<PAGE>
PROSPECTUS SUPPLEMENT
SEPARATE ACCOUNT VA-P
OF STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
(supplement to Prospectus dated May 1, 1995)
Subaccount 258 invests in shares of the Real Estate Growth Portfolio of
Pioneer Variable Contracts Trust. Effective July 17, 1995, the Real Estate
Growth Portfolio's management contract with Pioneer Winthrop Advisers ("PWA")
and subadvisory contracts with Winthrop Advisors Limited Partnership ("WALP")
and Pioneering Management Corporation ("Pioneer") terminated as a result of
the sale by The Nomura Securities Co., Ltd. of its interest in the parent
company of WALP. Pioneer, which had served as the Real Estate Growth
Portfolio's co-subadviser, has become this Portfolio's sole investment
adviser, pursuant to an interim management contract, as of July 17, 1995.
Pioneer Variable Contracts Trust intends to hold a special meeting of
shareholders of the Real Estate Growth Portfolio in September, 1995 for the
purpose of submitting Pioneer's interim management contract to shareholders
for approval. The interim management contract contains the same terms and
conditions as the Real Estate Growth Portfolio's prior management contract
with PWA, except for the names of the parties, and the date of commencement
and termination. Further, the management fees payable to Pioneer under the
interim management contract are paid at the same rate as the fees payable to
PWA under the prior management contract. However, the management fees earned
by Pioneer prior to shareholder approval of the interim management contract
will be paid into an escrow account. Policy Owners investing in Subaccount
258 as of the record date of the special meeting of shareholders will receive
proxy material in connection with such meeting.
SUPPLEMENT DATED JULY 25, 1995
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
GROUP VARIABLE ANNUITY POLICIES FUNDED THROUGH SUBACCOUNTS OF
SEPARATE ACCOUNT VA-P
INVESTING IN SHARES OF PIONEER VARIABLE CONTRACTS TRUST
This Prospectus describes group variable annuity policies including certificates
issued thereunder ("Policies") offered by State Mutual Life Assurance Company of
America ("Company") to individuals and businesses in connection with investment
and retirement plans which may or may not qualify for special federal income tax
treatment. (For information about the tax status when used with a particular
type of plan, see "FEDERAL TAX CONSIDERATIONS.") The following is a summary of
information about these Policies. More detailed information can be found under
the referenced captions in this Prospectus.
This Prospectus generally describes only the variable accumulation and variable
annuity aspects of the Policies, except where fixed values or fixed annuity
payments are specifically mentioned. ALLOCATIONS TO AND TRANSFERS TO AND FROM
THE GENERAL ACCOUNT OF THE COMPANY ARE NOT PERMITTED IN CERTAIN STATES. Certain
additional information about the Policies is contained in a Statement of
Additional Information, dated May 1, 1995, as may be amended from time to time,
which has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The Table of Contents for the Statement of
Additional Information is listed on page 3 of this Prospectus. The Statement of
Additional Information is available upon request and without charge. To obtain
the Statement of Additional Information, fill out and return the attached
request card or contact Annuity Customer Services, State Mutual Life Assurance
Company of America, 440 Lincoln Street, Worcester, Massachusetts 01653.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
PIONEER VARIABLE CONTRACTS TRUST.
INVESTORS SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
DATED MAY 1, 1995
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION . . . . . . . 3
SPECIAL TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ANNUAL AND TRANSACTION EXPENSES. . . . . . . . . . . . . . . . . . . . . . 7
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 9
WHAT IS AN ANNUITY ? . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
RIGHT TO REVOKE OR SURRENDER . . . . . . . . . . . . . . . . . . . . . . . 10
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT AND THE FUND. . . . . . . 10
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 12
A. Contingent Deferred Sales Charge . . . . . . . . . . . . . . . . . 12
B. Premium Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
C. Policy Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
D. Annual Charge Against Separate Account Assets. . . . . . . . . . . 14
THE VARIABLE ANNUITY POLICIES. . . . . . . . . . . . . . . . . . . . . . . 15
A. Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . . . 15
B. Transfer Privilege . . . . . . . . . . . . . . . . . . . . . . . . 16
C. Surrender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
D. Partial Redemption . . . . . . . . . . . . . . . . . . . . . . . . 17
E. Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
F. The Spouse of the Policy Owner as Beneficiary. . . . . . . . . . . 18
G. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
H. Electing the Form of Annuity and Annuity Date. . . . . . . . . . . 18
I. Description of Variable Annuity Options. . . . . . . . . . . . . . 19
J. Norris Decision. . . . . . . . . . . . . . . . . . . . . . . . . . 19
K. Computation of Policy Values and Annuity Payments. . . . . . . . . 19
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<PAGE>
TABLE OF CONTENTS (CONTINUED)
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 21
A. Qualified and Non-Qualified Policies . . . . . . . . . . . . . . . 21
B. Taxation of the Policies in General. . . . . . . . . . . . . . . . 21
C. Tax Withholding and Penalties. . . . . . . . . . . . . . . . . . . 22
D. Provisions Applicable to Qualified Employee Benefit Plans. . . . . 22
E. Qualified Employee Pension and Profit Sharing Fund
and Qualified Annuity Plans. . . . . . . . . . . . . . . . . . . 22
F. Self-Employed Individuals. . . . . . . . . . . . . . . . . . . . . 22
G. Individual Retirement Account Plans. . . . . . . . . . . . . . . . 22
H. Simplified Employee Pensions . . . . . . . . . . . . . . . . . . . 23
I. Public School Systems and Certain Tax-Exempt Organizations . . . . 23
J. Texas Optional Retirement Program. . . . . . . . . . . . . . . . . 24
K. Section 457 Plans for State Governments and Tax-Exempt Entities. . 24
L. Non-Individual Owners. . . . . . . . . . . . . . . . . . . . . . . 24
REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
CHANGES IN OPERATIONS OF THE SEPARATE ACCOUNT. . . . . . . . . . . . . . . 24
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
FURTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
APPENDIX A - MORE INFORMATION ABOUT THE GENERAL ACCOUNT. . . . . . . . . . 24
APPENDIX B - EXCHANGE OFFER. . . . . . . . . . . . . . . . . . . . . . . . 25
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE SEPARATE ACCOUNT AND THE COMPANY . . . . . . . . . . . . . 2
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 5
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Subaccounts and of the value of all accumulations in the General Account of the
Company then credited to the Policy, on any date before the date annuity
payments are to begin.
ACCUMULATION UNIT: a measure of the Policy Owner's interest in a Subaccount
before annuity payments begin.
ANNUITANT: the person designated in the Policy to whom the Annuity is to be
paid.
ANNUITY DATE: the date on which annuity payments begin.
ANNUITY UNIT: a measure of the value of the periodic annuity payments under the
Policy.
FIXED AMOUNT ANNUITY: an Annuity providing for payments which remain fixed in
amount throughout the annuity payment period.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate investment account.
POLICY OWNER: the owner of a Policy who may exercise all rights under the
Policy, subject to the consent of any irrevocable beneficiary. After the Annuity
Date, the Annuitant will be the Policy Owner.
SEPARATE ACCOUNT: Separate Account VA-P of the Company. Separate Account VA-P
consists of assets segregated from other assets of the Company. The investment
performance of the assets of the Separate Account is determined separately from
the other assets of the Company. The assets of the Separate Account are not
chargeable with liabilities arising out of any other business which the Company
may conduct.
SUBACCOUNT: a subdivision of Separate Account VA-P. Each Subaccount available
under the Policies invests exclusively in the shares of a corresponding
investment Portfolio of Pioneer Variable Contracts Trust.
SURRENDER VALUE: the Accumulated Value of the Policy minus any Policy fee and
contingent deferred sales charge applicable upon surrender.
UNDERLYING PORTFOLIOS: the International Growth Portfolio, the Capital Growth
Portfolio, the Real Estate Growth Portfolio, the Equity Income Portfolio, the
Balanced Portfolio, the America Income Portfolio and the Money Market Portfolio
of the Pioneer Variable Contracts Trust.
VALUATION DATE: a day on which the net asset value of the shares of any of the
Underlying Portfolios is determined and Unit values of the Subaccounts are
determined. Valuation dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, partial withdrawal, or surrender of a Policy was
received) when there is a sufficient degree of trading in an Underlying
Portfolio's securities such that the current net asset value of the Subaccounts
may be materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
VARIABLE ANNUITY: an Annuity providing for payments varying in amount in
accordance with the investment experience of certain Underlying Portfolios.
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<PAGE>
SUMMARY
INVESTMENT OPTIONS. The Policies permit net purchase payments to be allocated
among Subaccounts available under the Policies, which are subdivisions of
Separate Account VA-P ("Separate Account"), a separate account of the Company,
and, where available, a fixed interest account ("General Account") of the
Company (together "accounts"). The Separate Account is registered as a unit
investment trust under the Investment Company Act of 1940, as amended, (the
"1940 Act") but such registration does not involve the supervision of the
management or investment practices or policies of the Separate Account by the
Securities and Exchange Commission (the "SEC"). For information about the
Separate Account and the Company, see "DESCRIPTION OF THE COMPANY, THE SEPARATE
ACCOUNT, AND THE FUND." For more information about the General Account see
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Each Subaccount available under the Policies invests its assets without sales
charge in a corresponding investment Portfolio of the Pioneer Variable Contracts
Trust (the "Fund"). The Fund is an open-end, diversified series investment
company. The Fund consists of seven different Portfolios: International Growth
Portfolio, Capital Growth Portfolio, Real Estate Growth Portfolio, Equity-
Income Portfolio, Balanced Portfolio, America Income Portfolio and Money Market
Portfolio ("Underlying Portfolios"). Each Underlying Portfolio operates pursuant
to different investment objectives, discussed below.
INVESTMENT IN THE SUBACCOUNTS. The value of each Subaccount will vary daily
depending on the performance of the investments made by the respective
Underlying Portfolios.
There can be no assurance that the investment objectives of the Underlying
Portfolios can be achieved or that the value of a Policy will equal or exceed
the aggregate amount of the purchase payments made under the Policy. For more
information about the investments of the Underlying Portfolios, see "DESCRIPTION
OF THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUND." The accompanying
prospectus of the Fund describes the investment objectives and risks of each of
the Underlying Portfolios.
Dividends or capital gains distributions received from an Underlying Portfolio
are reinvested in additional shares of that Underlying Portfolio, which are
retained as assets of the Subaccount.
TRANSFERS AMONG ACCOUNTS. Prior to the Annuity Date, the Policies permit amounts
to be transferred among the Subaccounts and, where available, between the
General Account and the Subaccounts, subject to certain limitations described
under "Transfer Privilege."
ANNUITY PAYMENTS. The Policy Owner may select variable annuity payments based on
certain Subaccounts, fixed-amount annuity payments, or a combination of
fixed-amount and variable annuity payments. Fixed-amount annuity payments are
guaranteed by the Company.
See "THE VARIABLE ANNUITY POLICIES" for information about annuity payment
options, selecting the Annuity Date, and how annuity payments are calculated.
REVOCATION RIGHTS. You may revoke the Policy at any time between the date of
the application and the date 10 days after receipt of the Policy. For more
information about revocation rights, see "RIGHT TO REVOKE OR SURRENDER."
PAYMENT MINIMUMS AND MAXIMUMS. Under the Policies, purchase payments are not
limited as to frequency and number, but no payments may be submitted within one
month of the Annuity Date. Generally, the initial purchase payment must be at
least $600 and subsequent payments must be at least $50. Under a monthly
automatic payment plan or a payroll deduction plan, each purchase payment must
be at least $50. However, in cases where the contribution on behalf of an
employee under an employer-sponsored retirement plan is less than $600 but more
than $300 annually, the Company may issue a Policy on the employee, if the
plan's average annual contribution per eligible plan participant is at least
$600.
The Company reserves the right to set maximum limits on the aggregate purchase
payments made under the Policy. In addition, the Internal Revenue Code imposes
maximum limits on contributions under qualified annuity plans.
CHARGES AND DEDUCTIONS. For a complete discussion of charges, see "CHARGES AND
DEDUCTIONS."
A. CONTINGENT DEFERRED SALES CHARGE. No sales charge is deducted from purchase
payments at the time the payments are made. However, depending on the length of
time that the payments to which the withdrawal is attributed have remained
credited under the Policy a contingent deferred sales charge of up to 7% may be
assessed for a surrender, partial redemption, or election of an annuity for a
specified number of years.
B. ANNUAL POLICY FEE. A Policy Fee equal to $30 will be deducted from the
Accumulated Value under the Policy for administrative expense on the Policy
Anniversary, or upon full surrender of the Policy during the year, when the
Accumulated Value is $50,000 or less. The Policy Fee is currently waived for
policies issued to a trustee of a 401(k) plan, but the Company reserves the
right to impose the Policy Fee on such policies.
