<PAGE>
File Nos. 333-81017
811-8848
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. 1
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20
SEPARATE ACCOUNT VA-P OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(Exact Name of Registrant)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(Name of Depositor)
440 Lincoln Street
Worcester, MA 01653
(Address of Depositor's Principal Executive Offices)
(508) 855-1000
(Depositor's Telephone Number, including Area Code)
Mary Eldridge, Secretary
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
___ on (date) pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a) (1) of Rule 485
___ on (date) pursuant to paragraph (a) (1) of Rule 485
___ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
VARIABLE ANNUITY POLICIES
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940
("1940 Act"), Registrant hereby declares that an indefinite amount of its
securities is being registered under the Securities Act of 1933 ("1933 Act").
The Rule 24f-2 No filing fee is submitted as a filing fee is not required for
this type of filing. Registrant will file its notice pursuant to Rule 24f-2
for its fiscal year ending December 31, 1999 on or before March 1, 2000.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall become effective in accordance with section 8(a) of the Securities Act
of 1933 or until this Registration Statement shall become effective on such
date or dates as the Commission, acting pursuant to said section 8(a), may
determine.
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CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
<TABLE>
<CAPTION>
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
- ----------------- ---------------------
<S> <C>
1..........................Cover Page
2..........................Special Terms
3..........................Summary of Fees and Expenses; Summary of Contract Features
4..........................Condensed Financial Information; Performance Information
5..........................Description of the Company, the Variable Account, and Pioneer Variable
Contracts Trust
6..........................Charges and Deductions
7..........................Description of the Contract -- the Accumulation Phase
8..........................Electing the Annuity Date; Description of Annuity Payout Options;
Annuity Benefit Payments
9..........................Death Benefit
10.........................Payments; Computation of Values; Distribution
11.........................Surrender and Withdrawals; Surrender Charge; Withdrawal
Without Surrender Charge; Texas Optional Retirement Program
12.........................Federal Tax Considerations
13.........................Legal Matters
14.........................Statement of Additional Information - Table of Contents
</TABLE>
<TABLE>
<CAPTION>
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- ----------------- ----------------------------------------------
<S> <C>
15.........................Cover Page
16.........................Table of Contents
17.........................General Information and History
18.........................Services
19.........................Underwriters
20.........................Underwriters
</TABLE>
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<TABLE>
<S> <C>
21.........................Performance Information
22.........................Annuity Benefit Payments
23.........................Financial Statements
</TABLE>
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
WORCESTER, MASSACHUSETTS
SEPARATE ACCOUNT VA-P
This Prospectus provides important information about
the Pioneer XtraVision variable annuity contract
issued by Allmerica Financial Life Insurance and
PLEASE READ THIS Annuity Company in all jurisdictions except New York.
PROSPECTUS CAREFULLY The contract is a flexible payment tax-deferred
BEFORE INVESTING AND combination variable and fixed annuity offered on
KEEP IT FOR FUTURE both a group and individual basis.
REFERENCE. The Variable Account, known as Separate Account VA-P
is subdivided into Sub- Accounts, each investing
exclusively in shares of one of the following
portfolios of Pioneer Variable Contracts Trust:
<TABLE>
<CAPTION>
<C> <S> <C>
ANNUITIES INVOLVE Emerging Markets Portfolio Growth and Income Portfolio
RISKS INCLUDING Europe Portfolio Equity-Income Portfolio
POSSIBLE LOSS International Growth Portfolio Balanced Portfolio
OF PRINCIPAL. Capital Growth Portfolio Swiss Franc Bond Portfolio
Growth Shares Portfolio Strategic Income Portfolio
Real Estate Growth Portfolio America Income Portfolio
Money Market Portfolio
</TABLE>
The Fixed Account is part of the Company's General
Account and pays an interest rate guaranteed for
one year from the time a payment is received. The
Guarantee Period Accounts offer fixed rates of
interest for specified periods. A Market Value
Adjustment is applied to payments removed from a
THIS ANNUITY IS Guarantee Period Account before the end of the
NOT: specified period. The Market Value Adjustment may
- A BANK DEPOSIT OR be positive or negative. Payments allocated to a
OBLIGATION; Guarantee Period Account are held in the Company's
- FEDERALLY INSURED; Separate Account GPA (except in California where
- ENDORSED BY ANY they are allocated to the General Account).
BANK OR A Statement of Additional Information dated __,
GOVERNMENTAL 1999 containing more information about this
AGENCY. annuity is on file with the Securities and
Exchange Commission and is incorporated by
reference into this Prospectus. A copy may be
obtained free of charge by calling Annuity Client
Services at 1-800-688-9915. The Table of Contents
of the Statement of Additional Information is
listed on page 3 of this Prospectus.
This Prospectus and the Statement of Additional
Information can also be obtained from the
Securities and Exchange Commission's website
(http://www.sec.gov).
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED THAT THE INFORMATION IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
WORCESTER, MASSACHUSETTS
DATED __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS......................................................................... 5
SUMMARY OF FEES AND EXPENSES.......................................................... 7
SUMMARY OF CONTRACT FEATURES.......................................................... 12
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, AND PIONEER VARIABLE CONTRACTS
TRUST................................................................................ 17
INVESTMENT OBJECTIVES AND POLICIES.................................................... 18
INVESTMENT ADVISORY SERVICES.......................................................... 19
DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE................................. 20
A. Payments....................................................................... 20
B. Payment Credits................................................................ 21
C. Computation of Values.......................................................... 21
The Accumulation Unit......................................................... 21
Net Investment Factor......................................................... 21
D. Right to Cancel................................................................ 22
E. Transfer Privilege............................................................. 22
Automatic Transfers (Dollar Cost Averaging)................................... 23
Automatic Account Rebalancing................................................. 23
F. Surrenders and Withdrawals..................................................... 24
Systematic Withdrawals........................................................ 25
Life Expectancy Distributions................................................. 25
Systematic Level Free of Surrender Charge Withdrawal Program.................. 26
G. Death Benefit.................................................................. 26
Standard Death Benefit........................................................ 26
Optional Enhanced Death Benefit Rider......................................... 26
Payment of the Death Benefit Prior to the Annuity Date........................ 28
H. The Spouse of the Owner as Beneficiary......................................... 28
I. Optional Minimum Guaranteed Annuity Payout (M-GAP) Rider....................... 29
J. Assignment..................................................................... 31
ANNUITIZATION -- THE PAYOUT PHASE..................................................... 32
A. Electing the Annuity Date...................................................... 32
B. Choosing the Annuity Payout Option............................................. 32
Fixed Annuity Payout Options.................................................. 33
Variable Annuity Payout Options............................................... 33
C. Description of Annuity Payout Options.......................................... 33
D. Variable Annuity Benefit Payments.............................................. 34
The Annuity Unit.............................................................. 34
Determination of the First Annuity Benefit Payment............................ 34
Determination of the Number of Annuity Units.................................. 35
Dollar Amount of Subsequent Variable Annuity Benefit Payments................. 35
Payment of Annuity Benefit Payments........................................... 35
E. Transfers of Annuity Units..................................................... 35
F. Withdrawals After the Annuity Date............................................. 36
Calculation of Proportionate Reduction........................................ 37
Calculation of Present Value.................................................. 38
Deferral of Withdrawals....................................................... 39
G. Reversal of Annuitization...................................................... 39
H. NORRIS Decision................................................................ 40
CHARGES AND DEDUCTIONS................................................................ 41
A. Variable Account Deductions.................................................... 41
Mortality and Expense Risk Charge............................................. 41
</TABLE>
2
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<TABLE>
<S> <C>
Administrative Expense Charge................................................. 41
Other Charges................................................................. 41
B. Contract Fee................................................................... 42
C. Optional Rider Charges......................................................... 42
D. Premium Taxes.................................................................. 42
E. Surrender Charge............................................................... 43
Calculation of Surrender Charge............................................... 43
Withdrawal Without Surrender Charge........................................... 44
Reduction or Elimination of Surrender Charge and Additional Amounts
Credited...................................................................... 45
F. Transfer Charge................................................................ 46
G. Withdrawal Adjustment Charge................................................... 47
GUARANTEE PERIOD ACCOUNTS............................................................. 47
FEDERAL TAX CONSIDERATIONS............................................................ 49
A. General........................................................................ 49
The Company................................................................... 49
Diversification Requirements.................................................. 49
Investor Control.............................................................. 49
B. Qualified and Non-Qualified Contracts.......................................... 50
C. Taxation of the Contract in General............................................ 50
Withdrawals Prior to Annuitization............................................ 50
Withdrawals After Annuitization............................................... 51
Annuity Payouts After Annuitization........................................... 51
Penalty on Distribution....................................................... 51
Assignments or Transfers...................................................... 52
Nonnatural Owners............................................................. 52
Deferred Compensation Plans of State and Local Government and Tax-Exempt
Organizations................................................................. 52
D. Tax Withholding................................................................ 52
E. Provisions Applicable to Qualified Employer Plans.............................. 52
Corporate and Self-Employed Pension and Profit Sharing Plans.................. 53
Individual Retirement Annuities............................................... 53
Tax-Sheltered Annuities....................................................... 53
Texas Optional Retirement Program............................................. 53
STATEMENTS AND REPORTS................................................................ 53
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS..................................... 54
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................................. 55
VOTING RIGHTS......................................................................... 55
DISTRIBUTION.......................................................................... 55
LEGAL MATTERS......................................................................... 56
YEAR 2000 COMPLIANCE.................................................................. 56
FURTHER INFORMATION................................................................... 56
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT................................ A-1
APPENDIX B -- PERFORMANCE INFORMATION................................................. B-1
APPENDIX C -- SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT....................... C-1
APPENDIX D -- CONDENSED FINANCIAL INFORMATION......................................... D-1
APPENDIX E -- EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS........... E-1
</TABLE>
3
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY...................................................... 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE COMPANY....................... 3
SERVICES............................................................................. 3
UNDERWRITERS......................................................................... 3
ANNUITY BENEFIT PAYMENTS............................................................. 4
PERFORMANCE INFORMATION.............................................................. 5
FINANCIAL STATEMENTS................................................................. F-1
</TABLE>
4
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SPECIAL TERMS
ACCUMULATED VALUE: the total dollar amount of all values in the Sub-Accounts,
the Fixed Account and the Guarantee Period Accounts credited to the Contract on
any day before the Annuity Date. The Accumulated Value includes all Payment
Credits applied to the Contract.
ACCUMULATION UNIT: a measure used to calculate the value of a Sub-Account before
annuity benefit payments begin.
ANNUITANT: the person designated in the Contract whose life is used to determine
the duration of annuity benefit payments involving a life contingency. Joint
Annuitants are permitted and, unless otherwise indicated, any reference to
Annuitant shall include Joint Annuitants.
ANNUITY BENEFIT PAYMENT CHANGE FREQUENCY: the frequency (monthly, quarterly,
semi-annually or annually) that changes due to investment performance will be
reflected in the dollar value of an annuity benefit payment under a variable
annuity payout option.
ANNUITY DATE: the date specified in the Contract or a date elected later by the
Owner to begin annuity benefit payments. This date must be at least two years
after the issue date and may not be later than the Owner's (or youngest Joint
Owner's) 99th birthday.
ANNUITY UNIT: a measure used to calculate annuity benefit payments under a
variable payout option.
ANNUITY VALUE: the value of the amount applied under an annuity payout option.
COMPANY: unless otherwise specified, any reference to the "Company" shall refer
exclusively to Allmerica Financial Life Insurance and Annuity Company.
CONTRACT YEAR: a period of twelve consecutive months starting on the Contract's
issue date or on any anniversary of the issue date.
FIXED ACCOUNT: an investment option under the Contract that guarantees principal
and a fixed minimum interest rate and which is part of the Company's General
Account.
FIXED ANNUITY PAYOUT: an annuity payout option with annuity benefit payments
that are fixed in amount and guaranteed throughout the annuity benefit payment
period.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
GROSS PAYMENT BASE: the total of all payments invested in the Contract, less any
withdrawals that exceed the Withdrawal Without Surrender Charge amount.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account that corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period.
GUARANTEED INTEREST RATE: the annual effective rate of interest, after daily
compounding, credited to a Guarantee Period Account.
ISSUE DATE: the date the Contract is issued and the date that is used to
determine Contract days, Contract months, Contract years and Contract
anniversaries.
5
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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 (YOU): the person, persons (Joint Owners) or entity entitled to exercise
the rights and privileges under this Contract. Unless otherwise indicated, any
reference to Owner shall include Joint Owners.
PAYMENT CREDIT: an amount added to the Contract by the Company when a payment is
made to the Contract. The amount will be a specified percentage of the payment.
SUB-ACCOUNT: a subdivision of the Variable Account investing 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 applicable Contract fee, surrender charge, rider charges and
Market Value Adjustment.
UNDERLYING PORTFOLIO (OR PORTFOLIOS): an investment portfolio of Pioneer
Variable Contracts Trust in which a Sub-Account invests.
VALUATION DATE: a day on which the 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 trading in an Underlying Portfolio's
portfolio securities such that the current unit 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 the assets 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 the Underlying
Portfolios.
6
<PAGE>
SUMMARY OF FEES AND EXPENSES
There are certain fees and expenses that you will incur directly or indirectly
under the Pioneer XtraVision Contract. The purpose of the following tables is to
help you understand these various charges. The tables show (1) charges under the
Contract, (2) annual expenses of the Sub-Accounts, and (3) annual expenses of
the Portfolios during the accumulation phase. In addition to the charges and
expenses described below, premium taxes are applicable in some states and are
deducted as described under "D. Premium Taxes."
<TABLE>
<CAPTION>
COMPLETE YEARS
FROM DATE OF
(1) CONTRACT CHARGES: PAYMENT CHARGE
--------------- -----------
<S> <C> <C>
0 - 4 8.5%
More than 4 7.5%
More than 5 6.5%
More than 6 5.5%
More than 7 3.5%
More than 8 1.5%
More than 9 0
SURRENDER CHARGE:*
This charge may be assessed upon surrender, withdrawals or
reversal of annuitization. The charge is a percentage of
payments applied to the amount surrendered (in excess of any
amount that is free of surrender charge) within the indicated
time period.
TRANSFER CHARGE: None
The Company currently does not 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.
ANNUAL CONTRACT FEE: $35**
The fee is deducted annually and upon surrender prior to the
Annuity Date when Accumulated Value is less than $75,000. The
fee is waived for Contracts issued to and maintained by the
trustee of a 401(k) plan.
</TABLE>
<TABLE>
<S> <C>
OPTIONAL RIDER CHARGES:
Under the following riders, 1/12th of the annual charge is
deducted pro rata on a monthly basis at the end of each
Contract month and at termination of the rider. The charge for
these riders on an annual basis as a percentage of Accumulated
Value is:
1. Minimum Guaranteed Annuity Payout Rider with a ten-year
waiting period: 0.35%
2. Minimum Guaranteed Annuity Payout Rider with a
fifteen-year waiting period: 0.20%
3. Enhanced Death Benefit With Annual Step-Up: 0.15%
4. 7% Enhanced Death Benefit: 0.30%
5. 7% Enhanced Death Benefit With Annual Step-Up: 0.35%
</TABLE>
* From time to time, the Company may reduce or eliminate the surrender charge,
the period during which it applies, or both, and/or credit additional amounts on
Contracts when Contracts are sold to individuals or groups in a manner that
reduces sales expenses or where the Owner and Annuitant on the date of issue is
within certain classes of eligible individuals. For more information see
"Reduction or Elimination of Surrender Charge and Additional Amounts Credited"
under "E. Surrender Charge."
**The fee may be lower in some jurisdictions. See Contract Specifications for
specific charge.
7
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WITHDRAWAL ADJUSTMENT CHARGE AFTER THE ANNUITY DATE:
During the Annuity Payout Phase, you may request withdrawals which will result
in a calculation by the Company of the Present Value of future annuity payments.
For withdrawals taken within 5 years of the Issue Date, the Assumed Investment
Return ("AIR") you have chosen (in the case of a variable annuity payout option)
or the interest rate (in the case of a fixed annuity payout option) used to
determine the Present Value is increased by a Withdrawal Adjustment Charge in
the following manner:
<TABLE>
<S> <C>
ADJUSTMENT TO AIR OR INTEREST RATE:
If 15 or more years of annuity payments are being valued, the increase is 1.00%
If 10-14 years of annuity payments are being valued, the increase is 1.50%
If less than 10 years of annuity payments are being valued, the increase is 2.00%
The increase to the AIR or interest rate used to determine the Present Value results in a
greater proportionate reduction in the number of Annuity Units (under a variable annuity
payout option) or dollar amount (under a fixed annuity payout option), than if the increase
had not been made. Because each variable annuity benefit payment is determined by multiplying
the number of Annuity Units by the value of an Annuity Unit, the reduction in the number of
Annuity Units will result in lower future variable annuity benefit payments. See "D. Variable
Annuity Benefit Payments" and "F. Withdrawals After the Annuity Date" under ANNUITIZATION --
THE PAYOUT PHASE for additional information.
</TABLE>
<TABLE>
<S> <C>
(2) ANNUAL SUB-ACCOUNT EXPENSES:
(on an annual basis as a percentage of average daily net
assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.15%
-----------
Total Annual Expenses: 1.40%
</TABLE>
(3) ANNUAL UNDERLYING PORTFOLIO EXPENSES: The following table shows the
expenses of the Underlying Portfolios as a percentage of average daily net
assets for the year ended December 31, 1998. For more information concerning
fees and expenses, see the prospectus for the Underlying Portfolios.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
OTHER EXPENSES EXPENSES
MANAGEMENT FEE (AFTER ANY (AFTER ANY WAIVERS/
(AFTER ANY VOLUNTARY REIMBURSEMENTS AND REIMBURSEMENTS
UNDERLYING PORTFOLIO WAIVERS) OFFSETS) AND OFFSETS)
- ----------------------------------------------- -------------------- ----------------------- --------------------------
<S> <C> <C> <C>
Emerging Markets Portfolio(1).................. 0.00% 1.75% 1.75%(4)
Europe Portfolio(1)............................ 0.00% 1.50% 1.50%(4)
International Growth Portfolio................. 0.96% 0.47% 1.43%(3)(4)
Capital Growth Portfolio....................... 0.65% 0.09% 0.74%
Growth Shares Portfolio........................ 0.61% 0.27% 0.88%(4)
Real Estate Growth Portfolio................... 0.98% 0.21% 1.19%(4)
Growth and Income Portfolio.................... 0.64% 0.22% 0.86%(4)
Equity-Income Portfolio........................ 0.65% 0.06% 0.71%
Balanced Portfolio............................. 0.65% 0.15% 0.80%
Swiss Franc Bond Portfolio..................... 0.65% 0.25% 0.90%(3)(4)
Strategic Income Portfolio(2).................. 0.65% 0.60% 1.25%(4)
America Income Portfolio....................... 0.55% 0.38% 0.93%(3)(4)
Money Market Portfolio......................... 0.45% 0.47% 0.92%(4)
</TABLE>
(1)Portfolios commenced operations on October 30, 1998; therefore expenses shown
are annualized.
(2)This Portfolio commenced operations on July 29, 1999; therefore expenses
shown are estimated.
(3)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 4 below), total
8
<PAGE>
operating expenses for the fiscal year ended December 31, 1998, would have been
1.44% for International Growth Portfolio, 0.91% for Swiss Franc Bond Portfolio
and 0.94% for America Income Portfolio.
(4)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, 1998, assuming no waiver of management fees
and no expense offset arrangements, Portfolio expenses as a percentage of the
average daily net assets were 104.83% for Emerging Markets Portfolio, 1.47% for
International Growth Portfolio, 16.56% for Europe Portfolio, 0.92% for Growth
Shares Portfolio, 1.20% for Real Estate Growth Portfolio, 0.87% for Growth and
Income Portfolio, 0.91% for Swiss Franc Bond Portfolio; 0.94% for America Income
Portfolio and 0.97% for Money Market Portfolio. Effective April 1, 1999, Pioneer
Investment Management, Inc. ("Pioneer") has agreed to waive a portion of its
management fee to the extent required to reduce the fee from 1.00% to 0.80% of
the Real Estate Growth Portfolio's average daily net assets.
Pioneer is the investment adviser to each Portfolio. As of May 1, 1999, 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 1.75%
for the Emerging Markets Portfolio; 1.50% for the Europe Portfolio and 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, the Strategic Income 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 Underlying Portfolio information above was provided by the Underlying
Portfolios and was not independently verified by the Company.
EXPENSE EXAMPLES: The following examples demonstrate the cumulative expenses
which an Owner would pay at 1-year, 3-year, 5-year, and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-Account
and a 5% annual return on assets. As required by rules of the Securities and
Exchange Commission ("SEC"), the Contract fee is reflected in the examples by a
method designed to show the "average" impact on an investment in the Variable
Account. The total Contract fees collected are divided by the total average net
assets attributable to the Contracts. The resulting percentage is 0.04%, and the
amount of the Contract fee is assumed to be $0.40 in the examples. The Contract
fee is only deducted when the Accumulated Value is less than $75,000. Lower
costs apply to Contracts owned and maintained under a 401(k) plan. Because the
expenses of the Underlying Portfolios differ, separate examples are used to
illustrate the expenses incurred by an Owner on an investment in the various
Sub-Accounts.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
9
<PAGE>
(1a) If, at the end of the applicable time period, you surrender your Contract,
you would have paid the following expenses on a $1,000 investment, assuming a 5%
annual return on assets, and no Riders.
<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Emerging Markets Portfolio................................................... $ 105 $ 174 $ 235 $ 346
Europe Portfolio............................................................. $ 103 $ 167 $ 224 $ 323
International Growth......................................................... $ 102 $ 165 $ 221 $ 316
Capital Growth............................................................... $ 96 $ 146 $ 189 $ 248
Growth Shares................................................................ $ 97 $ 150 $ 195 $ 262
Real Estate Growth........................................................... $ 100 $ 158 $ 210 $ 293
Growth and Income............................................................ $ 97 $ 149 $ 194 $ 260
Equity-Income................................................................ $ 96 $ 145 $ 187 $ 245
Balanced..................................................................... $ 97 $ 147 $ 191 $ 254
Swiss Franc Bond............................................................. $ 98 $ 150 $ 196 $ 264
Strategic Income............................................................. $ 101 $ 160 $ 212 $ 299
America Income............................................................... $ 98 $ 151 $ 197 $ 267
Money Market................................................................. $ 98 $ 151 $ 197 $ 266
</TABLE>
(1)(b) If, at the end of the applicable time period, you surrender your
Contract, you would have paid the following expenses on a $1,000 investment,
assuming a 5% annual return on assets and election at issue of the Minimum
Guaranteed Annuity Payout Rider with a ten-year waiting period and the 7%
Enhanced Death Benefit Rider With Annual Step-Up.
<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Emerging Markets Portfolio................................................... $ 111 $ 191 $ 264 $ 405
Europe Portfolio............................................................. $ 109 $ 185 $ 253 $ 383
International Growth......................................................... $ 109 $ 183 $ 250 $ 376
Capital Growth............................................................... $ 102 $ 164 $ 219 $ 312
Growth Shares................................................................ $ 103 $ 168 $ 225 $ 326
Real Estate Growth........................................................... $ 106 $ 176 $ 239 $ 355
Growth and Income............................................................ $ 103 $ 167 $ 224 $ 324
Equity-Income................................................................ $ 102 $ 163 $ 217 $ 309
Balanced..................................................................... $ 103 $ 165 $ 221 $ 318
Swiss Franc Bond............................................................. $ 104 $ 168 $ 226 $ 328
Strategic Income............................................................. $ 107 $ 178 $ 242 $ 360
America Income............................................................... $ 104 $ 169 $ 227 $ 330
Money Market................................................................. $ 104 $ 169 $ 227 $ 329
</TABLE>
10
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(2)(a) If, at the end of the applicable time period, you do not surrender your
Contract or you annuitize,* you would have paid the following expenses on a
$1,000 investment, assuming a 5% annual return on assets, and no Riders.
<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Emerging Markets Portfolio................................................... $ 32 $ 97 $ 165 $ 346
Europe Portfolio............................................................. $ 29 $ 90 $ 153 $ 323
International Growth......................................................... $ 29 $ 88 $ 150 $ 316
Capital Growth............................................................... $ 22 $ 67 $ 115 $ 248
Growth Shares................................................................ $ 23 $ 71 $ 122 $ 262
Real Estate Growth........................................................... $ 26 $ 81 $ 138 $ 293
Growth and Income............................................................ $ 23 $ 71 $ 121 $ 260
Equity-Income................................................................ $ 22 $ 66 $ 114 $ 245
Balanced..................................................................... $ 22 $ 69 $ 118 $ 254
Swiss Franc Bond............................................................. $ 23 $ 72 $ 123 $ 264
Strategic Income............................................................. $ 101 $ 160 $ 212 $ 299
America Income............................................................... $ 24 $ 73 $ 125 $ 267
Money Market................................................................. $ 24 $ 73 $ 124 $ 266
</TABLE>
(2)(b) If, at the end of the applicable time period, you do not surrender your
Contract or you annuitize,* you would have paid the following expenses on a
$1,000 investment, assuming a 5% annual return on assets and election at issue
of the Minimum Guaranteed Annuity Payout Rider with a ten-year waiting period
and the 7% Enhanced Death Benefit Rider With Annual Step-Up.
<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Emerging Markets Portfolio................................................... $ 38 $ 117 $ 197 $ 405
Europe Portfolio............................................................. $ 36 $ 109 $ 185 $ 383
International Growth......................................................... $ 35 $ 107 $ 181 $ 376
Capital Growth............................................................... $ 28 $ 87 $ 148 $ 312
Growth Shares................................................................ $ 30 $ 91 $ 155 $ 326
Real Estate Growth........................................................... $ 33 $ 100 $ 170 $ 355
Growth and Income............................................................ $ 30 $ 90 $ 154 $ 324
Equity-Income................................................................ $ 28 $ 86 $ 146 $ 309
Balanced..................................................................... $ 29 $ 89 $ 151 $ 318
Swiss Franc Bond............................................................. $ 30 $ 92 $ 156 $ 328
Strategic Income............................................................. $ 33 $ 102 $ 173 $ 360
America Income............................................................... $ 30 $ 92 $ 157 $ 330
Money Market................................................................. $ 30 $ 92 $ 157 $ 329
</TABLE>
* The Contract fee is not deducted after annuitization. No surrender charges are
deducted at or after annuitization under any of the available annuity payout
options.
11
<PAGE>
SUMMARY OF CONTRACT FEATURES
WHAT IS THE PIONEER XTRAVISION VARIABLE ANNUITY?
The Pioneer XtraVision variable annuity contract ("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 may be
purchased up to age 85 of the oldest Owner or, if the Owner is not a natural
person, the oldest Annuitant. 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;
- - a Payment Credit equal to 4% of your payment, added to the Contract's
Accumulated Value as soon as your payment is applied;
- - experienced professional investment advisers;
- - tax deferral on earnings;
- - guarantees that can protect your family;
- - withdrawals during the accumulation and annuitization phases; and
- - income that you can receive for life.
WHAT HAPPENS IN THE ACCUMULATION PHASE?
The Contract has two phases: an accumulation phase and, if you choose to
annuitize, an annuity payout phase (described below). During the accumulation
phase, you may allocate your initial payment and any additional payments you
choose to make 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. Your Contract's Accumulated Value is
based on the investment performance of the Underlying Portfolios and any
accumulations in the Guarantee Period Accounts and the Fixed Account. You do not
pay taxes on any earnings under the Contract until you withdraw money. In
addition, during the accumulation phase, your beneficiaries receive certain
protections in the event of your death. See discussion below: "WHAT HAPPENS UPON
MY DEATH DURING THE ACCUMULATION PHASE?"
WHAT HAPPENS UPON MY DEATH DURING THE ACCUMULATION PHASE?
If you or a Joint Owner dies before the Annuity Date, a standard death benefit
will be paid to the beneficiary. (No death benefit is payable at the death of
any Annuitant except when the Owner is not a natural person.) Three optional
Enhanced Death Benefit Riders are also available at issue for a separate monthly
charge. See "G. Death Benefit" under DESCRIPTION OF THE CONTRACT -- THE
ACCUMULATION PHASE.
WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?
During the annuity payout phase, you, or the payee you designate, can receive
income based on one of the numerous annuity payout options available under the
Contract. You choose:
- - the annuity payout option;
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<PAGE>
- - the date annuity benefit payments begin but no earlier than 2 years after the
Issue Date;
- - whether you want variable annuity benefit payments based on the investment
performance of the Underlying Portfolios, fixed-amount annuity benefit
payments with payment amounts guaranteed by the Company, or a combination of
fixed-amount and variable annuity benefit payments; and
- - whether you want certain protections provided under optional riders.
You may also take withdrawals during the annuity payout phase. The type of
withdrawal and the number of withdrawals that may be made each calendar year
depend upon whether the Owner annuitizes under an annuity payout option with
payments based on the life of one or more Annuitants with no guaranteed payments
(a "Life" annuity payout option), under a life annuity payout option that in
part provides for a guaranteed number of payments (a "Life With Period Certain"
or "Life With Cash Back" annuity payout option), or an annuity payout option
based on a guaranteed number of payments (a "Period Certain" annuity payout
option). Under a Life annuity payout option, the Owner may make one Payment
Withdrawal each calendar year. Under a Life with Period Certain or Life with
Cash Back annuity payout option, the Owner may make one Payment Withdrawal and
one Present Value Withdrawal in each calendar year. Under a Period Certain
annuity payout option, the Owner may make multiple Present Value Withdrawals
each calendar year. For more information, see "F. Withdrawals After the Annuity
Date" under ANNUITIZATION -- THE PAYOUT PHASE. In addition, if you choose a
variable payout option, you may transfer among the available Sub-Accounts.
M-GAP RIDER. When applying for the Contract, currently the Owner may elect to
purchase the Minimum Guaranteed Annuity Payout ("M-GAP") Rider for a separate
monthly charge. This optional rider provides a guaranteed minimum amount of
income under a life contingent fixed annuity payout option. The M-GAP Rider is
based on the Company's guaranteed fixed annuity option rates as set forth in the
Contract. These annuity option rates determine the dollar amount of the first
payment under each form of fixed annuity for each $1,000 of applied value. The
rates are based on the Annuity 2000 Mortality Table and a 3% Assumed Investment
Return ("AIR"). The M-GAP Rider is not available at all ages.
For more information on this optional rider, see "I. Optional Minimum Guaranteed
Annuity Payout (M-GAP) Rider" under DESCRIPTION OF THE CONTRACT -- THE
ACCUMULATION PHASE.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you, (the "Owner"), and us, Allmerica Financial Life
Insurance and Annuity Company. Each Contract has an Owner (or an Owner and a
Joint Owner), an Annuitant (or an Annuitant and a Joint Annuitant) and one or
more beneficiaries. As Owner, you may:
- - make payments
- - choose investment allocations
- - choose annuity payout options
- - receive annuity benefit payments (or designate someone else to receive annuity
benefit payments)
- - select the Annuitant and beneficiary.
The Annuitant is the person whose life is used to determine the duration of
annuity benefit payments involving a life contingency. There must be at least
one Annuitant at all times. If an Annuitant dies and a replacement is not named,
the Owner will become the new Annuitant. The beneficiary is the person(s) or
entity entitled to the death benefit at the death of a sole Owner prior to the
Annuity Date. In the case of the
13
<PAGE>
death of a Joint Owner, the surviving Joint Owner will receive the death
benefit. Under certain circumstances, the beneficiary may be entitled to annuity
benefit payments upon the death of an Owner on or after the Annuity Date.
HOW MUCH CAN I INVEST AND HOW OFTEN?
During the Accumulation Phase, you may make additional payments. Total payments
under the Contract can exceed $5,000,000 only with the Company's prior
approval.The number and frequency of your payments are flexible, subject only to
a $1,000 minimum for your initial payment and a $50 minimum for any additional
payments. A lower initial payment is permitted for certain qualified plans and
where monthly payments are being forwarded directly from a financial
institution. A minimum of $1,000 is always required to establish a Guarantee
Period Account.
Each time you make a payment, you will receive a Payment Credit equal to 4% of
your payment. This Payment Credit will be immediately invested along with your
payment. However, if you cancel the Contract under its "Right to Examine"
provision, your refund will be reduced by the amount of the Payment Credit. For
more information, see "D. Right to Cancel" under DESCRIPTION OF THE CONTRACT --
THE ACCUMULATION PHASE.
WHAT ARE MY INVESTMENT CHOICES?
You may choose among the Sub-Accounts investing in the Underlying Portfolios,
the Guarantee Period Accounts, and the Fixed Account.
