<PAGE>
File No. 33-86664
811-8872
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1933
Post - Effective Amendment No. 4
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5
SEPARATE ACCOUNT VA-P OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Exact Name of Registrant)
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
440 Lincoln Street
Worcester MA 01653
(Address of Principal Executive Office)
Abigail M. Armstrong, Secretary and Counsel
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester MA 01653
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
---
on (date) pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a) (1)
---
X on July 8, 1996 pursuant to paragraph (a) (1)
---
on (date) pursuant to paragraph (a) (2) of Rule 485
---
VARIABLE ANNUITY POLICIES
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940,
Registrant hereby declares that an indefinite amount of its securities is being
registered under the Securities Act of 1933. The Rule 24f-2 Notice for the
issuer's fiscal year ended December 31, 1995 was filed on February 29, 1996.
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
- ---------------- ---------------------
1. . . . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . . . "Special Terms"
3. . . . . . . . . . . . . . "Summary"; "Annual and Transaction Expenses"
4. . . . . . . . . . . . . . "Condensed Financial Information"
5. . . . . . . . . . . . . . Prospectus A:"Description of the Company, the
Separate Account and the Fund"
Prospectus B: "Description of the Company, the
Variable Account, and Pioneer Variable
Contracts Trust."
6. . . . . . . . . . . . . . "Charges and Deductions:
7. . . . . . . . . . . . . . Prospectus A: "The Variable Annuity Policies"
Prospectus B: "The Variable Annuity Contracts"
8. . . . . . . . . . . . . . Prospectus A:"The Variable Annuity Policies"
Prospectus B: " The Variable Annuity Contracts"
9. . . . . . . . . . . . . . "Death Benefit"
10 . . . . . . . . . . . . . Prospectus A: "Purchase Payments";
"Computation of
Policy Values and Annuity Payments"
Prospectus B: "Purchase Payments"; "Computation
of Contract Values and Annuity Benefit
Payments"
11 . . . . . . . . . . . . . "Surrender"; "Partial Redemption"
12 . . . . . . . . . . . . . "Federal Tax Considerations"
13 . . . . . . . . . . . . . "Legal Matters"
14 . . . . . . . . . . . . . "Table of Contents of the Statement of
Additional Information"
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- ----------------- ----------------------------------------------
15 . . . . . . . . . . . . . "Cover Page"
16 . . . . . . . . . . . . . "Table of Contents"
17 . . . . . . . . . . . . . "General Information and History"
18 . . . . . . . . . . . . . "Services"
19 . . . . . . . . . . . . . "Underwriters"
20 . . . . . . . . . . . . . "Underwriters"
21 . . . . . . . . . . . . . "Performance Information"
22 . . . . . . . . . . . . . "Annuity Payments"
<PAGE>
23 . . . . . . . . . . . . . "Financial Statements"
<PAGE>
PROSPECTUS A
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
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 First Allmerica Financial Life
Insurance Company ("Company") to individuals and businesses in connection with
investment and retirement plans which may or may not qualify for special federal
income tax treatment. (For information about the tax status when used with a
particular type of plan, see "FEDERAL TAX CONSIDERATIONS.") The following is a
summary of information about these Policies. More detailed information can be
found under the referenced captions in this Prospectus.
This Prospectus generally describes only the variable accumulation and variable
annuity aspects of the Policies, except where fixed values or fixed annuity
payments are specifically mentioned. ALLOCATIONS TO AND TRANSFERS TO AND FROM
THE GENERAL ACCOUNT OF THE COMPANY ARE NOT PERMITTED IN CERTAIN STATES. Certain
additional information about the Policies is contained in a Statement of
Additional Information, dated April 30, 1996 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, First Allmerica Financial
Life Insurance Company, 440 Lincoln Street, Worcester, Massachusetts 01653.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
PIONEER VARIABLE CONTRACTS TRUST.
INVESTORS SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE POLICIES ARE OBLIGATIONS OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC., THE POLICIES
ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR
CREDIT UNION. THE POLICIES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENT
IN THE POLICIES ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE
AND POSSIBLE LOSS OF PRINCIPAL.
DATED: APRIL 30, 1996
<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. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
WHAT IS AN ANNUITY ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
RIGHT TO REVOKE OR SURRENDER . . . . . . . . . . . . . . . . . . . . . . . . 9
DESCRIPTION OF THE COMPANY AND THE SEPARATE ACCOUNT. . . . . . . . . . . . . 9
PIONEER VARIABLE CONTRACTS TRUST . . . . . . . . . . . . . . . . . . . . . . 10
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
A. Contingent Deferred Sales Charge . . . . . . . . . . . . . . . . . . 12
B. Premium Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
C. Policy Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
D. Separate Account Annual Charges. . . . . . . . . . . . . . . . . . . 14
THE VARIABLE ANNUITY POLICIES. . . . . . . . . . . . . . . . . . . . . . . . 14
A. Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 15
B. Transfer Privilege . . . . . . . . . . . . . . . . . . . . . . . . . 15
C. Surrender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
D. Partial Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 16
E. Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
F. The Spouse of the Policy Owner as Beneficiary. . . . . . . . . . . . 17
G. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
H. Electing the Form of Annuity and Annuity Date. . . . . . . . . . . . 17
I. Description of Variable Annuity Options. . . . . . . . . . . . . . . 18
J. Norris Decision. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
K. Computation of Policy Values and Annuity Payments. . . . . . . . . . 18
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<PAGE>
TABLE OF CONTENTS (CONTINUED)
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 19
A. Qualified and Non-Qualified Policies . . . . . . . . . . . . . . . . 20
B. Taxation of the Policies in General. . . . . . . . . . . . . . . . . 20
C. Tax Withholding and Penalties. . . . . . . . . . . . . . . . . . . . 21
D. Qualified Employee Benefit Plans . . . . . . . . . . . . . . . . . . 21
E. Qualified Employee Pension and Profit Sharing Trusts
and Qualified Annuity Plans. . . . . . . . . . . . . . . . . . . . . 21
F. Self-Employed Individuals. . . . . . . . . . . . . . . . . . . . . . 21
G. Individual Retirement Account Plans. . . . . . . . . . . . . . . . . 21
H. Simplified Employee Pensions . . . . . . . . . . . . . . . . . . . . 22
I. Public School Systems and Certain Tax-Exempt Organizations . . . . . 22
J. Texas Optional Retirement Program. . . . . . . . . . . . . . . . . . 22
K. Section 457 Plans for State Governments and Tax-Exempt Entities. . . 22
L. Non-Individual Owners. . . . . . . . . . . . . . . . . . . . . . . . 22
REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
CHANGES IN OPERATIONS OF THE SEPARATE ACCOUNT. . . . . . . . . . . . . . . . 23
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
FURTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
APPENDIX A - MORE INFORMATION ABOUT THE GENERAL ACCOUNT. . . . . . . . . . . 23
APPENDIX B - EXCHANGE OFFER. . . . . . . . . . . . . . . . . . . . . . . . . 23
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 Swiss Franc Bond Portfolio, the America Income Portfolio
and the Money Market Portfolio of the Pioneer Variable Contracts Trust.
VALUATION DATE: a day on which the net asset value of the shares of any of the
Underlying Portfolios is determined and Unit values of the Subaccounts are
determined. Valuation dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, partial withdrawal, or surrender of a Policy was
received) when there is a sufficient degree of trading in an Underlying
Portfolio's securities such that the current net asset value of the Subaccounts
may be materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
VARIABLE ANNUITY: an Annuity providing for payments varying in amount in
accordance with the investment experience of certain Underlying Portfolios.
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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 AND THE
SEPARATE ACCOUNT." For more information about the General Account see APPENDIX
A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Each Subaccount available under the Policies invests its assets without sales
charge in a corresponding investment Portfolio of the Pioneer Variable Contracts
Trust (the "Fund"). The Fund is an open-end, diversified series investment
company. The Fund consists of eight different Portfolios: International Growth
Portfolio, Capital Growth Portfolio, Real Estate Growth Portfolio, Equity-
Income Portfolio, Balanced Portfolio, Swiss Franc Bond Portfolio, America Income
Portfolio and Money Market Portfolio ("Underlying Portfolios"). Each Underlying
Portfolio operates pursuant to different investment objectives, discussed below.
INVESTMENT IN THE SUBACCOUNTS. The value of each Subaccount will vary daily
depending on the performance of the investments made by the respective
Underlying Portfolios.
There can be no assurance that the investment objectives of the Underlying
Portfolios can be achieved or that the value of a Policy will equal or exceed
the aggregate amount of the purchase payments made under the Policy. For more
information about the investments of the Underlying Portfolios, see "DESCRIPTION
OF THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUND." The accompanying
prospectus of the Fund describes the investment objectives and risks of each of
the Underlying Portfolios.
Dividends or capital gains distributions received from an Underlying Portfolio
are reinvested in additional shares of that Underlying Portfolio, which are
retained as assets of the Subaccount.
TRANSFERS AMONG ACCOUNTS. Prior to the Annuity Date, the Policies permit amounts
to be transferred among the Subaccounts and, where available, between the
General Account and the Subaccounts, subject to certain limitations described
under "Transfer Privilege."
ANNUITY PAYMENTS. The Policy Owner may select variable annuity payments based on
certain Subaccounts, fixed-amount annuity payments, or a combination of
fixed-amount and variable annuity payments. Fixed-amount annuity payments are
guaranteed by the Company.
See "THE VARIABLE ANNUITY POLICIES" for information about annuity payment
options, selecting the Annuity Date, and how annuity payments are calculated.
REVOCATION RIGHTS. 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 any commutable
period certain option or a noncommutable certain OPTION for less than 10 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% 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
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<PAGE>
among the Underlying Portfolios, and currently range from an annual rate of
0.75% to an annual rate of 1.50% of average daily net assets.
SURRENDER OR PARTIAL REDEMPTION. At any time before the Annuity Date, the Policy
Owner has the right either to surrender the Policy in full and receive its
current value, minus the Policy Fee and any applicable contingent deferred sales
charge, or to redeem a portion of the Policy's value subject to certain limits
and any applicable contingent deferred sales charge. There may be tax
consequences for surrender or redemptions. For further information, see
"Surrender" and "Partial Redemption," "Contingent Deferred Sales Charge," and
"FEDERAL TAX CONSIDERATIONS."
DEATH BENEFIT. If the Annuitant or Policy Owner should die before the Annuity
Date, a death benefit will be paid to the beneficiary. Upon death of the
Annuitant, the death benefit is equal to the greatest of (a) the Accumulated
Value under the Policy, or (b) the sum of the gross payment(s) made under the
Policy reduced proportionally to reflect all partial redemptions, or (c) the
death benefit that would have been payable on the most recent fifth year Policy
Anniversary, increased for subsequent purchase payments and reduced
proportionally to reflect withdrawals after that date. Upon death of the Policy
Owner, the death benefit is equal to the Accumulated Value of the Policy.
SALES OF POLICIES. The Policies are sold by agents of the Company who are
authorized by applicable law to sell variable annuity policies. These agents are
registered representatives of broker-dealers which are members of the National
Association of Securities Dealers, Inc. See "Sales Expense."
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<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The purpose of the following tables is to assist the Policy Owner in
understanding the various costs and expenses that a Policy Owner will bear
directly or indirectly under the Policies. The tables reflect charges under the
Policies, expenses of the Subaccounts, and expenses of the Underlying
Portfolios.
<TABLE>
<S> <C> <C>
POLICY OWNER TRANSACTION EXPENSES
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 surrendered 0-3 7%
free of charge) will be assessed upon surrender, redemption, or 4 6%
annuitization under any commutable period certain option or a 5 5%
noncommutable period certain for less than 10 years. 6 4%
7 3%
More than 7 No Charge
Transfer Charge None
The Company currently makes no charge for transfers. The Company
guarantees that the first twelve transfers in a Policy year will be
free of charge. For the thirteenth and each subsequent transfer, the
Company reserves the right to assess a charge, guaranteed never to
exceed $25, to reimburse the Company for the costs of processing the
transfer.
ANNUAL POLICY FEE $30
An annual Policy Fee, equal to $30, is deducted when Accumulated Value
is $50,000 or less. The Policy Fee is currently waived for policies
issued to a trustee of a 401(k) plan, but the Company reserves the
right to impose the Policy Fee on such policies.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Separate Account Administrative Charge 0.15%
-----
Total Annual Expenses 1.40%
</TABLE>
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<PAGE>
PIONEER VARIABLE CONTRACTS TRUST
<TABLE>
<CAPTION>
Inter. Capital Real Estate Equity Balanced Swiss Franc America Money
Portfolios Annual Expenses Growth Growth Growth Income -------- Bond Income Market
- -------------------------- ------ ------- ----------- ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee 1.00% 0.65% 1.00% 0.65% 0.65% 0.65% 0.55% 0.50%
Other Expenses* 16.22% 3.30% 44.96% 4.67% 14.12% 68.57% 11.31% 7.84%
------ ------ ------- ------ ------ ------ ------- ------
Total Expenses 17.22% 3.95% 45.96% 5.32% 14.77% 69.22% 11.86% 8.34%
Expense Reduction -15.72% 2.70% -44.71% -4.07% -13.52% -67.97% -10.61% -7.34%
------ ------ ------- ------ ------ ------ ------- ------
Net Expenses 1.50% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.00%
After Fee and Expense Reductions
- --------------------------------
Management Fees 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses 1.50% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.00%
Total Expenses 1.50% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% 1.00%
</TABLE>
* Other Expenses are estimated
Pioneering Management Corporation ("Pioneer") is the investment adviser to each
Portfolio. Pioneer has agreed voluntarily to waive its management fees or to
make other arrangements, if necessary, to reduce Portfolio 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
reductions, as indicated in the table above.
The following Examples demonstrate the cumulative expenses which would be paid
by the Policy Owner at 1-year, 3-year, 5-year, and 10-year intervals under
certain contingencies. Each Example assumes a $1,000 investment in a Subaccount
and a 5% annual return on assets. Because the expenses of the Underlying
Portfolios differ, separate Examples are used to illustrate the expenses
incurred by a Policy Owner on an investment in the various Subaccounts.
(a) If the Policy is surrendered or annuitized* under a commutable period
certain option or a noncommutable period certain option of less than 10 years at
the end of the applicable period, you would pay the following expenses on a
$1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Int'l Growth $94 $159 $206 $328
Capital Growth $92 $152 $194 $305
Real Est. Growth $92 $152 $194 $305
Equity Income $92 $152 $194 $305
Balanced $92 $152 $194 $305
Swiss Franc Bond $92 $152 $194 $305
America Income $90 $145 $181 $280
Money Market $87 $138 $169 $255
</TABLE>
* The policy fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any policy year under
an option including a life contingency.
(b) If the Policy is annuitized* under a life option or a noncommutable period
certain option of 10 years or more at the end of the applicable time period or
if the Policy is NOT surrendered or annuitized, you would pay the following
expenses on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Int'l Growth $30 $92 $156 $328
Capital Growth $28 $84 $144 $305
Real Est. Growth $28 $84 $144 $305
Equity-Income $28 $84 $144 $305
Balanced $28 $84 $144 $305
Swiss Franc Bond $28 $84 $144 $305
America Income $25 $77 $131 $280
Money Market $23 $69 $119 $255
</TABLE>
* The policy fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any policy year under
an option including a life contingency or under any noncommutable period certain
option of 10 years or more.
Pursuant to requirements of the 1940 Act, the policy fee has been reflected in
the Examples by a method intended to show the "average" impact of the policy fee
on an investment in the Separate Account. The total policy fees collected under
the Policies by the Company are divided by the total average net assets
attributable to the Policies. The resulting percentage is 0.100%, and the
amount of the policy fee is assumed to be $1.00 in the Examples. The Policy Fee
is deducted only when the accumulated value is $50,000 or less.
THE INFORMATION GIVEN UNDER THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION
SEPARATE ACCOUNT VA-P
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C> <C>
INTERNATIONAL GROWTH BALANCED
Unit Value: Unit Value:
Beginning of Period 1.00 Beginning of Period 1.00
End of Period 1.00 End of Period 1.00
Number of Units Outstanding at End of Period 0 Number of Units Outstanding at End of Period 0
(in thousands) (in thousands)
CAPITAL GROWTH SWISS FRANC BOND FUND
Unit Value: Unit Value:
Beginning of Period 1.00 Beginning of Period 1.00
End of Period 1.00 End of Period 1.00
Number of Units Outstanding at End of Period 0 Number of Units Outstanding at End of Period 0
(in thousands) (in thousands)
REAL ESTATE GROWTH AMERICA INCOME
Unit Value: Unit Value:
Beginning of Period 1.00 Beginning of Period 1.00
End of Period 1.00 End of Period 1.00
Number of Units Outstanding at End of Period 0 Number of Units Outstanding at End of Period 0
(in thousands) (in thousands)
EQUITY INCOME MONEY MARKET
Unit Value: Unit Value:
Beginning of Period 1.00 Beginning of Period 1.00
End of Period 1.00 End of Period 1.00
Number of Units Outstanding at End of Period 0 Number of Units Outstanding at End of Period 0
(in thousands) (in thousands)
</TABLE>
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.
-8-
<PAGE>
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 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.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
-----------------------------------------------------------------
(Assuming COMPLETE redemption of the investment)
One-Year Years Since
NAME Total Return Inception
---- ------------ ---------
International Growth N/A 2.29%
Capital Growth N/A 8.80%
Real Estate Growth N/A 8.61%
Equity Income N/A 15.22%
Balanced N/A 12.46%
Swiss Franc Bond N/A -6.16%
America Income N/A -1.92%
Money Market N/A -3.38%
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
-----------------------------------------------------------------
(Assuming NO redemption of the investment)
One-Year Years Since
NAME Total Return Inception
---- ------------ ---------
International Growth N/A 9.17%
Capital Growth N/A 15.80%
Real Estate Growth N/A 15.61%
Equity Income N/A 22.22%
Balanced N/A 19.46%
Swiss Franc Bond N/A 0.15%
America Income N/A 4.68%
Money Market N/A 3.12%
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.
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
AND THE SEPARATE ACCOUNT
-9-
<PAGE>
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, 1995, the
Company and its subsidiaries had over $11 billion in combined assets and over
$35.2 billion of life insurance in force. Effective October 16, 1995, the
Company converted from a mutual life insurance company known as State Mutual
Life Assurance Company of America to a stock life insurance company and adopted
its present name. The Company is a wholly-owned subsidiary of Allmerica
Financial Corporation ("AFC"). The Company's principal office 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
eight Subaccounts available under the Policies. Each Subaccount is administered
and accounted for as part of the general business of the Company, but the
income, capital gains, or capital losses of each Subaccount are allocated to
such Subaccount, without regard to other income, capital gains, or capital
losses of the Company. Under 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. Pioneering
Management Corporation ("Pioneer") is the investment adviser to each Portfolio.
The Fund was established to provide a vehicle for the investment of assets of
various separate accounts supporting variable insurance policies. The Fund
currently has eight investment portfolios ("Underlying Portfolios"), each
issuing a separate series of shares: International Growth Portfolio, Capital
Growth Portfolio, Real Estate Growth Portfolio, Equity-Income Portfolio,
Balanced Portfolio, Swiss Franc Bond Portfolio, America Income Portfolio and
Money Market Portfolio. Certain of the Portfolios may not be available in all
states. The assets of each Portfolio are held separate from the assets of the
other Portfolios. Each Portfolio operates as a separate investment vehicle, and
the income or losses of one Portfolio have no effect on the investment
performance of another Portfolio. Shares of the Fund may be sold directly to
separate accounts established and maintained by insurance companies for the
purpose of funding variable contracts and to certain qualified pension and
retirement plans.
INVESTMENT OBJECTIVES AND POLICIES - A summary of investment objectives of each
of the Underlying Portfolios is set forth below. More detailed information
regarding the investment objectives, restrictions and risks, expenses paid by
the Underlying Portfolios, and other relevant information regarding the
Underlying Portfolios may be found in the Prospectus of the Fund, which
accompanies this Prospectus and should be read carefully before investing. The
Statement of Additional Information of the Fund is available upon request.
SUBACCOUNT 251 - invests solely in shares of the International Growth Portfolio.
This Portfolio seeks long-term growth of capital primarily through investments
in non-U.S. equity securities and related depositary receipts.
SUBACCOUNT 252 - invests solely in shares of the Capital Growth Portfolio. This
Portfolio seeks capital appreciation through a diversified portfolio of
securities consisting primarily of common stocks.
SUBACCOUNT 253 - invests solely in shares of the Real Estate Growth Portfolio.
This Portfolio seeks long-term growth of capital primarily through investments
in the securities of real estate investment trusts (REITS) and other real estate
industry companies. Current income is the Portfolio's secondary investment
objective.
SUBACCOUNT 254 - invests solely in shares of the Equity-Income Portfolio. This
Portfolio seeks current income and long-term capital growth by investing in a
portfolio of income-producing equity securities of U.S. corporations. The
Portfolio's goal is to achieve a current dividend yield which exceeds the
published composite yield of the securities comprising the Standard & Poor's 500
Composite Stock Price Index.
SUBACCOUNT 255 - invests solely in shares of the Balanced Portfolio. The
Balanced Portfolio seeks capital growth and current income by actively managing
investments in a diversified portfolio of equity securities and bonds.
SUBACCOUNT 256 - invests solely in shares of the America Income Portfolio. This
Portfolio seeks as high a level of current income as is consistent with the
preservation of capital. This Portfolio invests exclusively in United States
("U.S.") Government Securities and in "when issued" commitments and repurchase
agreements with respect to such securities.
SUBACCOUNT 257 - invests solely in shares of the Money Market Portfolio. This
Portfolio seeks current income consistent with preserving capital and providing
liquidity.
-10-
<PAGE>
SUBACCOUNT 258 - invests solely in shares of the Swiss Franc Bond Portfolio.
This portfolio seeks to approximate the performance of the Swiss franc relative
to the U.S. dollar while earning a reasonable level of income.
There is no assurance that the investment objectives of the Portfolios will be
met.
In 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 for managing its investments and business affairs. Each Portfolio's
management fee is computed daily and paid monthly at the following annual rate:
<TABLE>
<CAPTION>
Management Fee as a % of
Portfolio average daily net assets
- --------- ------------------------
<S> <C>
International Growth 1.00%
Capital Growth 0.65%
Real Estate Growth 1.00%
Equity-Income 0.65%
Balanced 0.65%
Swiss Franc Bond 0.65%
America Income 0.55%
Money Market 0.50%
</TABLE>
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS - The Company reserves the
right, subject to applicable law, to make additions to, deletions from, or
substitutions for the shares that are held in the Subaccounts or that the
Subaccounts may purchase. If the shares of any Underlying Portfolio are no
longer available for investment or if in the Company's judgment further
investment in any Underlying Portfolio should become inappropriate in view of
the purposes of the Separate Account or the affected Subaccount, the Company
may redeem the shares of that Underlying Portfolio and substitute shares of
another registered open-end management company. The Company will not
substitute any shares attributable to a Policy interest in a Subaccount
without notice to the Policy Owner and prior approval of the SEC and state
insurance authorities, to the extent required by the 1940 Act or other
applicable law. The Separate Account may, to the extent permitted by law,
purchase other securities for other policies or permit a conversion between
policies upon request by a Policy Owner.
The Company also reserves the right to establish additional Subaccounts of
the Separate Account, each of which would invest in shares corresponding to a
new Underlying Portfolio or in shares of another investment company having a
specified investment objective. Subject to applicable law and any required
SEC approval, the Company may, in its sole discretion, establish new
Subaccounts or eliminate one or more Subaccounts if marketing needs, tax
considerations or investment conditions warrant. Any new Subaccounts may be
made available to existing Policy Owners on a basis to be determined by the
Company.
Shares of the Underlying Portfolios may be sold to separate accounts of
unaffiliated insurance companies ("shared funding") which issue variable
annuity and variable life policies ("mixed funding"). It is conceivable that
in the future such shared funding or mixed funding may be disadvantageous for
variable life Policy Owners or variable annuity Policy Owners. Although the
Company and the Fund do not currently foresee any such disadvantages to
either variable life insurance Policy Owners or variable annuity Policy
Owners, the Company and the trustees of the Fund intend to monitor events in
order to identify any material conflicts and to determine what action, if
any, should be taken in response thereto.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Policy to reflect the substitution or
change and will notify Policy Owners of all such changes. If the Company
deems it to be in the best interest of Policy Owners, and subject to any
approvals that may be required under applicable law, the Separate Account or
any Subaccount(s) may be operated as a management company under the 1940 Act,
may be deregistered under the 1940 Act if registration is no longer required,
or may be combined with other Subaccounts or other separate accounts of the
Company.
VOTING RIGHTS
The Company will vote Underlying Portfolio shares held by each Subaccount in
accordance with instructions received from Policy Owners and, after Annuity
Date, from the Annuitants. Each person having a voting interest in a
Subaccount will be provided with proxy materials of the Underlying Portfolio
together with a form with which to give voting instructions to the Company.
Shares for which no timely instructions are received will be voted in
proportion to the instructions which are received. The Company will also vote
shares in a Subaccount that it owns and which are not attributable to
Policies in the same proportion. If the 1940 Act or any rules thereunder
should be amended or if the present interpretation of the 1940 Act or such
rules should change, and as a result the Company determines that it is
permitted to vote shares in its own right, whether or not such shares are
attributable to the Policies, the Company reserves the right to do so.
The number of votes which a Policy Owner or Annuitant may cast will be
determined by the Company as of the record date established by the Underlying
Portfolio.
During the accumulation period, the number of Underlying Portfolio shares
attributable to each Policy Owner will be determined by dividing the dollar
value of the Accumulation Units of the Subaccount credited to the Policy by
the net asset value of one Underlying Portfolio share.
During the annuity period, the number of Underlying Portfolio shares
attributable to each Annuitant will be determined by dividing the reserve
held in each Subaccount for the Annuitant's variable annuity by the net asset
value of one Underlying Portfolio share. Ordinarily, the Annuitant's voting
interest in the Underlying Portfolio will decrease as the reserve for the
variable
-11-
<PAGE>
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.)
The contingent deferred sales charges are as follows:
<TABLE>
<CAPTION>
Years from date Charge as
of Payment to Percentage
date of of New Payments
Withdrawal Withdrawn
---------- ---------
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
More than 7 No Charge
</TABLE>
The amount redeemed equals the amount requested by the Policy Owner plus the
charge, if any, which is applied against the amount requested. For example, if
the applicable charge is 7% and the Policy Owner has requested $200, the Policy
Owner will receive $200 and the charge will be $14 (assuming no 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);
-12-
<PAGE>
(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 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
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(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. SEPARATE ACCOUNT ANNUAL CHARGES
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a charge of 1.25% on an
annual basis of the daily value of each Subaccount's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Policies. The charge is imposed during both the accumulation
period and the annuity period. The mortality risk arises from the Company's
special death benefit guarantee and its guarantee that it will make annuity
payments in accordance with annuity rate provisions established at the time the
Policy is issued for the life of the Annuitant (or in accordance with the
annuity option selected), no matter how long the Annuitant (or other payee)
lives and no matter how long all Annuitants as a class live. Therefore, the
mortality charge is deducted during the annuity phase on all contracts,
including those that do not involve a life contingency, even though the Company
does not bear direct mortality risk with respect to variable annuity settlement
options that do not involve life contingencies. The expense risk arises from the
Company's guarantee that the charges it makes will not exceed the limits
described in the Policies and in this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be .80% for mortality risk and .45%
for expense risk.
ADMINISTRATIVE EXPENSE CHARGE - The Company assesses each Subaccount available
under the Policies with a daily charge at an annual rate of 0.15% of the average
daily net assets of the Subaccount. The charge is imposed during both the
accumulation period and the annuity period. The daily Administrative Expense
Charge is assessed to help defray administrative expenses actually incurred in
the administration of the Subaccount, without profits. However, there is no
direct relationship between the amount of administrative expenses imposed on a
given policy and the amount of expenses actually attributable to that policy.
Deductions for the Policy Fee (described under 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 the Company's General Account, Subaccount 257 (which
invests in the Money Market Portfolio) or Subaccount 256 (which invests in the
America Income Portfolio) to one or more of the other Subaccounts, or (b) in
order to reallocate Policy Value among the Subaccounts. 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
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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, First
Allmerica Financial Life Insurance Company, 440 Lincoln Street, Worcester,
Massachusetts 01653.
A. PURCHASE PAYMENTS.
Purchase payments are not limited as to frequency and number, but there are
certain limitations as to amount. Generally, the initial payment must be at
least $600. Under a salary deduction or a monthly automatic payment plan, the
minimum initial payment is $50. In all cases, each subsequent payment must be at
least $50. Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Policy on the employee, if the plan's average
annual contribution per eligible plan participant is at least $600. Total
payments may not exceed the maximum limit specified in the Policy. If the
payments are divided among two or more accounts, a net amount of at least $10 of
each payment must be allocated to each account.
Generally, payments will be allocated among the Subaccounts according to the
Policy Owner's instructions when the Policy is issued. However, 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.
Other than for automatic transfers (discussed below), transfers involving the
General Account are permitted only if:
(a) There has been at least a ninety (90) day period since the last
transfer from the General Account; and
(b) The amount transferred from the General Account in each transfer
does not exceed the lesser of $100,000 or 25% of the Accumulated Value
under the Policy.
These rules are subject to change by the Company.
The Policy Owner may have automatic transfers of at least $100 each made on a
periodic basis from the Company's General Account, 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 from the
Subaccounts 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.
Automatic transfers from the General Account may be made on a monthly,
bimonthly, or quarterly basis, provided that: (i) the amount of each monthly
transfer cannot exceed 10% of policy value in the General Account as of the
date of the first transfer, (ii) each bimonthly transfer cannot exceed 20% of
policy value in the General Account as of the date of the first transfer
(iii) each quarterly transfer cannot exceed 25% of policy value in the
General Account as of the date of the first transfer.
The 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 tansferred, (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
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imposed after the Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and partial redemptions of amounts in each Subaccount during
any period in which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of each Separate Account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and partial redemptions
of amounts allocated to the Company's General Account for a period not to exceed
six months.
The surrender rights of Policy Owners who are participants under Section 403(b)
plans or who are participants in the Texas Optional Retirement Program (Texas
ORP) are restricted; see "FEDERAL TAX CONSIDERATIONS," "I. Public School Systems
and Certain Tax Exempt Organizations" and "J. Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
D. PARTIAL REDEMPTION.
At any time prior to the Annuity Date, a Policy Owner may redeem a portion of
the Accumulated Value of his or her Policy, subject to the limits stated below.
The Policy Owner must file a signed, written request for redemption,
satisfactory to the Company, at the Company's Principal Office. The written
request must indicate the dollar amount the Policy Owner wishes to receive and
the account from which such amount is to be redeemed. The amount redeemed equals
the amount requested by the Policy Owner plus any applicable contingent deferred
sales charge, as described under "CHARGES AND DEDUCTIONS."
Where allocations have been made to more than one account, a percentage of the
partial redemption may be allocated to each such account. A partial redemption
from a Subaccount will result in cancellation of a number of units equivalent in
value to the amount redeemed, computed as of the Valuation Date that the request
is received at the Company's Principal Office.
Each partial redemption must be in a minimum amount of $100. 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.
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(2) The death benefit may be paid in installments. Payments must begin
within one year from the date of death, and are payable over a period
certain not extended beyond the life expectancy of the beneficiary.
(3) All or a portion of the death benefit may be used to provide a life
annuity for the beneficiary. Benefits must begin within one year from
the date of death and are payable over a period not extended beyond
the life expectancy of the beneficiary. Any annuity benefits will be
provided in accordance with the annuity options of the Policy.
If there is more than one beneficiary, the death benefit will be paid to such
beneficiaries in one sum unless the Company consents to pay an annuity option
chosen by the beneficiaries.
With respect to any death benefit, the Accumulated Value under the Policy shall
be based on the unit values next computed after due proof of death has been
received at the Company's principal office. If the beneficiary elects to receive
the death benefit in one sum, the death benefit will be paid within seven
business days. If the beneficiary (other than a spousal beneficiary of an IRA,
See "F. The Spouse of the Policy Owner as Beneficiary," below) has not elected
an annuity option within one year from the date notice of death is received by
the Company, the Company will pay the death benefit in one sum. The death
benefit will reflect any earnings or losses experienced during the period and
any withdrawals.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed monthly annuity payments, any unpaid amounts or
installments will be paid to the beneficiary. The Company must pay the remaining
payments at least as rapidly as under the payment option in effect on the date
of the Annuitant's death. If there is more than one beneficiary, the commuted
value of the payments, computed on the basis of the assumed interest rate
incorporated in the annuity option table on which such payments are based, shall
be paid to the beneficiaries 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 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 variable life annuity with 120 monthly payments
guaranteed. Changes in either the
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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 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
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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 life contingency
or a noncommutable period certain option of at least a 10 year option is
determined by multiplying (1) the Accumulated Value applied under that option
(after deduction for premium tax, if any) divided by $1,000, by (2) the
applicable amount of the first monthly payment per $1,000 of value. For any
commutable period certain options and for noncommutable period certain options,
the Surrender Value less any premium tax is applied. The dollar amount of the
first monthly variable annuity payment is then divided by the value of an
Annuity Unit of the selected Subaccount(s) to determine the number of Annuity
Units represented by the first payment. This number of Annuity Units remains
fixed under all annuity options except the joint and two-thirds survivor annuity
option. In each subsequent month, the dollar amount of the variable annuity
payment is determined by multiplying this fixed number of Annuity Units by the
value of an Annuity Unit on the applicable Valuation Date.
After the first payment, the dollar amount of each monthly variable annuity
payment will vary with subsequent variations in the value of the Annuity Unit of
the selected Subaccount(s). The dollar amount of each fixed amount monthly
annuity payment is fixed and will not change, except under the joint and
two-thirds survivor annuity option.
The Company may from time to time offer its Policy Owners both fixed and
variable annuity rates more favorable than those contained in the Policy. Any
such rates will be applied uniformly to all Policy Owners of the same class.
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).
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IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY POLICIES IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER SHOULD ALWAYS BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income, assets, or
existence of the Policies, the Separate Account or the Subaccounts may have upon
its tax. The Separate Account presently is not subject to tax, but the Company
reserves the right to assess a charge for taxes should the Separate Account at
any time become subject to tax. Any charge for taxes will be assessed on a fair
and equitable basis in order to preserve equity among classes of Policy Owners
and with respect to each Separate Account as though that Separate Account were a
separate taxable entity.
The Separate Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the 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.
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
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formula that establishes the ratio that the cost basis of the Policy bears to
the expected return under the Policy. The portion of the payment in excess of
this excludable amount is taxable as ordinary income. Once all cost basis in the
Policy is recovered, the entire payment is taxable. If the last Annuitant dies
before cost basis is recovered, a deduction for the difference is allowed on the
Annuitant's final tax return.
C. TAX WITHHOLDING AND PENALTIES.
The Code requires withholding with respect to payments or distributions from
employee benefit plans, annuities, and IRAs, unless a taxpayer elects not to
have withholding. In addition, the Code requires reporting to the IRS of the
amount of income received with respect to payment or distributions from
annuities.
The tax treatment of certain partial redemptions or surrenders of the
non-qualified Policies offered by this Prospectus will vary according to whether
the amount redeemed or surrendered is allocable to an investment in the Policy
made before or after certain dates.
D. QUALIFIED EMPLOYER PLANS.
The tax rules applicable to qualified employer plans, as defined by the Code,
vary according to the type of plan and the terms and conditions of the plan
itself. Therefore, the following is general information about the use of the
Policies with various types of qualified plans. The rights of any person to any
benefits under such qualified plans will be subject to the terms and conditions
of the qualified plans themselves regardless of the terms and conditions of the
Policy.
A loan to a participant or beneficiary from plans qualified under Sections 401
and 403 or an assignment or pledge of an interest in such a plan is generally
treated as a distribution. This general rule does not apply to loans which
contain certain repayment terms and do not exceed a specified maximum amount, as
required under Section 72(p).
