<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
PIONEER VISION 2
PROFILE THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT
MAY 1, 1998 POINTS THAT YOU SHOULD KNOW AND CONSIDER BEFORE PURCHASING
THE PIONEER VISION 2 VARIABLE ANNUITY CONTRACT. THE CONTRACT
IS MORE FULLY DESCRIBED LATER IN THIS PROSPECTUS. PLEASE
READ THE PROSPECTUS CAREFULLY.
1. THE PIONEER VISION 2 VARIABLE ANNUITY CONTRACT
The Pioneer Vision 2 variable annuity contract is a contract between you, the
owner, and Allmerica Financial Life Insurance and Annuity Company. It is
designed to help you accumulate assets for your retirement or other important
financial goals on a tax-deferred basis. The Pioneer Vision 2 contract combines
the concept of professional money management with the attributes of an annuity
contract.
Pioneer Vision 2 offers a diverse selection of investment portfolios. You may
allocate your payments among any of ten investment portfolios of the Pioneer
Variable Contracts Trust, the Guarantee Period Accounts and the Fixed Account
(the Guarantee Period Accounts and/or the Fixed Account may not be available in
certain jurisdictions.) This range of investment choices enables you to allocate
your money to meet your particular investment needs.
Like all annuities, the contract has an ACCUMULATION PHASE and an ANNUITY PAYOUT
PHASE. During the ACCUMULATION PHASE you can make payments into the contract on
any frequency. Investment and interest gains accumulate tax deferred. You may
withdraw money from your contract during the ACCUMULATION PHASE. However, as
with other tax-deferred investments, you pay taxes on earnings and any untaxed
payments to the contract when you withdraw them. A federal tax penalty may apply
if you withdraw prior to age 59 1/2.
During the ANNUITY PAYOUT PHASE you will receive regular payments from your
contract, provided you annuitize. Annuitization involves beginning a series of
payments from the capital that has built up in your contract. The amount of your
payments during the annuity payout phase will, in part, be determined by your
contract's growth during the accumulation phase.
2. ANNUITY BENEFIT PAYMENTS
If you choose to annuitize your contract, you may select one of six annuity
options: (1) monthly payments guaranteed for your lifetime; (2) monthly payments
guaranteed for your lifetime, but for not less than 10 years; (3) monthly
payments for your lifetime with the guarantee that, if payments to you are less
than the accumulated value, a refund of the remaining value will be paid; (4)
monthly payments guaranteed for your lifetime and your survivor's lifetime; (5)
monthly payments guaranteed for your lifetime and your survivor's lifetime with
the payment to the survivor being reduced to 2/3; and (6) monthly payments
guaranteed for a specified period of 1 to 30 years.
You also need to decide if you want your annuity payments on a variable basis
(i.e., subject to fluctuation based on investment performance), on a fixed basis
(with benefit payments guaranteed at a fixed amount), or on a combination
variable and fixed basis. Once payments begin, the annuity option cannot be
changed.
3. PURCHASING THIS CONTRACT
You can buy a contract through your financial representative, who can also help
you complete the proper forms. There is no fixed schedule for making payments
into this contract. Payments are not limited as to frequency, but there are
certain limitations as to amount. Currently, the initial payment must be at
least $600
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and each subsequent investment must be at least $50. Minimum payments are lower
for certain employer-sponsored plans.
4. INVESTMENT OPTIONS
You have full investment control over the contract. You may allocate and
transfer money among the following investment options:
<TABLE>
<S> <C>
International Growth Balanced Portfolio
Portfolio
Capital Growth Portfolio Swiss Franc Bond Portfolio
Growth Shares Portfolio America Income Portfolio
Real Estate Growth Money Market Portfolio
Portfolio
Growth and Income Guarantee Period Accounts
Portfolio
Equity-Income Portfolio Fixed Account
</TABLE>
The Guarantee Period Accounts let you choose from among several different
Guarantee Periods during which principal and interest rates are guaranteed. The
Fixed Account guarantees principal and a minimum rate of interest (never less
than 3% compounded annually).
5. EXPENSES
Each year and upon surrender, a $30 contract fee is deducted from your contract.
The contract fee is waived if the value of the contract is $50,000 or more or if
the contract is issued to and maintained by the Trustees of a 401(k) plan. We
also deduct insurance charges which amount to 1.40% annually of the daily value
of your contract value allocated to the variable investment options. These
insurance charges include a mortality and expense risk charge of 1.25% and an
administrative expense charge of 0.15%. There are also investment management
fees and other portfolio operating expenses that vary by portfolio.
If you decide to surrender your contract, make withdrawals or receive payments
under certain annuity options, we may impose a surrender charge between 1% and
7% of the payment withdrawn, based on when your payments were made. In states
where premium taxes are imposed, a premium tax charge will be deducted either
when withdrawals are made or annuity payments commence.
There is currently no charge for transfers between investment options. We
reserve the right to assess a charge, not to exceed $25, for transfers in excess
of 12 per year.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" shows the total of the $30 contract
fee (which is represented as 0.04%), the 1.40% insurance charges and the
investment charges for each portfolio. The next two columns show two examples of
the charges, in dollar amounts, you would pay under a contract. The examples
assume that you invested $1,000 in a portfolio earning 5% annually and that you
withdraw your money: (1) at the end of year 1, and (2) at the end of year 10.
For year 1, the Total Annual Charges are assessed as well as the surrender
charges. For year 10, the example shows the aggregate of all the annual charges
assessed for 10 years, but there is no surrender charge. The premium tax is
assumed to be 0% in both examples.
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<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL
EXPENSES AT
END OF
TOTAL ANNUAL TOTAL ANNUAL -----------------
INSURANCE PORTFOLIO TOTAL ANNUAL (1) (2)
PORTFOLIO CHARGES EXPENSES* CHARGES 1 YEAR 10 YEARS
- --------------------------------------------------------- ------------ ------------ ------------ ------ --------
<S> <C> <C> <C> <C> <C>
International Growth Portfolio 1.44% 1.48% 2.92% $90 $321
Capital Growth Portfolio 1.44% 0.79% 2.23% $83 $253
Growth Shares Portfolio 1.44% 1.25% 2.69% $88 $299
Real Estate Growth Portfolio 1.44% 1.24% 2.68% $88 $298
Growth and Income Portfolio 1.44% 1.25% 2.69% $88 $299
Equity-Income Portfolio 1.44% 0.77% 2.21% $83 $251
Balanced Portfolio 1.44% 0.95% 2.39% $85 $269
Swiss Franc Bond Portfolio 1.44% 1.22% 2.66% $87 $296
America Income Portfolio 1.44% 1.23% 2.67% $88 $297
Money Market Portfolio 1.44% 0.99% 2.43% $85 $273
</TABLE>
The above insurance charges include the $30 annual contract fee (which is
represented as 0.04%).
*Portfolio expenses are estimated for the Growth Shares and Growth and Income
Portfolios which commenced operations on October 31, 1997. In addition,
Pioneering Management Corporation has agreed voluntarily to waive its management
fee and/or make other arrangements, if necessary, to reduce portfolio expenses.
For more information, see the Fee Table in the Prospectus for the Contract.
6. TAXES
You will not pay taxes until you withdraw money from your contract. During the
accumulation phase, earnings are withdrawn first and are taxed as ordinary
income. If you make a withdrawal prior to age 59 1/2, you may be subject to a
10% federal tax penalty on the earnings. Payments during the annuity payout
phase are considered partly a return of your investment and partly earnings. You
will be subject to income taxes on the earnings portion of each payment.
However, if your contract is funded with pre-tax or tax deductible dollars (such
as a pension or profit sharing plan contribution), then the entire payment will
be taxable.
7. WITHDRAWALS
You can withdraw money from your contract at any time during the accumulation
phase. Any payment invested for more than seven years can be withdrawn without a
surrender charge. For amounts invested seven years or less, you can withdraw,
without a charge, the GREATEST of: (1) 100% of cumulative earnings; (2) 15% of
the contract value per calendar year; or (3) if you are also the Annuitant, an
amount based on your life expectancy. (Similarly, no surrender charge will apply
if an amount is withdrawn based on the Annuitant's life expectancy if the Owner
is a trust or other non-natural person.) Where permitted by state law, the
surrender charges are also waived if, after the contract is issued, you (1) are
diagnosed with a fatal illness, (2) become disabled (before age 65) or (3) are
confined in a medical care facility until the later of one year from the issue
date or 90 days.
Any withdrawal from a Guarantee Period Account ("GPA") prior to the end of the
guarantee period will be subject to a market value adjustment which may increase
or decrease the value in the account. This adjustment will never impact your
original investment, nor will earnings in the GPA amount to less than an
effective annual rate of 3%.
8. PERFORMANCE
The following chart illustrates past returns for the portfolios since the
inception of each Sub-Account. The performance figures reflect the contract fee,
the insurance charges, the investment charges and all other
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expenses of the portfolio. They do not reflect the surrender charges which, if
applied, would reduce such performance. Please note that past performance is not
a guarantee of future results.
<TABLE>
<CAPTION>
CALENDAR YEARS
---------------------
PORTFOLIO 1997 1996
- ---------------------------------------------------------------------------------------- --------- ----------
<S> <C> <C>
International Growth Portfolio 3.38% 6.98%
Capital Growth Portfolio 22.94% 13.38%
Growth Shares Portfolio N/A N/A
Real Estate Growth Portfolio 19.46% 33.80%
Growth and Income Portfolio N/A N/A
Equity-Income Portfolio 33.33% 13.53%
Balanced Portfolio 15.50% 12.62%
Swiss Franc Bond Portfolio -8.25% -12.11%
America Income Portfolio 6.91% -0.17%
Money Market Portfolio 3.16% 3.00%
</TABLE>
9. DEATH BENEFIT
If the annuitant dies during the accumulation phase, we will pay the beneficiary
a death benefit. The death benefit is equal to the GREATEST of: (a) the
accumulated value increased for any positive market value adjustment; (b) gross
payments compounded daily at an annual rate of 5%, decreased proportionately to
reflect any prior withdrawals; or (c) the death benefit that would have been
payable on the most recent contract anniversary, increased for subsequent
payments and decreased proportionately for subsequent withdrawals.
This guaranteed death benefit works in the following way assuming no withdrawals
are made. On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments compounded at the annual rate of 5%. The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments compounded at the annual rate of 5% or (c) the
locked-in value of the death benefit at the first anniversary. The greatest of
(a), (b) or (c) will be locked in until the next Contract anniversary. This
calculation will then be repeated on each anniversary while the Contract remains
in force and prior to the Annuity Date. As noted above, the values of (b) and
(c) will be decreased proportionately if withdrawals are taken.
10. OTHER INFORMATION
FREE-LOOK PERIOD: If you cancel your contract within 10 days after receiving it
(or whatever period is required by your state), you will receive a refund in
accordance with the terms of the contract's "Right to Examine Contract"
provision.
DOLLAR COST AVERAGING: You may elect to automatically transfer money on a
periodic basis from the America Income Portfolio, Money Market Portfolio or
Fixed Account to one or more of the other investment options, except the Fixed
Account and the Guarantee Period Accounts.
AUTOMATIC ACCOUNT REBALANCING: You may elect to automatically have your
contract's accumulated value periodically reallocated ("rebalanced") among your
chosen investment options to maintain your designated percentage allocation mix.
PROBATE FREE: In most cases, the death benefit is payable to the beneficiary
you select without having to go through probate.
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11. INQUIRIES
If you need more information about Pioneer Vision 2 you may contact us at
1-800-688-9915 or send correspondence to:
Pioneer Vision 2
Allmerica Financial
P.O. Box 8632
Boston, MA 02266-8632
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ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
WORCESTER, MASSACHUSETTS
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
PIONEER VARIABLE CONTRACTS TRUST
This Prospectus describes interests under flexible payment deferred combination
variable and fixed annuity contracts issued either on a group basis or as
individual contracts by Allmerica Financial Life Insurance and Annuity Company
(the "Company") to individuals and businesses in connection with retirement
plans which may or may not qualify for special federal income tax treatment.
(For information about a contract's tax status when used with a particular type
of plan, see "FEDERAL TAX CONSIDERATIONS.") Participation in a group contract
will be accounted for by the issuance of a certificate describing the
individual's interest under the group contract. Participation in an individual
contract will be evidenced by the issuance of an individual contract.
Certificates and individual contracts are referred to herein collectively as the
"Contract(s)." The following is a summary of information about these Contracts.
More detailed information can be found under the referenced captions in this
Prospectus.
Contract values may accumulate on a variable basis in the Contract's Variable
Account, known as Separate Account VA-P. The assets of the Variable Account are
divided into Sub-Accounts, each investing exclusively in shares of one of the
following Portfolios of the Pioneer Variable Contracts Trust ("the Fund"):
INTERNATIONAL GROWTH PORTFOLIO
CAPITAL GROWTH PORTFOLIO
GROWTH SHARES PORTFOLIO
REAL ESTATE GROWTH PORTFOLIO
GROWTH AND INCOME PORTFOLIO
EQUITY-INCOME PORTFOLIO
BALANCED PORTFOLIO
SWISS FRANC BOND PORTFOLIO
AMERICA INCOME PORTFOLIO
MONEY MARKET PORTFOLIO
In most jurisdictions, values also may be allocated on a fixed basis to the
Fixed Account, which is part of the Company's General Account and, during the
accumulation period, to one or more of the Guarantee Period Accounts. Amounts
allocated to the Fixed Account earn interest at a guaranteed rate for one year
from the date allocated. Amounts allocated to a Guarantee Period Account earn a
fixed rate of interest for the duration of the applicable Guarantee Period. The
interest earned is guaranteed if held for the entire Guarantee Period. If
withdrawn or transferred prior to the end of the Guarantee Period, the value may
be increased or decreased by a Market Value Adjustment. Assets supporting
allocations to the Guarantee Period Accounts in the accumulation phase are held
in the Company's Separate Account GPA.
Additional information is contained in a Statement of Additional Information
dated May 1, 1998, filed with the Securities and Exchange Commission ("SEC") and
incorporated herein by reference. The Table of Contents of the Statement of
Additional Information is on page 4 of this Prospectus. The Statement of
Additional Information ("SAI") is available upon request and without charge. To
obtain the SAI, fill out and return the attached request card or contact Annuity
Client Services, telephone 1-800-688-9915.
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, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
DATED MAY 1, 1998
<PAGE>
THE CONTRACTS ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY, AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE CONTRACTS ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT
UNION. THE CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS IN THE
CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS......................................................................... 5
SUMMARY............................................................................... 7
ANNUAL AND TRANSACTION EXPENSES....................................................... 12
CONDENSED FINANCIAL INFORMATION....................................................... 15
PERFORMANCE INFORMATION............................................................... 16
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, AND PIONEER
VARIABLE CONTRACTS TRUST............................................................. 19
INVESTMENT OBJECTIVES AND POLICIES.................................................... 21
INVESTMENT ADVISORY SERVICES.......................................................... 22
DESCRIPTION OF THE CONTRACT........................................................... 22
A. Payments......................................................................... 22
B. Right to Revoke Individual Retirement Annuity.................................... 23
C. Right to Revoke or Surrender in Some States...................................... 23
D. Transfer Privilege............................................................... 23
Automatic Transfers and Automatic Account Rebalancing Options................... 24
E. Surrender........................................................................ 24
F. Withdrawals...................................................................... 25
Systematic Withdrawals.......................................................... 25
Life Expectancy Distributions................................................... 26
G. Death Benefit.................................................................... 26
Death of the Annuitant Prior to the Annuity Date................................ 26
Death of an Owner Who is Not Also the Annuitant Prior to the Annuity Date....... 27
Payment of the Death Benefit Prior to the Annuity Date.......................... 27
Death of the Annuitant On or After the Annuity Date............................. 27
H. The Spouse of the Owner as Beneficiary........................................... 27
I. Assignment....................................................................... 28
J. Electing the Form of Annuity and the Annuity Date................................ 28
K. Description of Variable Annuity Payout Options................................... 29
L. Annuity Benefit Payments......................................................... 30
The Annuity Unit................................................................ 30
Determination of the First and Subsequent Annuity Benefit Payments.............. 30
M. NORRIS Decision.................................................................. 31
N. Computation of Values............................................................ 31
The Accumulation Unit........................................................... 31
Net Investment Factor........................................................... 31
CHARGES AND DEDUCTIONS................................................................ 32
A. Variable Account Deductions...................................................... 32
Mortality and Expense Risk Charge............................................... 32
Administrative Expense Charge................................................... 32
Other Charges................................................................... 33
B. Contract Fee..................................................................... 33
C. Premium Taxes.................................................................... 33
D. Contingent Deferred Sales Charge................................................. 34
Charges for Surrender and Withdrawal............................................ 34
Reduction or Elimination of Surrender Charge.................................... 34
Withdrawal Without Surrender Charge............................................. 36
Surrenders...................................................................... 36
Charge at the Time Annuity Benefit Payments Begin............................... 36
E. Transfer Charge.................................................................. 37
GUARANTEE PERIOD ACCOUNTS............................................................. 37
</TABLE>
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<TABLE>
<S> <C>
FEDERAL TAX CONSIDERATIONS............................................................ 39
A. Qualified and Non-Qualified Contracts............................................ 40
B. Taxation of the Contract in General.............................................. 40
Withdrawals Prior to Annuitization.............................................. 40
Annuity Payouts After Annuitization............................................. 40
Penalty on Distribution......................................................... 40
Assignments or Transfers........................................................ 41
Non-Natural Owners.............................................................. 41
Deferred Compensation Plans of State and Local Government and Tax-Exempt
Organizations.................................................................. 41
C. Tax Withholding.................................................................. 41
D. Provisions Applicable to Qualified Employer Plans................................ 41
Corporate and Self-Employed Pension and Profit Sharing Plans.................... 42
Individual Retirement Annuities................................................. 42
Tax-Sheltered Annuities......................................................... 42
Texas Optional Retirement Program............................................... 42
REPORTS............................................................................... 43
LOANS (QUALIFIED CONTRACTS ONLY)...................................................... 43
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS..................................... 43
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................................. 44
VOTING RIGHTS......................................................................... 44
DISTRIBUTION.......................................................................... 45
LEGAL MATTERS......................................................................... 45
FURTHER INFORMATION................................................................... 45
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT................................ A-1
APPENDIX B -- SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT....................... B-1
APPENDIX C -- THE DEATH BENEFIT....................................................... C-1
APPENDIX D -- DIFFERENCES UNDER THE PIONEER VISION CONTRACT
(FORM A3023-95)....................................................... D-1
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY...................................................... 2
TAXATION OF THE CONTRACTS, THE VARIABLE ACCOUNT AND THE COMPANY...................... 3
SERVICES............................................................................. 3
UNDERWRITERS......................................................................... 3
ANNUITY BENEFIT PAYMENTS............................................................. 4
EXCHANGE OFFER....................................................................... 5
PERFORMANCE INFORMATION.............................................................. 7
FINANCIAL STATEMENTS................................................................. F-1
</TABLE>
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SPECIAL TERMS
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Sub-Accounts and of the value of all accumulations in the Fixed Account and
Guarantee Period Accounts credited to the Contract on any date before the
Annuity Date.