THE VARIABLE ACCOUNT. You have the choice of Sub-Accounts investing in the
following thirteen Underlying Portfolios:
<TABLE>
<S> <C>
Emerging Markets Portfolio Equity-Income Portfolio
Europe Portfolio Balanced Portfolio
International Growth Swiss Franc Bond Portfolio
Portfolio
Capital Growth Portfolio Strategic Income Portfolio
Growth Shares Portfolio America Income Portfolio
Real Estate Growth Portfolio Money Market Portfolio
Growth and Income Portfolio
</TABLE>
For a more detailed description of the Underlying Portfolios, see "INVESTMENT
OBJECTIVES AND POLICIES."
Each Underlying Portfolio operates pursuant to different investment objectives,
and this range of investment options enables you to allocate your money among
the Underlying 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 (except in California where assets are held in the
Company's General 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
14
<PAGE>
Adjustment will apply that may increase or decrease the 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 ARE NOT AVAILABLE IN ALL STATES AND ARE NOT
OFFERED AFTER ANNUITIZATION.
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. 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?
Pioneer Investment Management, Inc. ("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, 1998, Pioneer advised mutual funds
with a total value of over $22 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 SUB-ACCOUNTS?
Yes. Prior to the Annuity Date, you may transfer among the Sub-Accounts
investing in the Underlying Portfolios, the Guarantee Period Accounts, and the
Fixed Account. On and after the Annuity Date, if you have elected a variable
option, you may transfer only among the Sub-Accounts. You will incur no current
taxes on transfers while your money remains in the Contract. See "E. Transfer
Privilege" under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE and "E.
Transfers of Annuity Units" under ANNUITIZATION -- THE PAYOUT PHASE.
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.
If you authorize automatic periodic transfers (under an Automatic Transfers
program (Dollar Cost Averaging), or Automatic Account Rebalancing program) the
first automatic transfer of rebalancing under a request counts as one transfer
for purposes of the 12 transfers guaranteed to be free of a transfer charge in
each Contract year. Each subsequent transfer or rebalancing under that request
is without charge and does not reduce the remaining number of transfers which
may be made free of charge in that Contract year.
WHAT IF I NEED MY MONEY BEFORE THE ANNUITY PAYOUT PHASE BEGINS?
Before the annuity payout phase begins, you may surrender your Contract or make
withdrawals at any time. Each calendar year, you can take without a surrender
charge the greater of:
(1) 100% of cumulative earnings (excluding Payment Credits); or
(2) 15% of the total of all payments invested in the Contract LESS that portion
of any prior withdrawal(s) of payments that are subject to the surrender
charge table (even if the applicable surrender charge is 0%) as of the
Valuation Date for the withdrawal (the Gross Payment Base), LESS any prior
withdrawal(s) during the same calendar year to which the surrender charge
table was not applicable.
15
<PAGE>
If greater than the amount available under either (1) or (2) above, the Owner of
a qualified Contract or a Contract issued under a Section 457 Deferred
Compensation Plan may take each calendar year without charge an amount
calculated by the Company based on his or her life expectancy. A 10% tax penalty
may apply on all amounts deemed to be earnings if you are under age 59 1/2.
In addition, WHERE PERMITTED BY LAW, the Company will waive surrender charges
if, after the Contract is issued:
- - you become disabled before you attain age 65; or
- - you are diagnosed with a fatal illness or are confined in a medical care
facility for the later of 90 consecutive days or one year after the Issue
Date.
Additional amounts may be withdrawn at any time. However, the withdrawal of
payments that have not been invested in the Contract for more than nine years
may be subject to a surrender charge. A Market Value Adjustment will apply to
withdrawals from a Guarantee Period Account prior to the expiration of the
Guarantee Period.
CAN I EXAMINE THE CONTRACT?
Yes. Your 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
cancelled. There may be a longer period in certain jurisdictions; see the "Right
to Examine" provision on the cover of your Contract.
If you cancel the Contract, you will receive the Contract's Accumulated Value
adjusted for any Market Value Adjustment for amounts allocated to a Guarantee
Period Account, plus any fees or charges that may have been deducted, less the
Payment Credit(s). However, if required in your state or if the Contract was
issued as an Individual Retirement Annuity (IRA), you will generally receive a
refund of your gross payment(s). In certain jurisdictions this refund may be the
greater of (1) your gross payment(s) or (2) the Accumulated Value adjusted for
any Market Value Adjustment, plus any fees or charges previously deducted, less
any Payment Credit(s). See "D. Right to Cancel" under DESCRIPTION OF THE
CONTRACT -- THE ACCUMULATION PHASE.
Each time you make a payment, you will receive a Payment Credit equal to 4% of
the payment. The Payment Credit will be immediately invested along with your
payment. However, if you cancel the Contract under its "Right to Examine"
provision, your refund will be reduced by the amount of the Payment Credit(s).
If the "Right to Examine" provision in your state provides that you will receive
the Accumulated Value of the Contract (adjusted as described above), this means
that you receive any gains and bear any losses attributable to the Payment
Credit. For more information, see "D. Right to Cancel" under DESCRIPTION OF THE
CONTRACT -- THE ACCUMULATION PHASE.
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
You can make several changes after receiving your Contract:
- - You may assign your ownership to someone else, except under certain qualified
plans.
- - You may change the beneficiary, unless you have designated an irrevocable
beneficiary.
- - You may change your allocation of payments.
- - You may make transfers among the Sub-Accounts without any tax consequences.
- - You may cancel your Contract within ten days of delivery (or longer if
required by state law).
16
<PAGE>
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
AND PIONEER VARIABLE CONTRACTS TRUST
THE COMPANY. Allmerica Financial Life Insurance and Annuity Company ("Allmerica
Financial") is a life insurance company organized under the laws of Delaware in
July 1974. Its Principal Office is located at 440 Lincoln Street, Worcester, MA
01653, telephone 508-855-1000. Allmerica Financial is subject to the laws of the
state of Delaware governing insurance companies and to regulation by the
Commissioner of Insurance of Delaware. In addition, Allmerica Financial is
subject to the insurance laws and regulations of other states and jurisdictions
in which it is licensed to operate. As of December 31, 1998, Allmerica Financial
had over $14 billion in assets and over $26 billion of life insurance in force.
Effective October 1, 1995, Allmerica Financial changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company.
Allmerica Financial is a wholly owned subsidiary of First Allmerica Financial
Life Insurance Company ("First Allmerica") which, in turn, is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company on October 16, 1995 and adopted its
present name. First Allmerica is the fifth oldest life insurance company in
America.
Allmerica Financial 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 Company maintains a separate account called Separate
Account VA-P (the "Variable Account"). The Variable Account was authorized by
vote of the Board of Directors of the Company on October 27, 1994. The Variable
Account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940 ("the 1940 Act"). This registration does not
involve the supervision or management of investment practices or policies of the
Variable Account or the Company by the SEC.
The Variable Account is a separate investment account of the Company with
thirteen Sub-Accounts. 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 from the general assets of the Company. Each Sub-Account is
administered and accounted for as part of the general business of the Company.
The income, capital gains or capital losses of each Sub-Account, however, are
allocated to each Sub-Account, without regard to any other income, capital gains
or capital losses of the Company. Obligations under the Contract are obligations
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 Company reserves the right, subject to compliance with applicable law, to
change the names of the Variable Account and the Sub-Accounts. 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 portfolios which are not available to the Contracts described
in this Prospectus.
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. Pioneer Investment Management, Inc. ("Pioneer") is the investment
adviser to each Portfolio.
The Fund was established to provide an investment vehicle for assets of various
separate accounts supporting variable insurance policies. The Fund currently has
thirteen investment portfolios ("Underlying Portfolios"), each issuing a
separate series of shares: Emerging Markets Portfolio, Europe Portfolio,
International Growth
17
<PAGE>
Portfolio, Capital Growth Portfolio, Growth Shares Portfolio, Real Estate Growth
Portfolio, Growth and Income Portfolio, Equity-Income Portfolio, Balanced
Portfolio, Swiss Franc Bond Portfolio, Strategic Income Portfolio, America
Income Portfolio and Money Market 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. PLEASE READ THEM
CAREFULLY BEFORE INVESTING. The Statement of Additional Information ("SAI") for
the Fund is available upon request.
EMERGING MARKETS PORTFOLIO -- seeks long-term growth of capital. The Portfolio
invests primarily in securities of issuers in countries with emerging economies
or securities markets and related depository receipts.
EUROPE PORTFOLIO -- seeks long-term growth of capital. The Portfolio invests in
a diversified portfolio consisting primarily of securities of European companies
and in depository receipts for such securities.
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.
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.
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.
STRATEGIC INCOME PORTFOLIO -- seeks to invest in debt securities for a high
level of current 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.
18
<PAGE>
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
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.
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>
Emerging Markets Portfolio................................................................ 1.15%
Europe Portfolio.......................................................................... 1.00%
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%
Strategic Income.......................................................................... 0.65%
America Income............................................................................ 0.55%
Money Market.............................................................................. 0.50%
</TABLE>
Management fee waivers and/or reimbursements and offsets may be in effect for
certain or all of the Underlying Portfolios. For more information, see "Annual
Underlying Portfolio Expenses" under the SUMMARY OF FEES AND EXPENSES section.
19
<PAGE>
DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE
A. PAYMENTS
The latest Issue Date is age 85 of the oldest Owner or, if the Owner is not a
natural person, the oldest Annuitant. The Company will issue a Contract when its
underwriting requirements are met. These requirements include receipt of the
initial payment and allocation instructions by the Company at its Principal
Office and may include the proper completion of an application; however, where
permitted by law, the Company may issue a Contract without completion of an
application. If all issue requirements are not completed within five business
days of the Company's receipt of the initial payment, the payment will be
returned immediately unless the applicant authorizes the Company to retain it
pending completion of all issue requirements.
Payments may be made to the Contract at any time prior to the Annuity Date, or
prior to the death of an Owner, subject to certain minimums:
- - Currently the initial payment must be at least $1,000.
- - Under a salary deduction or monthly automatic payment plan, the minimum
initial payment is $50.
- - 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.
Payments are to be made payable to the Company. The Company may reduce a payment
by any applicable premium tax before applying it to the Contract. The initial
net payment is credited to the Contract and allocated among the requested
accounts as of the date that all issue requirements are properly met. The
allocation instructions for the initial net payment will serve as the allocation
instructions for all future payments. You can change the allocation instructions
for future payments by notifying the Company.
You also have the option of specifying how a specific payment should be
allocated. This will not change the allocation instructions for any subsequent
payment.
For a discussion of future payments to an Automatic Transfer Program (Dollar
Cost Averaging), please see "Automatic Transfers (Dollar Cost Averaging)" below.
In order for the Owner to be able to initiate transactions over the telephone, 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 we
will not be responsible for losses resulting from acting upon telephone requests
reasonably believed to be genuine. The Company will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine; otherwise,
the Company may be liable for any losses due to unauthorized or fraudulent
instructions. Such procedures may include, among others, requiring some form of
personal identification prior to acting upon instructions received by telephone.
All telephone instructions are tape-recorded.
20
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B. PAYMENT CREDITS
A Payment Credit will be added to the Contract's Accumulated Value each time a
payment is made. The Payment Credit is funded from the Company's General Account
and is currently equal to 4% of each payment received. The Company guarantees
that the Payment Credit will never be less than 4%. Payment Credits are not
considered to be "investment in the contract" for income tax purposes. See
FEDERAL TAX CONSIDERATIONS.
Each Payment Credit is immediately allocated among the Accounts in the same
proportions as the applicable payment. However, if you cancel the Contract under
its "Right to Examine" provision, the amount refunded to you will be reduced by
the amount of the Payment Credit(s). If the applicable "Right to Examine"
provision in your state provides that you will receive the adjusted Accumulated
Value of the Contract, this means that you receive any gains and bear any losses
attributable to the Payment Credit. For more information, see "D. Right to
Cancel," below.
C. COMPUTATION OF VALUES
The Owner may allocate payments among the Sub-Accounts, Guarantee Period
Accounts, and the Fixed 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. See "GUARANTEE
PERIOD ACCOUNTS" and APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
The Accumulated Value under the Contract is determined by:
(1) multiplying the number of Accumulation Units in each Sub-Account by the
value of an Accumulation Unit of that Sub-Account on the Valuation Date,
(2) adding together the values of each Sub-Account, and
(3) adding the amount of the accumulations in the Fixed Account and Guarantee
Period Accounts, if any.
THE ACCUMULATION UNIT. 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 payment and
Payment Credit allocated to the Sub-Account, divided by the dollar value of the
applicable Accumulation Unit as of the Valuation Date. The number of
Accumulation Units resulting from each payment and Payment Credit 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 arbitrarily set at $1.00 on the first Valuation Date for
each Sub-Account.
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 (which may be positive or
negative) 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;
(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.
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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 the SAI.
D. RIGHT TO CANCEL
An Owner may cancel the Contract at any time within ten days after receipt of
the Contract (or longer if required by law) and receive a refund. In order to
cancel the Contract, the Owner must mail or deliver it 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 cancellation to be effective.
In most states, the Company will pay the Owner the Contract's Accumulated Value
adjusted for any Market Value Adjustment for amounts allocated to a Guarantee
Period Account, plus any amounts deducted for taxes, charges or fees, minus any
Payment Credit(s). However, if the Contract was purchased as an IRA or issued in
a state that requires a full refund of the initial payment(s), the Company will
provide a refund equal to your gross payment(s). In some states, the refund may
equal the greater of (a) your gross payment(s) or (b) the Accumulated Value
adjusted for any Market Value Adjustment, plus any amounts deducted for taxes,
charges or fees, minus any Payment Credit(s). At the time the Contract is
issued, the "Right to Examine" provision on the cover of the Contract will
specifically indicate what the refund will be and the time period allowed to
exercise the right to cancel.
Each time you make a payment, you receive a Payment Credit equal to 4% of the
payment. If you cancel the Contract under its "Right to Examine" provision, your
refund will be reduced by the amount of the Payment Credit(s). If the "Right to
Examine" provision in your state provides that you will receive the Accumulated
Value of the Contract (adjusted as described above), this means that you receive
any gains and bear any losses attributable to the Payment Credit.
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.
E. 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. Transfers from a
Guarantee Period Account prior to the expiration of the Guarantee Period will be
subject to a Market Value Adjustment.
Currently, the Company does not 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. The first automatic transfer or rebalancing under an
Automatic Transfers (Dollar Cost Averaging) program or Automatic Account
Rebalancing program counts as one transfer for purposes of the 12 transfers
guaranteed to be free of a transfer charge in each Contract year. Each
subsequent automatic transfer or rebalancing under that request is without
charge and does not reduce the remaining number of transfers which may be made
free of charge in that Contract year.
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The Company also reserves the right to restrict transfer privileges when
exercised by a market timing firm or any other third party authorized to
initiate allocations, transfers or exchanges on behalf of multiple Contract
Owners. The Company may, among other things, not accept:
- - the transfer or exchange instructions of any agent acting under a power of
attorney on behalf of more than one Owner, or
- - the transfer or exchange instructions of individual Owners who have executed
pre-authorized transfer or exchange forms which are submitted by market timing
firms or other third parties on behalf of more than one Owner at the same
time.
AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING). You may elect automatic transfers
of a predetermined dollar amount on a periodic basis from the Fixed Account or
the Sub-Accounts investing in the Money Market Portfolio and the America Income
Portfolio ("source accounts"). You may elect automatic transfers to one or more
Sub-Accounts, subject to the following:
- - the predetermined dollar amount may not be less than $100;
- - the periodic basis may be monthly, quarterly, semi-annually or annually;
- - automatic transfers may not be made into the selected source account, Fixed
Account, or the Guarantee Period Accounts; and
- - if an automatic transfer would reduce the balance in the source account(s) to
less than $100, the entire balance will be transferred proportionately to the
chosen Sub-Accounts.
Automatic transfers from a particular source account will continue until the
earlier of:
- - 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 a source account before its balance has
fallen to zero, those additional amounts will also be automatically transferred.
The original automatic transfer allocations will apply to all amounts in that
source account unless you provide new allocation instructions. New allocation
instructions will apply to the entire balance in the source account. If
additional amounts are allocated to a source account after its balance has
fallen to zero, automatic transfers will not begin again unless you specifically
instruct the Company to do so.
To the extent permitted by law, the Company reserves the right, from time to
time, to credit an enhanced interest rate to an initial and/or subsequent
payment made to the Fixed Account, which is then used as the source account from
which to process automatic transfers. For more information see APPENDIX A, "MORE
INFORMATION ABOUT THE FIXED ACCOUNT."
AUTOMATIC ACCOUNT REBALANCING. The Owner may request automatic rebalancing of
Sub-Account allocations on a monthly, quarterly, semi-annual or annual basis in
accordance with his/her specified percentage allocations. As frequently as
elected by the Owner, the Company will review the percentage allocations in the
Underlying 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 (1) the Owner's request to
terminate or change the option is received by the Company or (2) the end date
designated by the Owner when the option was elected. If a
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subsequent payment is allocated in a manner different from the percentage
allocation mix in effect on the date the payment is received, on the next
scheduled rebalancing date the payment will be reallocated in accordance with
the existing mix.
Currently, Dollar Cost Averaging and Automatic Account Rebalancing may not be in
effect simultaneously. Either option may be elected at no additional charge when
the Contract is purchased or at a later date. The Company reserves the right to
limit the number of Sub-Accounts that may be utilized for automatic transfers
and rebalancing, and to discontinue either option upon advance written notice.
F. SURRENDERS AND WITHDRAWALS.
Before the Annuity Date, an Owner may surrender the Contract for its Surrender
Value or withdraw a portion of its Accumulated Value. In the case of surrender,
the Owner must send the Contract and a signed, written request for surrender,
satisfactory to the Company, to the Principal Office. The Surrender Value will
be calculated based on the Contract's Accumulated Value as of the Valuation
Date.
In the case of a withdrawal, the Owner must submit to the Principal Office a
signed, written request indicating the desired dollar amount and the accounts
from which such amount is to be withdrawn. A withdrawal from a Sub-Account will
result in cancellation of a number of units equivalent in value to the amount
withdrawn. The amount withdrawn will equal the amount requested by the Owner
plus any applicable surrender charge. Each withdrawal must be a minimum of $100.
No withdrawal will be permitted if the Accumulated Value remaining under the
Contract would be reduced to less than $1,000.
A surrender charge and a Contract fee may apply when a withdrawal is made or a
Contract is surrendered. See "CHARGES AND DEDUCTIONS." However, each calendar
year prior to the Annuity Date, an Owner may withdraw a portion of the
Contract's Surrender Value without any applicable surrender charge; see "CHARGES
AND DEDUCTIONS," "E. Surrender Charge, Withdrawal Without Surrender Charge.")
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."
Any distribution is normally payable within seven days following the Company's
receipt of the surrender or withdrawal request. The Company reserves the right
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
Company reserves the right to defer surrenders and withdrawals of amounts in
each Sub-Account in any period during which:
- - 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,
- - the SEC has by order permitted such suspension, or
- - 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 surrender and withdrawal 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 or withdrawals,
see "FEDERAL TAX CONSIDERATIONS."
For information about Withdrawals after the Annuity Date, see "ANNUITIZATION --
THE PAYOUT PHASE", "F. Withdrawals After the Annuity Date."
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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 periodic basis (monthly, bi-monthly, quarterly, semi-annually
or annually). Systematic withdrawals from Guarantee Period Accounts are not
available. The Owner may request:
- - the withdrawal of 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 withdrawal of 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 latest of 15 days after Issue Date,
the date the written request is received at the Principal Office, or on a date
specified by the Owner.
Systematic withdrawals will first be taken from amounts available as a
"Withdrawal Without Surrender Charge" (see "CHARGES AND DEDUCTIONS," "E.
Surrender Charge, Withdrawal Without Surrender Charge"); then from any
applicable payments not subject to a surrender charge, if any, then from
payments subject to a surrender charge; and last, from Payment Credits. Any
applicable surrender charge will be deducted from the Contract's remaining
Accumulated Value.
The minimum amount of each automatic withdrawal is $100. If a withdrawal would
cause the remaining Accumulated Value to be less than $1,000, systematic
withdrawals may 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. (For Qualified Contracts and Contracts issued
under Section 457 Deferred Compensation Plans only.) Prior to the Annuity Date,
an Owner may elect to make a series of systematic withdrawals from the Contract
according to the Company's life expectancy distribution ("LED") option by
returning a properly signed LED request form to the Principal Office. Where the
Owner is a trust or other nonnatural person, the Owner may elect the LED option
based on the Annuitant's life expectancy.
If an Owner elects the Company's LED option, in each calendar year a fraction of
the Accumulated Value is withdrawn without a surrender charge, based on the
Owner's life expectancy (or the joint life expectancy of the Owner and a
beneficiary.) The numerator of the fraction is 1 (one). The denominator of the
fraction will be either:
- - the remaining life expectancy of the Owner (or Owner and beneficiary), as
determined annually by the Company; or
- - the prior year's life expectancy, minus one.
The resulting fraction, expressed as a percentage, is then applied to the
Accumulated Value at the beginning of the year to determine the amount to be
distributed during the year. The Owner may choose to have the applicable life
expectancy redetermined each year or use the prior year's life expectancy, minus
one. Under the Company's LED option, the amount withdrawn from the Contract
changes each year.
The Owner may elect periodic LED distributions on a monthly, bi-monthly,
quarterly, semi-annual, or annual basis. The Owner may terminate the LED option
at any time. The LED option will terminate automatically on the maximum Annuity
Date permitted under the Contract, at which time an annuity payout option must
be selected.
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The LED option may not produce annual distributions that meet the definition of
"substantially equal periodic payments" as defined under Code Section 72(t). The
withdrawals may be treated by the Internal Revenue Service (IRS) as premature
distributions from the Contract and may be subject to a 10% federal tax penalty.
Owners seeking distributions over their life under this definition should
consult their tax advisor. For more information, see "FEDERAL TAX
CONSIDERATIONS," "B. Taxation of the Contract in General." IN ADDITION, IF THE
AMOUNT NECESSARY TO MEET THE "SUBSTANTIALLY EQUAL PERIODIC PAYMENT" DEFINITION
IS GREATER THAN THE COMPANY'S LED AMOUNT, A SURRENDER CHARGE MAY APPLY TO THE
AMOUNT IN EXCESS OF THE LED AMOUNT.
SYSTEMATIC LEVEL FREE OF SURRENDER CHARGE WITHDRAWAL PROGRAM. In order to
ensure that no surrender charge will ever apply to withdrawals, the Owner may
preauthorize level periodic withdrawals under the Systematic Level Free of
Surrender Charge Withdrawal Program. Withdrawals under the Program may be made
on a monthly, bi-monthly, quarterly, semi-annual or annual basis. In order to
ensure that no surrender charge will ever apply, the periodic withdrawals in any
calendar year are limited to 15% of the total of all payments invested in the
Contract as reduced by certain prior withdrawal(s) of payments. For more
information on how this amount is calculated, see "E. Surrender Charge,"
"Withdrawal Without Surrender Charge" under CHARGES AND DEDUCTIONS.
The program will automatically terminate if a withdrawal that is not part of the
program is made. Otherwise, withdrawals will continue until all available
Accumulated Value has been exhausted or until the Owner terminates the program
by written request.
G. DEATH BENEFIT.
A death benefit is payable if the Owner or the first of Joint Owners dies prior
to the Annuity Date. If the Owner is a natural person, no death benefit is
payable at the death of any Annuitant. If the Owner is not a natural person, a
death benefit will be paid upon the death of any Annuitant. A spousal
beneficiary may elect to continue the Contract rather than receive the death
benefit as provided in "H. The Spouse of the Owner as Beneficiary."
STANDARD DEATH BENEFIT. Unless an enhanced death benefit is elected at issue,
the standard death benefit will be paid. The standard death benefit is equal to
the greater of (a) the Contract's Accumulated Value on the Valuation Date that
the Company receives proof of death, increased by any positive Market Value
Adjustment or (b) gross payments prior to the date of death, proportionately
reduced to reflect withdrawals.
For each withdrawal under (b) the proportionate reduction is calculated by
multiplying the standard death benefit immediately prior to the withdrawal by
the following fraction:
Amount of the withdrawal
------------------------------------------------
Accumulated Value immediately prior to the withdrawal
OPTIONAL ENHANCED DEATH BENEFIT RIDER. When applying for the Contract, an Owner
may elect one of three optional Enhanced Death Benefit (EDB) Riders: (1) an
Enhanced Death Benefit With Annual Step-Up; (2) a 7% Enhanced Death Benefit; or
(3) a 7% Enhanced Death Benefit With Annual Step-Up. A separate charge for an
EDB Rider is made against the Contract's Accumulated Value on the last day of
each Contract month for the coverage provided during that month and, if
applicable, on the date the Rider is terminated. The charge is made through a
pro-rata reduction (based on relative values) of Accumulation Units in the Sub-
Accounts and dollar amounts in the Fixed and Guarantee Period Accounts. For
specific charges and more detail, see "C. Optional Rider Charges" under CHARGES
AND DEDUCTIONS.
1. THE EDB WITH ANNUAL STEP-UP PROVIDES THE FOLLOWING BENEFIT:
I. DEATH BEFORE 90TH BIRTHDAY. If an Owner (or an Annuitant if the Owner is not
a natural person) dies before the Annuity Date and before his/her 90th
birthday, the death benefit is equal to the GREATEST of:
(a) the Accumulated Value on the Valuation Date that the Company receives
proof of death, increased by any positive Market Value Adjustment;
(b) gross payments made to the Contract until the date of death,
proportionately reduced to reflect withdrawals; or
(c) the highest Accumulated Value on any Contract anniversary date prior to
the date of death, as determined after being increased for any positive
Market Value Adjustment and subsequent payments and proportionately
reduced for subsequent withdrawals.
II. DEATH ON OR AFTER 90TH BIRTHDAY. If an Owner (or an Annuitant if the Owner
is not a natural person) dies before the Annuity Date but on or after
his/her 90th birthday, the death benefit is equal to the GREATER of:
(a) the Accumulated Value on the Valuation Date that the Company receives
proof of death, increased by any positive Market Value Adjustment; or
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(b) the death benefit, as calculated under Section I, that would have been
payable on the Contract anniversary prior to the deceased's 90th
birthday, increased for subsequent payments and proportionately reduced
for subsequent withdrawals.
Proportionate reductions are calculated in the same manner as described above
under "Standard Death Benefit."
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2. THE 7% EDB PROVIDES THE FOLLOWING BENEFIT:
I. DEATH BEFORE 90TH BIRTHDAY. If an Owner (or an Annuitant if the Owner is not
a natural person) dies before the Annuity Date and before his/her 90th
birthday, the death benefit will be the GREATER of:
(a) the Accumulated Value on the Valuation Date that the Company receives
proof of death, increased by any positive Market Value Adjustment; or
(b) gross payments, accumulated daily at an effective annual yield of 7%
from the date each payment is applied until the date of death,
proportionately reduced to reflect withdrawals.
The value determined in section (b) above cannot exceed 200% of the total of
gross payments and Payment Credits, proportionately reduced for subsequent
withdrawals.
II. DEATH ON OR AFTER 90TH BIRTHDAY. If an Owner (or an Annuitant if the Owner
is not a natural person) dies before the Annuity Date but on or after
his/her 90th birthday, the death benefit is equal to the GREATER of:
(a) the Accumulated Value on the Valuation Date that the Company receives
proof of death, increased by any positive Market Value Adjustment; or
(b) the death benefit, as calculated under Section I above, that would have
been payable on the Contract anniversary prior to the deceased's 90th
birthday, increased for subsequent payments and proportionately reduced
for subsequent withdrawals.
Proportionate reductions are calculated in the same manner as described above
under "Standard Death Benefit."
3. THE 7% EDB WITH ANNUAL STEP-UP PROVIDES THE FOLLOWING BENEFIT:
I. DEATH BEFORE 90TH BIRTHDAY. If an Owner (or an Annuitant if the Owner is not
a natural person) dies before the Annuity Date and before his/her 90th
birthday, the death benefit will be the GREATEST of:
(a) the Accumulated Value on the Valuation Date that the Company receives
proof of death, increased by any positive Market Value Adjustment;
(b) gross payments, accumulated daily at an effective annual yield of 7%
from the date each payment is applied until the date of death,
proportionately reduced to reflect withdrawals; and
(c) the highest Accumulated Value on any Contract anniversary date prior to
the date of death, as determined after being increased for any positive
Market Value Adjustment and subsequent payments and proportionately
reduced for subsequent withdrawals.
The value determined in section (b) above cannot exceed 200% of the total of
gross payments and Payment Credits, proportionately reduced for subsequent
withdrawals.
II. DEATH ON OR AFTER 90TH BIRTHDAY. If an Owner (or the Annuitant if the Owner
is not a natural person) dies before the Annuity Date but on or after
his/her 90th birthday, the death benefit is equal to the GREATER of:
(a) the Accumulated Value on the Valuation Date that the Company receives
proof of death, increased by any positive Market Value Adjustment; or
(b) the death benefit, as calculated under Section I above, that would have
been payable on the Contract anniversary prior to the deceased's 90th
birthday, increased for subsequent payments and proportionately reduced
for subsequent withdrawals.
Proportionate reductions are calculated in the same manner as described above
under "Standard Death Benefit."
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PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit
generally will be paid to the beneficiary in one sum upon receipt of due proof
of death at the Principal Office, unless the Owner has elected to apply the
proceeds to a life annuity not extending beyond the beneficiary's life
expectancy. 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 distributions over the life of the beneficiary or for a period
certain not extending beyond the beneficiary's life expectancy, with annuity
benefit payments beginning within 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 Money Market
Sub-Account. The excess, if any, of the death benefit over the Accumulated Value
also will be transferred to the Money Market Sub-Account. 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.
H. THE SPOUSE OF THE OWNER AS BENEFICIARY
If the sole beneficiary is the deceased Owner's spouse, he or she may, by
written request, continue the Contract in lieu of receiving payment of the death
benefit. The spouse will then become the Owner and Annuitant subject to the
following:
(1) any value in the Guarantee Period Accounts will be transferred to the Money
Market Sub-Account; and
(2) the excess, if any, of the death benefit over the Contract's Accumulated
Value also will be added to the Money Market Sub-Account.
The resulting value will never be subject to a surrender charge when withdrawn.
The new Owner may also make additional payments, but a surrender charge will
apply to these additional amounts if they are withdrawn before they have been
invested in the Contract for at least nine years. All other rights and benefits
provided in the Contract will continue, except that any subsequent spouse of the
new Owner, if named as beneficiary, will not be entitled to continue the
Contract when the new Owner dies.
I. OPTIONAL MINIMUM GUARANTEED ANNUITY PAYOUT (M-GAP) RIDER
An optional Minimum Guaranteed Annuity Payout (M-GAP) Rider is available at
Issue Date for a separate monthly charge. (See, "C. Optional Rider Charges"
under CHARGES AND DEDUCTIONS.) The M-GAP Rider guarantees a minimum amount of
fixed annuity lifetime income during the annuity payout phase after a ten-year
or a fifteen-year waiting period, subject to the conditions described below. The
M-GAP Rider may not be available in all jurisdictions. The Company reserves the
right to terminate the availability of the M-GAP Rider at any time (see
"Conditions on Election of the M-GAP Rider" below).
The M-GAP Rider does not create Accumulated Value or guarantee performance of
any investment option. Annuitization under the terms of this Rider will occur at
the guaranteed annuity option rates listed under the Annuity Option Tables in
the Contract. Because this Rider is based on guaranteed actuarial factors, the
level of lifetime income that it guarantees may often be less than the level
that would be provided by applying the then current annuity factors. Therefore,
the Rider should be regarded as providing a guarantee of a minimum amount of
annuity income.
An M-GAP Benefit Base is determined on the Rider's effective date and each
applicable Contract anniversary thereafter. The M-GAP Benefit Base, less any
applicable premium tax, is the value that will be annuitized at the guaranteed
annuity option rates if the Rider is exercised. As described below, withdrawals
will reduce the Benefit Base.
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The M-GAP Benefit Base is equal to the greatest of:
(a) the Accumulated Value, increased by any positive Market Value Adjustment, if
applicable;
(b) the Accumulated Value on the effective date of the Rider, accumulated daily
at an effective annual yield of 5%, plus gross payments made thereafter
accumulated daily at an effective annual yield of 5%, starting on the date
each payment is applied, proportionately reduced to reflect withdrawals; and
(c) the highest Accumulated Value on any Contract anniversary since the Rider's
effective date as determined after being increased for any subsequent
payments and any positive Market Value Adjustment, if applicable, and
proportionately reduced for subsequent withdrawals.
