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FILE NOS. _______
_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Initial Registration
SEPARATE ACCOUNT KG OF ALLMERICA FINANCIAL LIFE
INSURANCE AND ANNUITY COMPANY
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
440 Lincoln Street
Worcester, MA 01653
(Address of Principal Executive Office)
Abigail M. Armstrong, Secretary and Counsel
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective:
___ Immediately upon filing pursuant to paragraph (b) of Rule 485.
___ On ________ pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
___ On _____ pursuant to paragraph (a)(1) of Rule 485.
VARIABLE ANNUITY POLICIES
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940,
Registrant hereby declares that an indefinite amount of its securities is being
registered under the Securities Act of 1933. The $500 filing fee required by
said rule is paid herewith.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall become effective in accordance with section 8(a) of the Securities Act of
1933 or until this Registration Statement shall become effective on such date or
dates as the Commission, acting pursuant to said section 8(a), may determine.
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Cross Reference Sheet Showing Location in Prospectus of
Items Called for by Form N-4
Form N-4 Item No Caption in Prospectus
---------------------
1 . . . . . . . . . . . . . Cover Page
2 . . . . . . . . . . . . . "Special Terms"
3 . . . . . . . . . . . . . "Summary"; "Annual and Transaction Expenses"
4 . . . . . . . . . . . . . Condensed Financial Information
5 . . . . . . . . . . . . . "Description of the Company, the Variable Account
and the Kemper Investor Fund."
6 . . . . . . . . . . . . . "Charges and Deductions"
7 . . . . . . . . . . . . . "The Variable Annuity Policies"
8 . . . . . . . . . . . . . "The Variable Annuity Policies"
9 . . . . . . . . . . . . . "Death Benefit"
10. . . . . . . . . . . . . "Purchase Payments:; "Computation of Policy Values
and Annuity Payments"
11. . . . . . . . . . . . . "Surrender"; "Withdrawal"
12. . . . . . . . . . . . . "Federal Tax Considerations"
13. . . . . . . . . . . . . "Legal Matters"
14. . . . . . . . . . . . . "Table of Contents of the Statement of Additional
Information"
Form N-4 Item No. Caption in Statement of Additional Information
-----------------------------------------------
15. . . . . . . . . . . . . "Cover Page"
16. . . . . . . . . . . . . "Table of Contents"
17. . . . . . . . . . . . . "General Information and History"
18. . . . . . . . . . . . . "Services"
19. . . . . . . . . . . . . "Underwriters"
20. . . . . . . . . . . . . "Underwriters"
21. . . . . . . . . . . . . "Performance Information"
22. . . . . . . . . . . . . "Annuity Payments"
23. . . . . . . . . . . . . "Financial Statements"
<PAGE>
SUBJECT TO SEC REVIEW
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY CONTRACTS
This prospectus describes interests under flexible payment deferred variable
and fixed annuity contracts, known as Kemper Gateway Elite Contracts, issued
either on a group basis or as individual contracts by Allmerica Financial Life
Insurance and Annuity Company ("Company") to individuals and businesses in
connection with retirement plans which may or may not qualify for special
federal income tax treatment. (For information about the tax status when used
with a particular type of plan, see "FEDERAL TAX CONSIDERATIONS.") Participation
in a group contract will be accounted for by the issuance of a certificate
describing the individual's interest under the group contract. Participation in
an individual contract will be evidenced by the issuance of an individual
contract. Certificates and individual contracts are collectively referred to
herein as the "Contracts." The following is a summary of information about these
Contracts. More detailed information can be found under the referenced captions
in this Prospectus.
Contract values may accumulate on a variable basis in the separate account
known as Separate Account KG (the "Variable Account"). The assets of the
Variable Account are divided into Sub-Accounts, each investing exclusively in
shares of one of the following Portfolios of Kemper Investors Fund ("KINF"):
<TABLE>
<S> <C>
MONEY MARKET PORTFOLIO INVESTMENT GRADE BOND PORTFOLIO
TOTAL RETURN PORTFOLIO VALUE PORTFOLIO
HIGH YIELD PORTFOLIO SMALL CAP VALUE PORTFOLIO
GROWTH PORTFOLIO VALUE+GROWTH PORTFOLIO
GOVERNMENT SECURITIES PORTFOLIO HORIZON 20+ PORTFOLIO
INTERNATIONAL PORTFOLIO HORIZON 10+ PORTFOLIO
SMALL CAP GROWTH PORTFOLIO HORIZON 5 PORTFOLIO
</TABLE>
In most jurisdictions, values may also be allocated on a fixed basis to the
Fixed Account, which is part of the Company's General Account and during the
accumulation period to one or more of the Guarantee Period Accounts. Amounts
allocated to the Fixed Account earn interest at a guaranteed rate for one year
from the date allocated. Amounts allocated to a Guarantee Period Account earn a
fixed rate of interest for the duration of the applicable Guarantee Period, if
held for the entire Guarantee Period. If removed prior to the end of the
Guarantee Period the value may be increased or decreased by a Market Value
Adjustment. Amounts allocated to the Guarantee Period Accounts in the
accumulation phase are held in the Company's Separate Account GPA.
Additional information is contained in a Statement of Additional Information
dated , 1996 ("SAI"), filed with the Securities and Exchange
Commission and incorporated herein by reference. The Table of Contents of the
SAI is on page 3 of this Prospectus. The SAI is available upon request and
without charge through Allmerica Investments, Inc., 440 Lincoln Street,
Worcester, Massachusetts 01653, 800-782-8380.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
KINF. INVESTORS SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE CONTRACTS ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND
ANNUITY COMPANY AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. AND/OR KEMPER
DISTRIBUTORS, INC. AND ZKI AGENCY, INC. THE CONTRACTS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT UNION. THE
CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS IN THE CONTRACTS
ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND POSSIBLE
LOSS OF PRINCIPAL.
DATED , 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION........... 3
SPECIAL TERMS.......................................................... 4
SUMMARY................................................................ 5
ANNUAL AND TRANSACTION EXPENSES........................................ 9
PERFORMANCE INFORMATION................................................ 11
WHAT IS AN ANNUITY?.................................................... 12
RIGHT TO REVOKE IRA.................................................... 13
RIGHT TO REVOKE OR SURRENDER IN SOME STATES............................ 13
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, AND KEMPER
INVESTORS FUND....................................................... 14
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS...................... 16
VOTING RIGHTS.......................................................... 16
CHARGES AND DEDUCTIONS................................................. 17
A. Annual Charge Against Variable Account Assets.................... 17
B. Contract Fee..................................................... 18
C. Premium Taxes.................................................... 18
D. Contingent Deferred Sales Charge................................. 18
E. Transfer Charge.................................................. 22
DESCRIPTION OF THE CONTRACT............................................ 22
A. Payments......................................................... 22
B. Transfer Privilege............................................... 23
C. Surrender........................................................ 24
D. Withdrawals...................................................... 24
E. Death Benefit.................................................... 25
F. The Spouse of the Contract Owner as Beneficiary.................. 26
G. Assignment....................................................... 26
H. Electing the Form of Annuity and the Annuity Date................ 26
I. Description of Variable Annuity Options.......................... 27
J. Norris Decision.................................................. 28
K. Computation of Values and Annuity Benefit Payments............... 28
GUARANTEE PERIOD ACCOUNTS.............................................. 30
FEDERAL TAX CONSIDERATIONS............................................. 33
A. Qualified and Non-Qualified Contracts............................ 33
B. Taxation of the Contracts in General............................. 33
C. Tax Withholding and Penalties.................................... 34
D. Provisions Applicable to Qualified Employer Plans................ 35
E. Qualified Employee Pension and Profit Sharing Trusts and
Qualified Annuity Plans......................................... 35
F. Self-Employed Individuals........................................ 35
G. Individual Retirement Account Plans.............................. 35
H. Simplified Employee Pensions..................................... 36
I. Public School Systems and Certain Tax-Exempt Organizations....... 37
J. Texas Optional Retirement Program................................ 37
K. Section 457 Plans for State Governments and Tax-Exempt
Entities........................................................ 37
L. Non-individual Owners............................................ 37
REPORTS................................................................ 38
LOANS (QUALIFIED CONTRACTS ONLY)....................................... 38
CHANGES IN OPERATION OF THE VARIABLE ACCOUNT........................... 38
DISTRIBUTION........................................................... 38
LEGAL MATTERS.......................................................... 39
</TABLE>
2
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TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
FURTHER INFORMATION.................................................... 39
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT................. 40
APPENDIX B -- SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT........ 41
APPENDIX C -- THE DEATH BENEFIT........................................ 43
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY........................................ 2
TAXATION OF THE VARIABLE ACCOUNT AND THE COMPANY....................... 3
SERVICES............................................................... 3
UNDERWRITERS........................................................... 3
ANNUITY PAYMENTS....................................................... 4
PERFORMANCE INFORMATION................................................ 6
TAX DEFERRRED ACCUMULATION............................................. 8
FINANCIAL STATEMENTS................................................... 8
</TABLE>
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE OR SOLICIT AN OFFER IN THAT STATE.
3
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SPECIAL TERMS
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Sub-Accounts and of the value of all accumulations in the Fixed Account and
Guarantee Period Accounts then credited to the Contract, on any date before the
Annuity Date.
ACCUMULATION UNIT: a measure of the Contract Owner's interest in a Sub-Account
before annuity benefit payments begin.
ANNUITANT: the person designated in the Contract upon whose life annuity
benefit payments are to be made.
ANNUITY DATE: the date on which annuity benefit payments begin as specified
pursuant to the Contract.
ANNUITY UNIT: a measure of the value of the periodic annuity benefit payments
under the Contract.
FIXED ACCOUNT: the part of the Company's General Account that guarantees
principal and a fixed minimum interest rate and to which all or a portion of a
payment or transfer under this Contract may be allocated.
FIXED ANNUITY PAYOUT: an Annuity in the payout phase providing for annuity
benefit payments which remain fixed in an amount throughout the annuity benefit
payment period selected.
GUARANTEED INTEREST RATE: the annual effective rate of interest after daily
compounding credited to a Guarantee Period Account.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account which corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period and is supported by assets in a
non-unitized separate account.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.
SUB-ACCOUNT: a subdivision of the Variable Account. Each Sub-Account available
under the Contracts invests exclusively in the shares of a corresponding
portfolio of Kemper Investors Fund.
SURRENDER VALUE: the Accumulated Value of the Contract on full surrender after
application of any Contract fee, contingent deferred sales charge, and Market
Value Adjustment.
UNDERLYING PORTFOLIOS: Money Market, Total Return, High Yield, Growth,
Government Securities, International, Small Cap Growth, Investment Grade Bond,
Value, Small Cap Value, Value+Growth, Horizon 20+, Horizon 10+, and Horizon 5
Portfolios of the Kemper Investors Fund.
VALUATION DATE: a day on which the net asset value of the shares of any of the
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 as well as each day otherwise required.
VARIABLE ACCOUNT: Separate Account KG, 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: Annuity in the payout phase providing for payments
varying in amount in accordance with the investment experience of certain of the
Portfolios.
4
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SUMMARY
WHAT IS THE KEMPER GATEWAY VARIABLE ANNUITY?
The Kemper Gateway variable annuity contract ("Contract") is an insurance
contract designed to help you 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
- 14 KINF Portfolios
- 1 Fixed Account
- 9 Guarantee Period Accounts
- Experienced professional portfolio managers
- Tax deferral on earnings
- Guarantees that can protect your beneficiaries during the accumulation
phase
- Income that can be guaranteed for life
The Contract has two phases, an accumulation phase and an annuity payout
phase. During the accumulation phase, your initial payment and any additional
payments you choose to make may be allocated to the combination of portfolios of
securities ("Portfolios") under your Contract, to the Guarantee Period Accounts,
and to the Fixed Account. Your Contract's Accumulated Value is based on the
investment performance of the Portfolios and accumulations in the Guarantee
Period Accounts and the Fixed Account. No income taxes are paid on any earnings
under the Contract unless and until accumulated values are withdrawn.
During the annuity payout phase, the Annuitant can receive income based on
several annuity options. These options include payment over a period of years or
for the rest of the Annuitant's life.
THE ACCUMULATION PHASE
During the accumulation phase, you select the investment options most
appropriate for your investment needs. The Contracts permit net payments to be
allocated among the Portfolios, the Guarantee Period Accounts, and the Fixed
Account. Each Portfolio is professionally managed by Zurich Kemper Investments,
Inc. and its affiliate, Dreman Value Advisors, Inc. All investment gains or
losses of the Portfolios will be reflected in the Accumulated Value under your
Contract.
The accumulation phase provides certain protection and guarantees for the
beneficiary if the Annuitant should die before the annuity phase begins. See
discussion below under "What happens upon death during the accumulation phase?"
THE ANNUITY PAYOUT PHASE
You choose the annuity options and the date for the annuity benefit payments
to begin. Annuity benefit payments may be on a variable basis (dependent upon
the performance of the Portfolios), on a fixed basis (with payment amounts
guaranteed), or on a combination variable and fixed basis. Among the income
options available during the annuity phase are:
- Lump sum
- At regular intervals over a specified number of years; or
- At regular intervals for the rest of the Annuitant's life, regardless of
how long he or she lives.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you and us -- Allmerica Financial Life Insurance and
Annuity Company ("Company"). Each Contract has a Contract Owner, an Annuitant
and a beneficiary. As Contract
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Owner, you make payments, choose investment allocations and select the Annuitant
and beneficiary. The Annuitant is the individual to receive annuity benefit
payments under the Contract. The beneficiary is the person who receives any
payment on death of the Contract Owner or Annuitant.
CAN I EXAMINE THE CONTRACT?
Yes. Your Contract will be delivered to you after your purchase. If you
return the Contract to the Company during the first 10 days from the date you
received it, 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 your Contract was issued as an IRA or provides for a full refund
of the initial payment under its "Right to Examine" provision, you will incur no
fees to cancel within the right-to-examine period and will receive the greater
of (1) your entire payment, or (2) the Accumulated Value of the Contract plus
any amounts deducted under the Contract or by the Portfolios for taxes, charges
or fees. If your Contract does not provide for a full refund of the initial
payment, you will receive upon cancellation the sum of (1) the difference
between the payment paid, including fees, and any amount allocated to the
Variable Account and (2) the Accumulated Value (on the date the cancellation
request is received by the Company) attributable to amounts allocated to the
Variable Account Sub-Account. See "RIGHT TO REVOKE CONTRACT."