C. SEPARATE ACCOUNT ASSET CHARGES. A daily charge, equivalent to 1.25% per
annum, is made on the value of each Subaccount at each Valuation Date. The
charge is retained for the mortality and expense risks the Company assumes. In
addition, to cover administrative expenses, the Company deducts a daily charge
of 0.15%
-5-
<PAGE>
per annum of the value of the average net assets in the Subaccounts available
under the Policies.
D. TRANSFER CHARGE. The Company currently makes no charge for transfers. The
Company guarantees that the first twelve transfers in a Policy year will be free
of charge. For the thirteenth and each subsequent transfer, the Company reserves
the right to assess a charge, guaranteed never to exceed $25, to reimburse the
Company for the costs of processing the transfer.
E. CHARGES OF THE UNDERLYING PORTFOLIOS. In addition to the charges described
above, certain fees and expenses are deducted from the assets of the Underlying
Portfolios. These charges vary among the Underlying Portfolios, and currently
range from an annual rate of 0.75% to an annual rate of 2.00% of average daily
net assets.
SURRENDER OR PARTIAL REDEMPTION. At any time before the Annuity Date, the Policy
Owner has the right either to surrender the Policy in full and receive its
current value, minus the Policy Fee and any applicable contingent deferred sales
charge, or to redeem a portion of the Policy's value subject to certain limits
and any applicable contingent deferred sales charge. There may be tax
consequences for surrender or redemptions. For further information, see
"Surrender" and "Partial Redemption," "Contingent Deferred Sales Charge," and
"FEDERAL TAX CONSIDERATIONS."
DEATH BENEFIT. If the Annuitant or Policy Owner should die before the Annuity
Date, a death benefit will be paid to the beneficiary. Upon death of the
Annuitant, the death benefit is equal to the greatest of (a) the Accumulated
Value under the Policy, or (b) the sum of the gross payment(s) made under the
Policy reduced proportionally to reflect all partial redemptions, or (c) the
death benefit that would have been payable on the most recent fifth year Policy
Anniversary, increased for subsequent purchase payments and reduced
proportionally to reflect withdrawals after that date. Upon death of the Policy
Owner, the death benefit is equal to the Accumulated Value of the Policy.
SALES OF POLICIES. The Policies are sold by agents of the Company who are
authorized by applicable law to sell variable annuity policies. These agents are
registered representatives of broker-dealers which are members of the National
Association of Securities Dealers, Inc. See "Sales Expense."
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<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The purpose of the following tables is to assist the Policy Owner in
understanding the various costs and expenses that a Policy Owner will bear
directly or indirectly under the Policies. The tables reflect charges under the
Policies, expenses of the Subaccounts, and expenses of the Underlying
Portfolios.
<TABLE>
<CAPTION>
Policy Owner Transaction Expenses
- ---------------------------------
<S> <C> <C>
Contingent Deferred Sales Charge Policy Year after date of Charge
The charge (as a percentage of payments, applied to the amount Purchase Payment
surrendered in excess of the amount, if any, which may be 0-3 7%
surrendered free of charge) will be assessed upon surrender, 4 6%
redemption, or annuitization under a period certain option, 5 5%
within the indicated time periods. 6 4%
7 3%
More than 7 No charge
Transfer Charge
The Company currently makes no charge for transfers. The None
Company guarantees that the first twelve transfers in a Policy
year will be free of charge. For the thirteenth and each
subsequent transfer, the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse the
Company for the costs of processing the transfer.
Annual Policy Fee $30
- ------------------
An annual Policy Fee, equal to $30, is deducted when Accumulated
Value is $50,000 or less. The Policy Fee is currently waived for
policies issued to a trustee of a 401(k) plan, but the Company
reserves the right to impose the Policy Fee on such policies.
Separate Account Annual Expenses
- --------------------------------
(as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Separate Account Administrative Charge 0.15%
-------
Total Annual Expenses 1.40%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Pioneer Variable Contracts Trust
Portfolios Annual Expenses Inter. Capital Real Estate Equity Balanced America Money
- -------------------------- Growth Growth Growth Income Income Market
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.00% 0.29% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Portfolio Expenses* 2.00% 1.46% 1.75% 1.75% 1.75% 1.00% 0.75%
Total Portfolio Annual Expenses
(After Expense Reimbursement) 2.00% 1.75% 1.75% 1.75% 1.75% 1.00% 0.75%
<FN>
*"Other Portfolio Expenses" are estimated.
</TABLE>
Pioneering Management Corporation ("Pioneer") is the investment adviser to each
Portfolio, except Real Estate Growth Portfolio, which is advised by Pioneer
Winthrop Advisors ("PWA"). The investment advisers have agreed voluntarily to
waive their management fees and reimburse each Portfolio to limit certain
expenses. The limitations for each Portfolio, as a percentage of average daily
net assets are currently the same as the Total Portfolio Annual Expenses after
expense reimbursement. This waiver will be in effect through 12/31/95. Before
waiver and/or expense reimbursement by the investment advisers, total Portfolio
expenses as a percentage of average daily net assets were estimated to be 3.06%
for International Growth, 2.11% for Capital Growth, 2.90% for Real Estate
Growth, 2.59% for Equity-Income, 2.51% for Balanced, 2.94% for America Income
and 3.93% for Money Market.
The following Examples demonstrate the cumulative expenses which would be paid
by the Policy Owner at 1-year, 3-year, 5-year, and 10-year intervals under
certain contingencies. Each Example assumes a $1,000 investment in a Subaccount
and a 5% annual return on assets. Because the expenses of the Underlying
Portfolios differ, separate Examples are used to illustrate the expenses
incurred by a Policy Owner on an investment in the various Subaccounts.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
(a) If the Policy is surrendered or annuitized* under a period certain option
at the end of the applicable period, you would pay the following expenses
on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Int'l. Growth $99 $172 $229 $375
Capital Growth $97 $166 $217 $352
Real Est. Growth $97 $166 $217 $352
Equity-Income $97 $166 $217 $352
Balanced $97 $166 $217 $352
America Income $90 $145 $181 $280
Money Market $87 $138 $169 $255
</TABLE>
(b) If the Policy is annuitized* under a life option at the end of the
applicable time period or if the Policy is NOT surrendered or annuitized,
you would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Int'l. Growth $35 $107 $180 $375
Capital Growth $33 $99 $168 $352
Real Est. Growth $33 $99 $168 $352
Equity-Income $33 $99 $168 $352
Balanced $33 $99 $168 $352
America Income $25 $77 $131 $280
Money Market $23 $69 $119 $255
</TABLE>
Pursuant to requirements of the 1940 Act, the policy fee has been reflected in
the Examples by a method intended to show the "average" impact of the policy fee
on an investment in the Separate Account. The total policy fees collected under
the Policies by the Company are divided by the total average net assets
attributable to the Policies. The resulting percentage is 0.100%, and the amount
of the policy fee is assumed to be $1.00 in the Examples. The Policy Fee is
deducted only when the accumulated value is $50,000 or less.
* The policy fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any policy year under
an option including a life contingency.
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<PAGE>
PERFORMANCE INFORMATION
The Company from time to time may advertise the "total return" of the
Subaccounts and the "yield" and "effective yield" of the Subaccount investing in
the Money Market Portfolio of the Fund. Both the total return and yield figures
are based on historical earnings and are not intended to indicate future
performance.
The "total return" of a Subaccount refers to the total of the income generated
by an investment in the Subaccount and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Separate Account charges, and expressed as a
percentage of the investment.
The "yield" of the Subaccount investing in the Money Market Portfolio of the
Fund refers to the income generated by an investment in the Subaccount over a
seven-day period (which period will be specified in the advertisement). This
income is then "annualized" by assuming that the income generated in the
specific week is generated over a 52-week period. This annualized yield is shown
as a percentage of the investment. The "effective yield" calculation is similar,
but when annualized, the income earned by an investment in the Subaccount is
assumed to be reinvested. Thus the "effective yield" will be slightly higher
than the "yield" because of the compounding effect of this assumed reinvestment.
The total return, yield, and effective yield figures are adjusted to reflect the
Subaccount's asset charges. The total return figures also reflect the $30 annual
Policy Fee and the contingent deferred sales charge which would be assessed if
the investment were completely redeemed at the end of the specified period.
The Company may also advertise supplemental total return performance
information. Supplemental total return refers to the total income generated by
an investment in the Subaccount and the changes of value of the principal
invested (due to realized and unrealized capital gains or losses), adjusted by
the annual asset charges and expressed as a percentage of the investment.
Because it is assumed that the investment is NOT redeemed at the end of the
specified period, the contingent deferred sales charge is NOT included in the
calculation.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond
Index or other unmanaged indices so that investors may compare the Subaccount
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, such as Morningstar, Inc., who rank such investment
products on overall performance or other criteria; or (iii) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Subaccount. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Subaccount reflects only the performance of a
hypothetical investment in the Subaccount during the particular time period on
which the calculations are based. Performance information should be considered
in light of the investment objectives and policies and risk characteristics of
the Underlying Portfolio in which the Subaccount invests and the market
conditions during the given time period, and should not be considered as a
representation of what may be achieved in the future.
WHAT IS AN ANNUITY?
In general, an annuity is a policy designed to provide a retirement income in
the form of monthly payments for the lifetime of the purchaser or an individual
chosen by the purchaser. The retirement income payments are called "annuity
payments," and the individual receiving the payments is called the "Annuitant."
Annuity payments may begin immediately after a lump sum purchase is made or may
begin after an investment period during which the amount necessary to provide
the desired amount of retirement income is accumulated.
Under an annuity policy, the insurance company assumes a mortality risk and an
expense risk. The mortality risk arises from the insurance company's guarantee
that annuity payments will continue for the life of the Annuitant, regardless of
how long the Annuitant lives or how long all Annuitants as a group live. The
expense risk arises from the insurance company's guarantee that charges will not
be increased beyond the limits specified in the policy, regardless of actual
costs of operations.
The Policy Owner's purchase payments, less any applicable deductions, are
invested by the insurance company. After retirement, annuity payments are paid
to the Annuitant for life or for such other period chosen by the Policy Owner.
In the case of a "fixed" annuity, the value of these annuity payments is
guaranteed by the insurance company, which assumes the risk of making the
investments to enable it to make the guaranteed payments. For more information
about fixed annuities see APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL
ACCOUNT."
With a variable annuity, the value of the Policy and the annuity payments are
not guaranteed but will vary depending on the investment performance of a
portfolio of securities. Any investment gains or losses are reflected in the
value of the Policy and in the annuity payments. If the portfolio increases in
value, the value of the Policy increases. If the portfolio decreases in value,
the value of the Policy decreases.
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<PAGE>
RIGHT TO REVOKE OR SURRENDER
You may revoke the Policy at any time between the date of the application and
the date 10 days after receipt of the Policy. Within seven days the Company will
return the greater of (1) the entire purchase payment or (2) the Accumulated
Value plus any amounts deducted under the Policy or by the Fund for taxes,
charges or fees. In order to Revoke the Policy, the Policy Owner must mail or
deliver the Policy (if it has already been received) to the agent through whom
the Policy was purchased, to the principal office of the Company at 440 Lincoln
Street, Worcester, Massachusetts 01653, or to any local agency of the Company.
Mailing or delivery must occur on or before 10 days after receipt of the Policy
for revocation to be effective.
The liability of the Separate Accounts under this provision is limited to the
Policy Owner's Accumulated Value in each Separate Account on the date of
cancellation. Any additional amounts refunded to the Policy Owner will be paid
by the Company.
The refund of any purchase payments paid by check may be delayed until the check
has cleared the Policy Owner's bank.
DESCRIPTION OF THE COMPANY, THE
SEPARATE ACCOUNT, AND THE FUND
THE COMPANY - The Company, organized under the laws of Massachusetts in 1844, is
the fifth oldest life insurance company in America. As of December 31, 1994, the
Company and its subsidiaries had over $10 billion in combined assets and over
$42 billion of life insurance in force. A.M. Best Company currently assigns the
Company a rating of "A" ("Excellent"). The A. M. Best Company ratings assigned
to the Company are based on the independent analyst's opinion concerning overall
performance when compared to the norms of the life insurance industry and the
ability of the Company to meet its policyholder and other contractual
obligations. The ratings bear no relationship to separate account or Underlying
Portfolio performance.
The Company's principal office is located at 440 Lincoln Street, Worcester,
Massachusetts 01653, telephone 508-855-1000 ("Principal Office"). The Company is
subject to the laws of the Commonwealth of Massachusetts governing insurance
companies and to regulation by the Commissioner of Insurance of Massachusetts.
In addition, the Company is subject to the insurance laws and regulations of
other states and jurisdictions in which it is licensed to operate.