E. QUALIFIED EMPLOYEE PENSION AND PROFIT SHARING TRUSTS
AND QUALIFIED ANNUITY PLANS.
When an employee (including a self-employed individual) or one or more of the
employee's beneficiaries receives a "lump sum" distribution (a distribution from
a qualified plan described in Code Section 401(a) within one taxable year equal
to the total amount payable with respect to such an employee) the taxable
portion of such distribution may qualify for special treatment under a special
five-year income averaging provision of the Code. The employee must have had at
least 5 years of participation under the plan, and the lump sum distribution
must be made after the employee has attained age 59-1/2 or on account of his or
her death, separation from the employer's service (in the case of a common-law
employee) or disability (in the case of a self-employed individual). Such
treatment can be elected for only one taxable year once the individual has
reached age 59-1/2. An employee who attained age 50 before January 1, 1986 may
elect to treat part of the taxable portion of a lump-sum distribution as
long-term capital gain and may also elect 10-year averaging instead of five-year
averaging.
F. SELF-EMPLOYED INDIVIDUALS.
The Self-Employed Individuals Tax Retirement Act of 1962, as amended, frequently
referred to as "H.R. 10," allows self-employed individuals and partners to
establish qualified pension and profit sharing trusts and annuity plans to
provide benefits for themselves and their employees.
These plans generally are subject to the same rules and requirements applicable
to corporate qualified plans, with some special restrictions imposed on
"owner-employees." An "owner-employee" is an employee who (1) owns the entire
interest in an unincorporated trade or business, or (2) owns more than 10% of
either the capital interest or profits interest in a partnership.
G. INDIVIDUAL RETIREMENT ACCOUNT PLANS.
Any individual who earns "compensation" (as defined in the Code and including
alimony payable under a court decree) from employment or self-employment,
whether or not he or she is covered by another qualified plan, may establish an
Individual Retirement Account or Annuity plan ("IRA") for the accumulation of
retirement savings on a tax-deferred basis. Income from investments is not
included in "compensation." The assets of an IRA may be invested in, among
other things, annuity policies including the Policies offered by this
Prospectus.
Contributions to the IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10,000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the above-described
limit on each. An individual with an IRA may establish an additional IRA for a
non-working spouse if they file a joint return. Contributions to the two IRAs
together are deductible up to the lesser of $2,250 or 100% of compensation.
No deduction is allowed for contributions made for the year in which the
individual attains age 70-1/2 and years thereafter. Contributions for that year
and for years thereafter will result in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70-1/2. Although these contributions may not be deducted,
taxes on their earnings are deferred until the earnings are distributed. The
maximum permissible non-deductible contribution is $2,000 for an individual
taxpayer and $2,250 for a taxpayer and non-working spouse. These limits are
reduced by the amount of any deductible contributions made by the taxpayer.
Contributions may be made with respect to a particular year until the due date
of the individual's federal income tax return for that year, not including
extensions. However, for reporting purposes, the Company will regard
contributions as being applicable to the year made unless it receives notice to
the contrary.
All annuity payments and other distributions under an IRA will be taxed as
ordinary income unless the owner has made non-deductible contributions. In
addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70-/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
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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.
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.
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LOANS (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 made from the Policy's
value on a pro-rata basis from all accounts. 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. When repayments are received, they will be allocated in
accordance with the contract owner's most recent allocation instructions.
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.
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.
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
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<PAGE>
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
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
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<PAGE>
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 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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PROSPECTUS B
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
PIONEER VARIABLE CONTRACTS TRUST
This prospectus describes interests under flexible premium deferred
combination variable and fixed annuity contracts issued either on a group basis
or as individual contracts by First Allmerica Financial Life Insurance Company
("Company") to individuals and businesses in connection with retirement plans
which may or may not qualify for special federal income tax treatment. (For
information about the tax status when used with a particular type of plan, see
"FEDERAL TAX CONSIDERATIONS.") Participation in a group contract will be
accounted for by the issuance of a certificate describing the individual's
interest under the group contract. Participation in an individual contract will
be evidenced by the issuance of an individual contract. Certificates and
individual contracts are collectively referred to herein as the "Contracts." The
following is a summary of information about these Contracts. More detailed
information can be found under the referenced captions in this Prospectus.
Contract values may accumulate on a variable basis in the contract's
Variable Account, known as Separate Account VA-P. The Assets of the Variable
Account are divided into Subaccounts, each investing exclusively in shares of an
underlying mutual fund. In most jurisdictions, values may also be allocated on a
fixed basis to the Fixed Account, which is part of the Company's General Account
and during the accumulation period to one or more of the Guarantee Period
Accounts. Amounts allocated to the Fixed Account earn interest at a guaranteed
rate for one year from the date allocated. Amounts allocated to a Guarantee
Period Account earn a fixed rate of interest for the duration of the applicable
Guarantee Period. The interest earned in a Guarantee Period Account is
guaranteed if held for the entire guarantee period. If removed prior to the end
of the Guarantee Period the value may be increased or decreased by a market
value adjustment. Assets supporting allocations to the Guarantee Period Accounts
in the accumulation phase are held in the Company's Separate Account GPA.
Certain additional information about the Contracts is contained in a
Statement of Additional Information, dated April 30, 1996 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, First Allmerica Financial
Life Insurance Company, 440 Lincoln Street, Worcester, Massachusetts 01653.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
PIONEER VARIABLE CONTRACTS TRUST. INVESTORS SHOULD RETAIN A COPY OF THIS
PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE CONTRACTS ARE OBLIGATIONS OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE
COMPANY AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE CONTRACTS ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR
CREDIT UNION. THE CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER
FEDERAL AGENCY. INVESTMENT IN THE CONTRACTS ARE SUBJECT TO
VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.
DATED JULY 8, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION........................................... 3
SPECIAL TERMS.......................................................................................... 4
SUMMARY................................................................................................ 5
ANNUAL AND TRANSACTION EXPENSES........................................................................ 8
CONDENSED FINANCIAL INFORMATION........................................................................ 10
PERFORMANCE INFORMATION................................................................................ 10
WHAT IS AN ANNUITY..................................................................................... 12
RIGHT TO REVOKE OR SURRENDER........................................................................... 12
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT AND PIONEER VARIABLE CONTRACTS TRUST..................
13
VOTING RIGHTS.......................................................................................... 16
CHARGES AND DEDUCTIONS................................................................................. 16
A. Annual Charge Against Variable Account Assets.................................... 16
B. Contract Fee..................................................................... 17
C. Premium Taxes.................................................................... 17
D. Contingent Deferred Sales Charge................................................. 18
E. Transfer Charge.................................................................. 21
DESCRIPTION OF THE CONTRACT............................................................................ 22
A. Payments......................................................................... 22
B. Transfer Privilege............................................................... 23
C. Surrender........................................................................ 23
D. Partial Redemption............................................................... 24
E. Death Benefit.................................................................... 24
F. The Spouse of the Contract Owner as Beneficiary.................................. 25
G. Assignment....................................................................... 25
H. Electing the Form of Annuity and Annuity Date.................................... 26
I. Description of Variable Annuity Options.......................................... 26
J. Norris Decision.................................................................. 27
K. Computation of Contract Values and Annuity Benefit Payments...................... 27
GUARANTEE PERIOD ACCOUNTS.............................................................................. 29
FEDERAL TAX CONSIDERATIONS............................................................................. 31
A. Qualified and Non-Qualified Contracts............................................ 32
B. Taxation of the Contracts in General............................................. 32
C. Tax Withholding and Penalties.................................................... 33
D. Provisions Applicable to Qualified Employer Plans................................ 33
E. Qualified Employee Pension and Profit Sharing Trusts............................. 33
F. Self-Employed Individuals........................................................ 34
G. Individual Retirement Account Plans.............................................. 34
H. Simplified Employee Pensions..................................................... 35
I. Public School Systems and Certain Tax-Exempt Organizations....................... 35
J. Texas Optional Retirement Program................................................ 35
K. Section 457 Plans for State Governments and Tax-Exempt Entities.................. 36
L. Non-Individual Owners............................................................ 36
REPORTS................................................................................................ 36
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C> <C>
LOANS (QUALIFIED CONTRACTS ONLY)....................................................................... 36
CHANGES IN OPERATIONS OF THE VARIABLE ACCOUNT.......................................................... 37
DISTRIBUTION........................................................................................... 37
LEGAL MATTERS.......................................................................................... 37
FURTHER INFORMATION.................................................................................... 37
APPENDIX A -- MORE INFORMATION ABOUT THE GENERAL ACCOUNT............................................... 38
APPENDIX B -- SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT........................................ 39
APPENDIX C -- THE DEATH BENEFIT........................................................................ 41
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY........................................................................ 2
TAXATION OF THE VARIABLE ACCOUNT AND THE COMPANY....................................................... 2
SERVICES............................................................................................... 3
UNDERWRITERS........................................................................................... 3
ANNUITY PAYMENTS....................................................................................... 4
PERFORMANCE INFORMATION................................................................................ 5
FINANCIAL STATEMENTS................................................................................... 8
</TABLE>
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE OR SOLICIT AN OFFER IN THAT STATE.
3
<PAGE>
SPECIAL TERMS
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Subaccounts and of the value of all accumulations in the Fixed Account and
Guarantee Period Accounts then credited to the Contract, on any date before the
Annuity Date
ACCUMULATION UNIT: a measure of the Contract Owner's interest in a
Subaccount before annuity benefit payments begin.
ANNUITANT: the person designated in the Contract upon whose life annuity
benefit payments are to be made.
ANNUITY DATE: the date on which annuity benefit payments begin.
ANNUITY UNIT: a measure of the value of the periodic annuity benefit
payments under the Contract.
FIXED ACCOUNT: the part of the Company's General Account that guarantees
principal and a fixed interest rate and to which all or a portion of a payment
or transfer under this Contract may be allocated.
FIXED AMOUNT ANNUITY: an Annuity providing for annuity benefit payments
which remain fixed in an amount throughout the annuity benefit payment period
selected.
GUARANTEED INTEREST RATE: the annual effective rate of interest after daily
compounding credited to a Guarantee Period Account.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account which corresponds to a Guaranteed
Interest Rate for a specified Guarantee Period and is supported by assets in a
non-unitized separate account.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.
SUBACCOUNT: a subdivision of the Variable Account. Each Subaccount
available under the Contracts invests exclusively in the shares of a
corresponding portfolio of Pioneer Variable Contracts Trust.
SURRENDER VALUE: the Accumulated Value of the Contract on full surrender
after application of any Contract fee, contingent deferred sales charge, and
Market Value Adjustment Contract.
UNDERLYING FUNDS: the International Growth Portfolio, the Capital Growth
Portfolio, the Real Estate Growth Portfolio, the Equity Income Portfolio, the
Balanced Portfolio, the America Income Portfolio, the Swiss Franc Bond
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 Funds 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 Contract was
received) when there is a sufficient degree of trading in an Underlying Fund's
portfolio securities such that the current net asset value of the Subaccounts
may be materially affected.
VARIABLE ACCOUNT: Separate Account VA-P, one of the Company's separate
accounts, consisting of assets segregated from other assets of the Company. The
investment performance of the assets of the Variable Account is determined
separately from the other assets of the Company and are not chargeable with
liabilities arising out of any other business which the Company may conduct.
VARIABLE ANNUITY: an Annuity providing for payments varying in amount in
accordance with the investment experience of certain Underlying Funds.
4
<PAGE>
SUMMARY
INVESTMENT OPTIONS. The Contract permits net payments to be allocated among
the Subaccounts, the Guarantee Period Account and the Fixed Account. The Fixed
Account and/or the Guarantee Period Accounts may not be available in all states.
Similarly, not all Subaccounts may be available in all states.
SUBACCOUNTS -- The Subaccounts are subdivisions of the Variable Account,
established as the Company's Separate Account, VA-P. The Variable 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 contracts of Variable
Account by the Securities and Exchange Commission (the "SEC").
Each Subaccount available under the Contract invests its assets without
sales charge in a corresponding investment portfolio of the Pioneer Variable
Contracts Trust ("Trust"). The Trust is an open-end, diversified series
investment company. The Trust consists of eight different 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, the Swiss Franc Bond Portfolio, and the Money Market
Portfolio ("Underlying Funds"). Each Underlying Fund operates pursuant to
different investment objectives, discussed below.
INVESTMENT IN THE SUBACCOUNT. The value of each Subaccount will vary daily
depending on the performance of the investments made by the respective
Underlying Funds. There can be no assurance that the investment objectives of
the Underlying Funds can be achieved or that the value of a Contract will equal
or exceed the aggregate amount of the purchase payments made under the Contract.
For more information about the Variable Account, the Company and the investments
of the Underlying Funds, see "DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT
AND PIONEER VARIABLE CONTRACTS TRUST." The accompanying prospectus of the Trust
describes the investment objectives and risks of each of the Underlying Funds.
Dividends or capital gains distributions received from an Underlying Fund
are reinvested in additional shares of that Underlying Fund, which are retained
as assets of the Subaccount.
GUARANTEE PERIOD ACCOUNTS -- Assets supporting the guarantees under the
Guarantee Period Accounts are held in the Company's Separate Account GPA, a
non-unitized insulated separate account. However, values and benefits calculated
on the basis of Guarantee Period Account allocations are obligations of the
Company's General Account. Amounts allocated to a Guarantee Period Account earn
a Guaranteed Interest Rate declared by the Company. The level of the Guaranteed
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company currently makes available seven Guarantee Periods ranging from three
to ten years in duration (excluding a four year Guarantee Period). Once
declared, the Guaranteed Interest Rate will not change during the duration of
the Guarantee Period. If amounts allocated to a Guarantee Period Account are
transferred, surrendered or applied to an annuity option at any time other than
the last day of the applicable Guarantee Period, a Market Value Adjustment will
apply that may increase or decrease the account's value. For more information
about the Guarantee Period Accounts and the Market Value Adjustment, see
"GUARANTEE PERIOD ACCOUNTS."
FIXED ACCOUNT -- The Fixed Account is part of the General Account which
consists of all the Company's assets other than those allocated to the Variable
Account and any other separate account. Allocations to the Fixed Account are
guaranteed as to principal and minimum rate of interest. Additional excess
interest may be declared periodically at the Company's discretion. Furthermore,
the initial rate in effect on the date an amount is allocated to the Fixed
Account will be guaranteed for one year from that date. For more information
about the Fixed Accounts see Appendix A, "MORE INFORMATION ABOUT THE FIXED
ACCOUNT."
5
<PAGE>
TRANSFERS AMONG ACCOUNTS. Prior to the Annuity Date, the Contracts permit
amounts to be transferred among and between the Subaccounts, the Guarantee
Period Accounts and the Fixed Account, subject to certain limitations described
under "Transfer Privilege."
ANNUITY BENEFIT PAYMENTS. The owner of a Contract ("Contract Owner") may
select variable annuity benefit payments based on one or more of certain
Subaccounts, fixed-amount annuity benefit payments, or a combination of
fixed-amount and variable annuity benefit payments. Fixed-amount annuity benefit
payments are guaranteed by the Company.
See "DESCRIPTION OF CONTRACT" for information about annuity benefit payment
options, selecting the Annuity Date, and how annuity benefit payments are
calculated.
REVOCATION RIGHTS. An individual purchasing a Contract intended to qualify
as an Individual Retirement Annuity ("IRA") may revoke the Contract within 10
days after receipt of the Contract. In certain states Contract Owners may have
special revocation rights. For more information about revocation rights, see
"RIGHT TO REVOKE OR SURRENDER."
PAYMENT MINIMUMS AND MAXIMUMS. Under the Contracts, 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 payment must be at least $600
($1,000 in Washington) and subsequent payments must be at least $50. Under a
monthly automatic payment plan or a payroll deduction plan, each 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 Contract 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 Contract. 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
payments at the time they are made. However, depending on the length of time
that the payments to which the withdrawal is attributed have remained credited
under the Contract a contingent deferred sales charge of up to 7% may be
assessed for a surrender, partial redemption, or election of an annuity for a
commutable period certain option or any period certain option for less than 10
years.
B. ANNUAL CONTRACT FEE. A Contract Fee equal of $30 will be deducted from
the Accumulated Value under the Contract for administrative expense on the
Contract anniversary, or upon full surrender of the Contract during the year,
when the Accumulated Value is $50,000 or less. The Contract Fee is waived for
Contracts issued to and maintained by the trustee of a 401(k) plan.
C. PREMIUM TAXES. A deduction for State and local premium taxes, if any,
may be made as described under "Premium Taxes."
D. VARIABLE ACCOUNT ASSET CHARGES. A daily charge, equivalent to 1.25% per
annum, is made on the value of each Subaccount at each Valuation Date. The
charge is retained for the mortality and expense risks the Company assumes. In
addition, to cover administrative expenses, the Company deducts a daily charge
of 0.15% per annum of the value of the average net assets in the Subaccounts.
E. TRANSFER CHARGE. The Company currently makes no charge to process
transfers. The Company guarantees that the first twelve transfers in a Contract
year will be free of any transfer charge. For each subsequent transfer the
Company reserves the right to assess a charge, guaranteed never to exceed $25,
to reimburse the Company for the cost of processing the transfer.
6
<PAGE>
F. CHARGES OF THE UNDERLYING FUNDS. In addition to the charges described
above, certain fees and expenses are deducted from the assets of the Underlying
Funds. These charges vary among the Underlying Funds.
SURRENDER OR PARTIAL REDEMPTION. At any time before the Annuity Date, the
Contract Owner has the right either to surrender the Contract in full and
receive its current value, minus the Contract Fee and any applicable contingent
deferred sales charge, and adjusted for any positive or negative Market Value
Adjustment or to redeem a portion of the Contract's value subject to certain
limits and any applicable contingent deferred sales charge and/or Market Value
Adjustment. 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, Contract Owner or Joint Owner should die
before the Annuity Date, a death benefit will be paid to the beneficiary. Upon
death of the Annuitant (or an Owner if that Owner is also the Annuitant), the
death benefit is equal to the greatest of (a) the Accumulated Value increased by
any positive Market Value Adjustment; (b) gross payments accumulated daily at 5%
starting on the date each payment was applied, reduced proportionately to
reflect withdrawals (for each withdrawal the proportionate reduction is
calculated as the death benefit under this option immediately prior to the
withdrawal multiplied by the withdrawal amount and divided by the Accumulated
Value immediately prior to the withdrawal); or (c) the death benefit that would
have been payable on the most recent Contract Anniversary, increased for
subsequent purchase payments and reduced proportionally to reflect withdrawals
after that date. If an Owner who is not also the Annuitant dies prior to
annuitization, the death benefit will equal the Accumulated Value of the
Contract determined following receipt of due proof of death at the Principal
Office. If the Annuitant dies after the Annuity Date but before all guaranteed
annuity benefit payments have been made, the remaining payments will be paid to
the beneficiary at least as rapidly as under the annuity option in effect. See
"Death Benefit."
SALES OF CONTRACTS. The Contracts are sold by agents of the Company who are
authorized by applicable state law to sell variable annuity Contracts. These
agents are registered representatives of registered broker-dealers which are
members of the National Association of Securities Dealers, Inc., and whose
representatives are authorized by applicable law to sell variable annuity
Contracts. See "Sales Expense."
7
<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The purpose of the following tables is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly under the Contract. The tables reflect charges under the
Contracts, expenses of the Subaccounts, and expenses of the Underlying Funds. In
addition to the charges and expenses described below, in some states premium
taxes may be applicable.
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CONTRACT YEARS
FROM
DATE OF PAYMENT CHARGE
--------------- ---------
<S> <C> <C>
CONTINGENT DEFERRED SALES CHARGE 0-1 7%
The charge (as a percentage of payments, applied to the amount surrendered in excess 2 6%
of the amount, if any, which may be surrendered free of charge) will be assessed upon 3 5%
surrender, redemption, or annuitization under any commutable period certain option or 4 4%
a noncommutable period certain less than 10 years. 5 3%
6 2%
7 1%
more than 7 0%
TRANSFER CHARGE None
The Company currently makes no charge for transfers. The Company guarantees that the
first twelve transfers in a Contract 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 CONTRACT FEE $30
An Annual Contract Fee, equal to $30, is deducted when Accumulated Value is $50,000 or
less. The Contract Fee is currently waived for Contracts issued to a trustee of a
401(k) plan, but the Company reserves the right to impose the Contract Fee on such
Contracts.
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge..................................................... 1.25%
Variable Account Administrative Expense Charge........................................ 0.15%
----
Total Annual Expenses................................................................. 1.40%
</TABLE>
PIONEER VARIABLE CONTRACTS TRUST
<TABLE>
<CAPTION>
INTER. CAPITAL REAL ESTATE EQUITY SWISS FRANC AMERICA
GROWTH GROWTH GROWTH INCOME BALANCED BOND INCOME
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PORTFOLIOS ANNUAL EXPENSES
Management Fee........................ 1.00% 0.65% 1.00% 0.65% 0.65% 0.65% 0.55%
Other Expenses........................ 16.22% 3.30% 44.96% 4.67% 14.12% 68.57% 11.31%
----------- ----- ----------- ----- ----------- ----------- -----------
Total Expenses........................ 17.22% 3.95% 45.96% 5.32% 14.77% 69.22% 11.86%
Expense Reduction................... (15.72)% (2.70)% (44.71)% (4.07)% (13.52)% (67.97)% (10.61)%
----------- ----- ----------- ----- ----------- ----------- -----------
Net Expenses.......................... 1.50% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
AFTER FEE AND EXPENSE REDUCTIONS
Management Fees..................... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses...................... 1.50% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Total Expenses...................... 1.50% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
<CAPTION>
MONEY
MARKET
-----------
<S> <C>
PORTFOLIOS ANNUAL EXPENSES
Management Fee........................ 0.50%
Other Expenses........................ 7.84%
-----
Total Expenses........................ 8.34%
Expense Reduction................... (7.34)%
-----
Net Expenses.......................... 1.00%
AFTER FEE AND EXPENSE REDUCTIONS
Management Fees..................... 0.00%
Other Expenses...................... 1.00%
Total Expenses...................... 1.00%
</TABLE>
8
<PAGE>
Pioneering Management Corporation ("Pioneer") is the investment adviser to
each Portfolio. Pioneer has agreed voluntarily to waive its management fees or
to make other arrangements, if necessary to reduce Portfolio expense. The
limitations for each Portfolio, as a percentage of average daily net assets, are
currently the same as the Total Portfolio Annual Expenses after expense
reductions, as indicated in the table above. Pioneer reserves the right to
terminate the limitations at any time without notice.
The following examples demonstrate the cumulative expenses which would be
paid by the Contract 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 Contract Owner on an investment in the various
Subaccounts. THE INFORMATION GIVEN UNDER THE ABOVE EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESSER THAN THOSE SHOWN.
(a) If the Contract is surrendered or annuitized* under a commutable period
certain option or a noncommutable certain option of less than 10 years at the
end of the applicable period, you would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
International Growth..................................... $ 91 $ 137 $ 184 $ 328
Capital Growth........................................... $ 88 $ 130 $ 172 $ 305
Real Estate Growth....................................... $ 88 $ 130 $ 172 $ 305
Equity Income............................................ $ 88 $ 130 $ 172 $ 305
Balanced................................................. $ 88 $ 130 $ 172 $ 305
Swiss Franc Bond......................................... $ 88 $ 130 $ 172 $ 305
America Income........................................... $ 86 $ 123 $ 160 $ 280
Money Market............................................. $ 84 $ 115 $ 148 $ 255
</TABLE>
- ------------------------
* The contract fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any contract year
under an option including a life contingency.
(b) If the Contract is annuitized* under a life option or any noncommutable
period certain option of 10 years or more at the end of the applicable time
period or if the Contract is NOT surrendered or annuitized, you would pay the
following expenses on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
International Growth..................................... $ 30 $ 92 $ 156 $ 328
Capital Growth........................................... $ 28 $ 84 $ 144 $ 305
Real Estate Growth....................................... $ 28 $ 84 $ 144 $ 305
Equity-Income............................................ $ 28 $ 84 $ 144 $ 305
Balanced................................................. $ 28 $ 84 $ 144 $ 305
Swiss Franc Bond......................................... $ 28 $ 84 $ 144 $ 305
America Income........................................... $ 25 $ 77 $ 131 $ 280
Money Market............................................. $ 23 $ 69 $ 119 $ 255
</TABLE>
- ------------------------
* The contract fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any contract year
under an option including a life contingency.
Pursuant to requirements of the 1940 Act, the Contract fee has been
reflected in the examples by a method intended to show the "average" impact of
the Contract fee on an investment in the Variable Account. The total Contract
fees collected under the Contracts by the Company are divided by the
9
<PAGE>
total average net assets attributable to the Contracts. The resulting percentage
is 0.100%, and the amount of the Contract fee is assumed to be $1.00 in the
examples. The Contract Fee is deducted only when the accumulated value is
$50,000 or less.
CONDENSED FINANCIAL INFORMATION
SEPARATE ACCOUNT VA-P
<TABLE>
<CAPTION>
1995
---------
<S> <C>
INTERNATIONAL GROWTH
Unit Value:
Beginning of Period.......................... 1.00
End of Period................................ 1.00
Number of Units Outstanding at End of Period
(in thousands)................................ 0
CAPITAL GROWTH
Unit Value:
Beginning of Period.......................... 1.00
End of Period................................ 1.00
Number of Units Outstanding at End of Period
(in thousands)................................ 0
REAL ESTATE GROWTH
Unit Value:
Beginning of Period.......................... 1.00
End of Period................................ 1.00
Number of Units Outstanding at End of Period
(in thousands)................................ 0
EQUITY INCOME
Unit Value:
Beginning of Period.......................... 1.00
End of Period................................ 1.00
Number of Units Outstanding at End of Period
(in thousands)................................ 0
<CAPTION>
1995
---------
<S> <C>
BALANCED
Unit Value:
Beginning of Period.......................... 1.00
End of Period................................ 1.00
Number of Units Outstanding at End of Period
(in thousands)................................ 0
SWISS FRANC BOND FUND
Unit Value:
Beginning of Period.......................... 1.00
End of Period................................ 1.00
Number of Units Outstanding at End of Period
(in thousands)................................ 0
AMERICA INCOME
Unit Value:
Beginning of Period.......................... 1.00
End of Period................................ 1.00
Number of Units Outstanding at End of Period
(in thousands)................................ 0
MONEY MARKET
Unit Value:
Beginning of Period.......................... 1.00
End of Period................................ 1.00
Number of Units Outstanding at End of Period
(in thousands)................................ 0
</TABLE>
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 Variable Account charges, and expressed as a
percentage.
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.
10
<PAGE>
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 Contract 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 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.
The Contracts were first offered to the public on March 1, 1995. Performance
results below will be calculated with all charges assumed to be those applicable
to the Subaccounts, the Underlying Funds, and (in Table 1) assuming that the
Contract is surrendered at the end of the applicable period. Both the total
return and yield figures are based on historical earnings and are not intended
to indicate future performance.
TOTAL RETURNS FOR PERIOD ENDING DECEMBER 31, 1995
(ASSUMING COMPLETE REDEMPTION OF THE INVESTMENT)
<TABLE>
<CAPTION>
TOTAL RETURN
SINCE
NAME INCEPTION
- ---------------------------------------------------------- --------------
<S> <C>
International Growth...................................... 2.29%
Capital Growth............................................ 8.80%
Real Estate Growth........................................ 8.61%
Equity Income............................................. 15.22%
Balanced.................................................. 12.46%
Swiss Franc Bond.......................................... (6.16)%
America Income............................................ (1.92)%
Money Market.............................................. (3.38)%
</TABLE>
11
<PAGE>
TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(ASSUMING NO REDEMPTION OF THE INVESTMENT)
<TABLE>
<CAPTION>
TOTAL RETURN
NAME SINCE INCEPTION
- ---------------------------------------------------------- ---------------
<S> <C>
International Growth...................................... 9.17%
Capital Growth............................................ 15.80%
Real Estate Growth........................................ 15.61%
Equity Income............................................. 22.22%
Balanced.................................................. 19.46%
Swiss Franc Bond.......................................... 0.15%
America Income............................................ 4.68%
Money Market.............................................. 3.12%
</TABLE>
WHAT IS AN ANNUITY?
In general, an annuity is a contract designed to provide a retirement income
in the form of periodic payments for the lifetime of the Contract Owner or an
individual chosen by the Contract Owner. The retirement income payments are
called "annuity benefit payments" and the individual receiving the payments is
called the "Annuitant." Annuity benefit payments begin on the annuity date.
Under an annuity contract, the insurance company assumes a mortality risk
and an expense risk. The mortality risk arises from the insurance company's
guarantee that annuity benefit 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 Contract,
regardless of actual costs of operations.
The Contract Owner's payments, less any applicable deductions, are invested
by the insurance company. After retirement, annuity benefit payments are paid to
the Annuitant for life or for such other period chosen by the Contract Owner. In
the case of a "fixed" annuity, the value of these annuity benefit 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 FIXED
ACCOUNT." With a variable annuity, the value of the Contract and the annuity
benefit 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 Contract and in the annuity benefit payments. If
the portfolio increases in value, the value of the Contract increases. If the
portfolio decreases in value, the value of the Contract decreases.
RIGHT TO REVOKE OR SURRENDER
A Contract Owner may revoke the Contract within 10 days after receipt of the
Contract. In order to revoke the Contract, the Contract Owner must mail or
deliver the Contract to the principal office of the Company at 440 Lincoln
Street, Worcester, Massachusetts 01653, or to an agent of the Company. Mailing
or delivery must occur on or before 10 days after receipt of the Contract for
revocation to be effective. Within seven days, the Company will send the
Contract Owner a refund of the greater of (1) gross payments or (2) the
Accumulated Value plus any amounts deducted under the Contract or by the
Underlying Funds for taxes, charges or fees.
If on the date of revocation the Surrender Value of the Contract exceeds
gross payments, the Company will treat the revocation request as a request for
surrender (see "Surrender") and will pay the Contract Owner the Surrender Value
of the Contract. The liability of the Variable Account under
12
<PAGE>
this provision is limited to the Contract Owner's Accumulated Value in the
Variable Account on the date of cancellation. Any additional amounts refunded to
the Contract Owner will be paid by the Company.
The refund of any premium paid by check may be delayed until the check has
cleared the Contract Owner's bank.
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
AND PIONEER VARIABLE CONTRACTS TRUST
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,
1995, the company and its subsidiaries had over $11 billion in combined assets
and over $35.2 billion of life insurance in force. Effective October 16, 1995,
the Company converted from a mutual life insurance company known as State Mutual
Life Assurance Company of America to a stock life insurance company and adopted
its present name. The Company is a wholly-owned subsidiary of Allmerica
Financial Corporation ("AFC"). The Company's principal office 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 VARIABLE ACCOUNT -- The Variable Account is a separate investment
account of the Company referred to as Separate Account VA-P. The assets used to
fund the variable portions of the Contracts are set aside in the Subaccounts of
the Variable Account, and are kept separate and apart from the general assets of
the Company. 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 Variable Account may not be charged with
any liabilities arising out of any other business of the Company.
The Variable Account was authorized by vote of the Board of Directors of the
Company on October 27, 1994. The Variable Account meets the definition of a
"separate account" under federal securities laws and is registered with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act"). Such registration does not involve
the supervision of management or investment practices or policies of the
Variable Account or the Company by the Commission.
The Company may offer other variable annuity contracts investing in the
Variable Account which are not discussed in this prospectus. The Variable
Account may also invest in other underlying funds which are not available to the
Contracts described in this prospectus. The Company reserves the right, subject
to compliance with applicable law, to change the names of the Variable Account
and the Subaccounts.
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Variable Contracts Trust (the "Fund") is an open-end, diversified
management investment company registered with the SEC under the 1940 Act. Such
registration does not involve supervision by the SEC of the investments or
investment policy of the Fund or its separate investment Portfolios. Pioneering
Management Corporation ("Pioneer") is the investment adviser to each Portfolio.
The Fund was established to provide a vehicle for the investment of assets
of various separate accounts supporting variable insurance policies. The Fund
currently has eight investment portfolios ("Underlying Portfolios"), each
issuing a separate series of shares: International Growth Portfolio,
13
<PAGE>
Capital Growth Portfolio, Real Estate Growth Portfolio, Equity-Income Portfolio,
Balanced Portfolio, Swiss Bond Franc 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 separately from the assets of the
other Portfolios. Each Portfolio operates as a separate investment vehicle, and
the income or losses of one Portfolio have no effect on the investment
performance of another Portfolio. Shares of the Fund may be sold directly to
separate accounts established and maintained by insurance companies for the
purpose of funding variable contracts and to certain qualified pension and
retirement plans.
INVESTMENT OBJECTIVES AND POLICIES -- A summary of investment objectives of
each of the Underlying Portfolios is set forth below. More detailed information
regarding the investment objectives, restrictions and risks, expenses paid by
the Underlying Portfolios, and other relevant information regarding the
Underlying Portfolios may be found in the Prospectus of the Fund, which
accompanies this Prospectus and should be read carefully before investing. The
Statement of Additional Information of the Fund is available upon request.
SUBACCOUNT 251 -- invests solely in shares of the International Growth
Portfolio. This Portfolio seeks long-term growth of capital primarily through
investments in non-U.S. equity securities and related depositary receipts.
SUBACCOUNT 252 -- invests solely in shares of the Capital Growth Portfolio.
This Portfolio seeks capital appreciation through a diversified portfolio of
securities consisting primarily of common stocks.
SUBACCOUNT 253 -- invests solely in shares of the Real Estate Growth
Portfolio. This Portfolio seeks long-term growth of capital primarily through
investments in the securities of real estate investment trusts (REITS) and other
real estate industry companies. Current income is the Portfolio's secondary
investment objective.
SUBACCOUNT 254 -- invests solely in shares of the Equity-Income Portfolio.
This Portfolio seeks current income and long-term capital growth by investing in
a portfolio of income-producing equity securities of U.S. corporations. The
Portfolio's goal is to achieve a current dividend yield which exceeds the
published composite yield of the securities comprising the Standard & Poor's 500
Composite Stock Price Index.
SUBACCOUNT 255 -- invests solely in shares of the Balanced Portfolio. The
Balanced Portfolio seeks capital growth and current income by actively managing
investments in a diversified portfolio of equity securities and bonds.
SUBACCOUNT 256 -- invests solely in shares of the America Income Portfolio.
This Portfolio seeks as high a level of current income as is consistent with the
preservation of capital. This Portfolio invests exclusively in United States
("U.S.") Government Securities and in "when issued" commitments and repurchase
agreements with respect to such securities.
SUBACCOUNT 257 -- invests solely in shares of the Money Market Portfolio.
This Portfolio seeks current income consistent with preserving capital and
providing liquidity.
SUBACCOUNT 258 -- invests solely in shares of the Swiss Franc Bond
Portfolio. This portfolio seeks to approximate the performance of the Swiss
franc relative to the U.S. dollar while earning a reasonable level of income.
There is no assurance that the investment objectives of the Portfolios will
be met. In some states, insurance regulations may restrict the availability of
particular Subaccounts.
In the event of a material change in the investment policy of a Subaccount
or the Underlying Portfolio in which it invests, the Contract Owner will be
notified of the change. If the Contract Owner has Contract value in that
Subaccount, the Company will transfer it without charge on written request by
the Contract Owner to another Subaccount or to the General Account, where
available.
14
<PAGE>
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 Contract Owner's right to transfer.