ACCUMULATION UNIT: a measure of the Owner's interest in a Sub-Account before
annuity benefit payments begin.
ANNUITANT: the person designated in the Contract upon whose life annuity benefit
payments are to be made.
ANNUITY DATE: the date on which annuity benefit payments begin.
ANNUITY UNIT: a measure of the value of the periodic annuity benefit payments
under the Contract.
FIXED ACCOUNT: the part of the Company's General Account that guarantees
principal and a fixed minimum interest rate and to which all or a portion of a
payment or transfer under the Contract may be allocated.
FIXED ANNUITY PAYOUT: an annuity payout option providing for annuity benefit
payments which remain fixed in amount throughout the annuity benefit payment
period selected.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account which corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period and is supported by assets in a
non-unitized separate account.
GUARANTEED INTEREST RATE: the annual effective rate of interest, after daily
compounding, credited to a Guarantee Period Account.
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.
OWNER: the person, persons or entity entitled to exercise the rights and
privileges under the Contract. Joint Owners are permitted if one of the two is
the Annuitant.
SUB-ACCOUNT: a subdivision of the Variable Account. Each Sub-Account available
under the Contract invests exclusively in the shares of a corresponding
Portfolio of the Pioneer Variable Contracts Trust.
SURRENDER VALUE: the Accumulated Value of the Contract on full surrender after
application of any Contract fee, contingent deferred sales charge, and Market
Value Adjustment.
UNDERLYING PORTFOLIOS (OR PORTFOLIOS): the International Growth Portfolio,
Capital Growth Portfolio, Growth Shares Portfolio, Real Estate Growth Portfolio,
Growth and Income Portfolio, Equity-Income Portfolio, Balanced Portfolio, Swiss
Franc Bond Portfolio, America Income Portfolio and 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 Sub-Accounts are
determined. Valuation Dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, withdrawal or surrender of a Contract was received)
when there is a sufficient degree of
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trading in an Underlying Portfolio's portfolio securities such that the current
net asset value of the Sub-Accounts may be affected materially.
VARIABLE ACCOUNT: Separate Account VA-P, one of the Company's separate accounts,
consisting of assets segregated from other assets of the Company. The investment
performance of the assets of the Variable Account is determined separately from
the other assets of the Company and are not chargeable with liabilities arising
out of any other business which the Company may conduct.
VARIABLE ANNUITY PAYOUT: an annuity payout option providing for payments varying
in amount in accordance with the investment experience of certain of the
Underlying Portfolios.
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SUMMARY
WHAT IS THE PIONEER VISION 2 VARIABLE ANNUITY?
The Pioneer Vision 2 variable annuity contract is an insurance contract designed
to help you, the Owner, accumulate assets for your retirement or other important
financial goals on a tax-deferred basis. The Contract combines the concept of
professional money management with the attributes of an annuity contract.
Features available through the Contract include:
- - a customized investment portfolio;
- - experienced professional investment advisers;
- - tax deferral on earnings;
- - guarantees that can protect your family during the accumulation phase;
- - income that can be guaranteed for life;
- - issue age up to your 90th birthday.
The Contract has two phases: an accumulation phase and, if you choose to
annuitize, an annuity payout phase. During the accumulation phase, your initial
payment and any additional payments you choose to make may be allocated among
the Sub-Accounts investing in the Portfolios of the Pioneer Variable Contracts
Trust (the "Fund"), to the Guarantee Period Accounts, and to the Fixed Account.
You select the investment options most appropriate for your investment needs. As
those needs change, you may also change your allocation without incurring any
tax consequences. The Contract's Accumulated Value is based on the investment
performance of the Portfolios and any accumulations in the Guarantee Period and
Fixed Accounts. No income taxes are paid on any earnings under the Contract
unless and until Accumulated Values are withdrawn. In addition, during the
accumulation phase, the beneficiaries receive certain protections and guarantees
in the event of the Annuitant's death. See discussion below: "WHAT HAPPENS UPON
MY DEATH DURING THE ACCUMULATION PHASE?"
WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?
During the annuity payout phase, the Annuitant can receive income based on
several annuity payout options. You choose the annuity payout option and the
date for annuity benefit payments to begin. You also decide whether you want
variable annuity benefit payments based on the investment performance of certain
Portfolios, fixed annuity benefit payments with payment amounts guaranteed by
the Company, or a combination of fixed and variable annuity benefit payments.
Among the payout options available during the annuity payout phase are:
- - periodic payments for your lifetime (assuming you are the Annuitant);
- - periodic payments for your life and the life of another person selected by
you;
- -periodic payments for your lifetime with guaranteed payments continuing to the
beneficiary for ten years in the event that you die before the end of ten
years;
- -periodic payments over a specified number of years (1 to 30); under this option
you may reserve the right to convert remaining payments to a lump-sum payout by
electing a "commutable" option.
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WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you, (the "Owner"), and Allmerica Financial Life
Insurance and Annuity Company ("Company"). Each Contract has an Owner (or an
Owner and a Joint Owner, in which case one of the two must also be the
Annuitant), an Annuitant and a beneficiary. As Owner, you make payments, choose
investment allocations and select the Annuitant and one or more beneficiaries.
The Annuitant is the individual who receives annuity benefit payments under the
Contract. The beneficiary is the person who receives any payment on the death of
the Owner or Annuitant.
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of payments are flexible, subject only to a $600
minimum for the initial payment ($1,000 in Washington) and a $50 minimum for any
additional payments. (A lower initial payment amount is permitted for certain
qualified plans and where monthly payments are being forwarded directly from a
financial institution.) In addition, a minimum of $1,000 is always required to
establish a Guarantee Period Account.
WHAT ARE MY INVESTMENT CHOICES?
The Contract permits net payments to be allocated among the Sub-Accounts, the
Guarantee Period Accounts, and the Fixed Account.
THE VARIABLE ACCOUNT. You have the choice of Sub-Accounts investing in the ten
Underlying Portfolios of the Fund:
<TABLE>
<S> <C>
International Growth Equity-Income Portfolio
Portfolio
Capital Growth Portfolio Balanced Portfolio
Growth Shares Portfolio Swiss Franc Bond Portfolio
Real Estate Growth Portfolio America Income Portfolio
Growth and Income Portfolio Money Market Portfolio
</TABLE>
Each Underlying Portfolio operates pursuant to different investment objectives,
discussed below, and this range of investment options enables you to allocate
your money among the Portfolios to meet your particular investment needs.
GUARANTEE PERIOD ACCOUNTS. Assets supporting the guarantees under the Guarantee
Period Accounts are held in the Company's Separate Account GPA, a non-unitized
insulated separate account. Values and benefits calculated on the basis of
Guarantee Period Account allocations, however, are obligations of the Company's
General Account. Amounts allocated to a Guarantee Period Account earn a
Guaranteed Interest Rate declared by the Company. The level of the Guaranteed
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company may offer up to nine Guarantee Periods ranging from two to ten years
in duration. Once declared, the Guaranteed Interest Rate will not change during
the duration of the Guarantee Period. If amounts allocated to a Guarantee Period
Account are transferred, surrendered or applied to any annuity option at any
time other than the day following the last day of the applicable Guarantee
Period, a Market Value Adjustment will apply that may increase or decrease the
account's value; however, this adjustment will never be applied against your
principal. In addition, earnings in the GPA after application of the Market
Value Adjustment will not be less than an effective annual rate of 3%. For more
information about the Guarantee Period Accounts and the Market Value Adjustment,
see "GUARANTEE PERIOD ACCOUNTS."
THE GUARANTEE PERIOD ACCOUNTS MAY NOT BE AVAILABLE IN ALL STATES.
8
<PAGE>
FIXED ACCOUNT. The Fixed Account is part of the General Account which consists
of all the Company's assets other than those allocated to the Variable Account
and any other separate account. Allocations to the Fixed Account are guaranteed
as to principal and a minimum rate of interest. Additional excess interest may
be declared periodically at the Company's discretion. Furthermore, the initial
rate in effect on the date an amount is allocated to the Fixed Account will be
guaranteed for one year from that date. For more information about the Fixed
Account, see APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
WHO IS THE INVESTMENT ADVISER FOR THE PORTFOLIOS?
Pioneering Management Corporation ("Pioneer") is the investment adviser to each
Portfolio. Pioneer also provides investment research and portfolio management
services to a number of other retail mutual funds and certain institutional
clients. As of December 31, 1997, Pioneer advised mutual funds with a total
value of over $19.8 billion, which includes more than 1,000,000 U.S. shareholder
accounts and other institutional accounts. Pioneer is a wholly owned subsidiary
of The Pioneer Group, Inc. ("PGI"). PGI, established in 1928, is one of
America's oldest investment managers and has its principal place of business at
60 State Street, Boston, Massachusetts.
CAN I MAKE TRANSFERS AMONG THE INVESTMENT CHOICES?
Yes. Prior to the Annuity Date, you may transfer among the Sub-Accounts, the
Guarantee Period Accounts, and the Fixed Account. You will incur no current
taxes on transfers while your money remains in the Contract. See "D. Transfer
Privilege." The first 12 transfers in a Contract year are guaranteed to be free
of a transfer charge. For each subsequent transfer in a Contract year, the
Company does not currently charge, but reserves the right to assess a processing
charge guaranteed never to exceed $25.
WHAT IF I NEED MY MONEY BEFORE THE ANNUITY PAYOUT PHASE BEGINS?
You may surrender the Contract or make withdrawals any time before the annuity
payout phase begins. Each year you can take without a surrender charge the
greatest of 100% of cumulative earnings, 15% of the Contract's Accumulated Value
or, if you are both an Owner and the Annuitant, an amount based on your life
expectancy. (Similarly, no surrender charge will apply if an amount is withdrawn
based on the Annuitant's life expectancy if the Owner is a trust or other
non-natural person.) A 10% tax penalty may apply on all amounts deemed to be
income if you are under age 59 1/2. Additional amounts may be withdrawn at any
time but may be subject to the surrender charge for payments that have not been
invested in the Contract for more than seven years. (A Market Value Adjustment,
which may increase or decrease the value of the account, may apply to any
withdrawal made from a Guarantee Period Account prior to the expiration of the
Guarantee Period.)
In addition, except where prohibited by state law, you may withdraw all or a
portion of your money without a surrender charge if, after the Contract is
issued, you are admitted to a medical care facility, become disabled or are
diagnosed with a fatal illness. For details and restrictions, see "Reduction or
Elimination of Surrender Charge."
WHAT HAPPENS UPON MY DEATH DURING THE ACCUMULATION PHASE?
If the Annuitant, Owner or Joint Owner should die before the Annuity Date, a
death benefit will be paid to the beneficiary. Upon the death of the Annuitant
(or an Owner who is also an Annuitant), the death benefit is equal to the
highest of:
- - The Accumulated Value increased by any positive Market Value Adjustment;
- - Gross payments, with interest accumulating daily at an annual rate of 5%
starting on the date each payment is applied, and continuing throughout your
investments' entire accumulation phase, decreased proportionately to reflect
withdrawals; or
- - The death benefit that would have been payable on the most recent contract
anniversary, increased for subsequent payments and decreased proportionately
for subsequent withdrawals.
9
<PAGE>
This guaranteed death benefit works in the following way assuming no withdrawals
are made. On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments compounded at the annual rate of 5%. The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments compounded at the annual rate of 5% or (c) the
locked-in value of the death benefit at the first anniversary. The greatest of
(a), (b) or (c) will be locked in until the next Contract anniversary. This
calculation will then be repeated on each anniversary while the Contract remains
in force and prior to the Annuity Date. As noted above, the values of (b) and
(c) will be decreased proportionately if withdrawals are taken.
At the death of an Owner who is not also the Annuitant, the death benefit will
equal the Accumulated Value of the Contract increased by any positive Market
Value Adjustment.
(If the Annuitant dies after the Annuity Date but before all guaranteed annuity
benefit payments have been made, the remaining payments will be paid to the
beneficiary at least as rapidly as under the annuity option in effect. See "G.
Death Benefit.")
WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
If the Accumulated Value on a Contract anniversary and upon surrender is less
than $50,000, a $30 Contract fee will be deducted from the Contract. The
Contract fee is waived for Contracts issued to and maintained by a trustee of a
401(k) plan.
Should you decide to surrender the Contract, make withdrawals, or receive
payments under certain annuity payout options, you may be subject to a
contingent deferred sales charge. If applicable, this charge will be between 1%
and 7% of payments withdrawn, based on when the payments were made.
A deduction for state and local premium taxes, if any, may be made as described
under "C. Premium Taxes."
The Company will deduct a daily Mortality and Expense Risk Charge and a daily
Administrative Expense Charge equal to an annual rate of 1.25% and 0.15%,
respectively, of the average daily net assets invested in each Underlying
Portfolio. The Portfolios will incur certain management fees and expenses which
are more fully described in "Other Charges" under "A. Variable Account
Deductions" and in the prospectus for the Fund, which accompanies this
Prospectus.
CAN I EXAMINE THE CONTRACT?
Yes. The Contract will be delivered to you after your purchase. If you return
the Contract to the Company within ten days of receipt, the Contract will be
canceled. (There may be a longer period in certain states; see the "Right to
Examine" provision on the cover of the Contract.) If you cancel the Contract,
you will receive a refund of any amounts allocated to the Fixed and Guarantee
Period Accounts and the Accumulated Value of any amounts allocated to the
Sub-Accounts (plus any fees or charges that may have been deducted.) However, if
state law requires, or if the Contract was issued as an Individual Retirement
Annuity (IRA) you will generally receive a refund of your entire payment. (In
certain states this refund may be the greater of (1) your entire payment or (2)
the amounts allocated to the Fixed and Guarantee Period Accounts plus the
Accumulated Value of amounts in the Sub-Accounts, plus any fees or charges
previously deducted.) See "B. Right to Revoke Individual Retirement Annuity" and
"C. Right to Revoke or Surrender in Some States."
10
<PAGE>
I HAVE THE PIONEER VISION CONTRACT (FORM A3023-95) -- ARE THERE ANY
DIFFERENCES BETWEEN THIS AND PIONEER VISION 2?
Yes. If your contract is issued on Form No. A3023-95, the first version of
Pioneer Vision, it is basically similar to the Contract described in this
Prospectus ("Pioneer Vision 2") except as specifically indicated in APPENDIX D,
"DIFFERENCES UNDER THE PIONEER VISION CONTRACT (FORM A3023-95)." Note that
APPENDIX D also includes the cumulative expense tables and performance figures
applicable to the Pioneer Vision Contract (Form A3023-95). The form number is
located in the bottom left-hand corner of the contract pages, and may include
some numbers or letters in addition to A3023-95 in order to identify state
variations.
11
<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The following tables show charges under the Contract, expenses of the
Sub-Accounts, and expenses of the Underlying Portfolios. In addition to the
charges and expenses described below, premium taxes are applicable in some
states and are deducted as described under "C. Premium Taxes."
<TABLE>
<CAPTION>
YEARS FROM
CONTRACT CHARGES: DATE OF PAYMENT CHARGE
- ------------------------------------------------------------ --------------- ---------
<S> <C> <C>
0-1 7%
CONTINGENT DEFERRED SALES CHARGE: 2 6%
This charge may be assessed upon surrender, withdrawal or 3 5%
annuitization under any commutable period certain option or 4 4%
a noncommutable period certain option of less than ten 5 3%
years. The charge is a percentage of payments applied to the 6 2%
amount surrendered (in excess of any amount that is free of 7 1%
surrender charge) within the indicated time period. Thereafter 0%
TRANSFER CHARGE: None
The Company currently makes no charge for processing
transfers and guarantees that the first 12 transfers in a
Contract year will not be subject to a transfer charge. For
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.
CONTRACT FEE: $ 30
The fee is deducted annually and upon surrender prior to the
Annuity Date when Accumulated Value is less than $50,000.
The fee is waived for Contracts issued to and maintained by
the trustee of a 401(k) plan.
SUB-ACCOUNT EXPENSES:
(on annual basis as percentage of average daily net assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.15%
---------
Total Asset Charge: 1.40%
</TABLE>
12
<PAGE>
PORTFOLIO EXPENSES: The following table shows the expenses of the Underlying
Portfolios as a percentage of average net assets for the year ended December 31,
1997. For more information concerning fees and expenses, see the prospectus for
the Underlying Portfolios.
