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File Nos. 33-86664
811-8872
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 12
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 17
SEPARATE ACCOUNT VA-P OF
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Exact Name of Registrant)
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Name of Depositor)
440 Lincoln Street
Worcester, MA 01653
(Address of Depositor's Principal Executive Offices)
(508) 855-1000
(Depositor's Telephone Number, including Area Code)
Mary Eldridge, Secretary
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) of Rule 485
-----
X on May 1, 2000 pursuant to Paragraph (b) of Rule 485
-----
60 days after filing pursuant to Paragraph (a) (1) of Rule 485
-----
on (date) pursuant to Paragraph (a) (1) of Rule 485
-----
this post-effective amendment designates a new effective
----- date for a previously filed post-effective amendment
VARIABLE ANNUITY CONTRACTS
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940 ("1940
Act"), Registrant hereby declares that an indefinite amount of its securities is
being registered under the Securities Act of 1933 ("1933 Act"). The Rule 24f-2
Notice for the issuer's fiscal year ended December 31, 1999 was filed on or
before March 30, 2000.
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CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
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FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
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1 .........................Cover Page
2..........................Special Terms
3..........................Summary of Contract Features; Summary of Fees and Expenses
4..........................Condensed Financial Information; Performance Information
5..........................Description of the Companies, the Variable Accounts and the Underlying
Investment Companies
6..........................Charges and Deductions
7..........................Description of the Contract
8..........................Electing the Form of Annuity and the Annuity Date; Description of Variable
Annuity Payout Options; Annuity Benefit Payments
9..........................Death Benefit
10.........................Payments; Computation of Values; Distribution
11.........................Surrender; Withdrawals; Charges for Surrender and Withdrawal; Withdrawal
Without Surrender Charge; Texas Optional Retirement Program
12.........................Federal Tax Considerations
13.........................Legal Matters
14.........................Statement of Additional Information-Table of Contents
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FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
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15.........................Cover Page
16.........................Table of Contents
17.........................General Information and History
18.........................Services
19.........................Underwriters
20.........................Underwriters
21.........................Performance Information
22.........................Annuity Benefit Payments
23.........................Financial Statements
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SEPARATE ACCOUNT VA-P
(PIONEER VISION AND PIONEER VISION 2)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
SUPPLEMENT TO PROSPECTUS DATED MAY 1, 2000
* * *
An Application for an Order of Exemption has been filed with the Securities
and Exchange Commission on behalf of Allmerica Financial Life Insurance and
Annuity Company, First Allmerica Financial Life Insurance Company, Separate
Account VA-P, and Allmerica Investments, Inc. (collectively referred to
herein as the "Applicants"), to permit the Applicants to deduct a charge for
an optional benefit rider in the manner set out in "WHAT CHARGES WILL I INCUR
UNDER MY CONTRACT?" under the SUMMARY OF CONTRACT FEATURES, and "C. Optional
Minimum Guaranteed Annuity Payout Rider Charge" under the CHARGES AND
DEDUCTIONS sections of the prospectus. The language contained in the
prospectus describing the charge for the optional benefit rider will apply
once the Application for an Order of Exemption has been granted.
While the Application for an Order of Exemption is pending, the fifth
paragraph of "WHAT CHARGES WILL I INCUR UNDER MY CONTRACT" and the first two
paragraphs of "C. Optional Minimum Guaranteed Annuity Payout Rider Charge"
are hereby replaced by the following:
Subject to state availability, the Company offers an optional Minimum
Guaranteed Annuity Payout Rider that may be elected by the Owner. A separate
monthly charge is made for the Rider. On the last day of each month a charge
equal to 1/12th of the applicable annual rate (see table below) is made
against the Accumulated Value of the Contract at that time. The charge is
made through a pro-rata reduction of the Accumulated Value of the
Sub-Accounts, the Fixed Account and the Guarantee Period Accounts (based on
the relative value that the Accumulation Units of the Sub-Accounts, the
dollar amounts in the Fixed Account and the dollar amounts in the Guarantee
Period Accounts bear to the total Accumulated Value).
The applicable charge is assessed on the Accumulated Value on the last day of
each month, multiplied by 1/12th of the following annual percentage rates:
* * *
SUPPLEMENT DATED MAY 1, 2000
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ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
WORCESTER, MASSACHUSETTS
This Prospectus provides important information about the Pioneer Vision 2
variable annuity contracts issued by Allmerica Financial Life Insurance and
Annuity Company (in all jurisdictions except Hawaii and New York) and First
Allmerica Financial Life Insurance Company in New York and Hawaii. The contract
is a flexible payment tax-deferred combination variable and fixed annuity
offered on both a group and individual basis. PLEASE READ THIS PROSPECTUS
CAREFULLY BEFORE INVESTING AND KEEP IT FOR FUTURE REFERENCE. ANNUITIES INVOLVE
RISKS INCLUDING POSSIBLE LOSS OF PRINCIPAL.
This Prospectus also includes important information about the Pioneer Vision
contract which is no longer being sold. See Appendix D.
A Statement of Additional Information dated May 1, 2000 containing more
information about this annuity is on file with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. A copy may be
obtained free of charge by completing the attached request card or by calling
Annuity Client Services at 1-800-688-9915. The Table of Contents of the
Statement of Additional Information is listed on page 3 of this Prospectus. This
Prospectus and the Statement of Additional Information can also be obtained from
the Securities and Exchange Commission's website (http://www.sec.gov).
The Variable Account, known as Separate Account VA-P is subdivided into
Sub-Accounts. Each Sub-Account offered as an investment option under this
contract invests exclusively in shares of one of the following portfolios:
<TABLE>
<S> <C>
PIONEER VARIABLE CONTRACTS TRUST ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC. (CLASS B)
Pioneer Emerging Markets VCT Portfolio Alliance Premier Growth Portfolio
Pioneer Europe VCT Portfolio Alliance Technology Portfolio
Pioneer International Growth VCT Portfolio
Pioneer Science & Technology VCT Portfolio DELAWARE GROUP PREMIUM FUND (SERVICE CLASS)
Pioneer Mid-Cap Value VCT Portfolio DGPF Growth Opportunities Series
Pioneer Growth Shares VCT Portfolio DGPF Select Growth Series
Pioneer Real Estate Growth VCT Portfolio
Pioneer Fund VCT Portfolio FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS
Pioneer Equity-Income VCT Portfolio TRUST (CLASS 2)
Pioneer Balanced VCT Portfolio Franklin Small Cap Fund
Pioneer Swiss Franc Bond VCT Portfolio Templeton International Smaller Companies Fund
Pioneer High Yield VCT Portfolio Templeton Asset Strategy Fund
Pioneer Strategic Income VCT Portfolio
Pioneer America Income VCT Portfolio VAN KAMPEN LIFE INVESTMENT TRUST
Pioneer Money Market VCT Portfolio Van Kampen LIT Emerging Growth Portfolio
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Capital Appreciation Fund
</TABLE>
The Fixed Account, which is part of the Company's General Account, is an
investment option that pays an interest rate guaranteed for one year from the
time a payment is received. Another investment option, the Guarantee Period
Accounts, offers fixed rates of interest for specified periods ranging from 2 to
10 years. A Market Value Adjustment is applied to payments removed from a
Guarantee Period Account before the end of the specified period. The Market
Value Adjustment may be positive or negative. Payments allocated to a Guarantee
Period Account are held in the Company's Separate Account GPA (except in
California where they are allocated to the General Account).
THIS ANNUITY IS NOT A BANK DEPOSIT OR OBLIGATION; FEDERALLY INSURED; OR ENDORSED
BY ANY BANK OR GOVERNMENTAL AGENCY.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED THAT THE INFORMATION IN THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
DATED MAY 1, 2000
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TABLE OF CONTENTS
<TABLE>
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SPECIAL TERMS............................................... 4
SUMMARY OF FEES AND EXPENSES................................ 6
SUMMARY OF CONTACT FEATURES................................. 14
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS AND THE
UNDERLYING INVESTMENT COMPANIES............................ 20
INVESTMENT OBJECTIVES AND POLICIES.......................... 22
PERFORMANCE INFORMATION..................................... 24
DESCRIPTION OF THE CONTRACT................................. 26
A. Payments............................................. 26
B. Right to Cancel Individual Retirement Annuity........ 27
C. Right to Cancel All Other Contracts.................. 27
D. Transfer Privilege................................... 27
Automatic Transfers and Automatic Account
Rebalancing Options................................. 28
E. Surrender............................................ 29
F. Withdrawals.......................................... 29
Systematic Withdrawals.............................. 30
Life Expectancy Distributions....................... 30
G. Death Benefit........................................ 31
Death of the Annuitant Prior to the Annuity Date.... 31
Death of an Owner Who is Not Also the Annuitant
Prior to the Annuity Date........................... 31
Payment of the Death Benefit Prior to the Annuity
Date................................................ 31
Death of the Annuitant On or After the Annuity
Date................................................ 32
H. The Spouse of the Owner as Beneficiary............... 32
I. Assignment........................................... 32
J. Electing the Form of Annuity and the Annuity Date.... 32
K. Description of Variable Annuity Payout Options....... 33
L. Annuity Benefit Payments............................. 34
Determination of the First Variable Annuity Benefit
Payment............................................. 34
The Annuity Unit.................................... 35
Determination of the Number of Annuity Units........ 35
Dollar Amount of Subsequent Variable Annuity Benefit
Payments............................................ 35
M. Optional Minimum Guaranteed Annuity Payout (M-GAP)
Rider................................................... 36
N. NORRIS Decision...................................... 38
O. Computation of Values................................ 38
The Accumulation Unit............................... 38
Net Investment Factor............................... 38
CHARGES AND DEDUCTIONS...................................... 40
A. Variable Account Deductions.......................... 40
Mortality and Expense Risk Charge................... 40
Administrative Expense Charge....................... 40
Other Charges....................................... 40
B. Contract Fee......................................... 41
C. Optional Minimum Guaranteed Annuity Payout (M-GAP)
Rider Charge............................................ 41
D. Premium Taxes........................................ 41
E. Surrender Charge..................................... 42
Charges for Surrender and Withdrawal................ 42
Reduction or Elimination of Surrender Charge and
Additional Amounts Credited......................... 43
Withdrawal Without Surrender Charge................. 44
Surrenders.......................................... 44
Charge at the Time Annuity Benefit Payments Begin... 45
F. Transfer Charge...................................... 45
</TABLE>
2
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<TABLE>
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GUARANTEE PERIOD ACCOUNTS................................... 46
FEDERAL TAX CONSIDERATIONS.................................. 49
A. General.............................................. 49
The Company......................................... 49
Diversification Requirements........................ 49
Investor Control.................................... 49
B. Qualified and Non-Qualified Contracts................ 50
C. Taxation of the Contract in General.................. 50
Withdrawals Prior to Annuitization.................. 50
Annuity Payouts After Annuitization................. 50
Penalty on Distribution............................. 50
Assignments or Transfers............................ 51
Nonnatural Owners................................... 51
Deferred Compensation Plans of State and Local
Governments and Tax-Exempt Organizations............ 51
D. Tax Withholding...................................... 51
E. Provisions Applicable to Qualified Employer Plans.... 52
Corporate and Self-Employed Pension and Profit
Sharing Plans....................................... 52
Individual Retirement Annuities..................... 52
Tax-Sheltered Annuities............................. 52
Texas Optional Retirement Program................... 53
STATEMENTS AND REPORTS...................................... 53
LOANS (QUALIFIED CONTRACTS ONLY)............................ 53
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS........... 53
CHANGES TO COMPLY WITH LAW AND AMENDMENTS................... 54
VOTING RIGHTS............................................... 55
DISTRIBUTION................................................ 55
LEGAL MATTERS............................................... 56
FURTHER INFORMATION......................................... 56
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT...... A-1
APPENDIX B -- SURRENDER CHARGES AND THE MARKET VALUE
ADJUSTMENT................................................. B-1
APPENDIX C -- THE DEATH BENEFIT............................. C-1
APPENDIX D -- DIFFERENCES UNDER THE PIONEER VISION CONTRACT
(FORM A3023-95)............................................ D-1
APPENDIX E -- CONDENSED FINANCIAL INFORMATION............... E-1
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY............................. 2
TAXATION OF THE CONTRACTS, THE VARIABLE ACCOUNT AND THE
COMPANY.................................................... 3
SERVICES.................................................... 3
UNDERWRITERS................................................ 3
ANNUITY BENEFIT PAYMENTS.................................... 4
EXCHANGE OFFER.............................................. 6
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING)
PROGRAM.................................................... 8
PERFORMANCE INFORMATION..................................... 8
FINANCIAL STATEMENTS........................................ F-1
</TABLE>
3
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SPECIAL TERMS
ACCUMULATED VALUE: the total value of all Accumulation Units in the Sub-Accounts
plus the value of all accumulations in the Fixed Account and Guarantee Period
Accounts credited to the Contract on any date before the Annuity Date.
ACCUMULATION UNIT: a unit of measure used to calculate the value of a
Sub-Account before annuity benefit payments begin.
ANNUITANT: the person designated in the Contract upon whose life annuity benefit
payments are to be made.
ANNUITY DATE: the date on which annuity benefit payments begin. This date may
not be later than the first day of the month before the Annuitant's 90th
birthday.
ANNUITY UNIT: a unit of measure used to calculate the value of the periodic
annuity benefit payments under the Contract.
COMPANY: unless otherwise specified, any reference to the "Company" shall refer
exclusively to Allmerica Financial Life Insurance and Annuity Company for
contracts issued in all jurisdictions except Hawaii and New York and exclusively
to First Allmerica Financial Life Insurance Company for contracts issued in
Hawaii and New York.
FIXED ACCOUNT: an investment option under the Contract that guarantees principal
and a fixed minimum interest rate and which is part of the Company's General
Account.
FIXED ANNUITY PAYOUT: an annuity payout option providing for annuity benefit
payments which remain fixed in amount throughout the annuity benefit payment
period selected.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account which corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period.
GUARANTEED INTEREST RATE: the annual effective rate of interest, after daily
compounding, credited to a Guarantee Period Account.
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.
OWNER (YOU): the person, persons or entity entitled to exercise the rights and
privileges under the Contract. Joint Owners are permitted if one of the two is
the Annuitant.
SUB-ACCOUNT: a subdivision of the Variable Account investing exclusively in the
shares of a corresponding Portfolio of the Pioneer Variable Contracts Trust
("Pioneer VCT"), AIM Variable Insurance Funds ("AVIF"), Alliance Variable
Products Series Fund, Inc. ("Alliance"), Delaware Group Premium Fund ("DGPF"),
Franklin Templeton Variable Insurance Products Trust ("FT VIP"), or Van Kampen
Life Investment Trust ("Van Kampen").
SURRENDER VALUE: the Accumulated Value of the Contract on full surrender after
application of any applicable Contract fee, surrender charge, rider charge and
Market Value Adjustment.
4
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UNDERLYING PORTFOLIOS (PORTFOLIOS): an investment portfolio of Pioneer VCT,
AVIF, Alliance, DGPF, FT VIP or Van Kampen in which a Sub-Account invests.
VALUATION DATE: a day on which the net asset value of the shares of any of the
Underlying Portfolios is determined and unit values of the Sub-Accounts are
determined. Valuation Dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, withdrawal or surrender of a Contract was received)
when there is a sufficient degree of trading in an Underlying Portfolio's
portfolio securities such that the current unit value of the Sub-Accounts may be
affected materially.
VARIABLE ACCOUNT: Separate Account VA-P, one of the Company's separate accounts,
consisting of assets segregated from other assets of the Company. The investment
performance of the assets of the Variable Account is determined separately from
the other assets of the Company and are not chargeable with liabilities arising
out of any other business which the Company may conduct.
VARIABLE ANNUITY PAYOUT: an annuity payout option providing for payments varying
in amount in accordance with the investment experience of certain of the
Underlying Portfolios.
5
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SUMMARY OF FEES AND EXPENSES
There are certain fees and expenses that you will bear under the Pioneer Vision
2 Contract. The purpose of the following tables is to assist you in
understanding these fees and expenses. The tables show (1) charges under the
Contract, (2) annual expenses of the Sub-Accounts, and (3) annual expenses of
the Underlying Portfolios. In addition to the charges and expenses described
below, premium taxes are applicable in some states and are deducted as described
under "D. Premium Taxes" under CHARGES AND DEDUCTIONS.
<TABLE>
<CAPTION>
YEARS FROM
DATE OF PAYMENT CHARGE
(1) CONTRACT CHARGES: --------------- ------
<S> <C> <C>
0-1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
More than 7 0%
SURRENDER CHARGE:*
This charge may be assessed upon surrender, withdrawal or
annuitization under any commutable period certain option
or a noncommutable period certain option of less than ten
years. The charge is a percentage of payments applied to
the amount surrendered (in excess of any amount that is
free of surrender charge) within the indicated time
period.
TRANSFER CHARGE: None
The Company currently makes no charge for processing
transfers and guarantees that the first 12 transfers in a
Contract year will not be subject to a transfer charge.
For each subsequent transfer, the Company reserves the
right to assess a charge, guaranteed never to exceed $25,
to reimburse the Company for the costs of processing the
transfer.
ANNUAL CONTRACT FEE: $30
The fee is deducted annually and upon surrender prior to
the Annuity Date when Accumulated Value is less than
$50,000. The fee is waived for Contracts issued to and
maintained by the trustee of a 401(k) plan.
OPTIONAL RIDER CHARGES:
Under the following riders, 1/12th of the annual charge is
deducted pro-rata on a monthly basis at the end of each
month and, if applicable, at termination of the rider. The
charge on an annual basis as a percentage of the
Accumulated Value is:
Optional Minimum Guaranteed Annuity Payout (M-GAP) Rider 0.25%
with a ten-year waiting period:
Optional Minimum Guaranteed Annuity Payout (M-GAP) Rider 0.15%
with a fifteen-year waiting period:
(2) ANNUAL SUB-ACCOUNT EXPENSES:
(on an annual basis as percentage of average daily net
assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.15%
------
Total Annual Expenses: 1.40%
</TABLE>
*From time to time the Company may allow a reduction of the surrender charge,
the period during which the charges apply, or both, and/or credit additional
amounts on Contracts when (1) Contracts are sold to individuals or groups of
individuals in a manner which reduces sales expenses, or (2) where the Owner or
the Annuitant on the date of issue is within certain classes of eligible
persons. For more information, see
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"Reduction or Elimination of Surrender Charge and Additional Amounts Credited"
under "E. Surrender Charge" in the CHARGES AND DEDUCTIONS section.
(3) ANNUAL UNDERLYING PORTFOLIO EXPENSES: Total expenses of the Underlying
Portfolios are not fixed or specified under the terms of the Contract and will
vary from year to year. The levels of fees and expenses also vary among the
Underlying Portfolios. The following table shows the expenses of the Underlying
Portfolios as a percentage of average net assets for the year ended
December 31, 1999, as adjusted for any material changes.
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL PORTFOLIO
MANAGEMENT FEE (AFTER ANY EXPENSES (AFTER
(AFTER ANY 12B-1 REIMBURSEMENTS/ ANY WAIVERS/
UNDERLYING PORTFOLIO VOLUNTARY WAIVERS) FEES WAIVERS) REIMBURSEMENTS)
- -------------------- ------------------ -------- --------------- -----------------
<S> <C> <C> <C> <C>
Pioneer Emerging Markets VCT
Portfolio............................ 0.00% -- 1.75% 1.75%(5)
Pioneer Europe VCT Portfolio.......... 0.00% -- 1.50% 1.50%(5)
Pioneer International Growth VCT
Portfolio............................ 1.00% -- 0.22% 1.22%(3)
Pioneer Science & Technology VCT
Portfolio............................ 0.35% -- 0.90% 1.25%(1)(5)
Pioneer Mid-Cap Value VCT Portfolio... 0.65% -- 0.11% 0.76%
Pioneer Growth Shares VCT Portfolio... 0.65% -- 0.11% 0.76%(3)
Pioneer Real Estate Growth VCT
Portfolio............................ 0.85% -- 0.30% 1.15%(5)
Pioneer Fund VCT Portfolio............ 0.65% -- 0.15% 0.80%(3)
Pioneer Equity-Income VCT Portfolio... 0.65% -- 0.15% 0.80%
Pioneer Balanced VCT Portfolio........ 0.65% -- 0.13% 0.78%(4)
Pioneer Swiss Franc Bond VCT
Portfolio............................ 0.65% -- 0.23% 0.88%(3)(4)
Pioneer High Yield VCT Portfolio...... 0.18% -- 1.07% 1.25%(1)(5)
Pioneer Strategic Income VCT
Portfolio............................ 0.00% -- 1.50% 1.50%(2)(5)
Pioneer America Income VCT
Portfolio............................ 0.55% -- 0.26% 0.81%(3)(4)
Pioneer Money Market VCT Portfolio.... 0.50% -- 0.29% 0.79%(4)
AIM V.I. Capital Appreciation Fund.... 0.62% -- 0.11% 0.73%
Alliance Premier Growth Portfolio
(Class B)............................ 1.00% 0.25% 0.04% 1.29%
Alliance Technology Portfolio
(Class B)............................ 1.00% 0.25% 0.27% 1.52%(3)(6)
DGPF Growth Opportunities
Series (Service Class)............... 0.75% 0.15% 0.07% 0.97%(7)
DGPF Select Growth Series (Service
Class)............................... 0.74% 0.15% 0.06% 0.95%(7)
Franklin Small Cap Fund (Class 2)..... 0.55% 0.25% 0.27% 1.07%(8)(9)
Templeton Asset Strategy Fund
(Class 2)............................ 0.60% 0.25% 0.18% 1.03%(8)(10)
Templeton International Smaller
Companies Fund (Class 2)............. 0.85% 0.25% 0.26% 1.36%(8)
Van Kampen LIT Emerging Growth
Portfolio............................ 0.67% -- 0.18% 0.85%(11)
</TABLE>
(1)Portfolios commenced operations on May 1, 2000, therefore expenses shown are
estimated. For the fiscal year ending December 31, 2000, assuming no voluntary
limitations, total expenses attributable to Class I shares as a percentage of
average daily net assets are estimated to be 1.65% for the Pioneer Science &
Technology VCT Portfolio and 1.72% for the Pioneer High Yield VCT Portfolio.
(2)Portfolio commenced operations on July 29, 1999; therefore expenses shown are
annualized.
(3)Pioneer has agreed voluntarily to limit its management fee and/or reimburse
each portfolio for expenses to the extent that total expenses attributable to
Class I shares will not exceed 1.50% for the Pioneer International Growth VCT
Portfolio, and 1.25% for the Pioneer America Income VCT Portfolio, Pioneer
Growth Shares VCT Portfolio, Pioneer Fund VCT Portfolio and Pioneer Swiss Franc
Bond VCT Portfolio. The total operating expenses attributable to Class I shares
of these Portfolios were less than their respective expense limitations during
1999. The declaration of a voluntary limitation and/or reimbursement in any year
does not
7
<PAGE>
bind Pioneer Investment Management, Inc. ("Pioneer") to declare further expense
limitations with respect to these portfolios. These limitations/waivers may be
terminated at any time with notice.
(4)Total expenses are gross of amounts paid in connection with certain expense
offset arrangements. Assuming reduction for expense offset arrangements, total
operating expenses attributable to Class I shares for the fiscal year ended
December 31, 1999, would have been 0.79% for the Pioneer America Income VCT
Portfolio, 0.77% for the Pioneer Balanced VCT Portfolio, 0.78% for the Pioneer
Money Market VCT Portfolio, and 0.87% for the Pioneer Swiss Franc Bond VCT
Portfolio.
(5)Pioneer has agreed voluntarily to limit its management fee and/or reimburse
each portfolio for expenses to the extent that total expenses attributable to
Class I shares will not exceed 1.75% for the Pioneer Emerging Markets VCT
Portfolio, 1.50% for the Pioneer Europe VCT Portfolio, and 1.25% for the Pioneer
High Yield VCT Portfolio, Pioneer Real Estate Growth VCT Portfolio, Pioneer
Science & Technology VCT Portfolio and Pioneer Strategic Income VCT Portfolio.
The declaration of a voluntary limitation and/or reimbursement in any year does
not bind Pioneer to declare further expense limitations with respect to these
portfolios. These limitations/waivers may be terminated at any time with notice.
Excluding certain offset arrangements, but after the affect of the voluntary
limitations, expenses attributable to Class I shares would have been 1.88% for
the Pioneer Emerging Markets VCT Portfolio, 1.53% for the Pioneer Europe VCT
Portfolio, 1.15% for the Pioneer Real Estate Growth VCT Portfolio, and 1.54% for
the Pioneer Strategic Income VCT Portfolio. For the fiscal year ended
December 31, 1999, assuming no voluntary limitations and no expense offset
arrangements, Portfolio expenses as a percentage of average daily net assets
attributable to Class I shares were 6.56% for the Pioneer Emerging Markets VCT
Portfolio, 2.58% for the Pioneer Europe VCT Portfolio, 1.30% for the Pioneer
Real Estate Growth VCT Portfolio and 8.68% for the Pioneer Strategic Income VCT
Portfolio. On April 1, 1999, Pioneer agreed to waive a portion of its management
fee from 1.00% to 0.80% of the Pioneer Real Estate Growth VCT Portfolio's
average daily net assets. Pioneer reduced the portfolio's management fee to
0.80% effective December 14, 1999.
(6)From time to time, the Alliance Technology Portfolio's investment adviser, in
its own discretion, may voluntarily waive all or part of its fees and/or
voluntarily assume certain portfolio expenses. An expense cap of 1.20% which was
in effect during 1999, is no longer in effect as of May 1, 2000. Therefore, the
expenses shown in the above table have been restated to reflect current fees
without the cap.
(7)Service Class inception is May 1, 2000. Fees and Expenses shown are based on
those for the Standard Class. Effective May 1, 2000 through October 31, 2000,
the investment advisor, Delaware Management Company, has voluntarily agreed to
waive its management fee and reimburse each Series for expenses to the extent
that total expenses will not exceed 0.85%, exclusive of the 12b-1 fee. Total
expenses of the Select Growth Series before waiver and/or reimbursement would
have been 0.96%, inclusive of the 12b-1 fee.
(8)The fund's class 2 distribution plan or "rule 12b-1 plan" is described in the
fund's prospectus.
(9)On 2/8/00, a merger and reorganization was approved that combined the assets
of the Franklin Small Cap Fund with a similar fund of the Templeton Variable
Products Series Fund, effective 5/1/00. On 2/28/00, fund shareholders approved
new management fees, which apply to the combined fund effective 5/1/00. The
table shows restated total expenses based on the new fees and assets of the fund
as of 12/31/99, and not the assets of the combined fund. However, if the table
reflected both the new fees and the combined assets, the fund's expenses after
May 1, 2000 would be estimated to be the same.
(10)On 2/8/00, shareholders approved a merger and reorganization that combined
the Templeton Asset Strategy Fund with the Templeton Global Asset Allocation
Fund, effective 5/1/00. The shareholders of that fund had approved new
management fees, which apply to the combined fund effective 5/1/00. The table
shows restated total expenses based on the new fees and the assets of the fund
as of 12/31/99, and not the assets of the combined fund. However, if the table
reflected both the new fees and the combined assets, the fund's expenses
8
<PAGE>
after 5/1/00 would be estimated as: Management Fees 0.60%, 12b-1 Fees 0.25%,
Other Expenses 0.14%, and Total Fund Expenses 0.99%.
(11)Without taking into effect the voluntary fee waiver of 0.85%, the Van Kampen
LIT Emerging Growth Portfolio's management fee, other expenses and total
portfolio expenses would have been 0.70%, 0.18% and 0.88%, respectively, for the
fiscal year ended December 31, 1999.
The Underlying Portfolio information above was provided by the Underlying
Portfolios and was not independently verified by the Company.
EXPENSE EXAMPLES: The following examples demonstrate the cumulative expenses
which an Owner would pay at 1-year, 3-year, 5-year, and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-Account
and a 5% annual return on assets and assumes that the Underlying Portfolio
expenses listed above remain the same in each of the 1, 3, 5, and 10-year
intervals. As required by rules of the Securities and Exchange Commission
("SEC"), the Contract fee is reflected in the examples by a method designed to
show the "average" impact on an investment in the Variable Account. The total
Contract fees collected are divided by the total average net assets attributable
to the Contracts. The resulting percentage is 0.04%, and the amount of the
Contract fee is assumed to be $0.40 in the examples. The Contract fee is
deducted only when the accumulated value is less than $50,000. Lower costs apply
to Contracts owned and maintained under a 401(k) plan. Because the expenses of
the Underlying Portfolios differ, separate examples are used to illustrate the
expenses incurred by the Owner on an investment in the various Sub-Accounts.
See Appendix D for the expense examples for Pioneer Vision Contracts.
9
<PAGE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
(1)(a) If, at the end of the applicable time period, you surrender your Contract
or annuitize* under any commutable period certain option or a noncommutable
fixed period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming 5% annual return on assets, and no
Rider:**
<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio..................... $93 $143 $195 $349
Pioneer Europe VCT Portfolio............................... $90 $136 $183 $326
Pioneer International Growth VCT Portfolio................. $88 $128 $170 $299
Pioneer Science & Technology VCT Portfolio................. $88 $129 $171 $302
Pioneer Mid-Cap Value VCT Portfolio........................ $83 $115 $147 $253
Pioneer Growth Shares VCT Portfolio........................ $83 $115 $147 $253
Pioneer Real Estate Growth VCT Portfolio................... $87 $126 $166 $292
Pioneer Fund VCT Portfolio................................. $84 $116 $149 $257
Pioneer Equity-Income VCT Portfolio........................ $84 $116 $149 $257
Pioneer Balanced VCT Portfolio............................. $84 $116 $148 $255
Pioneer Swiss Franc Bond VCT Portfolio..................... $85 $118 $153 $266
Pioneer High Yield VCT Portfolio........................... $88 $129 $171 $302
Pioneer Strategic Income VCT Portfolio..................... $90 $136 $183 $326
Pioneer America Income VCT Portfolio....................... $84 $116 $150 $258
Pioneer Money Market VCT Portfolio......................... $84 $116 $149 $256
AIM V.I. Capital Appreciation Fund......................... $83 $114 $146 $250
Alliance Premier Growth Portfolio.......................... $88 $130 $173 $306
Alliance Technology Portfolio.............................. $91 $137 $184 $328
DGPF Growth Opportunities Series........................... $85 $121 $158 $275
DGPF Select Growth Series.................................. $85 $120 $157 $273
Franklin Small Cap Fund.................................... $86 $124 $162 $285
Templeton Asset Strategy Fund.............................. $86 $123 $160 $281
Templeton International Smaller Companies Fund............. $89 $132 $176 $313
Van Kampen LIT Emerging Growth Portfolio................... $84 $118 $152 $263
</TABLE>
10
<PAGE>
(1)(b) If, at the end of the applicable time period, you surrender your Contract
or annuitize* under any commutable period certain option or a noncommutable
fixed period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming 5% annual return on assets and
election of a Minimum Guaranteed Annuity Payout (M-GAP) Rider** with a ten-year
waiting period:
<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio..................... $95 $150 $206 $372
Pioneer Europe VCT Portfolio............................... $93 $143 $195 $349
Pioneer International Growth VCT Portfolio................. $90 $135 $182 $323
Pioneer Science & Technology VCT Portfolio................. $90 $136 $183 $326
Pioneer Mid-Cap Value VCT Portfolio........................ $86 $122 $159 $279
Pioneer Growth Shares VCT Portfolio........................ $86 $122 $159 $279
Pioneer Real Estate Growth VCT Portfolio................... $89 $133 $178 $317
Pioneer Fund VCT Portfolio................................. $86 $123 $161 $283
Pioneer Equity-Income VCT Portfolio........................ $86 $123 $161 $283
Pioneer Balanced VCT Portfolio............................. $86 $123 $160 $281
Pioneer Swiss Franc Bond VCT Portfolio..................... $87 $126 $165 $290
Pioneer High Yield VCT Portfolio........................... $90 $136 $183 $326
Pioneer Strategic Income VCT Portfolio..................... $93 $143 $195 $349
Pioneer America Income VCT Portfolio....................... $86 $124 $162 $284
Pioneer Money Market VCT Portfolio......................... $86 $123 $161 $282
AIM V.I. Capital Appreciation Fund......................... $86 $121 $158 $276
Alliance Premier Growth Portfolio.......................... $91 $137 $185 $330
Alliance Technology Portfolio.............................. $93 $144 $196 $351
DGPF Growth Opportunities Series........................... $88 $128 $170 $299
DGPF Select Growth Series.................................. $88 $128 $169 $297
Franklin Small Cap Fund.................................... $89 $131 $174 $309
Templeton Asset Strategy Fund.............................. $88 $130 $173 $305
Templeton International Smaller Companies Fund............. $91 $139 $188 $336
Van Kampen LIT Emerging Growth Portfolio................... $87 $125 $164 $288
</TABLE>
11
<PAGE>
(2)(a) If, at the end of the applicable time period, you annuitize* under a life
option or a noncommutable fixed period certain option of ten years or longer, or
if you do NOT surrender or annuitize your Contract, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets and no
Rider:**
<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio..................... $32 $98 $167 $349
Pioneer Europe VCT Portfolio............................... $30 $91 $155 $326
Pioneer International Growth VCT Portfolio................. $27 $83 $141 $299
Pioneer Science & Technology VCT Portfolio................. $27 $84 $142 $302
Pioneer Mid-Cap Value VCT Portfolio........................ $22 $69 $118 $253
Pioneer Growth Shares VCT Portfolio........................ $22 $69 $118 $253
Pioneer Real Estate Growth VCT Portfolio................... $26 $81 $138 $292
Pioneer Fund VCT Portfolio................................. $23 $70 $120 $257
Pioneer Equity-Income VCT Portfolio........................ $23 $70 $120 $257
Pioneer Balanced VCT Portfolio............................. $23 $69 $119 $255
Pioneer Swiss Franc Bond VCT Portfolio..................... $24 $72 $124 $266
Pioneer High Yield VCT Portfolio........................... $27 $84 $142 $302
Pioneer Strategic Income VCT Portfolio..................... $30 $91 $155 $326
Pioneer America Income VCT Portfolio....................... $23 $70 $120 $258
Pioneer Money Market VCT Portfolio......................... $23 $70 $119 $256
AIM V.I. Capital Appreciation Fund......................... $22 $68 $116 $250
Alliance Premier Growth Portfolio.......................... $28 $85 $144 $306
Alliance Technology Portfolio.............................. $30 $92 $156 $328
DGPF Growth Opportunities Series........................... $24 $75 $129 $275
DGPF Select Growth Series.................................. $24 $75 $128 $273
Franklin Small Cap Fund.................................... $25 $78 $134 $285
Templeton Asset Strategy Fund.............................. $25 $77 $132 $281
Templeton International Smaller Companies Fund............. $28 $87 $148 $313
Van Kampen LIT Emerging Growth Portfolio................... $23 $72 $123 $263
</TABLE>
12
<PAGE>
(2)(b) If, at the end of the applicable time period, you annuitize* under a life
option or a noncommutable fixed period certain option of ten years or longer, or
if you do NOT surrender or annuitize your Contract, you would pay the following
expenses on a $1,000 investment, assuming an annual 5% return on assets and
election of a Minimum Guaranteed Annuity Payout (M-GAP) Rider** with a ten-year
waiting period:
<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio..................... $35 $106 $179 $372
Pioneer Europe VCT Portfolio............................... $32 $98 $167 $349
Pioneer International Growth VCT Portfolio................. $29 $90 $153 $323
Pioneer Science & Technology VCT Portfolio................. $30 $91 $155 $326
Pioneer Mid-Cap Value VCT Portfolio........................ $25 $76 $131 $279
Pioneer Growth Shares VCT Portfolio........................ $25 $76 $131 $279
Pioneer Real Estate Growth VCT Portfolio................... $29 $88 $150 $317
Pioneer Fund VCT Portfolio................................. $25 $78 $133 $283
Pioneer Equity-Income VCT Portfolio........................ $25 $78 $133 $283
Pioneer Balanced VCT Portfolio............................. $25 $77 $132 $281
Pioneer Swiss Franc Bond VCT Portfolio..................... $26 $80 $137 $290
Pioneer High Yield VCT Portfolio........................... $30 $91 $155 $326
Pioneer Strategic Income VCT Portfolio..................... $32 $98 $167 $349
Pioneer America Income VCT Portfolio....................... $25 $78 $133 $284
Pioneer Money Market VCT Portfolio......................... $25 $77 $132 $282
AIM V.I. Capital Appreciation Fund......................... $25 $75 $129 $276
Alliance Premier Growth Portfolio.......................... $30 $92 $157 $330
Alliance Technology Portfolio.............................. $32 $99 $168 $351
DGPF Growth Opportunities Series........................... $27 $83 $141 $299
DGPF Select Growth Series.................................. $27 $82 $140 $297
Franklin Small Cap Fund.................................... $28 $86 $146 $309
Templeton Asset Strategy Fund.............................. $28 $84 $144 $305
Templeton International Smaller Companies Fund............. $31 $94 $160 $336
Van Kampen LIT Emerging Growth Portfolio................... $26 $79 $135 $288
</TABLE>
*The Contract fee is not deducted after annuitization. A surrender charge is
assessed at the time of annuitization if you elect a noncommutable fixed period
certain option of less than ten years or any commutable period certain option.
No charge is assessed if you elect any life contingency option or a
noncommutable fixed period certain option of ten years or longer.
**If the Minimum Guaranteed Annuity Payout (M-GAP) Rider is exercised, you may
only annuitize under a fixed annuity payout option involving a life contingency
at the Company's guaranteed fixed annuity option rates listed under the Annuity
Option Tables in your Contract.
13
<PAGE>
SUMMARY OF CONTRACT FEATURES
WHAT IS THE PIONEER VISION 2 VARIABLE ANNUITY?
The Pioneer Vision 2 variable annuity contract ("Contract") is an insurance
contract designed to help you, the Owner, accumulate assets for your retirement
or other important financial goals on a tax-deferred basis. The Contract
combines the concept of professional money management with the attributes of an
annuity contract. Features available through the Contract include:
- a customized investment portfolio;
- experienced professional investment advisers;
- tax deferral on earnings;
- guarantees that can protect your family during the accumulation phase;
- income payments that you can receive for life;
- issue age up to your 90th birthday (as long as the Annuitant is under age
90.)
The Contract has two phases: an accumulation phase and, if you choose to
annuitize, an annuity payout phase. During the accumulation phase, you may
allocate your initial payment and any additional payments you choose to make
among seventeen of the twenty-four available Sub-Accounts investing in the
Underlying Portfolios (in addition to the Pioneer Money Market VCT Portfolio),
to the Guarantee Period Accounts, and to the Fixed Account (collectively "the
investment options.") You select the investment options most appropriate for
your investment needs. As those needs change, you may also change your
allocation without incurring any tax consequences. Your Contract's Accumulated
Value is based on the investment performance of the Portfolios and any
accumulations in the Guarantee Period and Fixed Accounts. You do not pay taxes
on any earnings under the Contract until you withdraw money. In addition, during
the accumulation phase, your beneficiaries receive certain protections in the
event of the Annuitant's death. See discussion below: WHAT HAPPENS UPON DEATH
DURING THE ACCUMULATION PHASE?
I HAVE THE PIONEER VISION CONTRACT (FORM A3023-95) -- ARE THERE ANY
DIFFERENCES BETWEEN THIS AND PIONEER VISION 2?
Yes. If your Contract is issued on Form No. A3023-95, the first version of
Pioneer Vision, it is basically similar to the Contract described in this
Prospectus ("Pioneer Vision 2") except as specifically indicated in APPENDIX
D -- DIFFERENCES UNDER THE PIONEER VISION CONTRACT (FORM A3023-95). Note that
APPENDIX D also includes the cumulative expense tables for the Pioneer Vision
Contract (Form A3023-95). The form number is located in the bottom left-hand
corner of your Contract pages, and may include some numbers or letters in
addition to A3023-95 in order to identify state variations.
WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?
During the annuity payout phase, the Annuitant can receive income based on
several annuity payout options. You choose the annuity payout option and the
date for annuity benefit payments to begin. You also decide whether you want
variable annuity benefit payments based on the investment performance of certain
Underlying Portfolios, fixed annuity benefit payments with payment amounts
guaranteed by the Company, or a combination of fixed and variable annuity
benefit payments. Among the payout options available during the annuity payout
phase are:
- periodic payments for the Annuitant's lifetime;
14
<PAGE>
- periodic payments for the Annuitant's life and the life of another person
selected by you;
- periodic payments for the Annuitant's lifetime with any remaining
guaranteed payments continuing to the beneficiary for ten years in the
event that the Annuitant dies before the end of ten years;
- periodic payments over a specified number of years (1 to 30) - under the
fixed version of this option you may reserve the right to convert
remaining payments to a lump-sum payout by electing a "commutable" option.
Variable period certain options are automatically commutable.
An optional Minimum Guaranteed Annuity Payout ("M-GAP") Rider is currently
available during the accumulation phase in most jurisdictions for a separate
monthly charge. If elected, the Rider provides the Annuitant a guaranteed
minimum amount of income after the specified waiting period under a life
contingent fixed annuity payout option, subject to certain conditions. On each
Contract anniversary, a Minimum Guaranteed Annuity Payout Benefit Base is
determined. The Minimum Guaranteed Annuity Payout Benefit Base (less any
applicable premium taxes) is the value that will be annuitized should you
exercise the Rider. In order to exercise the Rider, a fixed annuitization option
involving a life contingency must be selected. Annuitization under this Rider
will occur at the Company's guaranteed annuity option rates listed under the
Annuity Option Tables in your Contract. The Minimum Guaranteed Annuity Payout
Benefit Base is equal to the greatest of:
(a) the Accumulated Value increased by any positive Market Value Adjustment,
if applicable, on the Contract anniversary that the M-GAP Benefit Base is
being determined; or
(b) the Accumulated Value on the effective date of the Rider compounded
daily at an effective annual yield of 5% plus gross payments made
thereafter compounded daily at an effective annual yield of 5%, starting
on the date each payment is applied, proportionately reduced to reflect
withdrawals; or
(c) the highest Accumulated Value on any Contract anniversary since the
Rider effective date, as determined after being increased for subsequent
payments and any positive Market Value Adjustment, if applicable, and
proportionately reduced for subsequent withdrawals.
For each withdrawal described in (b) and (c) above, the proportionate reduction
is calculated by multiplying the (b) or (c) value, whichever is applicable,
determined immediately prior to the withdrawal by the following fraction:
amount of the withdrawal
----------------------------------------------------------
Accumulated Value determined immediately prior to the withdrawal
For more details see "M. Optional Minimum Guaranteed Annuity Payout (M-GAP)
Rider" under DESCRIPTION OF THE CONTRACT.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you, (the "Owner"), and us, Allmerica Financial Life
Insurance and Annuity Company (for contracts issued in all jurisdictions except
Hawaii and New York) or First Allmerica Financial Life Insurance Company (for
contracts issued in Hawaii and New York). Each Contract has an Owner (or an
Owner and a Joint Owner, in which case one of the two must also be the
Annuitant), an Annuitant and one or more beneficiaries. As Owner, you make
payments, choose investment allocations and select the Annuitant and one or more
beneficiaries. The Annuitant is the individual who receives annuity benefit
payments under the Contract. The beneficiary is the person who receives any
payment on the death of the Owner or Annuitant.
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of your payments are flexible, subject only to a $600
minimum for your initial payment ($1,000 in Washington) and a $50 minimum for
any additional payments. (A lower initial payment
15
<PAGE>
amount is permitted for certain qualified plans and where monthly payments are
being forwarded directly from a financial institution.) In addition, a minimum
of $1,000 is always required to establish a Guarantee Period Account.
WHAT ARE MY INVESTMENT CHOICES?
You may allocate payments among the Sub-Accounts, the Guarantee Period Accounts,
and the Fixed Account. As of the date of this Prospectus, payments may be
allocated to a maximum of seventeen variable Sub-Accounts (in addition to the
Pioneer Money Market VCT Portfolio), during the life of the Contract and prior
to the Annuity Date.
THE VARIABLE ACCOUNT. Subject to the 17 variable fund maximum, you have the
choice of Sub-Accounts investing in the following twenty-four Underlying
Portfolios:
<TABLE>
<S> <C>
Pioneer Emerging Markets VCT Portfolio Pioneer Strategic Income VCT Portfolio
Pioneer Europe VCT Portfolio Pioneer America Income VCT Portfolio
Pioneer International Growth VCT Portfolio Pioneer Money Market VCT Portfolio
Pioneer Science & Technology VCT Portfolio AIM V.I. Capital Appreciation Fund
Pioneer Mid-Cap Value VCT Portfolio Alliance Premier Growth Portfolio
Pioneer Growth Shares VCT Portfolio Alliance Technology Portfolio
Pioneer Real Estate Growth VCT Portfolio DGPF Growth Opportunities Series
Pioneer Pioneer Fund VCT Portfolio DGPF Select Growth Series
Pioneer Equity-Income VCT Portfolio Franklin Small Cap Fund
Pioneer Balanced VCT Portfolio Templeton Asset Strategy Fund
Pioneer Swiss Franc Bond VCT Portfolio Templeton International Smaller Companies Fund
Pioneer High Yield VCT Portfolio Van Kampen LIT Emerging Growth Portfolio
</TABLE>
Each Underlying Portfolio operates pursuant to different investment objectives
and this range of investment options enables you to allocate your money among
the Underlying Portfolios to meet your particular investment needs. For a more
detailed description of the Underlying Portfolios, see INVESTMENT OBJECTIVES AND
POLICIES.
GUARANTEE PERIOD ACCOUNTS. Assets supporting the guarantees under the Guarantee
Period Accounts are held in the Company's Separate Account GPA, a non-unitized
insulated separate account, except in California where assets are held in the
Company's General Account. Values and benefits calculated on the basis of
Guarantee Period Account allocations, however, are obligations of the Company's
General Account. Amounts allocated to a Guarantee Period Account earn a
Guaranteed Interest Rate declared by the Company. The level of the Guaranteed
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company may offer up to nine Guarantee Periods ranging from two to ten years
in duration. Once declared, the Guaranteed Interest Rate will not change during
the duration of the Guarantee Period. If amounts allocated to a Guarantee Period
Account are transferred, surrendered or applied to any annuity option at any
time other than the day following the last day of the applicable Guarantee
Period, a Market Value Adjustment will apply that may increase or decrease the
account's value; however, this adjustment will never be applied against your
principal. In addition, earnings in the GPA after application of the Market
Value Adjustment will not be less than an effective annual rate of 3%. For more
information about the Guarantee Period Accounts and the Market Value Adjustment,
see GUARANTEE PERIOD ACCOUNTS.
THE GUARANTEE PERIOD ACCOUNTS AND/OR SOME OF THE SUB-ACCOUNTS MAY NOT BE
AVAILABLE IN ALL STATES.
FIXED ACCOUNT. The Fixed Account is part of the General Account which consists
of all the Company's assets other than those allocated to the Variable Account
and any other separate account. Allocations to the Fixed Account are guaranteed
as to principal and a minimum rate of interest. Additional excess interest may
be declared periodically at the Company's discretion. Furthermore, the initial
rate in effect on the date an
16
<PAGE>
amount is allocated to the Fixed Account is guaranteed for one year from that
date. For more information about the Fixed Account, see APPENDIX A -- MORE
INFORMATION ABOUT THE FIXED ACCOUNT.
WHO ARE THE INVESTMENT ADVISERS OF THE UNDERLYING PORTFOLIOS?
Pioneer Investment Management, Inc. is the investment adviser to each Portfolio
of Pioneer Variable Contracts Trust. A I M Advisors, Inc. is the investment
adviser for the AIM V.I. Capital Apprecation Fund of AIM Variable Insurance
Funds. Alliance Capital Management, L.P. serves as the investment adviser to the
Alliance Premier Growth Portfolio and Alliance Technology Portfolio of Alliance
Variable Products Series Fund, Inc. Delaware Management Company is the
investment adviser for the DGPF Growth Opportunities Series and DGPF Select
Growth Series of Delaware Group Premium Fund. The investment adviser for
Franklin Small Cap Fund is Franklin Advisers, Inc. Templeton Investment
Counsel, Inc. is the adviser to the Templeton Asset Strategy Fund and the
Templeton International Smaller Companies Fund of Franklin Templeton Variable
Insurance Products Trust. The invesment adviser for the Van Kampen LIT Emerging
Growth Portfolio of the Van Kampen Life Investment Trust is Van Kampen Asset
Management Inc.
CAN I MAKE TRANSFERS AMONG THE INVESTMENT CHOICES?
Yes. Prior to the Annuity Date, you may transfer among the Sub-Accounts, the
Guarantee Period Accounts, and the Fixed Account. As of the date of this
Prospectus, transfers may be made to a maximum of seventeen variable
Sub-Accounts in addition to the Pioneer Money Market VCT Portfolio during the
life of the Contract. You will incur no current taxes on transfers while your
money remains in the Contract. The first 12 transfers in a Contract year are
guaranteed to be free of a transfer charge. For each subsequent transfer in a
Contract year, the Company does not currently charge, but reserves the right to
assess a processing charge guaranteed never to exceed $25. See "D. Transfer
Privilege" under DESCRIPTION OF THE CONTRACT.
You also may elect at no additional charge Automatic Transfers (Dollar Cost
Averaging) to gradually move money to one or more of the Underlying Portfolios
or Automatic Account Rebalancing to ensure assets remain allocated according to
your designated percentage allocation mix.
WHAT IF I NEED MY MONEY BEFORE THE ANNUITY PAYOUT PHASE BEGINS?
You may surrender your Contract or make withdrawals any time before the annuity
payout phase begins. Each year you can take without a surrender charge the
greatest of 100% of cumulative earnings, 15% of the Contract's Accumulated Value
or, if you are both an Owner and the Annuitant, an amount based on your life
expectancy. (Similarly, no surrender charge will apply if an amount is withdrawn
based on the Annuitant's life expectancy if the Owner is a trust or other
nonnatural person.) A 10% tax penalty may apply on all amounts deemed to be
income if you are under age 59 1/2. Additional amounts may be withdrawn at any
time but payments that have not been invested in the Contract for more than
seven years may be subject to a surrender charge. (A Market Value Adjustment,
which may increase or decrease the value of the account, may apply to any
withdrawal made from a Guarantee Period Account prior to the expiration of the
Guarantee Period.)
In addition, you may withdraw all or a portion of your money without a surrender
charge if, after the Contract is issued, and before age 65, you become disabled.
Also, except in New York and New Jersey where not permitted by state law, you
may withdraw money without a surrender charge if, after the Contract is issued,
you are admitted to a medical care facility or diagnosed with a fatal illness.
For details and restrictions, see "Reduction or Elimination of Surrender Charge
and Additional Amounts Credited" in "E. Surrender Charge" under CHARGES AND
DEDUCTIONS.
17
<PAGE>
WHAT HAPPENS UPON DEATH DURING THE ACCUMULATION PHASE?
If the Annuitant, Owner or Joint Owner should die before the Annuity Date, a
death benefit will be paid to the beneficiary. Upon the death of the Annuitant
(or an Owner who is also an Annuitant), the death benefit is equal to the
greatest of:
- The Accumulated Value on the Valuation Date that the Company receives
proof of death, increased by any positive Market Value Adjustment;
- Gross payments, with interest compounding daily at an effective annual
yield of 5% starting on the date each payment is applied, and continuing
throughout your investments' entire accumulation phase (5% compounding not
available in Hawaii and New York), decreased proportionately to reflect
withdrawals; or
- The death benefit that would have been payable on the most recent Contract
anniversary, increased for subsequent payments and decreased
proportionately for subsequent withdrawals.
This guaranteed death benefit works in the following way assuming no withdrawals
are made. On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments compounded daily at an effective annual yield
of 5% (except in Hawaii and New York where (b) equals gross payments). The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments compounded daily at an effective annual yield of
5% (gross payments in Hawaii and New York) or (c) the locked-in value of the
death benefit at the first anniversary. The greatest of (a), (b) or (c) will be
locked in until the next Contract anniversary. This calculation will then be
repeated on each anniversary while the Contract remains in force and prior to
the Annuity Date. As noted above, the values of (b) and (c) will be decreased
proportionately if withdrawals are taken.
At the death of an Owner who is not also the Annuitant during the accumulation
phase, the death benefit will equal the Contract's Accumulated Value on the
Valuation Date that the Company receives proof of death, increased by any
positive Market Value Adjustment.
(If the Annuitant dies after the Annuity Date but before all guaranteed annuity
benefit payments have been made, the remaining payments will be paid to the
beneficiary at least as rapidly as under the annuity option in effect. See "G.
Death Benefit.")
WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
If the Accumulated Value on a Contract anniversary or upon surrender is less
than $50,000, the Company will deduct a $30 Contract fee from your Contract. The
Contract fee is currently waived for Contracts issued to and maintained by a
trustee of a 401(k) plan.
Should you decide to surrender your Contract, make withdrawals, or receive
payments under certain annuity payout options, you may be subject to a surrender
charge. If applicable, this charge will be between 1% and 7% of payments
withdrawn, based on when the payments were originally made.
A deduction for state and local premium taxes, if any, may be made as described
in "D. Premium Taxes" under CHARGES AND DEDUCTIONS.
The Company will deduct, on a daily basis, an annual Mortality and Expense Risk
Charge and an Administrative Expense Charge equal to 1.25% and 0.15%,
respectively, of the average daily net assets invested in each Underlying
Portfolio. The Portfolios will incur certain management fees and expenses which
are more fully
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described in "Other Charges" under "A. Variable Account Deductions" and in the
prospectuses of the Underlying Portfolios, which accompany this Prospectus.
These charges vary among the Underlying Portfolios and may change from year to
year. In addition, management fee waivers and/or reimbursements may be in effect
for certain or all of the Underlying Portfolios. For more specific information
regarding the existence and effect of any waivers/reimbursements see "Annual
Underlying Portfolio Expenses" under the SUMMARY OF FEES AND EXPENSES section.
Subject to state availability, the Company currently offers an optional Minimum
Guaranteed Annuity Payout ("M-GAP") Rider for an additional charge. If you elect
the Rider, a separate monthly charge is deducted from the Contract's Accumulated
Value at the end of each month within which the Rider has been in effect. The
charge is assessed by multiplying the Accumulated Value on the last day of each
month and, if applicable, on the date the Rider is terminated by 1/12th of the
following annual percentage rates:
<TABLE>
<S> <C>
Minimum Guaranteed Annuity Payout (M-GAP) Rider with a ten-year
waiting period................................................................ 0.25%
Minimum Guaranteed Annuity Payout (M-GAP) Rider with a fifteen-year
waiting period................................................................ 0.15%
</TABLE>
For a description of this Rider, see "C. Optional Minimum Guaranteed Annuity
Payout (M-GAP) Rider Charge" under CHARGES AND DEDUCTIONS, and "M. Optional
Minimum Guaranteed Annuity Payout (M-GAP) Rider" under DESCRIPTION OF THE
CONTRACT.
CAN I EXAMINE THE CONTRACT?