For each withdrawal described above, the proportionate reduction is calculated
by multiplying the (b) or (c) value, whichever is applicable, determined
immediately prior to the withdrawal by the following fraction:
Amount of the withdrawal
----------------------------------------------------------
Accumulated Value determined immediately prior to the withdrawal
CONDITIONS ON ELECTION OF THE M-GAP RIDER. The following conditions apply to
the election of the M-GAP Rider:
- - The Owner must elect the M-GAP Rider at Contract issue.
- - The Owner may not elect a Rider with a ten-year waiting period if at the time
of election the youngest Owner has reached his or her 87th birthday. The Owner
may not elect a Rider with a fifteen-year waiting period if at the time of
election the youngest Owner has reached his or her 82nd birthday (the age
limitations may be lower in some jurisdictions.)
REPURCHASE FEATURE. On any Contract anniversary or within thirty days
immediately following any Contract anniversary, if the M-GAP Rider is still
being offered by the Company, the Owner may elect to terminate and repurchase
the Rider, thereby resetting the benefit based on the Contract's then current
Accumulated Value. The repurchase will be effective as of the termination date
of the prior Rider. A new waiting period, equal to or greater than the prior
waiting period, will commence as of that date. If the benefit is repurchased,
the Company's then current monthly charge for the M-GAP Rider will apply.
EXERCISING THE M-GAP RIDER. The following conditions apply to the exercise of
the M-GAP Rider:
- - The Owner may only exercise the M-GAP Rider within thirty days after any
Contract anniversary following the expiration of a ten or fifteen-year waiting
period (whichever was elected) from the effective date of the Rider.
- - The Owner may only annuitize under a fixed annuity payout option involving a
life contingency, as provided under "C. Description of Annuity Payout
Options."
- - The Owner may only annuitize at the guaranteed fixed annuity option rates
listed under the Annuity Option Tables in the Contract.
TERMINATING THE M-GAP RIDER. The following conditions apply to the termination
of the M-GAP Rider:
- - The Owner may not terminate the M-GAP Rider prior to the seventh Contract
anniversary after the effective date of the Rider, unless such termination
occurs (1) on or within thirty days after a Contract anniversary and (2) in
conjunction with the repurchase of an M-GAP Rider with a waiting period of
equal or greater length, if available.
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- - The Owner may terminate the M-GAP Rider any time after the seventh Contract
anniversary following the effective date of the Rider,
- - Other than in the event of a repurchase, once terminated the M-GAP Rider may
not be purchased again.
- - The M-GAP Rider will terminate on the date the Contract is surrendered or
annuitized, or on the date that a death benefit is payable unless the Contract
is continued under "H. The Spouse of the Owner as Beneficiary" (see
"DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE").
From time to time the Company may illustrate minimum guaranteed income amounts
under the M-GAP Rider for individuals based on a variety of assumptions,
including varying rates of return on the value of the Contract during the
accumulation phase, annuity payout periods, annuity payout options and M-GAP
Rider waiting periods. Any assumed rates of return are for purposes of
illustration only and are not intended as a representation of past or future
investment rates of return.
For example, the illustration below assumes an initial payment of $100,000 plus
Payment Credits for a male age 60 (at issue) and exercise of an M-GAP Rider with
a ten-year waiting period. The illustration assumes that no subsequent payments
or withdrawals are made and that the annuity payout option is a Life With 10
Year Period Certain. The values below have been computed based on a 5% net rate
of return and are the guaranteed minimums that would be received under the M-GAP
Rider. The minimum guaranteed benefit base amounts are the values that will be
annuitized if the Rider is exercised. Minimum guaranteed annual income values
are based on a fixed annuity payout.
<TABLE>
<CAPTION>
MINIMUM
CONTRACT GUARANTEED MINIMUM
ANNIVERSARY BENEFIT GUARANTEED
AT EXERCISE BASE ANNUAL INCOME (1)
- ----------- ----------- -----------------
<S> <C> <C>
10 $ 169,405 $ 12,664
15 $ 216,209 $ 18,395
</TABLE>
(1) Other fixed annuity payout options involving a life contingency other than
Life Annuity With Payments Guaranteed for 10 Years are available. See "D.
Description of Annuity Payout Options."
J. ASSIGNMENT
The Contract, other than one sold in connection with certain qualified plans,
may be assigned by the Owner at any time prior to the Annuity Date and prior to
the death of an Owner (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.
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ANNUITIZATION -- THE PAYOUT PHASE
Subject to certain restrictions discussed below, at annuitization the Owner has
the right:
- - to select the annuity payout option under which annuity benefit payments are
to be made;
- - to determine whether those payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. If a variable
annuity payout option is selected, the Owner must choose an Annuity Benefit
Payment Change Frequency ("Change Frequency") and the date the first Change
Frequency will occur;
- - to select one of the available Assumed Investment Returns ("AIR") for a
variable option (see "D. Variable Annuity Benefit Payments" below for
details); and
- - to elect to have the Death Benefit applied under any annuity payout option not
extending beyond the beneficiary's life expectancy. The beneficiary may not
change such an election.
A. ELECTING THE ANNUITY DATE
Generally, annuity benefit payments under the Contract will begin on the Annuity
Date. The Annuity Date:
- - may not be earlier than the second Contract Anniversary; and
- - must occur on the first day of any month before the Owner's 99th birthday.
If the Owner does not select an Annuity Date, the Annuity Date will be the later
of (a) the Owner's age 85 or (b) two years after the Issue Date.
If there are Joint Owners, the age of the younger will determine the latest
possible Annuity Date. The Owner may elect to change the Annuity Date by sending
a written request to the Principal Office at least one month before the earlier
of the new Annuity Date or the currently scheduled date.
If the Annuity Date occurs when the Owner is at an advanced age, it is possible
that the Contract will not be considered an annuity for federal tax purposes. In
addition, the Internal Revenue Code ("the Code") and/or the terms of qualified
plans may impose limitations on the age at which annuity benefit payments may
commence and the type of annuity payout option that may be elected. The Owner
should carefully review the Annuity Date and the annuity payout options with
his/her tax adviser. See "FEDERAL TAX CONSIDERATIONS" for further information.
B. CHOOSING THE ANNUITY PAYOUT OPTION
Regardless of how payments were allocated during the accumulation phase, the
Owner may choose a variable annuity payout option, a fixed annuity payout option
or a combination fixed and variable annuity payout option. Currently, all of the
variable annuity payout options described below are available and may be funded
through all of the variable Sub-Accounts. In addition, each of the variable
annuity payout options is also available on a fixed basis. The Company may offer
other annuity payout options.
The Owner may change the annuity payout option up to one month before the
Annuity Date. If the Owner fails to choose an annuity payout option, monthly
benefit payments will be made under a variable Life with Cash Back annuity
payout option. If the Owner exercises the M-GAP Rider, annuity benefit payments
must be made under a fixed annuity payout option involving a life contingency
option.
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The annuity payout option selected must result in an initial payment of at least
$50 (a lower amount may be required in certain jurisdictions.) The Company
reserves the right to increase this minimum amount. If the annuity payout option
selected does not produce an initial payment which meets this minimum, a single
payment may be made.
FIXED ANNUITY PAYOUT OPTIONS. If the Owner selects a fixed annuity payout
option, each monthly annuity benefit payment will be equal to the first (unless
a withdrawal is made or as otherwise described under certain reduced survivor
annuity benefits.) Any portion of the Contract's Accumulated Value converted to
a fixed annuity will be held in the Company's General Account. The Contract
provides guaranteed fixed annuity option rates that determine the dollar amount
of the first payment under each form of fixed annuity for each $1,000 of applied
value. These rates are based on the Annuity 2000 Mortality Table and a 3% AIR.
The Company may offer 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 more specific information about fixed annuity payout options, see the
Contract.
VARIABLE ANNUITY PAYOUT OPTIONS. If the Owner selects a variable annuity payout
option, he/she will receive monthly payments equal to the value of the fixed
number of Annuity Units in the chosen Sub-Account(s). The first variable annuity
benefit payment will be based on the current annuity option rates made available
by the Company at the time the variable annuity payout option is selected.
Annuity option rates determine the dollar amount of the first payment for each
$1,000 of applied value. The annuity option rates are based on the Annuity 2000
Mortality Table and a 3% AIR.
Since the value of an Annuity Unit in a Sub-Account reflects the investment
performance of the Sub-Account, the amount of each monthly annuity benefit
payment will usually vary. However, under this Contract, if the Owner elects a
variable payout option, he or she must also select a monthly, quarterly,
semi-annual or annual Change Frequency. The Change Frequency is the frequency
that changes due to the Sub-Account's investment performance will be reflected
in the dollar value of a variable annuity benefit payment. As such, the Change
Frequency chosen will determine how frequently monthly variable annuity payments
will vary. For example, if a monthly Change Frequency is in effect, payments may
vary on a monthly basis. If a quarterly Change Frequency is selected, the amount
of each monthly payment may change every three months and will be level within
each three month cycle.
At the time the Change Frequency is elected, the Owner must also select the date
the first change is to occur. This date may not be later than the length of the
Change Frequency elected. For example, if a semi-annual Change Frequency is
elected, the date of the first change may not be later than six months after the
Annuity Date. If a quarterly Change Frequency is elected, the date of the first
change may not be later than three months after the Annuity Date.
C. DESCRIPTION OF ANNUITY PAYOUT OPTIONS
The Company currently provides the following annuity payout options:
LIFE ANNUITY PAYOUT OPTION
- - SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life. Payments
cease with the last annuity benefit payment due prior to the Annuitant's
death.
- - JOINT AND SURVIVOR ANNUITIES -- Monthly payments during the Annuitant's and
Joint Annuitant's joint lifetimes. Upon the first death, payments will
continue for the remaining lifetime of the survivor at a previously elected
level of 100%, two-thirds or one-half of the total number of Annuity Units.
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LIFE WITH PERIOD CERTAIN ANNUITY PAYOUT OPTION
- - SINGLE LIFE -- Monthly payments guaranteed for a specified number of years and
continuing thereafter during the Annuitant's lifetime. If the Annuitant dies
before all guaranteed payments have been made, the remaining payments continue
to the Owner or the Beneficiary (whichever is applicable).
- - JOINT AND SURVIVOR ANNUITIES -- Monthly payments guaranteed for a specified
number of years and continuing during the Annuitant's and Joint Annuitant's
joint lifetimes. Upon the first death, payments continue for the survivor's
remaining lifetime at the previously elected level of 100%, two-thirds or one-
half of the Annuity Units. If the surviving Annuitant dies before all
guaranteed payments have been made, the remaining payments continue to the
Owner or the Beneficiary (whichever is applicable).
LIFE WITH CASH BACK ANNUITY PAYOUT OPTION
- - SINGLE LIFE -- Monthly payments during the Annuitant's life. Thereafter, any
excess of the original applied Annuity Value, over the total amount of annuity
benefit payments made and withdrawals taken, will be paid to the Owner or the
Beneficiary (whichever is applicable).
- - JOINT AND SURVIVOR ANNUITIES -- Monthly payments during the Annuitant's and
Joint Annuitant's joint lifetimes. At the first death, payments continue for
the survivor's remaining lifetime at the previously elected level of 100%,
two-thirds or one-half of the Annuity Units. Thereafter, any excess of the
original applied Annuity Value, over the total amount of annuity benefit
payments made and withdrawals taken, will be paid to the Owner or the
Beneficiary (whichever is applicable).
PERIOD CERTAIN ANNUITY PAYOUT OPTION
Monthly annuity benefit payments for a chosen number of years ranging from five
to thirty are paid. If the Annuitant dies before the end of the period,
remaining payments will continue. 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.
D. VARIABLE ANNUITY BENEFIT PAYMENTS
THE ANNUITY UNIT. On and after the Annuity Date, the Annuity Unit is a measure
of the value of the monthly annuity benefit payments under a variable annuity
payout option. The value of an Annuity Unit in each Sub-Account on its inception
date 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 the Annuity Unit on the
immediately preceding Valuation Date multiplied by the product of:
(a) a discount factor equivalent to the AIR and
(b) the Net Investment Factor of the Sub-Account funding the annuity benefit
payments for the applicable Valuation Period.
Annuity benefit payments will increase from one payment date to the next if the
annualized net rate of return during that period is greater than the AIR and
will decrease if the annualized net rate of return is less than the AIR. Where
permitted by law, the Owner may select an AIR of 3%, 5% or 7%. A higher AIR will
result in a higher initial payment. However, subsequent payments will increase
more slowly during periods when actual investment performance exceeds the AIR
and will decrease more rapidly during periods when investment performance is
less than the AIR.
DETERMINATION OF THE FIRST ANNUITY BENEFIT PAYMENT. The amount of the first
periodic variable annuity benefit payment depends on the:
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- - annuity payout option chosen;
- - length of the annuity payout option elected;
- - age of the Annuitant;
- - gender of the Annuitant (if applicable, see "H. NORRIS Decision");
- - value of the amount applied under the annuity payout option;
- - applicable annuity option rates based on the Annuity 2000 Mortality Table; and
- - AIR selected.
The dollar amount of the first periodic annuity benefit payment 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, (or the amount of the
death benefit, if applicable) divided by $1,000, by
(2) the applicable amount of the first monthly payment per $1,000 of value.
DETERMINATION OF THE NUMBER OF ANNUITY UNITS. The dollar amount of the first
variable annuity benefit payment is then divided by the value of an Annuity Unit
of the selected Sub-Account(s) to determine the number of Annuity Units
represented by the first payment. The number of Annuity Units remains fixed
under all annuity payout options (except for the survivor annuity benefit
payment under the joint and two-thirds or joint and one-half option) unless the
Owner transfers among Sub-Accounts, makes a withdrawal, or units are split.
DOLLAR AMOUNT OF SUBSEQUENT VARIABLE ANNUITY BENEFIT PAYMENTS. 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. The dollar amount of each
periodic variable annuity benefit payment after the first will vary with
subsequent variations in the value of the Annuity Unit of the selected
Sub-Account(s).
For an illustration of the calculation of a variable annuity benefit payment
using a hypothetical example, see "Annuity Benefit Payments" in the SAI.
PAYMENT OF ANNUITY BENEFIT PAYMENTS. The Owner will receive the annuity benefit
payments unless he/ she requests in writing that payments be made to another
person, persons, or entity. If the Owner (or, if there are Joint Owners, the
surviving Joint Owner) dies on or after the Annuity Date, the beneficiary will
become the Owner of the Contract. Any remaining annuity benefit payments will
continue to the beneficiary in accordance with the terms of the annuity benefit
payment option selected. If there are Joint Owners on or after the Annuity Date,
upon the first Owner's death, any remaining annuity benefit payments will
continue to the surviving Joint Owner in accordance with the terms of the
annuity benefit payment option selected.
If an Annuitant dies on or after the Annuity Date but before all guaranteed
annuity benefit payments have been made, any remaining payments will continue to
be paid to the Owner or the payee the Owner has designated. Unless otherwise
indicated by the Owner, the present value of any remaining guaranteed annuity
benefit payments may be paid in a single sum to the Owner. For discussion of
present value calculation, see "Calculation of Present Value" below.
E. TRANSFERS OF ANNUITY UNITS
After the Annuity Date and prior to the death of the Annuitant, the Owner may
transfer among the available Sub-Accounts upon written or telephone request to
the Company. As discussed in "A. Payments," a properly
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completed authorization form must be on file before telephone requests will be
honored. A designated number of Annuity Units equal to the dollar amount of the
transfer requested will be exchanged for an equivalent dollar amount of Annuity
Units of another Sub-Account. Transfer values will be based on the Annuity Value
next computed after receipt of the transfer request.
Currently, the Company does not 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) are available during the
annuitization phase subject to the same rules described in "E. Transfer
Privilege" except that the Fixed Account is not available as a source account.
F. WITHDRAWALS AFTER THE ANNUITY DATE
WITHDRAWALS AFTER THE ANNUITY DATE FROM QUALIFIED AND NON-QUALIFIED CONTRACTS
MAY HAVE ADVERSE TAX CONSEQUENCES. BEFORE MAKING A WITHDRAWAL, PLEASE CONSULT
YOUR TAX ADVISOR AND SEE FEDERAL TAX CONSIDERATIONS, "B. TAXATION OF THE
CONTRACT IN GENERAL," "WITHDRAWALS AFTER ANNUITIZATION."
After the Annuity Date and prior to the death of the Annuitant, the Owner may
take withdrawals from the Contract. The Owner must submit to the Principal
Office a signed, written request indicating the desired dollar amount of the
withdrawal. The minimum amount of a withdrawal is $1,000. If the amount
requested is greater than the maximum amount that may be withdrawn at that time,
the Company will allow the withdrawal only up to the maximum amount.
The type of withdrawal and the number of withdrawals that may be made each
calendar year depend upon whether the Owner annuitizes under an annuity payout
option with payments based on the life of one or more Annuitants with no
guaranteed payments (a "Life" annuity payout option), under a life annuity
payout option that in part provides for a guaranteed number of payments (a "Life
With Period Certain" or "Life With Cash Back" annuity payout option), or an
annuity payout option based on a guaranteed number of payments (a "Period
Certain" annuity payout option). Under a Life annuity payout option, the Owner
may make one Payment Withdrawal each calendar year. Under a Life with Period
Certain or Life with Cash Back annuity payout option, the Owner may make one
Payment Withdrawal and one Present Value Withdrawal in each calendar year. Under
a Period Certain annuity payout option, the Owner may make multiple Present
Value Withdrawals each calendar year.
- - WITHDRAWALS UNDER LIFE ANNUITY PAYOUT OPTIONS
The Owner may make one Payment Withdrawal in each calendar year. A Payment
Withdrawal cannot exceed the previous monthly annuity benefit payment
multiplied by ten (10). The amount of each Payment Withdrawal represents a
percentage of the present value of the remaining annuity benefit payments.
- - WITHDRAWALS UNDER LIFE WITH PERIOD CERTAIN OR LIFE WITH CASH BACK ANNUITY
PAYOUT OPTIONS
The Owner may make one Payment Withdrawal in each calendar year. A Payment
Withdrawal cannot exceed the previous monthly annuity benefit payment
multiplied by ten (10). The amount of each Payment Withdrawal represents a
percentage of the present value of the remaining annuity benefit payments.
The Owner may make one Present Value Withdrawal in each calendar year, if
there are remaining guaranteed annuity benefit payments. The amount of each
Present Value Withdrawal represents a percentage of the present value of the
remaining guaranteed annuity benefit payments. Each year a Present Value
Withdrawal is taken, the Company records the percentage of the present value
of the then
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remaining guaranteed annuity benefit payments that was withdrawn. The total
percentage withdrawn over the life of the Contract cannot exceed 75%. (For
example, assume that in year three the Owner withdraws 15% of the then
current present value of the remaining guaranteed annuity benefit payments.
In year seven, the Owner withdraws 20% of the then current present value of
the remaining guaranteed annuity benefit payments. Through year seven the
total percentage withdrawn is 35%. After year seven, the Owner may make
Present Value Withdrawal(s) of up to 40% (75% - 35%) of the present value of
any remaining guaranteed annuity benefit payments.
Under a Life with Period Certain annuity payout option or Life with Cash
Back annuity payout option, if the Annuitant is still living after the
guaranteed annuity benefit payments have been made, the number of Annuity
Units or dollar amount applied to future annuity benefit payments will be
restored as if no Present Value Withdrawal(s) had taken place. See
"Calculation of Proportionate Reduction -- Present Value Withdrawals,"
below.
- - WITHDRAWALS UNDER PERIOD CERTAIN ANNUITY PAYOUT OPTIONS
The Owner may make multiple Present Value Withdrawals in each calendar year,
up to 100% of the present value of the guaranteed annuity benefit payments.
Withdrawal of 100% of the present value of the guaranteed annuity benefit
payments will result in termination of the Contract.
The amount of each Payment Withdrawal or Present Value Withdrawal represents a
portion of the present value of the remaining annuity benefit payments or
remaining guaranteed annuity benefit payments, respectively, and proportionately
reduces the number of Annuity Units (under a variable annuity payout option) or
dollar amount (under a fixed annuity payout option) applied to future annuity
benefit payments. Because each variable annuity benefit payment is determined by
multiplying the number of Annuity Units by the value of an Annuity Unit, the
reduction in the number of Annuity Units will result in lower future variable
annuity benefit payments. See "Calculation of Proportionate Reduction," below.
The present value is calculated with a discount rate that will include an
additional charge if a withdrawal is taken within 5 years of the Issue Date. See
"Calculation of Present Value," below.
CALCULATION OF PROPORTIONATE REDUCTION. Each Payment Withdrawal proportionately
reduces the number of Annuity Units applied to each future variable annuity
benefit payment or the dollar amount applied to each future fixed annuity
benefit payment. Each Present Value Withdrawal proportionately reduces the
number of Annuity Units applied to each future GUARANTEED variable annuity
benefit payment or the dollar amount applied to each future GUARANTEED fixed
annuity benefit payment. Because each variable annuity benefit payment is
determined by multiplying the number of Annuity Units by the value of an Annuity
Unit, the reduction in the number of Annuity Units will result in lower future
variable annuity benefit payments.
- - PAYMENT WITHDRAWALS. A Payment Withdrawal proportionately reduces the number
of Annuity Units (under a variable annuity payout option) or dollar amounts
(under a fixed annuity payout option) applied to each future annuity benefit
payout.
Under a variable annuity payout option, the proportionate reduction in Annuity
Units is calculated by multiplying the number of Annuity Units in each future
variable annuity benefit payment (determined immediately prior to the
withdrawal) by the following fraction:
Amount of the variable withdrawal
-------------------------------------------------
Present value of all remaining variable annuity benefit
payments immediately prior to the withdrawal
Because each variable annuity benefit payment is determined by multiplying the
number of Annuity Units by the value of an Annuity Unit, the reduction in the
number of Annuity Units will result in lower future variable annuity benefit
payments.
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Under a fixed annuity payout option, the proportionate reduction is calculated
by multiplying the dollar amount of each future fixed annuity benefit payment
by a similar fraction, which is based on the amount of the fixed withdrawal
and present value of remaining fixed annuity benefit payments.
If a withdrawal is taken within 5 years of the Issue Date, the discount rate
used to calculate the present value will include an additional charge. See
"Calculation of Present Value," below.
- - PRESENT VALUE WITHDRAWALS. Each Present Value Withdrawal proportionately
reduces the number of Annuity Units (under a variable annuity payout option)
or dollar amount (under a fixed annuity payout option) applied to each future
guaranteed annuity benefit payment.
Under a variable annuity payout option, the proportionate reduction in Annuity
Units is calculated by multiplying the number of Annuity Units in each future
variable guaranteed annuity benefit payment (determined immediately prior to
the withdrawal) by the following fraction:
Amount of the variable withdrawal
-------------------------------------------------
Present value of remaining guaranteed variable annuity
benefit payments immediately prior to the withdrawal
Under a fixed annuity payout option, the proportionate reduction is calculated
by multiplying the dollar amount of each future fixed annuity benefit payment
by a similar fraction, which is based on the amount of the fixed withdrawal
and present value of remaining guaranteed fixed annuity benefit payments.
Because each variable annuity benefit payment is determined by multiplying the
number of Annuity Units by the value of an Annuity Unit, the reduction in the
number of Annuity Units will result in lower variable annuity benefit payments
with respect to the guaranteed payments. Under a fixed annuity payout option,
the proportionate reduction will result in lower fixed annuity benefit
payments with respect to the guaranteed payments. However, under a Life with
Period Certain annuity payout option or Life with Cash Back annuity payout
option, if the Annuitant is still living after the guaranteed number of
annuity benefit payments has been made, the number of Annuity Units or dollar
amount of future annuity benefit payments will be restored as if no Present
Value Withdrawal(s) had taken place.
If a withdrawal is taken within 5 years of the Issue Date, the discount rate
used to calculate the present value will include an additional charge. See
"Calculation of Present Value," below.
CALCULATION OF PRESENT VALUE. When a withdrawal is taken, the present value of
future annuity benefit payments is calculated based on an assumed mortality
table and a discount rate. The mortality table that is used will be equal to the
mortality table used at the time of annuitization to determine the annuity
benefit payments (currently the Annuity 2000 Mortality Table with male, female,
or unisex rates, as appropriate). The discount rate is the AIR (for a variable
annuity payout option) or the interest rate (for a fixed annuity payout option)
that was used at the time of annuitization to determine the annuity benefit
payments. If a withdrawal is made within 5 years of the Issue Date, the discount
rate is increased by one of the following charges ("Withdrawal Adjustment
Charge"):
- 15 or more years of annuity benefit payments being valued -- 1.00%
- 10-14 years of annuity benefit payments being valued -- 1.50%
- Less than 10 years of annuity benefit payments being valued -- 2.00%
The Withdrawal Adjustment Charge does not apply if a withdrawal is made in
connection with the death of an Annuitant or if a withdrawal is made 5 or more
years after the Issue Date.
For each Payment Withdrawal, the number of years of annuity benefit payments
being valued depends upon the life expectancy of the Annuitant at the time of
the withdrawal. The life expectancy will be determined by a mortality table that
will be equal to the mortality table used at the time of annuitization to
determine the annuity benefit payments (currently the Annuity 2000 Mortality
Table).
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The impact of the Withdrawal Adjustment Charge will depend on the type of the
withdrawal taken, as follows:
- For a Payment Withdrawal, the present value calculation (including any
applicable adjustments) affects the proportionate reduction of the
remaining number of Annuity Units (under a variable annuity payout option)
or dollar amount (under a fixed annuity payout option), applied to each
future annuity benefit payment, as explained in "Calculation of
Proportionate Reduction-- Payment Withdrawals," above. If a Withdrawal
Adjustment Charge applies, there will be a larger proportionate reduction
in the number of Annuity Units or the dollar amount applied to each future
annuity benefit payment. This will result in lower future annuity benefit
payments, all other things being equal.
- For a Present Value Withdrawal, the discount factor is used in determining
the maximum amount that can be withdrawn under the present value
calculation. If a Withdrawal Adjustment Charge applies, the discount
factor will be higher, and the maximum amount that can be withdrawn will
be lower. In addition, there will be a larger proportionate reduction in
the number of Annuity Units or the dollar amount applied to each future
guaranteed annuity benefit payment. This will result in lower future
annuity benefit payments with respect to the guaranteed payments, all
other things being equal. See "Calculation of Proportionate Reduction --
Present Value Withdrawals," above.
For examples comparing a Payment Withdrawal and a Present Value Withdrawal, see
APPENDIX E -- EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS.
DEFERRAL OF WITHDRAWALS. A withdrawal is normally payable within seven days
following the Company's receipt of the withdrawal request. However, the Company
reserves the right to defer withdrawals of amounts in each Sub-Account in any
period during which:
- 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;
- the SEC has by order permitted such suspension; or
- 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 Company reserves the right to defer withdrawals of amounts allocated to the
Company's General Account for a period not to exceed six months.
G. REVERSAL OF ANNUITIZATION
The Owner may reverse the decision to annuitize by written request to the
Company within 90 days of the Annuity Date. Upon receipt of such request, the
Company will return the Contract to the Accumulation Phase, subject to the
following:
(1) The value applied under a fixed annuity payout option at the time of
annuitization (except for the excess value of the M-GAP Benefit Base over
the Annuity Value, if applicable) will be treated as if it had been invested
in the Fixed Account of the Contract on that same date.
(2) The Sub-Account allocations that were in effect at the time of annuitization
will first be used for calculating the reversal. Any transfers between
variable Sub-Accounts during the Annuity Payout phase will then be treated
as transfers during the Accumulation Phase (As a result, the Contract's
Accumulated Value after the reversal will reflect the same Sub-Account
allocations that were in effect immediately prior to the reversal).
(3) Any annuity benefit payments paid and any withdrawals taken during the
Annuity Payout phase will be treated as a withdrawal of the Surrender Value
in the Accumulation Phase, as of the date of the payment
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<PAGE>
or withdrawal. Surrender charges may apply to these withdrawals, and there
may be adverse tax consequences. See FEDERAL TAX CONSIDERATIONS, "C.
Taxation of the Contract in General."
If the Company learns of the Owner's decision to reverse annuitization after the
maximum Annuity Date permitted under the Contract, the Company will contact the
Owner. The Owner must then immediately select an annuity payout option (either
the original annuity payout option or a different annuity payout option). If the
Owner does not select an annuity payout option, payments will begin under a
variable Life with Cash Back annuity payout option.
H. 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 payout 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 unisex rates.
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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 of the Fund.
A. VARIABLE ACCOUNT DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE. The Company assesses a charge against the
assets of each Sub-Account to compensate for certain mortality and expense risks
it has assumed. The mortality and expense risk charge is assessed daily at an
annual rate of 1.25% of each Sub-Account's assets. 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
payout option selected), no matter how long the Annuitant lives and no matter
how long all Annuitants as a class live. 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.
This charge may not be increased. Since mortality and expense risks involve
future contingencies that 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.
ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account with a
daily Administrative Expense Charge at 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. 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 (described below under "B. Contract Fee") and
for the Administrative Expense Charge are designed to reimburse the Company for
the cost of administration and related expenses and are not expected to be a
source of profit. The administrative functions and expense assumed by the
Company in connection with the Variable Account and the Contract include, but
are not limited to, clerical, accounting, actuarial and legal services, rent,
postage, telephone, office equipment and supplies, expenses of preparing and
printing registration statements, expense of preparing and typesetting
prospectuses and the cost of printing prospectuses not allocable to sales
expense, filing and other fees.
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.
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<PAGE>
B. CONTRACT FEE
A $35 Contract fee (a lower fee may apply in some states) currently is deducted
during the accumulation phase, on the Contract anniversary date and upon full
surrender of the Contract if the Accumulated Value on any of these dates is less
than $75,000. 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
that 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 portion of
the charge deducted from that Sub-Account.
Where permitted by law, the Contract fee also may be waived for Contracts where,
on the Issue Date, either the Owner or the Annuitant is within the following
class 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 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.
C. OPTIONAL RIDER CHARGES
Subject to state availability, the Company offers a number of riders that may be
elected by the Owner at issue. A separate monthly charge is made for each Rider
through a pro-rata reduction of the Accumulated Value of the Sub-Accounts, the
Fixed Account and the Guarantee Period Accounts. The pro-rata reduction is based
on the relative value that the Accumulation Units of the Sub-Accounts, the
dollar amounts in the Fixed Account and the dollar amounts in the Guarantee
Period Accounts bear to the total Accumulated Value.
The applicable charge for the following is assessed on the Accumulated Value on
the last day of each Contract month and, if applicable, on the date the Rider is
terminated, multiplied by 1/12th of the following annual percentage rates:
<TABLE>
<S> <C>
Minimum Guaranteed Annuity Payout Rider with ten-year waiting period....... 0.35%
Minimum Guaranteed Annuity Payout Rider with fifteen-year waiting period... 0.20%
Enhanced Death Benefit With Annual Step-Up................................. 0.15%
7% Enhanced Death Benefit.................................................. 0.30%
7% Enhanced Death Benefit With Annual Step-Up.............................. 0.35%
</TABLE>
For a description of the Riders, see "Optional Enhanced Death Benefit Rider"
under "G. Death Benefit," and "I. Optional Minimum Guaranteed Annuity Payout
(M-GAP) Rider" under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE,
above.
D. 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
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<PAGE>
annuity benefit payments begin (the Company reserves the right instead to
deduct the premium tax charge for a Contract at the time 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.
E. SURRENDER CHARGE
No charge for sales expense is deducted from payments at the time the payments
are made. A surrender charge, however, may be deducted from the Accumulated
Value in the case of surrender or withdrawal within certain time limits
described below.
CALCULATION OF SURRENDER CHARGE. For purposes of determining the surrender
charge, the Accumulated Value is divided into four categories:
- - The amount available under the Withdrawal Without Surrender Charge provision,
described below;
- - Old Payments -- total payments invested in the Contract for more than nine
years;
- - New Payments -- payments received by the Company during the nine years
preceding the date of the surrender or withdrawal; and
- - Payment Credits.
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 surrender charge. However, if a withdrawal or surrender is attributable all
or in part to New Payments, a surrender charge may be imposed.
The amount of the charge will depend upon the number of years that any New
Payments 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 oldest New Payment
and then from the next oldest 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 following surrender charge table outlines these charges:
<TABLE>
<CAPTION>
COMPLETE YEARS FROM
DATE OF PAYMENT CHARGE
- -------------------- ---------
<S> <C>
0-4 8.5%
more than 4 7.5%
more than 5 6.5%
more than 6 5.5%
more than 7 3.5%
more than 8 1.5%
more than 9 0
</TABLE>
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<PAGE>
The amount withdrawn equals the amount requested by the Owner plus the surrender
charge, if any. The charge is applied as a percentage of the New Payments
withdrawn.