<TABLE>
<CAPTION>
Total Portfolio
Other Expenses Expenses
Management Fee (After Applicable (After Waivers/
(After Voluntary Reimbursements and Reimbursements and
Portfolio Waivers) Offsets) Offsets)
- --------------------------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C>
International Growth Portfolio......... 0.78% 0.70% 1.48%(2,3)
Capital Growth Portfolio............... 0.65% 0.14% 0.79%(2)
Growth Shares Portfolio(1)............. 0.00% 1.25% 1.25%(3)
Real Estate Growth Portfolio........... 0.88% 0.36% 1.24%(2,3)
Growth and Income Portfolio(1)......... 0.00% 1.25% 1.25%(3)
Equity-Income Portfolio................ 0.65% 0.12% 0.77%
Balanced Portfolio..................... 0.65% 0.30% 0.95%(2)
Swiss Franc Bond Portfolio............. 0.63% 0.59% 1.22%(2,3)
America Income Portfolio............... 0.38% 0.85% 1.23%(2,3)
Money Market Portfolio................. 0.33% 0.66% 0.99%(2,3)
</TABLE>
(1) These Portfolios commenced operations on October 31, 1997; therefore
expenses shown are estimated and annualized after expense reimbursements and
should not be considered representative of future expenses. Actual expenses may
be greater than shown.
(2) Total expenses are net of amounts paid in connection with certain expense
offset arrangements. Assuming no reduction for expense offset arrangements, (but
including fee waivers noted in footnote 3 below), total operating expenses for
fiscal year ended December 31, 1997, would have been 1.49% for International
Growth Portfolio, 0.80% for Capital Growth Portfolio, 1.25% for Real Estate
Growth Portfolio, 0.96% for Balanced Portfolio, 1.23% for Swiss Franc Portfolio,
1.26% for America Income Portfolio and 1.00% for Money Market Portfolio. No
offset arrangements affected Growth Shares Portfolio, Growth and Income
Portfolio and Equity-Income Portfolio.
(3) No waiver of management fees or reimbursement of other expenses affected
Capital Growth Portfolio, Equity-Income Portfolio and Balanced Portfolio. For
the fiscal year ended December 31, 1997, assuming no waiver of management fees
and no expense offset arrangements, Portfolio expenses as a percentage of the
average daily net assets were 1.71% for International Growth Portfolio, 0.80%
for Capital Growth Portfolio, 6.57% for Growth Shares Portfolio, 1.37% for Real
Estate Growth Portfolio, 5.30% for Growth and Income Portfolio, 0.96% for
Balanced Portfolio, 1.25% for Swiss Franc Bond Portfolio; 1.43% for America
Income Portfolio and 1.17% for Money Market Portfolio.
Pioneering Management Corporation ("Pioneer") is the investment adviser to each
Portfolio. As of the date of this prospectus, Pioneer has agreed voluntarily to
limit its management fee and/or reimburse each Portfolio for expenses to the
extent that total expenses will not exceed 1.50% for the International Growth
Portfolio; 1.25% for the Growth Shares Portfolio, the Real Estate Growth
Portfolio, the Growth and Income Portfolio, the Swiss Franc Bond Portfolio and
the America Income Portfolio and 1.00% for the Money Market Portfolio. The
declaration of a voluntary limitation and/or reimbursement in any year does not
bind the Manager to declare future expense limitations with respect to these
funds. These limitations/waivers may be terminated at any time with notice.
The following examples demonstrate the cumulative expenses which would be paid
by the Owner at 1-year, 3-year, 5-year, and 10-year intervals under certain
contingencies. Each example assumes a $1,000 investment in a Sub-Account and a
5% annual return on assets. Because the expenses of the Underlying Portfolios
differ, separate examples are used to illustrate the expenses incurred by the
Owner on an investment in the various Sub-Accounts.
13
<PAGE>
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.
(1) If, at the end of the applicable time period, the Contract is surrendered or
annuitized* under a commutable period certain option or a non-commutable period
certain option of less than ten years, you would pay the following expenses on a
$1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
International Growth......................................................... $90 $135 $180 $321
Capital Growth............................................................... $83 $115 $147 $253
Growth Shares................................................................ $88 $128 $169 $299
Real Estate Growth........................................................... $88 $128 $169 $298
Growth and Income............................................................ $88 $128 $169 $299
Equity-Income................................................................ $83 $114 $146 $251
Balanced..................................................................... $85 $120 $155 $269
Swiss Franc Bond............................................................. $87 $127 $168 $296
America Income............................................................... $88 $128 $168 $297
Money Market................................................................. $85 $121 $157 $273
</TABLE>
(2) If, at the end of the applicable time period, the Contract is annuitized*
under a life option or a non-commutable period certain option of ten years or
more or if the Contract is NOT surrendered or annuitized, you would pay the
following expenses on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
International Growth......................................................... $29 $89 $152 $321
Capital Growth............................................................... $22 $69 $118 $253
Growth Shares................................................................ $27 $83 $141 $299
Real Estate Growth........................................................... $27 $82 $140 $298
Growth and Income............................................................ $27 $83 $141 $299
Equity-Income................................................................ $22 $68 $117 $251
Balanced..................................................................... $24 $74 $126 $269
Swiss Franc Bond............................................................. $27 $82 $139 $296
America Income............................................................... $27 $82 $140 $297
Money Market................................................................. $24 $75 $128 $273
</TABLE>
Pursuant to requirements of the SEC, the Contract fee has been reflected in the
examples by a method intended to show the "average" impact of the Contract fee
on an investment in the Variable Account. The total Contract fees collected by
the Company under the Contracts are divided by the total average net assets
attributable to the Contracts. The resulting percentage is 0.04%, and the amount
of the Contract fee is assumed to be $0.40 in the examples. The Contract fee is
deducted only when the accumulated value is less than $50,000. Lower costs apply
to Contracts owned and maintained under a 401(k) plan.
* The Contract fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any Contract year under
an option including a life contingency.
14
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
CONDENSED FINANCIAL INFORMATION
SEPARATE ACCOUNT VA-P
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
SUB-ACCOUNT 1997 1996 1995
-------------------------------------------------- ------ ------ -----
<S> <C> <C> <C>
INTERNATIONAL GROWTH
Unit Value:
Beginning of Period........................... 1.171 1.094 1.000
End of Period................................. 1.211 1.171 1.094
Number of Units Outstanding at End of Period (in
thousands)....................................... 40,248 20,852 2,460
CAPITAL GROWTH
Unit Value:
Beginning of Period........................... 1.314 1.158 1.000
End of Period................................. 1.615 1.314 1,158
Number of Units Outstanding at End of Period (in
thousands)....................................... 61,917 36,746 7,981
GROWTH SHARES
Unit Values
Beginning of Period........................... 0 N/A N/A
End of Period................................. 1.020 N/A N/A
Number of Units Outstanding at End of Period (in
thousands)....................................... 4,454 N/A N/A
REAL ESTATE GROWTH
Unit Value:
Beginning of Period........................... 1.548 1.156 1.000
End of Period................................. 1.849 1.548 1.156
Number of Units Outstanding at End of Period (in
thousands)....................................... 19,820 7,063 342
GROWTH AND INCOME
Unit Value:
Beginning of Period........................... 0 N/A N/A
End of Period................................. 1.053 N/A N/A
Number of Units Outstanding at End of Period (in
thousands)....................................... 4,171 N/A N/A
EQUITY-INCOME
Unit Value:
Beginning of Period........................... 1.388 1.222 1.000
End of Period................................. 1.851 1.388 1.222
Number of Units Outstanding at End of Period (in
thousands)....................................... 66,458 33,466 5,553
BALANCED
Unit Value:
Beginning of Period........................... 1.312 1.185 1.000
End of Period................................. 1.516 1.312 1.185
Number of Units Outstanding at End of Period (in
thousands)....................................... 25,548 12,579 2,171
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
SUB-ACCOUNT 1997 1996 1995
-------------------------------------------------- ------ ------ -----
<S> <C> <C> <C>
SWISS FRANC BOND
Unit Value:
Beginning of Period........................... 0.881 1.001 1.000
End of Period................................. 0.808 0.881 1.001
Number of Units Outstanding at End of Period (in
thousands)....................................... 26,864 14,677 886
AMERICA INCOME
Unit Value:
Beginning of Period........................... 1.042 1.043 1.000
End of Period................................. 1.114 1.042 1.043
Number of Units Outstanding at End of Period (in
thousands)....................................... 12,728 6,317 3,267
MONEY MARKET
Unit Value:
Beginning of Period........................... 1.063 1.031 1.000
End of Period................................. 1.097 1.063 1.031
Number of Units Outstanding at End of Period (in
thousands)....................................... 12,330 10,655 3,210
</TABLE>
PERFORMANCE INFORMATION
The Pioneer Vision 2 Contract was first offered to the public in 1996. The
Company, however, may advertise "total return" and "average annual total return"
performance information based on the periods that the Sub-Accounts have been in
existence and the periods that the Underlying Portfolios have been in existence.
Performance results for all periods shown below will be calculated with all
charges assumed to be those applicable to the Sub-Accounts, the Underlying
Portfolios, and, in Tables 1A and 2A, assuming that the Contract is surrendered
at the end of the applicable period and, alternatively, in Tables 1B and 2B,
assuming that it is not surrendered at the end of the applicable period. Both
the total return and yield figures are based on historical earnings and are not
intended to indicate future performance.
The total return of a Sub-Account refers to the total of the income generated by
an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Variable Account charges, and expressed as a
percentage.
The average annual total return represents the average annual percentage change
in the value of an investment in the Sub-Account over a given period of time. It
represents averaged figures as opposed to the actual performance of a
Sub-Account, which will vary from year to year.
The yield of the Sub-Account investing in the Money Market Portfolio refers to
the income generated by an investment in the Sub-Account over a seven-day period
(which period will be specified in the advertisement). This income is then
"annualized" by assuming that the income generated in the specific week is
generated over a 52-week period. This annualized yield is shown as a percentage
of the investment. The "effective yield" calculation is similar but, when
annualized, the income earned by an investment in the Sub-Account is assumed to
be reinvested. Thus the effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
The yield of a Sub-Account investing in a Portfolio other than the Money Market
Portfolio refers to the annualized income generated by an investment in the
Sub-Account over a specified 30-day or one-month period. The yield is calculated
by assuming that the income generated by the investment during that 30-day or
one-month period is generated each period over a 12-month period and is shown as
a percentage of the investment.
Quotations of average annual total return as shown in Table 1A are calculated in
the manner prescribed by the SEC and show the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent
16
<PAGE>
one, five and ten year period or for a period covering the time the Sub-Account
has been in existence, if less than the prescribed periods. The calculation is
adjusted to reflect the deduction of the annual Sub-Account asset charge of
1.40%, the $30 annual Contract fee, Underlying Portfolio charges and the
contingent deferred sales charge which would be assessed if the investment were
completely withdrawn at the end of the specified period. Quotations of
supplemental average total returns, as shown in Table 1B, are calculated in
exactly the same manner and for the same periods of time except that it does not
reflect the contingent deferred sales charge but assumes that the Contract is
not surrendered at the end of the periods shown.
The performance shown in Tables 2A and 2B is calculated in exactly the same
manner as those in Tables 1A and 1B respectively; however, the period of time is
based on the Underlying Portfolios' lifetime, which may predate the
Sub-Account's inception date. These performance calculations are based on the
assumption that the Sub-Account corresponding to the applicable Underlying
Portfolio was actually in existence throughout the stated period and that the
contractual charges and expenses during that period were equal to those
currently assessed under the Contract.
For more detailed information about these performance calculations, including
actual formulas, see the SAI.
PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF A
HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE TIME PERIOD ON WHICH THE
CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF
THE INVESTMENT OBJECTIVES AND POLICIES AND RISK CHARACTERISTICS OF THE
UNDERLYING PORTFOLIO IN WHICH THE SUB-ACCOUNT INVESTS AND THE MARKET CONDITIONS
DURING THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED AS A REPRESENTATION
OF WHAT MAY BE ACHIEVED IN THE FUTURE.
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (1) the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman
Aggregate Bond Index or other unmanaged indices so that investors may compare
the Sub-Account results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(2) 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, who rank such investment products on
overall performance or other criteria; or (3) the Consumer Price Index (a
measure for inflation) to assess the real rate of return from an investment in
the Sub-Account. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of the Company's relative financial
strength and operating performance in comparison to the norms of the life/health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues and
do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the Underlying
Portfolios.
17
<PAGE>
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR PERIODS
ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR SINCE
ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO 12/31/97 SUB-ACCOUNT
- --------------------------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
International Growth................................................................... -2.77% 5.51%
Capital Growth......................................................................... 15.94% 17.09%
Growth Shares.......................................................................... N/A -4.08%
Real Estate Growth..................................................................... 12.46% 23.12%
Growth and Income...................................................................... N/A -1.05%
Equity-Income.......................................................................... 26.33% 23.12%
Balanced............................................................................... 8.62% 15.01%
Swiss Franc Bond....................................................................... -13.71% -11.25%
America Income......................................................................... 0.55% 2.43%
Money Market........................................................................... -2.98% 1.70%
</TABLE>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR PERIODS
ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR SINCE
ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO 12/31/97 SUB-ACCOUNT
- ---------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
International Growth.................................................................... 3.38% 7.14%
Capital Growth.......................................................................... 22.94% 18.40%
Growth Shares........................................................................... N/A 1.99%
Real Estate Growth...................................................................... 19.46% 24.32%
Growth and Income....................................................................... N/A 5.21%
Equity-Income........................................................................... 33.33% 24.32%
Balanced................................................................................ 15.50% 16.43%
Swiss Franc Bond........................................................................ -8.25% -9.45%
America Income.......................................................................... 6.91% 4.12%
Money Market............................................................................ 3.16% 3.28%
</TABLE>
18
<PAGE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR PERIODS
ENDING DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING PORTFOLIO
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
SINCE
FOR YEAR INCEPTION OF
ENDED UNDERLYING
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO 12/31/97 PORTFOLIO*
- ---------------------------------------------------------------------------------- ----------- ----------------
<S> <C> <C>
International Growth.............................................................. -2.77% 5.28%
Capital Growth.................................................................... 15.94% 17.07%
Growth Shares..................................................................... N/A -4.08%
Real Estate Growth................................................................ 12.46% 22.96%
Growth and Income................................................................. N/A -1.05%
Equity-Income..................................................................... 26.33% 23.02%
Balanced.......................................................................... 8.62% 15.46%
Swiss Franc Bond.................................................................. -13.71% -11.20%
America Income.................................................................... 0.55% 2.39%
Money Market...................................................................... -2.98% 1.69%
</TABLE>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR PERIODS
ENDING DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING PORTFOLIO
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
SINCE
FOR YEAR INCEPTION OF
ENDED UNDERLYING
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO 12/31/97 PORTFOLIO*
- ----------------------------------------------------------------------------------- ----------- -----------------
<S> <C> <C>
International Growth............................................................... 3.38% 6.86%
Capital Growth..................................................................... 22.94% 18.38%
Growth Shares...................................................................... N/A 1.99%
Real Estate Growth................................................................. 19.46% 24.16%
Growth and Income.................................................................. N/A 5.21%
Equity-Income...................................................................... 33.33% 24.21%
Balanced........................................................................... 15.50% 16.80%
Swiss Franc Bond................................................................... -8.25% -9.40%
America Income..................................................................... 6.91% 3.97%
Money Market....................................................................... 3.16% 3.26%
</TABLE>
* The inception date for Growth Shares and Growth and Income Portfolios
was 10/31/97. The inception date for the Swiss Franc Bond Portfolio was 11/1/95.
All other Portfolios commenced operations on 3/1/95.
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
AND PIONEER VARIABLE CONTRACTS TRUST
THE COMPANY
The Company is a life insurance company organized under the laws of Delaware in
July 1974. Its principal office ("Principal Office") is located at 440 Lincoln
Street, Worcester, MA 01653, telephone 508-855-1000. The Company is subject to
the laws of the state of Delaware governing insurance companies and to
regulation
19
<PAGE>
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, 1997, the Company had
over $9.4 billion in assets and over $26.6 billion of life insurance in force.
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 and adopted its present name on
October 16, 1995. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1997, First Allmerica and its subsidiaries
(including the Company) had over $16.3 billion in combined assets and over $43.8
billion in life insurance in force.
The Company is a charter member of the Insurance Marketplace Standards
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE VARIABLE ACCOUNT
The Variable Account is a separate investment account of the Company referred to
as Separate Account VA-P. The assets used to fund the variable portions of the
Contract are set aside in the Sub-Accounts of the Variable Account, and are kept
separate and apart from the general assets of the Company. Each Sub-Account is
administered and accounted for as part of the general business of the Company,
but the income, capital gains or capital losses of each Sub-Account are
allocated to such Sub-Account, without regard to other income, capital gains or
capital losses of the Company. Under Delaware law, the assets of the Variable
Account may not be charged with any liabilities arising out of any other
business of the Company.
The Variable Account was authorized by vote of the Board of Directors of the
Company on October 27, 1994. The Variable Account meets the definition of a
"separate account" under federal securities laws, and is registered with the 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 Variable Account or the Company by the
SEC.
