<PAGE>
File No. 33-85916
811-8448
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 2
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Post-Effective Amendment No. 2
SEPARATE ACCOUNT VA-P OF ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
----------------------------------------------------
(Exact Name of Registrant)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
440 Lincoln Street
Worcester MA 01653
(Address of Principal Executive Office)
Abigail M. Armstrong, Secretary and Counsel
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
440 Lincoln Street
Worcester MA 01653
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective:
___on______________pursuant to paragraph (a) of Rule 485
___60 days after filing pursuant to paragraph (a) of Rule 485
___immediately after filing pursuant to paragraph (b) of Rule 485
X on November 1, 1995 pursuant to paragraph (b) of Rule 485
--- ----------------
VARIABLE ANNUITY POLICIES
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940,
Registrant hereby declares that an indefinite amount of its securities is being
registered under the Securities Act of 1933. The Rule 24f-2 Notice for the
issuer's fiscal year ending December 31, 1995 will be filed on or about
February 15, 1996.
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
Form N-4 Item No. Caption in Prospectus
- ----------------- ---------------------
1. . . . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . . . "Special Terms"
3. . . . . . . . . . . . . . "Summary"; "Annual and Transaction Expenses"
4. . . . . . . . . . . . . . Omitted
5. . . . . . . . . . . . . . "The Company and the Separate Account,"
"Pioneer Variable Contracts Trust"
6. . . . . . . . . . . . . . "Charges and Deductions:
7. . . . . . . . . . . . . . "The Variable Annuity Policies"
8. . . . . . . . . . . . . . "The Variable Annuity Policies"
9. . . . . . . . . . . . . . "Death Benefit"
10 . . . . . . . . . . . . . "Purchase Payments"; "Computation of Policy
Values and Annuity Payments"
11 . . . . . . . . . . . . . "Surrender"; "Partial Redemption"
12 . . . . . . . . . . . . . "Federal Tax Considerations"
13 . . . . . . . . . . . . . "Legal Matters"
14 . . . . . . . . . . . . . "Table of Contents of the Statement of
Additional Information"
Form N-4 Item No. Caption in Statement of Additional Information
- ----------------- ----------------------------------------------
15 . . . . . . . . . . . . . "Cover Page"
16 . . . . . . . . . . . . . "Table of Contents"
17 . . . . . . . . . . . . . "General Information and History"
18 . . . . . . . . . . . . . "Services"
19 . . . . . . . . . . . . . "Underwriters"
20 . . . . . . . . . . . . . "Underwriters"
21 . . . . . . . . . . . . . "Performance Information"
22 . . . . . . . . . . . . . "Annuity Payments"
23 . . . . . . . . . . . . . "Financial Statements"
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
INDIVIDUAL VARIABLE ANNUITY POLICIES FUNDED THROUGH SUBACCOUNTS OF
SEPARATE ACCOUNT VA-P
INVESTING IN SHARES OF PIONEER VARIABLE CONTRACTS TRUST
This Prospectus describes individual variable annuity policies and group
variable annuity policies including certificates issued thereunder ("Policies")
offered by SMA Life Assurance Company ("Company") to individuals and businesses
in connection with investment and retirement plans which may or may not qualify
for special federal income tax treatment. (For information about the tax status
when used with a particular type of plan, see "FEDERAL TAX CONSIDERATIONS.") The
following is a summary of information about these Policies. More detailed
information can be found under the referenced captions in this Prospectus.
This Prospectus generally describes only the variable accumulation and variable
annuity aspects of the Policies, except where fixed values or fixed annuity
payments are specifically mentioned. ALLOCATIONS TO AND TRANSFERS TO AND FROM
THE GENERAL ACCOUNT OF THE COMPANY ARE NOT PERMITTED IN CERTAIN STATES. Certain
additional information about the Policies is contained in a Statement of
Additional Information, dated November 1, 1995, as may be amended from time to
time, which has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The Table of Contents for the Statement of
Additional Information is listed on page 3 of this Prospectus. The Statement of
Additional Information is available upon request and without charge. To obtain
the Statement of Additional Information, fill out and return the attached
request card or contact Annuity Customer Services, Allmerica Financial Life
Insurance and Annuity Company, 440 Lincoln Street, Worcester, Massachusetts
01653.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
PIONEER VARIABLE CONTRACTS TRUST.
INVESTORS SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PROSPECTUS DATED MARCH 1, 1995
REVISED NOVEMBER 1, 1995
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . 3
SPECIAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ANNUAL AND TRANSACTION EXPENSES. . . . . . . . . . . . . . . . . . . . . . . 7
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
WHAT IS AN ANNUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY. . . . . . . . . . . . . . . . 10
STATE RIGHT TO REVOKE OR SURRENDER . . . . . . . . . . . . . . . . . . . . . 10
DESCRIPTION OF THE COMPANY AND THE SEPARATE ACCOUNT. . . . . . . . . . . . . 10
PIONEER VARIABLE CONTRACTS TRUST . . . . . . . . . . . . . . . . . . . . . . 11
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
A. Contingent Deferred Sales Charge . . . . . . . . . . . . . . . . . . 13
B. Premium Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
C. Policy Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
D. Separate Account Annual Charge . . . . . . . . . . . . . . . . . . . 15
THE VARIABLE ANNUITY POLICIES. . . . . . . . . . . . . . . . . . . . . . . . 16
A. Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 16
B. Transfer Privilege . . . . . . . . . . . . . . . . . . . . . . . . . 17
C. Surrender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
D. Partial Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 18
E. Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
F. The Spouse of the Policy Owner as Beneficiary. . . . . . . . . . . . 19
G. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
H. Electing the Form of Annuity and Annuity Date. . . . . . . . . . . . 19
I. Description of Variable Annuity Options. . . . . . . . . . . . . . . 20
J. Norris Decision. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
K. Computation of Policy Values and Annuity Payments. . . . . . . . . . 21
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<PAGE>
TABLE OF CONTENTS (CONTINUED)
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 23
A. Qualified and Non-Qualified Policies . . . . . . . . . . . . . . . . 23
B. Taxation of the Policies in General. . . . . . . . . . . . . . . . . 23
C. Tax Withholding and Penalties. . . . . . . . . . . . . . . . . . . . 24
D. Qualified Employee Benefit Plans . . . . . . . . . . . . . . . . . . 24
E. Qualified Employee Pension and Profit Sharing Trusts
and Qualified Annuity Plans . . . . . . . . . . . . . . . . . . . 24
F. Self-Employed Individuals. . . . . . . . . . . . . . . . . . . . . . 24
G. Individual Retirement Account Plans. . . . . . . . . . . . . . . . . 24
H. Simplified Employee Pensions . . . . . . . . . . . . . . . . . . . . 25
I. Public School Systems and Certain Tax-Exempt Organizations . . . . . 25
J. Texas Optional Retirement Program. . . . . . . . . . . . . . . . . . 25
K. Section 457 Plans for State Governments and Tax-Exempt Entities. . . 25
L. Non-Individual Owners. . . . . . . . . . . . . . . . . . . . . . . . 26
REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
CHANGES IN OPERATIONS OF THE SEPARATE ACCOUNT. . . . . . . . . . . . . . . . 26
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
FURTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
APPENDIX A - MORE INFORMATION ABOUT THE GENERAL ACCOUNT. . . . . . . . . . . 26
APPENDIX B - EXCHANGE OFFER. . . . . . . . . . . . . . . . . . . . . . . . . 27
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE SEPARATE ACCOUNT AND THE COMPANY . . . . . . . . . . . . . . 2
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Subaccounts and of the value of all accumulations in the General Account of the
Company then credited to the Policy, on any date before the date annuity
payments are to begin.
ACCUMULATION UNIT: a measure of the Policy Owner's interest in a Subaccount
before annuity payments begin.
ANNUITANT: the person designated in the Policy to whom the Annuity is to be
paid.
ANNUITY DATE: the date on which annuity payments begin.
ANNUITY UNIT: a measure of the value of the periodic annuity payments under the
Policy.
FIXED AMOUNT ANNUITY: an Annuity providing for payments which remain fixed in
amount throughout the annuity payment period.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate investment account.
POLICY OWNER: the owner of a Policy who may exercise all rights under the
Policy, subject to the consent of any irrevocable beneficiary. After the Annuity
Date, the Annuitant will be the Policy Owner.
SEPARATE ACCOUNT: Separate Account VA-P of the Company. Separate Account VA-P
consists of assets segregated from other assets of the Company. The investment
performance of the assets of the Separate Account is determined separately from
the other assets of the Company. The assets of the Separate Account are not
chargeable with liabilities arising out of any other business which the Company
may conduct.
SUBACCOUNT: a subdivision of Separate Account VA-P. Each Subaccount available
under the Policies invests exclusively in the shares of a corresponding
investment Portfolio of Pioneer Variable Contracts Trust.
SURRENDER VALUE: the Accumulated Value of the Policy minus any Policy fee and
contingent deferred sales charge applicable upon surrender.
UNDERLYING PORTFOLIOS: the International Growth Portfolio, the Capital
Growth Portfolio, the Real Estate Growth Portfolio, the Equity Income
Portfolio, the Balanced Portfolio, Swiss Franc Bond Portfolio, the America
Income Portfolio and the Money Market Portfolio of the Pioneer Variable
Contracts Trust.
VALUATION DATE: a day on which the net asset value of the shares of any of the
Underlying Portfolios is determined and Unit values of the Subaccounts are
determined. Valuation dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, partial withdrawal, or surrender of a Policy was
received) when there is a sufficient degree of trading in an Underlying
Portfolio's securities such that the current net asset value of the Subaccounts
may be materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
VARIABLE ANNUITY: an Annuity providing for payments varying in amount in
accordance with the investment experience of certain Underlying Portfolios.
-4-
<PAGE>
SUMMARY
INVESTMENT OPTIONS. The Policies permit net purchase payments to be allocated
among Subaccounts available under the Policies, which are subdivisions of
Separate Account VA-P ("Separate Account"), a separate account of the Company,
and, where available, a fixed interest account ("General Account") of the
Company (together "accounts"). The Separate Account is registered as a unit
investment trust under the Investment Company Act of 1940, as amended, (the
"1940 Act") but such registration does not involve the supervision of the
management or investment practices or policies of the Separate Account by the
Securities and Exchange Commission (the "SEC"). For information about the
Separate Account and the Company, see "DESCRIPTION OF THE COMPANY AND THE
SEPARATE ACCOUNT." For more information about the General Account see
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Each Subaccount available under the Policies invests its assets without sales
charge in a corresponding investment Portfolio of the Pioneer Variable
Contracts Trust (the "Fund"). The Fund is an open-end, diversified series
investment company. The Fund consists of eight different Portfolios:
International Growth Portfolio, Capital Growth Portfolio, Real Estate Growth
Portfolio, Equity-Income Portfolio, Balanced Portfolio, Swiss Franc Bond
Portfolio, America Income Portfolio and Money Market Portfolio ("Underlying
Portfolios"). Each Underlying Portfolio operates pursuant to different
investment objectives, discussed below.
INVESTMENT IN THE SUBACCOUNTS. The value of each Subaccount will vary daily
depending on the performance of the investments made by the respective
Underlying Portfolios.
There can be no assurance that the investment objectives of the Underlying
Portfolios can be achieved or that the value of a Policy will equal or exceed
the aggregate amount of the purchase payments made under the Policy. For more
information about the investments of the Underlying Portfolios, see "DESCRIPTION
OF THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUND." The accompanying
prospectus of the Fund describes the investment objectives and risks of each of
the Underlying Portfolios.
Dividends or capital gains distributions received from an Underlying Portfolio
are reinvested in additional shares of that Underlying Portfolio, which are
retained as assets of the Subaccount.
TRANSFERS AMONG ACCOUNTS. Prior to the Annuity Date, the Policies permit amounts
to be transferred among the Subaccounts and, where available, between the
General Account and the Subaccounts, subject to certain limitations described
under "Transfer Privilege."
ANNUITY PAYMENTS. The Policy Owner may select variable annuity payments based on
certain Subaccounts, fixed-amount annuity payments, or a combination of
fixed-amount and variable annuity payments. Fixed-amount annuity payments are
guaranteed by the Company.
See "THE VARIABLE ANNUITY POLICIES" for information about annuity payment
options, selecting the Annuity Date, and how annuity payments are calculated.
REVOCATION RIGHTS. An individual purchasing a Policy intended to qualify as an
Individual Retirement Annuity ("IRA") may revoke the Policy at any time between
the date of the application and the date 10 days after receipt of the Policy. In
certain states any Policy owner may have special revocation rights. For more
information about revocation rights, see "RIGHT TO REVOKE INDIVIDUAL RETIREMENT
ANNUITY" and "STATE RIGHT TO REVOKE OR SURRENDER."
PAYMENT MINIMUMS AND MAXIMUMS. Under the Policies, purchase payments are not
limited as to frequency and number, but no payments may be submitted within one
month of the Annuity Date. Generally, the initial purchase payment must be at
least $600 and subsequent payments must be at least $50. Under a monthly
automatic payment plan or a payroll deduction plan, each purchase payment must
be at least $50. However, in cases where the contribution on behalf of an
employee under an employer-sponsored retirement plan is less than $600 but more
than $300 annually, the Company may issue a Policy on the employee, if the
plan's average annual contribution per eligible plan participant is at least
$600.
The Company reserves the right to set maximum limits on the aggregate purchase
payments made under the Policy. In addition, the Internal Revenue Code imposes
maximum limits on contributions under qualified annuity plans.
CHARGES AND DEDUCTIONS. For a complete discussion of charges, see "CHARGES AND
DEDUCTIONS."
A. CONTINGENT DEFERRED SALES CHARGE. No sales charge is deducted from purchase
payments at the time the payments are made. However, depending on the length of
time that the payments to which the withdrawal is attributed have remained
credited under the Policy a contingent deferred sales charge of up to 7% may be
assessed for a surrender, partial redemption, or election of an annuity for a
specified number of years.
B. ANNUAL POLICY FEE. A Policy Fee equal to $30 will be deducted from the
Accumulated Value under the Policy for administrative expense on the Policy
Anniversary, or upon full surrender of the Policy during the year, when the
Accumulated Value is $50,000 or less. The Policy Fee is currently waived for
policies issued to a trustee of a 401(k) plan, but the Company reserves the
right to impose the Policy Fee on such policies.
-5-
<PAGE>
C. PREMIUM TAXES. A deduction for State and local premium taxes, if any, may be
made as described under "Premium Taxes."
D. SEPARATE ACCOUNT ASSET CHARGES. A daily charge, equivalent to 1.25% per
annum, is made on the value of each Subaccount at each Valuation Date. The
charge is retained for the mortality and expense risks the Company assumes. In
addition, to cover administrative expenses, the Company deducts a daily charge
of 0.15% per annum of the value of the average net assets in the Subaccounts
available under the Policies.
E. TRANSFER CHARGE. The Company currently makes no charge for transfers. The
Company guarantees that the first twelve transfers in a Policy year will be free
of charge. For the thirteenth and each subsequent transfer, the Company reserves
the right to assess a charge, guaranteed never to exceed $25, to reimburse the
Company for the costs of processing the transfer.
F. CHARGES OF THE UNDERLYING PORTFOLIOS. In addition to the charges described
above, certain fees and expenses are deducted from the assets of the Underlying
Portfolios. These charges vary among the Underlying Portfolios, and currently
range from an annual rate of 0.75% to an annual rate of 1.50% of average daily
net assets.
SURRENDER OR PARTIAL REDEMPTION. At any time before the Annuity Date, the Policy
Owner has the right either to surrender the Policy in full and receive its
current value, minus the Policy Fee and any applicable contingent deferred sales
charge, or to redeem a portion of the Policy's value subject to certain limits
and any applicable contingent deferred sales charge. There may be tax
consequences for surrender or redemptions. For further information, see
"Surrender" and "Partial Redemption," "Contingent Deferred Sales Charge," and
"FEDERAL TAX CONSIDERATIONS."
DEATH BENEFIT. If the Annuitant or Policy Owner should die before the Annuity
Date, a death benefit will be paid to the beneficiary. Upon death of the
Annuitant, the death benefit is equal to the greatest of (a) the Accumulated
Value under the Policy, or (b) the sum of the gross payment(s) made under the
Policy reduced proportionally to reflect all partial redemptions, or (c) the
death benefit that would have been payable on the most recent fifth year Policy
Anniversary, increased for subsequent purchase payments and reduced
proportionally to reflect withdrawals after that date. Upon death of the Policy
Owner, the death benefit is equal to the Accumulated Value of the Policy.
SALES OF POLICIES. The Policies are sold by agents of the Company who are
authorized by applicable law to sell variable annuity policies. These agents are
registered representatives of broker-dealers which are members of the National
Association of Securities Dealers, Inc. See "Sales Expense."
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<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The purpose of the following tables is to assist the Policy Owner in
understanding the various costs and expenses that a Policy Owner will bear
directly or indirectly under the Policies. The tables reflect charges under the
Policies, expenses of the Subaccounts, and expenses of the Underlying
Portfolios. In addition to the charges and expenses described below, in some
states premium taxes may be applicable.
POLICY OWNER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C>
Contingent Deferred Sales Charge Policy Year after date of Charge
The charge (as a percentage of payments, applied to the amount Purchase Payment
surrendered in excess of the amount, if any, which may be 0-3 7%
surrendered free of charge) will be assessed upon surrender, 4 6%
redemption, or annuitization under a period certain option, 5 5%
within the indicated time periods. 6 4%
7 3%
More than 7 No Charge
Transfer Charge None
The Company currently makes no charge for transfers. The Company
guarantees that the first twelve transfers in a Policy year will
be free of charge. For the thirteenth and each subsequent transfer,
the Company reserves the right to assess a charge, guaranteed
never to exceed $25, to reimburse the Company for the costs of
processing the transfer.
ANNUAL POLICY FEE $30
An annual Policy Fee, equal to $30, is deducted when Accumulated
Value is $50,000 or less. The Policy Fee is currently waived for
policies issued to a trustee of a 401(k) plan, but the Company
reserves the right to impose the Policy Fee on such policies.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Separate Account Administrative Charge 0.15%
-------
Total Annual Expenses 1.40%
</TABLE>
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<PAGE>
Pioneer Variable Contracts Trust
<TABLE>
<CAPTION>
Inter. Capital Real Estate Equity Swiss Franc America Money
Portfolios Annual Expenses Growth Growth Growth Income Balanced Bond Income Market
- -------------------------- ------ ------ ------ ------ -------- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee 1.00% 0.65% 1.00% 0.65% 0.65% 0.65% 0.55% 0.50%
Other Expenses* 8.69% 1.99% 30.34% 2.86% 9.49% 8.48% 81.11% 3.06%
----- ----- ------ ----- ----- ----- ------ -----
Total Expenses 9.69% 2.64% 31.34% 3.51% 10.14% 9.13% 81.66% 3.59%
Expense Reduction -8.19% -1.89% -30.09% -2.29% -8.89% -7.88% -80.66% -2.81%
------ ------ ------- ------ ------ ------ ------- ------
Net Expenses 1.50% 1.25% 1.25% 1.25% 1.25% 1.25% 1.00% 0.75%
After Fee and Expense Reductions
- --------------------------------
Management Fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses* 1.50% 1.25% 1.25% 1.25% 1.25% 1.25% 1.00% 0.75%
Total Expenses 1.50% 1.25% 1.25% 1.25% 1.25% 1.25% 1.00% 0.75%
</TABLE>
*Other Expenses are estimated.
Pioneering Management Corporation ("Pioneer") is the investment adviser to
each Portfolio. Pioneer has agreed voluntarily to waive its management fees
or to make other arrangements, if necessary, to reduce Portfolio expense.
The limitations for each Portfolio, as a percentage of average daily net
assets, are currently the same as the Total Portfolio Annual Expenses after
expense reductions, as indicated in the table above. This limitation will be
in effect through December 31, 1995. Effective January 2, 1996, the expense
limitations for America Income and Money Market Portfolios will be 1.25% and
1.00%, respectively. Pioneer reserves the right to terminate the limitations
at any time without notice.
