains at that level thereafter. The health care cost trend rate assumption has
a significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by
F-35
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
one percentage point in each year would increase the accumulated postretirement
benefit obligation at December 31, 1999 by $4.1 million, and the aggregate of
the service and interest cost components of net periodic postretirement benefit
expense for 1999 by $0.6 million. Conversely, decreasing the assumed health care
cost trend rates by one percentage point in each year would decrease the
accumulated postretirement benefit obligation at December 31, 1999 by $3.6
million, and the aggregate of the service and interest cost components of net
periodic postretirement benefit expense for 1999 by $0.5 million.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% and 6.5% at December 31, 1999 and
1998, respectively. In addition, the actuarial present value of the accumulated
postretirement benefit obligation was determined using an assumed rate of
increase in future compensation levels of 5.5% for FAFLIC agents.
On January 1, 1998, substantially all of the postretirement medical and death
benefits plans previously provided by the affiliated Companies were merged with
the existing benefit plans of FAFLIC. The merger of benefit plans resulted in a
$3.8 million change of interest adjustment to additional paid-in capital during
1998. The change of interest adjustment arose from FAFLIC's forgiveness of
certain Allmerica P&C benefit plan liabilities attributable to Allmerica P&C's
minority interest.
14. DIVIDEND RESTRICTIONS
Massachusetts and Delaware have enacted laws governing the payment of dividends
to stockholders by insurers. These laws affect the dividend paying ability of
FAFLIC and AFLIAC, respectively.
Massachusetts' statute limits the dividends an insurer may pay in any twelve
month period, without the prior permission of the Commonwealth of Massachusetts
Insurance Commissioner, to the greater of (i) 10% of its statutory policyholder
surplus as of the preceding December 31 or (ii) the individual company's
statutory net gain from operations for the preceding calendar year (if such
insurer is a life company), or its net income for the preceding calendar year
(if such insurer is not a life company). In addition, under Massachusetts law,
no domestic insurer shall pay a dividend or make any distribution to its
shareholders from other than unassigned funds unless the Commissioner shall have
approved such dividend or distribution. During 1999 and 1997, no dividends were
declared by FAFLIC to AFC. During 1998, FAFLIC paid dividends of $50.0 million
to AFC. As of July 1, 1999, FAFLIC's ownership of Allmerica P&C, as well as
several non-insurance subsidiaries, was transferred from FAFLIC to AFC. Under an
agreement with the Commissioner, any dividend from FAFLIC to AFC for years 2000
and 2001 would require the prior approval of the Commissioner and may require
AFC to make additional capital contributions to FAFLIC.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding
December 31 or (ii) the individual company's statutory net gain from operations
for the preceding calendar year (if such insurer is a life company) or its net
income (not including realized capital gains) for the preceding calendar year
(if such insurer is not a life company). Any dividends to be paid by an insurer,
whether or not in excess of the aforementioned threshold, from a source other
than statutory earned surplus would also require the prior approval of the
Delaware Commissioner of Insurance. No dividends were declared by AFLIAC to
FAFLIC during 1999, 1998 or 1997. During 2000, AFLIAC could pay dividends of
$34.3 million to FAFLIC without prior approval.
F-36
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT INFORMATION
The Company offers Asset Accumulation financial products and services. Prior to
the AFC corporate reorganization, the Company offered financial products and
services in two major areas: Risk Management and Asset Accumulation. Within
these broad areas, the Company conducted business principally in three operating
segments. These segments were Risk Management, Allmerica Financial Services and
Allmerica Asset Management. In accordance with Statement No. 131, the separate
financial information of each segment is presented consistent with the way
results are regularly evaluated by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. A summary of
the Company's reportable segments is included below.
In 1999, the Company reorganized its Property and Casualty business and
Corporate Risk Management Services operations within the Risk Management
segment. Under the new structure, the Risk Management segment manages its
business through five distribution channels identified as Hanover North, Hanover
South, Citizens Midwest, Allmerica Voluntary Benefits and Allmerica Specialty.
During the second quarter of 1999, the Company approved a plan to exit its group
life and health business, consisting of its EBS business, its AGU business and
its reinsurance pool business. Results of operations from this business,
relating to both the current and the prior periods, have been segregated and
reported as a component of discontinued operations in the Consolidated
Statements of Income. Operating results from this business were previously
reported in the Allmerica Voluntary Benefits and Allmerica Specialty
distribution channels. Prior to 1999, results of the group life and health
business were included in the Corporate Risk Management Services segment, while
all other Risk Management business was reflected in the Property and Casualty
segment.
The Risk Management segment's property and casualty business is offered
primarily through the Hanover North, Hanover South and Citizens Midwest
distribution channels utilizing the Company's independent agent network
primarily in the Northeast, Midwest and Southeast United States, maintaining a
strong regional focus. Allmerica Voluntary Benefits focuses on worksite
distribution, which offers discounted property and casualty products through
employer sponsored programs, and affinity group property and casualty business.
Allmerica Specialty offers special niche property and casualty products in
selected markets. On July 1, 1999, AFC made certain changes to its corporate
structure as discussed in Note 3. As a result, FAFLIC distributed its interest
in the property and casualty business after that date.
The Asset Accumulation group includes two segments: Allmerica Financial Services
and Allmerica Asset Management. The Allmerica Financial Services segment
includes variable annuities, variable universal life and traditional life
insurance products distributed via retail channels as well as group retirement
products, such as defined benefit and 401(k) plans and tax-sheltered annuities
distributed to institutions. Through its Allmerica Asset Management segment, the
Company offers its customers the option of investing in GICs such as the
traditional GIC, synthetic GIC and other funding agreements. Funding agreements
are investment contracts issued to institutional buyers, such as money market
funds, corporate cash management programs and securities lending collateral
programs, which typically have short maturities and periodic interest rate
resets based on an index such as LIBOR. This segment is also a Registered
Investment Advisor providing investment advisory services, primarily to
affiliates, and to other institutions, such as insurance companies and pension
plans. As a result of the aforementioned change in the AFC corporate structure,
FAFLIC distributed its ownership of certain investment advisory business as of
July 1, 1999.
In addition to the three operating segments, the Company has a Corporate
segment, which consists primarily of cash, investments, corporate debt, Capital
Securities and corporate overhead expenses. Corporate overhead
F-37
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
expenses reflect costs not attributable to a particular segment, such as those
generated by certain officers and directors, Corporate Technology, Corporate
Finance, Human Resources and the Legal department.
Management evaluates the results of the aforementioned segments based on a
pre-tax and minority interest basis. Segment income is determined by adjusting
net income for net realized investment gains and losses, net gains and losses on
disposals of businesses, discontinued operations, extraordinary items, the
cumulative effect of accounting changes and certain other items which management
believes are not indicative of overall operating trends. While these items may
be significant components in understanding and assessing the Company's financial
performance, management believes that the presentation of segment income
enhances understanding of the Company's results of operations by highlighting
net income attributable to the normal, recurring operations of the business.
However, segment income should not be construed as a substitute for net income
determined in accordance with generally accepted accounting principles.
Summarized below is financial information with respect to business segments:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Segment revenues:
Risk Management........................................... $1,075.2 $2,220.8 $2,227.3
Asset Accumulation
Allmerica Financial Services............................ 797.0 721.2 713.9
Allmerica Asset Management.............................. 144.5 121.7 91.1
-------- -------- --------
Subtotal............................................ 941.5 842.9 805.0
-------- -------- --------
Corporate................................................. 0.4 2.3 4.7
Intersegment revenues..................................... (0.8) (7.6) (11.5)
-------- -------- --------
Total segment revenues including Closed Block........... 2,016.3 3,058.4 3,025.5
-------- -------- --------
Adjustment to segment revenues:
Adjustment for Closed Block........................... (92.1) (98.4) (102.6)
Change in mortality................................... -- -- (4.2)
Net realized gains.................................... 100.3 60.9 76.3
-------- -------- --------
Total revenues............................................ $2,024.5 $3,020.9 $2,995.0
======== ======== ========
</TABLE>
F-38
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
Segment income (loss) before income taxes and minority interest:
<S> <C> <C> <C>
Risk Management............................................. $ 85.1 $ 149.7 $ 174.2
Asset Accumulation
Allmerica Financial Services.............................. 207.1 169.0 134.6
Allmerica Asset Management................................ 21.3 23.7 18.4
-------- -------- --------
Subtotal.............................................. 228.4 192.7 153.0
-------- -------- --------
Corporate................................................... (38.6) (45.2) (44.6)
Segment income before income taxes and minority interest... 274.9 297.2 282.6
Adjustments to segment income:
Net realized investment gains, net of amortization........ 106.1 52.2 78.5
Sales practice litigation expense......................... -- (31.0) --
Gain from change in mortality assumptions................. -- -- 47.0
Loss on cession of disability income business............. -- -- (53.9)
Restructuring costs....................................... -- (9.0) --
Other items............................................... -- (0.8) (2.8)
-------- -------- --------
Income before taxes and minority interest................... $ 381.0 $ 308.6 $ 351.4
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998 1999 1998
------------- --------- --------- ------------ ------------
IDENTIFIABLE ASSETS DEFERRED ACQUISITION COSTS
<S> <C> <C> <C> <C>
Risk Management............................... $ 542.0 $ 6,216.8 $ 6.0 $ 167.5
Asset Accumulation
Allmerica Financial Services................ 23,410.7 19,407.3 1,213.1 993.1
Allmerica Asset Management.................. 1,381.1 1,810.9 0.4 0.6
--------- --------- --------- ---------
Subtotal................................ 24,791.8 21,218.2 1,213.5 993.7
Corporate................................... -- 29.6 -- --
--------- --------- --------- ---------
Total..................................... $25,333.8 $27,464.6 $ 1,219.5 $ 1,161.2
========= ========= ========= =========
</TABLE>
16. LEASE COMMITMENTS
Rental expenses for operating leases, including those related to the
discontinued operations of the Company, amounted to $22.2 million, $34.9 million
and $33.6 million in 1999, 1998 and 1997, respectively. These expenses relate
primarily to building leases of the Company. At December 31, 1999, future
minimum rental payments under non-cancelable operating leases were approximately
$39.9 million, payable as follows: 2000 -- $14.1 million; 2001 -- $12.7 million;
2002 -- $8.1 million; 2003 -- $3.6 million, and $1.4 million thereafter. It is
expected that, in the normal course of business, leases that expire will be
renewed or replaced by leases on other property and equipment; thus, it is
anticipated that future minimum lease commitments will not be less than the
amounts shown for 2000.