WHAT ARE MY INVESTMENT CHOICES?
The Contract permits net payments to be allocated among the Sub-Accounts
investing in the Portfolios, the Guarantee Period Accounts, and the Fixed
Account. The Fixed Account is part of the General Account of the Company and
provides a guarantee by the Company of principal and a fixed interest rate for
one year from the date amounts are allocated to the account. Payments allocated
to a Guarantee Period Account are held in a separate account and earn a
guaranteed interest rate if held for the full duration of the Guarantee period.
The Fixed Account and/or the Guarantee Period Accounts may not be available in
all states.
VARIABLE ACCOUNT -- You have a choice of Sub-Accounts investing in the 14
Portfolios of KINF:
<TABLE>
<S> <C>
MONEY MARKET INVESTMENT GRADE BOND
TOTAL RETURN VALUE
HIGH YIELD SMALL CAP VALUE
GROWTH VALUE+GROWTH
GOVERNMENT SECURITIES HORIZON 20+
INTERNATIONAL HORIZON 10+
SMALL CAP GROWTH HORIZON 5
</TABLE>
This range of investment choices enables you to allocate your money among
the Portfolios to meet your particular investment needs. If your Contract was
issued as an IRA or provides for a full refund of the initial payment under its
"Right to Examine" provision (see "RIGHT TO REVOKE CONTRACT"), for the first 15
days from the date of issue, all Portfolio investments and allocations to the
Guarantee Period Accounts will be allocated to the Money Market Portfolio.
Thereafter, all amounts will be allocated according to your investment choices.
For a more detailed description of the Portfolios, see "Kemper Investors Fund."
GUARANTEE PERIOD ACCOUNTS -- Assets supporting the guarantees under the
Guarantee Period Accounts are held in the Company's Separate Account GPA, a
non-unitized insulated separate account. However, values and benefits calculated
on the basis of Guarantee Period Account allocations are obligations of the
Company's General Account. Amounts allocated to a Guarantee Period Account earn
a Guaranteed Interest Rate declared by the Company. The level of the Guaranteed
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company currently makes available 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
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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. For more information about the Guarantee Period
Accounts and the Market Value Adjustment, see "Guarantee Period Accounts."
FIXED ACCOUNT. The Fixed Account is part of the General Account, which
consists of all the Company's assets other than those allocated to the Variable
Account and any other separate account. Allocations to the Fixed Account are
guaranteed as to principal and a minimum rate of interest. Additional excess
interest may be declared periodically at the Company's discretion. Furthermore,
the initial rate in effect on the date an amount is allocated to the Fixed
Account will be guaranteed for one year from that date. For more information
about the Fixed Account see Appendix A, "MORE INFORMATION ABOUT THE FIXED
ACCOUNT."
WHO ARE THE PORTFOLIO MANAGERS?
Zurich Kemper Investments, Inc. ("ZKI"), is the investment manager of each
Portfolio of KINF other than the Value and Small Cap Value Portfolios and
provides each with continuous professional investment supervision. Dreman Value
Advisors, Inc. ("DVA"), a wholly owned subsidiary of ZKI, is the investment
manager of the Value and Small Cap Value Portfolios and provides each with
continuous professional investment supervision. DVA is also the sub-adviser for
the Value+Growth, Horizon 20+, Horizon 10+, and Horizon 5 Portfolios. Under the
terms of its Sub-Advisory Agreement with ZKI, DVA will manage the value portion
of each of these Portfolios and will provide such other investment advice,
research and assistance as ZKI may, from time to time, reasonably request.
Zurich Kemper Management ("ZIM"), a wholly-owned subsidiary of ZKI, is the
investment manager of the Guarantee Period Accounts pursuant to an investment
advisory agreement between the Company and ZIM.
CAN I MAKE TRANSFERS AMONG THE ACCOUNTS?
Yes. Prior to the Annuity Date, You may transfer among the Sub-Accounts
investing in the Portfolios, the Guarantee Period Accounts, and the Fixed
Account. You will incur no current taxes on transfers while your money remains
in the Contract. You may also elect Automatic Account rebalancing to ensure
assets remain allocated according to a desired mix or choose automatic dollar
cost averaging to gradually move money into one or more portfolios. See
"TRANSFER PRIVILEGE."
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of your payments are flexible, subject to the
minimum and maximum payments stated in "PAYMENTS."
WHAT IF I NEED MY MONEY BEFORE MY ANNUITY PAYOUT PHASE BEGINS?
You can withdraw the greater of 100% of cumulative earnings or 15% of the
total Accumulated Value per calendar year without a surrender charge. You may
surrender your Contract or make additional withdrawals any time before your
annuity payout phase begins subject to the restrictions discussed in
"SURRENDER," "WITHDRAWALS," and "MARKET VALUE ADJUSTMENT." Certain charges may
apply, see "CHARGES AND DEDUCTIONS," and there may be a tax-penalty assessed
under the Internal Revenue Code. See "FEDERAL TAX CONSIDERATION."
WHAT HAPPENS UPON DEATH DURING MY ACCUMULATION PHASE?
If the Annuitant, Contract 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 increased by any positive Market Value Adjustment;
- Gross payments, with interest accumulating daily at an annual rate of 5%
starting on the date each payment was applied, reduced proportionately to
reflect withdrawals (for each withdrawal, the proportionate reduction is
calculated as the death benefit under this option immediately prior to the
withdrawal, multiplied by the withdrawal amount, and divided by the
Accumulated Value immediately prior to the withdrawal); or
7
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- The death benefit that would have been payable on the most recent Contract
Anniversary, increased for subsequent payments and reduced proportionately
to reflect withdrawals after that date.
If an Owner who is not also the Annuitant dies during the Accumulation
phase, the death benefit will equal the Accumulated Value of the Contract
increased by any positive Market Value Adjustment. If the Annuitant dies after
the Annuity Date but before all guaranteed annuity benefit payments have been
made, the remaining payments will be paid to the beneficiary at least as rapidly
as under the annuity option in effect. See "Death Benefit."
WHAT ARE MY ANNUITY OPTIONS UNDER THE CONTRACT?
You may choose variable annuity benefit payments based on the investment
performance of certain Portfolios, fixed-amount annuity benefit payments, or a
combination of fixed-amount and variable annuity benefit payments. Fixed-amount
payments are guaranteed by the Company. See "DESCRIPTION OF THE CONTRACT" for
information about annuity benefit payment options, selecting the Annuity Date,
and how annuity benefit payments are calculated.
WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
At each Contract anniversary and upon surrender, if the Accumulated Value is
less than $50,000, the Company will deduct a $35 Contract Fee from your
Contract. There will be no Contract Fee if the Accumulated Value is $50,000 or
more. The Contract Fee is 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 options, you may be subject to a contingent
deferred sales charge. If applicable, this charge will be between 2% and 7% of
payments withdrawn, based on when the payments were made.
Depending upon the state you live in, a deduction for state and local
premium taxes, if any, may be made as described under "PREMIUM TAXES."
Currently, the Company makes no charge for processing transfers. The first
twelve (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 reserves
the right to assess a charge which is guaranteed never to exceed $25.
The Company will deduct on a daily basis, an annual Mortality and Expense
Risk Charge and Administrative Expense Charge equal to 1.25% and 0.15%,
respectively, of the average daily net assets invested in each Portfolio. The
Portfolios will incur certain management fees and expenses which are more fully
described in "OTHER CHARGES" and in the KINF prospectus which accompanies this
Prospectus.
For more information, see "CHARGES AND DEDUCTIONS."
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
There are several changes you can make after receiving your Contract:
- You may assign your ownership to someone else, except under certain
qualified plans.
- You may change the beneficiary, unless you have designated a beneficiary
irrevocably.
- You may change the allocation of payments, with no tax consequences under
current law.
- You may make transfers of Contract value among your current investments.
- You may cancel your Contract within 10 days of delivery, as discussed
above.
- You may select the form and timing of annuity benefit payments.
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ANNUAL AND TRANSACTION EXPENSES
The following tables show charges under your Contract, expenses of the
Sub-Accounts, and expenses of the Portfolios. In addition to the charges and
expenses described below, premium taxes are applicable in some states and
deducted as described under "PREMIUM TAXES."
<TABLE>
<CAPTION>
YEARS FROM DATE
CONTRACT CHARGES OF PAYMENT CHARGE
- --------------------------------------------------------------------------------------- --------------- ---------
<S> <C> <C>
CONTINGENT DEFERRED SALES CHARGE: 0-1 7.0%
This charge may be assessed upon surrender, withdrawal or annuitization 2 6.0%
under any commutable period certain option or a noncommutable period 3 5.0%
certain option of less than 10 years. The charge is a percentage of 4 4.0%
payments applied to the amount surrendered (in excess of any amount 5 3.0%
that is free of charge) within the indicated time periods. 6 2.0%
Thereafter 0.0%
TRANSFER CHARGE: None
The Company currently makes no charge for processing transfers. The Company guarantees
that the first twelve transfers in a Contract Year will not be subject to a transfer
charge. For each subsequent transfer, the Company reserves the right to assess a
charge, guaranteed never to exceed $25, to reimburse the Company for the costs of
processing the transfer.
CONTRACT FEE: $ 35
The Fee is deducted annually and upon surrender prior to the annuity date when the
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.
<CAPTION>
SUB-ACCOUNT EXPENSES
- ---------------------------------------------------------------------------------------
<S> <C> <C>
(on annual basis as percentage of average daily net assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.15%
---------
Total Asset Charge: 1.40%
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO EXPENSES
- ---------------------------------------------------------
<S> <C> <C> <C>
(annual basis as percentage of average daily net assets)
<CAPTION>
MANAGEMENT OTHER TOTAL
PORTFOLIO FEE EXPENSES EXPENSES
- --------------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Money Market............................................. 0.50% 0.05% 0.55%
Total Return............................................. 0.55% 0.05% 0.60%
High Yield............................................... 0.60% 0.05% 0.65%
Growth................................................... 0.60% 0.04% 0.64%
Government Securities.................................... 0.55% 0.10% 0.65%
International............................................ 0.75% 0.17% 0.92%
Small Cap Growth......................................... 0.65% 0.22% 0.87%
Investment Grade Bond.................................... 0.60% 0.15%* 0.75%
Value.................................................... 0.75% 0.15%* 0.90%
Small Cap Value.......................................... 0.75% 0.15%* 0.90%
Value+Growth............................................. 0.75% 0.15%* 0.90%
Horizon 20+.............................................. 0.60% 0.15%* 0.75%
Horizon 10+.............................................. 0.60% 0.15%* 0.75%
Horizon 5................................................ 0.60% 0.15%* 0.75%
</TABLE>
*Estimated First-Year Expenses
9
<PAGE>
EXAMPLES. The following examples demonstrate the cumulative expenses which
would be paid by the Contract Owner at 1-year, 3-year, 5-year and 10-year
intervals under certain contingencies. Each example assumes a $1,000 investment
in a Sub-Account and a 5% annual return on assets, as required by rules of the
Securities and Exchange Commission. Because the expenses of the Portfolios
differ, separate examples are used to illustrate the expenses incurred by a
Contract Owner on an investment in the various Sub-Accounts.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED
A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
(a) If, at the end of the applicable period, you surrender your Contract or
annuitize* under a commutable variable period certain option or a noncommutable
period certain option of less than 10 years, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
UNDERLYING PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Market............................................. $ 82 $ 109 $ 138 $ 233
Total Return............................................. $ 82 $ 111 $ 140 $ 238
High Yield............................................... $ 83 $ 112 $ 143 $ 244
Growth................................................... $ 82 $ 112 $ 142 $ 243
Government Securities.................................... $ 83 $ 112 $ 143 $ 244
International............................................ $ 85 $ 120 $ 156 $ 271
Small Cap Growth......................................... $ 85 $ 119 $ 153 $ 266
Investment Grade Bond.................................... $ 84 $ 115 $ 147 $ 254
Value.................................................... $ 85 $ 119 $ 155 $ 269
Small Cap Value.......................................... $ 85 $ 119 $ 155 $ 269
Value+Growth............................................. $ 85 $ 119 $ 155 $ 269
Horizon 20+.............................................. $ 84 $ 115 $ 147 $ 254
Horizon 10+.............................................. $ 84 $ 115 $ 147 $ 254
Horizon 5................................................ $ 84 $ 115 $ 147 $ 254
</TABLE>
(b) If, at the end of the applicable time period, you annuitize* under a
life option or a noncommutable period certain option of 10 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:
<TABLE>
<CAPTION>
UNDERLYING PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Money Market............................................. $ 20 $ 63 $ 108 $ 233
Total Return............................................. $ 21 $ 64 $ 111 $ 238
High Yield............................................... $ 21 $ 66 $ 113 $ 244
Growth................................................... $ 21 $ 66 $ 113 $ 243
Government Securities.................................... $ 21 $ 66 $ 113 $ 244
International............................................ $ 24 $ 74 $ 127 $ 271
Small Cap Growth......................................... $ 24 $ 73 $ 1124 $ 266
Investment Grade Bond.................................... $ 22 $ 69 $ 118 $ 254
Value.................................................... $ 24 $ 74 $ 126 $ 269
Small Cap Value.......................................... $ 24 $ 74 $ 126 $ 269
Value+Growth............................................. $ 24 $ 74 $ 126 $ 269
Horizon 20+.............................................. $ 22 $ 69 $ 118 $ 254
Horizon 10+.............................................. $ 22 $ 69 $ 118 $ 254
Horizon 5................................................ $ 22 $ 69 $ 118 $ 254
</TABLE>
As required in rules promulgated under the 1940 Act, the Contract Fee is
reflected in the examples by a method 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 0.088%, and the amount of the Contract Fee is assumed to
be $0.88 in the examples.
*The Contract Fee is not deducted after annuitization. No contingent
deferred sales charge is assessed at the time of annuitization under an option
including a life contingency or under a noncommutable period certain option of
10 years or longer.
10
<PAGE>
PERFORMANCE INFORMATION
The Contracts are first being offered to the public in 1996. However,
Allmerica Financial and KINF may advertise "Total Return" and "Average Annual
Total Return" performance information based on the periods that the Portfolios
have been in existence. The results for any period prior to the Contracts being
offered will be calculated as if the Contracts had been offered during that
period of time, with all charges assumed to be those applicable to the
Sub-Accounts, the Portfolios, and (in Table I) assuming that the Contract is
surrendered at the end of the applicable period.