The total charge equals the aggregate of all applicable surrender charges for a
surrender and withdrawals, including the Withdrawal Adjustment Charge that may
apply if a withdrawal is taken during the Annuity Payout phase (see
ANNUITIZATION -- THE PAYOUT PHASE, "F. Withdrawals after the Annuity Date"). In
no event will the total surrender and withdrawal charges exceed a maximum limit
of 8.5% of total gross New Payments.
WITHDRAWAL WITHOUT SURRENDER CHARGE. Each calendar year prior to the Annuity
Date, an Owner may withdraw a portion of the Contract's Surrender Value without
any applicable surrender charge ("Withdrawal Without Surrender Charge Amount").
The above surrender charge table is not applicable to these withdrawals. The
first time an Owner makes a withdrawal from the Contract, the Withdrawal Without
Surrender Charge Amount is the greater of (a) or (b):
Where (a) is: 100% of cumulative earnings (excluding Payment
Credits); and
Where (b) is: 15% of the total of all payments invested in the
Contract as of the Valuation Date for the
withdrawal.
After that first withdrawal from the Contract, the maximum annual Withdrawal
Without Surrender Charge Amount is the greater of (a) or (b):
Where (a) is: 100% of cumulative earnings (excluding Payment
Credits); and
Where (b) is: 15% of the total of all payments invested in the
Contract LESS that portion of any prior
withdrawal(s) of payments that are subject to the
surrender charge table (even if the applicable
surrender charge is 0%) as of the Valuation Date
for the withdrawal (the Gross Payment Base), LESS
any prior withdrawal(s) during the same calendar
year to which the surrender charge table was not
applicable.
In (a), cumulative earnings are calculated as the Accumulated Value as of the
Valuation Date, reduced by Payment Credits and total gross payments not
previously withdrawn.
EFFECT OF WITHDRAWAL OF WITHDRAWAL WITHOUT SURRENDER CHARGE AMOUNT. When a
withdrawal is taken, the Company initially determines the Withdrawal Without
Surrender Charge Amount in the following order:
- - The Company first deducts the Withdrawal Without Surrender Charge Amount from
cumulative earnings.
- - If the Withdrawal Without Surrender Charge Amount exceeds cumulative earnings,
the Company will deem the excess to be withdrawn from New Payments on a
last-in-first-out (LIFO) basis, so that the newest New Payments are withdrawn
first. This results in those New Payments, which are otherwise subject to the
highest surrender charge at that point in time, being withdrawn first without
a surrender charge.
- - If more than one withdrawal is made during the year, on each subsequent
withdrawal the Company will waive the surrender charge, if any, until the
entire Withdrawal Without Surrender Charge Amount has been withdrawn.
After the entire Withdrawal Without Surrender Charge Amount available in a
calendar year has been withdrawn, for the purposes of determining the amount of
the surrender charge, if any, withdrawals will be deemed to be taken in the
following order:
- - First from Old Payments.
- The surrender charge table is applicable, but because Old Payments have
been invested in the Contract for more than 9 years, the surrender charge
is 0%.
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<PAGE>
- - Second from New Payments.
- The surrender charge table is applicable.
- Payments are now withdrawn from this category on a first-in-first-out
(FIFO) basis, so that the oldest New Payments are now withdrawn first.
This results in the withdrawal of New Payments with the lowest surrender
charge first.
- - Third from Payment Credits.
- The surrender charge table is not applicable to the withdrawal of Payment
Credits.
For Qualified Contracts and Contracts issued under Section 457 Deferred
Compensation Plans only, the maximum amount available without a surrender charge
during any calendar year will be the greatest of (a), (b) and (c) where (a) and
(b) are the same as above and (c) is the amount available as a Life Expectancy
Distribution less any Withdrawal Without Surrender Charge taken during the same
calendar year. (see "Life Expectancy Distributions" under DESCRIPTION OF THE
CONTACT -- THE ACCUMULATION PHASE.
For further information on surrender and withdrawals, including minimum limits
on amount withdrawn and amount remaining under the Contract in the case of
withdrawals, and important tax considerations, see "F. Surrender and
Withdrawals" under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE and see
"FEDERAL TAX CONSIDERATIONS."
REDUCTION OR ELIMINATION OF SURRENDER CHARGE AND ADDITIONAL AMOUNTS
CREDITED. Where permitted by law, the Company will waive the surrender charge
in the event that the Owner (or the Annuitant, if the Owner is not an
individual) becomes physically disabled after the Issue Date of the Contract (or
in the event that the original Owner or Annuitant has changed since issue, after
being named Owner or Annuitant) and before attaining age 65. The Company may
require proof of such disability and continuing disability and reserves the
right to obtain an examination by a licensed physician of its choice and at its
expense.
In addition, the Company will waive the surrender 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 becoming the Owner or Annuitant
under the Contract and remains confined there until the later of one year
after the Issue Date or 90 consecutive days; or
(2) first diagnosed by a licensed physician as having a fatal illness after the
Issue Date of the Contract and after being named Owner or Annuitant.
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.
"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. "Physically disabled" means that the
Owner or Annuitant, as applicable, has been unable to engage in an occupation or
to conduct daily activities for a period of at least 12 consecutive months as a
result of disease or bodily injury.
Where surrender charges have been waived under any of the situations discussed
above, no additional payments under this 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 surrender charges, the period during which the charges apply,
or both, and/or credit additional amounts on Contracts, when
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<PAGE>
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:
- - the size and type of group or class, and the persistency expected from that
group or class;
- - the total amount of payments to be received, and the manner in which payments
are remitted;
- - the purpose for which the Contracts are being purchased, and whether that
purpose makes it likely that costs and expenses will be reduced;
- - other transactions where sales expenses are likely to be reduced; or
- - 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 this Contract in connection with financial
planning services offered on a fee-for-service basis).
The Company also may reduce or waive the surrender charge, and/or credit
additional amounts on Contracts, where either the Owner or the Annuitant on the
Issue Date is within the following class 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 of the Underlying Portfolios; 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.
In addition, if permitted under state law, surrender charge will be waived under
403(b) Contracts where the amount withdrawn is being contributed to a life
policy issued by the Company as part of the individual's 403(b) plan.
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 surrender charge. Any such reallocation will be at the
unit values for the Sub-Accounts as of the Valuation Date on which a written,
signed request is received at the Principal Office.
Any reduction or elimination in the amount or duration of the surrender charge
will not discriminate unfairly among purchasers of this Contract. The Company
will not make any changes to this charge where prohibited by law.
F. TRANSFER CHARGE
The Company currently does not assess a charge for processing transfers. The
Company guarantees that the first 12 transfers in a Contract year will be free
of a transfer charge, but reserves the right to assess a charge, guaranteed
never to exceed $25, for each subsequent transfer in a Contract year to
reimburse it for the expense of processing transfers. For more information, see
"E. Transfer Privilege" under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION
PHASE and "E. Transfers of Annuity Units" under ANNUITIZATION -- THE PAYOUT
PHASE.
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<PAGE>
G. WITHDRAWAL ADJUSTMENT CHARGE
After the Annuity Date, each calendar year the Owner may withdraw a portion of
the present value of either all future annuity benefit payments or future
guaranteed annuity benefit payments. If a withdrawal is made within 5 years of
the Issue Date, the AIR or interest rate used to determine the annuity benefit
payments is increased by one of the following adjustments:
15 or more years of annuity benefit payments being valued -- 1.00%
10-14 years of annuity benefit payments being valued -- 1.50%
Less than 10 years of annuity benefit payments being valued -- 2.00%
The adjustment to the AIR or interest rate used to determine the present value
results in lower future annuity benefit payments, and may be viewed as a charge
under the Contract. The Withdrawal Adjustment Charge does not apply if a
withdrawal is made in connection with the death of an Annuitant or if a
withdrawal is made 5 or more years after the Issue Date.
For each Payment Withdrawal, the number of years of annuity benefit payments
being valued depends upon the life expectancy of the Annuitant at the time of
the withdrawal. The life expectancy will be determined by a mortality table that
will be equal to the mortality table used at the time of annuitization to
determine the annuity benefit payments (currently the Annuity 2000 Mortality
Table with male, female, or unisex rates, as appropriate).
For more information see "F. Withdrawals After the Annuity Date," under
ANNUITIZATION -- THE PAYOUT PHASE.
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 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 this 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 except in
California where it is accounted for in the Company's General 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 its Guarantee Period. In no event will the Guaranteed Interest
Rate be less than 3%. The Guarantee Period Accounts are not available in New
York, Oregon, Maryland and Pennsylvania.
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
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<PAGE>
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 Sub-Account. 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 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 at the
then current rate unless (1) less than $1,000 would remain in the Guarantee
Period Account on the expiration date, or (2) unless 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 Sub-Account investing
in the Money Market Sub-Account. 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.
MARKET VALUE ADJUSTMENT. No Market Value Adjustment will be applied to
transfers, withdrawals, or 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 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)]to the power of 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 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%. 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 C, "SURRENDER CHARGES AND
THE MARKET VALUE ADJUSTMENT."
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<PAGE>
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, (including withdrawals made as
part of a pro-rata deduction for charges under an M-GAP Rider purchased or
repurchased after issue) in order to ensure that the value in the Guarantee
Period Account on the last day of the Guarantee Period 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 "F. Surrender and Withdrawals." In addition, the following 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 from or added to the amount withdrawn. If a surrender
charge applies to the withdrawal, it will be calculated as set forth under "E.
Surrender Charge" after application of the Market Value Adjustment.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a 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.
A. GENERAL
THE COMPANY. 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 was 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.
DIVERSIFICATION REQUIREMENTS. The IRS has issued regulations under Section
817(h) of the Code relating to the diversification requirements for variable
annuity and variable life insurance contracts. The regulations
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prescribed by the Treasury Department 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. Under this
section of the Code, if the investments are not adequately diversified, the
Contract will not be treated as an annuity contract, and therefore 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 Underlying
Portfolios 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.
INVESTOR CONTROL. In order for a variable annuity contract to qualify for tax
deferral, the Company, and not the variable contract owner, must be considered
to be the owner for tax purposes of the assets in the segregated asset account
underlying the variable annuity contract. In certain circumstances, however,
variable annuity contract owners may now be considered the owners of these
assets for federal income tax purposes. Specifically, the IRS has stated in
published rulings that a variable annuity contract owner may be considered the
owner of segregated account assets if the contract owner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection with
the issuance of regulations concerning investment diversification, that those
regulations do not provide guidance governing the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor (i.e., the contract owner), rather than the insurance company, to be
treated as the owner of the assets in the account. This announcement also states
that guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular sub-accounts
without being treated as owners of the underlying assets." As of the date of
this Prospectus, no such guidance has been issued. The Company therefore
additionally reserves the right to modify the Contract as necessary in order to
attempt to prevent a contract owner from being considered the owner of a pro
rata share of the assets of the segregated asset account underlying the variable
annuity contracts.
B. 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 "E. Provisions Applicable to Qualified Employer Plans"
below.
C. TAXATION OF THE CONTRACT IN GENERAL
The Company believes that the Contract described in this Prospectus will, with
certain exceptions (see "Nonnatural Owner" below), be considered an annuity
contract under Section 72 of the Code. Please note, however, if the Owner
chooses an Annuity Date beyond the Owner's 85th birthday, it is possible that
the Contract may not be considered an annuity for tax purposes, and therefore,
the Owner will be taxed on the annual increase in Accumulated Value. The Owner
should consult tax and financial advisors for more information. 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. 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
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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.
WITHDRAWALS AFTER ANNUITIZATION. A withdrawal from a qualified or non-qualified
contract may create significant adverse tax consequences. It is possible that
the Internal Revenue Service may take the view that when withdrawals (other than
annuity payments) are taken during the annuity payout phase of the Contract, all
amounts received by the taxpayer are taxable at ordinary income rates as amounts
"not received as an annuity." In addition, such amounts may be taxable to the
recipient without regard to the Owner's investment in the Contract or any
investment gain that might be present in the current annuity value.
For example, assume that a Contract owner with a Contract Value of $100,000 of
which $90,000 is comprised of investment in the Contract and $10,000 is
investment gain, makes a withdrawal of $20,000 during the annuity payout phase.
Under this view, the Contract owner would pay income taxes on the entire $20,000
amount in that tax year. For some taxpayers, such as those under age 59 1/2,
additional tax penalties may also apply.
OWNERS OF QUALIFIED AND NON-QUALIFIED CONTRACTS SHOULD CONSIDER CAREFULLY THE
TAX IMPLICATIONS OF ANY WITHDRAWAL REQUESTS AND THEIR NEED FOR CONTRACT FUNDS
PRIOR TO THE EXERCISE OF THE WITHDRAWAL RIGHT. CONTRACT OWNERS SHOULD ALSO
CONTACT THEIR TAX ADVISER PRIOR TO MAKING WITHDRAWALS.
ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments begin 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 cost basis is recovered, a deduction for the difference is allowed on the
Owner'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); or
- - if withdrawals from a qualified Contract are made to an employee who has
terminated employment after reaching age 55; or
- - 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.
The requirement of "substantially equal" periodic payments 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 is also 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 later of the Owner's age 59 1/2 or five years,
will subject the Owner to the 10% penalty tax on the prior distributions.
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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, 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 any LED-type 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.
NONNATURAL OWNERS. As a general rule, deferred annuity contracts owned by
"nonnatural 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.
D. 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.
E. 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 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.
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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 Contract 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. Sections 408 and 408A 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 Sections 408 and 408A 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 cancel the Contract as described
in this Prospectus. See "D. Right to Cancel."
Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) 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 annuity Contracts purchased for employees under annuity
plans adopted by public school systems and certain organizations which are tax
exempt under Section 501(c)(3) of the Code are excludable from the gross income
of such employees to the extent that 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.
STATEMENTS AND REPORTS
An Owner is sent a report semi-annually which provides certain financial
information about the Underlying Portfolios. At least annually, but possibly as
frequently as quarterly, the Company will furnish a statement to the Owner
containing information about his or her Contract, including Accumulation Unit
Values and other information as required by applicable law, rules and
regulations. The Company will also send a confirmation statement to Owners each
time a transaction is made affecting the Contract Value. (Certain transactions
made under recurring payment plans may in the future be confirmed quarterly
rather than by immediate confirmations.) The Owner should review the information
in all statements carefully. All errors or corrections must be reported to the
Company immediately to assure proper crediting to the Contract. The Company will
assume that all transactions are accurately reported on confirmation statements
and quarterly/annual statements unless the Owner notifies the Principal Office
in writing within 30 days after receipt of the statement.
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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 a 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 Underlying Portfolios also are 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 the Company and the
Fund do not currently foresee any such disadvantages to either variable life
insurance owners or variable annuity owners, the Company and the trustees intend
to monitor events in order to identify any material conflicts between such
owners, and to determine what action, if any, should be taken in response
thereto. If the trustees were to conclude 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-Account(s) may be operated as a management company under the
1940 Act, may be deregistered under the 1940 Act if registration is no longer
required, or may be combined with other Sub-Accounts or other separate accounts
of the Company.
The Company reserves the right, subject to compliance with applicable law and to
the provisions of the Participation Agreements, to:
(1) transfer assets from the Variable Account or Sub-Account to another of the
Company's variable 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
Portfolio shares held by a Sub-Account, in the event that Portfolio shares
are unavailable for investment, or if the Company determines that further
investment in such Portfolio 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 be made without notice to Owners in
accordance with the 1940 Act.
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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 (or any laws, regulations or rules of any
jurisdiction in which the Company is doing business), including but not limited
to requirements for annuity contracts and retirement plans under the Code and
pertinent regulations or any state statute or regulation. Any such changes will
apply uniformly to all Contracts that are affected. Owners will be given written
notice of such changes.
VOTING RIGHTS
The Company will vote Underlying Portfolio shares held by each Sub-Account in
accordance with instructions received from Owners. 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 that 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 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 payout phase, the number of
Underlying Portfolio shares attributable to each Owner will be determined by
dividing the reserve held in each Sub-Account for the Owner's variable annuity
by the net asset value of one Underlying Portfolio share. Ordinarily, the
Owner's voting interest in the Underlying Portfolio will decrease as the reserve
for the variable annuity is depleted.
DISTRIBUTION
The Contract 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 Contract also is 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 7.0% 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 surrender charges and profits from the Company's
General Account, which may include amounts derived from mortality and risk
charges. Commissions paid on the Contract, including additional incentives or
payments, do not result in any additional charge to Owners or to the Variable
Account. The Company will retain any surrender charges assessed on a Contract.
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.
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LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party,
or to which the assets of the Variable Account are subject. The Company and the
Principal Underwriter are not involved in any litigation that is of material
importance in relation to their total assets or that relates to the Separate
Account.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
Based on a third party assessment, the Company determined that significant
portions of its software required modification or replacement to enable its
computer systems to properly process dates beyond December 31, 1999. The Company
has completed the process of modifying or replacing existing software and
believes that this action will resolve the Year 2000 issue. However, should
there be serious unanticipated interruptions from unknown sources, the Year 2000
issue could have a material adverse impact on the operations of the Company.
Specifically, the Company could experience, among other things, an interruption
in its ability to collect and process premiums, process claim payments,
safeguard and manage its invested assets, accurately maintain policyholder
information, accurately maintain accounting records, and perform customer
service. Any of these specific events, depending on duration, could have a
material adverse impact on the results of operations and the financial position
of the Company.
The Company is engaged in formal communications with all of its significant
suppliers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 issue. The Company's
total Year 2000 project cost and estimates to complete the project include the
estimated costs and time associated with the Company's involvement on a third
party's Year 2000 program, and are based on presently available information.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have material adverse effect on the Company. The
Company does not believe that it has material exposure to contingencies related
to the Year 2000 issue for the products it has sold. Although the Company does
not believe that there is a material contingency associated with the Year 2000
issue, there can be no assurance that exposure for material contingencies will
not arise.
The cost of the Year 2000 project is being expensed as incurred and is being
funded primarily through a reallocation of resources from discretionary projects
and a reduction in systems maintenance and support costs. Therefore, the Year
2000 project is not expected to result in any significant incremental technology
cost and is not expected to have a material effect on the results of operations.
The Company and its affiliates have incurred and expensed approximately $59
million related to the assessment, plan development and substantial completion
of the Year 2000 project through June 30, 1999. The total remaining cost of the
project is estimated between $10-$20 million
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.
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APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account generally are not subject to regulation under the
provisions of the 1933 Act or the 1940 Act. Disclosures regarding the fixed
portion of the annuity Contract and the Fixed Account may be subject to the
provisions of the 1933 Act concerning the accuracy and completeness of
statements made in this Prospectus. The disclosures in this APPENDIX A have not
been reviewed by the SEC.
The Fixed Account is part of the Company's General Account which 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.
SALES RESTRICTIONS. In Massachusetts, payments and transfers to the Fixed
Account are subject to the following restrictions:
If a 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 a 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, no payments to the Fixed Account will be permitted if a Contract is
issued after the Annuitant's 81st birthday. 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 Sub-Account.
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAMS. To the extent
permitted by law, the Company reserves the right to offer Enhanced Automatic
Transfer Program(s) from time to time. If you elect to participate, the Company
will credit an enhanced interest rate to payments made to the Enhanced Automatic
Transfer Program. Eligible payments:
- - must be new payments to the Contract, including the initial payment,
- - must be allocated to the Fixed Account, which will be the source account,
- - must be automatically transferred out of the Fixed Account to one or more
Sub-Accounts over a specified time period and
- - will receive the enhanced rate while they remain in the Fixed Account.
You may be able to establish more than one Enhanced Automatic Transfer Program.
Payments made to the Contract during the same month will be part of the same
Enhanced Automatic Transfer Program if the length of the time period is the same
and the enhanced rate is the same. The allocation for all of the amounts in the
same program will be in accordance with the instructions for the most recent
payment to this program. The monthly transfer will be made on the date
designated for the initial payment to this program. The amount
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allocated will be determined by dividing the amount in the program by the number
of remaining months. For example, for a six-month program, the first automatic
transfer will be 1/6th of the balance; the second automatic transfer will be
1/5th of the balance, and so on.
Payments to different Enhanced Automatic Transfer Programs will be handled in
accordance with the instructions for each particular program.
A-2
<PAGE>
APPENDIX B
PERFORMANCE INFORMATION
This Contract was first offered to the public in 1999. However, in order to help
people understand how investment performance can affect money invested in the
Sub-Accounts, the Company may advertise "total return" and "average annual total
return" performance information based on (1) the periods that the Sub-Accounts
have been in existence and (2) the periods that the Underlying Portfolios have
been in existence. Performance results in Tables 1A and 2A reflect the
applicable deductions for the Contract fee, Sub-Account charges and Underlying
Portfolio charges under this Contract and also assume that the Contract is
surrendered at the end of the applicable period. Performance results in Tables
1B and 2B do not include the Contract fee and assume that the Contract is not
surrendered at the end of the applicable period. Neither set of tables includes
optional Rider charges. 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.
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
effect of the $35 annual Contract fee, the Underlying Portfolio charges and the
surrender charge which would be assessed if the investment were completely
withdrawn at the end of the specified period. The calculation is not adjusted to
reflect the deduction of any optional Rider charges. 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
Contract fee and 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 the performance in Tables 1A and 1B; however, the period of time is
based on the Underlying Portfolio's 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 this 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
B-1
<PAGE>
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; or
(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. In addition, relevant
broad-based indices and performance from independent sources may be used to
illustrate the performance of certain Contract features.
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.
B-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
SUB-ACCOUNT FOR YEAR SINCE
INCEPTION ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO DATE 12/31/98 SUB-ACCOUNT
- ------------------------------------------------------------------------- ------------ ----------- -------------
<S> <C> <C> <C>
Emerging Markets......................................................... 10/30/98 N/A -3.24%
Europe................................................................... 10/30/98 N/A -2.23%
International Growth..................................................... 3/29/95 -11.76% 1.53%
Capital Growth........................................................... 3/2/95 -12.33% 9.80%
Growth Shares............................................................ 10/31/97 21.87% 20.63%
Real Estate Growth....................................................... 3/7/95 -25.67% 8.87%
Growth and Income........................................................ 10/31/97 15.77% 18.79%
Equity-Income............................................................ 3/5/95 11.68% 21.80%
Balanced................................................................. 4/9/95 -6.01% 10.32%
Swiss Franc Bond......................................................... 11/5/95 -0.21% -6.68%
Strategic Income......................................................... N/A N/A N/A
America Income........................................................... 5/7/95 -1.45% 2.44%
Money Market............................................................. 3/5/95 -4.56% 0.97%
</TABLE>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
<TABLE>
<CAPTION>
SUB-ACCOUNT FOR YEAR SINCE
INCEPTION ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO DATE 12/31/98 SUB-ACCOUNT
- ------------------------------------------------------------------------- ------------ ----------- -------------
<S> <C> <C> <C>
Emerging Markets......................................................... 10/30/98 N/A 4.65%
Europe................................................................... 10/30/98 N/A 5.75%
International Growth..................................................... 3/29/95 -4.66% 3.89%
Capital Growth........................................................... 3/2/95 -5.28% 11.73%
Growth Shares............................................................ 10/31/97 30.64% 27.92%
Real Estate Growth....................................................... 3/7/95 -19.87% 10.84%
Growth and Income........................................................ 10/31/97 24.54% 26.10%
Equity-Income............................................................ 3/5/95 20.45% 23.31%
Balanced................................................................. 4/9/95 1.63% 12.28%
Swiss Franc Bond......................................................... 11/5/95 7.96% -4.23%
Strategic Income......................................................... N/A N/A N/A
America Income........................................................... 5/7/95 6.61% 4.82%
Money Market............................................................. 3/5/95 3.20% 3.28%
</TABLE>
B-3
<PAGE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF UNDERLYING PORTFOLIO
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
UNDERLYING SINCE
PORTFOLIO FOR YEAR INCEPTION OF
INCEPTION ENDED UNDERLYING
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO DATE 12/31/98 PORTFOLIO
- ---------------------------------------------------------------- ------------- ----------- -------------------
<S> <C> <C> <C>
Emerging Markets................................................ 10/30/98 N/A -3.24%
Europe.......................................................... 10/30/98 N/A -2.23%
International Growth............................................ 3/1/95 -11.76% 1.43%
Capital Growth.................................................. 3/1/95 -12.33% 9.79%
Growth Shares................................................... 10/31/97 21.87% 20.63%
Real Estate Growth.............................................. 3/1/95 -25.67% 8.82%
Growth and Income............................................... 10/31/97 15.77% 18.79%
Equity-Income................................................... 3/1/95 11.68% 21.72%
Balanced........................................................ 3/1/95 -6.01% 11.07%
Swiss Franc Bond................................................ 11/1/95 -0.21% -6.67%
Strategic Income................................................ N/A N/A N/A
America Income.................................................. 3/1/95 -1.45% 2.35%
Money Market.................................................... 3/1/95 -4.56% 0.97%
</TABLE>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF UNDERLYING PORTFOLIO
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
<TABLE>
<CAPTION>
UNDERLYING SINCE
PORTFOLIO FOR YEAR INCEPTION OF
INCEPTION ENDED UNDERLYING
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO DATE 12/31/98 PORTFOLIO
- ---------------------------------------------------------------- ------------- ----------- -------------------
<S> <C> <C> <C>
Emerging Markets................................................ 10/30/98 N/A 4.65%
Europe.......................................................... 10/30/98 N/A 5.75%
International Growth............................................ 3/1/95 -4.66% 3.76%
Capital Growth.................................................. 3/1/95 -5.28% 11.72%
Growth Shares................................................... 10/31/97 30.64% 27.92%
Real Estate Growth.............................................. 3/1/95 -19.87% 10.79%
Growth and Income............................................... 10/31/97 24.54% 26.10%
Equity-Income................................................... 3/1/95 20.45% 23.23%
Balanced........................................................ 3/1/95 1.63% 12.95%
Swiss Franc Bond................................................ 11/1/95 7.96% -4.23%
Strategic Income................................................ N/A N/A N/A
America Income.................................................. 3/1/95 6.61% 4.62%
Money Market.................................................... 3/1/95 3.20% 3.28%
</TABLE>
B-4
<PAGE>
APPENDIX C
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 partial withdrawals. The
Withdrawal Without Surrender Charge Amount is equal to the greater of 100% of
cumulative earnings (excluding Payment Credits) or 15% of the total of all
payments invested 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 $ 56,160 $ 7,500 8.5% $4,136
2 60,653 8,653 8.5% 4,250
3 65,505 13,505 8.5% 4,250
4 70,745 18,745 8.5% 4,250
5 76,405 24,405 7.5% 3,750
6 82,517 30,517 6.5% 3,250
7 89,119 37,119 5.5% 2,750
8 96,248 44,248 3.5% 1,750
9 103,948 51,948 1.5% 750
10 112,264 60,264 0.0% 0
</TABLE>
WITHDRAWALS -- Assume a payment of $50,000 is made on the Issue Date and no
additional payments are made. Assume that there are withdrawals as detailed
below. The Withdrawal Without Surrender Charge Amount is equal to the greater of
100% of cumulative earnings (excluding Payment Credits) or 15% of the total of
all payments invested in the Contract LESS that portion of any prior
withdrawal(s) of payments that are subject to the surrender charge table.
The table below presents examples of the surrender charge resulting from
withdrawals, 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 $56,160 $0 $ 7,500 8.5% $0
2 60,653 0 8,653 8.5% 0
3 65,505 0 13,505 8.5% 0
4 70,745 30,000 18,745 8.5% 957
5 44,005 10,000 5,812 7.5% 314
6 36,725 5,000 5,184 6.5% 0
7 34,264 10,000 5,184 5.5% 265
8 26,205 15,000 4,461 3.5% 369
9 12,101 5,000 2,880 1.5% 32
10 7,669 5,000 2,562 0.0% 0
</TABLE>
C-1
<PAGE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)]to the power of 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 $65,505.02 at the
end of three years.
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)]to the power of n/365 -1
= [(1+.08)/(1+.10)]to the power of 2555/365 -1
= (.98182)to the power of 7 -1
= -.12054
The market value adjustment = the market value factor multiplied by the withdrawal
= -.12054X$65,505.02
= -$7,895.79
</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)]to the power of n/365 -1
= [(1+.08)/(1+.07)]to the power of 2555/365 -1
= (1.00935)to the power of 7 -1
= .06728
The market value adjustment = the market value factor multiplied by the withdrawal
= .06728X$65,505.02
= $4,407.41
</TABLE>
C-2
<PAGE>
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)]to the power of n/365 -1
= [(1+.08)/(1+.11)]to the power of 2555/365 -1
= (.97297)to the power of 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$65,505.02 or -$10,868.67
= Minimum (-$11,432.08 or -$10,868.67)
= -$10,868.67
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 5.00% or 0.05
<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)]to the power of n/365 -1
= [(1+.08)/(1+.05)]to the power of 2555/365 -1
= (1.02857)to the power of 7 -1
= .21798
The market value adjustment = Minimum of the market value factor multiplied by the
withdrawal or the excess interest earned over 3%
= Minimum of (.21798 x $65,505.02 or $10,868.67)
= Minimum of ($14,278.98 or $10,868.67)
= $10,868.67
</TABLE>
C-3
<PAGE>
APPENDIX D
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SEPARATE ACCOUNT VA-P
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
SUB-ACCOUNT 1998 1997 1996 1995
-------------------------------------------------- ------ ------ ------ -----
<S> <C> <C> <C> <C>
EMERGING MARKETS
Unit Value:
Beginning of Period............................. N/A N/A N/A N/A
End of Period................................... 1.046 N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands)....................................... 27 N/A N/A N/A
EUROPE
Unit Value:
Beginning of Period............................. N/A N/A N/A N/A
End of Period................................... 1.058 N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands)....................................... 1,432 N/A N/A N/A
INTERNATIONAL GROWTH
Unit Value:
Beginning of Period............................. 1.211 1.171 1.094 1.000
End of Period................................... 1.154 1.211 1.171 1.094
Number of Units Outstanding at End of Period (in
thousands)....................................... 44,129 40,248 20,852 2,460
CAPITAL GROWTH
Unit Value:
Beginning of Period............................. 1.615 1.314 1.158 1.000
End of Period................................... 1.530 1.615 1.314 1,158
Number of Units Outstanding at End of Period (in
thousands)....................................... 67,868 61,917 36,746 7,981
GROWTH SHARES
Unit Values
Beginning of Period............................. 0.000 0 N/A N/A
End of Period................................... 1.333 1.020 N/A N/A
Number of Units Outstanding at End of Period (in
thousands)....................................... 62,983 4,454 N/A N/A
REAL ESTATE GROWTH
Unit Value:
Beginning of Period............................. 1.849 1.548 1.156 1.000
End of Period................................... 1.482 1.849 1.548 1.156
Number of Units Outstanding at End of Period (in
thousands)....................................... 19,513 19,820 7,063 342
GROWTH AND INCOME
Unit Value:
Beginning of Period............................. 1.053 0 N/A N/A
End of Period................................... 1.311 1.053 N/A N/A
Number of Units Outstanding at End of Period (in
thousands)....................................... 67,486 4,171 N/A N/A
EQUITY-INCOME
Unit Value:
Beginning of Period............................. 1.851 1.388 1.222 1.000
End of Period................................... 2.230 1.851 1.388 1.222
Number of Units Outstanding at End of Period (in
thousands)....................................... 90,684 66,458 33,466 5,553
BALANCED
Unit Value:
Beginning of Period............................. 1.516 1.312 1.185 1.000
End of Period................................... 1.541 1.516 1.312 1.185
Number of Units Outstanding at End of Period (in
thousands)....................................... 43,014 25,548 12,579 2,171
</TABLE>
D-1
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
SUB-ACCOUNT 1998 1997 1996 1995
-------------------------------------------------- ------ ------ ------ -----
<S> <C> <C> <C> <C>
SWISS FRANC BOND
Unit Value:
Beginning of Period............................. 0.808 0.881 1.001 1.000
End of Period................................... 0.873 0.808 0.881 1.001
Number of Units Outstanding at End of Period (in
thousands)....................................... 46,404 26,864 14,677 886
AMERICA INCOME
Unit Value:
Beginning of Period............................. 1.114 1.042 1.043 1.000
End of Period................................... 1.188 1.114 1.042 1.043
Number of Units Outstanding at End of Period (in
thousands)....................................... 23,977 12,728 6,317 3,267
MONEY MARKET
Unit Value:
Beginning of Period............................. 1.097 1.063 1.031 1.000
End of Period................................... 1.132 1.097 1.063 1.031
Number of Units Outstanding at End of Period (in
thousands)....................................... 18,693 12,330 10,655 3,210
</TABLE>
No information is shown above for the Strategic Income Portfolio which commenced
operations after December 31, 1998.