F-39
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. REINSURANCE
In the normal course of business, the Company seeks to reduce the losses that
may arise from catastrophes or other events that cause unfavorable underwriting
results by reinsuring certain levels of risk in various areas of exposure with
other insurance enterprises or reinsurers. Reinsurance transactions are
accounted for in accordance with the provisions of Statement of Financial
Accounting Standards No. 113, Accounting and Reporting for Reinsurance of Short
Duration and Long Duration Contracts.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policy. Reinsurance contracts
do not relieve the Company from its obligations to policyholders. Failure of
reinsurers to honor their obligations could result in losses to the Company;
consequently, allowances are established for amounts deemed uncollectible. The
Company determines the appropriate amount of reinsurance based on evaluation of
the risks accepted and analyses prepared by consultants and reinsurers and on
market conditions (including the availability and pricing of reinsurance). The
Company also believes that the terms of its reinsurance contracts are consistent
with industry practice in that they contain standard terms with respect to lines
of business covered, limit and retention, arbitration and occurrence. Based on
its review of its reinsurers' financial statements and reputations in the
reinsurance marketplace, the Company believes that its reinsurers are
financially sound.
Effective January 1, 1999, Allmerica P&C entered into a whole account aggregate
excess of loss reinsurance agreement with a highly rated insurer (See Note 5).
Prior to the AFC corporate reorganization, the Company was subject to
concentration of risk with respect to this reinsurance agreement, which
represented 10% or more of the Company's reinsurance business. Net premiums
earned and losses and loss adjustment expenses ceded under this agreement in
1999 were $21.9 million and $35.0 million, respectively. In addition, the
Company is subject to concentration of risk with respect to reinsurance ceded to
various residual market mechanisms. As a condition to the ability to conduct
certain business in various states, the Company is required to participate in
various residual market mechanisms and pooling arrangements which provide
various insurance coverages to individuals or other entities that are otherwise
unable to purchase such coverage voluntarily provided by private insurers. These
market mechanisms and pooling arrangements include the Massachusetts
Commonwealth Automobile Reinsurers ("CAR"), the Maine Workers' Compensation
Residual Market Pool ("MWCRP") and the Michigan Catastrophic Claims Association
("MCCA"). Prior to the AFC corporate reorganization, both CAR and MCCA
represented 10% or more of the Company's reinsurance business. As a servicing
carrier in Massachusetts, the Company ceded a significant portion of its private
passenger and commercial automobile premiums to CAR. Net premiums earned and
losses and loss adjustment expenses ceded to CAR in 1999, 1998 and 1997 were
$20.4 million and $21.4 million, $34.3 million and $38.1 million, and $32.3
million and $28.2 million, respectively. The Company ceded to MCCA premiums
earned and losses and loss adjustment expenses in 1999, 1998 and 1997 of $1.8
million and $30.6 million, $3.7 million and $18.0 million, and $9.8 million and
$(0.8) million, respectively.
On June 2, 1998, the Company recorded a $124.2 million one-time reduction of its
direct and ceded written premiums as a result of a return of excess surplus from
MCCA. This transaction had no impact on the total net premiums recorded by the
Company in 1998.
Because the MCCA is supported by assessments permitted by statute, and all
amounts billed by the Company to CAR, MWCRP and MCCA have been paid when due,
the Company believes that it has no significant exposure to uncollectible
reinsurance balances.
F-40
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Life and accident and health insurance premiums:
Direct.................................................... $ 53.5 $ 51.4 $ 55.9
Assumed................................................... 0.7 0.7 0.6
Ceded..................................................... (50.0) (47.8) (29.1)
-------- -------- --------
Net premiums................................................ $ 4.2 $ 4.3 $ 27.4
======== ======== ========
Property and casualty premiums written:
Direct.................................................... $1,089.0 $1,970.4 $2,068.5
Assumed................................................... 27.3 58.8 103.1
Ceded..................................................... (135.4) (74.1) (179.8)
-------- -------- --------
Net premiums................................................ $ 980.9 $1,955.1 $1,991.8
======== ======== ========
Property and casualty premiums earned:
Direct.................................................... $1,047.3 $1,966.8 $2,046.1
Assumed................................................... 30.3 64.5 102.0
Ceded..................................................... (127.3) (66.1) (195.1)
-------- -------- --------
Net premiums................................................ $ 950.3 $1,965.2 $1,953.0
======== ======== ========
Life insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
Direct.................................................... $ 391.9 $ 359.5 $ 397.4
Assumed................................................... 0.1 0.3 0.4
Ceded..................................................... (39.2) (49.5) (79.4)
-------- -------- --------
Net policy benefits, claims, losses and loss adjustment
expenses.................................................. $ 352.8 $ 310.3 $ 318.4
======== ======== ========
Property and casualty benefits, claims, losses and loss
adjustment expenses:
Direct.................................................... $ 805.6 $1,588.2 $1,464.9
Assumed................................................... 25.9 62.7 101.2
Ceded..................................................... (128.0) (158.2) (120.6)
-------- -------- --------
Net policy benefits, claims, losses, and loss adjustment
expenses.................................................. $ 703.5 $1,492.7 $1,445.5
======== ======== ========
</TABLE>
F-41
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. DEFERRED POLICY ACQUISITION COSTS
The following reflects the changes to the deferred policy acquisition asset:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year................................ $1,161.2 $ 965.5 $ 822.7
Acquisition expenses deferred............................... 419.2 638.2 614.3
Amortized to expense during the year........................ (240.9) (449.6) (472.6)
Adjustment for discontinued operations...................... 3.4 ( 0.2) --
Adjustment to equity during the year........................ 39.3 7.3 (11.1)
Adjustment due to distribution of subsidiaries.............. (162.7) -- --
Adjustment for cession of disability income insurance....... -- -- (38.6)
Adjustment for revision of universal and variable universal
life insurance mortality assumptions...................... -- -- 50.8
-------- -------- --------
Balance at end of year...................................... $1,219.5 $1,161.2 $ 965.5
======== ======== ========
</TABLE>
At October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.8 million recapitalization of deferred policy acquisition costs.
19. LIABILITIES FOR OUTSTANDING CLAIMS, LOSSES AND LOSS ADJUSTMENT EXPENSES
The Company regularly updates its estimates of liabilities for outstanding
claims, losses and loss adjustment expenses as new information becomes available
and further events occur which may impact the resolution of unsettled claims for
its property and casualty and its accident and health lines of business. Changes
in prior estimates are recorded in results of operations in the year such
changes are determined to be needed.
The liability for future policy benefits and outstanding claims, losses and loss
adjustment expenses related to the Company's accident and health business was
$601.3 million and $568.0 million at December 31, 1999 and 1998, respectively.
Accident and health claim liabilities were re-estimated for all prior years and
were increased by $51.2 million and $14.6 million in 1999 and 1998,
respectively. The increase in 1999 resulted from the Company's reserve
strengthening primarily in the EBS and reinsurance pool business. The 1998
increase also resulted from the Company's reserve strengthening, primarily in
the assumed reinsurance and stop loss only business.
F-42
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table provides a reconciliation of the beginning and ending
property and casualty reserve for unpaid losses and loss adjustment expenses
(LAE):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Reserve for losses and LAE, beginning of the year........... $2,597.3 $2,615.4 $2,744.1
Incurred losses and LAE, net of reinsurance recoverable:
Provision for insured events of the current year.......... 795.6 1,609.0 1,564.1
Decrease in provision for insured events of prior years... (96.1) (127.2) (127.9)
-------- -------- --------
Total incurred losses and LAE............................... 699.5 1,481.8 1,436.2
-------- -------- --------
Payments, net of reinsurance recoverable:
Losses and LAE attributable to insured events of current
year.................................................... 342.1 871.9 775.1
Losses and LAE attributable to insured events of prior
years................................................... 424.2 643.0 732.1
-------- -------- --------
Total payments 766.3 1,514.9 1,507.2
Change in reinsurance recoverable on unpaid losses.......... 44.3 15.0 (50.2)
Distribution of subsidiaries................................ (2,574.8) -- --
Other (1)................................................... -- -- (7.5)
-------- -------- --------
Reserve for losses and LAE, end of year..................... $ -- $2,597.3 $2,615.4
======== ======== ========
</TABLE>
(1) Includes purchase accounting adjustments.
As part of an ongoing process, the reserves have been re-estimated for all prior
accident years and were decreased by $96.1 million, $127.2 million and $127.9
million in 1999, 1998 and 1997, respectively, reflecting increased favorable
development on reserves for both losses and loss adjustment expenses.
Favorable development on prior years' loss reserves was $52.0 million, $58.9
million, and $87.2 million prior to the AFC corporate reorganization in 1999 and
for the years ended December 31, 1998 and 1997, respectively. Favorable
development on prior year's loss adjustment expense reserves was $44.1 million,
$68.3 million, and $40.7 million prior to the AFC corporate reorganization in
1999 and for the years ended December 31, 1998 and 1997, respectively. The
increase in favorable development 1998 is primarily attributable to claims
process improvement initiatives taken by the Company. The Company has lowered
claim settlement costs through increased utilization of in-house attorneys and
consolidation of claim offices.
This favorable development reflects the Company's reserving philosophy
consistently applied over these periods. Conditions and trends that have
affected development of the loss and LAE reserves in the past may not
necessarily occur in the future.
Due to the nature of the business written by the Risk Management segment, the
exposure to environmental liabilities is relatively small and therefore its
reserves are relatively small compared to other types of liabilities. Due to the
AFC corporate reorganization, the Company had no exposure for this item at
December 31, 1999. Loss and LAE reserves related to environmental damage and
toxic tort liability, included in the reserve for losses and LAE, were $49.9
million and $53.1 million, net of reinsurance of $14.2 million and $15.7 million
in 1998 and 1997, respectively. The Company does not specifically underwrite
policies that include this coverage, but as case law expands policy provisions
and insurers' liability beyond the intended coverage, the Company may be
required to defend such claims. The Company estimated its ultimate liability for
these claims based upon currently known facts, reasonable assumptions where the
facts are not known,
F-43
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
current law and methodologies currently available. Although these claims are not
significant, their existence gives rise to uncertainty and is discussed because
of the possibility, however remote, that they may become significant. The
Company believes that, notwithstanding the evolution of case law expanding
liability in environmental claims, recorded reserves related to these claims are
adequate. In addition, the Company is not aware of any litigation or pending
claims that may result in additional material liabilities in excess of recorded
reserves. The environmental liability could be revised in the near term if the
estimates used in determining the liability are revised.
20. MINORITY INTEREST
As a result of the Company's divestiture of certain of its subsidiaries
including its 84.5% ownership of the outstanding shares of the common stock of
Allmerica P&C effective July 1, 1999, there is no minority interest reflected on
the Consolidated Balance Sheets as of December 31, 1999. In prior years, the
Company's interest in Allmerica P&C was represented by ownership of 70.0% and
65.8% of the outstanding shares of common stock at December 31, 1998 and 1997,
respectively. Earnings and shareholder's equity attributable to minority
shareholders are included in minority interest in the consolidated financial
statements through the period ended June 30, 1999 and for the years ended
December 31, 1998 and 1997.
21. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company is not able to reasonably estimate the potential
effect on it of any such future assessments or voluntary payments.
LITIGATION
In July 1997, a lawsuit on behalf of a putative class was instituted in
Louisiana against AFC and certain of its subsidiaries, including FAFLIC, by
individual plaintiffs alleging fraud, unfair or deceptive acts, breach of
contract, misrepresentation, and related claims in the sale of life insurance
policies. In October 1997, the plaintiffs voluntarily dismissed the Louisiana
suit and filed a substantially similar action in Federal District Court in
Worcester, Massachusetts. In early November 1998, the Company and the plaintiffs
entered into a settlement agreement. The court granted preliminary approval of
the settlement on December 4, 1998. On May 19, 1999, the court issued an order
certifying the class for settlement purposes and granting final approval of the
settlement agreement. FAFLIC recognized a $31.0 million pre-tax expense during
the third quarter of 1998 related to this litigation. Although the Company
believes that this expense reflects appropriate recognition of its obligation
under the settlement, this estimate assumes the availability of insurance
coverage for certain claims, and the estimate may be revised based on the amount
of reimbursement actually tendered by AFC's insurance carriers, and based on
changes in the Company's estimate of the ultimate cost of the benefits to be
provided to members of the class.
The Company has been named a defendant in various other legal proceedings
arising in the normal course of business. In the Company's opinion, based on the
advice of legal counsel, the ultimate resolution of these proceedings will not
have a material effect on the Company's consolidated financial statements.
However,
F-44
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
liabilities related to these proceedings could be established in the near term
if estimates of the ultimate resolution of these proceedings are revised.
YEAR 2000
The Year 2000 issue resulted from computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
Although the Company does not believe that there is a material contingency
associated with the Year 2000 issue, there can be no assurance that exposure for
material contingencies will not arise.
22. STATUTORY FINANCIAL INFORMATION
The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles
primarily because policy acquisition costs are expensed when incurred,
investment reserves are based on different assumptions, postretirement benefit
costs are based on different assumptions and reflect a different method of
adoption, life insurance reserves are based on different assumptions and income
tax expense reflects only taxes paid or currently payable. In 1999, 49 out of 50
states have adopted the National Association of Insurance Commissioners proposed
Codification, which provides for uniform statutory accounting principles. These
principles are effective January 1, 2001. The Company is currently assessing the
impact that the adoption of Codification will have on its statutory results of
operations and financial position.
Statutory net income and surplus are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
Statutory Net Income (Combined)
Property and Casualty Companies........................... $322.6 $ 180.7 $ 190.3
Life and Health Companies................................. 239.0 86.4 191.2
Statutory Shareholder's Surplus (Combined)
Property and Casualty Companies (See Note 3).............. $-- $1,269.3 $1,279.6
Life and Health Companies................................. 590.1 1,164.1 1,221.3
</TABLE>
23. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT ACCOUNTANTS' REPORT (UNAUDITED)
During the second quarter of 2000, AFC adopted a formal company-wide
restructuring plan. This plan is the result of a corporate initiative that began
in the fall of 1999, intended to reduce expenses and enhance revenues. As a
result of this restructuring plan, FAFLIC recognized a pre-tax restructuring
charge of $11.0 million for the quarter ended June 30, 2000. Approximately
$1.9 million of this charge relates to severance and other employee related
costs resulting from the elimination of positions. All levels of employees, from
staff to senior management, were affected by the restructuring. In addition,
approximately $9.1 million of this charge relates to other restructuring costs,
including one-time project costs.
F-45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of First Allmerica Financial Life Insurance Company
and the Contractowners of the Allmerica Select Separate Account of First
Allmerica Financial Life Insurance Company
In our opinion, the accompanying statements of assets and liabilities, and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts
constituting the Allmerica Select Separate Account of First Allmerica Financial
Life Insurance Company at December 31, 1999, the results of each of their
operations for the year then ended and the changes in each of their net assets
for each of the periods indicated, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of First Allmerica Financial Life Insurance Company; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the Funds, provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
April 3, 2000
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Select
Aggressive Select Select Growth Select
Growth Growth and Income Income
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust .................... $17,590,127 $27,650,698 $30,180,566 $14,162,921
Investments in shares of Fidelity Variable Insurance Products Fund (VIP) -- -- -- --
Investment in shares of T. Rowe Price International Series, Inc. ....... -- -- -- --
Receivable from First Allmerica Financial Life Insurance
Company (Sponsor) .................................................... -- -- 24,193 --
----------- ----------- ----------- -----------
Total assets ...................................................... 17,590,127 27,650,698 30,204,759 14,162,921
LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor) .................................................... -- -- -- 501
----------- ----------- ----------- -----------
Net assets ......................................................... $17,590,127 $27,650,698 $30,204,759 $14,162,420
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net asset distribution by category:
Variable annuity contracts ........................................... $17,590,127 $27,650,698 $30,204,759 $14,162,420
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Units outstanding, December 31, 1999 ................................... 6,605,695 8,011,634 11,774,605 10,936,350
Net asset value per unit, December 31, 1999 ............................ $ 2.662873 $ 3.451318 $ 2.565246 $ 1.294986
<CAPTION>
Select Select
Money International Capital
Market Equity Appreciation
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust .................... $14,117,150 $14,769,370 $ 7,536,868
Investments in shares of Fidelity Variable Insurance Products Fund (VIP) -- -- --
Investment in shares of T. Rowe Price International Series, Inc. ....... -- -- --
Receivable from First Allmerica Financial Life Insurance
Company (Sponsor) .................................................... -- -- --
----------- ----------- -----------
Total assets ...................................................... 14,117,150 14,769,370 7,536,868
LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor) .................................................... 371 -- --
----------- ----------- -----------
Net assets ......................................................... $14,116,779 $14,769,370 $ 7,536,868
----------- ----------- -----------
----------- ----------- -----------
Net asset distribution by category:
Variable annuity contracts ........................................... $14,116,779 $14,769,370 $ 7,536,868
----------- ----------- -----------
----------- ----------- -----------
Units outstanding, December 31, 1999 ................................... 11,367,138 7,071,841 3,247,184
Net asset value per unit, December 31, 1999 ............................ $ 1.241894 $ 2.088476 $ 2.321048
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Select Select Select
Emerging Value Strategic Fidelity VIP
Markets Opportunity Growth High Income
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust .................... $ 1,382,056 $ 2,592,109 $ 1,825,316 $ --
Investments in shares of Fidelity Variable Insurance Products Fund (VIP) -- -- -- 9,102,424
Investment in shares of T. Rowe Price International Series, Inc. ....... -- -- -- --
Receivable from First Allmerica Financial Life Insurance
Company (Sponsor) .................................................... -- -- -- --
------------ ------------ ------------ ------------
Total assets ...................................................... 1,382,056 2,592,109 1,825,316 9,102,424
LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor) .................................................... -- -- -- --
------------ ------------ ------------ ------------
Net assets ......................................................... $ 1,382,056 $ 2,592,109 $ 1,825,316 $ 9,102,424
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net asset distribution by category:
Variable annuity contracts ........................................... $ 1,382,056 $ 2,592,109 $ 1,825,316 $ 9,102,424
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Units outstanding, December 31, 1999 ................................... 1,089,866 2,789,758 1,655,117 6,324,624
Net asset value per unit, December 31, 1999 ............................ $ 1.268098 $ 0.929152 $ 1.102832 $ 1.439204
<CAPTION>
T. Rowe Price
Fidelity VIP Fidelity VIP International
Equity-Income Growth Stock
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust .................... $ -- $ -- $ --
Investments in shares of Fidelity Variable Insurance Products Fund (VIP) 15,993,667 18,888,401 --
Investment in shares of T. Rowe Price International Series, Inc. ....... -- -- 6,106,822
Receivable from First Allmerica Financial Life Insurance
Company (Sponsor) .................................................... -- -- --
--------------- --------------- ---------------
Total assets ...................................................... 15,993,667 18,888,401 6,106,822
LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor) .................................................... -- -- --
--------------- --------------- ---------------
Net assets ......................................................... $ 15,993,667 $ 18,888,401 $ 6,106,822
--------------- --------------- ---------------
--------------- --------------- ---------------
Net asset distribution by category:
Variable annuity contracts ........................................... $ 15,993,667 $ 18,888,401 $ 6,106,822
--------------- --------------- ---------------
--------------- --------------- ---------------
Units outstanding, December 31, 1999 ................................... 8,172,505 5,956,838 3,324,438
Net asset value per unit, December 31, 1999 ............................ $ 1.957009 $ 3.170877 $ 1.836949
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SELECT
AGGRESSIVE SELECT SELECT GROWTH SELECT
GROWTH GROWTH AND INCOME INCOME
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $ -- $ 11,436 $ 290,892 $ 911,463
----------- ----------- ----------- -----------
EXPENSES:
Mortality and expense risk fees ....................... 172,971 274,424 325,196 182,297
Administrative expense fees ........................... 21,379 33,918 40,193 22,531
----------- ----------- ----------- -----------
Total expenses ...................................... 194,350 308,342 365,389 204,828
----------- ----------- ----------- -----------
Net investment income (loss) ........................ (194,350) (296,906) (74,497) 706,635
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ... -- 726,747 1,951,397 111,810
Net realized gain (loss) from sales of investments .... 343,175 614,931 363,389 (93,603)
----------- ----------- ----------- -----------
Net realized gain (loss) ............................ 343,175 1,341,678 2,314,786 18,207