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 certain charges, and expressed as a percentage of
the investment.
The "Average Annual Total Return" represents the average annual percentage
change in the value of an investment in a Sub-Account over a given period of
time. Average Annual Total Return represents averaged figures as opposed to the
actual performance of a Sub-Account, which will vary from year to year.
The "Yield" of the Sub-Account investing in the Money Market Portfolio
refers to the income generated by an investment in the Sub-Account over a
seven-day period (which period will be specified in the advertisement). This
income is then "annualized" by assuming that the income generated in the
specific week is generated over a 52-week period. This annualized Yield is shown
as a percentage of the investment. The "Effective Yield" calculation is similar,
but when annualized, the income earned by an investment in the Sub-Account is
assumed to be reinvested. Thus the "Effective Yield" will be slightly higher
than the "Yield" because of the compounding effect of this assumed reinvestment.
The Total Return, Yield, and Effective Yield figures are adjusted to reflect
the Sub-Account's asset charges. The total return figures also reflect the $35
annual Contract Fee and the contingent deferred sales load which would be
assessed if the investment were completely surrendered at the end of the
specified period.
The Company and KINF may also advertise supplemental total return
performance information. Supplemental total return refers to the total of the
income generated by an investment in the Sub-Account and of the changes in value
of the principal invested (due to realized and unrealized capital gains or
losses), adjusted by the Sub-Account's annual asset charges, and expressed as a
percentage of the investment. Because it is assumed that the investment is NOT
surrendered at the end of the specified period, the contingent deferred sales
load is NOT included in the calculation of supplemental total return.
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond
Index or other unmanaged indices so that investors may compare the Sub-Account
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of variable annuity variable accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment products by overall performance,
investment objectives, and assets, or tracked by other services, companies,
publications, or persons, such as Morningstar, Inc., who rank such investment
products on overall performance or other criteria; or (iii) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment in the Sub-Account. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Sub-Account reflects only the performance of
a hypothetical investment in the Sub-Account during the particular time period
on which the calculations are based. Performance information should be
considered in light of the investment objectives and policies,
11
<PAGE>
characteristics and quality of the investment portfolio of the 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.
TABLE I
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(ASSUMING COMPLETE SURRENDER OF INVESTMENT)
<TABLE>
<CAPTION>
10 YEARS
YEAR (OR SINCE
ENDED: 5 INCEPTION
UNDERLYING PORTFOLIO 12/31/95 YEARS OR LESS)
- -------------------------------------------------------------------------------- ---------- --------- ---------
<S> <C> <C> <C>
Money Market.................................................................... -2.20% 2.24% 4.36%
Total Return.................................................................... 17.10% 10.32% 10.15%
High Yield...................................................................... 8.77% 17.68% 9.83%
Growth.......................................................................... 24.00% 17.23% 11.56%
Government Securities........................................................... 10.24% 6.44% 6.86%
International................................................................... 4.54% N/A 7.04%
Small Cap Growth................................................................ 21.14% N/A 14.98%
Investment Grade Bond........................................................... N/A N/A N/A
Value........................................................................... N/A N/A N/A
Small Cap Value................................................................. N/A N/A N/A
Value+Growth.................................................................... N/A N/A N/A
Horizon 20+..................................................................... N/A N/A N/A
Horizon 10+..................................................................... N/A N/A N/A
Horizon 5....................................................................... N/A N/A N/A
</TABLE>
TABLE II
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1995
(ASSUMING N0 SURRENDER OF INVESTMENT)
<TABLE>
<CAPTION>
10 YEARS
YEAR (OR SINCE
ENDED: 5 INCEPTION
UNDERLYING PORTFOLIO 12/31/95 YEARS OR LESS)
- --------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Money Market..................................................................... 3.99% 2.77% 4.36%
Total Return..................................................................... 24.10% 10.72% 10.15%
High Yield....................................................................... 15.65% 18.00% 11.56%
Growth........................................................................... 31.00% 17.54% 11.56%
Government Securities............................................................ 17.21% 6.90% 6.86%
International.................................................................... 11.15% N/A 7.87%
Small Cap Growth................................................................. 28.14% N/A 18.28%
Investment Grade Bond............................................................ N/A N/A N/A
Value............................................................................ N/A N/A N/A
Small Cap Value.................................................................. N/A N/A N/A
Value+Growth..................................................................... N/A N/A N/A
Horizon 20+...................................................................... N/A N/A N/A
Horizon 10+...................................................................... N/A N/A N/A
Horizon 5........................................................................ N/A N/A N/A
</TABLE>
*The inception dates for the Portfolios are: 3/5/82 for Money Market, Total
Return and High Yield; 12/9/83 for Growth; 9/3/87 for Government Securities;
1/6/92 for International; 5/2/94 for the Small Cap Growth; 5/1/96 for Investment
Grade Bond, Value, Small Cap Value, Value+Growth, Horizon 20+, Horizon 10+, and
Horizon 5.
WHAT IS AN ANNUITY?
In general, an annuity is an insurance contract designed to provide a
retirement income in the form of periodic payments for the lifetime of the
purchaser or an individual chosen by the purchaser. The retirement income
payments are called "annuity benefit payments" and the individual receiving the
payments is called the "Annuitant." Annuity benefit payments begin on the
annuity date.
12
<PAGE>
The Contract has two phases, an accumulation phase and an annuity payout
phase. During the accumulation phase, your initial payment and any additional
payments you choose to make may be allocated to the combination of portfolios of
securities ("Portfolios") under your Contract, to the Guarantee Period Accounts,
and to the Fixed Account.
During the annuity payout phase, the Annuitant can receive income based on
several annuity options. These options include payment over a period of years or
for the rest of the Annuitant's life.
Under an annuity contract, the insurance company assumes a mortality risk
and an expense risk. The mortality risk arises from the insurance company's
guarantee that annuity benefit payments will continue for the life of the
Annuitant, regardless of how long the Annuitant lives or how long all Annuitants
as a group live. The expense risk arises from the insurance company's guarantee
that charges will not be increased beyond the limits specified in the Contract,
regardless of actual costs of operations.
The Contract Owner's payments, less any applicable deductions, are invested
by the insurance company. After retirement, annuity benefit payments are paid to
the Annuitant for life or for such other period chosen by the Contract Owner. In
the case of a "fixed" annuity, the value of these annuity benefit payments is
guaranteed by the insurance company, which assumes the risk of making the
investments to enable it to make the guaranteed payments. For more information
about fixed annuities see APPENDIX A, "MORE INFORMATION ABOUT THE FIXED
ACCOUNT." With a variable annuity, the value of the Contract and the annuity
benefit payments are not guaranteed but will vary depending on the investment
performance of a portfolio of securities. Any investment gains or losses are
reflected in the value of the Contract and in the annuity benefit payments. If
the portfolio increases in value, the value of the Contract increases. If the
portfolio decreases in value, the value of the Contract decreases.
RIGHT TO REVOKE IRA
An individual purchasing a Contract intended to qualify as an IRA may revoke
the Contract at any time within 10 days after receipt of the contract and
receive a refund. In order to revoke the Contract, the Contract Owner must mail
or deliver the Contract to the agent through whom the Contract was purchased or
to the Principal Office of the Company at 440 Lincoln Street, Worcester,
Massachusetts 01653. Mailing or delivery must occur on or before 10 days after
receipt of the Contract for revocation to be effective.
Within seven days the Company will provide a refund equal to the greater of
(1) gross payments, or (2) the Accumulated Value plus any amounts deducted under
the Contract or by the Portfolios for taxes, charges or fees.
The liability of the Variable Account under this provision is limited to the
Contract Owner's Accumulated Value in the Sub-Accounts on the date of
cancellation. Any additional amounts refunded to the Contract Owner will be paid
by the Company.
RIGHT TO REVOKE OR SURRENDER IN SOME STATES
In Georgia, Idaho, Indiana, Michigan, Missouri, North Carolina, Oklahoma,
South Carolina, Texas, Utah, Washington and West Virginia, any Contract Owner
may revoke the Contract at any time within 10 days (20 in Idaho) after receipt
of the Contract and receive a refund as described under "RIGHT TO REVOKE IRA,"
above.
In all other states, a Contract Owner may return the Contract at any time
within 10 days (or the number of days required by state law if more than 10)
after receipt of the Contract. The Company will pay to the Contract Owner an
amount equal to the sum of (i) the difference between the payment paid,
including fees, and any amount allocated to the Variable Account and (ii) the
Accumulated Value of amounts allocated to the Variable Account as of the date
the request is received. If the Contract was purchased as an IRA, the IRA
revocation right described above may be utilized in lieu of the special
surrender right.
13
<PAGE>
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
AND KEMPER INVESTORS FUND
THE COMPANY -- The Company is a life insurance company organized under the
laws of Delaware in July, 1974. Its Principal Office is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, Telephone 800-782-8380. The Company is
subject to the laws of the State of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1995, the
Company had over $5 billion in assets and over $18 billion of life insurance in
force.
Effective October 1, 1995, the Company changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company. The
Company is an indirect wholly-owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica"), which in turn is a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company on October 16, 1995 and adopted its
present name. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1995 First Allmerica and its subsidiaries (including
the Company) had over $11 billion in combined assets and over $35.2 billion in
life insurance in force.
VARIABLE ACCOUNT -- Separate Account KG ("Variable Account") is a separate
investment account of the Company with 14 Sub-Accounts. The assets used to fund
the variable portions of the Contracts are set aside in Sub-Accounts kept
separate from the general assets of the Company. Each Sub-Account invests in a
corresponding investment series ("Portfolio") of Kemper Investors Fund ("Fund").
Each Sub-Account is administered and accounted for as part of the general
business of the Company. However, the income, capital gains, or capital losses
of each Sub-Account are allocated to each Sub-Account, without regard to any
other income, capital gains, or capital losses of the Company. Under Delaware
law, the assets of the Variable Account may not be charged with any liabilities
arising out of any other business of the Company.
The Variable Account was authorized by vote of the Board of Directors of the
Company on June 13, 1996. The Variable Account meets the definition of "separate
account" under federal securities laws and is registered with the Securities and
Exchange Commission ("SEC") as a unit investment trust under the Investment
Company Act of 1940 ("1940 Act"). This registration does not involve the
supervision of management or investment practices or policies of the Variable
Account by the SEC.
The Company reserves the right, subject to compliance with applicable law,
to change the names of the Variable Account and the Sub-Accounts.
KEMPER INVESTORS FUND -- The Variable Account invests in shares of Kemper
Investors Fund ("Fund"), a series type mutual fund registered with the
Commission as an open-end, diversified management investment company.
Registration of KINF does not involve supervision of its management, investment
practices or policies by the Commission. KINF is designed to provide an
investment vehicle for certain variable annuity contracts and variable life
insurance policies. Shares of the Portfolios of KINF are sold only to insurance
company separate accounts. The investment objectives of the fourteen Portfolios
of KINF are summarized below:
MONEY MARKET PORTFOLIO seeks maximum current income to the extent consistent
with stability of principal from a portfolio of high quality money market
instruments that mature in twelve months or less.
TOTAL RETURN PORTFOLIO seeks a high total return, a combination of income
and capital appreciation, by investing in a combination of debt securities and
common stocks.
14
<PAGE>
HIGH YIELD PORTFOLIO seeks to provide a high level of current income by
investing in fixed-income securities.
GROWTH PORTFOLIO seeks maximum appreciation of capital through
diversification of investment securities having potential for capital
appreciation.
GOVERNMENT SECURITIES PORTFOLIO seeks high current return consistent with
preservation of capital from a portfolio composed primarily of U.S. Government
securities.
INTERNATIONAL PORTFOLIO seeks total return, a combination of capital growth
and income, principally through an internationally diversified portfolio of
equity securities.
SMALL CAP GROWTH PORTFOLIO seeks maximum appreciation of investors' capital
from a portfolio primarily of growth stocks of smaller companies.
INVESTMENT GRADE BOND PORTFOLIO seeks high current income by investing
primarily in a diversified portfolio of investment grade debt securities.
VALUE PORTFOLIO seeks to achieve a high rate of total return from a
portfolio primarily of value stocks of larger companies.
SMALL CAP VALUE PORTFOLIO seeks long-term capital appreciation from a
portfolio primarily of value stocks of smaller companies.
VALUE+GROWTH PORTFOLIO seeks growth of capital through professional
management of a portfolio of growth and value stocks.
HORIZON 20+ PORTFOLIO, designed for investors with approximately a 20+ year
investment horizon, seeks growth of capital, with income as a secondary
objective.
HORIZON 10+ PORTFOLIO, designed for investors with approximately a 10+ year
investment horizon, seeks a balance between growth of capital and income,
consistent with moderate risk.
HORIZON 5 PORTFOLIO, designed for investors with approximately a 5 year
investment horizon, seeks income consistent with preservation of capital, with
growth of capital as a secondary objective.
There is no assurance that any of the Portfolios of KINF will achieve its
objective as stated in KINF's prospectus. More detailed information, including a
description of risks involved in investing in each of the Portfolios, may be
found in the prospectus for KINF, which must accompany or precede this
Prospectus, and KINF's Statement of Additional Information available upon
request from KINF, 222 South Riverside Plaza, Chicago, Illinois 60606. Please
read the prospectus of KINF carefully before investing.
INVESTMENT MANAGEMENT SERVICES TO KINF -- Responsibility for overall
management of KINF rests with the Board of Trustees and officers of KINF. Zurich
Kemper Investments, Inc. ("ZKI"), is the investment manager of each Portfolio
other than the Value and Small Cap Value Portfolios and provides each with
continuous professional investment supervision. Dreman Value Advisors, Inc.
("DVA"), a wholly owned subsidiary of ZKI, is the investment manager of the
Value and Small Cap Value Portfolios and provides each with continuous
professional investment supervision. DVA is also the sub-adviser for the
Value+Growth, Horizon 20+, Horizon 10+, and Horizon 5 Portfolios. Under the
terms of its Sub-Advisory Agreement with ZKI, DVA will manage the value portion
of each of these Portfolios and will provide such other investment advice,
research and assistance as ZKI may, from time to time reasonably request.