INVESTMENT ADVISORY SERVICES -- Each Portfolio pays a management fee to
Pioneer for managing its investments and business affairs. Each Portfolio's
management fee is computed daily and paid monthly at the following annual rate:
<TABLE>
<CAPTION>
MANAGEMENT FEE AS A % OF
PORTFOLIO AVERAGE DAILY NET ASSETS
- ------------------------------------------------------------------------------
<S> <C>
International Growth............................................. 1.00%
Capital Growth................................................... 0.65%
Real Estate Growth............................................... 1.00%
Equity-Income.................................................... 0.65%
Balanced......................................................... 0.65%
Swiss Franc Bond................................................. 0.65%
America Income................................................... 0.55%
Money Market..................................................... 0.50%
</TABLE>
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS -- The Company reserves
the right, subject to applicable law, to make additions to, deletions from, or
substitutions for the shares that are held in the Subaccounts or that the
Subaccounts may purchase. If the shares of any Underlying Fund are no longer
available for investment or if in the Company's judgment further investment in
any Underlying Fund should become inappropriate in view of the purposes of the
Variable Account or the affected Subaccount, the Company may redeem the shares
of that Underlying Fund and substitute shares of another registered open-end
management company. The Company will not substitute any shares attributable to a
Contract interest in a Subaccount without notice to the Contract Owner and prior
approval of the Commission and state insurance authorities, to the extent
required by the 1940 Act or other applicable law. The Variable Account may, to
the extent permitted by law, purchase other securities for other contracts or
permit a conversion between contracts upon request by a Contract Owner.
The Company also reserves the right to establish additional Subaccounts of
the Variable Account, each of which would invest in shares corresponding to a
new Underlying Fund or in shares of another investment company having a
specified investment objective. Subject to applicable law and any required
Commission 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 Contract Owners on a basis to be determined by the
Company.
Shares of the Underlying Funds are also issued to other unaffiliated
insurance companies ("shared funding") which issue variable annuities and
variable life Contracts ("mixed funding"). It is conceivable that in the future
such mixed funding or shared funding may be disadvantageous for variable life
Contract Owners or variable annuity Contract Owners. Although the Company and
the Trust do not currently foresee any such disadvantages to either variable
life insurance Contract Owners or variable annuity Contract Owners, the Company
and the Trust intend to monitor events in order to identify any material
conflicts between such Contract Owners and to determine what action, if any,
should be taken in response thereto. If it were concluded that Variable funds
should be established for variable life and variable annuity separate accounts,
the Company will bear the attendant expenses.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Contract to reflect the substitution or
change and will notify Contract Owners of all such changes. If the Company deems
it to be in the best interest of Contract Owners, and subject to any approvals
that may be required under applicable law, the Variable Account or any
Subaccount(s) may
15
<PAGE>
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 Fund shares held by each Subaccount in
accordance with instructions received from Contract Owners and, after the
Annuity Date, from the Annuitants. Each person having a voting interest in a
Subaccount will be provided with proxy materials of the Underlying Fund 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 Contracts in the same
proportion. If the 1940 Act or any rules thereunder should be amended or if the
present interpretation of the 1940 Act or such rules should change, and as a
result the Company determines that it is permitted to vote shares in its own
right, whether or not such shares are attributable to the Contract, the Company
reserves the right to do so.
The number of votes which a Contract Owner or Annuitant may cast will be
determined by the Company as of the record date established by the Underlying
Fund. During the accumulation period, the number of Underlying Fund shares
attributable to each Contract Owner will be determined by dividing the dollar
value of the Accumulation Units of the Subaccount credited to the Contract by
the net asset value of one Underlying Fund share.
During the annuity period, the number of Underlying Fund 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 Fund share. Ordinarily, the Annuitant's voting interest in the
Underlying Fund will decrease as the reserve for the variable annuity is
depleted.
CHARGES AND DEDUCTIONS
Deductions under the Contracts and charges against the assets of the
Subaccounts are described below. Other deductions and expenses paid out of the
assets of the Underlying Funds are described in the Prospectus and Statement of
Additional Information of the Trust.
A. ANNUAL CHARGES AGAINST VARIABLE 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 Contracts. The charge is imposed during both the accumulation
period and the annuity period. The mortality risk arises from the Company's
guarantee that it will make annuity benefit payments in accordance with annuity
rate provisions established at the time the Contract is issued for the life of
the Annuitant (or in accordance with the annuity option selected), no matter how
long the Annuitant (or other payee) lives and no matter how long all Annuitants
as a class live. Therefore, the mortality charge is deducted during the annuity
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 Contracts 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.
16
<PAGE>
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 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 contract and the amount
of expenses actually attributable to that contract.
Deductions for the Contract Fee (described under B. CONTRACT FEE) and for
the Administrative Expense Charge are designed to reimburse the Company for the
cost of administration and related expenses and are not expected to be a source
of profit. The administrative functions and expense assumed by the Company in
connection with the Variable Account and the Contracts 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.
B. CONTRACT FEE.
A $30 Contract Fee currently is deducted on the Contract anniversary date
and upon full surrender of the Contract when the Accumulated Value is $50,000 or
less. The Contract Fee is waived for Contracts issued to and maintained by the
Trustee of a 401(k) plan. Where Contract value has been allocated to more than
one account, a percentage of the total Contract Fee will be deducted from the
Value in each account. The portion of the charge deducted from each account will
be equal to the percentage which the Value in that account bears to the
Accumulated Value under the Contract. The deduction of the Contract Fee from a
Subaccount will result in cancellation of a number of Accumulation Units equal
in value to the percentage of the charge deducted from that account.
C. PREMIUM TAXES.
Some states and municipalities impose a premium tax on variable annuity
Contracts. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by the Company when purchase payments
were received, the premium tax charge is deducted on a pro rata basis when
partial withdrawals are made, upon surrender of the Contract, or when
annuity benefit payments begin (the Company reserves the right instead to
deduct the premium tax charge for these Contracts at the time the payments
are received); or
(2) the premium tax charge is deducted when annuity benefit payments
begin.
In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law
If no amount for premium tax was deducted at the time the 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
Accumulated Value at the time such determination is made.
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D. CONTINGENT DEFERRED SALES CHARGE.
No charge for sales expense is deducted from payments at the time the
payments are made. However, a contingent deferred sales charge is deducted from
the Accumulated Value of the Contract in the case of surrender and/or partial
redemption of the Contract or at the time annuity benefit payments begin, within
certain time limits described below.
For purposes of determining the contingent deferred sales charge, the
Accumulated Value is divided into three categories: (1) New Payments -- payments
received by the Company during the seven years preceding the date of the
surrender; (2) Old Payments -- Accumulated payments not defined as New Payments;
and (3) Earnings -- the amount of Contract Value in excess of all 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 Contract at any time without the imposition of a contingent deferred
sales charge. If a withdrawal is attributable all or in part to New Payments, a
contingent deferred sales charge may apply.
CHARGES FOR SURRENDER AND PARTIAL REDEMPTION. If a Contract is surrendered,
or if New Payments are redeemed, while the Contract is in force and before the
Annuity Date, a contingent deferred sales charge may be imposed. The amount of
the charge will depend upon the number of years that the New Payments, if any,
to which the withdrawal is attributed have remained credited under the Contract.
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.)
The Contingent Deferred Sales Charges are as follows:
<TABLE>
<CAPTION>
YEARS FROM CHARGE AS
DATE OF PERCENTAGE OF NEW
PAYMENT PAYMENTS WITHDRAWN
----------- -------------------------
<S> <C>
less than 1.......................................... 7%
2................................................ 6%
3................................................ 5%
4................................................ 4%
5................................................ 3%
6................................................ 2%
7................................................ 1%
More than 7.......................................... 0%
</TABLE>
The amount redeemed equals the amount requested by the Contract Owner plus
the charge, if any. The charge is applied as a percentage of the New Payments
redeemed, but in no event will the total contingent deferred sales charge exceed
a maximum limit of 7% of total gross New Payments. Such total charge equals the
aggregate of all applicable contingent deferred sales charges for surrender,
partial redemptions, and annuitization.
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGES. Where permitted by law, the
Company will waive the contingent deferred sales charge in the event that an
Owner (or the Annuitant, if the Owner is not an individual) is: (a) admitted to
a medical care facility after the issue date of the Contract and remains
confined there until the later of one year after the issue date or 90
consecutive days; (b) first diagnosed by a licensed physician as having a fatal
illness after the issue date of the contract; or (c) physically disabled after
the issue date of the Contract and before attaining age 65. The Company may
require proof of such disability and continuing disability, including written
confirmation of receipt and approval of any claim for Social Security Disability
Benefits and reserves the right to obtain an examination by a licensed physician
of its choice and at its expense.
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For purposes of the above provision, "medical care facility" means any state
licensed facility (or, in a state that does not require licensing)a facility
that is operating pursuant to state law, providing medically necessary inpatient
care which is prescribed by a licensed "physician" in writing and based on
physical limitations which prohibit daily living in a non-institutional setting;
"fatal illness" means a condition diagnosed by a licensed physician which is
expected to result in death within two years of the diagnosis; and "physician"
means a person other than the Owner, Annuitant or a member of one of their
families who is state licensed to give medical care or treatment and is acting
within the scope of that license.
Where contingent deferred sales charges have been waived under any one of
three situations discussed above, no additional payments under this Contract
will be accepted.
Where permitted by law, no contingent deferred sales charge is imposed (and
no commissions will be paid) on contracts issued where both the Contract Owner
and the Annuitant on the date of issue are within the following classes of
individuals ("eligible persons"): employees and registered representatives of
any broker-dealer which has entered into a Sales Agreement with the Company to
sell the Contract; officers, directors, trustees and employees of any of the
Underlying Funds, investment managers or sub-advisers; and the spouses and
children/ other legal dependants (under age 21) of such eligible persons.
In addition, from time to time the Company may also reduce the amount of the
contingent deferred sales, the period during which it applies, or both, when
Contracts are sold to individuals or groups of individuals in a manner that
reduces sales expenses. The Company will consider (a) the size and type of
group; (b) the total amount of payments to be received; (c) other transactions
where sales expenses are likely to be reduced. Any reduction or elimination in
the amount or duration of the contingent deferred sales charge will not
discriminate unfairly between purchasers of this Contract. The Company will not
make any changes to this charge where prohibited by law.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the
contingent deferred sales charges is modified to effect certain exchanges of the
annuity contracts for the Contracts. See Statement of Additional Information.
WITHDRAWAL WITHOUT SURRENDER CHARGE. In each calendar year, the Company
will waive the contingent deferred sales charge, if any, on an amount
("Withdrawal Without Surrender Charge") equal to the greatest of (1), (2) or
(3):
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:
15% 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
calender 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 Annuitant is also an Owner).
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<PAGE>
For example, an 81 year old Contract Owner/Annuitant with an Accumulated
Value of $15,000, of which $1,000 is Cumulative Earnings, would have a Free
Withdrawal Amount of $2,250, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 15% of Accumulated Value ($2,250); or
(3) LED distribution of 10.2% of Accumulated Value ($1,530).
The Withdrawal Without Surrender Charge will first be deducted from
Cumulative Earnings. If the Withdrawal Without Surrender Charge exceeds
Cumulative Earnings, the excess amount will be deemed withdrawn from payments
not previously 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 load, if any, until the entire
Withdrawal Without
Surrender Charge has been redeemed. Amounts withdrawn from a Guarantee Period
Account prior to the end of the applicable Guarantee Period will be subject to a
Market Value Adjustment.
LED DISTRIBUTIONS. Prior to the Annuity Date a Contract Owner who is also
the Annuitant may elect to make a series of systematic withdrawals from the
Contract according to a life expectancy distribution ("LED") option, by
returning a properly signed LED request form to the Company's Principal Office.
The LED option permits the Contract Owner to make systematic withdrawals from
the Contract over his or her lifetime. The amount withdrawn from the Contract
changes each year, because life expectancy changes each year that a person
lives. For example, actuarial tables indicate that a person age 70 has a life
expectancy of 16 years, but a person who attains age 86 has a life expectancy of
another 6.5 years.
If a Contract Owner elects the LED option, in each contract year a fraction
of the Accumulated Value is withdrawn based on the Contract 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 Contract Owner, as determined
annually by the Company. The resulting fraction, expressed as a percentage, is
applied to the Accumulated Value at the beginning of the year to determine the
amount to be distributed during the year. The Contract Owner may elect monthly,
bimonthly, quarterly, semiannual, or annual distributions, and may terminate the
LED option at any time. The Contract Owner may also elect to receive
distributions under an LED option which is determined on the joint life
expectancy of the Contract Owner and a beneficiary. The Company may also offer
other systematic withdrawal options.
If a Contract 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 Contract. 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" and "B. Taxation of the Contracts in General." The LED will
cease on the Annuity Date.
SURRENDERS. In the case of a complete surrender, the amount received by the
Contract Owner is equal to the entire Accumulated Value under the Contract, net
of the applicable contingent deferred sales charge on New Payments, the Contract
Fee and any applicable tax withholding and adjusted for any applicable market
value adjustment. Subject to the same rules that are applicable to partial
redemptions, the Company will not assess a contingent deferred sales charge on
an amount equal to the greater of the Withdrawal Without Surrender Charge
Amount, described above, or the life expectancy distribution, if applicable.
Where a Contract Owner who is trustee under a pension plan surrenders, in
whole or in part, a Contract on a terminating employee, the trustee will be
permitted to reallocate all or a part of the total Accumulated Value under the
Contract to other contracts issued by the Company and owned by the trustee, with
no deduction for any otherwise applicable contingent deferred sales charge. Any
such reallocation will be at the unit values for the Subaccounts as of the
valuation date on which a written, signed request is received at the Company's
Principal Office.
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<PAGE>
For further information on surrender and partial redemption, including
minimum limits on amount redeemed and amount remaining under the Contract in the
case of partial redemption, and important tax considerations, see "Surrender"
and "Partial Redemption" under "DESCRIPTION OF THE CONTRACT" and see "FEDERAL
TAX CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If any commutable period
certain option or a non-commutable period certain option for less than ten years
is chosen, a contingent deferred sales charge will be deducted from the
Accumulated Value of the Contract if the Annuity Date occurs at any time when
the surrender charge would still apply had the Contract been surrendered on the
Annuity Date.
No contingent deferred sales charge is imposed at the time of annuitization
in any Contract year under an option involving a life contingency or for any
non-commutable period certain option for ten years or more. However, a Market
Value Adjustment may apply. See "Guarantee Period Accounts".
If an owner of a fixed annuity Contract issued by the Company wishes to
elect a variable annuity option, the Company may permit such owner to exchange,
at the time of annuitization, the fixed Contract for a Contract offered in this
Prospectus. The proceeds of the fixed Contract, minus any contingent deferred
sales charge applicable under the fixed Contract if a period certain option is
chosen, will be applied towards the variable annuity option desired by the
owner. The number of Annuity Units under the option will be calculated using the
Annuity Unit values as of the 15th of the month preceding the Annuity Date.
E. TRANSFER CHARGE -- The Company currently makes no charge for processing
transfers. The Company guarantees that the first twelve transfers in a Contract
Year will be free of transfer charge, but reserves the right to assess a charge,
guaranteed never to exceed $25, for the thirteenth and each subsequent transfer
in a Contract Year.
The Contract Owner may have automatic transfers of at least $100 a month
made on a periodic basis (a) from the Subaccount which invests in the America
Income and the Money Market Portfolio or from the Fixed Account to one or more
of the other Subaccounts, or (b) in order to reallocate Contract Value among the
Subaccounts. The first automatic transfer counts as one transfer towards the
twelve transfers which are guaranteed to be free of a transfer charge in each
Contract year. For more information, see "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 Funds. The Prospectus and
Statement of Additional Information of the Fund contain additional information
concerning expenses of the Underlying Funds.
SALES EXPENSE. The Company pays commissions on the Contracts of up to 6.5%
of purchase payments to entities which sell the Contracts. To the extent
permitted by NASD rules, expense reimbursement allowances and additional
payments for other services not directly related to the sale of the Contracts,
including the recruitment and training of personnel, production of promotional
literature, and similar services may also be made.
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. There is no additional charge to Contract Owners or the Variable
Account. Any contingent deferred sales charges assessed on a Contract will be
retained by the company.
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<PAGE>
DESCRIPTION OF THE CONTRACT
The Contracts 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 Contract Owners, Annuitants, and beneficiaries, are cautioned
that the rights of any person to any benefits under such Contracts may be
subject to the terms and conditions of the plans themselves, regardless of the
terms and conditions of the Contracts.
The Contracts offered by the Prospectus may be purchased from
representatives of Allmerica Investments, Inc., a registered broker-dealer under
the Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. (NASD). Allmerica Investments, Inc., 440 Lincoln
Street, Worcester, Massachusetts, 01653, is indirectly wholly-owned by the
Company. The Contracts also may be purchased from certain independent
broker-dealers which are NASD members.
Contract Owners may direct any inquiries to Annuity Customer Services, First
Allmerica Financial Life Insurance Company, 440 Lincoln Street, Worcester,
Massachusetts 01653.
A. PAYMENTS.
The Company's underwriting requirements, which include receipt of the
initial payment and allocation instructions by the Company at its Principal
Office, must be met before a Contract can be issued. These requirements may also
include the proper completion of an application; however, where permitted, the
Company may issue a contract without completion of an application for certain
classes of annuity contracts. Payments are to be made payable to the Company. A
net payment is equal to the payment received less the amount of any applicable
premium tax.
The initial net payment will be credited to the Contract as of the date that
all underwriting requirements are properly met. If all underwriting requirements
are not complied with within five business days of the Company's receipt of the
initial payment, the payment will be immediately returned unless the Owner
specifically consents to the holding of the initial payment until completion of
any outstanding underwriting requirements. Subsequent payments will be credited
as of the Valuation Date received at the Principal Office.
Payments are not limited as to frequency and number, but there are certain
limitations as to amount. Currently, the initial payment must be at least $600
($1,000 in Washington). Under a salary deduction or monthly automatic payment
plan, the minimum initial payment is $50. In all cases, each subsequent payment
must be at least $50. Where the contribution on behalf of an employee under an
employee-sponsored retirement plan is less that $600 but more than $300
annually, the Company may issue a contract on the employee, if the plan's
average annual contribution per eligible plan participant is at least $600. The
minimum allocation to a Guarantee Period Account is $1,000. If less than $1,000
is allocated to a Guarantee Period Account, the Company reserves the right to
apply that amount to Subaccount 257 (Money Market Portfolio).
Generally, unless otherwise requested, all payments will be allocated among
the accounts in the same proportion that the initial net payment is allocated,
or, if subsequently changed, according to the most recent allocation
instructions. However, any portion of the initial net payment and of additional
net payments received during the contracts's first fifteen days measured from
the date of issue, allocated to any Subaccount and/or any Guarantee Period
Account, will be held in Subaccount 257 (Money Market Portfolio) until the end
of the fifteen day period. Thereafter, these amounts will be allocated as
requested.
The Contract Owner may change allocation instructions for new payments
pursuant to a written or telephone request. If telephone requests are elected by
the Contract Owner, a properly completed authorization must be on file before
telephone requests will be honored. The policy of the Company and its agents and
affiliates is that they will not be responsible for losses resulting from acting
upon telephone requests reasonably believed to be genuine. The Company will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; otherwise, the Company may be liable for any losses due
to unauthorized or fraudulent instructions. The procedures the
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<PAGE>
Company follows for transactions initiated by telephone include requirements
that callers on behalf of a Contract 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 a Contract Owner may have amounts
transferred among all accounts. 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 requests. As
discussed in "A. Payments," a properly completed authorization form must be on
file before telephone requests will be honored.
Transfers to a Guarantee Period Account must be at least $1,000. If the
amount to be transferred to a Guarantee Period Account is less than $1,000, the
Company may transfer that amount to Subaccount 257 (Money Market Portfolio).
The Contract Owner may have automatic transfers of at least $100 each made
on a periodic basis from the Subaccounts investing in the America Income
Portfolio or the Money Market Portfolio, or from the Fixed Account to one or
more of the other Subaccounts or may periodically reallocate values 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 discussed below.
Currently, the Company makes no charge for transfers. The first twelve (12)
transfers in a Contract year are guaranteed to be free of any charge. For each
subsequent transfer in a Contract year, the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse it for the expense of
processing transfers.
C. SURRENDER.
At any time prior to the Annuity Date, a Contract Owner may surrender the
Contract and receive its Accumulated Value, less applicable charges and adjusted
for any Market Value Adjustment ("Surrender Amount"). The Contract Owner must
return the Contract and a signed, written request for surrender, satisfactory to
the Company, to the Company's Principal Office. The amount payable to the
Contract Owner upon surrender will be based on the Contract's Accumulated Value
as of the Valuation Date on which the request and the Contract are received at
the Company's Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted
when a Contract is surrendered if payments have been credited to the Contract
during the last seven full contract years. See "CHARGES AND DEDUCTIONS." The
Contract Fee will be deducted upon surrender of the Contract.
After the Annuity Date, only Contracts under which future annuity benefit
payments are limited to a specified period (as specified in the Period Certain
Annuity Option ) may be surrendered. The Surrender Amount is the commuted value
of any unpaid installments, computed on the basis of the assumed interest rate
incorporated in such annuity benefit payments. No contingent deferred sales
charge is imposed after the Annuity Date.
Any amount surrendered 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 in any
period during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of 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 Fixed Account and Guarantee
Period Accounts for a period not to exceed six months.
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The surrender rights of Contract Owners who are participants under Section
403(b) plans or who are participants in the Texas Optional Retirement Program
(Texas ORP) are restricted; see "FEDERAL TAX CONSIDERATIONS," "I. Public School
Systems and Certain Tax Exempt Organizations" and "J. Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL
TAX CONSIDERATIONS."
D. PARTIAL REDEMPTION.
At any time prior to the Annuity Date, a Contract Owner may redeem a portion
of the Accumulated Value of his or her Contract, subject to the limits stated
below. The Contract 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 Contract Owner wishes to receive and
the accounts from which such amount is to be redeemed. The amount redeemed
equals the amount requested by the Contract Owner plus any applicable contingent
deferred sales charge, as described under "CHARGES AND DEDUCTIONS." In addition,
amounts redeemed from a Guarantee Period Account prior to the end of the
applicable Guarantee Period will be subject to a Market Value Adjustment, as
described under "GUARANTEE PERIOD ACCOUNTS".
Where allocations have been made to more than one account, a percentage of
the 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 $100. No partial
redemption will be permitted if the Accumulated Value remaining under the
Contract 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 Contracts under which future variable annuity
benefit 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 Contract
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 Contract Owner predeceases the Annuitant) prior
to the Annuity Date while the Contract is in force, the Company will pay the
beneficiary a death benefit, except where the Contract continues as provided in
"F. THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY."
Upon death of the Annuitant (including an Owner who is also the Annuitant),
the death benefit is equal to the greatest of (a) the Accumulated Value under
the Contract increased for any positive Market Value Adjustment, (b) gross
payments accumulated daily at 5% starting on the date each payment is applied,
reduced proportionately to reflect withdrawals (for each withdrawal, the
proportionate reduction is calculated as the death benefit under this option
immediately prior to the withdrawal multiplied by the withdrawal amount and
divided by the Accumulated Value immediately prior to the withdrawal), or (c) or
the death benefit that would have been payable on the most recent contract
anniversary, increased for subsequent payments and reduced proportionally to
reflect withdrawals after that date.
If an Owner who is not also the Annuitant dies before the Annuity Date, the
death benefit will be the Accumulated Value increased by any positive Market
Value Adjustment. The death benefit will
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<PAGE>
never be reduced by a negative Market Value Adjustment. The death benefit will
generally be paid to the Beneficiary in one sum within 7 days of the receipt of
due proof of death unless the Owner has specified a death benefit annuity
option. Instead, the Beneficiary may, by Written Request, elect to:
(a) defer distribution of the death benefit for a period no more than 5
years from the date of death; or
(b) receive a life annuity or an annuity for a period certain not
extending beyond the Beneficiary's life expectancy. Annuity benefit payments
must begin within one year from the date of death.
If distribution of the death benefit is deferred under (a) or (b), any value
in the Guarantee Period Accounts will be transferred to Subaccount 257 (Money
Market Portfolio). The excess, if any, of the death benefit over the Accumulated
Value will also be added to Subaccount 257 (Money Market Portfolio). The
Beneficiary may, by Written Request, effect transfers and withdrawals during the
deferral period and prior to annuitization under (b), but may not make
additional payments. If there are multiple Beneficiaries, the consent of all is
required.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed annuity benefit 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.
With respect to any death benefit, the Accumulated Value under the Contract
shall be based on the unit values next computed after due proof of the
Annuitant's 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 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.
F. THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY.
The Contract Owner's spouse, if named as the sole beneficiary, may by
written request continue the Contract in lieu of receiving the amount payable
upon death of the Contract Owner. Upon such election, the spouse will become the
Owner and Annuitant subject to the following: (a) any value in the Guarantee
Period Accounts will be transferred to Subaccount 257 (Money Market Portfolio);
(b) the excess, if any, of the death benefit over the Contract's Accumulated
Value will also be added to Subaccount 257 (Money Market Portfolio). Additional
payments may be made; however, a Surrender charge will apply to these amounts.
All other rights and benefits provided in the Contract will continue, except
that any subsequent spouse of such new Contract Owner will not be entitled to
continue the Contract upon such new Owner's death.
G. ASSIGNMENT.
The Contracts, other than those sold in connection with certain qualified
plans, may be assigned by the Contract Owner at any time prior to the Annuity
Date and while the Annuitant is alive (see "FEDERAL TAX CONSIDERATIONS"). The
Company will not be deemed to have knowledge of an assignment unless it is made
in writing and filed at the Principal Office. The Company will not assume
responsibility for determining the validity of any assignment. If an assignment
of the Contract is in effect on the Annuity Date, the Company reserves the right
to pay to the assignee, in one sum, that portion of the Surrender Value of the
Contract to which the assignee appears to be entitled. The Company will pay the
balance, if any, in one sum to the Contract Owner in full settlement of all
liability under the Contract. The interest of the Contract Owner and of any
beneficiary will be subject to any assignment.
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H. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE.
Subject to certain restrictions described below, the Contract Owner has the
right (1) to select the annuity option under which annuity benefit payments are
to be made, and (2) to determine whether payments are to be made on a fixed
basis, a variable basis, or a combination fixed and variable basis. Annuity
benefit payments are determined according to the annuity tables in the Contract,
by the annuity option selected, and by the investment performance of the
account(s) selected.
To the extent a fixed annuity is selected, Accumulated Value will be
transferred to the Fixed Account of the Company, and the annuity benefit
payments will be fixed in amount. See APPENDIX A, "MORE INFORMATION ABOUT THE
FIXED ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number
of Annuity Units in the Subaccount(s) is made monthly, quarterly, semiannually
or annually. Since the value of an Annuity Unit in a Subaccount will reflect the
investment performance of the Subaccount, the amount of each annuity benefit
payment will vary.
The annuity option selected must produce an initial payment of at least $50
(a lower amount may be required under some state laws). The Company reserves the
right to increase these minimum amounts. If the annuity option(s) selected does
not produce an initial payment which meet this minimum, a single payment will be
made. Once the Company begins making annuity benefit payments, the Annuitant
cannot make partial redemptions or surrender the annuity except in the case
where future annuity benefit payments are limited to a "period certain." 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 Contract Owner. To the extent permitted
in your state, the Annuity Date may be the first day of any month (a) before the
Annuitant's 85th birthday, if the Annuitant's age at the date of issue of the
Contract is 75 or under, or (b) within 10 years from the date of issue of the
Contract and before the Annuitant's 90th birthday, if the Annuitant's age at the
date of issue is between 76 and 90. The Contract Owner may elect to change the
Annuity Date by sending a request to the Company's Principal Office at least one
month before the new Annuity date. The new Annuity Date must be the first day of
any month occurring before the Annuitant's 90th birthday and must be within the
life expectancy of the Annuitant. The Company shall determine such life
expectancy at the time a change in Annuity Date is requested. The Internal
Revenue Code and the terms of qualified plans impose limitations on the age at
which annuity benefit payments may commence and the type of annuity option
selected. See "FEDERAL TAX CONSIDERATIONS" for further information.
If the Contract Owner does not elect otherwise, a variable life annuity with
periodic payments for 10 years guaranteed will be purchased. Changes in either
the Annuity Date or annuity option can be made up to one month prior to the
Annuity Date.
I. DESCRIPTION OF VARIABLE ANNUITY OPTIONS.
The Company provides the variable annuity options described below.
Currently, variable annuity options may be funded through the Capital Growth
Portfolio, the Equity-Income Portfolio and the America Income Portfolio.
The Company also provides these same options funded through the fixed
account (fixed-amount annuity option). 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.
VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS. This is a
variable annuity payable periodically during the lifetime of the payee with the
guarantee that if the payee should die before all payments have been made, the
remaining annuity benefit payments will continue to the beneficiary.
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VARIABLE LIFE ANNUITY PAYABLE PERIODICALLY DURING THE LIFETIME OF THE PAYEE
ONLY. It would be possible under this option for the Annuitant to receive only
one annuity benefit payment if the Annuitant dies prior to the due date of the
second annuity benefit payment, two annuity benefit payments if the Annuitant
dies before the due date of the third annuity benefit payment, and so on.
However, payments will continue during the lifetime of the payee, no matter how
long the payee lives.
UNIT REFUND VARIABLE LIFE ANNUITY. This is a variable annuity payable
periodically during the lifetime of the payee with the guarantee that if (1)
exceeds (2) then periodic variable annuity benefit payments will continue to the
beneficiary until the number of such payments equals the number determined in
(1).
Where: (1) is the dollar amount of the Accumulated Value divided by the
dollar amount of the first payment (which determines the
greatest number of payments payable to the beneficiary), and
(2) is the number of payments paid prior to the death of the payee.
JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is payable
jointly to two payees during their joint lifetime, and then 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 Contract or the beneficiary. There is no
minimum number of payments under this option.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY. This is a 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 periodic 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 Contract or
the beneficiary. There is no minimum number of payments under this option.
PERIOD CERTAIN VARIABLE ANNUITY. This variable annuity provides periodic
payments for a stipulated number of years ranging from one to thirty. The Period
Certain Option does not involve a life contingency. In the computation of the
payments under this option, the charge for annuity rate guarantees, which
includes a factor for mortality risks, is made. Although not contractually
required to do so, the Company currently follows a practice of permitting
persons receiving payments under the Period Certain Option to elect to convert
to a variable annuity involving a life contingency. The Company may discontinue
or change this practice at any time, but not with respect to election of the
option made prior to the date of any change in this practice. See "FEDERAL TAX
CONSIDERATIONS" for a discussion of the possible adverse tax consequences of
selecting a Period Certain Option.
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 Contract issued in connection with an employer-sponsored
benefit plan affected by the Norris decision will be based on the greater of (1)
the Company's unisex Non-Guaranteed Current Annuity Option Rates or (2) the
guaranteed unisex rates described in such Contract, regardless of whether the
Annuitant is male or female.
K. COMPUTATION OF VALUES AND ANNUITY BENEFIT PAYMENTS.
THE ACCUMULATION UNIT. Each net payment is allocated to the account(s)
selected by the Contract Owner. Allocations to the Subaccounts are credited to
the Contract 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 Contract is equal to the portion of the net payment
allocated to the
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Subaccount, divided by the dollar value of the applicable Accumulation Unit as
of the Valuation Date the payment is received at the Company's Principal Office.
The number of Accumulation Units resulting from each payment will remain fixed
unless changed by a subsequent split of Accumulation Unit value, a transfer, a
partial redemption, or surrender. The dollar value of an Accumulation Unit of
each Subaccount varies from Valuation Date to Valuation Date based on the
investment experience of that Subaccount and will reflect the investment
performance, expenses and charges of its Underlying Funds. The value of an
Accumulation Unit was set at $1.00 on the first Valuation Date for each
Subaccount.
Allocations to the Guarantee Period Account and the Fixed Account are not
converted into Accumulation Units, but are credited interest at a rate
periodically set by the Company. A The Accumulated Value under the Contract 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 Fixed Account, if any.
NET INVESTMENT FACTOR
The Net Investment Factor is an index that measures the investment
performance of a Subaccount from one Valuation Period to the next. This factor
is equal to 1.000000 plus the result from dividing (a) by (b) and subtracting
(c) and (d) where:
(a) is the investment income of a Subaccount for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;
(b) is the value of that Subaccount's assets at the beginning of the
Valuation Period;
(c) is a charge for mortality and expense risks equal to 1.25% on an
annual basis of the daily value of the Subaccount's assets, and
(d) is an administrative charge of 0.15% on an annual basis of the daily
value of the Subaccount's assets.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor. For an illustration of an Accumulation Unit calculation using
a hypothetical example see "ANNUITY PAYMENTS" in the Statement of Additional
Information. Subject to compliance with applicable state and federal law, the
Company reserves the right to change the methodology for determining the net
investment factor.
THE ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a
measure of the value of the Annuitant's monthly annuity benefit payments under a
variable annuity 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 Contract.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY BENEFIT PAYMENTS. The
first periodic annuity benefit payment is based upon the Accumulated Value as of
a date not more than four weeks preceding the date that the first annuity
benefit payment is due. Currently, variable annuity benefit payments are made on
the first of a month based on unit values as of the 15th day of the preceding
month.
The Contract provides annuity rates which determine the dollar amount of the
first periodic payment under each form of annuity for each $1,000 of applied
value. For life option and noncommutable period certain options of 10 or more
years, the annuity value is the Accumulated Value less any premium taxes and
adjusted for any Market Value Adjustment. For commutable period certain
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options or any period certain option less than 10 years, the value is the
Surrender Value less any premium tax. For a death benefit annuity, the annuity
value will be the amount of the death benefit. The annuity rates in the Contract
are based on a modification of the 1983 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 benefit 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 benefit 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 periodic annuity benefit payment under life
annuity options and non-commutable period certain options of 10 years or more is
determined by multiplying (1) the Accumulated Value applied under that option
(after application of any Market Value Adjustment and less premium tax, if any)
divided by $1,000, by (2) the applicable amount of the first monthly payment per
$1,000 of value. For commutable period certain options and any period certain
option of less than 10 years, the Surrender Value less premium taxes, if any, is
used rather than the Accumulated Value. The dollar amount of the first variable
annuity benefit payment is then divided by the value of an Annuity Unit of the
selected 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. For each
subsequent payment, the dollar amount of the variable annuity benefit payment is
determined by multiplying this fixed number of Annuity Units by the value of an
Annuity unit on the applicable Valuation Date.
After the first payment, the dollar amount of each periodic variable annuity
benefit 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
annuity benefit payment is fixed and will not change, except under the joint and
two-thirds survivor annuity option.
The Company may from time to time offer its Contract Owners both fixed and
variable annuity rates more favorable than those contained in the Contract. Any
such rates will be applied uniformly to all Contract Owners of the same class.
For an illustration of variable annuity benefit payment calculation using a
hypothetical example, see "ANNUITY PAYMENTS" in the Statement of Additional
Information.
GUARANTEE PERIOD ACCOUNTS
Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Company's Fixed Account are
not registered as an investment company under the provisions of the Securities
Act of 1933 or the Investment Company Act of 1940. Accordingly, the staff of the
Commission has not reviewed the disclosures in this Prospectus relating to the
Guarantee Period Accounts or the Fixed Account. Nevertheless, disclosures
regarding the Guarantee Period Accounts and the Fixed Account of this annuity
Contract or any benefits offered under these accounts may be subject to the
provisions of the Securities Act of 1933 relating to the accuracy and
completeness of statements made in the Prospectus.
INVESTMENT OPTIONS -- In most jurisdictions, there are currently seven
Guarantee Period Accounts available under this Contract with Guarantee Periods
of three, five, six, seven, eight, nine and ten years. Each Guarantee Period
Account established for the Contract Owner is accounted for separately in a
non-unitized segregated account. Each Guarantee Period Account provides for the
accumulation of interest at a Guaranteed Interest Rate. The Guaranteed Interest
Rate on amounts allocated or transferred to a Guarantee Period Account is
determined from time-to-time by the Company in
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accordance with market conditions; however, once an interest rate is in effect
for a Guarantee Period Account, the Company may not change it during the
duration of the Guarantee Period. In no event will the Guaranteed Interest Rate
be less than 3%.