Net unrealized gain (loss) ............................ 4,519,016 4,808,788 1,733,590 (1,057,625)
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) ............. 4,862,191 6,150,466 4,048,376 (1,039,418)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from operations $ 4,667,841 $ 5,853,560 $ 3,973,879 $ (332,783)
=========== =========== =========== ===========
<CAPTION>
SELECT SELECT
MONEY INTERNATIONAL CAPITAL
MARKET EQUITY APPRECIATION
-------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $552,449 $ -- $ --
-------- ----------- -----------
EXPENSES:
Mortality and expense risk fees ....................... 136,523 146,474 74,482
Administrative expense fees ........................... 16,874 18,103 9,206
-------- ----------- -----------
Total expenses ...................................... 153,397 164,577 83,688
-------- ----------- -----------
Net investment income (loss) ........................ 399,052 (164,577) (83,688)
-------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ... -- -- 9,140
Net realized gain (loss) from sales of investments .... -- 206,560 52,149
-------- ----------- -----------
Net realized gain (loss) ............................ -- 206,560 61,289
Net unrealized gain (loss) ............................ -- 3,258,194 1,404,704
-------- ----------- -----------
Net realized and unrealized gain (loss) ............. -- 3,464,754 1,465,993
-------- ----------- -----------
Net increase (decrease) in net assets from operations $399,052 $ 3,300,177 $ 1,382,305
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SELECT SELECT SELECT
EMERGING VALUE STRATEGIC FIDELITY VIP
MARKETS OPPORTUNITY GROWTH HIGH INCOME
----------- ----------- ----------- -----------
INVESTMENT INCOME:
Dividends ............................................. $ 5,726 $ 12 $ 5,132 $ 698,798
----------- ----------- ----------- -----------
EXPENSES:
Mortality and expense risk fees ....................... 10,455 25,453 15,294 110,973
Administrative expense fees ........................... 1,293 3,146 1,890 13,716
----------- ----------- ----------- -----------
Total expenses ...................................... 11,748 28,599 17,184 124,689
----------- ----------- ----------- -----------
Net investment income (loss) ........................ (6,022) (28,587) (12,052) 574,109
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ... -- 115,269 -- 26,123
Net realized gain (loss) from sales of investments .... 17,349 (11,363) 6,115 (121,364)
----------- ----------- ----------- -----------
Net realized gain (loss) ............................ 17,349 103,906 6,115 (95,241)
Net unrealized gain (loss) ............................ 430,661 (181,986) 174,553 38,168
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss) ............. 448,010 (78,080) 180,668 (57,073)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from operations $ 441,988 $ (106,667) $ 168,616 $ 517,036
=========== =========== =========== ===========
<CAPTION>
T. ROWE PRICE
FIDELITY VIP FIDELITY VIP INTERNATIONAL
EQUITY-INCOME GROWTH STOCK
------------- ------ -----
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................. $164,674 $ 15,605 $ 21,974
-------- ----------- -----------
EXPENSES:
Mortality and expense risk fees ....................... 174,492 161,390 55,641
Administrative expense fees ........................... 21,567 19,947 6,877
-------- ----------- -----------
Total expenses ...................................... 196,059 181,337 62,518
-------- ----------- -----------
Net investment income (loss) ........................ (31,385) (165,732) (40,544)
-------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors ... 364,016 981,162 69,061
Net realized gain (loss) from sales of investments .... 55,573 108,191 42,289
-------- ----------- -----------
Net realized gain (loss) ............................ 419,589 1,089,353 111,350
Net unrealized gain (loss) ............................ 49,099 3,363,837 1,365,554
-------- ----------- -----------
Net realized and unrealized gain (loss) ............. 468,688 4,453,190 1,476,904
-------- ----------- -----------
Net increase (decrease) in net assets from operations $437,303 $ 4,287,458 $ 1,436,360
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SELECT
AGGRESSIVE GROWTH SELECT GROWTH
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
----------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................... (194,350) (156,301) (296,906) (184,003)
Net realized gain (loss) ........................................... 343,175 98,052 1,341,678 347,058
Net unrealized gain (loss) ......................................... 4,519,016 897,084 4,808,788 3,907,392
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations ............. 4,667,841 838,835 5,853,560 4,070,447
------------ ------------ ------------ ------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments .............................................. 1,542,005 2,441,901 3,550,208 4,107,799
Withdrawals ........................................................ (892,464) (341,477) (1,259,953) (386,659)
Contract benefits .................................................. (33,192) (48,217) (134,721) (37,884)
Contract charges ................................................... (7,206) (6,180) (9,656) (6,803)
Transfers between sub-accounts (including fixed account), net ...... (339,364) 118,853 1,038,897 259,335
Other transfers from (to) the General Account ...................... 91,091 81,304 165,602 6,510
Net increase (decrease) in investment by Sponsor ................... - - - -
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from contract transactions ... 360,870 2,246,184 3,350,377 3,942,298
------------ ------------ ------------ ------------
Net increase (decrease) in net assets .............................. 5,028,711 3,085,019 9,203,937 8,012,745
NET ASSETS:
Beginning of year .................................................. 12,561,416 9,476,397 18,446,761 10,434,016
------------ ------------ ------------ ------------
End of year ........................................................$ 17,590,127 $ 12,561,416 $ 27,650,698 $ 18,446,761
============ ============ ============ ============
<CAPTION>
SELECT GROWTH AND INCOME SELECT INCOME
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------ -------------
1999 1998 1999 1998
---- ---- ---- ----
<C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................... (74,497) (23,691) 706,635 495,101
Net realized gain (loss) ........................................... 2,314,786 257,034 18,207 61,430
Net unrealized gain (loss) ......................................... 1,733,590 2,145,693 (1,057,625) (19,957)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations ............. 3,973,879 2,379,036 (332,783) 536,574
------------ ------------ ------------ ------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments .............................................. 4,416,766 5,406,939 4,305,976 6,345,431
Withdrawals ........................................................ (1,407,383) (801,875) (1,084,646) (414,565)
Contract benefits .................................................. (212,209) (79,461) (147,719) (45,760)
Contract charges ................................................... (9,770) (7,846) (4,978) (3,819)
Transfers between sub-accounts (including fixed account), net ...... 1,349,305 (224,356) (3,129,183) 552,578
Other transfers from (to) the General Account ...................... 292,719 18,691 (27,796) (7,507)
Net increase (decrease) in investment by Sponsor .................. - - - -
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from contract transactions .. 4,429,428 4,312,092 (88,346) 6,426,358
------------ ------------ ------------ ------------
Net increase (decrease) in net assets .............................. 8,403,307 6,691,128 (421,129) 6,962,932
NET ASSETS:
Beginning of year .................................................. 21,801,452 15,110,324 14,583,549 7,620,617
------------ ------------ ------------ ------------
End of year ........................................................ $ 30,204,759 $ 21,801,452 $ 14,162,420 $ 14,583,549
============ ============ ============ ============
<CAPTION>
MONEY MARKET
YEAR ENDED
DECEMBER 31,
------------
1999 1998
---- ----
<C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................... 399,052 307,371
Net realized gain (loss) ........................................... - -
Net unrealized gain (loss) ......................................... - -
------------ -----------
Net increase (decrease) in net assets from operations ............. 399,052 307,371
------------ -----------
FROM CONTRACT TRANSACTIONS:
Net purchase payments .............................................. 10,222,319 5,880,643
Withdrawals ........................................................ (1,734,538) (1,064,152)
Contract benefits .................................................. (243,550) (18,419)
Contract charges ................................................... (3,396) (2,822)
Transfers between sub-accounts (including fixed account), net ...... (4,624,219) (1,895,688)
Other transfers from (to) the General Account ...................... (388,968) 196,883
Net increase (decrease) in investment by Sponsor .................. - -
------------ -----------
Net increase (decrease) in net assets from contract transactions .. 3,227,648 3,096,445
------------ -----------
Net increase (decrease) in net assets .............................. 3,626,700 3,403,816
NET ASSETS:
Beginning of year .................................................. 10,490,079 7,086,263
------------ -----------
End of year ........................................................ $ 14,116,779 $10,490,079
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
SELECT SELECT
INTERNATIONAL EQUITY CAPITAL APPRECIATION
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................... (164,577) 2,050 (83,688) (55,213)
Net realized gain (loss) ........................................... 206,560 82,145 61,289 812,605
Net unrealized gain (loss) ......................................... 3,258,194 1,042,008 1,404,704 (265,474)
------------ ------------ ----------- -----------
Net increase (decrease) in net assets from operations ............. 3,300,177 1,126,203 1,382,305 491,918
------------ ------------ ----------- -----------
FROM CONTRACT TRANSACTIONS:
Net purchase payments .............................................. 2,093,409 2,245,544 1,537,163 1,525,487
Withdrawals ........................................................ (673,943) (284,540) (375,491) (122,872)
Contract benefits .................................................. (45,035) (16,583) (35,495) (53,921)
Contract charges ................................................... (5,764) (4,933) (3,363) (2,530)
Transfers between sub-accounts (including fixed account), net ...... (85,673) (4,484) (17,141) 30,578
Other transfers from (to) the General Account ...................... 69,302 (129,017) 50,763 (71,019)
Net increase (decrease) in investment by Sponsor .................. - - - -
------------ ------------ ----------- -----------
Net increase (decrease) in net assets from contract transactions .. 1,352,296 1,805,987 1,156,436 1,305,723
------------ ------------ ----------- -----------
Net increase (decrease) in net assets .............................. 4,652,473 2,932,190 2,538,741 1,797,641
NET ASSETS:
Beginning of year .................................................. 10,116,897 7,184,707 4,998,127 3,200,486
------------ ------------ ----------- -----------
End of year ........................................................$ 14,769,370 $ 10,116,897 $ 7,536,868 $ 4,998,127
============ ============ =========== ===========
<CAPTION>
SELECT SELECT
EMERGING MARKETS VALUE OPPORTUNITY
YEAR PERIOD YEAR PERIOD
ENDED FROM 2/20/98* ENDED FROM 2/20/98*
12/31/99 TO 12/31/98 12/31/99 TO 12/31/98
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................... (6,022) (1,905) (28,587) 3,568
Net realized gain (loss) ........................................... 17,349 (4,147) 103,906 (3,950)
Net unrealized gain (loss) ......................................... 430,661 (39,804) (181,986) 7,156
----------- --------- ----------- -----------
Net increase (decrease) in net assets from operations ............. 441,988 (45,856) (106,667) 6,774