For its services, ZKI is paid a management fee based upon the average daily
net assets of such Portfolios, as follows: Money Market (.50 of 1%), Total
Return (.55 of 1%), High Yield (.60 of 1%), Growth (.60 of 1%), Government
Securities (.55 of 1%), International (.75 of 1%), Small Cap Growth (.65 of 1%),
Investment Grade Bond (.60 of 1%), Value+Growth (.75 of 1%), Horizon 20+ (.60 of
1%), Horizon 10+ (.60 of 1%), and Horizon 5 (.60 of 1%). DVA serves as the
investment manager for the
15
<PAGE>
Value and Small Cap Value Portfolios and is paid a management fee at an annual
rate of .75 of 1% of the average daily net assets of these Portfolios. For more
information, see the KINF Prospectus and SAI.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable law and to the
provision of the Participation Agreement (the "Participation Agreement") among
the Company, KINF, ZKI, and Kemper Distributors, Inc., 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
Portfolio are no longer available for investment or if in the Company's judgment
further investment in any Portfolio should become inappropriate in view of the
purposes of the Variable Account or the affected Sub-Account, the Company may
redeem the shares of that Portfolio and substitute shares of another registered
open-end management company. The Company will not substitute any shares
attributable to a Contract interest in a Sub-Account without notice to the
Contract Owner and prior approval of the Commission and state insurance
authorities, to the extent required by the 1940 Act or other applicable law. The
Variable Account may, to the extent permitted by law, purchase other securities
for other contracts or permit a conversion between contracts upon request by a
Contract Owner.
The Company also reserves the right to establish additional Sub-Accounts of
the Variable Account, each of which would invest in shares corresponding to a
new Portfolio or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required Commission
approval, the Company may, in its sole discretion, establish new 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 Contract Owners on a basis to be determined by the Company.
Shares of the Portfolios are also issued to variable accounts of other
insurance companies which issue variable life Contracts ("mixed funding").
Shares of the Portfolios are 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 Contract
Owners or variable annuity Contract Owners. Although the Company and KINF do not
currently foresee any such disadvantages to either variable life insurance
Contract Owners or variable annuity Contract Owners, the Company and the
Trustees of KINF intend to monitor events in order to identify any material
conflicts between such Contract Owners and to determine what action, if any,
should be taken in response thereto. If the Trustees were to conclude that
separate portfolios should be established for variable life and variable annuity
Separate accounts, the Company will bear the attendant expenses.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Contract to reflect the substitution or
change and will notify Contract Owners of all such changes. If the Company deems
it to be in the best interest of Contract Owners, and subject to any approvals
that may be required under applicable law, the Variable Account or any
Sub-Account(s) may be operated as a management company under the 1940 Act, may
be deregistered under the 1940 Act if registration is no longer required, or may
be combined with other Sub-Accounts or other separate accounts of the Company.
VOTING RIGHTS
The Company will vote Portfolio shares held by each Sub-Account in
accordance with instructions received from Contract 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 Portfolio together with
a form with which to give voting instructions to the Company. Shares for which
no timely instructions are received will be voted in proportion to the
instructions which are received. The Company will also vote shares in a
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
16
<PAGE>
present interpretation of the 1940 Act or such rules should change, and as a
result the Company determines that it is permitted to vote shares in its own
right, whether or not such shares are attributable to the Contract, the Company
reserves the right to do so.
The number of votes which a Contract Owner or Annuitant may cast will be
determined by the Company as of the record date established by the Portfolio.
During the accumulation period, the number of Portfolio shares attributable to
each Contract 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 Portfolio share. During the annuity period, the number of 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 Portfolio share. Ordinarily, the Annuitant's voting interest in the
Portfolio will decrease as the reserve for the variable annuity is depleted.
CHARGES AND DEDUCTIONS
Deductions under the Contracts and charges against the assets of the
Sub-Accounts are described below. Other deductions and expenses paid out of the
assets of the Portfolios are described in the Prospectus and Statement of
Additional Information of KINF.
A. ANNUAL CHARGES AGAINST VARIABLE ACCOUNT ASSETS.
MORTALITY AND EXPENSE RISK CHARGE -- The Company makes a charge of 1.25% on
an annual basis of the daily value of each Sub-Account's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Contract. The charge is imposed during both the accumulation
period and the annuity payout period. The mortality risk arises from the
Company's guarantee that it will make annuity benefit payments in accordance
with annuity rate provisions established at the time the Contract is issued for
the life of the Annuitant (or in accordance with the annuity option selected),
no matter how long the Annuitant (or other payee) lives and no matter how long
all Annuitants as a class live. Therefore, the mortality charge is deducted
during the annuity payout phase on all contracts, including those that do not
involve a life contingency, even though the Company does not bear direct
mortality risk with respect to variable annuity settlement options that do not
involve life contingencies. The expense risk arises from the Company's guarantee
that the charges it makes will not exceed the limits described in the Contract
and in this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover
actual mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be 0.85% for mortality risk and
0.40% for expense risk.
ADMINISTRATIVE EXPENSE CHARGE -- The Company assesses each Sub-Account with
a daily charge at an annual rate of 0.15% of the average daily net assets of the
Sub-Account. The charge is imposed during both the accumulation period and the
annuity payout period. The daily Administrative Expense Charge is assessed to
help defray administrative expenses actually incurred in the administration of
the Sub-Account, without profits. However, there is no direct relationship
between the amount of administrative expenses imposed on a given contract and
the amount of expenses actually attributable to that contract.
Deductions for the Contract Fee (described under B. CONTRACT FEE) and for
the Administrative Expense Charge are designed to reimburse the Company for the
cost of administration and related expenses and are not expected to be a source
of profit. The administrative functions and expense assumed by the Company in
connection with the Variable Account and the Contracts include, but are
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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 hold shares of the Portfolios, the
value of the net assets of the Sub-Accounts will reflect the investment advisory
fee and other expenses incurred by the Portfolios. The Prospectus and Statement
of Additional Information of KINF contain additional information concerning
expenses of the Portfolios.
B. CONTRACT FEE.
A $35 Contract Fee currently is deducted on the Contract anniversary date
and upon full surrender of the Contract when the Accumulated Value is less than
$50,000. The Contract Fee is waived for Contracts issued to and maintained by
the Trustee of a 401(k) plan. Where Contract value has been allocated to more
than one account, a percentage of the total Contract Fee will be deducted from
the Value in each account. The portion of the charge deducted from each account
will be equal to the percentage which the Value in that account bears to the
Accumulated Value under the Contract. The deduction of the Contract Fee from a
Sub-Account will result in cancellation of a number of Accumulation Units equal
in value to the percentage of the charge deducted from that account.
C. PREMIUM TAXES.
Some states and municipalities impose a premium tax on variable annuity
Contracts. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by the Company when payments were received,
the premium tax charge is deducted on a pro rata basis when withdrawals
are made, upon surrender of the Contract, or when annuity benefit
payments begin (the Company reserves the right instead to deduct the
premium tax charge for these Contracts at the time the payments are
received); or
(2) the premium tax charge is deducted when annuity benefit payments begin.
In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law. If no amount for premium tax was deducted
at the time the payment was received, but subsequently tax is determined to be
due prior to the Annuity Date, the Company reserves the right to deduct the
premium tax from the Contract value at the time such determination is made.
D. CONTINGENT DEFERRED SALES CHARGE.
No charge for sales expense is deducted from payments at the time the
payments are made. However, a contingent deferred sales charge is deducted from
the Accumulated Value of the Contract in the case of surrender and/or
withdrawals or at the time annuity benefit payments begin, within certain time
limits described below.
For purposes of determining the contingent deferred sales charge, the
Accumulated Value is divided into three categories: (1) New Payments -- payments
received by the Company during the six years preceding the date of the
surrender; (2) Old Payments -- Accumulated payments not defined as New Payments;
and (3) Earnings -- the amount of Contract Value in excess of all payments that
have not been previously surrendered. For purposes of determining the amount of
any contingent deferred sales charge, surrenders will be deemed to be taken
first from Old Payments, then from New Payments. Old Payments may be withdrawn
from the Contract at any time without the imposition of a contingent deferred
sales charge. If a withdrawal is attributable all or in part to New Payments, a
contingent deferred sales charge may apply.
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An Owner may withdraw the greater of 100% of cumulative earnings or 15% of
the Accumulated Value in any calendar year without assessment of a Withdrawal
Charge. If the Owner withdraws an amount in excess of the Accumulated Value in
any calendar year, the amount withdrawn in excess of 15% is subject to a
Withdrawal Charge.
CHARGES FOR SURRENDER AND WITHDRAWALS. If a Contract is surrendered or if
New Payments are withdrawn, while the Contract is in force and before the
Annuity Date, a contingent deferred sales charge may be imposed. This surrender
charge will never be applied to earnings. The amount of the charge will depend
upon the number of years that the New Payments, if any, to which the withdrawal
is attributed have remained credited under the Contract. Amounts withdrawn are
deducted first from Old Payments. Then, for the purpose of calculating surrender
charges for New Payments, all amounts withdrawn are assumed to be deducted first
from the earliest New Payment and then from the next earliest New Payment and so
on, until all New Payments have been exhausted pursuant to the first-in-
first-out ("FIFO") method of accounting. (See "FEDERAL TAX CONSIDERATIONS" for a
discussion of how withdrawals are treated for income tax purposes.)
The Contingent Deferred Sales Charges are as follows:
<TABLE>
<CAPTION>
CHARGE AS PERCENTAGE
YEARS FROM DATE OF OF NEW
PAYMENT PAYMENTS WITHDRAWN
- --------------------------------------------- -----------------------
<S> <C>
Less than 1.................................. 7%
2............................................ 6%
3............................................ 5%
4............................................ 4%
5............................................ 3%
6............................................ 2%
Thereafter................................... 0%
</TABLE>
The amount withdrawn equals the amount requested by the Contract Owner plus
the charge, if any. The charge is applied as a percentage of the New Payments
withdrawn, but in no event will the total contingent deferred sales charge
exceed a maximum limit of 7% of total gross New Payments. Such total charge
equals the aggregate of all applicable contingent deferred sales charges for
surrender, withdrawals, and annuitization.
REDUCTION OR ELIMINATION OF SURRENDER CHARGE. Where permitted by law, the
Company will waive the contingent deferred sales charge in the event that an
Owner (or the Annuitant, if the Owner is not an individual) is: (a) admitted to
a medical care facility after the issue date of the Contract and remains
confined there until the later of one year after the issue date or 90
consecutive days; (b) first diagnosed by a licensed physician as having a fatal
illness after the issue date of the Contract; (c) physically disabled after the
issue date of the Contract and before attaining age 65; or (d) commencing one
year after issue of the Contract, is confined to a hospice or receives home
health services, with certification from a licensed physician that the
confinement to the hospice or receipt of home health care services is expected
to continue until death. 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.
For purposes of the above provision, "medical care facility" means any state
licensed facility (or, in a state that does not require licensing) a facility
that is operating pursuant to state law, providing medically necessary inpatient
care which is prescribed by a licensed "physician" in writing and based on
physical limitations which prohibit daily living in a non-institutional setting;
"Fatal illness" means a condition diagnosed by a licensed physician which is
expected to result in death within two years of the diagnosis; and "physician"
means a person other than the Owner, Annuitant or a member of one of their
families who is state licensed to give medical care or treatment and is acting
within the scope of that license.
Where contingent deferred sales charges have been waived under any one of
three situations discussed above, no additional payments under this Contract
will be accepted.
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<PAGE>
In addition, from time to time the Company may allow a reduction in or
elimination of the contingent deferred sales charges, the period during which
the charges apply, or both, 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:
(a) the size and type of group or class, and the persistency expected from that
group or class; (b) the total amount of payments to be received and the manner
in which payments are remitted; (c) the purpose for which the Contracts are
being purchased and whether that purpose makes it likely that costs and expenses
will be reduced; (d) other transactions where sales expenses are likely to be
reduced; or (e) the level of commissions paid to selling broker-dealers or
certain financial institutions with respect to Contracts within the same group
or class (for example, broker-dealers who offer this Contract in connection with
financial planning services offered on a fee for service basis). The Company may
also reduce or waive the contingent deferred sales charge, or credit additional
amounts on Contracts, where both the Contract Owner and the Annuitant on the
date of issue are within the following classes of individuals ("eligible
persons"): employees and registered representatives of any broker-dealer which
has entered into a Sales Agreement with the Company to sell the Contract;
officers, directors, trustees and employees of any of the 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.
Any reduction or elimination in the amount or duration of the contingent
deferred sales charge will not discriminate unfairly between purchasers of this
Contract. The Company will not make any changes to this charge where prohibited
by law.
WITHDRAWAL WITHOUT SURRENDER CHARGE. In each calendar year, including the
calendar year in which the Contract is issued, the Company will waive the
contingent deferred sales charge, if any, on an amount ("Withdrawal Without
Surrender Charge") equal to the greatest of (1), (2) or (3):
Where (1) is:
The Accumulated Value as of the Valuation Date coincident with or next
following the date of receipt of the request for withdrawal, reduced by
total gross payments not previously withdrawn ("Cumulative Earnings")
Where (2) is:
15% of the Accumulated Value as of the Valuation Date coincident with or
next following the date of receipt of the request for withdrawal, reduced by
the total amount of any prior withdrawals made in the same calendar year to
which no contingent deferred sales charge was applied.
Where (3) is:
The amount calculated under the Company's life expectancy distribution (see
"LED Distributions," below) whether or not the withdrawal was part of such
distribution (applies only if 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 distribution of 10.2% of Accumulated Value ($1,530).
The Withdrawal Without Surrender Charge will first be deducted from
Cumulative Earnings. If the Withdrawal Without Surrender Charge exceeds
Cumulative Earnings, the excess amount will be deemed withdrawn from payments
not previously withdrawn on a last-in-first-out ("LIFO") basis. If more than one
withdrawal is made during the year, on each subsequent withdrawal the Company
will
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<PAGE>
waive the contingent deferred sales load, 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.
LED DISTRIBUTIONS. Prior to the Annuity Date a Contract Owner who is also
the Annuitant may elect to make a series of systematic withdrawals from the
Contract according to a life expectancy distribution ("LED") option, by
returning a properly signed LED request form to the Company's Principal Office.
The LED option permits the Contract Owner to make systematic withdrawals from
the Contract over his or her lifetime. The amount withdrawn from the Contract
changes each year, because life expectancy changes each year that a person
lives. For example, actuarial tables indicate that a person age 70 has a life
expectancy of 16 years, but a person who attains age 86 has a life expectancy of
another 6.5 years.