The following Examples demonstrate the cumulative expenses which would be
paid by the Policy Owner at 1-year, 3-year, 5-year, and 10-year intervals
under certain contingencies. Each Example assumes a $1,000 investment in a
Subaccount and a 5% annual return on assets. Because the expenses of the
Underlying Portfolios differ, separate Examples are used to illustrate the
expenses incurred by a Policy Owner on an investment in the various
Subaccounts.
(a) If the Policy is surrendered or annuitized* under a period certain
option at the end of the applicable period, you would pay the following
expenses on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Int'l Growth $94 $159 $206 $328
Capital Growth $92 $152 $194 $305
Real Estate Growth $92 $152 $194 $305
Equity Income $92 $152 $194 $305
Balanced $92 $152 $194 $305
Swiss Franc Bond $92 $152 $194 $305
America Income $90 $145 $181 $280
Money Market $87 $138 $169 $255
</TABLE>
* The policy fee is not deducted after annuitization. No contingent
deferred sales charge is assessed at the time of annuitization in any policy
year under an option including a life contingency.
(b) If the Policy is annuitized* under a life option at the end of the
applicable time period or if the Policy is NOT surrendered or annuitized,
you would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Int'l Growth $30 $92 $156 $328
Capital Growth $28 $84 $144 $305
Real Estate Growth $28 $84 $144 $305
Equity Income $28 $84 $144 $305
Balanced $28 $84 $144 $305
Swiss Franc Bond $28 $84 $144 $305
America Income $25 $77 $131 $280
Money Market $23 $69 $119 $255
</TABLE>
* The policy fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any policy year under
an option including a life contingency.
Pursuant to requirements of the 1940 Act, the policy fee has been reflected in
the Examples by a method intended to show the "average" impact of the policy fee
on an investment in the Separate Account. The total policy fees collected under
the Policies by the Company are divided by the total average net assets
attributable to the Policies. The resulting percentage is 0.100%, and the amount
of the policy fee is assumed to be $1.00 in the Examples. The Policy Fee is
deducted only when the accumulated value is $50,000 or less.
THE INFORMATION GIVEN UNDER THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
-8-
<PAGE>
PERFORMANCE INFORMATION
The Company from time to time may advertise the "total return" of the
Subaccounts and the "yield" and "effective yield" of the Subaccount investing in
the Money Market Portfolio of the Fund. Both the total return and yield figures
are based on historical earnings and are not intended to indicate future
performance.
The "total return" of a Subaccount refers to the total of the income generated
by an investment in the Subaccount and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Separate Account charges, and expressed as a
percentage of the investment.
The "yield" of the Subaccount investing in the Money Market Portfolio of the
Fund refers to the income generated by an investment in the Subaccount over a
seven-day period (which period will be specified in the advertisement). This
income is then "annualized" by assuming that the income generated in the
specific week is generated over a 52-week period. This annualized yield is shown
as a percentage of the investment. The "effective yield" calculation is similar,
but when annualized, the income earned by an investment in the Subaccount is
assumed to be reinvested. Thus the "effective yield" will be slightly higher
than the "yield" because of the compounding effect of this assumed reinvestment.
The total return, yield, and effective yield figures are adjusted to reflect the
Subaccount's asset charges. The total return figures also reflect the $30 annual
Policy Fee and the contingent deferred sales charge which would be assessed if
the investment were completely redeemed at the end of the specified period.
The Company may also advertise supplemental total return performance
information. Supplemental total return refers to the total income generated by
an investment in the Subaccount and the changes of value of the principal
invested (due to realized and unrealized capital gains or losses), adjusted by
the annual asset charges and expressed as a percentage of the investment.
Because it is assumed that the investment is NOT redeemed at the end of the
specified period, the contingent deferred sales charge is NOT included in the
calculation.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond
Index or other unmanaged indices so that investors may compare the Subaccount
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, such as Morningstar, Inc., who rank such investment
products on overall performance or other criteria; or (iii) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Subaccount. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Subaccount reflects only the performance of a
hypothetical investment in the Subaccount during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies and risk characteristics of
the Underlying Portfolio in which the Subaccount invests and the market
conditions during the given time period, and should not be considered as a
representation of what may be achieved in the future.
WHAT IS AN ANNUITY?
In general, an annuity is a policy designed to provide a retirement income in
the form of monthly payments for the lifetime of the purchaser or an individual
chosen by the purchaser. The retirement income payments are called "annuity
payments," and the individual receiving the payments is called the "Annuitant."
Annuity payments may begin immediately after a lump sum purchase is made or may
begin after an investment period during which the amount necessary to provide
the desired amount of retirement income is accumulated.
Under an annuity policy, the insurance company assumes a mortality risk and an
expense risk. The mortality risk arises from the insurance company's guarantee
that annuity payments will continue for the life of the Annuitant, regardless of
how long the Annuitant lives or how long all Annuitants as a group live. The
expense risk arises from the insurance company's guarantee that charges will not
be increased beyond the limits specified in the policy, regardless of actual
costs of operations.
The Policy Owner's purchase payments, less any applicable deductions, are
invested by the insurance company. After retirement, annuity payments are paid
to the Annuitant for life or for such other period chosen by the Policy Owner.
In the case of a "fixed" annuity, the value of these annuity payments is
guaranteed by the insurance company, which assumes the risk of making the
investments to enable it to make the guaranteed payments. For more information
about fixed annuities see APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL
ACCOUNT."
With a variable annuity, the value of the Policy and the annuity payments are
not guaranteed but will vary depending on the investment performance of a
portfolio of securities. Any investment gains or losses are reflected in the
value of the Policy and in the annuity payments. If the portfolio increases in
value, the value of the Policy increases. If the portfolio decreases in
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<PAGE>
value, the value of the Policy decreases.
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY
An individual purchasing a Policy intended to qualify as an Individual
Retirement Annuity ("IRA") may revoke the Policy at any time between the date of
the application and the date 10 days after receipt of the Policy and receive a
refund of the entire purchase payment. In order to revoke the Policy, the Policy
Owner must mail or deliver the Policy (if it has already been received), to the
agent through whom the Policy was purchased, to the principal office of the
Company at 440 Lincoln Street, Worcester, Massachusetts 01653, or to any local
agency of the Company. Mailing or delivery must occur on or before 10 days after
receipt of the Policy for revocation to be effective.
Within seven days the Company will return the greater of (1) the entire purchase
payment, or (2) the Accumulated Value plus any amounts deducted under the Policy
or by the Fund for taxes, charges or fees.
The liability of the Separate Accounts under this provision is limited to the
Policy Owner's Accumulated Value in each Separate Account on the date of
cancellation. Any additional amounts refunded to the Policy Owner will be paid
by the Company.
STATE RIGHT TO REVOKE OR SURRENDER
In Georgia, Indiana, Michigan, Missouri, New York, North Carolina, Oklahoma,
South Carolina, Texas, Utah, Washington and West Virginia any Policy Owner
may revoke the Policy at any time between the date of application and the
date 10 days (20 days in North Dakota) after receipt of the Policy and
receive a refund, as described under "RIGHT TO REVOKE INDIVIDUAL RETIREMENT
ANNUITY," above.
In all other states, a Policy Owner may surrender the Policy at any time between
the date of application and the date 10 days after receipt of the Policy. The
Company will pay to the Policy Owner an amount equal to the sum of (i) the
difference between the purchase payments paid, including fees, and any amount
allocated to a Separate Account and (ii) the Accumulated Value of the Policy (on
the date the surrender request is received by the Company) attributable to any
amount allocated to a Subaccount.
This refund right applies for 30 days to California residents age 60 years or
older, provided, however, that if the policy is issued as an IRA. The refund
right described under the caption "RIGHT TO REVOKE INDIVIDUAL RETIREMENT
ANNUITY" is applicable for the first 10 days.
The refund of any purchase payments paid by check may be delayed until the check
has cleared the Policy Owner's bank.
DESCRIPTION OF THE COMPANY, THE
SEPARATE ACCOUNT, AND THE FUND
THE COMPANY - The Company is a life insurance company organized under the laws
of Delaware in July, 1974. Its Principal Office is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, Telephone 508-855-1000. The Company is
subject to the laws of the state of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1994, the
Company had over $4 billion in assets and over $25 billion of life insurance in
force. A.M. Best Company, independent analyst, currently assigns the Company a
rating of "A" ("Excellent").
Effective October 1, 1995, the Company changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company.
The Company is an indirect wholly-owned subsidiary of First Allmerica
Financial Life Insurance Company ("First Allmerica"), which in turn is a
wholly-owned subsidiary of Allmerica Financial Corporation ("AFC"). First
Allmerica, originally organized under the laws of Massachusetts in 1844 as a
mutual life insurance company and known as State Mutual Life Assurance
Company of America, converted to a stock life insurance company on October
16, 1995 and adopted its present name. First Allmerica is the fifth oldest
life insurance company in America. The corporate headquarters of the
Company, First Allmerica and AFC are located at 440 Lincoln Street,
Worcester, Massachusetts.
THE SEPARATE ACCOUNT - Separate Account VA-P (the "Separate Account") is a
separate investment account of the Company. The assets used to fund the variable
portions of the Policies are set aside in the Subaccounts of the Separate
Account, and are kept separate from the general assets of the Company. There are
eight Subaccounts available under the Policies. Each Subaccount is administered
and accounted for as part of the general business of the Company, but the
income, capital gains, or capital losses of each Subaccount are allocated to
such Subaccount, without regard to other income, capital gains, or capital
losses of the Company. Under Delaware law, the assets of the Separate Account
may not be charged with any liabilities arising out of any other business of the
Company.
The Separate Account was authorized by vote of the Board of Directors of the
Company on October 27, 1994. The Separate Account meets the definition of
"separate account" under federal securities laws and is registered with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act"). Such registration does not involve
the supervision of management or investment practices or policies of the
Separate Account or the Company by the Commission.
The Company may offer other variable annuity contracts investing in the Separate
Account which are not discussed in this prospectus. The Separate Account may
also invest in other underlying funds which are not available to the Policies
described in this prospectus.
The Company reserves the right, subject to compliance
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<PAGE>
with applicable law, to change the names of the Separate Account and the
Subaccounts.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Variable Contracts Trust (the "Fund") is an open-end, diversified
management investment company registered with the SEC under the 1940 Act. Such
registration does not involve supervision by the SEC of the investments or
investment policy of the Fund or its separate investment Portfolios.
Pioneering Management Corporation ("Pioneer") is the investment adviser to
each Portfolio.
The Fund was established to provide a vehicle for the investment of assets of
various separate accounts supporting variable insurance policies. The Fund
currently has eight investment portfolios ("Underlying Portfolios"), each
issuing a separate series of shares: International Growth Portfolio, Capital
Growth Portfolio, Real Estate Growth Portfolio, Equity-Income Portfolio,
Balanced Portfolio, Swiss Franc Bond Portfolio, America Income Portfolio and
Money Market Portfolio. Certain of the Portfolios may not be available in all
states. The assets of each Portfolio are held separate from the assets of the
other Portfolios. Each Portfolio operates as a separate investment vehicle,
and the income or losses of one Portfolio have no effect on the investment
performance of another Portfolio. Shares of the Fund may be sold directly to
separate accounts established and maintained by insurance companies for the
purpose of funding variable contracts and to certain qualified pension and
retirement plans.
INVESTMENT OBJECTIVES AND POLICIES - A summary of investment objectives of each
of the Underlying Portfolios is set forth below. More detailed information
regarding the investment objectives, restrictions and risks, expenses paid by
the Underlying Portfolios, and other relevant information regarding the
Underlying Portfolios may be found in the Prospectus of the Fund, which
accompanies this Prospectus and should be read carefully before investing. The
Statement of Additional Information of the Fund is available upon request.
SUBACCOUNT 251- invests solely in shares of the International Growth Portfolio.
This Portfolio seeks long-term growth of capital primarily through investments
in non-U.S. equity securities and related depositary receipts.
SUBACCOUNT 252 - invests solely in shares of the Capital Growth Portfolio. This
Portfolio seeks capital appreciation through a diversified portfolio of
securities consisting primarily of common stocks.
SUBACCOUNT 253 - invests solely in shares of the Real Estate Growth Portfolio.
This Portfolio seeks long-term growth of capital primarily through investments
in the securities of real estate investment trusts (REITS) and other real estate
industry companies. Current income is the Portfolio's secondary investment
objective.
SUBACCOUNT 254 - invests solely in shares of the Equity-Income Portfolio.
This Portfolio seeks current income and long-term capital growth by investing
in a portfolio of income-producing equity securities of U.S. corporations.
The Portfolio's goal is to achieve a current dividend yield which exceeds the
published composite yield of the securities comprising the Standard & Poor's
500 Composite Stock Price Index.
SUBACCOUNT 255 - invests solely in shares of the Balanced Portfolio. The
Balanced Portfolio seeks capital growth and current income by actively
managing investments in a diversified portfolio of equity securities and
bonds.
SUBACCOUNT 256 - invests solely in shares of the America Income Portfolio.
This Portfolio seeks as high a level of current income as is consistent with
the preservation of capital. This Portfolio invests exclusively in United
States ("U.S.") Government Securities and in "when issued" commitments and
repurchase agreements with respect to such securities.
SUBACCOUNT 257 - invests solely in shares of the Money Market Portfolio. This
Portfolio seeks current income consistent with preserving capital and providing
liquidity.
SUBACCOUNT 258 - invests solely in shares of the Swiss Franc Bond Portfolio.
This Portfolio seeks to approximate the performance of the Swiss Franc
relative to the U.S. dollar while earning a reasonable level of income.
There is no assurance that the investment objectives of the Portfolios will be
met.
IN SOME STATES, INSURANCE REGULATIONS MAY RESTRICT THE AVAILABILITY OF
PARTICULAR SUBACCOUNTS.
In the event of a material change in the investment policy of a Subaccount or
the Underlying Portfolio in which it invests, the Policy Owner will be notified
of the change. If the Policy Owner has policy value in that Subaccount, the
Company will transfer it without charge on written request by the Policy Owner
to another Subaccount or to the General Account, where available. The Company
must receive such written request 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 Policy Owner's right to transfer.
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<PAGE>
INVESTMENT ADVISORY SERVICES TO THE FUND - Each Portfolio pays a management
fee to Pioneer for managing its investments and business affairs. Each
Portfolio's management fee is computed daily and paid monthly at the
following annual rate:
<TABLE>
<CAPTION>
Management Fee as a % of
Portfolio average daily net assets
- --------- ------------------------
<S> <C>
International Growth 1.00%
Capital Growth 0.65%
Real Estate Growth 1.00%
Equity-Income 0.65%
Balanced 0.65%
Swiss Franc Bond 0.65%
America Income 0.55%
Money Market 0.50%
</TABLE>
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS - The Company reserves the
right, subject to applicable law, to make additions to, deletions from, or
substitutions for the shares that are held in the Subaccounts or that the
Subaccounts may purchase. If the shares of any Underlying Portfolio are no
longer available for investment or if in the Company's judgment further
investment in any Underlying Portfolio should become inappropriate in view of
the purposes of the Separate Account or the affected Subaccount, the Company may
redeem the shares of that Underlying Portfolio and substitute shares of another
registered open-end management company. The Company will not substitute any
shares attributable to a Policy interest in a Subaccount without notice to the
Policy Owner and prior approval of the SEC and state insurance authorities, to
the extent required by the 1940 Act or other applicable law. The Separate
Account may, to the extent permitted by law, purchase other securities for other
policies or permit a conversion between policies upon request by a Policy Owner.
The Company also reserves the right to establish additional Subaccounts of the
Separate Account, each of which would invest in shares corresponding to a new
Underlying Portfolio or in shares of another investment company having a
specified investment objective. Subject to applicable law and any required SEC
approval, the Company may, in its sole discretion, establish new Subaccounts or
eliminate one or more Subaccounts if marketing needs, tax considerations or
investment conditions warrant. Any new Subaccounts may be made available to
existing Policy Owners on a basis to be determined by the Company.
Shares of the Underlying Portfolios may be sold to separate accounts of
unaffiliated insurance companies ("shared funding") which issue variable annuity
and variable life policies ("mixed funding"). It is conceivable that in the
future such shared funding or mixed funding may be disadvantageous for variable
life Policy Owners or variable annuity Policy Owners. Although the Company and
the Fund do not currently foresee any such disadvantages to either variable life
insurance Policy Owners or variable annuity Policy Owners, the Company and the
trustees of the Fund intend to monitor events in order to identify any material
conflicts and to determine what action, if any, should be taken in response
thereto.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Policy to reflect the substitution or change
and will notify Policy Owners of all such changes. If the Company deems it to be
in the best interest of Policy Owners, and subject to any approvals that may be
required under applicable law, the Separate Account or any Subaccount(s) may be
operated as a management company under the 1940 Act, may be deregistered under
the 1940 Act if registration is no longer required, or may be combined with
other Subaccounts or other separate accounts of the Company.
VOTING RIGHTS
The Company will vote Underlying Portfolio shares held by each Subaccount in
accordance with instructions received from Policy Owners and, after Annuity
Date, from the Annuitants. Each person having a voting interest in a Subaccount
will be provided with proxy materials of the Underlying Portfolio together with
a form with which to give voting instructions to the Company. Shares for which
no timely instructions are received will be voted in proportion to the
instructions which are received. The Company will also vote shares in a
Subaccount that it owns and which are not attributable to Policies in the same
proportion. If the 1940 Act or any rules thereunder should be amended or if the
present interpretation of the 1940 Act or such rules should change, and as a
result the Company determines that it is permitted to vote shares in its own
right, whether or not such shares are attributable to the Policies, the Company
reserves the right to do so.
The number of votes which a Policy Owner or Annuitant may cast will be
determined by the Company as of the record date established by the Underlying
Portfolio.
During the accumulation period, the number of Underlying Portfolio shares
attributable to each Policy Owner will be determined by dividing the dollar
value of the Accumulation Units of the Subaccount credited to the Policy by the
net asset value of one Underlying Portfolio share.
During the annuity period, the number of Underlying Portfolio shares
attributable to each Annuitant will be determined by dividing the reserve held
in each Subaccount for the Annuitant's variable annuity by the net asset value
of one Underlying Portfolio share. Ordinarily, the Annuitant's voting interest
in the Underlying Portfolio will decrease as the reserve for the variable
annuity is depleted.
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<PAGE>
CHARGES AND DEDUCTIONS
Deductions under the Policies and charges against the assets of the Subaccounts
are described below. Other deductions and expenses paid out of the assets of the
Underlying Portfolios are described in the Prospectus and Statement of
Additional Information of the Fund.
A. CONTINGENT DEFERRED SALES CHARGE.
No charge for sales expense is deducted from purchase payments at the time the
payments are made. However, a contingent deferred sales charge is deducted from
the Accumulated Value of the Policy in the case of surrender and/or partial
redemption of the Policy or at the time annuity payments begin, within certain
time limits described below.
For purposes of determining the contingent deferred sales charge, the Policy
Value is divided into three categories: (1) New Payments - purchase payments
received by the Company during the seven years preceding the date of the
surrender; (2) Old Payments - purchase payments not defined as New Payments; and
(3) Earnings - the amount of Policy Value in excess of all purchase payments
that have not been previously surrendered. For purposes of determining the
amount of any contingent deferred sales charge, surrenders will be deemed to be
taken first from Old Payments, then from New Payments. Old Payments may be
withdrawn from the Policy at any time without the imposition of a contingent
deferred sales charge. If a withdrawal is attributable all or in part to New
Payments, a contingent deferred sales charge may apply.