----------- --------- ----------- -----------
FROM CONTRACT TRANSACTIONS:
Net purchase payments .............................................. 378,796 394,788 1,033,260 1,145,004
Withdrawals ........................................................ (75,657) (4,004) (131,253) (10,533)
Contract benefits .................................................. (5,416) - (66,268) -
Contract charges ................................................... (262) (4) (647) (5)
Transfers between sub-accounts (including fixed account), net ...... 133,184 83,289 453,605 144,521
Other transfers from (to) the General Account ...................... 58,004 23,199 58,737 65,578
Net increase (decrease) in investment by Sponsor .................. --- 7 - 3
----------- --------- ----------- -----------
Net increase (decrease) in net assets from contract transactions .. 488,649 497,275 1,347,434 1,344,568
----------- --------- ----------- -----------
Net increase (decrease) in net assets .............................. 930,637 451,419 1,240,767 1,351,342
NET ASSETS:
Beginning of year .................................................. 451,419 - 1,351,342 -
----------- --------- ----------- -----------
End of year ........................................................$ 1,382,056 $ 451,419 $ 2,592,109 $ 1,351,342
=========== ========= =========== ===========
<CAPTION>
SELECT
STRATEGIC GROWTH
YEAR PERIOD
ENDED FROM 2/20/98*
12/31/99 TO 12/31/98
-------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................... (12,052) (2,283)
Net realized gain (loss) ........................................... 6,115 (4,247)
Net unrealized gain (loss) ......................................... 174,553 4,002
----------- ---------
Net increase (decrease) in net assets from operations ............. 168,616 (2,528)
----------- ---------
FROM CONTRACT TRANSACTIONS:
Net purchase payments .............................................. 1,063,800 598,039
Withdrawals ........................................................ (27,118) (11,642)
Contract benefits .................................................. (22,091) -
Contract charges ................................................... (298) (21)
Transfers between sub-accounts (including fixed account), net ...... (51,294) 60,193
Other transfers from (to) the General Account ...................... 24,877 24,779
Net increase (decrease) in investment by Sponsor .................. - 4
----------- ---------
Net increase (decrease) in net assets from contract transactions .. 987,876 671,352
----------- ---------
Net increase (decrease) in net assets .............................. 1,156,492 668,824
NET ASSETS:
Beginning of year .................................................. 668,824 -
----------- ---------
End of year ........................................................ $ 1,825,316 $ 668,824
=========== =========
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-6
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
FIDELITY VIP HIGH INCOME FIDELITY VIP EQUITY-INCOME
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------ --------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................... 574,109 229,070 (31,385) (33,415)
Net realized gain (loss) ........................................... (95,241) 165,505 419,589 349,484
Net unrealized gain (loss) ......................................... 38,168 (897,298) 49,099 334,416
----------- ----------- ------------ ------------
Net increase (decrease) in net assets from operations ............. 517,036 (502,723) 437,303 650,485
----------- ----------- ------------ ------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments .............................................. 2,596,050 3,619,399 3,294,962 4,401,675
Withdrawals ........................................................ (548,073) (469,859) (641,817) (268,598)
Contract benefits .................................................. (206,386) (31,220) (95,911) (114,173)
Contract charges ................................................... (3,278) (2,289) (5,717) (3,911)
Transfers between sub-accounts (including fixed account), net ...... (500,961) 477,001 2,040,773 203,743
Other transfers from (to) the General Account ...................... 148,298 71,054 176,914 117,505
Net increase (decrease) in investment by Sponsor .................. - - - -
----------- ----------- ------------ ------------
Net increase (decrease) in net assets from contract transactions .. 1,485,650 3,664,086 4,769,204 4,336,241
----------- ----------- ------------ ------------
Net increase (decrease) in net assets .............................. 2,002,686 3,161,363 5,206,507 4,986,726
NET ASSETS:
Beginning of year .................................................. 7,099,738 3,938,375 10,787,160 5,800,434
----------- ----------- ------------ ------------
End of year ........................................................ $ 9,102,424 $ 7,099,738 $ 15,993,667 $ 10,787,160
=========== =========== ============ ============
<CAPTION>
T. ROWE PRICE
FIDELITY VIP GROWTH INTERNATIONAL STOCK
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................... (165,732) (63,622) (40,544) 1,007
Net realized gain (loss) ........................................... 1,089,353 644,150 111,350 39,848
Net unrealized gain (loss) ......................................... 3,363,837 1,357,167 1,365,554 300,244
------------ ----------- ----------- -----------
Net increase (decrease) in net assets from operations ............. 4,287,458 1,937,695 1,436,360 341,099
------------ ----------- ----------- -----------
FROM CONTRACT TRANSACTIONS:
Net purchase payments .............................................. 4,006,497 2,760,118 769,715 1,182,338
Withdrawals ........................................................ (593,288) (161,829) (207,337) (69,415)
Contract benefits .................................................. (143,732) (78,540) (22,515) (26,347)
Contract charges ................................................... (5,026) (2,884) (2,030) (1,415)
Transfers between sub-accounts (including fixed account), net ...... 2,804,696 115,915 489,064 78,521
Other transfers from (to) the General Account ...................... 186,145 35,742 23,553 44,342
Net increase (decrease) in investment by Sponsor .................. - - - -
------------ ----------- ----------- -----------
Net increase (decrease) in net assets from contract transactions .. 6,255,292 2,668,522 1,050,450 1,208,024
------------ ----------- ----------- -----------
Net increase (decrease) in net assets .............................. 10,542,750 4,606,217 2,486,810 1,549,123
NET ASSETS:
Beginning of year .................................................. 8,345,651 3,739,434 3,620,012 2,070,889
------------ ----------- ----------- -----------
End of year ........................................................ $ 18,888,401 $ 8,345,651 $ 6,106,822 $ 3,620,012
============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-7
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Allmerica Select Separate Account (Allmerica Select) is a separate
investment account of First Allmerica Financial Life Insurance Company (the
Company), established on April 1, 1994 for the purpose of separating from the
general assets of the Company those assets used to fund certain variable annuity
contracts issued by the Company. The Company is a wholly-owned subsidiary of
Allmerica Financial Corporation (AFC). Under applicable insurance law, the
assets and liabilities of Allmerica Select are clearly identified and
distinguished from the other assets and liabilities of the Company. Allmerica
Select cannot be charged with liabilities arising out of any other business of
the Company.
Allmerica Select is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). Allmerica Select
currently offers fourteen Sub-Accounts. Each Sub-Account invests exclusively in
a corresponding investment portfolio of the Allmerica Investment Trust (the
Trust) managed by Allmerica Financial Investment Management Services, Inc.
(AFIMS) , an indirect wholly-owned subsidiary of the Company; or of the Variable
Insurance Products Fund (Fidelity VIP) managed by Fidelity Management & Research
Company (FMR); or of the T. Rowe Price International Series, Inc. (T. Rowe
Price) managed by Rowe Price-Fleming International, Inc. The Trust, Fidelity
VIP, and T. Rowe Price (the Funds) are open-end, diversified management
investment companies registered under the 1940 Act.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS - Security transactions are recorded on the trade date.
Investments held by the Sub-Accounts are stated at the net asset value per share
of the respective investment portfolio of the Funds. Realized gains and losses
on securities sold are determined using the average cost method. Dividends and
capital gain distributions are recorded on the ex-dividend date and are
reinvested in additional shares of the respective investment portfolio of the
Funds at net asset value.
FEDERAL INCOME TAXES - The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code (the Code) and files a
consolidated federal income tax return. The Company anticipates no tax liability
resulting from the operations of Allmerica Select. Therefore, no provision for
income taxes has been charged against Allmerica Select.
SA-8
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 3 - INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share
of each Sub-Account's investment in the Funds at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
---------------------------------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
INVESTMENT PORTFOLIO SHARES COST PER SHARE
----------------- ----------------- --------------
<S> <C> <C> <C>
Select Aggressive Growth...................... 5,156,883 $ 10,977,388 $ 3.411
Select Growth................................. 9,068,776 17,199,415 3.049
Select Growth and Income...................... 15,613,330 24,556,957 1.933
Select Income................................. 14,861,408 15,029,676 0.953
Money Market.................................. 14,117,150 14,117,150 1.000
Select International Equity................... 7,271,969 9,974,290 2.031
Select Capital Appreciation................... 3,671,149 5,974,642 2.053
Select Emerging Markets....................... 1,069,703 991,197 1.292
Select Value Opportunity...................... 1,704,214 2,766,940 1.521
Select Strategic Growth....................... 1,621,062 1,646,761 1.126
Fidelity VIP High Income...................... 804,812 9,579,537 11.310
Fidelity VIP Equity-Income.................... 622,080 14,768,388 25.710
Fidelity VIP Growth........................... 343,863 13,658,865 54.930
T. Rowe Price International Stock............. 320,736 4,395,612 19.040
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum based on the average daily
net assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account 0.15% per annum based on the
average daily net assets of each Sub-Account for administrative expenses. These
charges are deducted from the daily value of each Sub-Account and are paid to
the Company on a daily basis.
For contracts issued on Form A3020-92 (Allmerica Select Resource I), a
contract fee is deducted on the contract anniversary and upon full surrender of
the contract. For contracts issued on Form A3025-96 (Allmerica Select Resource
II), a contract fee is deducted on the contract anniversary and upon full
surrender if the accumulated value is less than $50,000. For contracts issued on
Form A3027-98 (Allmerica Select Charter), a contract fee is deducted on the
contract anniversary and upon full surrender if the accumulated value is less
than $75,000. The fee is currently waived for Allmerica Select Resource II
contracts issued to and maintained by the trustee of a 401(k) plan.
Allmerica Investments, Inc., (Allmerica Investments), an indirect
wholly-owned subsidiary of the Company, is the principal underwriter and general
distributor of Allmerica Select, and does not receive any compensation for sales
of the contracts. Commissions are paid by the Company to registered
representatives of certain independent broker-dealers. The Allmerica Select
Resource I and II contracts have a contingent deferred sales charge and no
deduction is made for sales charges at the time of the sale.