If a Contract Owner elects the LED option, in each calendar year a fraction
of the Accumulated Value is withdrawn based on the Contract Owner's then life
expectancy. The numerator of the fraction is 1 (one) and the denominator of the
fraction is the remaining life expectancy of the Contract Owner, as determined
annually by the Company. The resulting fraction, expressed as a percentage, is
applied to the Accumulated Value at the beginning of the year to determine the
amount to be distributed during the year. The Contract Owner may elect monthly,
bimonthly, quarterly, semiannual, or annual distributions, and may terminate the
LED option at any time. The Contract Owner may also elect to receive
distributions under an LED option which is determined on the joint life
expectancy of the Contract Owner and a beneficiary. The Company may also offer
other systematic withdrawal options.
If a Contract Owner makes withdrawals under the LED distribution prior to
age 59 1/2, the withdrawals may be treated by the IRS as premature distributions
from the Contract. The payments would then be taxed on an "income first" basis,
and be subject to a 10% federal tax penalty. For more information, see "FEDERAL
TAX CONSIDERATIONS," "B. Taxation of the Contracts in General." The LED will
cease on the Annuity Date.
SURRENDERS. In the case of a complete surrender, the amount received by the
Contract Owner is equal to the entire Accumulated Value under the Contract, net
of the applicable contingent deferred sales charge on New Payments, the Contract
Fee and any applicable tax withholding and adjusted for any applicable Market
Value Adjustment. Subject to the same rules applicable to withdrawals, the
Company will not assess a contingent deferred sales charge on an amount equal to
the greater of the Withdrawal Without Surrender Charge Amount, described above,
or the life expectancy distribution, if applicable.
Where a Contract Owner who is a trustee under a pension plan surrenders, in
whole or in part, a Contract on a terminating employee, the trustee will be
permitted to reallocate all or a part of the total Accumulated Value under the
Contract to other contracts issued by the Company and owned by the trustee, with
no deduction for any otherwise applicable contingent deferred sales charge. Any
such reallocation will be at the unit values for the Sub-Accounts as of the
valuation date on which a written, signed request is received at the Company's
Principal Office.
For further information on surrender and withdrawals, including minimum
limits on amount withdrawn and amount remaining under the Contract in the case
of withdrawals, and important tax considerations, see "Surrender" and
"Withdrawals" under "DESCRIPTION OF CONTRACT" and see "FEDERAL TAX
CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If any commutable period
certain option or a non-commutable period certain option for less than 10 years
is chosen, a contingent deferred sales charge will be deducted from the
Accumulated Value of the Contract if the Annuity Date occurs at any time when
the surrender charge would still apply had the Contract been surrendered on the
Annuity Date. (See discussion of PERIOD CERTAIN VARIABLE ANNUITY under
"I. Description of Variable Annuity Option.")
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<PAGE>
No contingent deferred sales charge is imposed at the time of annuitization
in any Contract year under an option involving a life contingency or for any
non-commutable period certain option for 10 years or more. However, a Market
Value Adjustment may apply. See "Guarantee Period Accounts."
If an owner of a fixed annuity Contract issued by the Company wishes to
elect a variable annuity option, the Company may permit such owner to exchange,
at the time of annuitization, the fixed Contract for a Contract offered in this
Prospectus. The proceeds of the fixed Contract, minus any contingent deferred
sales charge applicable under the fixed Contract if a period certain option is
chosen, will be applied towards the variable annuity option desired by the
owner. The number of Annuity Units under the option will be calculated using the
Annuity Unit values as of the 15th of the month preceding the Annuity Date.
E. TRANSFER CHARGE.
The Company currently makes no charge for processing transfers. The Company
guarantees that the first twelve transfers in a Contract Year will be free of
transfer charge, but reserves the right to assess a charge, guaranteed never to
exceed $25, for each subsequent transfer in a Contract Year.
The Contract Owner may have automatic transfers of at least $100 a month
made on a periodic basis (a) from the Sub-Accounts which invest in the Money
Market Portfolio or the Government Securities Portfolio or from the Fixed
Account to one or more of the other Sub-Accounts or (b) in order to reallocate
or rebalance Contract Value among the Sub-Accounts. The first automatic transfer
and all subsequent transfers of that request in the same contract year count as
one transfer towards the twelve transfers which are guaranteed to be free of a
transfer charge in each contract year. For more information, see "The Contract
Transfer Privilege."
DESCRIPTION OF THE CONTRACT
The Contracts are designed for use in connection with several types of
retirement plans as well as for sale to individuals. Participants under such
plans, as well as Contract Owners, Annuitants, and beneficiaries, are cautioned
that the rights of any person to any benefits under such Contracts may be
subject to the terms and conditions of the plans themselves, regardless of the
terms and conditions of the Contracts.
The Contracts offered by this Prospectus may be purchased from certain
independent broker-dealers, including representatives of Allmerica Investments,
Inc., the Principal Underwriter, which are registered under the Securities
Exchange Act of 1934 and are members of the National Association of Securities
Dealers, Inc. ("NASD").
Contract Owners may direct any inquiries to Annuity Customer Services,
Allmerica Financial Life Insurance and Annuity Company, 440 Lincoln Street,
Worcester, Massachusetts 01653, 800-782-8380.
A. PAYMENTS.
The Company's underwriting requirements, which include receipt of the
initial payment and allocation instructions by the Company at its Principal
Office, must be met before a Contract can be issued. These requirements may also
include the proper completion of an application; however, where permitted, the
Company may issue a contract without completion of an application for certain
classes of annuity contracts. Payments are to be made payable to the Company. A
net payment is equal to the payment received less the amount of any applicable
premium tax.
The initial net payment will be credited to the Contract as of the date that
all issue requirements are properly met. If all issue requirements are not
complied with within five business days of the Company's receipt of the initial
payment, the payment will be returned unless the Owner specifically consents to
the holding of the initial payment until completion of any outstanding issue
requirements. Subsequent payments will be credited as of the Valuation Date
received at the Principal Office.
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<PAGE>
Payments are not limited as to frequency and number, but there are certain
limitations as to amount. Currently, the initial payment must be at least
$2,000. Under a salary deduction or monthly automatic payment plan, the minimum
initial payment is $167. In all cases, each subsequent payment must be at least
$100. Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a contract on the employee, if the plan's
average annual contribution per eligible plan participant is at least $600. The
minimum allocation to a Guarantee Period Account is $1,000. If less than $1,000
is allocated to a Guarantee Period Account, the Company reserves the right to
apply that amount to the Money Market Portfolio.
Generally, unless otherwise requested, all payments will be allocated among
the accounts in the same proportion that the initial net payment is allocated,
or, if subsequently changed, according to the most recent allocation
instructions. However, to the extent permitted by state law, if the contract is
issued as an IRA or is issued in Georgia, Idaho, Indiana, Michigan, Missouri,
North Carolina, Oklahoma, South Carolina, Texas, Utah, Washington and West
Virginia, any portion of the initial net payment and of additional net payments
received during the contracts's first 15 days measured from the date of issue,
allocated to any Sub-Account and/or any Guarantee Period Account, will be held
in the Money Market Portfolio of KINF until the end of the fifteen day period.
Thereafter, these amounts will be allocated as requested.
The Contract Owner may change allocation instructions for new payments
pursuant to a written or telephone request. If telephone requests are elected by
the Contract Owner, a properly completed authorization must be on file before
telephone requests will be honored. The Company will not be responsible for
losses resulting from acting upon telephone requests reasonably believed to be
genuine. The Company will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine; otherwise, the Company may
be liable for any losses due to unauthorized or fraudulent instructions. The
procedures the Company follows for transactions initiated by telephone include
requirements that callers on behalf of a Contract Owner identify themselves by
name and identify the Annuitant by name, date of birth and social security
number. All transfer instructions by telephone are tape recorded.
B. TRANSFER PRIVILEGE.
At any time prior to the Annuity Date a Contract Owner may have amounts
transferred among all accounts. Transfer values will be effected at the
Accumulation Value next computed after receipt of the transfer order. The
Company will make transfers pursuant to written or telephone requests. As
discussed in "A. Payments," a properly completed authorization form must be on
file before telephone requests will be honored.
Transfers to a Guarantee Period Account must be at least $1,000. If the
amount to be transferred to a Guarantee Period Account is less than $1,000, the
Company may transfer that amount to the Sub-Account which invests in the Money
Market Portfolio.
The Contract Owner may have automatic transfers of at least $100 a month
made on a periodic basis (a) from the Sub-Accounts which invest in the Money
Market Portfolio or the Government Securities Portfolio or from the Fixed
Account to one or more of the other Sub-Accounts or (b) in order to reallocate
or rebalance Contract Value among the Sub-Accounts. The first automatic transfer
and all subsequent transfers of that request in the same contract year count as
one transfer towards the twelve transfers which are guaranteed to be free of a
transfer charge in each contract year.
Currently, the Company makes no charge for transfers. The first twelve (12)
transfers in a Contract year are guaranteed to be free of any charge. For each
subsequent transfer in a Contract year the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse it for the expense of
processing transfers.
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C. SURRENDER.
At any time prior to the Annuity Date, a Contract Owner may surrender the
Contract and receive its Accumulated Value, less applicable charges and adjusted
for any market value adjustment ("Surrender Amount"). The Contract Owner must
return the Contract and a signed, written request for surrender, satisfactory to
the Company, to the Company's Principal Office. The amount payable to the
Contract Owner upon surrender will be based on the Contract's Accumulated Value
as of the Valuation Date on which the request and the Contract are received at
the Company's Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted
when a Contract is surrendered if payments have been credited to the Contract
during the last six full contract years. See "CHARGES AND DEDUCTIONS." The
Contract Fee will be deducted upon surrender of the Contract.
After the Annuity Date, only Contracts under which future annuity benefit
payments are limited to a specified period (as specified in the Period Certain
Annuity Option ) may be surrendered. The Surrender Amount is the commuted value
of any unpaid installments, computed on the basis of the assumed interest rate
incorporated in such annuity benefit payments. No contingent deferred sales
charge is imposed after the Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and 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 each separate account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and withdrawals of
amounts allocated to the Company's Fixed Account and Guarantee Period Accounts
for a period not to exceed six months.
The surrender rights of Contract Owners who are participants under Section
403(b) plans or who are participants in the Texas Optional Retirement Program
(Texas ORP) are restricted; see "FEDERAL TAX CONSIDERATIONS," "I. Public School
Systems and Certain Tax Exempt Organizations" and "J. Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL
TAX CONSIDERATIONS."
D. WITHDRAWALS.
At any time prior to the Annuity Date, a Contract Owner may withdraw a
portion of the Accumulated Value of his or her Contract, subject to the limits
stated below. The Contract Owner must file a signed, written request for
withdrawals, satisfactory to the Company, at the Company's Principal Office. The
written request must indicate the dollar amount the Contract Owner wishes to
receive and the accounts from which such amount is to be withdrawn. The contract
value following the withdrawal will reflect an amount withdrawn equal to the
amount requested by the Contract Owner plus any applicable contingent deferred
sales charge, as described under "CHARGES AND DEDUCTIONS." In addition, amounts
withdrawn from a Guarantee Period Account prior to the end of the applicable
Guarantee Period will be subject to a Market Value Adjustment, as described
under "GUARANTEE PERIOD ACCOUNTS."
Where allocations have been made to more than one account, a percentage of
the withdrawal may be allocated to each such account. A withdrawal from a
Sub-Account will result in cancellation of a number of units equivalent in value
to the amount withdrawn, computed as of the Valuation Date that the request is
received at the Company's Principal Office.
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<PAGE>
Each withdrawal must be in a minimum amount of $100. No withdrawal will be
permitted if the Accumulated Value remaining under the Contract would be reduced
to less than $1,000. Withdrawals will be paid in accordance with the time
limitations described under "Surrender."
After the Annuity Date, only Contracts under which future variable annuity
benefit payments are limited to a specified period may be withdrawn. A
withdrawal after the Annuity Date will result in cancellation of a number of
Annuity Units equivalent in value to the amount withdrawn.
For important restrictions on withdrawals which are applicable to Contract
Owners who are participants under Section 403(b) plans or under the Texas ORP,
see "FEDERAL TAX CONSIDERATIONS," "I. Public School Systems and Certain Tax
Exempt Organizations" and "J. Texas Optional Retirement Program."
For important tax consequences which may result from withdrawals, see
"FEDERAL TAX CONSIDERATIONS."
E. DEATH BENEFIT.
If the Annuitant dies (or a Contract Owner predeceases the Annuitant) prior
to the Annuity Date while the Contract is in force, the Company will pay the
Beneficiary a death benefit, except where the Contract continues as provided in
"F. THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY."
Upon death of the Annuitant (including an Owner who is also the Annuitant),
the death benefit is equal to the greatest of (a) the Accumulated Value under
the Contract increased for any positive Market Value Adjustment, (b) gross
payments accumulated daily at 5% starting on the date each payment is applied,
reduced proportionately to reflect withdrawals (for each withdrawal, the
proportionate reduction is calculated as the death benefit under this option
immediately prior to the withdrawal multiplied by the withdrawal amount and
divided by the Accumulated Value immediately prior to the withdrawal); or (c) or
the death benefit that would have been payable on the most recent contract
anniversary, increased for subsequent payments and reduced proportionately to
reflect withdrawals after that date.
If an Owner who is not also the Annuitant dies before the Annuity Date, the
death benefit will be the Accumulated Value increased by any positive Market
Value Adjustment. The death benefit will never be reduced by a negative Market
Value Adjustment. The death benefit will generally be paid to the Beneficiary in
one sum within 7 days of the receipt of due proof of death unless the Owner has
specified a death benefit annuity option. Instead, the Beneficiary may, by
Written Request, elect to:
(a) defer distribution of the death benefit for a period no more than 5
years from the date of death; or
(b) receive a life annuity or an annuity for a period certain not extending
beyond the Beneficiary's life expectancy. Annuity benefit payments must
begin within one year from the date of death.
If distribution of the death benefit is deferred under (a) or (b), any value
in the Guarantee Period Accounts will be transferred to the Sub-Account
investing in the Money Market Portfolio. The excess, if any, of the death
benefit over the Accumulated Value will also be added to the Money Market
Portfolio. The Beneficiary may, by Written Request, effect transfers and
withdrawals during the deferral period and prior to annuitization under (b), but
may not make additional payments. If there are multiple Beneficiaries, the
consent of all is required.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed annuity benefit payments, any unpaid amounts or
installments will be paid to the Beneficiary. The Company must pay the remaining
payments at least as rapidly as under the payment option in effect on the date
of the Annuitant's death.