To the extent permitted by law, the Company reserves the right at any time
to offer Guarantee Periods with durations that differ from those which were
available when a Contract was initially issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Contract Owners may allocate net payments or make transfers from any of the
subaccounts, the Fixed Account or an existing Guarantee Period Account to
establish a new Guarantee Period Account at any time prior to the Annuity Date.
Transfers from a Guarantee Period Account on any date other than on the day
following the expiration of that Guarantee Period will be subject to a Market
Value Adjustment. The Company establishes a separate investment account each
time the Contract Owner allocates or transfers amounts to a Guarantee Period
Account except that amounts allocated to the same Guarantee Period on the same
day will be treated as one Guarantee Period Account. The minimum that may be
allocated to establish a Guarantee Period Account is $1,000. If less than $1,000
is allocated, the Company reserves the right to apply that amount to the Money
Market Account. The Contract Owner may allocate amounts to any of the Guarantee
Periods available. Notwithstanding any other provision in this Prospectus, with
respect to contracts issued in the state of Pennsylvania, no amounts may be
allocated or transferred to any Guarantee Period that would extend more than six
months beyond the Annuity Date in effect on the date the allocation or transfer
is effected.
At least 45 days, but not more than 75 days prior to the end of a Guarantee
Period, the Company will notify the Contract Owner in writing of the expiration
of that Guarantee Period. At the end of a Guarantee Period the Owner may
transfer amounts to the Subaccounts, the Fixed Account or establish a new
Guarantee Period Account of any duration then offered by the Company without a
Market Value Adjustment. If reallocation instructions are not received at the
Principal Office before the end of a Guarantee Period, the Account value will be
automatically applied to a new Guarantee Period Account with the same duration
unless (a) less than $1,000 would remain in the Guarantee Period Account on the
expiration date, or (b) unless the Guarantee Period would extend beyond the
Annuity Date or is no longer available. In such cases, the Guarantee Period
Account value will be transferred to Subaccount 257 (Money Market Portfolio).
MARKET VALUE ADJUSTMENT No Market Value Adjustment will be applied to
transfers, withdrawals, or a surrender from a Guarantee Period Account on the
expiration of the Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See "Death Benefit". A Market
Value Adjustment will apply to all other transfers, withdrawals, or a surrender.
Amounts applied under an annuity option are treated as withdrawals when
calculating the Market Value Adjustment. The Market Value Adjustment will be
determined by multiplying the amount taken from each Guarantee Period Account
before deduction of any Surrender Charge by the market value factor. The market
value factor for each Guarantee Period Account is equal to:
[(1+i)/(1+j)](n/365)-1
where:
i is the Guaranteed Interest Rate expressed as a decimal (for example:
3% = 0.03) being credited to the current Guarantee Period;
j is the new Guaranteed Interest Rate, expressed as a decimal, for a
Guarantee Period with a duration equal to the number of years remaining in
the current Guarantee Period, rounded to the next higher number of whole
years. If that rate is not available, the Company will use a suitable rate
or index allowed by the Department of Insurance; and
n is the number of days remaining from the Effective Valuation Date to
the end of the current Guarantee Period.
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If the Guaranteed Interest Rate being credited is lower than the current
Guaranteed Interest Rate, the Market Value Adjustment will decrease the
Guarantee Period Account value. Similarly, if the Guaranteed Interest Rate being
credited is higher than the current Guaranteed Interest Rate, the Market Value
Adjustment will increase the Guarantee Period Account value. The Market Value
Adjustment will never result in a change to the value more than the interest
earned in excess of the Minimum Guarantee Period Account Interest Rate (see
Specifications page) compounded annually from the beginning of the current
Guarantee Period. For examples of how the Market Value Adjustment works, See
Appendix B.
WITHDRAWALS -- Prior to the Annuity Date, the Contract Owner may make
withdrawals of amounts held in the Guarantee Period Accounts. Withdrawals from
these accounts will be made in the same manner and be subject to the same rules
as set forth under "Partial Redemptions" and "Surrender." In addition, the
following provisions also apply to withdrawals from a Guarantee Period Account:
a) a Market Value Adjustment will apply to all withdrawals, including
Withdrawals without Surrender Charge, unless made at the end of the Guarantee
Period; and b) the Company reserves the right to defer payments of amounts
withdrawn from a Guarantee Period Account for up to six months from the date it
receives the withdrawal request. If deferred for 30 days or more, the Company
will pay interest on the amount deferred at a rate of at least 3%.
In the event that a Market Value Adjustment applies to a withdrawal of a
portion of the value of a Guarantee Period Account, it will be calculated on the
amount requested and deducted or added to the amount remaining in the Guarantee
Period Account. If the entire amount in a Guarantee Period Account is requested,
the adjustment will be made to the amount payable. If a Contingent Deferred
Sales Charge applies to the withdrawal, it will be calculated as set forth under
"Contingent Deferred Sales Charge" after application of the Market Value
Adjustment.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Contract, on
redemptions or surrenders, on annuity benefit payments, and on the economic
benefit to the Contract Owner, Annuitant, or beneficiary depends upon a variety
of factors. The following discussion is based upon the Company's understanding
of current federal income tax laws as they are interpreted as of the date of
this Prospectus. No representation is made regarding the likelihood of
continuation of current federal income tax laws or of current interpretations by
the Internal Revenue Service (IRS).
It should be recognized that the following discussion of federal income tax
aspects of amounts received under variable annuity Contracts is not exhaustive,
does not purport to cover all situations and is not intended as tax advice. A
qualified tax adviser 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 Contracts, the Variable Account or the Subaccounts
may have upon its tax. The Variable Account presently is not subject to tax, but
the Company reserves the right to assess a charge for taxes should the Variable
Account at any time become subject to tax. Any charge for taxes will be assessed
on a fair and equitable basis in order to preserve equity among classes of
Contract Owners and with respect to each separate account as though that
separate account were a separate taxable entity.
The Variable Account is considered to be a part of and taxed with the
operations of the Company. The Company is taxed as a life insurance company
under subchapter L of the Code. The Company files a consolidated tax return with
its affiliates.
The Internal Revenue Service 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
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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 Contract Owner, would be treated as ordinary income
received or accrued by the Contract Owner. It is anticipated that the Trust will
comply with the diversification requirements.
A. QUALIFIED AND NON-QUALIFIED CONTRACTS.
From a federal tax viewpoint there are two types of variable annuity
Contracts, "qualified" Contracts and "non-qualified" Contracts. A qualified
Contract is one that is purchased in connection with a retirement plan which
meets the requirements of Sections 401, 403, 408, or 457 of the Code, while a
non-qualified Contract is one that is not purchased in connection with one of
the indicated retirement plans. The tax treatment for certain partial
redemptions or surrenders will vary according to whether they are made from a
qualified Contract or a non-qualified Contract. For more information on the tax
provisions applicable to qualified Contracts, see Sections D through J, below.
B. TAXATION OF THE CONTRACTS IN GENERAL.
The Company believes that the Contracts described in this Prospectus will,
with certain exceptions (see K below), be considered annuity contracts 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 contracts issued by the same insurance company to the same Contract
Owner during the same calendar year be treated as a single Contract in
determining taxable distributions under Section 72(e).
With certain exceptions, any increase in the Accumulated Value of the
Contract is not taxable to the Contract Owner until it is withdrawn from the
Contract. If the Contract 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 Contract would be taxed as ordinary income. Under the
current provisions of the Code, amounts received under a non-qualified Contract
prior to the Annuity Date (including payments made upon the death of the
Annuitant or Contract Owner), or as non-periodic payments after the Annuity
Date, are generally first attributable to any investment gains credited to the
Contract over the taxpayer's basis (if any) in the Contract. 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 Contract Owner
(or, if the Contract 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 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 Contract Owner elects to have distributions made over the Contract
Owner's life expectancy, or over the joint life expectancy of the Contract Owner
and beneficiary. The requirement that the amount be paid out as one of a series
of "substantially equal" periodic payments is met when the number of units
withdrawn to make each distribution is substantially the same.
In a Private Letter Ruling, the IRS took the position that where
distributions from a variable annuity contract were determined by amortizing the
accumulated value of the contract over the taxpayer's remaining life expectancy
(such as under the Contract's 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
Contract 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.
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If the Contract Owner transfers (assigns) the Contract to another individual
as a gift prior to the Annuity Date, the Code provides that the Contract 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 Surrender Value of the
Contract over the Contract Owner's cost basis at the time of the transfer. The
transfer is also subject to federal gift tax provisions. Where the Contract
Owner and Annuitant are different persons, the change of ownership of the
Contract to the Annuitant on the Annuity Date, as required under the Contract,
is a gift and will be taxable to the Contract Owner as such. However, the
Contract Owner will not incur taxable income. Rather the Annuitant will incur
taxable income upon receipt of annuity benefit payments as discussed below.
When annuity benefit payments are commenced under the Contract, 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 Contract bears to the expected return under the Contract. The
portion of the payment in excess of this excludable amount is taxable as
ordinary income. Once all cost basis in the Contract is recovered, the entire
payment is taxable. If the Annuitant dies before cost basis is recovered, a
deduction for the difference is allowed on the Annuitant's final tax return.
C. TAX WITHHOLDING AND PENALTIES.
The Code requires withholding with respect to payments or distributions from
nonqualified contracts and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified contracts. In addition, the Code requires reporting to the IRS
of the amount of income received with respect to payment or distributions from
annuities.
In certain situations, the Code provides for a tax penalty if, prior to
death, disability or attainment of age 59 1/2, a Contract Owner makes a
withdrawal or receives any amount under the Contract, unless the distribution is
in the form of a life annuity (including life expectancy distributions). The
penalty is 10% of the amount includible in income by the Contract Owner.
The tax treatment of certain partial redemptions or surrenders of the
non-qualified Contracts offered by this Prospectus will vary according to
whether the amount redeemed or surrendered is allocable to an investment in the
Contract made before or after certain dates.*
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS.
The tax rules applicable to qualified 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 Contracts 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 Contract.
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
33
<PAGE>
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 gains and may also elect
10-year averaging instead of five-year averaging.
The Company can provide prototype plans for certain of the pension or profit
sharing plans for review by your legal counsel. For information, ask your agent.
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 Contracts including the Contracts
offered by this Prospectus.
Contributions to the IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10,000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the
above-described limit on each. An individual with an IRA may establish an
additional IRA for a non-working spouse if they file a joint return.
Contributions to the two IRAs together are deductible up to the lesser of $2,250
or 100% of compensation.
No deduction is allowed for contributions made for the year in which the
individual attains age 70 1/2 and years thereafter. Contributions for that year
and for years thereafter will result in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70 1/2. Although these contributions may not be deducted,
taxes on their earnings are deferred until the earnings are distributed. The
maximum permissible non-deductible contribution is $2,000 for an individual
taxpayer and $2,250 for a taxpayer and non-working spouse. These limits are
reduced by the amount of any deductible contributions made by the taxpayer.
Contributions may be made with respect to a particular year until the due
date of the individual's federal income tax return for that year, not including
extensions. However, for reporting purposes, the Company will regard
contributions as being applicable to the year made unless it receives notice to
the contrary.
All annuity benefit 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.
34
<PAGE>
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.
Employers 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. SEP contributions for employees
over age 70 1/2 are permissible.
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 "G. 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 Contracts purchased for employees under annuity plans adopted by public
school systems and certain organizations which are tax exempt under Section
501(c)(3) of the Code are excludable from the gross income of such employees to
the extent that the aggregate purchase payments for such annuity Contracts in
any year do not exceed the maximum contribution permitted under the Code.
A Contract 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 Contract 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. The distribution restrictions are
effective for years beginning after December 31, 1988, but only with respect to
amounts that were not held under the Contract as of that date.
J. TEXAS OPTIONAL RETIREMENT PROGRAM.
Under a Code Section 403(b) annuity contract 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.
35
<PAGE>
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 Contract.
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 Contract Owner is sent a report semi-annually which states certain
financial information about the Underlying Funds. The Company will also furnish
an annual report to the Contract Owner containing a statement of his or her
account, including unit values and other information as required by applicable
law, rules and regulations.
LOANS (QUALIFIED CONTRACTS ONLY)
Loans are available to owners of TSA contracts (i.e. contracts issued under
Section 403(b) of the Internal Revenue Code) and to contracts issued to plans
qualified under Sections 401(a) and 401(k) of the Code. Loans are subject to
provisions of the Code and to applicable qualified retirement plan rules. Tax
advisors and plan fiduciaries should be consulted prior to exercising loan
privileges.
Loaned amounts will first be withdrawn from Subaccount and Fixed Account
values on a pro-rata basis until exhausted. Thereafter, any additional amounts
will be withdrawn from the Guarantee Period Accounts (pro-rata by duration and
LIFO (last-in, first-out) within each duration), subject to any applicable
Market Value Adjustments. The maximum loan amount will be determined under the
Company's maximum loan formula. The minimum loan amount is $1,000. Loans will be
secured by a security interest in the contract and the amount borrowed will be
transferred to a loan asset account within the Company's General Account, where
it will accrue interest at a specified rate below the then-current loan rate.
Generally, loans must be repaid within five years or less and repayments must be
made quarterly and in substantially equal amounts. Repayments will be allocated
pro-rata in accordance with the most recent payment allocation, except that any
allocations to a Guarantee Period Account will instead be allocated to the Money
Market Fund.
36
<PAGE>
CHANGES IN OPERATION OF THE VARIABLE 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 variable accounts or Subaccounts having assets of the same class, (2)
to operate the variable 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 Variable Account under the 1940 Act in accordance with the
requirements of the 1940 Act, (4) to substitute the shares of any other
registered investment company for the Underlying Fund shares held by a
Subaccount, in the event that Underlying Fund shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Fund shares is inappropriate in view of the purpose of the
Subaccount, (5) to change the methodology for determining the net investment
factor, and (6) to change the names of the Variable Account or of the
Subaccounts. In no event will the changes described above be made without notice
to Contract Owners in accordance with the 1940 Act.
DISTRIBUTION
The Contracts offered by the Prospectus may be purchased from certain
independent broker-dealers which are registered under the Securities Exchange
Act of 1934 and members of the National Association of Securities Dealers, Inc.
("NASD"). The Contracts are also offered through Allmerica Investments, Inc.,
which is the principal underwriter and distributor of the Contracts. Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653, is a
registered broker-dealer, member of the NASD and an indirect wholly-owned
subsidiary of First Allmerica.
The Company pays commissions not to exceed 6.0% of purchase payments to
broker-dealers which sell the Contracts. Alternative commission schedules are
available with lower initial commission amounts based on purchase payments, plus
ongoing annual compensation of up to 1% of contract value. To the extent
permitted by NASD rules, promotional incentives or payments may also be provided
to such broker-dealers based on sales volumes, the assumption of wholesaling
functions, or other sales-related criteria. Additional payments may be made for
other services not directly related to the sale of the Contracts, including the
recruitment and training of personnel, production of promotional literature, and
similar services.
The Company intends to recoup commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges and profits from
the Company's General Account. Commissions paid on the Contracts, including
additional incentives or payments, do not result in any additional charge to
Contract Owners or to the Separate Account. Any contingent deferred sales
charges assessed on a Contract will be retained by the Company.
Contract Owners may direct any inquiries to their financial adviser or to
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653,
508-855-3590.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a
party.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted in this
Prospectus pursuant to the rules and regulations of the Commission. The omitted
information may be obtained from the Commission's principal office in
Washington, D.C., upon payment of the Commission's prescribed fees.
37
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account are not generally subject to regulation under the
provisions of the Securities Act of 1933 or the Investment Company Act of 1940.
Disclosures regarding the fixed portion of the annuity contract and the Fixed
Account may be subject to the provisions of the Securities Act of 1933
concerning the accuracy and completeness of statements made in the Prospectus.
The disclosures in this APPENDIX A have not been reviewed by the Securities and
Exchange Commission.
The Fixed Account is made up of all of the general assets of the Company
other than those allocated to the separate account. Allocations to the Fixed
Account become part of the assets of the Company and are used to support
insurance and annuity obligations. A portion or all of net payments may be
allocated to accumulate at a fixed rate of interest in the Fixed Account. Such
net amounts are guaranteed by the Company as to principal and a minimum rate of
interest. Under the Contracts, the minimum interest which may be credited on
amounts allocated to the Fixed Account is 3% compounded annually. Additional
"Excess Interest" may or may not be credited at the sole discretion of the
Company.
If a Contract is surrendered, or if an Excess Amount is redeemed, while the
Contract is in force and before the Annuity Date, a contingent deferred sales
charge is imposed if such event occurs before the payments attributable to the
surrender or withdrawal have been credited to the Contract less than seven full
contract years.
38
<PAGE>
APPENDIX B
SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: SURRENDER CHARGES
FULL SURRENDER
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume there are no partial withdrawals and that the free
withdrawal amount is equal to the greater of 15% of the current Account Value or
the accumulated earnings in the Contract. The table below presents examples of
the surrender charge resulting from a full surrender of the Contract Owner's
Account, based on hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL FREE
ACCOUNT ACCUMULATED WITHDRAWAL SURRENDER CHARGE SURRENDER
YEAR VALUE AMOUNT PERCENTAGE CHARGE
- --------- ------------- ------------- ---------------- -----------
<S> <C> <C> <C> <C>
1 $ 54,000.00 $ 8,100.00 7% $ 3,213.00
2 58,320.00 8,748.00 6% 2,974.32
3 62,985.60 12,985.60 5% 2,500.00
4 68,024.45 18,024.45 4% 2,000.00
5 73,466.40 23,466.40 3% 1,500.00
6 79,343.72 29,343.72 2% 1,000.00
7 85,691.21 35,691.21 1% 500.00
8 92,546.51 42,546.51 0% 0.00
</TABLE>
PARTIAL WITHDRAWAL
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume that the free withdrawal amount is equal to the
greater of 15% of the current Account Value or the accumulated earnings in the
contract and there are partial withdrawals as detailed below. The table below
presents examples of the surrender charge resulting from partial surrenders of
the Contract Owner's Account, based on hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL FREE
ACCOUNT ACCUMULATED PARTIAL WITHDRAWAL SURRENDER CHARGE SURRENDER
YEAR VALUE WITHDRAWAL AMOUNT PERCENTAGE CHARGE
- --------- ------------- ------------- ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
1 $ 54,000.00 $ 0.00 $ 8,100.00 7% $ 0.00
2 58,320.00 0.00 8,748.00 6% 0.00
3 62,985.60 0.00 12,985.60 5% 0.00
4 68,024.45 30,000.00 18,024.45 4% 479.02
5 41,066.40 10,000.00 6,159.96 3% 115.20
6 33,551.72 5,000.00 5,032.76 2% 0.00
7 30,835.85 10,000.00 4,625.38 1% 53.75
8 22,502.72 15,000.00 3,375.41 0% 0.00
</TABLE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)](n/365)-1
The following examples assume:
1. The Payment was allocated to a ten year Guarantee Period Account with a
guaranteed interest rate of 8%.
2. The date of surrender is seven years (2555 days) from the expiration
date.
3. The value of the Guarantee Period Account is equal to $62,985.60 at the
end of three years.
4. No transfers of partial withdrawals affecting this Guarantee Period
Account have been made.
5. Surrender charges, if any, are calculated in the same manner as shown in
the examples in Part 1.
39
<PAGE>
NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)](n/365)-1
= [(1+.08)/(1+.10)](2555/365)-1
= (.98182)(7)-1
= -.12054
The market value adjustment = the market value factor multiplied by the
withdrawal
= -.12054*$62,985.60
= -$7,592.11
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)](n/365)-1
= [(1+.08)/(1+.07)](2555/365)-1
= (1.0093)(7)-1
= .06694
The market value adjustment = the market value factor multiplied by the
withdrawal
= .06694*$62,985.60
= $4,216.26
</TABLE>
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)](n/365)-1
= [(1+.08)/(1+.11)](2555/365)-1
= (.97297)(7)-1
= -.17454
The market value adjustment = Minimum of the market value factor
multiplied by the withdrawal or the
negative of the excess interest earned
over 3%
= Minimum of (-.17454*$62,985.60 or
-$8,349.25)
= Minimum of (-$10,993.51 or -$8,349.25)
= -$8,349.25
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)](n/365)-1
= [(1+.08)/(1+.06)](2555/365)-1
= (1.01887)(7)-1
= .13981
The market value adjustment = Minimum of the market value factor
multiplied by the withdrawal or the
excess interest earned over 3%
= Minimum of (.13981*$62,985.60 or
$8,349.25)
= Minimum of ( $8,806.02 or $8,349.25)
= $8,349.25
</TABLE>
40
<PAGE>
APPENDIX C
THE DEATH BENEFIT
PART 1 : DEATH OF THE ANNUITANT
DEATH BENEFIT ASSUMING NO WITHDRAWALS
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume there are no partial withdrawals and that the Death
Benefit Effective Annual Yield is equal to 5%. The table below presents examples
of the Death Benefit based on the hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
ACCUMULATED MARKET VALUE DEATH DEATH DEATH HYPOTHETICAL
YEAR VALUE ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) DEATH BENEFIT
- --------- ------------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 53,000.00 $ 52,500.00 $ 50,000.00 $ 53,000.00
2 53,530.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 58,883.00 0.00 58,883.00 57,881.25 55,125.00 58,883.00
4 52,994.70 500.00 53,494.70 60,775.31 58,883.00 60,775.31
5 58,294.17 0.00 58,294.17 63,814.08 60,775.31 63,814.08
6 64,123.59 500.00 64,623.59 67,004.78 63,814.08 67,004.78
7 70,535.95 0.00 70,535.95 70,355.02 67,004.78 70,535.95
8 77,589.54 500.00 78,089.54 73,872.77 70,535.95 78,089.54
9 85,348.49 0.00 85,348.49 77,566.41 78,089.54 85,348.49
10 93,883.34 0.00 93,883.34 81,444.73 85,348.49 93,883.34
</TABLE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment.
Death Benefit (b) is the gross payments accumulated daily at the Death
Benefit Effective Annual Yield reduced proportionately to reflect
withdrawals.
Death Benefit (c) is the death benefit that would have payable on the most
recent contract anniversary, increased for subsequent payments, and
decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits
(a), (b), or (c).
DEATH BENEFIT ASSUMING PARTIAL WITHDRAWALS
Assume a Purchase Payment of $50,000 is made on the Date of Issue and no
additional Payments are made. Assume there are partial withdrawals as detailed
in the table below and that the Death Benefit Effective Annual Yield is equal to
5%. The table below presents examples of the Death Benefit based on the
hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
ACCUMULATED PARTIAL MARKET VALUE DEATH DEATH DEATH HYPOTHETICAL
YEAR VALUE WITHDRAWAL ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) DEATH BENEFIT
--- ------------- ------------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 0.00 $ 53,000.00 $ 52,500.00 $ 50,000.00 $ 53,000.00
2 53,530.00 0.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 3,883.00 50,000.00 0.00 3,883.00 3,816.94 3,635.18 3,883.00
4 3,494.70 0.00 500.00 3,994.70 4,007.79 3,883.00 4,007.79
5 3,844.17 0.00 0.00 3,844.17 4,208.18 4,007.79 4,208.18
6 4,228.59 0.00 500.00 4,728.59 4,418.59 4,208.18 4,728.59
7 4,651.45 0.00 0.00 4,651.45 4,639.51 4,728.59 4,728.59
8 5,116.59 0.00 500.00 5,616.59 4,871.49 4,728.59 5,616.59
9 5,628.25 0.00 0.00 5,628.25 5,115.07 5,616.59 5,628.25
10 691.07 5,000.00 0.00 691.07 599.51 628.25 691.07
</TABLE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment
41
<PAGE>
Death Benefit (b) is the gross payments accumulated daily at the Death
Benefit Effective Annual Yield reduced proportionately to reflect
withdrawals.
Death Benefit (c) is the death benefit that would have payable on the most
recent contract anniversary, increased for subsequent payments, and
decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits
(a), (b), or (c)
PART 2 : DEATH OF THE OWNER WHO IS NOT THE ANNUITANT
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume there are no partial withdrawals and that the Death
Benefit Effective Annual Yield is equal to 5%. The table below presents examples
of the Death Benefit based on the hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL
HYPOTHETICAL MARKET VALUE HYPOTHETICAL
YEAR ACCOUNT VALUE ADJUSTMENT DEATH BENEFIT
--- ------------- ------------ -------------
<S> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 53,000.00
2 53,530.00 500.00 54,030.00
3 58,883.00 0.00 58,883.00
4 52,994.70 500.00 53,494.70
5 58,294.17 0.00 58,294.17
6 64,123.59 500.00 64,623.59
7 70,535.95 0.00 70,535.95
8 77,589.54 500.00 78,089.54
9 85,348.49 0.00 85,348.49
10 93,883.34 0.00 93,883.34
</TABLE>
The hypothetical Death Benefit is the Accumulated Value increased by any
positive Market Value Adjustment.
42
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
FOR
INDIVIDUAL VARIABLE ANNUITY POLICIES FUNDED THROUGH SUBACCOUNTS OF
SEPARATE ACCOUNT VA-P
INVESTING IN SHARES OF PIONEER VARIABLE CONTRACTS TRUST
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF THE SEPARATE ACCOUNT DATED APRIL 30,1996
("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ANNUITY CUSTOMER
SERVICES, FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY, 440 LINCOLN STREET,
WORCESTER, MASSACHUSETTS 01653
DATED JULY 8, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . . . . . .2
TAXATION OF THE CONTRACT, THE SEPARATE ACCOUNT AND THE COMPANY . . . . . . . .2
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
GENERAL INFORMATION AND HISTORY
Separate Account VA-P ("Separate Account") is a separate investment account of
First Allmerica Financial Life Insurance Company ("the Company"). Established
pursuant to a vote of the Board of Directors on August 20, 1991. The Company,
organized under the laws of Massachusetts in 1844, is the fifth oldest life
insurance company in America. As of December 31, 1995, the Company and its
subsidiaries had over $11 billion in combined assets over $35.2 billion of
life insurance in force. Effective October 16, 1995, the Company converted from
a mutual life insurance company, known as State Mutual Life Assurance Company of
America, to a stock life insurance company and adopted its present name. The
Company is a wholly-owned subsidiary of Allmerica Financial Corporation ("AFC").
The Company's principal office 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
in Massachusetts. In addition, the Company is subject to the insurance laws and
regulations of other states and jurisdications in which it is licensed to
operate.
Currently, eight Subaccounts of the Separate Account are available under the
Policies. Each Subaccount invests in a corresponding investment portfolio of
Pioneer Variable Contracts Trust (the "Fund").
The Fund is an open-end, diversified series investment company. The Fund
currently consists of eight different investment portfolios: Capital Growth
Portfolio, International Growth Portfolio, Real Estate Growth Portfolio, Equity-
Income Portfolio, America Income Portfolio, Balanced Portfolio, Swiss Franc
Bond Portfolio, and the Money Market Portfolio. Each Underlying Portfolio has
its own investment objectives and certain attendant risks.
TAXATION OF THE POLICIES, SEPARATE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
Policies, other than for state and local premium taxes and similar assessments
when applicable. The Company reserves the right to impose a charge for
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<PAGE>
any other taxes that may become payable in the future in connection with the
Policies or the Separate Account.
The Separate Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a mutual life insurance company under
subchapter L of the Code and files a consolidated tax return with its affiliated
companies.
The Company reserves the right to make a charge for any effect which the income,
assets, or existence of Policies or the Separate Account may have upon its tax.
Such charge for taxes, if any, will be assessed on a fair and equitable basis in
order to preserve equity among classes of Policy Owners. The Separate Account
presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Separate Account. Fund shares owned by the Subaccounts are held on an open
account basis. A Subaccount's ownership of Fund shares is reflected on the
records of the Fund and not represented by any transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995,
included in this Statement of Additional Information constituting part of the
Registration Statement, have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Policies.
UNDERWRITERS
Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. (NASD), serves as principal underwriter and general distributor
for the Policies pursuant to a contract between Allmerica Investments, Inc., the
Company and the Separate Account. Allmerica Investments, Inc. distributes the
Policies on a best efforts basis. Allmerica Investments, Inc., 440 Lincoln
Street, Worcester, Massachusetts 01653 was organized in 1969 as a wholly-owned
subsidiary of the Company and is, at present, indirectly wholly-owned by the
Company.
The Policies offered by this Prospectus are offered continuously and may be
purchased from certain independent broker-dealers which are NASD members and
whose representatives are authorized by applicable law to sell variable annuity
policies.
All persons selling the Policies are required to be licensed by their respective
state insurance authorities for the sale of variable annuity policies.
Commissions not to exceed 6.00% of purchase payments will be paid to entities
which sell the Policies. In addition, expense reimbursement allowances may be
paid. Additional payments may be made for other services not directly related
to the sale of the Policies, including the recruitment and training of
personnel, production of promotional literature and similar services.
Commissions paid by the Company do not result in any charge to Policy Owners or
to the Separate Account in addition to the charges described under "CHARGES AND
DEDUCTIONS" in the Prospectus. The Company intends to recoup the commission and
other sales expense through a combination of anticipated surrender, partial
redemption and/or annuitization charges, the investment earnings on amounts
allocated to accumulate on a fixed basis in excess of the interest credited on
fixed accumulations by the Company, and the profit, if any, from the mortality
and expense risk charge.
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<PAGE>
ANNUITY PAYMENTS
The method by which the Accumulated Value under the Policy is determined is
described in detail under "K. Computation of Policy Values and Annuity Payments"
in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the assets of a Subaccount at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit value at the end of the current Valuation Period would be
calculated as follows:
(1) Accumulation Unit Value - Previous Valuation Period. . . . . . . .$ 1.135000
(2) Value of Assets - Beginning of Valuation Period. . . . . . . . . .$5,000,000
(3) Excess of investment income and net gains over capital losses. . . . .$1,675
(4) Adjusted Gross Investment Rate for the valuation period (3):(2). . .0.000335
(5) Annual Charge (one day equivalent of 1.40% per annum). . . . . . . .0.000038
(6) Net Investment Rate (4)-(5). . . . . . . . . . . . . . . . . . . . .0.000297
(7) Net Investment Factor 1.000000 + (6) . . . . . . . . . . . . . . . .1.000297
(8) Accumulation Unit Value - Current Period (1)x(7) . . . . . . . . .$ 1.135337
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
accumulated unit value at the end of the Valuation Period would have been
$1.134577.
The method for determining the amount of annuity payments is described in detail
under "K. Computation of Policy Values and Annuity Payments" in the Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY PAYMENT CALCULATION USING HYPOTHETICAL EXAMPLE.
The determination of the Annuity Unit value and the variable annuity payment may
be illustrated by the following hypothetical example: Assume an Annuitant has
40,000 Accumulation Units in a Separate Account, and that the value of an
Accumulation Unit on the Valuation Date used to determine the amount of the
first variable annuity payment is $1.120000. Therefore, the Accumulation Value
of the Contract is $44,800 (40,000 x $1.120000). Assume also that the Contract
Owner elects an option for which the first monthly payment is $6.57 per $1,000
of Accumulated Value applied. Assuming no premium tax or contingent deferred
sales charge, the first monthly payment would be 44.800 multiplied by $6.57, or
$294.34.
Next, assume that the Annuity Unit value for the assumed rate of 3-1/2% per
annum for the Valuation Date as of which the first payment was calculated was
$1.100000. Annuity Unit values will not be the same as Accumulation Unit values
because the former reflect the 3-1/2% assumed interest rate used in the annuity
rate calculations. When the Annuity Unit value of $1.100000 is divided into the
first monthly payment the number of Annuity Units represented by that payment is
determined to be 267.5818. The value of this same number of Annuity Units will
be paid in each subsequent month under most options. Assume further that the
net investment factor for the Valuation Period applicable to the next annuity
payment is 1.000190. Multiplying this factor by .999906 (the one-day adjustment
factor for the assumed interest rate of 3-1/2% per annum) produces a factor of
1.000096. This is then multiplied by the Annuity Unit value on the immediately
preceding Valuation Date (assumed here to be $1.105000). The result is an
Annuity Unit value of $1.105106 for the current monthly payment. The current
monthly payment is then determined by multiplying the
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<PAGE>
number of Annuity Units by the current Annuity Unit value, or 267.5818 times
$1.105106, which produces a current monthly payment of $295.71.
PERFORMANCE INFORMATION
Performance information for a Subaccount may be compared, in reports and
promotional literature, to certain indices described in the prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other materials information on
various topics of interest to Policy Owners and prospective Policy Owners.
These topics may include the relationship between sectors of the economy and the
economy as a whole and its effect on various securities markets, investment
strategies and techniques (such as value investing, market timing, dollar cost
averaging, asset allocation, constant ratio transfer and account rebalancing),
the advantages and disadvantages of investing in tax-deferred and taxable
investments, customer profiles and hypothetical purchase and investment
scenarios, financial management and tax and retirement planning, and investment
alternatives to certificates of deposit and other financial instruments,
including comparisons between the Policies and the characteristics of and market
for such financial instruments.
The Policies have been offered since March, 1995. However, total return data
may be advertised based on the period of time that the Underlying Series have
been in existence. The results for any period prior to the Policies being
offered will be calculated as if the Policies had been offered during that
period of time, with all charges assumed to be those applicable to the Policies.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment in a
Subaccount and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specified period, reduced
by the Subaccounts asset charge and any applicable contingent deferred sales
charge which would be assessed upon complete redemption of the investment.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission. The quotations are computed by
finding the average annual compounded rates of return over the specified periods
that would equate the initial amount invested to the ending redeemable values,
according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at the end of
the specified period
The calculation of Total Return includes the annual charges against the asset of
the Subaccount. This charge is 1.40% on an annual basis. The calculation of
ending redeemable value assumes (1) the policy was issued at the beginning of
the period and (2) a complete surrender of the policy at the end of the period.
The deduction of the contingent deferred sales charge, if any, applicable at the
end of the period is included in the calculation, according to the following
schedules:
-5-
<PAGE>
POLICY FORM A
Policy year from date of Charge as percentage of New
payment in which surrender occurs Purchase Payments redeemed*
-------------------------------- ---------------------------
0-3 7%
4 6%
5 5%
6 4%
7 3%
More than 7 No Charge
POLICY FORM B
Policy year from date of Charge as percentage of New
payment in which surrender occurs Purchase Payments redeemed*
--------------------------------- ---------------------------
Less than 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%
*Subject to the maximum limit described in the prospectus.
No contingent deferred sales charge is deducted upon expiration of the periods
specified above. In all Policy Years after the first Policy Year, an amount
equal to 10% of the Accumulated Value under the Policy (or a greater amount
under a life expectancy distribution option, if applicable) is not subject to
the contingent sales load.
The calculations of Total Return include the deduction of the $30 Annual Policy
fee.
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return information in this section refers to the total of
the income generated by an investment in a Subaccount and of the changes of
value of the principal invested (due to realized and unrealized capital gains or
losses) for a specified period reduced by the Subaccount's asset charges.
However, it is assumed that the investment is NOT redeemed at the end of each
period.
The quotations of Supplemental Total Return are computed by finding the average
annual compounded rates of return over the specified periods that would equate
the initial amount invested to the ending values, according to the following
formula:
n
P(1 + T) = EV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at the end of the
specified period
The calculation of Supplemental Total Return reflects the 1.40% annual charge
against the assets of the Subaccounts. The ending value assumes that the policy
is NOT redeemed at the end of the specified period, and there is therefore no
adjustment for the contingent deferred sales charge that would be applicable if
the policy was redeemed at the end of the period.
The calculations of Supplemental Total Return includes the deduction of the $30
Annual Policy fee.
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<PAGE>
YIELD AND EFFECTIVE YIELD - SUBACCOUNT 257 (INVESTS IN THE MONEY MARKET
PORTFOLIO OF THE FUND)
Set forth below is yield and effective yield information for Subaccount 257 for
the seven-day period ended December 31, 1995.