SA-9
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS
Transactions from contractowners and sponsor were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
-------------------------------------- ------------------------------------
UNITS AMOUNT UNITS AMOUNT
----------------- ----------------- -------------- -------------------
<S> <C> <C> <C> <C>
Select Aggressive Growth
Issuance of Units.......................... 1,288,438 $ 2,727,795 2,101,768 $ 3,936,189
Redemption of Units........................ (1,132,178) (2,366,925) (957,286) (1,690,005)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. 156,260 $ 360,870 1,144,482 $ 2,246,184
================= ================= ============== ===================
Select Growth
Issuance of Units.......................... 2,507,080 $ 7,046,398 2,730,612 $ 6,281,672
Redemption of Units........................ (1,336,247) (3,696,021) (1,057,929) (2,339,374)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. 1,170,833 $ 3,350,377 1,672,683 $ 3,942,298
================= ================= ============== ===================
Select Growth and Income
Issuance of Units.......................... 3,405,403 $ 7,979,976 3,667,631 $ 7,514,504
Redemption of Units........................ (1,555,002) (3,550,548) (1,640,818) (3,202,412)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. 1,850,401 $ 4,429,428 2,026,813 $ 4,312,092
================= ================= ============== ===================
Select Income
Issuance of Units.......................... 4,966,502 $ 6,226,766 8,416,901 $ 10,819,448
Redemption of Units........................ (5,039,471) (6,315,112) (3,468,453) (4,393,090)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. (72,969) $ (88,346) 4,948,448 $ 6,426,358
================= ================= ============== ===================
Money Market
Issuance of Units.......................... 12,869,583 $ 14,942,827 7,584,558 $ 8,923,916
Redemption of Units........................ (10,262,991) (11,715,179) (4,981,285) (5,827,471)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. 2,606,592 $ 3,227,648 2,603,273 $ 3,096,445
================= ================= ============== ===================
Select International Equity
Issuance of Units.......................... 1,632,828 $ 2,994,444 2,034,438 $ 3,122,371
Redemption of Units........................ (852,167) (1,642,148) (875,449) (1,316,384)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. 780,661 $ 1,352,296 1,158,989 $ 1,805,987
================= ================= ============== ===================
Select Capital Appreciation
Issuance of Units.......................... 1,161,062 $ 2,240,824 1,379,306 $ 2,337,529
Redemption of Units........................ (575,724) (1,084,388) (631,628) (1,031,806)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. 585,338 $ 1,156,436 747,678 $ 1,305,723
================= ================= ============== ===================
Select Emerging Markets
Issuance of Units.......................... 744,444 $ 713,738 615,779 $ 517,744
Redemption of Units........................ (236,288) (225,089) (34,069) (20,469)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. 508,156 $ 488,649 581,710 $ 497,275
================= ================= ============== ===================
Select Value Opportunity
Issuance of Units.......................... 1,989,327 $ 1,859,088 1,445,434 $ 1,413,471
Redemption of Units........................ (566,212) (511,654) (78,791) (68,903)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. 1,423,115 $ 1,347,434 1,366,643 $ 1,344,568
================= ================= ============== ===================
SA-10
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS (Continued)
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
-------------------------------------- ------------------------------------
UNITS AMOUNT UNITS AMOUNT
----------------- ----------------- -------------- -------------------
<S> <C> <C> <C> <C>
Select Strategic Growth
Issuance of Units.......................... 1,261,036 $ 1,280,343 739,435 $ 711,886
Redemption of Units........................ (299,949) (292,467) (45,405) (40,534)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. 961,087 $ 987,876 694,030 $ 671,352
================= ================= ============== ===================
Fidelity VIP High Income
Issuance of Units.......................... 2,918,757 $ 4,025,329 3,300,126 $ 4,794,054
Redemption of Units........................ (1,854,873) (2,539,679) (792,654) (1,129,968)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. 1,063,884 $ 1,485,650 2,507,472 $ 3,664,086
================= ================= ============== ===================
Fidelity VIP Equity-Income
Issuance of Units.......................... 3,349,652 $ 6,491,966 3,505,845 $ 6,320,675
Redemption of Units........................ (956,139) (1,722,762) (1,147,644) (1,984,434)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. 2,393,513 $ 4,769,204 2,358,201 $ 4,336,241
================= ================= ============== ===================
Fidelity VIP Growth
Issuance of Units.......................... 2,995,401 $ 7,719,228 2,171,242 $ 4,228,390
Redemption of Units........................ (605,269) (1,463,936) (802,937) (1,559,868)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. 2,390,132 $ 6,255,292 1,368,305 $ 2,668,522
================= ================= ============== ===================
T Rowe Price International Stock
Issuance of Units.......................... 1,071,365 $ 1,525,440 1,189,475 $ 1,590,309
Redemption of Units........................ (337,489) (474,990) (292,129) (382,285)
----------------- ----------------- -------------- -------------------
Net increase (decrease).................. 733,876 $ 1,050,450 897,346 $ 1,208,024
================= ================= ============== ===================
</TABLE>
NOTE 6 - DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Code, a variable annuity
contract, other than a contract issued in connection with certain types of
employee benefit plans, will not be treated as an annuity contract for federal
income tax purposes for any period for which the investments of the segregated
asset account on which the contract is based are not adequately diversified. The
Code provides that the "adequately diversified" requirement may be met if the
underlying investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by the Secretary of
The Treasury.
The Internal Revenue Service has issued regulations under Section 817(h)
of the Code. The Company believes that Allmerica Select satisfies the current
requirements of the regulations, and it intends that Allmerica Select will
continue to meet such requirements.
SA-11
<PAGE>
ALLMERICA SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 7 - PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of shares of the Funds by
Allmerica Select during the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
-------------------- ----------------- -----------------
<S> <C> <C>
Select Aggressive Growth..................... $1,638,369 $ 1,471,849
Select Growth................................ 5,877,912 2,097,694
Select Growth and Income..................... 8,339,540 2,057,405
Select Income................................ 4,932,188 4,201,588
Money Market................................. 11,409,678 7,782,607
Select International Equity.................. 2,200,839 1,013,120
Select Capital Appreciation.................. 1,798,814 716,926
Select Emerging Markets...................... 627,960 145,333
Select Value Opportunity..................... 1,778,862 344,746
Select Strategic Growth...................... 1,217,404 241,580
Fidelity VIP High Income..................... 3,828,930 1,743,048
Fidelity VIP Equity-Income................... 5,699,298 597,463
Fidelity VIP Growth.......................... 7,726,930 656,208
T. Rowe Price International Stock............ 1,388,542 309,575
----------------- -----------------
Totals..................................... $58,465,266 $ 23,379,142
================= =================
</TABLE>
NOTE 8 - PLAN OF SUBSTITUTION FOR PORTFOLIO OF THE TRUST
An application has been filed with the Securities and Exchange Commission
(SEC) seeking an order approving the substitution of shares of the Select
Investment Grade Income Fund (SIGIF) for all of the shares of the Select Income
Fund (SIF). To the extent required by law, approvals of such substitution will
also be obtained from the state insurance regulators in certain jurisdictions.
The effect of the substitution will be to replace SIF shares with SIGIF shares.
The substitution is planned to be effective on or about July 1, 2000.
SA-12
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Financial Statements Included in Part A
None
Financial Statements Included in Part B
Financial Statements for First Allmerica Financial Life Insurance
Company and
Financial Statements for Allmerica Select Separate Account of First
Allmerica Financial Life Insurance Company.
Financial Statements Included in Part C
None
(b) EXHIBITS
EXHIBIT 1 Vote of Board of Directors Authorizing Establishment of
Registrant dated August 20, 1991 was previously filed on
April 24, 1998 in Post-Effective Amendment No. 11 (File
Nos. 33-71058/811-8116), and is incorporated by reference
herein.
EXHIBIT 2 Not Applicable. Pursuant to Rule 26a-2, the Insurance Company
may hold the assets of the Registrant NOT pursuant to a trust
indenture or other such instrument.
EXHIBIT 3 (a) Underwriting and Administrative Services Agreement was
previously filed on April 24, 1998 in Post-Effective
Amendment No. 11 (File Nos. 33-71058/811-8116), and is
incorporated by reference herein.
(b) Sales Agreements (Select) with Commission Schedule
were previously filed on April 24, 1998 in
Post-Effective Amendment No. 11 (File Nos. 33-71058/
811-8116), and are incorporated by reference herein.
(c) General Agent's Agreement was previously filed on
April 24, 1998 in Post-Effective Amendment No. 11
(File Nos. 33-71058/811-8116), and is incorporated by
reference herein.
(d) Career Agent Agreement was previously filed on
April 24, 1998 in Post-Effective Amendment No. 11 (File
Nos. 33-71058/811-8116), and is incorporated by
reference herein.
(e) Registered Representative's Agreement was previously
filed on April 24, 1998 in Post-Effective Amendment
No. 11 (File Nos. 33-71058/811-8116), and is
incorporated by reference herein.
EXHIBIT 4 Specimen Generic Policy Form A3020-94 GRC was previously
filed on April 24, 1998 in Post-Effective Amendment No. 11
(File Nos. 33-71058/811-8116), and is incorporated by
reference herein. Specimen Policy Form B was previously
filed on May 7, 1996 in Post-Effective Amendment No. 5 (File
Nos. 33-71058/811-8116), and is incorporated by reference
herein.
EXHIBIT 5 Specimen Generic Application Form was previously filed on
April 24, 1998 in Post-Effective Amendment No. 11 (File
Nos. 33-71058/811-8116), and is incorporated by reference
herein.
<PAGE>
Specimen Application Form B was previously filed on May 7,
1996 in Post-Effective Amendment No. 5 (File Nos. 33-71058/
811-8116), and is incorporated by reference herein.
EXHIBIT 6 Articles of Incorporation were previously filed on April 30,
1996 in Post-Effective Amendment No. 4 (File Nos. 33-71058/
811-8116), which was effective on October 16, 1995, and are
incorporated by reference herein. Revised Bylaws were
previously filed on April 30, 1996 in Post-Effective
Amendment No. 4 (File Nos. 33-71058/811-8116), and are
incorporated by reference herein.
EXHIBIT 7 Not Applicable.
EXHIBIT 8 (a) Fidelity Service Agreement was previously filed on
April 30, 1996 in Post-Effective Amendment No. 4 (File
Nos. 33-71058/811-8116), and is incorporated by
reference herein.
(b) An Amendment to the Fidelity Service Agreement,
effective as of January 1, 1997, was previously filed
on April 30, 1997 in Post-Effective Amendment No. 7
(File Nos. 33-71058/811-8116), and is incorporated by
reference herein.
(c) Fidelity Service Contract, effective as of January 1,
1997. was previously filed on April 30, 1997 in
Post-Effective Amendment No. 7 (File Nos. 33-71058/
811-8116), and is incorporated by reference herein.
(d) T. Rowe Price Service Agreement was previously filed
on April 24, 1998 in Post-Effective Amendment No. 11
(File Nos. 33-71058/811-8116), and is incorporated by
reference herein.
(e) BFDS Agreements for lockbox and mailroom services were
previously filed on April 24, 1998 in Post-Effective
Amendment No. 11 (File Nos. 33-71058/811-8116), and
are incorporated by reference herein.
(f) Directors' Power of Attorney is filed herewith.
EXHIBIT 9 (a) Opinion of Counsel is filed herewith.
EXHIBIT 10 Consent of Independent Accountants is filed herewith.
EXHIBIT 11 None.
EXHIBIT 12 None.
EXHIBIT 13 Schedule for Computation of Performance Quotations was
previously filed on April 28, 2000 in Post-Effective
Amendment No. 13 of Registration Statement No. 33-71058/
811-8116, and is incorporated by reference herein.
EXHIBIT 14 Not Applicable.
EXHIBIT 15 (a) Participation Agreement between the Company and
Allmerica Investment Trust dated March 22, 2000 was
previously filed in April 2000 in Post-Effective
Amendment No. 11 of Registration Statement
No. 33-71052/811-8114, and is incorporated by
reference herein.
(b) Amendment dated March 29, 2000 and Amendment dated
November 13, 1998 were previously filed in April 2000
in Post-Effective Amendment No. 11 of Registration
Statement No. 33-71052/811-8114, and are incorporated
by reference herein.
<PAGE>
Participation Agreement between the Company and
Fidelity VIP, as amended, was previously filed on
April 24, 1998 in Post-Effective Amendment No. 12 of
Registration Statement No. 33- 71058/811-8116, and is
incorporated by reference herein.
(c) Participation Agreement between the Company and T. Rowe
Price International Series, Inc. was previously filed
on April 24, 1998 in Post-Effective Amendment No. 12 of
Registration Statement No. 33-71058/811-8116, and is
incorporated by reference herein.
(d) Form of Amendment to AIM Participation Agreement was
previously filed in April 2000 in Post-Effective
Amendment No. 12 of Registration Statement
No. 33-71054/811-8114 and is incorporated by reference
herein. Participation Agreement with AIM Variable
Insurance Funds, Inc. was previously filed on
August 27, 1998 in Post-Effective Amendment No. 2 in
Registration Statement No. 333-16929/811-7747, and is
incorporated by reference herein.
(e) Form of Participation Agreement with Alliance was
previously filed on April 26, 2000 in Post-Effective
Amendment No. 1 of Registration Statement
No. 333-87105/811-8114, and is incorporated by
reference herein.