The Company may offer other variable annuity contracts investing in the Variable
Account which are not discussed in this Prospectus. The Variable Account also
may invest in other underlying funds which are not available to the Contracts
described in this Prospectus. The Company reserves the right, subject to
compliance with applicable law, to change the names of the Variable Account and
the Sub-Accounts.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Variable Contracts Trust (the "Fund") is an open-end, 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 ten investment portfolios ("Underlying Portfolios"), each issuing
a separate series of shares: International Growth Portfolio, Capital Growth
Portfolio, Growth Shares Portfolio, Real Estate Growth Portfolio, Growth and
Income Portfolio, Equity-Income Portfolio, Balanced Portfolio, Swiss Franc Bond
Portfolio, America Income Portfolio and Money Market
20
<PAGE>
Portfolio. The assets of each Portfolio are held separately 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 for the Fund, which accompanies this Prospectus and should be read
carefully before investing. The Statement of Additional Information for the Fund
("SAI for the Fund") is available upon request.
INTERNATIONAL GROWTH PORTFOLIO -- seeks long-term growth of capital primarily
through investments in non-U.S. equity securities and related depository
receipts.
CAPITAL GROWTH PORTFOLIO -- seeks capital appreciation through a diversified
portfolio of securities consisting primarily of common stocks.
GROWTH SHARES PORTFOLIO -- seeks appreciation of capital through investments in
common stock, together with preferred stocks, bonds, and debentures which are
convertible into common stocks. Current income will be incidental to the
Portfolio's primary objective.
REAL ESTATE GROWTH 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.
GROWTH AND INCOME PORTFOLIO -- seeks reasonable income and growth by investing
in a broad list of carefully selected, reasonably priced securities.
EQUITY-INCOME 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 S&P 500.
BALANCED PORTFOLIO -- seeks capital growth and current income by actively
managing investments in a diversified portfolio of equity securities and bonds.
SWISS FRANC BOND PORTFOLIO -- seeks to approximate the performance of the Swiss
franc relative to the U.S. dollar while earning a reasonable level of income.
AMERICA INCOME 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.
MONEY MARKET PORTFOLIO -- seeks current income consistent with preserving
capital and providing liquidity.
If there is a material change in the investment policy of a Sub-Account or the
Underlying Portfolio in which it invests, the Owner will be notified of the
change. If the Owner has values allocated to that Sub-Account, the Company will
transfer it without charge on written request by the Owner to another
Sub-Account or to the Fixed Account. The Company must receive such written
request within 60 days of the later of (1) the effective date of the change in
the investment policy, or (2) the receipt of the notice of the Owner's right to
transfer.
21
<PAGE>
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVES OF THE PORTFOLIOS WILL BE
MET.
INVESTMENT ADVISORY SERVICES
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'S
AVERAGE
DAILY NET ASSETS
-----------------------
<S> <C>
International Growth...................................................................... 1.00%
Capital Growth............................................................................ 0.65%
Growth Shares............................................................................. 0.65%
Real Estate Growth........................................................................ 1.00%
Growth and Income......................................................................... 0.65%
Equity-Income............................................................................. 0.65%
Balanced.................................................................................. 0.65%
Swiss Franc Bond.......................................................................... 0.65%
America Income............................................................................ 0.55%
Money Market.............................................................................. 0.50%
</TABLE>
DESCRIPTION OF THE CONTRACT
A. PAYMENTS
The Company's underwriting requirements, which include receipt of the initial
payment and allocation instructions by the Company at its Principal Office, must
be met before a Contract can be issued. These requirements also may include the
proper completion of an application; however, where permitted, the Company may
issue a Contract without completion of an application and/or signature for
certain classes of Contracts. Payments are to be made payable to the Company. A
net payment is equal to the payment received less the amount of any applicable
premium tax.
The initial net payment will be credited to the Contract and allocated among the
requested accounts as of the date that all issue requirements are properly met.
If all issue requirements are not complied with within five business days of the
Company's receipt of the initial payment, the payment will be returned unless
the Owner specifically consents to the holding of the initial payment until
completion of any outstanding issue requirements. Subsequent payments will be
credited as of the Valuation Date received at the Principal Office.
Payments are not limited as to frequency and number, but there are certain
limitations as to amount. Currently, the initial payment must be at least $600
($1,000 in Washington). Under a salary deduction or 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 Contract on the employee if the plan's average
annual contribution per eligible plan participant is at least $600. The minimum
allocation to a Guarantee Period Account is $1,000. If less than $1,000 is
allocated to a Guarantee Period Account, the Company reserves the right to apply
that amount to the Money Market Portfolio.
Generally, unless otherwise requested, all payments will be allocated among the
accounts in the same proportion that the initial net payment is allocated or, if
subsequently changed, according to the most recent allocation instructions. The
Owner may change allocation instructions for new payments pursuant to a written
or telephone request. If telephone requests are elected by the Owner, a properly
completed authorization must be on file before telephone requests will be
honored. The policy of the Company and its agents and affiliates is that 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
22
<PAGE>
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 an 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. RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY
An individual purchasing a Contract intended to qualify as an IRA may revoke the
Contract at any time within ten days after receipt of the Contract and receive a
refund. In order to revoke the Contract, the Owner must mail or deliver the
Contract to the agent through whom the Contract was purchased, to the Company's
Principal Office at 440 Lincoln Street, Worcester, MA 01653, or to an authorized
representative. Mailing or delivery must occur within ten days after receipt of
the Contract for revocation to be effective.
Within seven days, the Company will provide a refund equal to gross payment(s)
received. In some states, however, the refund may equal the greater of (a) gross
payments or (b) the amounts allocated to the Fixed and Guaranteed Period
Accounts plus the Accumulated Value of amounts in the Sub-Accounts plus any
amounts deducted under the Contract or by the Underlying Portfolios for taxes,
charges or fees. At the time the Contract is issued the "Right to Examine
Contract" provision on the cover page of the Contract will specifically indicate
whether the refund will be equal to gross payments or equal to the greater of
(a) or (b) as set forth above.
The liability of the Variable Account under this provision is limited to the
Owner's Accumulated Value in the Sub-Accounts on the date of cancellation. Any
additional amounts refunded to the Owner will be paid by the Company.
C. RIGHT TO REVOKE OR SURRENDER IN SOME STATES
In Georgia, Idaho, Indiana, Michigan, Missouri, North Carolina, Oklahoma,
Oregon, South Carolina, Texas, Utah, Washington and West Virginia, an Owner may
revoke the Contract at any time within ten days (20 days in Idaho) after receipt
of the Contract, and receive a refund as described under "B. Right to Revoke
Individual Retirement Annuity," above.
In all other states, an Owner may return the Contract at any time within ten
days (or the number of days required by state law if more than ten) after
receipt of the Contract. The Company will pay to the Owner an amount equal to
the sum of (1) the difference between the amount paid, including fees, and any
amount allocated to the Variable Account, and (2) the Accumulated Value of
amounts allocated to the Variable Account as of the date the request is
received. If the Contract was purchased as an IRA, the IRA revocation right
described above may be utilized in lieu of the special surrender right.
D. TRANSFER PRIVILEGE
Prior to the Annuity Date, the Owner may transfer amounts among accounts at any
time upon written or telephone request to the Company. As discussed in "A.
Payments," a properly completed authorization form must be on file before
telephone requests will be honored. Transfer values will be based on the
Accumulated Value next computed after receipt of the transfer request.
Transfers to a Guarantee Period Account must be at least $1,000. If the amount
to be transferred to a Guarantee Period Account is less than $1,000, the Company
may transfer that amount to the Money Market Portfolio.
Currently, the Company makes no charge for transfers. The first twelve transfers
in a Contract year are guaranteed to be free of any transfer charge. For each
subsequent transfer in a Contract year, the Company
23
<PAGE>
does not currently charge but reserves the right to assess a charge, guaranteed
never to exceed $25, to reimburse it for the expense of processing transfers.
The Owner may authorize an independent third party to transact allocations and
transfers in accordance with an asset allocation strategy or other investment
strategy. The Company may provide administrative or other support services to
these independent third parties, however, the Company does not engage any third
parties to offer allocation or other investment services under this Contract,
does not endorse or review any allocation or transfer recommendations and is not
responsible for the investment results of such allocations or transfers
transacted on the Owner's behalf. In addition, the Company reserves the right to
discontinue services or limit the number of Portfolios that it may provide such
services to. The Company does not charge the Owner for providing additional
support services.
AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING) AND AUTOMATIC ACCOUNT REBALANCING
OPTIONS. The Owner may elect automatic transfers of a predetermined dollar
amount, not less than $100, on a periodic basis (monthly, bi-monthly, quarterly,
semi-annually or annually) from the Money Market Portfolio, the America Income
Portfolio or the Fixed Account (the source account) to one or more Portfolios.
Automatic transfers may not be made into the Fixed Account, the Guarantee Period
Accounts or, if applicable, the Portfolio being used as the source account. If
an automatic transfer would reduce the balance in the source account to less
than $100, the entire balance will be transferred proportionately to the chosen
Portfolios. Automatic transfers will continue until the amount in the source
account on a transfer date is zero or the Owner's request to terminate the
option is received by the Company. If additional amounts are allocated to the
source account after its balance has fallen to zero, this option will not
restart automatically, and the Owner must provide a new request to the Company.
To the extent permitted by state law, the Company reserves the right, from time
to time, to credit an enhanced interest rate to certain initial and/or
subsequent payments which are deposited into the Fixed Account and which utilize
the Fixed Account as the source account for the payment from which to process
automatic transfers. For more information see APPENDIX A, "MORE INFORMATION
ABOUT THE FIXED ACCOUNT."
The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, bi-monthly, quarterly, semi-annual or annual basis in accordance with
specified percentage allocations. As frequently as requested, the Company will
review the percentage allocations in the Portfolios and, if necessary, transfer
amounts to ensure conformity with the designated percentage allocation mix. If
the amount necessary to re-establish the mix on any scheduled date is less than
$100, no transfer will be made. Automatic Account Rebalancing will continue
until the Owner's request to terminate or change the option is received by the
Company. As such, subsequent payments allocated in a manner different from the
percentage allocation mix in effect on the date the payment is received will be
reallocated in accordance with the existing mix on the next scheduled date
unless the Owner's timely request to change the mix or terminate the option is
received by the Company.
The Company reserves the right to limit the number of Portfolios that may be
utilized for automatic transfers and rebalancing, and to discontinue either
option upon advance written notice. Currently, Dollar Cost Averaging and
Automatic Account Rebalancing may not be in effect simultaneously. Either option
may be elected when the Contract is purchased or at a later date.
E. SURRENDER
At any time prior to the Annuity Date, the Owner may surrender the Contract and
receive an amount equal to the Surrender Value. The Owner must return the
Contract and a signed, written request for surrender, satisfactory to the
Company, to the Principal Office. The amount payable to the Owner upon surrender
will be based on the Contract's Accumulated Value as of the Valuation Date on
which the request and the Contract are received at the Principal Office.
24
<PAGE>
Before the Annuity Date, a contingent deferred sales charge may be deducted when
a Contract is surrendered if payments have been credited to the Contract during
the last seven full Contract years. See "CHARGES AND DEDUCTIONS." The Contract
fee will be deducted upon surrender of the Contract.
After the Annuity Date, only a Contract under which a commutable period certain
option has been elected 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 benefit payments. No contingent deferred sales
charge is imposed after the Annuity Date.
Any amount surrendered normally is payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and withdrawals of amounts in each Sub-Account in any period
during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has, by order, permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of a separate account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and withdrawals of
amounts allocated to the Company's Fixed Account and Guarantee Period Accounts
for a period not to exceed six months.
The surrender rights of Owners who are participants under Section 403(b) plans
or who are participants in the Texas Optional Retirement Program ("Texas ORP")
are restricted; see "Tax-Sheltered Annuities" and "Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
F. WITHDRAWALS
At any time prior to the Annuity Date, the Owner may withdraw a portion of the
Accumulated Value of his or her Contract, subject to the limits stated below.
The Owner must submit to the Principal Office a signed, written request for
withdrawal, satisfactory to the Company. The written request must indicate the
dollar amount the Owner wishes to receive and the accounts from which such
amount is to be withdrawn. The amount withdrawn equals the amount requested by
the Owner plus any applicable contingent deferred sales charge, as described
under "CHARGES AND DEDUCTIONS." In addition, amounts withdrawn from a Guarantee
Period Account prior to the end of the applicable Guarantee Period will be
subject to a Market Value Adjustment, as described under "GUARANTEE PERIOD
ACCOUNTS."
Where allocations have been made to more than one account, a percentage of the
withdrawal may be allocated to each such account. A withdrawal from a
Sub-Account will result in cancellation of a number of units equivalent in value
to the amount withdrawn, computed as of the Valuation Date that the request is
received at the Principal Office.
Each withdrawal must be in a minimum amount of $100. No withdrawal will be
permitted if the Accumulated Value remaining under the Contract would be reduced
to less than $1,000. Withdrawals will be paid in accordance with the time
limitations described under "E. Surrender."
For important restrictions on withdrawals which are applicable to Owners who are
participants under Section 403(b) plans or under the Texas ORP, see "FEDERAL TAX
CONSIDERATIONS," "Tax-Sheltered Annuities" and "Texas Optional Retirement
Program." For important tax consequences which may result from withdrawals, see
"FEDERAL TAX CONSIDERATIONS."
SYSTEMATIC WITHDRAWALS. The Owner may elect an automatic schedule of
withdrawals (systematic withdrawals) from amounts in the Sub-Accounts and/or the
Fixed Account on a monthly, bi-monthly, quarterly,
25
<PAGE>
semi-annual or annual basis. Systematic withdrawals from Guarantee Period
Accounts are not available. The minimum amount of each automatic withdrawal is
$100, and will be subject to any applicable withdrawal charges. If elected at
the time of purchase, the Owner must designate in writing the specific dollar
amount of each withdrawal and the percentage of this amount which should be
taken from each designated Sub-Account and/or the Fixed Account. Systematic
withdrawals then will begin on the date indicated on the application. If elected
after the issue date, the Owner may elect, by written request, a specific dollar
amount and the percentage of this amount to be taken from each designated
Sub-Account and/or the Fixed Account, or the Owner may elect to withdraw a
specific percentage of the Accumulated Value calculated as of the withdrawal
dates, and may designate the percentage of this amount which should be taken
from each account. The first withdrawal will take place on the date the written
request is received at the Principal Office or, if later, on a date specified by
the Owner.
If a withdrawal would cause the remaining Accumulated Value to be less than
$1,000, systematic withdrawals will be discontinued. Systematic withdrawals will
cease automatically on the Annuity Date. The Owner may change or terminate
systematic withdrawals only by written request to the Principal Office.
LIFE EXPECTANCY DISTRIBUTIONS. Prior to the Annuity Date an Owner who also is
the Annuitant may elect to make a series of systematic withdrawals from the
Contract according to a life expectancy distribution ("LED") option by returning
a properly signed LED request form to the Principal Office. The LED option
permits the Owner to make systematic withdrawals from the Contract over his or
her lifetime. The amount withdrawn from the Contract changes each year, because
life expectancy changes each year that a person lives. For example, actuarial
tables indicate that a person age 70 has a life expectancy of 16 years, but a
person who attains age 86 has a life expectancy of another 6.5 years.
If an Owner elects the LED option, in each calendar year a fraction of the
Accumulated Value is withdrawn based on the 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 Owner, as determined annually by the Company.
The resulting fraction, expressed as a percentage, is applied to the Accumulated
Value at the beginning of the year to determine the amount to be distributed
during the year. The Owner may elect monthly, bi-monthly, quarterly,
semi-annual, or annual distributions, and may terminate the LED option at any
time. The Owner also may elect to receive distributions under an LED option
which is determined on the joint life expectancy of the Owner and a beneficiary.
The Company also may offer other systematic withdrawal options.
Where the Owner is a trust or other non-natural person, the Owner may elect the
LED option based on the Annuitant's life expectancy.
If an Owner makes withdrawals under the LED option prior to age 59 1/2, the
withdrawals may be treated by the Internal Revenue Service ("IRS") as premature
distributions from the Contract. The payments then would be taxed on an "income
first" basis and be subject to a 10% federal tax penalty. For more information,
see "FEDERAL TAX CONSIDERATIONS" and "B. Taxation of the Contracts in General."
G. DEATH BENEFIT
In the event that the Annuitant, Owner or Joint Owner, if applicable, dies while
the Contract is in force, the Company will pay the beneficiary a death benefit,
except where the Contract is continued as provided in "H. The Spouse of the
Owner as Beneficiary." The amount of the death benefit and the time requirements
for receipt of payment may vary depending upon whether the Annuitant or an Owner
dies first, and whether death occurs prior to or after the Annuity Date.
DEATH OF THE ANNUITANT PRIOR TO THE ANNUITY DATE. At the death of the Annuitant
(including an Owner who is also the Annuitant), the benefit is equal to the
greatest of (a) the Accumulated Value under the Contract increased by any
positive Market Value Adjustment; (b) gross payments compounded daily at an
annual rate of 5% starting on the date each payment is applied, decreased
proportionately to reflect withdrawals (for each
26
<PAGE>
withdrawal, the proportionate reduction is calculated as the death benefit under
this option immediately prior to the withdrawal multiplied by the withdrawal
amount and divided by the Accumulated Value immediately prior to the
withdrawal); or (c) the death benefit that would have been payable on the most
recent contract anniversary, increased for subsequent payments and decreased
proportionately for subsequent withdrawals.
This guaranteed death benefit works in the following way assuming no withdrawals
are made. On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments compounded at the annual rate of 5%. The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments compounded at the annual rate of 5% or (c) the
locked-in value of the death benefit at the first anniversary. The greatest of
(a), (b) or (c) will be locked in until the next Contract anniversary. This
calculation will then be repeated on each anniversary while the Contract remains
in force and prior to the Annuity Date. As noted above, the values of (b) and
(c) will be decreased proportionately if withdrawals are taken. See APPENDIX C,
"THE DEATH BENEFIT" for specific examples of death benefit calculations.