THE SEPARATE ACCOUNT - Separate Account VA-P (the "Separate Account") is a
separate investment account of the Company. The assets used to fund the variable
portions of the Policies are set aside in the Subaccounts of the Separate
Account, and are kept separate from the general assets of the Company. There are
seven Subaccounts available under the Policies. Each Subaccount is administered
and accounted for as part of the general business of the Company, but the
income, capital gains, or capital losses of each Subaccount are allocated to
such Subaccount, without regard to other income, capital gains, or capital
losses of the Company. Under Massachusetts law, the assets of the Separate
Account may not be charged with any liabilities arising out of any other
business of the Company.
The Separate Account was established pursuant to a vote by the Board of
Directors of the Company dated August 20, 1991. The Separate Account meets the
definition of "separate account" under federal securities laws and is registered
with the Securities and Exchange Commission (the "SEC") as a unit investment
trust under the Investment Company Act of 1940 ("1940 Act"). Such registration
does not involve the supervision of management or investment practices or
policies of the Separate Account or the Company by the SEC.
The Company may offer other variable annuity contracts investing in the Separate
Account which are not discussed in this prospectus. The Separate Account may
also invest in other underlying funds which are not available to the Policies
described in this prospectus.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Separate Account and the Subaccounts.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Variable Contracts Trust (the "Fund") is an open-end, diversified
management investment company registered with the SEC under the 1940 Act. Such
registration does not involve supervision by the SEC of the investments or
investment policy of the Fund or its separate investment Portfolios.
The Fund was established to provide a vehicle for the investment of assets of
various separate accounts supporting variable insurance policies. The Fund
currently has seven investment portfolios ("Underlying Portfolios"), each
issuing a separate series of shares: International Growth Portfolio, Capital
Growth Portfolio, Real Estate Growth Portfolio, Equity-Income Portfolio,
Balanced Portfolio, America Income Portfolio and Money Market Portfolio. Certain
of the Portfolios may not be available in all states. The assets of each
Portfolio are held separate from the assets of the other Portfolios. Each
Portfolio operates as a separate investment vehicle, and the income or losses of
one Portfolio have no effect on the investment performance of another Portfolio.
Shares of the Fund may be sold directly to separate accounts established and
maintained by insurance companies for the purpose of funding variable contracts
and to certain qualified pension and retirement plans.
Pioneering Management Corporation ("Pioneer") is the investment adviser to each
Portfolio, except the Real Estate Growth Portfolio, which is advised by Pioneer
Winthrop Advisors ("PWA").
INVESTMENT OBJECTIVES AND POLICIES - A summary of investment objectives of each
of the Underlying Portfolios is set forth below. More detailed information
regarding the investment objectives, restrictions and risks, expenses paid by
the Underlying Portfolios, and other relevant information regarding the
Underlying Portfolios may be found in the Prospectus of the Fund, which
accompanies this Prospectus and should
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<PAGE>
be read carefully before investing. The Statement of Additional Information of
the Fund is available upon request.
SUBACCOUNT 251 - invests solely in shares of the International Growth Portfolio.
This Portfolio seeks long-term growth of capital primarily through investments
in non-U.S. equity securities and related depositary receipts.
SUBACCOUNT 252 - invests solely in shares of the Capital Growth Portfolio. This
Portfolio seeks capital appreciation through a diversified portfolio of
securities consisting primarily of common stocks.
SUBACCOUNT 253 - invests solely in shares of the Real Estate Growth Portfolio.
This Portfolio seeks long-term growth of capital primarily through investments
in the securities of real estate investment trusts (REITS) and other real estate
industry companies. Current income is the Portfolio's secondary investment
objective.
SUBACCOUNT 254 - invests solely in shares of the Equity-Income Portfolio. This
Portfolio seeks current income and long-term capital growth by investing in a
portfolio of income-producing equity securities of U.S. corporations. The
Portfolio's goal is to achieve a current dividend yield which exceeds the
published composite yield of the securities comprising the Standard & Poor's 500
Composite Stock Price Index.
SUBACCOUNT 255 - invests solely in shares of the Balanced Portfolio. The
Balanced Portfolio seeks capital growth and current income by actively managing
investments in a diversified portfolio of equity securities and bonds.
SUBACCOUNT 256 - invests solely in shares of the America Income Portfolio. This
Portfolio seeks as high a level of current income as is consistent with the
preservation of capital. This Portfolio invests exclusively in securities
backed by the full faith and credit of the United States and in "when issued"
commitments and repurchase agreements with respect to such securities.
SUBACCOUNT 257 - invests solely in shares of the Money Market Portfolio. This
Portfolio seeks current income consistent with preserving capital and providing
liquidity.
There is no assurance that the investment objectives of the Portfolios will be
met.
In the event of a material change in the investment policy of a Subaccount or
the Underlying Portfolio in which it invests, the Policy Owner will be notified
of the change. No material changes in the investment policy of the Separate
Account or any Subaccounts will be made without approval pursuant to applicable
state insurance laws. If the Policy Owner has policy value in that Subaccount,
the Company will transfer it without charge on written request by the Policy
Owner to another Subaccount or to the General Account. The Company must receive
such written request within sixty (60) days of the later of (1) the effective
date of such change in the investment policy or (2) the receipt of the notice of
the Policy Owner's right to transfer.
INVESTMENT ADVISORY SERVICES TO THE FUND - Each Portfolio pays a management fee
to Pioneer, except the Real Estate Growth Portfolio which pays PWA, for managing
its investments and business affairs. Each Portfolio's management fee is
computed daily and paid monthly at the following annual rate:
<TABLE>
<CAPTION>
Management Fee as a % of
Portfolio average daily net assets
- --------- ------------------------
<S> <C>
Capital Growth 0.65%
Equity-Income
Balanced
International Growth 1.00%
Real Estate Growth
America Income 0.50%
Money Market 0.40%
</TABLE>
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS - The Company reserves the
right, subject to applicable law, to make additions to, deletions from, or
substitutions for the shares that are held in the Subaccounts or that the
Subaccounts may purchase. If the shares of any Underlying Portfolio are no
longer available for investment or if in the Company's judgment further
investment in any Underlying Portfolio should become inappropriate in view of
the purposes of the Separate Account or the affected Subaccount, the Company may
redeem the shares of that Underlying Portfolio and substitute shares of another
registered open-end management company. The Company will not substitute any
shares attributable to a Policy interest in a Subaccount without notice to the
Policy Owner and prior approval of the SEC and state insurance authorities, to
the extent required by the 1940 Act or other applicable law. The Separate
Account may, to the extent permitted by law, purchase other securities for other
policies or permit a conversion between policies upon request by a Policy Owner.
The Company also reserves the right to establish additional Subaccounts of the
Separate Account, each of which would invest in shares corresponding to a new
Underlying Portfolio or in shares of another investment company having a
specified investment objective. Subject to applicable law and any required SEC
approval, the Company may, in its sole discretion, establish new Subaccounts or
eliminate one or more Subaccounts if marketing needs, tax considerations or
investment conditions warrant. Any new Subaccounts may be made available to
existing Policy Owners on a basis to be determined by the Company.
Shares of the Underlying Portfolios may be sold to separate accounts of
unaffiliated insurance companies ("shared funding") which issue variable annuity
and variable life policies ("mixed funding"). It is conceivable that in the
future such shared funding or mixed funding may be disadvantageous for variable
life Policy Owners or variable annuity Policy Owners. Although the Company and
the Fund do not currently foresee any such disadvantages to either variable life
insurance Policy Owners or variable annuity Policy Owners, the Company
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<PAGE>
and the trustees of the Fund intend to monitor events in order to identify any
material conflicts and to determine what action, if any, should be taken in
response thereto.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Policy to reflect the substitution or change
and will notify Policy Owners of all such changes. If the Company deems it to be
in the best interest of Policy Owners, and subject to any approvals that may be
required under applicable law, the Separate Account or any Subaccount(s) may be
operated as a management company under the 1940 Act, may be deregistered under
the 1940 Act if registration is no longer required, or may be combined with
other Subaccounts or other separate accounts of the Company.
VOTING RIGHTS
The Company will vote Underlying Portfolio shares held by each Subaccount in
accordance with instructions received from Policy Owners and, after Annuity
Date, from the Annuitants. Each person having a voting interest in a Subaccount
will be provided with proxy materials of the Underlying Portfolio together with
a form with which to give voting instructions to the Company. Shares for which
no timely instructions are received will be voted in proportion to the
instructions which are received. The Company will also vote shares in a
Subaccount that it owns and which are not attributable to Policies in the same
proportion. If the 1940 Act or any rules thereunder should be amended or if the
present interpretation of the 1940 Act or such rules should change, and as a
result the Company determines that it is permitted to vote shares in its own
right, whether or not such shares are attributable to the Policies, the Company
reserves the right to do so.
The number of votes which a Policy Owner or Annuitant may cast will be
determined by the Company as of the record date established by the Underlying
Portfolio.
During the accumulation period, the number of Underlying Portfolio shares
attributable to each Policy Owner will be determined by dividing the dollar
value of the Accumulation Units of the Subaccount credited to the Policy by the
net asset value of one Underlying Portfolio share.
During the annuity period, the number of Underlying Portfolio shares
attributable to each Annuitant will be determined by dividing the reserve held
in each Subaccount for the Annuitant's variable annuity by the net asset value
of one Underlying Portfolio share. Ordinarily, the Annuitant's voting interest
in the Underlying Portfolio will decrease as the reserve for the variable
annuity is depleted.
CHARGES AND DEDUCTIONS
Deductions under the Policies and charges against the assets of the Subaccounts
are described below. Other deductions and expenses paid out of the assets of the
Underlying Portfolios are described in the Prospectus and Statement of
Additional Information of the Fund.
A. CONTINGENT DEFERRED SALES CHARGE.
No charge for sales expense is deducted from purchase payments at the time the
payments are made. However, a contingent deferred sales charge is deducted from
the Accumulated Value of the Policy in the case of surrender and/or partial
redemption of the Policy or at the time annuity payments begin, within certain
time limits described below.
For purposes of determining the contingent deferred sales charge, the Policy
Value is divided into three categories: (1) New Payments - purchase payments
received by the Company during the seven years preceding the date of the
surrender; (2) Old Payments - purchase payments not defined as New Payments; and
(3) Earnings - the amount of Policy Value in excess of all purchase payments
that have not been previously surrendered. For purposes of determining the
amount of any contingent deferred sales charge, surrenders will be deemed to be
taken first from Old Payments, then from New Payments. Old Payments may be
withdrawn from the Policy at any time without the imposition of a contingent
deferred sales charge. If a withdrawal is attributable all or in part to New
Payments, a contingent deferred sales charge may apply.
Except in New York, no contingent deferred sales charge is imposed, and no
commissions are paid, on Policies where the Policy Owner and Annuitant as of the
date of application are both within the following class of individuals:
All employees and registered representatives of any broker-dealer that has
entered into a sales agreement with the Company to sell the Policies; all
officers, directors, trustees and bona fide full-time employees (including
former officers and directors and former employees who had been employed
for at least ten years) of The Pioneer Group, Inc., their affiliates and
subsidiaries, and of any Underlying Portfolios; and any spouses of the
above persons or any children or other legal dependents of the above
persons who are under the age of 21.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the contingent
deferred sales charge is modified to effect certain exchanges of annuity
contracts for the Policies, as provided in APPENDIX B, "EXCHANGE OFFER."
CHARGES FOR SURRENDER AND PARTIAL REDEMPTION. If a Policy is surrendered, or if
New Payments are redeemed, while the Policy is in force and before the Annuity
Date, a contingent deferred sales charge may be imposed. The amount of the
charge will depend upon the number of years that the New Payments, if any, to
which the withdrawal is attributed have remained credited under the Policy.
Amounts withdrawn are deducted first from Old Payments. Then, for the purpose of
calculating surrender charges for New Payments, all amounts withdrawn are
assumed to be deducted first from the earliest New Payment and then from the
next earliest New Payment and so on, until all New Payments have been exhausted
pursuant to the first-in-first-out ("FIFO") method of accounting. (See "FEDERAL
TAX CONSIDERATIONS" for a discussion of how withdrawals are treated for income
tax purposes.)
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<PAGE>
The contingent deferred sales charges are as follows:
Years from date Charge as
of Payment to Percentage
date of of New Payments
Withdrawal Withdrawn
---------- ---------
0-3 7%
4 6%
5 5%
6 4%
7 3%
More than 7 No Charge
The amount redeemed equals the amount requested by the Policy Owner plus the
charge, if any, which is applied against the amount requested. For example, if
the applicable charge is 7% and the Policy Owner has requested $200, the Policy
Owner will receive $200 and the charge will be $14 (assuming no Withdrawal
Without Charge Amount, discussed below) for a total withdrawal of $214. The
charge is applied as a percentage of the New Payments redeemed. Such total
charge equals the aggregate of all applicable contingent deferred sales charges
for surrender, partial redemptions, and annuitization.