Yield 5.69
Effective Yield 5.53
Yield and effective yield figures are calculated by standardized methods
prescribed by rules of the Securities and Exchange Commission. Under those
methods, the yield quotation is computed by determining the net change
(exclusive of capital changes) in the value of a hypothetical pre-existing
account having a balance of one accumulation unit of the Subaccount at the
beginning of the period, subtracting a charge reflecting the annual 1.40%
deduction for mortality and expense risk and the administrative charge, dividing
the difference by the value of the account at the beginning of the same period
to obtain the base period return, and then multiplying the return for a seven-
day base period by (365/7), with the resulting yield carried to the nearest
hundredth of one percent.
Subaccount 257 computes effective yield by compounding the unannualized base
period return by using the formula:
(365/7)
Effective Yield = [(base period return + 1) ] - 1
The calculations of yield and effective yield do NOT reflect the $30 Annual
Policy fee.
FINANCIAL STATEMENTS
Financial Statements are included for First Allmerica Financial Life Insurance
and for the subaccounts of Separate Account VA-P investing in shares of the
underlying funds.
-7-
<PAGE>
FIRST ALLMERICA
FINANCIAL LIFE
INSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
First Allmerica Financial Life Insurance Company
(formerly known as State Mutual Life Assurance Company of America)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholder's equity, and of cash flows
present fairly, in all material respects, the financial position of First
Allmerica Financial Life Insurance Company and its subsidiaries at December
31, 1995 and 1994, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in the accompanying notes to the consolidated financial
statements, the Company changed its method of accounting for investments
(Notes 1 and 3) and postemployment benefits (Notes 11) in 1994 and for
postretirement benefits (Note 10) in 1993.
/s/ Price Waterhouse LLP
Boston, Massachusetts
February 5, 1996
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions, except per share data) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums $ 2,222.8 $ 2,181.8 $ 2,079.3
Universal life and investment product policy fees 170.4 156.8 143.7
Net investment income 710.1 743.1 782.8
Net realized investment gains 19.1 1.1 61.0
Realized gain on sale of subsidiary - - 35.7
Realized gain on sale of mutual fund processing business 20.7 - -
Realized gain on issuance of subsidiary common stock - - 62.9
Other income 95.4 112.3 73.8
-----------------------------------------
Total revenues 3,238.5 3,195.1 3,239.2
-----------------------------------------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss adjustment expenses 2,008.3 2,047.0 1,987.2
Policy acquisition expenses 470.3 475.7 435.8
Other operating expenses 455.0 518.9 421.3
-----------------------------------------
Total benefits, losses and expenses 2,933.6 3,041.6 2,844.3
-----------------------------------------
Income before federal income taxes 304.9 153.5 394.9
-----------------------------------------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current 119.7 45.4 95.1
Deferred (37.0) 8.0 (20.4)
-----------------------------------------
Total federal income tax expense 82.7 53.4 74.7
-----------------------------------------
Income before minority interest, extraordinary item, and
cumulative effect of accounting change 222.2 100.1 320.2
Minority interest (73.1) (51.0) (122.8)
-----------------------------------------
Income before extraordinary item and cumulative effect of
accounting changes 149.1 49.1 197.4
Extraordinary item - demutualization expenses (12.1) (9.2) (4.6)
Cumulative effect of changes in accounting principles - (1.9) (35.4)
-----------------------------------------
Net income $ 137.0 $ 38.0 $ 157.4
-----------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
1
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
(In millions, except per share data) 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities-at amortized cost (fair value of $949.9 in 1994) $ - $ 959.3
Fixed maturities-at fair value (amortized cost of $7,467.9 and $6,724.6) 7,739.3 6,512.0
Equity securities-at fair value (cost of $410.6 and $260.4) 517.2 286.4
Mortgage loans 799.5 1,106.7
Real estate 179.6 180.3
Policy loans 123.2 364.9
Other long-term investments 71.9 68.1
-------------------------------
Total investments 9,430.7 9,477.7
-------------------------------
Cash and cash equivalents 236.6 539.7
Accrued investment income 163.0 186.6
Deferred policy acquisition costs 735.7 802.8
-------------------------------
Reinsurance receivables:
Future policy benefits 97.1 59.7
Outstanding claims, losses and loss adjustment expenses 799.6 741.0
Unearned premiums 43.8 61.9
Other 58.9 62.1
-------------------------------
Total reinsurance receivables 999.4 924.7
-------------------------------
Deferred federal income taxes 81.2 189.1
Premiums, accounts and notes receivable 526.7 510.3
Other assets 361.4 324.9
Closed Block assets 818.9 -
Separate account assets 4,348.8 2,965.7
-------------------------------
Total assets $17,702.4 $ 15,921.5
-------------------------------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits $ 2,639.3 $ 3,416.4
Outstanding claims, losses and loss adjustment expenses 3,081.3 2,991.5
Unearned premiums 800.9 796.6
Contractholder deposit funds and other policy liabilities 2,737.4 3,435.7
-------------------------------
Total policy liabilities and accruals 9,258.9 10,640.2
-------------------------------
Expenses and taxes payable 600.3 589.2
Reinsurance premiums payable 42.0 65.8
Short-term debt 28.0 32.8
Deferred federal income taxes 47.8 13.8
Long-term debt 2.8 2.7
Closed Block liabilities 902.0 -
Separate account liabilities 4,337.8 2,954.9
-------------------------------
Total liabilities 15,219.6 14,299.4
-------------------------------
Minority interest 758.5 629.7
Commitments and contingencies (Notes 14 and 19)
SHAREHOLDERS' EQUITY
Common stock, $10 par value, 1 million shares authorized, 500,000
shares issued and outstanding 5.0 -
Additional paid-in-capital 392.4 -
Unrealized appreciation (depreciation) on investments, net 153.0 (79.0)
Retained earnings 1,173.9 1,071.4
-------------------------------
Total shareholders' equity 1,724.3 992.4
-------------------------------
Total liabilities and shareholders' equity $17,702.4 $15,921.5
-------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
2
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year $ - $ - $ -
Demutualization transaction 5.0 - -
-----------------------------------------
Balance at end of year 5.0 - -
-----------------------------------------
ADDITIONAL PAID-IN-CAPITAL
Balance at beginning of year - - -
Contributed from parent 392.4 - -
-----------------------------------------
Balance at end of year 392.4 - -
-----------------------------------------
RETAINED EARNINGS
Balance at beginning of year 1,071.4 1,033.4 876.0
Net income prior to demutualization 93.2 38.0 157.4
-----------------------------------------
1,164.6 1,071.4 1,033.4
Demutualization transaction (34.5) - -
Net income subsequent to demutualization 43.8 - -
-----------------------------------------
Balance at end of year 1,173.9 1,071.4 1,033.4
-----------------------------------------
NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENT
Balance at beginning of year (79.0) 17.5 20.6
-----------------------------------------
Cumulative effect of accounting change:
Net appreciation on available-for-sale debt securities - 296.1 -
Provision for deferred federal income taxes and minority
interest - (149.1) -
-----------------------------------------
- 147.0 -
-----------------------------------------
Effect of transfer of securities from held-to-maturity to
available-for-sale:
Net appreciation on available-for-sale debt securities 22.4 - -
Provision for deferred federal income taxes and minority
interest (9.6) - -
-----------------------------------------
12.8 - -
-----------------------------------------
Appreciation (depreciation) during the period:
Net appreciation (depreciation) on available-for-sale
securities 466.0 (492.1) (9.6)
(Provision) benefit for deferred federal income taxes (163.1) 171.9 2.8
Minority interest (83.7) 76.7 3.7
-----------------------------------------
219.2 (243.5) (3.1)
-----------------------------------------
Balance at end of year 153.0 (79.0) 17.5
-----------------------------------------
Total shareholders' equity $ 1,724.3 $ 992.4 $ 1,050.9
-----------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 137.0 $ 38.0 $ 157.4
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest 73.1 50.1 112.7
Net realized gains (39.8) (1.1) (159.6)
Deferred federal income taxes (benefits) (37.0) 8.0 (20.4)
Increase in deferred policy acquisition costs (38.4) (34.6) (51.8)
Increase in premiums and notes receivable, net of
reinsurance payable (42.0) (25.6) (37.5)
(Increase) decrease in accrued investment income 7.0 4.6 (1.6)
Increase in policy liabilities and accruals, net 116.2 175.9 131.7
(Increase) decrease in reinsurance receivable (75.6) (31.9) 18.6
Increase in expenses and taxes payable 7.5 88.0 104.7
Separate account activity, net (0.1) 0.4 21.4
Other, net 23.9 59.9 2.7
-----------------------------------------
Net cash provided by operating activities 131.8 331.7 278.3
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities of
available-for-sale fixed maturities 2,738.4 2,097.8 -
Proceeds from disposals of held-to-maturity
fixed maturities 271.3 304.4 2,094.9
Proceeds from disposals of equity securities 120.0 143.9 585.8
Proceeds from disposals of other investments 40.5 25.9 74.0
Proceeds from mortgages matured or collected 230.3 256.4 291.2
Purchase of available-for-sale fixed maturities (3,273.3) (2,150.1) -
Purchase of held-to-maturity fixed maturities - (111.6) (2,577.1)
Purchase of equity securities (254.0) (172.2) (673.3)
Purchase of other investments (24.8) (26.6) (46.5)
Proceeds from sale of businesses 32.9 - 79.5
Capital expenditures (14.1) (43.1) (37.5)
Other investing activities, net 4.7 2.4 1.3
-----------------------------------------
Net cash (used in) provided by investing activities (128.1) 327.2 (207.7)
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to contractholder
deposit funds 445.8 786.3 738.7
Withdrawals from contractholder deposit funds (1,069.9) (1,187.0) (894.0)
Change in short-term debt (4.8) (6.0) 1.4
Change in long-term debt 0.2 0.3 -
Dividends paid to minority shareholders (4.1) (4.2) (3.9)
Capital contributed from parent 392.4 - 156.2
Payments for policyholders' membership interests (27.9) - -
Net proceeds from issuance of long-term debt - - -
Other, net (20.9) - (1.3)
-----------------------------------------
Net cash used in financing activities (289.2) (410.6) (2.9)
-----------------------------------------
Net (decrease) increase in cash and cash equivalents (285.5) 248.3 67.7
Net change in cash held in the Closed Block (17.6) - -
Cash and cash equivalents, beginning of year 539.7 291.4 223.7
-----------------------------------------
Cash and cash equivalents, end of year $ 236.6 $ 539.7 $ 291.4
-----------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 4.1 $ 4.3 $ 1.7
Income taxes paid $ 90.6 $ 46.1 $ 57.3
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
First Allmerica Financial Life Insurance Company ("FAFLIC" or the "Company",
formerly State Mutual Life Assurance Company of America ["State Mutual"]) was
organized as a mutual life insurance company until October 16, 1995. FAFLIC
converted to a stock life insurance company pursuant to a plan of reorganization
effective October 16, 1995 and became a wholly owned subsidiary of Allmerica
Financial Corporation ("AFC").
The consolidated financial statements have been prepared as if FAFLIC were
organized as a stock life insurance company for all periods presented. Thus,
generally accepted accounting principles for stock life insurance companies have
been applied retroactively for all periods presented.
The consolidated financial statements of FAFLIC include the accounts of
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC", formerly SMA
Life Assurance Company) its wholly owned life insurance subsidiary,
non-insurance subsidiaries (principally brokerage and investment advisory
subsidiaries), and Allmerica Property and Casualty Companies, Inc. ("Allmerica
P&C", a 58.3%-owned non-insurance holding company). The Closed Block assets and
liabilities at December 31, 1995 and its results of operations subsequent to
demutualization are presented in the consolidated financial statements as single
line items. Prior to demutualization such amounts are presented line by line in
the consolidated financial statements (see Note 6). Unless specifically stated,
all disclosures contained herein supporting the consolidated financial
statements as of December 31, 1995 and the year then ended exclude the Closed
Block related amounts. All significant intercompany accounts and transactions
have been eliminated.
Minority interest relates to the Company's investment in Allmerica P&C and
its only significant subsidiary, The Hanover Insurance Company ("Hanover").
Hanover's 81.1%-owned subsidiary is Citizens Corporation, the holding company
for Citizens Insurance Company of America ("Citizens"). Minority interest also
includes an amount related to the minority interest in Citizens Corporation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
B. CLOSED BLOCK
As of October 16, 1995, the Company established and began operating a closed
block (the "Closed Block") for the benefit of the participating policies
included therein, consisting of certain individual life insurance participating
policies, individual deferred annuity contracts and supplementary contracts not
involving life contingencies which were in force on October 16, 1995; such
policies constitute the "Closed Block Business". The purpose of the Closed Block
is to protect the policy dividend expectations of such FAFLIC dividend paying
policies and contracts after the demutualization. Unless the Commissioner
consents to an earlier termination, the Closed Block will continue to be in
effect until the date none of the Closed Block policies are in force. On October
16, 1995, FAFLIC allocated to the Closed Block assets in an amount that is
expected to produce cash flows which, together with future revenues from the
Closed Block Business, are reasonably sufficient to support the Closed Block
Business, including provision for payment of policy benefits, certain future
expenses and taxes and for continuation of policyholder dividend scales payable
in 1994 so long as the experience underlying such dividend scales continues. The
Company expects that the factors underlying such experience will fluctuate in
the future and policyholder dividend scales for Closed Block Business will be
set accordingly.
Although the assets and income allocated to the Closed Block inure solely to
the benefit of the holders of policies included in the Closed Block, the excess
of Closed Block liabilities over Closed Block assets at October 16, 1995
measured on a GAAP basis represent the expected future post-tax income from the
Closed Block which may be recognized in income over the period the policies and
contracts in the Closed Block remain in force.
If the actual income from the Closed Block in any given period equals or
exceeds the expected income for such period as determined at October 16, 1995,
the expected income would be recognized in income for that period. Further, any
excess of the actual income over the expected income would also be recognized in
income to the extent that the aggregate expected income for all prior periods
exceeded the aggregate actual income. Any remaining excess of actual income over
expected income would be accrued as a liability for policyholder dividends in
the Closed Block to be paid to the Closed Block policyholders. This accrual for
future dividends effectively limits the actual Closed Block income recognized in
income to the Closed Block income expected to emerge from operation of the
Closed Block as determined as of October 16, 1995.
If, over the period the policies and contracts in the Closed Block remain in
force, the actual income from the Closed Block is less than the expected income
from the Closed Block, only such actual income
5
<PAGE>
(which could reflect a loss) would be recognized in income. If the actual income
from the Closed Block in any given period is less than the expected income for
that period and changes in dividends scales are inadequate to offset the
negative performance in relation to the expected performance, the income inuring
to shareholders of the Company will be reduced. If a policyholder dividend
liability had been previously established in the Closed Block because the actual
income to the relevant date had exceeded the expected income to such date, such
liability would be reduced by this reduction in income (but not below zero) in
any periods in which the actual income for that period is less than the expected
income for such period.
C. VALUATION OF INVESTMENTS
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115). SFAS No. 115 requires that an
enterprise classify debt and equity securities into one of three categories;
held-to-maturity, available-for-sale, or trading. Investments classified as
held-to-maturity shall be investments that the enterprise has the positive
intent and ability to hold until maturity. Trading securities are investments
which are bought and held principally for the purpose of selling them in the
near term. Investments classified as neither trading securities nor
held-to-maturity shall be classified as available-for-sale securities. SFAS No.
115 also requires that unrealized holding gains and losses for trading
securities be included in earnings, while unrealized gains and losses for
available-for-sale securities be excluded from earnings and reported as a
separate component of shareholder equity until realized. SFAS No. 115 also
requires that for a decline in the fair value which is judged to be other than
temporary, the cost basis of the security should be written down to fair value,
and the amount of the write-down recognized in earnings as a realized loss.
Previously, the Company classified all of its fixed maturities and equity
securities as available-for-sale or held-to-maturity investments. Fixed
maturities held-to-maturity consist of certain bonds, presented at amortized
cost, that management intends and has the ability to hold until maturity. Fixed
maturities available-for-sale consist of certain bonds and redeemable preferred
stocks, presented at fair value, that management may not hold until maturity.
Equity securities available-for-sale are comprised of common stocks which are
carried at fair value. Prior to January 1, 1994, all fixed maturity investments,
which included bonds and redeemable preferred stocks, were principally carried
at amortized cost. Equity securities, which included common and non-redeemable
preferred stock, were carried at fair value. Unrealized gains or losses on
investments classified as available-for-sale, net of deferred federal income
taxes, minority interest, deferred policy acquisition expenses and amounts
attributable to participating contractholders, are included as a separate
component of shareholders' equity. As discussed in Note 3, the Company
transferred all securities classified as held-to-maturity to available-for-sale
on November 30, 1995.
Realized gains and losses on sales of fixed maturities and equity securities
are determined on the specific-identification basis using amortized cost for
fixed maturities and cost for equity securities. Fixed maturities and equity
securities with other than temporary declines in fair value are written down to
estimated fair value resulting in the recognition of realized losses.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by management to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which management believes may not be collectible in
full. In establishing reserves, management considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
Real estate that has been acquired through the foreclosure of mortgage loans
is valued at the estimated fair value at the time of foreclosure. The Company
considers several methods in determining fair value at foreclosure, using
primarily third-party appraisals and discounted cash flow analyses. After
foreclosure, the Company makes a determination as to whether the asset should be
held for production of income or held for sale.
Real estate investments held for the production of income and held for sale
are carried at depreciated cost less valuation allowances, if necessary, to
reduce the carrying value to fair value. Depreciation is generally calculated
using the straight-line method.
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other-than-temporary impairment of the value of a specific
investment or a group of investments is determined, a realized investment loss
is recorded. Changes in the valuation allowance for mortgage loans and real
estate are included in realized investment gains or losses.
6
<PAGE>
D. FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including debt, investments such as
fixed maturities, mortgage loans and equity securities, investment and loan
commitments, and interest rate futures contracts. These instruments involve
credit risk and also may be subject to risk of loss due to interest rate
fluctuation. The Company evaluates and monitors each financial instrument
individually and, when appropriate, obtains collateral or other security to
minimize losses.
E. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
F. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Property and casualty, group life and group health insurance business
acquisition costs are deferred and amortized over the terms of the insurance
policies. Acquisition costs related to universal life products and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits over the expected life of the contracts using a revised
interest rate applied to the remaining benefit period. Acquisition costs related
to annuity and other life insurance businesses are deferred and amortized,
generally in proportion to the ratio of annual revenue to the estimated total
revenues over the contract periods based upon the same assumptions used in
estimating the liability for future policy benefits. Deferred acquisition costs
for each product are reviewed to determine if they are recoverable from future
income, including investment income. If such costs are determined to be
unrecoverable, they are expensed at the time of determination.
Although realization of deferred policy acquisition costs is not assured,
management believes it is more likely than not that all of these costs will be
realized. The amount of deferred policy acquisition costs considered realizable,
however, could be reduced in the near term if the estimates of gross profits or
total revenues discussed above are reduced. The amount of amortization of
deferred policy acquisition costs could be revised in the near term if any of
the estimates discussed above are revised.
G. PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is provided using the
straight-line or accelerated method over the estimated useful lives of the
related assets which generally range from 3 to 30 years. Amortization of
leasehold improvements is provided using the straight-line method over the
lesser of the term of the leases or the estimated useful life of the
improvements.
H. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of certain pension, variable annuity
and variable life insurance contractholders. Assets consist principally of
bonds, common stocks, mutual funds, and short-term obligations at market value.
The investment income, gains, and losses of these accounts generally accrue to
the contractholders and, therefore, are not included in the Company's net
income. Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholders' equity or net investment income.
I. POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity products.
Such liabilities are established in amounts adequate to meet the estimated
future obligations of policies in force. The liabilities associated with
traditional life insurance products are computed using the net level premium
method for individual life and annuity policies, and are based upon estimates as
to future investment yield, mortality and withdrawals that include provisions
for adverse deviation. Future policy benefits for individual life insurance and
annuity policies are computed using interest rates ranging from 2 1/2% to 6% for
life insurance and 2% to 9 1/2% for annuities. Estimated liabilities are
established for group life and health policies that contain experience rating
provisions. Mortality, morbidity and withdrawal assumptions for all policies are
based on the Company's own experience and industry standards. Liabilities for
universal life include deposits received from customers and investment earnings
on their fund balances, less administrative charges. Universal life fund
balances are also assessed mortality and surrender charges.
Liabilities for outstanding claims, losses and loss adjustment expenses are
estimates of payments to be made on property and casualty and health insurance
for reported losses and estimates of losses incurred but not reported. These
liabilities are determined using case basis evaluations and statistical analyses
and represent estimates of the ultimate cost of all losses incurred but not
paid. These estimates are continually reviewed and adjusted as necessary; such
adjustments are reflected in current operations. Estimated amounts of salvage
and subrogation on unpaid property and casualty losses are deducted from the
liability for unpaid claims.
Premiums for property and casualty, group life, and accident and health
insurance are reported as earned on a pro-rata basis over the contract period.
The unexpired portion of these premiums is recorded as unearned premiums.
7
<PAGE>
Contractholder deposit funds and other policy liabilities include
investment-related products such as guaranteed investment contracts, deposit
administration funds and immediate participation guarantee funds and consist of
deposits received from customers and investment earnings on their fund balances.
All policy liabilities and accruals are based on the various estimates
discussed above. Although the adequacy of these amounts cannot be assured,
management believes that it is more likely than not that policy liabilities and
accruals will be sufficient to meet future obligations of policies in force. The
amount of liabilities and accruals, however, could be revised in the near term
if the estimates discussed above are revised.
J. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life and health insurance and individual and group
annuity products, excluding universal life and investment-related products, are
considered revenue when due. Property and casualty and group life, accident and
health insurance premiums are recognized as revenue over the related contract
periods. Benefits, losses and related expenses are matched with premiums,
resulting in their recognition over the lives of the contracts. This matching is
accomplished through the provision for future benefits, estimated and unpaid
losses and amortization of deferred policy acquisition costs. Revenues for
investment-related products consist of net investment income and contract
charges assessed against the fund values. Related benefit expenses primarily
consist of net investment income credited to the fund values after deduction for
investment and risk charges. Revenues for universal life products consist of net
investment income, and mortality, administration and surrender charges assessed
against the fund values. Related benefit expenses include universal life benefit
claims in excess of fund values and net investment income credited to universal
life fund values.
K. POLICYHOLDER DIVIDENDS
Prior to demutualization, certain life, health and annuity insurance policies
contained dividend payment provisions that enabled the policyholder to
participate in the earnings of the Company. The amount of policyholders'
dividends was determined annually by the Board of Directors. The aggregate
amount of policyholders' dividends was related to the actual interest,
mortality, morbidity and expense experience for the year and the Company's
judgment as to the appropriate level of statutory surplus to be retained. The
participating life insurance in force was 16.2% of the face value of total life
insurance in force at December 31, 1994. The premiums on participating life,
health and annuity policies were 11.3%, 6.4% and 6.6% of total life, health and
annuity statutory premiums prior to demutualization in 1995, 1994 and 1993,
respectively. Total policyholders' dividends were $23.3 million, $32.8 million
and $24.2 million prior to demutualization in 1995, 1994 and 1993, respectively.
L. FEDERAL INCOME TAXES
AFC, FAFLIC, AFLIAC and FAFLIC's non-insurance domestic subsidiaries file a
consolidated United States federal income tax return. Entities included within
the consolidated group are segregated into either a life insurance or non-life
insurance company subgroup. The consolidation of these subgroups is subject to
certain statutory restrictions on the percentage of eligible non-life tax losses
that can be applied to offset life company taxable income. Allmerica P&C and its
subsidiaries file a separate United States federal income tax return.
Deferred income taxes are generally recognized when assets and liabilities
have different values for financial statement and tax reporting purposes, and
for other temporary taxable and deductible differences as defined by Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). These differences result primarily from loss reserves, policy
acquisition expenses, and unrealized appreciation/depreciation on investments.
M. NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" was issued. This statement requires
companies to write down to fair value long-lived assets whose carrying value is
greater than the undiscounted cash flows of those assets. The statement also
requires that long-lived assets of which management is committed to dispose,
either by sale or abandonment, be valued at the lower of their carrying amount
or fair value less costs to sell. This statement is effective for fiscal years
beginning after December 15, 1995. Management expects that adoption of this
statement will not have a material effect on the financial statements.
N. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
8
<PAGE>
2. SIGNIFICANT TRANSACTIONS
Pursuant to the plan of reorganization effective October 16, 1995, AFC issued
37.5 million shares of its common stock to eligible policyholders. AFC also
issued 12.6 million shares of its common stock at a price of $21.00 per share in
a public offering, resulting in net proceeds of $248.0 million, and issued
Senior Debentures in the principal amount of $200.0 million which resulted in
net proceeds of $197.2 million. AFC contributed $392.4 million of these proceeds
to FAFLIC.
Effective March 31, 1995, the Company entered into an agreement with TSSG, a
division of First Data Corporation, pursuant to which the Company sold its
mutual fund processing business and agreed not to engage in this business for
four years after that date. In accordance with this agreement, the Company
received proceeds of $32.1 million. A gain of $13.5 million, net of taxes of
$7.2 million, was recorded in March 1995.
In March and April, 1993, Citizens Corporation, a newly formed holding
company for Citizens, issued approximately 19.35% of its common stock in an
initial public offering, generating net proceeds of $156.2 million (7.0 million
shares at $24.00 per share). Proceeds to Citizens Corporation were reduced by
underwriting and other stock issuance costs. A non-taxable gain of $62.9 million
was recorded in 1993 in connection with this initial public offering. This gain
is non-taxable because only newly-issued shares of Citizens Corporation were
issued to the public.
Effective December 31, 1992, Hanover entered into a definitive agreement to
sell its wholly owned subsidiary, Beacon Insurance Company of America, and its
wholly owned subsidiary, American Select Insurance Company, for $89.7 million. A
gain of $20.7 million, net of taxes of $15.0 million, was recorded in 1993.
3. INVESTMENTS
A. FIXED MATURITIES AND EQUITY SECURITIES
Effective January 1, 1994, the Company adopted SFAS No. 115, which requires that
investments be classified into one of three categories: held-to-maturity,
available-for-sale, or trading.
The effect of implementing SFAS No. 115 as of January 1, 1994 was an increase
in the carrying value of fixed maturity investments of $335.3 million, a
decrease in deferred policy acquisition costs of $20.8 million, an increase in
policyholder liabilities of $18.4 million, a net increase in deferred income tax
liabilities of $103.7 million, an increase in minority interest of $45.4
million, and an increase in shareholders' equity of $147.0 million, which
resulted from changing the carrying value of certain fixed maturities from
amortized cost to fair value and related adjustments. The implementation had no
effect on net income.
In November 1995, the Financial Accounting Standards Board issued a Special
Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES, which permitted companies to
reclassify securities, where appropriate, based on the new guidance. As a
result, the Company transferred securities with amortized cost and fair value of
$696.4 million and $725.6 million, respectively, from the held-to-maturity
category to the available-for-sale category, which resulted in a net increase in
shareholders' equity of $12.8 million.
The amortized cost and fair value of available-for-sale and held-to-maturity
fixed maturities and equity securities were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995
- -----------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE Gross Gross
Amortized Unrealized Unrealized Fair
Cost (1) Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S. government and agency
securities $ 377.0 $ 21.0 $ - $ 398.0
States and political subdivisions 2,110.6 60.7 4.0 2,167.3
Foreign governments 60.6 3.4 0.6 63.4
Corporate fixed maturities 4,582.1 200.8 16.4 4,766.5
U.S. government mortgage-backed securities 337.6 8.6 2.1 344.1
-------------------------------------------
Total fixed maturities available-for-sale $ 7,467.9 $ 294.5 $ 23.1 $ 7,739.3
--------------------------------------------
--------------------------------------------
Equity securities $ 410.6 $ 111.7 $ 5.1 $ 517.2
--------------------------------------------
--------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
December 31
(In millions) 1994
- -----------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE Gross Gross
Amortized Unrealized Unrealized Fair
Cost (1) Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S. government and agency securities $ 280.2 $ 4.8 $ 9.1 $ 275.9
States and political subdivisions 2,011.3 14.9 76.2 1,950.0
Foreign governments 96.8 1.8 12.8 85.8
Corporate fixed maturities 4,201.4 24.7 157.4 4,068.7
U.S. government mortgage-backed securities 134.9 0.4 3.7 131.6
-------------------------------------------
Total fixed maturities available-for-sale $6,724.6 $ 46.6 $ 259.2 $ 6,512.0
-------------------------------------------
-------------------------------------------
Equity securities $ 260.4 $ 35.3 $ 9.3 $ 286.4
-------------------------------------------
-------------------------------------------
HELD-TO-MATURITY
State and political subdivisions $ 8.1 $ 0.1 $ 0.8 7.4
Foreign governments 20.7 0.2 0.2 20.7
Corporate fixed maturities 927.3 13.7 22.5 918.5
Corporate mortgage-backed securities 3.2 0.1 - 3.3
-------------------------------------------
Total fixed maturities held-to-maturity $ 959.3 $ 14.1 $ 23.5 $ 949.9
-------------------------------------------
-------------------------------------------
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
In March 1994, AFLIAC voluntarily withdrew its license in New York in order
to provide for certain commission arrangements prohibited by New York comparable
to AFLIAC's competitors. In connection with the withdrawal, FAFLIC, which is
licensed in New York, became qualified to sell the products previously sold by
AFLIAC in New York. AFLIAC agreed with the New York Department of Insurance to
maintain, through a custodial account in New York, a security deposit, the
market value of which will at all times equal 102% of all outstanding general
account liabilities of AFLIAC for New York policyholders, claimants and
creditors. At December 31, 1995, the amortized cost and market value of assets
on deposit were $295.0 million and $303.6 million, respectively. At December 31,
1994, the amortized cost and market value of assets on deposit were $327.9
million and $323.5 million, respectively. In addition, fixed maturities,
excluding those securities on deposit in New York, with an amortized cost of
$82.2 million and $67.0 million were on deposit with various state and
governmental authorities at December 31, 1995 and 1994, respectively.
There were approximately $21.8 million of contractual fixed maturity
investment commitments at December 31, 1994 and none at December 31, 1995.
The amortized cost and fair value by maturity periods for fixed maturities
are shown below. Actual maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties, or the Company may have the right to put
or sell the obligations back to the issuers. Mortgage backed securities are
included in the category representing their ultimate maturity.
10
<PAGE>
<TABLE>
<CAPTION>
December 31
(In millions) 1995
- --------------------------------------------------------------------------------
Available-for-Sale
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 970.8 $ 975.6
Due after one year through five years 3,507.9 3,657.1
Due after five years through ten years 1,794.0 1,866.0
Due after ten years 1,195.2 1,240.6
-----------------------------
Total $ 7,467.9 $ 7,739.3
-----------------------------
-----------------------------
</TABLE>
The proceeds from sales of available-for-sale securities and the gross realized
gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions)
- ------------------------------------------------------------------
Proceeds from Sales
of Available-for-Sale Gross Gross
1995 Securities Gains Losses
<S> <C> <C> <C>
Fixed maturities $ 1,612.3 $ 23.7 $ 33.0
---------------------------------------
---------------------------------------
Equity securities $ 122.2 $ 23.1 $ 6.9
---------------------------------------
---------------------------------------
1994
Fixed maturities $ 1,026.2 $ 12.6 $ 21.6
---------------------------------------
---------------------------------------
Equity securities $ 124.3 $ 17.4 $ 4.5
---------------------------------------
---------------------------------------
</TABLE>
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) Equity
Fixed Securities
Maturities and Other (1) Total
1995
<S> <C> <C> <C>
Net appreciation (depreciation),
beginning of year $ (89.4) $ 10.4 $ (79.0)
---------------------------------------
Effect of transfer of securities
between classifications:
Net appreciation on available-
for-sale fixed maturities 29.2 - 29.2
Effect of transfer on deferred
policy acquisition costs and
on policy liabilities (6.8) - (6.8)
Provision for deferred federal
income taxes and minority
interest (9.6) - (9.6)
---------------------------------------
12.8 - 12.8
---------------------------------------
Net appreciation on available-
for-sale securities 465.4 87.5 552.9
Net depreciation from the effect
on deferred policy acquisition
costs and on policy liabilities (86.9) (86.9)
Provision for deferred federal
income taxes and minority interest (193.2) (53.6) (246.8)
---------------------------------------
185.3 33.9 219.2
---------------------------------------
Net appreciation, end of year $ 108.7 $ 44.3 $ 153.0
---------------------------------------
---------------------------------------
1994
Net appreciation, beginning of year $ - $ 17.5 $ 17.5
---------------------------------------
Cumulative effect of accounting
change:
Net appreciation on available-
for-sale fixed maturities 335.3 - 335.3
Net depreciation from the effect
of accounting change on
deferred policy acquisition
costs and on policy liabilities (39.2) - (39.2)
Provision for deferred federal
income taxes and minority
interest (149.1) - (149.1)
---------------------------------------
147.0 17.5 164.5
---------------------------------------
Net depreciation on available-
for-sale securities (547.9) (17.4) (565.3)
Net appreciation from the effect
on deferred policy acquisition
costs and on policy liabilities 73.2 - 73.2
Benefit for deferred federal income
taxes and minority interest 238.3 10.3 248.6
---------------------------------------
Net appreciation (depreciation),
end of year $ (89.4) $ 10.4 $ (79.0)
---------------------------------------
---------------------------------------
</TABLE>
(1) Includes net appreciation on other investments of $6.9 million and $0.6
million in 1995 and 1994, respectively.
11
<PAGE>
B. MORTGAGE LOANS AND REAL ESTATE
FAFLIC's mortgage loans and real estate are diversified by property type and
location. Real estate investments have been obtained primarily through
foreclosure. Mortgage loans are collateralized by the related properties and
generally are no more than 75% of the property's value at the time the original
loan is made.
The carrying values of mortgage loans and real estate investments net of
applicable reserves were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Mortgage loans $ 799.5 $ 1,106.7
------------------------
Real estate:
Held for sale 168.9 134.5
Held for production of income 10.7 45.8
------------------------
Total real estate 179.6 180.3
------------------------
Total mortgage loans and real estate $ 979.1 $ 1,287.0
------------------------
</TABLE>
Reserves for mortgage loans were $33.8 million and $47.2 million as of
December 31, 1995 and 1994, respectively.
During 1995, 1994 and 1993, non-cash investing activities included real
estate acquired through foreclosure of mortgage loans, which had a fair value of
$26.1 million, $39.2 million and $26.7 million, respectively.
At December 31, 1995, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $8.2 million in
the Closed Block. These commitments generally expire within one year. There are
no contractual commitments to extend credit under commercial mortgage loan
agreements outside the Closed Block.
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Property type:
Office building $ 435.9 $ 553.6
Residential 145.3 207.3
Retail 205.6 246.5
Industrial / warehouse 93.8 144.1
Other 151.9 205.6
Valuation allowances (53.4) (70.1)
-----------------------
Total $ 979.1 $ 1,287.0
-----------------------
-----------------------
Geographic region:
South Atlantic $ 281.4 $ 374.2
Pacific 191.9 238.7
East North Central 118.2 138.5
Middle Atlantic 148.9 151.2
West South Central 79.7 102.3
New England 94.9 103.1
Other 117.5 249.1
Valuation allowances (53.4) (70.1)
-----------------------
Total $ 979.1 $ 1,287.0
-----------------------
-----------------------
</TABLE>
At December 31, 1995, scheduled mortgage loan maturities were as follows:
1996 - $206.1 million; 1997 - $143.7 million; 1998 - $167.4 million; 1999 -
$109.9 million; 2000 - $124.2 million; and $48.2 million thereafter. Actual
maturities could differ from contractual maturities because borrowers may have
the right to prepay obligations with or without prepayment penalties and loans
may be refinanced. During 1995, the Company refinanced $24.0 million of mortgage
loans based on terms which differed from those granted to new borrowers.
12
<PAGE>
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets and
changes thereto are shown below.