DEATH OF AN OWNER WHO IS NOT ALSO THE ANNUITANT PRIOR TO THE ANNUITY DATE. If
an Owner who is not also the Annuitant dies before the Annuity Date, the death
benefit will be the Accumulated Value increased by any positive Market Value
Adjustment. The death benefit never will be reduced by a negative Market Value
Adjustment.
PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit
generally will be paid to the beneficiary in one sum within seven business days
of the receipt of due proof of death at the Principal Office unless the Owner
has specified a death benefit annuity option. Instead of payment in one sum, the
beneficiary may, by written request, elect to:
(1) defer distribution of the death benefit for a period no more than five years
from the date of death; or
(2) receive a life annuity or an annuity for a period certain not extending
beyond the beneficiary's life expectancy, with annuity benefit payments
beginning one year from the date of death.
If distribution of the death benefit is deferred under (1) or (2), any value in
the Guarantee Period Accounts will be transferred to the Sub-Account investing
in the Money Market Portfolio. The excess, if any, of the death benefit over the
Accumulated Value also will be added to the Money Market Portfolio. The
beneficiary may, by written request, effect transfers and withdrawals during the
deferral period and prior to annuitization under (2), but may not make
additional payments. The death benefit will reflect any earnings or losses
experienced during the deferral period. If there are multiple beneficiaries, the
consent of all is required.
With respect to the death benefit, the Accumulated Value under the Contract will
be based on the unit values next computed after receipt of due proof of death.
DEATH OF THE ANNUITANT ON OR AFTER THE ANNUITY DATE. If the Annuitant's death
occurs on or after the Annuity Date but before completion of all guaranteed
annuity benefit payments, any unpaid amounts or installments will be paid to the
beneficiary. The Company must pay out the remaining payments at least as rapidly
as under the payment option in effect on the date of the Annuitant's death.
H. THE SPOUSE OF THE OWNER AS BENEFICIARY
The Owner's spouse, if named as the sole beneficiary, may by written request
continue the Contract in lieu of receiving the amount payable upon death of the
Owner. Upon such election, the spouse will become the Owner and Annuitant
subject to the following: (1) any value in the Guarantee Period Accounts will be
transferred to the Money Market Portfolio and (2) the excess, if any, of the
death benefit over the Contract's Accumulated Value also will be added to the
Money Market Portfolio. This value never will be subject to a
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<PAGE>
surrender charge when withdrawn. Additional payments may be made; however, a
surrender charge will apply to these amounts if they have not been invested in
the Contract for more than seven years. All other rights and benefits provided
in the Contract will continue, except that any subsequent spouse of such new
Owner will not be entitled to continue the Contract upon such new Owner's death.
I. ASSIGNMENT
The Contract, other than those sold in connection with certain qualified plans,
may be assigned by the Owner at any time prior to the Annuity Date and while the
Annuitant is alive (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 Principal Office. The Company will not assume responsibility for
determining the validity of any assignment. If an assignment of the Contract 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 Contract to
which the assignee appears to be entitled. The Company will pay the balance, if
any, in one sum to the Owner in full settlement of all liability under the
Contract. The interest of the Owner and of any beneficiary will be subject to
any assignment.
J. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE
The Annuity Date is selected by the Owner. To the extent permitted in your
state, the Annuity Date may be the first day of any month (1) before the
Annuitant's 85th birthday, if the Annuitant's age on the issue date of the
Contract is 75 or under, or (2) within ten years from the issue date of the
Contract and before the Annuitant's 90th birthday, if the Annuitant's age on the
issue date is between 76 and 90. The Owner may elect to change the Annuity Date
by sending a request to the Principal Office at least one month before the
Annuity date. The new Annuity Date must be the first day of any month occurring
before the Annuitant's 90th birthday, and 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 (the "Code") and
the terms of qualified plans impose limitations on the age at which annuity
benefit payments may commence and the type of annuity option selected. See
"FEDERAL TAX CONSIDERATIONS" for further information.
Subject to certain restrictions described below, the Owner has the right (1) to
select the annuity option under which annuity benefit 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 benefit
payments are determined according to the annuity tables in the Contract, by the
annuity option selected, and by the investment performance of the accounts
selected.
To the extent a fixed annuity payout is selected, Accumulated Value will be
transferred to the Fixed Account of the Company, and the annuity benefit
payments will be fixed in amount. See APPENDIX A, "MORE INFORMATION ABOUT THE
FIXED ACCOUNT."
Under a variable annuity payout, a payment equal to the value of the fixed
number of Annuity Units in the Sub-Accounts is made monthly, quarterly,
semi-annually or annually. Since the value of an Annuity Unit in a Sub-Account
will reflect the investment performance of the Sub-Account, the amount of each
annuity benefit payment will vary.
The annuity option(s) selected must produce an initial payment of at least $50
(a lower amount may be required in some states). The Company reserves the right
to increase this minimum amount. If the annuity option(s) selected do(es) not
produce an initial payment which meets this minimum, a single payment may be
made. Once the Company begins making annuity benefit payments, the Annuitant
cannot make withdrawals or surrender the annuity benefit, except where the
Annuitant has elected a commutable period certain option. Beneficiaries entitled
to receive remaining payments under either a commutable or non-commutable
"period certain" option may elect instead to receive a lump sum settlement. See
"K. Description of Variable Annuity Payout Options."
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<PAGE>
If the Owner does not elect otherwise, a variable life annuity with periodic
payments for ten years guaranteed will be purchased. Changes in either the
Annuity Date or annuity option can be made up to one month prior to the Annuity
Date.
K. DESCRIPTION OF VARIABLE ANNUITY PAYOUT OPTIONS
The Company provides the variable annuity payout options described below.
Currently, variable annuity payout options may be funded through the
Sub-Accounts investing in the Capital Growth Portfolio, the Equity-Income
Portfolio and the America Income Portfolio. The Company also provides these same
options funded through the Fixed Account (fixed annuity payout). Regardless of
how payments were allocated during the accumulation period, any of the variable
payout options or the fixed payout options may be selected, or any of the
variable options may be selected in combination with any of the fixed options.
Other annuity options may be offered by the Company. IRS regulations may not
permit certain of the available annuity payout options when used in connection
with certain qualified Contracts.
VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR TEN YEARS. This variable
annuity is payable periodically during the lifetime of the payee with the
guarantee that if the payee should die before all payments have been made, the
remaining annuity benefit payments will continue to the beneficiary.
VARIABLE LIFE ANNUITY PAYABLE PERIODICALLY DURING LIFETIME OF THE ANNUITANT
ONLY. It would be possible under this option for the Annuitant to receive only
one annuity benefit payment if the Annuitant dies prior to the due date of the
second annuity benefit payment, two annuity benefit payments if the Annuitant
dies before the due date of the third annuity benefit payment, and so on.
Payments will continue, however, during the lifetime of the Annuitant, no matter
how long he or she lives.
UNIT REFUND VARIABLE LIFE ANNUITY. This is an annuity payable periodically
during the lifetime of the payee with the guarantee that if (1) exceeds (2),
then periodic variable annuity benefit 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 payment, and
(2) is the number of payments paid prior to the death of the
payee.
JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is payable
jointly to two payees during their joint lifetime, and then continues thereafter
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 or the beneficiary in the Contract. There is no
minimum number of payments under this option.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is
payable jointly to two payees during their joint lifetime, and then continues
thereafter during the lifetime of the survivor. The amount of each periodic
payment to the survivor, however, 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 Contract or the
beneficiary. There is no minimum number of payments under this option.
PERIOD CERTAIN VARIABLE ANNUITY. This variable annuity has periodic payments
for a stipulated number of years ranging from one to 30, and may be commutable
or noncommutable. A commutable option provides the Annuitant with the right to
request a lump sum payment of any remaining balance after annuity payments have
commenced. Under a non-commutable period certain option, the Annuitant may not
request a lump sum payment. See "ANNUITY BENEFIT PAYMENTS" in the SAI.
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<PAGE>
It should be noted that the period certain option 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 a period
certain option 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 election of the option made prior to the date of any
change in this practice.
L. ANNUITY BENEFIT PAYMENTS
THE ANNUITY UNIT. On and after the Annuity Date, the Annuity Unit is a measure
of the value of the Annuitant's monthly annuity benefit payments under a
variable annuity payout option. The value of an Annuity Unit in each Sub-Account
initially was set at $1.00. The value of an Annuity Unit under a Sub-Account on
any Valuation Date thereafter is equal to the value of such unit on the
immediately preceding Valuation Date, multiplied by the product of (1) the net
investment factor of the Sub-Account for the current Valuation Period, and (2) a
factor to adjust benefits to neutralize the assumed interest rate. The assumed
interest rate, discussed below, is incorporated in the variable annuity payout
options offered in the Contract.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY BENEFIT PAYMENTS. The first
periodic annuity benefit payment is based upon the Accumulated Value as of a
date not more than four weeks preceding the date that the first annuity benefit
payment is due. Variable annuity benefit payments are due on the first of a
month, which is the date the payment is to be received by the Annuitant, and
currently are based on unit values as of the 15th day of the preceding month.
The Contract provides annuity rates which determine the dollar amount of the
first periodic payment under each form of annuity for each $1,000 of applied
value. For life contingency options and non-commutable period certain options of
ten or more years, the annuity value is the Accumulated Value less any premium
taxes and adjusted for any Market Value Adjustment. For commutable period
certain options or any period certain option less than ten years, the value is
the Surrender Value less any premium tax. For a death benefit annuity, the
annuity value will be the amount of the death benefit. The annuity rates in the
Contract are based on a modification of the 1983(a) Individual Mortality Table
on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "M. NORRIS Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity payout options offered by the Company are based on a 3.5% assumed
interest rate. Variable payments are affected by the assumed interest rate used
in calculating the annuity option rates. Variable annuity benefit payments will
increase over periods when the actual net investment result of the Sub-Accounts
funding the annuity exceeds the equivalent of the assumed interest rate for the
period. Variable annuity benefit payments will decrease over periods when the
actual net investment result of the respective Sub-Account is less than the
equivalent of the assumed interest rate for the period.
The dollar amount of the first periodic annuity benefit payment under life
annuity options and non-commutable period certain options of ten years or more
is determined by multiplying (1) the Accumulated Value applied under that option
(after application of any Market Value Adjustment and less premium tax, if any)
divided by $1,000, by (2) the applicable amount of the first monthly payment per
$1,000 of value. For commutable period certain options and any period certain
option of less than ten years, the Surrender Value less premium taxes, if any,
is used rather than the Accumulated Value. The dollar amount of the first
variable annuity benefit payment is then divided by the value of an Annuity Unit
of the selected Sub-Accounts 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. For each subsequent payment, the dollar amount of the variable annuity
benefit 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 benefit payment, the dollar amount of each periodic variable annuity
benefit payment will vary with
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subsequent variations in the value of the Annuity Unit of the selected
Sub-Accounts. The dollar amount of each fixed amount annuity benefit payment is
fixed and will not change, except under the joint and two-thirds survivor
annuity option.
From time to time, the Company may offer Owners both fixed and variable annuity
rates more favorable than those contained in the Contract. Any such rates will
be applied uniformly to all Owners of the same class.
For an illustration of a variable annuity benefit payment calculation using a
hypothetical example, see "ANNUITY BENEFIT PAYMENTS" in the SAI.
M. NORRIS DECISION
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a Contract issued in connection with an employer-sponsored benefit plan
affected by the Norris decision will be based on the greater of (1) the
Company's unisex non-guaranteed current annuity option rates, or (2) the
guaranteed unisex rates described in such Contract, regardless of whether the
Annuitant is male or female.
N. COMPUTATION OF VALUES
THE ACCUMULATION UNIT. Each net payment is allocated to the accounts selected
by the Owner. Allocations to the Sub-Accounts are credited to the Contract in
the form of Accumulation Units. Accumulation Units are credited separately for
each Sub-Account. The number of Accumulation Units of each Sub-Account credited
to the Contract is equal to the portion of the net payment allocated to the
Sub-Account, divided by the dollar value of the applicable Accumulation Unit as
of the Valuation Date the payment is received at the 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
withdrawal or surrender. The dollar value of an Accumulation Unit of each
Sub-Account varies from Valuation Date to Valuation Date based on the investment
experience of that Sub-Account, and will reflect the investment performance,
expenses and charges of its Underlying Portfolios. The value of an Accumulation
Unit was set at $1.00 on the first Valuation Date for each Sub-Account.
Allocations to the Guarantee Period Accounts and the Fixed Account are not
converted into Accumulation Units, but are credited interest at a rate
periodically set by the Company.
The Accumulated Value under the Contract is determined by (1) multiplying the
number of Accumulation Units in each Sub-Account by the value of an Accumulation
Unit of that Sub-Account on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the Fixed Account and Guarantee Period
Accounts, if any.
NET INVESTMENT FACTOR. The Net Investment Factor is an index that measures the
investment performance of a Sub-Account from one Valuation Period to the next.
This factor is equal to 1.000000 plus the result from dividing (1) by (2) and
subtracting (3) and (4) where:
(1) is the investment income of a Sub-Account for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;
(2) is the value of that Sub-Account's assets at the beginning of the Valuation
Period;
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(3) is a charge for mortality and expense risks equal to 1.25% on an annual
basis of the daily value of the Sub-Account's assets; and
(4) is an administrative charge equal to 0.15% on an annual basis of the daily
value of the Sub-Account's assets.
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 an Accumulation Unit calculation using a hypothetical
example see "ANNUITY BENEFIT PAYMENTS" in the SAI.
CHARGES AND DEDUCTIONS
Deductions under the Contract and charges against the assets of the Sub-Accounts
are described below. Other deductions and expenses paid out of the assets of the
Underlying Portfolios are described in the prospectus and SAI for the Fund.
A. VARIABLE ACCOUNT DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a daily charge equal to an
annual rate of 1.25% of the value of each Sub-Account's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Contract. The charge is imposed during both the accumulation
phase and the annuity payout phase. The mortality risk arises from the Company's
guarantee that it will make annuity benefit payments in accordance with annuity
rate provisions established at the time the Contract is issued for the life of
the Annuitant (or in accordance with the annuity 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
payout 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 Contract 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 Sub-Account with a
daily charge equal to an annual rate of 0.15% of the average daily net assets of
the Sub-Account. The charge is imposed during both the accumulation phase and
the annuity payout phase. The daily administrative expense charge is assessed to
help defray administrative expenses actually incurred in the administration of
the Sub-Account, without profits. There is no direct relationship, however,
between the amount of administrative expenses imposed on a given Contract and
the amount of expenses actually attributable to that Contract.
Deductions for the Contract fee (see B. CONTRACT FEE below) 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 functions and expense assumed by the Company in
connection with the Variable Account and the Contract include, but are not
limited to, clerical, accounting,
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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.
OTHER CHARGES. Because the Sub-Accounts purchase shares of the Underlying
Portfolios, the value of the net assets of the Sub-Accounts will reflect the
investment advisory fee and other expenses incurred by the Underlying
Portfolios. The prospectus and SAI for the Fund contain additional information
concerning expenses of the Underlying Portfolios.
B. CONTRACT FEE
A $30 Contract fee currently is deducted on the Contract anniversary date and
upon full surrender of the Contract if the Accumulated Value on any of these
dates is less than $50,000. The Contract fee is waived for Contracts issued to
and maintained by the trustee of a 401(k) plan. Where Contract value has been
allocated to more than one account, a percentage of the total Contract fee will
be deducted from the value in each account. The portion of the charge deducted
from each account will be equal to the percentage which the value in that
account bears to the Accumulated Value under the Contract. The deduction of the
Contract fee from a Sub-Account will result in cancellation of a number of
Accumulation Units equal in value to the percentage of the charge deducted from
that account.
Where permitted by law, the Contract fee also may be waived for Contracts where,
on the date of issue, either the Owner or the Annuitant is within the following
classes of individuals: employees and registered representatives of any
broker-dealer which has entered into a sales agreement with the Company to sell
the Contract; employees of the Company, its affiliates and subsidiaries;
officers, directors, trustees and employees of any of the Portfolios; investment
managers or sub-advisers; and the spouses of and immediate family members
residing in the same household with such eligible persons. "Immediate family
members" means children, siblings, parents and grandparents.
C. PREMIUM TAXES
Some states and municipalities impose a premium tax on variable annuity
contracts. 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 payments were received, the
premium tax charge is deducted on a pro-rata basis when withdrawals are
made, upon surrender of the Contract, or when annuity benefit payments begin
(the Company reserves the right instead to deduct the premium tax charge for
these Contracts at the time the payments are received); or
2. the premium tax charge is deducted when annuity benefit payments begin.
In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law.
If no amount for premium tax was deducted at the time the 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 Contract value at
the time such determination is made.
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D. CONTINGENT DEFERRED SALES CHARGE
No charge for sales expense is deducted from payments at the time the payments
are made. A contingent deferred sales charge, however, is deducted from the
Accumulated Value in the case of surrender and/or a withdrawal or at the time
annuity benefit payments begin, within certain time limits described below.
For purposes of determining the contingent deferred sales charge, the
Accumulated Value is divided into three categories: (1) New Payments - payments
received by the Company during the seven years preceding the date of the
surrender; (2) Old Payments - accumulated payments not defined as New Payments;
and (3) the amount available under the Withdrawal Without Surrender Charge
provision. See "Withdrawal Without Surrender Charge" below. For purposes of
determining the amount of any contingent deferred sales charge, surrenders will
be deemed to be taken first from amounts available as a Withdrawal Without
Surrender Charge, if any; then from Old Payments, and then from New Payments.