WITHDRAWAL WITHOUT CHARGE AMOUNTS. In each calendar year, the Company will waive
the contingent deferred sales charge, if any, on an amount ("Withdrawal Without
Charge Amount") equal to the greatest of (1), (2) or (3):
Where (1) is:
The Accumulated Value as of the Valuation Date coincident with or next
following the date of receipt of the request for withdrawal, reduced by
total gross payments not previously redeemed ("Cumulative Earnings").
Where (2) is:
10% of the Accumulated Value as of the Valuation Date coincident with or
next following the date of receipt of the request for withdrawal, reduced
by the total amount of any prior partial redemptions made in the same
calendar year to which no contingent deferred sales charge was applied.
Where (3) is:
The amount calculated under the Company's life expectancy distribution (see
"LED Distributions," below), whether or not the withdrawal was part of such
distribution (applies only if the Policy Owner and Annuitant are the same
individual).
For example, an 81-year-old Policy Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Withdrawal Without
Charge Amount of $1,530, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED distribution of 10.2% of Accumulated Value ($1,530).
The Withdrawal Without Charge Amount will first be deducted from Cumulative
Earnings. If the Withdrawal Without Charge Amount exceeds Cumulative Earnings,
the excess amount will be deemed withdrawn from payments not previously redeemed
on a last-in-first-out ("LIFO") basis. If more than one partial withdrawal is
made during the year, on each subsequent withdrawal the Company will waive the
contingent deferred sales charge, if any, until the entire Withdrawal Without
Charge Amount has been redeemed.
LED DISTRIBUTIONS. Prior to the Annuity Date a Policy Owner who is also the
Annuitant may elect to make a series of systematic withdrawals from the Policy
according to a life expectancy distribution ("LED"). The LED may be elected by
returning a properly signed LED request form to the Company's Principal Office.
The LED permits the Policy Owner to make systematic withdrawals from the Policy
over his or her lifetime. The amount withdrawn from the Policy changes each
year, because life expectancy changes each year that a person lives. For
example, actuarial tables indicate that a person age 70 has a life expectancy of
16 years, but a person who attains age 86 has a life expectancy of another 6.5
years.
If a Policy Owner elects the LED, in each policy year a fraction of the
Accumulated Value is withdrawn from the Policy based on the Policy Owner's then
life expectancy. The numerator of the fraction is 1 (one) and the denominator of
the fraction is the remaining life expectancy of the Policy Owner, as determined
annually by the Company. The resulting fraction, expressed as a percentage, is
applied to the Accumulated Value of the Policy at the beginning of the year to
determine the amount to be distributed during the year. The Policy Owner may
elect monthly, bimonthly, quarterly, semiannual, or annual distributions, and
may terminate the LED at any time. The Policy Owner may also elect to receive
distributions under an LED which is determined on the joint life expectancy of
the Policy Owner and a beneficiary. The Company may also offer other systematic
withdrawal options. The LED will cease on the Annuity Date.
If a Policy Owner makes withdrawals under the LED distribution prior to age 59
1/2, the withdrawals may be treated by the IRS as premature distributions from
the Policy. The payments would then be taxed on an "income first" basis, and be
subject to a 10% federal tax penalty. For more information, see "FEDERAL TAX
CONSIDERATIONS, B. Taxation of the Policies in General."
SURRENDERS. In the case of a complete surrender, the amount received by the
Policy Owner is equal to the entire Accumulated Value under the Policy, net of
the applicable contingent deferred sales charge on New Payments, the Policy Fee,
and any applicable tax withholding. Subject to the same rules that are
applicable to partial redemptions, the Company will not
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<PAGE>
assess a contingent deferred sales charge on a Withdrawal Without Charge Amount.
Because Old Payments count in the calculation of the Withdrawal Without Charge
Amount, if Old Payments equal or exceed the Withdrawal Without Charge Amount,
the Company may assess the full applicable contingent deferred sales charge on
New Payments.
Where a Policy Owner who is trustee under a pension plan surrenders, in whole or
in part, a Policy on a terminating employee, the Trustee will be permitted to
reallocate all or a part of the total Accumulated Value under the Policy to
other policies issued by the Company and owned by the Trustee, with no deduction
for any otherwise applicable contingent deferred sales charge. Any such
reallocation will be at the unit values for the Subaccounts as of the valuation
date on which a written, signed request is received at the Company's Principal
Office.
For further information on surrender and partial redemption, including minimum
limits on amount redeemed and amount remaining under the Policy in the case of
partial redemption, and important tax considerations, see "Surrender" and
"Partial Redemption" under "THE VARIABLE ANNUITY POLICIES," and see "FEDERAL TAX
CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY PAYMENTS BEGIN. If a period certain option is chosen
(Option V or the comparable fixed annuity option), a contingent deferred sales
charge will be deducted from the Accumulated Value of the Policy if the Annuity
Date occurs at any time during the surrender charge period. Such charge is the
same as that which would apply had the policy been surrendered on the Annuity
Date.
No contingent deferred sales charge is imposed at the time of annuitization in
any policy year under an option involving a life contingency (Options I, II,
III, IV-A, IV-B or the comparable fixed annuity options) or involving a
non-commutable period certain of a duration of ten years or more.
SALES EXPENSE. Commissions on the Policies are paid by the Company and do not
result in any additional charge to Policy Owners or to the Separate Account.
Commissions not to exceed 6% of purchase payments will be paid to entities which
sell the Policies. To the extent permitted by NASD rules, expense reimbursement
allowances and additional payments for other services not directly related to
the sale of the Policies, including the recruitment and training of personnel,
production of promotional literature, and similar services may also be paid .
The Company intends to recoup the commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges, described above,
and the investment earnings on amounts allocated to accumulate on a fixed basis
in excess of the interest credited on fixed accumulations by the Company. Any
contingent deferred sales charges assessed on a Policy will be retained by the
Company.
B. PREMIUM TAXES.
Some states and municipalities impose a premium tax on variable annuity
policies. State premium taxes currently range up to 3.5%.
The Company reserves the right to make a charge for state and municipal premium
taxes, when applicable, and deducts the amount paid as a premium tax charge. The
current practice of the Company is to deduct the premium tax charge in one of
two ways:
(1) if the premium tax was paid by the Company when purchase payments were
received, to the extent permitted in the Policy the premium tax charge is
deducted on a pro rata basis when partial withdrawals are made, upon
surrender of the Policy, or when annuity payments begin (the Company
reserves the right instead to deduct the premium tax charge for these
Policies at the time the purchase payments are received); or
(2) the premium tax charge is deducted when annuity payments begin.
If no amount for premium tax was deducted at the time the purchase payment was
received, but subsequently tax is determined to be due prior to the Annuity
Date, the Company reserves the right to deduct the premium tax from the Policy
value at the time such determination is made.
C. POLICY FEE.
A $30 Policy Fee currently is deducted on the policy anniversary date and upon
full surrender of the Policy when the Accumulated Value is $50,000 or less. The
Policy Fee is not deducted after annuitization. The Policy Fee is currently
waived for policies issued to and maintained by a Trustee of a 401(k) plan, but
the Company reserves the right to impose the Policy Fee on such policies.
Where policy value has been allocated to more than one account (General Account
and/or one or more of the Subaccounts), a percentage of the total Policy Fee
will be deducted from the Policy Value in each account. The portion of the
charge deducted from each account will be equal to the percentage which the
Policy Value in that account represents of the total Accumulated Value under the
Policy. The deduction of the Policy Fee will result in cancellation of a number
of Accumulation Units equal in value to the percentage of the charge deducted
from that account.
D. ANNUAL CHARGES AGAINST SEPARATE ACCOUNT ASSETS.
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a charge of 1.25% on an
annual basis of the daily value of each Subaccount's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Policies. The charge is imposed during both the accumulation
period and the annuity period. The mortality risk arises from the Company's
special death benefit guarantee and its guarantee that it will make annuity
payments in accordance with annuity rate provisions established at the time the
Policy is issued for the life of the Annuitant (or in accordance with the
annuity option selected), no
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<PAGE>
matter how long the Annuitant (or other payee) lives and no matter how long all
Annuitants as a class live. Therefore, the mortality charge is deducted during
the annuity phase on all contracts, including those that do not involve a life
contingency, even though the Company does not bear direct mortality risk with
respect to variable annuity settlement options that do not involve life
contingencies. The expense risk arises from the Company's guarantee that the
charges it makes will not exceed the limits described in the Policies and in
this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be .80% for mortality risk and .45%
for expense risk.
ADMINISTRATIVE EXPENSE CHARGE - The Company assesses each Subaccount available
under the Policies with a daily charge at an annual rate of 0.15% of the average
daily net assets of the Subaccount. The charge is imposed during both the
accumulation period and the annuity period. The daily Administrative Expense
Charge is assessed to help defray administrative expenses actually incurred in
the administration of the Subaccount, without profits. However, there is no
direct relationship between the amount of administrative expenses imposed on a
given policy and the amount of expenses actually attributable to that policy.
Deductions for the Policy Fee (described under B. POLICY FEE) and for the
Administrative Expense Charge are designed to reimburse the Company for the cost
of administration and related expenses and are not expected to be a source of
profit. The administrative functions and expense assumed by the Company in
connection with the Separate Account and the Policies include, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and supplies, expenses of preparing and printing
registration statements, expense of preparing and typesetting prospectuses and
the cost of printing prospectuses not allocable to sales expense, filing and
other fees.
TRANSFER CHARGE - The Company currently makes no charge for transfers. The
Company guarantees that the first twelve transfers in a Policy Year will be free
of charge, but reserves the right to assess a charge, guaranteed never to exceed
$25, for the thirteenth and each subsequent transfer in a Policy Year.
The Policy Owner may have automatic transfers of at least $100 a month made on a
periodic basis (a) from Subaccount 257 (which invests in the Money Market
Portfolio) or Subaccount 256 (which invests in the America Income Portfolio) to
one or more of the other Subaccounts, or (b) in order to reallocate Policy Value
among the Subaccounts. The first automatic transfer counts as one transfer
towards the twelve transfers which are guaranteed to be free in each policy
year. For more information, see "The Policy Transfer Privilege."
OTHER CHARGES - Because the Subaccounts purchase shares of the Fund, the value
of the net assets of the Subaccounts will reflect the investment advisory fee
and other expenses incurred by the Underlying Portfolios. The Prospectus and
Statement of Additional Information of the Fund contain additional information
concerning expenses of the Underlying Portfolios.
THE VARIABLE ANNUITY POLICIES
The Policies are designed for use in connection with several types of retirement
plans as well as for sale to individuals. Participants under such plans, as well
as Policy Owners, and beneficiaries, are cautioned that the rights of any person
to any benefits under such Policies may be subject to the terms and conditions
of the plans themselves, regardless of the terms and conditions of the Policies.
The Policies offered by the Prospectus may be purchased from broker-dealers that
are registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc. (NASD), including Allmerica
Investments, Inc., the principal underwriter of the Policies. Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts, 01653, is an
indirect wholly-owned subsidiary of the Company.
Policy Owners may direct any inquiries to Annuity Customer Services, State
Mutual Life Assurance Company of America, 440 Lincoln Street, Worcester,
Massachusetts 01653.
A. PURCHASE PAYMENTS.
Purchase payments are payable to the Company. The initial payment will be
credited to the Policy as of the date that the properly completed application
which accompanies the payment is received by the Company at its principal
office. If an application is incomplete, or does not specify how payments are to
be allocated among the Accounts, the initial purchase payment will be returned
within five business days. After a policy is issued, Accumulation Units will be
credited to the Policy at the unit value computed as of the Valuation Date that
a purchase payment is received at the Company's principal office.
Purchase payments are not limited as to frequency and number, but there are
certain limitations as to amount. Generally, the initial payment must be at
least $600. Under a salary deduction or a monthly automatic payment plan, the
minimum initial payment is $50. In all cases, each subsequent payment must be at
least $50. Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Policy on the employee, if the plan's average
annual
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contribution per eligible plan participant is at least $600. Total payments may
not exceed the maximum limit specified in the Policy. If the payments are
divided among two or more accounts, a net amount of at least $10 of each payment
must be allocated to each account.
Generally, payments will be allocated among the Subaccounts according to the
Policy Owner's instructions when the Policy is issued. However, for the first 14
days following the date of issue, all Separate Account allocations will be held
in Subaccount 257 (the Money Market Portfolio). Thereafter, all amounts will be
allocated according to the Policy Owner's instructions. The Policy Owner may
change allocation instructions for new payments pursuant to written or telephone
request. If telephone requests are elected by the Policy Owner, a properly
completed authorization form must be on file before telephone requests will be
honored. The policy of the Company and its agents and affiliates is that they
will not be responsible for losses resulting from acting upon telephone requests
reasonably believed to be genuine. The Company will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine; otherwise,
the Company may be liable for any losses due to unauthorized or fraudulent
instructions. The procedures the Company follows for transactions initiated by
telephone include requirements that callers on behalf of a Policy Owner identify
themselves by name and identify the Annuitant by name, date of birth and social
security number. All transfer instructions by telephone are tape recorded.