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions)
- ---------------------------------------------------------------------------
1995 Balance at Balance at
January 1 Additions Deductions December 31
<S> <C> <C> <C> <C>
Mortgage loans $ 47.2 $ 1.5 $ 14.9 $ 33.8
Real estate 22.9 (0.6) 2.7 19.6
-----------------------------------------------------
Total $ 70.1 $ 0.9 $ 17.6 $ 53.4
-----------------------------------------------------
-----------------------------------------------------
1994
Mortgage loans $ 73.8 $ 14.6 $ 41.2 $ 47.2
Real estate 21.0 3.2 1.3 22.9
-----------------------------------------------------
-----------------------------------------------------
Total $ 94.8 $ 17.8 $ 42.5 $ 70.1
-----------------------------------------------------
-----------------------------------------------------
1993
Mortgage loans $ 86.7 $ 4.6 $ 17.5 $ 73.8
Real estate 8.3 12.7 - 21.0
-----------------------------------------------------
Total $ 95.0 $ 17.3 $ 17.5 $ 94.8
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
D. FUTURES CONTRACTS
FAFLIC purchases and sells futures contracts on margin to hedge against interest
rate fluctuations and their effect on the net cash flows from the sales of
guaranteed investment contracts. The notional amount of such futures contracts
outstanding were $74.7 million and $126.6 million at December 31, 1995 and 1994,
respectively. Because the Company purchases and sells futures contracts through
brokers who assume the risk of loss, the Company's exposure to credit risk under
futures contracts is limited to the margin deposited with the broker. The
maturity of all futures contracts outstanding are less than one year. The fair
value of futures contracts outstanding were $75.7 million and $126.5 million at
December 31, 1995 and 1994, respectively.
Gains and losses on hedge contracts related to interest rate fluctuations are
deferred and recognized in income over the period being hedged corresponding to
related guaranteed investment contracts. Deferred hedging gains and (losses)
were $5.6 million, $(7.7) million, and $6.9 million in 1995, 1994 and 1993,
respectively. Gains and losses on hedge contracts that are deemed ineffective by
management are realized immediately.
A reconciliation of the notional amount of futures contracts is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Contracts outstanding,
beginning of year $ 126.6 $ 141.7 $ 120.0
New contracts 343.5 816.0 493.3
Contracts terminated (395.4) (831.1) $ (471.6)
------------------------------------
Contracts outstanding, end of year $ 74.7 $ 126.6 $ 141.7
------------------------------------
------------------------------------
</TABLE>
E. FOREIGN CURRENCY SWAP CONTRACTS
The Company enters into foreign currency swap contracts to hedge exposure to
currency risk on foreign fixed maturity investments. Interest and principal
related to foreign fixed maturity investments payable in foreign currencies, at
current exchange rates, are exchanged for the equivalent payment translated at a
specific currency exchange rate. The Company's maximum exposure to counterparty
credit risk is the difference between the foreign currency exchange rate, as
agreed
13
<PAGE>
upon in the swap contract, and the foreign currency spot rate on the date of the
exchange. The fair values of the foreign currency swap contracts outstanding
were $104.2 million and $117.5 million at December 31, 1995 and 1994,
respectively.
The difference between amounts paid and received on foreign currency swap
contracts is reflected in the net investment income related to the underlying
assets and is not material in 1995, 1994, and 1993. The Company had no deferred
gains or losses on foreign currency swap contracts.
A reconciliation of the notional amount of swap contracts is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Contracts outstanding, beginning
of year $ 118.7 $ 128.8 $ 95.0
New Contracts - 5.0 50.8
Contracts expired - (10.1) (17.0)
Contracts terminated (14.1) (5.0) -
------------------------------------
Contracts outstanding, end
of year $ 104.6 $ 118.7 $ 128.8
------------------------------------
------------------------------------
</TABLE>
Expected maturities of foreign currency swap contracts are $36.0 million in
1996, $28.8 million in 1997, and $39.8 million in 1998 and thereafter.
F. OTHER
At December 31, 1995, FAFLIC had no concentration of investments in a single
investee exceeding 10% of shareholders' equity.
4. INVESTMENT INCOME AND GAINS AND LOSSES
A. NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $ 554.0 $ 578.3 $ 601.5
Mortgage loans 97.0 119.9 155.7
Equity securities 16.8 12.1 7.1
Policy loans 20.3 23.3 23.5
Real estate 48.5 44.6 43.4
Other long-term investments 4.4 4.3 2.1
Short-term investments 21.4 9.5 7.4
------------------------------------
Gross investment income 762.4 792.0 840.7
Less investment expenses (52.3) (48.9) (57.9)
------------------------------------
Net investment income $ 710.1 $ 743.1 $ 782.8
------------------------------------
------------------------------------
</TABLE>
As of December 31, 1995, fixed maturities and mortgage loans on non-accrual
status were $1.4 million and $85.4 million, including restructured loans of
$46.8 million. The effect of non-accruals, compared with amounts that would have
been recognized in accordance with the original terms of the investments, was to
reduce net income by $0.6 million, $5.1 million and $14.0 million in 1995, 1994
and 1993, respectively.
The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $98.9 million , $126.8 million and $167.0 million at December
31, 1995, 1994 and 1993, respectively. Interest income on restructured mortgage
loans that would have been recorded in accordance with the original terms of
such loans amounted to $11.1 million, $14.4 million and $18.1 million in 1995,
1994 and 1993, respectively. Actual interest income on these loans included in
net investment income aggregated $7.1 million, $8.2 million and $10.6 million in
1995, 1994 and 1993, respectively.
At December 31, 1995, fixed maturities with a carrying value of $1.4 million
were non-income producing for the twelve months ended December 31, 1995. There
were no mortgage loans which were non-income producing for the twelve months
ended December 31, 1995.
B. REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31
(In millions) 1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $ (7.0) $ 2.4 $ 48.8
Mortgage loans 1.4 (12.1) (0.5)
Equity securities 16.2 12.4 29.8
Real estate 5.3 1.4 (14.5)
Other 3.2 (3.0) (2.6)
------------------------------------
Net realized investment gains $ 19.1 $ 1.1 $ 61.0
------------------------------------
------------------------------------
</TABLE>
Proceeds from voluntary sales of investments in fixed maturities were
$1,612.3 million, $1,036.5 million and $817.5 million in 1995, 1994 and 1993,
respectively. Realized gains on such sales were $23.7 million, $12.9 million and
$38.8 million; and realized losses were $33.0 million, $21.6 million and $2.6
million for 1995, 1994 and 1993, respectively.
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of fair value information about certain financial instruments
(insurance contracts, real estate, goodwill and taxes are excluded) for which it
is practicable to estimate such values, whether or not these instruments are
included in the balance sheet. The fair values presented for certain financial
instruments are estimates
14
<PAGE>
which, in many cases, may differ significantly from the amounts which could be
realized upon immediate liquidation. In cases where market prices are not
available, estimates of fair value are based on discounted cash flow analyses
which utilize current interest rates for similar financial instruments which
have comparable terms and credit quality. Fair values of interest rate futures
were not material at December 31, 1995 and 1994.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair value.
FIXED MATURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.
EQUITY SECURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans are
limited to the lesser of the present value of the cash flows or book value.
REINSURANCE RECEIVABLES
The carrying amount reported in the consolidated balance sheets approximates
fair value.
POLICY LOANS
The carrying amount reported in the consolidated balance sheets approximates
fair value since policy loans have no defined maturity dates and are inseparable
from the insurance contracts.
INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under guaranteed investment type
contracts are estimated using discounted cash flow calculations using current
interest rates for similar contracts with maturities consistent with those
remaining for the contracts being valued. Other liabilities are based on
surrender values.
DEBT
The carrying value of short-term debt reported in the balance sheet approximates
fair value. The fair value of long-term debt was estimated using market quotes,
when available, and, when not available, discounted cash flow analyses.
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
December 31
(In millions) 1995 1994
- -----------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents $ 236.6 $ 236.6 $ 539.7 $ 539.7
Fixed maturities 7,739.3 7,739.3 7,471.3 7,461.9
Equity securities 517.2 517.2 286.4 286.4
Mortgage loans 799.5 845.4 1,106.7 1,105.8
Policy loans 123.2 123.2 364.9 364.9
-------------------------------------------
$ 9,415.8 $ 9,461.7 $ 9,769.0 $ 9,758.7
-------------------------------------------
-------------------------------------------
FINANCIAL LIABILITIES
Guaranteed investment contracts $ 1,632.8 $ 1,677.0 $ 2,170.6 $ 2,134.0
Supplemental contracts without life contingencies 24.4 24.4 25.3 25.3
Dividend accumulations 86.2 86.2 84.5 84.5
Other individual contract deposit funds 95.7 92.8 111.3 108.0
Other group contract deposit funds 894.0 902.8 980.3 969.6
Individual annuity contracts 966.3 810.0 988.9 870.6
Short-term debt 28.0 28.0 32.8 32.8
Long-term debt 2.8 2.9 2.7 2.7
-------------------------------------------
$ 3,730.2 $ 3,624.1 $ 4,396.4 $ 4,227.5
-------------------------------------------
-------------------------------------------
</TABLE>
15
<PAGE>
6. CLOSED BLOCK
Included in other income in the Consolidated Statement of Income in 1995 is a
net pre-tax contribution from the Closed Block of $2.9 million. Summarized
financial information of the Closed Block as of September 30, 1995 (date used to
estimate financial information for the date of establishment of October 16,
1995) and December 31, 1995 and for the period October 1, 1995 through December
31, 1995 is as follows:
<TABLE>
<CAPTION>
(In millions) 1995
- ------------------------------------------------------------------------------
December 31 September 30
<S> <C> <C>
Assets
Fixed maturities, at fair value
(amortized cost of $447.4 and
$313.3, respectively) $ 458.0 $ 318.4
Mortgage loans 57.1 61.6
Policy loans 242.4 245.3
Cash and cash equivalents 17.6 12.3
Accrued investment income 16.6 15.3
Deferred policy acquisition costs 24.5 24.8
Other assets 2.7 6.4
-----------------------------
Total assets $ 818.9 $ 684.1
-----------------------------
-----------------------------
Liabilities
Policy liabilities and accruals $ 899.2 $ 894.3
Other liabilities 2.8 4.2
-----------------------------
Total liabilities $ 902.0 $ 898.5
-----------------------------
-----------------------------
Period from October 1 through December 31
(In milions) 1995
- -------------------------------------------------------------------------
Revenues
Premiums $ 11.5
Net investment income 12.8
----------
Total revenues 24.3
----------
----------
Benefits and expenses
Policy benefits 20.6
Policy acquisition expenses 0.8
----------
Total benefits and expenses 21.4
----------
Contribution from the Closed Block $ 2.9
----------
----------
Cash flows
Cash flows from operating activities:
Contribution from the Closed Block $ 2.9
Initial cash transferred to the Closed Block 139.7
Change in deferred policy acquisition costs, net 0.4
Change in premiums and other receivables (0.1)
Change in policy liabilities and accruals 2.0
Change in accrued investment income (1.3)
Other, net 0.8
----------
Net cash provided by operating activities 144.4
----------
Cash flows from investing activities:
Sales, maturities and repayments of investments 29.0
Purchases of investments (158.8)
Other, net 3.0
----------
Net cash used by investing activities (126.8)
----------
Change in cash and cash equivalents and ending balance $ 17.6
----------
----------
</TABLE>
On October 16, 1995, there were no valuation allowances transferred to the
Closed Block on mortgage loans. There are no valuation allowances on mortgage
loans at December 31, 1995.
Many expenses related to Closed Block operations are charged to operations
outside the Closed Block; accordingly, the contribution from the Closed Block
does not represent the actual profitability of the Closed Block operations.
Operating costs and expenses outside of the Closed Block are, therefore,
disproportionate to the business outside the Closed Block.
16
<PAGE>
7. DEBT
Short- and long-term debt consisted of the following:
December 31
(In millions) 1995 1994
- ----------------------------------------------------
Short-Term
Commercial paper $ 27.7 $ 32.8
Other 0.3 -
----------------------
Total short-term debt $ 28.0 $ 32.8
----------------------
----------------------
Long-term debt $ 2.8 $ 2.7
----------------------
----------------------
FAFLIC issues commercial paper primarily to manage imbalances between
operating cash flows and existing commitments. Commercial paper borrowing
arrangements are supported by various lines of credit. As of December 31, 1995,
the weighted average interest rate for outstanding commercial paper was 5.8%.
As of December 31, 1995, FAFLIC had approximately $245.0 million in committed
lines of credit provided by U.S. banks, of which $217.3 million was available
for borrowing. These lines of credit generally have terms of less than one year,
and require the Company to pay annual commitment fees ranging from 0.10% to
0.125% of the available credit. Interest that would be charged for usage of
these lines of credit is based upon negotiated arrangements.
Interest expense was $4.1 million, $4.3 million and $1.6 million in 1995,
1994 and 1993, respectively.
In October, 1995, AFC issued $200.0 million face amount of Senior Debentures
for proceeds of $197.2 million net of discounts and issuance costs. These
securities have an effective interest rate of 7.65%, and mature on October 16,
2025. Interest is payable semiannually on October 15 and April 15 of each year.
The Senior Debentures are subject to certain restrictive covenants, including
limitations on issuance of or disposition of stock of restricted subsidiaries
and limitations on liens. AFC is in compliance with all covenants. The primary
source of cash for repayment of the debt by AFC is dividends from FAFLIC.
8. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of SFAS No. 109. A summary of the federal income tax expense
(benefit) in the consolidated statements of income is shown below:
For the Years Ended December 31
(In millions) 1995 1994 1993
- -------------------------------------------------------------------------------
Federal income tax expense (benefit)
Current $ 119.7 $ 45.4 $ 95.1
Deferred (37.0) 8.0 (20.4)
----------------------------------
Total $ 82.7 $ 53.4 $ 74.7
----------------------------------
----------------------------------
The federal income taxes attributable to the consolidated results of
operations are different from the amounts determined by multiplying income
before federal income taxes by the expected federal income tax rate. The sources
of the difference and the tax effects of each were as follows:
For the Years Ended December 31
(In millions) 1995 1994 1993
- -----------------------------------------------------------------------------
Expected federal income tax
expense $ 105.6 $ 53.7 $ 138.2
Tax-exempt interest (32.2) (35.9) (32.8)
Differential earnings amount (7.6) 35.0 (10.9)
Non-taxable gain - - (22.0)
Dividend received deduction (4.0) (2.5) (1.3)
Foreign tax credit (0.7) (0.8) (0.9)
Changes in tax reserve estimates 19.3 4.0 3.5
Other, net 2.3 (0.1) 0.9
----------------------------------
Federal income tax expense $ 82.7 $ 53.4 $ 74.7
----------------------------------
----------------------------------
Until conversion to a stock life insurance company, FAFLIC, as a mutual
company, reduced its deduction for policyholder dividends by the differential
earnings amount. This amount was computed, for each tax year, by multiplying the
average equity base of the FAFLIC/AFLIAC consolidated group, as determined for
tax purposes, by the estimate of an excess of an imputed earnings rate over the
average mutual life insurance companies' earnings rate. The differential
earnings amount for each tax year was subsequently recomputed when actual
earnings rates were published by the Internal Revenue Service (IRS). For its
1995 federal income tax return, FAFLIC has estimated that there will be no tax
effect from a differential earnings amount, including the expected effect of
future recomputations by the IRS. As a stock life company, FAFLIC is no longer
required to reduce its policyholder dividend deduction by the differential
earnings amount.
17
<PAGE>
The deferred income tax asset represents the tax effects of temporary
differences attributable to Allmerica P&C, a separate consolidated group for
federal tax return purposes. Its components were as follows:
December 31
(In millions) 1995 1994
- ------------------------------------------------------------------------------
Deferred tax (assets) liabilities
AMT carryforwards $ (9.8) $ (11.9)
Loss reserve discounting (178.3) (187.6)
Deferred acquisition costs 55.1 54.2
Employee benefit plans (25.5) (22.0)
Investments, net 77.4 (22.7)
Fixed assets 2.5 4.5
Bad debt reserve (1.8) (1.8)
Other, net (0.8) (1.8)
---------------------------------
Deferred tax asset, net $ (81.2) $ (189.1)
---------------------------------
---------------------------------
The deferred income tax liability represents the tax effects of temporary
differences attributable to the FAFLIC/AFLIAC consolidated federal tax return
group. Its components were as follows:
December 31
(In millions) 1995 1994
- ------------------------------------------------------------------------------
Deferred tax (assets) liabilities
NOL carryforwards $ - $ (3.3)
AMT carryforwards - (1.5)
Loss reserve discounting (129.1) (118.2)
Deferred acquisition costs 169.7 199.0
Differential earnings amount - 27.7
Employee benefit plans (14.6) (15.4)
Investments, net 67.0 (30.9)
Fixed assets (1.7) (0.9)
Bad debt reserve (26.3) (27.9)
Other, net (17.2) (14.8)
--------------------------------
Deferred tax liability, net $ 47.8 $ 13.8
----------------------------------
----------------------------------
Gross deferred income tax assets totaled $405.1 million and $460.7 million at
December 31, 1995 and 1994, respectively. Gross deferred income tax liabilities
totaled $371.1 million and $285.4 million at December 31, 1995 and 1994,
respectively.
Management believes, based on the Company's recent earnings history and its
future expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, management considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary. At December 31, 1995, there are no available non-life
net operating loss carryforwards, and there are available alternative minimum
tax credit carryforwards of $9.8 million.
The Company's federal income tax returns are routinely audited by the IRS,
and provisions are routinely made in the financial statements in anticipation of
the results of these audits. The IRS has examined the FAFLIC/AFLIAC consolidated
group's federal income tax returns through 1988. The IRS has also examined the
Allmerica P&C consolidated group's federal income tax returns through 1988.
Deficiencies asserted with respect to tax years 1977 through 1981 have been paid
and recorded, and the Company has filed a recomputation of such years with
appeals claiming a refund with respect to certain agreed upon issues. The
Company is currently considering its response to certain adjustments proposed by
the IRS with respect to FAFLIC/AFLIAC's federal income tax returns for 1982 and
1983, and to possible adjustments under consideration by the IRS with respect to
Allmerica P&C's federal income tax returns for 1989, 1990, and 1991. If upheld,
these adjustments would result in additional payments; however, the Company will
vigorously defend its position with respect to these adjustments. In
management's opinion, adequate tax liabilities have been established for all
years. However, the amount of these tax liabilities could be revised in the near
term if estimates of the Company's ultimate liability are revised.
9. PENSION PLANS
FAFLIC provides retirement benefits to substantially all of its employees under
three separate defined benefit pension plans. Through December 31, 1994,
retirement benefits were based primarily on employees' years of service and
compensation during the highest five consecutive plan years of employment.
Benefits under this defined benefit formula were frozen for most employees (but
not for eligible agents) effective December 31, 1994. In their place, the
Company adopted a defined benefit cash balance formula, under which the Company
annually provides an allocation to each eligible employee as a percentage of
that employee's salary, similar to a defined contribution plan arrangement. The
1995 allocation was based on 7.0% of each eligible employee's salary.
Continuation of the defined benefit cash balance formula is subject to the
resolution of certain technical issues, and may be subject to receipt of a
favorable determination letter from the IRS that the Company's pension plans, as
amended to reflect the cash balance formula, will continue to satisfy the
requirements of Section 401(a) of the Internal Revenue Code. The Company's
policy for the plans is to fund at least the minimum amount required by the
Employee Retirement Income Security Act of 1974.
18
<PAGE>
Components of net pension expense were as follows:
For the Years Ended December 31
(In millions) 1995 1994 1993
- -------------------------------------------------------------------------------
Service cost - benefits earned
during the year $ 19.7 $ 13.0 $ 9.8
Interest accrued on projected
benefit obligations 21.1 20.0 16.9
Actual return on assets (89.3) (2.6) (15.1)
Net amortization and deferral 66.1 (16.3) (5.8)
---------------------------------------
Net pension expense $ 17.6 $ 14.1 $ 5.8
---------------------------------------
---------------------------------------
The following table summarizes the combined status of the three pension
plans. At December 31, 1995 and 1994, each plan's projected benefit obligation
exceeded its assets.
December 31
(In millions) 1995 1994
- ------------------------------------------------------------------------------
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 325.6 $ 221.7
Unvested benefit obligation 5.0 3.5
-----------------------------
Accumulated benefit obligation $ 330.6 $ 225.2
-----------------------------
-----------------------------
Pension liability included in
Consolidated Balance Sheets:
Projected benefit obligation $ 367.1 $ 254.6
Plan assets at fair value 321.2 239.7
-----------------------------
Plan assets less than projected
benefit obligation (45.9) (14.9)
Unrecognized net loss from
past experience 48.8 42.3
Unrecognized prior service benefit (13.8) (17.3)
Unamortized transition asset (26.5) (28.3)
-----------------------------
Net pension liability $ (37.4) $ (18.2)
-----------------------------
-----------------------------
Determination of the projected benefit obligations was based on a weighted
average discount rate of 7.0% in 1995 and 8.5% in 1994, and the assumed
long-term rate of return on plan assets was 9%. The actuarial present value of
the projected benefit obligations was determined using assumed rates of increase
in future compensation levels ranging from 5.5% to 6.5%. The effect of changes
in actuarial assumptions, including the decrease in the weighted average
discount rate, was an increase in the Company's projected benefit obligation of
$76.7 million at December 31, 1995. Plan assets are invested primarily in
various separate accounts and the general account of FAFLIC. The plans also hold
stock of AFC.
The Company has a profit sharing and 401(k) plan for its employees. Effective
for plan years beginning after 1994, the profit sharing formula for employees
has been discontinued and a 401(k) match feature has been added to the
continuing 401(k) plan for the employees. Total plan expense in 1995, 1994 and
1993 was $5.2 million, $12.6 million and $22.6 million, respectively. In
addition to this Plan, the Company has a defined contribution plan for
substantially all of its agents. The Plan expense in 1995, 1994 and 1993 was
$3.5 million, $2.7 million and $2.4 million, respectively.
10. OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's pension plans, the Company currently provides
postretirement medical and death benefits to certain full-time employees and
dependents, under several plans sponsored by FAFLIC, Hanover and Citizens.
Generally, employees become eligible at age 55 with at least 15 years of
service. Spousal coverage is generally provided for up to two years after death
of the retiree. Benefits include hospital, major medical and a payment at death
equal to retirees' final compensation up to certain limits. Effective January 1,
1996, the Company revised these benefits so as to establish limits on future
benefit payments and to restrict eligibility to current employees. The medical
plans have varying copayments and deductibles, depending on the plan. These
plans are unfunded.
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions".
SFAS No. 106 requires employers to recognize the costs and obligations of
postretirement benefits other than pensions over the period ending with the date
an employee is fully eligible to receive benefits. Previously, such costs were
generally recognized as expenses when paid. The adoption increased accrued
liabilities by $69.1 million. The effect on the consolidated income statement
was $35.4 million, net of tax of $23.5 million and minority interest of $10.2
million, reported as a cumulative effect of a change in accounting principle.
The ongoing effect of adopting the new standard increased 1993 net periodic
postretirement benefit expense by $6.6 million, and decreased net income by $4.3
million.
19
<PAGE>
The plans' funded status reconciled with amounts recognized in the Company's
consolidated balance sheet were as follows:
December 31
(In millions) 1995 1994
- -------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 44.9 $ 35.2
Fully eligible active plan participants 14.0 15.2
Other active plan participants 45.9 38.5
-------------------
104.8 88.9
Plan assets at fair value - -
-------------------
Accumulated postretirement benefit
obligation in excess of plan assets 104.8 88.9
Unrecognized loss 13.4 4.7
-------------------
Accrued postretirement benefit costs $ 91.4 $ 84.2
-------------------
-------------------
The components of net periodic postretirement benefit expense were as
follows:
For the Years Ended December 31
(In millions) 1995 1994 1993
- -------------------------------------------------------------------------------
Service cost $ 4.2 $ 6.6 $ 3.8
Interest cost 6.9 6.9 5.7
Amortization of (gain) loss (0.5) 1.4 -
----------------------------------
Net periodic postretirement
benefit expense $ 10.6 $ 14.9 $ 9.5
----------------------------------
----------------------------------
For purposes of measuring the accumulated postretirement benefit obligation
at December 31, 1995, health care costs were assumed to increase 10% in 1996,
declining thereafter until the ultimate rate of 5.5% is reached in 2001 and
remains at that level thereafter. The health care cost trend rate assumption has
a significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation at December 31, 1995
by $10.1 million, and the aggregate of the service and interest cost components
of net periodic postretirement benefit expense for 1995 by $1.2 million.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation at January 1, 1993 was 8.5%. The rate was 7.0%
and 8.5% at December 31, 1995 and 1994, respectively. The effect of changes in
actuarial assumptions, including the decrease in the weighted average discount
rate, was an increase in the Company's accumulated postretirement benefit
obligation of $15.1 million at December 31, 1995.
11. POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 112, (SFAS No. 112), "Employers' Accounting
for Postemployment Benefits", which requires employers to recognize the costs
and obligations of severance, disability and related life insurance and health
care benefits to be paid to inactive or former employees after employment but
before retirement. Prior to adoption, the Company had recognized the cost of
these benefits on an accrual or paid basis, depending on the plan.
Implementation of SFAS No. 112 resulted in a transition obligation of $1.9
million, net of federal income taxes and minority interest, and is reported as a
cumulative effect of a change in accounting principle in the consolidated
statement of income. The impact of this accounting change, after recognition of
the cumulative effect, was not significant.
12. DIVIDEND RESTRICTIONS
Massachusetts, Delaware, New Hampshire and Michigan have enacted laws governing
the payment of dividends to stockholders by insurers. These laws affect the
dividend paying ability of FAFLIC, AFLIAC, Hanover and Citizens, respectively.
Massachusetts' statute limits the dividends an insurer may pay in any twelve
month period, without the prior permission of the Commonwealth of Massachusetts
Insurance Commissioner, to the greater of (i) 10% of its statutory policyholder
surplus as of the preceding December 31 or (ii) the individual company's
statutory net gain from operations for the preceding calendar year (if such
insurer is a life company), or its net income for the preceding calendar year
(if such insurer is not a life company). In addition, under Massachusetts law,
no domestic insurer shall pay a dividend or make any distribution to its
shareholders from other than unassigned funds unless the Commissioner shall have
approved such dividend or distribution. At January 1, 1996, FAFLIC could pay
dividends of $144.9 million to AFC without prior approval of the Commissioner.
Dividends from FAFLIC to AFC will be the primary source of cash for repayment
of the debt by AFC and payment of dividends to AFC stockholders.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of
20
<PAGE>
Insurance, is limited to the greater of (i) 10% of its policyholders' surplus as
of the preceding December 31 or (ii) the individual company's statutory net gain
from operations for the preceding calendar year (if such insurer is a life
company) or its net income (not including realized capital gains) for the
preceding calendar year (if such insurer is not a life company). Any dividends
to be paid by an insurer, whether or not in excess of the aforementioned
threshold, from a source other than statutory earned surplus would also require
the prior approval of the Delaware Commissioner of Insurance. At January 1,
1996, AFLIAC could pay dividends of $4.3 million to FAFLIC without prior
approval.
Pursuant to New Hampshire's statute, the maximum dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the New Hampshire Insurance Commissioner, is limited to 10% of
such insurer's statutory policyholder surplus as of the preceding December 31.
At January 1, 1996, the maximum dividend and other distributions that could be
paid to Allmerica P&C by Hanover, without prior approval of the Insurance
Commissioner, was approximately $72.8 million.
Pursuant to Michigan's statute, the maximum dividends and other distributions
that an insurer may pay in any twelve month period, without prior approval of
the Michigan Insurance Commissioner, is limited to the greater of 10% of
policyholders' surplus as of December 31 of the immediately preceding year or
the statutory net income less realized gains, for the immediately preceding
calendar year. At January 1, 1996, Citizens Insurance could pay dividends of
$45.6 million to Citizens Corporation without prior approval.
13. SEGMENT INFORMATION
The Company offers financial products and services in two major areas: Risk
Management and Retirement and Asset Management. Within these broad areas, the
Company conducts business principally in five operating segments.
The Risk Management group includes two segments: Regional Property and
Casualty and Corporate Risk Management Services. The Regional Property and
Casualty segment includes property and casualty insurance products, such as
automobile insurance, homeowners insurance, commercial multiple-peril insurance,
and workers' compensation insurance. These products are offered by Allmerica P&C
through its operating subsidiaries, Hanover and Citizens. Substantially all of
the Regional Property and Casualty segment's earnings are generated in Michigan
and the Northeast (Connecticut, Massachusetts, New York, New Jersey, New
Hampshire, Rhode Island, Vermont and Maine). The Corporate Risk Management
Services segment, formerly known as the Employee Benefit Services segment,
includes group life and health insurance products and services which assist
employers in administering employee benefit programs and in managing the related
risks.
The Retirement and Asset Management group includes three segments: Retail
Financial Services, Institutional Services and Allmerica Asset Management. The
Retail Financial Services segment, formerly known as the Individual Financial
Services segment, includes variable annuities, variable universal life-type,
traditional and health insurance products distributed via retail channels to
individuals across the country. The Institutional Services segment includes
primarily group retirement products such as 401(k) plans, tax-sheltered
annuities and GIC contracts which are distributed to institutions across the
country via work-site marketing and other arrangements. Allmerica Asset
Management, formerly included in the results of the Institutional Services
segment, is a Registered Investment Advisor which provides investment advisory
services to other institutions, such as insurance companies and pension plans.
21
<PAGE>
Summarized below is financial information with respect to business segments
for the year ended and as of December 31.
(In millions) 1995 1994 1993
- -------------------------------------------------------------------------------
Revenues:
Risk Management
Regional Property and Casualty $ 2,095.1 $ 2,004.8 $ 2,051.1
Corporate Risk Management 328.5 302.4 296.0
---------------------------------------
Subtotal 2,423.6 2,307.2 2,347.1
---------------------------------------
Retirement and Asset Management
Retail Financial Services 486.7 507.9 524.0
Institutional Services 344.1 397.9 382.0
Allmerica Asset Management 4.4 4.0 -
---------------------------------------
Subtotal 835.2 909.8 906.0
Eliminations (20.3) (21.9) (13.9)
---------------------------------------
Total $ 3,238.5 $ 3,195.1 $ 3,239.2
---------------------------------------
---------------------------------------
Income (loss) from continuing
operations before income taxes:
Risk Management
Regional Property and Casualty $ 206.3 $ 113.1 $ 331.3
Corporate Risk Management 18.3 19.9 18.1
---------------------------------------
Subtotal 224.6 133.0 349.4
---------------------------------------
Retirement and Asset Management
Retail Financial Services 35.2 14.2 61.6
Institutional Services 42.8 4.4 (16.1)
Allmerica Asset Management 2.3 1.9 -
---------------------------------------
Subtotal 80.3 20.5 45.5
---------------------------------------
Total $ 304.9 $ 153.5 $ 394.9
---------------------------------------
---------------------------------------
Identifiable assets:
Risk Management
Regional Property and Casualty $ 5,741.8 $ 5,408.7 $ 5,198.1
Corporate Risk Management 458.9 386.3 367.6
---------------------------------------
Subtotal 6,200.7 5,795.0 5,565.7
---------------------------------------
Retirement and Asset Management
Retail Financial Services 7,218.7 5,639.8 5,104.5
Institutional Services 4,280.9 4,484.5 4,708.2
Allmerica Asset Management 2.1 2.2 -
---------------------------------------
Subtotal 11,501.7 10,126.5 9,812.7
---------------------------------------
Total $ 17,702.4 $ 15,921.5 $ 15,378.4
---------------------------------------
---------------------------------------
14. LEASE COMMITMENTS
Rental expenses for operating leases, principally with respect to buildings,
amounted to $36.4 million, $35.2 million and $31.9 million in 1995, 1994 and
1993, respectively. At December 31, 1995, future minimum rental payments under
non-cancelable operating leases were approximately $84.6 million, payable as
follows: 1996 - $29.4 million; 1997 - $21.5 million; 1998 - $14.6 million; 1999
- - $8.7 million; 2000 - $5.5 million; and $4.9 million thereafter.
15. REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that may
arise from catastrophes or other events that cause unfavorable underwriting
results by reinsuring certain levels of risk in various areas of exposure with
other insurance enterprises or reinsurers. Reinsurance transactions are
accounted for in accordance with the provisions of SFAS No. 113.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policy. Reinsurance contracts
do not relieve the Company from its obligations to policyholders. Failure of
reinsurers to honor their obligations could result in losses to the Company;
consequently, allowances are established for amounts deemed uncollectible. The
Company determines the appropriate amount of reinsurance based on evaluation of
the risks accepted and analyses prepared by consultants and reinsurers and on
market conditions (including the availability and pricing of reinsurance). The
Company also believes that the terms of its reinsurance contracts are consistent
with industry practice in that they contain standard terms with respect to lines
of business covered, limit and retention, arbitration and occurrence. Based on
its review of its reinsurers' financial statements and reputations in the
reinsurance marketplace, the Company believes that its reinsurers are
financially sound.
The Company is subject to concentration of risk with respect to reinsurance
ceded to various residual market mechanisms. As a condition to the ability to
conduct certain business in various states, the Company is required to
participate in various residual market mechanisms and pooling arrangements which
provide various insurance coverages to individuals or other entities that are
otherwise unable to purchase such coverage voluntarily provided by private
insurers. These market mechanisms and pooling arrangements include the
Massachusetts Commonwealth Automobile Reinsurers ("CAR"), the Maine Workers'
Compensation Residual
22
<PAGE>
Market Pool ("MWCRP") and the Michigan Catastrophic Claims Association ("MCCA").
As of December 31, 1995, the MCCA and CAR were the only two reinsurers which
represented 10% or more of the Company's reinsurance business. As a servicing
carrier in Massachusetts, the Company cedes a significant portion of its private
passenger and commercial automobile premiums to CAR. Net premiums earned and
losses and loss adjustment expenses ceded to CAR in 1995, 1994 and 1993 were
$49.1 million and $37.9 million, $50.0 million and $34.6 million, and $45.0
million and $31.7 million, respectively.
From 1988 through 1992, the Company was a servicing carrier in Maine, and
ceded a significant portion of its workers' compensation premiums to the Maine
Workers' Compensation Residual Market Pool, which is administered by The
National Council on Compensation Insurance ("NCCI"). The Company is currently
involved in legal proceedings regarding the MWCRP's deficit which through a
legislated settlement issued on June 23, 1995 provided for an initial funding of
$220.0 million, of which the insurance carriers were responsible for $65.0
million. Hanover paid its allocation of $4.2 million in December 1995. Some of
the small carriers are currently appealing this decision. The Company's right to
recover reinsurance balances for claims properly paid is not at issue in any
such proceedings. The Company expects to collect its reinsurance balance;
however, funding of the cash flow needs of the MWCRP may in the future be
affected by issues related to certain litigation, the outcome of which the
Company cannot predict. The Company ceded to MCCA net premiums earned and losses
and loss adjustment expenses in 1995, 1994 and 1993 of $66.8 million and $62.9
million, $80.0 million and $24.2 million, and $76.4 million and $126.8 million,
respectively. Because the MCCA is supported by assessments permitted by statute,
and all amounts billed by the Company to CAR, MWCRP and MCCA have been paid when
due, the Company believes that it has no significant exposure to uncollectible
reinsurance balances.