Amounts available as a Withdrawal Without Surrender Charge, followed by Old
Payments, may be withdrawn from the Contract at any time without the imposition
of a contingent deferred sales charge. If a withdrawal is attributable all or in
part to New Payments, a contingent deferred sales charge may apply.
CHARGES FOR SURRENDER AND WITHDRAWAL. If the Contract is surrendered, or if New
Payments are withdrawn while the Contract 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 Contract.
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 first-in-first-out ("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 CHARGE AS PERCENTAGE
DATE OF OF NEW
PAYMENT PAYMENTS WITHDRAWN
- ----------- ---------------------
<S> <C>
Less than 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
More than 7 0%
</TABLE>
The amount withdrawn equals the amount requested by the Owner plus the
contingent deferred sales charge, if any. The charge is applied as a percentage
of the New Payments withdrawn, but in no event will the total contingent
deferred sales charge exceed a maximum limit of 7% of total gross New Payments.
Such total charge equals the aggregate of all applicable contingent deferred
sales charges for surrender, withdrawals and annuitization.
REDUCTION OR ELIMINATION OF SURRENDER CHARGE. Where permitted by state law, the
Company will waive the contingent deferred sales charge in the event that an
Owner (or the Annuitant, if the Owner is not an individual) is: (1) admitted to
a medical care facility after the issue date of the Contract and remains
confined there until the later of one year after the issue date or 90
consecutive days; (2) first diagnosed by a licensed physician as having a fatal
illness after the issue date of the Contract; or (3) physically disabled after
the issue date of the Contract and before attaining age 65. The Company may
require proof of such disability and continuing disability, including written
confirmation of receipt and approval of any claim for Social Security
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Disability Benefits and reserves the right to obtain an examination by a
licensed physician of its choice and at its expense.
For purposes of the above provision, "medical care facility" means any
state-licensed facility or, in a state that does not require licensing, a
facility that is operating pursuant to state law, providing medically necessary
inpatient care which is prescribed by a licensed "physician" in writing and
based on physical limitations which prohibit daily living in a non-institutional
setting; "fatal illness" means a condition diagnosed by a licensed physician
which is expected to result in death within two years of the diagnosis; and
"physician" means a person other than the Owner, Annuitant or a member of one of
their families who is state licensed to give medical care or treatment and is
acting within the scope of that license.
Where contingent deferred sales charges have been waived under any one of the
three situations discussed above, no additional payments under the Contract will
be accepted unless required by state law.
In addition, from time to time the Company may allow a reduction in or
elimination of the contingent deferred sales charges, the period during which
the charges apply, or both, and/or credit additional amounts on Contracts, when
Contracts are sold to individuals or groups of individuals in a manner that
reduces sales expenses. The Company will consider factors such as the following:
(1) the size and type of group or class, and the persistency expected from that
group or class; (2) the total amount of payments to be received, and the manner
in which payments are remitted; (3) the purpose for which the Contracts are
being purchased, and whether that purpose makes it likely that costs and
expenses will be reduced; (4) other transactions where sales expenses are likely
to be reduced; or (5) the level of commissions paid to selling broker-dealers or
certain financial institutions with respect to Contracts within the same group
or class (for example, broker-dealers who offer the Contract in connection with
financial planning services offered on a fee-for-service basis). The Company
also may reduce or waive the contingent deferred sales charge, and/or credit
additional amounts on Contracts, where either the Owner or the Annuitant on the
date of issue is within the following classes of individuals ("eligible
persons"): employees and registered representatives of any broker-dealer which
has entered into a sales agreement with the Company to sell the Contract;
employees of the Company, its affiliates and subsidiaries; officers, directors,
trustees and employees of any of the Underlying Portfolios, investment managers
or Sub-Advisers; and the spouses of and immediate family members residing in the
same household with such eligible persons. "Immediate family members" means
children, siblings, parents and grandparents.
Finally, if permitted under state law, contingent deferred sales charges will be
waived under Section 403(b) Contracts where the amount withdrawn is being
contributed to a life insurance policy issued by the Company as part of the
individual's Section 403(b) plan.
Any reduction or elimination in the amount or duration of the contingent
deferred sales charge will not discriminate unfairly among purchasers of the
Contract. The Company will not make any changes to this charge where prohibited
by law.
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 existing
annuity contracts issued by the Company for the Contract. See "EXCHANGE OFFER"
in the SAI.
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WITHDRAWAL WITHOUT SURRENDER CHARGE. In each calendar year, the Company will
waive the contingent deferred sales charge, if any, on an amount ("Withdrawal
Without Surrender Charge") equal to the greatest of (1), (2) or (3):
<TABLE>
<S> <C>
Where (1) 100% of Cumulative Earnings (calculated as the Accumulated Value as of
is: the Valuation Date the Company receives the withdrawal request, or the
following day, reduced by total gross payments not previously
withdrawn);
Where (2) 15% of the Accumulated Value as of the Valuation Date the Company
is: receives the withdrawal request, or the following day, reduced by the
total amount of any prior withdrawals made in the same calendar year to
which no contingent deferred sales charge was applied; and
Where (3) The amount calculated under the Company's life expectancy distribution
is: option (see "Life Expectancy Distributions") whether or not the
withdrawal was part of such distribution (applies only if Annuitant is
also an Owner).
</TABLE>
For example, an 81-year-old Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Free Withdrawal
Amount of $2,250, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 15% of Accumulated Value ($2,250); or
(3) LED of 10.2% of Accumulated Value ($1,530).
The Withdrawal Without Surrender Charge first will be deducted from Cumulative
Earnings. If the Withdrawal Without Surrender Charge exceeds Cumulative
Earnings, the excess amount will be deemed withdrawn from payments not
previously withdrawn on a last-in first-out ("LIFO") basis. If more than one
withdrawal is made during the year, on each subsequent withdrawal the Company
will waive the contingent deferred sales charge, if any, until the entire
Withdrawal Without Surrender Charge has been withdrawn. Amounts withdrawn from a
Guarantee Period Account prior to the end of the applicable Guarantee Period
will be subject to a Market Value Adjustment. See "GUARANTEE PERIOD ACCOUNTS."
SURRENDERS. In the case of a complete surrender, the amount received by the
Owner is equal to the entire Accumulated Value under the Contract, net of the
applicable contingent deferred sales charge on New Payments, the Contract fee
and any applicable tax withholding, and adjusted for any applicable Market Value
Adjustment. Subject to the same rules applicable to withdrawals, the Company
will not assess a contingent deferred sales charge on an amount equal to the
Withdrawal Without Surrender Charge Amount, described above.
Where an Owner who is trustee under a pension plan surrenders, in whole or in
part, a Contract on a terminating employee, the trustee will be permitted to
reallocate all or a part of the Accumulated Value under the Contract to other
contracts 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 Accumulation Unit values for the Sub-Accounts as of the Valuation
Date on which a written, signed request is received at the Principal Office.
For further information on surrender and withdrawal, including minimum limits on
amount withdrawn and amount remaining under the Contract in the case of
withdrawal, and important tax considerations, see "E. Surrender" and "F.
Withdrawals" under "DESCRIPTION OF THE CONTRACT," and see "FEDERAL TAX
CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If any commutable period
certain option or a non-commutable period certain option for less than ten years
is chosen, a contingent deferred sales charge will be deducted from the
Accumulated Value of the Contract if the Annuity Date occurs at any time when
the surrender charge would still apply had the Contract been surrendered on the
Annuity Date. No contingent
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deferred sales charge is imposed at the time of annuitization in any Contract
year under an option involving a life contingency or for any non-commutable
period certain option for ten years or more. A Market Value Adjustment, however,
may apply. See "GUARANTEE PERIOD ACCOUNTS." If the Owner of a fixed annuity
contract issued by the Company wishes to elect a variable annuity option, the
Company may permit such Owner to exchange, at the time of annuitization, the
fixed contract for a Contract offered in this Prospectus. The proceeds of the
fixed contract, minus any contingent deferred sales charge applicable under the
fixed contract if a period certain option is chosen, will be applied towards the
variable annuity option desired by the Owner. The number of Annuity Units under
the option will be calculated using the Annuity Unit values as of the 15th of
the month preceding the Annuity Date.
E. TRANSFER CHARGE
The Company currently makes no charge for processing transfers. The Company
guarantees that the first 12 transfers in a Contract year will be free of
transfer charge, but reserves the right to assess a charge, guaranteed never to
exceed $25, for each subsequent transfer in a Contract year. For more
information, see "D. Transfer Privilege."
GUARANTEE PERIOD ACCOUNTS
Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Company's Fixed Account are
not registered as an investment company under the provisions of the Securities
Act of 1933 (the "1933 Act") or the 1940 Act. Accordingly, the staff of the SEC
has not reviewed the disclosures in this Prospectus relating to the Guarantee
Period Accounts or the Fixed Account. Nevertheless, disclosures regarding the
Guarantee Period Accounts and the Fixed Account of the Contract or any fixed
benefits offered under these accounts may be subject to the provisions of the
1933 Act relating to the accuracy and completeness of statements made in the
Prospectus.
INVESTMENT OPTIONS. In most jurisdictions, Guarantee Periods ranging from two
through ten years may be available. Each Guarantee Period established for the
Owner is accounted for separately in a non-unitized segregated account. Each
Guarantee Period Account provides for the accumulation of interest at a
Guaranteed Interest Rate. The Guaranteed Interest Rate on amounts allocated or
transferred to a Guarantee Period Account is determined from time to time by the
Company in accordance with market conditions. Once an interest rate is in effect
for a Guarantee Period Account, however, the Company may not change it during
the duration of the Guarantee Period. In no event will the Guaranteed Interest
Rate be less than 3%.
To the extent permitted by law, the Company reserves the right at any time to
offer Guarantee Periods with durations that differ from those which were
available when a Contract initially was issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Owners may allocate net payments or make transfers from any of the Sub-Accounts,
the Fixed Account or an existing Guarantee Period Account to establish a new
Guarantee Period Account at any time prior to the Annuity Date. Transfers from a
Guarantee Period Account on any date other than on the day following the
expiration of that Guarantee Period will be subject to a Market Value
Adjustment. The Company establishes a separate investment account each time the
Owner allocates or transfers amounts to a Guarantee Period except that amounts
allocated to the same Guarantee Period on the same day will be treated as one
Guarantee Period Account. The minimum that may be allocated to establish a
Guarantee Period Account is $1,000. If less than $1,000 is allocated, the
Company reserves the right to apply that amount to the Money Market Portfolio.
The Owner may allocate amounts to any of the Guarantee Periods available.
At least 45 days, but not more than 75 days, prior to the end of a Guarantee
Period, the Company will notify the Owner in writing of the expiration of that
Guarantee Period. At the end of a Guarantee Period the Owner may transfer
amounts to the Sub-Accounts, the Fixed Account or establish a new Guarantee
Period Account of any duration then offered by the Company without a Market
Value Adjustment. If reallocation instructions are
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<PAGE>
not received at the Principal Office before the end of a Guarantee Period, the
account value automatically will be applied to a new Guarantee Period Account
with the same duration unless (1) less than $1,000 would remain in the Guarantee
Period Account on the expiration date, or (2) the Guarantee Period would extend
beyond the Annuity Date or is no longer available. In such cases, the Guarantee
Period Account value will be transferred to the Money Market Portfolio. Where
amounts have been renewed automatically in a new Guarantee Period, it is the
Company's current practice to give the Owner an additional 30 days to transfer
out of the Guarantee Period Account without application of a Market Value
Adjustment. This practice may be discontinued or changed at the Company's
discretion.
MARKET VALUE ADJUSTMENT. No Market Value Adjustment will be applied to
transfers, withdrawals, or a surrender from a Guarantee Period Account on the
expiration of its Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See "G. Death Benefit." All
other transfers, withdrawals, or a surrender prior to the end of a Guarantee
Period will be subject to a Market Value Adjustment, which may increase or
decrease the account value. Amounts applied under an annuity option are treated
as withdrawals when calculating the Market Value Adjustment. The Market Value
Adjustment will be determined by multiplying the amount taken from each
Guarantee Period Account before deduction of any Surrender Charge by the market
value factor. The market value factor for each Guarantee Period Account is equal
to:
[(1+i)/(1+j)]n/365-1
<TABLE>
<S> <C> <C>
where: i is the Guaranteed Interest Rate expressed as a decimal (for example 3% =
0.03) being credited to the current Guarantee Period;
j is the new Guaranteed Interest Rate, expressed as a decimal, for a
Guarantee Period with a duration equal to the number of years remaining in
the current Guarantee Period, rounded to the next higher number of whole
years. If that rate is not available, the Company will use a suitable rate
or index allowed by the Department of Insurance; and
n is the number of days remaining from the Effective Valuation Date to the
end of the current Guarantee Period.
</TABLE>
Based on the application of this formula, the value of a Guarantee Period
Account will increase after the Market Value Adjustment is applied if the then
current market rates are lower than the rate being credited to the Guarantee
Period Account. Similarly, the value of a Guarantee Period Account will decrease
after the Market Value Adjustment is applied if the then current market rates
are higher than the rate being credited to the Guarantee Period Account. The
Market Value Adjustment is limited, however, so that even if the account value
is decreased after application of a Market Value Adjustment, it will equal or
exceed the Owner's principal plus 3% earnings per year less applicable Contract
fees. Conversely, if the then current market rates are lower and the account
value is increased after the Market Value Adjustment is applied, the increase in
value is also affected by the minimum guaranteed rate of 3% such that the amount
that will be added to the Guarantee Period Account is limited to the difference
between the amount earned and the 3% minimum guaranteed earnings. For examples
of how the Market Value Adjustment works, see APPENDIX B.
BUILD WITH INTEREST AND GROWTH PROGRAM. Under this feature, the Owner elects a
Guarantee Period and one or more Sub-Accounts. The Company will then compute the
proportion of the initial payment that must be allocated to the Guarantee Period
selected, assuming no transfers or withdrawals, in order to ensure that on the
last day of the Guarantee Period it will equal the amount of the entire initial
payment. The required amount then will be allocated to the pre-selected
Guarantee Period Account and the remaining balance to the other investment
options selected by the Owner in accordance with the procedures described in "A.
Payments."
WITHDRAWALS. Prior to the Annuity Date, the Owner may make withdrawals of
amounts held in the Guarantee Period Accounts. Withdrawals from these accounts
will be made in the same manner and be subject to the same rules as set forth
under "E. Surrender" and "F. Withdrawals." In addition, the following
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<PAGE>
provisions also apply to withdrawals from a Guarantee Period Account: (1) a
Market Value Adjustment will apply to all withdrawals, including Withdrawals
Without Surrender Charge, unless made at the end of the Guarantee Period; and
(2) the Company reserves the right to defer payments of amounts withdrawn from a
Guarantee Period Account for up to six months from the date it receives the
withdrawal request. If deferred for 30 days or more, the Company will pay
interest on the amount deferred at a rate of at least 3%.
In the event that a Market Value Adjustment applies to a withdrawal of a portion
of the value of a Guarantee Period Account, it will be calculated on the amount
requested and deducted or added to the amount remaining in the Guarantee Period
Account. If the entire amount in a Guarantee Period Account is requested, the
adjustment will be made to the amount payable. If a contingent deferred sales
charge applies to the withdrawal, it will be calculated as set forth under "D.
Contingent Deferred Sales Charge" after application of the Market Value
Adjustment.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of the Contract, on withdrawals
or surrenders, on annuity benefit payments, and on the economic benefit to the
Owner, 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 IRS. In
addition, this discussion does not address state or local tax consequences that
may be associated with the Contract.
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS, AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER ALWAYS SHOULD 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 Contract, the Variable Account or the Sub-Accounts may have
upon its tax. The Variable Account presently is not subject to tax, but the
Company reserves the right to assess a charge for taxes should the Variable
Account at any time become subject to tax. Any charge for taxes will be assessed
on a fair and equitable basis in order to preserve equity among classes of
Owners and with respect to each separate account as though that separate account
were a separate taxable entity.
The Variable Account is considered 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. The Company files a consolidated tax return with its 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 the Contract, for any taxable year
of the Owner, would be treated as ordinary income received or accrued by the
Owner. It is anticipated that the Portfolios of the Fund will comply with the
current diversification requirements. In the event that future IRS regulations
and/or rulings would require Contract modifications in order to remain in
compliance with the diversification standards, the Company will make reasonable
efforts to comply, and it reserves the right to make such changes as it deems
appropriate for that purpose.
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<PAGE>
A. QUALIFIED AND NON-QUALIFIED CONTRACTS
From a federal tax viewpoint there are two types of variable annuity contracts:
"qualified" contracts and "non-qualified" contracts. A qualified contract is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, or 408 of the Code, while a non-qualified
contract is one that is not purchased in connection with one of the indicated
retirement plans. The tax treatment for certain withdrawals or surrenders will
vary, depending on whether they are made from a qualified contract or a non-
qualified contract. For more information on the tax provisions applicable to
qualified contracts, see Section D below.
B. TAXATION OF THE CONTRACT IN GENERAL
The Company believes that the Contract described in this Prospectus will, with
certain exceptions (see "Non-Natural Owners" below), be considered an annuity
contract under Section 72 of the Code. This section governs the taxation of
annuities. The following discussion concerns annuities subject to Section 72.