B. TRANSFER PRIVILEGE.
At any time prior to the Annuity Date, subject to the Company's then current
rules, a Policy Owner may have amounts transferred among the Subaccounts or
between a Subaccount and the General Account. Transfer values will be effected
at the Accumulation Value next computed after receipt of the transfer order. The
Company will make transfers pursuant to written or telephone request. As
discussed in "A. Purchase Payments," a properly completed authorization form
must be on file before telephone requests will be honored.
The Policy Owner may have automatic transfers of at least $100 each made on a
periodic basis from Subaccount 257 (which invests in the Money Market
Portfolio) or Subaccount 255 (which invests in the America Income Portfolio) to
one or more of the other Subaccounts or reallocate Policy Value among the
Subaccounts. Automatic transfers may be made on a monthly, bimonthly, quarterly,
semiannual or annual schedule. The first automatic transfer counts as one
transfer towards the twelve transfers which are guaranteed to be free in each
Policy year.
The transfer privilege is subject to the consent of the Company. The Company
reserves the right to impose limitations on transfers including, but not limited
to: (1) the minimum amount that may be transferred, (2) the minimum amount that
may remain in a Subaccount following a transfer from that Subaccount, (3) the
minimum period of time between transfers involving the General Account, and (4)
the maximum amount that may be transferred each time from the General Account.
Currently, the Company makes no charge for transfers. The first twelve transfers
in a Policy year are guaranteed to be free of any charge. For the thirteenth and
each subsequent transfer in a Policy year the Company reserves the right to
assess a charge, guaranteed never to exceed $25, to reimburse it for the expense
of processing transfers.
C. SURRENDER.
At any time prior to the Annuity Date, a Policy Owner may surrender the Policy
and receive its Accumulated Value, less applicable charges ("Surrender Amount").
The Policy Owner must return the Policy and a signed, written request for
surrender, satisfactory to the Company, to the Company's Principal Office. The
amount payable to the Policy Owner upon surrender will be based on the
Accumulated Value of the Policy as of the Valuation Date on which the request
and the Policy are received at the Company's Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted when
a Policy is surrendered if payments have been credited to the policy during the
last seven full policy years. See "CHARGES AND DEDUCTIONS." The Policy Fee will
be deducted upon surrender of the Policy.
After the Annuity Date, only Policies under which future annuity payments are
limited to a specified period (as specified in Annuity Option V) may be
surrendered. The Surrender Amount is the commuted value of any unpaid
installments, computed on the basis of the assumed interest rate incorporated in
such annuity payments. No contingent deferred sales charge is imposed after the
Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and partial redemptions of amounts in each Subaccount during
any period in which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of each Separate Account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and partial redemptions
of amounts allocated to the Company's General Account for a period not to exceed
six months.
The surrender rights of Policy Owners who are participants under Section 403(b)
plans or who are participants in the Texas Optional Retirement Program (Texas
ORP) are restricted; see "FEDERAL TAX CONSIDERATIONS," "I. Public School Systems
and Certain Tax Exempt Organizations" and "J. Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
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D. PARTIAL REDEMPTION. At any time prior to the Annuity Date, a Policy Owner may
redeem a portion of the Accumulated Value of his or her Policy, subject to the
limits stated below. The Policy Owner must file a signed, written request for
redemption, satisfactory to the Company, at the Company's Principal Office. The
written request must indicate the dollar amount the Policy Owner wishes to
receive and the account from which such amount is to be redeemed. The amount
redeemed equals the amount requested by the Policy Owner plus any applicable
contingent deferred sales charge, as described under "CHARGES AND DEDUCTIONS."
Where allocations have been made to more than one account, a percentage of the
partial redemption may be allocated to each such account. A partial redemption
from a Subaccount will result in cancellation of a number of units equivalent in
value to the amount redeemed, computed as of the Valuation Date that the request
is received at the Company's Principal Office.
Each partial redemption must be in a minimum amount of $200. No partial
redemption will be permitted if the Accumulated Value remaining under the Policy
would be reduced to less than $1,000. Partial redemptions will be paid in
accordance with the time limitations described under "Surrender."
After the Annuity Date, only Policies under which future variable annuity
payments are limited to a specified period may be partially redeemed. A partial
redemption after the Annuity Date will result in cancellation of a number of
Annuity Units equivalent in value to the amount redeemed.
For important restrictions on withdrawals which are applicable to Policy Owners
who are participants under Section 403(b) plans or under the Texas ORP, see
"FEDERAL TAX CONSIDERATIONS," "I. Public School Systems and Certain Tax Exempt
Organizations" and "J. Texas Optional Retirement Program."
For important tax consequences which may result from partial redemptions, see
"FEDERAL TAX CONSIDERATIONS."
E. DEATH BENEFIT.
If the Annuitant dies (or a Policy Owner predeceases the Annuitant) prior to the
Annuity Date while the Policy is in force, a death benefit will be paid to the
beneficiary, except where the Policy continues as provided in "F. The Spouse of
the Policy Owner as Beneficiary." Upon death of the Annuitant (including a
Policy Owner who is also the Annuitant), the death benefit is equal to the
greatest of (a) the Accumulated Value under the Policy next determined following
receipt of due proof of death at the Principal Office, or (b) the total amount
of gross payment(s) made under the Policy reduced proportionally to reflect the
amount of all prior partial withdrawals, or (c) the death benefit that would
have been payable on the most recent fifth year Policy anniversary, increased
for subsequent purchase payments and reduced proportionally to reflect
withdrawals after that date.
A partial withdrawal will reduce the gross payments available as a death benefit
under (b) in the same proportion that the Accumulated Value was reduced on the
date of withdrawal. For each withdrawal, the reduction is calculated by
multiplying the total amount of gross payments by a fraction, the numerator of
which is the amount of the partial withdrawal and the denominator of which is
the Accumulated Value immediately prior to the withdrawal. For example, if gross
payments total $8,000 and a $3,000 withdrawal is made when the Accumulated Value
is $12,000, the proportional reduction of gross payments available as a death
benefit is calculated as follows: The Accumulated Value is reduced by 1/4
(3,000 divided by 12,000); therefore, the gross amount available as a death
benefit under (b) will also be reduced by 1/4 (8,000 times 1/4 equals $2,000),
so that the $8,000 gross payments are reduced to $6,000. Payments made after a
withdrawal will increase the death benefit available under (b) by the amount of
the payment.
A partial withdrawal after the most recent fifth year Policy anniversary will
decrease the death benefit available under (c) in the same proportion that the
Accumulated Value was reduced on the date of the withdrawal. For example, if the
death benefit that would have been payable on the most recent fifth year Policy
anniversary is $12,000 and partial withdrawals totalling $5,000 are made
thereafter when the Accumulated Value is $15,000, the proportional reduction of
death benefit available under (c) is calculated as follows: The Accumulated
Value is reduced by 1/3 (5,000 divided by 15,000); therefore, the death benefit
that would have been payable on the most recent fifth year Policy anniversary
will also be reduced by 1/3 (12,000 times 1/3 or $4,000), so that the death
benefit available under (c) will be $8,000 ($12,000 minus $4,000). Payments made
after the most recent fifth year Policy anniversary will increase the death
benefit available under (c) by the amount of the payment. Upon death of a Policy
Owner who is not the Annuitant, the death benefit is equal to the Accumulated
Value of the Policy next determined following receipt of due proof of death
received at the Company's Principal Office.
The death benefit generally will be paid to the beneficiary in one sum. However,
the beneficiary may, by written request, elect one of the following options:
(1) The payment of the one sum may be delayed for a period not to exceed
five years from the date of death.
(2) The death benefit may be paid in installments. Payments must begin
within one year from the date of death, and are payable over a period
certain not extended beyond the life expectancy of the beneficiary.
(3) All or a portion of the death benefit may be used to provide a life
annuity for the beneficiary. Benefits must begin within one year from
the date of death and are payable over a period not extended beyond
the life expectancy of the beneficiary. Any annuity benefits will be
provided in accordance with the annuity options of the Policy.
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If there is more than one beneficiary, the death benefit will be paid to such
beneficiaries in one sum unless the Company consents to pay an annuity option
chosen by the beneficiaries.
With respect to any death benefit, the Accumulated Value under the Policy shall
be based on the unit values next computed after due proof of death has been
received at the Company's principal office. If the beneficiary elects to receive
the death benefit in one sum, the death benefit will be paid within seven
business days. If the beneficiary (other than a spousal beneficiary of an IRA,
See "F. The Spouse of the Policy Owner as Beneficiary," below) has not elected
an annuity option within one year from the date notice of death is received by
the Company, the Company will pay the death benefit in one sum. The death
benefit will reflect any earnings or losses experienced during the period and
any withdrawals.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed monthly annuity payments, any unpaid amounts or
installments will be paid to the beneficiary. The Company must pay the remaining
payments at least as rapidly as under the payment option in effect on the date
of the Annuitant's death. If there is more than one beneficiary, the commuted
value of the payments, computed on the basis of the assumed interest rate
incorporated in the annuity option table on which such payments are based, shall
be paid to the beneficiaries in one sum.
F. THE SPOUSE OF THE POLICY OWNER AS BENEFICIARY.
If the Policy Owner's spouse is named as beneficiary ("spousal beneficiary") and
if the Policy Owner dies (and predeceases the Annuitant if such Policy Owner is
not the Annuitant) prior to the Annuity Date while the Policy is in force, at
the written request of the spousal beneficiary the death benefit will not be
paid and the spousal beneficiary will become the new Policy Owner (and, if the
deceased Owner was also the Annuitant, the new Annuitant). All other rights and
benefits provided in the Policy will continue, except that any subsequent spouse
of such new Policy Owner will not be entitled to continue the Policy upon such
new Policy Owner's death.
G. ASSIGNMENT.
The Policy may be assigned by the Policy Owner at any time prior to the Annuity
Date and while the Annuitant is alive. However, Policies sold in connection with
IRA plans and certain other qualified plans are not assignable. Assignability of
a Policy issued in connection with an HR-10 Plan may be restricted. For more
information about these plans, see "FEDERAL TAX CONSIDERATIONS."
The Company will not be deemed to have knowledge of an assignment unless it is
made in writing and filed at the Company's Principal Office. The Company will
not assume responsibility for determining the validity of any assignment. If an
assignment of the Policy is in effect on the Annuity Date, the Company reserves
the right to pay to the assignee, in one sum, that portion of the Surrender
Value of the Policy to which the assignee appears to be entitled. The Company
will pay the balance, if any, in one sum to the Policy Owner in full settlement
of all liability under the Policy. The interest of the Policy Owner and of any
beneficiary will be subject to any assignment.
H. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE.
Subject to certain restrictions described below, the Policy Owner has the right
(1) to select the annuity option under which annuity payments are to be made,
and (2) to determine whether payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. Annuity payments are
determined according to the annuity tables in the Policy, by the annuity option
selected, and by the investment performance of the Account(s) selected.
To the extent a fixed annuity is selected, Accumulated Value will be transferred
to the General Account of the Company, and the annuity payments will be fixed in
amount. See APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number of
Annuity Units in the Subaccount(s) is made each month. Since the value of an
Annuity Unit in a Subaccount will reflect the investment performance of the
Subaccount, the amount of each monthly payment will vary.
The annuity option selected must produce an initial payment of at least $20. If
a combination of fixed and variable payments is selected, the initial payment on
each basis must be at least $20. The Company reserves the right to increase
these minimum amounts. If the annuity option(s) selected does not produce
initial payments which meet these minimums, the Company will pay the Accumulated
Value in one sum. Once the Company begins making annuity payments, the Annuitant
cannot make partial redemptions or surrender the annuity benefit, except in the
case where future annuity payments are limited to a "period certain" (only under
Option V or a comparable fixed option). Only beneficiaries entitled to receive
remaining payments for a "period certain" may elect to instead receive a lump
sum settlement.
The Annuity Date is selected by the Policy Owner. The Annuity Date may be the
first day of any month on or after the Annuitant's 50th birthday but before the
Annuitant's 85th birthday, with certain exceptions the Company may arrange. The
Policy Owner may elect to change the Annuity Date by sending a request to the
Company's Principal Office at least one month before the new Annuity Date. The
new Annuity Date must be the first day of any month occurring on or after the
Annuitant's 50th birthday but before the Annuitant's 85th birthday. The new
Annuity Date must be within the life expectancy of the Annuitant. The Company
shall determine such life expectancy at the time a change in Annuity Date is
requested. The Internal Revenue Code and the terms of qualified plans impose
limitations on the age at which annuity payments may commence and the type of
annuity option selected. See "FEDERAL TAX CONSIDERATIONS" for further
information.