D-2
<PAGE>
APPENDIX E
EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS
Assume in the examples below that a 65-year-old male annuitizes his contract
exactly two years after the Issue Date. The annuitization amount is $250,000.
Further assume that he selects a variable Life with Period Certain annuity
payout option of Single Life with Payments Guaranteed for 10 Years, an Assumed
Investment Return ("AIR") of 3%, and an annual Change Frequency. Assume that the
Annuity Value purchases 1,370 Annuity Units and the first monthly annuity
benefit payment is equal to $1,370. The following examples assume a net return
of 8% (gross return of 9.4 %).
PRESENT VALUE WITHDRAWALS
EXAMPLE 1. Assume that the Owner has taken no previous withdrawals and would
like to take the maximum Present Value Withdrawal available at the beginning of
the fifth contract year (the third year of the Annuity Payout phase).
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment prior to withdrawal = $1,506.24
Rate used in Present Value Determination = 5% (3% AIR plus 2% Withdrawal
Adjustment Charge)
Present Value of Future Guaranteed Annuity Benefit Payments = $119,961.92
Maximum Present Value Withdrawal Amount = $89,971.44 ($119,961.92 * 75%)
Annuity Units after withdrawal = 342.50 (1,370 * (1 -
(89,971.44/119,961.92)))
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment after withdrawal = $376.56
Because the withdrawal is being made within 5 years of the Issue Date, the rate
used in the Present Value Determination is increased by a Withdrawal Adjustment
Charge. Since less than 10 years of guaranteed annuity payments are being
valued, the Withdrawal Adjustment Charge is 2%. Because this is a Present Value
Withdrawal, the number of Annuity Units will increase to 1,370 after the end of
the 10-year period during which the Company guaranteed to make payments.
EXAMPLE 2. Assume that the Owner has taken no previous withdrawals and would
like to take the maximum Present Value Withdrawal available at the beginning of
the tenth contract year (eighth year of the Annuity Payout phase).
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment prior to withdrawal = $1,909.09
Rate used in Present Value Determination = 3% (3% AIR)
Present Value of Future Guaranteed Annuity Benefit Payments = $65,849.08
Maximum Present Value Withdrawal Amount = $49,386.81 ($65,849.08 * 75%)
Annuity Units after withdrawal = 342.50 (1,370 * (1 -
(49,386.81/65,849.08)))
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment after withdrawal = $477.27
Because the withdrawal is being made more than 5 years after the Issue Date, the
rate used in the Present Value Determination is not increased by a Withdrawal
Adjustment Charge. Because this is a Present Value Withdrawal, the number of
Annuity Units will increase to 1,370 after the end of the 10-year period during
which the Company guaranteed to make payments.
E-1
<PAGE>
PAYMENT WITHDRAWALS
EXAMPLE 3. Assume that the Owner has taken no previous withdrawals and would
like to take the maximum Payment Withdrawal of 10 monthly annuity benefit
payments at the beginning of the fifth contract year (the third year of the
Annuity Payout phase). At that time, the Annuitant's life expectancy is greater
than 15 years.
Last Monthly Annuity Benefit Payment = 1,436.50
Withdrawal Amount = $14,365.00 (10 * 1,436.50)
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment prior to withdrawal = $1,506.24
Rate used in Present Value Determination = 4% (3% AIR plus 1% Withdrawal
Adjustment Charge)
Present Value of Future Annuity Benefit Payments = $234,482.77
Annuity Units after withdrawal = 1,286.07 (1,370 * (1 -
(14,365.00/234,482.77)))
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment after withdrawal = $1,413.96
Because the withdrawal is being made within 5 years of the Issue Date, the rate
used in the Present Value Determination is increased by a Withdrawal Adjustment
Charge. Since there are more than 15 years of annuity payments being valued (the
Annuitant's life expectancy is more than 15 years), the Withdrawal Adjustment
Charge is 1%. Because this is a Payment Withdrawal, the number of Annuity Units
will not increase after the end of the 10-year period during which the Company
guaranteed to make payments.
EXAMPLE 4. Assume that the Owner has taken no previous withdrawals and would
like to take the maximum Payment Withdrawal of 10 monthly annuity benefit
payments at the beginning of the tenth contract year (eighth year of the Annuity
Payout phase).
Last Monthly Annuity Benefit Payment = $1,820.71
Withdrawal Amount = $18,207.10 (10 * 1,820.71)
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment prior to withdrawal = $1,909.09
Rate used in Present Value Determination = 3% (3% AIR)
Present Value of Future Annuity Benefit Payments = $268,826.18
Annuity Units after withdrawal = 1,272.71 (1,370 * (1 -
(18,207.10/268,826.18)))
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment after withdrawal = $1,779.80
Because the withdrawal is being made more than 5 years after the Issue Date, the
rate used in the Present Value Determination is not increased by a Withdrawal
Adjustment Charge. Because this is a Payment Withdrawal, the number of Annuity
Units will not increase after the end of the 10-year period during which the
Company guaranteed to make payments.
E-2
<PAGE>
PRESENT VALUE WITHDRAWAL VERSUS PAYMENT WITHDRAWAL
EXAMPLE 5. Assume that the Owner has taken no previous withdrawals and would
like to take a $10,000 withdrawal at the beginning of the fifth contract year
(the third year of the Annuity Payout phase). At that time, the Annuitant's life
expectancy is greater than 15 years. The following examples show the impact of
taking the withdrawal under the Present Value Withdrawal Option and the Payment
Withdrawal Option.
PRESENT VALUE WITHDRAWAL
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment prior to withdrawal = $1,506.24
Rate used in Present Value Determination = 5% (3% AIR plus 2% Withdrawal
Adjustment Charge)
Present Value of future Guaranteed Annuity Benefit Payments = $119,961.92
Withdrawal = $10,000
Annuity Units after withdrawal = 1,255.80 (1,370 * (1 -
(10,000/119,961.92)))
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment after withdrawal = $1,380.67
Because the withdrawal is being made within 5 years of the Issue Date, the rate
used in the Present Value Determination is increased by a Withdrawal Adjustment
Charge. Since less than 10 years of guaranteed annuity payments are being
valued, the Withdrawal Adjustment Charge is 2%. Because this is a Present Value
Withdrawal, the number of Annuity Units will increase to 1,370 at the end of the
10-year period during which the Company guaranteed to make payments.
PAYMENT WITHDRAWAL
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment prior to withdrawal = $1,506.24
Rate used in Present Value Determination = 4% (3% AIR plus 1% Withdrawal
Adjustment Charge)
Present Value of future Annuity Benefit Payments = $234,482.77
Withdrawal = $10,000
Annuity Units after withdrawal = 1,311.57 (1,370 * (1 -
(10,000/$234,482.77)))
Annuity Unit Value on the date of withdrawal = 1.09944
Monthly Annuity Benefit Payment after withdrawal = $1,442.00
Because the withdrawal is being made within 5 years of the Issue Date, the rate
used in the Present Value Determination is increased by a Withdrawal Adjustment
Charge. Since there are more than 15 years of annuity payments being valued (the
Annuitant's life expectancy is more than 15 years), the Withdrawal Adjustment
Charge is 1%. Because this is a Payment Withdrawal, the number of Annuity Units
will not increase at the end of the 10-year period during which the Company
guaranteed to make payments.
E-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION
OF
INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS FUNDED THROUGH
SUB-ACCOUNTS OF
SEPARATE ACCOUNT VA-P
INVESTING IN SHARES OF PIONEER VARIABLE CONTRACTS TRUST
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE
READ IN CONJUNCTION WITH THE PIONEER XTRAVISION PROSPECTUS OF SEPARATE
ACCOUNT VA-P (PIONEER VISION) DATED ______ __, 1999 ("THE PROSPECTUS"). THE
PROSPECTUS MAY BE OBTAINED FROM ANNUITY CLIENT SERVICES, ALLMERICA FINANCIAL
LIFE INSURANCE AND ANNUITY COMPANY, 440 LINCOLN STREET, WORCESTER,
MASSACHUSETTS 01653, TELEPHONE 1-800-688-9915.
DATED _____ __, 1999
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY BENEFIT PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . F-1
GENERAL INFORMATION AND HISTORY
Separate Account VA-P (the "Variable Account") is a separate investment
account of Allmerica Financial Life Insurance and Annuity Company (the
"Company") established by vote of its Board of Directors on October 27, 1994.
The Company is a life insurance company organized under the laws of Delaware
in July 1974. Its principal office (the "Principal Office") is located at 440
Lincoln Street, Worcester, Massachusetts 01653, telephone (508) 855-1000. The
Company is subject to the laws of the State of Delaware governing insurance
companies and to regulation by the Commissioner of Insurance of Delaware. In
addition, the Company is subject to the insurance laws and regulations of
other states and jurisdictions in which it is licensed to operate. As of
December 31, 1998, the Company had over $14 billion in assets and over $26
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 a 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 among the five oldest life
insurance companies in America. As of December 31, 1998, First Allmerica and
its subsidiaries (including the Company) had over $27 billion in combined
assets and over $48 billion in life insurance in force.
Thirteen Sub-Accounts of the Variable Account are available under the Pioneer
XtraVision contract (the "Contract"). Each Sub-Account invests in a
corresponding investment portfolio of Pioneer Variable Contracts Trust (the
"Fund"), an open-end, diversified management investment company. The Fund
currently consists of the following thirteen investment portfolios: Emerging
Markets Portfolio, Europe Portfolio, 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, Strategic Income Portfolio, America Income
Portfolio and the Money Market Portfolio ("Underlying Portfolios").
2
<PAGE>
TAXATION OF THE CONTRACTS, THE VARIABLE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with
the contracts, other than for state and local premium taxes and similar
assessments when applicable. The Company reserves the right to impose a
charge for any other taxes that may become payable in the future in
connection with the contracts or the Variable Account.
The Variable Account is considered to be a part of and taxed with the
operations of the Company. The Company is taxed as a life insurance company
under subchapter L of the Internal Revenue Code (the "Code"), and files a
consolidated tax return with its parent and affiliated companies.
The Company reserves the right to make a charge for any effect which the
income, assets or existence of the contracts or the Variable Account may have
upon its tax. Such charge for taxes, if any, will be assessed on a fair and
equitable basis in order to preserve equity among classes of Contract Owners
("Owners"). The Variable Account presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Variable Account. Portfolio shares owned by the Sub-Accounts are held on an
open account basis. A Sub-Account's ownership of Portfolio shares is
reflected on the records of the Portfolio, and is not represented by any
transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998,
and the financial statements of Separate Account VA-P of the Company as
of December 31, 1998 and for the periods indicated, included in this
Statement of Additional Information constituting part of this Registration
Statement, have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under
the Contract.
UNDERWRITERS
Allmerica Investments, Inc. ("Allmerica Investments"), a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. ("NASD"), serves as
principal underwriter and general distributor for the Contract pursuant to a
contract with Allmerica Investments, the Company and the Variable Account.
Allmerica Investments distributes the Contract on a best-efforts basis.
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts
01653, was organized in 1969 as a wholly owned subsidiary of First Allmerica,
and presently is indirectly wholly owned by First Allmerica.
The Contract offered by this Prospectus is offered continuously, and may be
purchased from certain independent broker-dealers which are NASD members and
whose representatives are authorized by applicable laws to sell variable
annuity policies.
All persons selling the Contract are required to be licensed by their
respective state insurance authorities for the sale of variable annuity
contracts. The Company pays commissions, not to exceed 7.0% of purchase
3
<PAGE>
payments, to entities which sell the Contract. To the extent permitted by
NASD rules, promotional incentives or payments also may be provided to such
entities based on sales volumes, the assumption of wholesaling functions or
other sales-related criteria. Additional payments may be made for other
services not directly related to the sale of the Contract, including the
recruitment and training of personnel, production of promotional literature
and similar services. A Promotional Allowance of 1.0% is paid to Pioneer
Funds Distributor, Inc. for administrative and support services with respect
to the distribution of the Contract; however, Pioneer Funds Distributor, Inc.
may direct the Company to pay a portion of said allowance to broker-dealers
who provide support services directly.
No commissions were paid to Allmerica Investments, Inc. during 1996, 1997 and
1998 for sales of Contracts A3023-95, A3025-96 and A3027-98.
No commissions were paid for sales of Contract A3028-99 since it was not
offered until ______, 1999.
Commissions paid by the Company do not result in any charge to Owners or to
the Variable Account, in addition to the charges described under "CHARGES AND
DEDUCTIONS" in the Prospectus. The Company intends to recoup the commission
and other sales expense through a combination of anticipated surrender,
withdrawal and/or annuitization charges, profits from the Company's general
account, including the investment earnings on amounts allocated to accumulate
on a fixed basis in excess of the interest credited on fixed accumulations by
the Company, and the profit, if any, from the mortality and expense risk
charge.
ANNUITY BENEFIT PAYMENTS
The method by which the Accumulated Value under the Contract is determined
is described in detail under "Computation of Values" in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated
by the following hypothetical example: Assume that the assets of a
Sub-Account at the beginning of a one-day Valuation Period were $5,000,000;
that the value of an Accumulation Unit on the previous date was $1.135000;
and that during the Valuation Period, the investment income and net realized
and unrealized capital gains exceed net realized and unrealized capital
losses by $1,675. The Accumulation Unit Value at the end of the current
Valuation Period would be calculated as follows:
(1) Accumulation Unit Value -- Previous Valuation Period............$ 1.135000
(2) Value of Assets -- Beginning of Valuation Period................$5,000,000
(3) Excess of Investment Income and Net Gains Over Capital Losses.......$1,675
(4) Adjusted Gross Investment Rate for the Valuation Period (3)
divided by (2)....................................................0.000335
(5) Annual Charge (one-day equivalent of 1.40% per annum).............0.000039
(6) Net Investment Rate (4) - (5).....................................0.000296
(7) Net Investment Factor 1.000000 + (6)..............................1.000296
(8) Accumulation Unit Value -- Current Period (1) x (7).............$ 1.135336
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
Accumulation Unit Value at the end of the Valuation Period would have been
$1.134576.
4
<PAGE>
The method for determining the amount of annuity benefit payments is
described in detail under "Variable Annuity Benefit Payments" in the
Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY BENEFIT PAYMENT CALCULATION USING
HYPOTHETICAL EXAMPLE. The determination of the Annuity Unit Value and the
variable annuity benefit payment may be illustrated by the following
hypothetical example: Assume an Owner has 40,000 Accumulation Units in a
Variable Account, and that the value of an Accumulation Unit on the Valuation
Date used to determine the amount of the first variable annuity benefit
payment is $1.120000. Therefore, the Accumulated Value of the Contract is
$44,800 (40,000 x $1.120000). Assume also that the Owner elects an option for
which the first monthly payment is $6.57 per $1,000 of Accumulated Value
applied. Assuming no premium tax or surrender charge, the first monthly
payment would be 44.800 multiplied by $6.57, or $294.34.
Next, assume that the Annuity Unit Value for the assumed investment return of
3.0% per annum for the Valuation Date as of which the first payment was
calculated was 1.100000. Annuity Unit Values will not be the same as
Accumulation Unit Values because the former reflect the 3.0% assumed
investment return used in the annuity rate calculations. When the Annuity
Unit Value of $1.100000 is divided into the first monthly payment the number
of Annuity Units represented by that payment is determined to be 267.5818.
The value of this same number of Annuity Units will be paid in each
subsequent month under most options. Assume further that the net investment
factor for the Valuation Period applicable to the next annuity payment is
1.000190. Multiplying this factor by .999919 (the one-day adjustment factor
for the assumed investment return of 3.0% per annum) produces a factor of
1.000109. This then is multiplied by the Annuity Unit Value on the
immediately preceding Valuation Date (assumed here to be $1.105000). The
result is an Annuity Unit Value of $1.105121 for the current monthly payment.
The current monthly payment then is determined by multiplying the number of
Annuity Units by the current Annuity Unit Value, or 267.5818 times $1.105121,
which produces a current monthly payment of $295.71.
PERFORMANCE INFORMATION
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to certain indices described in the Prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other material information on
various topics of interest to Owners and prospective Owners. These topics may
include the relationship between sectors of the economy and the economy as a
whole and its effect on various securities markets, investment strategies and
techniques (such as value investing, market timing, dollar cost averaging,
asset allocation, constant ratio transfer and account rebalancing), the
advantages and disadvantages of investing in tax-deferred and taxable
investments, customer profiles and hypothetical purchase and investment
scenarios, financial management and tax and retirement planning, and
investment alternatives to certificates of deposit and other financial
instruments, including comparisons between the Contract and the
characteristics of and market for such financial instruments. Total Return
data and supplemental total return information may be advertised based on the
period of time that an Underlying Portfolio or an underlying Sub-Account has
been in existence, even if longer than the period of time that the Contract
has been offered. The results for any period prior to a Contract being
offered will be calculated as if the Contract had been offered during that
period of time, with all charges assumed to be those applicable to the
Contract.
Total return data, however, may be advertised based on the period of time
that the underlying Sub-Accounts and the Underlying Portfolios have been in
existence. The results
5
<PAGE>
for any period prior to the Contract being offered will be calculated as if
the Contract had been offered during that period of time, with all charges
assumed to be those applicable to the Contract.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment
in a Sub-Account and of the changes of value of the principal invested (due
to realized and unrealized capital gains or losses) for a specified period,
reduced by the Sub-Account's asset charge and any applicable surrender charge
which would be assessed upon complete withdrawal of the investment.
Total Return figures are calculated by standardized methods prescribed by
rules of the Securities and Exchange Commission (the "SEC"). The quotations
are computed by finding the average annual compounded rates of return over
the specified periods that would equate the initial amount invested to the
ending redeemable values, according to the following formula:
P(1 + T) (n) = ERV
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment to the Variable Account of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at the end of the specified period
</TABLE>
The calculation of Total Return includes the annual charges against the
assets of the Sub-Account. This charge is 1.40% on an annual basis. The
calculation of ending redeemable value assumes (1) the Contract was issued at
the beginning of the period, and (2) a complete surrender of the Contract at
the end of the period. The deduction of the surrender charge, if any,
applicable at the end of the period is included in the calculation, according
to the following schedule:
<TABLE>
<CAPTION>
------------------------------------------ ---------------------------------
<S> <C>
COMPLETE YEARS FROM DATE CHARGE
OF PAYMENT
------------------------------------------ ---------------------------------
0-4 8.5%
more than 4 7.5%
more than 5 6.5%
more than 6 5.5%
more than 7 3.5%
more than 8 1.5%
more than 9 0%
------------------------------------------ ---------------------------------
</TABLE>
6
<PAGE>
No surrender charge is deducted upon expiration of the periods specified
above. In all Contract years, a certain amount (withdrawal without surrender
charge amount, as described in the Prospectus) is not subject to the
surrender charge.
The calculations of Total Return include the deduction of the $35 annual
Contract fee.
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return Information in this section refers to the total
of the income generated by an investment in a Sub-Account and of the changes
of value of the principal invested (due to realized and unrealized capital
gains or losses) for a specified period reduced by the Sub-Account's asset
charges. It is assumed, however, that the investment is NOT withdrawn at the
end of each period.
The quotations of Supplemental Total Return are computed by finding the
average annual compounded rates of return over the specified periods that
would equate the initial amount invested to the ending values, according to
the following formula:
P(1 + T) (n) = EV
<TABLE>
<S> <C> <C>
Where: P = a hypothetical initial payment to the Variable Account of $1,000
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at the end of the specified period.
</TABLE>
The calculation of Supplemental Total Return reflects the 1.40% annual charge
against the assets of the Sub-Accounts. The ending value assumes that the
Contract is NOT surrendered at the end of the specified period, and therefore
there is no adjustment for the surrender charge that would be applicable if
the Contract was surrendered at the end of the period. The calculation of
supplemental total return does not include the deduction of the $35 annual
Contract fee.
7
<PAGE>
YIELD AND EFFECTIVE YIELD -- THE MONEY MARKET SUB-ACCOUNT
Set forth below is yield and effective yield information for the Money Market
Sub-Account for the seven- day period ended December 31, 1998:
-------------------- -------------------
-------------------- -------------------
Yield 2.67%
-------------------- -------------------
Effective Yield 2.71%
-------------------- -------------------
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the SEC. Under those methods, the yield quotation is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit of the Sub-Account at the beginning of the period, dividing
the difference by the value of the account at the beginning of the same
period to obtain the base period return, and then multiplying the return for
a seven-day base period by (365/7), with the resulting yield carried to the
nearest hundredth of one percent.
The Money Market Sub-Account computes effective yield by compounding the
unannualized base period return by using the formula:
Effective Yield = [(base period return + 1)(365/7)] - 1
The calculations of yield and effective yield reflect the $35 annual Contract
fee.
FINANCIAL STATEMENTS
Financial Statements are included for Allmerica Financial Life Insurance and
Annuity Company and for its Separate Account VA-P.
8
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Allmerica Financial Life Insurance and Annuity Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, shareholder's equity
and cash flows present fairly, in all material respects, the financial position
of Allmerica Financial Life Insurance and Annuity Company (the "Company") at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 1999, except for paragraph 2 of Note 12,
which is as of March 19, 1999
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
----------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
REVENUES
Premiums................................... $ 0.5 $ 22.8 $ 32.7
Universal life and investment product
policy fees.............................. 267.4 212.2 176.2
Net investment income...................... 151.3 164.2 171.7
Net realized investment gains (losses)..... 20.0 2.9 (3.6)
Other income............................... 0.6 1.4 0.9
------- ------- -------
Total revenues......................... 439.8 403.5 377.9
------- ------- -------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 153.9 187.8 192.6
Policy acquisition expenses................ 64.6 2.8 49.9
Sales practice litigation.................. 21.0 -- --
Loss from cession of disability income
business................................. -- 53.9 --
Other operating expenses................... 104.1 101.3 86.6
------- ------- -------
Total benefits, losses and expenses.... 343.6 345.8 329.1
------- ------- -------
Income before federal income taxes............. 96.2 57.7 48.8
------- ------- -------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 22.1 13.9 26.9
Deferred................................... 11.8 7.1 (9.8)
------- ------- -------
Total federal income tax expense....... 33.9 21.0 17.1
------- ------- -------
Net income..................................... $ 62.3 $ 36.7 $ 31.7
------- ------- -------
------- ------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
-------------------------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,284.6 and $1,340.5)............................ $ 1,330.4 $ 1,402.5
Equity securities at fair value (cost of $27.4 and
$34.4)............................................ 31.8 54.0
Mortgage loans...................................... 230.0 228.2
Real estate......................................... 14.5 12.0
Policy loans........................................ 151.5 140.1
Other long-term investments......................... 9.1 20.3
---------- ----------
Total investments............................... 1,767.3 1,857.1
---------- ----------
Cash and cash equivalents............................. 217.9 31.1
Accrued investment income............................. 33.5 34.2
Deferred policy acquisition costs..................... 950.5 765.3
Reinsurance receivables on paid and unpaid losses,
future policy benefits and unearned premiums........ 308.0 251.1
Other assets.......................................... 46.9 10.7
Separate account assets............................... 11,020.4 7,567.3
---------- ----------
Total assets.................................... $ 14,344.5 $ 10,516.8
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,284.8 $ 2,097.3
Outstanding claims, losses and loss adjustment
expenses.......................................... 17.9 18.5
Unearned premiums................................... 2.7 1.8
Contractholder deposit funds and other policy
liabilities....................................... 38.1 32.5
---------- ----------
Total policy liabilities and accruals........... 2,343.5 2,150.1
---------- ----------
Expenses and taxes payable............................ 146.2 77.6
Reinsurance premiums payable.......................... 45.7 4.9
Deferred federal income taxes......................... 78.8 75.9
Separate account liabilities.......................... 11,020.4 7,567.3
---------- ----------
Total liabilities............................... 13,634.6 9,875.8
---------- ----------
Commitments and contingencies (Note 12)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares
authorized, 2,524 and 2,521 shares issued and
outstanding......................................... 2.5 2.5
Additional paid-in capital............................ 407.9 386.9
Accumulated other comprehensive income................ 24.1 38.5
Retained earnings..................................... 275.4 213.1
---------- ----------
Total shareholder's equity...................... 709.9 641.0
---------- ----------
Total liabilities and shareholder's equity...... $ 14,344.5 $ 10,516.8
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
----------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
COMMON STOCK................................... $ 2.5 $ 2.5 $ 2.5
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............. 386.9 346.3 324.3
Issuance of common stock................... 21.0 40.6 22.0
-------- -------- --------
Balance at end of period................... 407.9 386.9 346.3
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Net unrealized appreciation on investments:
Balance at beginning of period............. 38.5 20.5 23.8
Appreciation (depreciation) during the
period:
Net (depreciation) appreciation on
available-for-sale securities........ (23.4) 27.0 (5.1)
Benefit (provision) for deferred
federal income taxes................. 9.0 (9.0) 1.8
-------- -------- --------
(14.4) 18.0 (3.3)
-------- -------- --------
Balance at end of period................... 24.1 38.5 20.5
-------- -------- --------
RETAINED EARNINGS
Balance at beginning of period............. 213.1 176.4 144.7
Net income................................. 62.3 36.7 31.7
-------- -------- --------
Balance at end of period................... 275.4 213.1 176.4
-------- -------- --------
Total shareholder's equity............. $ 709.9 $ 641.0 $ 545.7
-------- -------- --------
-------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
-------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Net income.................................. $ 62.3 $ 36.7 $ 31.7
Other comprehensive income:
Net (depreciation) appreciation on
available-for-sale securities......... (23.4) 27.0 (5.1)
Benefit (provision) for deferred federal
income taxes.......................... 9.0 (9.0) 1.8
------- ------- -------
Other comprehensive income.......... (14.4) 18.0 (3.3)
------- ------- -------
Comprehensive income.................... 47.9 $ 54.7 $ 28.4
------- ------- -------
------- ------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
-------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 62.3 $ 36.7 $ 31.7
Adjustments to reconcile net income to
net cash used in operating activities:
Net realized gains.................. (20.0) (2.9) 3.6
Net amortization and depreciation... (7.1) -- 3.5
Sales practice litigation expense... 21.0
Loss from cession of disability
income business................... -- 53.9 --
Deferred federal income taxes....... 11.8 7.1 (9.8)
Payment related to cession of
disability income business........ -- (207.0) --
Change in deferred acquisition
costs............................. (177.8) (181.3) (66.8)
Change in reinsurance premiums
payable........................... 40.8 3.9 (0.2)
Change in accrued investment
income............................ 0.7 3.5 1.2
Change in policy liabilities and
accruals, net..................... 193.1 (72.4) (39.9)
Change in reinsurance receivable.... (56.9) 22.1 (1.5)
Change in expenses and taxes
payable........................... 55.4 0.2 32.3
Separate account activity, net...... (0.5) 1.6 8.0
Other, net.......................... (28.0) (8.7) 2.3
-------- -------- --------
Net cash provided by (used in)
operating activities.......... 94.8 (343.3) (35.6)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................ 187.0 909.7 809.4
Proceeds from disposals of equity
securities............................ 53.3 2.4 1.5
Proceeds from disposals of other
investments........................... 22.7 23.7 17.4
Proceeds from mortgages matured or
collected............................. 60.1 62.9 34.0
Purchase of available-for-sale fixed
maturities............................ (136.0) (579.7) (795.8)
Purchase of equity securities........... (30.6) (3.2) (13.2)
Purchase of other investments........... (22.7) (9.0) (13.9)
Purchase of mortgages................... (58.9) (70.4) (22.3)
Other investing activities, net......... (3.9) -- (2.0)
-------- -------- --------
Net cash provided by investing
activities........................ 71.0 336.4 15.1
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and
capital paid in....................... 21.0 19.2 22.0
-------- -------- --------
Net cash provided by financing
activities........................ 21.0 19.2 22.0
-------- -------- --------
Net change in cash and cash equivalents..... 186.8 12.3 1.5
Cash and cash equivalents, beginning of
period..................................... 31.1 18.8 17.3
-------- -------- --------
Cash and cash equivalents, end of period.... $ 217.9 $ 31.1 $ 18.8
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ 0.6 $ -- $ 3.4
Income taxes paid....................... $ 36.2 $ 5.4 $ 16.5
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC" or the
"Company") is organized as a stock life insurance company, and is a wholly owned
subsidiary of SMA Financial Corporation ("SMAFCO"), which is wholly owned by
First Allmerica Financial Life Insurance Company ("FAFLIC"). FAFLIC is a wholly
owned subsidiary of Allmerica Financial Corporation ("AFC").
The consolidated financial statements of AFLIAC include the accounts of Somerset
Square, Inc., a wholly-owned non-insurance company, which was transferred from
SMAFCO effective November 30, 1997 and dissolved as a subsidiary, effective
November 30, 1998. Its results of operations are included for 11 months of 1998
and for the month of December, 1997.
The Statutory stockholder's equity of the Company is being maintained at a
minimum level of 5% of general account assets by FAFLIC in accordance with a
policy established by vote of FAFLIC's Board of Directors.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
B. VALUATION OF INVESTMENTS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 115 ("Statement No. 115"), "Accounting for Certain Investments in Debt and
Equity Securities", the Company is required to classify its investments into one
of three categories: held-to-maturity, available-for-sale or trading. The
Company determines the appropriate classification of debt securities at the time
of purchase and re-evaluates such designation as of each balance sheet date.
Marketable equity securities and debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of shareholder's equity. The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by the Company to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which the Company believes may not be collectible in
full. In establishing reserves, the Company considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
During 1997, the Company adopted to a plan to dispose of all real estate assets
by the end of 1998. As of December 31, 1998, there was 1 property remaining in
the Company's real estate portfolio, which is being actively marketed. As a
result of the Plan, real estate held by the Company and real estate joint
ventures were written down to the estimated fair value less cost of disposal.
Depreciation is not recorded on this asset while it is held for disposal.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other-than-temporary impairment of the value of a specific
investment or a group of investments is determined, a realized investment loss
is recorded. Changes in the valuation allowance for mortgage loans are included
in realized investment gains or losses.
C. FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including debt, investments such as
fixed maturities, mortgage loans and equity securities and investment and loan
commitments. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuation. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
D. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
E. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Acquisition costs related to universal life products, variable annuities and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits from investment yields, mortality, surrender charges and
expense margins over the expected life of the contracts. This amortization is
reviewed annually and adjusted retrospectively when the Company revises its
estimate of current or future gross profits to be realized from this group of
products, including realized and unrealized gains and losses from investments.
Acquisition costs related to fixed annuities and other life insurance products
are deferred and amortized, generally in proportion to the ratio of annual
revenue to the estimated total revenues over the contract periods based upon the
same assumptions used in estimating the liability for future policy benefits.
Deferred acquisition costs for each product are reviewed to determine if they
are recoverable from future income, including investment income. If such costs
are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, the Company believes it is more likely than not that all of these costs
will be realized. The amount of deferred policy acquisition costs considered
realizable, however, could be reduced in the near term if the estimates of gross
profits or total revenues discussed above are reduced. The amount of
amortization of deferred policy acquisition costs could be revised in the near
term if any of the estimates discussed above are revised.
F. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of certain pension, variable annuity
and variable life insurance contractholders. Assets consist principally of
bonds, common stocks, mutual funds, and short-term obligations at market value.
The investment income, gains and losses of these accounts generally accrue to
the contractholders and, therefore, are not included in the Company's net
income. Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholder's equity or net investment income.
G. POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, disability income and annuity
products. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. The liabilities associated
with traditional life insurance products are computed using the net level
premium method for
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
individual life and annuity policies, and are based upon estimates as to future
investment yield, mortality and withdrawals that include provisions for adverse
deviation. Future policy benefits for individual life insurance and annuity
policies are computed using interest rates ranging from 3% to 6% for life
insurance and 3 1/2% to 9 1/2% for annuities. Mortality, morbidity and
withdrawal assumptions for all policies are based on the Company's own
experience and industry standards. Liabilities for universal life include
deposits received from customers and investment earnings on their fund balances,
less administrative charges. Universal life fund balances are also assessed
mortality and surrender charges.
Individual disability income benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future morbidity,
withdrawals and interest which provide a margin for adverse deviation. Benefit
liabilities for disabled lives are estimated using the present value of benefits
method and experience assumptions as to claim terminations, expenses and
interest.
Liabilities for outstanding claims, losses and loss adjustment expenses are
estimates of payments to be made for reported claims and estimates of claims
incurred but not reported for individual life and disability income policies.
These estimates are continually reviewed and adjusted as necessary; such
adjustments are reflected in current operations.