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With respect to any death benefit, the Accumulated Value under the Contract
will be based on the unit values next computed after due proof of the
Annuitant's death has been received at the Company's Principal Office. If the
beneficiary elects to receive the death benefit in one sum, the death benefit
will be paid within seven business days. If the beneficiary has not elected an
annuity option within one year from the date notice of death is received by the
Company, the Company will pay the death benefit in one sum. The death benefit
will reflect any earnings or losses experienced during the period and any
withdrawals.
F. THE SPOUSE OF THE CONTRACT OWNER AS BENEFICIARY.
The Contract Owner's spouse, if named as the sole primary beneficiary, may
by written request continue the Contract in lieu of receiving the amount payable
upon death of the Contract Owner. Upon such election, the spouse will become the
Owner and Annuitant subject to the following: (a) any value in the Guarantee
Period Accounts will be transferred to the Money Market Sub-Account; (b) the
excess, if any, of the death benefit over the Contract's Accumulated Value will
also be added to the Money Market Sub-Account. Additional payments may be made;
however, a surrender charge will apply to these amounts. All other rights and
benefits provided in the Contract will continue, except that any subsequent
spouse of such new Contract Owner will not be entitled to continue the Contract
upon such new Owner's death.
G. ASSIGNMENT.
The Contracts, other than those sold in connection with certain qualified
plans, may be assigned by the Contract Owner at any time prior to the Annuity
Date and while the Annuitant is alive (see "FEDERAL TAX CONSIDERATIONS"). The
Company will not be deemed to have knowledge of an assignment unless it is made
in writing and filed at the Principal Office. The Company will not assume
responsibility for determining the validity of any assignment. If an assignment
of the Contract is in effect on the Annuity Date, the Company reserves the right
to pay to the assignee, in one sum, that portion of the Surrender Value of the
Contract to which the assignee appears to be entitled. The Company will pay the
balance, if any, in one sum to the Contract Owner in full settlement of all
liability under the Contract. The interest of the Contract Owner and of any
beneficiary will be subject to any assignment.
H. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE.
Subject to certain restrictions described below, the Contract Owner has the
right (1) to select the annuity option under which annuity benefit payments are
to be made, and (2) to determine whether payments are to be made on a fixed
basis, a variable basis, or a combination fixed and variable basis. Annuity
benefit payments are determined according to the annuity tables in the Contract,
by the annuity option selected, and by the investment performance of the
Account(s) selected.
To the extent a fixed annuity payout is selected, Accumulated Value will be
transferred to the Fixed Account of the Company, and the annuity benefit
payments will be fixed in amount. See APPENDIX A, "MORE INFORMATION ABOUT THE
FIXED ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number
of Annuity Units in the Sub-Account(s) is made monthly, quarterly, semiannually
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 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 does not
produce an initial payment which meet this minimum, a single payment will be
made. Once the Company begins making annuity benefit payments, the Annuitant
cannot make withdrawals or surrender the annuity benefit, except in the case
where future annuity benefit payments are limited to a "period certain." Only
beneficiaries entitled to receive remaining payments for a "period certain" may
elect to instead receive a lump sum settlement.
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The Annuity Date is selected by the Contract Owner. To the extent permitted
in your state, the Annuity Date may be the first day of any month (a) before the
Annuitant's 85th birthday, if the Annuitant's age at the date of issue of the
Contract is 75 or under, or (b) within 10 years from the date of issue of the
Contract and before the Annuitant's 90th birthday, if the Annuitant's age at the
date of issue is between 76 and 90. The Contract Owner may elect to change the
Annuity Date by sending a request to the Company's Principal Office at least one
month before the new Annuity date. The new Annuity Date must be the first day of
any month occurring before the Annuitant's 90th birthday and must be within the
life expectancy of the Annuitant. The Company shall determine such life
expectancy at the time a change in Annuity Date is requested. The Internal
Revenue Code and the terms of qualified plans impose limitations on the age at
which annuity benefit payments may commence and the type of annuity option
selected. See "FEDERAL TAX CONSIDERATIONS" for further information.
If the Contract Owner does not elect otherwise, a variable life annuity with
periodic payments for 10 years guaranteed will be purchased. Changes in either
the Annuity Date or annuity option can be made up to one month prior to the
Annuity Date.
I. DESCRIPTION OF VARIABLE ANNUITY OPTIONS.
The Company provides the variable annuity options described below.
Currently, Variable annuity options may be funded through the Sub-Accounts
investing in the Investment Grade Bond, Value+Growth, Horizon 10+ and Horizon 5
Portfolios. The Company also provides these same options funded through the
Fixed Account (fixed-amount annuity option). Regardless of how payments were
allocated during the accumulation period, any of the variable annuity options or
the fixed-amount options may be selected, or any of the variable annuity options
may be selected in combination with any of the fixed-amount annuity options.
Other annuity options may be offered by the Company.
VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 10 YEARS. This variable
annuity is payable periodically during the lifetime of the payee with the
guarantee that if the payee should die before all payments have been made, the
remaining annuity benefit payments will continue to the beneficiary.
VARIABLE LIFE ANNUITY PAYABLE PERIODICALLY DURING THE LIFETIME OF THE PAYEE
ONLY. It would be possible under this option for the Annuitant to receive only
one annuity benefit payment if the Annuitant dies prior to the due date of the
second annuity benefit payment, two annuity benefit payments if the Annuitant
dies before the due date of the third annuity benefit payment, and so on.
However, payments will continue during the lifetime of the payee, no matter how
long the payee lives.
UNIT REFUND VARIABLE LIFE ANNUITY. This is an annuity payable periodically
during the lifetime of the payee with the guarantee that if (1) exceeds (2) then
periodic variable annuity benefit payments will continue to the beneficiary
until the number of such payments equals the number determined in (1).
Where: (1) is the dollar amount of the Accumulated Value divided by the
dollar amount of the first payment, and
(2) is the number of payments paid prior to the death of the
payee,
JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is payable
jointly to two payees during their joint lifetime, and then continues thereafter
during the lifetime of the survivor. The amount of each payment to the survivor
is based on the same number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be either the person
designated as the Annuitant in the Contract or the beneficiary. There is no
minimum number of payments under this option.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity
is payable jointly to two payees during their joint lifetime, and then continues
thereafter during the lifetime of the survivor. However, the amount of each
periodic payment to the survivor is based upon two-thirds of the number
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of Annuity Units which applied during the joint lifetime of the two payees. One
of the payees must be the person designated as the Annuitant in the Contract or
the beneficiary. There is no minimum number of payments under this option.
PERIOD CERTAIN VARIABLE ANNUITY. This variable annuity has periodic
payments for a stipulated number of years ranging from one to thirty. This
option may be commutable, that is, the payee reserves the right to receive a
lump sum in place of installments, or it becomes non-commutable. The payee must
reserve this right at the time benefits begin.
It should be noted that the Period Certain Option does not involve a life
contingency. In the computation of the payments under this option, the charge
for annuity rate guarantees, which includes a factor for mortality risks, is
made. Although not contractually required to do so, the Company currently
follows a practice of permitting persons receiving payments under the Period
Certain Option to elect to convert to a variable annuity involving a life
contingency. The Company may discontinue or change this practice at any time,
but not with respect to election of the option made prior to the date of any
change in this practice. See "FEDERAL TAX CONSIDERATIONS" for a discussion of
the possible adverse tax consequences of selecting a Period Certain Option.
J. NORRIS DECISION.
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States
Supreme Court ruled that, in connection with retirement benefit options offered
under certain employer-sponsored employee benefit plans, annuity options based
on sex-distinct actuarial tables are not permissible under Title VII of the
Civil Rights Act of 1964. The ruling requires that benefits derived from
contributions paid into a plan after August 1, 1983 be calculated without regard
to the sex of the employee. Annuity benefits attributable to payments received
by the Company under a Contract issued in connection with an employer-sponsored
benefit plan affected by the NORRIS decision will be based on the greater of (1)
the Company's unisex Non-Guaranteed Current Annuity Option Rates or (2) the
guaranteed unisex rates described in such Contract, regardless of whether the
Annuitant is male or female.
K. COMPUTATION OF VALUES AND ANNUITY BENEFIT PAYMENTS.
THE ACCUMULATION UNIT. Each net payment is allocated to the account(s)
selected by the Contract Owner. Allocations to the 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 in good order
at the Company's Principal Office. The number of Accumulation Units resulting
from each payment will remain fixed unless changed by a subsequent split of
Accumulation Unit value, a transfer, a 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 Portfolios. The
value of an Accumulation Unit was set at $1.00 on the first Valuation Date for
each Sub-Account.
Allocations to 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 B.
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 (a) by (b)
and subtracting (c) and (d) where:
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(a) is the investment income of a Sub-Account for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;
(b) is the value of that Sub-Account's assets at the beginning of the
Valuation Period;
(c) is a charge for mortality and expense risks equal to 1.25% on an
annual basis of the daily value of the Sub-Account's assets, and
(d) is an administrative charge of 0.15% on an annual basis of the daily
value of the Sub-Account's assets.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor. For an illustration of Accumulation Unit calculation using a
hypothetical example see "ANNUITY PAYMENTS" in the Statement of Additional
Information.
THE ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a
measure of the value of the Annuitant's monthly annuity 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 product of (1) the net
investment factor of the Sub-Account for the current Valuation Period and (2) a
factor to adjust benefits to neutralize the assumed interest rate. The assumed
interest rate, discussed below, is incorporated in the variable annuity options
offered in the Contract.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY BENEFIT PAYMENTS. The
first periodic annuity benefit payment is based upon the Accumulated Value as of
a date not more than four weeks preceding the date that the first annuity
benefit payment is due. Currently, variable annuity benefit payments are made on
the first of a month based on unit values as of the 15th day of the preceding
month.
The Contract provides annuity rates which determine the dollar amount of the
first periodic payment under each form of annuity for each $1,000 of applied
value. For Life Option and Noncommutable Period Certain Options of 10 or more
years, the annuity value is the Accumulated Value less any premium taxes and
adjusted for any Market Value Adjustment. For commutable period certain options
or any period certain option less than 10 years, the value is surrender value
less any premium tax. For a death benefit annuity, the annuity value will be the
amount of the death benefit. The annuity rates in the Contract are based on a
modification of the 1983(a) Individual Mortality Table on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "J. Norris Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3 1/2% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity benefit payments will
increase over periods when the actual net investment result of the
Sub-Account(s) funding the annuity exceeds the equivalent of the assumed
interest rate for the period. Variable annuity benefit payments will decrease
over periods when the actual net investment result of the respective Sub-Account
is less than the equivalent of the assumed interest rate for the period.
The dollar amount of the first periodic annuity benefit payment under life
annuity options and non-commutable period certain options of 10 years or more is
determined by multiplying (1) the Accumulated Value applied under that option
(after application of any Market Value Adjustment and less premium tax, if any)
divided by $1,000, by (2) the applicable amount of the first monthly payment per
$1,000 of value. For commutable period certain options and any period certain
option of less than 10 years, the Surrender Value less premium taxes, if any, is
used rather than the Accumulated Value.
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The dollar amount of the first variable annuity benefit payment is then divided
by the value of an Annuity Unit of the selected Sub-Account(s) to determine the
number of Annuity Units represented by the first payment. This number of Annuity
Units remains fixed under all annuity options except the joint and two-thirds
survivor annuity option. For each subsequent payment, the dollar amount of the
variable annuity benefit payment is determined by multiplying this fixed number
of Annuity Units by the value of an Annuity unit on the applicable Valuation
Date.
After the first benefit payment, the dollar amount of each periodic variable
annuity benefit payment will vary with subsequent variations in the value of the
Annuity Unit of the selected Sub-Account(s). The dollar amount of each fixed
amount annuity benefit payment is fixed and will not change, except under the
joint and two-thirds survivor annuity option.
The Company may from time to time offer its Contract Owners both fixed and
variable annuity rates more favorable than those contained in the Contract. Any
such rates will be applied uniformly to all Contract Owners of the same class.
For an illustration of variable annuity benefit payment calculation using a
hypothetical example, see "ANNUITY PAYMENTS" in the Statement of Additional
Information.
GUARANTEE PERIOD ACCOUNTS
Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Company's Fixed Account are
not registered as an investment company under the provisions of the Securities
Act of 1933 or the Investment Company Act of 1940. Accordingly, the staff of the
Commission has not reviewed the disclosures in this Prospectus relating to the
Guarantee Period Accounts or the Fixed Account. Nevertheless, disclosures
regarding the Guarantee Period Accounts and the Fixed Account of this annuity
Contract or any benefits offered under these accounts may be subject to the
provisions of the Securities Act of 1933 relating to the accuracy and
completeness of statements made in the Prospectus.
INVESTMENT OPTIONS. In most jurisdictions, there are currently nine
Guarantee Periods available under this Contract with durations of two, three,
four, five, six, seven, eight, nine and 10 years. Each Guarantee Period Account
established for the Contract Owner is accounted for separately in a non-unitized
segregated account. Each Guarantee Period Account provides for the accumulation
of interest at a Guaranteed Interest Rate. The Guaranteed Interest Rate on
amounts allocated or transferred to a Guarantee Period Account is determined
from time-to-time by the Company in accordance with market conditions; however,
once an interest rate is in effect for a Guarantee Period Account, the Company
may not change it during the duration of the Guarantee Period. In no event will
the Guaranteed Interest Rate be less than 3%.
To the extent permitted by law, the Company reserves the right at any time
to offer Guarantee Periods with durations that differ from those which were
available when a Contract was initially issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Contract Owners may allocate net payments or make transfers from any of the
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.
(In Oregon and Massachusetts, payments and transfers to the Fixed Account are
subject to certain restrictions. See Appendix A.) Transfers from a Guarantee
Period Account on any date other than on the day following the expiration of
that Guarantee Period will be subject to a Market Value Adjustment. The Company
establishes a separate investment account each time the Contract Owner allocates
or transfers amounts to a Guarantee Period Account except that amounts allocated
to the same Guarantee Period on the same day will be treated as one Guarantee
Period Account. The minimum that may be allocated to establish a Guarantee
Period Account is $1,000. If less than $1,000 is allocated, the Company reserves
the right to apply that amount to the Money Market Portfolio. The Contract Owner
may allocate amounts to any of the Guarantee Periods available.