No contingent deferred sales charge is imposed, and no commissions are paid, on
Policies where the Policy Owner and Annuitant as of the date of application are
both within the following class of individuals:
All employees and registered representatives of any broker-dealer that has
entered into a sales agreement with the Company to sell the Policies; all
officers, directors, trustees and bona fide full-time employees (including
former officers and directors and former employees who had been employed for
at least ten years) of The Pioneer Group, Inc., their affiliates and
subsidiaries, and of any Underlying Portfolios; and any spouses of the above
persons or any children or other legal dependents of the above persons who are
under the age of 21.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the contingent
deferred sales charge is modified to effect certain exchanges of annuity
contracts for the Policies, as provided in APPENDIX B, "EXCHANGE OFFER."
CHARGES FOR SURRENDER AND PARTIAL REDEMPTION. If a Policy is surrendered, or if
New Payments are redeemed, while the Policy is in force and before the Annuity
Date, a contingent deferred sales charge may be imposed. The amount of the
charge will depend upon the number of years that the New Payments, if any, to
which the withdrawal is attributed have remained credited under the Policy. Any
Free Withdrawal Amount is deducted first as described below. Additional amounts
withdrawn are deducted first from Old Payments. Then, for the purpose of
calculating surrender charges for New Payments, all amounts withdrawn are
assumed to be deducted first from the earliest New Payment and then from the
next earliest New Payment and so on, until all New Payments have been exhausted
pursuant to the FIFO method of accounting. (See "FEDERAL TAX CONSIDERATIONS" for
a discussion of how withdrawals are treated for income tax purposes.)
The contingent deferred sales charges are as follows:
<TABLE>
<CAPTION>
Years from date Charge as
of Payment to Percentage
date of of New Payments
Withdrawal Withdrawn
---------- ---------
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
More than 7 No Charge
</TABLE>
The amount redeemed equals the amount requested by the Policy Owner plus the
charge, if any, which is applied against the amount requested. For example, if
the applicable charge is 7% and the Policy Owner has requested $200, the Policy
Owner will receive $200 and the charge will be $14 (assuming no Free Withdrawal
Amount, discussed below) for a total withdrawal of $214. The charge is applied
as a percentage of the New Payments redeemed. Such total charge equals the
aggregate of all applicable contingent deferred sales charges for surrender,
partial redemptions, and annuitization.
In Maryland, a different contingent deferred sales charge applies to monies in
the General Account. See "APPENDIX A- MORE INFORMATION ABOUT THE GENERAL
ACCOUNT."
FREE WITHDRAWAL AMOUNTS. In each calendar year, the Company will waive the
contingent deferred sales charge, if any, on an amount ("Free Withdrawal
Amount") equal to the greatest of (1), (2) or (3):
Where (1) is:
The Accumulated Value as of the Valuation Date coincident with or next
following the date of receipt of the request for withdrawal, reduced by total
gross payments not previously redeemed ("Cumulative Earnings").
Where (2) is:
10% of the Accumulated Value as of the Valuation Date coincident with or next
following the date of receipt of the request for withdrawal, reduced by the
total amount of any prior partial redemptions made in the same calendar year
to which no contingent deferred sales charge was applied.
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<PAGE>
Where (3) is:
The amount calculated under the Company's life expectancy distribution (see
"LED Distributions," below), whether or not the withdrawal was part of such
distribution (applies only if the Policy Owner and Annuitant are the same
individual).
For example, an 81-year-old Policy Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Free Withdrawal
Amount of $1,530, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED distribution of 10.2% of Accumulated Value ($1,530).
The Free Withdrawal Amount will first be deducted from Cumulative Earnings. If
the Free Withdrawal Amount exceeds Cumulative Earnings, the excess amount will
be deemed withdrawn from payments not previously redeemed on a last-in-first-out
("LIFO") basis. If more than one partial withdrawal is made during the year, on
each subsequent withdrawal the Company will waive the contingent deferred sales
charge, if any, until the entire Free Withdrawal Amount has been redeemed.
LED DISTRIBUTIONS. A Policy Owner who is also the Annuitant may elect to make a
series of systematic withdrawals from the Policy according to a life expectancy
distribution ("LED"), by returning a properly signed LED request form to the
Company's Principal Office. The LED permits the Policy Owner to make systematic
withdrawals from the Policy over his or her lifetime. The amount withdrawn from
the Policy changes each year, because life expectancy changes each year that a
person lives. For example, actuarial tables indicate that a person age 70 has a
life expectancy of 16 years, but a person who attains age 86 has a life
expectancy of another 6.5 years.
If a Policy Owner elects the LED, in each policy year a fraction of the
Accumulated Value is withdrawn from the Policy based on the Policy Owner's then
life expectancy. The numerator of the fraction is 1 (one) and the denominator of
the fraction is the remaining life expectancy of the Policy Owner, as determined
annually by the Company. The resulting fraction, expressed as a percentage, is
applied to the Accumulated Value of the Policy at the beginning of the year to
determine the amount to be distributed during the year. The Policy Owner may
elect monthly, bimonthly, quarterly, semiannual, or annual distributions, and
may terminate the LED at any time. The Policy Owner may also elect to receive
distributions under an LED which is determined on the joint life expectancy of
the Policy Owner and a beneficiary. The Company may also offer other systematic
withdrawal options.
If a Policy Owner makes withdrawals under the LED distribution prior to age 59
1/2, the withdrawals may be treated by the IRS as premature distributions from
the Policy. The payments would then be taxed on an "income first" basis, and be
subject to a 10% federal tax penalty. For more information, see "FEDERAL TAX
CONSIDERATIONS, B. Taxation of the Policies in General."
SURRENDERS. In the case of a complete surrender, the amount received by the
Policy Owner is equal to the entire Accumulated Value under the Policy, net of
the applicable contingent deferred sales charge on New Payments, the Policy Fee,
and any tax withholding, if applicable. Subject to the same rules that are
applicable to partial redemptions, the Company will not assess a contingent
deferred sales charge on a Free Withdrawal Amount. Because Old Payments count in
the calculation of the Free Withdrawal Amount, if Old Payments equal or exceed
the Free Withdrawal Amount, the Company may assess the full applicable
contingent deferred sales charge on New Payments.
Where a Policy Owner who is trustee under a pension plan surrenders, in whole or
in part, a Policy on a terminating employee, the Trustee will be permitted to
reallocate all or a part of the total Accumulated Value under the Policy to
other policies issued by the Company and owned by the Trustee, with no deduction
for any otherwise applicable contingent deferred sales charge. Any such
reallocation will be at the unit values for the Subaccounts as of the valuation
date on which a written, signed request is received at the Company's Principal
Office.
For further information on surrender and partial redemption, including minimum
limits on amount redeemed and amount remaining under the Policy in the case of
partial redemption, and important tax considerations, see "Surrender" and
"Partial Redemption" under "THE VARIABLE ANNUITY POLICIES," and see "FEDERAL TAX
CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY PAYMENTS BEGIN. If a period certain option is chosen
(Option V or the comparable fixed annuity option), a contingent deferred sales
charge will be deducted from the Accumulated Value of the Policy if the Annuity
Date occurs at any time during the surrender charge period. Such charge is the
same as that which would apply had the policy been surrendered on the Annuity
Date.
No contingent deferred sales charge is imposed at the time of annuitization in
any policy year under an option involving a life contingency (Options I, II,
III, IV-A, IV-B or the comparable fixed annuity options) or involving a
non-commutable period certain of a duration of ten years or more.
SALES EXPENSE. Commissions on the Policies are paid by the Company and do not
result in any additional charge to Policy Owners or to the Separate Account.
Commissions not to exceed 6% of purchase payments will be paid to entities which
sell the Policies. In addition, expense reimbursement allowances may be paid.
Additional payments may be made for other services not directly related to the
sale of the Policies,
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<PAGE>
including the recruitment and training of personnel, production of promotional
literature, and similar services.
The Company intends to recoup the commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges, described above,
and the investment earnings on amounts allocated to accumulate on a fixed basis
in excess of the interest credited on fixed accumulations by the Company. Any
contingent deferred sales charges assessed on a Policy will be retained by the
Company. Alternative commission schedules are available with lower initial
commission amounts based on purchase payments, plus ongoing annual compensation
of up to 1% of contract value.
B. PREMIUM TAXES.
Some states and municipalities impose a premium tax on variable annuity
policies. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by the Company when purchase payments were
received, to the extent permitted in the Policy the premium tax charge is
deducted on a pro rata basis when partial withdrawals are made, upon
surrender of the Policy, or when annuity payments begin (the Company
reserves the right instead to deduct the premium tax charge for these
Policies at the time the purchase payments are received); or
(2) the premium tax charge is deducted when annuity payments begin.
If no amount for premium tax was deducted at the time the purchase payment was
received, but subsequently tax is determined to be due prior to the Annuity
Date, the Company reserves the right to deduct the premium tax from the Policy
value at the time such determination is made.
C. POLICY FEE.
A $30 Policy Fee currently is deducted on the policy anniversary date and upon
full surrender of the Policy when the Accumulated Value is $50,000 or less. The
Policy Fee is not deducted after annuitization. The Policy Fee is currently
waived for policies issued to and maintained by a Trustee of a 401(k) plan, but
the Company reserves the right to impose the Policy Fee on such policies.
Where policy value has been allocated to more than one account (General Account
and/or one or more of the Subaccounts), a percentage of the total Policy Fee
will be deducted from the Policy Value in each account. The portion of the
charge deducted from each account will be equal to the percentage which the
Policy Value in that account represents of the total Accumulated Value under the
Policy. The deduction of the Policy Fee will result in cancellation of a number
of Accumulation Units equal in value to the percentage of the charge deducted
from that account.
D. ANNUAL CHARGES AGAINST SEPARATE ACCOUNT ASSETS.
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a charge of 1.25% on an
annual basis of the daily value of each Subaccount's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Policies. The charge is imposed during both the accumulation
period and the annuity period. The mortality risk arises from the Company's
special death benefit guarantee and its guarantee that it will make annuity
payments in accordance with annuity rate provisions established at the time the
Policy is issued for the life of the Annuitant (or in accordance with the
annuity option selected), no matter how long the Annuitant (or other payee)
lives and no matter how long all Annuitants as a class live. Therefore, the
mortality charge is deducted during the annuity phase on all contracts,
including those that do not involve a life contingency, even though the Company
does not bear direct mortality risk with respect to variable annuity settlement
options that do not involve life contingencies. The expense risk arises from the
Company's guarantee that the charges it makes will not exceed the limits
described in the Policies and in this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be .80% for mortality risk and .45%
for expense risk.
ADMINISTRATIVE EXPENSE CHARGE - The Company assesses each Subaccount available
under the Policies with a daily charge at an annual rate of 0.15% of the average
daily net assets of the Subaccount. The charge is imposed during both the
accumulation period and the annuity period. The daily Administrative Expense
Charge is assessed to help defray administrative expenses actually incurred in
the administration of the Subaccount, without profits. However, there is no
direct relationship between the amount of administrative expenses imposed on a
given policy and the amount of expenses actually attributable to that policy.
Deductions for the Policy Fee (described under C. POLICY FEE) and for the
Administrative Expense Charge are designed to reimburse the Company for the cost
of administration and related expenses and are not expected to be a source of
profit. The administrative
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functions and expense assumed by the Company in connection with the Separate
Account and the Policies include, but are not limited to, clerical, accounting,
actuarial and legal services, rent, postage, telephone, office equipment and
supplies, expenses of preparing and printing registration statements, expense of
preparing and typesetting prospectuses and the cost of printing prospectuses not
allocable to sales expense, filing and other fees.
TRANSFER CHARGE - The Company currently makes no charge for transfers. The
Company guarantees that the first twelve transfers in a Policy Year will be free
of charge, but reserves the right to assess a charge, guaranteed never to exceed
$25, for the thirteenth and each subsequent transfer in a Policy Year.
The Policy Owner may have automatic transfers of at least $100 a month
made on a periodic basis (a) from the General Account, Subaccount 257 (which
invests in the Money Market Portfolio) or Subaccount 256 (which invests in
the America Income Portfolio) to one or more of the other Subaccounts, or (b)
in order to reallocate Policy Value among the Subaccounts. The first
automatic transfer counts as one transfer towards the twelve transfers which
are guaranteed to be free in each policy year. For more information, see "The
Policy Transfer Privilege."
OTHER CHARGES - Because the Subaccounts purchase shares of the Fund, the value
of the net assets of the Subaccounts will reflect the investment advisory fee
and other expenses incurred by the Underlying Portfolios. The Prospectus and
Statement of Additional Information of the Fund contain additional information
concerning expenses of the Underlying Portfolios.
THE VARIABLE ANNUITY POLICIES
The Policies are designed for use in connection with several types of retirement
plans as well as for sale to individuals. Participants under such plans, as well
as Policy Owners, and beneficiaries, are cautioned that the rights of any person
to any benefits under such Policies may be subject to the terms and conditions
of the plans themselves, regardless of the terms and conditions of the Policies.
The Policies offered by the Prospectus may be purchased from broker-dealers that
are registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc. (NASD), including Allmerica
Investments, Inc., the principal underwriter of the Policies. Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts, 01653, is an
indirect wholly-owned subsidiary of First Allmerica.
Policy Owners may direct any inquiries to Annuity Customer Services,
Allmerica Financial Life Insurance and Annuity Company, 440 Lincoln Street,
Worcester, Massachusetts 01653.
A. PURCHASE PAYMENTS.
Purchase payments are payable to the Company. The initial payment will be
credited to the Policy as of the date that the properly completed application
which accompanies the payment is received by the Company at its principal
office. If an application is incomplete, or does not specify how payments are to
be allocated among the Accounts, the initial purchase payment will be returned
within five business days. After a policy is issued, Accumulation Units will be
credited to the Policy at the unit value computed as of the Valuation Date that
a purchase payment is received at the Company's principal office.
Purchase payments are not limited as to frequency and number, but there are
certain limitations as to amount. Generally, the initial payment must be at
least $600. Under a salary deduction or a monthly automatic payment plan, the
minimum initial payment is $50. In all cases, each subsequent payment must be at
least $50. Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Policy on the employee, if the plan's average
annual contribution per eligible plan participant is at least $600. Total
payments may not exceed the maximum limit specified in the Policy. If the
payments are divided among two or more accounts, a net amount of at least $10 of
each payment must be allocated to each account.
Generally, payments will be allocated among the Subaccounts according to the
Policy Owner's instructions when the Policy is issued. However, if the Policy is
issued in Georgia, Indiana, Michigan, Missouri, New York, North Carolina,
Oklahoma, South Carolina, Texas, Utah, Washington, West Virginia or in
connection with an IRA, for the first 14 days following the date of issue, all
Separate Account allocations will be held in Subaccount 257 (the Money Market
Portfolio). For California senior citizens age 60 and older, all Separate
Account allocations will be held in Subaccount 257 for 34 days following the
date of issue because of the extended California free-look right for these
individuals. Thereafter, all amounts will be allocated according to the Policy
Owner's instructions. The Policy Owner may change allocation instructions for
new payments pursuant to written or telephone request. If telephone requests
are elected by the Policy Owner, a properly completed authorization form must be
on file before telephone requests will be honored. The policy of the Company and
its agents and affiliates is that they will not be responsible for losses
resulting from acting upon telephone requests reasonably believed to be genuine.
The Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine; otherwise, the Company may be liable for
any losses due to unauthorized or fraudulent instructions. The procedures the
Company follows for transactions initiated by telephone include requirements
that callers on behalf of a Policy Owner identify themselves by name and
identify the Annuitant by name, date of birth and social security number. All
transfer instructions by telephone are tape recorded.
B. TRANSFER PRIVILEGE.
At any time prior to the Annuity Date, subject to the Company's then current
rules, a Policy Owner may
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have amounts transferred among the Subaccounts or between a Subaccount and the
General Account, where available. Transfer values will be effected at the
Accumulation Value next computed after receipt of the transfer order. The
Company will make transfers pursuant to written or telephone request. As
discussed in "A. Purchase Payments," a properly completed authorization form
must be on file before telephone requests will be honored.
The Policy Owner may have automatic transfers of at least $100 made on a
periodic basis from the Company's General Account, Subaccount 257 (which
invests in the Money Market Portfolio) or Subaccount 256 (which invests in
the America Income Portfolio) to one or more of the other Subaccounts, or (b)
in order to reallocate Policy Value among the Subaccounts. Automatic
transfers from the Subaccounts may be made on a monthly, bimonthly,
quarterly, semiannual or annual schedule.
Automatic transfers from the Company's General Account may be made on a
monthly, bimonthly, or quarterly basis, provided that: (i) the amount of each
monthly transfer cannot exceed 10% of policy value in the General Account as
of the date of the first transfer; (ii) each bimonthly transfer cannot exceed
20% of policy value in the General Account as of the date of the first
transfer; (iii) each quarterly transfer cannot exceed 25% of policy value in
the General Account as of the date of the first transfer. The first automatic
transfer counts as one transfer towards the twelve transfers which are
guaranteed to be free in each Policy year.
Except in Texas, no other transfers are permitted from the General Account
except during the 30-day period beginning on each policy anniversary. During
that 30 day annual "window" period, any amount (up top 100%) of policy value
in the General Account may be transferred. In Texas, transfers involving the
General Account are also permitted if: (a) there has been at least a ninety
(90) day period since the last transfer from the General Account; and (b) the
amount transferred from the General Account in each transfer does not exceed
the lesser of $100,000 or 25% of the Accumulated Value under the Policy.
These rules are subject to change by the Company.
GENERAL. The transfer privilege is subject to the consent of the Company. The
Company reserves the right to impose limitations on transfers including, but
not limited to: (1) the minimum amount that may be transferred, (2) the
minimum amount that may remain in a Subaccount following a transfer from that
Subaccount, (3) the minimum period of time between transfers involving the
General Account, and (4) the maximum amount that may be transferred each time
from the General Account.
Currently, the Company makes no charge for transfers. The first twelve transfers
in a Policy year are guaranteed to be free of any charge. For the thirteenth and
each subsequent transfer in a Policy year the Company reserves the right to
assess a charge, guaranteed never to exceed $25, to reimburse it for the expense
of processing transfers.
C. SURRENDER.
At any time prior to the Annuity Date, a Policy Owner may surrender the Policy
and receive its Accumulated Value, less applicable charges ("Surrender Amount").
The Policy Owner must return the Policy and a signed, written request for
surrender, satisfactory to the Company, to the Company's Principal Office. The
amount payable to the Policy Owner upon surrender will be based on the
Accumulated Value of the Policy as of the Valuation Date on which the request
and the Policy are received at the Company's Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted when
a Policy is surrendered if payments have been credited to the policy during the
last seven full policy years. See "CHARGES AND DEDUCTIONS." The Policy Fee will
be deducted upon surrender of the Policy.
After the Annuity Date, only Policies under which future annuity payments are
limited to a specified period (as specified in Annuity Option V) may be
surrendered. The Surrender Amount is the commuted value of any unpaid
installments, computed on the basis of the assumed interest rate incorporated in
such annuity payments. No contingent deferred sales charge is imposed after the
Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and partial redemptions of amounts in each Subaccount during
any period in which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of each Separate Account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and partial redemptions
of amounts allocated to the Company's General Account for a period not to exceed
six months.
The surrender rights of Policy Owners who are participants under Section 403(b)
plans or who are participants in the Texas Optional Retirement Program (Texas
ORP) are restricted; see "FEDERAL TAX CONSIDERATIONS," "I. Public School Systems
and Certain Tax Exempt Organizations" and "J. Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
D. PARTIAL REDEMPTION. At any time prior to the Annuity Date, a Policy Owner may
redeem a portion of the Accumulated Value of his or her Policy, subject to the
limits stated below. The Policy Owner must file a signed, written request for
redemption, satisfactory to the Company, at the Company's Principal Office. The
written request must indicate the dollar amount the Policy Owner wishes to
receive and the account from which such amount is to be redeemed. The amount
redeemed equals the amount requested by the Policy Owner plus any applicable
contingent deferred sales charge, as described under "CHARGES AND DEDUCTIONS."
Where allocations have been made to more than one account, a percentage of the
partial redemption may be allocated to each such account. A partial redemption
from a Subaccount will result in cancellation of a number of units equivalent in
value to the amount redeemed, computed as of the Valuation Date that the request
is received at the Company's Principal Office.