(f) Participation Agreement with Bankers Trust was
previously filed on April 26, 2000 in Post-Effective
Amendment No. 1 of Registration Statement
No. 333-87105/811-8114, and is incorporated by
reference herein.
(g) Amendment to Variable Insurance Products Fund II
Participation Agreement dated March 29, 2000 and
Amendment dated October 4, 1999 were previously filed
in April 2000 in Post-Effective Amendment No. 11 of
Registration Statement No. 33-71052/811-8114, and are
incorporated by reference herein. Participation
Agreement, as amended, with Variable Insurance
Products Fund II was previously filed on April 24,
1998 in Post-Effective Amendment No. 9 of Registration
Statement No. 33-71052/811-8114, and is incorporated
by reference herein.
(g) Participation Agreement with Variable Insurance
Products Fund III was previously filed on April 26,
2000 in Post-Effective Amendment No. 1 of Registration
Statement No. 333-87105/811-8114, and is incorporated
by reference herein.
(h) Form of Participation Agreement with Franklin
Templeton was previously filed in April 2000 in
Post-Effective Amendment No. 12 of Registration
Statement No. 33-71054/811-8114 and is incorporated by
reference herein.
(i) Participation Agreement with INVESCO was previously
filed on April 26, 2000 in Post-Effective Amendment
No. 1 of Registration Statement No. 333-87105/
811-8114, and is incorporated by reference herein.
(j) Participation Agreement with Janus was previously
filed on April 26, 2000 in Post-Effective Amendment
No. 1 of Registration Statement No. 333-87105/
811-8114, and is incorporated by reference herein.
(k) Amendment to Kemper Participation Agreement was
previously filed in April 2000 in Post-Effective
Amendment No. 6 of Registration Statement
No. 333-10285/811-7769 and is incorporated by reference
herein. Participation Agreement with Kemper was
previously filed on November 6, 1996 in Pre-Effective
Amendment No. 1 in Registration Statement
No. 333-10285/811-7769, and is incorporated by
reference herein.
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The principal business address of all the following Directors and Officers
is:
440 Lincoln Street
Worcester, Massachusetts 01653
<TABLE>
<CAPTION>
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
NAME AND POSITION WITH COMPANY PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
------------------------------ ----------------------------------------------
<S> <C>
Bruce C. Anderson Director (since 1996), Vice President (since 1984) and Assistant
Director and Vice President Secretary (since 1992) of First Allmerica
Warren E. Barnes Vice President (since 1996) and Corporate Controller (since 1998)
Vice President and of First Allmerica
Corporate Controller
Mark R. Colborn Director (since 2000) and Vice President (since 1992) of First
Director and Vice President Allmerica
Charles F. Cronin Secretary (since 2000) and Counsel (since 1996) of First Allmerica;
Secretary Secretary and Counsel (since 1998) of Allmerica Financial
Corporation; Attorney (1991-1996) of Nutter, McClennen & Fish
J. Kendall Huber Director, Vice President and General Counsel of First Allmerica
Director, Vice President and (since 2000); Vice President (1999) of Promos Hotel Corporation;
General Counsel Vice President & Deputy General Counsel (1998-1999) of Legg
Mason, Inc.; Vice President and Deputy General Counsel (1995-
1998) of USF&G Corporation.
John P. Kavanaugh Director and Chief Investment Officer (since 1996) and Vice
Director, Vice President and President (since 1991) of First Allmerica; Vice President (since
Chief Investment Officer 1998) of Allmerica Financial Investment Management Services,
Inc.; and President (since 1995) and Director (since 1996) of
Allmerica Asset Management, Inc.
J. Barry May Director (since 1996) of First Allmerica; Director and President
Director (since 1996) of The Hanover Insurance Company; and Vice
President (1993 to 1996) of The Hanover Insurance Company
Mark C. McGivney Vice President (since 1997) and Treasurer (since 2000) of First
Vice President and Treasurer Allmerica; Associate, Investment Banking (1996 -1997) of Merrill
Lynch & Co.; Associate, Investment Banking (1995) of Salomon
Brothers, Inc.; Treasurer (since 2000) of Allmerica Investments,
Inc., Allmerica Asset Management, Inc. and Allmerica Financial
Investment Management Services, Inc.
John F. O'Brien Director, President and Chief Executive Officer (since 1989) of
Director, President and Chief First Allmerica
Executive Officer
<PAGE>
Edward J. Parry, III Director and Chief Financial Officer (since 1996), Vice President
Director, Vice President, (since 1993), and Treasurer (1993-2000) of First Allmerica
Chief Financial Officer
Richard M. Reilly Director (since 1996) and Vice President (since 1990) of First
Director and Vice President Allmerica; President (since 1995) of Allmerica Financial Life
Insurance and Annuity Company; Director (since 1990) of Allmerica
Investments, Inc.; and Director and President (since 1998) of Allmerica
Financial Investment Management Services, Inc.
Robert P. Restrepo, Jr. Director and Vice President (since 1998) of First Allmerica;
Director and Vice President Director (since 1998) of The Hanover Insurance Company; Chief
Executive Officer (1996 to 1998) of Travelers Property & Casualty;
Senior Vice President (1993 to 1996) of Aetna Life & Casualty
Company
Eric A. Simonsen Director (since 1996) and Vice President (since 1990) of First
Director and Vice President Allmerica; Director (since 1991) of Allmerica Investments, Inc.;
and Director (since 1991) of Allmerica Financial Investment
Management Services, Inc.
Gregory D. Tranter Director and Vice President (since 2000) of First Allmerica; Vice
Director and Vice President President (since 1998) of The Hanover Insurance Company; Vice
President (1996-1998) of Travelers Property & Casualty; Director
of Geico Team (1983-1996) of Aetna Life & Casualty
</TABLE>
<PAGE>
ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
<TABLE>
<S><C>
Allmerica Financial Corporation
Delaware
| | | | | | | |
________________________________________________________________________________________________________________________________
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Financial Allmerica, Allmerica First Allmerica AFC Capital Allmerica First Sterling
Asset Profiles, Inc. Inc. Funding Financial Life Trust I Services Limited
Management, Inc. Corp. Insurance Corporation
Company
Massachusetts California Massachusetts Massachusetts Massachusetts Delaware Massachusetts Bermuda
| | |
| ___________________________________________________________ ________________
| | | | |
| 100% 99.2% 100% 100%
| Advantage Allmerica Allmerica First Sterling
| Insurance Trust Financial Life Reinsurance
| Network, Inc. Company, N.A. Insurance and Company
| Annuity Company Limited
|
| Delaware Federally Chartered Delaware Bermuda
| |
|_________________________________________________________________________________________________________________________
| | | | | | | | | |
| 100% 100% 100% 100% 100% 100% 100% 100% 100%
| Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica
| Investments, Investment Financial Financial Investments Investments Investments Investments Investments
| Inc. Management Investment Services Insurance Insurance Insurance Insurance Insurance
| Company, Inc. Management Insurance Agency Inc. Agency of Agency Inc. Agency Inc. Agency Inc.
| Services, Inc. Agency, Inc. of Alabama Florida Inc. of Georgia of Kentucky of Mississippi
|
|Massachusetts Massachusetts Massachusetts Massachusetts Alabama Florida Georgia Kentucky Mississippi
|
________________________________________________________________
| | | |
100% 100% 100% 100%
Allmerica Sterling Risk Allmerica Allmerica
Property Management Benefits, Inc. Asset
& Casualty Services, Inc. Management,
Companies, Inc. Limited
Delaware Delaware Florida Bermuda
|
________________________________________________
| | |
100% 100% 100%
The Hanover Allmerica Citizens
Insurance Financial Insurance
Company Insurance Company
Brokers, Inc. of Illinois
New Hampshire Massachusetts Illinois
|
________________________________________________________________________________________________________________________________
| | | | | | | |
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Allmerica The Hanover Hanover Texas Citizens Massachusetts Allmerica AMGRO
Financial Plus American Insurance Corporation Bay Insurance Financial Inc.
Benefit Insurance Insurance Management Company Alliance
Insurance Agency, Inc. Company Company, Inc. Insurance
Company Company
Pennsylvania Massachusetts New Hampshire Texas Delaware New Hampshire New Hampshire Massachusetts
| |
________________________________________________ ________________
| | | |
100% 100% 100% 100%
Citizens Citizens Citizens Lloyds Credit
Insurance Insurance Insurance Corporation
Company Company Company
of Ohio of America of the
Midwest
Ohio Michigan Indiana Massachusetts
|
_________________
|
100%
Citizens
Management
Inc.
Michigan
----------------- ----------------- -----------------
Allmerica Greendale AAM
Equity Special Equity Fund
Index Pool Placements
Fund
Massachusetts Massachusetts Massachusetts
-------- Grantor Trusts established for the benefit of First Allmerica,
Allmerica Financial Life, Hanover and Citizens
--------------- ----------------
Allmerica Allmerica
Investment Trust Securities
Trust
Massachusetts Massachusetts
-------- Affiliated Management Investment Companies
...............
Hanover Lloyd's
Insurance
Company
Texas
-------- Affiliated Lloyd's plan company, controlled by Underwriters
for the benefit of The Hanover Insurance Company
----------------- -----------------
AAM Growth AAM High Yield
& Income Fund, L.L.C.
Fund L.P.
Delaware Massachusetts
________ L.P. or L.L.C. established for the benefit of First Allmerica,
Allmerica Financial Life, Hanover and Citizens
</TABLE>
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
AAM Growth & Income Fund, L.P 440 Lincoln Street Limited Partnership
Worcester MA 01653
Advantage Insurance Network Inc. 440 Lincoln Street Insurance Agency
Worcester MA 01653
AFC Capital Trust I 440 Lincoln Street Statutory Business Trust
Worcester MA 01653
Allmerica Asset Management Limited 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Asset Management, Inc. 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Benefits, Inc. 440 Lincoln Street Non-insurance medical services
Worcester MA 01653
Allmerica Equity Index Pool 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
Allmerica Financial Alliance Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance
Allmerica Financial Benefit Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance
Allmerica Financial Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Allmerica Financial Insurance 440 Lincoln Street Insurance Broker
Brokers, Inc. Worcester MA 01653
Allmerica Financial Life Insurance 440 Lincoln Street Life insurance, accident and health
and Annuity Company (formerly known Worcester MA 01653 insurance, annuities, variable
as SMA Life Assurance Company annuities and variable life insurance
Allmerica Financial Services Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Funding Corp. 440 Lincoln Street Special purpose funding vehicle for
Worcester MA 01653 commercial paper
Allmerica, Inc. 440 Lincoln Street Common employer for Allmerica
Worcester MA 01653 Financial Corporation entities
Allmerica Financial Investment 440 Lincoln Street Investment advisory services
Management Services, Inc. (formerly Worcester MA 01653
known as Allmerica Institutional Services,
Inc. and 440 Financial Group of
Worcester, Inc.)