The effects of reinsurance were as follows:
For the Years Ended December 31
(In millions) 1995 1994 1993
- ------------------------------------------------------------------------------
Life insurance premiums:
Direct $ 438.9 $ 447.2 $ 453.0
Assumed 71.0 54.3 31.3
Ceded (150.3) (111.0) (83.2)
---------------------------------------
Net premiums $ 359.6 $ 390.5 $ 401.1
---------------------------------------
---------------------------------------
Property and casualty
premiums written:
Direct $ 2,039.4 $ 1,992.4 $ 1,906.2
Assumed 125.0 128.6 106.3
Ceded (279.1) (298.1) (267.4)
---------------------------------------
Net premiums $ 1,885.3 $ 1,822.9 $ 1,745.1
---------------------------------------
---------------------------------------
Property and casualty
premiums earned:
Direct $ 2,021.7 $ 1,967.1 $ 1,870.1
Assumed 137.7 116.1 114.8
Ceded (296.2) (291.9) (306.7)
---------------------------------------
Net premiums $ 1,863.2 $ 1,791.3 $ 1,678.2
---------------------------------------
---------------------------------------
Life insurance and other individual
policy benefits, claims, losses and
loss adjustment expenses:
Direct $ 749.6 $ 773.0 $ 819.4
Assumed 38.5 28.9 6.8
Ceded (69.5) (61.6) (38.4)
---------------------------------------
Net policy benefits, claims, losses
and loss adjustment expenses $ 718.6 $ 740.3 $ 787.8
---------------------------------------
---------------------------------------
Property and casualty benefits,
claims, losses and loss
adjustment expenses:
Direct $ 1,372.7 $ 1,364.4 $ 1,310.3
Assumed 146.1 102.7 98.8
Ceded (229.1) (160.4) (209.7)
---------------------------------------
Net policy benefits, claims, losses
and loss adjustment expenses $ 1,289.7 $ 1,306.7 $ 1,199.4
---------------------------------------
---------------------------------------
23
<PAGE>
16. DEFERRED POLICY ACQUISITION EXPENSES
The following reflects the amount of policy acquisition expenses deferred and
amortized:
For the Years Ended December 31
(In millions) 1995 1994 1993
- -------------------------------------------------------------------------------
Balance at beginning of year $ 802.8 $ 746.9 $ 700.4
Acquisition expenses deferred 504.8 510.3 482.3
Amortized to expense
during the year (470.3) (475.7) (435.8)
Adjustment to equity
during the year (50.4) 21.3 -
Transferred to the Closed Block (24.8) - -
Adjustment for cession of
term life insurance (26.4) - -
----------------------------------
Balance at end of year $ 735.7 $ 802.8 $ 746.9
----------------------------------
----------------------------------
17. LIABILITIES FOR OUTSTANDING CLAIMS, LOSSES
AND LOSS ADJUSTMENT EXPENSES
The Company regularly updates its estimates at liabilities for outstanding
claims, losses and loss adjustment expenses as new information becomes available
and further events occur which may impact the resolution of unsettled claims for
its property and casualty and its accident and health lines of business. Changes
in prior estimates are reflected in results of operations in the year such
changes are determined to be needed and recorded.
The liability for outstanding claims, losses and loss adjustment expenses
related to the Company's accident and health business was $375.9 million, $305.0
million and $276.3 million at December 31, 1995, 1994 and 1993, respectively.
Accident and health claim liabilities have been re-estimated for all prior years
and were increased by $26.4 million, $6.5 million and $12.7 million in 1995,
1994 and 1993, respectively. Unfavorable development in the accident and health
business during 1995 is primarily due to reserve strengthening and adverse
experience in the Company's individual disability line of business.
The following table provides a reconciliation of the beginning and ending
property and casualty reserve for unpaid losses and loss adjustment expenses
(LAE):
For the Years Ended December 31
(In millions) 1995 1994 1993
- -------------------------------------------------------------------------------
Reserve for losses and LAE,
beginning of year $ 2,821.7 $ 2,717.3 $ 2,598.9
Incurred losses and LAE, net
of reinsurance recoverable:
Provision for insured events of
the current year 1,427.3 1,434.8 1,268.2
Decrease in provision for insured
events of prior years (137.6) (128.1) (68.8)
----------------------------------
Total incurred losses and LAE 1,289.7 1,306.7 1,199.4
----------------------------------
Payments, net of reinsurance
recoverable:
Losses and LAE attributable to
insured events of current year 652.2 650.2 523.5
Losses and LAE attributable to
insured events of prior years 614.3 566.9 564.3
----------------------------------
Total payments 1,266.5 1,217.1 1,087.8
----------------------------------
Less reserves assumed by purchaser
of Beacon - - (28.8)
----------------------------------
Change in reinsurance recoverable
on unpaid losses 51.1 14.8 35.6
----------------------------------
Reserve for losses and LAE,
end of year $ 2,896.0 $ 2,821.7 $ 2,717.3
----------------------------------
----------------------------------
As part of an ongoing process, the property and casualty reserves have been
re-estimated for all prior accident years and were decreased by $137.6 million,
$128.1 million and $68.8 million in 1995, 1994 and 1993, respectively. The
increase in favorable development on prior years' reserves of $9.5 million in
1995 results primarily from a $34.6 million increase in favorable development at
Citizens. Favorable development in Citizens' personal automobile and workers'
compensation lines increased $16.6 million and $15.5 million, to favorable
development of $4.4 million and $32.7 million, respectively. Hanover's favorable
development, not including the effect of voluntary and involuntary pools, was
relatively unchanged at $90.2 million in 1995 compared to $91.7 million in 1994.
Favorable development in Hanover's workers' compensation line increased $27.7
million to $31.0 million during 1995. This was offset by decreases of $14.6
million and
24
<PAGE>
$12.6 million, to $45.5 million and $0.1 million, in the personal automobile and
commercial multiple peril lines, respectively. Favorable development in
Hanover's voluntary and involuntary pools decreased $23.6 million to $0.4
million during 1995.
The increase in favorable development on prior years' reserves of $59.3
million in 1994 primarily results from an increase in favorable development in
the voluntary and involuntary pools of $47.0 million in 1994. The remainder of
the favorable reserve development in 1994 is the result of favorable severity
trends, primarily in the personal automobile and commercial multiple peril
lines.
This favorable development reflects the Regional Property and Casualty
subsidiaries' reserving philosophy consistently applied over these periods.
Conditions and trends that have affected development of the loss and LAE
reserves in the past may not necessarily occur in the future.
Due to the nature of business written by the Regional Property and Casualty
subsidiaries, the exposure to environmental liabilities is relatively small.
Losses and LAE reserves related to environmental damage and toxic tort
liability, included in the total reserve for losses and LAE, were $28.6 million
and $19.4 million, net of reinsurance of $8.4 million and $8.1 million, at the
end of 1995 and 1994, respectively. During 1995, the Regional Property and
Casualty subsidiaries redefined their environmental liabilities in conformity
with new guidelines issued by the NAIC. The 1994 liability has been conformed to
the 1995 presentation. This had no impact on results of operations. Management
believes that, notwithstanding the evolution of case law expanding such
liability, recorded reserves for environmental liability are adequate, and is
not aware of any litigation or pending claims that may result in additional
material liabilities in excess of recorded reserves. During 1995, Hanover
performed an actuarial review of its environmental reserves. This resulted in
Hanover's providing additional reserves for "IBNR" (incurred but not reported)
claims, in addition to existing reserves for reported claims. At Citizens,
environmental reserves are primarily related to reported claims. Although these
claims are not material, their existence gives rise to uncertainty and is
discussed because of the possibility, however remote, that they may become
material. The environmental liability could be revised in the near term if the
estimates used in determining the liability are revised.
18. MINORITY INTEREST
The Company's interest in Allmerica P&C, is represented by ownership of 58.3%,
57.4% and 57.4% of the outstanding shares of common stock at December 31, 1995,
1994 and 1993, respectively. Earnings and shareholders' equity attributable to
minority shareholders are included in minority interest in the consolidated
financial statements.
19. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions have contributed to an increase in the number of
insurance companies that are under regulatory supervision. This is expected to
result in an increase in mandatory assessments by state guaranty funds, or
voluntary payments by, solvent insurance companies to cover losses to
policyholders of insolvent or rehabilitated companies. Mandatory assessments,
which are subject to statutory limits, can be partially recovered through a
reduction in future premium taxes in some states. The Company is not able to
reasonably estimate the potential effect on it of any such future assessments or
voluntary payments.
LITIGATION
On June 23, 1995, the governor of Maine approved a legislative settlement for
the Maine Workers' Compensation Residual Market Pool deficit for the years 1988
through 1992. The settlement provides for an initial funding of $220.0 million
toward the deficit. The insurance carriers are liable for $65.0 million payable
on or before January 1, 1996, and employers will contribute $110.0 million
payable through surcharges on premiums over the course of the next ten years.
The major insurers are responsible for 90% of the $65.0 million. Hanover's
allocated share of the settlement is approximately $4.2 million, which was paid
in December 1995. The remainder of the deficit of $45.0 million will be paid by
the Maine Guaranty Fund Surplus payable in quarterly contributions over ten
years. The smaller carriers have recently filed litigation to appeal the
settlement. The Company believes that adequate reserves have been established
for any additional liability.
The Company has been named a defendant in various other legal proceedings
arising in the normal course of business. In the opinion of management, based on
the advice of legal counsel, the ultimate resolution of these proceedings will
not have a material effect on the Company's consolidated financial statements.
However, liabilities related to these proceedings could be established in the
near term if estimates of the ultimate resolution of these proceedings are
revised.
RESIDUAL MARKETS
The Company is required to participate in residual markets in various states.
The results of the residual markets are not subject to the predictability
associated with the Company's own managed business, and are significant to the
workers' compensation line of business and both the private passenger and
commercial automobile lines of business.
25
<PAGE>
20. STATUTORY FINANCIAL INFORMATION
The insurance subsidiaries are required to file annual statements with state
regulatory authorities prepared on an accounting basis prescribed or permitted
by such authorities (statutory basis). Statutory surplus differs from
shareholders' equity reported in accordance with generally accepted accounting
principles for stock life insurance companies primarily because policy
acquisition costs are expensed when incurred, investment reserves are based on
different assumptions, postretirement benefit costs are based on different
assumptions and reflect a different method of adoption, life insurance reserves
are based on different assumptions and income tax expense reflects only taxes
paid or currently payable. Statutory net income and surplus are as follows:
(In millions) 1995 1994 1993
- -------------------------------------------------------------------------------
Statutory net income (Unconsolidated)
Property and Casualty Companies $ 139.8 $ 74.5 $ 166.8
Life and Health Companies 134.3 40.7 114.8
---------------------------------------
Statutory Shareholders'
Surplus (Unconsolidated)
Property and Casualty Companies $ 1,151.7 $ 989.8 $ 960.1
Life and Health Companies 965.6 465.3 526.4
---------------------------------------
21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations for 1995 and 1994 are summarized below:
For the Three Months Ended
(In millions)
1995 March 31 June 30 Sept. 30 Dec. 31
- -----------------------------------------------------------------------------
Total revenues $ 841.4 $ 793.4 $ 819.2 $ 784.5
--------------------------------------------
Income before extraordinary item $ 39.2 $ 29.9 $ 34.8 $ 45.2
Extraordinary item -
demutualization expenses (2.5) (3.5) (4.7) (1.4)
--------------------------------------------
Net income $ 36.7 $ 26.4 $ 30.1 $ 43.8
--------------------------------------------
--------------------------------------------
1994
Total revenues $ 815.4 $ 786.8 $ 799.3 $ 793.6
--------------------------------------------
Income (loss)
before extraordinary item $ (10.9) $ 15.7 $ 26.6 $ 17.7
Extraordinary item -
demutualization expenses (1.6) (2.5) (2.8) (2.3)
Cumulative effect of changes
in accounting principles (1.9) - - -
--------------------------------------------
Net income $ (14.4) $ 13.2 $ 23.8 $ 15.4
--------------------------------------------
--------------------------------------------
26
<PAGE>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
FINANCIAL STATEMENTS INCLUDED IN PART A
None
FINANCIAL STATEMENTS INCLUDED IN PART B
Financial Statements for First Allmerica Life Insurance Company
Financial Statements for Separate Account VA-P of First Allmerica
Financial Life Insurance Company
FINANCIAL STATEMENTS INCLUDED IN PART C
None
(b) EXHIBITS
Exhibit 1 - Vote of the Board of Directors dated August 20, 1991 was
previously filed in Registrant's initial Registration Statement
on November 22, 1994 and is herein incorporated by reference.
Exhibit 2 - Not Applicable. Pursuant to Rule 26a-2, the Insurance Company
may hold the assets of the Registrant NOT pursuant to a trust
indenture or other such instrument.
Exhibit 3 - (a) Form of Underwriting and Administrative Services Agreement
was previously filed in Registrant's initial Registration
Statement on November 22, 1994 and is herein incorporated by
reference.
(b) Wholesaling Agreement was filed on October 1, 1995 in
Registration Statement No. 1 and is incorporated by reference
herein.
(c) Broker's Agreement and Specimen Schedule of Sales
Commissions for Variable Annuity Policies were previously
filed on November 3, 1994 in Registration Statement
No. 33-85916, and are herein incorporated by reference.
Exhibit 4 - Proposed Form of Policy Form A was previously filed in
Registrant's initial Registration Statement on November 22,
1994 and is herein incorporated by reference.
Specimen Policy Form B is filed herewith.
Exhibit 5 - Proposed Form of Application Form A was previously filed in
Registrant's initial Registration Statement on
November 22, 1994 and is herein incorporated by reference.
Specimen Application Form B is filed herewith.
Exhibit 6 - (a)The Depositor's restated Articles of Incorporation were
previously filed on October 1, 1995, in Post-Effective
Amendment No. 1 and are incorporated herein by reference.
(b)The Depositor's revised Bylaws were filed on April 30, 1996
and are incorporated herein by reference.
Exhibit 7 - Not Applicable.
Exhibit 8 - AUV Calculation Services Agreement with The Shareholder
Services Group dated March 31, 1995 was previously filed
on May 1, 1995 and is incorporated by reference herein.
Exhibit 9 - Consent and Opinion of Counsel.
Exhibit 10 - Consent of Independent Accountants
Exhibit 11 - None.
Exhibit 12 - None.
Exhibit 13 - None.
Exhibit 14- Participation Agreement was previously filed
and is incorporated by reference herein.
Other Exhibits:
Exhibit 27 - Financial Data Schedules
<PAGE>
Item 25. DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
The principal business address of all the following Directors and
Officers is:
440 Lincoln Street
Worcester, Massachusetts 01553
Name and Position Principal Occupation(s) During Past Five Years
- -------------------------- --------------------------------------------------
Bruce C. Anderson Director of First Allmerica since 1996; Vice
President, First Allmerica
Abigail M. Armstrong Secretary of First Allmerica since 1996; Counsel,
First Allmerica
Mark R. Colborn Vice President and Controller, First Allmerica
Kruno Huitzingh Director of First Allmerica since 1996; Vice
President & Chief Information Officer, First
Allmerica since 1993; Executive Vice President,
Chicago Board Options Exchange, 1985 to 1993
John F. Kelly Director of First Allmerica since 1996; Senior Vice
President and General Counsel, First Allmerica
John F. O'Brien Director, Chairman of the Board, President and Chief
Executive Officer of First Allmerica
Edward J. Parry, III Vice President and Treasurer, First Allmerica since
1993; Assistant. Vice President to 1992 to 1993;
Manager, Price Waterhouse, 1987 to 1992
Richard M. Reilly Director of First Allmerica since 1996; Vice
President, First Allmerica; Director and President,
Allmerica Investments, Inc.; Director and President,
Allmerica Investment Management Company, Inc. since
since 1992.
Larry C. Renfro Director of First Allmerica since 1996; Vice
President of First Allmerica
Theodore J. Rupley Director of First Allmerica since 1996; Director,
President, and CEO, The Hanover Insurance Company
since 1992; President, Fountain Powerboats, 1992;
President, Metropolitan Property & Casualty Company,
1986-1992.
Phillip E. Soule Director of First Allmerica since 1996; Vice
President, First Allmerica
Eric A. Simonsen Director of First Allmerica since 1996; Vice
President and Chief Financial Officer, First
Allmerica
Diane E. Wood Director of First Allmerica since 1996; Vice
President, First Allmerica
<PAGE>
Item 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT. See attached
organization chart.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
Allmerica Asset 440 Lincoln Street Investment advisory
Management, Inc. Worcester MA 01653 services
Allmerica Employees 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester MA 01653
Allmerica Financial Life 440 Lincoln Street Life insurance, accident
Insurance and Annuity Worcester MA 01653 & health insurance,
Company annuities, variable
annuities and variable
life insurance
Allmerica Financial Services 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester, MA 01653
Allmerica Funds 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Institutional 440 Lincoln Street Accounting, marketing
Services, Inc. Worcester MA 01653 and shareholder
(formerly known as services for
440 Financial Group investment
of Broadwater, Inc.) companies
Allmerica Investment 440 Lincoln Street Investment Advisory
Management Company, Inc. Worcester MA 01653 Services
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail
Worcester MA 01653 broker-dealer
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Property and 440 Lincoln Street Holding Company
Casualty Companies, Inc. Worcester MA 01653
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services, Inc. 440 Lincoln Street Service Company
Worcester MA 01653
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national
Worcester MA 01653 trust company
AMGRO, Inc. 472 Lincoln Street Premium financing
Worcester MA 01653
APC Funding Corp. 440 Lincoln Street Special purpose funding
Worcester MA 01653 vehicle for commercial
paper
Beltsville Drive Limited 440 Lincoln Street Real estate partnership
Partnership Worcester MA 01653
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company 645 West Grand River Multi-line fire &
of America Howell MI 48843 casualty insurance
Citizens Insurance Company 3950 Priority Way Multi-line fire &
of the Midwest South Drive, Suite 200 casualty insurance
Indianapolis IN 46280
Citizens Insurance Company 8101 N. High Street Multi-line fire &
of Ohio P.O. Box 342250 casualty insurance
Columbus OH 43234
Citizens Management, Inc. 645 West Grand River Services management
Howell MI 48843 company
Greendale Special Placements 440 Lincoln Street Massachusetts Grantor
Fund Worcester MA 01653 Trust
The Hanover American 100 North Parkway Multi-line fire &
Insurance Company Worcester MA 01653 casualty insurance
The Hanover Insurance Company 100 North Parkway Multi-line fire &
Worcester MA 01605 casualty insurance
Hanover Texas Insurance 801 East Campbell Road Incorporated Branch
Management Company, Inc. Richardson TX 75081 Office of The Hanover
Insurance Company
<PAGE>
Attorney in-fact for
Hanover Lloyd's
Insurance Company
Hanover Lloyd's Insurance 801 East Campbell Road Multi-line fire &
Company Richardson TX 75081 casualty insurance
Hollywood Center, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Linder Skokie Real Estate 440 Lincoln Street General business
Corporation Worcester MA 01653 corporation
Lloyds Credit Corporation 440 Lincoln Street Premium financing
Worcester MA 01653 service franchises
Logan Wells Water 603 Heron Drive Water Company, serving
Company, Inc. Bridgeport NJ 08014 land development
investment
Massachusetts Bay Insurance 100 North Parkway Multi-line fire &
Company Worcester MA 01653 casualty
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Somerset Square, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Sterling Risk Management 100 North Parkway Risk management
Services, Inc. Worcester MA 01605 services
Item 27. NUMBER OF CONTRACTOWNERS.
As of December 31, 1995, the Separate Account had no Policyowners.
Item 28. INDEMNIFICATION.
To the fullest extent permissible under Massachusetts General Laws, no director
shall be personally liable to the Company or any policyholder for monetary
damages for any breach of fiduciary duty as a director, notwithstanding any
provision of law to the contrary; provided, however, that this provision shall
not eliminate or limit the liability of a director:
1. for and breach of the director's duty of loyalty to the Company or its
policyholders;
2. for acts or omissions not in good faith, or which involve intentional
misconduct or a knowing violation of law;
3. for liability, if any, imposed on directors of mutual insurance companies
pursuant to M.G.L.A. c. 156B Section 61 or M.G.L.A. c.156B Section 62;
4. for any transactions from which the director derived an improper personal
benefit.
Item 29. PRINCIPAL UNDERWRITERS.
(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
- VEL Account, VEL II Account, Inheiritage Account, Separate Accounts
VA-A, VA-B, VA-C, VA-G, VA-H, VA-K, Allmerica Select Separate
Account II, Group VEL Account and Allmerica Select Separate
Account of Allmerica Financial Life Insurance and Annuity Company.
- Inheiritage Account, VEL II Account, Separate Account I, Separate
Account VA-K and Allmerica Select Separate Account of First
Allmerica Financial Life Insurance Company
- Allmerica Funds
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
<PAGE>
Name Position or Office with Underwriter
---- -----------------------------------
Abigail M. Armstrong Secretary and Counsel
Philip J. Coffey Vice President
John F. Kelly Director
John F. O'Brien Director
Stephen Parker President and Chief Executive Officer
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Mark Steinberg Senior Vice President
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are
maintained by the Company at 440 Lincoln Street, Worcester, Massachusetts or on
behalf of the Company by First Data Investor Services Group, 4400 Computer
Drive, Westboro, Massachusetts.
Item 31. MANAGEMENT SERVICES.
Effective March 31, 1995, the Company has engaged The Shareholder Services
Group, Inc., 53 State Street, Boston, Massachusetts to provide daily unit value
calculations and related services for the Company's separate accounts.
Item 32. UNDERTAKINGS.
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
(b) The registrant hereby undertakes to include in the prospectus a postcard
that the applicant can remove to send for a Statement of Additional Information.
(c) The registrant hereby undertakes to deliver a Statement of Additional
Information promptly upon written or oral request, according to the requirements
of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act may be
permitted to Directors, Officers and Controlling Persons of Registrant under any
registration statement, underwriting agreement or otherwise, Registrant has been
advised that, in the opinion of the
<PAGE>
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a Director, Officer or
Controlling Person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such Director, Officer or Controlling Person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
Item 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(b)
PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM.
Registrant, a separate account of First Allmerica Financial Life Insurance
Company ("Company"), states that it is (a) relying on Rule 6c-7 under the 1940
Act with respect to withdrawal restrictions under the Texas Optional Retirement
Program ("Program") and (b) relying on the "no-action" letter (Ref. No. IP-6-88)
issued on November 28, 1988 to the American Council of Life Insurance, in
applying the withdrawal restrictions of Internal Revenue Code Section
403(b)(11). Registrant has taken the following steps in reliance on the letter:
1. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in the prospectus
of each registration statement used in connection with the offer of the
Company's variable contracts.
2. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in sales
literature used in connection with the offer of the Company's variable
contracts.
3. Sales Representatives who solicit participants to purchase the variable
contracts have been instructed to specifically bring the redemption
restrictions imposed by the Program and by Section 403(b)(11) to the
attention of potential participants.
4. A signed statement acknowledging the participant's understanding of (i) the
restrictions on redemption imposed by the Program and by Section 403(b)(11)
and (ii) the investment alternatives available under the employer's
arrangement will be obtained from each participant who purchases a variable
annuity contract prior to or at the time of purchase.
Registrant hereby represents that it will not act to deny or limit a transfer
request except to the extent that a Service-Ruling or written opinion of
counsel, specifically addressing the fact pattern involved and taking into
account the terms of the applicable employer plan, determines that denial or
limitation is necessary for the variable annuity contracts to meet the
requirements of the Program or of Section 403(b). Any transfer request not so
denied or limited will be effected as expeditiously as possible.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Worcester, and Commonwealth of Massachusetts on
the 3rd day of May, 1996.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY --
SEPARATE ACCOUNT VA-P
BY: /s/ Abigail M. Armstrong
-------------------------
Abigail M. Armstrong
Secretary and Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities on May 3, 1996.
/s/ John F. O' Brien /s/ John F. Kelly
- ------------------------------- -----------------------------------
John F. O'Brien John F. Kelly
Director, Chairman of the Board, Director, Senior Vice President and
President and CEO Assistant Secretary
/s/ Richard M. Reilly
- ----------------------------------- -----------------------------------
Richard M. Reilly James R. McAuliffe
Director and Vice President Director
/s/ Eric A. Simonsen /s/ Larry C. Renfro
- ----------------------------------- -----------------------------------
Eric A. Simonsen Larry C. Renfro
Director, Vice President and CFO Director and Vice President
/s/ Bruce C. Anderson /s/ Theodore J. Rupley
- ----------------------------------- -----------------------------------
Bruce C. Anderson Theodore J. Rupley
Director and Vice President Director
/s/ Mark R. Colborn /s/ Phillip E. Soule
- ----------------------------------- -----------------------------------
Mark R. Colborn Phillip J. Soule
Vice President and Controller Director and Vice President
/s/ Kruno Huitzingh /s/ Diane E. Wood
- ----------------------------------- -----------------------------------
Kruno Huitzingh Diane E. Wood
Director, Vice President and Director, Vice President and
Chief Information Officer Chief Investment Officer
<PAGE>
EXHIBIT TABLE
Exhibit 4 - Policy Form B
Exhibit 5 - Application Form B
Exhibit 9 - Consent and Opinion of Counsel
Exhibit 10 - Consent of Independent Accountants
Exhibit 27 - Financial Data Schedules
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
ANNUITY BENEFIT PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED
ON THE INVESTMENT PERFORMANCE OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE
AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. PLEASE REFER TO THE VALUE OF
THE VARIABLE ACCOUNT SECTION FOR ADDITIONAL INFORMATION.
VALUES REMOVED FROM A GUARANTEE PERIOD ACCOUNT PRIOR TO THE END OF ITS GUARANTEE
PERIOD MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT THAT MAY INCREASE OR DECREASE
THE VALUES. A NEGATIVE MARKET VALUE ADJUSTMENT WILL NEVER BE APPLIED TO THE
DEATH BENEFIT. A POSITIVE MARKET VALUE ADJUSTMENT, IF APPLICABLE, WILL BE ADDED
TO THE DEATH BENEFIT WHEN THE BENEFIT PAID IS THE CONTRACT'S ACCUMULATED VALUE.
PLEASE REFER TO THE MARKET VALUE ADJUSTMENT SECTION FOR ADDITIONAL INFORMATION.
RIGHT TO EXAMINE CONTRACT
The Owner may cancel this contract by returning it to the Company or one of its
authorized representatives within ten days after receipt. If returned, the
Company will refund an amount equal to the sum of (1) gross payments, less any
amounts allocated to the Variable Account, (2) the Accumulated Value of amounts
allocated to the Variable Account on the date the returned contract is received
at the Principal Office and (3) any fees or other charges imposed on the amounts
allocated to the Variable Account. If, however, the contract is issued as an
Individual Retirement Annuity (IRA), the Company will refund the greater of the
above or the gross payments.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
This is a legal contract between Allmerica Financial Life Insurance and Annuity
Company (the Company) and the Owner and is issued in consideration of the
initial payment shown on the Specifications page. Additional payments are
permitted and may be made either to the Principal Office or to an authorized
representative of the Company. Payments may be allocated to Variable Sub-
Accounts, the Fixed Account or Guarantee Period Accounts. While this contract
is in effect, the Company agrees to pay annuity benefits to the Annuitant
beginning on the Annuity Date or to pay a death benefit to the Beneficiary if
either the Owner or Annuitant dies prior to the Annuity Date.
/s/ John F. O'Brien /s/ Abigail M. Armstrong
President Secretary
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY
NON-PARTICIPATING
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
OWNER AND BENEFICIARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
VALUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
WITHDRAWAL AND SURRENDER . . . . . . . . . . . . . . . . . . . . . . . . . . .10
DEATH BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
ANNUITY BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
ANNUITY OPTION TABLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
2
<PAGE>
SPECIFICATIONS
Annuitant: Contract Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Issue Date: Contract Type:
Annuitant Sex: Annuitant Date of Birth:
Owner: Owner Date of Birth:
Joint Owner: Joint Owner Date of Birth:
Annuity Date: [The earlier of the date, if any, Beneficiary:
selected by the Owner or the later
of annuitant's age 85 or birthday following the
tenth contract anniversary not to exceed 90]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Minimum Fixed Account Guaranteed Interest Rate: [3%] Minimum Additional Payment: [$50]
Minimum Guarantee Period Account Interest Rate: [3% ] Minimum Guarantee Period Account Allocation: [$1,000]
Death Benefit Effective Annual Yield: [5%] Minimum Withdrawal Amount: [$100]
Minimum Annuity Benefit Payment: [$50] Minimum Accumulated Value After Withdrawal: [$1,000]
</TABLE>
Maximum Alternative Annuity Date: No later than the first of the month
preceding the Annuitant's [90th]
birthday and within life expectancy
Surrender Charge Table:
Years Measured From Surrender Charge as a
Date of Payment Percent of the Payments
To Date of Withdrawal Withdrawn
------------------------------------------------------
[Less than: 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%]
Withdrawal without Surrender Charge: [15%]
Mortality and Expense Risk Charge: [1.25%] on an annual basis of the daily
value of the Sub-Account assets.
Administrative Charge: [.15%] on an annual basis of the daily value of the
Sub-Account assets.
Contract Fee: [$30, if the Accumulated Value is less than $50,000].
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
[(1-800-533-2124)]
3
<PAGE>
SPECIFICATIONS (continued)
Annuitant: Contract Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Initial Net Payment:
Initial Net Payment Allocation:
VARIABLE SUB-ACCOUNTS
FIXED ACCOUNT
Initial Interest Rate:
GUARANTEE PERIOD ACCOUNTS
GUARANTEED
GUARANTEE INTEREST EXPIRATION
PERIOD RATE DATE
--------- ---------- ----------
[2 years
3 years
4 years
5 years
6 years
7 years
8 years
9 years
10 years]
-----
100% TOTAL
4
<PAGE>
DEFINITIONS
ACCUMULATED The value of all accounts in this contract before
VALUE the Annuity Date. As long as the Accumulated
Value is greater than zero, the contract will stay
in effect.
ACCUMULATION A measure used to calculate the value of a Sub-
UNIT Account before annuity benefit payments begin.
ANNUITY DATE The date annuity benefit payments begin. The
Annuity Date is shown on the Specifications page,
unless the Owner elects an alternative Annuity
Date.
ANNUITY UNIT A measure used to calculate annuity benefit
payments under a variable annuity option.
BENEFICIARY The person, persons or entity entitled to the death benefit.
COMPANY Allmerica Financial Life Insurance and Annuity Company.
CONTRACT YEAR A period of one year computed from the date of issue or from
an anniversary of the date of issue.
EFFECTIVE The Valuation Date on or immediately following the
VALUATION DATE day a payment, request for transfer, withdrawal or
surrender, or proof of death is received at the
Principal Office.
FIXED ACCOUNT The part of the Company's General Account to which
all or a portion of a payment or transfer may be
allocated.
FUND Each separate investment series eligible for
investment by a Sub-Account of the Variable
Account.
GENERAL ACCOUNT All assets of the Company that are not allocated
to a Separate Account.
GUARANTEED The annual effective rate of interest after daily
INTEREST RATE compounding credited to a Guarantee Period
Account.
GUARANTEE PERIOD The number of years that a Guaranteed Interest
Rate may be credited to a Guarantee Period
Account. The Guarantee Period may range from two
to ten years.
GUARANTEE PERIOD An account which corresponds to a Guaranteed
ACCOUNT Interest Rate for a specified Guarantee Period and
is supported by assets in a Separate Account.
MARKET VALUE A positive or negative adjustment assessed if any
ADJUSTMENT portion of a Guarantee Period Account is withdrawn
or transferred prior to the end of its Guarantee Period.
OWNER The person, persons or entity entitled to exercise
the rights and privileges under this contract.
Joint owners are permitted if one of the two is
the annuitant.
PRINCIPAL OFFICE The Company's office at 440 Lincoln Street,
Worcester, Massachusetts, 01653.
PRO RATA How a payment or withdrawal may be allocated among
the accounts. A Pro Rata allocation or withdrawal
will be made in the same proportion that the value
of each account bears to the Accumulated Value.
5
<PAGE>
SEPARATE ACCOUNT A segregated account established by the Company.
The assets are not commingled with the Company's
general assets and obligations.
SUB-ACCOUNT A Variable Account subdivision that invests
exclusively in shares of a corresponding Fund.
SURRENDER VALUE The amount payable to the Owner on full surrender
after application of any Surrender Charge, Market
Value Adjustment and contract fee.
TELEPHONE A request by telephone to the Principal Office. A
REQUEST signed authorization must be on file for such
requests to be honored.
VALUATION DATE A day the values of all units are determined.
Valuation Dates occur at the close of business on
each day the New York Stock Exchange is open for trading.
VALUATION PERIOD The interval between two consecutive Valuation Dates.
VARIABLE ACCOUNT The Company's Separate Account, consisting of Sub-Accounts
that invest in the underlying Funds.
WRITTEN REQUEST A request or notice in writing satisfactory to the
OR WRITTEN Company and filed at the Principal Office.
NOTICE
6
<PAGE>
OWNER AND BENEFICIARY
OWNER During the lifetime of the Annuitant and before
the Annuity Date, the Owner will be as shown on
the Specifications page unless changed in
accordance with the terms of this contract. On
and after the Annuity Date, the Annuitant will be
the Owner unless the Owner immediately prior to
the Annuity Date is not a person. In that case,
ownership will remain the same on and after the
Annuity Date.
The Owner may exercise all rights and options
granted in this contract or by the Company,
subject to the consent of any irrevocable
Beneficiary. Where the contract is owned jointly,
the consent of both is required in order to
exercise any ownership rights.
ASSIGNMENT The Owner may be changed at any time prior to the Annuity
Date and while the Annuitant is alive. Only the Owner
may assign this contract. An absolute assignment will
transfer ownership to the assignee. This contract may
also be collaterally assigned as security. The
limitations on ownership rights while the collateral
assignment is in effect are stated in the assignment.
Additional limitations may exist for contracts issued
under provisions of the Internal Revenue Code.
An assignment will take place only when the Company has
received Written Notice and recorded the change at the
Principal Office. The Company will not be deemed to know
of the assignment until it has received Written Notice.
When recorded, the assignment will take effect as of the
date it was signed. The assignment will be subject to
payments made or actions taken by the Company before the
change was recorded.
The Company will not be responsible for the validity of
any assignment nor the extent of any assignee's interest.
The interests of the Annuitant and the Beneficiary will
be subject to any assignment.
BENEFICIARY The Beneficiary is as named on the Specifications page
unless subsequently changed. The Owner may declare any
Beneficiary to be revocable or irrevocable. A revocable
Beneficiary may be changed at any time. An irrevocable
Beneficiary must consent in writing to any change.
Unless otherwise indicated, the Beneficiary will be
revocable.
A Beneficiary change must be made in writing on a
Beneficiary designation form and will be subject to the
rights of any assignee of record. When the Company
receives the form, the change will take place as of the
date it was signed, even if the Owner or Annuitant is
then deceased. Any rights created by the change will be
subject to payments made or actions taken by the Company
before the change was recorded.
All death benefits provided by this contract will be
divided equally among the surviving Beneficiaries of the
same class, unless the Owner directs otherwise. If there
is no surviving Beneficiary, the deceased Beneficiary's
interest will pass to the Owner or the Owner's estate.
PROTECTION OF To the extent allowed by law, this contract and any
PROCEEDS payments made under it will be exempt from the claims of
creditors. Neither the Annuitant nor the Beneficiary can
assign, transfer, commute, anticipate or encumber the
proceeds or payments unless given that right by the Owner.
7
<PAGE>
PAYMENTS
The Initial Payment is shown on the Specifications page.
ADDITIONAL Prior to the Annuity Date, the Owner may make
PAYMENTS additional payments of at least the Minimum
Additional Payment (see Specifications page).
Total payments made may not exceed $5,000,000
without the Company's consent.
NET PAYMENTS Each Net Payment is equal to the gross payment
less the amount of any applicable premium tax.
The Company reserves the right to deduct the
amount of the premium tax from the Accumulated
Value at a later date rather than when the tax
is first incurred. In no event will an amount
be deducted for premium taxes before the Company
has incurred a tax liability under applicable
state law.
NET PAYMENT The initial Net Payment is allocated as shown on
ALLOCATIONS the Specifications page. Additional Net
Payments will be allocated in the same
proportion as the initial Net Payment, unless
changed by the Owner's Written or Telephone
Request.