Each partial redemption must be in a minimum amount of $200. No partial
redemption will be permitted if the Accumulated Value remaining under the Policy
would be reduced to less than $1,000. Partial redemptions will be paid in
accordance with the time limitations described under "Surrender."
After the Annuity Date, only Policies under which future variable annuity
payments are limited to a specified period may be partially redeemed. A partial
redemption after the Annuity Date will result in cancellation of a number of
Annuity Units equivalent
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in value to the amount redeemed.
For important restrictions on withdrawals which are applicable to Policy Owners
who are participants under Section 403(b) plans or under the Texas ORP, see
"FEDERAL TAX CONSIDERATIONS," "I. Public School Systems and Certain Tax Exempt
Organizations" and "J. Texas Optional Retirement Program."
For important tax consequences which may result from partial redemptions, see
"FEDERAL TAX CONSIDERATIONS."
E. DEATH BENEFIT.
If the Annuitant dies (or a Policy Owner predeceases the Annuitant) prior to the
Annuity Date while the Policy is in force, a death benefit will be paid to the
beneficiary, except where the Policy continues as provided in "F. The Spouse of
the Policy Owner as Beneficiary". Upon death of the Annuitant (including a
Policy Owner who is also the Annuitant), the death benefit is equal to the
greatest of (a) the Accumulated Value under the Policy next determined following
receipt of due proof of death at the Principal Office, or (b) the total amount
of gross payment(s) made under the Policy reduced proportionally to reflect the
amount of all prior partial withdrawals, or (c) the death benefit that would
have been payable on the most recent fifth year Policy anniversary, increased
for subsequent purchase payments and reduced proportionally to reflect
withdrawals after that date.
A partial withdrawal will reduce the gross payments available as a death benefit
under (b) in the same proportion that the Accumulated Value was reduced on the
date of withdrawal. For each withdrawal, the reduction is calculated by
multiplying the total amount of gross payments by a fraction, the numerator of
which is the amount of the partial withdrawal and the denominator of which is
the Accumulated Value immediately prior to the withdrawal. For example, if gross
payments total $8,000 and a $3,000 withdrawal is made when the Accumulated Value
is $12,000, the proportional reduction of gross payments available as a death
benefit is calculated as follows: The Accumulated Value is reduced by 1/4
(3,000 divided by 12,000); therefore, the gross amount available as a death
benefit under (b) will also be reduced by 1/4 (8,000 times 1/4 equals $2,000),
so that the $8,000 gross payments are reduced to $6,000. Payments made after a
withdrawal will increase the death benefit available under (b) by the amount of
the payment.
A partial withdrawal after the most recent fifth year Policy anniversary will
decrease the death benefit available under (c) in the same proportion that the
Accumulated Value was reduced on the date of the withdrawal. For example, if the
death benefit that would have been payable on the most recent fifth year Policy
anniversary is $12,000 and partial withdrawals totalling $5,000 are made
thereafter when the Accumulated Value is $15,000, the proportional reduction of
death benefit available under (c) is calculated as follows: The Accumulated
Value is reduced by 1/3 (5,000 divided by 15,000); therefore, the death benefit
that would have been payable on the most recent fifth year Policy anniversary
will also be reduced by 1/3 (12,000 times 1/3 or $4,000), so that the death
benefit available under (c) will be $8,000 ($12,000 minus $4,000). Payments made
after the most recent fifth year Policy anniversary will increase the death
benefit available under (c) by the amount of the payment. Upon death of a Policy
Owner who is not the Annuitant, the death benefit is equal to the Accumulated
Value of the Policy next determined following receipt of due proof of death
received at the Company's Principal Office.
The death benefit generally will be paid to the beneficiary in one sum. However,
the beneficiary may, by written request, elect one of the following options:
(1) The payment of the one sum may be delayed for a period not to exceed
five years from the date of death.
(2) The death benefit may be paid in installments. Payments must begin
within one year from the date of death, and are payable over a period
certain not extended beyond the life expectancy of the beneficiary.
(3) All or a portion of the death benefit may be used to provide a life
annuity for the beneficiary. Benefits must begin within one year from
the date of death and are payable over a period not extended beyond
the life expectancy of the beneficiary. Any annuity benefits will be
provided in accordance with the annuity options of the Policy.
If there is more than one beneficiary, the death benefit will be paid to such
beneficiaries in one sum unless the Company consents to pay an annuity option
chosen by the beneficiaries.
With respect to any death benefit, the Accumulated Value under the Policy shall
be based on the unit values next computed after due proof of death has been
received at the Company's principal office. If the beneficiary elects to receive
the death benefit in one sum, the death benefit will be paid within seven
business days. If the beneficiary (other than a spousal beneficiary of an IRA,
See "F. The Spouse of the Policy Owner as Beneficiary," below) has not elected
an annuity option within one year from the date notice of death is received by
the Company, the Company will pay the death benefit in one sum. The death
benefit will reflect any earnings or losses experienced during the period and
any withdrawals.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed monthly annuity payments, any unpaid amounts or
installments will be paid to the beneficiary. The Company must pay the remaining
payments at least as rapidly as under the payment option in effect on the date
of the Annuitant's death. If there is more than one beneficiary, the commuted
value of the payments, computed on the basis of the assumed interest rate
incorporated in the annuity option table on which such payments are based, shall
be paid to the beneficiaries
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in one sum.
F. THE SPOUSE OF THE POLICY OWNER AS BENEFICIARY.
If the Policy Owner's spouse is named as beneficiary ("spousal beneficiary") and
if the Policy Owner dies (and predeceases the Annuitant if such Policy Owner is
not the Annuitant) prior to the Annuity Date while the Policy is in force, at
the written request of the spousal beneficiary the death benefit will not be
paid and the spousal beneficiary will become the new Policy Owner (and, if the
deceased Owner was also the Annuitant, the new Annuitant). All other rights and
benefits provided in the Policy will continue, except that any subsequent spouse
of such new Policy Owner will not be entitled to continue the Policy upon such
new Policy Owner's death.
G. ASSIGNMENT.
The Policy may be assigned by the Policy Owner at any time prior to the Annuity
Date and while the Annuitant is alive. However, Policies sold in connection with
IRA plans and certain other qualified plans are not assignable. Assignability of
a Policy issued in connection with an HR-10 Plan may be restricted. For more
information about these plans, see "FEDERAL TAX CONSIDERATIONS."
The Company will not be deemed to have knowledge of an assignment unless it is
made in writing and filed at the Company's Principal Office. The Company will
not assume responsibility for determining the validity of any assignment. If an
assignment of the Policy is in effect on the Annuity Date, the Company reserves
the right to pay to the assignee, in one sum, that portion of the Surrender
Value of the Policy to which the assignee appears to be entitled. The Company
will pay the balance, if any, in one sum to the Policy Owner in full settlement
of all liability under the Policy. The interest of the Policy Owner and of any
beneficiary will be subject to any assignment.
H. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE.
Subject to certain restrictions described below, the Policy Owner has the right
(1) to select the annuity option under which annuity payments are to be made,
and (2) to determine whether payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. Annuity payments are
determined according to the annuity tables in the Policy, by the annuity option
selected, and by the investment performance of the Account(s) selected.
To the extent a fixed annuity is selected, Accumulated Value will be transferred
to the General Account of the Company, and the annuity payments will be fixed in
amount. See APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number of
Annuity Units in the Subaccount(s) is made each month. Since the value of an
Annuity Unit in a Subaccount will reflect the investment performance of the
Subaccount, the amount of each monthly payment will vary.
The annuity option selected must produce an initial payment of at least $50. If
a combination of fixed and variable payments is selected, the initial payment on
each basis must be at least $50. The Company reserves the right to increase
these minimum amounts. If the annuity option(s) selected does not produce
initial payments which meet these minimums, the Company will pay the Accumulated
Value in one sum. Once the Company begins making annuity payments, the Annuitant
cannot make partial redemptions or surrender the annuity benefit, except in the
case where future annuity payments are limited to a "period certain" (only under
Option V or a comparable fixed option). Only beneficiaries entitled to receive
remaining payments for a "period certain" may elect to instead receive a lump
sum settlement.
The Annuity Date is selected by the Policy Owner. To the extent permitted in
your state, the Annuity Date may be the first day of any month (a) before the
Annuitant's 85th birthday, if the Annuitant's age at the date of issue of the
Policy is 75 or under, or (b) within 10 years from the date of issue of the
Policy and before the Annuitant's 90th birthday, if the Annuitant's age at the
date of issue is between 76 and 90. The Policy Owner may elect to change the
Annuity Date by sending a request to the Company's Principal Office at least one
month before the new Annuity Date. The new Annuity Date must be the first day of
any month occurring before the Annuitant's 90th birthday. The new Annuity Date
must be within the life expectancy of the Annuitant. The Company shall determine
such life expectancy at the time a change in Annuity Date is requested. The
Internal Revenue Code and the terms of qualified plans impose limitations on the
age at which annuity payments may commence and the type of annuity option
selected. See "FEDERAL TAX CONSIDERATIONS" for further information.
If the Policy Owner does not elect otherwise, annuity payments will be made in
accordance with Option I, a variable life annuity with 120 monthly payments
guaranteed. Changes in either the Annuity Date or annuity option can be made up
to one month prior to the Annuity Date.
I. DESCRIPTION OF VARIABLE ANNUITY OPTIONS.
The Company currently provides the variable annuity options described below.
Variable annuity options may be funded through the Capital Growth Portfolio, the
Equity-Income Portfolio and the America Income Portfolio.
The Company also provides fixed-amount annuity options which are comparable to
the variable annuity options. Regardless of how payments were allocated during
the accumulation period, any one of the variable annuity options or the
fixed-amount options may be selected, or any one of the variable annuity options
may be selected in combination with any one of the fixed-amount annuity options.
Other annuity options may be offered by the Company.
OPTION I--Variable Life Annuity with 120 Monthly Payments Guaranteed
A variable annuity payable monthly during the lifetime
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of the payee with the guarantee that if the payee should die before 120 monthly
payments have been paid, the monthly annuity payments will continue to the
beneficiary until a total of 120 monthly payments have been paid.
OPTION II--Variable Life Annuity
A variable annuity payable monthly only during the lifetime of the payee. It
would be possible under this option for the Annuitant to receive only one
annuity payment if the Annuitant dies prior to the due date of the second
annuity payment, two annuity payments if the Annuitant dies before the due date
of the third annuity payment, and so on. However, payments will continue during
the lifetime of the payee, no matter how long the payee lives.
OPTION III--Unit Refund Variable Life Annuity
A variable annuity payable monthly during the lifetime of the payee with the
guarantee that if (1) exceeds (2) then monthly variable annuity payments will
continue to the beneficiary until the number of such payments equals the number
determined in (1).
Where:
(1)is the dollar amount of the Accumulated Value divided by the dollar
amount of the first monthly payment (which determines the greatest number
of payments payable to the beneficiary), and
(2)is the number of monthly payments paid prior to the death of the payee.
OPTION IV-A--Joint and Survivor Variable Life Annuity
A monthly variable annuity payable jointly to two payees during their joint
lifetime, and then continuing during the lifetime of the survivor. The amount of
each payment to the survivor is based on the same number of Annuity Units which
applied during the joint lifetime of the two payees. One of the payees must be
either the person designated as the Annuitant in the Policy or the beneficiary.
There is no minimum number of payments under this option. See Option IV-B,
below.
OPTION IV-B--Joint and Two-thirds Survivor Variable Life Annuity
A monthly variable annuity payable jointly to two payees during their joint
lifetime, and then continuing thereafter during the lifetime of the survivor.
However, the amount of each monthly payment to the survivor is based upon
two-thirds of the number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be the person designated as
the Annuitant in the Policy or the beneficiary. There is no minimum number of
payments under this option. See Option IV-A, above.
OPTION V--Period Certain Variable Annuity
A monthly variable annuity payable for a stipulated number of from one to thirty
years.
It should be noted that Option V does not involve a life contingency. In the
computation of the payments under this option, the charge for annuity rate
guarantees, which includes a factor for mortality risks, is made. Although not
contractually required to do so, the Company currently follows a practice of
permitting persons receiving payments under Option V to elect to convert to a
variable annuity involving a life contingency. The Company may discontinue or
change this practice at any time, but not with respect to Policy Owners who have
elected Option V prior to the date of any change in this practice. See "FEDERAL
TAX CONSIDERATIONS" for a discussion of the possible adverse tax consequences of
selecting Option V.
J. NORRIS DECISION.
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a policy issued in connection with an employer-sponsored benefit plan
affected by the Norris decision will be based on the greater of (1) the
Company's unisex Non-Guaranteed Current Annuity Option Rates or (2) the
guaranteed male rates described in such Policy, regardless of whether the
Annuitant is male or female.
Although the Company believes that the Supreme Court ruling does not affect
Policies funding IRA plans that are not employer-sponsored, the Company will
apply certain aspects of the ruling to annuity benefits under such Policies,
except in those states in which it is prohibited. Such benefits will be based on
(1) the greater of the guaranteed unisex annuity rates described in the Policies
or (2) the Company's sex-distinct Non-Guaranteed Current Annuity Option Rates.
K. COMPUTATION OF POLICY VALUES AND ANNUITY PAYMENTS.
THE ACCUMULATION UNIT. Each net purchase payment is allocated to the account(s)
selected by the Policy Owner. Allocations to the Subaccounts are credited to the
Policy in the form of Accumulation Units. Accumulation Units are credited
separately for each Subaccount. The number of Accumulation Units of each
Subaccount credited to the Policy is equal to the portion of the net purchase
payment allocated to the Subaccount, divided by the dollar value of the
applicable Accumulation Unit as of the Valuation Date the payment is received at
the Company's Principal Office. The number of Accumulation Units resulting from
each payment will remain fixed unless changed by a subsequent split of
Accumulation Unit value, a transfer, a partial redemption, or surrender. The
dollar value of an Accumulation Unit of each Subaccount varies from Valuation
Date to Valuation Date based on the investment experience of that Subaccount and
will reflect the investment performance, expenses and charges of its Underlying
Portfolio. The value of an Accumulation Unit was set at $1.00 on the first
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Valuation Date for each Subaccount.
Allocations to the General Account are not converted into Accumulation Units,
but are credited interest at a rate periodically set by the Company. See
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
The Accumulated Value under the Policy is determined by (1) multiplying the
number of Accumulation Units in each Subaccount by the value of an Accumulation
Unit of that Subaccount on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the General Account, if any.
ADJUSTED GROSS INVESTMENT RATE. At each Valuation Date an adjusted gross
investment rate for each Subaccount for the Valuation Period then ended is
determined from the investment performance of that Subaccount. Such rate is (1)
the investment income of that Subaccount for the Valuation Period, plus capital
gains and minus capital losses of that Subaccount for the Valuation Period,
whether realized or unrealized, adjusted for provisions made for taxes, if any,
divided by (2) the amount of that Subaccount's assets at the beginning of the
Valuation Period. The adjusted gross investment rate may be either positive or
negative.
NET INVESTMENT RATE AND NET INVESTMENT FACTOR. The net investment rate for a
Subaccount's variable accumulations for any Valuation Period is equal to the
adjusted gross investment rate of the Subaccount for such Valuation Period
decreased by the equivalent for such period of a charge equal to 1.40% per
annum. This charge cannot be increased.
The net investment factor is 1.000000 plus the applicable net investment rate.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of Accumulation Unit calculation using a hypothetical
example see "ANNUITY PAYMENTS" in the Statement of Additional Information.
THE ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a measure of
the value of the Annuitant's monthly annuity payments under a variable annuity
option. The value of an Annuity Unit in each Subaccount initially was set at
$1.00. The value of an Annuity Unit under a Subaccount on any Valuation Date
thereafter is equal to the value of such unit on the immediately preceding
Valuation Date, multiplied by the product of (1) the net investment factor of
the Subaccount for the current Valuation Period and (2) a factor to adjust
benefits to neutralize the assumed interest rate. The assumed interest rate,
discussed below, is incorporated in the variable annuity options offered in the
Policy.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY PAYMENTS. The first monthly
annuity payment is based upon the Accumulated Value as of a date not more than
four weeks preceding the date the first annuity payment is due. Currently,
variable annuity payments are made on the first of the month based on unit
values as of the 15th day of the preceding month.
The Policy provides annuity rates which determine the dollar amount of the first
monthly payment under each form of annuity for each $1,000 of applied value
(Accumulated Value applied under a specific annuity option to provide annuity
income payments, minus any applicable premium tax). The annuity rates in the
Policy are based on a modification of the 1983 Table on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "J. Norris Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3 1/2% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity payments will increase
over periods when the actual net investment result of the Subaccount(s) funding
the annuity exceeds the equivalent of the assumed interest rate for the period.
Variable Annuity Payments will decrease over periods when the actual net
investment result of the respective Subaccount is less than the equivalent of
the assumed interest rate for the period.
The dollar amount of the first monthly annuity payment under a particular option
is determined by multiplying (1) the Accumulated Value applied under that option
(after deduction for applicable contingent deferred sales charge and premium
tax, if any) divided by $1,000, by (2) the applicable amount of the first
monthly payment per $1,000 of value. The dollar amount of the first monthly
variable annuity payment is then divided by the value of an Annuity Unit of the
selected Subaccount(s) to determine the number of Annuity Units represented by
the first payment. This number of Annuity Units remains fixed under all annuity
options except the joint and two-thirds survivor annuity option. In each
subsequent month, the dollar amount of the variable annuity payment is
determined by multiplying this fixed number of Annuity Units by the value of an
Annuity Unit on the applicable Valuation Date.
After the first payment, the dollar amount of each monthly variable annuity
payment will vary with subsequent variations in the value of the Annuity Unit of
the selected Subaccount(s). The dollar amount of each fixed amount monthly
annuity payment is fixed and will not change, except under the joint and
two-thirds survivor annuity option.
The Company may from time to time offer its Policy Owners both fixed and
variable annuity rates more favorable than those contained in the Policy. Any
such rates will be applied uniformly to all Policy Owners of the same class.
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For an illustration of variable annuity payment calculation using a hypothetical
example, see "ANNUITY PAYMENTS" in the Statement of Additional Information.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Policy, on redemptions or
surrenders, on annuity payments, and on the economic benefit to the Annuitant or
beneficiary depends upon a variety of factors. The following discussion is based
upon the Company's understanding of current federal income tax laws as they are
interpreted as of the date of this Prospectus. No representation is made
regarding the likelihood of continuation of current federal income tax laws or
of current interpretations by the Internal Revenue Service (IRS).
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY POLICIES IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER SHOULD ALWAYS BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income, assets, or
existence of the Policies, the Separate Account or the Subaccounts may have upon
its tax. The Separate Account presently is not subject to tax, but the Company
reserves the right to assess a charge for taxes should the Separate Account at
any time become subject to tax. Any charge for taxes will be assessed on a fair
and equitable basis in order to preserve equity among classes of Policy Owners
and with respect to each Separate Account as though that Separate Account were a
separate taxable entity.
The Separate Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Internal Revenue Code ("Code"). The Company files a
consolidated tax return with its parent, State Mutual, and other affiliates.
The IRS has issued regulations relating to the diversification requirements for
variable annuity and variable life insurance contracts under Section 817(h) of
the Code. The regulations provide that the investments of a segregated asset
account underlying a variable annuity contract are adequately diversified if no
more than 55% of the value of its assets is represented by any one investment,
no more than 70% by any two investments, no more than 80% by any three
investments, and no more than 90% by any four investments. If the investments
are not adequately diversified, the income on a contract, for any taxable year
of the Policy Owner, would be treated as ordinary income received or accrued by
the Policy Owner. It is anticipated that the Underlying Portfolios will comply
with the diversification requirements.
A. QUALIFIED AND NON-QUALIFIED POLICIES.
From a federal tax viewpoint there are two types of variable annuity Policies,
"qualified" Policies and "non-qualified" Policies. A qualified Policy is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, 408, or 457 of the Code, while a
non-qualified Policy is one that is not purchased in connection with one of the
indicated retirement plans. The tax treatment for certain partial redemptions or
surrenders will vary according to whether they are made from a qualified Policy
or a non-qualified Policy. For more information on the tax provisions applicable
to qualified Policies, see Sections D through J, below.