Allmerica Investment Management 440 Lincoln Street Investment advisory services
Company, Inc. Worcester MA 01653
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-dealer
Worcester MA 01653
Allmerica Investments Insurance Agency 200 Southbridge Parkway Insurance Agency
Inc. of Alabama Suite 400
Birmingham, AL 35209
Allmerica Investments Insurance Agency of 14211 Commerce Way Insurance Agency
Florida, Inc. Miami Lakes, FL 33016
Allmerica Investment Insurance Agency 1455 Lincoln Parkway Insurance Agency
Inc. of Georgia Suite 300
Atlanta, GA 30346
Allmerica Investment Insurance Agency Barkley Bldg-Suite 105 Insurance Agency
Inc. of Kentucky 12700 Shelbyville Road
Louisiana, KY 40423
<PAGE>
Allmerica Investments Insurance Agency 631 Lakeland East Drive Insurance Agency
Inc. of Mississippi Flowood, MS 39208
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Plus Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Property & Casualty 440 Lincoln Street Holding Company
Companies, Inc. Worcester MA 01653
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services Corporation 440 Lincoln Street Internal administrative services
Worcester MA 01653 provider to Allmerica Financial
Corporation entities
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national trust
Worcester MA 01653 company
AMGRO, Inc. 100 North Parkway Premium financing
Worcester MA 01605
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company of America 645 West Grand River Multi-line property and casualty
Howell MI 48843 insurance
Citizens Insurance Company of Illinois 333 Pierce Road Multi-line property and casualty
Itasca IL 60143 insurance
Citizens Insurance Company of the 3950 Priority Way Multi-line property and casualty
Midwest South Drive, Suite 200 insurance
Indianapolis IN 46280
Citizens Insurance Company of Ohio 8101 N. High Street Multi-line property and casualty
P.O. Box 342250 insurance
Columbus OH 43234
Citizens Management, Inc. 645 West Grand River Services management company
Howell MI 48843
Financial Profiles 5421 Avenida Encinas Computer software company
Carlsbad, CA 92008
First Allmerica Financial Life Insurance 440 Lincoln Street Life, pension, annuity, accident
Company (formerly State Mutual Life Worcester MA 01653 and health insurance company
Assurance Company of America)
First Sterling Limited 440 Lincoln Street Holding Company
Worcester MA 01653
<PAGE>
First Sterling Reinsurance Company 440 Lincoln Street Reinsurance Company
Limited Worcester MA 01653
Greendale Special Placements Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
The Hanover American Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance
The Hanover Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
Hanover Texas Insurance Management 801 East Campbell Road Attorney-in-fact for Hanover Lloyd's
Company, Inc. Richardson TX 75081 Insurance Company
Hanover Lloyd's Insurance Company Hanover Lloyd's Insurance Multi-line property and casualty
Company insurance
Lloyds Credit Corporation 440 Lincoln Street Premium financing service
Worcester MA 01653 franchises
Massachusetts Bay Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
Sterling Risk Management Services, Inc. 440 Lincoln Street Risk management services
Worcester MA 01653
</TABLE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of October 31, 2000, there were 1,300 Contact holders of qualified
Contracts and 2,015 Contract holders of non-qualified Contracts.
ITEM 28. INDEMNIFICATION
To the fullest extent permissible under Massachusetts General Laws, no
director shall be personally liable to the Company or any policyholder for
monetary damages for any breach of fiduciary duty as a director,
notwithstanding any provision of law to the contrary; provided, however,
that this provision shall not eliminate or limit the liability of a
director:
1. for any breach of the director's duty of loyalty to the Company or its
policyholders;
2. for acts or omissions not in good faith, or which involve intentional
misconduct or a knowing violation of law;
3. for liability, if any, imposed on directors of mutual insurance
companies pursuant to M.G.L.A. c. 156B Section 61 or M.G.L.A. c.156B
Section 62;
4. for any transactions from which the director derived an improper
personal benefit.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
- VEL Account, VEL II Account, VEL Account III, Separate Account SPL-D,
Separate Account IMO, Select Account III, Inheiritage Account,
Separate Accounts VA-A, VA-B, VA-C, VA-G, VA-H,
<PAGE>
VA-K, VA-P, Allmerica Select Separate Account II, Group VEL Account,
Separate Account KG, Separate Account KGC, Fulcrum Separate Account,
Fulcrum Variable Life Separate Account, Separate Account FUVUL,
Separate Account IMO and Allmerica Select Separate Account of
Allmerica Financial Life Insurance and Annuity Company
- Inheiritage Account, VEL II Account, Separate Account I, Separate
Account VA-K, Separate Account VA-P, Allmerica Select Separate Account
II, Group VEL Account, Separate Account KG, Separate Account KGC,
Fulcrum Separate Account, and Allmerica Select Separate Account of
First Allmerica Financial Life Insurance Company.
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
<TABLE>
<CAPTION>
NAME POSITION OR OFFICE WITH UNDERWRITER
---- -----------------------------------
<S> <C>
Margaret L. Abbott Vice President
Emil J. Aberizk, Jr Vice President
Edward T. Berger Vice President and Chief Compliance Officer
Michael J. Brodeur Vice President Operations
Mark R. Colborn Vice President
Charles F. Cronin Secretary/Clerk
Claudia J. Eckels Vice President
Philip L. Heffernan Vice President
J. Kendall Huber Director
Mark C. McGivney Treasurer
William F. Monroe, Jr. President, Director and Chief Executive Officer
Stephen Parker Vice President and Director
Richard M. Reilly Director and Chairman of the Board
Eric A. Simonsen Director
</TABLE>
(c) As indicated in Part B (Statement of Additional Information) in
response to Item 20(c), there were no commissions retained by
Allmerica Investments, Inc., the principal underwriter of the
Contracts, for sales of variable contracts funded by the Registrant
in 1999. No other commissions or other compensation was received by
the principal underwriter, directly or indirectly, from the
Registrant during the Registrant's last fiscal year.
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Each account, book or other document required to be maintained by
Section 31(a) of 1940 Act and Rules 31a-1 to 31a-3 thereunder are
maintained by the Company at 440 Lincoln Street, Worcester,
Massachusetts.
ITEM 31. MANAGEMENT SERVICES
Effective March 31, 1995, the Company provides daily unit value
calculations and related services for the Company's separate accounts.
ITEM 32. UNDERTAKINGS
(a) The Registrant hereby undertakes to file a post-effective amendment
to this registration statement as frequently as is necessary to
ensure that the audited financial statements in the registration
statement are never more than 16 months old for so long as payments
under the variable annuity contracts may be accepted.
(b) The Registrant hereby undertakes to include as part of the
application to purchase a Contract a space that the applicant can
check to request a Statement of Additional Information.
(c) The Registrant hereby undertakes to deliver a Statement of Additional
Information and any financial statements promptly upon written or
oral request, according to the requirements of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act
may be permitted to Directors, Officers and Controlling Persons of
Registrant under any registration statement, underwriting agreement
or otherwise, Registrant has been advised that, in the opinion of the
SEC, such indemnification is against public policy as expressed in
the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a Director,
Officer or Controlling Person of Registrant in the successful defense
of any action, suit or proceeding) is asserted by such Director,
Officer or Controlling Person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the 1933 Act and will
be governed by the final adjudication of such issue.
(e) The Company hereby represents that the aggregate fees and charges
under the Contracts are reasonable in relation to the services
rendered, expenses expected to be incurred, and risks assumed by the
Company.
ITEM 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON
SECTION 403(b) PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT
PROGRAM
Registrant, a separate account of First Allmerica Financial Life Insurance
Company ("First Allmerica"), states that it is (a) relying on Rule 6c-7
under the 1940 Act with respect to withdrawal restrictions under the Texas
Optional Retirement Program ("Program") and (b) relying on the "no-action"
letter (Ref. No. IP-6-88) issued on November 28, 1988 to the American
Council of Life Insurance, in applying the withdrawal restrictions of
Internal Revenue Code Section 403(b)(11). Registrant has taken the
following steps in reliance on the letter:
1. Appropriate disclosures regarding the redemption/withdrawal
restrictions imposed by the Program and by Section 403(b)(11) have been
included in the prospectus of each registration statement used in
connection with the offer of the Company's variable contracts.
2. Appropriate disclosures regarding the redemption/withdrawal
restrictions imposed by the Program and
<PAGE>
by Section 403(b)(11) have been included in sales literature used in
connection with the offer of the Company's variable contracts.
3. Sales Representatives who solicit participants to purchase the
variable contracts have been instructed to specifically bring the
redemption withdrawal restrictions imposed by the Program and by
Section 403(b)(11) to the attention of potential participants.
4. A signed statement acknowledging the participant's understanding of
(i) the restrictions on redemption/withdrawal imposed by the Program
and by Section 403(b)(11) and (ii) the investment alternatives
available under the employer's arrangement will be obtained from each
participant who purchases a variable annuity contract prior to or at
the time of purchase.
Registrant hereby represents that it will not act to deny or limit a
transfer request except to the extent that a Service- Ruling or written
opinion of counsel, specifically addressing the fact pattern involved and
taking into account the terms of the applicable employer plan, determines
that denial or limitation is necessary for the variable annuity contracts
to meet the requirements of the Program or of Section 403(b). Any transfer
request not so denied or limited will be effected as expeditiously as
possible.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Worcester, and Commonwealth of Massachusetts, on the 1st day of
December, 2000.
ALLMERICA SELECT SEPARATE ACCOUNT OF
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
By: /s/ Sheila B. St. Hilaire
-------------------------
Sheila B. St. Hilaire
Assistant Vice President and Counsel
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/S/ Warren E. Barnes Vice President and Corporate Controller December 1,
-------------------------
Warren E. Barnes 2000
Edward J. Parry* Director, Vice President and Chief Financial Officer
-------------------------
Richard M. Reilly* Director and Vice President
-------------------------
John F. O'Brien* Director, President and Chief Executive Officer
-------------------------
Bruce C. Anderson* Director and Vice President
-------------------------
Mark R. Colborn* Director and Vice President
-------------------------
John P. Kavanaugh* Director, Vice President and Chief Investment Officer
-------------------------
J. Kendall Huber* Director, Vice President and General Counsel
-------------------------
J. Barry May* Director
-------------------------
Robert P. Restrepo, Jr.* Director and Vice President
-------------------------
Eric A. Simonsen* Director and Vice President
-------------------------
Gregory D. Tranter* Director and Vice President
-------------------------
</TABLE>
* Sheila B. St. Hilaire, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named Directors and Officers of the
Registrant pursuant to the Power of Attorney dated September 18, 2000 duly
executed by such persons.
/s/ Sheila B. St. Hilaire
---------------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact
(33-71058)
<PAGE>
EXHIBIT TABLE
Exhibit 8(f) Directors' Power of Attorney
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