Yes. Your Contract will be delivered to you after your purchase. If you return
the Contract to the Company within ten days of receipt, the Contract will be
canceled. (There may be a longer period in certain states; see the "Right to
Examine" provision on the cover of your Contract.) If you cancel the Contract,
you will receive a refund of any amounts allocated to the Fixed and Guarantee
Period Accounts and the Accumulated Value of any amounts allocated to the
Sub-Accounts (plus any fees or charges that may have been deducted.) However, if
state law requires, or if the Contract was issued as an Individual Retirement
Annuity (IRA) you will generally receive a refund of your entire payment. (In
certain states this refund may be the greater of (1) your entire payment or
(2) the amounts allocated to the Fixed and Guarantee Period Accounts plus the
Accumulated Value of amounts in the Sub-Accounts, plus any fees or charges
previously deducted.) See "B. Right to Cancel Individual Retirement Annuity" and
"C. Right to Cancel All Other Contracts" under DESCRIPTION OF THE CONTRACT.
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DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS,
AND THE UNDERLYING INVESTMENT COMPANIES
THE COMPANIES Allmerica Financial Life Insurance and Annuity Company
("Allmerica Financial") is a life insurance company organized under the laws of
Delaware in July 1974. Its Principal Office is located at 440 Lincoln Street,
Worcester, MA 01653, telephone 508-855-1000. Allmerica Financial is subject to
the laws of the state of Delaware governing insurance companies and to
regulation by the Commissioner of Insurance of Delaware. In addition, Allmerica
Financial is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1999,
Allmerica Financial had over $17 billion in assets and over $26 billion of life
insurance in force.
Effective October 1, 1995, Allmerica Financial changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company.
Allmerica Financial is a wholly owned subsidiary of First Allmerica Financial
Life Insurance Company which, in turn, is a wholly owned subsidiary of Allmerica
Financial Corporation ("AFC").
First Allmerica Financial Life Insurance Company ("First Allmerica"), organized
under the laws of Massachusetts in 1844, is the fifth oldest life insurance
company in America. As of December 31, 1999, First Allmerica and its
subsidiaries had over $25 billion in combined assets and over $43 billion of
life insurance in force. Effective October 16, 1995, First Allmerica 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. First Allmerica is a wholly owned subsidiary of AFC. First Allmerica's
principal office ("Principal Office") is located at 440 Lincoln Street,
Worcester MA 01653, telephone 508-855-1000.
First Allmerica 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, First Allmerica is subject to the insurance laws
and regulations of other states and jurisdictions in which it is licensed to
operate.
Both companies are charter members of the Insurance Marketplace Standards
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE VARIABLE ACCOUNTS Each Company maintains a separate account called Separate
Account VA-P (the "Variable Account"). The Variable Accounts were authorized by
votes of the Board of Directors of the Companies on October 27, 1994. Each
Variable Account is registered with the SEC as a unit investment trust under the
Investment Company Act of 1940 ("the 1940 Act"). This registration does not
involve the supervision or management of investment practices or policies of the
Variable Accounts or the Company by the SEC.
Separate Account VA-P is a separate investment account of the Company. The
assets used to fund the variable portions of the Contract are set aside in the
Sub-Accounts of the Variable Account, and are kept separate and apart from the
general assets of the Company. Each Sub-Account is administered and accounted
for as part of the general business of the Company. The income, capital gains or
capital losses of each Sub-Account, however, are allocated to each Sub-Account,
without regard to any other income, capital gains or capital losses of the
Company. Obligations under the Contract are obligations of the Company. Under
Delaware and 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 Company reserves the right, subject to compliance with applicable law, to
change the names of the Variable Account and the Sub-Accounts. The Company may
offer other variable annuity contracts investing in
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the Variable Account which are not discussed in this Prospectus. The Variable
Account also may invest in other Underlying Portfolios which are not available
to the Contracts described in this Prospectus.
THE UNDERLYING INVESTMENT COMPANIES
PIONEER VARIABLE CONTRACTS TRUST
Pioneer Variable Contracts Trust ("Pioneer VCT") is an open-end, management
investment company registered with the SEC under the 1940 Act. Such registration
does not involve supervision by the SEC of the investments or investment policy
of Pioneer VCT or its separate investment Portfolios. Pioneer Investment
Management, Inc. ("Pioneer") is the investment adviser to each Portfolio.
Pioneer also provides investment research and portfolio management services to a
number of other retail mutual funds and certain institutional clients. Pioneer
is a wholly owned subsidiary of The Pioneer Group, Inc. ("PGI"). PGI,
established in 1928, is one of America's oldest investment managers and has its
principal place of business at 60 State Street, Boston, Massachusetts.
AIM VARIABLE INSURANCE FUNDS
AIM Variable Insurance Funds ("AVIF"), an open-end, series, management
investment company registered with the SEC under the 1940 Act., was organized as
a Maryland corporation on January 22, 1993 and changed to a Delaware business
trust on May 1, 2000. The investment adviser for the AIM V.I. Capital
Appreciation Fund is A I M Advisors, Inc. ("AIM"). AIM was organized in 1976
and, together with its subsidiaries, manages or advises over 120 investment
company portfolios encompassing a broad range of investment objectives.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Alliance Variable Products Series Fund, Inc. ("Alliance") is registered with the
SEC as an open-end, management investment company. Two of its separate
investment portfolios are currently available under the Contract: the Alliance
Premier Growth Portfolio and the Alliance Technology Portfolio. Alliance Capital
Management, L.P. ("Alliance Capital") serves as the investment adviser to
Alliance. Alliance Capital Management Corporation, the sole general partner of
Alliance Capital, is an indirect wholly owned subsidiary of The Equitable Life
Assurance Society of the United States, which is in turn a wholly owned
subsidiary of the Equitable Companies Incorporated, a holding company which is
controlled by AXA, a French insurance holding company.
DELAWARE GROUP PREMIUM FUND
Delaware Group Premium Fund ("DGPF"), previously a Maryland corporation
organized on February 19, 1987 and reorganized as a Delaware business trust on
December 15, 1999, is an open-end management investment company registered with
the SEC under the 1940 Act. Delaware Management Company, a series of Delaware
Management Business Trust ("Delaware Management") is the investment adviser for
the DGPF Growth Opportunities Series and the DGPF Select Growth Series. Delaware
Management and its predecessors have been managing the funds in the Delaware
Investments family since 1938.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Franklin Templeton Variable Insurance Products Trust ("FT VIP") and the funds'
investment managers and their affiliates manage over $224 billion (as of
December 31, 1999) in assets. In 1992, Franklin joined forces with Templeton, a
pioneer in international investing. The Mutual Advisers organization became part
of the Franklin Templeton organization four years later. Templeton Investment
Counsel, Inc. is adviser to both Templeton Asset Strategy Fund and Templeton
International Smaller Companies Fund. The investment adviser to the Franklin
Small Cap Fund is Franklin Advisers, Inc.
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<PAGE>
VAN KAMPEN LIFE INVESTMENT TRUST
Van Kampen Life Investment Trust ("Van Kampen") is a diversified, open-end
management investment company registered with the SEC under the 1940 Act. Van
Kampen Asset Management Inc. is the investment adviser for theVan Kampen LIT
Emerging Growth Portfolio. The adviser is a wholly owned subsidiary of Van
Kampen Investments Inc., a diversified asset management company. Van Kampen
Investments Inc. is an indirect wholly owned subsidiary of Morgan Stanley Dean
Witter & Co.
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 INVESTMENT COMPANIES MAY BE FOUND
IN THE PROSPECTUSES FOR THE UNDERLYING PORTFOLIOS, WHICH ACCOMPANY THIS
PROSPECTUS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. Also, the Statements
of Additional Information ("SAI") are available upon request. There can be no
assurance that the investment objectives of the Underlying Portfolios can be
achieved or that the value of the Contract will equal or exceed the aggregate
amount of the purchase payments made under the Contract.
PIONEER VARIABLE CONTRACTS TRUST:
PIONEER EMERGING MARKETS VCT PORTFOLIO -- invests in securities of emerging
market issuers for long-term growth of capital.
PIONEER EUROPE VCT PORTFOLIO -- invests in European issuers for long-term growth
of capital.
PIONEER INTERNATIONAL GROWTH VCT PORTFOLIO -- invests primarily in non-U.S.
equity securities for long-term growth of capital.
PIONEER SCIENCE & TECHNOLOGY VCT PORTFOLIO -- invests for capital growth in
common stock and other equity securities of companies expected to benefit from
the development, advancement or use of science or technology.
PIONEER MID-CAP VALUE VCT PORTFOLIO -- invests in a diversified portfolio of
common stocks for capital appreciation. This portfolio formerly was known as the
Capital Growth Portfolio.
PIONEER GROWTH SHARES VCT PORTFOLIO -- invests in equity securities for
appreciation of capital.
PIONEER REAL ESTATE GROWTH VCT PORTFOLIO -- invests primarily in REITs and other
real estate industry companies for long-term growth of capital. Current income
is the portfolio's secondary investment objective.
PIONEER FUND VCT PORTFOLIO -- invests in a broad list of carefully selected,
reasonably priced securities for reasonable income and growth. This portfolio
formerly was known as the Growth and Income Portfolio.
PIONEER EQUITY-INCOME VCT PORTFOLIO -- invests in a portfolio of income
producing equity securities of U.S. corporations for current income and
long-term capital growth.
PIONEER BALANCED VCT PORTFOLIO -- invests for capital growth and current income
by actively managing investments in a diversified portfolio of common stocks and
bonds.
PIONEER SWISS FRANC BOND VCT PORTFOLIO -- invests to approximate the performance
of the Swiss franc relative to the U.S. dollar while earning a reasonable level
of income.
PIONEER HIGH YIELD VCT PORTFOLIO -- invests in below investment grade debt
securities and preferred stocks to maximize total return.
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<PAGE>
PIONEER STRATEGIC INCOME VCT PORTFOLIO -- invests in debt securities for a high
level of current income.
PIONEER AMERICA INCOME VCT PORTFOLIO -- invests for as high a level of current
income as is consistent with the preservation of capital. The portfolio invests
in U.S. government securities.
PIONEER MONEY MARKET VCT PORTFOLIO -- invests for current income consistent with
preserving capital and providing liquidity.
AIM VARIABLE INSURANCE FUNDS:
AIM V.I. CAPITAL APPRECIATION FUND -- seeks growth of capital through investment
in common stocks, with emphasis on medium- and small-sized growth companies.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.:
ALLIANCE PREMIER GROWTH PORTFOLIO (CLASS B) -- seeks growth of capital by
pursuing aggressive investment policies.
ALLIANCE TECHNOLOGY PORTFOLIO (CLASS B) -- emphasizes growth of capital and
invests for capital appreciation. Current income is only an incidental
consideration.
DELAWARE GROUP PREMIUM FUND:
DGPF GROWTH OPPORTUNITIES SERIES (SERVICE CLASS) -- seeks long-term capital
appreciation by investing its assets in a diversified portfolio of securities
exhibiting the potential for significant growth.
DGPF SELECT GROWTH SERIES (SERVICE CLASS) -- seeks to provide long-term capital
appreciation which the Fund attempts to achieve by investing primarily in equity
securities of companies which the investment manager believes have the potential
for high earnings growth.
FRANKIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST:
FRANKLIN SMALL CAP FUND (CLASS 2) -- seeks long-term capital growth. The fund
invests primarily in equity securities of small cap U.S. companies.
TEMPLETON ASSET STRATEGY FUND (CLASS 2) -- seeks a high level of total return.
The fund invests in equity securities in any nation, debt securities of
companies and governments of any nation, including emerging markets, and in
money market instruments.
TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND (CLASS 2) -- seeks long-term
capital appreciation. The fund invests primarily in the equity securities of
smaller companies located outside the U.S., including emerging markets.
VAN KAMPEN LIFE INVESTMENT TRUST:
VAN KAMPEN LIT EMERGING GROWTH PORTFOLIO -- seeks capital appreciation.
If there is a material change in the investment policy of a Sub-Account or the
Underlying Portfolio in which it invests, the Owner will be notified of the
change. If the Owner has values allocated to that Sub-Account, the Company will
transfer it without charge on written request by the Owner to another
Sub-Account or to the Fixed Account. The Company must receive such written
request within 60 days of the later of (1) the effective date of the change in
the investment policy, or (2) the receipt of the notice of the Owner's right to
transfer.
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PERFORMANCE INFORMATION
The Pioneer Vision 2 Contract was first offered to the public by Allmerica
Financial Life Insurance and Annuity Company in 1996 and by First Allmerica
Financial Life Insurance Company in 1997. The Company, however, may advertise
"total return" and "average annual total return" performance information based
on (1) the periods that the Sub-Accounts have been in existence and (2) the
periods that the Underlying Portfolios have been in existence. Performance
results in Tables 1A and 2A are calculated with all charges assumed to be those
applicable to the Contract, the Sub-Accounts and the Underlying Portfolios and
also assume that the Contract is surrendered at the end of the applicable
period. Performance results in Tables 1B and 2B do not include the Contract fee
and assume that it is not surrendered at the end of the applicable period. Both
the total return and yield figures are based on historical earnings and are not
intended to indicate future performance. All performance tables referenced in
this section may be found in the SAI.
The total return of a Sub-Account refers to the total of the income generated by
an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Variable Account charges, and expressed as a
percentage.
The average annual total return represents the average annual percentage change
in the value of an investment in the Sub-Account over a given period of time. It
represents averaged figures as opposed to the actual performance of a
Sub-Account, which will vary from year to year.
The yield of the Sub-Account investing in the Pioneer Money Market VCT Portfolio
refers to the income generated by an investment in the Sub-Account over a
seven-day period (which period will be specified in the advertisement). This
income is then "annualized" by assuming that the income generated in the
specific week is generated over a 52-week period. This annualized yield is shown
as a percentage of the investment. The "effective yield" calculation is similar
but, when annualized, the income earned by an investment in the Sub-Account is
assumed to be reinvested. Thus the effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment.
The yield of a Sub-Account investing in a Portfolio other than the Pioneer Money
Market VCT Portfolio refers to the annualized income generated by an investment
in the Sub-Account over a specified 30-day or one-month period. The yield is
calculated by assuming that the income generated by the investment during that
30-day or one-month period is generated each period over a 12-month period and
is shown as a percentage of the investment.
Quotations of average annual total return as shown in Table 1A are calculated in
the manner prescribed by the SEC and show the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year period or for a period covering the time the Sub-Account has been in
existence, if less than the prescribed periods. The calculation is adjusted to
reflect the deduction of the annual Sub-Account asset charge of 1.40%, the $30
annual Contract fee, the Underlying Portfolio charges and the surrender charge
which would be assessed if the investment were completely withdrawn at the end
of the specified period. The calculation is not adjusted to reflect the
deduction of the Optional Minimum Guaranteed Annuity Payout (M-GAP) Rider
charge.
Quotations of supplemental average total returns, as shown in Table 1B, are
calculated in exactly the same manner and for the same periods of time except
that they do not reflect the Contract fee and assume that the Contract is not
surrendered at the end of the periods shown.
The performance shown in Tables 2A and 2B in the SAI is calculated in exactly
the same manner as that in Tables 1A and 1B, respectively; however, the period
of time is based on the Underlying Portfolio's lifetime, which may predate the
Sub-Account's inception date. These performance calculations are based on the
assumption that the Sub-Account corresponding to the applicable Underlying
Portfolio was actually in existence throughout the stated period and that the
contractual charges and expenses during that period were
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<PAGE>
equal to those currently assessed under the Contract. For more detailed
information about these performance calculations, including actual formulas, see
the SAI.
PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF A
HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE TIME PERIOD ON WHICH THE
CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF
THE INVESTMENT OBJECTIVES AND POLICIES AND RISK CHARACTERISTICS OF THE
UNDERLYING PORTFOLIO IN WHICH THE SUB-ACCOUNT INVESTS AND THE MARKET CONDITIONS
DURING THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED AS A REPRESENTATION
OF WHAT MAY BE ACHIEVED IN THE FUTURE.
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (1) the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman
Aggregate Bond Index or other unmanaged indices so that investors may compare
the Sub-Account results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(2) other groups of variable annuity separate accounts or other investment
products tracked by Lipper, Inc., a widely used independent research firm which
ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, who rank such investment products on overall
performance or other criteria; or (3) the Consumer Price Index (a measure for
inflation) to assess the real rate of return from an investment in the
Sub-Account. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses. In addition, relevant broad-based indices and performance from
independent sources may be used to illustrate the performance of certain
contract features.
At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of the Company's relative financial
strength and operating performance in comparison to the norms of the life/health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues and
do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the Underlying
Portfolios.
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DESCRIPTION OF THE CONTRACT
A. PAYMENTS
The Company issues a Contract when its underwriting requirements, which include
receipt of the initial payment and allocation instructions by the Company at its
Principal Office, are met. These requirements also may include the proper
completion of an application; however, where permitted, the Company may issue a
Contract without completion of an application and/or signature for certain
classes of Contracts.
Payments are to be made payable to the Company. A net payment is equal to the
payment received less the amount of any applicable premium tax. The initial net
payment is credited to the Contract and allocated among the requested investment
options as of the date that all issue requirements are properly met. If all
issue requirements are not completed within five business days of the Company's
receipt of the initial payment, the payment will be returned immediately unless
the applicant authorizes the Company to retain it pending completion of all
issue requirements. Subsequent payments will be credited as of the Valuation
Date received at the Principal Office, on the basis of accumulation unit value
next determined after receipt.
Payments may be made to the Contract at any time prior to the Annuity Date, or
prior to payment of the death benefit, subject to certain minimums:
- 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.
- Each subsequent payment must be at least $50.
- Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Contract on the employee if the plan's
average annual contribution per eligible plan participant is at least
$600.
- The minimum allocation to a Guarantee Period Account is $1,000. If less
than $1,000 is allocated to a Guarantee Period Account, the Company
reserves the right to apply that amount to the Pioneer Money Market VCT
Portfolio.
Generally, unless otherwise requested, all payments will be allocated among the
investment options in the same proportion that the initial net payment is
allocated or, if subsequently changed, according to the most recent allocation
instructions. As of the date of this Prospectus, payments may be allocated to a
maximum of seventeen variable Sub-Accounts during the life of the Contract in
addition to the Pioneer Money Market VCT Portfolio. There are no restrictions on
the number of times the Fixed Account and the Guarantee Period Accounts may be
used over the life of the Contract.
The Owner may change allocation instructions for new payments pursuant to a
written or telephone request. If the Owner elects telephone requests, 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. Such procedures may include, among other things, requiring some
form of personal identification prior to acting upon instructions received by
telephone. All telephone transfer instructions are tape recorded.
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<PAGE>
B. RIGHT TO CANCEL INDIVIDUAL RETIREMENT ANNUITY
An individual purchasing a Contract intended to qualify as an IRA may cancel the
Contract at any time within ten days after receipt of the Contract and receive a
refund. In order to cancel the Contract, the Owner must mail or deliver the
Contract to the agent through whom the Contract was purchased, to the Company's
Principal Office at 440 Lincoln Street, Worcester, MA 01653, or to an authorized
representative. Mailing or delivery must occur within ten days after receipt of
the Contract for cancellation to be effective.
Within seven days, the Company will provide a refund equal to gross payment(s)
received. In some states, however, the refund may equal the greater of
(a) gross payments or (b) the amounts allocated to the Fixed and Guaranteed
Period Accounts plus the Accumulated Value of amounts in the Sub-Accounts plus
any amounts deducted under the Contract or by the Underlying Portfolios for
taxes, charges or fees. At the time the Contract is issued the "Right to
Examine" provision on the cover of the Contract will specifically indicate
whether the refund will be equal to gross payments or equal to the greater of
(a) or (b) as set forth above.
The liability of the Variable Account under this provision is limited to the
Owner's Accumulated Value in the Sub-Accounts on the date of cancellation. Any
additional amounts refunded to the Owner will be paid by the Company.
C. RIGHT TO CANCEL ALL OTHER CONTRACTS
An Owner may cancel the Contract at any time within ten days after receipt of
the Contract (or longer if required by state law) and receive a refund. In most
states the Company will pay the Owner an amount equal to the sum of (1) the
difference between the payment received, including fees, and any amount
allocated to the Variable Account, and (2) the Accumulated Value of amounts
allocated to the Variable Account as of the date the request is received. If the
Contract was purchased as an IRA or issued in a state that requires a full
refund of the initial payment(s), the IRA cancellation right described above
will be used. At the time the Contract is issued, the "Right to Examine"
provision on the cover of the Contract will specifically indicate what the
refund will be and the time period allowed to exercise the right to cancel.
In order to comply with New York regulations concerning the purchase of a new
annuity contract to replace an existing life or annuity contract (a
"replacement"), an Owner who purchases the Contract in New York as a replacement
may cancel within 60 days after receipt. In order to cancel the Contract, the
Owner must mail or deliver it to the Company's Principal Office or to one of its
authorized representatives. The Company will refund an amount equal to the
Surrender Value plus all fees and charges and the Contract will be void from the
beginning.
D. TRANSFER PRIVILEGE
At any time prior to the Annuity Date, an Owner may transfer amounts among
investment options subject to the seventeen variable Sub-Account restriction
noted in "A. Payments" above. 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. Transfer values will be based on the Accumulated Value next computed
after receipt of the transfer request.
Transfers to a Guarantee Period Account must be at least $1,000. If the amount
to be transferred to a Guarantee Period Account is less than $1,000, the Company
may transfer that amount to the Pioneer Money Market VCT Portfolio. Transfers
from a Guarantee Period Account prior to the expiration of the Guarantee Period
will be subject to a Market Value Adjustment.
The first twelve transfers in a Contract year are guaranteed to be free of any
transfer charge. The Company does not currently charge for additional transfers
but reserves the right to assess a charge, guaranteed never to exceed $25, to
reimburse it for the expense of processing these additional transfers. If you
authorize periodic
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transfers under an Automatic Transfer option (Dollar Cost Averaging), or an
Automatic Account Rebalancing option, the first automatic transfer or
rebalancing under a request counts as one transfer for purposes of the 12
transfers guaranteed to be free of a transfer charge in each Contract year. Each
subsequent transfer or rebalancing under that request is without charge and does
not reduce the remaining number of transfers which may be made free of charge in
that Contract year.
The Owner may authorize an independent third party to transact allocations and
transfers in accordance with an asset allocation strategy or other investment
strategy. The Company may provide administrative or other support services to
these independent third parties, however, the Company does not engage any third
parties to offer allocation or other investment services under this Contract,
does not endorse or review any allocation or transfer recommendations and is not
responsible for the investment results of such allocations or transfers
transacted on the Owner's behalf. In addition, the Company reserves the right to
discontinue services or limit the number of Portfolios that it may provide such
services to. The Company does not charge the Owner for providing additional
support services.
AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING) AND AUTOMATIC ACCOUNT REBALANCING
OPTIONS. The Owner may elect automatic transfers of a predetermined dollar
amount, not less than $100, on a periodic basis (monthly, bi-monthly, quarterly,
semi-annually or annually) from either the Fixed Account, the Sub-Account
investing in the Pioneer Money Market VCT Portfolio or the Sub-Account investing
in the Pioneer America Income VCT Portfolio (the "source accounts") to one or
more available Sub-Accounts. Automatic transfers may not be made into the Fixed
Account, the Guarantee Period Accounts or, if applicable, the Portfolio being
used as the source account. If an automatic transfer would reduce the balance in
the source account to less than $100, the entire balance will be transferred
proportionately to the chosen Sub-Accounts. Automatic transfers will continue
until the amount in the source account on a transfer date is zero or the Owner's
request to terminate the option is received by the Company. If additional
amounts are allocated to the source account after its balance has fallen to
zero, this option will not restart automatically, and the Owner must provide a
new request to the Company.
To the extent permitted by law, the Company reserves the right, from time to
time, to credit an enhanced interest rate to certain initial and/or subsequent
payments which are deposited into the Fixed Account and which utilize the Fixed
Account as the source account for the payment from which to process automatic
transfers. For more information, see "Enhanced Automatic Transfer (Dollar Cost
Averaging) Program" in the SAI.
The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, bi-monthly, quarterly, semi-annual or annual basis in accordance with
percentage allocations specified by the Owner. As frequently as requested, the
Company will review the percentage allocations in the Portfolios and, if
necessary, transfer amounts to ensure conformity with the designated percentage
allocation mix. If the amount necessary to re-establish the mix on any scheduled
date is less than $100, no transfer will be made. Automatic Account Rebalancing
will continue until the Owner's request to terminate or change the option is
received by the Company. As such, subsequent payments allocated in a manner
different from the percentage allocation mix in effect on the date the payment
is received will be reallocated in accordance with the existing mix on the next
scheduled date unless the Owner's timely request to change the mix or terminate
the option is received by the Company.
The Company reserves the right to limit the number of Sub-Accounts that may be
used for automatic transfers and rebalancing, and to discontinue either option
upon advance written notice. Currently, Dollar Cost Averaging and Automatic
Account Rebalancing may not be in effect simultaneously. Either option may be
elected at no additional charge when the Contract is purchased or at a later
date.
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E. SURRENDER
At any time prior to the Annuity Date, the Owner may surrender the Contract and
receive its Surrender Value less any tax withholding. The Owner must return the
Contract and a signed, written request for surrender, satisfactory to the
Company, to the Principal Office. The Surrender Value will be calculated based
on the Contract's Accumulated Value as of the Valuation Date on which the
request and the Contract are received at the Principal Office.
Before the Annuity Date, a surrender charge may be deducted when a Contract is
surrendered if payments have been credited to the Contract during the last seven
full Contract years. See CHARGES AND DEDUCTIONS. The Contract fee will be
deducted upon surrender of the Contract.
After the Annuity Date, only a Contract annuitized under a commutable period
certain option may be surrendered. The amount payable is the commuted value of
any unpaid installments, computed on the basis of the assumed interest rate
incorporated in such annuity benefit payments. No surrender 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 withdrawals of amounts in each Sub-Account in any period
during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has, by order, permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of a separate account is not reasonably
practicable.
The Company reserves the right to defer surrenders and withdrawals of amounts
allocated to the Company's Fixed Account and Guarantee Period Accounts for a
period not to exceed six months.
The surrender rights of Owners who are participants under Section 403(b) plans
or who are participants in the Texas Optional Retirement Program ("Texas ORP")
are restricted; see "Tax-Sheltered Annuities" and "Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see FEDERAL TAX
CONSIDERATIONS.
F. WITHDRAWALS
At any time prior to the Annuity Date, an Owner may withdraw a portion of the
Accumulated Value of his or her Contract, subject to the limits stated below.
The Owner must submit to the Principal Office a signed, written request for
withdrawal, satisfactory to the Company. The written request must indicate the
dollar amount the Owner wishes to receive and the investment options from which
such amount is to be withdrawn. The amount withdrawn equals the amount requested
by the Owner plus any applicable surrender charge, as described under CHARGES
AND DEDUCTIONS. In addition, amounts withdrawn from a Guarantee Period Account
prior to the end of the applicable Guarantee Period will be subject to a Market
Value Adjustment, as described under GUARANTEE PERIOD ACCOUNTS.
Where allocations have been made to more than one investment option, a
percentage of the withdrawal may be allocated to each such option. A withdrawal
from a Sub-Account will result in cancellation of a number of units equivalent
in value to the amount withdrawn, computed as of the Valuation Date that the
request is received at the Principal Office.
Each withdrawal must be a minimum amount of $100. No withdrawal will be
permitted if the Accumulated Value remaining under the Contract would be reduced
to less than $1,000, except in New York where no specific balance is required.
Withdrawals will be paid in accordance with the time limitations described under
"E. Surrender" under DESCRIPTION OF THE CONTRACT.
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For important restrictions on withdrawals which are applicable to Owners who are
participants under Section 403(b) plans or under the Texas ORP, see FEDERAL TAX
CONSIDERATIONS, "Tax-Sheltered Annuities" and "Texas Optional Retirement
Program." For important tax consequences which may result from withdrawals, see
FEDERAL TAX CONSIDERATIONS.
SYSTEMATIC WITHDRAWALS. The Owner may elect an automatic schedule of
withdrawals (systematic withdrawals) from amounts in the Sub-Accounts and/or the
Fixed Account on a monthly, bi-monthly, quarterly, semi-annual or annual basis.
Systematic withdrawals from Guarantee Period Accounts are not available. The
minimum amount of each automatic withdrawal is $100, and will be subject to any
applicable withdrawal charges. If elected at the time of purchase, the Owner
must designate in writing the specific dollar amount of each withdrawal and the
percentage of this amount which should be taken from each designated Sub-Account
and/or the Fixed Account. Systematic withdrawals then will begin on the date
indicated on the application. If elected after the issue date, the Owner may
elect, by written request, a specific dollar amount and the percentage of this
amount to be taken from each designated Sub-Account and/or the Fixed Account, or
the Owner may elect to withdraw a specific percentage of the Accumulated Value
calculated as of the withdrawal dates, and may designate the percentage of this
amount which should be taken from each account. The first withdrawal will take
place on the date the written request is received at the Principal Office or, if
later, on a date specified by the Owner.
If a withdrawal would cause the remaining Accumulated Value to be less than
$1,000, systematic withdrawals may be discontinued. Systematic withdrawals will
cease automatically on the Annuity Date. The Owner may change or terminate
systematic withdrawals only by written request to the Principal Office.
LIFE EXPECTANCY DISTRIBUTIONS. Prior to the Annuity Date, an Owner who also is
the Annuitant may elect to make a series of systematic withdrawals from the
Contract according to the Company's life expectancy distribution ("LED") option
by returning a properly signed LED request form to the Principal Office.
The Owner may elect monthly, bi-monthly, quarterly, semi-annual, or annual LED
distributions, and may terminate the LED option at any time. Under contracts
issued in Hawaii and New York, the LED option will terminate automatically on
the maximum Annuity Date permitted under the Contract, at which time an Annuity
Option must be selected.
If an Owner elects the Company's LED option, in each calendar year a fraction of
the Accumulated Value is withdrawn without a surrender charge based on the
Owner's then life expectancy (or the joint life expectancy of the Owner and a
beneficiary.) The numerator of the fraction is 1 (one) and the denominator of
the fraction is the remaining life expectancy of the Owner, as determined
annually by the Company. The resulting fraction, expressed as a percentage, is
applied to the Accumulated Value at the beginning of the year to determine the
amount to be distributed during the year. Under the Company's LED option, 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. Where the Owner is a trust or
other nonnatural person, the Owner may elect the LED option based on the
Annuitant's life expectancy.
(Note: this option may not produce annual distributions that meet the definition
of "substantially equal periodic payments" as defined under Code Section 72(t).
As such, the withdrawals may be treated by the Internal Revenue Service (IRS) as
premature distributions from the Contract and may be subject to a 10% federal
tax penalty. Owners seeking distributions over their life under this definition
should consult their tax advisor. For more information, see FEDERAL TAX
CONSIDERATIONS, "C. Taxation of the Contracts in General." In addition, if the
amount necessary to meet the substantially equal periodic payment definition is
greater than the Company's LED amount, a surrender charge may apply to the
amount in excess of the LED amount.)
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The Company may discontinue or change the LED option at any time, but not with
respect to election of the option made prior to the date of any change in the
LED option.
G. DEATH BENEFIT
In the event that the Annuitant, Owner or Joint Owner, if applicable, dies while
the Contract is in force, the Company will pay the beneficiary a death benefit,
except where the Contract is continued as provided below in "H. The Spouse of
the Owner as Beneficiary." The amount of the death benefit and the time
requirements for receipt of payment may vary depending upon whether the
Annuitant or an Owner dies first, and whether death occurs prior to or after the
Annuity Date.
DEATH OF THE ANNUITANT PRIOR TO THE ANNUITY DATE. At the death of the Annuitant
(including an Owner who is also the Annuitant), the death benefit is equal to
the greatest of (a) the Accumulated Value on the Valuation Date that the Company
receives proof of death, increased by any positive Market Value Adjustment;
(b) gross payments compounded daily at an effective annual yield of 5% starting
on the date each payment is applied and continuing throughout that payment's
entire accumulation phase, decreased proportionately to reflect withdrawals
(except in Hawaii and New York where (b) equals gross payments decreased
proportionately to reflect withdrawals); or (c) the death benefit that would
have been payable on the most recent Contract anniversary, increased for
subsequent payments and decreased proportionately for subsequent withdrawals.
For each withdrawal under (b) or (c), the proportionate reduction is calculated
as follows:
Amount of the Withdrawal
------------------------------------------------
Accumulated Value immediately prior to the withdrawal
This guaranteed death benefit works in the following way assuming no withdrawals
are made. On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value on the Valuation Date that the Company
receives proof of death (increased by any positive Market Value Adjustment) or
(b) gross payments compounded daily at an effective annual yield of 5% (except
in Hawaii and New York where (b) equals gross payments). The higher of (a) or
(b) will then be locked in until the second anniversary, at which time the death
benefit will be equal to the greatest of (a) the Contract's then current
Accumulated Value increased by any positive Market Value Adjustment; (b) gross
payments compounded daily at an effective annual yield of 5% (gross payments in
Hawaii and New York) or (c) the locked-in value of the death benefit at the
first anniversary. The greatest of (a), (b) or (c) will be locked in until the
next Contract anniversary. This calculation will then be repeated on each
anniversary while the Contract remains in force and prior to the Annuity Date.
As noted above, the values of (b) and (c) will be decreased proportionately if
withdrawals are taken. See APPENDIX C -- THE DEATH BENEFIT for specific examples
of death benefit calculations.
DEATH OF AN OWNER WHO IS NOT ALSO THE ANNUITANT PRIOR TO THE ANNUITY DATE. If
an Owner who is not also the Annuitant dies before the Annuity Date, the death
benefit will be the Accumulated Value increased by any positive Market Value
Adjustment. The death benefit never will be reduced by a negative Market Value
Adjustment.
PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit
generally will be paid to the beneficiary in one sum within seven business days
of the receipt of due proof of death at the Principal Office unless the Owner
has specified a death benefit annuity option. Instead of payment in one sum, the
beneficiary may, by written request, elect to:
(1) defer distribution of the death benefit for a period no more than five
years from the date of death; or
(2) receive distributions over the life of the beneficiary for a period
certain not extending beyond the beneficiary's life expectancy, with
annuity benefit payments beginning one year from the date of death.
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If distribution of the death benefit is deferred under (1) or (2), any value in
the Guarantee Period Accounts will be transferred to the Sub-Account investing
in the Pioneer Money Market VCT Portfolio. The excess, if any, of the death
benefit over the Accumulated Value also will be transferred to the Sub-Account
investing in the Pioneer Money Market VCT Portfolio. The beneficiary may, by
written request, effect transfers and withdrawals during the deferral period and
prior to annuitization under (2), but may not make additional payments. The
death benefit will reflect any earnings or losses experienced during the
deferral period. If there are multiple beneficiaries, the consent of all is
required.
With respect to the death benefit, the Accumulated Value will be based on the
unit values next computed after receipt of due proof of death.
DEATH OF THE ANNUITANT ON OR AFTER THE ANNUITY DATE. If the Annuitant's death
occurs on or after the Annuity Date but before completion of all guaranteed
annuity benefit payments, any unpaid amounts or installments will be paid to the
beneficiary. The Company must pay out the remaining payments at least as rapidly
as under the payment option in effect on the date of the Annuitant's death.
H. THE SPOUSE OF THE OWNER AS BENEFICIARY
The Owner's spouse, if named as the sole beneficiary, may by written request
continue the Contract rather than receiving payment of the death benefit. Upon
such election, the spouse will become the Owner and Annuitant subject to the
following: (1) any value in the Guarantee Period Accounts will be transferred to
the Sub-Account investing in the Pioneer Money Market VCT Portfolio and (2) the
excess, if any, of the death benefit over the Contract's Accumulated Value also
will be transferred to the Sub-Account investing in the Pioneer Money Market VCT
Portfolio. The resulting value will never be subject to a surrender charge when
withdrawn. The new Owner may also make additional payments; however, a surrender
charge will apply to these amounts if they are withdrawn before they have been
invested in the Contract for at least seven years. All other rights and benefits
provided in the Contract will continue, except that any subsequent spouse of
such new Owner will not be entitled to continue the Contract when the new Owner
dies.
I. ASSIGNMENT
The Contract, other than one sold in connection with certain qualified plans,
may be assigned by the Owner at any time prior to the Annuity Date and while the
Annuitant is alive (see FEDERAL TAX CONSIDERATIONS). The Company will not be
deemed to have knowledge of an assignment unless it is made in writing and filed
at the Principal Office. The Company will not assume responsibility for
determining the validity of any assignment. If an assignment of the Contract is
in effect on the Annuity Date, the Company reserves the right to pay to the
assignee, in one sum, that portion of the Surrender Value of the Contract to
which the assignee appears to be entitled. The Company will pay the balance, if
any, in one sum to the Owner in full settlement of all liability under the
Contract. The interest of the Owner and of any beneficiary will be subject to
any assignment.
J. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE
THE OWNER SELECTS THE ANNUITY DATE. To the extent permitted by law, the Annuity
Date may be the first day of any month (1) before the Annuitant's 85th birthday,
if the Annuitant's age on the issue date of the Contract is 75 or under, or
(2) within ten years from the issue date of the Contract and before the
Annuitant's 90th birthday, if the Annuitant's age on the issue date is between
76 and 90. The Owner may elect to change the Annuity Date by sending a request
to the Principal Office at least one month before the Annuity Date. The new
Annuity Date must be the first day of any month occurring before the Annuitant's
90th birthday, and must be within the life expectancy of the Annuitant. The
Company shall determine such life expectancy at the time a change in Annuity
Date is requested. In no event will the latest possible annuitization age exceed
90. The Internal Revenue Code (the "Code") and the terms of qualified plans
impose limitations on the age at which
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annuity benefit payments may commence and the type of annuity option selected.
See FEDERAL TAX CONSIDERATIONS for further information.
Subject to certain restrictions described below, the Owner has the right (1) to
select the annuity option under which annuity benefit payments are to be made,
and (2) to determine whether payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. Certain annuity
options may be commutable or noncommutable. A commutable option provides the
Owner with the right to request a lump sum payment of any remaining balance
after annuity payments have commenced. Under a noncommutable option, the Owner
may not request a lump sum payment. 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. See "Annuity
Benefit Payments" in the SAI.
To the extent a fixed annuity payout option is selected, Accumulated Value will
be transferred to the Fixed Account of the Company, and the annuity benefit
payments will be fixed in amount. See APPENDIX A-MORE INFORMATION ABOUT THE
FIXED ACCOUNT.
Under a variable annuity payout option, a payment equal to the value of the
fixed number of Annuity Units in the Sub-Account(s) is made monthly, quarterly,
semi-annually or annually. Since the value of an Annuity Unit in a Sub-Account
will reflect the investment performance of the Sub-Account, the amount of each
annuity benefit payment will vary.
The annuity option(s) selected must produce an initial payment of at least $50
(a lower amount may be required in some states). The Company reserves the right
to increase this minimum amount. If the annuity option(s) selected do(es) not
produce an initial payment which meets this minimum, a single payment may be
made. Once the Company begins making annuity benefit payments, the Annuitant
cannot make withdrawals or surrender the annuity benefit, except where a
commutable period certain option has been elected. Beneficiaries entitled to
receive remaining payments under either a commutable or noncommutable period
certain option may elect instead to receive a lump sum settlement. See "K.
Description of Variable Annuity Payout Options."
If the Owner does not elect an option, a variable life annuity with periodic
payments guaranteed for ten years will be purchased. Changes in either the
Annuity Date or annuity option can be made up to one month prior to the Annuity
Date.
If the Owner exercises the M-GAP Rider, annuity benefit payments must be made
under a fixed annuity payout option involving a life contingency and must occur
at the Company's guaranteed annuity option rates listed under the Annuity Option
Tables in the Contract.
K. DESCRIPTION OF VARIABLE ANNUITY PAYOUT OPTIONS
The Company provides the variable annuity payout options described below.
Currently, variable annuity payout options may be funded through the
Sub-Accounts investing in the Pioneer Mid-Cap Value VCT Portfolio, the Pioneer
Equity-Income VCT Portfolio and the Pioneer America Income VCT Portfolio.
The Company also provides these same options funded through the Fixed Account
(fixed annuity payout). Regardless of how payments were allocated during the
accumulation period, any of the variable payout options or the fixed payout
options may be selected, or any of the variable payout options may be selected
in combination with any of the fixed payout options. Other annuity options may
be offered by the Company. IRS regulations may not permit certain of the
available annuity payout options when used in connection with certain qualified
Contracts.
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VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR TEN YEARS. This variable
annuity is payable periodically during the lifetime of the Annuitant with the
guarantee that if the Annuitant should die before all payments have been made,
the remaining annuity benefit payments will continue to the beneficiary.
VARIABLE LIFE ANNUITY PAYABLE PERIODICALLY DURING LIFETIME OF THE ANNUITANT
ONLY. This variable annuity is payable during the Annuitant's life. It would be
possible under this option for the Annuitant to receive only one annuity benefit
payment if he/she dies prior to the due date of the second annuity benefit
payment, two annuity benefit payments if he/she dies before the due date of the
third annuity benefit payment, and so on. Payments will continue, however,
during the Annuitant's lifetime, no matter how long he or she lives.
UNIT REFUND VARIABLE LIFE ANNUITY. This is an annuity payable periodically
during the lifetime of the Annuitant 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 at
annuitization divided by the dollar amount of the first
payment, and
(2) is the number of payments paid prior to the death of the
Annuitant.
JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is payable
jointly to the Annuitant and another individual during their joint lifetime, and
then continues thereafter during the lifetime of the survivor. The amount of
each payment to the survivor is based on the same number of Annuity Units which
applied during the joint lifetime of the two payees. One of the payees must be
either the person designated as the Annuitant under the Contract or the
beneficiary. There is no minimum number of payments under this option.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is
payable jointly to the Annuitant and another individual during their joint
lifetime, and then continues thereafter during the lifetime of the survivor. The
amount of each periodic payment to the survivor, however, is based upon
two-thirds of the number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be the person designated as
the Annuitant under the Contract or the beneficiary. There is no minimum number
of payments under this option.
PERIOD CERTAIN VARIABLE ANNUITY. This variable annuity has periodic payments
for a stipulated number of years ranging from one to 30. If the Annuitant dies
before the end of the period, remaining payments will continue to be paid. A
fixed period certain annuity may be either commutable or noncommutable. A
variable period certain annuity is automatically commutable.
It should be noted that the period certain option does not involve a life
contingency. In computing payments under this option, the Company deducts a
charge for annuity rate guarantees, which includes a factor for mortality risks.
Although not contractually required to do so, the Company currently follows a
practice of permitting persons receiving payments under a period certain option
to elect to convert to a variable annuity involving a life contingency. The
Company may discontinue or change this practice at any time, but not with
respect to election of the option made prior to the date of any change in this
practice.
L. ANNUITY BENEFIT PAYMENTS
DETERMINATION OF THE FIRST VARIABLE ANNUITY BENEFIT PAYMENT. The amount of the
first monthly payment depends upon the selected variable annuity option, the sex
(however, see "N. NORRIS Decision" below) and age of the Annuitant, and the
value of the amount applied under the annuity option ("annuity value"). The
Contract provides annuity rates that determine the dollar amount of the first
periodic payment under each variable annuity option for each $1,000 of applied
value. From time to time, the Company may offer its
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Owners both fixed and variable annuity rates more favorable than those contained
in the Contract. Any such rates will be applied uniformly to all Owners of the
same class.
The dollar amount of the first periodic annuity benefit payment is calculated
based upon the type of annuity option chosen, as follows:
- For life annuity options and noncommutable fixed period certain options of
ten years or more (six or more years under New York Contracts), the dollar
amount 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, any noncommutable fixed period
certain option of less than ten years (less than six years under New York
Contracts), and all variable period certain options, the dollar amount is
determined by multiplying (1) the Surrender Value less premium taxes, if
any, 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 a death benefit annuity, the annuity value will be the amount of the
death benefit.
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. The Company transmits variable annuity benefit payments
for receipt by the payee by the first of a month. Variable annuity benefit
payments are currently based on unit values as of the 15th day of the preceding
month.
THE ANNUITY UNIT. On and after the Annuity Date, the Annuity Unit is a measure
of the value of the monthly annuity benefit payments under a variable annuity
option. The value of an Annuity Unit in each Sub-Account initially was set at
$1.00. The value of an Annuity Unit under a Sub-Account on any Valuation Date
thereafter is equal to the value of such unit on the immediately preceding
Valuation Date, multiplied by the net investment factor of the Sub-Account for
the current Valuation Period and divided by the assumed interest rate for the
current Valuation Period The assumed interest rate, discussed below, is
incorporated in the variable annuity options offered in the Contract.
DETERMINATION OF THE NUMBER OF ANNUITY UNITS. The dollar amount of the first
variable annuity benefit payment is divided by the value of an Annuity Unit of
the selected Sub-Account(s) to determine the number of Annuity Units represented
by the first payment. This number of Annuity Units remains fixed under all
annuity options except the joint and two-thirds survivor annuity option.
DOLLAR AMOUNT OF SUBSEQUENT VARIABLE ANNUITY BENEFIT PAYMENTS. The dollar
amount of each periodic variable annuity benefit payment after the first will
vary with the value of the Annuity Units of the selected Sub-Account(s). The
dollar amount of each subsequent variable annuity benefit payment is determined
by multiplying the fixed number of Annuity Units (derived from the dollar amount
of the first payment, as described above) with respect to a Sub-Account by the
value of an Annuity Unit of that Sub-Account on the applicable Valuation Date.
The variable annuity options offered by the Company are based on a 3.5% assumed
interest rate, which affects the amounts of the variable annuity benefit
payments. Variable annuity benefit payments with respect to a Sub-Account will
increase over periods when the actual net investment result of the Sub-Account
exceeds the equivalent of the assumed interest rate. Variable annuity benefit
payments will decrease over periods when the actual net investment results are
less than the equivalent of the assumed interest rate.
For an illustration of a calculation of a variable annuity benefit payment using
a hypothetical example, see "Annuity Benefit Payments" in the SAI.
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If the Owner elects the M-GAP Rider, at annuitization the annuity benefit
payments provided under the Rider (calculated by applying the guaranteed annuity
factors to the Minimum Guaranteed Annuity Payout Benefit Base), are compared to
the payments that would otherwise be available with the Rider. If annuity
benefit payments under the Rider are higher, the Owner may exercise the Rider,
provided that the conditions of the Rider are met. If annuity benefit payments
under the Rider are lower, the Owner may choose not to exercise the Rider and
instead annuitize under current annuity factors. See "M. Optional Minimum
Guaranteed Annuity Payout (M-GAP) Rider," below.
M. OPTIONAL MINIMUM GUARANTEED ANNUITY PAYOUT (M-GAP) RIDER
An optional Minimum Guaranteed Annuity Payout ("M-GAP") Rider is currently
available in most jurisdictions for a separate monthly charge. The M-GAP Rider
provides a guaranteed minimum amount of fixed annuity lifetime income during the
annuity payout phase, after a ten-year or fifteen-year waiting period, subject
to the conditions described below. On each Contract anniversary a Minimum
Guaranteed Annuity Payout Benefit Base is determined. The Minimum Guaranteed
Annuity Payout Benefit Base (less any applicable premium taxes) is the value
that will be annuitized if the Rider is exercised. In order to exercise the
Rider, a fixed annuitization option involving a life contingency must be
selected. Annuitization under this Rider will occur at the Company's guaranteed
annuity option rates listed under the Annuity Option Tables in the Contract. The
Minimum Guaranteed Annuity Payout Benefit Base is equal to the greatest of:
(a) the Accumulated Value increased by any positive Market Value Adjustment,
if applicable, on the Contract anniversary that the M-GAP Benefit Base is
being determined; or
(b) the Accumulated Value on the effective date of the Rider compounded
daily at an effective annual yield of 5% plus gross payments made
thereafter compounded daily at an effective annual yield of 5%, starting
on the date each payment is applied, proportionately reduced to reflect
withdrawals; or
(c) the highest Accumulated Value on any Contract anniversary since the
Rider effective date, as determined after being increased for subsequent
payments and any positive Market Value Adjustment, if applicable, and
proportionately reduced for subsequent withdrawals.
For each withdrawal described in (b) and (c) above, the proportionate reduction
is calculated by multiplying the (b) or (c) value, whichever is applicable,
determined immediately prior to the withdrawal, by the following fraction:
amount of the withdrawal
----------------------------------------------------------
Accumulated Value determined immediately prior to the withdrawal
CONDITIONS ON ELECTION OF THE M-GAP RIDER.
- The Owner may elect the M-GAP Rider at Contract issue or at any time
thereafter, however, if the Rider is not elected within thirty days after
Contract issue or within thirty days after a Contract anniversary date,
the effective date of the Rider will be the following Contract anniversary
date.
- The Owner may not elect a Rider with a ten-year waiting period if at the
time of election the Annuitant has reached his or her 78th birthday. The
Owner may not elect a Rider with a fifteen-year waiting period if at the
time of election the Annuitant has reached his or her 73rd birthday.
EXERCISING THE M-GAP RIDER.
- The Owner may only exercise the M-GAP Rider within thirty days after any
Contract anniversary following the expiration of a ten or fifteen-year
waiting period from the effective date of the Rider.
- The Owner may only annuitize under a fixed annuity payout option involving
a life contingency as provided under "K. Description of Variable Annuity
Payout Options."
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- The Owner may only annuitize at the Company's guaranteed annuity option
rates listed under the Annuity Option Tables in the Contract.
TERMINATING THE M-GAP RIDER.
- The Owner may not terminate the M-GAP Rider prior to the seventh Contract
anniversary after the effective date of the Rider, unless such termination
occurs (1) on or within thirty days after any Contract anniversary and
(2) in conjunction with the repurchase of an M-GAP Rider with a waiting
period of equal or greater length at its then current price, if available.
- The Owner may terminate the Rider at any time after the seventh Contract
Anniversary following the effective date of the Rider.
- The Owner may repurchase a Rider with a waiting period equal to or greater
than the Rider then in force at the new Rider's then current price, if
available, however, repurchase may only occur on or within thirty days of
a Contract anniversary.
- Other than in the event of a repurchase, once terminated the Rider may not
be purchased again.
- The Rider will terminate upon surrender of the Contract or the date that a
death benefit is payable if the Contract is not continued under "H. The
Spouse of the Owner as Beneficiary" (see DESCRIPTION OF THE CONTRACT).
From time to time the Company may illustrate minimum guaranteed income amounts
under the M-GAP Rider for individuals based on a variety of assumptions,
including varying rates of return on the value of the Contract during the
accumulation phase, annuity payout periods, annuity payout options and M-GAP
Rider waiting periods. Any assumed rates of return are for purposes of
illustration only and are not intended as a representation of past or future
investment rates of return.
For example, the illustration below assumes an initial payment of $100,000 for
an Annuitant age 60 (at issue) and exercise of an M-GAP Rider with a ten-year
waiting period. The illustration assumes that no subsequent payments or
withdrawals are made and that the annuity payout option is a Life Annuity With
Payments Guaranteed For 10 Years. The values below have been computed based on a
5% net rate of return and are the guaranteed minimums that would be received
under the Rider. The minimum guaranteed benefit base amounts are the values that
will be annuitized. Minimum guaranteed annual income values are based on a fixed
annuity payout.
<TABLE>
<CAPTION>
MINIMUM
CONTRACT MINIMUM GUARANTEED
ANNIVERSARY GUARANTEED ANNUAL
AT EXERCISE BENEFIT BASE INCOME(1)
- ----------- ------------ ----------
<S> <C> <C>
10 $162,889 $12,153
15 $207,892 $17,695
</TABLE>
(1)Other fixed annuity options involving a life contingency other than Life
Annuity With Payments Guaranteed for 10 Years are available. See "K. Description
of Variable Annuity Payout Options."
The M-GAP Rider does not create Accumulated Value or guarantee performance of
any investment option. Because this Rider is based on guaranteed actuarial
factors, the level of lifetime income that it guarantees may often be less than
the level that would be provided by applying the then current annuity factors.
Therefore, the Rider should be regarded as providing a guarantee of a minimum
amount of annuity income. As described above, withdrawals will reduce the
benefit base. The Company reserves the right to terminate the availability of
the M-GAP Rider at any time. Such a termination would not effect Riders issued
prior to the termination date, but, as noted above, Owners would not be able to
purchase a new Rider under the repurchase feature. (See above, "TERMINATING THE
M-GAP RIDER.")
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Note: Adding the M-GAP Rider after the issue date and repurchasing the benefit
will impact the Build with Interest and Growth Program offered under the GPA
accounts since the M-GAP Rider charges are deducted on a pro-rata basis from all
accounts including the GPA Accounts. See "Build With Interest and Growth
Program" under GUARANTEE PERIOD ACCOUNTS.
N. 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.
O. COMPUTATION OF VALUES
THE ACCUMULATION UNIT. Each net payment is allocated to the investment options
selected by the Owner. Allocations to the Sub-Accounts are credited to the
Contract in the form of Accumulation Units. Accumulation Units are credited
separately for each Sub-Account. The number of Accumulation Units of each Sub-
Account credited to the Contract is equal to the portion of the net payment
allocated to the Sub-Account, divided by the dollar value of the applicable
Accumulation Unit as of the Valuation Date the payment is received at the
Principal Office. The number of Accumulation Units resulting from each payment
will remain fixed unless changed by a subsequent split of Accumulation Unit
value, a transfer, a withdrawal or surrender. The dollar value of an
Accumulation Unit of each Sub-Account varies from Valuation Date to Valuation
Date based on the investment experience of that Sub-Account, and will reflect
the investment performance, expenses and charges of its Underlying Portfolios.
The value of an Accumulation Unit was set at $1.00 on the first Valuation Date
for each Sub-Account.
Allocations to the Guarantee Period Accounts and the Fixed Account are not
converted into Accumulation Units, but are credited interest at a rate
periodically set by the Company. See APPENDIX A -- MORE INFORMATION ABOUT THE
FIXED ACCOUNT and GUARANTEE PERIOD ACCOUNTS.
The Accumulated Value under the Contract is determined by (1) multiplying the
number of Accumulation Units in each Sub-Account by the value of an Accumulation
Unit of that Sub-Account on the Valuation Date, (2) adding the products, and
(3) adding the amount of the accumulations in the Fixed Account and Guarantee
Period Accounts, if any.
NET INVESTMENT FACTOR. The Net Investment Factor is an index that measures the
investment performance of a Sub-Account from one Valuation Period to the next.
This factor is equal to 1.000000 plus the result from dividing (1) by (2) and
subtracting (3) and (4) where:
(1) is the investment income of a Sub-Account for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;
(2) is the value of that Sub-Account's assets at the beginning of the
Valuation Period;
(3) is a charge for mortality and expense risks equal to 1.25% on an annual
basis of the daily value of the Sub-Account's assets; and
(4) is an administrative charge equal to 0.15% on an annual basis of the
daily value of the Sub-Account's assets.
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<PAGE>
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of an Accumulation Unit calculation using a hypothetical
example see "Annuity Benefit Payments" in the SAI.
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<PAGE>
CHARGES AND DEDUCTIONS
Deductions under the Contract and charges against the assets of the Sub-Accounts
are described below. Other deductions and expenses paid out of the assets of the
Underlying Portfolios are described in the prospectuses and SAIs for the
Underlying Portfolios.
A. VARIABLE ACCOUNT DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE. The Company assesses a charge against the
assets of each Sub-Account to compensate for certain mortality and expense risks
it has assumed. The charge is imposed during both the accumulation phase and the
annuity payout phase. The mortality risk arises from the Company's guarantee
that it will make annuity benefit payments in accordance with annuity rate
provisions established at the time the Contract is issued for the life of the
Annuitant (or in accordance with the annuity payout option selected), no matter
how long the Annuitant (or other payee) lives and no matter how long all
Annuitants as a class live. Therefore, the mortality charge is deducted during
the annuity payout phase on all Contracts, including those that do not involve a
life contingency, even though the Company does not bear direct mortality risk
with respect to variable annuity settlement options that do not involve life
contingencies. The expense risk arises from the Company's guarantee that the
charges it makes will not exceed the limits described in the Contract and in
this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
The mortality and expense risk charge is assessed daily at an annual rate of
1.25% of each Sub-Account's assets. This charge may not be increased. 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 0.80% for mortality risk and 0.45% for
expense risk.
ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account with a
daily charge equal to an annual rate of 0.15% of the average daily net assets of
the Sub-Account. This charge may not be increased. The charge is imposed during
both the accumulation phase and the annuity payout phase. The daily
administrative expense charge is assessed to help defray administrative expenses
actually incurred in the administration of the Sub-Account, without profits.
There is no direct relationship, however, between the amount of administrative
expenses imposed on a given Contract and the amount of expenses actually
attributable to that Contract.
Deductions for the Contract fee (described below under "B. Contract Fee") and
for the administrative expense charge are designed to reimburse the Company for
the cost of administration and related expenses and are not expected to be a
source of profit. The administrative functions and expense assumed by the
Company in connection with the Variable Account and the Contract include, but
are not limited to, clerical, accounting, actuarial and legal services, rent,
postage, telephone, office equipment and supplies, expenses of preparing and
printing registration statements, expense of preparing and typesetting
prospectuses and the cost of printing prospectuses not allocable to sales
expense, filing and other fees.
OTHER CHARGES. Because the Sub-Accounts purchase shares of the Underlying
Portfolios, the value of the net assets of the Sub-Accounts will reflect the
investment advisory fee and other expenses incurred by the Underlying
Portfolios. Management fee waivers and/or reimbursements may be in effect for
certain or all of the Underlying Portfolios. For specific information regarding
the existence and effect of any waivers/reimbursements see "Annual Underlying
Portfolio Expenses" under SUMMARY OF FEES AND
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<PAGE>
EXPENSES. The prospectuses and SAIs for the Underlying Portfolios contain
additional information concerning expenses of the Underlying Portfolios and
should be read in conjunction with the Prospectus.
B. CONTRACT FEE
A $30 Contract fee is deducted on the Contract anniversary date and upon full
surrender of the Contract if the Accumulated Value on any of these dates is less
than $50,000. The Contract fee is currently waived for Contracts issued to and
maintained by the trustee of a 401(k) plan. The Company reserves the right to
impose a Contract Fee up to $30 on Contracts issued to 401(k) plans but only
with respect to Contracts issued after the date the waiver is no longer
available. Where Contract value has been allocated to more than one account, a
percentage of the total Contract fee will be deducted from the value in each
account. The portion of the charge deducted from each account will be equal to
the percentage which the value in that account bears to the Accumulated Value
under the Contract. The deduction of the Contract fee from a Sub-Account will
result in cancellation of a number of Accumulation Units equal in value to the
percentage of the charge deducted from that account.
Where permitted by law, the Contract fee also may be waived for Contracts where,
on the date of issue, either the Owner or the Annuitant is within the following
classes of individuals: employees and registered representatives of any
broker-dealer which has entered into a sales agreement with the Company to sell
the Contract; employees of the Company, its affiliates and subsidiaries;
officers, directors, trustees and employees of any of the Portfolios; investment
managers or sub-advisers; and the spouses of and immediate family members
residing in the same household with such eligible persons. "Immediate family
members" means children, siblings, parents and grandparents.
C. OPTIONAL MINIMUM GUARANTEED ANNUITY PAYOUT (M-GAP) RIDER CHARGE
The Company currently offers an optional M-GAP Rider that may be elected by the
Owner. A separate monthly charge is made for the Rider. The charge is made
through a pro-rata reduction of the Accumulated Value of the Sub-Accounts, the
Fixed Account and the Guarantee Period Accounts (based on the relative value
that the Accumulation Units of the Sub-Accounts, the dollar amounts in the Fixed
Account and the dollar amounts in the Guarantee Period Accounts bear to the
total Accumulated Value).
The applicable charge is assessed on the Accumulated Value on the last day of
each month within which the Rider has been in effect and, if applicable, on the
date the Rider is terminated, multiplied by 1/12th of the following annual
percentage rates:
<TABLE>
<S> <C>
Minimum Guaranteed Annuity Payout (M-GAP) Rider with ten-year
waiting period................................................................ 0.25%
Minimum Guaranteed Annuity Payout (M-GAP) Rider with fifteen-year
waiting period................................................................ 0.15%
</TABLE>
For a description of the Rider, see "M. Optional Minimum Guaranteed Annuity
Payout (M-GAP) Rider" under DESCRIPTION OF THE CONTRACT, above.
D. PREMIUM TAXES
Some states and municipalities impose a premium tax on variable annuity
contracts. State premium taxes currently range up to 3.5%. The Company makes a
charge for state and municipal premium taxes, when applicable, and deducts the
amount paid as a premium tax charge. The current practice of the Company is to
deduct the premium tax charge in one of two ways:
1. if the premium tax was paid by the Company when payments were received,
the premium tax charge is deducted on a pro-rata basis when withdrawals
are made, upon surrender of the Contract, or when
41
<PAGE>
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 in total when annuity benefit
payments begin.
In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law.
If no amount for premium tax was deducted at the time the payment was received,
but subsequently tax is determined to be due prior to the Annuity Date, the
Company reserves the right to deduct the premium tax from the Contract value at
the time such determination is made.
E. SURRENDER CHARGE
No charge for sales expense is deducted from payments at the time the payments
are made. A surrender charge, however, is deducted from the Accumulated Value in
the case of surrender and/or a withdrawal or at the time annuity benefit
payments begin, within certain time limits described below.
For purposes of determining the surrender 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 invested in the Contract for more than seven
years; and (3) the amount available under the Withdrawal Without Surrender
Charge provision. See "Withdrawal Without Surrender Charge" below. For purposes
of determining the amount of any surrender charge, surrenders will be deemed to
be taken first from amounts available as a Withdrawal Without Surrender Charge,
if any; then from Old Payments, and then from New Payments. Amounts available as
a Withdrawal Without Surrender Charge, followed by Old Payments, may be
withdrawn from the Contract at any time without the imposition of a surrender
charge. If a withdrawal is attributable all or in part to New Payments, a
surrender charge may apply.
CHARGES FOR SURRENDER AND WITHDRAWAL. If the Contract is surrendered, or if New
Payments are withdrawn while the Contract is in force and before the Annuity
Date, a surrender charge may be imposed. The amount of the charge will depend
upon the number of years that any New Payments, to which the withdrawal is
attributed have remained credited under the Contract. For the purpose of
calculating surrender charges for New Payments, all amounts withdrawn are
assumed to be deducted first from the oldest New Payment and then from the next
oldest New Payment and so on, until all New Payments have been exhausted
pursuant to the first-in-first-out ("FIFO") method of accounting. (See FEDERAL
TAX CONSIDERATIONS for a discussion of how withdrawals are treated for income
tax purposes.)
The surrender charge is as follows:
<TABLE>
<CAPTION>
CHARGE AS PERCENTAGE OF
YEARS FROM NEW PAYMENTS
DATE OF PAYMENT WITHDRAWN
- --------------- -----------------------
<S> <C>
0 - 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
More than 7 0%
</TABLE>
The amount withdrawn equals the amount requested by the Owner plus the surrender
charge, if any. The charge is applied as a percentage of the New Payments
withdrawn, but in no event will the total surrender
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<PAGE>
charge exceed a maximum limit of 7% of total gross New Payments. Such total
charge equals the aggregate of all applicable surrender charges for surrender,
withdrawals and annuitization.
REDUCTION OR ELIMINATION OF SURRENDER CHARGE AND ADDITIONAL AMOUNTS
CREDITED. Where permitted by law, the Company will waive the surrender charge
in the event that an Owner (or the Annuitant, if the Owner is not an individual)
becomes physically disabled after the issue date of the Contract and before
attaining age 65. Under New York Contracts, the disability also must exist for a
continuous period of at least four months. 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. In addition, except in New York and New Jersey where not permitted
by state law, the Company will waive the surrender charge in the event that an
Owner (or the Annuitant, if the Owner is not an individual) is: (1) admitted to
a medical care facility after the issue date and remains confined there until
the later of one year after the issue date or 90 consecutive days or (2) first
diagnosed by a licensed physician as having a fatal illness after the issue date
of the Contract.
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 surrender charges have been waived under any one of the situations
discussed above, no additional payments under the Contract will be accepted
unless required by state law.
In addition, from time to time the Company may allow a reduction in or
elimination of the surrender charges, the period during which the charges apply,
or both, and/or credit additional amounts on Contracts, when Contracts are sold
to individuals or groups of individuals in a manner that reduces sales expenses.
The Company will consider factors such as the following: (1) the size and type
of group or class, and the persistency expected from that group or class;
(2) the total amount of payments to be received, and the manner in which
payments are remitted; (3) the purpose for which the Contracts are being
purchased, and whether that purpose makes it likely that costs and expenses will
be reduced; (4) other transactions where sales expenses are likely to be
reduced; or (5) the level of commissions paid to selling broker-dealers or
certain financial institutions with respect to Contracts within the same group
or class (for example, broker-dealers who offer the Contract in connection with
financial planning services offered on a fee-for-service basis). The Company
also may reduce or waive the surrender charge, and/or credit additional amounts
on Contracts, where either the Owner or the Annuitant on the date of issue is
within the following classes of individuals ("eligible persons"): employees and
registered representatives of any broker-dealer which has entered into a sales
agreement with the Company to sell the Contract; employees of the Company, its
affiliates and subsidiaries; officers, directors, trustees and employees of any
of the Underlying Portfolios, investment managers or Sub-Advisers of the
Underlying Portfolios; and the spouses of and immediate family members residing
in the same household with such eligible persons. "Immediate family members"
means children, siblings, parents and grandparents. Finally, if permitted under
state law, surrender charges will be waived under Section 403(b) Contracts where
the amount withdrawn is being contributed to a life insurance policy issued by
the Company as part of the individual's Section 403(b) plan.
Any reduction or elimination in the amount or duration of the surrender charge
will not discriminate unfairly among purchasers of the Contract. The Company
will not make any changes to this charge where prohibited by law.
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<PAGE>
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the surrender
charge is modified to effect certain exchanges of existing annuity contracts
issued by the Company for the Contract. See "Exchange Offer" in the SAI.
WITHDRAWAL WITHOUT SURRENDER CHARGE. In each calendar year, the Company will
waive the surrender charge, if any, on an amount ("Withdrawal Without Surrender
Charge") equal to the greatest of (1), (2) or (3):
Where (1) is: 100% of Cumulative Earnings (calculated as the
Accumulated Value as of the Valuation Date the Company
receives the withdrawal request, or the following day,
reduced by total gross payments not previously
withdrawn);
Where (2) is: 15% of the Accumulated Value as of the Valuation Date the
Company receives the withdrawal request, or the following
day, reduced by the total amount of any prior withdrawals
made in the same calendar year to which no surrender
charge was applied; and
Where (3) is: The amount calculated under the Company's life expectancy
distribution option (see Life Expectancy Distributions
above) whether or not the withdrawal was part of such
distribution (applies only if Annuitant is also an
Owner).
For example, an 81-year-old Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Free Withdrawal
Amount of $2,250, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 15% of Accumulated Value ($2,250); or
(3) LED of 10.2% of Accumulated Value ($1,530).
The Withdrawal Without Surrender Charge first will be deducted from Cumulative
Earnings. If the Withdrawal Without Surrender Charge exceeds Cumulative
Earnings, the excess amount will be deemed withdrawn from payments not
previously withdrawn on a LIFO (last-in/first-out) basis. This means that the
last payments credited to the Contract will be withdrawn first. If more than one
withdrawal is made during the year, on each subsequent withdrawal the Company
will waive the surrender charge, if any, until the entire Withdrawal Without
Surrender Charge has been withdrawn. Amounts withdrawn from a Guarantee Period
Account prior to the end of the applicable Guarantee Period will be subject to a
Market Value Adjustment. See GUARANTEE PERIOD ACCOUNTS.
SURRENDERS. In the case of a complete surrender, the amount received by the
Owner is equal to the entire Surrender Value under the Contract, net of any
applicable tax withholding. Subject to the same rules applicable to withdrawals,
the Company will not assess a surrender charge on an amount equal to the
Withdrawal Without Surrender Charge Amount, described above.
Where an Owner who is trustee under a pension plan surrenders, in whole or in
part, a Contract on a terminating employee, the trustee will be permitted to
reallocate all or a part of the Accumulated Value under the Contract to other
contracts issued by the Company and owned by the trustee, with no deduction for
any otherwise applicable surrender charge. Any such reallocation will be at the
Accumulation Unit values for the Sub-Accounts as of the Valuation Date on which
a written, signed request is received at the Principal Office.
For further information on surrender and withdrawal, including minimum limits on
amount withdrawn and amount remaining under the Contract in the case of
withdrawal, and important tax considerations, see "E. Surrender" and
"F. Withdrawals" under DESCRIPTION OF THE CONTRACT, and see FEDERAL TAX
CONSIDERATIONS.
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<PAGE>
CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If the Owner chooses any
commutable period certain option or a noncommutable fixed period certain option
for less than ten years (less than six years under New York Contracts), a
surrender charge will be deducted from the Accumulated Value of the Contract if
the Annuity Date occurs at any time when a surrender charge would still apply
had the Contract been surrendered on the Annuity Date.
No surrender charge is imposed at the time of annuitization in any Contract year
under an option involving a life contingency or any noncommutable fixed period
certain option for ten or more years (six years or more under New York
Contracts). A Market Value Adjustment, however, may apply. See GUARANTEE PERIOD
ACCOUNTS. If the Owner of a fixed annuity contract issued by the Company wishes
to elect a variable annuity option, the Company may permit such Owner to
exchange, at the time of annuitization, the fixed contract for a Contract
offered in this Prospectus. The proceeds of the fixed contract, minus any
surrender 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.
F. TRANSFER CHARGE
The Company currently makes no charge for processing transfers. The Company
guarantees that the first 12 transfers in a Contract year will be free of
transfer charge, but reserves the right to assess a charge, guaranteed never to
exceed $25, for each subsequent transfer in a Contract year to reimburse it for
the expense of processing transfers. For more information, see "D. Transfer
Privilege" under DESCRIPTION OF THE CONTRACT.
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<PAGE>
GUARANTEE PERIOD ACCOUNTS
Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Company's Fixed Account are
not registered as an investment company under the provisions of the 1933 Act or
the 1940 Act. Accordingly, the staff of the SEC has not reviewed the disclosures
in this Prospectus relating to the Guarantee Period Accounts or the Fixed
Account. Nevertheless, disclosures regarding the Guarantee Period Accounts and
the Fixed Account of the Contract or any fixed benefits offered under these
accounts may be subject to the provisions of the 1933 Act relating to the
accuracy and completeness of statements made in the Prospectus.
INVESTMENT OPTIONS. In most jurisdictions, Guarantee Periods ranging from two
through ten years may be available. Each Guarantee Period established for the
Owner is accounted for separately in a non-unitized segregated account, except
in California where it is accounted for in the Company's General Account. Each
Guarantee Period Account provides for the accumulation of interest at a
Guaranteed Interest Rate. The Guaranteed Interest Rate on amounts allocated or
transferred to a Guarantee Period Account is determined from time to time by the
Company in accordance with market conditions. Once an interest rate is in effect
for a Guarantee Period Account, however, the Company may not change it during
the duration of the Guarantee Period. In no event will the Guaranteed Interest
Rate be less than 3%.
To the extent permitted by law, the Company reserves the right at any time to
offer Guarantee Periods with durations that differ from those which were
available when a Contract initially was issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Owners may allocate net payments or make transfers from any of the Sub-Accounts,
the Fixed Account or an existing Guarantee Period Account to establish a new
Guarantee Period Account at any time prior to the Annuity Date. Transfers from a
Guarantee Period Account on any date other than on the day following the
expiration of that Guarantee Period will be subject to a Market Value
Adjustment. The Company establishes a separate investment account each time the
Owner allocates or transfers amounts to a Guarantee Period except that amounts
allocated to the same Guarantee Period on the same day will be treated as one
Guarantee Period Account. The minimum that may be allocated to establish a
Guarantee Period Account is $1,000. If less than $1,000 is allocated, the
Company reserves the right to apply that amount to the Pioneer Money Market VCT
Portfolio. The Owner may allocate amounts to any of the Guarantee Periods
available.
At least 45 days (but not more than 75 days) prior to the end of a Guarantee
Period, the Company will notify the Owner in writing of the expiration of that
Guarantee Period. At the end of a Guarantee Period the Owner may transfer
amounts to the Sub-Accounts, the Fixed Account or establish a new Guarantee
Period Account of any duration then offered by the Company without a Market
Value Adjustment. If reallocation instructions are not received at the Principal
Office before the end of a Guarantee Period, the account value automatically
will be applied to a new Guarantee Period Account with the same duration unless
(1) less than $1,000 would remain in the Guarantee Period Account on the
expiration date, or (2) the Guarantee Period would extend beyond the Annuity
Date or is no longer available. In such cases, the Guarantee Period Account
value will be transferred to the Sub-Account investing in the Pioneer Money
Market VCT Portfolio. Where amounts have been renewed automatically in a new
Guarantee Period, the Company currently gives the Owner an additional 30 days to
transfer out of the Guarantee Period Account without application of a Market
Value Adjustment. This practice may be discontinued or changed with notice at
the Company's discretion. However, under Contracts issued in New York, the
Company guarantees that it will transfer monies out of the Guarantee Period
Accounts without application of a Market Value Adjustment if the Owner's request
is received within ten days of the renewal date.
MARKET VALUE ADJUSTMENT. No Market Value Adjustment will be applied to
transfers, withdrawals, or a surrender from a Guarantee Period Account on the
expiration of its Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated
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Value. See "G. Death Benefit." All other transfers, withdrawals, or a surrender
prior to the end of a Guarantee Period will be subject to a Market Value
Adjustment, which may increase or decrease the account value. Amounts applied
under an annuity option are treated as withdrawals when calculating the Market
Value Adjustment. The Market Value Adjustment will be determined by multiplying
the amount taken from each Guarantee Period Account before deduction of any
Surrender Charge by the market value factor. The market value factor for each
Guarantee Period Account is equal to:
[(1+i)/(1+j)]to the power of 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.
Based on the application of this formula, the value of a Guarantee Period
Account will increase after the Market Value Adjustment is applied if the then
current market rates are lower than the rate being credited to the Guarantee
Period Account. Similarly, the value of a Guarantee Period Account will decrease
after the Market Value Adjustment is applied if the then current market rates
are higher than the rate being credited to the Guarantee Period Account. The
Market Value Adjustment is limited, however, so that even if the account value
is decreased after application of a Market Value Adjustment, it will equal or
exceed the Owner's principal plus 3% earnings per year less applicable Contract
fees. Conversely, if the then current market rates are lower and the account
value is increased after the Market Value Adjustment is applied, the increase in
value is also affected by the minimum guaranteed rate of 3% such that the amount
that will be added to the Guarantee Period Account is limited to the difference
between the amount earned and the 3% minimum guaranteed earnings. For examples
of how the Market Value Adjustment works, see APPENDIX B -- SURRENDER CHARGES
AND THE MARKET VALUE ADJUSTMENT.
BUILD WITH INTEREST AND GROWTH PROGRAM. Under this feature, the Owner elects a
Guarantee Period and one or more Sub-Accounts. The Company will then compute the
proportion of the initial payment that must be allocated to the Guarantee Period
selected, assuming no transfers or withdrawals (including withdrawals made as a
part of a pro-rata deduction for charges under an M-GAP Rider purchased or
repurchased after issue) in order to ensure that the value in the Guarantee
Period Account on the last day of the Guarantee Period will equal the amount of
the entire initial payment. The required amount then will be allocated to the
pre-selected Guarantee Period Account and the remaining balance to the other
investment options selected by the Owner in accordance with the procedures
described in "A. Payments" under DESCRIPTION OF THE CONTRACT.
WITHDRAWALS. Prior to the Annuity Date, the Owner may make withdrawals of
amounts held in the Guarantee Period Accounts. Withdrawals from these accounts
will be made in the same manner and be subject to the same rules as set forth
under "E. Surrender" and "F. Withdrawals" under DESCRIPTION OF THE CONTRACT. In
addition, the following provisions also apply to withdrawals from a Guarantee
Period Account: (1) a Market Value Adjustment will apply to all withdrawals,
including Withdrawals Without Surrender Charge, unless made at the end of the
Guarantee Period; and (2) the Company reserves the right to defer payments of
amounts withdrawn from a Guarantee Period Account for up to six months from the
date it receives the withdrawal request. If deferred for 30 days or more, the
Company will pay interest on the amount deferred at a rate of at least 3%.
In the event that a Market Value Adjustment applies to a withdrawal of a portion
of the value of a Guarantee Period Account, it will be calculated on the amount
requested and deducted or added to the amount remaining
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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
surrender charge applies to the withdrawal, it will be calculated as set forth
under "E. Surrender Charge" under CHARGES AND DEDUCTIONS after application of
the Market Value Adjustment.
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FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of the Contract, on withdrawals
or surrenders, on annuity benefit payments, and on the economic benefit to the
Owner, Annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the IRS. In
addition, this discussion does not address state or local tax consequences that
may be associated with the Contract.
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS, AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER ALWAYS SHOULD BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
A. GENERAL
THE COMPANY. The Company intends to make a charge for any effect which the
income, assets, or existence of the Contract, the Variable Account or the
Sub-Accounts may have upon its tax. The Variable Account presently is not
subject to tax, but the Company reserves the right to assess a charge for taxes
should the Variable Account at any time become subject to tax. Any charge for
taxes will be assessed on a fair and equitable basis in order to preserve equity
among classes of Owners and with respect to each separate account as though that
separate account were a separate taxable entity.
The Variable Account is considered a part of and taxed with the operations of
the Company. The Company is taxed as a life insurance company under
Subchapter L of the Code. The Company files a consolidated tax return with its
affiliates.
DIVERSIFICATION REQUIREMENTS. The IRS has issued regulations under
Section 817(h) of the Code relating to the diversification requirements for
variable annuity and variable life insurance contracts. The regulations
prescribed by the Treasury Department provide that the investments of a
segregated asset account underlying a variable annuity contract are adequately
diversified if no more than 55% of the value of its assets is represented by any
one investment, no more than 70% by any two investments, no more than 80% by any
three investments, and no more than 90% by any four investments. Under this
section of the Code, if the investments are not adequately diversified, the
Contract will not be treated as an annuity contract and therefore, the income on
the Contract, for any taxable year of the Owner, would be treated as ordinary
income received or accrued by the Owner. It is anticipated that the Underlying
Portfolios will comply with the current diversification requirements. In the
event that future IRS regulations and/or rulings would require Contract
modifications in order to remain in compliance with the diversification
standards, the Company will make reasonable efforts to comply, and it reserves
the right to make such changes as it deems appropriate for that purpose.
INVESTOR CONTROL. In order for a variable annuity contract to qualify for tax
deferral, the Company, and not the variable contract owner, must be considered
to be the owner for tax purposes of the assets in the segregated asset account
underlying the variable annuity contract. In certain circumstances, however,
variable annuity contract owners may now be considered the owners of these
assets for federal income tax purposes. Specifically, the IRS has stated in
published rulings that a variable annuity contract owner may be considered the
owner of segregated account assets if the contract owner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection with
the issuance of regulations concerning investment diversification, that those
regulations do not provide guidance governing the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor (i.e., the contract owner), rather than the insurance company, to be
treated as the owner of the assets in the account. This announcement also states
that guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their
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investments to particular sub-accounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued. The Company, therefore, additionally reserves the right to modify the
Contract as necessary in order to attempt to prevent a contract owner from being
considered the owner of a pro rata share of the assets of the segregated asset
account underlying the variable annuity contracts.
B. QUALIFIED AND NON-QUALIFIED CONTRACTS
From a federal tax viewpoint there are two types of variable annuity contracts:
"qualified" contracts and "non-qualified" contracts. A qualified contract is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, or 408 of the Code, while a non-qualified
contract is one that is not purchased in connection with one of the indicated
retirement plans. The tax treatment for certain withdrawals or surrenders will
vary, depending on whether they are made from a qualified contract or a non-
qualified contract. For more information on the tax provisions applicable to
qualified contracts, see "Provisions Applicable to Qualified Employer Plans"
below.
C. TAXATION OF THE CONTRACT IN GENERAL
The Company believes that the Contract described in this Prospectus will, with
certain exceptions (see "Nonnatural Owners" below), be considered an annuity
contract under Section 72 of the Code. Please note, however if the Owner chooses
an Annuity Date beyond the Annuitant's 85th birthday, it is possible that the
Contract may not be considered an annuity contract for tax purposes, and
therefore the Owner may be taxed on the annual increase in Accumulated Value.
The Owner should consult tax and financial advisors for more information. This
section governs the taxation of annuities. The following discussion concerns
annuities subject to Section 72.
WITHDRAWALS PRIOR TO ANNUITIZATION. With certain exceptions, any increase in
the Contract's Accumulated Value is not taxable to the Owner until it is
withdrawn from the Contract. Under the current provisions of the Code, amounts
received under an annuity contract prior to annuitization (including payments
made upon the death of the annuitant or owner), generally are first attributable
to any investment gains credited to the contract over the taxpayer's "investment
in the contract." Such amounts will be treated as gross income subject to
federal income taxation. "Investment in the contract" is the total of all
payments to the Contract which were not excluded from the Owner's gross income
less any amounts previously withdrawn which were not included in income.
Section 72(e)(11)(A)(ii) requires that all non-qualified deferred annuity
contracts issued by the same insurance company to the same owner during a single
calendar year be treated as one contract in determining taxable distributions.
ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments are
commenced under the Contract, generally a portion of each payment may be
excluded from gross income. The excludable portion generally is determined by a
formula that establishes the ratio that the investment in the Contract bears to
the expected return under the Contract. The portion of the payment in excess of
this excludable amount is taxable as ordinary income. Once all the investment in
the Contract is recovered, the entire payment is taxable. If the annuitant dies
before the investment in the Contract is recovered, a deduction for the
difference is allowed on the annuitant's final tax return.
PENALTY ON DISTRIBUTION. A 10% penalty tax may be imposed on the withdrawal of
investment gains if the withdrawal is made prior to age 59 1/2. The penalty tax
will not be imposed on withdrawals taken on or after age 59 1/2 or if the
withdrawal follows the death of the Owner (or, if the Owner is not an
individual, the death of the primary Annuitant, as defined in the Code) or, in
the case of the Owner's "total disability" (as defined in the Code).
Furthermore, under Section 72 of the Code, this penalty tax will not be imposed,
irrespective of age, if the amount received is one of a series of "substantially
equal" periodic payments made at least annually for the life or life expectancy
of the payee. This requirement is met when the Owner elects to have
distributions made over the Owner's life expectancy, or over the joint life
expectancy of the Owner and beneficiary. The
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requirement that the amount be paid out as one of a series of "substantially
equal" periodic payments is met when the number of units withdrawn to make each
distribution is substantially the same. Any modification, other than by reason
of death or disability, of distributions which are part of a series of
substantially equal periodic payments that occurs before the Owner's age 59 1/2
or five years, will subject the Owner to the 10% penalty tax on the prior
distributions. In addition to the exceptions above, the penalty tax will not
apply to withdrawals from a qualified Contract made to an employee who has
terminated employment after reaching age 55.
In a Private Letter Ruling, the IRS took the position that where distributions
from a variable annuity contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy (such as
under the Contract's LED option), and the option could be changed or terminated
at any time, the distributions failed to qualify as part of a "series of
substantially equal payments" within the meaning of Section 72 of the Code. The
distributions, therefore, were subject to the 10% federal penalty tax. This
Private Letter Ruling may be applicable to an Owner who receives distributions
under any LED-type option prior to age 59 1/2. Subsequent Private Letter
Rulings, however, have treated LED-type withdrawal programs as effectively
avoiding the 10% penalty tax. The position of the IRS on this issue is unclear.
ASSIGNMENTS OR TRANSFERS. If the Owner transfers (assigns) the Contract to
another individual as a gift prior to the Annuity Date, the Code provides that
the Owner will incur taxable income at the time of the transfer. An exception is
provided for certain transfers between spouses. The amount of taxable income
upon such taxable transfer is equal to any investment gain in value over the
Owner's cost basis at the time of the transfer. The transfer also is subject to
federal gift tax provisions. Where the Owner and Annuitant are different
persons, the change of ownership of the Contract to the Annuitant on the Annuity
Date, as required under the Contract, is a gift and will be taxable to the Owner
as such; however, the Owner will not incur taxable income. Instead, the
Annuitant will incur taxable income upon receipt of annuity benefit payments as
discussed above.
NONNATURAL OWNERS. As a general rule, deferred annuity contracts owned by
"nonnatural persons" (e.g., a corporation) are not treated as annuity contracts
for federal tax purposes, and the investment income attributable to
contributions made after February 28, 1986 is taxed as ordinary income that is
received or accrued by the owner during the taxable year. This rule does not
apply to annuity contracts purchased with a single payment when the annuity date
is no later than a year from the issue date or to deferred annuities owned by
qualified employer plans, estates, employers with respect to a terminated
pension plan, and entities other than employers, such as a trust, holding an
annuity as an agent for a natural person. This exception, however, will not
apply in cases of any employer who is the owner of an annuity contract under a
non-qualified deferred compensation plan.
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. Under Section 457 of the Code, deferred compensation plans
established by governmental and certain other tax-exempt employers for their
employees may invest in annuity contracts. Contributions and investment earnings
are not taxable to employees until distributed; however, with respect to
payments made after February 28, 1986, a Contract owned by a state or local
government or a tax-exempt organization will not be treated as an annuity under
Section 72 as well. In addition, plan assets are treated as property of the
employer, and are subject to the claims of the employer's general creditors.
D. TAX WITHHOLDING
The Code requires withholding with respect to payments or distributions from
non-qualified contracts and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified contracts. In addition, the Code requires reporting to the IRS
of the amount of income received with respect to payment or distributions from
annuities.
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The tax treatment of certain withdrawals or surrenders of the non-qualified
Contracts offered by this Prospectus will vary according to whether the amount
withdrawn or surrendered is allocable to an investment in the Contract made
before or after certain dates.
E. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS
Federal income taxation of assets held inside a qualified retirement plan and of
earnings on those assets is deferred until distribution of plan benefits begins.
As such, it is not necessary to purchase a variable annuity contract solely to
obtain its tax deferral feature. However, other features offered under this
Contract and described in this Prospectus -- such as the minimum guaranteed
death benefit, the guaranteed fixed annuity rates and the wide variety of
investment options -- may make this Contract a suitable investment for your
qualified retirement plan.
The tax rules applicable to qualified retirement plans, as defined by the Code,
are complex and vary according to the type of plan. Benefits under a qualified
plan may be subject to that plan's terms and conditions irrespective of the
terms and conditions of any annuity contract used to fund such benefits. As
such, the following is simply a general description of various types of
qualified plans that may use the Contract. Before purchasing any annuity
contract for use in funding a qualified plan, more specific information should
be obtained.
Qualified Contracts may include special provisions (endorsements) changing or
restricting rights and benefits otherwise available to Owners of non-qualified
Contracts. Individuals purchasing a qualified Contract should carefully review
any such changes or limitations which may include restrictions to ownership,
transferability, assignability, contributions, and distributions.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT SHARING
PLANS. Sections 401(a), 401(k) and 403(a) of the Code permit business employers
and certain associations to establish various types of tax-favored retirement
plans for employees. The Self-Employed Individuals' Tax Retirement Act of 1962,
as amended, permits self-employed individuals to establish similar plans for
themselves and their employees. Employers intending to use qualified Contracts
in connection with such plans should seek competent advice as to the suitability
of the Contracts to their specific needs and as to applicable Code limitations
and tax consequences.
The Company can provide prototype plans for certain pension or profit sharing
plans for review by the plan's legal counsel. For information, ask your
financial representative.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity ("IRA"). Note: This term covers all IRAs permitted
under Section 408(b) of the Code, including Roth IRAs. IRAs are subject to
limits on the amounts that may be contributed, the persons who may be eligible,
and on the time when distributions may commence. In addition, certain
distributions from other types of retirement plans may be "rolled over," on a
tax-deferred basis, to an IRA. Purchasers of an IRA Contract will be provided
with supplementary information as may be required by the IRS or other
appropriate agency, and will have the right to cancel the Contract as described
in this Prospectus. See "B. Right to Cancel Individual Retirement Annuity."
Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) or SIMPLE IRA plans for their employees using
IRAs. Employer contributions that may be made to such plans are larger than the
amounts that may be contributed to regular IRAs and may be deductible to the
employer.
TAX-SHELTERED ANNUITIES ("TSAs"). Under the provisions of Section 403(b) of the
Code, payments made to contracts purchased for employees under annuity plans
adopted by public school systems and certain organizations which are tax-exempt
under Section 501(c)(3) of the Code are excludable from the gross income
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of such employees to the extent that total annual payments do not exceed the
maximum contribution permitted under the Code. Purchasers of TSA Contracts
should seek competent advice as to eligibility, limitations on permissible
payments and other tax consequences associated with the contracts.
Withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) made to a TSA Contract after
December 31, 1988, may not begin before the employee attains age 59 1/2,
separates from service, dies or becomes disabled. In the case of hardship, an
Owner may withdraw amounts contributed by salary reduction, but not the earnings
on such amounts. Even though a distribution may be permitted under these rules
(e.g., for hardship or after separation from service), it may be subject to a
10% penalty tax as a premature distribution, in addition to income tax.
TEXAS OPTIONAL RETIREMENT PROGRAM. Distributions under a TSA contract issued to
participants in the Texas Optional Retirement Program may not be received except
in the case of the participant's death, retirement or termination of employment
in the Texas public institutions of higher education. These additional
restrictions are imposed under the Texas Government Code and a prior opinion of
the Texas Attorney General.
STATEMENTS AND REPORTS
An Owner is sent a report semi-annually which provides certain financial
information about the Underlying Portfolios. At least annually, but possibly as
frequent as quarterly, the Company will furnish a statement to the Owner
containing information about his or her Contract, including Accumulation Unit
Values and other information as required by applicable law, rules and
regulations. The Company will also send a confirmation statement to Owners each
time a transaction is made affecting the Contract Value. (Certain transactions
made under recurring payment plans such as Dollar Cost Averaging may in the
future be confirmed quarterly rather than by immediate confirmations.) The Owner
should review the information in all statements carefully. All errors or
corrections must be reported to the Company immediately to assure proper
crediting to the Contract. The Company will assume that all transactions are
accurately reported on confirmation statements and quarterly/annual statements
unless the Owner notifies the Principal Office in writing within 30 days after
receipt of the statement.
LOANS (QUALIFIED CONTRACTS ONLY)
Loans are available to owners of TSA contracts (i.e., contracts issued under
Section 403(b) of the Code) and to contracts issued to plans qualified under
Sections 401(a) and 401(k) of the Code. Loans are subject to provisions of the
Code and to applicable qualified retirement plan rules. Tax advisers and plan
fiduciaries should be consulted prior to exercising loan privileges.
Loaned amounts will be withdrawn first from Sub-Account and Fixed Account values
on a pro-rata basis until exhausted. Thereafter, any additional amounts will be
withdrawn from the Guarantee Period Accounts (pro rata by duration and LIFO
within each duration), subject to any applicable Market Value Adjustments. The
maximum loan amount will be determined under the Company's maximum loan formula.
The minimum loan amount is $1,000. Loans will be secured by a security interest
in the Contract and the amount borrowed will be transferred to a loan asset
account within the Company's General Account, where it will accrue interest at a
specified rate below the then-current loan rate. Generally, loans must be repaid
within five years or less, and repayments must be made quarterly and in
substantially equal amounts. Repayments will be allocated pro rata in accordance
with the most recent payment allocation, except that any allocations to a
Guarantee Period Account will be allocated instead to the Money Market
Portfolio.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Underlying Portfolio no longer are available for investment or if, in the
Company's judgment, further
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investment in any Underlying Portfolio should become inappropriate in view of
the purposes of the Variable Account or the affected Sub-Account, the Company
may withdraw the shares of that Underlying Portfolio and substitute shares of
another registered open-end management company. The Company will not substitute
any shares attributable to the Contract interest in a Sub-Account without notice
to the Owner and prior approval of the SEC and state insurance authorities, to
the extent required by the 1940 Act or other applicable law. The Variable
Account may, to the extent permitted by law, purchase other securities for other
contracts or permit a conversion between contracts upon request by an Owner.
The Company also reserves the right to establish additional sub-accounts of the
Variable Account, each of which would invest in shares corresponding to a new
Underlying Portfolio or in shares of another investment company having a
specified investment objective. Subject to applicable law and any required SEC
approval, the Company may, in its sole discretion, establish new sub-accounts or
eliminate one or more Sub-Accounts if marketing needs, tax considerations or
investment conditions warrant. Any new Sub-Accounts may be made available to
existing Owners on a basis to be determined by the Company.
Shares of the Underlying Portfolios may be issued to variable accounts of the
Company and its affiliates which issue variable life contracts ("mixed
funding"). Shares of the Underlying Portfolios may be also issued to other
unaffiliated insurance companies ("shared funding"). It is conceivable that in
the future such mixed funding or shared funding may be disadvantageous for
variable life owners or variable annuity owners. Although the Company and the
underlying investment companies currently do not foresee any such disadvantages
to either variable life owners or variable annuity owners, they intend to
monitor events in order to identify any material conflicts between such owners,
and to determine what action, if any, should be taken in response thereto. If it
were concluded that separate funds should be established for variable life and
variable annuity separate accounts, the Company will bear the attendant
expenses.
The Company reserves the right, subject to compliance with applicable law, to:
(1) transfer assets from the Variable Account or any of its Sub-Accounts to
another of the Company's separate accounts or sub-accounts having assets
of the same class,
(2) to operate the Variable Account or any Sub-Account as a management
investment company under the 1940 Act or in any other form permitted by
law,
(3) to deregister the Variable Account under the 1940 Act in accordance with
the requirements of the 1940 Act,
(4) to substitute the shares of any other registered investment company for
the Underlying Portfolio shares held by a Sub-Account, in the event that
Underlying Portfolio shares are unavailable for investment, or if the
Company determines that further investment in such Underlying Portfolio
shares is inappropriate in view of the purpose of the Sub-Account,
(5) to change the methodology for determining the net investment factor,
(6) to change the names of the Variable Account or of the Sub-Accounts, and
(7) to combine with other Sub-Accounts or other Separate Accounts of the
Company.
If any of these substitutions or changes are made, the Company may endorse the
Contract to reflect the substitution or change, and will notify Owners of all
such changes. In no event will the changes described above be made without
notice to Owners in accordance with the 1940 Act.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves the right, without the consent of Owners, to suspend sales
of the Contract as presently offered, and to make any change to provisions of
the Contract to comply with, or give Owners the benefit of, any federal or state
statute, rule or regulation, including but not limited to requirements for
annuity contracts
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and retirement plans under the Code and pertinent regulations or any state
statute or regulation. Any such changes will apply uniformly to all Contracts
that are affected. Owners will be given written notice of such changes.
VOTING RIGHTS
The Company will vote Underlying Portfolio shares held by each Sub-Account in
accordance with instructions received from Owners and, after the Annuity Date,
from the Annuitants. Each person having a voting interest in a Sub-Account will
be provided with proxy materials of the Underlying Portfolio, together with a
form with which to give voting instructions to the Company. Shares for which no
timely instructions are received will be voted in proportion to the instructions
which are received. The Company also will vote shares in a Sub-Account that it
owns and which are not attributable to Contracts in the same proportion. If the
1940 Act or any rules thereunder should be amended or if the present
interpretation of the 1940 Act or such rules should change, and as a result the
Company determines that it is permitted to vote shares in its own right, whether
or not such shares are attributable to the Contract, the Company reserves the
right to do so.
The number of votes which an Owner or Annuitant may cast will be determined by
the Company as of the record date established by the Underlying Portfolio.
During the accumulation period, the number of Underlying Portfolio shares
attributable to each Owner will be determined by dividing the dollar value of
the Accumulation Units of the Sub-Account credited to the Contract by the net
asset value of one Underlying Portfolio share. During the annuity period, the
number of Underlying Portfolio shares attributable to each Annuitant will be
determined by dividing the reserve held in each Sub-Account for the Annuitant's
variable annuity by the net asset value of one Underlying Portfolio share.
Ordinarily, the Annuitant's voting interest in the Underlying Portfolio will
decrease as the reserve for the variable annuity is depleted.
DISTRIBUTION
The Contracts offered by this Prospectus may be purchased from certain
independent broker-dealers which are registered under the Securities and
Exchange Act of 1934 and members of the National Association of Securities
Dealers, Inc. ("NASD"). The Contracts also are offered through Allmerica
Investments, Inc., which is the principal underwriter and distributor of the
Contracts. Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653,
is a registered broker-dealer, a member of the NASD and an indirectly wholly
owned subsidiary of First Allmerica.
The Company pays commissions, not to exceed 7.0% of payments, to broker-dealers
that sell the Contract. Alternative commission schedules are available with
lower initial commission amounts based on payments, plus ongoing annual
compensation of up to 1% of Contract value. To the extent permitted by NASD
rules, promotional incentives or payments also may be provided to such
broker-dealers based on sales volumes, the assumption of wholesaling functions
or other sales-related criteria. Additional payments may be made for other
services not directly related to the sale of the Contract, including the
recruitment and training of personnel, production of promotional literature, and
similar services.
The Company intends to recoup commissions and other sales expenses through a
combination of anticipated surrender charges and profits from the Company's
General Account, which may include amounts derived from mortality and expense
risk charges. Commissions paid on the Contract, including additional incentives
or payments, do not result in any additional charge to Owners or to the Variable
Account. Any surrender charges assessed on the Contract will be retained by the
Company.
Owners may direct any inquiries to their financial representative or to
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653, telephone
1-800-688-9915.
55
<PAGE>
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party,
or to which the assets of the Variable Account are subject. The Company and the
Principal Underwriter are not involved in any litigation that is of material
importance in relation to their total assets or that relates to the Variable
Account.
FURTHER INFORMATION
A Registration Statement under the 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted in this Prospectus pursuant to the rules and
regulations of the SEC. The omitted information may be obtained from the SEC's
principal office in Washington, D.C., upon payment of the SEC's prescribed fees.
56
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account are not generally subject to regulation under the
provisions of the Securities Act of 1933 or the Investment Company Act of 1940.
Disclosures regarding the fixed portion of the annuity contract and the Fixed
Account may be subject to the provisions of the Securities Act of 1933
concerning the accuracy and completeness of statements made in this Prospectus.
The disclosures in this APPENDIX A have not been reviewed by the Securities and
Exchange Commission.
The Fixed Account is part of the Company's General Account and is made up of all
of the general assets of the Company other than those allocated to a separate
account. Allocations to the Fixed Account become part of the assets of the
Company and are used to support insurance and annuity obligations. A portion or
all of net payments may be allocated to accumulate at a fixed rate of interest
in the Fixed Account. Such net amounts are guaranteed by the Company as to
principal and a minimum rate of interest. Under the Contract, the minimum
interest which may be credited on amounts allocated to the Fixed Account is 3%
compounded annually. Additional "Excess Interest" may or may not be credited at
the sole discretion of the Company.
If the Contract is surrendered, or if an amount in excess of the Withdrawal
Without Surrender Charge is withdrawn, while the Contract is in force and before
the Annuity Date, a surrender charge is imposed if such event occurs before the
payments attributable to the surrender or withdrawal have been credited to the
Contract for at least seven full Contract years.
STATE RESTRICTIONS. In Massachusetts, payments and transfers to the Fixed
Account are subject to the following restrictions:
If the Contract is issued prior to the Annuitant's 60th
birthday, allocations to the Fixed Account will be
permitted until the Annuitant's 61st birthday. On and
after the Annuitant's 61st birthday, no additional Fixed
Account allocations will be accepted. If the Contract is
issued on or after the Annuitant's 60th birthday up
through and including the Annuitant's 81st birthday, Fixed
Account allocations will be permitted during the first
Contract year. On and after the first Contract
anniversary, no additional allocations to the Fixed
Account will be permitted. If a Contract is issued after
the Annuitant's 81st birthday, no payments to the Fixed
Account will be permitted at any time.
In Oregon, if the Contract is issued after the Annuitant's 81st birthday, no
payments or transfers to the Fixed Account will be permitted at any time.
If an allocation designated as a Fixed Account allocation is received at the
Principal Office during a period when the Fixed Account is not available due to
the limitations outlined above, the monies will be allocated to the Money Market
Portfolio.
A-1
<PAGE>
APPENDIX B
SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: SURRENDER CHARGES
FULL SURRENDER -- Assume a payment of $50,000 is made on the issue date and no
additional payments are made. Assume there are no withdrawals and that the
Withdrawal Without Surrender Charge Amount is equal to the greater of 15% of the
Accumulated Value or the accumulated earnings in the Contract. The table below
presents examples of the surrender charge resulting from a full surrender based
on hypothetical Accumulated Values:
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE CHARGE AMOUNT PERCENTAGE CHARGE
- -------- ------------ ----------------- ---------- ---------
<S> <C> <C> <C> <C>
1 $54,000.00 $ 8,100.00 7% $3,213.00
2 58,320.00 8,748.00 6% 2,974.32
3 62,985.60 12,985.60 5% 2,500.00
4 68,024.45 18,024.45 4% 2,000.00
5 73,466.40 23,466.40 3% 1,500.00
6 79,343.72 29,343.72 2% 1,000.00
7 85,691.21 35,691.21 1% 500.00
8 92,546.51 42,546.51 0% 0.00
</TABLE>
WITHDRAWALS -- Assume a payment of $50,000 is made on the issue date and no
additional payments are made. Assume that the Withdrawal Without Surrender
Charge Amount is equal to the greater of 15% of the current Accumulated Value or
the accumulated earnings in the Contract and there are withdrawals as detailed
below. The table below presents examples of the surrender charge resulting from
withdrawals of the Owner's account, based on hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE WITHDRAWALS CHARGE AMOUNT PERCENTAGE CHARGE
- -------- ------------ ----------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1 $54,000.00 $0.00 $ 8,100.00 7% $0.00
2 58,320.00 0.00 8,748.00 6% 0.00
3 62,985.60 0.00 12,985.60 5% 0.00
4 68,024.45 30,000.00 18,024.45 4% 479.02
5 41,066.40 10,000.00 6,159.96 3% 115.20
6 33,551.72 5,000.00 5,032.76 2% 0.00
7 30,835.85 10,000.00 4,625.38 1% 53.75
8 22,502.72 15,000.00 3,375.41 0% 0.00
</TABLE>
MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)] to the power of n/365 - 1
The following examples assume:
1. The payment was allocated to a ten-year Guarantee Period Account with a
Guaranteed Interest Rate of 8%.
2. The date of surrender is seven years (2,555 days) from the expiration
date.
3. The value of the Guarantee Period Account is equal to $62,985.60 at the
end of three years.
4. No transfers or withdrawals affecting this Guarantee Period Account have
been made.
5. Surrender charges, if any, are calculated in the same manner as shown in
the examples in Part 1.
B-1
<PAGE>
NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)*
Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10
<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.10)] to the power of 2555/365 - 1
= (.98182) to the power of 7 - 1
= -.12054
The market value adjustment = the market value factor multiplied by the withdrawal
= -.12054 X $62,985.60
= -$7,592.11
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)*
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.07)] to the power of 2555/365 - 1
= (1.0093) to the power of 7 - 1
= .06694
The market value adjustment = the market value factor multiplied by the withdrawal
= .06694 X $62,985.60
= $4,216.26
</TABLE>
*Uncapped is a straight application of the Market Value Adjustment formula when
the value produced is less than the cap.
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)*
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.06)] to the power of 2555/365 - 1
= (1.01887) to the power of 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 (.13981 X $62,985.60 or $8,349.25)
= Minimum ($8,806.02 or $8,349.25)
= $8,349.25
</TABLE>
*Capped takes into account the excess interest part of the Market Value
Adjustment formual when the value produced is greater than the cap.
B-2
<PAGE>
APPENDIX C
THE DEATH BENEFIT
PART 1: DEATH OF THE ANNUITANT
DEATH BENEFIT ASSUMING NO WITHDRAWALS -- Assume a payment of $50,000 is made on
the issue date and no additional payments are made. Assume there are no
withdrawals and that the Death Benefit Effective Annual Yield is equal to 5%.
The table below presents examples of the Death Benefit based on the Hypothetical
Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
CONTRACT 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 of 5%, reduced proportionately to
reflect withdrawals. Death Benefit (c) is the death benefit that would have been
payable on the most recent Contract anniversary, increased for subsequent
payments, and decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c).
DEATH BENEFIT ASSUMING WITHDRAWALS -- Assume a payment of $50,000 is made on the
issue date and no additional payments are made. Assume there are withdrawals as
detailed in the table below and that the Death Benefit Effective Annual Yield is
equal to 5%. The table below presents examples of the Death Benefit based on the
Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE DEATH DEATH DEATH HYPOTHETICAL
YEAR VALUE WITHDRAWALS 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 4,171.13 3,972.50 4,171.13
4 3,494.70 0.00 500.00 3,994.70 4,379.68 4,171.13 4,379.68
5 3,844.17 0.00 0.00 3,844.17 4,598.67 4,379.68 4,598.67
6 4,228.59 0.00 500.00 4,728.59 4,828.60 4,598.67 4,828.60
7 4,651.45 0.00 0.00 4,651.45 5,070.03 4,828.60 5,070.03
8 5,116.59 0.00 500.00 5,616.59 5,323.53 5,070.03 5,616.59
9 5,628.25 0.00 0.00 5,628.25 5,589.71 5,616.59 5,628.25
10 691.07 5,000.00 0.00 691.07 712.70 683.44 712.70
</TABLE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value
Adjustment. Death Benefit (b) is the gross payments accumulated daily at the
Death Benefit Effective Annual Yield of 5% reduced proportionately to reflect
withdrawals. Death Benefit (c) is the death benefit that would
C-1
<PAGE>
have been payable on the most recent Contract anniversary, increased for
subsequent payments, and decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c).
PART 2: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no withdrawals. The table below presents examples of
the death Benefit based on the Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE HYPOTHETICAL
YEAR 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.
C-2
<PAGE>
APPENDIX D
DIFFERENCES UNDER THE PIONEER VISION CONTRACT (FORM A3023-95)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY (FORM A3023-95)
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY (FORM A3023-95GRC)
1. The Guarantee Period Accounts are not available under the Pioneer Vision
Contract.
2. The waiver of surrender charge in Pioneer Vision 2 for disability prior to
age 65, diagnosis of a terminal illness or confinement to a nursing home
until the later of one year after issue or 90 days (see "Reduction or
Elimination of Surrender Charge") is not available under the Pioneer Vision
Contract. Only the waiver for disability is available under Pioneer Vision 2
Contracts issued in New York and New Jersey.
3. The death benefit under the Pioneer Vision Contract that is payable upon the
death of the Annuitant (or an Owner who is also the Annuitant) is the
greatest of: (1) the Accumulated Value under the Contract next determined
following receipt of due proof of death at the Principal Office; (2) the
total amount of gross payments made under the Contract reduced
proportionately to reflect the amount of all prior partial withdrawals, or
(3) the death benefit that would have been payable on the most recent fifth
year policy anniversary, increased for subsequent payments and reduced
proportionately to reflect withdrawals after that date.
4. The Withdrawal Without Surrender Charge Amount (the "Free Withdrawal
Amount") under the Pioneer Vision Contract is the greatest of
(1) cumulative earnings; (2) 10% of the Accumulated Value as of the
Valuation Date coincident with or next following the date of the withdrawal
request; or (3) the amount calculated under the Company's life expectancy
distribution. The percentage available under the Pioneer Vision 2 Contract
is 15% rather than 10%.
5. The following transfer provision applies to the Pioneer Vision Contract:
TRANSFER PRIVILEGE. At any time prior to the Annuity Date, subject to the
seventeen variable Sub-Account restriction noted in "A. Payments", an Owner may
have amounts transferred among the Sub-Accounts or from the Sub-Accounts to the
Fixed Account, where available. Transfer values will be effected at the
Accumulation Value next computed after receipt of the transfer order. The
Company will make transfers pursuant to a written request or, if a properly
completed authorization is on file, pursuant to a telephone request.
Except for transfers made under the automatic transfer option and for transfers
made under contracts issued to residents of Texas, no transfers from the Fixed
Account are permitted except during the 30-day period beginning on each Contract
anniversary. During that 30-day "window" period, any amount (up to 100%) of
Contract value in the Fixed Account may be transferred. In addition, in New York
and Texas, transfers involving the Fixed Account outside this window period also
are permitted if: (1) there has been at least a 90-day period since the last
transfer from the Fixed Account; and (2) the amount transferred from the Fixed
Account in each transfer does not exceed the lesser of $100,000 or 25% of the
Accumulated Value.
The first 12 transfers in a Contract year are guaranteed to be free of any
transfer charge. The Company does not currently charge for additional transfers
but reserves the right to assess a charge, guaranteed never to exceed $25, to
reimburse it for the expense of processing these additional transfers. If you
authorize periodic transfers under an Automatic Transfer option (Dollar Cost
Averaging), or an Automatic Account Rebalancing option, the first automatic
transfer or rebalancing under a request counts as one transfer for purposes of
the 12 transfers guaranteed to be free of a transfer charge in each Contract
year. Each subsequent transfer or rebalancing under that request is without
charge and does not reduce the remaining number of transfers which may be made
free of charge in that Contract year.
AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING) AND AUTOMATIC ACCOUNT REBALANCING
OPTIONS. The Owner may elect automatic transfers of a predetermined amount, not
less than $100, on a periodic basis
D-1
<PAGE>
(monthly, bi-monthly, or quarterly) from the Sub-Account investing in the
Pioneer Money Market VCT Portfolio or the Pioneer America IncomeVCT Portfolio
(the source account) to one or more of the other Sub-Accounts. Automatic
transfers may not be made into the Fixed Account or, if applicable, the
Portfolio being used as the source account. The Fixed Account also may be used
as the source account from which periodic automatic transfers will be made to
any of the Sub-Accounts provided that (1) the amount of each monthly transfer
cannot exceed 10% of the value in the Fixed Account as of the date of the first
transfer; (2) each bi-monthly transfer cannot exceed 20% of the value in the
Fixed Account as of the date of the first transfer, and (3) each quarterly
transfer cannot exceed 25% of the value in the Fixed Account as of the date of
the first transfer. If an automatic transfer would reduce the balance in the
source account to less than $100, the entire balance will be transferred
proportionately to the chosen Sub-Accounts. Automatic transfers will continue
until the amount in the source account on a transfer date is zero or the Owner's
request to terminate the option is received by the Company. If additional
amounts are allocated to the source account after its balance has fallen to
zero, this option will not restart automatically and the Owner must provide a
new request to the Company.
The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, bi-monthly, quarterly, semi-annual or annual basis in accordance with
specified percentage allocations. As frequently as requested, the Company will
review the percentage allocations in the Portfolios and, if necessary, transfer
amounts to ensure conformity with the designated percentage allocation mix. If
the amount necessary to re-establish the mix on any scheduled date is less than
$100, no transfer will be made. Automatic Account Rebalancing will continue
until the Owner's request to terminate or change the option is received by the
Company. As such, subsequent payments allocated in a manner different from the
percentage allocation mix in effect on the date the payment is received will be
reallocated in accordance with the existing mix on the next scheduled date
unless the Owner's timely request to change the mix or terminate the option is
received by the Company.