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At least 45 days, but not more than 75 days prior to the end of a Guarantee
Period, the Company will notify the Contract Owner in writing of the expiration
of that Guarantee Period. At the end of a Guarantee Period the Owner may
transfer amounts to the 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 will be
automatically 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) unless the Guarantee Period would extend beyond the
Annuity Date or is no longer available. In such cases, the Guarantee Period
Account value will be transferred to the Money Market Portfolio. Where amounts
have been automatically renewed in a new Guarantee Period, it is the Company's
current practice to give the Owner an additional 30 days to transfer out of the
Guarantee Period Account without application of a Market Value adjustment.
MARKET VALUE ADJUSTMENT. No Market Value Adjustment will be applied to
transfers, withdrawals, or a surrender from a Guarantee Period Account on the
expiration of its Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See "Death Benefit." A Market
Value Adjustment will apply to all other transfers, withdrawals, or a surrender.
Amounts applied under an annuity option are treated as withdrawals when
calculating the Market Value Adjustment. The Market Value Adjustment will be
determined by multiplying the amount taken from each Guarantee Period Account
before deduction of any Surrender Charge by the market value factor. The market
value factor for each Guarantee Period Account is equal to:
[(1+i)/(1+j)]n/365 -1
where:
i is the Guaranteed Interest Rate expressed as a decimal (for example:
3% = 0.03) being credited to the current Guarantee Period;
j is the new Guaranteed Interest Rate, expressed as a decimal, for a
Guarantee Period with a duration equal to the number of years
remaining in the current Guarantee Period, rounded to the next higher
number of whole years. If that rate is not available, the Company will
use a suitable rate or index allowed by the Department of Insurance;
and
n is the number of days remaining from the Effective Valuation Date to
the end of the current Guarantee Period.
If the Guaranteed Interest Rate being credited is lower than the new
Guaranteed Interest Rate, the Market Value Adjustment will decrease the
Guarantee Period Account value. Similarly, if the Guaranteed Interest Rate being
credited is higher than the new Guaranteed Interest Rate, the Market Value
Adjustment will increase the Guarantee Period Account value. The Market Value
Adjustment will never result in a change to the value more than the interest
earned in excess of the Minimum Guarantee Period Account Interest Rate (see
Specifications page) compounded annually from the beginning of the current
Guarantee Period. For examples of how the Market Value Adjustment works, See
Appendix B.
PROGRAM TO PROTECT PRINCIPAL AND PROVIDE GROWTH POTENTIAL. Under this
feature, the Owner elects a Guarantee Period and one or more Sub-Accounts. The
Company will then compute the proportion of the initial payment that must be
allocated to the Guarantee Period selected, assuming no transfers or
withdrawals, in order to ensure that it will grow pre-tax to equal the amount of
the entire initial payment. The required amount is then allocated to the
pre-selected Guarantee Period Account. The balance of the initial payment is
allocated among the other investment options selected by the Owner.
WITHDRAWALS. Prior to the Annuity Date, the Contract Owner may make
withdrawals of amounts held in the Guarantee Period Accounts. Withdrawals from
these accounts will be made in the same
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manner and be subject to the same rules as set forth under "Withdrawals" and
"Surrender." In addition, the following provisions also apply to withdrawals
from a Guarantee Period Account: a) a Market Value Adjustment will apply to all
withdrawals, including Withdrawals without Surrender Charge, unless made at the
end of the Guarantee Period; and b) the Company reserves the right to defer
payments of amounts withdrawn from a Guarantee Period Account for up to six
months from the date it receives the withdrawal request. If deferred for 30 days
or more, the Company will pay interest on the amount deferred at a rate of at
least 3%.
In the event that a Market Value Adjustment applies to a withdrawal of a
portion of the value of a Guarantee Period Account, it will be calculated on the
amount requested and deducted or added to the amount remaining in the Guarantee
Period Account. If the entire amount in a Guarantee Period Account is requested,
the adjustment will be made to the amount payable. If a Contingent Deferred
Sales Charge applies to the withdrawal, it will be calculated as set forth under
"Contingent Deferred Sales Charge" after application of the Market Value
Adjustment.
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FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Contract, on
withdrawals or surrenders, on annuity benefit payments, and on the economic
benefit to the Contract Owner, Annuitant, or beneficiary depends upon a variety
of factors. The following discussion is based upon the Company's understanding
of current federal income tax laws as they are interpreted as of the date of
this Prospectus. No representation is made regarding the likelihood of
continuation of current federal income tax laws or of current interpretations by
the Internal Revenue Service (IRS).
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER SHOULD ALWAYS BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income,
assets, or existence of the Contracts, the Variable Account or the 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
Contract 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 Internal Revenue Code (the "Code"). The Company files a
consolidated tax return with its affiliates.
The Internal Revenue Service has issued regulations relating to the
diversification requirements for variable annuity and variable life insurance
contracts under Section 817(h) of the Code. The regulations provide that the
investments of a segregated asset account underlying a variable annuity contract
are adequately diversified if no more than 55% of the value of its assets is
represented by any one investment, no more than 70% by any two investments, no
more than 80% by any three investments, and no more than 90% by any four
investments. If the investments are not adequately diversified, the income on a
contract, for any taxable year of the Contract Owner, would be treated as
ordinary income received or accrued by the Contract Owner. It is anticipated
that the Portfolios will comply with the diversification requirements.
A. QUALIFIED AND NON-QUALIFIED CONTRACTS.
From a federal tax viewpoint there are two types of variable annuity
Contracts, "qualified" Contracts and "non-qualified" Contracts. A qualified
Contract is one that is purchased in connection with a retirement plan which
meets the requirements of Sections 401, 403, 408, or 457 of the Code, while a
non-qualified Contract is one that is not purchased in connection with one of
the indicated retirement plans. The tax treatment for certain withdrawals or
surrenders will vary according to whether they are made from a qualified
Contract or a non-qualified Contract. For more information on the tax provisions
applicable to qualified Contracts, see Sections D through J, below.
B. TAXATION OF THE CONTRACTS IN GENERAL.
The Company believes that the Contracts described in this Prospectus will,
with certain exceptions (see K below), be considered annuity contracts under
Section 72 of the Code. This section provides for the taxation of annuities. The
following discussion concerns annuities subject to Section 72. Section
72(e)(11)(A)(ii) requires that all non-qualified deferred annuity contracts
issued by the same insurance company to the same Contract Owner during the same
calendar year be treated as a single contract in determining taxable
distributions under Section 72(e).
With certain exceptions, any increase in the Accumulated Value of the
Contract is not taxable to the Contract Owner until it is withdrawn from the
Contract. If the Contract is surrendered or amounts are withdrawn prior to the
Annuity Date, withdrawal of any investment gain in value over the cost basis of
the Contract would be taxed as ordinary income. Under the current provisions of
the
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Code, amounts received under a non-qualified Contract prior to the Annuity Date
(including payments made upon the death of the Annuitant or Contract Owner), or
as non-periodic payments after the Annuity Date, are generally first
attributable to any investment gains credited to the Contract over the
taxpayer's basis (if any) in the Contract. Such amounts will be treated as
income subject to federal income taxation.
A 10% penalty tax may be imposed on the withdrawal of investment gains if
the withdrawal is made prior to age 59 1/2. The penalty tax will not be imposed
after age 59 1/2, or if the withdrawal follows the death of the Contract Owner
(or, if the Contract Owner is not an individual, the death of the primary
Annuitant, as defined in the Code), or in the case of the "total disability" (as
defined in the Code) of the Owner. Furthermore, under Section 72 of the Code,
this penalty tax will not be imposed, irrespective of age, if the amount
received is one of a series of "substantially equal" periodic payments made at
least annually for the life or life expectancy of the payee. This requirement is
met when the Contract Owner elects to have distributions made over the Contract
Owner's life expectancy, or over the joint life expectancy of the Contract Owner
and beneficiary. The requirement that the amount be paid out as one of a series
of "substantially equal" periodic payments is met when the number of units
withdrawn to make each distribution is substantially the same.
In a Private Letter Ruling, the IRS took the position that where
distributions from a variable annuity contract were determined by amortizing the
Accumulated Value of the contract over the taxpayer's remaining life expectancy
(such as under the Contract's life expectancy distribution ("LED") option), and
the option could be changed or terminated at any time, the distributions failed
to qualify as part of a "series of substantially equal payments" within the
meaning of Section 72 of the Code. The distributions were therefore subject to
the 10% federal penalty tax. This Private Letter Ruling may be applicable to a
Contract Owner who receives distributions under the LED option prior to age 59 .
Subsequent private letter rulings, however, have treated LED-type withdrawal
programs as effectively avoiding the 10% penalty tax. The position of the IRS on
this issue is unclear.
If the Contract Owner transfers (assigns) the Contract to another individual
as a gift prior to the Annuity Date, the Code provides that the Contract Owner
will incur taxable income at the time of the transfer. An exception is provided
for certain transfers between spouses. The amount of taxable income upon such
taxable transfer is equal to the excess, if any, of the Surrender Value of the
Contract over the Contract Owner's cost basis at the time of the transfer. The
transfer is also subject to federal gift tax provisions. Where the Contract
Owner and Annuitant are different persons, the change of ownership of the
Contract to the Annuitant on the Annuity Date, as required under the Contract,
is a gift and will be taxable to the Contract Owner as such; however, the
Contract Owner will not incur taxable income. Instead, the Annuitant will incur
taxable income upon receipt of annuity benefit payments as discussed below.
When annuity benefit payments are commenced under the Contract, generally a
portion of each payment may be excluded from gross income. The excludable
portion is generally determined by a formula that establishes the ratio that the
cost basis of the Contract bears to the expected return under the Contract. The
portion of the payment in excess of this excludable amount is taxable as
ordinary income. Once all cost basis in the Contract is recovered, the entire
payment is taxable. If the Annuitant dies before cost basis is recovered, a
deduction for the difference is allowed on the Annuitant's final tax return.
C. TAX WITHHOLDING AND PENALTIES.
The Code requires withholding with respect to payments or distributions from
nonqualified contracts and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified contracts. In addition, the Code requires reporting to the IRS
of the amount of income received with respect to payment or distributions from
annuities.
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In certain situations, the Code provides for a tax penalty if, prior to
death, disability or attainment of age 59 1/2, a Contract Owner makes a
withdrawal or receives any amount under the Contract, unless the distribution is
in the form of a life annuity (including life expectancy distributions). The
penalty is 10% of the amount includible in income by the Contract Owner.
The tax treatment of certain withdrawals or surrenders of the non-qualified
Contracts offered by this Prospectus will vary according to whether the amount
withdrawn or surrendered is allocable to an investment in the Contract made
before or after certain dates.
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS.
The tax rules applicable to qualified employer plans, as defined by the
Code, vary according to the type of plan and the terms and conditions of the
plan itself. Therefore, the following is general information about the use of
the Contracts with various types of qualified plans. The rights of any person to
any benefits under such qualified plans will be subject to the terms and
conditions of the qualified plans themselves regardless of the terms and
conditions of the Contract.
A loan to a participant or beneficiary from plans qualified under Sections
401 and 403 or an assignment or pledge of an interest in such a plan is
generally treated as a distribution. This general rule does not apply to loans
which contain certain repayment terms and do not exceed a specified maximum
amount, as required under Section 72(p).
E. QUALIFIED EMPLOYEE PENSION AND PROFIT SHARING TRUSTS AND QUALIFIED ANNUITY
PLANS.
When an employee (including a self-employed individual) or one or more of
the employee's beneficiaries receives a "lump sum" distribution (a distribution
from a qualified plan described in Code Section 401(a) within one taxable year
equal to the total amount payable with respect to such an employee) the taxable
portion of such distribution may qualify for special treatment under a special
five-year income averaging provision of the Code. The employee must have had at
least 5 years of participation under the plan, and the lump sum distribution
must be made after the employee has attained age 59 1/2 or on account of his or
her death, separation from the employer's service (in the case of a common-law
employee) or disability (in the case of a self-employed individual). Such
treatment can be elected for only one taxable year once the individual has
reached age 59 1/2. An employee who attained age 50 before January 1, 1986 may
elect to treat part of the taxable portion of a lump-sum distribution as
long-term capital gains and may also elect 10-year averaging instead of
five-year averaging.
The Company can provide prototype plans for certain of the pension or profit
sharing plans for review by your legal counsel. For information, ask your
financial representative.
F. SELF-EMPLOYED INDIVIDUALS.
The Self-Employed Individuals Tax Retirement Act of 1962, as amended,
frequently referred to as "H.R. 10," allows self-employed individuals and
partners to establish qualified pension and profit sharing trusts and annuity
plans to provide benefits for themselves and their employees.
These plans generally are subject to the same rules and requirements
applicable to corporate qualified plans, with some special restrictions imposed
on "owner-employees." An "owner-employee" is an employee who (1) owns the entire
interest in an unincorporated trade or business, or (2) owns more than 10% of
either the capital interest or profits interest in a partnership.
G. INDIVIDUAL RETIREMENT ACCOUNT PLANS.
Any individual who earns "compensation" (as defined in the Code and
including alimony payable under a court decree) from employment or
self-employment, whether or not he or she is covered by another qualified plan,
may establish an Individual Retirement Account or Annuity plan ("IRA") for the
accumulation of retirement savings on a tax-deferred basis. Income from
investments is not included in "compensation." The assets of an IRA may be
invested in, among other things, annuity Contracts including the Contracts
offered by this Prospectus.
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<PAGE>
Contributions to the IRA may be made by the individual or on behalf of the
individual by an employer. IRA contributions may be deductible up to the lesser
of (1) $2,000 or (2) 100% of compensation. The deduction is reduced
proportionately for adjusted gross income between $40,000 and $50,000 (between
$25,000 and $35,000 for unmarried taxpayers and between $0 and $10,000 for a
married taxpayer filing separately) if the taxpayer and his or her spouse file a
joint return and either is an active participant in an employer sponsored
retirement plan.
An individual and a working spouse each may have an IRA with the
above-described limit on each. An individual with an IRA may establish an
additional IRA for a non-working spouse if they file a joint return.
Contributions to the two IRAs together are deductible up to the lesser of $2,250
or 100% of compensation.
No deduction is allowed for contributions made for the year in which the
individual attains age 70 1/2 and years thereafter. Contributions for that year
and for years thereafter will result in certain adverse tax consequences.
Non-deductible contributions may be made to IRAs until the year in which the
individual attains age 70 1/2. Although these contributions may not be deducted,
taxes on their earnings are deferred until the earnings are distributed. The
maximum permissible non-deductible contribution is $2,000 for an individual
taxpayer and $2,250 for a taxpayer and non-working spouse. These limits are
reduced by the amount of any deductible contributions made by the taxpayer.