If the Policy Owner does not elect otherwise, annuity payments will be made in
accordance with Option I, a
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variable life annuity with 120 monthly payments guaranteed. Changes in either
the Annuity Date or annuity option can be made up to one month prior to the
Annuity Date.
I. DESCRIPTION OF VARIABLE ANNUITY OPTIONS.
The Company currently provides the variable annuity options described below.
Variable annuity options may be funded through the Capital Growth Portfolio, the
Equity-Income Portfolio and the America Income Portfolio.
The Company also provides fixed-amount annuity options which are comparable to
the variable annuity options. Regardless of how payments were allocated during
the accumulation period, any one of the variable annuity options or the
fixed-amount options may be selected, or any one of the variable annuity options
may be selected in combination with any one of the fixed-amount annuity options.
Other annuity options may be offered by the Company.
OPTION I--Variable Life Annuity with 120 Monthly Payments Guaranteed
A variable annuity payable monthly during the lifetime of the payee with the
guarantee that if the payee should die before 120 monthly payments have been
paid, the monthly annuity payments will continue to the beneficiary until a
total of 120 monthly payments have been paid.
OPTION II--Variable Life Annuity
A variable annuity payable monthly only during the lifetime of the payee. It
would be possible under this option for the Annuitant to receive only one
annuity payment if the Annuitant dies prior to the due date of the second
annuity payment, two annuity payments if the Annuitant dies before the due date
of the third annuity payment, and so on. However, payments will continue during
the lifetime of the payee, no matter how long the payee lives.
OPTION III--Unit Refund Variable Life Annuity
A variable annuity payable monthly during the lifetime of the payee with the
guarantee that if (1) exceeds (2) then monthly variable annuity payments will
continue to the beneficiary until the number of such payments equals the number
determined in (1).
Where:
(1) is the dollar amount of the Accumulated Value divided by the dollar
amount of the first monthly payment (which determines the greatest number
of payments payable to the beneficiary), and
(2) is the number of monthly payments paid prior to the death of the payee,
OPTION IV-A--Joint and Survivor Variable Life Annuity
A monthly variable annuity payable jointly to two payees during their joint
lifetime, and then continuing during the lifetime of the survivor. The amount of
each payment to the survivor is based on the same number of Annuity Units which
applied during the joint lifetime of the two payees. One of the payees must be
either the person designated as the Annuitant in the Policy or the beneficiary.
There is no minimum number of payments under this option. See Option IV-B,
below.
OPTION IV-B--Joint and Two-thirds Survivor Variable Life Annuity
A monthly variable annuity payable jointly to two payees during their joint
lifetime, and then continuing thereafter during the lifetime of the survivor.
However, the amount of each monthly payment to the survivor is based upon
two-thirds of the number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be the person designated as
the Annuitant in the Policy or the beneficiary. There is no minimum number of
payments under this option. See Option IV-A, above.
OPTION V--Period Certain Variable Annuity
A monthly variable annuity payable for a stipulated number of from one to thirty
years.
It should be noted that Option V does not involve a life contingency. In the
computation of the payments under this option, the charge for annuity rate
guarantees, which includes a factor for mortality risks, is made. Although not
contractually required to do so, the Company currently follows a practice of
permitting persons receiving payments under Option V to elect to convert to a
variable annuity involving a life contingency. The Company may discontinue or
change this practice at any time, but not with respect to Policy Owners who have
elected Option V prior to the date of any change in this practice. See "FEDERAL
TAX CONSIDERATIONS" for a discussion of the possible adverse tax consequences of
selecting Option V.
J. NORRIS DECISION.
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a policy issued in connection with an employer-sponsored benefit plan
affected by the Norris decision will be based on the greater of (1) the
Company's unisex Non-Guaranteed Current Annuity Option Rates or (2) the
guaranteed male rates described in such Policy, regardless of whether the
Annuitant is male or female.
K. COMPUTATION OF POLICY VALUES AND ANNUITY PAYMENTS.
THE ACCUMULATION UNIT. Each net purchase payment is allocated to the account(s)
selected by the Policy Owner. Allocations to the Subaccounts are credited to the
Policy in the form of Accumulation Units. Accumulation Units are credited
separately for each Subaccount. The number of Accumulation Units of each
Subaccount credited to the Policy is equal to the portion of the net purchase
payment allocated to the Subaccount, divided by the dollar value of the
applicable Accumulation Unit as of the Valuation Date the payment is received at
the
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Company's Principal Office. The number of Accumulation Units resulting from each
payment will remain fixed unless changed by a subsequent split of Accumulation
Unit value, a transfer, a partial redemption, or surrender. The dollar value of
an Accumulation Unit of each Subaccount varies from Valuation Date to Valuation
Date based on the investment experience of that Subaccount and will reflect the
investment performance, expenses and charges of its Underlying Portfolio. The
value of an Accumulation Unit was set at $1.00 on the first Valuation Date for
each Subaccount.
Allocations to the General Account are not converted into Accumulation Units,
but are credited interest at a rate periodically set by the Company. See
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
The Accumulated Value under the Policy is determined by (1) multiplying the
number of Accumulation Units in each Subaccount by the value of an Accumulation
Unit of that Subaccount on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the General Account, if any.
ADJUSTED GROSS INVESTMENT RATE. At each Valuation Date an adjusted gross
investment rate for each Subaccount for the Valuation Period then ended is
determined from the investment performance of that Subaccount. Such rate is (1)
the investment income of that Subaccount for the Valuation Period, plus capital
gains and minus capital losses of that Subaccount for the Valuation Period,
whether realized or unrealized, adjusted for provisions made for taxes, if any,
divided by (2) the amount of that Subaccount's assets at the beginning of the
Valuation Period. The adjusted gross investment rate may be either positive or
negative.
NET INVESTMENT RATE AND NET INVESTMENT FACTOR. The net investment rate for a
Subaccount's variable accumulations for any Valuation Period is equal to the
adjusted gross investment rate of the Subaccount for such Valuation Period
decreased by the equivalent for such period of a charge equal to 1.40% per
annum. This charge cannot be increased.
The net investment factor is 1.000000 plus the applicable net investment rate.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of Accumulation Unit calculation using a hypothetical
example see "ANNUITY PAYMENTS" in the Statement of Additional Information.
THE ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a measure of
the value of the Annuitant's monthly annuity payments under a variable annuity
option. The value of an Annuity Unit in each Subaccount initially was set at
$1.00. The value of an Annuity Unit under a Subaccount on any Valuation Date
thereafter is equal to the value of such unit on the immediately preceding
Valuation Date, multiplied by the product of (1) the net investment factor of
the Subaccount for the current Valuation Period and (2) a factor to adjust
benefits to neutralize the assumed interest rate. The assumed interest rate,
discussed below, is incorporated in the variable annuity options offered in the
Policy.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY PAYMENTS. The first monthly
annuity payment is based upon the Accumulated Value as of a date not more than
four weeks preceding the date the first annuity payment is due. Currently,
variable annuity payments are made on the first of the month based on unit
values as of the 15th day of the preceding month.
The Policy provides annuity rates which determine the dollar amount of the first
monthly payment under each form of annuity for each $1,000 of applied value
(Accumulated Value applied under a specific annuity option to provide annuity
income payments, minus any applicable premium tax payments). The annuity rates
in the Policy are based on a modification of the 1983 Table on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "J. Norris Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3 1/2% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity payments will increase
over periods when the actual net investment result of the Subaccount(s) funding
the annuity exceeds the equivalent of the assumed interest rate for the period.
Variable Annuity Payments will decrease over periods when the actual net
investment result of the respective Subaccount is less than the equivalent of
the assumed interest rate for the period.
The dollar amount of the first monthly annuity payment under a particular option
is determined by multiplying (1) the Accumulated Value applied under that option
(after deduction for applicable contingent deferred sales charge and premium
tax, if any) divided by $1,000, by (2) the applicable amount of the first
monthly payment per $1,000 of value. The dollar amount of the first monthly
variable annuity payment is then divided by the value of an Annuity Unit of the
selected Subaccount(s) to determine the number of Annuity Units represented by
the first payment. This number of Annuity Units remains fixed under all annuity
options except the joint and two-thirds survivor annuity option. In each
subsequent month, the dollar amount of the variable annuity payment is
determined by multiplying this fixed number of Annuity Units by the value of an
Annuity Unit on the applicable Valuation Date.
After the first payment, the dollar amount of each monthly variable annuity
payment will vary with subsequent variations in the value of the Annuity Unit of
the selected Subaccount(s). The dollar amount of each fixed amount monthly
annuity payment is fixed and will not change, except under the joint and
two-thirds survivor annuity option.
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The Company may from time to time offer its Policy Owners both fixed and
variable annuity rates more favorable than those contained in the Policy. Any
such rates will be applied uniformly to all Policy Owners of the same class.
For an illustration of variable annuity payment calculation using a hypothetical
example, see "ANNUITY PAYMENTS" in the Statement of Additional Information.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Policy, on redemptions or
surrenders, on annuity payments, and on the economic benefit to the Annuitant or
beneficiary depends upon a variety of factors. The following discussion is based
upon the Company's understanding of current federal income tax laws as they are
interpreted as of the date of this Prospectus. No representation is made
regarding the likelihood of continuation of current federal income tax laws or
of current interpretations by the Internal Revenue Service (IRS).
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY POLICIES IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER SHOULD ALWAYS BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income, assets, or
existence of the Policies, the Separate Account or the Subaccounts may have upon
its tax. The Separate Account presently is not subject to tax, but the Company
reserves the right to assess a charge for taxes should the Separate Account at
any time become subject to tax. Any charge for taxes will be assessed on a fair
and equitable basis in order to preserve equity among classes of Policy Owners
and with respect to each Separate Account as though that Separate Account were a
separate taxable entity.
The Separate Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a mutual life insurance company under
subchapter L of the Code. The Company files a consolidated tax return with its
affiliates.
The IRS has issued regulations relating to the diversification requirements for
variable annuity and variable life insurance contracts under Section 817(h) of
the Internal Revenue Code ("Code"). The regulations provide that the investments
of a segregated asset account underlying a variable annuity contract are
adequately diversified if no more than 55% of the value of its assets is
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments. If the investments are not adequately diversified, the income on a
contract, for any taxable year of the Policy Owner, would be treated as ordinary
income received or accrued by the Policy Owner. It is anticipated that the
Underlying Portfolios will comply with the diversification requirements.
A. QUALIFIED AND NON-QUALIFIED POLICIES.
From a federal tax viewpoint there are two types of variable annuity Policies,
"qualified" Policies and "non-qualified" Policies. A qualified Policy is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, 408, or 457 of the Code, while a
non-qualified Policy is one that is not purchased in connection with one of the
indicated retirement plans. The tax treatment for certain partial redemptions or
surrenders will vary according to whether they are made from a qualified Policy
or a non-qualified Policy. For more information on the tax provisions applicable
to qualified Policies, see Sections D through J, below.
B. TAXATION OF THE POLICIES IN GENERAL.
The Company believes that the Policies described in this Prospectus will, with
certain exceptions (see K below), be considered annuity policies under Section
72 of the Internal Revenue Code (the "Code"). This section provides for the
taxation of annuities. The following discussion concerns annuities subject to
Section 72. Section 72(e)(11)(A)(ii) requires that all non-qualified deferred
annuity policies issued by the same insurance company to the same Policy Owner
during the same calendar year be treated as a single Policy in determining
taxable distributions under Section 72(e).
With certain exceptions, any increase in the Accumulated Value of the Policy is
not taxable to the Policy Owner until it is withdrawn from the Policy. If the
Policy is surrendered or amounts are withdrawn prior to the Annuity Date, to the
extent of the amount withdrawn any investment gain in value over the cost basis
of the Policy would be taxed as ordinary income. Under the current provisions of
the Code, amounts received under a non-qualified Policy prior to the Annuity
Date (including payments made upon the death of the Annuitant or Policy Owner),
or as non-periodic payments after the Annuity Date, are generally first
attributable to any investment gains credited to the Policy over the taxpayer's
basis (if any) in the Policy. Such amounts will be treated as income subject to
federal income taxation.