The Company reserves the right to limit the number of Portfolios that may be
utilized for automatic transfers and rebalancing, and to discontinue either
option upon advance written notice. Currently, Dollar Cost Averaging and Account
Rebalancing may not be in effect simultaneously.
6. The surrender charge under Pioneer Vision Contract (Form A3023-95) is:
<TABLE>
<CAPTION>
YEARS FROM DATE CHARGE AS PERCENTAGE OF NEW
OF PAYMENT PAYMENTS WITHDRAWN
- --------------- ---------------------------
<S> <C>
0 - 3 7%
4 6%
5 5%
6 4%
7 3%
More than 7 0%
</TABLE>
7. For Pioneer Vision Contracts issued in Maryland, the surrender charge for
monies surrendered out of the Variable Account is identical to the charge
schedule shown in 6. above. Monies surrendered out of the Fixed Account,
however, are subject to the following additional charges: in Year 8,
measured from the date of payment, a 2% charge will apply, and in year 9 a
1% charge will apply.
8. The Fixed Account under the Pioneer Vision Contract is not available in
Oregon.
9. Because of the differences between the surrender charge (see 6. above) and
the amount of the free withdrawal (see 4. above) in the Pioneer Vision
Contract and Pioneer Vision 2 Contract, the following examples apply to
Owners of the Pioneer Vision Contract, and should be referred to rather than
the examples on pages 10 and 11 of this Prospectus.
D-2
<PAGE>
(1)(a) If, at the end of the applicable time period, the Contract is surrendered
or annuitized* under any commutable period certain option or a noncommutable
fixed period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets and no
Rider(1):
<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio..................... $96 $165 $216 $349
Pioneer Europe VCT Portfolio............................... $94 $158 $205 $326
Pioneer International Growth VCT Portfolio................. $91 $150 $191 $299
Pioneer Science & Technology VCT Portfolio................. $92 $151 $192 $302
Pioneer Mid-Cap Value VCT Portfolio........................ $87 $137 $168 $253
Pioneer Growth Shares VCT Portfolio........................ $87 $137 $168 $253
Pioneer Real Estate Growth VCT Portfolio................... $91 $148 $188 $292
Pioneer Fund VCT Portfolio................................. $87 $138 $170 $257
Pioneer Equity-Income VCT Portfolio........................ $87 $138 $170 $257
Pioneer Balanced VCT Portfolio............................. $87 $138 $169 $255
Pioneer Swiss Franc Bond VCT Portfolio..................... $88 $141 $174 $266
Pioneer High Yield VCT Portfolio........................... $92 $151 $192 $302
Pioneer Strategic Income VCT Portfolio..................... $94 $158 $205 $326
Pioneer America Income VCT Portfolio....................... $88 $139 $170 $258
Pioneer Money Market VCT Portfolio......................... $87 $138 $169 $256
AIM V.I. Capital Appreciation Portfolio.................... $87 $136 $166 $250
Alliance Premier Growth Portfolio.......................... $92 $152 $194 $306
Alliance Technology Portfolio.............................. $94 $158 $206 $328
DGPF Growth Opportunities Series........................... $89 $143 $179 $275
DGPF Select Growth Series.................................. $89 $143 $178 $273
Franklin Small Cap Fund.................................... $90 $146 $184 $285
Templeton Asset Strategy Fund.............................. $90 $145 $182 $281
Templeton International Smaller Companies Fund............. $93 $154 $198 $313
Van Kampen LIT Emerging Growth Portfolio................... $88 $140 $173 $263
</TABLE>
D-3
<PAGE>
(1)(b) If, at the end of the applicable time period, the Contract is surrendered
or annuitized* under any commutable period certain option or a noncommutable
fixed period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming 5% annual return on assets and
election of a Minimum Guaranteed Annuity Payout (M-GAP) Rider(1) with a ten-year
waiting period:
<TABLE>
<CAPTION>
WITH SURRENDER CHARGE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio..................... $99 $172 $227 $372
Pioneer Europe VCT Portfolio............................... $96 $165 $216 $349
Pioneer International Growth VCT Portfolio................. $94 $157 $203 $323
Pioneer Science & Technology VCT Portfolio................. $94 $158 $205 $326
Pioneer Mid-Cap Value VCT Portfolio........................ $89 $144 $181 $279
Pioneer Growth Shares VCT Portfolio........................ $89 $144 $181 $279
Pioneer Real Estate Growth VCT Portfolio................... $93 $155 $200 $317
Pioneer Fund VCT Portfolio................................. $90 $145 $183 $283
Pioneer Equity-Income VCT Portfolio........................ $90 $145 $183 $283
Pioneer Balanced VCT Portfolio............................. $90 $145 $182 $281
Pioneer Swiss Franc Bond VCT Portfolio..................... $91 $148 $187 $290
Pioneer High Yield VCT Portfolio........................... $94 $158 $205 $326
Pioneer Strategic Income VCT Portfolio..................... $96 $165 $216 $349
Pioneer America Income VCT Portfolio....................... $90 $146 $183 $284
Pioneer Money Market VCT Portfolio......................... $90 $145 $182 $282
AIM V.I. Capital Appreciation Portfolio.................... $89 $143 $179 $276
Alliance Premier Growth Portfolio.......................... $94 $159 $206 $330
Alliance Technology Portfolio.............................. $97 $165 $217 $351
DGPF Growth Opportunities Series........................... $91 $150 $191 $299
DGPF Select Growth Series.................................. $91 $150 $190 $297
Franklin Small Cap Fund.................................... $92 $153 $196 $309
Templeton Asset Strategy Fund.............................. $92 $152 $194 $305
Templeton International Smaller Companies Fund............. $95 $161 $210 $336
Van Kampen LIT Emerging Growth Portfolio................... $90 $147 $185 $288
</TABLE>
*The contract fee is not deducted after annuitization. No surrender charge is
assessed at the time of annuitization in any Contract year under an option
including a life contingency.
(1)If the Minimum Guaranteed Annuity Payout (M-GAP) Rider is exercised, you may
only annuitize under a fixed annuity payout option involving a life contingency
at the Company's guaranteed annuity option rates listed under the Annuity Option
Tables in your Contract.
D-4
<PAGE>
APPENDIX E
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SEPARATE ACCOUNT VA-P
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
SUB-ACCOUNT 1999 1998 1997 1996 1995
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PIONEER EMERGING MARKETS VCT PORTFOLIO
Unit Value:
Beginning of Period............................... 1.046 1.000 N/A N/A N/A
End of Period..................................... 1.844 1.046 N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands)......................................... 5,051 27 N/A N/A N/A
PIONEER EUROPE VCT PORTFOLIO
Unit Value:
Beginning of Period............................... 1.058 1.000 N/A N/A N/A
End of Period..................................... 1.340 1.058 N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands)......................................... 9,436 1,432 N/A N/A N/A
PIONEER INTERNATIONAL GROWTH VCT PORTFOLIO
Unit Value:
Beginning of Period............................... 1.154 1.211 1.171 1.094 1.000
End of Period..................................... 1.643 1.154 1.211 1.171 1.094
Number of Units Outstanding at End of Period (in
thousands)......................................... 41,559 44,129 40,253 20,852 2,460
PIONEER MID-CAP VALUE VCT PORTFOLIO
Unit Value:
Beginning of Period............................... 1.530 1.615 1.314 1.158 1.000
End of Period..................................... 1.705 1.530 1.615 1.314 1.158
Number of Units Outstanding at End of Period (in
thousands)......................................... 64,824 67,868 61,925 36,746 7,981
PIONEER GROWTH SHARES VCT PORTFOLIO
Unit Values
Beginning of Period............................... 1.333 1.000 N/A N/A N/A
End of Period..................................... 1.420 1.333 N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands)......................................... 113,004 62,983 N/A N/A N/A
Pioneer Real Estate Growth VCT Portfolio............
Unit Value:
Beginning of Period............................... 1.482 1.849 1.548 1.156 1.000
End of Period..................................... 1.400 1.482 1.849 1.548 1.156
Number of Units Outstanding at End of Period (in
thousands)......................................... 14,737 19,513 19,818 7,063 342
PIONEER FUND VCT PORTFOLIO
Unit Value:
Beginning of Period............................... 1.311 1.053 1.000 N/A N/A
End of Period..................................... 1.495 1.311 1.053 N/A N/A
Number of Units Outstanding at End of Period (in
thousands)......................................... 135,236 67,486 4,171 N/A N/A
PIONEER EQUITY-INCOME VCT PORTFOLIO
Unit Value:
Beginning of Period............................... 2.230 1.851 1.388 1.222 1.000
End of Period..................................... 2.219 2.230 1.851 1.388 1.222
Number of Units Outstanding at End of Period (in
thousands)......................................... 100,962 90,684 66,458 33,466 5,553
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
SUB-ACCOUNT 1999 1998 1997 1996 1995
- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PIONEER BALANCED VCT PORTFOLIO
Unit Value:
Beginning of Period............................... 1.541 1.516 1.312 1.185 1.000
End of Period..................................... 1.558 1.541 1.516 1.312 1.185
Number of Units Outstanding at End of Period (in
thousands)......................................... 46,206 43,014 28,548 12,579 2,171
PIONEER SWISS FRANC BOND VCT PORTFOLIO
Unit Value:
Beginning of Period............................... 0.873 0.808 0.881 1.001 1.000
End of Period..................................... 0.743 0.873 0.808 0.881 1.001
Number of Units Outstanding at End of Period (in
thousands)......................................... 57,026 46,404 26,864 14,677 886
PIONEER STRATEGIC INCOME VCT PORTFOLIO
Unit Value:
Beginning of Period............................... 1.000 N/A N/A N/A N/A
End of Period..................................... 1.001 N/A N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands)......................................... 737 N/A N/A N/A N/A
PIONEER AMERICA INCOME VCT PORTFOLIO
Unit Value:
Beginning of Period............................... 1.188 1.114 1.042 1.043 1.000
End of Period..................................... 1.142 1.188 1.114 1.042 1.043
Number of Units Outstanding at End of Period (in
thousands)......................................... 25,714 23,977 12,729 6,317 3,267
PIONEER MONEY MARKET VCT PORTFOLIO
Unit Value:
Beginning of Period............................... 1.132 1.097 1.063 1.031 1.000
End of Period..................................... 1.165 1.132 1.097 1.063 1.031
Number of Units Outstanding at End of Period (in
thousands)......................................... 31,725 18,693 12,330 10,655 3,210
</TABLE>
No information is shown above for Sub-Accounts that commenced operations after
December 31, 1999.
E-2
<PAGE>
CONDENSED FINANCIAL INFORMATION
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VA-P
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
SUB-ACCOUNT 1999 1998 1997 1996
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
PIONEER EMERGING MARKETS VCT PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.047 1.000 N/A N/A
End of Period............................................. 1.843 1.047 N/A N/A
Number of Units Outstanding at End of Period (in
thousands).............................................. 95 0 N/A N/A
PIONEER INTERNATIONAL GROWTH VCT PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.058 1.000 N/A N/A
End of Period............................................. 1.339 1.058 N/A N/A
Number of Units Outstanding at End of Period (in
thousands).............................................. 69 0 N/A N/A
PIONEER EUROPE VCT PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.029 1.080 1.044 1.000
End of Period............................................. 1.466 1.029 1.080 1.044
Number of Units Outstanding at End of Period (in
thousands).............................................. 613 582 347 58
PIONEER MID-CAP VALUE VCT PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.201 1.268 1.031 1.000
End of Period............................................. 1.339 1.201 1.268 1.031
Number of Units Outstanding at End of Period (in
thousands).............................................. 1,052 1,069 615 166
PIONEER GROWTH SHARES VCT PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.333 1.000 N/A N/A
End of Period............................................. 1.420 1.333 N/A N/A
Number of Units Outstanding at End of Period (in
thousands).............................................. 1,594 1,216 N/A N/A
PIONEER REAL ESTATE GROWTH VCT PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.150 1.435 1.201 1.000
End of Period............................................. 1.086 1.150 1.435 1.201
Number of Units Outstanding at End of Period (in
thousands).............................................. 52 97 75 20
PIONEER FUND VCT PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.311 1.000 N/A N/A
End of Period............................................. 1.495 1.311 N/A N/A
Number of Units Outstanding at End of Period (in
thousands).............................................. 1,849 1,191 N/A N/A
PIONEER EQUITY-INCOME VCT PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.787 1.483 1.112 1.000
End of Period............................................. 1.778 1.787 1.483 1.112
Number of Units Outstanding at End of Period (in
thousands).............................................. 1,316 1,304 641 237
</TABLE>
E-3
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
SUB-ACCOUNT 1999 1998 1997 1996
- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
PIONEER BALANCED VCT PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.254 1.233 1.068 1.000
End of Period............................................. 1.267 1.254 1.233 1.068
Number of Units Outstanding at End of Period (in
thousands).............................................. 537 518 303 121
PIONEER SWISS FRANC BOND VCT PORTFOLIO
Unit Value:
Beginning of Period....................................... 0.978 0.906 0.987 1.000
End of Period............................................. 0.833 0.978 0.906 0.987
Number of Units Outstanding at End of Period (in
thousands).............................................. 1,537 693 328 73
PIONEER STRATEGIC INCOME VCT PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.000 N/A N/A N/A
End of Period............................................. 1.008 N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands).............................................. 2 N/A N/A N/A
PIONEER AMERICA INCOME VCT PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.175 1.102 1.030 1.000
End of Period............................................. 1.130 1.175 1.102 1.030
Number of Units Outstanding at End of Period (in
thousands).............................................. 369 291 203 180
PIONEER MONEY MARKET VCT PORTFOLIO
Unit Value:
Beginning of Period....................................... 1.077 1.044 1.011 1.000
End of Period............................................. 1.109 1.077 1.044 1.011
Number of Units Outstanding at End of Period (in
thousands).............................................. 346 306 98 309
</TABLE>
No information is shown above for Sub-Accounts that commenced operations after
December 31, 1999.
E-4
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
OF
INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS FUNDED THROUGH
SUB-ACCOUNTS OF
SEPARATE ACCOUNT VA-P
INVESTING IN SHARES OF THE UNDERLYING PORTFOLIOS
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PIONEER VISION PROSPECTUS OF SEPARATE ACCOUNT VA-P DATED
MAY 1, 2000 ("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ANNUITY
CLIENT SERVICES, FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY, 440 LINCOLN
STREET, WORCESTER, MASSACHUSETTS 01653, TELEPHONE 1-800-688-9915.
DATED MAY 1, 2000
FAFLIC Pioneer Vision
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY..................................................... 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND
THE COMPANY.......................................................................3
SERVICES.............................................................................3
UNDERWRITERS.........................................................................3
ANNUITY BENEFIT PAYMENTS.............................................................4
EXCHANGE OFFER.......................................................................6
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAM..........................6
PERFORMANCE INFORMATION..............................................................8
FINANCIAL STATEMENTS...............................................................F-1
</TABLE>
GENERAL INFORMATION AND HISTORY
Separate Account VA-P (the "Variable Account") is a separate investment account
of First Allmerica Financial Life Insurance Company (the "Company") authorized
by vote of its Board of Directors on August 20, 1991. The Company, organized
under the laws of Massachusetts in 1844, is among the five oldest life insurance
companies in America. As of December 31, 1999, the Company and its subsidiaries
had over $25 billion in combined assets and over $43 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 (the "Principal Office") is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, Telephone (508) 855-1000.
The Company is subject to the laws of the 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 jurisdictions in which it is licensed to
operate.
Currently, twenty-four Sub-Accounts of the Variable Account are available under
the Pioneer Vision 2 contract (the "Contract") and Pioneer Vision contract
(3023-95), a predecessor contract no longer being sold. (Pioneer Vision 2 and
Pioneer Vision - 3023-95 are referred to collectively as "the contracts."). Each
Sub-Account invests in a corresponding investment portfolio of Pioneer Variable
Contracts Trust ("Pioneer"), AIM Variable Insurance Funds ("AVIF"), Alliance
Variable Products Series Fund, Inc. ("Alliance") Delaware Group Premium Fund
("DGPF"), Franklin Templeton Variable Insurance Products Trust ("FT VIP") or Van
Kampen Life Investment Trust ("Van Kampen"), open-end, registered management
investment companies. Fifteen investment portfolios of Pioneer are available
under the Contract: the Pioneer Emerging Markets VCT Portfolio, Pioneer Europe
VCT Portfolio, Pioneer International Growth VCT Portfolio, Pioneer Science &
Technology VCT Portfolio, Pioneer Mid-Cap Value VCT Portfolio (formerly Capital
Growth Portfolio), Pioneer Growth Shares VCT Portfolio, Pioneer Real Estate
Growth VCT Portfolio, Pioneer Fund VCT
2
<PAGE>
Portfolio (formerly Growth and Income Portfolio), Pioneer Equity-Income VCT
Portfolio, Pioneer Balanced VCT Portfolio, Pioneer Swiss Franc Bond VCT
Portfolio, Pioneer High Yield VCT Portfolio, Pioneer Strategic Income VCT
Portfolio, Pioneer America Income VCT Portfolio and the Pioneer Money Market VCT
Portfolio. One portfolio of AVIF is available under the Contract: the AIM V.I.
Capital Appreciation Fund. Two Alliance portfolios are available under the
Contract: the Alliance Premier Growth Portfolio and the Alliance Technology
Portfolio. Two DGPF series are available under the Contract: the DGPF Growth
Opportunities Series and the DGPF Select Growth Series. Three FT VIP funds are
available under the Contract: the Templeton Asset Strategy Fund, the Templeton
International Smaller Companies Fund and the Franklin Small Cap Fund. One Van
Kampen portfolio is available under the Contract: the Van Kampen LIT Emerging
Growth Portfolio (together, the "Underlying Portfolios"). Each Underlying
Portfolio has its own investment objectives and certain attendant risks.
TAXATION OF THE CONTRACT, THE VARIABLE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
contracts, other than for state and local premium taxes and similar assessments
when applicable. The Company reserves the right to impose a charge for any other
taxes that may become payable in the future in connection with the contracts or
the Variable Account.
The Variable Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Internal Revenue Code (the "Code"), and files a consolidated
tax return with its affiliated companies.
The Company reserves the right to make a charge for any effect which the income,
assets or existence of the Contract or the Variable Account may have upon its
tax. Such charge for taxes, if any, will be assessed on a fair and equitable
basis in order to preserve equity among classes of Contract Owners ("Owners").
The Variable Account presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Variable Account. Underlying Portfolio shares owned by the Sub-Accounts are held
on an open account basis. A Sub-Account's ownership of Underlying Portfolio
shares is reflected on the records of the Underlying Portfolio, and is not
represented by any transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999, and
the financial statements of Separate Account VA-P of the Company as of December
31, 1999 and for the periods indicated, included in this Statement of Additional
Information constituting part of this Registration Statement, have been so
included in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Contract.
UNDERWRITERS
Allmerica Investments, Inc. ("Allmerica Investments"), a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. ("NASD"), serves as principal
underwriter and general distributor for the Contract pursuant to a contract with
Allmerica Investments, the Company and the Variable Account. Allmerica
Investments
3
<PAGE>
distributes the Contract on a best-efforts basis. Allmerica Investments, Inc.,
440 Lincoln Street, Worcester, Massachusetts 01653, was organized in 1969 as a
wholly owned subsidiary of the Company, and presently is indirectly wholly owned
by the Company.
The Contract offered by this Prospectus is offered continuously, and may be
purchased from certain independent broker-dealers which are NASD members and
whose representatives are authorized by applicable law to sell variable annuity
contracts.
All persons selling the Contract are required to be licensed by their respective
state insurance authorities for the sale of variable annuity contracts. The
Company pays commissions, not to exceed 7.0% of purchase payments, to entities
which sell the Contract. To the extent permitted by NASD rules, promotional
incentives or payments also may be provided to such entities based on sales
volumes, the assumption of wholesaling functions or other sales-related
criteria. Additional payments may be made for other services not directly
related to the sale of the Contract, including the recruitment and training of
personnel, production of promotional literature and similar services. A
Promotional Allowance of 1.0% is paid to Pioneer Funds Distributor, Inc. for
administrative and support services with respect to the distribution of the
Contract; however, Pioneer Funds Distributor, Inc. may direct the Company to pay
a portion of said allowance to broker-dealers who provide support services
directly.
Commissions paid by the Company do not result in any charge to Owners or to the
Variable Account in addition to the charges described under "CHARGES AND
DEDUCTIONS" in the Prospectus. The Company intends to recoup the commission and
other sales expense through a combination of anticipated surrender, withdrawal
and/or annuitization charges, profits from the Company's general account,
including the investment earnings on amounts allocated to accumulate on a fixed
basis in excess of the interest credited on fixed accumulations by the Company,
and the profit, if any, from the mortality and expense risk charge.
The aggregate amounts of commissions paid to Allmerica Investments for sales of
all contracts funded by Separate Account VA-P (including contracts not described
in the Prospectus) for the years 1997, 1998 and 1999 were $148,661, $421,284 and
$223,307.
No commissions were retained by Allmerica Investments for sales of all contracts
funded by Separate Account VA-P (including contracts not described in the
Prospectus) for the years 1997, 1998 and 1999.
ANNUITY BENEFIT PAYMENTS
The method by which the Accumulated Value under the Contract is determined is
described in detail under "Computation of Values" in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the assets of a Sub-Account at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit Value at the end of the current Valuation Period would be
calculated as follows:
<TABLE>
<S> <C>
(1) Accumulation Unit Value -- Previous Valuation Period....................................$ 1.135000
(2) Value of Assets -- Beginning of Valuation Period........................................$5,000,000
4
<PAGE>
(3) Excess of Investment Income and Net Gains Over Capital Losses...............................$1,675
(4) Adjusted Gross Investment Rate for the Valuation Period (3) divided by (2)................0.000335
(5) Annual Charge (one-day equivalent of 1.40% per annum).....................................0.000039
(6) Net Investment Rate (4) - (5).............................................................0.000296
(7) Net Investment Factor 1.000000 + (6)......................................................1.000296
(8) Accumulation Unit Value -- Current Period (1) x (7).....................................$1.135336
</TABLE>
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
Accumulation Unit Value at the end of the Valuation Period would have been
$1.134576.
The method for determining the amount of annuity payments is described in detail
under "Annuity Benefit Payments" in the Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY BENEFIT PAYMENT CALCULATION USING HYPOTHETICAL
EXAMPLE. The determination of the Annuity Unit value and the variable annuity
benefit payment may be illustrated by the following hypothetical example: Assume
an Annuitant has 40,000 Accumulation Units in a Variable Account, and that the
value of an Accumulation Unit on the Valuation Date used to determine the amount
of the first variable annuity payment is $1.120000. Therefore, the Accumulated
Value of the Contract is $44,800 (40,000 x $1.120000). Assume also that the
Owner elects an option for which the first monthly payment is $6.57 per $1,000
of Accumulated Value applied. Assuming no premium tax or surrender charge, the
first monthly payment would be $44.80 ($44,800 divided by $1,000) multiplied by
$6.57, or $294.34.
Next, assume that the Annuity Unit value for the assumed interest rate of 3.5%
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 3.5% 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 benefit payment is 1.000190. Multiplying this factor by .999906 (the
one-day adjustment factor for the assumed interest rate of 3.5% per annum)
produces a factor of 1.000096. This then is multiplied by the Annuity Unit value
on the immediately preceding Valuation Date (assumed here to be $1.105000). The
result is an Annuity Unit value of $1.105106 for the current monthly payment.
The current monthly payment then is determined by multiplying the number of
Annuity Units by the current Annuity Unit value, or 267.5818 times $1.105106,
which produces a current monthly payment of $295.71.
METHOD FOR DETERMINING COMMUTED VALUE ON VARIABLE ANNUITY PERIOD CERTAIN
OPTIONS AND ILLUSTRATION USING HYPOTHETICAL EXAMPLE. The Contract offers both
commutable and non-commutable fixed period certain annuity options and
commutable variable period certain annuity options. A commutable option gives
the Annuitant the right to exchange any remaining payments for a lump sum
payment based on the commuted value. The Commuted Value is the present value
of remaining payments calculated at 3.5% interest. The determination of the
Commuted Value may be illustrated by the following hypothetical example.
<PAGE>
Assume a commutable period certain option is elected. The number of Annuity
Units upon which each payment is based would be calculated using the Surrender
Value less any premium tax rather than the Accumulated Value. Assume this
results in 250.0000 Annuity Units. Assume the Commuted Value is requested with
60 monthly payments remaining and a current Annuity Unit Value of $1.200000.
Based on these assumptions, the dollar amount of remaining payments would be
$300 a month for 60 months. The present value at 3.5% of all remaining payments
would be $16,560.72.
EXCHANGE OFFER
A. VARIABLE ANNUITY CONTRACT EXCHANGE OFFER
The Company will permit Owners of certain variable annuity contracts issued by
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC"), described
below, to exchange their contracts at net asset value for the variable annuity
contracts described in the Prospectus, which is issued on Form No. A3025-96 or a
state variation thereof ("new Contract"). The Company reserves the right to
suspend this exchange offer at any time.
This offer applies to the exchange of Elective Payment Variable Annuity
contracts issued by AFLIAC on Forms A3012-79 and A3013-79 ("Elective Payment
Exchanged Contract," all such contracts having numbers with a "JQ" or "JN"
prefix), and Single Payment Variable Annuity contracts issued on Forms A3014-79
and A3015-79 ("Single Payment Exchanged Contract," all such contracts having
numbers with a "KQ" or "KN" prefix). These contracts are referred to
collectively as the "Exchanged Contract." To effect an exchange, the Company
should receive (1) a completed application for the new Contract; (2) the
contract being exchanged, and (3) a signed Letter of Awareness.
SURRENDER CHARGE COMPUTATION. No surrender charge otherwise applicable to the
Exchanged Contract will be assessed as a result of the exchange. Instead, the
surrender charge under the new Contract will be computed as if the payments that
had been made to the Exchanged Contract were made to the new Contract, as of the
date of issue of the Exchanged Contract. Any additional payments to the new
Contract after the exchange will be subject to the surrender charge computation
outlined in the new Contract and Prospectus; i.e., the charge will be computed
based on the number of years that the additional payment (or portion of that
payment) that is being withdrawn has been credited to the new Contract.
SUMMARY OF DIFFERENCES BETWEEN EXCHANGED CONTRACT AND THE NEW CONTRACT. The new
Contract and the Exchanged Contract differ substantially as summarized below.
There may be additional differences important to a person considering an
exchange, and the Prospectuses for the new Contract and the Exchanged Contract
should be reviewed carefully before the exchange request is submitted to the
Company.
SURRENDER CHARGE. The surrender charge under the new Contract, as described in
the Prospectus, imposes higher charge percentages against the excess amount
redeemed than the Single Payment Exchanged Contract. In addition, if an Elective
Payment Exchanged Contract was issued more than nine years before the date of an
exchange under this offer, additional payments to the Exchanged Contract would
not be subject to a surrender charge. New payments to the new Contract may be
subject to a charge if withdrawn prior to the surrender charge period described
in the Prospectus.
CONTRACT FEE. Under the new Contract, the Company deducts a $30 fee on each
Contract anniversary and at surrender if the Accumulated Value is less than
$50,000. This fee is waived if the new Contract is part of a 401(k) plan. No
Contract fees are charged on the Single Payment Exchanged Contract. A $9
semi-annual fee is charged on the Elective Payment Variable Exchanged Contract
if the Accumulated Value is $10,000 or less.
6
<PAGE>
VARIABLE ACCOUNT ADMINISTRATIVE EXPENSE CHARGE. Under the new Contract, the
Company assesses each Sub-Account a daily administrative expense charge at an
annual rate of 0.15% of the average daily net assets of the Sub-Account. No
administrative expense charge based on a percentage of Sub-Account assets is
imposed under the Exchanged Contract.
TRANSFER CHARGE. No charge for transfers is imposed under the Exchanged
Contract. Currently, no transfer charge is imposed under the new Contract;
however, the Company reserves the right to assess a charge not to exceed $25 for
each transfer after the twelfth in any Contract year.
ANNUITY TABLES. The Exchanged Contract contains higher guaranteed annuity
rates.
INVESTMENTS. Accumulated Values and payments under the new Contract may be
allocated to significantly more investment options than are available under the
Exchanged Contract.
DEATH BENEFIT. The Exchanged Contract offers a death benefit that is guaranteed
to be the greater of a Contract's Accumulated Value or gross payments made (less
withdrawals). At the time an exchange is processed, the Accumulated Value of the
Exchanged Contract becomes the "payment" for the new Contract. Therefore, prior
purchase payments made under the Exchanged Contract (if higher than the
Exchanged Contract's Accumulated Value) no longer are a basis for determining
the death benefit under the new Contract. Consequently, whether the initial
minimum death benefit under the new Contract is greater than, equal to, or less
than, the death benefit of the Exchanged Contract depends on whether the
Accumulated Value transferred to the new Contract is greater than, equal to, or
less than, the gross payments under the Exchanged Contract.
In addition, under the Exchanged Contract, the amount of any prior withdrawals
is subtracted from the value of the death benefit. Under the new Contract, where
there is a reduction in the death benefit amount due to a prior withdrawal, the
value of the death benefit is reduced in the same proportion that the new
Contract's Accumulated Value was reduced on the date of the withdrawal.
B. FIXED ANNUITY EXCHANGE OFFER
This exchange offer also applies to all fixed annuity contracts issued by the
Company's subsidiary, Allmerica Financial Life Insurance and Annuity Company. A
fixed annuity contract to which this exchange offer applies may be exchanged at
net asset value for the Contract described in this Prospectus, subject to the
same provisions for effecting the exchange and for applying the new Contract's
surrender charge as described above for variable annuity contracts. This
Prospectus should be read carefully before making such exchange. Unlike a fixed
annuity, the new Contract's value is not guaranteed and will vary depending on
the investment performance of the Underlying Portfolios to which it is
allocated. The new Contract has a different charge structure than a fixed
annuity contract, which includes not only a surrender charge that may vary from
that of the class of contracts to which the exchanged fixed contract belongs,
but also contract 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 Sub-Accounts and the
Fixed Account), and expenses incurred by the Underlying Portfolios.
Additionally, the interest rates offered under the Fixed Account of the new
Contract and the Annuity Tables for determining minimum annuity payments may be
different from those offered under the exchanged fixed contract.
7
<PAGE>
C. EXERCISE OF "FREE-LOOK PROVISION" AFTER ANY EXCHANGE
Persons who, under the terms of this exchange offer, exchange their contract for
the new Contract and subsequently cancel the new Contract within the time
permitted, as described in the sections of this Prospectus captioned "Right to
Cancel Individual Retirement Annuity" and "Right to Cancel All Other Contracts,"
will have their exchanged contract automatically reinstated as of the date of
cancellation. 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 Fixed Account and Sub-Accounts of the
reinstated contract in the same proportion that the value in the Fixed Account
and the value in each Sub-Account bore to the transferred Accumulated Value on
the date of the exchange of the contract for the new Contract. For purposes of
calculating any surrender 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.
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAM
To the extent permitted by law, the Company reserves the right to offer an
Enhanced Automatic Transfer (Dollar Cost Averaging) Program from time to time.
If an Owner elects automatic transfers while the enhanced program is in effect,
the Company will credit an enhanced interest rate to eligible payments made to
the Enhanced Automatic Transfer Program. Eligible payments:
- must be new payments to the Contract, including the initial payment,
- must be allocated to the Fixed Account, which will be the source account,
- must be automatically transferred out of the Fixed Account to one or more
Sub-Accounts over a specified time period and
- will receive the enhanced rate while they remain in the Fixed Account.
Any new eligible payments made to an existing Enhanced Automatic Transfer
program will start a new Enhanced Automatic Transfer program. In this case, the
following rules apply:
- The money remaining in the Fixed Account from the original program will
be combined with the new eligible payment to determine the new monthly
transfer amount.
- The new monthly transfer amount will be transferred out of the Fixed
Account in accordance with the allocation instructions specified for the
new payment. If no allocation instructions are specified with the new
eligible payment, the allocation instructions for the original eligible
payment will be used. The new monthly transfer amount will be transferred
out of the Fixed Account on a LIFO (last-in, first-out basis) to the
selected Sub-Accounts on the date designated for the new eligible
payment.
- A new enhanced interest rate may be applied to the new eligible payment,
while the money remaining in the Fixed Account from the original program
will continue to receive the enhanced rate in effect at the time the
older payment was received.
8
<PAGE>
PERFORMANCE INFORMATION
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to certain indices described in the Prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other material information on various
topics of interest to Owners and prospective Owners. These topics may include
the relationship between sectors of the economy and the economy as a whole and
its effect on various securities markets, investment strategies and techniques
(such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer and account rebalancing), the advantages and
disadvantages of investing in tax-deferred and taxable investments, customer
profiles and hypothetical purchase and investment scenarios, financial
management and tax and retirement planning, and investment alternatives to
certificates of deposit and other financial instruments, including comparisons
between the Contract and the characteristics of and market for such financial
instruments. Total return data and supplemental total return information may be
advertised based on the period of time that an Underlying Portfolio and/or an
underlying Sub-Account have been in existence, even if longer than the period of
time that the Contract has been offered. The results for any period prior to a
Contract being offered will be calculated as if the Contract had been offered
during that period of time, with all charges assumed to be those applicable to
the Contract.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment in a
Sub-Account and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specified period, reduced
by the Sub-Account's asset charge and any applicable surrender charge which
would be assessed upon complete withdrawal of the investment.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission (the "SEC"). The quotations are
computed by finding the average annual compounded rates of return over the
specified periods that would equate the initial amount invested to the ending
redeemable values, according to the following formula:
(n)
P(1 + T) = ERV
Where: P = a hypothetical initial payment to the Variable
Account of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment
at the end of the specified period
The calculation of Total Return includes the annual charges against the assets
of the Sub-Account. This charge is 1.40% on an annual basis. The calculation of
ending redeemable value assumes (1) the Contract was issued at the beginning of
the period, and (2) a complete surrender of the Contract at the end of the
period. The deduction of the surrender charge, if any, applicable at the end of
the period is included in the calculation, according to the following schedules:
9
<PAGE>
CONTRACT FORM A3023-95 (PIONEER VISION)
(NO GUARANTEE PERIOD ACCOUNT OPTIONS)
<TABLE>
<CAPTION>
YEARS FROM DATE OF CHARGE AS PERCENTAGE OF
PAYMENT TO DATE OF NEW PURCHASE PAYMENTS
WITHDRAWAL WITHDRAWN*
---------- ----------
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
Thereafter 0%
</TABLE>
CONTRACT FORM A3025-96 (PIONEER VISION II)
(WITH GUARANTEE PERIOD ACCOUNT OPTIONS)
<TABLE>
<CAPTION>
YEARS FROM DATE OF CHARGE AS PERCENTAGE OF
PAYMENT TO DATE OF NEW PURCHASE PAYMENTS
WITHDRAWAL WITHDRAWN*
---------- ----------
<S> <C>
0-1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%
</TABLE>
* Subject to the maximum limit described in the Prospectus.
No surrender charge is deducted upon expiration of the periods specified above.
In each calendar year, a certain amount (withdrawal without surrender
chargeamount, as described in the Prospectus) is not subject to the surrender
charge.
The calculations of Total Return include the deduction of the $30 annual
Contract fee.
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return Information in this section refers to the total of
the income generated by an investment in a Sub-Account and of the changes of
value of the principal invested (due to realized and unrealized capital gains or
losses) for a specified period reduced by the Sub-Account's asset charges. It is
assumed, however, that the investment is NOT withdrawn at the end of each
period.
The quotations of Supplemental Total Return are computed by finding the average
annual compounded rates of return over the specified periods that would equate
the initial amount invested to the ending values, according to the following
formula:
(n)
P(1 + T) = EV
Where: P = a hypothetical initial payment to the Variable
Account of $1,000
10
<PAGE>
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 Sub-Accounts. The ending value assumes that the
Contract is NOT surrendered at the end of the specified period, and therefore
there is no adjustment for the surrender charge that would be applicable if the
Contract was surrendered at the end of the period. The calculation of
supplemental total return does not include the deduction of the $30 annual
Contract fee.
PERFORMANCE TABLES
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
PIONEER VISION 2 CONTRACT
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS
OF SUB-ACCOUNTS FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
SUB-ACCOUNT FOR YEAR SINCE
INCEPTION ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO DATE 12/31/99 SUB-ACCOUNT
- --------------------------------------------- ---- -------- -----------
<S> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio.............. 10/30/98 69.07% 63.92%
Pioneer Europe VCT Portfolio........................ 10/30/98 19.60% 23.41%
Pioneer International Growth VCT Portfolio.......... 9/4/96 35.00% 10.76%
Pioneer Science & Technology VCT Portfolio.......... N/A N/A N/A
Pioneer Mid-Cap Value VCT Portfolio................. 9/4/96 3.91% 7.52%
Pioneer Growth Shares VCT Portfolio................. 1/21/98 -0.09% 15.71%
Pioneer Real Estate Growth VCT Portfolio............ 9/4/96 -11.25% 1.30%
Pioneer Fund VCT Portfolio.......................... 1/21/98 6.92% 16.16%
Pioneer Equity-Income VCT Portfolio................. 9/4/96 -7.01% 17.48%
Pioneer Balanced VCT Portfolio...................... 9/22/96 -5.19% 6.13%
Pioneer Swiss Franc Bond VCT Portfolio.............. 12/2/96 -20.08% -7.14%
Pioneer High Yield VCT Portfolio.................... N/A N/A N/A
Pioneer Strategic Income VCT Portfolio.............. 9/14/99 N/A -5.24%
Pioneer America Income VCT Portfolio................ 9/8/96 -9.63% 2.57%
Pioneer Money Market VCT Portfolio.................. 8/20/96 -3.22% 1.98%
AIM V.I. Capital Appreciation Fund.................. N/A N/A N/A
Alliance Premier Growth Portfolio................... N/A N/A N/A
Alliance Technology Portfolio....................... N/A N/A N/A
DGPF Growth Opportunities Series.................... N/A N/A N/A
DGPF Select Growth Series........................... N/A N/A N/A
Franklin Small Cap Fund............................. N/A N/A N/A
Templeton Asset Strategy Fund....................... N/A N/A N/A
Templeton International Smaller Companies Fund...... N/A N/A N/A
Van Kampen LIT Emerging Growth Portfolio............ N/A N/A N/A
</TABLE>
11
<PAGE>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS
OF SUB-ACCOUNTS FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
<TABLE>
<CAPTION>
SUB-ACCOUNT FOR YEAR SINCE
INCEPTION ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO DATE 12/31/99 SUB-ACCOUNT
- --------------------------------------------- ---- -------- -----------
<S> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio............... 10/30/98 76.07% 68.63%
Pioneer Europe VCT Portfolio......................... 10/30/98 26.61% 28.35%
Pioneer International Growth VCT Portfolio........... 9/4/96 42.36% 12.19%
Pioneer Science & Technology VCT Portfolio........... N/A N/A N/A
Pioneer Mid-Cap Value VCT Portfolio.................. 9/4/96 11.47% 9.18%
Pioneer Growth Shares VCT Portfolio.................. 1/21/98 6.53% 18.64%
Pioneer Real Estate Growth VCT Portfolio............. 9/4/96 -5.52% 2.53%
Pioneer Fund VCT Portfolio........................... 1/21/98 14.06% 19.16%
Pioneer Equity-Income VCT Portfolio.................. 9/4/96 -0.48% 18.91%
Pioneer Balanced VCT Portfolio....................... 9/22/96 1.09% 7.50%
Pioneer Swiss Franc Bond VCT Portfolio............... 12/2/96 -14.80% -5.75%
Pioneer High Yield VCT Portfolio..................... N/A N/A N/A
Pioneer Strategic Income VCT Portfolio............... 9/14/99 N/A 0.76%
Pioneer America Income VCT Portfolio................. 9/8/96 -3.84% 3.75%
Pioneer Money Market VCT Portfolio................... 8/20/96 2.95% 3.11%
AIM V.I. Capital Appreciation Fund................... N/A N/A N/A
Alliance Premier Growth Portfolio.................... N/A N/A N/A
Alliance Technology Portfolio........................ N/A N/A N/A
DGPF Growth Opportunities Series..................... N/A N/A N/A
DGPF Select Growth Series............................ N/A N/A N/A
Franklin Small Cap Fund.............................. N/A N/A N/A
Templeton Asset Strategy Fund........................ N/A N/A N/A
Templeton International Smaller Companies Fund....... N/A N/A N/A
Van Kampen LIT Emerging Growth Portfolio............. N/A N/A N/A
</TABLE>
12
<PAGE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS
OF SUB-ACCOUNT FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING PORTFOLIO
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
10 YEARS OR SINCE
UNDERLYING FOR YEAR INCEPTION OF
PORTFOLIO ENDED UNDERLYING
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO INCEPTION DATE 12/31/99 5 YEARS PORTFOLIO IF LESS
- --------------------------------------------- -------------- -------- ------- -----------------
<S> <C> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio.............. 10/30/98 69.07% N/A 63.92%
Pioneer Europe VCT Portfolio........................ 10/30/98 19.60% N/A 23.41%
Pioneer International Growth VCT Portfolio.......... 3/1/95 35.00% N/A 9.89%
Pioneer Science & Technology VCT Portfolio.......... N/A N/A N/A N/A
Pioneer Mid-Cap Value VCT Portfolio................. 3/1/95 3.91% N/A 10.76%
Pioneer Growth Shares VCT Portfolio................. 10/31/97 -0.09% N/A 15.31%
Pioneer Real Estate Growth VCT Portfolio............ 3/1/95 -11.25% N/A 6.59%
Pioneer Fund VCT Portfolio.......................... 10/31/97 6.92% N/A 18.12%
Pioneer Equity-Income VCT Portfolio................. 3/1/95 -7.01% N/A 17.10%
Pioneer Balanced VCT Portfolio...................... 3/1/95 -5.19% N/A 9.49%
Pioneer Swiss Franc Bond VCT Portfolio.............. 11/1/95 -20.08% N/A -7.80%
Pioneer High Yield VCT Portfolio.................... N/A N/A N/A N/A
Pioneer Strategic Income VCT Portfolio.............. 7/29/99 N/A N/A -5.47%
Pioneer America Income VCT Portfolio................ 3/1/95 -9.63% N/A 2.19%
Pioneer Money Market VCT Portfolio.................. 3/1/95 -3.22% N/A 2.54%
AIM V.I. Capital Appreciation Fund.................. 5/5/93 35.50% 23.54% 20.43%
Alliance Premier Growth Portfolio................... 6/26/92 23.45% 33.92% 24.36%
Alliance Technology Portfolio....................... 1/11/96 66.23% N/A 33.43%
DGPF Growth Opportunities Series.................... 7/12/91 53.63% 24.91% 16.16%
DGPF Select Growth Series........................... 5/3/99 N/A N/A 33.86%
Franklin Small Cap Fund*............................ 11/1/95 86.66% N/A 27.35%
Templeton Asset Strategy Fund*...................... 8/31/88 13.82% 14.79% 11.19%
Templeton International Smaller Companies Fund*..... 5/1/96 14.77% N/A 2.05%
Van Kampen LIT Emerging Growth Portfolio............ 7/3/95 94.50% N/A 38.05%
</TABLE>
* These are hypothetical performance figures for Class 2 shares. The
figures are based upon the historical performance of the Class 1 shares
increased by 0.25% to reflect the effect of the 12b-1 fee on Class 2
shares performance.
13
<PAGE>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS
OF SUB-ACCOUNT FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING PORTFOLIO
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
<TABLE>
<CAPTION>
UNDERLYING FOR YEAR 10 YEARS OR SINCE
PORTFOLIO ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO INCEPTION DATE 12/31/99 5 YEARS UNDERLYING
- --------------------------------------------- -------------- -------- ------- PORTFOLIO IF LESS
-----------------
<S> <C> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio............... 10/30/98 76.07% N/A 68.63%
Pioneer Europe VCT Portfolio......................... 10/30/98 26.61% N/A 28.35%
Pioneer International Growth VCT Portfolio........... 3/1/95 42.36% N/A 10.71%
Pioneer Science & Technology VCT Portfolio........... N/A N/A N/A N/A
Pioneer Mid-Cap Value VCT Portfolio.................. 3/1/95 11.47% N/A 11.67%
Pioneer Growth Shares VCT Portfolio.................. 10/31/97 6.53% N/A 17.56%
Pioneer Real Estate Growth VCT Portfolio............. 3/1/95 -5.52% N/A 7.21%
Pioneer Fund VCT Portfolio........................... 10/31/97 14.06% N/A 20.39%
Pioneer Equity-Income VCT Portfolio.................. 3/1/95 -0.48% N/A 17.92%
Pioneer Balanced VCT Portfolio....................... 3/1/95 1.09% N/A 10.17%
Pioneer Swiss Franc Bond VCT Portfolio............... 11/1/95 -14.80% N/A -6.88%
Pioneer High Yield VCT Portfolio..................... N/A N/A N/A N/A
Pioneer Strategic Income VCT Portfolio............... 7/29/99 N/A N/A 0.51%
Pioneer America Income VCT Portfolio................. 3/1/95 -3.84% N/A 2.83%
Pioneer Money Market VCT Portfolio................... 3/1/95 2.95% N/A 3.16%
AIM V.I. Capital Appreciation Fund................... 5/5/93 42.52% 23.82% 20.50%
Alliance Premier Growth Portfolio.................... 6/26/92 30.46% 34.13% 24.44%
Alliance Technology Portfolio........................ 1/11/96 73.25% N/A 33.99%
DGPF Growth Opportunities Series..................... 7/12/91 60.64% 25.17% 16.18%
DGPF Select Growth Series............................ 5/3/99 N/A N/A 40.90%
Franklin Small Cap Fund*............................. 11/1/95 93.69% N/A 27.83%
Templeton Asset Strategy Fund*....................... 8/31/88 20.83% 15.15% 11.22%
Templeton International Smaller Companies Fund*...... 5/1/96 21.81% N/A 3.30%
Van Kampen LIT Emerging Growth Portfolio............. 7/3/95 101.52% N/A 38.37%
</TABLE>
* These are hypothetical performance figures for Class 2 shares. The
figures are based upon the historical performance of the Class 1 shares
increased by 0.25% to reflect the effect of the 12b-1 fee on Class 2
shares performance.
14
<PAGE>
PIONEER VISION CONTRACT (GRC3023-95)
TABLE 1A
TOTAL ANNUAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
SINCE
SUB-ACCOUNT FOR YEAR ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO INCEPTION DATE 12/31/99 SUB-ACCOUNT
- --------------------------------------------- -------------- -------- -----------
<S> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio............. 10/30/98 69.07% 60.28%
Pioneer Europe VCT Portfolio....................... 10/30/98 19.60% 21.25%
Pioneer International Growth VCT Portfolio......... 9/4/96 35.00% 10.29%
Pioneer Science & Technology VCT Portfolio......... N/A N/A N/A
Pioneer Mid-Cap Value VCT Portfolio................ 9/4/96 3.91% 7.01%
Pioneer Growth Shares VCT Portfolio................ 1/21/98 -0.46% 10.07%
Pioneer Real Estate Growth VCT Portfolio........... 9/4/96 -11.58% 0.66%
Pioneer Fund VCT Portfolio......................... 1/21/98 6.69% 7.62%
Pioneer Equity-Income VCT Portfolio................ 9/4/96 -7.35% 17.07%
Pioneer Balanced VCT Portfolio..................... 9/22/96 -5.54% 5.59%
Pioneer Swiss Franc Bond VCT Portfolio............. 12/2/96 -20.38% -7.77%
Pioneer High Yield VCT Portfolio................... N/A N/A N/A
Pioneer Strategic Income VCT Portfolio............. 9/14/99 N/A -5.59%
Pioneer America Income VCT Portfolio............... 9/8/96 -9.97% 1.95%
Pioneer Money Market VCT Portfolio................. 8/20/96 -3.58% 1.35%
AIM V.I. Capital Appreciation Fund................. N/A N/A N/A
Alliance Premier Growth Portfolio.................. N/A N/A N/A
Alliance Technology Portfolio...................... N/A N/A N/A
DGPF Growth Opportunities Series................... N/A N/A N/A
DGPF Select Growth Series.......................... N/A N/A N/A
Franklin Small Cap Fund............................ N/A N/A N/A
Templeton Asset Strategy Fund...................... N/A N/A N/A
Templeton International Smaller Companies Fund..... N/A N/A N/A
Van Kampen LIT Emerging Growth Portfolio........... N/A N/A N/A
</TABLE>
15
<PAGE>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS
OF SUB-ACCOUNTS FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
<TABLE>
<CAPTION>
SUB-ACCOUNT FOR YEAR SINCE
INCEPTION ENDED INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO DATE 12/31/99 SUB-ACCOUNT
- --------------------------------------------- ---- -------- -----------
<S> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio............... 10/30/98 76.07% 68.63%
Pioneer Europe VCT Portfolio......................... 10/30/98 26.61% 28.35%
Pioneer International Growth VCT Portfolio........... 9/4/96 42.36% 12.19%
Pioneer Science & Technology VCT Portfolio........... N/A N/A N/A
Pioneer Mid-Cap Value VCT Portfolio.................. 9/4/96 11.47% 9.18%
Pioneer Growth Shares VCT Portfolio.................. 1/21/98 6.53% 18.64%
Pioneer Real Estate Growth VCT Portfolio............. 9/4/96 -5.52% 2.53%
Pioneer Fund VCT Portfolio........................... 1/21/98 14.06% 19.16%
Pioneer Equity-Income VCT Portfolio.................. 9/4/96 -0.48% 18.91%
Pioneer Balanced VCT Portfolio....................... 9/22/96 1.09% 7.50%
Pioneer Swiss Franc Bond VCT Portfolio............... 12/2/96 -14.80% -5.75%
Pioneer High Yield VCT Portfolio..................... N/A N/A N/A
Pioneer Strategic Income VCT Portfolio............... 9/14/99 N/A 0.76%
Pioneer America Income VCT Portfolio................. 9/8/96 -3.84% 3.75%
Pioneer Money Market VCT Portfolio................... 8/20/96 2.95% 3.11%
AIM V.I. Capital Appreciation Fund................... N/A N/A N/A
Alliance Premier Growth Portfolio.................... N/A N/A N/A
Alliance Technology Portfolio........................ N/A N/A N/A
DGPF Growth Opportunities Series..................... N/A N/A N/A
DGPF Select Growth Series............................ N/A N/A N/A
Franklin Small Cap Fund.............................. N/A N/A N/A
Templeton Asset Strategy Fund........................ N/A N/A N/A
Templeton International Smaller Companies Fund....... N/A N/A N/A
Van Kampen LIT Emerging Growth Portfolio............. N/A N/A N/A
</TABLE>
16
<PAGE>
TABLE 2A
TOTAL ANNUAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING PORTFOLIO
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
10 YEARS OR SINCE
UNDERLYING FOR YEAR INCEPTION OF
PORTFOLIO ENDED UNDERLYING
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO INCEPTION DATE 12/31/99 5 YEARS PORTFOLIO IF LESS
- --------------------------------------------- -------------- -------- ------- -----------------
<S> <C> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio............. 10/30/98 69.07% N/A 60.28%
Pioneer Europe VCT Portfolio....................... 10/30/98 19.60% N/A 21.25%
Pioneer International Growth VCT Portfolio......... 3/1/95 35.00% N/A 9.60%
Pioneer Science & Technology VCT Portfolio......... N/A N/A N/A N/A
Pioneer Mid-Cap Value VCT Portfolio................ 3/1/95 3.91% N/A 10.47%
Pioneer Growth Shares VCT Portfolio................ 10/31/97 -0.46% N/A 14.53%
Pioneer Real Estate Growth VCT Portfolio........... 3/1/95 -11.58% N/A 6.26%
Pioneer Fund VCT Portfolio......................... 10/31/97 6.69% N/A 17.36%
Pioneer Equity-Income VCT Portfolio................ 3/1/95 -7.35% N/A 16.86%
Pioneer Balanced VCT Portfolio..................... 3/1/95 -5.54% N/A 9.19%
Pioneer Swiss Franc Bond VCT Portfolio............. 11/1/95 -20.38% N/A -8.24%
Pioneer High Yield VCT Portfolio................... N/A N/A N/A N/A
Pioneer Strategic Income VCT Portfolio............. 7/29/99 N/A N/A -5.82%
Pioneer America Income VCT Portfolio............... 3/1/95 -9.97% N/A 1.78%
Pioneer Money Market VCT Portfolio................. 3/1/95 -3.58% N/A 2.15%
AIM V.I. Capital Appreciation Fund................. 5/5/93 35.50% 23.37% 20.32%
Alliance Premier Growth Portfolio.................. 6/26/92 23.45% 33.80% 24.25%
Alliance Technology Portfolio ..................... 1/11/96 66.23% N/A 33.21%
DGPF Growth Opportunities Series................... 7/12/91 53.63% 24.74% 16.16%
DGPF Select Growth Series.......................... 5/3/99 N/A N/A 33.86%
Franklin Small Cap Fund*........................... 11/1/95 86.66% N/A 27.12%
Templeton Asset Strategy Fund*..................... 8/31/88 13.82% 14.55% 11.19%
Templeton International Smaller Companies Fund*.... 5/1/96 14.77% N/A 1.55%
Van Kampen LIT Emerging Growth Portfolio........... 7/3/95 94.50% N/A 37.91%
</TABLE>
* These are hypothetical performance figures for Class 2 shares. The
figures are based upon the historical performance of the Class 1 shares
increased by 0.25% to reflect the effect of the 12b-1 fee on Class 2
shares performance.
17
<PAGE>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS
OF SUB-ACCOUNT FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING PORTFOLIO
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT AND NO CONTRACT FEES)
<TABLE>
<CAPTION>
10 YEARS OR SINCE
UNDERLYING FOR YEAR INCEPTION OF
PORTFOLIO ENDED UNDERLYING
SUB-ACCOUNT INVESTING IN UNDERLYING PORTFOLIO INCEPTION DATE 12/31/99 5 YEARS PORTFOLIO IF LESS
- --------------------------------------------- -------------- -------- ------- -----------------
<S> <C> <C> <C> <C>
Pioneer Emerging Markets VCT Portfolio............... 10/30/98 76.07% N/A 68.63%
Pioneer Europe VCT Portfolio......................... 10/30/98 26.61% N/A 28.35%
Pioneer International Growth VCT Portfolio........... 3/1/95 42.36% N/A 10.71%
Pioneer Science & Technology VCT Portfolio........... N/A N/A N/A N/A
Pioneer Mid-Cap Value VCT Portfolio.................. 3/1/95 11.47% N/A 11.67%
Pioneer Growth Shares VCT Portfolio.................. 10/31/97 6.53% N/A 17.56%
Pioneer Real Estate Growth VCT Portfolio............. 3/1/95 -5.52% N/A 7.21%
Pioneer Fund VCT Portfolio........................... 10/31/97 14.06% N/A 20.39%
Pioneer Equity-Income VCT Portfolio.................. 3/1/95 -0.48% N/A 17.92%
Pioneer Balanced VCT Portfolio....................... 3/1/95 1.09% N/A 10.17%
Pioneer Swiss Franc Bond VCT Portfolio............... 11/1/95 -14.80% N/A -6.88%
Pioneer High Yield VCT Portfolio..................... N/A N/A N/A N/A
Pioneer Strategic Income VCT Portfolio............... 7/29/99 N/A N/A 0.51%
Pioneer America Income VCT Portfolio................. 3/1/95 -3.84% N/A 2.83%
Pioneer Money Market VCT Portfolio................... 3/1/95 2.95% N/A 3.16%
AIM V.I. Capital Appreciation Fund................... 5/5/93 42.52% 23.82% 20.50%
Alliance Premier Growth Portfolio.................... 6/26/92 30.46% 34.13% 24.44%
Alliance Technology Portfolio........................ 1/11/96 73.25% N/A 33.99%
DGPF Growth Opportunities Series..................... 7/12/91 60.64% 25.17% 16.18%
DGPF Select Growth Series............................ 5/3/99 N/A N/A 40.90%
Franklin Small Cap Fund*............................. 11/1/95 93.69% N/A 27.83%
Templeton Asset Strategy Fund*....................... 8/31/88 20.83% 15.15% 11.22%
Templeton International Smaller Companies Fund*...... 5/1/96 21.81% N/A 3.30%
Van Kampen LIT Emerging Growth Portfolio............. 7/3/95 101.52% N/A 38.37%
</TABLE>
* These are hypothetical performance figures for Class 2 shares. The
figures are based upon the historical performance of the Class 1 shares
increased by 0.25% to reflect the effect of the 12b-1 fee on Class 2
shares performance.