WITHDRAWALS PRIOR TO ANNUITIZATION. With certain exceptions, any increase in
the Contract's Accumulated Value is not taxable to the Owner until it is
withdrawn from the Contract. If the Contract is surrendered or amounts are
withdrawn prior to the Annuity Date, any withdrawal of investment gain in value
over the cost basis of the Contract will be taxed as ordinary income. Under the
current provisions of the Code, amounts received under an annuity contract prior
to annuitization (including payments made upon the death of the annuitant or
owner), generally are first attributable to any investment gains credited to the
contract over the taxpayer's "investment in the contract." Such amounts will be
treated as gross income subject to federal income taxation. "Investment in the
contract" is the total of all payments to the Contract which were not excluded
from the Owner's gross income less any amounts previously withdrawn which were
not included in income. Section 72(e)(11)(A)(ii) requires that all non-qualified
deferred annuity contracts issued by the same insurance company to the same
owner during a single calendar year be treated as one contract in determining
taxable distributions.
ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments are
commenced under the Contract, generally a portion of each payment may be
excluded from gross income. The excludable portion generally is determined by a
formula that establishes the ratio that the investment in the Contract bears to
the expected return under the Contract. The portion of the payment in excess of
this excludable amount is taxable as ordinary income. Once all the investment in
the Contract is recovered, the entire payment is taxable. If the annuitant dies
before the investment in the Contract is recovered, a deduction for the
difference is allowed on the annuitant's final tax return.
PENALTY ON DISTRIBUTION. 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 on withdrawals taken on or after age 59 1/2 or if the
withdrawal follows the death of the Owner (or, if the Owner is not an
individual, the death of the primary Annuitant, as defined in the Code) or, in
the case of the Owner's "total disability" (as defined in the Code).
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 Owner elects to have
distributions made over the Owner's life expectancy, or over the joint life
expectancy of the 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. Any modification, other than by reason of death or disability, of
distributions which are part of a series of substantially equal periodic
payments that occurs before the Owner's age 59 1/2 or five years, will subject
the Owner to the 10% penalty tax on the prior distributions. In addition to the
exceptions above, the penalty tax will not apply to withdrawals from a qualified
Contract made to an employee who has terminated employment after reaching age
55.
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In a Private Letter Ruling, the IRS took the position that where distributions
from a variable annuity contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy (such as
under the Contract's LED 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, therefore, were subject to the 10% federal penalty tax. This
Private Letter Ruling may be applicable to an 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.
ASSIGNMENTS OR TRANSFERS. If the Owner transfers (assigns) the Contract to
another individual as a gift prior to the Annuity Date, the Code provides that
the 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 any investment gain in value over the
Owner's cost basis at the time of the transfer. The transfer also is subject to
federal gift tax provisions. Where the Owner and Annuitant are different
persons, the change of ownership of the Contract to the Annuitant on the Annuity
Date, as required under the Contract, is a gift and will be taxable to the Owner
as such; however, the Owner will not incur taxable income. Instead, the
Annuitant will incur taxable income upon receipt of annuity benefit payments as
discussed above.
NON-NATURAL OWNERS. As a general rule, deferred annuity contracts owned by
"non-natural persons" (e.g., a corporation) are not treated as annuity contracts
for federal tax purposes, and the investment income attributable to
contributions made after February 28, 1986 is taxed as ordinary income that is
received or accrued by the owner during the taxable year. This rule does not
apply to annuity contracts purchased with a single payment when the annuity date
is no later than a year from the issue date or to deferred annuities owned by
qualified employer plans, estates, employers with respect to a terminated
pension plan, and entities other than employers, such as a trust, holding an
annuity as an agent for a natural person. This exception, however, will not
apply in cases of any employer who is the owner of an annuity contract under a
non-qualified deferred compensation plan.
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. Under Section 457 of the Code, deferred compensation plans
established by governmental and certain other tax-exempt employers for their
employees may invest in annuity contracts. Contributions and investment earnings
are not taxable to employees until distributed; however, with respect to
payments made after February 28, 1986, a Contract owned by a state or local
government or a tax-exempt organization will not be treated as an annuity under
Section 72 as well. In addition, plan assets are treated as property of the
employer, and are subject to the claims of the employer's general creditors.
C. TAX WITHHOLDING
The Code requires withholding with respect to payments or distributions from
non-qualified contracts and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified contracts. 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 withdrawals or surrenders of the non-qualified
Contracts offered by this Prospectus will vary according to whether the amount
withdrawn or surrendered is allocable to an investment in the Contract made
before or after certain dates.
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS
The tax rules applicable to qualified retirement plans, as defined by the Code,
are complex and vary according to the type of plan. Benefits under a qualified
plan may be subject to that plan's terms and conditions irrespective of the
terms and conditions of any annuity contract used to fund such benefits. As
such, the following is simply a general description of various types of
qualified plans that may use the Contract. Before
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<PAGE>
purchasing any annuity contract for use in funding a qualified plan, more
specific information should be obtained.
Qualified Contracts may include special provisions (endorsements) changing or
restricting rights and benefits otherwise available to Owners of non-qualified
Contracts. Individuals purchasing a qualified Contract should carefully review
any such changes or limitations which may include restrictions to ownership,
transferability, assignability, contributions, and distributions.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT SHARING
PLANS. Sections 401(a), 401(k) and 403(a) of the Code permit business employers
and certain associations to establish various types of tax-favored retirement
plans for employees. The Self-Employed Individuals' Tax Retirement Act of 1962,
as amended, permits self-employed individuals to establish similar plans for
themselves and their employees. Employers intending to use qualified Contracts
in connection with such plans should seek competent advice as to the suitability
of the Contracts to their specific needs and as to applicable Code limitations
and tax consequences.
The Company can provide prototype plans for certain pension or profit sharing
plans for review by the plan's legal counsel. For information, ask your
financial representative.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity ("IRA"). Note: This term covers all IRAs permitted
under Section 408(b) of the Code, including Roth IRAs. IRAs are subject to
limits on the amounts that may be contributed, the persons who may be eligible,
and on the time when distributions may commence. In addition, certain
distributions from other types of retirement plans may be "rolled over," on a
tax-deferred basis, to an IRA. Purchasers of an IRA Contract will be provided
with supplementary information as may be required by the IRS or other
appropriate agency, and will have the right to revoke the Contract as described
in this Prospectus. See "B. Right to Revoke Individual Retirement Annuity."
Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) or SIMPLE IRA plans for their employees using
IRAs. Employer contributions that may be made to such plans are larger than the
amounts that may be contributed to regular IRAs and may be deductible to the
employer.
TAX-SHELTERED ANNUITIES ("TSAS"). Under the provisions of Section 403(b) of the
Code, payments made to contracts purchased for employees under annuity plans
adopted by public school systems and certain organizations which are tax-exempt
under Section 501(c)(3) of the Code are excludable from the gross income of such
employees to the extent that total annual payments do not exceed the maximum
contribution permitted under the Code. Purchasers of TSA Contracts should seek
competent advice as to eligibility, limitations on permissible payments and
other tax consequences associated with the contracts.
Withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) made to a TSA Contract after December
31, 1988, may not begin before the employee attains age 59 1/2, separates from
service, dies or becomes disabled. In the case of hardship, an 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 be subject to a 10%
penalty tax as a premature distribution, in addition to income tax.
TEXAS OPTIONAL RETIREMENT PROGRAM. Distributions under a TSA contract issued to
participants in the Texas Optional Retirement Program 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 additional
restrictions are imposed under the Texas Government Code and a prior opinion of
the Texas Attorney General.
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REPORTS
An Owner is sent a report semi-annually which states certain financial
information about the Underlying Portfolios. The Company also will furnish an
annual report to the Owner containing a statement of his or her account,
including Accumulation Unit values and other information as required by
applicable law, rules and regulations.
LOANS (QUALIFIED CONTRACTS ONLY)
Loans are available to owners of TSA contracts (i.e., contracts issued under
Section 403(b) of the Code) and to contracts issued to plans qualified under
Sections 401(a) and 401(k) of the Code. Loans are subject to provisions of the
Code and to applicable qualified retirement plan rules. Tax advisers and plan
fiduciaries should be consulted prior to exercising loan privileges.
Loaned amounts will be withdrawn first from Sub-Account and Fixed Account values
on a pro-rata basis until exhausted. Thereafter, any additional amounts will be
withdrawn from the Guarantee Period Accounts (pro rata by duration and LIFO
within each duration), subject to any applicable Market Value Adjustments. The
maximum loan amount will be determined under the Company's maximum loan formula.
The minimum loan amount is $1,000. Loans will be secured by a security interest
in the Contract and the amount borrowed will be transferred to a loan asset
account within the Company's General Account, where it will accrue interest at a
specified rate below the then-current loan rate. Generally, loans must be repaid
within five years or less, and repayments must be made quarterly and in
substantially equal amounts. Repayments will be allocated pro rata in accordance
with the most recent payment allocation, except that any allocations to a
Guarantee Period Account will be allocated instead to the Money Market
Portfolio.
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
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Underlying Portfolio no longer are 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 Variable Account or the affected
Sub-Account, the Company may withdraw 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 the Contract interest in
a Sub-Account without notice to the Owner and prior approval of the SEC and
state insurance authorities, to the extent required by the 1940 Act or other
applicable law. The Variable Account may, to the extent permitted by law,
purchase other securities for other contracts or permit a conversion between
contracts upon request by an Owner.
The Company also reserves the right to establish additional sub-accounts of the
Variable 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 sub-accounts or
eliminate one or more Sub-Accounts if marketing needs, tax considerations or
investment conditions warrant. Any new Sub-Accounts may be made available to
existing Owners on a basis to be determined by the Company.
Shares of the Underlying Portfolios may be issued to variable accounts of the
Company and its affiliates which issue variable life contracts ("mixed
funding"). Shares of the Portfolios may be also issued to other unaffiliated
insurance companies ("shared funding"). It is conceivable that in the future
such mixed funding or shared funding may be disadvantageous for variable life
owners or variable annuity owners. Although neither the Company nor the Fund
currently foresees any such disadvantages to either variable life owners or
variable annuity owners, the Company and the trustee intend to monitor events in
order to identify any material conflicts between such owners, and to determine
what action, if any, should be taken in response
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thereto. If it were concluded that separate funds should be established for
variable life and variable annuity separate accounts, the Company will bear the
attendant expenses.
If any of these substitutions or changes is made, the Company may endorse the
Contract to reflect the substitution or change, and will notify Owners of all
such changes. If the Company deems it to be in the best interest of Owners, and
subject to any approvals that may be required under applicable law, the Variable
Account or any Sub-Accounts may be operated as a management company under the
1940 Act, may be deregistered under the 1940 Act if registration is no longer
required, or may be combined with other Sub-Accounts or other separate accounts
of the Company.
The Company reserves the right, subject to compliance with applicable law, to:
(1) transfer assets from the Variable Account or any of its Sub-Accounts to
another of the Company's separate accounts or sub-accounts having assets of the
same class; (2) to operate the Variable Account or any Sub-Account as a
management investment company under the 1940 Act or in any other form permitted
by law; (3) to deregister the Variable Account under the 1940 Act in accordance
with the requirements of the 1940 Act; (4) to substitute the shares of any other
registered investment company for the Underlying Portfolio shares held by a
Sub-Account, in the event that Underlying Portfolio shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Fund shares is inappropriate in view of the purpose of the Sub-
Account; (5) to change the methodology for determining the net investment
factor,; and (6) to change the names of the Variable Account or of the
Sub-Accounts. In no event will the changes described above be made without
notice to Owners in accordance with the 1940 Act.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves the right, without the consent of Owners, to suspend sales
of the Contract as presently offered, and to make any change to provisions of
the Contract to comply with, or give Owners the benefit of, any federal or state
statute, rule or regulation, including but not limited to requirements for
annuity contracts and retirement plans under the Code and pertinent regulations
or any state statute or regulation.
VOTING RIGHTS
The Company will vote Underlying Portfolio shares held by each Sub-Account in
accordance with instructions received from Owners and, after the Annuity Date,
from the Annuitants. Each person having a voting interest in a Sub-Account will
be provided with proxy materials of the 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 also will vote shares in a Sub-Account that it
owns and which are not attributable to Contracts 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 Contract, the Company reserves the
right to do so.
The number of votes which an 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 Owner will be determined by dividing the dollar value of
the Accumulation Units of the Sub-Account credited to the Contract by the net
asset value of one 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 Sub-Account 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.
44
<PAGE>
DISTRIBUTION
The Contracts offered by this Prospectus may be purchased from certain
independent broker-dealers which are registered under the Securities and
Exchange Act of 1934 and members of the National Association of Securities
Dealers, Inc. ("NASD"). The Contracts also are offered through Allmerica
Investments, Inc., which is the principal underwriter and distributor of the
Contracts. Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653,
is a registered broker-dealer, a member of the NASD and an indirectly wholly
owned subsidiary of First Allmerica.
The Company pays commissions, not to exceed 6.0% of payments, to broker-dealers
which sell the Contract. Alternative commission schedules are available with
lower initial commission amounts based on payments, plus ongoing annual
compensation of up to 1% of Contract value. To the extent permitted by NASD
rules, promotional incentives or payments also may be provided to such
broker-dealers based on sales volumes, the assumption of wholesaling functions
or other sales-related criteria. Additional payments may be made for other
services not directly related to the sale of the Contract, including the
recruitment and training of personnel, production of promotional literature, and
similar services.
The Company intends to recoup commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges and profits from
the Company's General Account. Commissions paid on the Contract, including
additional incentives or payments, do not result in any additional charge to
Owners or to the Variable Account. Any contingent deferred sales charges
assessed on the Contract will be retained by the Company.
Owners may direct any inquiries to their financial representative or to
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653, telephone
1-800-688-9915.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party.
FURTHER INFORMATION
A Registration Statement under the 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted in this Prospectus pursuant to the rules and
regulations of the SEC. The omitted information may be obtained from the SEC's
principal office in Washington, D.C., upon payment of the SEC's prescribed fees.
45
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account are not generally subject to regulation under the
provisions of the Securities Act of 1933 or the Investment Company Act of 1940.
Disclosures regarding the fixed portion of the annuity contract and the Fixed
Account may be subject to the provisions of the Securities Act of 1933
concerning the accuracy and completeness of statements made in this Prospectus.
The disclosures in this APPENDIX A have not been reviewed by the Securities and
Exchange Commission.
The Fixed Account is part of the Company's General Account and is made up of all
of the general assets of the Company other than those allocated to a separate
account. Allocations to the Fixed Account become part of the assets of the
Company and are used to support insurance and annuity obligations. A portion or
all of net payments may be allocated to accumulate at a fixed rate of interest
in the Fixed Account. Such net amounts are guaranteed by the Company as to
principal and a minimum rate of interest. Under the Contract, the minimum
interest which may be credited on amounts allocated to the Fixed Account is 3%
compounded annually. Additional "Excess Interest" may or may not be credited at
the sole discretion of the Company.
If the Contract is surrendered, or if an amount in excess of the Withdrawal
Without Surrender Charge is withdrawn, while the Contract 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 Contract for at least seven full Contract years.
In Massachusetts, payments and transfers to the Fixed Account are subject to the
following restrictions:
If the Contract is issued prior to the Annuitant's 60th birthday,
allocations to the Fixed Account will be permitted until the Annuitant's
61st birthday. On and after the Annuitant's 61st birthday, no additional
Fixed Account allocations will be accepted. If the Contract is issued on
or after the Annuitant's 60th birthday up through and including the
Annuitant's 81st birthday, Fixed Account allocations will be permitted
during the first Contract year. On and after the first Contract
anniversary, no additional allocations to the Fixed Account will be
permitted. If a Contract is issued after the Annuitant's 81st birthday,
no payments to the Fixed Account will be permitted at any time.
In Oregon, if the Contract is issued after the Annuitant's 81st birthday, no
payments or transfers to the Fixed Account will be permitted at any time.
If an allocation designated as a Fixed Account allocation is received at the
Principal Office during a period when the Fixed Account is not available due to
the limitations outlined above, the monies will be allocated to the Money Market
Portfolio.
To the extent permitted by state law, the Company reserves the right, from time
to time, to credit an enhanced interest rate to certain initial and/or
subsequent payments ("eligible payments") which are deposited into the Fixed
Account under an Automatic Transfer Option (dollar cost averaging election) that
uses the Fixed Account as the source account from which automatic transfers are
then processed. The following are not considered eligible payments: amounts
transferred into the Fixed Account from the Variable Account and/or the
Guarantee Period Accounts; amounts already in the Fixed Account at the time an
eligible payment is deposited and amounts transferred to the Contract from
another annuity contract issued by the Company.
An eligible payment must be automatically transferred out of the Fixed Account
over a continuous six month period. The enhanced rate will apply during the six
month period to any portion of the eligible payment remaining in the Fixed
Account. Amounts automatically transferred out of the Fixed Account will no
longer earn the enhanced rate of interest and, as of the date of transfer, will
be subject to the variable investment performance of the sub-account(s)
transferred into. If the automatic transfer option is terminated prior to the
end of the six month period, the enhanced rate will no longer apply. The Company
reserves the right to extend the period of time that the enhanced rate will
apply.