B. TAXATION OF THE POLICIES IN GENERAL.
The Company believes that the Policies described in this Prospectus will, with
certain exceptions (see K below), be considered annuity policies under Section
72 of the Code. This section provides for the taxation of annuities. The
following discussion concerns annuities subject to Section 72. Section
72(e)(11)(A)(ii) requires that all non-qualified deferred annuity policies
issued by the same insurance company to the same Policy Owner during the same
calendar year be treated as a single Policy in determining taxable distributions
under Section 72(e).
With certain exceptions, any increase in the Accumulated Value of the Policy is
not taxable to the Policy Owner until it is withdrawn from the Policy. If the
Policy is surrendered or amounts are withdrawn prior to the Annuity Date, to the
extent of the amount withdrawn any investment gain in value over the cost basis
of the Policy would be taxed as ordinary income. Under the current provisions of
the Code, amounts received under a non-qualified Policy prior to the Annuity
Date (including payments made upon the death of the Annuitant or Policy Owner),
or as non-periodic payments after the Annuity Date, are generally first
attributable to any investment gains credited to the Policy over the taxpayer's
basis (if any) in the Policy. Such amounts will be treated as income subject to
federal income taxation.
A 10% penalty tax may be imposed on the withdrawal of investment gains if the
withdrawal is made prior to age 59-1/2. The penalty tax will not be imposed
after age 59-1/2, or if the withdrawal follows the death of the Policy Owner
(or, if the Policy Owner is not an individual, the death of the primary
Annuitant, as defined in the Code), or in the case of the "total disability" (as
defined in the Code) of the Policy Owner. Furthermore, under Section 72 of the
Code, this penalty tax will not be imposed, irrespective of age, if the amount
received is one of a series of "substantially equal" periodic payments made at
least annually for the life or life expectancy of the payee. This requirement is
met when the Policy Owner elects to have distributions made over the Policy
Owner's life expectancy, or over the joint life expectancy of the Policy Owner
and beneficiary. The requirement that the amount be paid out as one of a series
of "substantially equal" periodic payments is met when the number of units
withdrawn to make each distribution is substantially the same.
In a recent private letter ruling, the IRS took the position that where
distributions from a variable
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annuity policy were determined by amortizing the accumulated value of the policy
over the taxpayer's remaining life expectancy (such as under the Policy's life
expectancy distribution ("LED") option), and the option could be changed or
terminated at any time, the distributions failed to qualify as part of a "series
of substantially equal payments" within the meaning of Section 72 of the Code.
The distributions were therefore subject to the 10% federal penalty tax. This
private letter ruling may be applicable to a Policy Owner who receives
distributions under the LED option prior to age 59 1/2. Subsequent private
letter rulings, however, have treated LED-type withdrawal programs as
effectively avoiding the 10% penalty tax. The position of the IRS on this issue
is unclear.
If the Policy Owner transfers (assigns) the Policy to another individual as a
gift prior to the Annuity Date, the Code provides that the Policy Owner will
incur taxable income at the time of the transfer. An exception is provided for
certain transfers between spouses. The amount of taxable income upon such
taxable transfer is equal to the excess, if any, of the cash surrender value of
the Policy over the Policy Owner's cost basis at the time of the transfer. The
transfer will also subject the Owner to a gift tax. Where the Policy Owner and
Annuitant are different persons, the change of ownership of the Policy to the
Annuitant on the Annuity Date, as required under the Policy, is a gift and will
be taxable to the Owner as such. However, the Owner will not incur taxable
income. Rather the Annuitant will incur taxable income upon receipt of annuity
payments as discussed below.
When annuity payments are commenced under the Policy, generally a portion of
each payment may be excluded from gross income. The excludable portion is
generally determined by a formula that establishes the ratio that the cost basis
of the Policy bears to the expected return under the Policy. The portion of the
payment in excess of this excludable amount is taxable as ordinary income. Once
all cost basis in the Policy is recovered, the entire payment is taxable. If the
last Annuitant dies before cost basis is recovered, a deduction for the
difference is allowed on the Annuitant's final tax return.
C. TAX WITHHOLDING AND PENALTIES.
The Code requires withholding with respect to payments or distributions from
employee benefit plans, annuities, and IRAs, unless a taxpayer elects not to
have withholding. In addition, the Code requires reporting to the IRS of the
amount of income received with respect to payment or distributions from
annuities.
The tax treatment of certain partial redemptions or surrenders of the
non-qualified Policies offered by this Prospectus will vary according to whether
the amount redeemed or surrendered is allocable to an investment in the Policy
made before or after certain dates.
D. QUALIFIED EMPLOYER PLANS.
The tax rules applicable to qualified employer plans, as defined by the Code,
vary according to the type of plan and the terms and conditions of the plan
itself. Therefore, the following is general information about the use of the
Policies with various types of qualified plans. The rights of any person to any
benefits under such qualified plans will be subject to the terms and conditions
of the qualified plans themselves regardless of the terms and conditions of the
Policy.
A loan to a participant or beneficiary from plans qualified under Sections 401
and 403 or an assignment or pledge of an interest in such a plan is generally
treated as a distribution. This general rule does not apply to loans which
contain certain repayment terms and do not exceed a specified maximum amount, as
required under Section 72(p).
E. QUALIFIED EMPLOYEE PENSION AND PROFIT SHARING TRUSTS AND QUALIFIED ANNUITY
PLANS.
When an employee (including a self-employed individual) or one or more of the
employee's beneficiaries receives a "lump sum" distribution (a distribution from
a qualified plan described in Code Section 401(a) within one taxable year equal
to the total amount payable with respect to such an employee) the taxable
portion of such distribution may qualify for special treatment under a special
five-year income averaging provision of the Code. The employee must have had at
least 5 years of participation under the plan, and the lump sum distribution
must be made after the employee has attained age 59 1/2 or on account of his or
her death, separation from the employer's service (in the case of a common-law
employee) or disability (in the case of a self-employed individual). Such
treatment can be elected for only one taxable year once the individual has
reached age 59 1/2. An employee who attained age 50 before January 1, 1986 may
elect to treat part of the taxable portion of a lump-sum distribution as
long-term capital gain and may also elect 10-year averaging instead of five-year
averaging.
F. SELF-EMPLOYED INDIVIDUALS.
The Self-Employed Individuals Tax Retirement Act of 1962, as amended, frequently
referred to as "H.R. 10," allows self-employed individuals and partners to
establish qualified pension and profit sharing trusts and annuity plans to
provide benefits for themselves and their employees.
These plans generally are subject to the same rules and requirements applicable
to corporate qualified plans, with some special restrictions imposed on
"owner-employees." An "owner-employee" is an employee who (1) owns the entire
interest in an unincorporated trade or business, or (2) owns more than 10% of
either the capital interest or profits interest in a partnership.
G. INDIVIDUAL RETIREMENT ACCOUNT PLANS.
Any individual who earns "compensation" (as defined in the Code and including
alimony payable under a court decree) from employment or self-employment,
whether or not he or she is covered by another qualified plan, may establish an
Individual Retirement Account or Annuity plan ("IRA") for the accumulation of
retirement savings on a tax-deferred basis. Income from investments is not
included in "compensation." The
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assets of an IRA may be invested in, among other things, annuity policies
including the Policies offered by this Prospectus.
Contributions to the IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10,000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the above-described
limit on each. An individual with an IRA may establish an additional IRA for a
non-working spouse if they file a joint return. Contributions to the two IRAs
together are deductible up to the lesser of $2,250 or 100% of compensation.
No deduction is allowed for contributions made for the year in which the
individual attains age 70 1/2 and years thereafter. Contributions for that year
and for years thereafter will result in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70 1/2. Although these contributions may not be deducted,
taxes on their earnings are deferred until the earnings are distributed. The
maximum permissible non-deductible contribution is $2,000 for an individual
taxpayer and $2,250 for a taxpayer and non-working spouse. These limits are
reduced by the amount of any deductible contributions made by the taxpayer.
Contributions may be made with respect to a particular year until the due date
of the individual's federal income tax return for that year, not including
extensions. However, for reporting purposes, the Company will regard
contributions as being applicable to the year made unless it receives notice to
the contrary.
All annuity payments and other distributions under an IRA will be taxed as
ordinary income unless the owner has made non-deductible contributions. In
addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70 1/2, and failure to
make adequate distributions at this time may result in certain adverse tax
consequences to the individual.
Distributions from all of an individual's IRAs are treated as if they were a
distribution from one IRA and all distributions during the same taxable year are
treated as if they were one distribution. An individual who makes a
non-deductible contribution to an IRA or receives a distribution from an IRA
during the taxable year must provide certain information on the individual's tax
return to enable the IRS to determine the proportion of the IRA balance which
represents non-deductible contributions. If the required information is
provided, that part of the amount withdrawn which is proportionate to the
individual's aggregate non-deductible contributions over the aggregate balance
of all of the individual's IRAs, is excludable from income.
Distributions which are a return of a non-deductible contribution are
non-taxable, as they represent a return of basis. If the required information is
not provided to the IRS, distributions from an IRA to which both deductible and
non-deductible contributions have been made are presumed to be fully taxable.
H. SIMPLIFIED EMPLOYEE PENSIONS.
Employees may establish simplified employee pensions ("SEPs") under Code Section
408(k) if certain requirements are met. A SEP is an IRA to which the employer
contributes under a written formula. Currently, a SEP may accept employer
contributions each year up to $30,000 or 15% of compensation (as defined),
whichever is less. To establish SEPs the employer must make a contribution for
every employee age 21 and over who has performed services for the employer for
at least three of the five immediately preceding calendar years and who has
earned at least $300 for the year.
The employer's contribution is excluded from the employee's gross income for the
taxable year for which it was made up to the $30,000/15% limit. In addition to
the employer's contribution, the employee may contribute 100% of the employee's
earned income, up to $2,000, to the SEP, but such contributions will be subject
to the rules described above in "F. Individual Retirement Account Plans."
These plans are subject to the general employer's deduction limitations
applicable to all corporate qualified plans.
I. PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX-EXEMPT ORGANIZATIONS.
Under the provisions of Section 403(b) of the Code, payments made for annuity
policies purchased for employees under annuity plans adopted by public school
systems and certain organizations which are tax exempt under Section 501(c)(3)
of the Code are excludable from the gross income of such employees to the extent
that the aggregate purchase payments for such annuity policies in any year do
not exceed the maximum contribution permitted under the Code.
A Policy qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) may not begin before the employee
attains age 59 1/2, separates from service, dies, or becomes disabled. In the
case of hardship a Policy Owner may withdraw amounts contributed by salary
reduction, but not the earnings on such amounts. Even though a distribution may
be permitted under these rules (e.g., for hardship or after separation from
service), it may nonetheless be subject to a 10% penalty tax as a premature
distribution, in addition to income tax. Also, there is a mandatory 20% income
tax withholding on any eligible rollover distribution, unless it is a direct
rollover to another qualified plan in
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accordance with IRS rules.
The distribution restrictions are effective for years beginning after December
31, 1988, but only with respect to amounts that were not held under the Policy
as of that date.
J. TEXAS OPTIONAL RETIREMENT PROGRAM.
Under a Code Section 403(b) annuity policy issued as a result of participation
in the Texas Optional Retirement Program, distributions may not be received
except in the case of the participant's death, retirement or termination of
employment in the Texas public institutions of higher education. These
restrictions are imposed by reason of an opinion of the Texas Attorney General
interpreting the Texas laws governing the Optional Retirement Program.
K. SECTION 457 PLANS FOR STATE GOVERNMENTS AND TAX-EXEMPT ENTITIES.
Code Section 457 allows employees of a state, one of its political subdivisions,
or certain tax-exempt entities to participate in eligible government deferred
compensation plans. An eligible plan, by its terms, must not allow deferral of
more than $7,500 or 33 1/3% of a participant's includible compensation for the
taxable year, whichever is less. Includible compensation does not include
amounts excludable under the eligible deferred compensation plan or amounts paid
into a Code Section 403(b) annuity. The amount a participant may defer must be
reduced dollar-for-dollar by elective deferrals under a SEP, 401(k) plan or a
deductible employee contribution to a 501(c)(18) plan. Under eligible deferred
compensation plans the state, political subdivision, or tax-exempt entity will
be owner of the Policy.
If an employee also participates in another eligible plan or contributes to a
Code Section 403(b) annuity, a single limit of $7,500 will be applied for all
plans. Additionally, the employee must designate how much of the $7,500 or 33
1/3% limitation will be allocated among the various plans. Contributions to an
eligible plan will serve to reduce the maximum exclusion allowance for a Code
Section 403(b) annuity.
Amounts received by employees under such plans generally are includible in gross
income in the year of receipt.
L. NON-INDIVIDUAL OWNERS.
Non-individual Owners (e.g., a corporation) of deferred annuity contracts
generally will be currently taxed on any increase in the cash surrender value of
the deferred annuity attributable to contributions made after February 28, 1986.
This rule does not apply to immediate annuities or to deferred annuities held by
a qualified pension plan, an IRA, a 403(b) plan, estates, employers with respect
to terminated pension plans, or a nominee or agent holding a contract for the
benefit of an individual. Corporate-owned annuities may result in exposure to
the alternative minimum tax, to the extent that income on the annuities
increases the corporation's adjusted current earnings.
REPORTS
A Policy Owner is sent a report semi-annually which states certain financial
information about the Underlying Portfolio. The Company will also furnish an
annual report to the Policy Owner containing a statement of his or her account,
including unit values and other information required by applicable law, rules
and regulations.
CHANGES IN OPERATION OF THE
SEPARATE ACCOUNT
The Company reserves the right, subject to compliance with applicable law, to
(1) transfer assets from any Separate Account or Subaccount to another of the
Company's separate accounts or Subaccounts having assets of the same class, (2)
to operate the Separate Account or any Subaccount as a management investment
company under the 1940 Act or in any other form permitted by law, (3) to
deregister the Separate Account under the 1940 Act in accordance with the
requirements of the 1940 Act and (4) to substitute the shares of any other
registered investment company for the Underlying Portfolio shares held by a
Subaccount, in the event that Underlying Portfolio shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Portfolio shares is inappropriate in view of the purpose of the
Subaccount. In no event will the changes described above be made without notice
to Policy Owners in accordance with the 1940 Act.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Separate Account or of the Subaccounts.
LEGAL MATTERS
There are no legal proceedings pending to which the Separate Account is a party.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the SEC. Certain portions of the Registration
Statement and amendments have been omitted from this Prospectus pursuant to the
rules and regulations of the SEC. The omitted information may be obtained from
the Commission's principal office in Washington, D.C., upon payment of the
Commission's prescribed fees.
APPENDIX A
MORE INFORMATION ABOUT THE
GENERAL ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the General Account are not generally subject to regulation under
the provisions of the Securities Act of 1933 or the 1940 Act. Disclosures
regarding the fixed portion of the annuity contract and the General Account may
be subject to the provisions of the Securities Act of 1933 concerning the
accuracy and completeness of statements made in the Prospectus. The disclosures
in this APPENDIX A have not been reviewed by the SEC. ALLOCATIONS TO AND
TRANSFERS TO AND FROM THE GENERAL
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ACCOUNT OF THE COMPANY ARE NOT PERMITTED IN CERTAIN STATES.
The General Account of the Company is made up of all of the general assets of
the Company other than those allocated to any Separate Account. Allocations to
the General Account, where available, become part of the assets of the Company
and are used to support insurance and annuity obligations.
A portion or all of net purchase payments may be allocated to accumulate at a
fixed rate of interest in the General Account, where available. Such net amounts
are guaranteed by the Company as to principal and a minimum rate of interest.
Under the Policies, the minimum interest which may be credited on amounts
allocated to the General Account is 3% compounded annually. Additional "Excess
Interest" may or may not be credited at the sole discretion of the Company.
If a Policy is surrendered, or if an Excess Amount is redeemed, while the Policy
is in force and before the Annuity Date, a contingent deferred sales charge is
imposed if such event occurs before the payments attributable to the surrender
or withdrawal have been credited to the Policy less than seven full policy
years.
If your Policy was issued in Maryland on Form No. A3023-95, the following
surrender charge table applies to monies in the General Account, rather than the
surrender charge table shown in "CHARGES AND DEDUCTION - A. CONTINGENT DEFERRED
SALES CHARGE" (which applies to monies in the Separate Account):
<TABLE>
<CAPTION>
Years Measured from Date
of Premium Payment Charge as a Percentage of
to Date of Withdrawal the Payments Withdrawn
- --------------------- ----------------------
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
More Than 9 No Charge
</TABLE>
LOANS FROM THE GENERAL ACCOUNT (QUALIFIED POLICIES ONLY)
Loans will be permitted only for TSAs and Policies issued to a plan qualified
under Section 401(a) and 401(k) of the Code. Loans are permitted only from a
Policy's accumulation in the General Account, where available. If the
accumulation in the General Account, as of the date the Company receives the
loan request, does not permit the loan, the Company will make a pro-rata
transfer from the Subaccounts to the General Account sufficient to permit the
loan, based on the amounts in the Subaccounts on the date the Company receives
the loan request. A pro-rata transfer means the Company will allocate the
transfer among the Subaccounts in the same proportion that the Policy Value in
each Subaccount bears to the total Policy Value, less debt, on the date of the
transfer. The maximum loan amount is the amount determined under the Company's
maximum loan formula for qualified plans. The minimum loan amount is $1,000.
Loans will be secured by a security interest in the Policy. Loans are subject to
applicable retirement legislation and their taxation is determined under the
Federal income tax laws. The amount borrowed will be transferred to a fixed,
minimum guarantee loan assets account in the Company's General Account, where it
will accrue interest at a specified rate below the then current loan interest
rate. Generally, loans must be repaid within five (5) years.
The amount of the death benefit, the amount payable on a full surrender and the
amount applied to provide an annuity on the Annuity Date will be reduced to
reflect any outstanding loan balance (plus accrued interest thereon). Partial
withdrawals may be restricted by the maximum loan limitation.
APPENDIX B
EXCHANGE OFFER
A. VARIABLE CONTRACT EXCHANGE OFFER.
A variable annuity contract to which this exchange offer applies may be
exchanged at net asset value for the new policy ("Policy") described in this
prospectus, which is issued on Form Number A3023-95, and state variations
thereof. This exchange offer applies until May 1, 1996 to all variable annuity
contracts issued by the Company, except for (1) variable annuity contract A3018-
91 and A3021-93 (and state variation forms) known as ExecAnnuity Plus. To effect
an exchange, the Company should receive (1) a completed application for the
Policy, (2) written request for the exchange, (3) the contract to be exchanged
for the Policy, and (4) a signed Letter of Awareness.
CONTINGENT DEFERRED SALES CHARGE COMPUTATION. No surrender charge applicable to
the contracts to be exchanged will apply to the surrender effecting the
exchange. Where a contract, other than a Policy or variable annuity contract
A3019-92, A3020-92 or A3022-93 and state variations thereof ("contract A3019-92,
A3020-92 or A3022-93"), is exchanged for a Policy, the contingent deferred sales
charge under the acquired Policy will be computed as if prior purchase payments
for the exchanged contract had been made for the acquired Policy on the date of
issue of the exchanged contract. Where another Policy or contract A3019-92,
A3020-92 or A3022-93 is exchanged for a Policy, the contingent deferred sales
charge under the acquired Policy will be computed as if prior purchase payments
for the exchanged Policy or contract A3019-92, A3020-92 or A3022-93 had been
made for the acquired Policy at least as early as the date on which they were
made for the exchanged Policy or contract A3019-92, A3020-92 or A3022-93. For
those exchanged contracts for which a front-end sales charge was deducted from
each purchase payment, the transferred accumulated values will be treated as
"Old Payments" under the Policy, so that no deferred sales charge will be
assessed on aggregate subsequent withdrawals from the Policy of up to the amount
of the transferred accumulated
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<PAGE>
values. For additional purchase payments made under the Policy after the
transfer of accumulated value from the exchanged contract, the contingent
deferred sales charge will be computed based on the number of years that the
additional purchase payments to which the withdrawal is attributed have been
credited under the Policy, as provided in this Prospectus.