18
<PAGE>
YIELD AND EFFECTIVE YIELD - THE MONEY MARKET SUB-ACCOUNT
Set forth below is yield and effective yield information for the Money Market
Sub-Account for the seven-day period ended December 31, 1999:
<TABLE>
<S> <C>
Yield 4.06%
Effective Yield 4.14%
</TABLE>
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the SEC. Under those methods, the yield quotation is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit of the Sub-Account at the beginning of the period, dividing
the difference by the value of the account at the beginning of the same period
to obtain the base period return, and then multiplying the return for a
seven-day base period by (365/7), with the resulting yield carried to the
nearest hundredth of one percent.
The Money Market Sub-Account computes effective yield by compounding the
unannualized base period return by using the formula:
(365/7)
Effective Yield = [(base period return + 1) ] - 1
The calculations of yield and effective yield reflect the $30 annual Contract
fee.
FINANCIAL STATEMENTS
Financial Statements are included for First Allmerica Financial Life Insurance
Company and for its Separate Account VA-P.
19
<PAGE>
FIRST ALLMERICA
FINANCIAL LIFE
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
First Allmerica Financial Life Insurance Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, shareholder's equity
and cash flows present fairly, in all material respects, the financial position
of First Allmerica Financial Life Insurance Company (the "Company") at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 1, 2000
<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) 1999 1998 1997
------------- ---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums................................... $ 954.5 $1,969.5 $1,980.4
Universal life and investment product
policy fees.............................. 359.3 296.6 237.3
Net investment income...................... 503.1 593.9 619.5
Net realized investment gains.............. 100.3 60.9 76.3
Other income............................... 107.3 100.0 81.5
-------- -------- --------
Total revenues......................... 2,024.5 3,020.9 2,995.0
-------- -------- --------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 1,056.3 1,803.0 1,763.9
Policy acquisition expenses................ 240.9 449.6 421.8
Sales practice litigation.................. -- 31.0 --
Loss from cession of disability income
business................................. -- -- 53.9
Restructuring costs........................ -- 9.0 --
Other operating expenses................... 346.3 419.7 404.0
-------- -------- --------
Total benefits, losses and expenses.... 1,643.5 2,712.3 2,643.6
-------- -------- --------
Income from continuing operations before
federal income taxes.......................... 381.0 308.6 351.4
-------- -------- --------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 88.7 74.6 74.4
Deferred................................... 4.3 (15.4) 14.2
-------- -------- --------
Total federal income tax expense....... 93.0 59.2 88.6
-------- -------- --------
Income from continuing operations before
minority interest............................. 288.0 249.4 262.8
Minority interest.......................... (39.9) (55.0) (79.4)
-------- -------- --------
Income from continuing operations.............. 248.1 194.4 183.4
(Loss) income from operations of discontinued
business (less applicable income taxes
(benefit) of $(10.1), $(7.0) and $8.9 for the
years ended December 31, 1999, 1998 and 1997,
respectively) (17.2) (13.5) 16.6
Loss on disposal of group life and health
business, including provision of $72.2 for
operating losses during phase-out period for
the year ended December 31, 1999 (less
applicable income tax benefit of $16.4) (30.5) -- --
-------- -------- --------
Net income..................................... $ 200.4 $ 180.9 $ 200.0
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-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) 1999 1998
------------------------------------ --------- ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$3,721.6 and $7,520.8)............................ $ 3,660.7 $ 7,683.9
Equity securities at fair value (cost of $27.9 and
$253.1)........................................... 51.4 397.1
Mortgage loans...................................... 521.2 562.3
Policy loans........................................ 170.5 154.3
Real estate and other long-term investments......... 177.0 163.1
--------- ---------
Total investments............................... 4,580.8 8,960.7
--------- ---------
Cash and cash equivalents............................. 279.3 504.0
Accrued investment income............................. 73.3 141.0
Deferred policy acquisition costs..................... 1,219.5 1,161.2
Reinsurance receivable on unpaid losses, benefits and
unearned premiums................................... 480.3 1,136.4
Deferred federal income taxes......................... 18.1 19.4
Premiums, accounts and notes receivable............... 81.0 510.5
Other assets.......................................... 199.6 530.6
Closed Block assets................................... 772.3 803.1
Separate account assets............................... 17,629.6 13,697.7
--------- ---------
Total assets.................................... $25,333.8 $27,464.6
========= =========
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,825.0 $ 2,802.2
Outstanding claims, losses and loss adjustment
expenses.......................................... 218.8 2,815.9
Unearned premiums................................... 6.6 843.2
Contractholder deposit funds and other policy
liabilities....................................... 2,025.5 2,637.0
--------- ---------
Total policy liabilities and accruals........... 5,075.9 9,098.3
--------- ---------
Expenses and taxes payable............................ 512.0 681.9
Reinsurance premiums payable.......................... 17.9 50.2
Trust instruments supported by funding obligations.... 50.6 --
Short-term debt....................................... -- 221.3
Closed Block liabilities.............................. 842.1 872.0
Separate account liabilities.......................... 17,628.9 13,691.5
--------- ---------
Total liabilities............................... 24,127.4 24,615.2
--------- ---------
Minority interest..................................... -- 532.9
Commitments and contingencies (Notes 16 and 21)
SHAREHOLDER'S EQUITY
Common stock, $10 par value, 1 million shares
authorized, 500,001 shares issued and outstanding... 5.0 5.0
Additional paid-in capital............................ 569.0 444.0
Accumulated other comprehensive (loss) income......... (14.9) 169.2
Retained earnings..................................... 647.3 1,698.3
--------- ---------
Total shareholder's equity...................... 1,206.4 2,316.5
--------- ---------
Total liabilities and shareholder's equity...... $25,333.8 $27,464.6
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-2
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C>
COMMON STOCK................................... $ 5.0 $ 5.0 $ 5.0
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............. 444.0 453.7 392.4
Capital contribution from parent........... 125.0 -- 61.3
Loss on change of interest-Allmerica P&C... -- (9.7) --
-------- -------- --------
Balance at end of period................... 569.0 444.0 453.7
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Net unrealized (depreciation) appreciation
on investments:
Balance at beginning of period............. 169.2 209.3 131.4
(Depreciation) appreciation during the
period:
Net (depreciation) appreciation on
available-for-sale securities.......... (298.2) (82.4) 170.9
Benefit (provision) for deferred federal
income taxes........................... 105.0 28.9 (59.8)
Minority interest........................ 31.8 13.4 (33.2)
-------- -------- --------
Distribution of subsidiaries (Note 3)...... (22.7) -- --
-------- -------- --------
(184.1) (40.1) 77.9
-------- -------- --------
Balance at end of period................... (14.9) 169.2 209.3
-------- -------- --------
RETAINED EARNINGS
Balance at beginning of period............. 1,698.3 1,567.4 1,367.4
Net income................................. 200.4 180.9 200.0
Dividend to shareholder.................... -- (50.0) --
Distribution of subsidiaries (Note 3)...... (1,251.4) -- --
-------- -------- --------
Balance at end of period................... 647.3 1,698.3 1,567.4
-------- -------- --------
Total shareholder's equity............. $1,206.4 $2,316.5 $2,235.4
======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------- ------- ------
<S> <C> <C> <C>
Net income.................................. $ 200.4 $ 180.9 $200.0
Other comprehensive (loss) income:
Net (depreciation) appreciation on
available-for-sale securities......... (298.2) (82.4) 170.9
Benefit (provision) for deferred federal
income taxes.......................... 105.0 28.9 (59.8)
Minority interest....................... 31.8 13.4 (33.2)
Distribution of subsidiaries (Note 3)... (22.7) -- --
------- ------- ------
Other comprehensive (loss) income... (184.1) (40.1) 77.9
------- ------- ------
Comprehensive (loss) income................. $ (16.3) $ 140.8 $277.9
======= ======= ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<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) 1999 1998 1997
------------- --------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 200.4 $ 180.9 $ 200.0
Adjustments to reconcile net income to
net cash provided by operating
activities:
Minority interest................... 39.9 55.0 79.4
Net realized gains.................. (100.9) (62.7) (77.8)
Net amortization and depreciation... 31.5 20.7 31.6
Deferred federal income taxes....... 20.7 (15.4) 14.2
Sales practice litigation expense... -- 31.0 --
Loss from exiting reinsurance
pools............................. -- 25.3 --
Payment related to exiting
reinsurance pools................. -- (30.3) --
Loss from cession of disability
income business................... -- -- 53.9
Payment related to cession of
disability income business........ -- -- (207.0)
Loss from disposal of group life and
health business................... 30.5 -- --
Change in deferred acquisition
costs............................. (181.6) (185.8) (189.7)
Change in premiums and notes
receivable, net of reinsurance
payable........................... (41.8) 56.7 (15.1)
Change in accrued investment
income............................ 8.3 0.8 7.1
Change in policy liabilities and
accruals, net..................... (15.6) 168.1 (134.9)
Change in reinsurance receivable.... (46.3) (115.4) 27.2
Change in expenses and taxes
payable........................... 79.4 (3.3) 49.4
Separate account activity, net...... 5.5 (48.5) --
Other, net.......................... 18.5 (63.8) 20.4
--------- --------- ---------
Net cash provided by (used in)
operating activities.......... 48.5 13.3 (141.3)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and
maturities of available-for-sale
fixed maturities.................. 2,801.0 1,715.2 2,892.9
Proceeds from disposals of equity
securities........................ 422.9 285.3 162.7
Proceeds from disposals of other
investments....................... 30.3 120.8 116.3
Proceeds from mortgages matured or
collected......................... 131.2 171.2 204.7
Purchase of available-for-sale fixed
maturities........................ (2,227.3) (2,374.5) (2,596.0)
Purchase of equity securities....... (78.9) (119.9) (67.0)
Purchase of other investments....... (140.6) (274.4) (175.0)
Capital expenditures................ (29.2) (22.3) (15.3)
Purchase of minority interest in
Citizens Corporation.............. -- (195.9) --
Distribution of subsidiaries........ (202.2) -- --
Other investing activities, net..... -- 26.7 1.3
--------- --------- ---------
Net cash provided by (used in)
investing activities.......... 707.2 (667.8) 524.6
--------- --------- ---------
</TABLE>
F-5
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to
contractholder deposit funds...... 1,514.6 1,419.2 457.6
Withdrawals from contractholder
deposit funds..................... (2,037.5) (625.0) (647.1)
Change in trust agreements supported
by funding agreements............. 50.6 -- --
Change in short-term debt........... (180.9) 188.3 (5.4)
Change in long-term debt............ -- (2.6) (0.1)
Dividend paid to shareholder........ -- (50.0) (9.4)
Contribution from parent............ 36.0 -- 0.1
Subsidiary treasury stock purchased,
at cost........................... (350.0) (1.0) (140.0)
--------- --------- ---------
Net cash (used in) provided by
financing activities.......... (967.2) 928.9 (344.3)
--------- --------- ---------
Net change in cash and cash equivalents..... (211.5) 274.4 39.0
Net change in cash held in the Closed
Block...................................... (13.2) 15.7 (1.0)
Cash and cash equivalents, beginning of
period..................................... 504.0 213.9 175.9
--------- --------- ---------
Cash and cash equivalents, end of period.... $ 279.3 $ 504.0 $ 213.9
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ 3.1 $ 7.3 $ 3.6
Income taxes paid....................... $ 24.0 $ 135.3 $ 66.3
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
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") is
organized as a stock life insurance company, and is a wholly-owned subsidiary of
Allmerica Financial Corporation ("AFC").
Prior to July 1, 1999, the consolidated financial statements of FAFLIC included
the accounts of its wholly-owned life insurance subsidiary Allmerica Financial
Life Insurance and Annuity Company ("AFLIAC"), its non-insurance subsidiaries
(principally brokerage and investment advisory services), Allmerica Property and
Casualty Companies, Inc. ("Allmerica P&C") (an 85.0%-owned non-insurance holding
company), and various other non-insurance subsidiaries.
Effective July 1, 1999, AFC made certain changes to its corporate structure
(Note 3). These changes included the transfer of the Company's ownership of
Allmerica P&C and its subsidiaries, as well as several other non-insurance
subsidiaries from the Company to AFC. In exchange, AFC contributed capital to
the Company and agreed to maintain the Company's statutory surplus at specified
levels during the following 6 years. Comparability between current and prior
period financial statements and footnotes has been significantly impacted by the
Company's divestiture of these subsidiaries during 1999, as disclosed in Note 3.
The Closed Block (Note 1B) assets and liabilities at December 31, 1999 and 1998
are presented in the consolidated balance sheets as single line items. The
contribution from the Closed Block is included in the consolidated statements of
income in other income. Unless specifically stated, all disclosures contained
herein supporting the consolidated financial statements at December 31, 1999,
1998 and 1997, and the years then ended exclude the Closed Block related
amounts. All significant intercompany accounts and transactions have been
eliminated.
On or about December 3, 1998, the Company acquired all of the outstanding common
stock of Citizens Corporation (formerly an 82.5% owned non-insurance subsidiary
of The Hanover Insurance Company ("Hanover"), a wholly-owned subsidiary of
Allmerica P&C) that it did not already own in exchange for cash of $195.9
million (Note 4). The acquisition has been recognized as a purchase. The
minority interest acquired totaled $158.5 million. A total of $40.8 million
representing the excess of the purchase price over the fair values of the net
assets acquired, net of deferred taxes, has been allocated to goodwill and is
being amortized over a 40-year period.
Prior to the July 1, 1999 changes in AFC's corporate structure, minority
interest relates to the Company's investment in Allmerica P&C and its only
significant subsidiary, Hanover. Hanover's wholly-owned subsidiary is Citizens
Corporation, the holding company for 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
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,
F-7
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
individual deferred annuity contracts and supplementary contracts not involving
life contingencies which were in force as of FAFLIC's demutualization 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. Unless the Commonwealth of
Massachusetts Insurance Commissioner ("the Insurance 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. 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 as 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 the inception of the Closed
Block, 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 at inception.
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 (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
In accordance with the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("Statement No. 115"), the Company is required to classify its investments into
one of three categories: held-to-maturity, available-for-sale or trading. The
Company determines the appropriate classification of debt securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Debt securities and marketable equity securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of shareholders' equity. The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income.
F-8
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by the Company to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which the Company believes may not be collectible in
full. In establishing reserves, the Company considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
During 1997, the Company adopted a plan to dispose of all real estate assets. As
of December 31, 1999, there were 2 properties remaining in the Company's real
estate portfolio, both of which are being actively marketed. These assets are
carried at the estimated fair value less costs of disposal. Depreciation is not
recorded on these assets while they are held for disposal.
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other than temporary impairment of the value of a specific
investment or a group of investments is determined, a realized investment loss
is recorded. Changes in the valuation allowance for mortgage loans are included
in realized investment gains or losses.
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, swap contracts 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.
Derivative financial instruments are accounted for under three different
methods: fair value accounting, deferral accounting and accrual accounting.
Interest rate swap contracts used to hedge interest rate risk are accounted for
using a combination of the fair value method and accrual method, with changes in
fair value reported in unrealized gains and losses in equity consistent with the
underlying hedged security, and the net payment or receipt on the swaps reported
in net investment income. Foreign currency swap contracts used to hedge the
foreign currency exchange risk associated with investment securities are
accounted for using a combination of the fair value method and accrual method,
with changes in fair value reported in unrealized gains and losses in equity
consistent with the underlying hedged security, and the net payment or receipt
on the swaps reported in net investment income. Foreign currency swap contracts
used to hedge foreign currency exchange risk associated with funding agreements
are accounted for using the fair value method, with changes in fair value
reported in other operating income consistent with the underlying hedged trust
obligation liability. Futures contracts used to hedge interest rate risk are
accounted for using the deferral method, with gains and losses deferred in
unrealized gains and losses in equity and recognized in earnings in conjunction
with the earnings recognition of the underlying hedged item. Default swap
contracts entered into for investment purposes are accounted for using the fair
value method, with changes in fair value, if any, reported in realized
investment gains and losses in earnings. Premium paid to the Company on default
swap contracts is reported in net investment income in earnings. Other swap
contracts entered into for investment purposes are accounted for using the fair
value method, with changes in fair value reported in realized investment gains
and
F-9
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
losses in earnings. Any ineffective swaps or futures hedges are recognized
currently in realized investment gains and losses in earnings.
E. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
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, variable
annuities and contractholder deposit funds are deferred and amortized in
proportion to total estimated gross profits from investment yields, mortality,
surrender charges and expense margins over the expected life of the contracts.
This amortization is reviewed annually and adjusted retrospectively when the
Company revises its estimate of current or future gross profits to be realized
from this group of products, including realized and unrealized gains and losses
from investments. Acquisition costs related to fixed annuities and other life
insurance products are deferred and amortized, generally in proportion to the
ratio of annual revenue to the estimated total revenues over the contract
periods based upon the same assumptions used in estimating the liability for
future policy benefits.
Deferred acquisition costs for each life product and property and casualty line
of business are reviewed to determine if they are recoverable from future
income, including investment income. If such costs are determined to be
unrecoverable, they are expensed at the time of determination. Although
realization of deferred policy acquisition costs is not assured, the Company
believes it is more likely than not that all of these costs will be realized.
The amount of deferred policy acquisition costs considered realizable, however,
could be reduced in the near term if the estimates of gross profits or total
revenues discussed above are reduced. The amount of amortization of deferred
policy acquisition costs could be revised in the near term if any of the
estimates discussed above are revised.
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
shareholder's equity or net investment income.
F-10
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 6.0%
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, variable universal life and variable annuities 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 variable annuities include a reserve for
benefit claims in excess of a guaranteed minimum fund value.
Liabilities for outstanding claims, losses and loss adjustment expenses ("LAE")
are estimates of payments to be made on property and casualty and health
insurance for reported losses and LAE and estimates of losses and LAE 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 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.
Contractholder deposit funds and other policy liabilities include
investment-related products such as guaranteed investment contracts ("GICs"),
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, the Company
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
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 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 include annuity benefit claims in excess of a
guaranteed minimum fund value, and 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, with mortality, administration
and surrender charges assessed against the fund values. Related benefit expenses
include universal life benefit claims in excess of fund values and net
investment income credited to universal life fund values. Certain policy charges
that represent compensation for services
F-11
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
to be provided in future periods are deferred and amortized over the period
benefited using the same assumptions used to amortize capitalized acquisition
costs.
K. FEDERAL INCOME TAXES
AFC and its domestic subsidiaries (including certain non-insurance operations)
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. Prior to
the merger on July 16, 1997, Allmerica P&C and its subsidiaries filed a separate
United States federal income tax return.
The Board of Directors has delegated to AFC management, the development and
maintenance of appropriate federal income tax allocation policies and
procedures, which are subject to written agreement between the companies. The
Federal income tax for all subsidiaries in the consolidated return of AFC is
calculated on a separate return basis. Any current tax liability is paid to AFC.
Tax benefits resulting from taxable operating losses or credits of AFC's
subsidiaries are not reimbursed to the subsidiary until such losses or credits
can be utilized by the subsidiary on a separate return basis.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes, and for
other temporary taxable and deductible differences as defined by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement No. 109"). These differences result primarily from loss and LAE
reserves, policy reserves, policy acquisition expenses, and unrealized
appreciation or depreciation on investments.
L. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), which establishes
accounting and reporting standards for derivative instruments. Statement No. 133
requires that an entity recognize all derivatives as either assets or
liabilities at fair value in the statement of financial position, and
establishes special accounting for the following three types of hedges: fair
value hedges, cash flow hedges, and hedges of foreign currency exposures of net
investments in foreign operations. This statement is effective for fiscal years
beginning after June 15, 2000. The Company is currently assessing the impact of
the adoption of Statement No. 133.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SoP 98-1"). SoP 98-1 requires that
certain costs incurred in developing internal-use computer software be
capitalized and provides guidance for determining whether computer software is
to be considered for internal use. This statement is effective for fiscal years
beginning after December 15, 1998. In the second quarter of 1998, the Company
adopted SoP 98-1 effective January 1, 1998, resulting in an increase in pre-tax
income of $12.4 million through December 31, 1998. The adoption of SOP 98-1 did
not have a material effect on the results of operations or financial position
for the three months ended March 31, 1998.
In December 1997, the AICPA issued Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SoP 97-3").
SoP 97-3 provides guidance on when a liability should be recognized for guaranty
fund and other assessments and how to measure the liability. This statement
allows for the discounting of the liability if the amount and timing of the cash
payments are fixed
F-12
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and determinable. In addition, it provides criteria for when an asset may be
recognized for a portion or all of the assessment liability or paid assessment
that can be recovered through premium tax offsets or policy surcharges. This
statement is effective for fiscal years beginning after December 15, 1998. The
adoption of this statement did not have a material effect on the results of
operations or financial position of the Company.
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("Statement No. 131"). This statement
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that
selected information about those operating segments be reported in interim
financial statements. This statement supersedes Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement No. 131 requires
that all public enterprises report financial and descriptive information about
their reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This statement
is effective for fiscal years beginning after December 15, 1997. The Company
adopted Statement No. 131 for the first quarter of 1998, which resulted in
certain segment re-definitions, which have no impact on the consolidation
results of operations (See Note 15).
In June 1997, the FASB also issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("Statement No. 130"). Statement
No. 130 establishes standards for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
All items that are required to be recognized under accounting standards as
components of comprehensive income are to be reported in a financial statement
that is displayed with the same prominence as other financial statements. This
statement stipulates that comprehensive income reflect the change in equity of
an enterprise during a period from transactions and other events and
circumstances from non-owner sources. This statement is effective for fiscal
years beginning after December 15, 1997. The Company adopted Statement No. 130
for the first quarter of 1998, which resulted primarily in reporting unrealized
gains and losses on investments in debt and equity securities in comprehensive
income.
M. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation, resulting primarily from the reporting of Discontinued Operations
as disclosed in Note 2.
2. DISCONTINUED OPERATIONS
During the second quarter of 1999, the Company approved a plan to exit its group
life and health insurance business, consisting of its Employee Benefit Services
("EBS") business, its Affinity Group Underwriters ("AGU") business and its
accident and health assumed reinsurance pool business ("reinsurance pool
business"). During the third quarter of 1998, the Company ceased writing new
premium in the reinsurance pool business, subject to certain contractual
obligations. Prior to 1999, these businesses comprised substantially all of the
former Corporate Risk Management Services segment. Accordingly, the operating
results of the discontinued segment, including its reinsurance pool business,
have been reported in the Consolidated Statements of Income as discontinued
operations in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" ("APB Opinion No. 30"). In the third quarter of 1999,
the operating results from the discontinued segment were adjusted to reflect the
recording of additional reserves related to accident claims from prior years. On
October 6, 1999, the Company entered into an agreement with Great-West Life and
Annuity Insurance Company of Denver,
F-13
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
which provides for the sale of the Company's EBS business effective March 1,
2000. The Company has recorded a $30.5 million loss, net of taxes, on the
disposal of its group life and health business. Subsequent to the June 30, 1999
measurement date, operations from the discontinued business generated losses of
approximately $8.7 million, net of taxes.
As permitted by APB Opinion No. 30, the Consolidated Balance Sheets have not
been segregated between continuing and discontinued operations. At December 31,
1999, the discontinued segment had assets of approximately $531.1 million
consisting primarily of invested assets, premiums and fees receivable, and
reinsurance recoverables, and liabilities of approximately $482.5 million
consisting primarily of policy liabilities. Revenues for the discontinued
operations were $361.1 million, $398.5 million, and $389.2 million for the years
ended December 31, 1999, 1998 and 1997, respectively.
3. REORGANIZATION OF AFC CORPORATE STRUCTURE
AFC has made certain changes to its corporate structure effective July 1, 1999.
These changes included transfer of the Company's ownership of Allmerica P&C and
all of its subsidiaries, as well as certain other non-insurance subsidiaries,
from FAFLIC to AFC, referred to as the "distribution of subsidiaries". The
Company retained its ownership of its primary insurance subsidiary, AFLIAC and
certain broker dealer and investment management and advisory subsidiaries. AFC
contributed capital to FAFLIC in the amount of $125.0 million, consisting of
cash and securities of $36.0 million and $89.0 million, respectively, and agreed
to maintain the Company's statutory surplus at specified levels during the
following six years. In addition, any dividend from FAFLIC to AFC during 2000
and 2001 requires the prior approval of the Commonwealth of Massachusetts
Insurance Commissioner. This transaction was approved by the Commissioner on
May 24, 1999.
The equity of the subsidiaries transferred from FAFLIC on July 1, 1999 was
$1,274.1 million. As of June 30, 1999, the transferred subsidiaries had total
assets of $5,334.1 million, including cash and cash equivalents of $202.2
million, and total revenue of $1,196.5 million.
The Company's consolidated results of operations in 1999 include $107.2 million
of net income associated with these subsidiaries through June 30, 1999. The
unaudited pro forma information below presents consolidated results of
operations as if the reorganization had occurred at the beginning of 1998.
The following unaudited pro forma information is not necessarily indicative of
the consolidated results of operations of the Company had the transfer occurred
at the beginning of 1998, nor is it necessarily indicative of future results.
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- ------ ------
<S> <C> <C>
Revenue..................................................... $828.0 $750.2
====== ======
Net realized capital (losses) gains included in revenue..... (11.8) 19.6
====== ======
Income from continuing operations before taxes.............. 192.1 141.2
Income taxes................................................ 51.2 41.2
------ ------
Net income from continuing operations....................... $140.9 100.0
(Loss) from operations of discontinued business (less
applicable income taxes (benefit) of $(10.4), $(7.0) and
$8.9 for the years ended December 31, 1999, 1998 and 1997,
respectively............................................... (17.2) (13.5)
</TABLE>
F-14
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- ------ ------
<S> <C> <C>
(Loss) on disposal of group life and health business,
including provision of $72.2 for operating losses during
phase-out period for the tear ended December 31, 1999 (less
applicable income tax benefit of $16.4).................... (30.5) --
------ ------
Net income.................................................. $ 93.2 $ 86.5
====== ======
</TABLE>
4. ACQUISITION OF MINORITY INTEREST OF CITIZENS CORPORATION
On December 3, 1998 Citizens Acquisition Corporation, a wholly-owned subsidiary
of the Allmerica P&C, completed a cash tender offer to acquire the outstanding
shares of Citizens Corporation common stock that AFC or its subsidiaries did not
already own at a price of $33.25 per share. Approximately 99.8% of publicly held
shares of Citizens Corporation common stock were tendered. On December 14, 1998,
the Company completed a short-form merger, acquiring all shares of common stock
of Citizens Corporation not purchased in its tender offer, through the merger of
its wholly-owned subsidiary, Citizens Acquisition Corporation with Citizens
Corporation at a price of $33.25 per share. Total consideration for the
transactions amounted to $195.9 million. The acquisition has been recognized as
a purchase. The minority interest acquired totaled $158.5 million. A total of
$40.8 million representing the excess of the purchase price over the fair values
of the net assets acquired, net of deferred taxes, has been allocated to
goodwill and is being amortized over a 40-year period.
The Company's consolidated results of operations include minority interest in
Citizens Corporation prior to December 3, 1998. The unaudited pro forma
information below presents consolidated results of operation as if the
acquisition had occurred at the beginning of 1997.
The following unaudited pro forma information is not necessarily indicative of
the consolidated results of operations of the combined Company had the
acquisition occurred at the beginning of 1997, nor is it necessarily indicative
of future results.
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------- -------- --------
<S> <C> <C>
Revenue..................................................... $3,006.6 $2,977.1
======== ========
Net realized capital gains included in revenue.............. $ 58.1 $ 71.6
======== ========
Income before taxes and minority interest................... 293.4 332.5
Income taxes................................................ (54.2) (82.4)
Minority Interest:
Equity in earnings........................................ (42.6) (64.1)
-------- --------
Net income.................................................. $ 196.6 $ 186.0
======== ========
</TABLE>
5. OTHER SIGNIFICANT TRANSACTIONS
Effective January 1, 1999, Allmerica P&C entered into a whole account aggregate
excess of loss reinsurance agreement with a highly rated reinsurer. The
reinsurance agreement provides accident year coverage for the three years 1999
to 2001 for the Company's property and casualty business, and is subject to
cancellation or commutation annually at the Company's option. The program covers
losses and allocated loss adjustment
F-15
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
expenses, including those incurred but not yet reported, in excess of a
specified whole account loss and allocated LAE ratio. The annual and aggregate
coverage limits for losses and allocated LAE are $150.0 million and $300.0
million, respectively. The effect of this agreement on results of operations in
each reporting period is based on losses and allocated LAE ceded, reduced by a
sliding scale premium of 50.0-67.0% depending on the size of the loss, and
increased by a ceding commission of 20.0% of ceded premium. In addition, net
investment income is reduced for amounts credited to the reinsurer. Prior to the
AFC corporate reorganization, the Company recognized a net benefit of $16.9
million as a result of this agreement, based on year-to-date and annual
estimates of losses and allocated loss adjustment expenses for accident year
1999.
On October 29, 1998, the Company announced that it had adopted a formal
restructuring plan for its Risk Management business. As part of this initiative,
the segment consolidated its property and casualty field support activities from
fourteen regional branches into three hub locations. As a result of the
Company's restructuring initiative, it recognized a pretax loss of $9.0 million,
in the fourth quarter of 1998.
Approximately $4.8 million of this loss relates to severance and other employee
related costs resulting from the elimination of 306 positions, of which 207 and
106 employees had been terminated as of December 31, 1999 and 1998,
respectively. In addition, lease cancellations and contract terminations
resulted in losses of approximately $2.5 million and $1.7 million, respectively.
The Company made payments of approximately $4.2 million and $0.1 million through
June 30, 1999 and in 1998, respectively, related to this restructuring
initiative.
Effective July 1, 1998, the Company entered into a reinsurance agreement with a
highly rated reinsurer that cedes current and future underwriting losses,
including unfavorable development of prior year reserves, up to a $40.0 million
maximum, relating to the Company's reinsurance pool business. These pools
consist primarily of the Company's assumed stop loss business, small group
managed care pools, long-term disability and long-term care pools, student
accident and special risk business. The agreement is consistent with
management's decision to exit this line of business, which the Company expects
to run-off over the next three years. As a result of this transaction, the
Company recognized a $25.3 million pre-tax loss in the third quarter of 1998.
This loss is reported in 1999 as part of the discontinued operations of the
Company.
Effective January 1, 1998, the Company entered into an agreement with a highly
rated reinsurer to reinsure the mortality risk on substantially all of the
universal life and variable universal life blocks of business. The agreement did
not have a material effect on its results of operations or financial position.
In 1999, 1998 and 1997, Allmerica P&C redeemed 8,662.7, 3,289.5 and 5,735.3
shares, respectively, of its issued and outstanding common stock owned by AFC
for $350.0 million, $125.0 million and $195.0 million, respectively, thereby
increasing the Company's total ownership to 84.5% as of June 30, 1999. The
increases in the Company's ownership of Allmerica P&C through June 30, 1999, and
for 1998 and 1997 were 14.5%, 4.3% and 6.3%, respectively. The 1999 transaction
consisted of cash and cash equivalents. The 1998 transaction consisted of $124.0
million of securities and $1.0 million of cash. The 1997 transaction consisted
of $55.0 million of securities and $140.0 million of cash.
The merger of Allmerica P&C and a wholly-owned subsidiary of AFC was consummated
on July 16, 1997. Through the merger, AFC acquired all of the outstanding common
stock of Allmerica P&C that FAFLIC did not already own in exchange for cash of
$425.6 million and approximately 9.7 million shares of AFC stock valued at
$372.5 million. At consummation of this transaction AFC owned 59.5% through
FAFLIC and 40.5% directly. The merger has been recognized as a purchase. Total
consideration of approximately $798.1 million
F-16
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
has been allocated to the minority interest in the assets and liabilities based
on estimates of their fair values. The minority interest acquired totaled $703.5
million. A total of $90.6 million representing the excess of the purchase price
over the fair values of the net assets acquired, net of deferred taxes, has been
allocated to goodwill and is being amortized over a 40-year period.
On April 14, 1997, the Company entered into an agreement in principle to cede
substantially all of the Company's individual disability income line of business
under a 100% coinsurance agreement with a highly rated reinsurer. The
coinsurance agreement became effective October 1, 1997. The transaction has
resulted in the recognition of a $53.9 million pre-tax loss in the first quarter
of 1997.
6. INVESTMENTS
A. SUMMARY OF INVESTMENTS
The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with Statement No. 115.
The amortized cost and fair value of available-for-sale fixed maturities and
equity securities were as follows:
<TABLE>
<CAPTION>
1999
-------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 62.6 $ 1.0 $ 0.5 $ 63.1
States and political subdivisions....... 13.5 0.1 0.1 13.5
Foreign governments..................... 80.0 2.1 0.1 82.0
Corporate fixed maturities.............. 3,206.5 63.2 116.9 3,152.8
Mortgage-backed securities.............. 359.0 1.3 11.0 349.3
-------- ------ ------ --------
Total fixed maturities.................. $3,721.6 $ 67.7 $128.6 $3,660.7
======== ====== ====== ========
Equity securities....................... $ 27.9 $ 24.7 $ 1.2 $ 51.4
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
1998
-------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 192.8 $ 12.0 $ 24.5 $ 180.3
States and political subdivisions....... 2,408.9 83.0 5.2 2,486.7
Foreign governments..................... 107.9 7.7 4.5 111.1
Corporate fixed maturities.............. 4,293.3 167.8 81.9 4,379.2
Mortgage-backed securities.............. 517.9 11.5 2.8 526.6
-------- ------ ------ --------
Total fixed maturities.................. $7,520.8 $282.0 $118.9 $7,683.9
======== ====== ====== ========
Equity securities....................... $ 253.1 $151.1 $ 7.1 $ 397.1
======== ====== ====== ========
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
F-17
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with AFLIAC's voluntary withdrawal of its license in New York,
AFLIAC agreed with the New York Department of Insurance to maintain, through a
custodial account in New York, a security deposit, the market value of which
will at all times equal 102% of all outstanding general account liabilities of
AFLIAC for New York policyholders, claimants and creditors. At December 31,
1999, the amortized cost and market value of these assets on deposit in New York
were $196.4 million and $193.0 million, respectively. At December 31, 1998, the
amortized cost and market value of assets on deposit were $268.5 million and
$284.1 million, respectively. In addition, fixed maturities, excluding those
securities on deposit in New York, with an amortized cost of $18.3 million and
$105.4 million were on deposit with various state and governmental authorities
at December 31, 1999 and 1998, respectively.
There were no contractual fixed maturity investment commitments at December 31,
1999.
The amortized cost and fair value by maturity periods for fixed maturities are
shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties, or the Company may have the right to put or sell the
obligations back to the issuers. Mortgage backed securities are included in the
category representing their ultimate maturity.
<TABLE>
<CAPTION>
1999
-------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------- --------- --------
<S> <C> <C>
Due in one year or less..................................... $ 224.4 $ 225.7
Due after one year through five years....................... 1,324.0 1,328.4
Due after five years through ten years...................... 1,409.1 1,369.9
Due after ten years......................................... 764.1 736.7
-------- --------
Total....................................................... $3,721.6 $3,660.7
======== ========
</TABLE>
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------- ---------- ------------- ------
<S> <C> <C> <C>
1999
Net appreciation, beginning of year......................... $ 79.0 $ 90.2 $169.2
------ ------ ------
Net (depreciation) appreciation on available-for-sale
securities................................................. (254.4) (122.3) (376.7)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 78.5 -- 78.5
Provision for deferred federal income taxes and minority
interest................................................... 72.1 64.7 136.8
Distribution of subsidiaries (See Note 3)................... (5.6) (17.1) (22.7)
------ ------ ------
(109.4) (74.7) (184.1)
------ ------ ------
Net appreciation, end of year............................... $(30.4) $ 15.5 $(14.9)
====== ====== ======
</TABLE>
F-18
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------- ---------- ------------- ------
<S> <C> <C> <C>
1998
Net appreciation, beginning of year......................... $122.6 $ 86.7 $209.3
------ ------ ------
Net (depreciation) appreciation on available-for-sale
securities................................................. (99.3) 4.4 (94.9)
Appreciation due to Allmerica P&C purchase of minority in
interest of Citizens....................................... 10.7 10.7 21.4
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 6.3 -- 6.3
Provision for deferred federal income taxes and minority
interest................................................... 38.7 (11.6) 27.1
------ ------ ------
(43.6) 3.5 (40.1)
------ ------ ------
Net appreciation, end of year............................... $ 79.0 $ 90.2 $169.2
====== ====== ======
1997
Net appreciation, beginning of year......................... $ 71.3 $ 60.1 $131.4
------ ------ ------
Net appreciation (depreciation) on available-for-sale
securities................................................. 83.2 (5.9) 77.3
Appreciation due to AFC purchase of minority interest of
Allmerica P&C.............................................. 50.7 59.6 110.3
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (16.7) -- (16.7)
Provision for deferred federal income taxes and minority
interest................................................... (65.9) (27.1) (93.0)
------ ------ ------
51.3 26.6 77.9
------ ------ ------
Net appreciation, end of year............................... $122.6 $ 86.7 $209.3
====== ====== ======
</TABLE>
(1) Includes net (depreciation) appreciation on other investments of $(1.1)
million, $0.8 million, and $1.8 million, in 1999, 1998, and 1997, respectively.
B. MORTGAGE LOANS AND REAL ESTATE
FAFLIC's mortgage loans 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 $533.6 million and $582.7 million at December 31, 1999
and 1998, respectively. Reserves for mortgage loans were $5.8 million and $11.5
million at December 31, 1999 and 1998, respectively.
During 1997, the Company committed to a plan to dispose of all real estate
assets. At December 31, 1999, there were 2 properties remaining in the Company's
real estate portfolio which are being actively marketed. Depreciation is not
recorded on these assets while they are held for disposal.
There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1999, 1998 and 1997.
There were no material contractual commitments to extend credit under commercial
mortgage loan agreements at December 31, 1999.
F-19
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- ------ ------
<S> <C> <C>
Property type:
Office building........................................... $301.5 $304.4
Residential............................................... 50.3 52.8
Retail.................................................... 92.2 108.5
Industrial/warehouse...................................... 83.6 110.0
Other..................................................... 11.8 18.5
Valuation allowances...................................... (5.8) (11.5)
------ ------
Total....................................................... $533.6 $582.7
====== ======
Geographic region:
South Atlantic............................................ $132.2 $136.1
Pacific................................................... 133.6 155.1
East North Central........................................ 62.5 80.5
Middle Atlantic........................................... 50.3 61.2
West South Central........................................ 90.8 54.7
New England............................................... 40.7 60.7
Other..................................................... 29.3 45.9
Valuation allowances...................................... (5.8) (11.5)
------ ------
Total....................................................... $533.6 $582.7
====== ======
</TABLE>
At December 31, 1999, scheduled mortgage loan maturities were as follows: 2000
- -- $108.1 million; 2001 -- $33.9 million; 2002 -- $27.5 million; 2003 -- $40.6
million; 2004 -- $76.4 million; and $234.7 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 1999, the Company did not refinance any mortgage loans based
on terms which differed from those granted to new borrowers.
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets and
changes thereto are shown below.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 PROVISIONS WRITE-OFFS DECEMBER 31
- ------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
1999
Mortgage loans.............................................. $11.5 $(2.4) $ 3.3 $ 5.8
===== ===== ===== =====
1998
Mortgage loans.............................................. $20.7 $(6.8) $ 2.4 $11.5
===== ===== ===== =====
1997
Mortgage loans.............................................. $19.6 $ 2.5 $ 1.4 $20.7
Real estate................................................. 14.9 6.0 20.9 --
----- ----- ----- -----
Total....................................................... $34.5 $ 8.5 $22.3 $20.7
===== ===== ===== =====
</TABLE>
F-20
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Provisions on mortgages during 1999 and 1998 reflect the release of redundant
specific reserves. Write-offs of $20.9 million to the investment valuation
allowance related to real estate in 1997 primarily reflect write downs to the
estimated fair value less costs to sell pursuant to the aforementioned 1997 plan
of disposal.
The carrying value of impaired loans was $18.0 million and $22.0 million, with
related reserves of $0.8 million and $6.0 million as of December 31, 1999 and
1998, respectively. All impaired loans were reserved for as of December 31, 1999
and 1998.
The average carrying value of impaired loans was $21.0 million, $26.1 million
and $30.8 million, with related interest income while such loans were impaired
of $2.1 million, $3.2 million and $3.2 million as of December 31, 1999, 1998 and
1997, respectively.
D. FUTURES CONTRACTS
The Company purchases long futures contracts and sells short futures contracts
on margin to hedge against interest rate fluctuations associated with the sale
of Guaranteed Investment Contracts ("GICs") and other funding agreements. The
Company is exposed to interest rate risk from the time of sale of the GIC until
the receipt of the deposit and purchase of the underlying asset to back the
liability. The Company only trades futures contracts with nationally recognized
brokers, which the Company believes have adequate capital to ensure that there
is minimal danger of default. The Company does not require collateral or other
securities to support financial instruments with credit risk.
The notional amount of futures contracts outstanding was $37.1 million and $92.7
million at December 31, 1999 and 1998, respectively. The notional amounts of the
contracts represent the extent of the Company's investment but not future cash
requirements, as the Company generally settles open positions prior to maturity.
The maturity of all futures contracts outstanding is less than one year. The
fair value of futures contracts outstanding was $36.8 million and $92.5 million
at December 31, 1999 and 1998, 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. If instruments being hedged by futures
contracts are disposed, any unamortized gains or losses on such contracts are
included in the determination of the gain or loss from the disposition. Deferred
hedging losses were $0.9 million and $1.8 million in 1999 and 1998,
respectively. Gains and losses on hedge contracts that are deemed ineffective by
the Company are realized immediately. There was $0.1 million of gains realized
on ineffective hedges in 1998. There were no gains or losses in 1999 and 1997.
A reconciliation of the notional amount of futures contracts is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- --------- --------- ------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.................... $ 92.7 $ -- $(33.0)
New contracts............................................... 947.0 1,117.5 (0.2)
Contracts terminated........................................ (1,002.6) (1,024.8) 33.2
--------- --------- ------
Contracts outstanding, end of year.......................... $ 37.1 $ 92.7 $ --
========= ========= ======
</TABLE>
E. FOREIGN CURRENCY SWAP CONTRACTS
The Company enters into foreign currency swap contracts with swap counterparties
to hedge foreign currency exposure on specific fixed income securities.
Additionally, in 1999, the Company entered into a foreign
F-21
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
currency swap contract to hedge foreign currency exposure on specific fixed rate
funding agreements. Interest and principal related to foreign fixed income
securities and liabilities payable in foreign currencies, at current exchange
rates, are exchanged for the equivalent payment in U.S dollars translated at a
specific currency exchange rate. The primary risk associated with these
transactions is the inability of the counterparty to meet its obligation. The
Company regularly assesses the financial strength of its counterparties and
generally enters into forward or swap agreements with counterparties rated "A"
or better by nationally recognized rating agencies. The Company's maximum
exposure to counterparty credit risk is the difference between the foreign
currency exchange rate, as agreed upon in the swap contract, and the foreign
currency spot rate on the date of the exchange, as indicated by the fair value
of the contract. The fair values of the foreign currency swap contracts
outstanding were $(4.7) million and $1.2 million at December 31, 1999 and 1998,
respectively. Changes in the fair value of contracts hedging fixed income
securities are reported as an unrealized gain or loss, consistent with the
underlying hedged security. Changes in fair value of contracts hedging fixed
rate funding agreements are reported as other operating income, consistent with
the underlying hedged liability. The net decrease in other operating income
related to these contracts was $2.6 million in 1999. The Company does not
require collateral or other security to support financial instruments with
credit risk.
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 1999, 1998 and 1997. Any gain or loss on the
termination of swap contracts is deferred and recognized with any gain or loss
on the hedged transaction. The Company had no deferred gain or loss on foreign
currency swap contracts in 1999 or 1998.
A reconciliation of the notional amount of foreign currency swap contracts is as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ----- ------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.................... $ 42.6 $42.6 $ 47.6
New contracts............................................... 52.9 -- 5.0
Contracts expired........................................... (24.0) -- (10.0)
------ ----- ------
Contracts outstanding, end of year.......................... $ 71.5 $42.6 $ 42.6
====== ===== ======
</TABLE>
Expected maturities of foreign currency swap contracts outstanding at
December 31, 1999 are $8.3 million in 2000, $52.9 million in 2001 and $10.3
million thereafter. There are no expected maturities of such foreign currency
swap contracts in 2002, 2003 and 2004.
F. INTEREST RATE SWAP CONTRACTS
The Company enters into interest rate swap contracts to hedge exposure to
interest rate fluctuations. Specifically, for floating rate GIC liabilities that
are matched with fixed rate securities, the Company manages the interest rate
risk by hedging with interest rate swap contracts. Under these swap contracts,
the Company agrees to exchange, at specified intervals, the difference between
fixed and floating interest amounts calculated on an agreed-upon notional
principal amount. As with foreign currency swap contracts, the primary risk
associated with these transactions is the inability of the counterparty to meet
its obligation. The Company regularly assesses the financial strength of its
counterparties and generally enters into forward or swap agreements with
counterparties rated "A" or better by nationally recognized rating agencies.
Because the underlying principal of swap contracts is not exchanged, the
Company's maximum exposure to counterparty credit risk is the difference in
payments exchanged, which at December 31, 1999 and 1998 were net payables of
$4.2 million and $3.9 million, respectively. The Company does not require
collateral or other security to support financial instruments with credit risk.
F-22
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The net amount receivable or payable is recognized over the life of the swap
contract as an adjustment to net investment income. The decrease in net
investment income related to interest rate swap contracts was $7.0 million, $2.8
million and $0.4 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The fair value of interest rate swap contracts outstanding was
$33.1 million and $(28.3) million at December 31, 1999 and 1998, respectively.
Changes in the fair value of contracts are reported as an unrealized gain or
loss, consistent with the underlying hedged security. Any gain or loss on the
termination of interest rate swap contracts accounted for as hedges are deferred
and recognized with the gain or loss on the hedged transaction. The Company had
no deferred gain or loss on interest rate swap contracts in 1999 or 1998.
A reconciliation of the notional amount of interest rate swap contracts is as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- -------- -------- ------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.................... $1,112.6 $ 244.1 $ 5.0
New contracts............................................... 905.4 873.5 244.7
Contracts terminated........................................ (888.5) -- --
Contracts expired........................................... (80.0) (5.0) (5.6)
Distribution of subsidiaries (Note 3)....................... (23.6) -- --
-------- -------- ------
Contracts outstanding, end of year.......................... $1,025.9 $1,112.6 $244.1
======== ======== ======
</TABLE>
Expected maturities of interest rate swap contracts outstanding at December 31,
1999 are $44.0 million in 2000, $43.1 million in 2001, $83.5 million in 2002,
$536.0 million in 2003, and $319.3 million in 2004. There are no expected
maturities of such interest rate swap contracts thereafter.
G. OTHER SWAP CONTRACTS
The Company enters into insurance portfolio-linked and credit default swap
contracts for investment purposes. Under the insurance portfolio-linked swap
contracts, the Company agrees to exchange cash flows according to the
performance of a specified underwriter's portfolio of insurance business. As
with interest rate swap contracts, the primary risk associated with insurance
portfolio-linked swap contracts is the inability of the counterparty to meet its
obligation. Under the terms of the credit default swap contracts, the Company
assumes the default risk of a specific high credit quality issuer in exchange
for a stated annual premium. In the case of default, the Company will pay the
counterparty par value for a pre-determined security of the issuer. The primary
risk associated with these transactions is the default risk of the underlying
companies. The Company regularly assesses the financial strength of its
counterparties and the underlying companies in default swap contracts, and
generally enters into forward or swap agreements with counterparties rated "A"
or better by nationally recognized rating agencies. Because the underlying
principal of swap contracts is not exchanged, the Company's maximum exposure to
counterparty credit risk is the difference in payments exchanged, which at
December 31, 1999, was not material to the Company. The Company does not require
collateral or other security to support financial instruments with credit risk.
The swap contracts are marked to market with any gain or loss recognized
currently. The fair values of swap contracts outstanding were $(0.3) million and
$(0.1) million at December 31, 1999 and 1998, respectively. The net amount
receivable or payable under insurance portfolio-linked swap contracts is
recognized when the contracts are marked to market. The net (decrease) increase
in realized investment gains related to these contracts was $(0.2) million, $1.0
million and $(1.4) million for the years ended December 31, 1999, 1998 and 1997,
respectively.
F-23
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The stated annual premium under credit default swap contracts is recognized
currently in net investment income. The net increase to investment income
related to credit default swap contracts was $0.4 million and $0.2 million for
the years ended December 31, 1999 and 1998, respectively. There was no net
investment income recognized in 1997.
A reconciliation of the notional amount of other swap contracts is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------- ------ -------
<S> <C> <C> <C>
Contracts outstanding, beginning of year.................... $ 255.0 $ 15.0 $ 58.6
New contracts............................................... 50.0 266.3 192.1
Contracts expired........................................... (115.0) (26.3) (211.6)
Contracts terminated........................................ -- -- (24.1)
------- ------ -------
Contracts outstanding, end of year.......................... $ 190.0 $255.0 $ 15.0
======= ====== =======
</TABLE>
Expected maturities of other swap contracts outstanding at December 31, 1999 are
as follows: $140.0 million in 2000 and $50.0 million in 2001. There are no
expected maturities of such other swap contracts in 2002, 2003, 2004 and
thereafter.
H. OTHER
At December 31, 1999 and 1998, FAFLIC had no concentration of investments in a
single investee exceeding 10% of shareholder's equity.
7. 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) 1999 1998 1997
- ------------- ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $415.7 $509.6 $523.3
Mortgage loans.............................................. 45.5 57.6 57.1
Equity securities........................................... 1.7 7.2 10.5
Policy loans................................................ 12.7 11.9 10.9
Real estate and other long-term investments................. 14.4 7.0 31.5
Short-term investments...................................... 26.6 15.6 9.9
------ ------ ------
Gross investment income..................................... 516.6 608.9 643.2
Less investment expenses.................................... (13.5) (15.0) (23.7)
------ ------ ------
Net investment income....................................... $503.1 $593.9 $619.5
====== ====== ======
</TABLE>
At December 31, 1999, the company had fixed maturities with a carrying value of
$1.0 million on non-accrual status. There were no mortgage loans on non-accrual
status at December 31, 1999. At December 31, 1998, there was one mortgage loan
on non-accrual status which had an outstanding principal balance of $4.3
million. This loan was restructured and fully impaired. There were no fixed
maturities on non-accrual status at December 31, 1998. The effect of
non-accruals, compared with amounts that would have been recognized in
F-24
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accordance with the original terms of the investments, was a reduction in net
income by $1.4 million in 1999, and had no impact in 1998 and 1997.
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 $18.8 million, $28.7 million and $40.3 million at
December 31, 1999, 1998 and 1997, respectively. Interest income on restructured
mortgage loans that would have been recorded in accordance with the original
terms of such loans amounted to $2.5 million, $3.3 million and $3.9 million in
1999, 1998 and 1997, respectively. Actual interest income on these loans
included in net investment income aggregated $1.8 million, $3.3 million and $4.2
million in 1999, 1998 and 1997, respectively.
There were no mortgage loans which were non-income producing for the year ended
December 31, 1999. There were, however, fixed maturities with a carrying value
of $0.3 million which were non-income producing for the year ended December 31,
1999.
Included in other long-term investments is income from limited partnerships of
$6.6 million in 1999, losses of $6.3 million in 1998, and income of $7.6 million
in 1997.
B. NET REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ------ -----
<S> <C> <C> <C>
Fixed maturities............................................ $(52.0) $(11.6) $14.2
Mortgage loans.............................................. 2.5 8.8 (1.2)
Equity securities........................................... 141.3 63.7 53.5
Real estate and other....................................... 8.5 -- 9.8
------ ------ -----
Net realized investment gains............................... $100.3 $ 60.9 $76.3
====== ====== =====
</TABLE>
The proceeds from voluntary sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
PROCEEDS FROM
FOR THE YEARS ENDED DECEMBER 31, VOLUNTARY GROSS GROSS
(IN MILLIONS) SALES GAINS LOSSES
- ------------- ------------- ------ ------
<S> <C> <C> <C>
1999
Fixed maturities............................................ $1,480.5 $ 9.2 $ 27.1
Equity securities........................................... 421.2 149.0 7.6
1998
Fixed maturities............................................ $ 979.2 $ 17.9 $ 11.3
Equity securities........................................... 258.7 72.8 9.0
1997
Fixed maturities............................................ $1,870.7 $ 27.0 $ 15.9
Equity securities........................................... 144.9 55.5 1.2
</TABLE>
F-25
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. OTHER COMPREHENSIVE (LOSS) INCOME RECONCILIATION
The following table provides a reconciliation of gross unrealized (losses) gains
to the net balance shown in the Consolidated Statements of Comprehensive (Loss)
Income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- -------- -------- ------
<S> <C> <C> <C>
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during period,
(includes $22.7 resulting from the distribution of
subsidiaries in 1999, net of taxes (benefit) and minority
interest of $(103.3) million, $(20.8) million and $123.7
million in 1999, 1998 and 1997, respectively).............. $ (121.9) $ (6.8) $115.5
Less: reclassification adjustment for (losses) gains
included in net income (net of taxes and minority interest
of $33.5 million, $21.5 million and $30.7 million in 1999,
1998 and 1997, respectively)............................... (62.2) 33.3 37.6
-------- -------- ------
Other comprehensive (loss) income........................... $ (184.1) $ (40.1) $ 77.9
======== ======== ======
</TABLE>
8. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about certain financial
instruments (insurance contracts, real estate, goodwill and taxes are excluded)
for which it is practicable to estimate such values, whether or not these
instruments are included in the balance sheet. The fair values presented for
certain financial instruments are estimates which, in many cases may differ
significantly from the amounts which could be 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. Included in the fair value of fixed maturities are swap contracts used
to hedge fixed maturities with a fair value of $31.1 million and $(27.1) million
at December 31, 1999 and 1998, respectively. In addition, the Company held
futures contracts with a carrying value of $(0.9) million and $(1.8) million at
December 31, 1999 and 1998, respectively. The fair value of these contracts was
$36.8 million and $92.5 million at December 31, 1999 and 1998, respectively.