Contractholder deposit funds and other policy liabilities include
investment-related products and consist of deposits received from customers and
investment earnings on their fund balances.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, the Company
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
H. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life and individual annuity products, excluding
universal life and investment-related products, are considered revenue when due.
Individual disability income insurance premiums are recognized as revenue over
the related contract periods. The unexpired portion of these premiums is
recorded as unearned premiums. Benefits, losses and related expenses are matched
with premiums, resulting in their recognition over the lives of the contracts.
This matching is accomplished through the provision for future benefits,
estimated and unpaid losses and amortization of deferred policy acquisition
costs. Revenues for investment-related products consist of net investment income
and contract charges assessed against the fund values. Related benefit expenses
primarily consist of net investment income credited to the fund values after
deduction for investment and risk charges. Revenues for universal life and group
variable universal life products consist of net investment income, with
mortality, administration and surrender charges assessed against the fund
values. Related benefit expenses include universal life benefit claims in excess
of fund values and net investment income credited to universal life fund values.
Certain policy charges that represent compensation for services to be provided
in future periods are deferred and amortized over the period benefited using the
same assumptions used to amortize capitalized acquisition costs.
I. FEDERAL INCOME TAXES
AFC and its domestic subsidiaries file a consolidated United States federal
income tax return. Entities included within the consolidated group are
segregated into either a life insurance or non-life insurance company subgroup.
The consolidation of these subgroups is subject to certain statutory
restrictions on the percentage of eligible non-life tax losses that can be
applied to offset life insurance company taxable income.
The Board of Directors has delegated to AFC management, the development and
maintenance of appropriate federal income tax allocation policies and
procedures, which are subject to written agreement between the
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
companies. The Federal income tax for all subsidiaries in the consolidated
return of AFC is calculated on a separate return basis. Any current tax
liability is paid to AFC. Tax benefits resulting from taxable operating losses
or credits of AFC's subsidiaries are not reimbursed to the subsidiary until such
losses or credits can be utilized by the subsidiary on a separate return basis.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes, and for
other temporary taxable and deductible differences as defined by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement
No. 109). These differences result primarily from policy reserves, policy
acquisition expenses, and unrealized appreciation or depreciation on
investments.
J. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), which establishes
accounting and reporting standards for derivative instruments. Statement No. 133
requires that an entity recognize all derivatives as either assets or
liabilities at fair value in the statement of financial position, and
establishes special accounting for the following three types of hedges; fair
value hedges, cash flow hedges, and hedges of foreign currency exposures of net
investment in foreign operations. This statement is effective for fiscal years
beginning after June 15, 1999. The Company is currently assessing the impact of
adoption of Statement No. 133.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SoP 98-1"). SoP 98-1 requires that
certain costs incurred in developing internal-use computer software be
capitalized and provides guidance for determining whether computer software is
to be considered for internal use. This statement is effective for fiscal years
beginning after December 15, 1998. In the second quarter, the Company adopted
SoP 98-1 effective January 1, 1998, resulting in an increase in pre-tax income
of $9.8 million through December 31, 1998. The adoption of SoP 98-1 did not have
a material effect on the results of operations or financial position for the
three months ended March 31, 1998.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments" ("SoP 97-3"). SoP 97-3 provides
guidance when a liability should be recognized for guaranty fund and other
assessments and how to measure the liability. This statement allows for the
discounting of the liability if the amount and timing of the cash payments are
fixed and determinable. In addition, it provides criteria for when an asset may
be recognized for a portion or all of the assessment liability or paid
assessment that can be recovered through premium tax offsets or policy
surcharges. This statement is effective for fiscal years beginning after
December 15, 1998. The Company believes that the adoption of this statement will
not have a material effect on the results of operations or financial position.
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("Statement No. 131"). This statement
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that
selected information about those operating segments be reported in interim
financial statements. This statement supersedes Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement No. 131 requires
that all public enterprises report financial and descriptive information about
their reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This statement
is effective for fiscal years
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
beginning after December 15, 1997. AFLIAC consists of one segment, Allmerica
Financial Services, which underwrites and distributes variable annuities and
variable universal life via retail channels.
In June 1997, the FASB also issued Statement No. 130, "Reporting Comprehensive
Income" ("Statement No. 130"), which established standards for the reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. All items that are required to be
recognized under accounting standards as components of comprehensive income are
to be reported in a financial statement that is displayed with the same
prominence as other financial statements. This statement stipulates that
comprehensive income reflect the change in equity of an enterprise during a
period from transactions and other events and circumstances from non-owner
sources. This statement is effective for fiscal years beginning after December
15, 1997. The Company adopted Statement No. 130 for the first quarter of 1998,
which resulted primarily in reporting unrealized gains and losses on investments
in debt and equity securities in comprehensive income.
2. SIGNIFICANT TRANSACTIONS
Effective January 1, 1998, the Company entered into an agreement with a highly
rated reinsurer to reinsure the mortality risk on the universal life and
variable universal life blocks of business. The agreement does not have a
material effect on the results of operations or financial position of the
Company.
On April 14, 1997, the Company entered into an agreement in principle to cede
substantially all of the Company's individual disability income line of business
under a 100% coinsurance agreement with a highly rated reinsurer. The
coinsurance agreement became effective October 1, 1997. The transaction has
resulted in the recognition of a $53.9 million pre-tax loss in the first quarter
of 1997.
During 1998, 1997 and 1996 , SMAFCO contributed $21.0 million, $40.6 million and
$22.0 million, respectively, of additional paid-in capital to the Company. The
nature of the 1997 contribution was $19.2 million in cash and $21.4 million in
other assets including Somerset Square, Inc.
3. INVESTMENTS
A. SUMMARY OF INVESTMENTS
The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with the provisions of Statement No. 115.
The amortized cost and fair value of available-for-sale fixed maturities and
equity securities were as follows:
<TABLE>
<CAPTION>
1998
----------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 5.8 $ 0.8 $-- $ 6.6
States and political subdivisions....... 2.7 0.2 -- 2.9
Foreign governments..................... 48.8 1.6 1.5 48.9
Corporate fixed maturities.............. 1,096.0 58.0 17.7 1,136.3
Mortgage-backed securities.............. 131.3 5.8 1.4 135.7
--------- ----- ----- --------
Total fixed maturities.................. $ 1,284.6 $66.4 $20.6 $1,330.4
--------- ----- ----- --------
--------- ----- ----- --------
Equity securities....................... $ 27.4 $ 8.9 $ 4.5 $ 31.8
--------- ----- ----- --------
--------- ----- ----- --------
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
1997
----------------------------------------------
<CAPTION>
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 6.3 $ 0.5 $-- $ 6.8
States and political subdivisions....... 2.8 0.2 -- 3.0
Foreign governments..................... 50.1 2.0 -- 52.1
Corporate fixed maturities.............. 1,147.5 58.7 3.3 1,202.9
Mortgage-backed securities.............. 133.8 5.2 1.3 137.7
--------- ----- ----- --------
Total fixed maturities.................. $ 1,340.5 $66.6 $ 4.6 $1,402.5
--------- ----- ----- --------
--------- ----- ----- --------
Equity securities....................... $ 34.4 $19.9 $ 0.3 $ 54.0
--------- ----- ----- --------
--------- ----- ----- --------
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
In connection with AFLIAC's voluntary withdrawal of its license in New York,
AFLIAC agreed with the New York Department of Insurance to maintain, through a
custodial account in New York, a security deposit, the market value of which
will at all times equal 102% of all outstanding liabilities of AFLIAC for New
York policyholders, claimants and creditors. At December 31, 1998, the amortized
cost and market value of these assets on deposit in New York were $268.5 million
and $284.1 million, respectively. At December 31, 1997, the amortized cost and
market value of assets on deposit were $276.8 million and $291.7 million,
respectively. In addition, fixed maturities, excluding those securities on
deposit in New York, with an amortized cost of $4.2 million were on deposit with
various state and governmental authorities at December 31, 1998 and 1997.
There were no contractual fixed maturity investment commitments at December 31,
1998 and 1997, respectively.
The amortized cost and fair value by maturity periods for fixed maturities are
shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties, or the Company may have the right to put or sell the
obligations back to the issuers. Mortgage backed securities are included in the
category representing their ultimate maturity.
<TABLE>
<CAPTION>
1998
--------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------------------------------------------------------ --------- --------
<S> <C> <C>
Due in one year or less..................................... $ 97.7 $ 98.9
Due after one year through five years....................... 269.1 278.3
Due after five years through ten years...................... 638.2 658.5
Due after ten years......................................... 279.6 294.7
--------- --------
Total....................................................... $ 1,284.6 $1,330.4
--------- --------
--------- --------
</TABLE>
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The proceeds from voluntary sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, PROCEEDS FROM GROSS GROSS
(IN MILLIONS) VOLUNTARY SALES GAINS LOSSES
- ------------------------------------------------------------ --------------- ----- ------
<S> <C> <C> <C>
1998
Fixed maturities............................................ $ 60.0 $ 2.0 $ 2.0
Equity securities........................................... $ 52.6 $17.5 $ 0.9
1997
Fixed maturities............................................ $702.9 $11.4 $ 5.0
Equity securities........................................... $ 1.3 $ 0.5 $ --
1996
Fixed maturities............................................ $496.6 $ 4.3 $ 8.3
Equity securities........................................... $ 1.5 $ 0.4 $ 0.1
</TABLE>
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- -------
<S> <C> <C> <C>
1998
Net appreciation, beginning of year......................... $ 22.1 $ 16.4 $ 38.5
---------- ------ -------
Net depreciation on available-for-sale securities........... (16.2) (14.3) (30.5)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 7.1 -- 7.1
Benefit from deferred federal income taxes.................. 3.2 5.8 9.0
---------- ------ -------
(5.9) (8.5) (14.4)
---------- ------ -------
Net appreciation, end of year............................... $ 16.2 $ 7.9 $ 24.1
---------- ------ -------
---------- ------ -------
1997
Net appreciation, beginning of year......................... $ 12.7 $ 7.8 $ 20.5
---------- ------ -------
Net appreciation on available-for-sale securities........... 24.3 12.5 36.8
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (9.8) -- (9.8)
Provision for deferred federal income taxes................. (5.1) (3.9) (9.0)
---------- ------ -------
9.4 8.6 18.0
---------- ------ -------
Net appreciation, end of year............................... $ 22.1 $ 16.4 $ 38.5
---------- ------ -------
---------- ------ -------
1996
Net appreciation, beginning of year......................... $ 20.4 $ 3.4 $ 23.8
---------- ------ -------
Net (depreciation) appreciation on available-for-sale
securities................................................. (20.8) 6.7 (14.1)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 9.0 -- 9.0
Benefit (provision) for deferred federal income taxes....... 4.1 (2.3) 1.8
---------- ------ -------
(7.7) 4.4 (3.3)
---------- ------ -------
Net appreciation, end of year............................... $ 12.7 $ 7.8 $ 20.5
---------- ------ -------
---------- ------ -------
</TABLE>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) Includes net appreciation on other investments of $.9 million, $1.3 million,
and $2.2 million in 1998, 1997, and 1996, respectively.
B. MORTGAGE LOANS AND REAL ESTATE
AFLIAC's mortgage loans and real estate are diversified by property type and
location. Real estate investments have been obtained primarily through
foreclosure. Mortgage loans are collateralized by the related properties and
generally are no more than 75% of the property's value at the time the original
loan is made.
The carrying values of mortgage loans and real estate investments net of
applicable reserves were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------- -------
<S> <C> <C>
Mortgage loans.............................................. $ 230.0 $ 228.2
Real estate held for sale................................... 14.5 12.0
------- -------
Total mortgage loans and real estate........................ $ 244.5 $ 240.2
------- -------
------- -------
</TABLE>
Reserves for mortgage loans were $3.3 million and $9.4 million at December 31,
1998 and 1997, respectively.
During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. At December 31, 1998, there was 1 property remaining
in the Company's real estate portfolio, which is being actively marketed. As a
result of the Plan, during 1997, real estate assets with a carrying amount of
$15.7 million were written down to the estimated fair value less cost to sell of
$12.0 million, and a net realized investment loss of $3.7 million was
recognized. Depreciation was not recorded on these assets while they were held
for disposal.
There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1998 and 1997. During 1996, non-cash
investing activities included real estate acquired through foreclosure of
mortgage loans, which had a fair value of $0.9 million.
There were no contractual commitments to extend credit under commercial mortgage
loan agreements at December 31, 1998. These commitments generally expire within
one year.
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
Property type:
Office building........................................... $129.2 $101.7
Residential............................................... 18.9 19.3
Retail.................................................... 37.4 42.2
Industrial/warehouse...................................... 59.2 61.9
Other..................................................... 3.1 24.5
Valuation allowances...................................... (3.3) (9.4)
------ ------
Total....................................................... $244.5 $240.2
------ ------
------ ------
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
Geographic region:
<S> <C> <C>
South Atlantic............................................ $ 55.5 $ 68.7
Pacific................................................... 80.0 56.6
East North Central........................................ 41.4 61.4
Middle Atlantic........................................... 22.5 29.8
West South Central........................................ 6.7 6.9
New England............................................... 26.9 12.4
Other..................................................... 14.8 13.8
Valuation allowances...................................... (3.3) (9.4)
------ ------
Total....................................................... $244.5 $240.2
------ ------
------ ------
</TABLE>
At December 31, 1998, scheduled mortgage loan maturities were as follows: 1999
- -- $24.8 million; 2000 -- $43.5 million; 2001 -- $6.6 million; 2002 -- $11.5
million; 2003 -- $0.6 million; and $143.0 million thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties and loans may be
refinanced. During 1998, the Company did not refinance any mortgage loans based
on terms which differed from those granted to new borrowers.
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances, which have been deducted in arriving at
investment carrying values as presented in the balance sheet and changes thereto
are shown below.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 PROVISIONS WRITE-OFFS DECEMBER 31
- ------------------------------------------------------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1998
Mortgage loans.............................................. $ 9.4 $(4.5) $1.6 $ 3.3
----- ----- --- -----
----- ----- --- -----
1997
Mortgage loans.............................................. $ 9.5 $ 1.1 $1.2 $ 9.4
Real estate................................................. 1.7 3.7 5.4 --
----- ----- --- -----
Total................................................... $11.2 $ 4.8 $6.6 $ 9.4
----- ----- --- -----
----- ----- --- -----
1996
Mortgage loans.............................................. $12.5 $ 4.5 $7.5 $ 9.5
Real estate................................................. 2.1 -- 0.4 1.7
----- ----- --- -----
Total................................................... $14.6 $ 4.5 $7.9 $11.2
----- ----- --- -----
----- ----- --- -----
</TABLE>
Provisions on mortgages during 1998 reflect the release of redundant reserves.
Write-offs of $5.4 million to the investment valuation allowance related to real
estate in 1997 primarily reflect write downs to the estimated fair value less
cost to sell pursuant to the aforementioned 1997 plan of disposal.
The carrying value of impaired loans was $15.3 million and $20.6 million, with
related reserves of $1.5 million and $7.1 million as of December 31, 1998 and
1997, respectively. All impaired loans were reserved as of December 31, 1998 and
1997.
The average carrying value of impaired loans was $17.0 million, $19.8 million
and $26.3 million, with related interest income while such loans were impaired
of $2.0 million, $2.2 million and $3.4 million as of December 31, 1998, 1997 and
1996, respectively.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. OTHER
At December 31, 1998, AFLIAC had no concentration of investments in a single
investee exceeding 10% of shareholder's equity.
4. INVESTMENT INCOME AND GAINS AND LOSSES
A. NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $107.7 $130.0 $137.2
Mortgage loans.............................................. 25.5 20.4 22.0
Equity securities........................................... 0.3 1.3 0.7
Policy loans................................................ 11.7 10.8 10.2
Real estate................................................. 3.3 3.9 6.2
Other long-term investments................................. 1.5 1.0 0.8
Short-term investments...................................... 4.2 1.4 1.4
------ ------ ------
Gross investment income..................................... 154.2 168.8 178.5
Less investment expenses.................................... (2.9) (4.6) (6.8)
------ ------ ------
Net investment income....................................... $151.3 $164.2 $171.7
------ ------ ------
------ ------ ------
</TABLE>
There were no mortgage loans or fixed maturities on non-accrual status at
December 31, 1998. The effect of non-accruals, compared with amounts that would
have been recognized in accordance with the original terms of the investment,
had no impact in 1998 and 1997, and reduced net income by $0.1 million in 1996.
The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $12.6 million, $21.1 million and $25.4 million at December 31,
1998, 1997 and 1996, respectively. Interest income on restructured mortgage
loans that would have been recorded in accordance with the original terms of
such loans amounted to $1.4 million, $1.9 million and $3.6 million in 1998,
1997, and 1996, respectively. Actual interest income on these loans included in
net investment income aggregated $1.8 million, $2.1 million and $2.2 million in
1998, 1997, and 1996, respectively.
There were no fixed maturities or mortgage loans which, were non-income
producing for the twelve months ended December 31, 1998.
B. REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $ (6.1) $ 3.0 $ (3.3)
Mortgage loans.............................................. 8.0 (1.1) (3.2)
Equity securities........................................... 15.7 0.5 0.3
Real estate................................................. 2.4 (1.5) 2.5
Other....................................................... -- 2.0 0.1
------ ------ ------
Net realized investment gains (losses)...................... $ 20.0 $ 2.9 $ (3.6)
------ ------ ------
------ ------ ------
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. OTHER COMPREHENSIVE INCOME RECONCILIATION
The following table provides a reconciliation of gross unrealized gains to the
net balance shown in the Statement of Comprehensive income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------- ------- -------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period (net of taxes
of $(5.6) million, $10.2 million and $(2.9) million in
1998, 1997 and 1996 respectively).......................... $ (8.2) $ 20.3 $ (5.3)
Less: reclassification adjustment for gains included in net
income (net of taxes of $3.4 million, $1.2 million and
$(1.0) million in 1998, 1997 and 1996 respectively)........ 6.2 2.3 (2.0)
------- ------- -------
Other comprehensive income.................................. $ (14.4) $ 18.0 $ (3.3)
------- ------- -------
------- ------- -------
</TABLE>
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures about Fair Value of Financial Instruments"
("Statement No, 107"), requires disclosure of fair value information about
certain financial instruments (insurance contracts, real estate, goodwill and
taxes are excluded) for which it is practicable to estimate such values, whether
or not these instruments are included in the balance sheet. The fair values
presented for certain financial instruments are estimates which, in many cases,
may differ significantly from the amounts which could be realized upon immediate
liquidation. In cases where market prices are not available, estimates of fair
value are based on discounted cash flow analyses, which utilize current interest
rates for similar financial instruments, which have comparable terms and credit
quality.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair value.
FIXED MATURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.
EQUITY SECURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans is
limited to the lesser of the present value of the cash flows or book value.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
POLICY LOANS
The carrying amount reported in the balance sheet approximates fair value since
policy loans have no defined maturity dates and are inseparable from the
insurance contracts.
INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under investment type contracts are
estimated based on current surrender values.
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 217.9 $ 217.9 $ 31.1 $ 31.1
Fixed maturities.......................................... 1,330.4 1,330.4 1,402.5 1,402.5
Equity securities......................................... 31.8 31.8 54.0 54.0
Mortgage loans............................................ 230.0 241.9 228.2 239.8
Policy loans.............................................. 151.5 151.5 140.1 140.1
--------- --------- --------- ---------
$ 1,961.6 $ 1,973.5 $ 1,855.9 $ 1,867.5
--------- --------- --------- ---------
--------- --------- --------- ---------
FINANCIAL LIABILITIES
Individual fixed annuity contracts........................ $ 1,069.4 $ 1,034.6 $ 876.0 $ 850.6
Supplemental contracts without life Contingencies......... 16.6 16.6 15.3 15.3
--------- --------- --------- ---------
$ 1,086.0 $ 1,051.2 $ 891.3 $ 865.9
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
6. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of Statement No. 109. A summary of the federal income tax expense
(benefit) in the statement of income is shown below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ----- ----- -----
<S> <C> <C> <C>
Federal income tax expense (benefit)
Current................................................... $22.1 $13.9 $26.9
Deferred.................................................. 11.8 7.1 (9.8)
----- ----- -----
Total....................................................... $33.9 $21.0 $17.1
----- ----- -----
----- ----- -----
</TABLE>
The provision for federal income taxes does not materially differ from the
amount of federal income tax determined by applying the appropriate U.S.
statutory income tax rate to income before federal income taxes.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The deferred tax liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
Deferred tax (assets) liabilities
Policy reserves........................................... $ (205.1) $ (175.8)
Deferred acquisition costs................................ 278.8 226.4
Investments, net.......................................... 12.5 27.0
Sales practice litigation................................. (7.4) --
Bad debt reserve.......................................... (0.4) (2.0)
Other, net................................................ 0.4 0.3
-------- --------
Deferred tax liability, net................................. $ 78.8 $ 75.9
-------- --------
-------- --------
</TABLE>
Gross deferred income tax liabilities totaled $291.7 million and $253.7 million
at December 31, 1998 and 1997, respectively. Gross deferred income tax assets
totaled $212.9 million and $177.8 at December 31, 1998 and 1997, respectively.
The Company believes, based on its recent earnings history and its future
expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, the Company considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary.
The Company's federal income tax returns are routinely audited by the IRS, and
provisions are routinely made in the financial statements in anticipation of the
results of these audits. The IRS has examined the consolidated group's federal
income tax returns through 1994. The Company has appealed certain adjustments
proposed by the IRS with respect to the consolidated group's federal income tax
returns for 1992, 1993, and 1994. Also, certain adjustments proposed by the IRS
with respect to FAFLIC/AFLIAC's federal income tax returns for 1982 and 1983
remain unresolved. If upheld, these adjustments would result in additional
payments; however, the Company will vigorously defend its position with respect
to these adjustments. In the Company's opinion, adequate tax liabilities have
been established for all years. However, the amount of these tax liabilities
could be revised in the near term if estimates of the Company's ultimate
liability are revised.
7. RELATED PARTY TRANSACTIONS
The Company has no employees of its own, but has agreements under which FAFLIC
provides management, space and other services, including accounting, electronic
data processing, human resources, legal and other staff functions. Charges for
these services are based on full cost including all direct and indirect overhead
costs, and amounted to $145.4 million and $124.1 million in 1998 and 1997. The
net amounts payable to FAFLIC and affiliates for accrued expenses and various
other liabilities and receivables were $16.4 million and $15.0 million at
December 31, 1998 and 1997, respectively.
8. DIVIDEND RESTRICTIONS
Delaware has enacted laws governing the payment of dividends to stockholders by
insurers. These laws affect the dividend paying ability of the Company.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding December 31
or (ii) the individual company's statutory net gain from operations for the
preceding calendar year (if such insurer is a
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
life company) or its net income (not including realized capital gains) for the
preceding calendar year (if such insurer is not a life company). Any dividends
to be paid by an insurer, whether or not in excess of the aforementioned
threshold, from a source other than statutory earned surplus would also require
the prior approval of the Delaware Commissioner of Insurance.
No dividends were declared by the Company during 1998, 1997 and 1996. During
1999, AFLIAC could pay dividends of $26.1 million to FAFLIC without prior
approval.
9. REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Reinsurance transactions are accounted for in
accordance with the provisions of Statement No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts" ("Statement No.
113").
The Company reinsures 100% of its traditional individual life and certain blocks
of its universal life business, substantially all of its disability income
business, and effective January 1, 1998, the mortality risk on the variable
universal life and remaining universal life blocks of business in-force at
December 31, 1997.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policy. Reinsurance contracts
do not relieve the Company from its obligations to policyholders. Failure of
reinsurers to honor their obligations could result in losses to the Company;
consequently, allowances are established for amounts deemed uncollectible. The
Company determines the appropriate amount of reinsurance based on evaluation of
the risks accepted and analyses prepared by consultants and reinsurers and on
market conditions (including the availability and pricing of reinsurance). The
Company also believes that the terms of its reinsurance contracts are consistent
with industry practice in that they contain standard terms with respect to lines
of business covered, limit and retention, arbitration and occurrence. Based on
its review of its reinsurers' financial statements and reputations in the
reinsurance marketplace, the Company believes that its reinsurers are
financially sound.
Amounts recoverable from reinsurers at December 31, 1998 and 1997 for the
disability income business were $230.8 million and $216.1 million, respectively,
traditional life were $11.4 million and $15.2 million, respectively, and
universal and variable universal life were $65.8 million and $19.8 million,
respectively.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Insurance premiums:
Direct.................................................... $ 45.5 $ 48.8 $ 53.3
Assumed................................................... -- 2.6 3.1
Ceded..................................................... (45.0) (28.6) (23.7)
------ ------ ------
Net premiums................................................ $ 0.5 $ 22.8 $ 32.7
------ ------ ------
------ ------ ------
</TABLE>
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
Insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
<S> <C> <C> <C>
Direct.................................................... $204.0 $226.0 $206.4
Assumed................................................... -- 4.2 4.5
Ceded..................................................... (50.1) (42.4) (18.3)
------ ------ ------
Net policy benefits, claims, losses and loss adjustment
expenses................................................... $153.9 $187.8 $192.6
------ ------ ------
------ ------ ------
</TABLE>
10. DEFERRED POLICY ACQUISITION COSTS
The following reflects the changes to the deferred policy acquisition asset:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Balance at beginning of year................................ $765.3 $632.7 $555.7
Acquisition expenses deferred............................. 242.4 184.2 116.6
Amortized to expense during the year...................... (64.6) (53.1) (49.9)
Adjustment to equity during the year...................... 7.4 (10.2) 10.3
Adjustment for cession of disability income insurance..... -- (38.6) --
Adjustment for revision of universal life and variable
universal life insurance mortality assumptions.......... -- 50.3 --
------ ------ ------
Balance at end of year...................................... $950.5 $765.3 $632.7
------ ------ ------
------ ------ ------
</TABLE>
On October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.3 million recapitalization of deferred policy acquisition costs.
11. LIABILITIES FOR INDIVIDUAL DISABILITY INCOME BENEFITS
The Company regularly updates its estimates of liabilities for future policy
benefits and outstanding claims, losses and loss adjustment expenses as new
information becomes available and further events occur which may impact the
resolution of unsettled claims. Changes in prior estimates are recorded in
results of operations in the year such changes are determined to be needed.
The liability for future policy benefits and outstanding claims, losses and loss
adjustment expenses related to the Company's disability income business was
$233.3 million and $219.9 million at December 31, 1998 and 1997. Due to the
reinsurance agreement whereby the Company has ceded substantially all of its
disability income business to a highly rated reinsurer, the Company believes
that no material adverse development of losses will occur. However, the amount
of the liabilities could be revised in the near term if the estimates are
revised.
12. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recovered through a reduction in future premium taxes in some states. The
Company is not able to reasonably estimate the potential effect on it of any
such future assessments or voluntary payments.
LITIGATION
In July 1997, a lawsuit on behalf of a putative class was instituted in
Louisiana against AFC and certain of its subsidiaries including AFLIAC, by
individual plaintiffs alleging fraud, unfair or deceptive acts, breach of
contract, misrepresentation, and related claims in the sale of life insurance
policies. In October 1997, plaintiffs voluntarily dismissed the Louisiana suit
and filed a substantially similar action in Federal District Court in Worcester,
Massachusetts. In early November 1998, AFC and the plaintiffs entered into a
settlement agreement, to which the court granted preliminary approval on
December 4, 1998. A hearing was held on March 19, 1999 to consider final
approval of the settlement agreement. A decision by the court is expected to be
rendered in the near future. Accordingly, AFLIAC recognized a $21.0 million
pre-tax expense during the third quarter of 1998 related to this litigation.
Although the Company believes that this expense reflects appropriate recognition
of its obligation under the settlement, this estimate assumes the availability
of insurance coverage for certain claims, and the estimate may be revised based
on the amount of reimbursement actually tendered by AFC's insurance carriers, if
any, and based on changes in the Company's estimate of the ultimate cost of the
benefits to be provided to members of the class.
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the Company's opinion of, based on the advice
of legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's financial statements. However, liabilities
related to these proceedings could be established in the near term if estimates
of the ultimate resolution of these proceedings are revised.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Although the Company does not believe that there is a material contingency
associated with the Year 2000 project, there can be no assurance that exposure
for material contingencies will not arise.
13. STATUTORY FINANCIAL INFORMATION
The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles
primarily because policy acquisition costs are expensed when incurred,
investment reserves are based on different assumptions, life insurance reserves
are based on different assumptions and income tax expense reflects only taxes
paid or currently payable. Statutory net income and surplus are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Statutory net income........................................ $ (8.2) $ 31.5 $ 5.4
Statutory shareholder's surplus............................. $309.7 $307.1 $234.0
</TABLE>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT ACCOUNTANTS' REPORT (UNAUDITED)
AFC has made certain changes to its corporate structure effective July 1, 1999.
These changes include the transfer of FAFLIC's ownership of Allmerica Property &
Casualty Companies, Inc., as well as several non-insurance subsidiaries, from
FAFLIC to AFC. In addition, certain changes affected AFLIAC. SMAFCO transferred
its ownership in AFLIAC to FAFLIC. Hence, AFLIAC became a wholly owned
subsidiary of FAFLIC. Further, four non-insurance subsidiaries previously held
by SMAFCO were contributed to AFLIAC. Under an agreement with the Commonwealth
of Massachusetts Insurance Commissioner ("the Commissioner"), AFC has
contributed to FAFLIC capital of $125.0 million and agreed to maintain FAFLIC's
statutory surplus at specified levels during the following six years. In
addition, any dividend from FAFLIC to AFC during 2000 and 2001 would require the
prior approval of the Commissioner. This transaction was approved by the
Commissioner on May 24, 1999.
In 1998, the net income of the subsidiaries, which was reported in SMAFCO's
results of operations, to be transferred to AFLIAC from SMAFCO pursuant to the
aforementioned change in corporate structure was $18.8 million. As of December
31, 1998, the total assets and total shareholders' equity of these subsidiaries
were $16.8 million and $9.2 million, respectively.
On May 19, 1999, the Federal District Court in Worcester, Massachusetts issued
an order relating to the litigation mentioned in Note 12, above, certifying the
class for settlement purposes and granting final approval of the settlement
agreement.