If the Right To Examine Contract provision
provides for a full refund of all payments, any
portion of a Net Payment allocated to a Sub-
Account or a Guarantee Period Account will be
held in the Money Market Sub-Account during the
contract's first fifteen days. After fifteen
days, these amounts will be allocated as
requested.
The minimum that may be allocated to a Guarantee
Period Account is shown on the Specifications
page. If less is allocated to a Guarantee
Period Account, the Company reserves the right
to apply that amount to the Money Market Sub-
Account.
VALUES
VALUE OF THE The value of a Sub-Account on a Valuation Date
VARIABLE ACCOUNT is determined by multiplying the Accumulation
Units in that Sub-Account by the Accumulation
Unit value as of the Valuation Date.
Accumulation Units are credited when an amount
is allocated to a Sub-Account. The number of
Accumulation Units credited equals that amount
divided by the applicable Accumulation Unit
Value as of the Effective Valuation Date.
ACCUMULATION The value of a Sub-Account Accumulation Unit as
UNIT VALUES of any Valuation Date is determined by
multiplying the value of an Accumulation Unit
for the preceding Valuation Date by the net
investment factor for that Valuation Period.
NET INVESTMENT The net investment factor measures the
FACTOR investment performance of a Sub-Account from one
Valuation Period to the next. This factor is
equal to 1.000000 plus the result from dividing
(a) by (b) and subtracting (c) and (d) where:
(a) is the investment income of a Sub-Account for the
Valuation Period, including realized or unrealized
capital gains and losses during the Valuation Period,
adjusted for provisions made for taxes, if any;
8
<PAGE>
(b) is the value of that Sub-Account's assets at the
beginning of the Valuation Period;
(c) is the Mortality and Expense Risk Charge (see
Specifications page); and
(d) is the Administrative Charge (see Specifications page).
The Company assumes the risk that actual
mortality and expenses may exceed the amount
provided for such costs and guarantees that the
charge for mortality and expense risks and the
administrative charge will not be increased.
Subject to applicable state and federal laws,
these charges may be decreased or the method
used to determine the net investment factor may
be changed.
VALUE OF THE Allocations to the Fixed Account are credited
FIXED ACCOUNT interest at rates periodically set by the
Company. The Company guarantees that the rate
of interest in effect when an amount is
allocated to the Fixed Account will remain in
effect for that amount for one year.
Thereafter, the rate of interest for that amount
will be the Company's current interest rate, but
no less than the Minimum Fixed Account
Guaranteed Interest Rate (see Specifications page).
The value of the Fixed Account on any date is
the sum of allocations to the Fixed Account plus
interest compounded and credited daily at the
rates applicable to those allocations. The
value of the Fixed Account will be at least
equal to the minimum required by law in the
state in which this contract is delivered.
VALUE OF THE A Guarantee Period Account will be established
GUARANTEE PERIOD on the date a Net Payment or transfer is
ACCOUNTS allocated to a specific Guarantee Period.
Amounts allocated to the same Guarantee Period
on the same day will be treated as one Guarantee
Period Account. The interest rate in effect
when an amount is allocated is guaranteed for
the duration of the Guarantee Period. Additional
amounts allocated to Guarantee Periods of the
same or different durations will result in
additional Guarantee Period Accounts, each with
its own Guaranteed Interest Rate and expiration
date.
The value of a Guarantee Period Account on any
date is the sum of the allocation to that
Guarantee Period Account plus interest
compounded and credited daily at the rate
applicable to that allocation.
GUARANTEED The Company will periodically set Guaranteed
INTEREST RATES Interest Rates for each available Guarantee
Period. These rates will be guaranteed for the
duration of the respective Guarantee Periods. A
Guaranteed Interest Rate will never be less than
the Minimum Guarantee Period Account Interest
Rate (see Specifications page.)
RENEWAL At least 45 days, but not more than 75 days
GUARANTEE prior to the end of a Guarantee Period, the
PERIODS Company will notify the Owner in writing of the
expiration of that Guarantee Period. The Owner
may transfer amounts to the Sub-Accounts, the
Fixed Account or establish a new Guarantee
Period Account of any duration then offered by
the Company as of the day following the
expiration of the Guarantee Period without a
Market Value Adjustment. Guaranteed Interest
Rates corresponding to the available Guarantee
Periods may be higher or lower than the previous
Guaranteed Interest Rate. If reallocation
instructions are not received at the Principal
Office before the end of a Guarantee Period,
9
<PAGE>
the Guarantee Period Account value will be
automatically applied to a new Guarantee Period
Account with the same Guarantee Period unless:
(a) less than the Minimum Guarantee Period Account
Allocation (see Specifications page) remains in the
Guarantee Period Account on the expiration date; or
(b) the Guarantee Period would extend beyond the Annuity
Date or is no longer available.
In such cases, the Guarantee Period Account
value will be transferred to the Money Market
Sub-Account.
CONTRACT FEE The Company will deduct a contract fee (see
Specifications page) Pro Rata on each contract
anniversary prior to the Annuity Date and when
the contract is surrendered. If the contract is
issued to and maintained by the Trustee of a
401(k) Plan, the Company will waive the contract
fee, but reserves the right to impose a fee of
not more than $30.
TRANSFERS
Prior to the Annuity Date, the Owner may transfer amounts
among accounts by Written or Telephone Request to the
Principal Office. Transfers to a Guarantee Period Account
will be subject to the Minimum Guarantee Period Account
Allocation (see Specifications page). If less would be
allocated to a Guarantee Period Account, the Company may
transfer that amount to the Money Market Sub-Account.
Any transfer from a Guarantee Period Account prior to the
end of its Guarantee Period will be subject to a Market
Value Adjustment. In the case of a partial transfer of a
Guarantee Period Account the Market Value Adjustment will
be applied to the value remaining in the account.
There is no charge for the first twelve transfers per
contract year. A transfer charge of up to $25 may be
imposed on each additional transfer.
WITHDRAWAL AND SURRENDER
The Owner may, by Written Request, withdraw a part of the
Accumulated Value of this contract or surrender it for
its Surrender Value prior to the Annuity Date.
Any withdrawal must be at least the Minimum Withdrawal
Amount (see Specifications page). A withdrawal will not
be permitted if the Accumulated Value remaining in the
contract would be less than the Minimum Accumulated Value
After Withdrawal (see Specifications page). The Written
Request must indicate the dollar amount to be paid and
the accounts from which it is to be withdrawn.
When surrendered, this contract terminates and the
Company has no further liability under it. The Surrender
Value will be based on the Accumulated Value on the
Effective Valuation Date.
10
<PAGE>
Amounts taken from the Variable Account will be paid
within 7 days of the date a Written Request is received
(plus any period of extension under applicable laws,
rules and regulations governing variable annuities).
Amounts taken from the Fixed Account or the Guarantee
Period Accounts will normally be paid within 7 days of
receipt of a Written Request. The Company may defer
payment for up to six months from the receipt date. If
deferred for 30 days or more, the amount payable will be
credited interest at a rate of at least 3%.
WITHDRAWAL WITHOUT In each calendar year, withdrawals up to the greater of
SURRENDER CHARGE (a) or (b) may be made without a surrender charge where:
(a) is cumulative earnings, calculated as the Accumulated
Value as of the Effective Valuation Date reduced by
total gross payments not previously withdrawn; and
(b) is a percent (see Specifications page) of the
Accumulated Value as of the Effective Valuation Date
reduced by any prior withdrawal without surrender charge
made in the same calendar year.
The withdrawal without surrender charge will first be
deducted from cumulative earnings even if it is based
upon (b) above. To the extent that it exceeds cumulative
earnings, the excess will be considered withdrawn on a
(last-in, first-out basis from payments not previously
withdrawn. Amounts withdrawn from a Guarantee Period
Account prior to the end of the applicable Guarantee
Period will be subject to a Market Value Adjustment.
LIFE EXPECTANCY In each calendar year, the amount of the life
DISTRIBUTION expectancy distribution available under the
BENEFIT Company's then current life expectancy
distribution rules that exceeds the withdrawal
without surrender charge may also be withdrawn
without charge. Life expectancy distribution is
available only if the Annuitant is an Owner.
WITHDRAWAL WITH Any amounts withdrawn or surrendered in excess
SURRENDER CHARGE of the withdrawal without surrender charge or
life expectancy distribution benefit may be
subject to a surrender charge.
These amounts will be taken on a first-in,
first-out basis from payments not previously
considered withdrawn. The Company will compute
applicable charges using the Surrender Charge
Table (see Specifications page) until the total
amount withdrawn equals the amount of the
withdrawal requested plus the withdrawal charge
or, if a surrender, until all remaining payments
have been exhausted. The surrender charge will
then be deducted from the Accumulated Value in
the same manner as the withdrawals.
WAIVER OF The surrender charge will be waived if an Owner,
SURRENDER CHARGE or the Annuitant if the Owner is not a person
is:
(a) admitted to a "medical care facility" after the issue
date of the contract and remains confined there until
the later of one year after the issue date or 90
consecutive days;
(b) first diagnosed by a licensed "physician" as having a
"fatal illness" after the issue date of the contract; or
11
<PAGE>
(c) physically disabled after the issue date of the
contract and before attaining age 65. The Company may
require proof of continuing disability, including
written confirmation of receipt and approval of any
claim for Social Security Disability Benefits, and
reserves the right to obtain an examination by a
licensed physician of its choice and at its expense.
"Medical care facility" means any state licensed
facility providing medically necessary inpatient
care which is prescribed by a licensed
"physician" in writing and based on physical
limitations which prohibit daily living in a
non-institutional setting. "Fatal illness"
means a condition diagnosed by a licensed
"physician" which is expected to result in death
within two years of the diagnosis. "Physician"
means a person other than the Owner, the
Annuitant or a member of one of their families
who is state licensed to give medical care or
treatment and is acting within the scope of that
license.
No additional payments are permitted after this
provision becomes effective.
MARKET VALUE A transfer, withdrawal or surrender from a
ADJUSTMENT Guarantee Period Account at the end of its
Guarantee Period will not be subject to a Market
Value Adjustment. A Market Value Adjustment
will apply to all other transfers or
withdrawals, or a surrender. Amounts applied
under an annuity option are treated as
withdrawals when calculating the Market Value
Adjustment. The Market Value Adjustment will be
determined by multiplying the amount taken from
each Guarantee Period Account before deduction
of any Surrender Charge by the market value
factor. The market value factor for each
Guarantee Period Account is equal to:
[(1+i)/(1+j)]n/365 -1
where:
i is the Guaranteed Interest Rate expressed as
a decimal (for example: 3% = 0.03) being
credited to the current Guarantee Period;
j is the new Guaranteed Interest Rate,
expressed as a decimal, for a
Guarantee Period with a duration
equal to the number of years
remaining in the current Guarantee
Period, rounded to the next higher
number of whole years. If that rate
is not available, the Company will
use a suitable rate or index allowed
by the Department of Insurance; and
n is the number of days remaining from the
Effective Valuation Date to the end of the
current Guarantee Period.
If the Guaranteed Interest Rate being credited
is lower than the current Guaranteed Interest
Rate, the Market Value Adjustment will decrease
the Guarantee Period Account value. Similarly,
if the Guaranteed Interest Rate being credited
is higher than the current Guaranteed Interest
Rate, the Market Value Adjustment will increase
the Guarantee Period Account value. The Market
Value Adjustment will never result in a change
to the value more than the interest earned in
excess of the Minimum Guarantee Period Account
Interest Rate (see Specifications page)
compounded annually from the beginning of the
current Guarantee Period.
12
<PAGE>
DEATH BENEFIT
At the death of the Annuitant, Owner or joint Owner,
whichever occurs first, the Company will pay to the
Beneficiary a death benefit determined as of the
Effective Valuation Date upon receipt at the Principal
Office of proof of death. If the Annuitant is also an
Owner and dies, the Annuitant's death benefit will apply.
ANNUITANT'S DEATH If the Annuitant dies before the Annuity Date, the death
BENEFIT BEFORE THE benefit will be the greatest of:
ANNUITY DATE
(a) the Accumulated Value increased by any positive Market
Value Adjustment;
(b) gross payments accumulated daily at the Death Benefit
Effective Annual Yield shown on the Specifications page,
starting on the Effective Valuation Date of each gross
payment, reduced proportionately to reflect withdrawals.
For each withdrawal, the proportionate reduction is
calculated as the death benefit under this option
immediately prior to the withdrawal multiplied by the
withdrawal amount and divided by the Accumulated Value
immediately prior to the withdrawal; or,
(c) the death benefit that would have been payable on the
most recent contract anniversary, increased for
subsequent payments, and decreased proportionately for
subsequent withdrawals.
OWNER'S DEATH If an Owner who is not also the Annuitant dies before the
BENEFIT BEFORE Annuity Date, the death benefit will be the Accumulated
THE ANNUITY DATE Value increased by any positive Market Value Adjustment.
PAYMENT OF THE The death benefit will be paid to the Beneficiary within
DEATH BENEFIT 7 days of the Effective Valuation Date unless the Owner
BEFORE THE has specified a death benefit annuity option. Instead,
ANNUITY DATE the Beneficiary may, by Written Request, elect to:
(a) defer distribution of the death benefit for a period
no more than 5 years from the date of death ; or
(b) receive a life annuity or an annuity for a period
certain not extending beyond the Beneficiary's life
expectancy. Annuity benefit payments must begin within
one year from the date of death .
If distribution of the death benefit is deferred under
(a) or (b), any value in the Guarantee Period Accounts
will be transferred to the Money Market Sub-Account. The
excess, if any, of the death benefit over the Accumulated
Value will also be added to the Money Market Sub-Account.
The Beneficiary may, by Written Request, effect transfers
and withdrawals, but may not make additional payments.
If there are multiple Beneficiaries, the consent of all
is required.
If the sole Beneficiary is the deceased Owner's spouse,
the Beneficiary may, by Written Request, continue the
contract and become the new Owner and Annuitant subject
to the following:
(a) any value in the Guarantee Period Accounts will be
transferred to the Money Market Sub-Account.
13
<PAGE>
(b) the excess, if any, of the death benefit over the
contract's Accumulated Value will also be added to the
Money Market Sub-Account;
(c) additional payments may be made. A surrender charge will
apply only to these additional payments; and
(d) any subsequent spouse of the new Owner, if named as the
Beneficiary, may not continue the contract.
DEATH BENEFIT AND If the Annuitant dies after the Annuity Date but before
PAYMENT AFTER THE all guaranteed annuity benefit payments have been made,
ANNUITY DATE the remaining payments will be paid to the Beneficiary at
least as rapidly as under the annuity option in effect on
the Annuitant's death.
ANNUITY BENEFIT
ANNUITY OPTIONS Annuity options are available on a fixed, variable or
combination fixed and variable basis. The annuity options
described below or any alternative option offered by the
Company may be chosen. If no option is chosen, monthly
benefit payments under a variable life annuity with
payments guaranteed for 10 years will be made.
The Owner may also elect to have the death benefit
applied under a life annuity or a period certain annuity
not extending beyond the Beneficiary's life expectancy.
Such an election may not be altered by the Beneficiary.
Fixed annuity options are funded through the Fixed
Account. Variable annuity options may be funded through
one or more of the Sub-Accounts. Not all Sub-Accounts
may be made available.
ANNUITY BENEFIT Annuity benefit payments may be received on a
PAYMENTS monthly, quarterly, semiannual or annual basis.
If the first payment would be less than the
Minimum Annuity Benefit Payment (see
Specifications page), a single payment will be
made instead. The Company reserves the right to
increase the minimum payment amount to not more
than $500, subject to applicable state
regulations. Satisfactory proof of the payee's
date of birth must be received at the Principal
Office before annuity benefit payments begin.
Where a life annuity option has been elected,
the Company may require satisfactory proof that
the payee is alive before any payment is made.
ANNUITY VALUE The amount of the first annuity benefit payment
under all available options except period
certain options will depend on the age of the
payee or payees on the Annuity Date and the
annuity value applied. Period certain options
are based on the duration of payments and the
annuity value.
For life annuity options and non-commutable
period certain options with a duration of 10
years or more, the annuity value will be the
Accumulated Value and may include any applicable
Market Value Adjustment less any premium tax.
For commutable period certain options or any
period certain option less than 10 years, the
annuity value will be the Surrender Value less
any premium tax. For a death benefit annuity,
the annuity value will be the amount of the
death benefit. The annuity value applied under
a variable annuity option is based on the
Accumulation Unit value on a Valuation Date not
more than four weeks, uniformly applied, before
the Annuity Date.
14
<PAGE>
ANNUITY UNIT A Sub-Account Annuity Unit value on any
VALUES Valuation Date is equal to its value on the
preceding Valuation Date multiplied by the
product of:
(a) a discount factor equivalent to the assumed
interest rate; and
(b) the net investment factor of the Sub-Account funding
the annuity benefit payments for the applicable
Valuation Period.
The value of an Annuity Unit as of any date
other than a Valuation Date is equal to its
value as of the preceding Valuation Date.
Each variable annuity benefit payment is equal
to the number of Annuity Units multiplied by the
applicable value of an Annuity Unit, except that
under a Joint and Two-Thirds Option, payments to
the surviving payee are based on two-thirds the
number of Annuity Units that applied when both
payees were living. Variable annuity benefit
payments will increase or decrease with the
value of annuity units. The Company guarantees
that the amount of each variable annuity benefit
payment will not be affected by changes in
mortality and expense experience.
NUMBER OF The number of Annuity Units determining the
ANNUITY UNITS benefit payable is equal to the amount of the
first annuity benefit payment divided by the
value of the Annuity Unit as of the Valuation
Date used to calculate the amount of the first
payment. Once annuity benefit payments begin,
the number of Annuity Units will not change
unless a split is made.
ANNUITY BENEFIT VARIABLE OR FIXED LIFE ANNUITY WITH PAYMENTS
PAYMENT OPTIONS GUARANTEED FOR 10 YEARS: Periodic annuity
benefit payments during the payee's life. If
the payee dies before all guaranteed payments
have been made, the remaining payments will be
made to the Beneficiary.
VARIABLE OR FIXED LIFE ANNUITY: Periodic
annuity benefit payments during the payee's
life.
UNIT REFUND VARIABLE OR FIXED LIFE ANNUITY:
Periodic annuity benefit payments during the
payee's life. If the payee dies and the annuity
value initially applied to purchase the option,
divided by the first payment, exceeds the number
of payments made before the payee's death,
payments will continue to the Beneficiary until
the number of payments equals the Annuity Value
divided by the first payment.
JOINT AND SURVIVOR VARIABLE OR FIXED LIFE
ANNUITY: Periodic annuity benefit payments
during the joint lifetime of two payees with
payments continuing during the lifetime of the
survivor. One of the payees must be the
Annuitant or, if the Annuitant is not living
when payments begin, one of the payees must be
the Beneficiary.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE OR FIXED
LIFE ANNUITY: Periodic annuity benefit
payments during the joint lifetime of two payees
with payments continuing during the lifetime of
the survivor at two-thirds the amount payable
when both payees were living. One of the payees
must be the Annuitant or, if the Annuitant is
not living when payments begin, one of the
payees must be the Beneficiary.
VARIABLE OR FIXED ANNUITY FOR A PERIOD CERTAIN:
Periodic annuity benefit payments for a chosen
number of years. The number of years
15
<PAGE>
selected may be from 1 to 30. If the payee dies before
the end of the period, remaining payments will
continue to the Beneficiary.
ANNUITY TABLES The first annuity benefit payment will be based on the
greater of the guaranteed annuity rates shown in the
following tables or the Company's non-guaranteed current
annuity option rates applicable to this class of
contracts. Second and subsequent annuity benefit
payments, when based on the investment experience of the
Variable Account, may increase or decrease.
16
<PAGE>
ANNUITY OPTION TABLES
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
Age Life Annuity with Life Unit Refund
Nearest Payments Guaranteed Annuity Life Annuity
Birthday for 10 Years
- --------------------------------------------------------------------------------
50 4.22 4.24 4.14
51 4.28 4.31 4.19
52 4.34 4.37 4.25
53 4.41 4.44 4.31
54 4.48 4.52 4.37
55 4.55 4.59 4.43
56 4.63 4.68 4.50
57 4.71 4.76 4.57
58 4.80 4.86 4.65
59 4.89 4.96 4.73
60 4.98 5.06 4.82
61 5.08 5.18 4.90
62 5.19 5.30 5.00
63 5.30 5.43 5.10
64 5.42 5.56 5.20
65 5.55 5.71 5.31
66 5.68 5.87 5.43
67 5.81 6.04 5.55
68 5.96 6.22 5.68
69 6.11 6.41 5.81
70 6.26 6.62 5.96
71 6.43 6.84 6.11
72 6.60 7.08 6.27
73 6.77 7.34 6.44
74 6.95 7.62 6.62
75 7.13 7.91 6.81
- --------------------------------------------------------------------------------
These tables are based on an annual interest rate of 3 1/2%
and the 1983(a) Individual Mortality Table.
17
<PAGE>
ANNUITY OPTION TABLES (CONTINUED)
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Joint and Two-Thirds Survivor Life
Joint and Survivor Life Annuity Annuity
Older Age Older Age
- ---------------------------------------------------------------------------------------------------
50 55 60 65 70 75 80 50 55 60 65 70 75 80
- ----------------------------------------------------------------------------------------------------
Y 50 3.91 3.97 4.02 4.05 4.07 4.09 4.10 4.25 4.40 4.57 4.76 4.96 5.18 5.39
O
U 55 4.18 4.26 4.32 4.36 4.39 4.41 4.60 4.80 5.02 5.26 5.50 5.75
N
G 60 4.54 4.65 4.73 4.78 4.81 5.08 5.35 5.63 5.92 6.21
E
R 65 5.04 5.19 5.29 5.35 5.74 6.10 6.46 6.82
A 70 5.75 5.95 6.08 6.67 7.15 7.62
G 75 6.77 7.06 8.04 8.69
E 80 8.29 10.05
</TABLE>
These tables are based on an annual interest rate of 3 1/2%
and the 1983(a) Individual Mortality Table.
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
Number of Variable or Fixed Annuity Number of Variable or Fixed Annuity
Years for a Period Certain Years for a Period Certain
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1 84.65 16 6.76
2 43.05 17 6.47
3 29.19 18 6.20
4 22.27 19 5.97
5 18.12 20 5.75
6 15.35 21 5.56
7 13.38 22 5.39
8 11.90 23 5.24
9 10.75 24 5.09
10 9.83 25 4.96
11 9.09 26 4.84
12 8.46 27 4.73
13 7.94 28 4.63
14 7.49 29 4.53
15 7.10 30 4.45
These tables are based on an annual interest rate of 3 1/2%.
18
<PAGE>
GENERAL PROVISIONS
ENTIRE CONTRACT The entire contract consists of this contract, any
application attached at issue and any endorsements.
MISSTATEMENT OF If a payee's age is misstated, the Company will adjust
AGE all annuity benefit payments to those that the annuity
value applied would have purchased at the correct age.
Any underpayments already made by the Company will be
paid immediately. Any overpayments will be deducted
from future annuity benefits.
MODIFICATIONS Only the President, a Vice President or Secretary of the
Company may modify or waive any provisions of this
contract. Agents or Brokers are not authorized to do so.
INCONTESTABILITY The Company cannot contest this contract.
CHANGE OF ANNUITY The Owner may change the Annuity Date by Written Request
DATE at any time after the contract has been issued. The
request must be received at the Principal Office at least
one month before the new Annuity Date. The alternative
Annuity Date must be the first of any month prior to the
Maximum Alternative Annuity Date shown on the
Specifications page and must be within the life
expectancy of the Annuitant. The Company will determine
life expectancy at the time a change in the Annuity Date
is requested.
MINIMUMS All values, benefits or settlement options available
under this contract equal or exceed those required by the
state in which the contract is delivered.
ANNUAL REPORT The Company will furnish an annual report to the Owner
containing a statement of the number and value of
Accumulation Units credited to the Sub-Accounts, the
value of the Fixed Account and the Guarantee Period
Accounts and any other information required by applicable
law, rules and regulations.
ADDITION, DELETION, The Company reserves the right, subject to compliance
OR SUBSTITUTION OF with applicable law, to add to, delete from, or
INVESTMENTS substitute for the shares of a Fund that are held by the
Sub-Accounts or that the Sub-Accounts may purchase. The
Company also reserves the right to eliminate the shares
of any Fund no longer available for investment or if the
Company believes further investment in the Fund is no
longer appropriate for the purposes of the Sub-Accounts.
The Company will not substitute shares attributable to
any interest in a Sub-Account without notice to the Owner
and prior approval of the Securities and Exchange
Commission as required by the Investment Company Act of
1940. This will not prevent the Variable Account from
purchasing other securities for other series or classes
of contracts, or from permitting a conversion between
series or classes of contracts on the basis of requests
made by Owners.
The Company reserves the right, subject to compliance
with applicable laws, to establish additional Guarantee
Period Accounts and Sub-Accounts and to make them
available to any class or series of contracts as the
Company considers appropriate. Each new Sub-Account will
invest in a new investment company or in shares of
another open-end investment company. The Company also
reserves the right to eliminate or combine existing
Sub-Accounts and to transfer the assets of any
Sub-Accounts to any other Sub-Accounts. In the event of
any substitution or change, the Company may, by
appropriate notice,
19
<PAGE>
make such changes in this and other
contracts as may be necessary or appropriate to reflect
the substitution or change. If the Company considers it
to be in the best interests of contract Owners, the
Variable Account or any Sub-Account may be operated as a
management company under the Investment Company Act of
1940, or may be deregistered under that Act in the event
registration is no longer required, or may be combined
with other accounts of the Company.
CHANGE OF NAME Subject to compliance with applicable law, the Company
reserves the right to change the names of the Variable
Account or the Sub-Accounts.
FEDERAL TAX The Variable Account is not currently subject to tax, but
CONSIDERATIONS the Company reserves the right to assess a charge for
taxes if the Variable Account becomes subject to tax.
SPLITTING OF UNITS The Company reserves the right to split the value of a
unit, either to increase or decrease the number of units.
Any splitting of units will have no material effect on
the benefits, provisions or investment return of this
contract or upon the Owner, the Annuitant, any
Beneficiary, or the Company.
INSULATION OF The investment performance of Separate Account assets is
SEPARATE ACCOUNT determined separately from the other assets of the
Company. The assets of a Separate Account equal to the
reserves and liabilities of the contracts supported by
the account will not be charged with liabilities from any
other business that the Company may conduct.
VOTING RIGHTS The Company will notify Owners with voting interests of
any shareholders' meeting at which Fund shares held by
each Sub-Account will be voted and will provide proxy
materials together with a form to be used to give voting
instructions to the Company. The Company will vote Fund
shares for which no timely instructions have been
received in the same proportion as shares of that Fund
for which instructions have been received.
Prior to the Annuity Date, the number of shares is
determined by dividing the dollar value of the
Sub-Account Accumulation Units by the net asset value of
one Fund share. After the Annuity Date, the number of
Fund shares is determined by dividing the reserves held
in each Sub-Account to meet the annuity obligations by
the net asset value of one Fund share.
Flexible Payment Deferred Variable and Fixed Annuity
Annuity Benefits Payable to Annuitant on the Annuity Date
Death Benefit Payable to Beneficiary if either Owner or
Annuitant Dies prior to Annuity Date
Non-Participating
20
<PAGE>
FIRST ALLMERICA
FINANCIAL LIFE 440 LINCOLN STREET, VARIABLE ANNUITY APPLICATION
INSURANCE CO. WORCESTER, MA 01653
_______________________________________________________________________________
1. ANNUITANT
Please Print Clearly
First MI Last
___________________________________________________________________________
Street Address Apt.
___________________________________________________________________________
City State ZIP
___________________________________________________________________________
Daytime Telephone / / Male Date of Birth
( ) / / Female / /
___________________________________________________________________________
S.S.#
___________________________________________________________________________
_______________________________________________________________________________
2. OWNER COMPLETE THIS SECTION ONLY IF (CHECK ONE AND FILL IN BELOW):
Please Print Clearly
/ / THE OWNER IS OTHER THAN THE ANNUITANT, OR
/ / THIS IS A JOINT OWNER WITH THE ANNUITANT.
First MI Last
_______________________________________________________________________________
Street Address Apt.
_______________________________________________________________________________
City State Zip
_______________________________________________________________________________
S.S.#/Tax I.D. # Date of Birth Date of Trust
/ / / /
_______________________________________________________________________________
_______________________________________________________________________________
3. BENEFICIARY
/ /______ Day Common Disaster Clause
_______________________________________________________________________________
Primary Relationship to Annuitant
_______________________________________________________________________________
Contingent Relationship to Annuitant
_______________________________________________________________________________
4. TYPE OF PLAN
/ / 401(a) Pension/Profit Sharing* / / 408(k) SEP-IRA*
/ / 401(k) Profit Sharing* / / 457 Deferred Comp.
/ / 403(b) TSA* / / Non-Qual. Def. Comp.
/ / 408(b) IRA / / Non-Qualified
*Attach required additional forms.
_______________________________________________________________________________
5. INITIAL PAYMENT
Initial Payment $ _________________________________________
If IRA or SEP-IRA application, the applicant has received a
Disclosure Buyer's Guide and this payment is a (check one):
/ / Rollover / /Trustee to Trustee Transfer
/ / Regular or SEP-IRA Payment for Tax Year ___________
_______________________________________________________________________________
6. REPLACEMENT
Will the proposed contract replace or change any existing
annuity or insurance policy? / / NO / / YES
(If yes, list company name and policy number)
_________________________________________________________
_______________________________________________________________________________
7. ALLOCATION OF PAYMENTS (FUNDS)
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________%
___________% 3 Year
___________% 5 Year
___________% 6 Year
___________% 7 Year
___________% 8 Year
___________% 9 Year
___________% 10 Year
1 0 0 % (All allocations above must total 100%)
___________
________________________________________________________________________
/ / I elect Automatic Account Rebalancing among the above accounts
(excluding the Fixed and Guarantee Period Accounts) starting on the
16th day after the issue date and continuing every:
/ / 1 / / 2 / / 3 / / 6 / / 12 Months
NOTE: If the contract applied for provides for a full refund of the
initial payment under its "Right to Examine" provision, that portion
of each payment not allocated to the Fixed Account will be allocated
solely to the Money Market account during its first 15 days.
Reallocation will then be made as specified.
_______________________________________________________________________________
8. TELEPHONE TRANSFER
I/We authorize and direct Allmerica Financial Life Insurance and Annuity
Company to accept telephone instructions from any person who can furnish
proper identification to effect transfers and future payment allocation
changes. I agree to hold harmless and indemnify Allmerica Financial
Life Insurance and Annuity Company and its affiliates and their collective
directors, officers, employees and agents against any claim arising from
such action.
/ / I DO NOT accept this telephone transfer privilege.
_______________________________________________________________________________
SML-1443 (7/96)
<PAGE>
_______________________________________________________________________________
9. DOLLAR COST AVERAGING
Please transfer $_________________ from (check ONE source account)
($100 minimum)
/ / Fixed Account / / Government Bond / / Money Market
EVERY: / / 1 / / 2 / / 3 / / 6 / / 12 months
FUNDS
TO: ___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
___________ %
Dollar Cost Averaging begins on the 16th day after the issue date and
ends when the source account value is exhausted.
DOLLAR COST AVERAGING INTO THE FIXED OR GUARANTEE PERIOD ACCOUNTS IS
NOT AVAILABLE.
_______________________________________________________________________________
10. SYSTEMATIC WITHDRAWALS
Please withdraw $_________________
($100 minimum)
EVERY: / / 1 / / 2 / / 3 / / 6 / / 12 months
(Systematic withdrawls from the Guarantee Period Accounts are not available.)
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
___________ % From _______________________________
1 0 0 % TOTAL
___________
/ / Do NOT Withhold Federal Income Taxes
/ / Do Withhold at 10% or _________ (% or $)
Systematic withdraws begin on the 16th day after the issue date.
/ / I wish to use Electronic Funds Transfer. I authorize the Company to
electronically correct any overpayments or erroneous credits made to
my account.
A VOIDED CHECK MUST BE ATTACHED.
_______________________________________________________________________________
11. OPTIONAL BILLING REMINDERS
/ / I wish to receive periodic reminders that I can include with future
remittances.
PAYMENT REMINDER REQUEST (FORM SML-1203) MUST BE ATTACHED.
_______________________________________________________________________________
12. REMARKS
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
13. SIGNATURES
I/We represent to the best of my/our knowledge and belief that the
statements made in this application are true and complete. I/We agree to
all terms and conditions as shown on the front and back. It is indicated
and agreed that the only statements which are to be construed as the basis
of the contract are those contained in this application. I/We acknowledge
receipt of a current prospectus describing the contract applied for. I/WE
UNDERSTAND THAT ALL PAYMENTS AND VALUES BASED ON THE VARIABLE ACCOUNTS MAY
FLUCTUATE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT; AND ALL PAYMENTS AND
VALUES BASED ON THE GUARANTEE PERIOD ACCOUNTS ARE SUBJECT TO A MARKET
VALUE ADJUSTMENT FORMULA, THE OPERATION OF WHICH MAY RESULT IN EITHER AN
UPWARD OR DOWNWARD ADJUSTMENT. I/We understand that unless I/we elect
otherwise, the Annuity Date will be the earlier of the date, if any,
selected by the Owner, or the later of the Annuitant's 85th birthday or
the birthday following the tenth contract anniversary, not to exceed
age 90.
____________________________________ ___________________________________
Signature of Owner Signed at (City and State) Date
____________________________________
Signature of Joint Owner
_______________________________________________________________________________
14. REGISTERED REPRESENTATIVE/DEALER INFORMATION
Does the contract applied for replace an existing annuity or life
insurance policy?
/ / Yes / / No If yes, attach replacement form as required.
I CERTIFY THAT (1) THE INFORMATION PROVIDED BY THE OWNER HAS BEEN ACCURATELY
RECORDED; (2) A CURRENT PROSPECTUS WAS DELIVERED; (3) NO WRITTEN SALES
MATERIALS OTHER THAN THOSE APPROVED BY THE PRINCIPAL OFFICE WERE USED;
AND (4) I HAVE REASONABLE GROUNDS TO BELIEVE THE PURCHASE OF THE CONTRACT
APPLIED FOR IS SUITABLE FOR THE OWNER.
<TABLE>
<S> <C> <C> <C> <C> <C>
Date Signature of Registered Representative % TR Print Full Name Code Agency
_________________________________________________________________________________________________________________________
Date Signature of Registered Representative % TR Print Full Name Code Agency
_________________________________________________________________________________________________________________________
Date Signature of Registered Representative % TR Print Full Name Code Agency
_________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
EXHIBIT 9
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
First Allmerica Financial Life May 6, 1996
Insurance Company
440 Lincoln Street
Worcester MA 01653
Gentlemen:
In my capacity as Counsel of First Allmerica Financial Life Insurance Company
(the "Company"), I have participated in the preparation of the
Post-Effective Amendment to the Registration Statement for Separate Account
VA-P on Form N-4 under the Securities Act of 1933 and the Investment Company
Act of 1940, with respect to the Company's group variable annuity policies.
I am of the following opinion:
1. Separate Account VA-P is a separate account of the Company validly
existing pursuant to the Massachuesetts Insurance Code and the regulations
issued thereunder.
2. The assets held in Separate Account VA-P are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The group variable annuity policies, when issued in accordance with the
Prospectus contained in the Registration Statement and upon compliance
with applicable local law, will be legal and binding obligations of the
Company in accordance with their terms and when sold will be legally issued,
fully paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the
Post-Effective Amendment to the Registration Statement for Separate Account
VA-P on Form N-4 under the Securities Act of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 4 to the Registration
Statement on Form N-4 of our report dated February 5, 1996, relating to the
consolidated financial statements of First Allmerica Financial Life Insurance
Company which appears in such Statement of Additional Information. We also
consent to the reference to us under the heading "Experts" in such Statement
of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
May 8, 1996
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<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