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.
F-26
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EQUITY SECURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans is
limited to the lesser of the present value of the cash flows or book value.
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. Liabilities under individual fixed
annuity contracts are estimated based on current surrender values, supplemental
contracts without life contingencies reflect current fund balances, and other
individual contract funds represent the present value of future policy benefits.
All other liabilities are based on surrender values.
TRUST INSTRUMENTS SUPPORTED BY FUNDING OBLIGATIONS
Fair values 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.
DEBT
The carrying value of short-term debt reported in the balance sheet approximates
fair value.
F-27
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 279.3 $ 279.3 $ 504.0 $ 504.0
Fixed maturities.......................................... 3,660.7 3,660.7 7,683.9 7,683.9
Equity securities......................................... 51.4 51.4 397.1 397.1
Mortgage loans............................................ 521.2 521.9 562.3 587.1
Policy loans.............................................. 170.5 170.5 154.3 154.3
-------- -------- -------- --------
$4,683.1 $4,683.8 $9,301.6 $9,326.4
======== ======== ======== ========
FINANCIAL LIABILITIES
Guaranteed investment contracts........................... $1,316.0 $1,341.4 $1,791.8 $1,830.8
Supplemental contracts without life contingencies......... 48.8 48.8 37.3 37.3
Dividend accumulations.................................... 88.1 88.1 88.4 88.4
Other individual contract deposit funds................... 48.4 48.2 61.6 61.1
Other group contract deposit funds........................ 602.9 583.5 700.4 704.0
Individual fixed annuity contracts........................ 1,092.5 1,057.1 1,110.6 1,073.6
Trust instruments supported by funding obligations........ 50.6 49.6 -- --
Short-term debt........................................... -- -- 221.3 221.3
-------- -------- -------- --------
$3,247.3 $3,216.7 $4,011.4 $4,016.5
======== ======== ======== ========
</TABLE>
F-28
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. CLOSED BLOCK
Included in other income in the Consolidated Statements of Income in 1999, 1998
and 1997 is a net pre-tax contribution from the Closed Block of $13.8 million,
$10.4 million and $9.1 million, respectively. Summarized financial information
of the Closed Block as of December 31, 1999 and 1998 and for the periods ended
December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- ------ ------
<S> <C> <C>
Assets
Fixed maturities, at fair value (amortized cost of $387.4
and $399.1
respectively)........................................... $372.9 $414.2
Mortgage loans............................................ 136.3 136.0
Policy loans.............................................. 201.1 210.9
Cash and cash equivalents................................. 22.6 9.4
Accrued investment income................................. 14.0 14.1
Deferred policy acquisition costs......................... 13.1 15.6
Other assets.............................................. 12.3 2.9
------ ------
Total assets................................................ $772.3 $803.1
====== ======
Liabilities
Policy liabilities and accruals........................... $835.2 $862.9
Other liabilities......................................... 6.9 9.1
------ ------
Total liabilities........................................... $842.1 $872.0
====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ------ ------
<S> <C> <C> <C>
Revenues
Premiums and other income................................. $ 52.1 $ 55.4 $ 58.3
Net investment income..................................... 53.8 53.3 53.4
Realized investment (loss) gain........................... (0.6) 0.1 1.3
------ ------ ------
Total revenues.............................................. 105.3 108.8 113.0
------ ------ ------
Benefits and expenses
Policy benefits........................................... 88.9 95.0 100.5
Policy acquisition expenses............................... 2.5 2.7 3.0
Other operating expenses.................................. 0.1 0.7 0.4
------ ------ ------
Total benefits and expenses................................. 91.5 98.4 103.9
------ ------ ------
Contribution from the Closed Block.......................... $ 13.8 $ 10.4 $ 9.1
====== ====== ======
</TABLE>
F-29
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------- ------- -------
<S> <C> <C> <C>
Cash flows
Cash flows from operating activities:
Contribution from the Closed Block........................ $ 13.8 $ 10.4 $ 9.1
Change in:
Deferred policy acquisition costs, net.................. 2.5 2.6 2.9
Premiums and other receivables.......................... -- 0.3 --
Policy liabilities and accruals......................... (13.1) (13.5) (11.6)
Accrued investment income............................... 0.1 - 0.2
Deferred taxes.......................................... -- 0.1 (5.1)
Other assets............................................ (8.3) 2.4 (2.9)
Expenses and taxes payable.............................. (2.9) (2.9) (2.0)
Other, net.............................................. 0.8 (0.1) (1.2)
------- ------- -------
Net cash used in operating activities..................... (7.1) (0.7) (10.6)
Cash flows from investing activities:
Sales, maturities and repayments of investments......... 139.0 83.6 161.6
Purchases of investments................................ (128.5) (106.5) (161.4)
Other, net.............................................. 9.8 7.9 11.4
------- ------- -------
Net cash provided by (used in) investing activities....... 20.3 (15.0) 11.6
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 13.2 (15.7) 1.0
Cash and cash equivalents, beginning of year................ 9.4 25.1 24.1
------- ------- -------
Cash and cash equivalents, end of year...................... $ 22.6 $ 9.4 $ 25.1
======= ======= =======
</TABLE>
There were no valuation allowances on mortgage loans in the Closed Block at
December 31, 1999, 1998 or 1997, respectively.
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.
10. DEBT
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- ------ ------
<S> <C> <C>
Short-term
Commercial paper.......................................... $ -- $ 41.3
Borrowings under bank credit facility..................... -- 150.0
Repurchase agreements..................................... -- 30.0
------ ------
Total short-term debt....................................... $ -- $221.3
====== ======
</TABLE>
F-30
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FAFLIC issues commercial paper primarily to manage imbalances between operating
cash flows and existing commitments. Commercial paper borrowing arrangements are
supported by a credit agreement. At December 31, 1999, there was no commercial
paper outstanding.
Effective December 4, 1998, the Company entered into a credit agreement that
expired on February 5, 1999. Borrowings under this agreement were unsecured and
incurred interest at a rate per annum equal to the eurodollar rate plus
applicable margin. Borrowings outstanding under this credit facility at
December 31, 1998 were $150.0 million. These borrowings were repaid in February
1999.
The company utilizes repurchase agreements to finance certain transactions and
had approximately $30 million in such agreements outstanding at December
31,1998. There were no repurchase agreements outstanding at December 31, 1999.
In 1999, there was no interest expense related to borrowings under the credit
agreement. Interest expense related to borrowings under the credit agreement was
approximately $0.7 million and $2.8 million in 1998 and 1997, respectively. All
interest expense is recorded in other operating expenses.
In October, 1995, AFC issued Senior Debentures with a face value of $200.0
million, pay interest at a rate of 7 5/8%, and mature on October 16, 2025. The
primary source of cash for repayment of the debt by AFC is dividends from FAFLIC
and Allmerica P&C.
11. 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) on continuing operations in the consolidated statements of income is
shown below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ------ ------
<S> <C> <C> <C>
Federal income tax expense (benefit)
Current................................................... $88.7 $ 74.6 $74.4
Deferred.................................................. 4.3 (15.4) 14.2
----- ------ -----
Total....................................................... $93.0 $ 59.2 $88.6
===== ====== =====
</TABLE>
The federal income taxes attributable to the consolidated results of continuing
operations are different from the amounts determined by multiplying income
before federal income taxes by the statutory federal income tax rate. The
sources of the difference and the tax effects of each were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- -------- ------ ------
<S> <C> <C> <C>
Expected federal income tax expense on continuing
operations................................................ $133.9 $107.9 $122.9
Tax-exempt interest....................................... (24.2) (38.9) (37.9)
Dividend received deduction............................... -- (5.1) (3.2)
Changes in tax reserve estimates.......................... (8.7) 2.3 7.8
Tax credits............................................... (8.5) (8.5) (2.7)
Other, net................................................ 0.5 1.5 1.7
------ ------ ------
Federal income tax expense on continuing operations......... $ 93.0 $ 59.2 $ 88.6
====== ====== ======
</TABLE>
F-31
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The deferred income tax (asset) liability represents the tax effects of
temporary differences attributable to the Company's consolidated federal tax
return group. Its components were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- -------- --------
<S> <C> <C>
Deferred tax (assets) liabilities
AMT carryforwards......................................... $ -- $ (16.8)
Loss reserve discounting.................................. (283.5) (406.6)
Deferred acquisition costs................................ 355.7 345.8
Employee benefit plans.................................... (52.0) (45.3)
Investments, net.......................................... (19.5) 121.7
Bad debt reserve.......................................... -- (1.8)
Litigation reserve........................................ (6.0) (10.9)
Discontinued operations................................... (11.7) --
Other, net................................................ (1.1) (5.5)
------- -------
Deferred tax asset, net..................................... $ (18.1) $ (19.4)
======= =======
</TABLE>
Gross deferred income tax assets totaled $515.8 million and $486.9 millions at
December 31, 1999 and 1998, respectively. Gross deferred income tax liabilities
totaled $497.7 million and $467.5 million at December 31, 1999 and 1998,
respectively.
The Company believes, based on the its recent earnings history and its future
expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, the Company considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary. At December 31, 1999 there are no available
alternative minimum tax credit carryforwards.
The Company's federal income tax returns are routinely audited by the Internal
Revenue Services ("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 1994.
The IRS has also examined the former Allmerica P&C consolidated group's federal
income tax returns through 1994. The Company has appealed certain adjustments
proposed by the IRS with respect to the federal income tax returns for 1992,
1993 and 1994 for the FAFLIC/AFLIAC consolidated group. Also, certain
adjustments proposed by the IRS with respect to FAFLIC/AFLIAC's federal income
tax returns for 1982 and 1983 remain unresolved. If upheld, these adjustments
would result in additional payments; however, the Company will vigorously defend
its position with respect to these adjustments. In the Company's opinion,
adequate tax liabilities have been established for all years. However, the
amount of these tax liabilities could be revised in the near term if estimates
of the Company's ultimate liability are revised.
12. PENSION PLANS
FAFLIC, as the common employer for all AFC Companies ("affiliated Companies"),
provides multiple benefit plans to employees and agents of these affiliated
Companies, including retirement plans. The salaries of employees and agents
covered by these plans and the expenses of these plans are charged to the
affiliated Companies in accordance with an intercompany cost sharing agreement.
F-32
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FAFLIC provides retirement benefits to substantially all of its employees under
a defined benefit pension plan. This plan is based on a defined benefit cash
balance formula, whereby the Company annually provides an allocation to each
eligible employee based on a percentage of that employee's salary, similar to a
defined contribution plan arrangement. The 1999, 1998 and 1997 allocations were
based on 7.0% of each eligible employee's salary. In addition to the cash
balance allocation, certain transition group employees, who have met specified
age and service requirements as of December 31, 1994, are eligible for a
grandfathered benefit based primarily on the employees' years of service and
compensation during their highest five consecutive plan years of employment. 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.
Components of net periodic pension cost were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- -------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits earned during the year............. $ 19.3 $ 19.0 $ 19.9
Interest cost............................................... 26.5 25.5 23.5
Expected return on plan assets.............................. (38.9) (34.9) (31.2)
Recognized net actuarial loss............................... 0.4 0.4 0.1
Amortization of transition asset............................ (1.4) (1.8) (1.9)
Amortization of prior service cost.......................... (2.2) (1.7) (2.0)
------- ------- -------
Net periodic pension cost................................. $ 3.7 $ 6.5 $ 8.4
======= ======= =======
</TABLE>
In 1999, subsequent to the AFC corporate reorganization, approximately $1.7
million of the net periodic pension cost was allocated to the distributed
subsidiaries.
The following table summarizes the status of the plan. At December 31, 1999 and
1998 the plans' assets exceeded their projected benefit obligations.
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- -------- --------
<S> <C> <C>
Change in benefit obligations:
Projected benefit obligation at beginning of year......... $ 414.2 $ 370.4
Service cost -- benefits earned during the year........... 19.3 19.0
Interest cost............................................. 26.5 25.5
Actuarial (gains) losses.................................. (44.4) 20.4
Benefits paid............................................. (22.9) (21.1)
------- -------
Projected benefit obligation at end of year............. 392.7 414.2
------- -------
</TABLE>
F-33
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- -------- --------
<S> <C> <C>
Change in plan assets:
Fair value of plan assets at beginning of year............ 441.6 395.5
Actual return on plan assets.............................. 51.9 67.2
Benefits paid............................................. (22.9) (21.1)
Fair value of plan assets at end of year................ 470.6 441.6
Funded status of the plan................................. 77.9 27.4
Unrecognized transition obligation........................ (21.6) (23.9)
Unamortized prior service cost............................ (12.0) (11.0)
Unrecognized net actuarial gains.......................... (101.6) (54.9)
------- -------
Net pension liability................................... $ (57.3) $ (62.4)
======= =======
</TABLE>
As a result of AFC's merger with Allmerica P&C in 1997, certain pension
liabilities were reduced to reflect their fair value as of the merger date.
These pension liabilities were reduced by $8.9 million and $10.3 million in 1999
and 1998, respectively, which reflects fair value, net of applicable
amortization.
Determination of the projected benefit obligations was based on a weighted
average discount rate of 7.75% and 6.5% in 1999 and 1998, respectively, and the
assumed long-term rate of return on plan assets was 9.0% in both 1999 and 1998.
The actuarial present value of the projected benefit obligations was determined
using assumed rates of increase in future compensation levels ranging from 5.0%
to 5.5%. Plan assets are invested primarily in various separate accounts and the
general account of FAFLIC. Plan assets also include 796,462 shares and 973,262
shares of AFC Common Stock at December 31, 1999 and 1998, respectively, with a
market value of $44.3 million and $56.3 million at December 31, 1999 and 1998,
respectively.
The Company has a defined contribution 401(k) plan for its employees, whereby
the Company matches employee elective 401(k) contributions, up to a maximum
percentage determined annually by the Board of Directors. During 1999, 1998 and
1997, the Company matched 50% of employees' contributions up to 6.0% of eligible
compensation. The total expense related to this plan was $5.9 million, $5.6
million and $3.3 million in 1999, 1998 and 1997, respectively. In 1999,
subsequent to the AFC corporate reorganization, approximately $1.4 million of
the 401(k) expense was allocated to the distributed subsidiaries. In addition to
this plan, the Company has a defined contribution plan for substantially all of
its agents. The plan expense in 1999, 1998 and 1997 was $3.1 million, $3.0
million and $2.8 million, respectively.
On January 1, 1998, substantially all of the defined benefit and defined
contribution 401(k) plans previously provided by the affiliated Companies were
merged with the existing benefit plans of FAFLIC. The merger of benefit plans
resulted in a $5.9 million change of interest adjustment to additional paid-in
capital during 1998. The change of interest adjustment arose from FAFLIC's
forgiveness of certain Allmerica P&C benefit plan liabilities attributable to
Allmerica P&C's minority interest.
13. OTHER POSTRETIREMENT BENEFIT PLANS
FAFLIC, as the common employer for all AFC Companies ("affiliated Companies"),
provides multiple postretirement medical and death benefit plans to employees,
agents and retirees of these affiliated Companies. The costs of these plans are
charged to the affiliated Companies in accordance with an intercompany cost
sharing agreement.
F-34
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
The plans' funded status reconciled with amounts recognized in the Company's
Consolidated Balance Sheets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- -------- --------
<S> <C> <C>
Change in benefit obligation:
Accumulated postretirement benefit obligation at beginning
of year................................................... $ 84.0 $ 71.8
Service cost................................................ 2.9 3.1
Interest cost............................................... 4.6 5.1
Actuarial (gains) losses.................................... (21.2) 7.6
Benefits paid............................................... (3.5) (3.6)
------- -------
Accumulated postretirement benefit obligation at end of
year.................................................... 66.8 84.0
------- -------
Fair value of plan assets at end of year.................... -- --
------- -------
Funded status of the plan................................... (66.8) (84.0)
Unamortized prior service cost.............................. (9.8) (12.9)
Unrecognized net actuarial (gains) losses................... (13.8) 7.5
------- -------
Accumulated postretirement benefit costs.................. $ (90.4) $ (89.4)
======= =======
</TABLE>
The components of net periodic postretirement benefit expense were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- -------- -------- --------
<S> <C> <C> <C>
Service cost................................................ $ 2.9 $ 3.1 $ 3.0
Interest cost............................................... 4.6 5.1 4.6
Recognized net actuarial loss (gain)........................ 0.1 0.1 (0.1)
Amortization of prior service cost.......................... (2.3) (2.4) (2.7)
------ ------ ------
Net periodic postretirement benefit cost.................... $ 5.3 $ 5.9 $ 4.8
====== ====== ======
</TABLE>
In 1999, subsequent to the AFC corporate reorganization, approximately $1.1
million of the net periodic postretirement cost was allocated to the distributed
subsidiaries.
As a result of AFC's merger with Allmerica P&C in 1997, certain postretirement
liabilities were reduced to reflect their fair value as of the merger date.
These postretirement liabilities were reduced by $4.6 million and $5.4 million
in 1999 and 1998, respectively, which reflects fair value, net of applicable
amortization.
For purposes of measuring the accumulated postretirement benefit obligation at
December 31, 1999, health care costs were assumed to increase 6.0% in 2000,
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
F-35
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
one percentage point in each year would increase the accumulated postretirement
benefit obligation at December 31, 1999 by $4.1 million, and the aggregate of
the service and interest cost components of net periodic postretirement benefit
expense for 1999 by $0.6 million. Conversely, decreasing the assumed health care
cost trend rates by one percentage point in each year would decrease the
accumulated postretirement benefit obligation at December 31, 1999 by $3.6
million, and the aggregate of the service and interest cost components of net
periodic postretirement benefit expense for 1999 by $0.5 million.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% and 6.5% at December 31, 1999 and
1998, respectively. In addition, the actuarial present value of the accumulated
postretirement benefit obligation was determined using an assumed rate of
increase in future compensation levels of 5.5% for FAFLIC agents.
On January 1, 1998, substantially all of the postretirement medical and death
benefits plans previously provided by the affiliated Companies were merged with
the existing benefit plans of FAFLIC. The merger of benefit plans resulted in a
$3.8 million change of interest adjustment to additional paid-in capital during
1998. The change of interest adjustment arose from FAFLIC's forgiveness of
certain Allmerica P&C benefit plan liabilities attributable to Allmerica P&C's
minority interest.
14. DIVIDEND RESTRICTIONS
Massachusetts and Delaware have enacted laws governing the payment of dividends
to stockholders by insurers. These laws affect the dividend paying ability of
FAFLIC and AFLIAC, 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. During 1999 and 1997, no dividends were
declared by FAFLIC to AFC. During 1998, FAFLIC paid dividends of $50.0 million
to AFC. As of July 1, 1999, FAFLIC's ownership of Allmerica P&C, as well as
several non-insurance subsidiaries, was transferred from FAFLIC to AFC. Under an
agreement with the Commissioner, any dividend from FAFLIC to AFC for years 2000
and 2001 would require the prior approval of the Commissioner and may require
AFC to make additional capital contributions to FAFLIC.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding
December 31 or (ii) the individual company's statutory net gain from operations
for the preceding calendar year (if such insurer is a life company) or its net
income (not including realized capital gains) for the preceding calendar year
(if such insurer is not a life company). Any dividends to be paid by an insurer,
whether or not in excess of the aforementioned threshold, from a source other
than statutory earned surplus would also require the prior approval of the
Delaware Commissioner of Insurance. No dividends were declared by AFLIAC to
FAFLIC during 1999, 1998 or 1997. During 2000, AFLIAC could pay dividends of
$34.3 million to FAFLIC without prior approval.
F-36
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT INFORMATION
The Company offers Asset Accumulation financial products and services. Prior to
the AFC corporate reorganization, the Company offered financial products and
services in two major areas: Risk Management and Asset Accumulation. Within
these broad areas, the Company conducted business principally in three operating
segments. These segments were Risk Management, Allmerica Financial Services and
Allmerica Asset Management. In accordance with Statement No. 131, the separate
financial information of each segment is presented consistent with the way
results are regularly evaluated by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. A summary of
the Company's reportable segments is included below.
In 1999, the Company reorganized its Property and Casualty business and
Corporate Risk Management Services operations within the Risk Management
segment. Under the new structure, the Risk Management segment manages its
business through five distribution channels identified as Hanover North, Hanover
South, Citizens Midwest, Allmerica Voluntary Benefits and Allmerica Specialty.
During the second quarter of 1999, the Company approved a plan to exit its group
life and health business, consisting of its EBS business, its AGU business and
its reinsurance pool business. Results of operations from this business,
relating to both the current and the prior periods, have been segregated and
reported as a component of discontinued operations in the Consolidated
Statements of Income. Operating results from this business were previously
reported in the Allmerica Voluntary Benefits and Allmerica Specialty
distribution channels. Prior to 1999, results of the group life and health
business were included in the Corporate Risk Management Services segment, while
all other Risk Management business was reflected in the Property and Casualty
segment.
The Risk Management segment's property and casualty business is offered
primarily through the Hanover North, Hanover South and Citizens Midwest
distribution channels utilizing the Company's independent agent network
primarily in the Northeast, Midwest and Southeast United States, maintaining a
strong regional focus. Allmerica Voluntary Benefits focuses on worksite
distribution, which offers discounted property and casualty products through
employer sponsored programs, and affinity group property and casualty business.
Allmerica Specialty offers special niche property and casualty products in
selected markets. On July 1, 1999, AFC made certain changes to its corporate
structure as discussed in Note 3. As a result, FAFLIC distributed its interest
in the property and casualty business after that date.
The Asset Accumulation group includes two segments: Allmerica Financial Services
and Allmerica Asset Management. The Allmerica Financial Services segment
includes variable annuities, variable universal life and traditional life
insurance products distributed via retail channels as well as group retirement
products, such as defined benefit and 401(k) plans and tax-sheltered annuities
distributed to institutions. Through its Allmerica Asset Management segment, the
Company offers its customers the option of investing in GICs such as the
traditional GIC, synthetic GIC and other funding agreements. Funding agreements
are investment contracts issued to institutional buyers, such as money market
funds, corporate cash management programs and securities lending collateral
programs, which typically have short maturities and periodic interest rate
resets based on an index such as LIBOR. This segment is also a Registered
Investment Advisor providing investment advisory services, primarily to
affiliates, and to other institutions, such as insurance companies and pension
plans. As a result of the aforementioned change in the AFC corporate structure,
FAFLIC distributed its ownership of certain investment advisory business as of
July 1, 1999.
In addition to the three operating segments, the Company has a Corporate
segment, which consists primarily of cash, investments, corporate debt, Capital
Securities and corporate overhead expenses. Corporate overhead
F-37
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
expenses reflect costs not attributable to a particular segment, such as those
generated by certain officers and directors, Corporate Technology, Corporate
Finance, Human Resources and the Legal department.
Management evaluates the results of the aforementioned segments based on a
pre-tax and minority interest basis. Segment income is determined by adjusting
net income for net realized investment gains and losses, net gains and losses on
disposals of businesses, discontinued operations, extraordinary items, the
cumulative effect of accounting changes and certain other items which management
believes are not indicative of overall operating trends. While these items may
be significant components in understanding and assessing the Company's financial
performance, management believes that the presentation of segment income
enhances understanding of the Company's results of operations by highlighting
net income attributable to the normal, recurring operations of the business.
However, segment income should not be construed as a substitute for net income
determined in accordance with generally accepted accounting principles.
Summarized below is financial information with respect to business segments:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- -------- -------- --------
<S> <C> <C> <C>
Segment revenues:
Risk Management........................................... $1,075.2 $2,220.8 $2,227.3
Asset Accumulation
Allmerica Financial Services............................ 797.0 721.2 713.9
Allmerica Asset Management.............................. 144.5 121.7 91.1
-------- -------- --------
Subtotal............................................ 941.5 842.9 805.0
-------- -------- --------
Corporate................................................. 0.4 2.3 4.7
Intersegment revenues..................................... (0.8) (7.6) (11.5)
-------- -------- --------
Total segment revenues including Closed Block........... 2,016.3 3,058.4 3,025.5
-------- -------- --------
Adjustment to segment revenues:
Adjustment for Closed Block........................... (92.1) (98.4) (102.6)
Change in mortality................................... -- -- (4.2)
Net realized gains.................................... 100.3 60.9 76.3
-------- -------- --------
Total revenues............................................ $2,024.5 $3,020.9 $2,995.0
======== ======== ========
</TABLE>
F-38
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- -------- -------- --------
Segment income (loss) before income taxes and minority interest:
<S> <C> <C> <C>
Risk Management............................................. $ 85.1 $ 149.7 $ 174.2
Asset Accumulation
Allmerica Financial Services.............................. 207.1 169.0 134.6
Allmerica Asset Management................................ 21.3 23.7 18.4
-------- -------- --------
Subtotal.............................................. 228.4 192.7 153.0
-------- -------- --------
Corporate................................................... (38.6) (45.2) (44.6)
Segment income before income taxes and minority interest... 274.9 297.2 282.6
Adjustments to segment income:
Net realized investment gains, net of amortization........ 106.1 52.2 78.5
Sales practice litigation expense......................... -- (31.0) --
Gain from change in mortality assumptions................. -- -- 47.0
Loss on cession of disability income business............. -- -- (53.9)
Restructuring costs....................................... -- (9.0) --
Other items............................................... -- (0.8) (2.8)
-------- -------- --------
Income before taxes and minority interest................... $ 381.0 $ 308.6 $ 351.4
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998 1999 1998
- ------------- --------- --------- ------------ ------------
IDENTIFIABLE ASSETS DEFERRED ACQUISITION COSTS
<S> <C> <C> <C> <C>
Risk Management............................... $ 542.0 $ 6,216.8 $ 6.0 $ 167.5
Asset Accumulation
Allmerica Financial Services................ 23,410.7 19,407.3 1,213.1 993.1
Allmerica Asset Management.................. 1,381.1 1,810.9 0.4 0.6
--------- --------- --------- ---------
Subtotal................................ 24,791.8 21,218.2 1,213.5 993.7
Corporate................................... -- 29.6 -- --
--------- --------- --------- ---------
Total..................................... $25,333.8 $27,464.6 $ 1,219.5 $ 1,161.2
========= ========= ========= =========
</TABLE>
16. LEASE COMMITMENTS
Rental expenses for operating leases, including those related to the
discontinued operations of the Company, amounted to $22.2 million, $34.9 million
and $33.6 million in 1999, 1998 and 1997, respectively. These expenses relate
primarily to building leases of the Company. At December 31, 1999, future
minimum rental payments under non-cancelable operating leases were approximately
$39.9 million, payable as follows: 2000 - $14.1 million; 2001 -- $12.7 million;
2002 -- $8.1 million; 2003 -- $3.6 million, and $1.4 million thereafter. It is
expected that, in the normal course of business, leases that expire will be
renewed or replaced by leases on other property and equipment; thus, it is
anticipated that future minimum lease commitments will not be less than the
amounts shown for 2000.
F-39
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. REINSURANCE
In the normal course of business, the Company seeks to reduce the losses 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 Statement of Financial
Accounting Standards No. 113, Accounting and Reporting for Reinsurance of Short
Duration and Long Duration Contracts.
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.
Effective January 1, 1999, Allmerica P&C entered into a whole account aggregate
excess of loss reinsurance agreement with a highly rated insurer (See Note 5).
Prior to the AFC corporate reorganization, the Company was subject to
concentration of risk with respect to this reinsurance agreement, which
represented 10% or more of the Company's reinsurance business. Net premiums
earned and losses and loss adjustment expenses ceded under this agreement in
1999 were $21.9 million and $35.0 million, respectively. In addition, 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 Market Pool ("MWCRP") and the Michigan Catastrophic Claims Association
("MCCA"). Prior to the AFC corporate reorganization, both CAR and MCCA
represented 10% or more of the Company's reinsurance business. As a servicing
carrier in Massachusetts, the Company ceded 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 1999, 1998 and 1997 were
$20.4 million and $21.4 million, $34.3 million and $38.1 million, and $32.3
million and $28.2 million, respectively. The Company ceded to MCCA premiums
earned and losses and loss adjustment expenses in 1999, 1998 and 1997 of $1.8
million and $30.6 million, $3.7 million and $18.0 million, and $9.8 million and
$(0.8) million, respectively.
On June 2, 1998, the Company recorded a $124.2 million one-time reduction of its
direct and ceded written premiums as a result of a return of excess surplus from
MCCA. This transaction had no impact on the total net premiums recorded by the
Company in 1998.
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.
F-40
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1999 1998 1997
- ------------- -------- -------- --------
<S> <C> <C> <C>
Life and accident and health insurance premiums:
Direct.................................................... $ 53.5 $ 51.4 $ 55.9
Assumed................................................... 0.7 0.7 0.6
Ceded..................................................... (50.0) (47.8) (29.1)
-------- -------- --------
Net premiums................................................ $ 4.2 $ 4.3 $ 27.4
======== ======== ========
Property and casualty premiums written:
Direct.................................................... $1,089.0 $1,970.4 $2,068.5
Assumed................................................... 27.3 58.8 103.1
Ceded..................................................... (135.4) (74.1) (179.8)
-------- -------- --------
Net premiums................................................ $ 980.9 $1,955.1 $1,991.8
======== ======== ========
Property and casualty premiums earned:
Direct.................................................... $1,047.3 $1,966.8 $2,046.1
Assumed................................................... 30.3 64.5 102.0
Ceded..................................................... (127.3) (66.1) (195.1)
-------- -------- --------
Net premiums................................................ $ 950.3 $1,965.2 $1,953.0
======== ======== ========
Life insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
Direct.................................................... $ 391.9 $ 359.5 $ 397.4
Assumed................................................... 0.1 0.3 0.4
Ceded..................................................... (39.2) (49.5) (79.4)
-------- -------- --------
Net policy benefits, claims, losses and loss adjustment
expenses.................................................. $ 352.8 $ 310.3 $ 318.4
======== ======== ========
Property and casualty benefits, claims, losses and loss
adjustment expenses:
Direct.................................................... $ 805.6 $1,588.2 $1,464.9
Assumed................................................... 25.9 62.7 101.2
Ceded..................................................... (128.0) (158.2) (120.6)
-------- -------- --------
Net policy benefits, claims, losses, and loss adjustment
expenses.................................................. $ 703.5 $1,492.7 $1,445.5
======== ======== ========
</TABLE>
F-41
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. DEFERRED POLICY ACQUISITION COSTS
The following reflects the changes to the deferred policy acquisition asset:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1999 1998 1997
- ------------- -------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year................................ $1,161.2 $ 965.5 $ 822.7
Acquisition expenses deferred............................... 419.2 638.2 614.3
Amortized to expense during the year........................ (240.9) (449.6) (472.6)
Adjustment for discontinued operations...................... 3.4 ( 0.2) --
Adjustment to equity during the year........................ 39.3 7.3 (11.1)
Adjustment due to distribution of subsidiaries.............. (162.7) -- --
Adjustment for cession of disability income insurance....... -- -- (38.6)
Adjustment for revision of universal and variable universal
life insurance mortality assumptions...................... -- -- 50.8
-------- -------- --------
Balance at end of year...................................... $1,219.5 $1,161.2 $ 965.5
======== ======== ========
</TABLE>
At October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.8 million recapitalization of deferred policy acquisition costs.
19. LIABILITIES FOR OUTSTANDING CLAIMS, LOSSES AND LOSS ADJUSTMENT EXPENSES
The Company regularly updates its estimates of 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 recorded in results of operations in the year such
changes are determined to be needed.
The liability for future policy benefits and outstanding claims, losses and loss
adjustment expenses related to the Company's accident and health business was
$601.3 million and $568.0 million at December 31, 1999 and 1998, respectively.
Accident and health claim liabilities were re-estimated for all prior years and
were increased by $51.2 million and $14.6 million in 1999 and 1998,
respectively. The increase in 1999 resulted from the Company's reserve
strengthening primarily in the EBS and reinsurance pool business. The 1998
increase also resulted from the Company's reserve strengthening, primarily in
the assumed reinsurance and stop loss only business.
F-42
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table provides a reconciliation of the beginning and ending
property and casualty reserve for unpaid losses and loss adjustment expenses
(LAE):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1999 1998 1997
- ------------- -------- -------- --------
<S> <C> <C> <C>
Reserve for losses and LAE, beginning of the year........... $2,597.3 $2,615.4 $2,744.1
Incurred losses and LAE, net of reinsurance recoverable:
Provision for insured events of the current year.......... 795.6 1,609.0 1,564.1
Decrease in provision for insured events of prior years... (96.1) (127.2) (127.9)
-------- -------- --------
Total incurred losses and LAE............................... 699.5 1,481.8 1,436.2
-------- -------- --------
Payments, net of reinsurance recoverable:
Losses and LAE attributable to insured events of current
year.................................................... 342.1 871.9 775.1
Losses and LAE attributable to insured events of prior
years................................................... 424.2 643.0 732.1
-------- -------- --------
Total payments 766.3 1,514.9 1,507.2
Change in reinsurance recoverable on unpaid losses.......... 44.3 15.0 (50.2)
Distribution of subsidiaries................................ (2,574.8) -- --
Other (1)................................................... -- -- (7.5)
-------- -------- --------
Reserve for losses and LAE, end of year..................... $ -- $2,597.3 $2,615.4
======== ======== ========
</TABLE>
(1) Includes purchase accounting adjustments.
As part of an ongoing process, the reserves have been re-estimated for all prior
accident years and were decreased by $96.1 million, $127.2 million and $127.9
million in 1999, 1998 and 1997, respectively, reflecting increased favorable
development on reserves for both losses and loss adjustment expenses.
Favorable development on prior years' loss reserves was $52.0 million, $58.9
million, and $87.2 million prior to the AFC corporate reorganization in 1999 and
for the years ended December 31, 1998 and 1997, respectively. Favorable
development on prior year's loss adjustment expense reserves was $44.1 million,
$68.3 million, and $40.7 million prior to the AFC corporate reorganization in
1999 and for the years ended December 31, 1998 and 1997, respectively. The
increase in favorable development 1998 is primarily attributable to claims
process improvement initiatives taken by the Company. The Company has lowered
claim settlement costs through increased utilization of in-house attorneys and
consolidation of claim offices.
This favorable development reflects the Company's 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 the business written by the Risk Management segment, the
exposure to environmental liabilities is relatively small and therefore its
reserves are relatively small compared to other types of liabilities. Due to the
AFC corporate reorganization, the Company had no exposure for this item at
December 31, 1999. Loss and LAE reserves related to environmental damage and
toxic tort liability, included in the reserve for losses and LAE, were $49.9
million and $53.1 million, net of reinsurance of $14.2 million and $15.7 million
in 1998 and 1997, respectively. The Company does not specifically underwrite
policies that include this coverage, but as case law expands policy provisions
and insurers' liability beyond the intended coverage, the Company may be
required to defend such claims. The Company estimated its ultimate liability for
these claims based upon currently known facts, reasonable assumptions where the
facts are not known,
F-43
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
current law and methodologies currently available. Although these claims are not
significant, their existence gives rise to uncertainty and is discussed because
of the possibility, however remote, that they may become significant. The
Company believes that, notwithstanding the evolution of case law expanding
liability in environmental claims, recorded reserves related to these claims are
adequate. In addition, the Company is not aware of any litigation or pending
claims that may result in additional material liabilities in excess of recorded
reserves. The environmental liability could be revised in the near term if the
estimates used in determining the liability are revised.
20. MINORITY INTEREST
As a result of the Company's divestiture of certain of its subsidiaries
including its 84.5% ownership of the outstanding shares of the common stock of
Allmerica P&C effective July 1, 1999, there is no minority interest reflected on
the Consolidated Balance Sheets as of December 31, 1999. In prior years, the
Company's interest in Allmerica P&C was represented by ownership of 70.0% and
65.8% of the outstanding shares of common stock at December 31, 1998 and 1997,
respectively. Earnings and shareholder's equity attributable to minority
shareholders are included in minority interest in the consolidated financial
statements through the period ended June 30, 1999 and for the years ended
December 31, 1998 and 1997.
21. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company is not able to reasonably estimate the potential
effect on it of any such future assessments or voluntary payments.
LITIGATION
In July 1997, a lawsuit on behalf of a putative class was instituted in
Louisiana against AFC and certain of its subsidiaries, including FAFLIC, by
individual plaintiffs alleging fraud, unfair or deceptive acts, breach of
contract, misrepresentation, and related claims in the sale of life insurance
policies. In October 1997, the plaintiffs voluntarily dismissed the Louisiana
suit and filed a substantially similar action in Federal District Court in
Worcester, Massachusetts. In early November 1998, the Company and the plaintiffs
entered into a settlement agreement. The court granted preliminary approval of
the settlement on December 4, 1998. On May 19, 1999, the court issued an order
certifying the class for settlement purposes and granting final approval of the
settlement agreement. FAFLIC recognized a $31.0 million pre-tax expense during
the third quarter of 1998 related to this litigation. Although the Company
believes that this expense reflects appropriate recognition of its obligation
under the settlement, this estimate assumes the availability of insurance
coverage for certain claims, and the estimate may be revised based on the amount
of reimbursement actually tendered by AFC's insurance carriers, and based on
changes in the Company's estimate of the ultimate cost of the benefits to be
provided to members of the class.
The Company has been named a defendant in various other legal proceedings
arising in the normal course of business. In the Company's opinion, 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,
F-44
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
liabilities related to these proceedings could be established in the near term
if estimates of the ultimate resolution of these proceedings are revised.
YEAR 2000
The Year 2000 issue resulted from computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
Although the Company does not believe that there is a material contingency
associated with the Year 2000 issue, there can be no assurance that exposure for
material contingencies will not arise.
22. STATUTORY FINANCIAL INFORMATION
The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles
primarily because policy acquisition costs are expensed when incurred,
investment reserves are based on different assumptions, 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. In 1999, 49 out of 50
states have adopted the National Association of Insurance Commissioners proposed
Codification, which provides for uniform statutory accounting principles. These
principles are effective January 1, 2001. The Company is currently assessing the
impact that the adoption of Codification will have on its statutory results of
operations and financial position.
Statutory net income and surplus are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ------------- -------- -------- --------
<S> <C> <C> <C>
Statutory Net Income (Combined)
Property and Casualty Companies........................... $322.6 $ 180.7 $ 190.3
Life and Health Companies................................. 239.0 86.4 191.2
Statutory Shareholder's Surplus (Combined)
Property and Casualty Companies (See Note 3).............. $-- $1,269.3 $1,279.6
Life and Health Companies................................. 590.1 1,164.1 1,221.3
</TABLE>
F-45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of First Allmerica Financial Life Insurance Company
and the Contractowners of Separate Account VA-P of First Allmerica Financial
Life Insurance Company
In our opinion, the accompanying statements of assets and liabilities, and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the Sub-Accounts
constituting the Separate Account VA-P of First Allmerica Financial Life
Insurance Company at December 31, 1999, the results of each of their operations
and the changes in each of their net assets for each of the periods indicated,
in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of First Allmerica
Financial Life Insurance Company; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the Fund, provide a reasonable basis for the opinion
expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
April 3, 2000
<PAGE>
SEPARATE ACCOUNT VA-P
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERNATIONAL REAL ESTATE
GROWTH CAPITAL GROWTH GROWTH EQUITY-INCOME
------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in shares of Pioneer Variable Contracts Trust .... $ 898,175 $1,409,970 $ 56,749 $2,337,292
Receivable from First Allmerica Financial Life Insurance
Company (Sponsor) .......................................... - - - 3,141
---------- ---------- ---------- ----------
Total assets ............................................. 898,175 1,409,970 56,749 2,340,433
LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor) .......................................... - 1,079 - -
---------- ---------- ---------- ----------
Net assets ............................................... $ 898,175 $1,408,891 $ 56,749 $2,340,433
========== ========== ========== ==========
Net asset distribution by category:
Variable annuity contracts ................................. $ 898,175 $1,408,891 $ 56,749 $2,340,433
Value of investment by First Allmerica Financial Life
Insurance Company (Sponsor) ............................. - - - -
---------- ---------- ---------- ----------
$ 898,175 $1,408,891 $ 56,749 $2,340,433
========== ========== ========== ==========
Units outstanding, December 31, 1999 ......................... 612,869 1,052,352 52,232 1,316,251
Net asset value per unit, December 31, 1999 .................. $ 1.465526 $ 1.338803 $ 1.086484 $ 1.778106
<CAPTION>
AMERICA MONEY
BALANCED INCOME MARKET
-------- ------- ------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Pioneer Variable Contracts Trust ... $ 681,000 $ 414,761 $ 383,304
Receivable from First Allmerica Financial Life Insurance
Company (Sponsor) ......................................... - 1,703 -
---------- ---------- ----------
Total assets ........................................... 681,000 416,464 383,304
LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor) ......................................... - - -
---------- ---------- ----------
Net assets .............................................. $ 681,000 $ 416,464 $ 383,304
========== ========== ==========
Net asset distribution by category:
Variable annuity contracts ................................ $ 681,000 $ 416,464 $ 383,304
Value of investment by First Allmerica Financial Life
Insurance Company (Sponsor) ............................ - - -
---------- ---------- ----------
$ 681,000 $ 416,464 $ 383,304
========== ========== ==========
Units outstanding, December 31, 1999 ........................ 537,374 368,648 345,721
Net asset value per unit, December 31, 1999 ................. $ 1.267274 $ 1.129702 $ 1.108708
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
SEPARATE ACCOUNT VA-P
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<CAPTION>
SWISS FRANC GROWTH GROWTH EMERGING STRATEGIC
BOND SHARES AND INCOME MARKETS EUROPE INCOME
----------- -------- ---------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in shares of Pioneer Variable Contracts Trust $1,281,355 $2,264,129 $2,764,857 $ 174,228 $ 91,992 $ 2,015
Receivable from First Allmerica Financial Life Insurance
Company (Sponsor) ...................................... - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Total assets ........................................ 1,281,355 2,264,129 2,764,857 174,228 91,992 2,015
LIABILITIES:
Payable to First Allmerica Financial Life Insurance
Company (Sponsor) ...................................... - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Net assets ........................................... $1,281,355 $2,264,129 $2,764,857 $ 174,228 $ 91,992 $ 2,015
========== ========== ========== ========== ========== ==========
Net asset distribution by category:
Variable annuity contracts ............................. $1,281,355 $2,264,129 $2,764,857 $ 174,191 $ 91,992 $ -
Value of investment by First Allmerica Financial Life
Insurance Company (Sponsor) ......................... - - - 37 - 2,015
---------- ---------- ---------- ---------- ---------- ----------
$1,281,355 $2,264,129 $2,764,857 $ 174,228 $ 91,992 $ 2,015
========== ========== ========== ========== ========== ==========
Units outstanding, December 31, 1999 ..................... 1,537,488 1,594,409 1,849,205 94,548 68,701 2,000
Net asset value per unit, December 31, 1999 .............. $ 0.833408 $ 1.420042 $ 1.495160 $ 1.842758 $ 1.339030 $ 1.007561
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
SEPARATE ACCOUNT VA-P
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INTERNATIONAL REAL ESTATE
GROWTH CAPITAL GROWTH GROWTH
------------------ ------------------ ------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................................ $ 8,244 $ 11,005 $ 3,623
------------------ ------------------ ------------------
EXPENSES:
Mortality and expense risk fees .......................... 8,125 16,262 916
Administrative expense charges ........................... 975 1,952 109
------------------ ------------------ ------------------
Total expenses ......................................... 9,100 18,214 1,025
------------------ ------------------ ------------------
Net investment income (loss) ........................... (856) (7,209) 2,598
------------------ ------------------ ------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsor ....... - - 605
Net realized gain (loss) from sales of investments ....... (9,373) (9,104) (13,369)
------------------ ------------------ ------------------
Net realized gain (loss) ............................... (9,373) (9,104) (12,764)
Net unrealized gain (loss) ............................... 265,634 148,514 6,023
------------------ ------------------ ------------------
Net realized and unrealized gain (loss) ............... 256,261 139,410 (6,741)
------------------ ------------------ ------------------
Net increase (decrease) in net assets from operations .. $ 255,405 $ 132,201 $ (4,143)
================== ================== ==================
<CAPTION>
AMERICA MONEY
EQUITY-INCOME BALANCED INCOME MARKET
-------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................................ $ 44,383 $ 24,358 $ 24,296 $ 13,823
-------------- --------------- --------------- -------------
EXPENSES:
Mortality and expense risk fees .......................... 29,079 8,524 5,362 3,999
Administrative expense charges ........................... 3,490 1,023 643 480
-------------- --------------- --------------- -------------
Total expenses ......................................... 32,569 9,547 6,005 4,479
-------------- --------------- --------------- -------------
Net investment income (loss) ........................... 11,814 14,811 18,291 9,344
-------------- --------------- --------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsor ....... 61,879 - 428 -
Net realized gain (loss) from sales of investments ....... 56,014 804 (4,272) -
-------------- --------------- --------------- -------------
Net realized gain (loss) ............................... 117,893 804 (3,844) -
Net unrealized gain (loss) ............................... (147,614) (8,357) (30,960) -
-------------- --------------- --------------- -------------
Net realized and unrealized gain (loss) ............... (29,721) (7,553) (34,804) -
-------------- --------------- --------------- -------------
Net increase (decrease) in net assets from operations .. $ (17,907) $ 7,258 $ (16,513) $ 9,344
============== =============== =============== =============
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
SEPARATE ACCOUNT VA-P
STATEMENTS OF OPERATIONS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1999
<CAPTION>
SWISS FRANC GROWTH GROWTH
BOND SHARES AND INCOME
------------------ ------------------ ------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................................ $ 8,270 $ 452 $ 18,126
------------------ ------------------ ------------------
EXPENSES:
Mortality and expense risk fees .......................... 14,218 24,887 27,418
Administrative expense charges ........................... 1,706 2,987 3,290
------------------ ------------------ ------------------
Total expenses ......................................... 15,924 27,874 30,708
------------------ ------------------ ------------------
Net investment income (loss) ........................... (7,654) (27,422) (12,582)
------------------ ------------------ ------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsor ....... - 2,734 2,439
Net realized gain (loss) from sales of investments ....... (19,563) 18,766 7,983
------------------ ------------------ ------------------
Net realized gain (loss) ............................... (19,563) 21,500 10,422
Net unrealized gain (loss) ............................... (150,825) 114,622 306,260
------------------ ------------------ ------------------
Net realized and unrealized gain (loss) ............... (170,388) 136,122 316,682
------------------ ------------------ ------------------
Net increase (decrease) in net assets from operations .. $ (178,042) $ 108,700 $ 304,100
================== ================== ==================
<CAPTION>
EMERGING STRATEGIC
MARKETS EUROPE INCOME*
------------------ ------------------ ------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends ................................................ $ - $ - $ 46
------------------ ------------------ ------------------
EXPENSES:
Mortality and expense risk fees .......................... 375 521 7
Administrative expense charges ........................... 45 63 1
------------------ ------------------ ------------------
Total expenses ......................................... 420 584 8
------------------ ------------------ ------------------
Net investment income (loss) ........................... (420) (584) 38
------------------ ------------------ ------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsor ....... - 32 -
Net realized gain (loss) from sales of investments ....... 116 1,173 -
------------------ ------------------ ------------------
Net realized gain (loss) ............................... 116 1,205 -
Net unrealized gain (loss) ............................... 36,169 18,108 (23)
------------------ ------------------ ------------------
Net realized and unrealized gain (loss) ............... 36,285 19,313 (23)
------------------ ------------------ ------------------
Net increase (decrease) in net assets from operations .. $ 35,865 $ 18,729 $ 15
================== ================== ==================
</TABLE>
* For the Period 7/29/99 (date of initial investment) to 12/31/99.
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
SEPARATE ACCOUNT VA-P
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH CAPITAL GROWTH
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
---------------------- --------------------------
1999 1998 1999 1998
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ...................................... (856) 421 (7,209) (8,549)
Net realized gain (loss) .......................................... (9,373) 31,900 (9,104) 60,680
Net unrealized gain (loss) ........................................ 265,634 (56,780) 148,514 (145,164)
--------- --------- ----------- -----------
Net increase (decrease) in net assets from operations ............ 255,405 (24,459) 132,201 (93,033)
--------- --------- ----------- -----------
FROM CONTRACT TRANSACTIONS:
Net purchase payments ............................................. 62,781 300,476 156,304 600,034
Withdrawals ....................................................... (30,847) (4,726) (108,844) (48,474)
Contract benefits ................................................. (22,188) (878) (52,975) (693)
Contract charges .................................................. (154) (165) (620) (428)
Transfers between sub-accounts (including fixed account), net ..... 11,729 (46,689) (4,237) 39,448
Other transfers from (to) the General Account ..................... 22,538 633 3,471 6,956
Net increase (decrease) in investment by Sponsor ................. - - - -
--------- --------- ----------- -----------
Net increase (decrease) in net assets from contract transactions .. 43,859 248,651 (6,901) 596,843
--------- --------- ----------- -----------
Net increase (decrease) in net assets ............................. 299,264 224,192 125,300 503,810
NET ASSETS:
Beginning of year ................................................. 598,911 374,719 1,283,591 779,781
--------- --------- ----------- -----------
End of year ....................................................... $ 898,175 $ 598,911 $ 1,408,891 $ 1,283,591
========= ========= =========== ===========
<CAPTION>
REAL ESTATE GROWTH EQUITY-INCOME
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ------------------------
1999 1998 1999 1998
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ...................................... 2,598 3,696 11,814 10,983
Net realized gain (loss) .......................................... (12,764) (4,929) 117,893 34,811
Net unrealized gain (loss) ........................................ 6,023 (34,371) (147,614) 249,762
--------- -------- ---------- ----------
Net increase (decrease) in net assets from operations ............ (4,143) (35,604) (17,907) 295,556
--------- -------- ---------- ----------
FROM CONTRACT TRANSACTIONS:
Net purchase payments ............................................. 6,513 86,742 305,289 1,124,332
Withdrawals ....................................................... (16,967) (335) (133,141) (136,858)
Contract benefits ................................................. (6,414) (593) (114,908) (2,301)
Contract charges .................................................. (29) (66) (907) (519)
Transfers between sub-accounts (including fixed account), net ..... (30,734) (46,903) (17,606) 54,293
Other transfers from (to) the General Account ..................... (3,488) 1,237 (9,500) 43,305
Net increase (decrease) in investment by Sponsor ................. - - - -
--------- -------- ---------- ----------
Net increase (decrease) in net assets from contract transactions .. (51,119) 40,082 29,227 1,082,252
--------- -------- ---------- ----------
Net increase (decrease) in net assets ............................. (55,262) 4,478 11,320 1,377,808
NET ASSETS:
Beginning of year ................................................. 112,011 107,533 2,329,113 951,305
--------- -------- ---------- ----------
End of year ....................................................... $ 56,749 $112,011 $2,340,433 $2,329,113
========= ======== ========== ==========
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
SEPARATE ACCOUNT VA-P
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<CAPTION>
BALANCED AMERICA INCOME
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................... 14,811 7,529 18,291 11,230
Net realized gain (loss) ........................................... 804 14,037 (3,844) 5,938
Net unrealized gain (loss) ......................................... (8,357) (14,123) (30,960) 1,148
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations ............. 7,258 7,443 (16,513) 18,316
------------ ------------ ------------ ------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments .............................................. 64,347 354,356 102,559 188,929
Withdrawals ........................................................ (21,576) (102,185) (13,929) (158,655)
Contract benefits .................................................. (32,890) (2,784) (27,046) -
Contract charges ................................................... (251) (136) (140) (15)
Transfers between sub-accounts (including fixed account), net ...... (31,551) 6,311 11,164 33,131
Other transfers from (to) the General Account ...................... 46,494 12,080 18,825 35,693
Net increase (decrease) in investment by Sponsor .................. - - - -
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from contract transactions ... 24,573 267,642 91,433 99,083
------------ ------------ ------------ ------------
Net increase (decrease) in net assets .............................. 31,831 275,085 74,920 117,399
NET ASSETS:
Beginning of year .................................................. 649,169 374,084 341,544 224,145
------------ ------------ ------------ ------------
End of year ........................................................ $ 681,000 $ 649,169 $ 416,464 $ 341,544
============ ============ ============ ============
<CAPTION>
MONEY MARKET SWISS FRANC BOND
YEAR ENDED YEAR ENDED
DECEMBER 31, December 31,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) .......................................... 9,344 7,840 (7,654) 13,812
Net realized gain (loss) .............................................. - - (19,563) 20
Net unrealized gain (loss) ............................................ - - (150,825) 31,566
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations ................ 9,344 7,840 (178,042) 45,398
------------ ------------ ------------ ------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments ................................................. 229,522 250,100 964,389 346,393
Withdrawals ........................................................... (4,083) - (40,394) (9,378)
Contract benefits ..................................................... - - - -
Contract charges ...................................................... (75) (30) (900) (519)
Transfers between sub-accounts (including fixed account), net ......... (185,495) (71,005) (129,399) (725)
Other transfers from (to) the General Account ......................... 4,421 41,000 (12,387) (30)
Net increase (decrease) in investment by Sponsor ..................... - - - -
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from contract transactions ...... 44,290 220,065 781,309 335,741
------------ ------------ ------------ ------------
Net increase (decrease) in net assets ................................. 53,634 227,905 603,267 381,139
NET ASSETS:
Beginning of year ..................................................... 329,670 101,765 678,088 296,949
------------ ------------ ------------ ------------
End of year ...........................................................$ 383,304 $ 329,670 $ 1,281,355 $ 678,088
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
SA-6
<PAGE>
SEPARATE ACCOUNT VA-P
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<CAPTION>
GROWTH SHARES GROWTH AND INCOME
YEAR ENDED PERIOD YEAR ENDED PERIOD
DECEMBER 31, FROM 1/21/98* DECEMBER 31, FROM 1/21/98*
1999 TO 12/31/98 1999 TO 12/31/98
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................... (27,422) (8,114) (12,582) (1,963)
Net realized gain (loss) ........................................... 21,500 794 10,422 (340)
Net unrealized gain (loss) ......................................... 114,622 174,353 306,260 171,878
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations ............. 108,700 167,033 304,100 169,575
------------ ------------ ------------ ------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments .............................................. 390,452 1,427,502 663,697 1,211,120
Withdrawals ........................................................ (45,397) (4,063) (33,354) (3,899)
Contract benefits .................................................. (11,640) - (2,686) -
Contract charges ................................................... (625) (14) (775) (6)
Transfers between sub-accounts (including fixed account), net ...... 137,265 (3,499) 113,654 35,639
Other transfers from (to) the General Account ...................... 64,525 33,890 158,302 149,490
Net increase (decrease) in investment by Sponsor .................. - - - -
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from contract transactions ... 534,580 1,453,816 898,838 1,392,344
------------ ------------ ------------ ------------
Net increase (decrease) in net assets .............................. 643,280 1,620,849 1,202,938 1,561,919
NET ASSETS:
Beginning of year .................................................. 1,620,849 - 1,561,919 -
------------ ------------ ------------ ------------
End of year ........................................................ $ 2,264,129 $ 1,620,849 $ 2,764,857 $ 1,561,919
============ ============ ============ ============
<CAPTION>
EMERGING MARKETS EUROPE
YEAR ENDED PERIOD YEAR ENDED PERIOD
DECEMBER 31, FROM 10/30/98* DECEMBER 31, FROM 10/30/98*
1999 TO 12/31/98 1999 TO 12/31/98
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................... (420) - (584) -
Net realized gain (loss) ........................................... 116 - 1,205 -
Net unrealized gain (loss) ......................................... 36,169 1 18,108 1
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from operations ............. 35,865 1 18,729 1
------------ ------------ ------------ ------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments .............................................. 62,388 - 56,178 -
Withdrawals ........................................................ - - (10,359) -
Contract benefits .................................................. - - - -
Contract charges ................................................... (5) - (14) -
Transfers between sub-accounts (including fixed account), net ...... 65,960 - 28,615 -
Other transfers from (to) the General Account ...................... 9,999 - (1,157) -
Net increase (decrease) in investment by Sponsor .................. - 20 (21) 20
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from contract transactions ... 138,342 20 73,242 20
------------ ------------ ------------ ------------
Net increase (decrease) in net assets .............................. 174,207 21 91,971 21
NET ASSETS:
Beginning of year .................................................. 21 - 21 -
------------ ------------ ------------ ------------
End of year ........................................................ $ 174,228 $ 21 $ 91,992 $ 21
============ ============ ============ ============
<CAPTION>
STRATEGIC INCOME
PERIOD
FROM 7/29/99*
TO 12/31/99
------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss) ....................................... 38
Net realized gain (loss) ........................................... -
Net unrealized gain (loss) ......................................... (23)
------------
Net increase (decrease) in net assets from operations ............. 15
------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments .............................................. -
Withdrawals ........................................................ -
Contract benefits .................................................. -
Contract charges ................................................... -
Transfers between sub-accounts (including fixed account), net ...... -
Other transfers from (to) the General Account ...................... -
Net increase (decrease) in investment by Sponsor .................. 2,000
------------
Net increase (decrease) in net assets from contract transactions ... 2,000
------------
Net increase (decrease) in net assets .............................. 2,015
NET ASSETS:
Beginning of year .................................................. -
------------
End of year ........................................................ $ 2,015
============
* Date of initial investment.