SUMMARY OF DIFFERENCES BETWEEN THE POLICY AND EXCHANGED CONTRACTS EXCEPT FOR
A3019-92, A3020-92 AND A3022-93. The Policy and the variable contracts to which
this exchange offer applies, if other than another Policy or contract A3019-92,
A3020-92 or A3022-93, differ substantially as summarized below. There may be
additional differences important to a person considering an exchange, and the
prospectuses of the Policy and the variable contract to be exchanged should be
reviewed carefully before the exchange is made.
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under the
Policy, as described in this Prospectus, imposes higher charge percentages
against the excess amount redeemed and generally applies such percentages for a
greater number of years than the exchanged contracts. For certain classes of
exchanged contracts, new purchase payments, subject to the contingent deferred
sales charge under the Policy, would not have been subject to the charge under
the exchanged contract.
POLICY FEE AND ADMINISTRATIVE EXPENSE CHARGE. Under the Policy, the Company
deducts a Policy Fee, at a maximum of $30, on each policy anniversary date and
upon full surrender, when the Accumulated Value is $50,000 or less, and assesses
each Subaccount with a daily administrative expense charge at an annual rate of
0.15% of the average daily net assets of the Subaccount. Depending on the class
of contracts to which this exchange offer is made, either no policy fee is
deducted or a policy fee of $9 is deducted twice a year. For certain classes of
contracts, a combined sales and administrative expense is deducted from purchase
payments. No administrative expense charge based on a percentage of Subaccount
assets is imposed under the contracts to which this exchange offer is made.
TRANSFER CHARGE. No charges for transfers among the Subaccounts and the General
Account are imposed for contracts to which this exchange offer is made.
Currently, no such charge is imposed under the Policy and the first 12 transfers
in a Policy year are guaranteed to be free of any charge. However, the Company
reserves the right to assess a charge, guaranteed never to exceed $25, for the
thirteenth and each subsequent transfer in a Policy year.
DEATH BENEFIT. The Policy offers a "stepped-up death benefit" which is not
offered under the exchanged contract; namely, the minimum death benefit that
would have been payable on the most recent fifth year Policy Anniversary,
increased for subsequent purchase payments and reduced proportionally to reflect
withdrawals after that date (in the same proportion that the Accumulated Value
was reduced by the withdrawal). Upon exchange for the Policy, the accumulated
value of the exchanged contract becomes the "purchase payment" for the Policy.
Therefore, the prior purchase payments made for the exchanged contract would not
become a basis for determining the gross payment (less redemptions) guarantee
under the Policy. Consequently, whether the initial minimum death benefit under
the Policy acquired in an exchange is greater than, equal to, or less than the
death benefit of the exchanged contract depends upon whether the accumulated
value transferred to the Policy is greater than, equal to, or less than the
gross payments (less redemptions) under the exchanged contract.
ANNUITY TABLES. The contracts to which this exchange offer is made contain more
favorable annuity tables than the Policy for use in determining the amount of
the first variable annuity payment under the annuity options offered. The
contracts and the Policy each provide minimum guarantees.
INVESTMENTS. Accumulated Value and purchase payments under the Policy may be
allocated to several underlying funds in addition to those permitted under the
exchanged contracts.
SUMMARY OF DIFFERENCES BETWEEN THE POLICY AND CONTRACT A3019-92, A3020-92 AND
A3022-93. The Policy and contract A3019-92, A3020-92 and A3022-93 differ in the
following material ways (the prospectuses of the Policy and contract A3019-92,
A3020-92 and A3022-93 should be reviewed carefully before any exchange):
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under the
Policy, as described in this Prospectus, imposes higher charge percentages
against the excess amount redeemed than A3020-92. The charge is the same as
A3019-92 and A3022-93.
DEATH BENEFIT. The Policy offers a "stepped-up death benefit," which is the
minimum death benefit that would have been payable on the most recent fifth year
Policy Anniversary, increased for subsequent purchase payments and reduced
proportionally to reflect withdrawals after that date (in the same proportion
that the Accumulated Value was reduced by the withdrawal). This is the same
benefit as is offered under A3022-93. Under contract A3019-92 and A3020-92, the
stepped-up death benefit applies to the most recent seventh year for A3019-92
and the most recent fifth year for A3020-92 and is increased for subsequent
purchases and reduced by the dollar amount of any withdrawals. Upon exchange for
the Policy, the accumulated value of exchanged contract A3019-92, A3020-92 and
A3022-93 becomes the "purchase payment" for the Policy. Therefore, the prior
purchase payments made for exchanged contract A3019-92, A3020-92 and A3022-93
would not become a basis for determining the gross payment (less redemptions)
guarantee under the Policy. Consequently, whether the initial minimum death
benefit under the Policy acquired in an exchange is greater than, equal to, or
less than the death benefit of exchanged contract A3019-92, A3020-92 and A3022-
93 depends upon whether the accumulated value transferred to the Policy is
greater than, equal to, or less than the gross payments (less redemptions) under
exchanged contract
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<PAGE>
A3019-92, A3020-92 and A3022-93.
INVESTMENTS. Accumulated Value and purchase payments under the Policy and
contract A3019-92, A3020-92 and A3022-93 are allocable to different underlying
funds and underlying investment companies.
FIXED ACCOUNT. The Policy has a Fixed Account minimum guaranteed interest rate
of 3% compounded annually. This is the same as offered under A3022-93. A3019-92
has a minimum guaranteed interest rate of 5% compounded annually for the first
five Policy years, 4% compounded annually for the next five Policy years, and
3.5% compounded annually thereafter. Contract A3020-92 has a fixed account
minimum guaranteed interest rate of 3.5% compounded annually. Under contract
A3020-92, amounts may not be transferred from the fixed account to a Sub-Account
prior to the end of the applicable one-year guaranteed period.
B. FIXED ANNUITY EXCHANGE OFFER.
This exchange offer also applies to all fixed annuity contracts issued by the
Company. A fixed annuity contract to which this exchange offer applies may be
exchanged at net asset value for the Policies described in this Prospectus,
subject to the same provisions for effecting the exchange and for applying the
Policy's contingent deferred sales charge as described above for variable
annuity contracts. This Prospectus should be read carefully before making such
exchange. Unlike a fixed annuity, the Policy's value is not guaranteed and will
vary depending on the investment performance of the underlying funds to which it
is allocated. The Policy has a different charge structure than a fixed annuity
contract, which includes not only a contingent deferred sales charge that may
vary from that of the class of contracts to which the exchanged fixed contract
belongs, but also Policy 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 Subaccounts and
the General Account), and expenses incurred by the underlying funds.
Additionally, the interest rates offered under the General Account of the Policy
and the Annuity Tables for determining minimum annuity payments may be different
from those offered under the exchanged fixed contract.
C. EXERCISE OF "FREE-LOOK PROVISION" AFTER ANY EXCHANGE.
Persons who, under the terms of this exchange offer, exchange their contract for
the Policy and subsequently revoke the Policy within the time permitted, as
described in the sections of this Prospectus captioned "RIGHT TO REVOKE
INDIVIDUAL RETIREMENT ANNUITY" and "RIGHT TO REVOKE OR SURRENDER IN SOME
STATES," will have their exchanged contract automatically reinstated as of the
date of revocation. The refunded amount will be applied as the new current
accumulated value under the reinstated contract, which may be more or less than
it would have been had no exchange and reinstatement occurred. The refunded
amount will be allocated initially among the general account and subaccounts of
the reinstated contract in the same proportion that the value in the general
account and the value in each subaccount bore to the transferred accumulated
value on the date of the exchange of the contract for the Policy. For purposes
of calculating any contingent deferred sales charge under the reinstated
contract, the reinstated contract will be deemed to have been issued and to have
received past purchase payments as if there had been no exchange.
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<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION
FOR
INDIVIDUAL VARIABLE ANNUITY POLICIES FUNDED THROUGH SUBACCOUNTS OF
SEPARATE ACCOUNT VA-P
INVESTING IN SHARES OF PIONEER VARIABLE CONTRACTS TRUST
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF THE SEPARATE ACCOUNT DATED MARCH 1, 1995,
AS REVISED NOVEMBER 1, 1995 ("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED
FROM ANNUITY CUSTOMER SERVICES, ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY, 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653
DATED NOVEMBER 1, 1995
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE CONTRACT, THE SEPARATE ACCOUNT AND THE COMPANY . . . . . . . . 2
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
GENERAL INFORMATION AND HISTORY
Separate Account VA-P ("Separate Account") is a separate investment account of
Allmerica Financial Life Insurance and Annuity Company ("Company") established
by vote of the Board of Directors on October 27, 1994. The Company was formerly
known as SMA Life Assurance Company until October 1, 1995. The Company is a
life insurance company organized under the laws of Delaware in July, 1974. Its
principal office is located at 440 Lincoln Street, Worcester, Massachusetts
01653, telephone (508)855-1000. The Company is a wholly-owned subsidiary of
First Allmerica Financial Life Insurance Company (formerly State Mutual Life
Insurance Company of America), which is a wholly-owned subsidiary of Allmerica
Financial Corporation, 440 Lincoln Street, Worcester, Massachusetts 01653.
Eight Subaccounts of the Separate Account are available under the Policies.
Each Subaccount invests in a corresponding investment portfolio of Pioneer
Variable Contracts Trust (the "Fund").
The Fund is an open-end, diversified series investment company. The Fund
currently consists of eight different investment portfolios: Capital Growth
Portfolio, International Growth Portfolio, Real Estate Growth Portfolio, Equity-
Income Portfolio, America Income Portfolio, Swiss Franc Bond Portfolio, Balanced
Portfolio, and the Money Market Portfolio. Each Underlying Portfolio has its
own investment objectives and certain attendant risks.
TAXATION OF THE POLICIES, SEPARATE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
Policies, 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
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<PAGE>
connection with the Policies or the Separate Account.
The Separate Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Code and files a consolidated tax return with its parent and
affiliated companies.
The Company reserves the right to make a charge for any effect which the income,
assets, or existence of Policies or the Separate Account may have upon its tax.
Such charge for taxes, if any, will be assessed on a fair and equitable basis in
order to preserve equity among classes of Policy Owners. The Separate Account
presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Separate Account. Fund shares owned by the Subaccounts are held on an open
account basis. A Subaccount's ownership of Fund shares is reflected on the
records of the Fund and not represented by any transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1994 and
1993 and for each of the three years in the period ended December 31, 1994,
included in this Statement of Additional Information constituting part of the
Registration Statement, have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Policies.
UNDERWRITERS
Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. (NASD), serves as principal underwriter and general distributor
for the Policies pursuant to a contract between Allmerica Investments, Inc., the
Company and the Separate Account. Allmerica Investments, Inc. distributes the
Policies on a best efforts basis. Allmerica Investments, Inc., 440 Lincoln
Street, Worcester, Massachusetts 01653 was organized in 1969 as a wholly-owned
subsidiary of First Allmerica and is, at present, indirectly wholly-owned by
First Allmerica.
The Policies offered by this Prospectus are offered continuously and may be
purchased from certain independent broker-dealers which are NASD members and
whose representatives are authorized by applicable law to sell variable annuity
policies.
All persons selling the Policies are required to be licensed by their respective
state insurance authorities for the sale of variable annuity policies.
Commissions not to exceed 6.00% of purchase payments will be paid to entities
which sell the Policies. In addition, expense reimbursement allowances may be
paid. Additional payments may be made for other services not directly related
to the sale of the Policies, 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 Policy Owners or
to the Separate 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, partial
redemption and/or annuitization charges, the investment earnings on amounts
allocated to accumulate on a fixed basis in excess of the interest credited on
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<PAGE>
fixed accumulations by the Company, and the profit, if any, from the mortality
and expense risk charge.
-4-
<PAGE>
ANNUITY PAYMENTS
The method by which the Accumulated Value under the Policy is determined is
described in detail under "K. Computation of Policy Values and Annuity Payments"
in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the assets of a Subaccount at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit value at the end of the current Valuation Period would be
calculated as follows:
<TABLE>
<S> <C>
(1) Accumulation Unit Value - Previous Valuation Period. . . . . . . .$ 1.135000
(2) Value of Assets - Beginning of Valuation Period. . . . . . . . . .$5,000,000
(3) Excess of investment income and net gains over capital losses. . . . .$1,675
(4) Adjusted Gross Investment Rate for the valuation period (3):(2). . .0.000335
(5) Annual Charge (one day equivalent of 1.40% per annum). . . . . . . .0.000038
(6) Net Investment Rate (4)-(5). . . . . . . . . . . . . . . . . . . . .0.000297
(7) Net Investment Factor 1.000000 + (6) . . . . . . . . . . . . . . . .1.000297
(8) Accumulation Unit Value - Current Period (1)x(7) . . . . . . . . .$ 1.135337
</TABLE>
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
accumulated unit value at the end of the Valuation Period would have been
$1.134577.
The method for determining the amount of annuity payments is described in detail
under "K. Computation of Policy Values and Annuity Payments" in the Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY PAYMENT CALCULATION USING HYPOTHETICAL EXAMPLE.
The determination of the Annuity Unit value and the variable annuity payment may
be illustrated by the following hypothetical example: Assume an Annuitant has
40,000 Accumulation Units in a Separate Account, and that the value of an
Accumulation Unit on the Valuation Date used to determine the amount of the
first variable annuity payment is $1.120000. Therefore, the Accumulation Value
of the Contract is $44,800 (40,000 x $1.120000). Assume also that the Contract
Owner elects an option for which the first monthly payment is $6.57 per $1,000
of Accumulated Value applied. Assuming no premium tax or contingent deferred
sales charge, the first monthly payment would be 44.800 multiplied by $6.57, or
$294.34.
Next, assume that the Annuity Unit value for the assumed rate of 3-1/2% per
annum for the Valuation Date as of which the first payment was calculated was
$1.100000. Annuity Unit values will not be the same as Accumulation Unit values
because the former reflect the 3-1/2% assumed interest rate used in the annuity
rate calculations. When the Annuity Unit value of $1.100000 is divided into the
first monthly payment the number of Annuity Units represented by that payment is
determined to be 267.5818. The value of this same number of Annuity Units will
be paid in each
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<PAGE>
subsequent month under most options. Assume further that the net investment
factor for the Valuation Period applicable to the next annuity payment is
1.000190. Multiplying this factor by .999906 (the one-day adjustment factor for
the assumed interest rate of 3-1/2% per annum) produces a factor of 1.000096.
This is then multiplied by the Annuity Unit value on the immediately preceding
Valuation Date (assumed here to be $1.105000). The result is an Annuity Unit
value of $1.105106 for the current monthly payment. The current monthly payment
is then determined by multiplying the number of Annuity Units by the current
Annuity Unit value, or 267.5818 times $1.105106, which produces a current
monthly payment of $295.71.
PERFORMANCE INFORMATION
Performance information for a Subaccount may be compared, in reports and
promotional literature, to certain indices described in the prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other materials information on
various topics of interest to Policy Owners and prospective Policy 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 Policies and the characteristics of and market
for such financial instruments.
The Policies have been offered since March 1, 1995. However, total return data
may be advertised based on the period of time that the Underlying Portfolios
have been in existence. The results for any period prior to the Policies being
offered will be calculated as if the Policies had been offered during that
period of time, with all charges assumed to be those applicable to the Policies.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment in a
Subaccount 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 Subaccounts asset charge and any applicable contingent deferred sales
charge which would be assessed upon complete redemption of the investment.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission. The quotations are computed by
finding the average annual compounded rates of return over the specified periods
that would equate the initial amount invested to the ending redeemable values,
according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at the end of
the specified period
The calculation of Total Return includes the annual charges against the asset of
the Subaccount.
-6-
<PAGE>
This charge is 1.40% on an annual basis. The calculation of ending redeemable
value assumes (1) the policy was issued at the beginning of the period and (2) a
complete surrender of the policy at the end of the period. The deduction of the
contingent deferred sales charge, if any, applicable at the end of the period is
included in the calculation, according to the following schedule:
<TABLE>
<CAPTION>
Policy year from date of Charge as percentage of New
payment in which surrender occurs Purchase Payments redeemed*
--------------------------------- ---------------------------
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
More than 7 No Charge
<FN>
*Subject to the maximum limit described in the prospectus.
</TABLE>
No contingent deferred sales charge is deducted upon expiration of the periods
specified above. In all Policy Years after the first Policy Year, an amount
equal to 10% of the Accumulated Value under the Policy (or a greater amount
under a life expectancy distribution option, if applicable) is not subject to
the contingent sales load.
The calculations of Total Return include the deduction of the $30 Annual Policy
fee.
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return information in this section refers to the total of
the income generated by an investment in a Subaccount 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 Subaccount's asset charges.
However, it is assumed that the investment is NOT redeemed at the end of each
period.
The quotations of Supplemental Total Return are computed by finding the average
annual compounded rates of return over the specified periods that would equate
the initial amount invested to the ending values, according to the following
formula:
n
P(1 + T) = EV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at the end of the
specified period
The calculation of Supplemental Total Return reflects the 1.40% annual charge
against the assets of the Subaccounts. The ending value assumes that the policy
is NOT redeemed at the end of the specified period, and there is therefore no
adjustment for the contingent deferred sales charge that would be applicable if
the policy was redeemed at the end of the period.
The calculations of Supplemental Total Return includes the deduction of the $30
Annual Policy fee.
-7-
<PAGE>
YIELD AND EFFECTIVE YIELD - SUBACCOUNT 257 (INVESTS IN THE MONEY MARKET
PORTFOLIO OF THE FUND)
Yield and effective yield information for Subaccount 257 is not provided because
the Subaccount investing in the Underlying Portfolio has not begun business
operations.
Yield and effective yield figures are calculated by standardized methods
prescribed by rules of the Securities and Exchange Commission. Under those
methods, the yield quotation is computed by determining the net change
(exclusive of capital changes) in the value of a hypothetical pre-existing
account having a balance of one accumulation unit of the Subaccount at the
beginning of the period, subtracting a charge reflecting the annual 1.40%
deduction for mortality and expense risk and the administrative charge, dividing
the difference by the value of the account at the beginning of the same period
to obtain the base period return, and then multiplying the return for a seven-
day base period by (365/7), with the resulting yield carried to the nearest
hundredth of one percent.
Subaccount 257 computes effective yield by compounding the unannualized base
period return by using the formula:
(365/7)
Effective Yield = [(base period return + 1)] - 1
The calculations of yield and effective yield do NOT reflect the $30 Annual
Policy fee.
FINANCIAL STATEMENTS
Financial Statements are included for the Company. Financial Statements for
Separate Account VA-P are not included as the Separate Account had not begun
business operations as of March 1, 1995.
-8-
<PAGE>
SMA LIFE ASSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1994 and 1993
<PAGE>
SMA LIFE ASSURANCE COMPANY
December 31, 1994
Financial Statements
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . 1
Statement of Financial Position. . . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Operations and Changes in Stockholder's Equity. . . . . . . . . . 3
Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . 5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
February 13, 1995
To the Board of Directors and Stockholder of
SMA Life Assurance Company
In our opinion, the accompanying statement of financial position and the related
statements of operations and changes in stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of SMA Life
Assurance Company at December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the financial statements, the Company may adopt
Statement of Financial Accounting Standards No. 120, "Accounting and Reporting
by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts", and Financial Accounting Standards Board
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises", in 1996. If these
pronouncements are adopted, the financial statements for the year ended December
31, 1994 will be retroactively restated for the effects of these changes in
accounting principles.