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Allmerica Financial Life Insurance and Annuity
Company and the Contractowners of the Separate Account VA-P of Allmerica
Financial Life Insurance and Annuity Company
In our opinion, the accompanying statements of assets and liabilities, and the
related statements of operations and changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts
constituting the Separate Account VA-P of Allmerica Financial Life Insurance and
Annuity Company at December 31, 1998, the results of each of their operations
and the changes in each of their net assets for each of the periods indicated,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of Allmerica Financial Life Insurance and
Annuity Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the Fund,
provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 26, 1999
<PAGE>
SEPARATE ACCOUNT VA-P
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
INTERNATIONAL REAL ESTATE
GROWTH CAPITAL GROWTH GROWTH
------------ ---------------- ------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Pioneer Variable
Contracts Trust............................ $50,946,797 $103,848,201 $ 28,914,261
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor).... -- -- 2,528
------------ ---------------- ------------
Total assets.............................. 50,946,797 103,848,201 28,916,789
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and Annuity Company (Sponsor).... 5,043 11,691 --
------------ ---------------- ------------
Net assets................................ $50,941,754 $103,836,510 $ 28,916,789
------------ ---------------- ------------
------------ ---------------- ------------
Net asset distribution by category:
Qualified variable annuity contracts...... $11,451,154 $ 27,704,633 $ 7,090,936
Non-qualified variable annuity
contracts............................... 39,490,600 76,131,877 21,825,853
Value of investment by Allmerica Financial
Life Insurance and Annuity Company
(Sponsor)............................... -- -- --
------------ ---------------- ------------
$50,941,754 $103,836,510 $ 28,916,789
------------ ---------------- ------------
------------ ---------------- ------------
Qualified units outstanding, December 31,
1998....................................... 9,919,615 18,107,757 4,784,872
Net asset value per qualified unit, December
31, 1998................................... $ 1.154395 $ 1.529987 $ 1.481949
Non-qualified units outstanding, December
31, 1998................................... 34,208,915 49,759,820 14,727,802
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 1.154395 $ 1.529987 $ 1.481949
<CAPTION>
AMERICA
EQUITY-INCOME BALANCED INCOME
--------------- ------------ -------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Pioneer Variable
Contracts Trust............................ $202,195,257 $ 66,271,945 $28,479,002
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor).... 31,067 -- 29
--------------- ------------ -------------
Total assets.............................. 202,226,324 66,271,945 28,479,031
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and Annuity Company (Sponsor).... -- -- --
--------------- ------------ -------------
Net assets................................ $202,226,324 $ 66,271,945 $28,479,031
--------------- ------------ -------------
--------------- ------------ -------------
Net asset distribution by category:
Qualified variable annuity contracts...... $ 49,970,161 $ 18,157,512 $ 6,496,080
Non-qualified variable annuity
contracts............................... 152,256,163 48,114,433 21,982,951
Value of investment by Allmerica Financial
Life Insurance and Annuity Company
(Sponsor)............................... -- -- --
--------------- ------------ -------------
$202,226,324 $ 66,271,945 $28,479,031
--------------- ------------ -------------
--------------- ------------ -------------
Qualified units outstanding, December 31,
1998....................................... 22,407,973 11,785,052 5,469,094
Net asset value per qualified unit, December
31, 1998................................... $ 2.230017 $ 1.540724 $ 1.187780
Non-qualified units outstanding, December
31, 1998................................... 68,275,785 31,228,457 18,507,595
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 2.230017 $ 1.540724 $ 1.187780
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
SEPARATE ACCOUNT VA-P
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SWISS FRANC
MONEY MARKET BOND GROWTH SHARES
------------ ------------ --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Pioneer Variable
Contracts Trust............................ $21,154,504 $40,494,725 $83,951,108
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor).... -- -- --
------------ ------------ --------------
Total assets.............................. 21,154,504 40,494,725 83,951,108
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and Annuity Company (Sponsor).... -- -- --
------------ ------------ --------------
Net assets................................ $21,154,504 $40,494,725 $83,951,108
------------ ------------ --------------
------------ ------------ --------------
Net asset distribution by category:
Qualified variable annuity contracts...... $ 5,332,696 $15,743,419 $28,224,147
Non-qualified variable annuity
contracts............................... 15,821,808 24,751,306 55,726,961
Value of investment by Allmerica Financial
Life Insurance and Annuity Company
(Sponsor)............................... -- -- --
------------ ------------ --------------
$21,154,504 $40,494,725 $83,951,108
------------ ------------ --------------
------------ ------------ --------------
Qualified units outstanding, December 31,
1998....................................... 4,712,194 18,040,994 21,174,849
Net asset value per qualified unit, December
31, 1998................................... $ 1.131680 $ 0.872647 $ 1.332909
Non-qualified units outstanding, December
31, 1998................................... 13,980,815 28,363,481 41,808,526
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 1.131680 $ 0.872647 $ 1.332909
<CAPTION>
GROWTH EMERGING
AND INCOME MARKETS EUROPE
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Pioneer Variable
Contracts Trust............................ $88,463,246 $ 27,856 $ 1,514,017
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor).... -- -- --
------------ ------------ ------------
Total assets.............................. 88,463,246 27,856 1,514,017
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and Annuity Company (Sponsor).... -- -- --
------------ ------------ ------------
Net assets................................ $88,463,246 $ 27,856 $ 1,514,017
------------ ------------ ------------
------------ ------------ ------------
Net asset distribution by category:
Qualified variable annuity contracts...... $28,830,588 $ 4,397 $ 567,503
Non-qualified variable annuity
contracts............................... 59,632,658 23,438 946,493
Value of investment by Allmerica Financial
Life Insurance and Annuity Company
(Sponsor)............................... -- 21 21
------------ ------------ ------------
$88,463,246 $ 27,856 $ 1,514,017
------------ ------------ ------------
------------ ------------ ------------
Qualified units outstanding, December 31,
1998....................................... 21,993,946 4,202 536,643
Net asset value per qualified unit, December
31, 1998................................... $ 1.310842 $ 1.046498 $ 1.057505
Non-qualified units outstanding, December
31, 1998................................... 45,491,873 22,417 895,045
Net asset value per non-qualified unit,
December 31, 1998.......................... $ 1.310842 $ 1.046498 $ 1.057505
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
SEPARATE ACCOUNT VA-P
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH CAPITAL GROWTH
--------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 890,850 $ 90,381 $ 680,838 $ --
Mortality and expense risk fees............ (661,389) (488,086) (1,348,507) (925,315)
Administrative expense fees................ (81,745) (60,326) (166,669) (114,365)
------------ ------------ ------------- -------------
Net investment income (loss)............. 147,716 (458,031) (834,338) (1,039,680)
------------ ------------ ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 4,083,140 473,914 7,079,065 549,333
Net realized gain (loss) from sales of
investments.............................. (858,991) 123,161 301,323 674,650
------------ ------------ ------------- -------------
Net realized gain (loss)................... 3,224,149 597,075 7,380,388 1,223,983
Net unrealized gain (loss)................. (6,753,777) (833,701) (14,125,218) 13,286,504
------------ ------------ ------------- -------------
Net realized and unrealized gain
(loss).................................. (3,529,628) (236,626) (6,744,830) 14,510,487
------------ ------------ ------------- -------------
Net increase (decrease) in net assets from
operations............................... (3,381,912) (694,657) (7,579,168) 13,470,807
------------ ------------ ------------- -------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 14,158,430 22,741,571 28,868,464 34,562,466
Withdrawals................................ (2,628,552) (1,864,858) (5,147,413) (3,065,144)
Contract benefits.......................... (1,094,248) (815,896) (1,963,829) (1,497,249)
Contract charges........................... (14,893) (8,971) (35,939) (23,699)
Transfers between sub-accounts (including
fixed account), net...................... (7,504,480) 4,197,392 (13,498,935) 7,130,376
Other transfers from (to) the General
Account.................................. 2,667,815 772,655 3,163,977 1,184,379
Net increase (decrease) in investment by
Sponsor.................................. -- -- -- --
------------ ------------ ------------- -------------
Net increase (decrease) in net assets from
contract transactions.................... 5,584,072 25,021,893 11,386,325 38,291,129
------------ ------------ ------------- -------------
Net increase (decrease) in net assets...... 2,202,160 24,327,236 3,807,157 51,761,936
NET ASSETS:
Beginning of year.......................... 48,739,594 24,412,358 100,029,353 48,267,417
------------ ------------ ------------- -------------
End of year................................ $ 50,941,754 $ 48,739,594 $ 103,836,510 $ 100,029,353
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
<CAPTION>
REAL ESTATE GROWTH
----------------------------
YEAR ENDED DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 1,420,835 $ 899,720
Mortality and expense risk fees............ (419,110) (292,763)
Administrative expense fees................ (51,800) (36,184)
------------- ------------
Net investment income (loss)............. 949,925 570,773
------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 184,498 41,137
Net realized gain (loss) from sales of
investments.............................. (117,139) 252,219
------------- ------------
Net realized gain (loss)................... 67,359 293,356
Net unrealized gain (loss)................. (8,587,258) 3,758,359
------------- ------------
Net realized and unrealized gain
(loss).................................. (8,519,899) 4,051,715
------------- ------------
Net increase (decrease) in net assets from
operations............................... (7,569,974) 4,622,488
------------- ------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 10,831,104 16,808,158
Withdrawals................................ (1,704,782) (998,730)
Contract benefits.......................... (626,301) (279,646)
Contract charges........................... (11,572) (6,410)
Transfers between sub-accounts (including
fixed account), net...................... (10,096,809) 4,827,964
Other transfers from (to) the General
Account.................................. 1,443,199 747,548
Net increase (decrease) in investment by
Sponsor.................................. -- --
------------- ------------
Net increase (decrease) in net assets from
contract transactions.................... (165,161) 21,098,884
------------- ------------
Net increase (decrease) in net assets...... (7,735,135) 25,721,372
NET ASSETS:
Beginning of year.......................... 36,651,924 10,930,552
------------- ------------
End of year................................ $ 28,916,789 $ 36,651,924
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
SEPARATE ACCOUNT VA-P
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
EQUITY-INCOME BALANCED
----------------------------- ---------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 3,284,589 $ 1,956,565 $ 1,619,786 $ 757,171
Mortality and expense risk fees............ (2,010,718) (1,013,070) (687,744) (351,807)
Administrative expense fees................ (248,516) (125,211) (85,003) (43,482)
------------- ------------- ------------ ------------
Net investment income (loss)............. 1,025,355 818,284 847,039 361,882
------------- ------------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. 1,816,463 59,861 1,914,656 258,539
Net realized gain (loss) from sales of
investments.............................. 2,343,676 1,346,024 262,480 175,512
------------- ------------- ------------ ------------
Net realized gain (loss)................... 4,160,139 1,405,885 2,177,136 434,051
Net unrealized gain (loss)................. 25,063,875 20,957,678 (2,677,717) 2,741,339
------------- ------------- ------------ ------------
Net realized and unrealized gain
(loss).................................. 29,224,014 22,363,563 (500,581) 3,175,390
------------- ------------- ------------ ------------
Net increase (decrease) in net assets from
operations............................... 30,249,369 23,181,847 346,458 3,537,272
------------- ------------- ------------ ------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 60,162,656 46,057,375 22,891,314 20,877,883
Withdrawals................................ (8,654,709) (3,392,147) (3,418,373) (1,589,954)
Contract benefits.......................... (2,632,631) (1,782,924) (1,265,525) (891,283)
Contract charges........................... (36,737) (16,403) (12,519) (5,525)
Transfers between sub-accounts (including
fixed account), net...................... (7,553,064) 11,323,556 (725,182) 4,112,661
Other transfers from (to) the General
Account.................................. 7,663,539 1,426,781 5,174,087 734,750
Net increase (decrease) in investment by
Sponsor.................................. -- -- -- --
------------- ------------- ------------ ------------
Net increase (decrease) in net assets from
contract transactions.................... 48,949,054 53,616,238 22,643,802 23,238,532
------------- ------------- ------------ ------------
Net increase (decrease) in net assets...... 79,198,423 76,798,085 22,990,260 26,775,804
NET ASSETS:
Beginning of year.......................... 123,027,901 46,229,816 43,281,685 16,505,881
------------- ------------- ------------ ------------
End of year................................ $ 202,226,324 $ 123,027,901 $ 66,271,945 $ 43,281,685
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
<CAPTION>
AMERICA INCOME
---------------------------
YEAR ENDED DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 1,146,829 $ 481,164
Mortality and expense risk fees............ (266,945) (108,597)
Administrative expense fees................ (32,993) (13,422)
------------ ------------
Net investment income (loss)............. 846,891 359,145
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- --
Net realized gain (loss) from sales of
investments.............................. 190,301 (16,827)
------------ ------------
Net realized gain (loss)................... 190,301 (16,827)
Net unrealized gain (loss)................. 256,340 299,832
------------ ------------
Net realized and unrealized gain
(loss).................................. 446,641 283,005
------------ ------------
Net increase (decrease) in net assets from
operations............................... 1,293,532 642,150
------------ ------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 11,413,228 6,844,021
Withdrawals................................ (1,145,240) (474,352)
Contract benefits.......................... (455,477) (121,607)
Contract charges........................... (4,024) (1,482)
Transfers between sub-accounts (including
fixed account), net...................... 1,236,333 574,188
Other transfers from (to) the General
Account.................................. 1,959,234 138,383
Net increase (decrease) in investment by
Sponsor.................................. -- --
------------ ------------
Net increase (decrease) in net assets from
contract transactions.................... 13,004,054 6,959,151
------------ ------------
Net increase (decrease) in net assets...... 14,297,586 7,601,301
NET ASSETS:
Beginning of year.......................... 14,181,445 6,580,144
------------ ------------
End of year................................ $ 28,479,031 $ 14,181,445
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
SEPARATE ACCOUNT VA-P
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MONEY MARKET SWISS FRANC BOND
---------------------------- ---------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1998 1997
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 850,492 $ 555,165 $ 1,214,158 $ --
Mortality and expense risk fees............ (232,559) (150,787) (329,812) (214,128)
Administrative expense fees................ (28,743) (18,637) (40,764) (26,466)
------------ ------------- ------------ ------------
Net investment income (loss)............. 589,190 385,741 843,582 (240,594)
------------ ------------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- -- -- --
Net realized gain (loss) from sales of
investments.............................. -- -- (220,224) (167,069)
------------ ------------- ------------ ------------
Net realized gain (loss)................... -- -- (220,224) (167,069)
Net unrealized gain (loss)................. -- -- 1,598,302 (803,923)
------------ ------------- ------------ ------------
Net realized and unrealized gain
(loss).................................. -- -- 1,378,078 (970,992)
------------ ------------- ------------ ------------
Net increase (decrease) in net assets from
operations............................... 589,190 385,741 2,221,660 (1,211,586)
------------ ------------- ------------ ------------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 14,431,511 43,113,597 18,557,008 8,144,276
Withdrawals................................ (2,913,201) (1,366,472) (1,770,781) (604,411)
Contract benefits.......................... (4,360,697) (88,688) (103,607) (77,999)
Contract charges........................... (2,801) (2,561) (14,136) (6,611)
Transfers between sub-accounts (including
fixed account), net...................... (457,911) (39,835,426) (58,126) 2,577,933
Other transfers from (to) the General
Account.................................. 347,685 (6,848) (50,370) (32,858)
Net increase (decrease) in investment by
Sponsor.................................. -- -- -- --
------------ ------------- ------------ ------------
Net increase (decrease) in net assets from
contract transactions.................... 7,044,586 1,813,602 16,559,988 10,000,330
------------ ------------- ------------ ------------
Net increase (decrease) in net assets...... 7,633,776 2,199,343 18,781,648 8,788,744
NET ASSETS:
Beginning of year.......................... 13,520,728 11,321,385 21,713,077 12,924,333
------------ ------------- ------------ ------------
End of year................................ $ 21,154,504 $ 13,520,728 $ 40,494,725 $ 21,713,077
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
<CAPTION>
GROWTH SHARES
-----------------------------------
PERIOD FROM
YEAR ENDED 10/31/97** TO
12/31/98 12/31/97
------------ --------------------
<S> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 1,826 $ --
Mortality and expense risk fees............ (452,778) (3,766)
Administrative expense fees................ (55,962) (465)
------------ -----------
Net investment income (loss)............. (506,914) (4,231)
------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- --
Net realized gain (loss) from sales of
investments.............................. 238,266 1,156
------------ -----------
Net realized gain (loss)................... 238,266 1,156
Net unrealized gain (loss)................. 10,024,760 19,377
------------ -----------
Net realized and unrealized gain
(loss).................................. 10,263,026 20,533
------------ -----------
Net increase (decrease) in net assets from
operations............................... 9,756,112 16,302
------------ -----------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 44,999,387 1,737,338
Withdrawals................................ (1,799,050) (8,166)
Contract benefits.......................... (381,119) --
Contract charges........................... (5,172) (42)
Transfers between sub-accounts (including
fixed account), net...................... 19,769,727 2,751,899
Other transfers from (to) the General
Account.................................. 7,066,690 47,202
Net increase (decrease) in investment by
Sponsor.................................. -- --
------------ -----------
Net increase (decrease) in net assets from
contract transactions.................... 69,650,463 4,528,231
------------ -----------
Net increase (decrease) in net assets...... 79,406,575 4,544,533
NET ASSETS:
Beginning of year.......................... 4,544,533 --
------------ -----------
End of year................................ $83,951,108 $4,544,533
------------ -----------
------------ -----------
</TABLE>
** Date of initial investment
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
SEPARATE ACCOUNT VA-P
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
GROWTH AND INCOME EMERGING MARKETS EUROPE
----------------------------------- -------------------- --------------------
PERIOD FROM PERIOD FROM PERIOD FROM
YEAR ENDED 10/31/97** TO 10/30/98** TO 10/30/98** TO
12/31/98 12/31/97 12/31/98 12/31/98
------------ -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividends.................................. $ 358,635 $ 2,775 $ -- $ --
Mortality and expense risk fees............ (463,044) (3,365) (15) (1,442)
Administrative expense fees................ (57,230) (416) (1) (178)
------------ ----------- ------- -----------
Net investment income (loss)............. (161,639) (1,006) (16) (1,620)
------------ ----------- ------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain distributions from portfolio
sponsors................................. -- -- -- --
Net realized gain (loss) from sales of
investments.............................. 22,080 (2) 17 --
------------ ----------- ------- -----------
Net realized gain (loss)................... 22,080 (2) 17 --
Net unrealized gain (loss)................. 9,964,412 67,826 880 64,935
------------ ----------- ------- -----------
Net realized and unrealized gain
(loss).................................. 9,986,492 67,824 897 64,935
------------ ----------- ------- -----------
Net increase (decrease) in net assets from
operations............................... 9,824,853 66,818 881 63,315
------------ ----------- ------- -----------
CONTRACT TRANSACTIONS:
Net purchase payments...................... 50,526,354 2,355,264 21,239 425,441
Withdrawals................................ (1,698,478) (9,391) -- (2,117)
Contract benefits.......................... (792,533) -- -- --
Contract charges........................... (3,925) (32) -- (5)
Transfers between sub-accounts (including
fixed account), net...................... 18,157,625 1,931,969 1,053 756,143
Other transfers from (to) the General
Account.................................. 8,058,833 45,889 4,663 271,220
Net increase (decrease) in investment by
Sponsor.................................. -- -- 20 20
------------ ----------- ------- -----------
Net increase (decrease) in net assets from
contract transactions.................... 74,247,876 4,323,699 26,975 1,450,702
------------ ----------- ------- -----------
Net increase (decrease) in net assets...... 84,072,729 4,390,517 27,856 1,514,017
NET ASSETS:
Beginning of year.......................... 4,390,517 -- -- --
------------ ----------- ------- -----------
End of year................................ $88,463,246 $4,390,517 $27,856 $1,514,017
------------ ----------- ------- -----------
------------ ----------- ------- -----------
</TABLE>
** Date of initial investment
The accompanying notes are an integral part of these financial statements.
SA-6
<PAGE>
SEPARATE ACCOUNT VA-P
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Separate Account VA-P, which funds the Pioneer Vision variable annuity
contracts, is a separate investment account of Allmerica Financial Life
Insurance and Annuity Company (the Company), established on October 27, 1994 for
the purpose of separating from the general assets of the Company those assets
used to fund certain variable annuity contracts issued by the Company. The
Company is a wholly-owned subsidiary of First Allmerica Financial Life Insurance
Company (First Allmerica). First Allmerica is a wholly-owned subsidiary of
Allmerica Financial Corporation (AFC). Under applicable insurance law, the
assets and liabilities of Separate Account VA-P are clearly identified and
distinguished from the other assets and liabilities of the Company. Separate
Account VA-P cannot be charged with liabilities arising out of any other
business of the Company.
Separate Account VA-P is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). Separate Account VA-P
currently offers twelve Sub-Accounts under the contracts. Each Sub-Account
invests exclusively in a corresponding investment portfolio of the Pioneer
Variable Contracts Trust (the Fund). Each portfolio is managed by Pioneer
Investment Management, Inc. (formerly named Pioneering Management Corporation).
The Fund is an open-end, management investment company registered under the 1940
Act.
Separate Account VA-P funds 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 Section 401, 403, or 408 of the Internal Revenue Code (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 according to whether they are made from a
qualified contract or a non-qualified contract.
Certain prior year balances have been reclassified to conform with current
year presentation.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS -- Security transactions are recorded on the trade date.
Investments held by the Sub-Accounts are stated at the net asset value per share
of the respective investment portfolio of the Fund. Net realized gains and
losses on securities sold are determined using the average cost method.
Dividends and capital gain distributions are recorded on the ex-dividend date
and are reinvested in additional shares of the respective investment portfolio
of the Fund at net asset value.
FEDERAL INCOME TAXES -- The Company is taxed as a "life insurance company"
under Subchapter L of the Code and files a consolidated federal income tax
return with First Allmerica. The Company anticipates no tax liability resulting
from the operations of Separate Account VA-P. Therefore, no provision for income
taxes has been charged against Separate Account VA-P.
SA-7
<PAGE>
SEPARATE ACCOUNT VA-P
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Fund at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
------------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
INVESTMENT PORTFOLIO SHARES COST PER SHARE
- ---------------------------------------- ----------- ------------ ---------
<S> <C> <C> <C>
International Growth.................... 4,721,668 $ 57,579,054 $10.790
Capital Growth.......................... 7,161,945 102,743,211 14.500
Real Estate Growth...................... 2,212,262 32,332,588 13.070
Equity-Income........................... 9,404,431 152,291,646 21.500
Balanced................................ 4,579,955 65,188,861 14.470
America Income.......................... 2,767,639 27,960,543 10.290
Money Market............................ 21,154,504 21,154,504 1.000
Swiss Franc Bond........................ 3,063,141 40,267,750 13.220
Growth Shares........................... 4,131,452 73,906,971 20.320
Growth and Income....................... 4,467,841 78,431,008 19.800
Emerging Markets........................ 2,656 26,976 10.490
Europe.................................. 142,832 1,449,082 10.600
</TABLE>
NOTE 4 -- RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum based on the average daily net
assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account 0.15% per annum based on the
average daily net assets of each Sub-Account for administrative expenses. These
charges are deducted from the daily value of each Sub-Account and are paid to
the Company on a daily basis.
A contract fee is currently deducted on the contract anniversary and upon
full surrender of the contract when the accumulated value is less than $50,000
on contracts issued on Form A3025-96 (Pioneer Vision 2) and $50,000 or less on
contracts issued on Form A3023-95 (Pioneer Vision). The fee is currently waived
for the above contracts issued to and maintained by the trustee of a 401(k)
plan.
Allmerica Investments, Inc. (Allmerica Investments), a wholly-owned
subsidiary of First Allmerica, is principal underwriter and general distributor
of Separate Account VA-P, and does not receive any compensation for sales of the
contracts. Commissions are paid by the Company to registered representatives of
Allmerica Investments and to certain independent broker-dealers. The Pioneer
Vision 2 and Pioneer Vision contracts have a contingent deferred sales charge
and no deduction is made for sales charges at the time of the sale. For the
years ended December 31, 1998 and 1997, the Company received $459,774 and
$182,152, respectively, for contingent deferred sales charges applicable to
Separate Account VA-P.
SA-8
<PAGE>
SEPARATE ACCOUNT VA-P
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS
Transactions from contractowners and sponsor were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
---------------------------- ----------------------------
UNITS AMOUNT UNITS AMOUNT
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
International Growth
Issuance of Units.......................... 23,995,205 $ 29,142,665 27,421,873 $ 35,312,945
Redemption of Units........................ (20,119,321) (23,558,593) (8,021,017) (10,291,052)
------------ ------------- ------------ -------------
Net increase (decrease).................. 3,875,884 $ 5,584,072 19,400,856 $ 25,021,893
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Capital Growth
Issuance of Units.......................... 27,714,477 $ 45,826,266 34,980,357 $ 52,814,487
Redemption of Units........................ (21,772,156) (34,439,941) (9,801,579) (14,523,358)
------------ ------------- ------------ -------------
Net increase (decrease).................. 5,942,321 $ 11,386,325 25,178,778 $ 38,291,129
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Real Estate Growth
Issuance of Units.......................... 10,801,396 $ 18,178,492 17,299,530 $ 28,116,775
Redemption of Units........................ (11,106,808) (18,343,653) (4,544,021) (7,017,891)
------------ ------------- ------------ -------------
Net increase (decrease).................. (305,412) $ (165,161) 12,755,509 $ 21,098,884
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Equity-Income
Issuance of Units.......................... 44,267,991 $ 88,989,860 48,076,797 $ 78,041,834
Redemption of Units........................ (20,036,088) (40,040,806) (14,928,631) (24,425,596)
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Net increase (decrease).................. 24,231,903 $ 48,949,054 33,148,166 $ 53,616,238
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Balanced
Issuance of Units.......................... 24,928,106 $ 38,706,706 20,321,783 $ 28,876,353
Redemption of Units........................ (10,462,939) (16,062,904) (4,352,053) (5,637,821)
------------ ------------- ------------ -------------
Net increase (decrease).................. 14,465,167 $ 22,643,802 15,969,730 $ 23,238,532
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
America Income
Issuance of Units.......................... 29,660,512 $ 33,349,434 10,705,484 $ 11,334,874
Redemption of Units........................ (18,412,494) (20,345,380) (4,293,398) (4,375,723)
------------ ------------- ------------ -------------
Net increase (decrease).................. 11,248,018 $ 13,004,054 6,412,086 $ 6,959,151
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Money Market
Issuance of Units.......................... 57,707,031 $ 63,350,669 67,768,795 $ 70,815,473
Redemption of Units........................ (51,343,984) (56,306,083) (66,093,041) (69,001,871)
------------ ------------- ------------ -------------
Net increase (decrease).................. 6,363,047 $ 7,044,586 1,675,754 $ 1,813,602
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Swiss Franc Bond
Issuance of Units.......................... 32,984,878 $ 27,941,293 17,505,832 $ 14,050,313
Redemption of Units........................ (13,443,915) (11,381,305) (5,319,088) (4,049,983)
------------ ------------- ------------ -------------
Net increase (decrease).................. 19,540,963 $ 16,559,988 12,186,744 $ 10,000,330
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
SA-9
<PAGE>
SEPARATE ACCOUNT VA-P
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
---------------------------- ----------------------------
UNITS AMOUNT UNITS AMOUNT
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Growth Shares
Issuance of Units.......................... 74,831,380 $ 88,659,293 4,755,609 $ 4,827,869
Redemption of Units........................ (16,302,133) (19,008,830) (301,481) (299,638)
------------ ------------- ------------ -------------
Net increase (decrease).................. 58,529,247 $ 69,650,463 4,454,128 $ 4,528,231
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Growth and Income
Issuance of Units.......................... 71,585,544 $ 83,470,422 4,214,742 $ 4,366,278
Redemption of Units........................ (8,271,166) (9,222,546) (43,301) (42,579)
------------ ------------- ------------ -------------
Net increase (decrease).................. 63,314,378 $ 74,247,876 4,171,441 $ 4,323,699
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Emerging Markets
Issuance of Units.......................... 26,619 $ 26,975 -- $ --
Redemption of Units........................ -- -- -- --
------------ ------------- ------------ -------------
Net increase (decrease).................. 26,619 $ 26,975 -- $ --
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Europe
Issuance of Units.......................... 1,434,026 $ 1,453,071 -- $ --
Redemption of Units........................ (2,338) (2,369) -- --
------------ ------------- ------------ -------------
Net increase (decrease).................. 1,431,688 $ 1,450,702 -- $ --
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
</TABLE>
NOTE 6 -- DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Code, a variable annuity
contract, other than a contract issued in connection with certain types of
employee benefit plans, will not be treated as an annuity contract for federal
income tax purposes for any period for which the investments of the segregated
asset account on which the contract is based are not adequately diversified. The
Code provides that the "adequately diversified" requirement may be met if the
underlying investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by the Secretary of
The Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that Separate Account VA-P satisfies the current
requirements of the regulations, and it intends that Separate Account VA-P will
continue to meet such requirements.
SA-10
<PAGE>
SEPARATE ACCOUNT VA-P
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of shares of the Fund by Separate
Account VA-P during the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
- ------------------------------------------------------- ------------ ------------
<S> <C> <C>
International Growth................................... $ 22,061,152 $ 12,235,114
Capital Growth......................................... 32,045,156 14,388,851
Real Estate Growth..................................... 12,697,155 11,733,429
Equity-Income.......................................... 62,967,352 11,218,336
Balanced............................................... 31,371,258 5,965,761
America Income......................................... 25,904,327 12,053,131
Money Market........................................... 46,391,353 38,757,575
Swiss Franc Bond....................................... 24,624,394 7,220,817
Growth Shares.......................................... 75,521,514 6,377,965
Growth and Income...................................... 75,521,092 1,434,855
Emerging Markets....................................... 27,671 712
Europe................................................. 1,449,171 89
------------ ------------
Totals............................................... $410,581,595 $121,386,635
------------ ------------
------------ ------------
</TABLE>
SA-11
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Financial Statements Included in Part A
None
Financial Statements Included in Part B
Financial Statements for Allmerica Financial Life Insurance and
Annuity Company
Financial Statements for Separate Account VA-P of Allmerica Financial
Life Insurance and Annuity Company
Financial Statements Included in Part C
None
(b) EXHIBITS
EXHIBIT 1 Vote of Board of Directors Authorizing Establishment of
Registrant dated October 27, 1994 was previously filed on
April 24, 1998 in Registration Statement No.
33-85916/811-8848, Post-Effective Amendment No. 9, and is
incorporated by reference herein.
EXHIBIT 2 Not Applicable. Pursuant to Rule 26a-2, the Insurance Company
may hold the assets of the Registrant NOT pursuant to a trust
indenture or other such instrument.
EXHIBIT 3 (a) Underwriting and Administrative Services Agreement was
previously filed on April 24, 1998 in Registration
Statement No. 33-85916/811-8848, Post-Effective Amendment
No. 9, and is incorporated by reference herein.
(b) Wholesaling Agreement and Amendment were previously filed
on April 24, 1998 in Registration Statement No.
33-85916/811-8848, Post-Effective Amendment No. 9, and
are incorporated by reference herein.
(c) Bonus Product Commissions schedule was previously filed
on June 18, 1999 in Registrant's initial Registration
Statement No. 333-81017 and is incorporated by reference
herein. Sales Agreements with Commission Schedule were
previously filed on April 24, 1998 in Registration
Statement No. 33-85916/811-8848, Post-Effective Amendment
No. 9, and are incorporated by reference herein.
(d) General Agent's Agreement was previously filed on April
24, 1998 in Registration Statement No. 33-85916/811-8848,
Post-Effective Amendment No. 9, and is incorporated by
reference herein.
(e) Career Agent Agreement was previously filed on April 24,
1998 in Registration Statement No. 33-85916/811-8848,
Post-Effective Amendment No. 9, and is incorporated by
reference herein.
(f) Registered Representative's Agreement was previously
filed on April 24, 1998 in Registration Statement No.
33-85916/811-8848, Post-Effective Amendment No. 9, and is
incorporated by reference herein.
EXHIBIT 4 The following documents were previously filed on June 18, 1999
in Registrant's initial Registration Statement No. 333-81017 and
are incorporated by reference herein.
(a) Contract Form A3028-99;
(b) Specification Pages Form A8028-99;
(c) Enhanced Death Benefit "EDB" Rider (Form 3264-99);
(d) Enhanced Death Benefit "EDB" Rider (Form 3265-99);
(e) Enhanced Death Benefit "EDB" Rider (Form 3266-99);
(f) Minimum Guaranteed Annuity Payout ("M-GAP") Rider
(Form 3269-99);
(g) Trail Employee Program Endorsement (Form 3274-99);
and
(h) Trail Employee Program Endorsement (Form 3275-99).
<PAGE>
EXHIBIT 5 Application Form SML-1468P was previously filed on June 18,
1999 in Registrant's initial Registration Statement No.
333-81017 and is incorporated by reference herein.
EXHIBIT 6 The Depositor's Articles of Incorporation and Bylaws were
previously filed in Registrant's initial Registration Statement
on November 3, 1994 and are incorporated by reference herein. An
Amendment to the Articles of Incorporation and Bylaws were
previously filed on October 1, 1996, and are incorporated by
reference herein.
EXHIBIT 7 Not Applicable.
EXHIBIT 8 (a) BFDS Agreements for lockbox and mailroom services were
previously filed on April 24, 1998 in Registration
Statement No. 33-85916/811-8848, Post-Effective Amendment
No. 9, and are incorporated by reference herein.
(b) Directors' Power of Attorney is filed herewith.
EXHIBIT 9 Opinion of Counsel is filed herewith.
EXHIBIT 10 Consent of Independent Accountants is filed herewith.
EXHIBIT 11 None.
EXHIBIT 12 None.
EXHIBIT 13 Schedule for Computation of Performance Quotations is filed
herewith.
EXHIBIT 14 Not Applicable.
EXHIBIT 15 Participation Agreement with Pioneer was previously filed on
April 24, 1998 in Registration Statement No.
33-85916/811-8848, Post-Effective Amendment No. 9, and is
incorporated by reference herein.
ITEM 25. DIRECTORS AND PRINCIPAL OFFICERS OF THE DEPOSITOR
The principal business address of all the following Directors and Officers is:
440 Lincoln Street
Worcester, Massachusetts 01653
<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AND POSITION WITH COMPANY PRINCIPAL OCCUPATION(s) DURING PAST FIVE YEARS
------------------------------ ----------------------------------------------
<S> <C>
Bruce C. Anderson Director (since 1996), Vice President (since 1984) and Assistant Secretary (since
Director 1992) of First Allmerica
Warren E. Barnes Vice President (since 1996) and Corporate Controller (since 1998) of First Allmerica
Vice President and
Corporate Controller
Robert E. Bruce Director and Chief Information Officer (since 1997) and Vice President (since 1995)
Director and Chief Information of First Allmerica; and Corporate Manager (1979 to 1995) of Digital Equipment
Officer Corporation
Mary Eldridge Secretary (since 1999) of Allmerica Financial; Secretary (since 1999) of Allmerica
Secretary Investments, Inc.; and Secretary (since 1999) of Allmerica Financial Investment
Management Services, Inc.