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-7
<PAGE>
SEPARATE ACCOUNT VA-P
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Separate Account VA-P, which funds the Pioneer Vision variable annuity
contracts, is a separate investment account of First Allmerica Financial Life
Insurance Company (the Company), established on March 1, 1995 for the purpose of
separating from the general assets of the Company those assets used to fund
certain variable annuity contracts issued by the Company. The Company is a
wholly-owned subsidiary of Allmerica Financial Corporation (AFC). Under
applicable insurance law, the assets and liabilities of Separate Account VA-P
are clearly identified and distinguished from the other assets and liabilities
of the Company. Separate Account VA-P cannot be charged with liabilities arising
out of any other business of the Company.
Separate Account VA-P is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). Separate Account VA-P
currently offers thirteen Sub-Accounts under the contracts. Each Sub-Account
invests exclusively in a corresponding investment portfolio of the Pioneer
Variable Contracts Trust (the Fund). Each portfolio is managed by Pioneer
Investment Management, Inc. The Fund is an open-end, management investment
company registered under the 1940 Act.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS - Security transactions are recorded on the trade date.
Investments held by the Sub-Accounts are stated at the net asset value per share
of the respective investment portfolio of the Fund. Realized gains and losses on
securities sold are determined using the average cost method. Dividends and
capital gain distributions are recorded on the ex-dividend date and are
reinvested in additional shares of the respective investment portfolio of the
Fund at net asset value.
FEDERAL INCOME TAXES - The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code (the Code) and files a
consolidated federal income tax return. The Company anticipates no tax liability
resulting from the operations of Separate Account VA-P. Therefore, no provision
for income taxes has been charged against Separate Account VA-P.
SA-8
<PAGE>
SEPARATE ACCOUNT VA-P
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share
of each Sub-Account's investment in the Fund at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
-------------------------------------------------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
INVESTMENT PORTFOLIO SHARES COST PER SHARE
-------------------- ------------------- ------------------------ ----------------------
<S> <C> <C> <C>
International Growth . . . . . . . . . . . . . . . 58,399 $ 706,190 $ 15.380
Capital Growth . . . . . . . . . . . . . . . . . . 86,714 1,332,943 16.260
Real Estate Growth . . . . . . . . . . . . . . . . 4,838 70,764 11.730
Equity-Income . . . . . . . . . . . . . . . . . . 112,804 2,072,430 20.720
Balanced . . . . . . . . . . . . . . . . . . . . . 47,589 677,205 14.310
America Income . . . . . . . . . . . . . . . . . . 43,797 440,140 9.470
Money Market . . . . . . . . . . . . . . . . . . . 383,304 383,304 1.000
Swiss Franc Bond . . . . . . . . . . . . . . . . . 112,895 1,409,652 11.350
Growth Shares. . . . . . . . . . . . . . . . . . . 103,291 1,975,154 21.920
Growth and Income . . . . . . . . . . . . . . . . 121,800 2,286,719 22.700
Emerging Markets . . . . . . . . . . . . . . . . . 9,292 138,058 18.750
Europe . . . . . . . . . . . . . . . . . . . . . . 6,759 73,883 13.610
Strategic Income . . . . . . . . . . . . . . . . . 207 2,038 9.750
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum based on the average daily
net assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account 0.15% per annum based on the
average daily net assets of each Sub-Account for administrative expenses. These
charges are deducted from the daily value of each Sub-Account and are paid to
the Company on a daily basis.
A contract fee is currently deducted on the contract anniversary and upon
full surrender of the contract when the accumulated value is less than $50,000
on contracts issued on Form A3025-96 (Pioneer Vision 2), $50,000 or less on
contracts issued on Form A3023-95 (Pioneer Vision) and less than $75,000 on
contracts issued on Form A3027-98 (Pioneer C-Vision). The fee is currently
waived for Pioneer Vision and Pioneer Vision 2 contracts issued to and
maintained by the trustee of a 401(k) plan.
Allmerica Investments, Inc. (Allmerica Investments), an indirect
wholly-owned subsidiary of the Company, is principal underwriter and general
distributor of Separate Account VA-P, and does not receive any compensation for
sales of the contracts. Commissions are paid by the Company to registered
representatives of Allmerica Investments and to certain independent
broker-dealers. The Pioneer Vision 2 and Pioneer Vision contracts have a
contingent deferred sales charge and no deduction is made for sales charges at
the time of the sale.
SA-9
<PAGE>
SEPARATE ACCOUNT VA-P
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS
Transactions from contractowners and sponsor were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
-------------------------- --------------------------
UNITS AMOUNT UNITS AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
International Growth
Issuance of Units .............................. 143,760 $ 160,721 317,189 $ 336,133
Redemption of Units ............................ (112,683) (116,862) (82,468) (87,482)
----------- ----------- ----------- -----------
Net increase (decrease) ...................... 31,077 $ 43,859 234,721 $ 248,651
=========== =========== =========== ===========
Capital Growth
Issuance of Units .............................. 183,061 $ 233,488 500,674 $ 659,294
Redemption of Units ............................ (199,417) (240,389) (46,949) (62,451)
----------- ----------- ----------- -----------
Net increase (decrease) ...................... (16,356) $ (6,901) 453,725 $ 596,843
=========== =========== =========== ===========
Real Estate Growth
Issuance of Units .............................. 23,390 $ 25,103 67,919 $ 95,120
Redemption of Units ............................ (68,565) (76,222) (45,445) (55,038)
----------- ----------- ----------- -----------
Net increase (decrease) ...................... (45,175) $ (51,119) 22,474 $ 40,082
=========== =========== =========== ===========
Equity-Income
Issuance of Units .............................. 229,974 $ 418,260 756,329 $ 1,234,244
Redemption of Units ............................ (217,272) (389,033) (94,123) (151,992)
----------- ----------- ----------- -----------
Net increase (decrease) ...................... 12,702 $ 29,227 662,206 $ 1,082,252
=========== =========== =========== ===========
Balanced
Issuance of Units .............................. 114,072 $ 142,832 314,126 $ 387,882
Redemption of Units ............................ (94,553) (118,259) (99,553) (120,240)
----------- ----------- ----------- -----------
Net increase (decrease) ...................... 19,519 $ 24,573 214,573 $ 267,642
=========== =========== =========== ===========
America Income
Issuance of Units .............................. 186,279 $ 214,584 245,239 $ 283,814
Redemption of Units ............................ (108,352) (123,151) (157,933) (184,731)
----------- ----------- ----------- -----------
Net increase (decrease) ...................... 77,927 $ 91,433 87,306 $ 99,083
=========== =========== =========== ===========
Money Market
Issuance of Units .............................. 244,121 $ 266,940 345,820 $ 366,614
Redemption of Units ............................ (204,526) (222,650) (137,205) (146,549)
----------- ----------- ----------- -----------
Net increase (decrease) ...................... 39,595 $ 44,290 208,615 $ 220,065
=========== =========== =========== ===========
Swiss Franc Bond
Issuance of Units .............................. 1,129,952 $ 987,374 383,186 $ 352,147
Redemption of Units ............................ (285,649) (206,065) (17,727) (16,406)
----------- ----------- ----------- -----------
Net increase (decrease) ...................... 844,303 $ 781,309 365,459 $ 335,741
=========== =========== =========== ===========
Growth Shares
Issuance of Units .............................. 509,333 $ 715,465 1,269,866 $ 1,518,207
Redemption of Units ............................ (130,840) (180,885) (53,950) (64,391)
----------- ----------- ----------- -----------
Net increase (decrease) ...................... 378,493 $ 534,580 1,215,916 $ 1,453,816
=========== =========== =========== ===========
SA-10
<PAGE>
SEPARATE ACCOUNT VA-P
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
-------------------------- --------------------------
UNITS AMOUNT UNITS AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Growth and Income
Issuance of Units ............................... 740,712 $ 1,002,319 1,205,890 $ 1,409,872
Redemption of Units ............................. (83,000) (103,481) (14,397) (17,528)
----------- ----------- ----------- -----------
Net increase (decrease) ....................... 657,712 $ 898,838 1,191,493 $ 1,392,344
=========== =========== =========== ===========
Emerging Markets
Issuance of Units ............................... 94,984 $ 139,129 20 $ 20
Redemption of Units ............................. (456) (787) - -
----------- ----------- ----------- -----------
Net increase (decrease) ....................... 94,528 $ 138,342 20 $ 20
=========== =========== =========== ===========
Europe
Issuance of Units ............................... 80,985 $ 88,714 20 $ 20
Redemption of Units ............................. (12,304) (15,472) - -
----------- ----------- ----------- -----------
Net increase (decrease) ....................... 68,681 $ 73,242 20 $ 20
=========== =========== =========== ===========
Strategic Income
Issuance of Units ............................... 2,000 $ 2,000 - $ -
Redemption of Units ............................. - - - -
----------- ----------- ----------- -----------
Net increase (decrease) ....................... 2,000 $ 2,000 - $ -
=========== =========== =========== ===========
</TABLE>
NOTE 6 - DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Code, a variable annuity
contract, other than a contract issued in connection with certain types of
employee benefit plans, will not be treated as an annuity contract for federal
income tax purposes for any period for which the investments of the segregated
asset account on which the contract is based are not adequately diversified. The
Code provides that the "adequately diversified" requirement may be met if the
underlying investments satisfy either a statutory safe harbor test or
diversification requirements set forth in regulations issued by the Secretary of
the Treasury.
The Internal Revenue Service has issued regulations under Section 817(h)
of the Code. The Company believes that Separate Account VA-P satisfies the
current requirements of the regulations, and it intends that Separate Account
VA-P will continue to meet such requirements.
SA-11
<PAGE>
SEPARATE ACCOUNT VA-P
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of shares of the Fund by
Separate Account VA-P during the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
-------------------- --------------- ---------------
<S> <C> <C>
International Growth ....................... $ 163,434 $ 120,431
Capital Growth ............................. 226,645 239,676
Real Estate Growth ......................... 29,211 77,127
Equity-Income .............................. 461,141 361,362
Balanced ................................... 159,492 120,108
America Income ............................. 229,215 120,766
Money Market ............................... 280,500 226,866
Swiss Franc Bond ........................... 1,034,677 261,022
Growth Shares .............................. 665,748 155,856
Growth and Income .......................... 948,111 59,416
Emerging Markets ........................... 138,974 1,052
Europe ..................................... 81,740 9,050
Strategic Income ........................... 2,046 8
--------------- ---------------
Totals ................................... $ 4,420,934 $ 1,752,740
=============== ===============
</TABLE>
SA-12
<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 Financial 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 authorizing Establishment of
Registrant dated August 20, 1991 was previously filed on
April 24, 1998 in Post-Effective Amendment No. 8, and is
incorporated by reference herein.
EXHIBIT 2 Not Applicable. Pursuant to Rule 26a-2, the Insurance
Company may hold the assets of the Registrant NOT pursuant
to a trust indenture or other such instrument.
EXHIBIT 3 (a) Underwriting and Administrative Services Agreement was
previously filed in Post-Effective Amendment No. 8 on April
24, 1998, and is incorporated by reference herein.
(b) Wholesaling Agreement was previously filed on October 1,
1995 in Registration Statement No. 1, and is incorporated by
reference herein. Amendment to Wholesaling Agreement was
previously filed in Post-Effective Amendment No. 8 on April
24, 1998 and is incorporated by reference herein.
(c) Sales Agreements with Commission Schedule were previously
filed in Post-Effective Amendment No. 8 on April 24, 1998,
and are incorporated by reference herein.
(d) General Agent's Agreement was previously filed in
Post-Effective Amendment No. 8 on April 24, 1998, and is
incorporated by reference herein.
(e) Career Agent Agreement was previously filed in
Post-Effective Amendment No. 8 on April 24, 1998, and is
incorporated by reference herein.
(f) Registered Representative's Agreement was previously filed
in Post-Effective Amendment No. 8 on April 24, 1998, and is
incorporated by reference herein.
EXHIBIT 4 Contract Form A was previously filed in Post-Effective
Amendment No. 8 on April 24, 1998, and is incorporated by
reference herein. Specimen Contract Form B was previously
filed on May 1, 1996 in Post-Effective Amendment No. 4, and
is incorporated by reference herein.
EXHIBIT 5 Application Form A was previously filed in Post-Effective
Amendment No. 8 on April 24,
<PAGE>
1998, and is incorporated by reference herein. Specimen
Application Form B was previously filed on May 1, 1996 in
Post-Effective Amendment No. 4, and is incorporated by
reference herein.
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 by reference herein.
(b) The Depositor's revised Bylaws were previously filed on May
1, 1996 in Post-Effective Amendment No. 4, and are
incorporated by reference herein.
EXHIBIT 7 Not Applicable.
EXHIBIT 8 (a) BFDS Agreements for lockbox and mailroom services were
previously filed in Post- Effective Amendment No. 8 on April
24, 1998, and are incorporated by reference herein.
(b) Directors' Power of Attorney is filed herewith.
EXHIBIT 9 Opinion of Counsel is filed herewith.
EXHIBIT 10 Consent of Independent Accountants is filed herewith.
EXHIBIT 11 None.
EXHIBIT 12 None.
EXHIBIT 13 Schedule for Computation of Performance Quotations is filed
herewith.
EXHIBIT 14 Not Applicable.
EXHIBIT 15 (a) Form of Amendment is filed herewith. Participation Agreement
with Pioneer was previously filed in Post-Effective
Amendment No. 8 on April 24, 1998, and is incorporated by
reference herein.
(b) Form of Amendment was previously filed in April 2000 in
Post-Effective Amendment No. 12 of Registration Statement
No. 33-71054/811-8114 and is incorporated by reference
herein. Participation Agreement with AIM Variable Insurance
Funds, Inc. was previously filed on August 27, 1998 in
Post-Effective Amendment No. 2 in Registration Statement No.
333-16929/811-7747, and is incorporated by reference herein.
(c) Form of Participation Agreement with Alliance is filed
herewith.
(d) Form of Amendment was previously filed in April 2000 in
Post-Effective Amendment No. 12 of Registration Statement
No. 33-71054/811-8114 and is incorporated by reference
herein. Participation Agreement with Delaware Group Premium
Fund and Amendment was previously filed on April 24, 1998 in
Registration Statement No. 33-71052/811-8114, Post-Effective
Amendment No. 9, and is incorporated by reference herein.
(e) Form of Participation Agreement with Franklin Templeton was
previously filed in April 2000 in Post-Effective Amendment
No. 12 of Registration Statement No. 33-71054/811-8114 and
is incorporated by reference herein.
(f) Participation Agreement with Van Kampen is filed herewith.
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE COMPANY
The principal business address of all the following Directors and Officers
is:
440 Lincoln Street
Worcester, Massachusetts 01553
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AND POSITION WITH COMPANY PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------------------------ ----------------------------------------------
<S> <C>
Bruce C. Anderson Director (since 1996), Vice President (since 1984) and Assistant
Director and Vice President Secretary (since 1992) of First Allmerica
Warren E. Barnes Vice President (since 1996) and Corporate Controller (since 1998) of
Vice President and First Allmerica
Corporate Controller
Mark R. Colborn Director (since 2000) and Vice President (since 1992) of First
Director and Vice President Allmerica
Mary Eldridge Secretary (since 1999) of Allmerica Financial; Secretary (since
Secretary 1999) of Allmerica Investments, Inc.; and Secretary (since 1999) of
Allmerica Financial Investment Management Services, Inc.
J. Kendall Huber Director, Vice President and General Counsel of First Allmerica
Director, Vice President and (since 2000); Vice President (1999) of Promos Hotel Corporation;
General Counsel Vice President & Deputy General Counsel (1998-1999) of Legg Mason,
Inc.; Vice President and Deputy General Counsel (1995-1998) of USF&G
Corporation
John P. Kavanaugh Director and Chief Investment Officer (since 1996) and Vice
Director, Vice President and President (since 1991) of First Allmerica; Vice President (since
Chief Investment Officer 1998) of Allmerica Financial Investment Management Services, Inc.;
and President (since 1995) and Director (since 1996) of Allmerica
Asset Management, Inc.
J. Barry May Director (since 1996) of First Allmerica; Director and President
Director (since 1996) of The Hanover Insurance Company; and Vice President
(1993 to 1996) of The Hanover Insurance Company
James R. McAuliffe Director (since 1996) of First Allmerica; Director (since 1992),
Director President (since 1994) and Chief Executive Officer (since 1996) of
Citizens Insurance Company of America
Mark C. McGivney Vice President (since 1997) and Treasurer (since 2000) of First
Vice President and Treasurer Allmerica; Associate, Investment Banking (1996 -1997) of Merrill
Lynch & Co.; Associate, Investment Banking (1995) of Salomon
Brothers, Inc.; Treasurer (since 2000) of Allmerica Investments,
Inc., Allmerica Asset Management, Inc. and Allmerica Financial
Investment Management Services, Inc.
<PAGE>
John F. O'Brien Director, President and Chief Executive Officer (since 1989) of
Director, President and Chief First Allmerica
Executive Officer
Edward J. Parry, III Director and Chief Financial Officer (since 1996), Vice President
Director, Vice President, (since 1993), and Treasurer (1993 - 2000) of First Allmerica
Chief Financial Officer
Richard M. Reilly Director (since 1996) and Vice President (since 1990) of First
Director and Vice President Allmerica; President (since 1995) of Allmerica Financial Life
Insurance and Annuity Company; Director (since 1990) of Allmerica
Investments, Inc.; and Director and President (since 1998)
of Allmerica Financial Investment Management Services, Inc.
Robert P. Restrepo, Jr. Director and Vice President (since 1998) of First Allmerica;
Director and Vice President Director (since 1998) of The Hanover Insurance Company; Chief
Executive Officer (1996 to 1998) of Travelers Property & Casualty;
Senior Vice President (1993 to 1996) of Aetna Life & Casualty Company
Eric A. Simonsen Director (since 1996) and Vice President (since 1990) of First
Director and Vice President Allmerica; Director (since 1991) of Allmerica Investments, Inc.; and
Director (since 1991) of Allmerica Financial Investment Management
Services, Inc.
</TABLE>
<PAGE>
ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
<TABLE>
<S><C>
Allmerica Financial Corporation
Delaware
| | | | | | | |
________________________________________________________________________________________________________________________________
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Financial Allmerica, Allmerica First Allmerica AFC Capital Allmerica First Sterling
Asset Profiles, Inc. Inc. Funding Financial Life Trust I Services Limited
Management, Inc. Corp. Insurance Corporation
Company
Massachusetts California Massachusetts Massachusetts Massachusetts Delaware Massachusetts Bermuda
| | |
| ___________________________________________________________ ________________
| | | | |
| 100% 99.2% 100% 100%
| Advantage Allmerica Allmerica First Sterling
| Insurance Trust Financial Life Reinsurance
| Network, Inc. Company, N.A. Insurance and Company
| Annuity Company Limited
|
| Delaware Federally Chartered Delaware Bermuda
| |
|_________________________________________________________________________________________________________________________
| | | | | | | | | |
| 100% 100% 100% 100% 100% 100% 100% 100% 100%
| Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica
| Investments, Investment Financial Financial Investments Investments Investments Investments Investments
| Inc. Management Investment Services Insurance Insurance Insurance Insurance Insurance
| Company, Inc. Management Insurance Agency Inc. Agency of Agency Inc. Agency Inc. Agency Inc.
| Services, Inc. Agency, Inc. of Alabama Florida Inc. of Georgia of Kentucky of Mississippi
|
|Massachusetts Massachusetts Massachusetts Massachusetts Alabama Florida Georgia Kentucky Mississippi
|
________________________________________________________________
| | | |
100% 100% 100% 100%
Allmerica Sterling Risk Allmerica Allmerica
Property Management Benefits, Inc. Asset
& Casualty Services, Inc. Management,
Companies, Inc. Limited
Delaware Delaware Florida Bermuda
|
________________________________________________
| | |
100% 100% 100%
The Hanover Allmerica Citizens
Insurance Financial Insurance
Company Insurance Company
Brokers, Inc. of Illinois
New Hampshire Massachusetts Illinois
|
________________________________________________________________________________________________________________________________
| | | | | | | |
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Allmerica The Hanover Hanover Texas Citizens Massachusetts Allmerica AMGRO
Financial Plus American Insurance Corporation Bay Insurance Financial Inc.
Benefit Insurance Insurance Management Company Alliance
Insurance Agency, Inc. Company Company, Inc. Insurance
Company Company
Pennsylvania Massachusetts New Hampshire Texas Delaware New Hampshire New Hampshire Massachusetts
| |
________________________________________________ ________________
| | | |
100% 100% 100% 100%
Citizens Citizens Citizens Lloyds Credit
Insurance Insurance Insurance Corporation
Company Company Company
of Ohio of America of the
Midwest
Ohio Michigan Indiana Massachusetts
|
_________________
|
100%
Citizens
Management
Inc.
Michigan
- ----------------- ----------------- -----------------
Allmerica Greendale AAM
Equity Special Equity Fund
Index Pool Placements
Fund
Massachusetts Massachusetts Massachusetts
- -------- Grantor Trusts established for the benefit of First Allmerica,
Allmerica Financial Life, Hanover and Citizens
--------------- ----------------
Allmerica Allmerica
Investment Trust Securities
Trust
Massachusetts Massachusetts
- -------- Affiliated Management Investment Companies
...............
Hanover Lloyd's
Insurance
Company
Texas
- -------- Affiliated Lloyd's plan company, controlled by Underwriters
for the benefit of The Hanover Insurance Company
----------------- -----------------
AAM Growth AAM High Yield
& Income Fund, L.L.C.
Fund L.P.
Delaware Massachusetts
________ L.P. or L.L.C. established for the benefit of First Allmerica,
Allmerica Financial Life, Hanover and Citizens
</TABLE>
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
AAM Growth & Income Fund, L.P 440 Lincoln Street Limited Partnership
Worcester MA 01653
Advantage Insurance Network Inc. 440 Lincoln Street Insurance Agency
Worcester MA 01653
AFC Capital Trust I 440 Lincoln Street Statutory Business Trust
Worcester MA 01653
Allmerica Asset Management Limited 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Asset Management, Inc. 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Benefits, Inc. 440 Lincoln Street Non-insurance medical services
Worcester MA 01653
Allmerica Equity Index Pool 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
Allmerica Financial Alliance Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance
Allmerica Financial Benefit Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance
Allmerica Financial Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Allmerica Financial Insurance 440 Lincoln Street Insurance Broker
Brokers, Inc. Worcester MA 01653
Allmerica Financial Life Insurance 440 Lincoln Street Life insurance, accident
and health and Annuity Company (formerly known Worcester MA 01653 insurance, annuities, variable
as SMA Life Assurance Company annuities and variable life
insurance
Allmerica Financial Services Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Funding Corp. 440 Lincoln Street Special purpose funding vehicle for
Worcester MA 01653 commercial paper
Allmerica, Inc. 440 Lincoln Street Common employer for Allmerica
Worcester MA 01653 Financial Corporation entities
Allmerica Financial Investment 440 Lincoln Street Investment advisory services
Management Services, Inc. (formerly Worcester MA 01653
known as Allmerica Institutional Services, Inc.
and 440 Financial Group of
Worcester, Inc.)
Allmerica Investment Management 440 Lincoln Street Investment advisory services
Company, Inc. Worcester MA 01653
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-dealer
Worcester MA 01653
Allmerica Investments Insurance Agency Inc. of 200 Southbridge Parkway Suite Insurance Agency
Alabama 400
Birmingham, AL 35209
Allmerica Investments Insurance Agency of 14211 Commerce Way Insurance Agency
Florida, Inc. Miami Lakes, FL 33016
<PAGE>
Allmerica Investment Insurance Agency Inc. of 1455 Lincoln Parkway Insurance Agency
Georgia Suite 300
Atlanta, GA 30346
Allmerica Investment Insurance Agency Inc. of Barkley Bldg-Suite 105 Insurance Agency
Kentucky 12700 Shelbyville Road
Louisiana, KY 40423
Allmerica Investments Insurance Agency Inc. of 631 Lakeland East Drive Insurance Agency
Mississippi Flowood, MS 39208
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Plus Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Property & Casualty 440 Lincoln Street Holding Company
Companies, Inc. Worcester MA 01653
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services Corporation 440 Lincoln Street Internal administrative services
Worcester MA 01653 provider to Allmerica Financial
Corporation entities
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national trust
Worcester MA 01653 company
AMGRO, Inc. 100 North Parkway Premium financing
Worcester MA 01605
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company of America 645 West Grand River Multi-line property and casualty
Howell MI 48843 insurance
Citizens Insurance Company of Illinois 333 Pierce Road Multi-line property and casualty
Itasca IL 60143 insurance
Citizens Insurance Company of the 3950 Priority Way Multi-line property and casualty
Midwest South Drive, Suite 200 insurance
Indianapolis IN 46280
Citizens Insurance Company of Ohio 8101 N. High Street Multi-line property and casualty
P.O. Box 342250 insurance
Columbus OH 43234
<PAGE>
Citizens Management, Inc. 645 West Grand River Services management company
Howell MI 48843
Financial Profiles 5421 Avenida Encinas Computer software company
Carlsbad, CA 92008
First Allmerica Financial Life Insurance 440 Lincoln Street Life, pension, annuity, accident
Company (formerly State Mutual Life Worcester MA 01653 and health insurance company
Assurance Company of America)
First Sterling Limited 440 Lincoln Street Holding Company
Worcester MA 01653
First Sterling Reinsurance Company 440 Lincoln Street Reinsurance Company
Limited Worcester MA 01653
Greendale Special Placements Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
The Hanover American Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance
The Hanover Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
Hanover Texas Insurance Management 801 East Campbell Road Attorney-in-fact for Hanover Lloyd's
Company, Inc. Richardson TX 75081 Insurance Company
Hanover Lloyd's Insurance Company Hanover Lloyd's Insurance Multi-line property and casualty
Company insurance
Lloyds Credit Corporation 440 Lincoln Street Premium financing service
Worcester MA 01653 franchises
Massachusetts Bay Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
Sterling Risk Management Services, Inc. 440 Lincoln Street Risk management services
Worcester MA 01653
</TABLE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 29, 2000 there were 60 Contract holders of qualified
Contracts and 251 Contract holders of non-qualified Contracts.
ITEM 28. INDEMNIFICATION
Article VIII of the Bylaws of Allmerica Financial Life Insurance and Annuity
Company (the Depositor) states: Each Director and each Officer of the
Corporation, whether or not in office, (and his executors and administrators),
shall be indemnified or reimbursed by the Corporation against all expenses
actually and
<PAGE>
necessarily incurred by him in the defense or reasonable settlement of any
action, suit or proceeding in which he is made a party by reason of his being or
having been a Director or Officer of the Corporation, including any sums paid in
settlement or to discharge judgment, except in relation to matters as to which
he shall be finally adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of his duties as such Director or
Officer; and the foregoing right of indemnification or reimbursement shall not
affect any other rights to which he may be entitled under the Articles of
Incorporation, any statute, bylaw, agreement, vote of stockholders, or
otherwise.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Allmerica Investments, Inc. also acts as principal underwriter for the
following:
- VEL Account, VEL II Account, VEL Account III, Separate Account
SPL-D, Separate Account IMO, Select Account III, Inheiritage
Account, Separate Accounts VA-A, VA-B, VA-C, VA-G, VA-H, VA-K,
VA-P, Allmerica Select Separate Account II, Group VEL Account,
Separate Account KG, Separate Account KGC, Fulcrum Separate
Account, Fulcrum Variable Life Separate Account, and Allmerica
Select Separate Account of Allmerica Financial Life Insurance and
Annuity Company
- Inheiritage Account, VEL II Account, Separate Account I, Separate
Account VA-K, Separate Account VA-P, Allmerica Select Separate
Account II, Group VEL Account, Separate Account KG, Separate
Account KGC, Fulcrum Separate Account, and Allmerica Select
Separate Account of First Allmerica Financial Life Insurance
Company.
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
<TABLE>
<CAPTION>
NAME POSITION OR OFFICE WITH UNDERWRITER
---- -----------------------------------
<S> <C>
Margaret L. Abbott Vice President
Emil J. Aberizk, Jr Vice President
Edward T. Berger Vice President and Chief Compliance Officer
Michael J. Brodeur Vice President Operations
Mark R. Colborn Vice President
Claudia J. Eckels Vice President
Mary M. Eldridge Secretary/Clerk
Philip L. Heffernan Vice President
J. Kendall Huber Director
<PAGE>
Mark C. McGivney Treasurer
William F. Monroe, Jr. President, Director and Chief Executive Officer
David J. Mueller Vice President, Chief Financial Officer, Financial Operations
Principal and Controller
Stephen Parker Vice President and Director
Richard M. Reilly Director and Chairman of the Board
Eric A. Simonsen Director
Mark G. Steinberg Senior Vice President
</TABLE>
(c) As indicated in Part B (Statement of Additional Information) in
response to Item 20(c), there were no commissions retained by
Allmerica Investments, Inc., the principal underwriter of the
Contracts, for sales of variable contracts funded by the Registrant in
1999. No other commissions or other compensation was received by the
principal underwriter, directly or indirectly, from the Registrant
during the Registrant's last fiscal year.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Each account, book or other document required to be maintained by Section
31(a) of the 1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained by
the Company at 440 Lincoln Street, Worcester, Massachusetts.
ITEM 31. MANAGEMENT SERVICES
The Company provides daily unit value calculations and related services for
the Company's variable accounts.
ITEM 32. UNDERTAKINGS
(a) The Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure
that the audited financial statements in the registration statement
are never more than 16 months old for so long as payments under the
variable annuity contracts may be accepted.
(b) The Registrant hereby undertakes to include in the prospectus a
postcard that the applicant can remove to send for a Statement of
Additional Information.
(c) The Registrant hereby undertakes to deliver a Statement of Additional
Information and any financial statements promptly upon written or oral
request, according to the requirements of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act
may be permitted to Directors, Officers and Controlling Persons of
Registrant under any registration statement, underwriting agreement or
otherwise, Registrant has been advised that, in the opinion of the
SEC, such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment
by Registrant of expenses incurred or paid by a Director, Officer or
Controlling Person of Registrant in
<PAGE>
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.
(e) The Company hereby represents that the aggregate fees and charges
under the Policies are reasonable in relation to the services
rendered, expenses expected to be incurred, and risks assumed by the
Company.
ITEM 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(b)
PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Registrant, a separate account of 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/withdrawal restrictions imposed by the Program and by
Section 403(b)(11) to the attention of potential participants.
4. A signed statement acknowledging the participant's understanding of
(I) the restrictions on redemption 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 certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the 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 April,
2000.
SEPARATE ACCOUNT VA-P OF
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
By: /s/ Mary Eldridge
--------------------------------
Mary Eldridge, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Warren E. Barnes Vice President and Corporate Controller April 3, 2000
- ------------------------------
Warren E. Barnes
Edward J. Parry* Director, Vice President and Chief Financial Officer
- ------------------------------
Richard M. Reilly* Director and Vice President
- ------------------------------
John F. O'Brien* Director, President and Chief Executive Officer
- ------------------------------
Bruce C. Anderson* Director and Vice President
- ------------------------------
Mark R. Colborn* Director and Vice President
- ------------------------------
John P. Kavanaugh* Director, Vice President and Chief Investment Officer
- ------------------------------
J. Kendall Huber* Director, Vice President and General Counsel
- ------------------------------
J. Barry May* Director
- ------------------------------
James R. McAuliffe* Director
- ------------------------------
Robert P. Restrepo, Jr.* Director and Vice President
- ------------------------------
Eric A. Simonsen* Director and Vice President
- ------------------------------
</TABLE>
* Sheila B. St. Hilaire, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named Directors and Officers of the
Registrant pursuant to the Power of Attorney dated April 2, 2000 duly executed
by such persons.
/s/ Sheila B. St. Hilaire
- ---------------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact
(33-86664)
<PAGE>
EXHIBIT TABLE
Exhibit 8(b) Directors' Power of Attorney
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
Exhibit 13 Schedule for Computation of Performance Quotations
Exhibit 15(a) Form of Amendment to Pioneer Participation Agreement
Exhibit 15(c) Form of Alliance Participation Agreement
Exhibit 15(f) Van Kampen Participation Agreement
<PAGE>
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint Richard M. Reilly,
J. Kendall Huber, Joseph W. MacDougall, Jr., and Sheila B. St. Hilaire, and each
of them singly, our true and lawful attorneys, with full power to them and each
of them, to sign for us, and in our names and in any and all capacities, any and
all Registration Statements and all amendments thereto, including post-effective
amendments, with respect to the Separate Accounts supporting variable life and
variable annuity contracts issued by First Allmerica Financial Life Insurance
Company, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and with any
other regulatory agency or state authority that may so require, granting unto
said attorneys and each of them, acting alone, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
the premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue hereof. Witness our hands on
the date set forth below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ John F. O'Brien Director, President and Chief Executive 4/2/2000
- ------------------------------------- Officer --------
John F. O'Brien
/s/ Bruce C. Anderson Director and Vice President 4/2/2000
- ------------------------------------- --------
Bruce C. Anderson
/s/ Mark R. Colborn Director and Vice President 4/2/2000
- ------------------------------------- --------
Mark R. Colborn
/s/ John P. Kavanaugh Director, Vice President and 4/2/2000
- ------------------------------------- Chief Investment Officer --------
John P. Kavanaugh
/s/ J. Kendall Huber Director, Vice President and 4/2/2000
- ------------------------------------- General Counsel --------
J. Kendall Huber
/s/ J. Barry May Director 4/2/2000
- ------------------------------------- --------
J. Barry May
/s/ James R. McAuliffe Director 4/2/2000
- ------------------------------------- --------
James R. McAuliffe
/s/ Edward J. Parry, III Director, Vice President, and Chief Financial 4/2/2000
- ------------------------------------- Officer --------
Edward J. Parry, III
/s/ Richard M. Reilly Director and Vice President 4/2/2000
- ------------------------------------- --------
Richard M. Reilly
/s/ Robert P. Restrepo, Jr. Director and Vice President 4/2/2000
- ------------------------------------- --------
Robert P. Restrepo, Jr.
/s/ Eric A. Simonsen Director and Vice President 4/2/2000
- ------------------------------------- --------
Eric A. Simonsen
</TABLE>
<PAGE>
April 14, 2000
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester, MA 01653
RE: SEPARATE ACCOUNT VA-P OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
FILE NO'S: 33-86664 AND 811-8872
Gentlemen:
In my capacity as Assistant Vice President and Counsel of First Allmerica
Financial Life Insurance Company (the "Company"), I have participated in the
preparation of this Post-Effective Amendment to the Registration Statement for
Separate Account VA-P on Form N-4 under the Securities Act of 1933 and amendment
under the Investment Company Act of 1940, with respect to the Company's
qualified and non-qualified variable annuity contracts.
I am of the following opinion:
1. Separate Account VA-P is a separate account of the Company validly existing
pursuant to the Massachusetts Insurance Code and the regulations issued
thereunder.
2. The assets held in Separate Account VA-P are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The variable annuity contracts, when issued in accordance with the
Prospectus contained in the Post-Effective Amendment to the Registration
Statement and upon compliance with applicable local law, will be legal and
binding obligations of the Company in accordance with their terms and when
sold will be legally issued, fully paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to this
Post-Effective Amendment to the Registration Statement for Separate Account VA-P
on Form N-4 filed under the Securities Act of 1933 and amendment under the
Investment Company Act of 1940.
Very truly yours,
/s/ John C. Donlon, Jr.
------------------------------------------------
John C. Donlon, Jr.
Assistant Vice President and Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 12 to the Registration
Statement of Separate Account VA-P of First Allmerica Financial Life Insurance
Company on Form N-4 of our report dated February 1, 2000, relating to the
financial statements of First Allmerica Financial Life Insurance Company, and
our report dated April 3, 2000, relating to the financial statements of Separate
Account VA-P of First Allmerica Financial Life Insurance Company, both of which
appear in such Statement of Additional Information. We also consent to the
reference to us under the heading "Experts" in such Statement of Additional
Information.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 24, 2000
<PAGE>
<TABLE>
<CAPTION>
PIONEER VISION - FAFLIC Since Inception of Underlying Sub-Account
1 Year With Contract
<S> <C> <C>
Pioneer Money Market (1.108708-(0.07*0.997837))/1.076907-0.0005-1 = (3.58%)
Pioneer America Income (1.129702-(0.07*1.016732))/1.174819-0.0007-1 = (9.97%)
Pioneer International Growth (1.465526-(0.07*1.029424))/1.029424-0.0036-1 = 35.00%
Pioneer Capital Growth (Mid-Cap Value) (1.338803-(0.07*1.201068))/1.201068-0.0056-1 = 3.91%
Pioneer Real Estate Growth (1.086484-(0.07*0.977836))/1.149908-0.0011-1 = (11.58%)
Pioneer Equity-Income (1.778106-(0.07*1.600295))/1.786747-0.006-1 = (7.35%)
Pioneer Balanced (1.267274-(0.07*1.140547))/1.253569-0.0026-1 = (5.54%)
Pioneer Swiss Franc Bond (0.833408-(0.07*0.750067))/0.978222-0.0021-1 = (20.38%)
Pioneer Growth and Income (Pioneer Fund) (1.49516-(0.07*1.310892))/1.310892-0.0037-1 = 6.69%
Pioneer Growth Shares (1.420042-(0.07*1.278038))/1.333027-0.0028-1 = (0.46%)
Pioneer Emerging Markets (1.842758-(0.07*1.046582))/1.046582-0.00008-1 = 69.07%
Pioneer Europe (1.33903-(0.07*1.057627))/1.057627-0.00008-1 = 19.60%
Pioneer Strategic Income N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Since Inception of Underlying Sub-Account
5 Years With Contract
<S> <C>
Pioneer Money Market N/A
Pioneer America Income N/A
Pioneer International Growth N/A
Pioneer Capital Growth (Mid-Cap Value) N/A
Pioneer Real Estate Growth N/A
Pioneer Equity-Income N/A
Pioneer Balanced N/A
Pioneer Swiss Franc Bond N/A
Pioneer Growth and Income (Pioneer Fund) N/A
Pioneer Growth Shares N/A
Pioneer Emerging Markets N/A
Pioneer Europe N/A
Pioneer Strategic Income N/A
</TABLE>
<TABLE>
<CAPTION>
Since Inception of Underlying Sub-Account
10 Years or Since Inception With Contract
<S> <C> <C>
Pioneer Money Market ((1.108708-(0.06*0.997837))/1)^(365/1228)-0.0008-1 = 1.35%
Pioneer America Income ((1.129702-(0.06*1))/1)^(365/1209)-0.0011-1 = 1.95%
Pioneer International Growth ((1.465526-(0.06*1))/1)^(365/1213)-0.005-1 = 10.29%
Pioneer Capital Growth (Mid-Cap Value) ((1.338803-(0.06*1))/1)^(365/1213)-0.0067-1 = 7.01%
Pioneer Real Estate Growth ((1.086484-(0.06*0.977836))/1)^(365/1213)-0.0017-1 = 0.66%
Pioneer Equity-Income ((1.778106-(0.06*1))/1)^(365/1213)-0.0062-1 = 17.07%
Pioneer Balanced ((1.267274-(0.06*1))/1)^(365/1195)-0.0033-1 = 5.59%
Pioneer Swiss Franc Bond ((0.833408-(0.06*0.750067))/1)^(365/1124)-0.0034-1 = (7.77%)
Pioneer Growth and Income (Pioneer Fund) ((1.49516-(0.07*1))/1)^(365/709)-0.1239-1 = 7.62%
Pioneer Growth Shares ((1.420042-(0.07*1))/1)^(365/702)-0.0682-1 = 10.07%
Pioneer Emerging Markets ((1.842758-(0.07*1))/1)^(365/427)-0.0285-1 = 60.28%
Pioneer Europe ((1.33903-(0.07*1))/1)^(365/427)-0.0134-1 = 21.25%
Pioneer Strategic Income (1.007561-(0.07*0.906805))/1-0.00003-1 = (5.59%)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PIONEER VISION - FAFLIC Since Inception of Underlying Sub-Account
1 Year Without Contract
<S> <C> <C>
Pioneer Money Market 1.108708/1.076907-1 = 2.95%
Pioneer America Income 1.129702/1.174819-1 = (3.84%)
Pioneer International Growth 1.465526/1.029424-1 = 42.36%
Pioneer Capital Growth (Mid-Cap Value) 1.338803/1.201068-1 = 11.47%
Pioneer Real Estate Growth 1.086484/1.149908-1 = (5.52%)
Pioneer Equity-Income 1.778106/1.786747-1 = (0.48%)
Pioneer Balanced 1.267274/1.253569-1 = 1.09%
Pioneer Swiss Franc Bond 0.833408/0.978222-1 = (14.80%)
Pioneer Growth and Income (Pioneer Fund) 1.49516/1.310892-1 = 14.06%
Pioneer Growth Shares 1.420042/1.333027-1 = 6.53%
Pioneer Emerging Markets 1.842758/1.046582-1 = 76.07%
Pioneer Europe 1.33903/1.057627-1 = 26.61%
Pioneer Strategic Income N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Since Inception of Underlying Sub-Account
5 Years Without Contract
<S> <C>
Pioneer Money Market N/A
Pioneer America Income N/A
Pioneer International Growth N/A
Pioneer Capital Growth (Mid-Cap Value) N/A
Pioneer Real Estate Growth N/A
Pioneer Equity-Income N/A
Pioneer Balanced N/A
Pioneer Swiss Franc Bond N/A
Pioneer Growth and Income (Pioneer Fund) N/A
Pioneer Growth Shares N/A
Pioneer Emerging Markets N/A
Pioneer Europe N/A
Pioneer Strategic Income N/A
</TABLE>
<TABLE>
<CAPTION>
Since Inception of Underlying Sub-Account
10 Years or Since Inception Without Contract
<S> <C> <C>
Pioneer Money Market (1.108708/1)^(365/1228)-1 = 3.11%
Pioneer America Income (1.129702/1)^(365/1209)-1 = 3.75%
Pioneer International Growth (1.465526/1)^(365/1213)-1 = 12.19%
Pioneer Capital Growth (Mid-Cap Value) (1.338803/1)^(365/1213)-1 = 9.18%
Pioneer Real Estate Growth (1.086484/1)^(365/1213)-1 = 2.53%
Pioneer Equity-Income (1.778106/1)^(365/1213)-1 = 18.91%
Pioneer Balanced (1.267274/1)^(365/1195)-1 = 7.50%
Pioneer Swiss Franc Bond (0.833408/1)^(365/1124)-1 = (5.75%)
Pioneer Growth and Income (Pioneer Fund) (1.49516/1)^(365/791)-1 = 20.39%
Pioneer Growth Shares (1.420042/1)^(365/791)-1 = 17.56%
Pioneer Emerging Markets (1.842758/1)^(365/427)-1 = 68.63%
Pioneer Europe (1.33903/1)^(365/427)-1 = 28.35%
Pioneer Strategic Income 1.007561/1-1 = 0.76%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PIONEER VISION 2 - FAFLIC Since Inception of Underlying Sub-Account
1 Year With Contract
<S> <C> <C>
Pioneer Money Market (1.108708-(0.07*0.942402))/1.076907-0.0005-1 = (3.22%)
Pioneer America Income (1.129702-(0.07*0.960247))/1.174819-0.0007-1 = (9.63%)
Pioneer International Growth (1.465526-(0.07*1.029424))/1.029424-0.0036-1 = 35.00%
Pioneer Capital Growth (1.338803-(0.07*1.137983))/1.201068-0.0093-1 = 3.91%
Pioneer Real Estate Growth (1.086484-(0.07*0.923511))/1.149908-0.0011-1 = (11.25%)
Pioneer Equity-Income (1.778106-(0.07*1.51139))/1.786747-0.0061-1 = (7.01%)
Pioneer Balanced (1.267274-(0.07*1.077183))/1.253569-0.0027-1 = (5.19%)
Pioneer Swiss Franc Bond (0.833408-(0.07*0.708397))/0.978222-0.0021-1 = (20.08%)
Pioneer Growth and Income (1.49516-(0.07*1.270886))/1.310892-0.0035-1 = 6.92%
Pioneer Growth Shares (1.420042-(0.07*1.207036))/1.333027-0.0028-1 = (0.09%)
Pioneer Emerging Markets (1.842758-(0.07*1.046582))/1.046582-0.00008-1 = 69.07%
Pioneer Europe (1.33903-(0.07*1.057627))/1.057627-0.00008-1 = 19.60%
Pioneer Strategic Income N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Since Inception of Underlying Sub-Account
5 Years With Contract
<S> <C>
Pioneer Money Market N/A
Pioneer America Income N/A
Pioneer International Growth N/A
Pioneer Capital Growth N/A
Pioneer Real Estate Growth N/A
Pioneer Equity-Income N/A
Pioneer Balanced N/A
Pioneer Swiss Franc Bond N/A
Pioneer Growth and Income N/A
Pioneer Growth Shares N/A
Pioneer Emerging Markets N/A
Pioneer Europe N/A
Pioneer Strategic Income N/A
</TABLE>
<TABLE>
<CAPTION>
Since Inception of Underlying Sub-Account
10 Years or Since Inception With Contract
<S> <C> <C>
Pioneer Money Market ((1.108708-(0.04*0.942402))/1)^(365/1228)-0.0008-1 = 1.98%
Pioneer America Income ((1.129702-(0.04*0.960247))/1)^(365/1209)-0.001-1 = 2.57%
Pioneer International Growth ((1.465526-(0.04*1))/1)^(365/1213)-0.005-1 = 10.76%
Pioneer Capital Growth ((1.338803-(0.04*1))/1)^(365/1213)-0.0066-1 = 7.52%
Pioneer Real Estate Growth ((1.086484-(0.04*0.923511))/1)^(365/1213)-0.0017-1 = 1.30%
Pioneer Equity-Income ((1.778106-(0.04*1))/1)^(365/1213)-0.0062-1 = 17.48%
Pioneer Balanced ((1.267274-(0.04*1))/1)^(365/1195)-0.0033-1 = 6.13%
Pioneer Swiss Franc Bond ((0.833408-(0.04*0.708397))/1)^(365/1124)-0.0034-1 = (7.14%)
Pioneer Growth and Income ((1.49516-(0.05*1))/1)^(365/791)-0.004-1 = 18.12%
Pioneer Growth Shares ((1.420042-(0.05*1))/1)^(365/791)-0.0033-1 = 15.31%
Pioneer Emerging Markets ((1.842758-(0.06*1))/1)^(365/427)-0.00005-1 = 63.92%
Pioneer Europe ((1.33903-(0.06*1))/1)^(365/427)-0.00005-1 = 23.41%
Pioneer Strategic Income (1.007561-(0.07*0.856427))/1-0.00006-1 = (5.24%)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PIONEER VISION 2 - FAFLIC Since Inception of Underlying Sub-Account
1 Year Without Contract
<S> <C> <C>
Pioneer Money Market 1.108708/1.076907-1 = 2.95%
Pioneer America Income 1.129702/1.174819-1 = (3.84%)
Pioneer International Growth 1.465526/1.029424-1 = 42.36%
Pioneer Capital Growth 1.338803/1.201068-1 = 11.47%
Pioneer Real Estate Growth 1.086484/1.149908-1 = (5.52%)
Pioneer Equity-Income 1.778106/1.786747-1 = (0.48%)
Pioneer Balanced 1.267274/1.253569-1 = 1.09%
Pioneer Swiss Franc Bond 0.833408/0.978222-1 = (14.80%)
Pioneer Growth and Income 1.49516/1.310892-1 = 14.06%
Pioneer Growth Shares 1.420042/1.333027-1 = 6.53%
Pioneer Emerging Markets 1.842758/1.046582-1 = 76.07%
Pioneer Europe 1.33903/1.057627-1 = 26.61%
Pioneer Strategic Income N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Since Inception of Underlying Sub-Account
5 Years Without Contract
<S> <C>
Pioneer Money Market N/A
Pioneer America Income N/A
Pioneer International Growth N/A
Pioneer Capital Growth N/A
Pioneer Real Estate Growth N/A
Pioneer Equity-Income N/A
Pioneer Balanced N/A
Pioneer Swiss Franc Bond N/A
Pioneer Growth and Income N/A
Pioneer Growth Shares N/A
Pioneer Emerging Markets N/A
Pioneer Europe N/A
Pioneer Strategic Income N/A
</TABLE>
<TABLE>
<CAPTION>
Since Inception of Underlying Sub-Account
10 Years or Since Inception Without Contract
<S> <C> <C>
Pioneer Money Market (1.108708/1)^(365/1228)-1 = 3.11%
Pioneer America Income (1.129702/1)^(365/1209)-1 = 3.75%
Pioneer International Growth (1.465526/1)^(365/1213)-1 = 12.19%
Pioneer Capital Growth (1.338803/1)^(365/1213)-1 = 9.18%
Pioneer Real Estate Growth (1.086484/1)^(365/1213)-1 = 2.53%
Pioneer Equity-Income (1.778106/1)^(365/1213)-1 = 18.91%
Pioneer Balanced (1.267274/1)^(365/1195)-1 = 7.50%
Pioneer Swiss Franc Bond (0.833408/1)^(365/1124)-1 = (5.75%)
Pioneer Growth and Income (1.49516/1)^(365/791)-1 = 20.39%
Pioneer Growth Shares (1.420042/1)^(365/791)-1 = 17.56%
Pioneer Emerging Markets (1.842758/1)^(365/427)-1 = 68.63%
Pioneer Europe (1.33903/1)^(365/427)-1 = 28.35%
Pioneer Strategic Income 1.007561/1-1 = 0.76%
</TABLE>
<PAGE>
AMENDMENT TO PARTICIPATION AGREEMENT
DATED AS OF DECEMBER 22, 1994
(AS AMENDED AND SUPPLEMENTED FROM TIME TO TIME)
AMONG
PIONEER VARIABLE CONTRACTS TRUST
PIONEER FUNDS DISTRIBUTOR, INC.
AND
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
WHEREAS, First Allmerica Financial Life Insurance Company (formerly known as
State Mutual Life Assurance Company of America), Pioneer Variable Contracts
Trust and Pioneer Funds Distributor, Inc. entered into a Participation Agreement
on December 22, 1994; and
WHEREAS, the parties desire to amend the Participation Agreement by mutual
written consent;
NOW THEREFORE, the parties do hereby agree that Schedule 1 and Schedule 2 to the
Participation Agreement are amended to read in their entirety as follows:
SCHEDULE 1
CONTRACTS FUNDED BY SEPARATE ACCOUNT
- ------------------------------------
Allmerica Accumulator
333-87105
811-8114
Delaware Medallion
33-71054
811-8114
Pioneer Vision 1 & 2
33-86664
811-8872
Pioneer C-Vision
333-64833
811-8872
<PAGE>
SCHEDULE 2
CONTRACTS FUNDED BY SEPARATE ACCOUNTS
- -------------------------------------
Separate Account VA-P
of Allmerica Financial Life Insurance
and Annuity Company
Separate Account VA-K
of Allmerica Financial Life Insurance
and Annuity Company
2
<PAGE>
All terms and conditions of the Participation Agreement and Schedules thereto
shall continue in full force and effect except as amended herein.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed
in its name and on its behalf by its duly authorized representative as of May
1st, 2000.
First Allmerica Financial Life Insurance Company
By:
-------------------------------------------
Richard M. Reilly
Title: Vice President
Pioneer Variable Contracts Trust
By:
-------------------------------------------
John F. Cogan
Title: President
Pioneer Funds Distributor, Inc.
By:
-------------------------------------------
David D. Tripple
Title: President
3
<PAGE>
PARTICIPATION AGREEMENT
AMONG
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY,
ALLMERICA INVESTMENTS, INC.
ALLIANCE CAPITAL MANAGEMENT L.P.
AND
ALLIANCE FUND DISTRIBUTORS, INC.
DATED AS OF
MAY 1, 2000
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the first day of May, 2000
("Agreement"), by and among First Allmerica Financial Life Insurance Company, a
New York life insurance company ("Insurer") (on behalf of itself and its
"Separate Account," defined below); Allmerica Investments, Inc., a Massachusetts
corporation ("Contracts Distributor"), the principal underwriter with respect to
the Contracts referred to below; Alliance Capital Management L.P., a Delaware
limited partnership ("Adviser"), the investment adviser of the Fund referred to
below; and Alliance Fund Distributors, Inc., a Delaware corporation
("Distributor"), the Fund's principal underwriter (collectively, the "Parties"),
WITNESSETH THAT:
WHEREAS Insurer, the Distributor, and Alliance Variable Products Series
Fund, Inc. (the "Fund") desire that Class B shares of the Fund's Alliance Growth
Portfolio, Alliance Premier Growth Portfolio, Alliance Growth and Income
Portfolio, and Alliance Technology Portfolio (the "Portfolios"; reference herein
to the "Fund" includes reference to each Portfolio to the extent the context
requires) be made available by Distributor to serve as underlying investment
media for those combination fixed and variable annuity contracts of Insurer
known as _______________ that are the subject of Insurer's Form N-4 registration
statement filed with the Securities and Exchange Commission (the "SEC"), File
No. ___________________ (the "Contracts"), to be offered through Contracts
Distributor and other registered broker-dealer firms as agreed to by Insurer and
Contracts Distributor; and
WHEREAS the Contracts provide for the allocation of net amounts
received by Insurer to separate series (the "Divisions"; reference herein to the
"Separate Account" includes reference to
1
<PAGE>
each Division to the extent the context requires) of the Separate Account for
investment in Class B shares of corresponding Portfolios of the Fund that are
made available through the Separate Account to act as underlying investment
media,
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Fund and Distributor will make Class B shares of the
Portfolios available to Insurer for this purpose at net asset value and with no
sales charges, all subject to the following provisions:
SECTION 1. ADDITIONAL PORTFOLIOS
The Fund has and may, from time to time, add additional Portfolios,
which will become subject to this Agreement, if, upon the written consent of
each of the Parties hereto, they are made available as investment media for the
Contracts.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
The Adviser or its designated agent will provide closing net asset
value, dividend and capital gain information for each Portfolio to Insurer at
the close of trading on each day (a "Business Day") on which (a) the New York
Stock Exchange is open for regular trading, (b) the Fund calculates the
Portfolio's net asset value and (c) Insurer is open for business. The Fund or
its designated agent will use its best efforts to provide this information by
6:00 p.m., Eastern time. Insurer will use these data to calculate unit values,
which in turn will be used to process transactions that receive that same
Business Day's Separate Account Division's unit values. Such Separate Account
processing will be done the same evening, and corresponding orders with
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respect to Fund shares will be placed the morning of the following Business
Day. Insurer will use its best efforts to place such orders with the Fund by
10:00 a.m., Eastern time.