A 10% penalty tax may be imposed on the withdrawal of investment gains if the
withdrawal is made prior to age 59-1/2. The penalty tax will not be imposed
after age 59-1/2, or if the withdrawal follows the death of the Policy Owner
(or, if the Policy Owner is not an individual, the death of the primary
Annuitant, as defined in the Code), or in the case of the "total disability" (as
defined in the Code) of the Policy Owner. Furthermore, under Section 72 of the
Code, this penalty tax will not be imposed, irrespective of age, if the amount
received is one of a series of "substantially equal" periodic payments made at
least annually for the life or life expectancy of the payee. This requirement is
met when the Policy Owner elects to have distributions made over the Policy
Owner's life expectancy, or over the joint life expectancy of the Policy Owner
and beneficiary. The requirement that the amount be paid out as one of a series
of "substantially equal" periodic payments is met when the number of units
withdrawn to make each distribution is substantially the same.
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In a private letter ruling, the IRS took the position that where distributions
from a variable annuity policy were determined by amortizing the accumulated
value of the policy over the taxpayer's remaining life expectancy (such as under
the Policy's life expectancy distribution ("LED") option), and the option could
be changed or terminated at any time, the distributions failed to qualify as
part of a "series of substantially equal payments" within the meaning of Section
72 of the Code. The distributions were therefore subject to the 10% federal
penalty tax. This private letter ruling may be applicable to a Policy Owner who
receives distributions under the LED option prior to age 59 1/2. Subsequent
private letter rulings, however, have treated LED-type withdrawal programs as
effectively avoiding the 10% penalty tax. The position of the IRS on this issue
is unclear.
If the Policy Owner transfers (assigns) the Policy to another individual as a
gift prior to the Annuity Date, the Code provides that the Policy Owner will
incur taxable income at the time of the transfer. An exception is provided for
certain transfers between spouses. The amount of taxable income upon such
taxable transfer is equal to the excess, if any, of the cash surrender value of
the Policy over the Policy Owner's cost basis at the time of the transfer. The
transfer will also subject the Owner to a gift tax. Where the Policy Owner and
Annuitant are different persons, the change of ownership of the Policy to the
Annuitant on the Annuity Date, as required under the Policy, is a gift and will
be taxable to the Owner as such. However, the Owner will not incur taxable
income. Rather the Annuitant will incur taxable income upon receipt of annuity
payments as discussed below.
When annuity payments are commenced under the Policy, generally a portion of
each payment may be excluded from gross income. The excludable portion is
generally determined by a formula that establishes the ratio that the cost basis
of the Policy bears to the expected return under the Policy. The portion of the
payment in excess of this excludable amount is taxable as ordinary income. Once
all cost basis in the Policy is recovered, the entire payment is taxable. If the
last Annuitant dies before cost basis is recovered, a deduction for the
difference is allowed on the Annuitant's final tax return.
C. TAX WITHHOLDING AND PENALTIES.
The Code requires withholding with respect to payments or distributions from
employee benefit plans, annuities, and IRAs, unless a taxpayer elects not to
have withholding. In addition, the Code requires reporting to the IRS of the
amount of income received with respect to payment or distributions from
annuities.
The tax treatment of certain partial redemptions or surrenders of the
non-qualified Policies offered by this Prospectus will vary according to whether
the amount redeemed or surrendered is allocable to an investment in the Policy
made before or after certain dates.
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS.
The tax rules applicable to qualified employer plans, as defined by the Code,
vary according to the type of plan and the terms and conditions of the plan
itself. Therefore, the following is general information about the use of the
Policies with various types of qualified plans. The rights of any person to any
benefits under such qualified plans will be subject to the terms and conditions
of the qualified plans themselves regardless of the terms and conditions of the
Policy.
A loan to a participant or beneficiary from plans qualified under Sections 401
and 403 or an assignment or pledge of an interest in such a plan is generally
treated as a distribution. This general rule does not apply to loans which
contain certain repayment terms and do not exceed a specified maximum amount, as
required under Section 72(p).
E. QUALIFIED EMPLOYEE PENSION AND PROFIT SHARING TRUSTS AND QUALIFIED ANNUITY
PLANS.
When an employee (including a self-employed individual) or one or more of the
employee's beneficiaries receives a "lump sum" distribution (a distribution from
a qualified plan described in Code Section 401(a) within one taxable year equal
to the total amount payable with respect to such an employee) the taxable
portion of such distribution may qualify for special treatment under a special
five-year income averaging provision of the Code. The employee must have had at
least 5 years of participation under the plan, and the lump sum distribution
must be made after the employee has attained age 59 1/2 or on account of his or
her death, separation from the employer's service (in the case of a common-law
employee) or disability (in the case of a self-employed individual). Such
treatment can be elected for only one taxable year once the individual has
reached age 59 1/2. An employee who attained age 50 before January 1, 1986 may
elect to treat part of the taxable portion of a lump-sum distribution as
long-term capital gain and may also elect 10-year averaging instead of five-year
averaging.
F. SELF-EMPLOYED INDIVIDUALS.
The Self-Employed Individuals Tax Retirement Act of 1962, as amended, frequently
referred to as "H.R. 10," allows self-employed individuals and partners to
establish qualified pension and profit sharing trusts and annuity plans to
provide benefits for themselves and their employees.
These plans generally are subject to the same rules and requirements applicable
to corporate qualified plans, with some special restrictions imposed on
"owner-employees." An "owner-employee" is an employee who (1) owns the entire
interest in an unincorporated trade or business, or (2) owns more than 10% of
either the capital interest or profits interest in a partnership.
G. INDIVIDUAL RETIREMENT ACCOUNT PLANS.
Any individual who earns "compensation" (as defined in the Code and including
alimony payable under a court decree) from employment or self-employment,
whether or not he or she is covered by another qualified plan, may establish an
Individual Retirement Account or Annuity plan ("IRA") for the accumulation of
retirement savings on a tax-deferred basis. Income from investments is not
included in "compensation." The assets of an IRA may be invested in, among
other things, annuity policies including the Policies offered by this
Prospectus.
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Contributions to the IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10,000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the above-described
limit on each. An individual with an IRA may establish an additional IRA for a
non-working spouse if they file a joint return. Contributions to the two IRAs
together are deductible up to the lesser of $2,250 or 100% of compensation.
No deduction is allowed for contributions made for the year in which the
individual attains age 70 1/2 and years thereafter. Contributions for that year
and for years thereafter will result in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70 1/2. Although these contributions may not be deducted,
taxes on their earnings are deferred until the earnings are distributed. The
maximum permissible non-deductible contribution is $2,000 for an individual
taxpayer and $2,250 for a taxpayer and non-working spouse. These limits are
reduced by the amount of any deductible contributions made by the taxpayer.
Contributions may be made with respect to a particular year until the due date
of the individual's federal income tax return for that year, not including
extensions. However, for reporting purposes, the Company will regard
contributions as being applicable to the year made unless it receives notice to
the contrary.
All annuity payments and other distributions under an IRA will be taxed as
ordinary income unless the owner has made non-deductible contributions. In
addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70 1/2, and failure to
make adequate distributions at this time may result in certain adverse tax
consequences to the individual.
Distributions from all of an individual's IRAs are treated as if they were a
distribution from one IRA and all distributions during the same taxable year are
treated as if they were one distribution. An individual who makes a
non-deductible contribution to an IRA or receives a distribution from an IRA
during the taxable year must provide certain information on the individual's tax
return to enable the IRS to determine the proportion of the IRA balance which
represents non-deductible contributions. If the required information is
provided, that part of the amount withdrawn which is proportionate to the
individual's aggregate non-deductible contributions over the aggregate balance
of all of the individual's IRAs, is excludable from income.
Distributions which are a return of a non-deductible contribution are
non-taxable, as they represent a return of basis. If the required information is
not provided to the IRS, distributions from an IRA to which both deductible and
non-deductible contributions have been made are presumed to be fully taxable.
H. SIMPLIFIED EMPLOYEE PENSIONS.
Employees may establish simplified employee pensions ("SEPs") under Code Section
408(k) if certain requirements are met. A SEP is an IRA to which the employer
contributes under a written formula. Currently, a SEP may accept employer
contributions each year up to $30,000 or 15% of compensation (as defined),
whichever is less. To establish SEPs the employer must make a contribution for
every employee age 21 and over who has performed services for the employer for
at least three of the five immediately preceding calendar years and who has
earned at least $300 for the year.
The employer's contribution is excluded from the employee's gross income for the
taxable year for which it was made up to the $30,000/15% limit. In addition to
the employer's contribution, the employee may contribute 100% of the employee's
earned income, up to $2,000, to the SEP, but such contributions will be subject
to the rules described above in "F. Individual Retirement Account Plans."
These plans are subject to the general employer's deduction limitations
applicable to all corporate qualified plans.
I. PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX-EXEMPT ORGANIZATIONS.
Under the provisions of Section 403(b) of the Code, payments made for annuity
policies purchased for employees under annuity plans adopted by public school
systems and certain organizations which are tax exempt under Section 501(c)(3)
of the Code are excludable from the gross income of such employees to the extent
that the aggregate purchase payments for such annuity policies in any year do
not exceed the maximum contribution permitted under the Code.
A Policy qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) may not begin before the employee
attains age 59 1/2, separates from service, dies, or becomes disabled. In the
case of hardship a Policy Owner may withdraw amounts contributed by salary
reduction, but not the earnings on such amounts. Even though a distribution may
be permitted under these rules (e.g., for hardship or after separation from
service), it may nonetheless be subject to a 10% penalty tax as a premature
distribution, in addition to income tax. Also, there is a mandatory 20% income
tax withholding on any eligible rollover distribution, unless it is a direct
rollover to another qualified plan in accordance with IRS rules.
The distribution restrictions are effective for years beginning after December
31, 1988, but only with respect to amounts that were not held under the Policy
as of that date.
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J. TEXAS OPTIONAL RETIREMENT PROGRAM.
Under a Code Section 403(b) annuity policy issued as a result of participation
in the Texas Optional Retirement Program, distributions may not be received
except in the case of the participant's death, retirement or termination of
employment in the Texas public institutions of higher education. These
restrictions are imposed by reason of an opinion of the Texas Attorney General
interpreting the Texas laws governing the Optional Retirement Program.
K. SECTION 457 PLANS FOR STATE GOVERNMENTS AND TAX-EXEMPT ENTITIES.
Code Section 457 allows employees of a state, one of its political subdivisions,
or certain tax-exempt entities to participate in eligible government deferred
compensation plans. An eligible plan, by its terms, must not allow deferral of
more than $7,500 or 33 1/3% of a participant's includible compensation for the
taxable year, whichever is less. Includible compensation does not include
amounts excludable under the eligible deferred compensation plan or amounts paid
into a Code Section 403(b) annuity. The amount a participant may defer must be
reduced dollar-for-dollar by elective deferrals under a SEP, 401(k) plan or a
deductible employee contribution to a 501(c)(18) plan. Under eligible deferred
compensation plans the state, political subdivision, or tax-exempt entity will
be owner of the Policy.
If an employee also participates in another eligible plan or contributes to a
Code Section 403(b) annuity, a single limit of $7,500 will be applied for all
plans. Additionally, the employee must designate how much of the $7,500 or 33
1/3% limitation will be allocated among the various plans. Contributions to an
eligible plan will serve to reduce the maximum exclusion allowance for a Code
Section 403(b) annuity.
Amounts received by employees under such plans generally are includible in gross
income in the year of receipt.
L. NON-INDIVIDUAL OWNERS.
Non-individual Owners (e.g., a corporation) of deferred annuity contracts
generally will be currently taxed on any increase in the cash surrender value of
the deferred annuity attributable to contributions made after February 28, 1986.
This rule does not apply to immediate annuities or to deferred annuities held by
a qualified pension plan, an IRA, a 403(b) plan, estates, employers with respect
to terminated pension plans, or a nominee or agent holding a contract for the
benefit of an individual. Corporate-owned annuities may result in exposure to
the alternative minimum tax, to the extent that income on the annuities
increases the corporation's adjusted current earnings.
REPORTS
A Policy Owner is sent a report semi-annually which states certain financial
information about the Underlying Portfolio. The Company will also furnish an
annual report to the Policy Owner containing a statement of his or her account,
including unit values and other information required by applicable law, rules
and regulations.
CHANGES IN OPERATION OF THE
SEPARATE ACCOUNT
The Company reserves the right, subject to compliance with applicable law, to
(1) transfer assets from any Separate Account or Subaccount to another of the
Company's separate accounts or Subaccounts having assets of the same class, (2)
to operate the Separate Account or any Subaccount as a management investment
company under the 1940 Act or in any other form permitted by law, (3) to
deregister the Separate Account under the 1940 Act in accordance with the
requirements of the 1940 Act and (4) to substitute the shares of any other
registered investment company for the Underlying Portfolio shares held by a
Subaccount, in the event that Underlying Portfolio shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Portfolio shares is inappropriate in view of the purpose of the
Subaccount. In no event will the changes described above be made without notice
to Policy Owners in accordance with the 1940 Act.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Separate Account or of the Subaccounts.