John P. Kavanaugh Director and Chief Investment Officer (since 1996) and Vice President (since 1991) of
Director, Vice President and First Allmerica; and Vice President (since 1998) of Allmerica Financial Investment
Chief Investment Officer Management Services, Inc.
John F. Kelly Director (since 1996), Senior Vice President (since 1986), General Counsel (since
Director, Vice President and 1981) and Assistant Secretary (since 1991) of First Allmerica; Director (since 1985)
General Counsel of Allmerica Investments, Inc.; and Director (since 1990) of Allmerica Financial
Investment Management Services, Inc.
J. Barry May Director (since 1996) of First Allmerica; Director and President (since 1996) of The
Director Hanover Insurance Company; and Vice President (1993 to 1996) of The Hanover Insurance
Company
James R. McAuliffe Director (since 1996) of First Allmerica; Director (since 1992), President (since
Director 1994) and Chief Executive Officer (since 1996) of Citizens Insurance Company of
America
John F. O'Brien Director, President and Chief Executive Officer (since 1989) of First Allmerica;
Director and Chairman of Director (since 1989) of Allmerica Investments, Inc.; and Director and Chairman of
the Board the Board (since 1990) of Allmerica Financial Investment Management Services, Inc.
Edward J. Parry, III Director and Chief Financial Officer (since 1996) and Vice President and Treasurer
Director, Vice President, (since 1993) of First Allmerica; Treasurer (since 1993) of Allmerica Investments,
Chief Financial Officer and Inc.; and Treasurer (since 1993) of Allmerica Financial Investment Management
Treasurer Services, Inc.
Richard M. Reilly Director (since 1996) and Vice President (since 1990) of First Allmerica; Director
Director, President and (since 1990) of Allmerica Investments, Inc.; and Director and President (since 1998)
Chief Executive Officer of Allmerica Financial Investment Management Services, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Robert P. Restrepo, Jr. Director and Vice President (since 1998) of First Allmerica; Chief Executive Officer
Director (1996 to 1998) of Travelers Property & Casualty; Senior Vice President (1993 to 1996)
of Aetna Life & Casualty Company
Eric A. Simonsen Director (since 1996) and Vice President (since 1990) of First Allmerica; Director
Director and Vice President (since 1991) of Allmerica Investments, Inc.; and Director (since 1991) of Allmerica
Financial Investment Management Services, Inc.
Phillip E. Soule Director (since 1996) and Vice President (since 1987) of First Allmerica
Director
</TABLE>
<PAGE>
ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
<TABLE>
<S><C>
Allmerica Financial Corporation
Delaware
| | | | | | | |
________________________________________________________________________________________________________________________________
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Financial Allmerica, Allmerica First Allmerica AFC Capital Allmerica First Sterling
Asset Profiles, Inc. Inc. Funding Financial Life Trust I Services Limited
Management, Inc. Corp. Insurance Corporation
Company
Massachusetts California Massachusetts Massachusetts Massachusetts Delaware Massachusetts Bermuda
| | |
| ________________________________________________ ________________
| | | | |
| 100% 99.2% 100% 100%
| Advantage Allmerica Allmerica First Sterling
| Insurance Trust Financial Life Reinsurance
| Network, Inc. Company, N.A. Insurance and Company
| Delaware Annuity Company Limited
|
| Federally Chartered Delaware Bermuda
| |
| ________________________________________________________________
| | | | |
| 100% 100% 100% 100%
| Allmerica Allmerica Allmerica Allmerica
| Investments, Investment Financial Financial
| Inc. Management Investment Services
| Company, Inc. Management Insurance
| Services, Inc. Agency, Inc.
|
| Massachusetts Massachusetts Massachusetts Massachusetts
|
________________________________________________________________
| | | |
100% 100% 100% 100%
Allmerica Sterling Risk Allmerica Allmerica
Property Management Benefits, Inc. Asset
& Casualty Services, Inc. Management,
Companies, Inc. Limited
Delaware Delaware Florida Bermuda
|
________________________________________________
| | |
100% 100% 100%
The Hanover Allmerica Citizens
Insurance Financial Insurance
Company Insurance Company
Brokers, Inc. of Illinois
New Hampshire Massachusetts Illinois
|
________________________________________________________________________________________________________________________________
| | | | | | | |
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Allmerica The Hanover Hanover Texas Citizens Massachusetts Allmerica AMGRO
Financial Plus American Insurance Corporation Bay Insurance Financial Inc.
Benefit Insurance Insurance Management Company Alliance
Insurance Agency, Inc. Company Company, Inc. Insurance
Company Company
Pennsylvania Massachusetts New Hampshire Texas Delaware New Hampshire New Hampshire Massachusetts
| |
________________________________________________ ________________
| | | |
100% 100% 100% 100%
Citizens Citizens Citizens Lloyds Credit
Insurance Insurance Insurance Corporation
Company Company Company
of Ohio of America of the
Midwest
Ohio Michigan Indiana Massachusetts
|
_________________
|
100%
Citizens
Management
Inc.
Michigan
_______________ ---------------- ----------------
Allmerica Greendale AAM
Equity Special Equity Fund
Index Pool Placements
Fund
Massachusetts Massachusetts Massachusetts
- -------- Grantor Trusts established for the benefit of First Allmerica,
Allmerica Financial Life, Hanover and Citizens
--------------- ----------------
Allmerica Allmerica
Investment Trust Securities
Trust
Massachusetts Massachusetts
- -------- Affiliated Management Investment Companies
...............
Hanover Lloyd's
Insurance
Company
Texas
- -------- Affiliated Lloyd's plan company, controlled by Underwriters
for the benefit of The Hanover Insurance Company
_______________ ________________
AAM Growth AAM High Yield
& Income Fund, L.L.C.
Fund L.P.
Delaware Massachusetts
________ L.P. or L.L.C. established for the benefit of First Allmerica,
Allmerica Financial Life, Hanover and Citizens
</TABLE>
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
<TABLE>
<CAPTION>
NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
AAM Growth & Income Fund, L.P. 440 Lincoln Street Limited Partnership
Worcester MA 01653
Advantage Insurance Network, Inc. 440 Lincoln Street Insurance Agency
Worcester MA 01653
AFC Capital Trust I 440 Lincoln Street Statutory Business Trust
Worcester MA 01653
Allmerica Asset Management Limited 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Asset Management, Inc. 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Benefits, Inc. 440 Lincoln Street Non-insurance medical services
Worcester MA 01653
Allmerica Equity Index Pool 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
Allmerica Financial Alliance Insurance Company 100 North Parkway Multi-line property and casualty insurance
Worcester MA 01605
Allmerica Financial Benefit Insurance Company 100 North Parkway Multi-line property and casualty insurance
Worcester MA 01605
Allmerica Financial Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Allmerica Financial Insurance Brokers, Inc. 440 Lincoln Street Insurance Broker
Worcester MA 01653
Allmerica Financial Life Insurance and Annuity 440 Lincoln Street Life insurance, accident and health
Company (formerly known as SMA Life Assurance Worcester MA 01653 insurance, annuities, variable annuities and
Company) variable life insurance
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Allmerica Financial Services Insurance Agency, 440 Lincoln Street Insurance Agency
Inc. Worcester MA 01653
Allmerica Funding Corp. 440 Lincoln Street Special purpose funding vehicle for
Worcester MA 01653 commercial paper
Allmerica, Inc. 440 Lincoln Street Common employer for Allmerica Financial
Worcester MA 01653 Corporation entities
Allmerica Financial Investment Management 440 Lincoln Street
Services, Inc. (formerly known as Worcester MA 01653 Investment advisory services
Allmerica Institutional Services, Inc.
and 440 Financial Group of Worcester, Inc.)
Allmerica Investment Management Company, Inc. 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-dealer
Worcester MA 01653
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Insurance Agency
Allmerica Plus Insurance Agency, Inc. 440 Lincoln Street
Worcester MA 01653
Allmerica Property & Casualty Companies, Inc. 440 Lincoln Street Holding Company
Worcester MA 01653
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services Corporation 440 Lincoln Street Internal administrative services provider to
Worcester MA 01653 Allmerica Financial Corporation entities
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national trust company
Worcester MA 01653
AMGRO, Inc. 100 North Parkway Premium financing
Worcester MA 01605
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company of America 645 West Grand River Multi-line property and casualty insurance
Howell MI 48843
Citizens Insurance Company of Illinois 333 Pierce Road Multi-line property and casualty insurance
Itasca IL 60143
Citizens Insurance Company of the Midwest 3950 Priority Way South Drive, Multi-line property and casualty insurance
Suite 200
Indianapolis IN 46280
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Citizens Insurance Company of Ohio 8101 N. High Street Multi-line property and casualty insurance
P.O. Box 342250
Columbus OH 43234
Citizens Management, Inc. 645 West Grand River Services management company
Howell MI 48843
Financial Profiles 5421 Avenida Encinas Computer software company
Carlsbad, CA 92008
First Allmerica Financial Life Insurance 440 Lincoln Street Life, pension, annuity, accident and health
Company (formerly State Mutual Life Assurance Worcester MA 01653 insurance company
Company of America)
First Sterling Limited 440 Lincoln Street Holding Company
Worcester MA 01653
First Sterling Reinsurance Company Limited 440 Lincoln Street Reinsurance Company
Worcester MA 01653
Greendale Special Placements Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
The Hanover American Insurance Company 100 North Parkway Multi-line property and casualty insurance
Worcester MA 01605
The Hanover Insurance Company 100 North Parkway Multi-line property and casualty insurance
Worcester MA 01605
Hanover Texas Insurance Management Company, 801 East Campbell Road Attorney-in-fact for Hanover Lloyd's
Inc. Richardson TX 75081 Insurance Company
Hanover Lloyd's Insurance Company 801 East Campbell Road Multi-line property and casualty insurance
Richardson TX 75081
Lloyds Credit Corporation 440 Lincoln Street Premium financing service franchises
Worcester MA 01653
Massachusetts Bay Insurance Company 100 North Parkway Multi-line property and casualty insurance
Worcester MA 01605
Sterling Risk Management Services, Inc. 440 Lincoln Street Risk management services
Worcester MA 01653
</TABLE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of July 31, 1999, the Variable Account had 4,554 Qualified Contract
holders and 11,095 Non-Qualified Contract holders.
<PAGE>
ITEM 28. INDEMNIFICATION
Article VIII of the Bylaws of Allmerica Financial Life Insurance and
Annuity Company (the Depositor) states: Each Director and each Officer
of the Corporation, whether or not in office, (and his executors and
administrators), shall be indemnified or reimbursed by the Corporation
against all expenses actually and necessarily incurred by him in the
defense or reasonable settlement of any action, suit or proceeding in
which he is made a party by reason of his being or having been a
Director or Officer of the Corporation, including any sums paid in
settlement or to discharge judgment, except in relation to matters as to
which he shall be finally adjudged in such action, suit or proceeding to
be liable for negligence or misconduct in the performance of his duties
as such Director or Officer; and the foregoing right of indemnification
or reimbursement shall not affect any other rights to which he may be
entitled under the Articles of Incorporation, any statute, bylaw,
agreement, vote of stockholders, or otherwise.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
- VEL Account, VEL II Account, VEL Account III, Select Account
III, Inheiritage Account, Separate Accounts VA-A, VA-B, VA-C,
VA-G, VA-H, VA-K, VA-P, Allmerica Select Separate Account II,
Group VEL Account, Separate Account KG, Separate Account KGC,
Fulcrum Separate Account, Fulcrum Variable Life Separate
Account, and Allmerica Select Separate Account of Allmerica
Financial Life Insurance and Annuity Company
- Inheiritage Account, VEL II Account, Separate Account I,
Separate Account VA-K, Separate Account VA-P, Allmerica Select
Separate Account II, Group VEL Account, Separate Account KG,
Separate Account KGC, Fulcrum Separate Account, and Allmerica
Select Separate Account of First Allmerica Financial Life
Insurance Company.
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
<TABLE>
<CAPTION>
NAME POSITION OR OFFICE WITH UNDERWRITER
---- -----------------------------------
<S> <C>
Emil J. Aberizk, Jr. Vice President
Edward T. Berger Vice President and Chief Compliance Officer
Mary Eldridge Secretary
Philip L. Heffernan Vice President
John F. Kelly Director
Daniel Mastrototaro Vice President
</TABLE>
<PAGE>
<TABLE>
<S> <C>
William F. Monroe, Jr. Vice President
David J. Mueller Vice President and Controller
John F. O'Brien Director
Stephen Parker President, Director and Chief Executive
Officer
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Mark G. Steinberg Senior Vice President
</TABLE>
(c) As indicated in Part B (Statement of Additional Information) in
response to Item 20(c), there were no commissions retained by
Allmerica Investments, Inc., the principal underwriter of the
Contracts, for sales of variable contracts funded by the Registrant
in 1998. No commissions or other compensation was received by the
principal underwriter, directly or indirectly, from the Registrant
during the Registrant's last fiscal year.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Each account, book or other document required to be maintained by Section
31(a) of the 1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained
by the Company at 440 Lincoln Street, Worcester, Massachusetts.
ITEM 31. MANAGEMENT SERVICES
The Company provides daily unit value calculations and related services
for the Company's separate accounts.
ITEM 32. UNDERTAKINGS
(a) Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned Registrant hereby
undertakes to file with the Securities and Exchange Commission
("SEC") such supplementary and periodic information, documents, and
reports as may be prescribed by any rule or regulation of the SEC
heretofore or hereafter duly adopted pursuant to authority
conferred in that section.
(b) The Registrant hereby undertakes to include in the prospectus a
postcard that the applicant can remove to send for a Statement of
Additional Information.
(c) The Registrant hereby undertakes to deliver a Statement of Additional
Information and any financial statements promptly upon written or
oral request, according to the requirements of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act
may be permitted to Directors, Officers and Controlling Persons of
Registrant under any registration statement, underwriting agreement
or otherwise, Registrant has been advised that, in the opinion of
the SEC, such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by Registrant of expenses incurred or paid by a
Director, Officer or Controlling Person of Registrant in the
successful defense of any action, suit or proceeding) is asserted
by such Director, Officer or Controlling Person in connection with
the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of
<PAGE>
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the 1933 Act and will
be governed by the final adjudication of such issue.
(e) The Company hereby represents that the aggregate fees and charges
under the Policies are reasonable in relation to the services
rendered, expenses expected to be incurred, and risks assumed by the
Company.
ITEM 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION
403(b) PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Registrant, a separate account of Allmerica Financial Life Insurance and
Annuity Company ("Company"), states that it is (a) relying on Rule 6c-7
under the 1940 Act with respect to withdrawal restrictions under the Texas
Optional Retirement Program ("Program") and (b) relying on the "no-action"
letter (Ref. No. IP-6-88) issued on November 28, 1988 to the American
Council of Life Insurance, in applying the withdrawal restrictions of
Internal Revenue Code Section 403(b)(11). Registrant has taken the
following steps in reliance on the letter:
1. Appropriate disclosures regarding the redemption/withdrawal
restrictions imposed by the Program and by Section 403(b)(11) have
been included in the prospectus of each registration statement used
in connection with the offer of the Company's variable contracts.
2. Appropriate disclosures regarding the redemption/withdrawal
restrictions imposed by the Program and by Section 403(b)(11) have
been included in sales literature used in connection with the offer
of the Company's variable contracts.
3. Sales Representatives who solicit participants to purchase the
variable contracts have been instructed to specifically bring the
redemption/withdrawal restrictions imposed by the Program and by
Section 403(b)(11) to the attention of potential participants.
4. A signed statement acknowledging the participant's understanding of
(I) the restrictions on redemption/withdrawal imposed by the Program
and by Section 403(b)(11) and (ii) the investment alternatives
available under the employer's arrangement will be obtained from each
participant who purchases a variable annuity contract prior to or at
the time of purchase.
Registrant hereby represents that it will not act to deny or limit a
transfer request except to the extent that a Service-Ruling or written
opinion of counsel, specifically addressing the fact pattern involved and
taking into account the terms of the applicable employer plan, determines
that denial or limitation is necessary for the variable annuity contracts
to meet the requirements of the Program or of Section 403(b). Any
transfer request not so denied or limited will be effected as
expeditiously as possible.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant has duly caused this Pre-effective
Amendment No. 1 to its Registration Statement to be signed on its behalf by
the undersigned, thereto duly authorized, in the City of Worcester, and
Commonwealth of Massachusetts, on the 7th day of October, 1999.
SEPARATE ACCOUNT VA-P OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Mary Eldridge
-------------------------------
Mary Eldridge, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Pre-effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Warren E. Barnes Vice President and Corporate Controller October 7, 1999
-----------------------------------------
Warren E. Barnes
Edward J. Parry III* Director, Vice President, Chief Financial Officer
----------------------------------------- and Treasurer
Richard M. Reilly* Director, President and
----------------------------------------- Chief Executive Officer
John F. O'Brien* Director and Chairman of the Board
-----------------------------------------
Bruce C. Anderson* Director
-----------------------------------------
Robert E. Bruce* Director and Chief Information Officer
-----------------------------------------
John P. Kavanaugh* Director, Vice President and
----------------------------------------- Chief Investment Officer
John F. Kelly* Director, Vice President and
----------------------------------------- General Counsel
J. Barry May* Director
-----------------------------------------
James R. McAuliffe* Director
-----------------------------------------
Robert P. Restrepo, Jr.* Director
-----------------------------------------
Eric A. Simonsen* Director and Vice President
-----------------------------------------
Phillip E. Soule* Director
-----------------------------------------
</TABLE>
*Sheila B. St. Hilaire, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named Directors and Officers of the
Registrant pursuant to the Power of Attorney dated July 1, 1999 duly
executed by such persons.
<PAGE>
/s/ Sheila B. St. Hilaire
-----------------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact
<PAGE>
EXHIBIT TABLE
Exhibit 8(b) Directors' Power of Attorney
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
Exhibit 13 Schedule for Computation of Performance Quotations
<PAGE>
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint Richard M. Reilly,
John F. Kelly, Joseph W. MacDougall, Jr., and Sheila B. St. Hilaire, and each of
them singly, our true and lawful attorneys, with full power to them and each of
them, to sign for us, and in our names and in any and all capacities, any and
all Registration Statements and all amendments thereto, including post-effective
amendments, with respect to the Separate Accounts supporting variable life and
variable annuity contracts issued by Allmerica Financial Life Insurance and
Annuity Company, and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and with any other regulatory agency or state authority that may so require,
granting unto said attorneys and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys or any of them may lawfully do or cause to be done by virtue hereof.
Witness our hands on the date set forth below.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John F. O'Brien Director and Chairman of the Board 7/1/99
- -------------------------- ------
John F. O'Brien
/s/ Bruce C. Anderson Director 7/1/99
- -------------------------- ------
Bruce C. Anderson
/s/ Robert E. Bruce Director and Chief Information Officer 7/1/99
- -------------------------- ------
Robert E. Bruce
/s/ John P. Kavanaugh Director, Vice President and 7/1/99
- -------------------------- Chief Investment Officer ------
John P. Kavanaugh
/s/ John F. Kelly Director, Vice President and 7/1/99
- -------------------------- General Counsel ------
John F. Kelly
/s/ J. Barry May Director 7/1/99
- -------------------------- ------
J. Barry May
/s/ James R. McAuliffe Director 7/1/99
- -------------------------- ------
James R. McAuliffe
/s/ Edward J. Parry, III Director, Vice President, Chief Financial 7/1/99
- -------------------------- Officer and Treasurer ------
Edward J. Parry, III
/s/ Richard M. Reilly Director, President and 7/1/99
- -------------------------- Chief Executive Officer ------
Richard M. Reilly
/s/ Robert P. Restrepo, Jr. Director 7/1/99
- -------------------------- ------
Robert P. Restrepo, Jr.
/s/ Eric A. Simonsen Director and Vice President 7/1/99
- -------------------------- ------
Eric A. Simonsen
/s/ Phillip E. Soule Director 7/1/99
- -------------------------- ------
Phillip E. Soule
</TABLE>
<PAGE>
August 30, 1999
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
RE: SEPARATE ACCOUNT VA-P OF ALLMERICA
FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
File No's: 333-81017 and 811-8848
Gentlemen:
In my capacity as Assistant Vice President and Counsel of Allmerica Financial
Life Insurance and Annuity Company (the "Company"), I have participated in
the preparation of this Pre-effective Amendment No. 1 to the Registration
Statement for Separate Account VA-P on Form N-4 under the Securities Act of
1933 and amendment under the Investment Company Act of 1940, with respect to
the Company's qualified and non-qualified variable annuity contracts.
I am of the following opinion:
1. Separate Account VA-P is a separate account of the Company validly
existing pursuant to the Delaware Insurance Code and the regulations
issued thereunder.
2. The assets held in Separate Account VA-P are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The variable annuity contracts, when issued in accordance with the
Prospectus contained in the Pre-effective Amendment No. 1 to the
Registration Statement and upon compliance with applicable local law,
will be legal and binding obligations of the Company in accordance with
their terms and when sold will be legally issued, fully paid and
non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to this
Pre-effective Amendment No. 1 to the Registration Statement for Separate
Account VA-P on Form N-4 filed under the Securities Act of 1933 and amendment
under the Investment Company Act of 1940.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Assistant Vice President and Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-effective Amendment No. 1 to the Registration
Statement of Separate Account VA-P of Allmerica Financial Life Insurance and
Annuity Company on Form N-4 of our report dated February 2, 1999, except for
paragraph 2 of Note 12, which is as of March 19, 1999, relating to the
financial statements of Allmerica Financial Life Insurance and Annuity
Company, and our report dated March 26, 1999, relating to the financial
statements of Separate Account VA-P of Allmerica Financial Life Insurance and
Annuity Company, both of which appear in such Statement of Additional
Information. We also consent to the reference to us under the heading
"Experts" in such Statement of Additional Information.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 8, 1999
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PIONEER XTRAVISION - TABLE 1A Since Inception of Sub-Account
1 Year With Complete Withdrawal
Emerging Markets Portfolio N/A
Europe Portfolio N/A
International Growth Portfolio (((1.154395-(.085*0.972769))/1.210842)-.002692)-1 = (11.76)%
Capital Growth Portfolio (((1.529987-(.085*1.287688))/1.615324)-.002692)-1 = (12.33)%
Growth Shares Portfolio (((1.332909-(.085*1.020297))/1.020297)-.002692)-1 = 21.87%
Real Estate Growth Portfolio (((1.481949-(.085*1.204536))/1.849418)-.002692)-1 = (25.67)%
Growth and Income Portfolio (((1.310842-(.085*1.052518))/1.052518)-.002692)-1 = 15.77%
Equity-Income Portfolio (((2.230017-(.085*1.851384))/1.851384)-.002692)-1 = 11.68%
Balanced Portfolio (((1.540724-(.085*1.313311))/1.516084)-.002692)-1 = (6.01)%
Swiss Franc Bond Portfolio (((0.872647-(.085*0.751406))/0.808274)-.002692)-1 = (0.21)%
Strategic Income Portfolio N/A
America Income Portfolio (((1.187780-(.085*1.020660))/1.114134)-.002692)-1 = (1.45)%
Money Market Portfolio (((1.131680-(.085*0.967194))/1.096575)-.002692)-1 = (4.56)%
Since Inception of Sub-Account
10 Years or Since Inception With Complete Withdrawal
Emerging Markets Portfolio (((1.046498-(.085*0.896498))/1.000000)-.002692)-1 = (3.24)%
Europe Portfolio (((1.057505-(.085*0.907505))/1.000000)-.002692)-1 = (2.23)%
International Growth Portfolio (((1.154395-(.085*1.004395))/1.000000)^(.265841)-.002692)-1= 1.53%
Capital Growth Portfolio (((1.529987-(.085*1.000000))/1.000000)^(.260714)-.002692)-1= 9.80%
Growth Shares Portfolio (((1.332909-(.085*1.000000))/1.000000)^(.856807)-.002692)-1= 20.63%
Real Estate Growth Portfolio (((1.481949-(.085*1.000000))/1.000000)^(.261649)-.002692)-1= 8.87%
Growth and Income Portfolio (((1.310842-(.085*1.000000))/1.000000)^(.856807)-.002692)-1= 18.79%
Equity-Income Portfolio (((2.230017-(.085*1.000000))/1.000000)^(.261274)-.002692)-1= 21.80%
Balanced Portfolio (((1.540724-(.085*1.000000))/1.000000)^(.267988)-.002692)-1= 10.32%
Swiss Franc Bond Portfolio (((0.872647-(.085*0.722647))/1.000000)^(.316894)-.002692)-1= (6.68)%
Strategic Income Portfolio N/A
America Income Portfolio (((1.187780-(.085*1.000000))/1.000000)^(.273613)-.002692)-1= 2.44%
Money Market Portfolio (((1.131680-(.085*0.981680))/1.000000)^(.261274)-.002692)-1= 0.97%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PIONEER XTRAVISION -TABLE 2A Since Inception of Underlying Portfolio
1 Year With Complete Withdrawal
Emerging Markets Portfolio N/A
Europe Portfolio N/A
International Growth Portfolio (((1.154395-(.085*0.972769))/1.210842)-.002692)-1 = (11.76)%
Capital Growth Portfolio (((1.529987-(.085*1.287688))/1.615324)-.002692)-1 = (12.33)%
Growth Shares Portfolio (((1.332909-(.085*1.020297))/1.020297)-.002692)-1 = 21.87%
Real Estate Growth Portfolio (((1.481949-(.085*1.204536))/1.849418)-.002692)-1 = (25.67)%
Growth and Income Portfolio (((1.310842-(.085*1.052518))/1.052518)-.002692)-1 = 15.77%
Equity-Income Portfolio (((2.230017-(.085*1.851384))/1.851384)-.002692)-1 = 11.68%
Balanced Portfolio (((1.540724-(.085*1.313461))/1.516084)-.002692)-1 = (6.01)%
Swiss Franc Bond Portfolio (((0.872647-(.085*0.751746))/0.808274)-.002692)-1 = (0.21)%
Strategic Income Portfolio N/A
America Income Portfolio (((1.187780-(.085*1.020660))/1.114134)-.002692)-1 = (1.45)%
Money Market Portfolio (((1.131680-(.085*0.967194))/1.096575)-.002692)-1 = (4.56)%
Since Inception of Underlying Portfolio
10 Years or Since Inception With Complete Withdrawal
Emerging Markets Portfolio (((1.046498-(.085*0.896498))/1.000000)-.002692)-1 = (3.24)%
Europe Portfolio (((1.057505-(.085*0.907505))/1.000000)-.002692)-1 = (2.23)%
International Growth Portfolio (((1.154395-(.085*1.002069))/1.002069)^(.260528)-.002692)-1= 1.43%
Capital Growth Portfolio (((1.529987-(.085*1.000031))/1.000031)^(.260528)-.002692)-1= 9.79%
Growth Shares Portfolio (((1.332909-(.085*1.000000))/1.000000)^(.856807)-.002692)-1= 20.63%
Real Estate Growth Portfolio (((1.481949-(.085*1.000030))/1.000030)^(.260528)-.002692)-1= 8.82%
Growth and Income Portfolio (((1.310842-(.085*1.000000))/1.000000)^(.856807)-.002692)-1= 18.79%
Equity-Income Portfolio (((2.230017-(.085*1.000105))/1.000105)^(.260528)-.002692)-1= 21.72%
Balanced Portfolio (((1.540724-(.085*0.965581))/0.965581)^(.260528)-.002692)-1= 11.07%
Swiss Franc Bond Portfolio (((0.872647-(.085*0.722563))/1.000562)^(.315744)-.002692)-1= (6.67)%
Strategic Income Portfolio N/A
America Income Portfolio (((1.187780-(.085*0.998781))/0.998781)^(.260528)-.002692)-1= 2.35%
Money Market Portfolio (((1.131680-(.085*0.981708))/0.999811)^(.260528)-.002692)-1= 0.97%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PIONEER XTRAVISION -TABLE 1B Since Inception of Sub-Account
1 Year Without Surrender
Emerging Markets Portfolio N/A
Europe Portfolio N/A
International Growth Portfolio (1.154395-1.210842)/1.210842 = (4.66)%
Capital Growth Portfolio (1.529987-1.615324)/1.615324 = (5.28)%
Growth Shares Portfolio (1.332909-1.020297)/1.020297 = 30.64%
Real Estate Growth Portfolio (1.481949-1.849418)/1.849418 = (19.87)%
Growth and Income Portfolio (1.310842-1.052518)/1.052518 = 24.54%
Equity-Income Portfolio (2.230017-1.851384)/1.851384 = 20.45%
Balanced Portfolio (1.540724-1.516084)/1.516084 = 1.63%
Swiss Franc Bond Portfolio (0.872647-0.808274)/0.808274 = 7.96%
Strategic Income Portfolio N/A
America Income Portfolio (1.187780-1.114134)/1.114134 = 6.61%
Money Market Portfolio (1.131680-1.096575)/1.096575 = 3.20%
Since Inception of Sub-Account
10 Years or Since Inception Without Surrender
Emerging Markets Portfolio (1.046498-1.000000)/1.000000 = 4.65%
Europe Portfolio (1.057505-1.000000)/1.000000 = 5.75%
International Growth Portfolio ((1.154395/1.000000)^(.265841))-1 = 3.89%
Capital Growth Portfolio ((1.529987/1.000000)^(.260714))-1 = 11.73%
Growth Shares Portfolio ((1.332909/1.000000)^(.856807))-1 = 27.92%
Real Estate Growth Portfolio ((1.481949/1.000000)^(.261649))-1 = 10.84%
Growth and Income Portfolio ((1.310842/1.000000)^(.856807))-1 = 26.10%
Equity-Income Portfolio ((2.230017/1.000000)^(.261274))-1 = 23.31%
Balanced Portfolio ((1.540724/1.000000)^(.267988))-1 = 12.28%
Swiss Franc Bond Portfolio ((0.872647/1.000000)^(.316894))-1 = (4.23)%
Strategic Income Portfolio N/A
America Income Portfolio ((1.187780/1.000000)^(.273613))-1 = 4.82%
Money Market Portfolio ((1.131680/1.000000)^(.261274))-1 = 3.28%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PIONEER XTRAVISION -TABLE 2B Since Inception of Underlying Portfolio
1 Year Without Surrender
Emerging Markets Portfolio N/A
Europe Portfolio N/A
International Growth Portfolio (1.154395-1.210842)/1.210842 = (4.66)%
Capital Growth Portfolio (1.529987-1.615324)/1.615324 = (5.28)%
Growth Shares Portfolio (1.332909-1.020297)/1.020297 = 30.64%
Real Estate Growth Portfolio (1.481949-1.849418)/1.849418 = (19.87)%
Growth and Income Portfolio (1.310842-1.052518)/1.052518 = 24.54%
Equity-Income Portfolio (2.230017-1.851384)/1.851384 = 20.45%
Balanced Portfolio (1.540724-1.516084)/1.516084 = 1.63%
Swiss Franc Bond Portfolio (0.872647-0.808274)/0.808274 = 7.96%
Strategic Income Portfolio N/A
America Income Portfolio (1.187780-1.114134)/1.114134 = 6.61%
Money Market Portfolio (1.131680-1.096575)/1.096575 = 3.20%
Since Inception of Underlying Portfolio
10 Years or Since Inception Without Surrender
Emerging Markets Portfolio (1.046498-1.000000)/1.000000 = 4.65%
Europe Portfolio (1.057505-1.000000)/1.000000 = 5.75%
International Growth Portfolio ((1.154395/1.002069)^(.260528))-1 = 3.76%
Capital Growth Portfolio ((1.529987/1.000031)^(.260528))-1 = 11.72%
Growth Shares Portfolio ((1.332909/1.000000)^(.856807))-1 = 27.92%
Real Estate Growth Portfolio ((1.481949/1.000030)^(.260528))-1 = 10.79%
Growth and Income Portfolio ((1.310842/1.000000)^(.856807))-1 = 26.10%
Equity-Income Portfolio ((2.230017/1.000105)^(.260528))-1 = 23.23%
Balanced Portfolio ((1.540724/0.965581)^(.260528))-1 = 12.95%
Swiss Franc Bond Portfolio ((0.872647/1.000562)^(.315744))-1 = (4.23)%
Strategic Income Portfolio N/A
America Income Portfolio ((1.187780/0.998781)^(.260528))-1 = 4.62%
Money Market Portfolio ((1.131680/0.999811)^(.260528))-1 = 3.28%
</TABLE>