2.2 TIMELY PAYMENTS.
Insurer will transmit orders for purchases and redemptions of Fund
shares to Distributor, and will wire payment for net purchases to a custodial
account designated by the Fund on the day the order for Fund shares is placed,
to the extent practicable. Payment for net redemptions will be wired by the Fund
to an account designated by Insurer on the same day as the order is placed, to
the extent practicable, and in any event be made within six calendar days after
the date the order is placed in order to enable Insurer to pay redemption
proceeds within the time specified in Section 22(e) of the Investment Company
Act of 1940, as amended (the "1940 Act").
2.3 REDEMPTION IN KIND.
The Fund reserves the right to pay any portion of a redemption in kind
of portfolio securities, if the Fund's board of directors (the "Board of
Directors") determines that it would be detrimental to the best interests of
shareholders to make a redemption wholly in cash.
2.4 APPLICABLE PRICE.
The Parties agree that Portfolio share purchase and redemption orders
resulting from Contract owner purchase payments, surrenders, partial
withdrawals, routine withdrawals of charges, or other transactions under
Contracts will be executed at the net asset values as determined as of the close
of regular trading on the New York Stock Exchange on the Business Day that
Insurer receives such orders and processes such transactions, which, Insurer
agrees shall occur not earlier than the Business Day prior to Distributor's
receipt of the corresponding orders for purchases and redemptions of Portfolio
shares. For the purposes of this section, Insurer shall be deemed to be the
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agent of the Fund for receipt of such orders from holders or applicants of
contracts, and receipt by Insurer shall constitute receipt by the Fund. All
other purchases and redemptions of Portfolio shares by Insurer, will be effected
at the net asset values next computed after receipt by Distributor of the order
therefor, and such orders will be irrevocable. Insurer hereby elects to reinvest
all dividends and capital gains distributions in additional shares of the
corresponding Portfolio at the record-date net asset values until Insurer
otherwise notifies the Fund in writing, it being agreed by the Parties that the
record date and the payment date with respect to any dividend or distribution
will be the same Business Day.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
The Fund will bear the cost of its registering as a management
investment company under the 1940 Act and registering its shares under the
Securities Act of 1933, as amended (the "1933 Act"), and keeping such
registrations current and effective; including, without limitation, the
preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices
respecting the Fund and its shares and payment of all applicable registration or
filing fees with respect to any of the foregoing. Insurer will bear the cost of
registering the Separate Account as a unit investment trust under the 1940 Act
and registering units of interest under the Contracts under the 1933 Act and
keeping such registrations current and effective; including, without limitation,
the preparation and filing with the SEC of Forms
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N-SAR and Rule 24f-2 Notices respecting the Separate Account and its units of
interest and payment of all applicable registration or filing fees with
respect to any of the foregoing.
3.3 OTHER (NON-SALES-RELATED) EXPENSES.
The Fund will bear the costs of preparing, filing with the SEC and
setting for printing the Fund's prospectus, statement of additional information
and any amendments or supplements thereto (collectively, the "Fund Prospectus"),
periodic reports to shareholders, Fund proxy material and other shareholder
communications and any related requests for voting instructions from
Participants (as defined below). Insurer will bear the costs of preparing,
filing with the SEC and setting for printing, the Separate Account's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "Separate Account Prospectus"), any periodic reports to
owners, annuitants or participants under the Contracts (collectively,
"Participants"), and other Participant communications. The Fund and Insurer each
will bear the costs of printing in quantity and delivering to existing
Participants the documents as to which it bears the cost of preparation as set
forth above in this Section 3.3, it being understood that reasonable cost
allocations will be made in cases where any such Fund and Insurer documents are
printed or mailed on a combined or coordinated basis. If REQUESTED by Insurer,
the Fund will provide annual Prospectus text to Insurer on diskette for printing
and binding with the Separate Account Prospectus.
3.4 OTHER SALES-RELATED EXPENSES.
Expenses of distributing the Portfolio's shares and the Contracts will
be paid by Contracts Distributor and other parties, as they shall determine by
separate agreement.
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3.5 PARTIES TO COOPERATE.
The Adviser, Insurer, Contracts Distributor, and Distributor each
agrees to cooperate with the others, as applicable, in arranging to print, mail
and/or deliver combined or coordinated prospectuses or other materials of the
Fund and Separate Account.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) The Adviser will use its best efforts to qualify and to maintain
qualification of each Portfolio as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and
the Adviser or Distributor will notify Insurer immediately upon having a
reasonable basis for believing that a Portfolio has ceased to so qualify or that
it might not so qualify in the future.
(b) Insurer represents that it believes, in good faith, that the
Contracts will be treated as [annuity] contracts under applicable provisions of
the Code and that it will make every effort to maintain such treatment. Insurer
will notify the Fund and Distributor immediately upon having a reasonable basis
for believing that any of the Contracts have ceased to be so treated or that
they might not be so treated in the future.
(c) The Fund will use its best efforts to comply and to maintain each
Portfolio's compliance with the diversification requirements set forth in
Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the
Code, and the Fund, Adviser or Distributor will notify Insurer immediately upon
having a reasonable basis for believing that a Portfolio has ceased to so comply
or that a Portfolio might not so comply in the future.
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(d) Insurer represents that it believes, in good faith, that the
Separate Account is a "segregated asset account" and that interests in the
Separate Account are offered exclusively through the purchase of or transfer
into a "variable contract," within the meaning of such terms under Section
817(h) of the Code and the regulations thereunder. Insurer will make every
effort to continue to meet such definitional requirements, and it will notify
the Fund and Distributor immediately upon having a reasonable basis for
believing that such requirements have ceased to be met or that they might not be
met in the future.
(e) The Adviser will manage the Fund as a RIC in compliance with
Subchapter M of the Code and will use its best efforts to comply with Section
817(h) of the Code and regulations thereunder. The Fund has adopted and will
maintain procedures for ensuring that the Fund is managed in compliance with
Subchapter M and Section 817(h) and regulations thereunder.
(f) Should the Distributor or Adviser become aware of a failure of
Fund, or any of its Portfolios, to comply with Subchapter M of the Code or
Section 817(h) of the Code and regulations thereunder, they represent and agree
that they will immediately notify Insurer of such in writing.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) The Adviser will use its best efforts to cause the Fund to comply
with any applicable state insurance laws or regulations, to the extent
specifically requested in writing by Insurer. If it cannot comply, it will so
notify Insurer in writing.
(b) Insurer represents and warrants that (i) it is an insurance company
duly organized, validly existing and in good standing under the laws of the
State of New York and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its
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obligations under this Agreement, (ii) it has legally and validly established
and maintains the Separate Account as a segregated asset account under New
York law, and (iii) the Contracts comply in all material respects with all
other applicable federal and state laws and regulations.
(c) Insurer and Contracts Distributor represent and warrant that
Contracts Distributor is a business corporation duly organized, validly
existing, and in good standing under the laws of the State of Massachusetts and
has full corporate power, authority and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
(d) Distributor represents and warrants that it is a business
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and has full corporate power, authority and legal
right to execute, deliver, and perform its duties and comply with its
obligations under this Agreement.
(e) Distributor represents and warrants that the Fund is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Maryland and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
(f) Adviser represents and warrants that it is a limited partnership,
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
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4.3 SECURITIES LAWS.
(a) Insurer represents and warrants that (i) interests in the Separate
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act and the Contracts will be duly authorized for
issuance and sold in compliance with Delaware law, (ii) the Separate Account is
and will remain registered under the 1940 Act to the extent required by the 1940
Act, (iii) the Separate Account does and will comply in all material respects
with the requirements of the 1940 Act and the rules thereunder, (iv) the
Separate Account's 1933 Act registration statement relating to the Contracts,
together with any amendments thereto, will, at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder, and (v)
the Separate Account Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(b) The Adviser and Distributor represent and warrant that (i) Fund
shares sold pursuant to this Agreement will be registered under the 1933 Act to
the extent required by the 1933 Act and duly authorized for issuance and sold in
compliance with Maryland law, (ii) the Fund is and will remain registered under
the 1940 Act to the extent required by the 1940 Act, (iii) the Fund will amend
the registration statement for its shares under the 1933 Act and itself under
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares, (iv) the Fund does and will comply in all material
respects with the requirements of the 1940 Act and the rules thereunder, (v) the
Fund's 1933 Act registration statement, together with any amendments thereto,
will at all times comply in all material respects with the requirements of the
1933 Act and rules thereunder, and (vi) the Fund Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
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(c) The Fund will register and qualify its shares for sale in
accordance with the laws of any state or other jurisdiction only if and to the
extent reasonably deemed advisable by the Fund, Insurer or any other life
insurance company utilizing the Fund.
(d) Distributor and Contracts Distributor each represents and warrants
that it is registered as a broker-dealer with the SEC under the Securities
Exchange Act of 1934, as amended, and is a member in good standing of the
National Association of Securities Dealers Inc. (the "NASD").
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) Distributor or the Fund shall immediately notify Insurer of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Fund's registration statement
under the 1933 Act or the Fund Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or Fund Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of the Fund's shares, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of Fund shares in any
state or jurisdiction, including, without limitation, any circumstances in which
(x) the Fund's shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law or (y) such law
precludes the use of such shares as an underlying investment medium of the
Contracts issued or to be issued by Insurer. Distributor and the Fund will make
every reasonable effort to prevent the issuance of any such stop order, cease
and desist order or similar order and, if any such order is issued, to obtain
the lifting thereof at the earliest possible time.
(b) Insurer and Contracts Distributor shall immediately notify the Fund
of (i) the issuance by any court or regulatory body of any stop order, cease and
desist order or similar order with respect to the Separate Account's
registration statement under the 1933 Act relating to the Contracts or the
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Separate Account Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or Separate Account Prospectus, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of the Separate Account interests pursuant to the
Contracts, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. Insurer and Contracts Distributor will make every reasonable effort
to prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
4.5 INSURER TO PROVIDE DOCUMENTS.
Upon request, Insurer will provide the Fund and the Distributor one
complete copy of SEC registration statements, Separate Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and amendments to
any of the above, that relate to the Separate Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6 FUND TO PROVIDE DOCUMENTS.
Upon request, the Fund will provide to Insurer one complete copy of SEC
registration statements, Fund Prospectuses, reports, any preliminary and final
proxy material, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
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SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The Fund has obtained an order exempting it from certain provisions of
the 1940 Act and rules thereunder so that the Fund is available for investment
by certain other entities, including, without limitation, separate accounts
funding variable life insurance policies and separate accounts of insurance
companies unaffiliated with Insurer ("Mixed and Shared Funding Order"). The
Parties recognize that the SEC has imposed terms and conditions for such orders
that are substantially identical to many of the provisions of this Section 5.
5.2 DISINTERESTED DIRECTORS.
The Fund agrees that its Board of Directors shall at all times consist
of directors a majority of whom (the "Disinterested Directors") are not
interested persons of Adviser or Distributor within the meaning of Section
2(a)(19) of the 1940 Act.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
The Fund agrees that its Board of Directors will monitor for the
existence of any material irreconcilable conflict between the interests of the
participants in all separate accounts of life insurance companies utilizing the
Fund, including the Separate Account. Insurer agrees to inform the Board of
Directors of the Fund of the existence of or any potential for any such material
irreconcilable conflict of which it is aware. The concept of a "material
irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder,
but the Parties recognize that such a conflict may arise for a variety of
reasons, including, without limitation:
(a) an action by any state insurance or other regulatory
authority;
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(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant
proceeding;
(d) the manner in which the investments of any Portfolio are
being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract participants or by participants of
different life insurance companies utilizing the Fund; or
(f) a decision by a life insurance company utilizing the Fund to
disregard the voting instructions of participants.
Insurer will assist the Board of Directors in carrying out its
responsibilities by providing the Board of Directors with all information
reasonably necessary for the Board of Directors to consider any issue raised,
including information as to a decision by Insurer to disregard voting
instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the members
of the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, Insurer and the other life insurance
companies utilizing the Fund will, at their own expense and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Directors), take
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whatever steps are necessary to remedy or eliminate the material
irreconcilable conflict, which steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the separate
accounts from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, including another
Portfolio of the Fund, or submitting the question whether such
segregation should be implemented to a vote of all affected
participants and, as appropriate, segregating the assets of any
particular group (e.g., annuity contract owners or participants,
life insurance contract owners or all contract owners and
participants of one or more life insurance companies utilizing
the Fund) that votes in favor of such segregation, or offering
to the affected contract owners or participants the option of
making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "Management Company" in Section 4(3) of the 1940
Act or a new separate account that is operated as a Management
Company.
(b) If the material irreconcilable conflict arises because of Insurer's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, Insurer may be
required, at the Fund's election, to withdraw the Separate Account's investment
in the Fund. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal must take place within six months after the Fund
gives notice to Insurer that this provision is being implemented, and until such
withdrawal Distributor and the Fund shall continue to accept and implement
orders by Insurer for the purchase and redemption of shares of the Fund.
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(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to Insurer conflicts with the
majority of other state regulators, then Insurer will withdraw the Separate
Account's investment in the Fund within six months after the Fund's Board of
Directors informs Insurer that it has determined that such decision has created
a material irreconcilable conflict, and until such withdrawal Distributor and
Fund shall continue to accept and implement orders by Insurer for the purchase
and redemption of shares of the Fund.
(d) Insurer agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and with
a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will the Fund or Distributor be
required to establish a new funding medium for any Contracts. Insurer will not
be required by the terms hereof to establish a new funding medium for any
Contracts if an offer to do so has been declined by vote of a majority of
Participants materially adversely affected by the material irreconcilable
conflict.
5.5 NOTICE TO INSURER.
The Fund will promptly make known in writing to Insurer the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
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5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
Insurer and the Fund will at least annually submit to the Board of
Directors of the Fund such reports, materials or data as the Board of Directors
may reasonably request so that the Board of Directors may fully carry out the
obligations imposed upon it by the provisions hereof, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Directors. All reports received by the Board of Directors of
potential or existing conflicts, and all Board of Directors actions with regard
to determining the existence of a conflict, notifying life insurance companies
utilizing the Fund of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
Board of Directors or other appropriate records, and such minutes or other
records will be made available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which the Fund is serving an investment medium
for variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to mixed and shared funding, the Parties agree that they will comply
with the terms and conditions thereof and that the terms of this Section 5 shall
be deemed modified if and only to the extent required in order also to comply
with the terms and conditions of such exemptive relief that is afforded by any
of said rules that are applicable.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Portfolio:
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(a) at the option of Insurer or Distributor upon at least six months
advance written notice to the other Parties, or
(b) at the option of the Fund upon (i) at least sixty days advance
written notice to the other parties, and (ii) approval by (x) a majority of the
disinterested Directors upon a finding that a continuation of this Contract is
contrary to the best interests of the Fund, or (y) a majority vote of the shares
of the affected Portfolio in the corresponding Division of the Separate Account
(pursuant to the procedures set forth in Section 11 of this Agreement for voting
Trust shares in accordance with Participant instructions).
(c) at the option of the Fund upon institution of formal proceedings
against Insurer or Contracts Distributor by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding Insurer's obligations
under this Agreement or related to the sale of the Contracts, the operation of
the Separate Account, or the purchase of the Fund shares, if, in each case, the
Fund reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on the Portfolio to be terminated; or
(d) at the option of Insurer upon institution of formal proceedings
against the Fund, Adviser, or Distributor by the NASD, the SEC, or any state
insurance regulator or any other regulatory body regarding the Fund's, Adviser's
or Distributor's obligations under this Agreement or related to the operation or
management of the Fund or the purchase of Fund shares, if, in each case, Insurer
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on Insurer, Contracts Distributor or the Division
corresponding to the Portfolio to be terminated; or
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(e) at the option of any Party in the event that (i) the Portfolio's
shares are not registered and, in all material respects, issued and sold in
accordance with any applicable state and federal law or (ii) such law precludes
the use of such shares as an underlying investment medium of the Contracts
issued or to be issued by Insurer; or
(f) upon termination of the corresponding Division's investment in the
Portfolio pursuant to Section 5 hereof; or
(g) at the option of Insurer if the Portfolio ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions; or
(h) at the option of Insurer if the Portfolio fails to comply with
Section 817(h) of the Code or with successor or similar provisions; or
(i) at the option of Insurer if Insurer reasonably believes that any
change in a Fund's investment adviser or investment practices will materially
increase the risks incurred by Insurer.
6.2 FUNDS TO REMAIN AVAILABLE.
Except (i) as necessary to implement Participant-initiated
transactions, (ii) as required by state insurance laws or regulations, (iii) as
required pursuant to Section 5 of this Agreement, or (iv) with respect to any
Portfolio as to which this Agreement has terminated, Insurer shall not (x)
redeem Fund shares attributable to the Contracts, or (y) prevent Participants
from allocating payments to or transferring amounts from a Portfolio that was
otherwise available under the Contracts, until, in either case, 60 calendar days
after Insurer shall have notified the Fund or Distributor of its intention to do
so.
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6.3 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.4 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
Notwithstanding any termination of this Agreement, the Distributor
shall continue, at the option of the Insurer, to make available shares of the
Portfolios pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement (the
"Existing Contracts"), except as otherwise provided under Section 5 of this
Agreement. Specifically, and without limitation, the Distributor shall, at the
option of the Insurer, facilitate the sale and purchase of shares of the
Portfolios as necessary in order to process premium payments, surrenders and
other withdrawals, and transfers or reallocations of values under Existing
Contracts.
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The other Parties hereto agree to cooperate with and give reasonable
assistance to Insurer in taking all necessary and appropriate steps for the
purpose of ensuring that the Separate Account owns no shares of a Portfolio
after the Final Termination Date with respect thereto.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
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SECTION 9. CLASS B DISTRIBUTION PAYMENTS
From time to time during the term of this Agreement the Distributor may
make payments to the Contracts Distributor pursuant to a distribution plan
adopted by the Fund with respect to the Class B shares of the Portfolios
pursuant to Rule 12b-1 under the 1940 Act (the "Rule 12b-1 Plan) in
consideration of the Contracts Distributor's furnishing distribution services
relating to the Class B shares of the Portfolios and providing administrative,
accounting and other services, including personal service and/or the maintenance
of Participant accounts, with respect to such shares. The Distributor has no
obligation to make any such payments, and the Contracts Distributor waives any
such payment, until the Distributor receives monies therefor from the Fund. Any
such payments made pursuant to this Section 9 shall be subject to the following
terms and conditions:
(a) Any such payments shall be in such amounts as the Distributor may
from time to time advise the Contracts Distributor in writing but in any event
not in excess of the amounts permitted by the Rule 12b-1 Plan. Such payments may
include a service fee in the amount of .25 of 1% per annum of the average daily
net assets of the Fund attributable to the Class B shares of a Portfolio held by
clients of the Contracts Distributor. Any such service fee shall be paid solely
for personal service and/or the maintenance of Participant accounts.
(b) The provisions of this Section 9 relate to a plan adopted by the
Fund pursuant to Rule 12b-1. In accordance with Rule 12b-1, any person
authorized to direct the disposition of monies paid or payable by the Fund
pursuant to this Section 9 shall provide the Fund's Board of Directors, and the
Directors shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
(c) The provisions of this Section 9 shall remain in effect for not
more than a year and thereafter for successive annual periods only so long as
such continuance is specifically approved
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at least annually in conformity with Rule 12b-1 and the 1940 Act. The
provisions of this Section 9 shall automatically terminate in the event of
the assignment (as defined by the 1940 Act) of this Agreement, in the event
the Rule 12b-1 Plan terminates or is not continued or in the event this
Agreement terminates or ceases to remain in effect. In addition, the
provisions of this Section 9 may be terminated at any time, without penalty,
by either the Distributor or the Contracts Distributor with respect to any
Portfolio on not more than 60 days' nor less than 30 days' written notice
delivered or mailed by registered mail, postage prepaid, to the other party.
SECTION 10. NOTICES
Notices and communications required or permitted by Section 2 hereof
will be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
If to Insurer
First Allmerica Financial Life Insurance
Company
440 Lincoln Street
Worcester, MA 01653
Attn: Richard M. Reilly, Vice President
If to Contracts Distributor
Allmerica Investments, Inc.
440 Lincoln Street
Worcester, MA 01653
Attn: William F. Monroe, Jr., President
21
<PAGE>
If to Distributor
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas
New York NY 10105
Attn.: Edmund P. Bergan
FAX: (212) 969-2290
If to Advisor or the Fund
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York NY 10105
Attn: Edmund P. Bergan
FAX: (212) 969-2290
SECTION 11. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, Insurer will distribute all proxy material furnished by the Fund to
Participants and will vote Fund shares in accordance with instructions received
from Participants. Insurer will vote Fund shares that are (a) not attributable
to Participants or (b) attributable to Participants, but for which no
instructions have been received, in the same proportion as Fund shares for which
said instructions have been received from Participants. Insurer agrees that it
will disregard Participant voting instructions only to the extent it would be
permitted to do so pursuant to Rule 6e-3 (T)(b)(15)(iii) under the 1940 Act if
the Contracts were variable life insurance policies subject to that rule. Other
participating life insurance companies utilizing the Fund will be responsible
for calculating voting privileges in a manner consistent with that of Insurer,
as prescribed by this Section 11.
22
<PAGE>
SECTION 12. FOREIGN TAX CREDITS
The Adviser agrees to consult in advance with Insurer concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to the Fund's shareholders.
SECTION 13. INDEMNIFICATION
13.1 INDEMNIFICATION OF FUND, DISTRIBUTOR AND ADVISER BY INSURER.
(a) Except to the extent provided in Sections 13.1(b) and 13.1(c),
below, Insurer agrees to indemnify and hold harmless the Fund, Distributor and
Adviser, each of their directors and officers, and each person, if any, who
controls the Fund, Distributor or Adviser within the meaning of Section 15 of
the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 13. 1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of Insurer) or
actions in respect thereof (including, to the extent reasonable, legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions are related to the sale, acquisition, or holding
of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Separate Account's 1933 Act registration statement, the Separate
Account Prospectus, the Contracts or, to the extent prepared by
Insurer or Contracts Distributor, sales literature or advertising
for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact
23
<PAGE>
required to be stated therein or necessary to make the statements
therein not misleading; provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
Insurer or Contracts Distributor by or on behalf of the Fund,
Distributor or Adviser for use in the Separate Account's 1933
Act registration statement, the Separate Account Prospectus, the
Contracts, or sales literature or advertising (or any amendment
or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in the Fund's 1933 Act registration statement,
Fund Prospectus, sales literature or advertising of the Fund,
or any amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of Insurer or Contracts
Distributor) or the negligent, illegal or fraudulent conduct of
Insurer or Contracts Distributor or persons under their control
(including, without limitation, their employees and "Associated
Persons," as that term is defined in paragraph (m) of Article I
of the NASD's By-Laws), in connection with the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund's
1933 Act registration statement, Fund Prospectus, sales
literature or advertising of the Fund, or any amendment or
supplement to any of the foregoing, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the
24
<PAGE>
statements therein not misleading if such a statement or
omission was made in reliance upon and in conformity with
information furnished to the Fund, Adviser or Distributor
by or on behalf of Insurer or Contracts Distributor for use in
the Fund's 1933 Act registration statement, Fund Prospectus,
sales literature or advertising of the Fund, or any amendment
or supplement to any of the foregoing; or
(iv) arise as a result of any failure by Insurer or Contracts
Distributor to perform the obligations, provide the services
and furnish the materials required of them under the terms of
this Agreement.
(b) Insurer shall not be liable under this Section 13.1 with respect to
any losses, claims, damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance by that Indemnified Party of its duties or
by reason of that Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to Distributor or to the Fund.
(c) Insurer shall not be liable under this Section 13.1 with respect to
any action against an Indemnified Party unless the Fund, Distributor or Adviser
shall have notified Insurer in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Insurer of any such action shall not relieve
Insurer from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 13. 1. In
case any such action is brought against an Indemnified Party, Insurer shall be
entitled to participate, at its own expense, in the defense of such action.
Insurer also shall be entitled to assume the defense thereof,
25
<PAGE>
with counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably withheld. After notice from Insurer to
such Indemnified Party of Insurer's election to assume the defense thereof,
the Indemnified Party will cooperate fully with Insurer and shall bear the
fees and expenses of any additional counsel retained by it, and Insurer will
not be liable to such Indemnified Party under this Agreement for any legal or
other expenses subsequently incurred by such Indemnified Party independently
in connection with the defense thereof, other than reasonable costs of
investigation.
13.2 INDEMNIFICATION OF INSURER AND CONTRACTS DISTRIBUTOR BY
ADVISER.
(a) Except to the extent provided in Sections 13.2(d) and 13.2(e),
below, Adviser agrees to indemnify and hold harmless Insurer and Contracts
Distributor, each of their directors and officers, and each person, if any,
who controls Insurer or Contracts Distributor within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of
this Section 13.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of Adviser) or
actions in respect thereof (including, to the extent reasonable, legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or actions are related to the sale, acquisition, or holding of
the Fund's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund's
1933 Act registration statement, Fund Prospectus, sales
literature or advertising of the Fund or, to the extent not
prepared by Insurer or Contracts Distributor, sales literature
or advertising for the Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based
26
<PAGE>
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading; provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to Distributor, Adviser or the Fund by or
on behalf of Insurer or Contracts Distributor for use in the
Fund's 1933 Act registration statement, Fund Prospectus, or in
sales literature or advertising (or any amendment or supplement
to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in the Separate Account's 1933 Act registration
statement, Separate Account Prospectus, sales literature or
advertising for the Contracts, or any amendment or supplement
to any of the foregoing, not supplied for use therein by or on
behalf of Distributor, Adviser, or the Fund) or the negligent,
illegal or fraudulent conduct of the Fund, Distributor, Adviser
or persons under their control (including, without limitation,
their employees and Associated Persons), in connection with the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Separate
Account's 1933 Act registration statement, Separate Account
Prospectus, sales literature or advertising covering the
Contracts, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such statement
or omission was made
27
<PAGE>
in reliance upon and in conformity with information furnished to
Insurer or Contracts Distributor by or on behalf of the Fund,
Distributor or Adviser for use in the Separate Account's 1933
Act registration statement, Separate Account Prospectus, sales
literature or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by the Fund, Adviser or
Distributor to perform the obligations, provide the services
and furnish the materials required of them under the terms of
this Agreement;
(b) Except to the extent provided in Sections 13.2(d) and 13.2(e)
hereof, Adviser agrees to indemnify and hold harmless the Indemnified Parties
from and against any and all losses, claims, damages, liabilities (including
amounts paid in settlement thereof with, except as set forth in Section 13.2(c)
below, the written consent of Adviser) or actions in respect thereof (including,
to the extent reasonable, legal and other expenses) to which the Indemnified
Parties may become subject directly or indirectly under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
actions directly or indirectly result from or arise out of the failure of any
Portfolio to operate as a regulated investment company in compliance with (i)
Subchapter M of the Code and regulations thereunder and (ii) Section 817(h) of
the Code and regulations thereunder (except to the extent that such failure is
caused by Insurer), including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Contract owners or
Participants asserting liability against Insurer or Contracts Distributor
pursuant to the Contracts, the costs of any ruling and closing agreement or
other settlement with the Internal Revenue Service, and the cost of any
substitution by Insurer of shares of another investment company or portfolio for
those of any
28
<PAGE>
adversely affected Portfolio as a funding medium for the Separate
Account that Insurer deems necessary or appropriate as a result of the
noncompliance.
(c) The written consent of Adviser referred to in Section 13.2(b) above
shall not be required with respect to amounts paid in connection with any ruling
and closing agreement or other settlement with the Internal Revenue Service.
(d) Adviser shall not be liable under this Section 13.2 with respect to
any losses, claims; damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance by that Indemnified Party of its duties or
by reason of such Indemnified Party's reckless disregard of its obligations and
duties under this Agreement or to Insurer, Contracts Distributor or the Separate
Account.
(e) Adviser shall not be liable under this Section 13.2 with respect to
any action against an Indemnified Party unless Insurer or Contracts Distributor
shall have notified Adviser in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Adviser of any such action shall not relieve
Adviser from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 13.2. In
case any such action is brought against an Indemnified Party, Adviser will be
entitled to participate, at its own expense, in the defense of such action.
Adviser also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the Internal Revenue Service),
with counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably
29
<PAGE>
withheld. After notice from Adviser to such Indemnified Party of Adviser's
election to assume the defense thereof, the Indemnified Party will cooperate
fully with Adviser and shall bear the fees and expenses of any additional
counsel retained by it, and Adviser will not be liable to such Indemnified
Party under this Agreement for any legal or other expenses subsequently
incurred by such Indemnified Party independently in connection with the
defense thereof, other than reasonable costs of investigation.
13.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Section 13.1(c) or 13.2(e) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the claim among the Parties or otherwise.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with New York law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
30
<PAGE>
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. RESTRICTIONS ON SALES OF FUND SHARES
Insurer agrees that the Fund will be permitted (subject to the other
terms of this
Agreement) to make its shares available to separate accounts of other
life insurance companies.
SECTION 18. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
31
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers signing below.
FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY
By:
Name:
Title:
ALLMERICA INVESTMENTS, INC.
By:
Name:
Title:
ALLIANCE CAPITAL MANAGEMENT LP
By: Alliance Capital Management Corporation,
its General Partner
By:
Name:
Title:
ALLIANCE FUND DISTRIBUTORS, INC.
By:
Name:
Title:
32
<PAGE>
PARTICIPATION AGREEMENT
AMONG
VAN KAMPEN LIFE INVESTMENT TRUST,
VAN KAMPEN FUNDS INC.,
VAN KAMPEN ASSET MANAGEMENT INC.,
AND
FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY
DATED AS OF
,2000
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. Fund Shares 4
ARTICLE II Representations and Warranties 6
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements; Voting 7
ARTICLE IV. Sales Material and Information 9
ARTICLE V Reserved 10
ARTICLE VI. Diversification 10
ARTICLE VII. Potential Conflicts 10
ARTICLE VIII. Indemnification 12
ARTICLE IX. Applicable Law 16
ARTICLE X. Termination 16
ARTICLE XI. Notices 18
ARTICLE XII. Foreign Tax Credits 19
ARTICLE XIII. Miscellaneous 19
SCHEDULE A Separate Accounts and Contracts 22
SCHEDULE B Participating Life Investment Trust Portfolios 23
SCHEDULE C Proxy Voting Procedures 24
</TABLE>
2
<PAGE>
PARTICIPATION AGREEMENT
Among
VAN KAMPEN LIFE INVESTMENT TRUST,
VAN KAMPEN FUNDS INC.,
VAN KAMPEN ASSET MANAGEMENT INC.,
and
FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the day of ,
2000 by and among FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(hereinafter the "Company"), a Massachusetts corporation, on its own behalf
and on behalf of each separate account of the Company set forth on Schedule A
hereto as may be amended from time to time (each such account hereinafter
referred to as the "Account"), and VAN KAMPEN LIFE INVESTMENT TRUST
(hereinafter the "Fund"), a Delaware business trust, VAN KAMPEN FUNDS INC.
(hereinafter the "Underwriter"), a Delaware corporation, and VAN KAMPEN ASSET
MANAGEMENT INC. (hereinafter the "Adviser"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established by insurance companies for individual and group
life insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products"); and
WHEREAS, insurance companies desiring to utilize the Fund as an
investment vehicle under their Variable Insurance Products are required to enter
into participation agreements with the Fund and the Underwriter (the
"Participating Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares,
each representing the interest in a particular managed portfolio of securities
and other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule B (each such series hereinafter referred to as a "Portfolio") as may be
amended from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 19, 1990 (File No. 812-7552), granting
Participating Insurance Companies and Variable Insurance Product separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940
Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by Variable
Annuity Product
3
<PAGE>
separate accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, the Adviser is the investment adviser of the Portfolios of the
Fund; and
WHEREAS, the Underwriter is registered as a broker/dealer under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), is a
member in good standing of the National Association of Securities Dealers, Inc.
(hereinafter "NASD") and serves as principal underwriter of the shares of the
Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Products; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Underwriter is authorized to sell such shares to each such Account at net
asset value.
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund, the Underwriter and the Adviser agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund and the Underwriter agree to make available for purchase
by the Company shares of the Portfolios and shall execute orders placed for each
Account on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of such order. For purposes of this Section 1.1, the
Company shall be the designee of the Fund and Underwriter for receipt of such
orders from each Account and receipt by such designee shall constitute receipt
by the Fund; provided that the Fund receives notice of such order by 10:00 a.m.
Houston time on the next following Business Day. Notwithstanding the foregoing,
the Company shall use its best efforts to provide the Fund with notice of such
orders by 9:15 a.m. Houston time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the Securities and Exchange Commission, as set forth in the Fund's prospectus
and statement of additional information. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to permit the
Fund to sell shares of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Board acting in good faith and in light of their fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
4
<PAGE>
1.2. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies for their Variable Insurance
Products. No shares of any Portfolio will be sold to the general public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
which afford the Company substantially the same protections currently provided
by Sections 2.1, 2.4, 2.9, 3.4 and Article VII of this Agreement is in effect to
govern such sales.
1.4. The Fund and the Underwriter agree to redeem for cash, on the
Company's request, any full or fractional shares of the Fund held by the
Company, executing such requests on a daily basis at the net asset value next
computed after receipt by the Fund or its designee of the request for
redemption. For purposes of this Section 1.4, the Company shall be the designee
of the Fund for receipt of requests for redemption from each Account and receipt
by such designee shall constitute receipt by the Fund; provided that the
Underwriter receives notice of such request for redemption on the next following
Business Day in accordance with the timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Accounts of the Company,
under which amounts may be invested in the Fund are listed on Schedule A
attached hereto and incorporated herein by reference, as such Schedule A may be
amended from time to time by mutual written agreement of all of the parties
hereto. The Company will give the Fund and the Underwriter sixty (60) days
written notice of its intention to make available in the future, as a funding
vehicle under the Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem
shares of each Portfolio. Each order shall describe the net amount of shares and
dollar amount of each Portfolio to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Portfolio shares on the next Business Day
after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem Portfolio shares is made in accordance with the provisions of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
Portfolio securities or otherwise incur substantial additional costs, and if the
Portfolio has determined to settle redemption transactions for all shareholders
on a delayed basis, proceeds shall be wired to the Company within seven (7) days
and the Portfolio shall notify in writing the person designated by the Company
as the recipient for such notice of such delay by 3:00 p.m. Houston time on the
same Business Day that the Company transmits the redemption order to the
Portfolio.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Share certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Underwriter shall use its best efforts to furnish same day
notice by 6:00 p.m. Houston time (by wire or telephone, followed by written
confirmation) to the Company of any dividends or capital gain distributions
payable on the Fund's shares. The Company hereby elects to receive all such
dividends and capital gain distributions as are payable on the Portfolio shares
in additional shares of that Portfolio. The Company reserves the right to revoke
this election and to receive all such dividends and capital gain distributions
in cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
5
<PAGE>
1.9. The Underwriter shall make the net asset value per share of each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 6:00 p.m.
Houston time. In the event that Underwriter is unable to meet the 6:00 p.m. time
stated immediately above, then Underwriter shall provide the Company with
additional time to notify Underwriter of purchase or redemption orders pursuant
to Sections 1.1 and 1.4, respectively, above. Such additional time shall be
equal to the additional time that Underwriter takes to make the net asset values
available to the Company; provided, however, that notification must be made by
10:00 a.m. Houston time on the Business Day such order is to be executed,
regardless of when net asset value is made available.
1.10. If Underwriter provides materially incorrect share net asset
value information through no fault of the Company, the Company shall be entitled
to an adjustment with respect to the Fund shares purchased or redeemed to
reflect the correct net asset value per share. The determination of the
materiality of any net asset value pricing error shall be based on the SEC's
recommended guidelines regarding such errors. The correction of any such errors
shall be made at the Company level pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the
Accounts (the "Contracts") are or will be registered and will maintain the
registration under the 1933 Act and the regulations thereunder to the extent
required by the 1933 Act; that the Contracts will be issued and sold in
compliance with all applicable federal and state laws and regulations. The
Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
segregated asset account under the Insurance Code of the Commonwealth of
Massachusetts and the regulations thereunder and has registered or, prior to any
issuance or sale of the Contracts, will register and will maintain the
registration of each Account as a unit investment trust in accordance with and
to the extent required by the provisions of the 1940 Act and the regulations
thereunder to serve as a segregated investment account for the Contracts. The
Company shall amend its registration statement for its contracts under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its Contracts.
2.2. The Fund and the Underwriter represent and warrant that Fund
shares sold pursuant to this Agreement shall be registered under the 1933 Act
and the regulations thereunder to the extent required by the 1933 Act, duly
authorized for issuance in accordance with the laws of the State of Delaware and
sold in compliance with all applicable federal and state securities laws and
regulations and that the Fund is and shall remain registered under the 1940 Act
and the regulations thereunder to the extent required by the 1940 Act. The Fund
shall amend the registration statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund.
2.3. The Fund and the Adviser represent that the Fund is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") and that each will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provision) and that each will notify the Company immediately upon having
a reasonable basis for believing that the Fund has ceased to so qualify or that
the Fund might not so qualify in the future.
6
<PAGE>
2.4. The Company represents that each Account is and will continue to
be a "segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent that the Fund is duly organized
and validly existing under the laws of the State of Delaware and that the Fund
does and will comply in all material respects with the 1940 Act.
2.8. The Underwriter represents and warrants that it is and shall
remain duly registered under all applicable federal and state laws and
regulations and that it will perform its obligations for the Fund and the
Company in compliance with the laws and regulations of its state of domicile and
any applicable state and federal laws and regulations.
2.9The Company represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities dealing with the
money and/or securities of the Fund are covered by a blanket fidelity bond or
similar coverage, in an amount equal to the greater of $5 million or any amount
required by applicable federal or state law or regulation. The aforesaid, which
includes coverage for larceny and embezzlement, is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
2,10 The Fund and Underwriter represent and warrant that the Fund's
Trustees, officers, employees, and other individuals/entities dealing with the
money and/or securities of the Fund are and shall continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required by Rule 17g-(1)
of the 1940 Act or related provisions as may be promulgated from time to time.
The aforesaid blanket fidelity bond shall include coverage for leverage and
embzzlement and shall by a reputable bonding company.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1. The Fund shall provide the Company with as many printed copies of
the Fund's current prospectus and statement of additional information as the
Company may reasonably request. If requested by the Company in lieu of providing
printed copies the Fund shall provide camera-ready film or computer diskettes
containing the Fund's prospectus and statement of additional information, and
such other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus and/or statement of additional
information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document or
separately. The Company may elect to print the Fund's prospectus and/or its
statement of additional information in combination with other fund companies'
prospectuses and statements of additional information.
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3.2(a). Except as otherwise provided in this Section 3.2., all expenses
of preparing, setting in type and printing and distributing Fund prospectuses
and statements of additional information shall be the expense of the Company.
For prospectuses and statements of additional information provided by the
Company to its existing owners of Contracts in order to update disclosure as
required by the 1933 Act and/or the 1940 Act, the cost of setting in type,
printing and distributing shall be borne by the Fund. If the Company chooses to
receive camera-ready film or computer diskettes in lieu of receiving printed
copies of the Fund's prospectus and/or statement of additional information, the
Fund shall bear the cost of typesetting to provide the Fund's prospectus and/or
statement of additional information to the Company in the format in which the
Fund is accustomed to formatting prospectuses and statements of additional
information, respectively, and the Company shall bear the expense of adjusting
or changing the format to conform with any of its prospectuses and/or statements
of additional information. In such event, the Fund will reimburse the Company in
an amount equal to the product of x and y where x is the number of such
prospectuses distributed to owners of the Contracts, and y is the Fund's per
unit cost of printing the Fund's prospectuses. The same procedures shall be
followed with respect to the Fund's statement of additional information. The
Fund shall not pay any costs of typesetting, printing and distributing the
Fund's prospectus and/or statement of additional information to prospective
Contract owners.
3.2(b). The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and statements of additional information, which are
covered in Section 3.2(a) above) to shareholders in such quantity as the Company
shall reasonably require for distributing to Contract owners. The Fund shall not
pay any costs of distributing such proxy-related material, reports to
shareholders, and other communications to prospective Contract owners.
3.2(c). The Company agrees to provide the Fund or its designee with
such information as may be reasonably requested by the Fund to assure that the
Fund's expenses do not include the cost of typesetting, printing or distributing
any of the foregoing documents other than those actually distributed to existing
Contract owners.
3.2(d) The Fund shall pay no fee or other compensation to the Company
under this Agreement, except that if the Fund or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
the Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
3.2(e) All expenses, including expenses to be borne by the Fund
pursuant to Section 3.2 hereof, incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Underwriter, the Company or such other person as the Fund may
designate.
3.4. If and to the extent required by law the Company shall distribute
all proxy material furnished by the Fund to Contract Owners to whom voting
privileges are required to be extended and shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
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(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of
such Portfolio for which instructions have been
received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund and the Company shall follow the procedures, and shall have the
corresponding responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and Exchange
Commission's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund, the Underwriter or their designee, each piece of sales literature or other
promotional material prepared by the Company or any person contracting with the
Company in which the Fund, the Adviser or the Underwriter is named, at least
fifteen Business Days prior to its use. No such material shall be used if the
Fund, the Adviser, the Underwriter or their designee reasonably objects to such
use within ten Business Days after receipt of such material.
4.2. Neither the Company nor any person contracting with the Company
shall give any information or make any representations or statements on behalf
of the Fund or concerning the Fund in connection with the sale of the Contracts
other than the information or representations contained in the registration
statement or Fund prospectus, as such registration statement or Fund prospectus
may be amended or supplemented from time to time, or in reports to shareholders
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund or its designee.
4.3. The Fund shall furnish, or shall cause to be furnished, to the
Company or its designee, each piece of sales literature or other promotional
material prepared by the Fund in which the Company or its Accounts, are named at
least ten Business Days prior to its use. No such material shall be used if the
Company or its designee reasonably objects to such use within ten Business Days
after receipt of such material.
4.4. Neither the Fund nor the Underwriter shall give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement or prospectus may be amended or supplemented from time to
time, or in published reports or solicitations for voting instruction for each
Account which are in the public domain or approved by the Company for
distribution to
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<PAGE>
Contract owners, or in sales literature or other promotional material approved
by the Company or its designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all prospectuses, statements of additional information, reports, proxy
statements, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Fund or its shares, contemporaneously with the filing
of such document with the Securities and Exchange Commission or other regulatory
authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all, prospectuses, statements of additional information, reports, solicitations
for voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no action letters, and all amendments
to any of the above, that relate to the investment in an Account or Contract,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (I.E., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
ARTICLE V. [RESERVED]
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will use its best efforts to at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event the Fund ceases to so qualify, it will take all
reasonable steps (a) to notify Company of such event and (b) to adequately
diversify the Fund so as to achieve compliance within the grace period afforded
by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract owners and variable life insurance contract owners;
or (f) a decision by a Participating Insurance Company to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
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7.2. The Company will report any potential or existing material
irreconcilable conflict of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Company to inform the Board whenever contract
owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take remedial
action in the event of a Board determination of an irreconcilable material
conflict and the cost of such remedial action, and these responsibilities will
be carried out with a view only to the interests of Contract owners.
7.5. For purposes of Sections 7.3 through 7.4 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 through 7.4 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable.
7.7 Each of the Company and the Adviser shall at least annually submit
to the Board such reports, materials or data as the Board may reasonably request
so that the Board may fully
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carry out the obligations imposed upon them by the provisions hereof and in the
Shared Funding Exemptive Order, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board. All reports
received by the Board of potential or existing conflicts, and all Board action
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies of a conflict, and determining whether any proposed action
adequately remedies a conflict, shall be properly recorded in the minutes of the
Board or other appropriate records, and such minutes or other records shall be
made available to the Securities and Exchange Commission upon request.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a). The Company agrees to indemnify and hold harmless the Fund, the
Underwriter and each member of their respective Board and officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the registration statement or
prospectus for the Contracts or contained in the
Contracts or sales literature for the Contracts (or
any amendment or supplement to any of the
foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reliance upon and
in conformity with information furnished to the
Company by or on behalf of the Fund for use in the
registration statement or prospectus for the
Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for
use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature of the Fund
not supplied by the Company, or persons under its
control and other than statements or representations
authorized by the Fund or the Underwriter) or
unlawful conduct of the Company or persons under its
control, with respect to the sale or distribution of
the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement
or alleged untrue statement of a material fact
contained in a registration statement, prospectus, or
sales literature of the Fund or any amendment thereof
or supplement thereto, or the omission or alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statement
or statements therein not misleading, if such a
statement or omission was made in reliance upon and
in conformity with information furnished to the Fund
by or on behalf of the Company; or
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(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under
the terms of this Agreement; or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the
Company in this Agreement or arise out of or result
from any other material breach of this Agreement by
the Company.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense thereof. The Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
this Agreement, the issuance or sale of the Fund shares or the Contracts, or the
operation of the Fund.
8.2. INDEMNIFICATION BY UNDERWRITER
8.2(a). The Underwriter agrees, with respect to each Portfolio that it
distributes, to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Underwriter) or litigation (including legal and other expenses),
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares that it distributes or
the Contracts and:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement or
prospectus or sales literature of the Fund (or any
amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission
or
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<PAGE>
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Fund or the Underwriter by or on
behalf of the Company for use in the registration
statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature for the
Contracts not supplied by the Fund, the Underwriter
or persons under their respective control and other
than statements or representations authorized by the
Company) or unlawful conduct of the Fund or
Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts
or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement
or alleged untrue statement of a material fact
contained in a registration statement, prospectus, or
sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading, if such statement or omission was
made in reliance upon and in conformity with
information furnished to the Company by or on behalf
of the Fund or the Underwriter; or
(iv) arise as a result of any failure by the Fund or the
Underwriter to provide the services and furnish the
materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the
Underwriter in this Agreement or arise out of or
result from any other material breach of this
Agreement by the Underwriter; as limited by and in
accordance with the provisions of Section 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other
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<PAGE>
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Contracts or the operation of each Account.
8.3. INDEMNIFICATION BY THE ADVISER
8.3(a). The Adviser agrees to indemnify and hold harmless the Company
and its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (hereinafter collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser)
or litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the operations of the
Adviser or the Fund and:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement or
prospectus or sales literature of the Fund (or any
amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission
or such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Adviser, the Fund or the
Underwriter by or on behalf of the Company for use
in the registration statement or prospectus for the
Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with
the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature for the
Contracts not supplied by the Fund, the Adviser or
persons under its control and other than statements
or representations authorized by the Company) or
unlawful conduct of the Fund, the Adviser or persons
under their control, with respect to the sale or
distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement
or alleged untrue statement of a material fact
contained in a registration statement, prospectus, or
sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading, if such statement or omission was
made in reliance upon information furnished To the
Company by or on behalf of the Fund or the Adviser;
or
(iv) arise as a result of any failure by the Adviser to
provide the services and furnish the materials under
the terms of this Agreement; or
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<PAGE>
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Fund
or the Adviser in this Agreement or arise out of or
result from any other material breach of this
Agreement by the Fund or the Adviser, including
without limitation any failure by the Fund to comply
with the conditions of Article VI hereof.
8.3(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.3(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company agrees to promptly notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of each Account, or the sale or
acquisition of shares of the Adviser.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Illinois.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason upon six-months
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter with respect to any Portfolio
based upon the Company's determination that shares of such
Portfolio are not reasonably available to meet
16
<PAGE>
the requirements of the Contracts. Reasonable advance notice
of election to terminate shall be furnished by the Company,
said termination to be effective ten (10) days after receipt
of notice unless the Fund makes available a sufficient number
of shares to reasonably meet the requirements of the Account
within said ten (10) day period; or
(c) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter with respect to any Portfolio
in the event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares as
the underlying investment medium of the Contracts issued or to
be issued by the Company. The terminating party shall give
prompt notice to the other parties of its decision to
terminate; or
(d) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter with respect to any Portfolio
in the event that such Portfolio ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or
under any successor or similar provision; or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event
that such Portfolio fails to meet the diversification
requirements specified in Article VI hereof; or
(f) termination by either the Fund, the Adviser or the
Underwriter by written notice to the Company, if either one or
more of the Fund, the Adviser or the Underwriter, shall
determine, in its or their sole judgment exercised in good
faith, that the Company and/or their affiliated companies has
suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse
publicity, provided that the Fund, the Adviser or the
Underwriter will give the Company sixty (60) days' advance
written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any
other changes in circumstances since the giving of such
notice, the determination of the Fund, the Adviser or the
Underwriter shall continue to apply on the 60th day since
giving of such notice, then such 60th day shall be the
effective date of termination; or
(g) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good faith, that
either the Fund, the Adviser or the Underwriter has suffered a
material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is
the subject of material adverse publicity, provided that the
Company will give the Fund, the Adviser and the Underwriter
sixty (60) days' advance written notice of such determination
of its intent to terminate this Agreement, and provided
further that after consideration of the actions taken by the
Fund, the Adviser or the Underwriter and any other changes in
circumstances since the giving of such notice, the
determination of the Company shall continue to apply on the
60th day since giving of such notice, then such 60th day shall
be the effective date of termination; or
(h) termination by the Fund, the Adviser or the Underwriter by
written notice to the Company, if the Company gives the Fund,
the Adviser and the Underwriter the written notice specified
in Section 1.5 hereof and at the time such notice was given
there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination
under this Section 10.1(h)
17
<PAGE>
shall be effective sixty (60) days after the notice specified
in Section 1.5 was given; or
(i) termination by any party upon the other party's breach of
any representation in Section 2 or any material provision of
this Agreement, which breach has not been cured to the
satisfaction of the terminating party within ten (10) days
after written notice of such breach is delivered to the Fund
or the Company, as the case may be; or
(j) termination by the Fund, Adviser or Underwriter by written
notice to the Company in the event an Account or Contract is
not registered or sold in accordance with applicable federal
or state law or regulation, or the Company fails to provide
pass-through voting privileges as specified in Section 3.4.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.2 shall not apply to any terminations under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Adviser 90 days notice of its intention to do so.
ARTICLE XI. NOTICES
11.1 Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Van Kampen Life Investment Trust
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Ronald A. Nyberg
If to Underwriter:
18
<PAGE>
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Ronald A. Nyberg
If to Adviser:
Van Kampen Asset Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Attention: Ronald A. Nyberg
If to the Company:
First Allmerica Financial Life
Insurance Company
440 Lincoln Street
Worcester, MA 01653
Attn: Richard M. Reilly, Vice President
ARTICLE XII. FOREIGN TAX CREDITS
12.1. The Fund and Adviser agree to consult in advance with the Company
concerning whether any series of the Fund qualifies to provide a foreign tax
credit pursuant to Section 853 of the Code.
ARTICLE XIII. MISCELLANEOUS
13.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. Each of the
Company, Adviser and Underwriter acknowledges and agrees that, as provided by
Article 8, Section 8.1, of the Fund's Agreement and Declaration of Trust, the
shareholders, trustees, officers, employees and other agents of the Fund and its
Portfolios shall not personally be bound by or liable for matters set forth
hereunder, nor shall resort be had to their private property for the
satisfaction of any obligation or claim hereunder. A Certificate of Trust
referring to the Fund's Agreement and Declaration of Trust is on file with the
Secretary of State of Delaware.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
19
<PAGE>
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations at law or in equity, which the parties hereto are entitled to under
state and federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report (prepared
under generally accepted accounting principles ("GAAP"), if
any), as soon as practical and in any event within 90 days
after the end of each fiscal year;
(b) the Company's June 30th quarterly statements
(statutory), as soon as practical and in any event within 45
days following such period;
(c) any financial statement, proxy statement, notice
or report of the Company sent to stockholders and/or
policyholders, as soon as practical after the delivery thereof
to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the Securities and
Exchange Commission or any state insurance regulator, as soon
as practical after the filing thereof;
(e) any other public report submitted to the Company
by independent accountants in connection with any annual,
interim or special audit made by them of the books of the
Company, as soon as practical after the receipt thereof.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative as of the date specified above.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE
COMPANY on behalf of itself and each of its
Accounts named in Schedule A hereto,
as amended from time to time
By:
-------------------------------------
Richard M. Reilly
Vice President
VAN KAMPEN LIFE INVESTMENT TRUST
By:
-------------------------------------
VAN KAMPEN FUNDS INC.
By:
-------------------------------------
Patrick Woelfel
Senior Vice President
VAN KAMPEN ASSET MANAGEMENT INC.
By:
-------------------------------------
21
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<CAPTION>
Name of Separate Account and Form Numbers and Names of Contracts
Date Established by Board of Directors Funded by Separate Account
- -------------------------------------------------------------------------------
<S> <C>
Separate Account VA-P (8/20/91) Pioneer Vision A3025-96
Pioneer C-Vision A3027-98
</TABLE>
22
<PAGE>
SCHEDULE B
PARTICIPATING LIFE INVESTMENT TRUST PORTFOLIOS
Van Kampen Emerging Growth Portfolio
23
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of
voting instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will
inform the Company of the Record, Mailing and Meeting dates.
This will be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run,"
or other activity, which will generate the names, address and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting
instruction solicitation material. The Fund will provide the last
Annual Report to the Company pursuant to the terms of Section 3.3 of
the Agreement to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Fund. The Company, at its
expense, shall produce and personalize the Voting Instruction Cards.
The Fund or its affiliate must approve the Card before it is printed.
Allow approximately 2-4 business days for printing information on the
Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units (or equivalent shares)
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
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<PAGE>
5. During this time, the Fund will develop, produce, and the Fund will pay
for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid
for by the Company). Contents of envelope sent to Customers by the
Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to vote
as quickly as possible and that their vote is important. One
copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but NOT
including,) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process
used. An often used procedure is to sort Cards on arrival by proposal
into vote categories of all yes, no, or mixed replies, and to begin
data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
and has not been required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card
and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter and a new Card and return envelope. The mutilated or illegible
Card is disregarded and considered to be NOT RECEIVED for purposes of
vote tabulation. Any Cards that have been "kicked out" (e.g.,
mutilated, illegible) of the procedure are "hand verified," (i.e.,
examined as to why they did not complete the system). Any questions on
those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories depending upon their
vote; an estimate of how the vote is progressing may then be
calculated. If the initial estimates and the actual vote do not
coincide, then an internal audit of that vote should occur. This may
entail a recount.
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<PAGE>
12. The actual tabulation of votes is done in units (or equivalent shares)
which is then converted to shares. (It is very important that the fund
receives the tabulations stated in terms of a percentage and the number
of shares.) The Fund must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund
on the morning of the meeting not later than 10:00 A.M. Houston time.
The Fund may request an earlier deadline if reasonable and if required
to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final
vote. The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will
be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
26