LEGAL MATTERS
There are no legal proceedings pending to which the Separate Account is a party.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the SEC. Certain portions of the Registration
Statement and amendments have been omitted from this Prospectus pursuant to the
rules and regulations of the Commission. The omitted information may be obtained
from the SEC's principal office in Washington, D.C., upon payment of the
Commission's prescribed fees.
APPENDIX A
MORE INFORMATION ABOUT THE
GENERAL ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the General Account are not generally subject to regulation under
the provisions of the Securities Act of 1933 or the 1940 Act. Disclosures
regarding the fixed portion of the annuity contract and the General Account may
be subject to the provisions of the Securities Act of 1933 concerning the
accuracy and completeness of statements made in the Prospectus. The disclosures
in this APPENDIX A have not been reviewed by the SEC.
The General Account of the Company is made up of all of the general assets of
the Company other than those allocated to any Separate Account. Allocations to
the General Account become part of the assets of the Company and are used to
support insurance and annuity obligations.
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A portion or all of net purchase payments may be allocated to accumulate at a
fixed rate of interest in the General Account. Such net amounts are guaranteed
by the Company as to principal and a minimum rate of interest. Under the
Policies, the minimum interest which may be credited on amounts allocated to the
General Account is 3% compounded annually. Additional "Excess Interest" may or
may not be credited at the sole discretion of the Company.
If a Policy is surrendered, or if an Excess Amount is redeemed, while the Policy
is in force and before the Annuity Date, a contingent deferred sales charge is
imposed if such event occurs before the payments attributable to the surrender
or withdrawal have been credited to the Policy less than seven full policy
years.
LOANS FROM THE GENERAL ACCOUNT (QUALIFIED POLICIES ONLY)
Loans will be permitted only for TSAs and Policies issued to a plan qualified
under Section 401(a) and 401(k) of the Code. Loans are permitted only from a
Policy's accumulation in the General Account. If the accumulation in the General
Account, as of the date the Company receives the loan request, does not permit
the loan, the Company will make a pro-rata transfer from the Subaccounts to the
General Account sufficient to permit the loan, based on the amounts in the
Subaccounts on the date the Company receives the loan request. A pro-rata
transfer means the Company will allocate the transfer among the Subaccounts in
the same proportion that the Policy Value in each Subaccount bears to the total
Policy Value, less debt, on the date of the transfer. The maximum loan amount is
the amount determined under the Company's maximum loan formula for qualified
plans. The minimum loan amount is $1,000. Loans will be secured by a security
interest in the Policy. Loans are subject to applicable retirement legislation
and their taxation is determined under the Federal income tax laws. The amount
borrowed will be transferred to a fixed, minimum guarantee loan assets account
in the Company's General Account, where it will accrue interest at a specified
rate below the then current loan interest rate. Generally, loans must be repaid
within five (5) years.
The amount of the death benefit, the amount payable on a full surrender and the
amount applied to provide an annuity on the Annuity Date will be reduced to
reflect any outstanding loan balance (plus accrued interest thereon). Partial
withdrawals may be restricted by the maximum loan limitation.
APPENDIX B
EXCHANGE OFFER
A. VARIABLE CONTRACT EXCHANGE OFFER.
A variable annuity contract to which this exchange offer applies may be
exchanged at net asset value for the new policy ("Policy") described in this
prospectus, which is issued on Form Number A3023-95. This exchange offer
applies until May 1, 1996 to all variable annuity contracts issued by the
Company or its subsidiary, SMA Life Assurance Company, except for (1) variable
annuity contract A3018-91, A3018-94 and A3021-93 (and state variation forms)
known as ExecAnnuity Plus. To effect an exchange, the Company should receive (1)
a completed application for the Policy, (2) written request for the exchange,
(3) the contract to be exchanged for the Policy, and (4) a signed Letter of
Awareness.
CONTINGENT DEFERRED SALES CHARGE COMPUTATION. No surrender charge applicable to
the contracts to be exchanged will apply to the surrender effecting the
exchange. Where a contract, other than a Policy or variable annuity contract
A3019-92, A3019-94, A3020-92, A3020-94 or A3022-93 and state variations thereof
("contract A3019, A3020 or A3022"), is exchanged for a Policy, the contingent
deferred sales charge under the acquired Policy will be computed as if prior
purchase payments for the exchanged contract had been made for the acquired
Policy on the date of issue of the exchanged contract. Where another Policy or
contract A3019, A3020 or A3022 is exchanged for a Policy, the contingent
deferred sales charge under the acquired Policy will be computed as if prior
purchase payments for the exchanged Policy or contract A3019, A3020 or A3022 had
been made for the acquired Policy at least as early as the date on which they
were made for the exchanged Policy or contract A3019, A3020 or A3022. For those
exchanged contracts for which a front-end sales charge was deducted from each
purchase payment, the transferred accumulated values will be treated as "Old
Payments" under the Policy, so that no deferred sales charge will be assessed on
aggregate subsequent withdrawals from the Policy of up to the amount of the
transferred accumulated values. For additional purchase payments made under the
Policy after the transfer of accumulated value from the exchanged contract, the
contingent deferred sales charge will be computed based on the number of years
that the additional purchase payments to which the withdrawal is attributed have
been credited under the Policy, as provided in this Prospectus.
SUMMARY OF DIFFERENCES BETWEEN THE POLICY AND EXCHANGED CONTRACTS EXCEPT FOR
A3019, A3020 AND A3022. The Policy and the variable contracts to which this
exchange offer applies, if other than another Policy or contract A3019, A3020 or
A3022, differ substantially as summarized below. There may be additional
differences important to a person considering an exchange, and the prospectuses
of the Policy and the variable contract to be exchanged should be reviewed
carefully before the exchange is made.
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under the
Policy, as described in this Prospectus, imposes higher charge percentages
against the excess amount redeemed and generally applies such percentages for a
greater number of years than the exchanged contracts. For certain classes of
exchanged contracts, new purchase payments, subject to the contingent deferred
sales charge under the Policy, would not have been subject to the charge under
the exchanged contract.
POLICY FEE AND ADMINISTRATIVE EXPENSE CHARGE. Under the Policy, the Company
deducts a Policy Fee, at a maximum of $30, on each policy anniversary date and
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upon full surrender, when the Accumulated Value is $50,000 or less, and assesses
each Subaccount with a daily administrative expense charge at an annual rate of
0.15% of the average daily net assets of the Subaccount. Depending on the class
of contracts to which this exchange offer is made, either no policy fee is
deducted or a policy fee of $9 is deducted twice a year. For certain classes of
contracts, a combined sales and administrative expense is deducted from purchase
payments. No administrative expense charge based on a percentage of Subaccount
assets is imposed under the contracts to which this exchange offer is made.
TRANSFER CHARGE. No charges for transfers among the Subaccounts and the General
Account are imposed for contracts to which this exchange offer is made.
Currently, no such charge is imposed under the Policy and the first 12 transfers
in a Policy year are guaranteed to be free of any charge. However, the Company
reserves the right to assess a charge, guaranteed never to exceed $25, for the
thirteenth and each subsequent transfer in a Policy year.
DEATH BENEFIT. The Policy offers a "stepped-up death benefit" which is not
offered under the exchanged contract; namely, the minimum death benefit that
would have been payable on the most recent fifth year Policy Anniversary,
increased for subsequent purchase payments and reduced proportionally to reflect
withdrawals after that date (in the same proportion that the Accumulated Value
was reduced by the withdrawal). Upon exchange for the Policy, the accumulated
value of the exchanged contract becomes the "purchase payment" for the Policy.
Therefore, the prior purchase payments made for the exchanged contract would not
become a basis for determining the gross payment (less redemptions) guarantee
under the Policy. Consequently, whether the initial minimum death benefit under
the Policy acquired in an exchange is greater than, equal to, or less than the
death benefit of the exchanged contract depends upon whether the accumulated
value transferred to the Policy is greater than, equal to, or less than the
gross payments (less redemptions) under the exchanged contract.
ANNUITY TABLES. The contracts to which this exchange offer is made contain more
favorable annuity tables than the Policy for use in determining the amount of
the first variable annuity payment under the annuity options offered. The
contracts and the Policy each provide minimum guarantees.
INVESTMENTS. Accumulated Value and purchase payments under the Policy may be
allocated to several underlying funds in addition to those permitted under the
exchanged contracts.
SUMMARY OF DIFFERENCES BETWEEN THE POLICY AND CONTRACT A3019, A3020 AND A3022.
The Policy and contract A3019, A3020 and A3022 differ in the following material
ways (the prospectuses of the Policy and the policy being exchanged should be
reviewed carefully before any exchange):
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under the
Policy, as described in this Prospectus, imposes higher charge percentages
against the excess amount redeemed than A3020-92 and A3020-94. The charge is
the same as A3019-92, A3019-94 and A3022-93.
DEATH BENEFIT. The Policy offers a "stepped-up death benefit," which is the
minimum death benefit that would have been payable on the most recent fifth year
Policy Anniversary, increased for subsequent purchase payments and reduced
proportionally to reflect withdrawals after that date (in the same proportion
that the Accumulated Value was reduced by the withdrawal). This is the same
benefit as is offered under A3022-93. Under contract A3019-92, A3019-94, A3020-
92 and A3020-94, the stepped-up death benefit applies to the most recent seventh
year for A3019-92 and A3019-94 and the most recent fifth year for A3020-92 and
A3020-94 and is increased for subsequent purchases and reduced by the dollar
amount of any withdrawals. Upon exchange for the Policy, the accumulated value
of the exchanged contract becomes the "purchase payment" for the Policy.
Therefore, the prior purchase payments made for the exchanged contract A3019,
A3020 and A3022 would not become a basis for determining the gross payment (less
redemptions) guarantee under the Policy. Consequently, whether the initial
minimum death benefit under the Policy acquired in an exchange is greater than,
equal to, or less than the death benefit of exchanged contract A3019, A3020 and
A3022 depends upon whether the accumulated value transferred to the Policy is
greater than, equal to, or less than the gross payments (less redemptions) under
exchanged contract A3019, A3020 and A3022.
INVESTMENTS. Accumulated Value and purchase payments under the Policy and
contract A3019, A3020 and A3022 are allocable to different underlying funds and
underlying investment companies.
FIXED ACCOUNT. The Policy has a Fixed Account minimum guaranteed interest rate
of 3% compounded annually. This is the same as offered under A3019-94 and A3022-
93. A3019-92 has a minimum guaranteed interest rate of 5% compounded annually
for the first five Policy years, 4% compounded annually for the next five Policy
years, and 3.5% compounded annually thereafter. Contract A3020-92 and A3020-94
have a fixed account minimum guaranteed interest rate of 3.5% compounded
annually. Under contract A3020-92 and A3020-94, amounts may not be transferred
from the fixed account to a Sub-Account prior to the end of the applicable one-
year guaranteed period.
B. FIXED ANNUITY EXCHANGE OFFER.
This exchange offer also applies to all fixed annuity contracts issued by the
Company. A fixed annuity contract to which this exchange offer applies may be
exchanged at net asset value for the Policies described in this Prospectus,
subject to the same provisions for effecting the exchange and for applying the
Policy's contingent deferred sales charge as described above for variable
annuity contracts. This Prospectus should be read carefully before making such
exchange. Unlike a fixed annuity, the Policy's value is not guaranteed and will
vary depending on the investment performance of
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the underlying funds to which it is allocated. The Policy has a different charge
structure than a fixed annuity contract, which includes not only a contingent
deferred sales charge that may vary from that of the class of contracts to which
the exchanged fixed contract belongs, but also Policy fees, mortality and
expense risk charges (for the Company's assumption of certain mortality and
expense risks), administrative expense charges, transfer charges (for transfers
permitted among Subaccounts and the General Account), and expenses incurred by
the underlying funds. Additionally, the interest rates offered under the General
Account of the Policy and the Annuity Tables for determining minimum annuity
payments may be different from those offered under the exchanged fixed contract.
C. EXERCISE OF "FREE-LOOK PROVISION" AFTER ANY EXCHANGE.
Persons who, under the terms of this exchange offer, exchange their contract for
the Policy and subsequently revoke the Policy within the time permitted, as
described in the sections of this Prospectus captioned "RIGHT TO REVOKE OR
SURRENDER," will have their exchanged contract automatically reinstated as of
the date of revocation. The refunded amount will be applied as the new current
accumulated value under the reinstated contract, which may be more or less than
it would have been had no exchange and reinstatement occurred. The refunded
amount will be allocated initially among the general account and subaccounts of
the reinstated contract in the same proportion that the value in the general
account and the value in each subaccount bore to the transferred accumulated
value on the date of the exchange of the contract for the Policy. For purposes
of calculating any contingent deferred sales charge under the reinstated
contract, the reinstated contract will be deemed to have been issued and to have
received past purchase payments as if there had been no exchange.
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