Price Waterhouse LLP
Boston, Massachusetts
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A Wholly Owned Subsidiary of State Mutual Life Assurance Company of America)
STATEMENT OF FINANCIAL POSITION
as of December 31
(in thousands)
<TABLE>
<CAPTION>
ASSETS 1994 1993
---- ----
<S> <C> <C>
Cash $ 7,248 $ 10,172
Investments:
Bonds 1,595,275 1,567,658
Stocks 12,283 23,478
Mortgage loans 295,532 383,059
Policy loans 116,600 109,014
Real estate 51,288 40,904
Short term investments 45,239 4,999
Other investment assets 27,443 314
----------- -----------
Total cash and investments 2,150,908 2,148,598
Premiums deferred and uncollected 5,452 6,953
Investment income due and accrued 39,442 39,993
Other assets 6,548 12,560
Assets held in separate accounts 1,869,695 1,296,620
----------- -----------
$ 4,072,045 $ 3,504,724
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy liabilities:
Life reserves $ 890,880 $ 905,813
Annuity and other fund reserves 928,325 925,098
Accident and health reserves 121,580 115,081
Claims payable 11,720 10,476
----------- -----------
Total policy liabilities 1,952,505 1,956,468
Expenses and taxes payable 17,484 43,123
Other liabilities 32,445 26,069
Asset valuation reserve 20,786 10,964
Obligations related to separate account business 1,859,502 1,285,884
----------- -----------
Total liabilities 3,882,722 3,322,508
----------- -----------
Stockholder's equity:
Common stock, $1,000 par value
Authorized - 10,000 shares
Issued and outstanding - 2,517 shares 2,517 2,517
Additional paid-in capital 199,307 199,307
Unassigned deficit (13,621) (20,744)
Special contingency reserves 1,120 1,136
----------- -----------
Total stockholder's equity 189,323 182,216
----------- -----------
$ 4,072,045 $ 3,504,724
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
STATEMENT OF OPERATIONS AND
CHANGES IN STOCKHOLDER'S EQUITY
for the year ended December 31
(In thousands)
<TABLE>
<CAPTION>
REVENUE 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Premiums and other considerations:
Life $ 195,633 $ 189,285 $ 181,992
Annuities 707,172 660,143 365,443
Accident and health 31,927 35,718 35,612
Reinsurance commissions and reserve adjustments 4,195 2,309 2,372
---------- ---------- ----------
Total premiums and other considerations 938,927 887,455 585,419
Net investment income 170,430 177,612 183,159
Realized capital gains (losses), net of tax (17,172) (7,225) 576
Other revenue 26,065 19,055 13,224
---------- ---------- ----------
Total revenue 1,118,250 1,076,897 782,378
---------- ---------- ----------
POLICY BENEFITS AND OPERATING EXPENSES
Policy benefits:
Claims, surrenders and other benefits 331,418 275,290 250,317
Increase in policy reserves 40,113 15,292 159,127
---------- ---------- ----------
Total policy benefits 371,531 290,582 409,444
Operating and selling expenses 164,175 160,928 134,482
Taxes, except capital gains tax 22,846 19,066 29,540
Net transfers to separate accounts 553,295 586,539 199,164
---------- ---------- ----------
Total policy benefits and operating expenses 1,111,847 1,057,115 772,630
---------- ---------- ----------
NET INCOME 6,403 19,782 9,748
STOCKHOLDER'S EQUITY AT BEGINNING OF YEAR 182,216 171,941 177,809
Unrealized capital gains (losses) on investments 12,170 (9,052) (20,770)
Transfer from (to) asset valuation reserve (9,822) 1,974 2,883
Other adjustments (1,644) (2,429) 2,271
---------- ---------- ----------
STOCKHOLDER'S EQUITY AT END OF YEAR $ 189,323 $ 182,216 $ 171,941
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
STATEMENT OF CASH FLOWS
for the year ended December 31
(In thousands)
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Premiums, deposits and other income $ 962,147 $ 902,725 $ 602,253
Allowances and reserve adjustments on
reinsurance ceded 3,279 22,185 18,918
Net investment income 173,294 182,843 182,531
Net increase in policy loans (7,585) (7,812) (8,777)
Benefits to policyholders and beneficiaries (330,900) (298,612) (257,274)
Operating and selling expenses and taxes (213,399) (176,361) (126,421)
Net transfers to separate accounts (600,760) (634,021) (221,492)
Other sources (applications) 19,868 7,757 (43,869)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 5,944 (1,296) 145,869
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Sales and maturities of long term investments:
Bonds 478,512 386,414 400,636
Stocks 63 64 80
Real estate and other invested assets 3,008 11,094 4,350
Repayment of mortgage principal 65,334 79,844 95,972
Capital gains tax (968) (3,296) --
Acquisition of long term investments:
Bonds (508,603) (466,086) (710,371)
Stocks -- -- (2,617)
Real estate and other invested assets (24,544) (2,392) (1,910)
Mortgage loans (364) (2,266) (852)
Other investing activities 18,934 (27,254) (3,001)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 31,372 (23,878) (217,713)
---------- ---------- ----------
Net change in cash and short term investments 37,316 (25,174) (71,844)
CASH AND SHORT TERM INVESTMENTS
Beginning of the year 15,171 40,345 112,189
---------- ---------- ----------
End of the year $ 52,487 $ 15,171 $ 40,345
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION - SMA Life Assurance Company (SMA Life or
the "Company") is a wholly owned subsidiary of SMA Financial Corp., which is
wholly owned by State Mutual Life Assurance Company of America (State Mutual), a
mutual life insurance company. The stockholder's equity of the Company is being
maintained at a minimum level of 5% of general account assets by State Mutual in
accordance with a policy established by vote of State Mutual's Board of
Directors.
The Company's financial statements have been prepared on the basis of accounting
practices prescribed or permitted by the Insurance Department of the State of
Delaware and in conformity with practices prescribed by the National Association
of Insurance Commissioners (NAIC), which are generally accepted accounting
principles for mutual life insurance companies and their stock life insurance
subsidiaries.
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.
VALUATION OF INVESTMENTS - Investments in bonds are carried principally at
amortized cost, in accordance with NAIC guidelines. Preferred stocks are
carried generally at cost and common stocks are carried at market value. Policy
loans are carried principally at unpaid principal balances.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts. Mortgage loans are reduced for losses expected by
management to be realized on transfers of mortgage loans to real estate (upon
foreclosure), on the disposition or settlement of mortgage loans and on mortgage
loans which management believes may not be collectible in full. In determining
the amount of the loss, management considers, among other things, the estimated
fair value of the underlying collateral. Investment real estate and real estate
acquired through foreclosure are carried at the lower of depreciated cost or
market value.
An asset valuation reserve (AVR) for bonds, mortgage loans, stocks, real estate,
and other invested assets is maintained by appropriations from surplus in
accordance with a formula specified by the NAIC and is classified as a
liability.
FINANCIAL INSTRUMENTS - In the normal course of business, the Company enters
into transactions involving various types of financial instruments including
investments such as bonds and stocks and investment and loan commitments. These
instruments involve credit risk and also may be subject to risk of loss due to
interest rate fluctuations. The Company evaluates and monitors each financial
instrument individually and, when appropriate, obtains collateral or other
security to minimize losses.
RECOGNITION OF PREMIUM INCOME AND ACQUISITION COSTS - In general, premiums are
recognized as revenue over the premium paying period of the policies;
commissions and other costs of acquiring the policies are charged to operations
when incurred.
SEPARATE ACCOUNTS - Separate account assets and liabilities represent segregated
funds administered and invested by the Company for the benefit of certain
variable annuity and variable life contractholders. Assets consist principally
of bonds, common stocks, and short term obligations at market value. The
investment income, gains, and losses of these accounts generally accrue to the
contractholders and therefore, are not included in the Company's net income.
Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
stockholder's equity.
INSURANCE RESERVES AND ANNUITY AND OTHER FUND RESERVES - Reserves for life
insurance, annuities, and accident and health insurance are established in
amounts adequate to meet the estimated future obligations of policies in force.
These liabilities are computed based upon mortality, morbidity and interest rate
assumptions applicable to these coverages, including provision for adverse
deviation. Interest rates range from 3% to 6% for life insurance and 3 1/2% to
9 1/2% for annuities, and mortality and morbidity assumptions reflect the
Company's experience and industry standards. The assumptions vary by plan, age
at issue, year of issue and duration. Claims reserves are computed based on
historical experience modified for expected trends in frequency and severity.
Withdrawal characteristics of annuity and other fund reserves vary by contract.
5
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
At December 31, 1994 and 1993, approximately 77% and 70%, respectively, of the
contracts (included in both the general account and separate accounts of the
Company) were not subject to discretionary withdrawal or were subject to
withdrawal at book value less surrender charge.
FEDERAL INCOME TAXES - State Mutual, its non-insurance domestic subsidiaries and
SMA Life file a consolidated United States Federal income tax return. Entities
included within the consolidated group are segregated into either a life
insurance or non-life insurance company subgroup. The consolidation of these
subgroups is subject to certain statutory restrictions on the percentage of
eligible non-life taxable operating losses that can be applied to offset life
company taxable income. Allmerica P&C and its subsidiaries file a separate
United States Federal income tax return.
The Federal income tax for the non-life insurance subsidiaries is calculated on
a separate return basis. Any current tax liability (benefit) is paid to
(reimbursed by) State Mutual. Tax benefits resulting from taxable operating
losses of the non-life subsidiaries are not reimbursed currently by State
Mutual. However, to the extent such losses are utilized by the consolidated
group, they are reflected as a liability of State Mutual.
The Federal income tax for the life companies is calculated on a line of
business basis, excluding the operating results of the non-insurance
subsidiaries and Allmerica P&C. The tax is allocated to each life company based
on its contribution to the taxable income or loss of each line of business.
CAPITAL GAINS AND LOSSES - Realized capital gains and losses, net of applicable
capital gains tax or benefit, exclusive of those transferred to the interest
maintenance reserve (IMR), are included in the statement of operations.
Unrealized capital gains and losses are reflected as direct credits or charges
to stockholder's equity. The IMR, which is included in other liabilities,
establishes a reserve for realized gains and losses, net of tax, resulting from
changes in interest rates on short and long term fixed income investments. Net
realized gains and losses charged to the IMR are amortized into net investment
income over the remaining life of the investment sold.
PENDING ACCOUNTING PRONOUNCEMENT - In April 1993, the Financial Accounting
Standards Board (FASB) issued Interpretation No. 40, "Applicability of Generally
Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises"
(FIN 40), which establishes a different definition of generally accepted
accounting principles for mutual life insurance companies (and their stock life
insurance subsidiaries). Under the Interpretation, financial statements of
mutual life insurance companies (and their stock life insurance subsidiaries)
which are prepared on the basis of statutory accounting, will no longer be
characterized as in conformity with generally accepted accounting principles.
In January 1995, the FASB issued Statement of Financial Accounting Standards No.
120, "Accounting and Reporting by Mutual Life Insurance Enterprises and by
Insurance Enterprises for Certain Long-Duration Participating Contracts" (SFAS
No. 120), and the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position No. 95-1, "Accounting for Certain Insurance
Activities of Mutual Life Insurance Enterprises" (SOP 95-1). SFAS No. 120
extends the requirements of SFAS No. 60, "Accounting and Reporting by Insurance
Enterprises," No. 97, "Accounting and Reporting by Insurance Enterprises for
Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale
of Investments," and No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," to mutual life insurance
enterprises. SOP 95-1 establishes accounting for certain participating life
insurance contracts for mutual life insurance enterprises. SFAS No. 120
requires mutual life insurance enterprises (and permits stock life insurance
enterprises) to apply the provisions of SOP 95-1 to those contracts which meet
the conditions in SFAS No. 120.
FIN 40, SFAS No. 120 and SOP 95-1 are all effective for financial statements
issued for fiscal years beginning after December 15, 1995.
Management of the Company has not yet determined the effect on its financial
statements of applying the new pronouncements nor whether it will continue to
present its general purpose financial statements in conformity with the
statutory basis of accounting or adopt the accounting changes required in order
to continue to present its financial statements in conformity with generally
accepted accounting principles. If the Company chooses to adopt the accounting
changes required, the effect of the changes would be reported retroactively
through restatement of all previously issued financial statements beginning with
the earliest year presented. The cumulative effect of adopting these changes
would be included in the earliest year presented.
6
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
NOTE 2 - INVESTMENTS
BONDS - The carrying value and fair value of investments in bonds,are as
follows:
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
<S> <C> <C> <C> <C>
Federal government bonds $ 17,651 $ 8 $ 762 $ 16,897
State, local and government agency bonds 1,110 54 -- 1,164
Foreign government bonds 31,863 83 3,735 28,211
Corporate securities 1,462,871 8,145 56,011 1,415,005
Mortgage-backed securities 81,780 268 1,737 80,311
----------- ----------- ----------- -----------
$ 1,595,275 $ 8,558 $ 62,245 $ 1,541,588
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
<S> <C> <C> <C> <C>
Federal government bonds $ 7,969 $ 356 $ -- $ 8,325
State, local and government agency bonds 15,212 678 -- 15,890
Foreign government bonds 24,152 720 9 24,863
Corporate securities 1,519,050 74,777 4,430 1,589,397
Mortgage-backed securities 1,275 92 -- 1,367
----------- ----------- ----------- -----------
Total $ 1,567,658 $ 76,623 $ 4,439 $ 1,639,842
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The carrying value and fair value by contractual maturity at December 31, 1994,
are shown below. Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties or the Company may have the right to put or
sell the obligation back to the issuer. Mortgage-backed securities are
classified based on expected maturities.
<TABLE>
<CAPTION>
Carrying Fair
(In thousands) Value Value
----- -----
<S> <C> <C>
Due in one year or less $ 225,814 $ 224,695
Due after one year through five years 774,918 751,778
Due after five years through ten years 428,080 404,377
Due after ten years 166,463 160,738
----------- -----------
Total $ 1,595,275 $ 1,541,588
----------- -----------
----------- -----------
</TABLE>
MORTGAGE LOANS AND REAL ESTATE - Mortgage loans and real estate investments, 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 are generally no more than 75% of the property value
at the time the original loan is made. At December 31, 1994 and 1993, mortgage
loan and real estate investments were distributed by the following types and
geographic regions:
7
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
<TABLE>
<CAPTION>
(In thousands)
Property Type 1994 1993
- ------------- ---- ----
<S> <C> <C>
Office buildings $ 140,292 $ 172,694
Residential 57,061 74,514
Retail 72,787 72,756
Industrial/Warehouse 39,424 62,572
Other 37,256 41,427
--------- ---------
Total $ 346,820 $ 423,963
--------- ---------
--------- ---------
<CAPTION>
Geographic Region 1994 1993
- ----------------- ---- ----
<S> <C> <C>
South Atlantic $ 92,934 $ 118,434
East North Central 72,704 78,343
Middle Atlantic 48,688 58,291
Pacific 39,892 45,666
West North Central 27,377 33,325
Mountain 12,211 31,116
New England 26,613 28,759
East South Central 6,224 8,250
West South Central 20,177 21,779
--------- ---------
Total $ 346,820 $ 423,963
--------- ---------
--------- ---------
</TABLE>
NET INVESTMENT INCOME - The components of net investment income for the year
ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Bonds $ 123,495 $ 126,729 $ 119,777
Stocks 1,799 953 692
Mortgage loans 31,945 40,823 52,406
Real estate 8,425 9,493 8,412
Policy loans 8,797 8,215 7,701
Other investments 1,651 674 344
Short term investments 1,378 840 1,848
--------- --------- ---------
177,490 187,727 191,180
Less investment expenses 9,138 11,026 8,035
--------- --------- ---------
Net investment income, before IMR amortization 168,352 176,701 183,145
IMR amortization 2,078 911 14
--------- --------- ---------
Net investment income $ 170,430 $ 177,612 $ 183,159
--------- --------- ---------
--------- --------- ---------
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES - Realized capital gains (losses) on
investments for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Bonds $ 645 $ 10,133 $ 3,302
Stocks (62) 16 33
Mortgage loans (17,142) (83) 162
Real Estate 605 (2,044) 1,985
--------- --------- ---------
(15,954) 8,022 5,482
Less income tax 968 3,296 4,623
--------- --------- ---------
Net realized capital gains (losses) before transfer to IMR (16,922) 4,726 859
Net realized capital gains transferred to IMR (250) (11,951) (283)
--------- --------- ---------
Net realized capital gains (losses) $ (17,172) $ (7,225) $ 576
--------- --------- ---------
--------- --------- ---------
</TABLE>
8
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
Proceeds from voluntary sales of investments in bonds during 1994, 1993 and 1992
were $178,640 thousand, $131,783 thousand and $153,218 thousand, respectively.
Gross gains of $3,010 thousand, $4,523 thousand and $3,043 thousand and gross
losses of $4,553 thousand, $450 thousand and $139 thousand, respectively, were
realized on those sales.
NOTE 3 - FAIR VALUE DISCLOSURES OF FINANCIAL INFORMATION
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure of fair value information
about certain financial instruments (insurance contracts, real estate, goodwill
and taxes are excluded) for which it is practicable to estimate such values,
whether or not these instruments are included in the balance sheet. The fair
values presented for certain financial instruments are estimates which, in many
cases, may differ significantly from the amounts which could be recognized 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.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
FINANCIAL ASSETS:
CASH AND SHORT TERM INVESTMENTS - The carrying amounts reported in the statement
of financial position approximate fair value.
BONDS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models using
discounted cash flow analyses.
STOCKS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models.
MORTGAGE LOANS - Fair values are estimated by discounting the future contractual
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings. The fair value of below investment grade
mortgage loans is limited to the lesser of the present value of the cash flows
or book value.
POLICY LOANS - The carrying amount reported in the statement of financial
position approximates fair value since policy loans have no defined maturity
dates and are inseparable from the insurance contracts.
FINANCIAL LIABILITIES:
ANNUITY AND OTHER FUND RESERVES (WITHOUT MORTALITY/MORBIDITY FEATURES) - Fair
values for the Company's liabilities under individual annuity contracts are
estimated based on current surrender values.
9
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA)
The estimated fair values of the financial instruments as of December 31 were as
follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 7,248 $ 7,248 $ 10,172 $ 10,172
Short term investments 45,239 45,239 4,999 4,999
Bonds 1,595,275 1,541,588 1,567,658 1,639,842
Stocks 12,283 12,283 32,478 32,478
Mortgage loans 295,532 291,704 383,059 395,327
Policy loans 116,600 116,600 109,014 109,014
Financial Liabilities:
Individual annuity contracts 869,230 862,662 870,112 865,668
Supplemental contracts without life
contingencies 16,673 16,673 14,842 14,842
Other contract deposit funds 1,105 1,105 1,317 1,317
</TABLE>
NOTE 4 - FEDERAL INCOME TAXES
The federal income tax provisions for 1994, 1993 and 1992 were $13,109 thousand,
$8,551 thousand and $18,108 thousand, respectively, which include taxes
applicable to realized capital gains of $968 thousand, $3,296 thousand and
$4,623 thousand.
The effective federal income tax rates were 67%, 30% and 65% in 1994, 1993 and
1992, respectively. The differences between the federal statutory rate and the
Company's effective tax rates are primarily related to decreases in taxable
income for the write-offs of mortgage loans; and increases in taxable income for
differences in policyholder liabilities for federal income tax purposes and
financial reporting purposes and the deferral of policy acquisition costs for
federal tax purposes. The Company paid to State Mutual $14,353 thousand,
$8,100 thousand and $30,000 thousand in 1994, 1993 and 1992, respectively, for
its federal income taxes.
The consolidated federal income tax returns are routinely audited by the
Internal Revenue Service (IRS) and provisions are routinely made in the
financial statements in anticipation of the results of these audits. The
Internal Revenue Service (IRS) has completed its examination of all of the
consolidated federal income tax returns through 1988. Deficiencies asserted
with respect to tax years 1977 through 1981 have been paid and recorded and the
consolidated group has filed a recomputation of such years with appeals claiming
a refund with respect to certain agreed upon issues, but has not recognized any
benefit in its financial statements. The consolidated group is currently
considering its response to certain adjustments proposed by the IRS with respect
to the consolidated federal income tax returns for 1982 and 1983. If upheld,
these proposed adjustments would result in additional payments; however, the
consolidated group will vigorously defend its position with respect to these
adjustments. In management's opinion, adequate tax liabilities have been
established for all years.