A-1
<PAGE>
APPENDIX B
SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: SURRENDER CHARGES
FULL SURRENDER
Assume a payment of $50,000 is made on the issue date and no additional
payments are made. Assume there are no withdrawals and that the Withdrawal
Without Surrender Charge Amount is equal to the greater of 15% of the
Accumulated Value or the accumulated earnings in the Contract. The table below
presents examples of the surrender charge resulting from a full surrender based
on hypothetical Accumulated Values:
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE CHARGE AMOUNT PERCENTAGE CHARGE
- --------------- ------------ ----------------- ---------------- -----------
<S> <C> <C> <C> <C>
1 $ 54,000.00 $ 8,100.00 7% $ 3,213.00
2 58,320.00 8,748.00 6% 2,974.32
3 62,985.60 12,985.60 5% 2,500.00
4 68,024.45 18,024.45 4% 2,000.00
5 73,466.40 23,466.40 3% 1,500.00
6 79,343.72 29,343.72 2% 1,000.00
7 85,691.21 35,691.21 1% 500.00
8 92,546.51 42,546.51 0% 0.00
</TABLE>
WITHDRAWALS
Assume a payment of $50,000 is made on the issue date and no additional
payments are made. Assume that the Withdrawal Without Surrender Charge Amount is
equal to the greater of 15% of the current Accumulated Value or the accumulated
earnings in the Contract and there are withdrawals as detailed below. The table
below presents examples of the surrender charge resulting from withdrawals of
the Owner's account, based on hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE WITHDRAWALS CHARGE AMOUNT PERCENTAGE CHARGE
- --------------- ------------ ------------ ----------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
1 $ 54,000.00 $ 0.00 $ 8,100.00 7% $ 0.00
2 58,320.00 0.00 8,748.00 6% 0.00
3 62,985.60 0.00 12,985.60 5% 0.00
4 68,024.45 30,000.00 18,024.45 4% 479.02
5 41,066.40 10,000.00 6,159.96 3% 115.20
6 33,551.72 5,000.00 5,032.76 2% 0.00
7 30,835.85 10,000.00 4,625.38 1% 53.75
8 22,502.72 15,000.00 3,375.41 0% 0.00
</TABLE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)]n/365-1
The following examples assume:
1. The payment was allocated to a ten-year Guarantee Period Account with a
Guaranteed Interest Rate of 8%.
2. The date of surrender is seven years (2,555 days) from the expiration
date.
3. The value of the Guarantee Period Account is equal to $62,985.60 at the
end of three years.
B-1
<PAGE>
4. No transfers or withdrawals affecting this Guarantee Period Account have
been made.
5. Surrender charges, if any, are calculated in the same manner as shown in
the examples in Part 1.
NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10
<TABLE>
<C> <C> <S>
The market value factor = (1+i)/(1+j)]n/365 -1
= [(1+.08)/(1+.10)]2555/365 -1
= (.98182)7 -1
= -.12054
The market value adjustment = the market value factor multiplied by the withdrawal
= -.12054X$62,985.60
= -$7,592.11
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)]n/365 -1
= [(1+.08)/(1+.07)]2555/365 -1
= (1.0093)7 -1
= .06694
The market value adjustment = the market value factor multiplied by the withdrawal
= .06694X$62,985.60
= $4,216.26
</TABLE>
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11
<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)]n/365 -1
= [(1+.08)/(1+.11)]2555/365 -1
= (.97297)7 -1
= -.17454
The market value adjustment = Minimum of the market value factor multiplied by the
withdrawal or the negative of the excess interest earned
over 3%
= Minimum (-.17454X$62,985.60 or -$8,349.25)
= Minimum (-$10,993.51 or -$8,349.25)
= -$8,349.25
</TABLE>
B-2
<PAGE>
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)]n/365 -1
= [(1+.08)/(1+.06)]2555/365 -1
= (1.01887)7 -1
= .13981
The market value adjustment = Minimum of the market value factor multiplied by the
withdrawal or the excess interest earned over 3%
The market value factor = Minimum of (.13981X$62,985.60 or $8,349.25)
= Minimum of ($8,806.02 or $8,349.25)
= $8,349.25
</TABLE>
B-3
<PAGE>
APPENDIX C
THE DEATH BENEFIT
PART 1: DEATH OF THE ANNUITANT
DEATH BENEFIT ASSUMING NO WITHDRAWALS
Assume a payment of $50,000 is made on the issue date and no additional
payments are made. Assume there are no withdrawals and that the Death Benefit
Effective Annual Yield is equal to 5%. The table below presents examples of the
Death Benefit based on the Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE DEATH DEATH DEATH DEATH
YEAR VALUE ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) BENEFIT
- --------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 53,000.00 $ 52,500.00 $ 50,000.00 $53,000.00
2 53,530.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 58,883.00 0.00 58,883.00 57,881.25 55,125.00 58,883.00
4 52,994.70 500.00 53,494.70 60,775.31 58,883.00 60,775.31
5 58,294.17 0.00 58,294.17 63,814.08 60,775.31 63,814.08
6 64,123.59 500.00 64,623.59 67,004.78 63,814.08 67,004.78
7 70,535.95 0.00 70,535.95 70,355.02 67,004.78 70,535.95
8 77,589.54 500.00 78,089.54 73,872.77 70,535.95 78,089.54
9 85,348.49 0.00 85,348.49 77,566.41 78,089.54 85,348.49
10 93,883.34 0.00 93,883.34 81,444.73 85,348.49 93,883.34
</TABLE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment. Death Benefit (b) is the gross payments accumulated daily at
the Death Benefit Effective Annual Yield of 5%, reduced proportionately to
reflect withdrawals. Death Benefit (c) is the death benefit that would have been
payable on the most recent Contract anniversary, increased for subsequent
payments, and decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c).
DEATH BENEFIT ASSUMING WITHDRAWALS
Assume a payment of $50,000 is made on the issue date and no additional
payments are made. Assume there are withdrawals as detailed in the table below
and that the Death Benefit Effective Annual Yield is equal to 5%. The table
below presents examples of the Death Benefit based on the Hypothetical
Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE DEATH DEATH DEATH DEATH
YEAR VALUE WITHDRAWALS ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) BENEFIT
- --------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 0.00 $ 53,000.00 $ 52,500.00 $ 50,000.00 $53,000.00
2 53,530.00 0.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 3,883.00 50,000.00 0.00 3,883.00 4,171.13 3,972.50 4,171.13
4 3,494.70 0.00 500.00 3,994.70 4,379.68 4,171.13 4,379.68
5 3,844.17 0.00 0.00 3,844.17 4,598.67 4,379.68 4,598.67
6 4,228.59 0.00 500.00 4,728.59 4,828.60 4,598.67 4,828.60
7 4,651.45 0.00 0.00 4,651.45 5,070.03 4,828.60 5,070.03
8 5,116.59 0.00 500.00 5,616.59 5,323.53 5,070.03 5,616.59
9 5,628.25 0.00 0.00 5,628.25 5,589.71 5,616.59 5,628.25
10 691.07 5,000.00 0.00 691.07 712.70 683.44 712.70
</TABLE>
C-1
<PAGE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment. Death Benefit (b) is the gross payments accumulated daily at
the Death Benefit Effective Annual Yield of 5% reduced proportionately to
reflect withdrawals. Death Benefit (c) is the death benefit that would have been
payable on the most recent Contract anniversary, increased for subsequent
payments, and decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c).
PART 2: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no withdrawals. The table below presents examples of
the death Benefit based on the Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE DEATH
YEAR VALUE ADJUSTMENT BENEFIT
- --------- ------------ ------------ ------------
<S> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $53,000.00
2 53,530.00 500.00 54,030.00
3 58,883.00 0.00 58,883.00
4 52,994.70 500.00 53,494.70
5 58,294.17 0.00 58,294.17
6 64,123.59 500.00 64,623.59
7 70,535.95 0.00 70,535.95
8 77,589.54 500.00 78,089.54
9 85,348.49 0.00 85,348.49
10 93,883.34 0.00 93,883.34
</TABLE>
The Hypothetical Death Benefit is the Accumulated Value increased by any
positive Market Value Adjustment.
C-2
<PAGE>
APPENDIX D
DIFFERENCES UNDER THE PIONEER VISION CONTRACT (FORM A3023-95)
1. The Guarantee Period Accounts are not available under the Pioneer Vision
Contract (Form A3023-95).
2. The waiver of surrender charge in Pioneer Vision 2 for disability prior to
age 65, diagnosis of a terminal illness or confinement to a nursing home
until the later of one year after issue or 90 days (see "Reduction or
Elimination of Surrender Charge") is not available under the Pioneer Vision
Contract (Form A3023-95).
3. The death benefit under Pioneer Vision Contract (Form A3023-95) that is
payable upon the death of the Annuitant (or an Owner who is also the
Annuitant) is the greatest of: (1) the Accumulated Value under the Contract
next determined following receipt of due proof of death at the Principal
Office; (2) the total amount of gross payments made under the Contract
reduced proportionately to reflect the amount of all prior partial
withdrawals, or (3) the death benefit that would have been payable on the
most recent fifth year policy anniversary, increased for subsequent payments
and reduced proportionately to reflect withdrawals after that date.
4. The Withdrawal Without Surrender Charge Amount (the "Free Withdrawal
Amount") under the Pioneer Vision Contract (Form A3023-95) is the greatest
of (1) cumulative earnings; (2) 10% of the Accumulated Value as of the
Valuation Date coincident with or next following the date of the withdrawal
request; or (3) the amount calculated under the Company's life expectancy
distribution. The percentage available under the Pioneer Vision 2 Contract
is 15% rather than 10%.
5. The following transfer provision applies to the Pioneer Vision Contract
(Form A3023-95):
TRANSFER PRIVILEGE. At any time prior to the Annuity Date, subject to the
Company's then current rules, an Owner may have amounts transferred among the
Sub-Accounts or from the Sub-Accounts to the Fixed 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 a
written request or, if a properly completed authorization is on file, pursuant
to a telephone request.
Except for transfers made under the automatic transfer option and for transfers
made under contracts issued to residents of Texas, no transfers from the Fixed
Account are permitted except during the 30-day period beginning on each Contract
anniversary. During that 30-day "window" period, any amount (up to 100%) of
Contract value in the Fixed Account may be transferred. In Texas, transfers
involving the Fixed Account also are permitted if: (1) there has been at least a
90-day period since the last transfer from the Fixed Account; and (2) the amount
transferred from the Fixed Account in each transfer does not exceed the lesser
of $100,000 or 25% of the Accumulated Value.
Currently, the Company makes no charge for transfers. The first 12 transfers in
a Contract year are guaranteed to be free of any transfer charge. For each
subsequent transfer in a Contract year, the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse it for the expense of
processing transfers.
AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING) AND AUTOMATIC ACCOUNT REBALANCING
OPTIONS. The Owner may elect automatic transfers of a predetermined amount, not
less than $100, on a periodic basis (monthly, bi-monthly, quarterly,
semi-annually or annually ) from the Money Market Portfolio or the America
Income Portfolio (the source account) to one or more of the other Sub-Accounts.
Automatic transfers may not be made into the Fixed Account or, if applicable,
the Portfolio being used as the source account. The Fixed Account also may be
used as the source account from which monthly, bi-monthly or quarterly automatic
transfers will be made to any of the Sub-Accounts provided that (1) the amount
of each monthly transfer cannot exceed 10% of the value in the Fixed Account as
of the date of the first transfer; (2) each bi-monthly transfer cannot exceed
20% of the value in the Fixed Account as of the date of the first transfer, and
(3) each quarterly transfer cannot exceed 25% of the value in the Fixed Account
as of the date of the first transfer. If an
D-1
<PAGE>
automatic transfer would reduce the balance in the source account to less than
$100, the entire balance will be transferred proportionately to the chosen
Sub-Accounts. Automatic transfers will continue until the amount in the source
account on a transfer date is zero or the Owner's request to terminate the
option is received by the Company. If additional amounts are allocated to the
source account after its balance has fallen to zero, this option will not
restart automatically and the Owner must provide a new request to the Company.
The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, bi-monthly, quarterly, semi-annual or annual basis in accordance with
specified percentage allocations. As frequently as requested, the Company will
review the percentage allocations in the Portfolios and, if necessary, transfer
amounts to ensure conformity with the designated percentage allocation mix. If
the amount necessary to re-establish the mix on any scheduled date is less than
$100, no transfer will be made. Automatic Account Rebalancing will continue
until the Owner's request to terminate or change the option is received by the
Company. As such, subsequent payments allocated in a manner different from the
percentage allocation mix in effect on the date the payment is received will be
reallocated in accordance with the existing mix on the next scheduled date
unless the Owner's timely request to change the mix or terminate the option is
received by the Company.
The Company reserves the right to limit the number of Portfolios that may be
utilized for automatic transfers and rebalancing, and to discontinue either
option upon advance written notice. Currently, Dollar Cost Averaging and Account
Rebalancing may not be in effect simultaneously.
6. The contingent deferred sales charge under Pioneer Vision Contract (Form
A3023-95) is:
<TABLE>
<CAPTION>
YEARS FROM CHARGE AS PERCENTAGE OF
DATE OF NEW
PAYMENT PAYMENTS WITHDRAWN
- ----------- -----------------------------
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
More than 7 0%
</TABLE>
7. For Pioneer Vision Contract (Form A3023-95) contracts issued in Maryland,
the contingent deferred sales charge for monies surrendered out of the
Variable Account is identical to the charge schedule shown in 6. above.
Monies surrendered out of the Fixed Account, however, are subject to the
following additional charges: in Year 8, measured from the date of payment,
a 2% charge will apply, and in year 9 a 1% charge will apply. Thereafter, no
charge applies.
8. Because of the differences between the contingent deferred sales charge (see
6. above) and the amount of the free withdrawal (see 4. above) in the
Pioneer Vision Contract (Form A3023-95) and Pioneer Vision 2, the following
example (1) applies to Owners of the Pioneer Vision Contract (Form A3023-95)
contract, and should be referred to rather than the example (1) on page 14
of this Prospectus.
D-2
<PAGE>
(1) If the Contract is surrendered or annuitized* under a commutable period
certain option or a non-commutable certain option of less than ten years 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>
International Growth......................................................... $ 94 $ 156 $ 202 $ 321
Capital Growth............................................................... $ 87 $ 137 $ 168 $ 253
Growth Shares................................................................ $ 91 $ 150 $ 191 $ 299
Real Estate Growth........................................................... $ 91 $ 150 $ 190 $ 298
Growth and Income............................................................ $ 91 $ 150 $ 191 $ 299
Equity-Income................................................................ $ 87 $ 137 $ 167 $ 251
Balanced..................................................................... $ 89 $ 142 $ 176 $ 269
Swiss Franc Bond............................................................. $ 91 $ 149 $ 189 $ 296
America Income............................................................... $ 91 $ 149 $ 190 $ 297
Money Market................................................................. $ 89 $ 143 $ 178 $ 273
</TABLE>
* The contract fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any Contract year under
an option including a life contingency.
9. Because of the different contingent deferred sales charge schedule and free
amount percentage, performance Tables 1A and 2A below apply to the Pioneer
Vision Contract (Form A3023-95) contract owners (Tables 1B and 2B on pages
18 and 19 of the Prospectus are applicable to all contract owners):
Quotations of average annual total return as shown in Table 1A are calculated in
the manner prescribed by the SEC and show the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year period or for a period covering the time the Sub-Account has been in
existence, if less than the prescribed periods. The calculation is adjusted to
reflect the deduction of the annual Sub-Account asset charge of 1.40%, the $30
annual Contract fee, Underlying Portfolio charges and the contingent deferred
sales charge which would be assessed if the investment were completely withdrawn
at the end of the specified period. Quotations of supplemental average total
returns, as shown in Table 1B, are calculated in exactly the same manner and for
the same periods of time except that it does not reflect the contingent deferred
sales charge but assumes that the Contract is not surrendered at the end of the
periods shown.
The performance shown in Tables 2A and 2B is calculated in exactly the same
manner as those in Tables 1A and 1B respectively; however, the period of time is
based on the Underlying Portfolios' lifetime, which may predate the
Sub-Account's inception date. These performance calculations are based on the
assumption that the Sub-Account corresponding to the applicable Underlying
Portfolio was actually in existence throughout the stated period and that the
contractual charges and expenses during that period were equal to those
currently assessed under the Contract. For more information on performance,
refer to "PERFORMANCE INFORMATION" on pages 16 and 17 of the Prospectus and the
SAI.
D-3
<PAGE>
TABLE 1A
TOTAL ANNUAL RETURNS OF SUB-ACCOUNT FOR PERIODS
ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR SINCE
ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO 12/31/97 SUB-ACCOUNT
- ------------------------------------------------------------------------------------ ----------- ------------
<S> <C> <C>
International Growth................................................................ -2.77% 4.85%
Capital Growth...................................................................... 15.94% 16.56%
Growth Shares....................................................................... N/A -4.08%
Real Estate Growth.................................................................. 12.46% 22.63%
Growth and Income................................................................... N/A -1.05%
Equity-Income....................................................................... 26.33% 22.63%
Balanced............................................................................ 8.62% 14.43%
Swiss Franc Bond.................................................................... -13.71% -11.99%
America Income...................................................................... 0.55% 1.74%
Money Market........................................................................ -2.98% 1.06%
</TABLE>
TABLE 2A
TOTAL ANNUAL RETURNS OF SUB-ACCOUNT FOR PERIODS
ENDING DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING PORTFOLIO
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
SINCE
INCEPTION
FOR YEAR OF
ENDED UNDERLYING
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO 12/31/97 PORTFOLIO*
- ------------------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
International Growth................................................................ -2.77% 4.63%
Capital Growth...................................................................... 15.94% 16.54%
Growth Shares....................................................................... N/A -4.08%
Real Estate Growth.................................................................. 12.46% 22.48%
Growth and Income................................................................... N/A -1.05%
Equity-Income....................................................................... 26.33% 23.02%
Balanced............................................................................ 8.62% 14.91%
Swiss Franc Bond.................................................................... -13.71% -11.93%
America Income...................................................................... 0.55% 1.75%
Money Market........................................................................ -2.98% 1.05%
</TABLE>
* The inception date for the Growth Shares and Growth and Income Portfolios was
10/31/97. The inception date for the Swiss Franc Bond Portfolio was 11/1/95. All
other Portfolios commenced operations on 3/1/95.
10. The Fixed Account under the Pioneer Vision Contract (Form A3023-95) contract
is not available in Oregon.
D-4