NOTE 5 - REINSURANCE
The Company participates in reinsurance to reduce overall risks, including
exposure to large losses and to permit recovery of a portion of direct losses.
Reinsurance contracts do not relieve the Company from its obligation to its
policyholders. Reinsurance financial data for the years ended December 31, is as
follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Reinsurance premiums assumed $ 3,788 $ 4,190 $ 4,614
Reinsurance premiums ceded 17,430 14,798 15,570
Deduction from insurance liability including
reinsurance recoverable on unpaid claims 46,734 42,805 48,191
</TABLE>
10
<PAGE>
SMA LIFE ASSURANCE COMPANY
(A Wholly Owned Subsidiary of State Mutual Life Assurance Company of America)
The Company cedes to State Mutual approximately 10% of its individual life
business. Premiums ceded to State Mutual aggregated $7,771 thousand, $9,000
thousand and $9,586 thousand in 1994, 1993 and 1992, respectively. The Company
has also entered into various reinsurance agreements with State Mutual under
which certain insurance risks related to individual accident and health
business, premium income and related expenses are assumed by the Company from
State Mutual. Premiums assumed pursuant to these agreements aggregated $3,788
thousand, $4,190 thousand and $4,614 thousand in 1994, 1993 and 1992,
respectively .
NOTE 6 - DIVIDEND RESTRICTIONS
Delaware has enacted laws governing the payment of dividends by insurers. These
laws affect the dividend paying ability of the Company. Pursuant to Delaware's
statute, the maximum amount of dividends and other distributions that an insurer
may pay in any twelve month period, without the prior approval of the Delaware
Commissioner of Insurance, is limited to the greater of (i) 10% of its statutory
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 (not including realized
capital gains) for the preceding calendar year (if such insurer is not a life
company). Any dividends to be paid by an insurer, whether or not in excess of
the aforementioned threshold, from a source other than earned surplus would also
require the prior approval of the Delaware Commissioner of Insurance. While the
Company is currently operating on a profitable basis, it has a negative earned
surplus position and accordingly is precluded from paying dividends to State
Mutual without the approval of the Commissioner of Insurance.
NOTE 7 - RELATED PARTY TRANSACTIONS
State Mutual provides management, operating personnel and facilities on a cost
reimbursement basis to the Company. Expenses for services received from State
Mutual were $102,461 thousand, $98,676 thousand and $88,273 thousand in 1994,
1993 and 1992, respectively. The net amounts payable to State Mutual and
affiliates for accrued expenses and various other liabilities and receivables
were $8,344 thousand and $12,182 thousand at December 31, 1994 and 1993,
respectively.
During 1992, the Company sold a building to an affiliated company at its
estimated fair value of $4,350 thousand. The Company recognized a capital gain
on the sale, net of tax, in the amount of $1,310 thousand.
NOTE 8 - FUNDS ON DEPOSIT
In March 1994, the Company voluntarily withdrew from being licensed in New York.
In connection with the withdrawal State Mutual, which is licensed in New York,
became qualified to sell the products previously sold by SMA Life in New York.
The Company 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 the Company for New York policyholders, claimants and creditors.
As of December 31, 1994, the carrying value and fair value of the assets on
deposit was $327,899 thousand and $323,474 thousand, respectively, which is in
excess of the required amount.
Additional securities with a carrying value of $3,855 thousand and $3,353
thousand were on deposit with various other state and governmental authorities
as of December 31, 1994 and 1993, respectively.
NOTE 9 - LITIGATION
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the opinion of management, based on the
advice of legal counsel, the ultimate resolution of these proceedings will not
have a material effect on the Company's financial statements.
NOTE 10 - EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF
INDEPENDENT ACCOUNTS
On October 1, 1995, the Company was renamed Allmerica Financial Life
Insurance and Annuity Company.
As discussed in Note 1 - Summary of Significant Accounting Policies, the
Company is a wholly owned subsidiary of SMA Financial Corp., which is wholly
owned by First Allmerica Financial Life Insurance Company (formerly State
Mutual Life Assurance Company of America (State Mutual)).
On February 28, 1995, State Mutual's Board of Directors adopted, pursuant to
Massachusetts insurance law, a plan of reorganization (the "Plan") whereby
State Mutual would convert from a Massachusetts mutual life insurance company
to a Massachusetts stock life insurance company and would become a wholly
owned subsidiary of Allmerica Financial Corporation ("AFC"). On June 30,
1995, the policyholders approved the Plan and on August 2, 1995 (following a
hearing on the Plan), the Commissioner of the Massachusetts Division of
Insurance approved the Plan. On October 16, 1995, the Plan became effective
with the closing of an initial public offering of AFC Common Stock and other
financings, and certain proceeds thereof, amounting to $393.2 million, were
contributed to State Mutual, which was concurrently renamed First Allmerica
Financial Life Insurance Company.
11
<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 SMA Life Assurance Company
FINANCIAL STATEMENTS INCLUDED IN PART C
None
(B) EXHIBITS
Exhibit 1 - Vote of Board of Directors Authorizing Establishment of
Registrant dated October 27, 1994 was previously filed in
Registrant's initial Registration Statement on November 3, 1994
and is herein incorporated by reference.
Exhibit 2 - Not Applicable. Pursuant to Rule 26a-2, the Insurance Company
may hold the assets of the Registrant NOT pursuant to a trust
indenture or other such instrument.
Exhibit 3 - (a) Proposed Form of Sales and Administrative Services Agreement
was previously filed in Registrant's initial Registration
Statement on November 3, 1994 and is herein incorporated by
reference.
(b) Wholesaling Agreement was previously filed on March 1, 1995
and is herein incorporated by reference.
(c) Broker's Agreement and Specimen Schedule of Sales
Commissions for Variable Annuity Policies was previously filed in
Registrant's initial Registration Statement on November 3, 1994
and is herein incorporated by reference.
Exhibit 4 - Proposed form of Policy was previously filed in Registrant's
initial Registration Statement on November 3, 1994 and is herein
incorporated by reference.
Exhibit 5 - Proposed form of Application was previously filed in Registrant's
initial Registration Statement on November 3, 1994 and is herein
incorporated by reference.
Exhibit 6 - THE DEPOSITOR'S ARTICLES OF INCORPORATION AND BYLAWS, AS AMENDED
WERE FILED ON OCTOBER 1, 1995 AND ARE INCORPORATED HEREIN BY
REFERENCE.
Exhibit 7 - Not Applicable.
Exhibit 8 - AUV Calculation Services Agreement with The Shareholder Services
Group date March 31, 1995 WAS PREVIOUSLY FILED ON MAY 1, 1995 AND
IS HEREIN INCORPORATED BY REFERENCE.
Exhibit 9 - Consent and Opinion of Counsel.
Exhibit 10 - Consent and Opinion of Independent Accountant.
Exhibit 11 - None.
Exhibit 12 - None.
Exhibit 13 - None.
Exhibit 14- Not Applicable.
<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
NAME AND POSITION PRINCIPAL OCCUPATION
Barry Z. Aframe Vice President and Counsel, First Allmerica
Vice President and Counsel
Abigail M. Armstrong Counsel, First Allmerica
Secretary and Counsel
Richard J. Baker Vice President and Secretary, First Allmerica
Director and Vice President
Whitworth F. Bird, Jr., M.D. Vice President and Medical Director,
Vice President First Allmerica
and Medical Director
Alan R. Boyer Vice President, First Allmerica
Vice President
Mark R. Colborn Vice President, and Controller, First Allmerica
Vice President and
Controller
Lisa M. Coleman Vice President, First Allmerica
Vice President
Dix F. Davis Vice President, First Allmerica
Vice President
Bruce A. Emond Vice President, First Allmerica
Vice President
Edward W. Ford Vice President, First Allmerica
Vice President
Bruce H. Freedman Vice President, First Allmerica
Vice President
Brian L. Hirst Vice President and Actuary, First Allmerica
Vice President and Actuary
Kruno Huitzingh Vice President and Chief Information Officer,
Vice President and Chief First Allmerica
Information Officer
John P. Kavanaugh Vice President, First Allmerica
Vice President
John F. Kelly Senior Vice President, General Counsel, and
Director Assistant Secretary, First Allmerica
Richard H. Kremer Vice President, First Allmerica
Vice President
Jeffrey P. Lagarce Vice President, First Allmerica
Vice President
Joseph W. MacDougall, Jr. Vice President, Associate General Counsel, and
Vice President, Associate Assistant Secretary, First Allmerica
General Counsel and
Assistant Secretary
William H. Mawdsley Vice President and Actuary, First Allmerica
Vice President and Actuary
<PAGE>
Roderick A. McGarry, II Vice President, First Allmerica
Vice President
John W. Nunley Vice President, First Allmerica
Vice President
John F. O'Brien Director, President and Chief Executive Officer,
Director and Chairman First Allmerica
of the Board
Edward J. Parry, III Vice President and Treasurer, First Allmerica
Vice President and Treasurer
Richard M. Reilly Vice President, First Allmerica
Director, PRESIDENT AND CEO
Henry P. St. Cyr Vice President and Asst. Treasurer,
Vice President and First Allmerica
Asst. Treasurer
Eric Simonsen Vice President and Chief Financial Officer,
Director, Vice President and First Allmerica
Chief Financial Officer
Ann K. Tripp Vice President, First Allmerica
Vice President
Jerome F. Weihs Vice President, First Allmerica
Vice President
Diane E. Wood Vice President, First Allmerica
Vice President
Item 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT.
<TABLE>
<CAPTION>
NAME ADDRESS TYPE OF BUSINESS
<S> <C> <C>
Allmerica Financial 440 Lincoln Street Holding Company
Corporation Worcester, MA 01653
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
Allmerica Asset 440 Lincoln Street Investment advisory
Management, Inc. Worcester MA 01653 services
Allmerica Employees 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester MA 01653
Allmerica Financial 440 Lincoln Street Insurance Agency
Services Insurance Worcester, MA 01653
Agency, Inc.
Allmerica Funds 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Institutional 440 Lincoln Street Accounting, marketing
Services, Inc. Worcester MA 01653 and shareholder services for
investment companies
Allmerica Investment 440 Lincoln Street Holding Company
Services, Inc. Worcester, MA 01653
(formerly Allmerica
Financial Services, Inc.)
Allmerica Investment 440 Lincoln Street Investment Advisory
Management Company, Inc. Worcester MA 01653 Services
<PAGE>
Allmerica Investments, 440 Lincoln Street Securities, retail broker-
Inc. Worcester MA 01653 dealer
Allmerica Investment Trust 440 Lincoln Street Investment Company
(formerly SMA Investment Worcester MA 01653
Trust)
Allmerica Property 440 Lincoln Street Holding Company
and Casualty Companies, Worcester MA 01653
Inc.
Allmerica Realty Advisors, 440 Lincoln Street Investment Advisory
Inc. Worcester MA 01653 services
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services, Inc. 440 Lincoln Street Service Company
Worcester MA 01653
Allmerica Trust Company, 440 Lincoln Street Limited purpose national
N.A. Worcester MA 01653 trust company
AMGRO, Inc. 472 Lincoln Street Premium financing
Worcester MA 01653
APC Funding Corp. 440 Lincoln Street Special purpose funding
Worcester MA 01653 vehicle for commercial
paper
Beltsville Drive Limited 440 Lincoln Street Real estate partnership
Partnership Worcester MA 01653
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance 645 West Grand River Multi-line fire &
Company of America Howell MI 48843 casualty insurance
Citizens Insurance 645 West Grand River Multi-line fire &
Company of Ohio Howell MI 48843 casualty insurance
Citizens Management, Inc. 645 West Grand River Services management
Howell MI 48843 company
First Allmerica 440 Lincoln Street Life Insurance
Financial Life Worcester, MA 01653 Company
Insurance Company
Greendale Special 440 Lincoln Street Massachusetts Grantor
Placements Fund Worcester MA 01653 Trust
The Hanover American 100 North Parkway Multi-line fire &
Insurance Company Worcester MA 01653 casualty insurance
The Hanover Insurance 100 North Parkway Multi-line fire &
Company Worcester MA 01605 casualty insurance
<PAGE>
Hanover Texas Insurance 801 East Campbell Road Incorporated Branch
Management Company, Inc. Richardson TX 75081 Office of The Hanover
Insurance Company
Hanover Lloyd's Insurance 801 East Campbell Road Multi-line fire &
Company Richardson TX 75081 casualty insurance
Hollywood Center, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Linder Skokie Real Estate 440 Lincoln Street General business
Corporation Worcester MA 01653 corporation
Lloyds Credit Corporation 440 Lincoln Street Premium financing
Worcester MA 01653 service franchises
Logan Wells Water 603 Heron Drive Water Company, serving
Company, Inc. Bridgeport NJ 08014 land development
investment
Massachusetts Bay 100 North Parkway Multi-line fire &
Insurance Company Worcester MA 01653 casualty
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
ALLMERICA FIANCIAL LIFE 440 Lincoln Street Life insurance, accident
INSURANCE AND ANNUITY Worcester MA 01653 & health insurance,
COMPANY annuities, variable annuities
and variable life insurance
Somerset Square, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Sterling Risk Management 100 North Parkway Risk management
Services, Inc. Worcester MA 01605 services
</TABLE>
Item 27. NUMBER OF CONTRACTOWNERS.
As of December 31, 1994, the Separate Account had no Policyowners.
Item 28. INDEMNIFICATION.
Article VIII of the Bylaws of ALLMERICA FINANCIAL LIFE INSURANCE AND
ANNUITY COMPANY (the Depositor) states: Each Director and each Officer of
the Corporation, whether or not in office, (and his executors and
administrators), shall be indemnified or reimbursed by the Corporation
against all expenses actually and necessarily incurred by him in the
defense or reasonable settlement of any action, suit or proceeding in which
he is made a party by reason of his being or having been a Director or
Officer of the Corporation, including any sums paid in settlement or to
discharge judgement, except in relation to matters as to which he shall be
finally adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of his duties as such Director
or Officer; and the foregoing right of indemnification or reimbursement
shall not affect any other rights to which he may be entitled under the
Articles of Incorporation, any statute, bylaw, agreement, vote of
stockholders, or otherwise.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
- VEL Account, VEL II Account, Inheiritage Account, Separate Accounts
VA-A, VA-B, VA-C, VA-G, VA-H, VA-K 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 and Allmerica Select Separate Account of First Allmerica
- Allmerica Investment Trust
<PAGE>
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
NAME POSITION OR OFFICE WITH UNDERWRITER
Abigail M. Armstrong Secretary and Counsel
Philip J. Coffey Vice President
Bob A. Freelove Vice President
John F. Kelly Director
John F. O'Brien Director
Stephen Parker PRESIDENT AND CEO
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Ronald K. Smith Vice President
Mark Steinberg Senior Vice President
Robert T. Stemple Vice President and Controller
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are
maintained by the Company at 440 Lincoln Street, Worcester, Massachusetts or on
behalf of the Company by the Shareholder Services Group, Inc. at 290 Donald
Lynch Boulevard, Marlborough, Massachusetts.
Item 31. MANAGEMENT SERVICES.
Effective March 31, 1995, the Company has engaged The Shareholder Services
Group, Inc., 53 State Street, Boston, Massachusetts to provide daily unit value
calculations and related services for the Company's separate accounts.
Item 32. UNDERTAKINGS.
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
(b) The registrant hereby undertakes to include in the prospectus a postcard
that the applicant can remove to send for a Statement of Additional Information.
(c) The registrant hereby undertakes to deliver a Statement of Additional
Information promptly upon written or oral request, according to the requirements
of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act may be
permitted to Directors, Officers and Controlling Persons of Registrant under any
registration statement, underwriting agreement or otherwise, Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a Director, Officer or Controlling Person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, Officer or Controlling Person in connection with the securities being
<PAGE>
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Item 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(b)
PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM.
Registrant, a separate account of ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY ("Company"), states that it is (a) relying on Rule 6c-7 under the 1940
Act with respect to withdrawal restrictions under the Texas Optional Retirement
Program ("Program") and (b) relying on the "no-action" letter (Ref. No. IP-6-88)
issued on November 28, 1988 to the American Council of Life Insurance, in
applying the withdrawal restrictions of Internal Revenue Code Section
403(b)(11). Registrant has taken the following steps in reliance on the letter:
1. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in the prospectus
of each registration statement used in connection with the offer of the
Company's variable contracts.
2. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in sales
literature used in connection with the offer of the Company's variable
contracts.
3. Sales Representatives who solicit participants to purchase the variable
contracts have been instructed to specifically bring the redemption
restrictions imposed by the Program and by Section 403(b)(11) to the
attention of potential participants.
4. A signed statement acknowledging the participant's understanding of (i) the
restrictions on redemption imposed by the Program and by Section 403(b)(11)
and (ii) the investment alternatives available under the employer's
arrangement will be obtained from each participant who purchases a variable
annuity contract prior to or at the time of purchase.
Registrant hereby represents that it will not act to deny or limit a transfer
request except to the extent that a Service-Ruling or written opinion of
counsel, specifically addressing the fact pattern involved and taking into
account the terms of the applicable employer plan, determines that denial or
limitation is necessary for the variable annuity contracts to meet the
requirements of the Program or of Section 403(b). Any transfer request not so
denied or limited will be effected as expeditiously as possible.
<PAGE>
EXHIBIT TABLE
Exhibit 9 - Consent and Opinion of Counsel
Exhibit 10 - Consent and Opinion of Independent Accountant
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Registrant has duly caused this post-effective amendment to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, all in the City of Worcester and Commonwealth of
Massachusetts on the 27th day of October, 1995. Registrant certifies that it
meets the requirements of Securities Act Rule 485(b) for effectiveness of this
post-effective amendment to its Registration Statement.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE
COMPANY OF AMERICA
SEPARATE ACCOUNT VA-P
Attest: /s/ Joseph W. MacDougall, Jr.
-------------------------------
Joseph W. MacDougall, Jr.
Vice President, Associate General Counsel
and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Richard M. Reilly Director, President and October 27, 1995
- ---------------------- Chief Executive Officer
Richard M. Reilly
/s/ John F. O'Brien Director and Chairman of the
- ----------------------- Board
John F. O'Brien
/s/ Eric A. Simonsen Director, Vice President and
- ----------------------- Chief Financial Officer
Eric A. Simonsen
/s/ Mark R. Colborn Vice President and
- ------------------------ Controller
Mark R. Colborn
/s/ Richard J. Baker Director and Vice President
- ------------------------
Richard J. Baker
/s/ John F. Kelly Director
- ------------------------
John F. Kelly
<PAGE>
EXHIBIT 9
October 27, 1995
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester MA 01653
Gentlemen:
In my capacity as Counsel of Allmerica Financial Life Insurance and Annuity
Company (the "Company"), I have participated in the preparation of the
Post-Effective Amendment to the Registration Statement for Separate Account
VA-P on Form N-4 under the Securities Act of 1933 and the Investment Company
Act of 1940, with respect to the Company's qualified and non-qualified
variable annuity contracts.
I am of the following opinion:
1. Separate Account VA-P is a separate account of the Company validly existing
pursuant to the Delaware Insurance Code and the regulations issued
thereunder.
2. The assets held in Separate Account VA-P are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The individual qualified and non-qualified variable annuity contracts, when
issued in accordance with the Prospectus contained in the Registration
Statement and upon compliance with applicable local law, will be legal and
binding obligations of the Company in accordance with their terms and when
sold will be legally issued, fully paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Post-
Effective Amendment to the Registration Statement for Separate Account VA-P on
Form N-4 under the Securities Act of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 2 to the Registration
Statement on Form N-4 of our report dated February 13, 1995 relating to the
financial statements of SMA Life Assurance Company which appears in such
Statement of Additional Information. We also consent to the reference to us
under the heading "Experts" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
October 27, 1995