Contributions may be made with respect to a particular year until the due
date of the individual's federal income tax return for that year, not including
extensions. However, for reporting purposes, the Company will regard
contributions as being applicable to the year made unless it receives notice to
the contrary.
All annuity benefit payments and other distributions under an IRA will be
taxed as ordinary income unless the owner has made non-deductible contributions.
In addition, a minimum level of distributions must begin no later than April 1
following the year in which the individual attains age 70 1/2, and failure to
make adequate distributions at this time may result in certain adverse tax
consequences to the individual.
Distributions from all of an individual's IRAs are treated as if they were a
distribution from one IRA and all distributions during the same taxable year are
treated as if they were one distribution. An individual who makes a
non-deductible contribution to an IRA or receives a distribution from an IRA
during the taxable year must provide certain information on the individual's tax
return to enable the IRS to determine the proportion of the IRA balance which
represents non-deductible contributions. If the required information is
provided, that part of the amount withdrawn which is proportionate to the
individual's aggregate non-deductible contributions over the aggregate balance
of all of the individual's IRAs, is excludable from income.
Distributions which are a return of a non-deductible contribution are
non-taxable, as they represent a return of basis. If the required information is
not provided to the IRS, distributions from an IRA to which both deductible and
non-deductible contributions have been made are presumed to be fully taxable.
H. SIMPLIFIED EMPLOYEE PENSIONS.
Employers may establish Simplified Employee Pensions ("SEPs") under Code
Section 408(k) if certain requirements are met. A SEP is an IRA to which the
employer contributes under a written formula. Currently, a SEP may accept
employer contributions each year up to $30,000 or 15% of compensation (as
defined), whichever is less. To establish SEPs the employer must make a
contribution for every employee age 21 and over who has performed services for
the employer for at least three of the five immediately preceding calendar years
and who has earned at least $300 for the year. SEP contributions for employees
over age 70 1/2 are permissible.
36
<PAGE>
The employer's contribution is excluded from the employee's gross income for
the taxable year for which it was made up to the $30,000/15% limit. In addition
to the employer's contribution, the employee may contribute 100% of the
employee's earned income, up to $2,000, to the SEP, but such contributions will
be subject to the rules described above in "G. Individual Retirement Account
Plans."
These plans are subject to the general employer's deduction limitations
applicable to all corporate qualified plans.
I. PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX-EXEMPT ORGANIZATIONS.
Under the provisions of Section 403(b) of the Code, payments made for
annuity Contracts purchased for employees under annuity plans adopted by public
school systems and certain organizations which are tax exempt under Section
501(c)(3) of the Code are excludable from the gross income of such employees to
the extent that the aggregate payments for such annuity Contracts in any year do
not exceed the maximum contribution permitted under the Code.
A Contract qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) may not begin before the employee
attains age 59 1/2, separates from service, dies, or becomes disabled. In the
case of hardship a Contract Owner may withdraw amounts contributed by salary
reduction, but not the earnings on such amounts. Even though a distribution may
be permitted under these rules (e.g., for hardship or after separation from
service), it may nonetheless be subject to a 10% penalty tax as a premature
distribution, in addition to income tax. The distribution restrictions are
effective for years beginning after December 31, 1988, but only with respect to
amounts that were not held under the Contract as of that date.
J. TEXAS OPTIONAL RETIREMENT PROGRAM.
Under a Code Section 403(b) annuity contract issued as a result of
participation in the Texas Optional Retirement Program, distributions may not be
received except in the case of the participant's death, retirement or
termination of employment in the Texas public institutions of higher education.
These restrictions are imposed by reason of an opinion of the Texas Attorney
General interpreting the Texas laws governing the Optional Retirement Program.
K. SECTION 457 PLANS FOR STATE GOVERNMENTS AND TAX-EXEMPT ENTITIES.
Code Section 457 allows employees of a state, one of its political
subdivisions, or certain tax-exempt entities to participate in eligible
government deferred compensation plans. An eligible plan, by its terms, must not
allow deferral of more than $7,500 or 33 1/3% of a participant's includible
compensation for the taxable year, whichever is less. Includible compensation
does not include amounts excludable under the eligible deferred compensation
plan or amounts paid into a Code Section 403(b) annuity. The amount a
participant may defer must be reduced dollar-for-dollar by elective deferrals
under a SEP, 401(k) plan or a deductible employee contribution to a 501(c)(18)
plan. Under eligible deferred compensation plans the state, political
subdivision, or tax-exempt entity will be owner of the Contract.
If an employee also participates in another eligible plan or contributes to
a Code Section 403(b) annuity, a single limit of $7,500 will be applied for all
plans. Additionally, the employee must designate how much of the $7,500 or
33 1/3% limitation will be allocated among the various plans. Contributions to
an eligible plan will serve to reduce the maximum exclusion allowance for a Code
Section 403(b) annuity. Amounts received by employees under such plans generally
are includible in gross income in the year of receipt.
L. NON-INDIVIDUAL OWNERS.
Non-individual Owners (e.g., a corporation) of deferred annuity contracts
generally will be currently taxed on any increase in the cash surrender value of
the deferred annuity attributable to contributions made after February 28, 1986.
This rule does not apply to immediate annuities or to
37
<PAGE>
deferred annuities held by a qualified pension plan, an IRA, a 403(b) plan,
estates, employers with respect to terminated pension plans, or a nominee or
agent holding a contract for the benefit of an individual. Corporate-owned
annuities may result in exposure to the alternative minimum tax, to the extent
that income on the annuities increases the corporation's adjusted current
earnings.
REPORTS
A Contract Owner is sent a report semi-annually which states certain
financial information about the Portfolios. The Company will also furnish an
annual report to the Contract Owner containing a statement of his or her
account, including unit values and other information as required by applicable
law, rules and regulations.
LOANS (QUALIFIED CONTRACTS ONLY)
Loans are available to owners of TSA contracts (i.e. contracts issued under
Section 403(b) of the Internal Revenue Code) and to contracts issued to plans
qualified under Sections 401(a) and 401(k) of the Code. Loans are subject to
provisions of the Code and to applicable qualified retirement plan rules. Tax
advisors and plan fiduciaries should be consulted prior to exercising loan
privileges.
Loaned amounts will first be withdrawn from 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 (last-in, first-out) within each duration), subject to any applicable
Market Value Adjustments. The maximum loan amount will be determined under the
Company's maximum loan formula. The minimum loan amount is $1,000. Loans will be
secured by a security interest in the contract and the amount borrowed will be
transferred to a loan asset account within the Company's General Account, where
it will accrue interest at a specified rate below the then-current loan rate.
Generally, loans must be repaid within five years or less and repayments must be
made quarterly and in substantially equal amounts. Repayments will be allocated
pro-rata in accordance with the most recent payment allocation, except that any
allocations to a Guarantee Period Account will instead be allocated to the Money
Market Portfolio.
CHANGES IN OPERATION OF THE VARIABLE ACCOUNT
The Company reserves the right, subject to compliance with applicable law
and to the provisions of the Participation Agreement, to (1) transfer assets
from any Separate Account or Sub-Account to another of the Company's variable
accounts or Sub-Accounts having assets of the same class, (2) to operate the
variable account or any Sub-Account as a management investment company under the
1940 Act or in any other form permitted by law, (3) to deregister the Variable
Account under the 1940 Act in accordance with the requirements of the 1940 Act,
(4) to substitute the shares of any other registered investment company for the
Portfolio shares held by a Sub-Account, in the event that Portfolio shares are
unavailable for investment, or if the Company determines that further investment
in such Portfolio shares is inappropriate in view of the purpose of the
Sub-Account, (5) to change the methodology for determining the net investment
factor, and (6) to change the names of the Variable Account or of the
Sub-Accounts. In no event will the changes described above be made without
notice to Contract Owners in accordance with the 1940 Act.
DISTRIBUTION
The Contracts offered by the Prospectus may be purchased from certain
independent broker-dealers including representatives of Allmerica Investments,
Inc. (the Principal Underwriter) which are registered under the Securities
Exchange Act of 1934 and are members of the National Association of Securities
Dealers, Inc. ("NASD").
The Company pays commissions not to exceed 6.0% of payments to
broker-dealers which sell the Contracts. 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
38
<PAGE>
permitted by NASD rules, promotional incentives or payments may also be provided
to such broker-dealers based on sales volumes, the assumption of wholesaling
functions, or other sales-related criteria. Additional payments may be made for
other services not directly related to the sale of the Contracts, including the
recruitment and training of personnel, production of promotional literature, and
similar services.
The Company intends to recoup commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges and profits from
the Company's General Account. Commissions paid on the Contracts, including
additional incentives or payments, do not result in any additional charge to
Contract Owners or to the Variable Account. Any contingent deferred sales
charges assessed on a Contract will be retained by the Company.
Contract Owners may direct any inquiries to their financial representative
or to Allmerica Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts
01653, 800-782-8380.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a
party.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted in this
Prospectus pursuant to the rules and regulations of the Commission. The omitted
information may be obtained from the Commission's principal office in
Washington, D.C., upon payment of the Commission's prescribed fees.
39
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account are not generally subject to regulation under the
provisions of the Securities Act of 1933 or the Investment Company Act of 1940.
Disclosures regarding the fixed portion of the annuity contract and the Fixed
Account may be subject to the provisions of the Securities Act of 1933
concerning the accuracy and completeness of statements made in the Prospectus.
The disclosures in this APPENDIX A have not been reviewed by the Securities and
Exchange Commission.
The Fixed Account is made up of all of the general assets of the Company
other than those allocated to the separate account. Allocations to the Fixed
Account become part of the assets of the Company and are used to support
insurance and annuity obligations. A portion or all of net payments may be
allocated to accumulate at a fixed rate of interest in the Fixed Account. Such
net amounts are guaranteed by the Company as to principal and a minimum rate of
interest. Under the Contracts, the minimum interest which may be credited on
amounts allocated to the Fixed Account is 3% compounded annually. Additional
"Excess Interest" may or may not be credited at the sole discretion of the
Company.
If a Contract is surrendered, or if an Excess Amount is withdrawn, while the
Contract is in force and before the Annuity Date, a contingent deferred sales
charge is imposed if such event occurs before the payments attributable to the
surrender or withdrawal have been credited to the Contract less than six full
contract years.
In Oregon and Massachusetts, payments and transfers to the Fixed Account are
subject to the following restrictions:
If a Contract issued prior to the Annuitant's 60th birthday, allocations to
the Fixed Account will be permitted until the Annuitant's 61st birthday. On
and after the Annuitant's 61st birthday, no additional Fixed Account
allocations will be accepted. If a Contract is issued on or after the
Annuitant's 60th birthday, up through and including the Annuitant's 81st
birthday, Fixed Account allocations will be permitted during the first
Contract year. If a Contract is issued on or after 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.
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.
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<PAGE>
APPENDIX B
SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: SURRENDER CHARGES
FULL SURRENDER -- Assume a Payment of $50,000 is made on the Date of Issue
and no additional Payments are made. Assume there are no withdrawals and that
the free withdrawal amount is equal to the greater of 15% of the current Account
Value or the accumulated earnings in the Contract. The table below presents
examples of the surrender charge resulting from a full surrender of the Contract
Owner's Account, based on hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL FREE SURRENDER
ACCOUNT ACCUMULATED WITHDRAWAL CHARGE SURRENDER
YEAR VALUE AMOUNT PERCENTAGE CHARGE
- --------- ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C>
1 54,000.00 8,100.00 7% 3,213.00
2 58,320.00 8,748.00 6% 2,974.32
3 62,985.60 12,985.60 5% 2,500.00
4 68,024.45 18,024.45 4% 2,000.00
5 73,466.40 23,466.40 3% 1,500.00
6 79,343.72 29,343.72 2% 1,000.00
7 85,691.21 35,691.21 0% 0.00
</TABLE>
WITHDRAWAL -- Assume a Payment of $50,000 is made on the Date of Issue and
no additional Payments are made. Assume that the free withdrawal amount is equal
to the greater of 15% of the current Account Value or the accumulated earnings
in the contract and there are withdrawals as detailed below. The table below
presents examples of the surrender charge resulting from withdrawals from the
Contract Owner's Account, based on hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL FREE SURRENDER
ACCOUNT ACCUMULATED WITHDRAWAL CHARGE SURRENDER
YEAR VALUE WITHDRAWAL AMOUNT PERCENTAGE CHARGE
- --------- ------------ ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
1 54,000.00 0.00 8,100.00 7% 0.00
2 58,320.00 0.00 8,748.00 6% 0.00
3 62,985.60 0.00 12,985.60 5% 0.00
4 68,024.45 30,000.00 18,024.45 4% 479.02
5 41,066.40 10,000.00 6,159.96 3% 115.20
6 33,551.72 5,000.00 5,032.76 2% 0.00
7 30,835.85 10,000.00 4,625.38 0% 0.00
</TABLE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)]n/365-1
The following examples assume:
1. The Payment was allocated to a 10 year Guarantee Period Account with
a guaranteed interest rate of 8%.
2. The date of surrender is seven years (2555 days) from the expiration
date.
3. The value of the Guarantee Period Account is equal to $62,985.60 at
the end of three years.
4. No transfers 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.
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<PAGE>
NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10
<TABLE>
<S> <C>
The market value factor = [(1+i)/(1+j)]n/365-1
= [(1+.08)/(1+.10)]2555/365-1
= (.98182)7-1
= -.12054
The market value adjustment = the market value factor multiplied by the
withdrawal
= -.12054*$62,985.60
= -$7,592.11
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
<TABLE>
<S> <C>
The market value factor = [(1+i)/(1+j)]n/365-1
= [(1+.08)/(1+.07)]2555/365-1
= (1.0093)7-1
= .06694
The market value adjustment = the market value factor multiplied by the
withdrawal
= .06694*$62,985.60
= $4,216.26
</TABLE>
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11
<TABLE>
<S> <C>
The market value factor = [(1+i)/(1+j)]n/365-1
= [(1+.08)/(1+.11)]2555/365-1
= (.97297)7-1
= -.17454
The market value adjustment = Minimum of the market value factor multiplied by
the withdrawal or the negative of the excess
interest earned over 3%
= Minimum of (-.17454*$62,985.60 or -$8,349.25)
= Minimum of (-$10,993.51 or -$8,349.25)
= -$8,349.25
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
<TABLE>
<S> <C>
The market value factor = [(1+i)/(1+j)]n/365-1
= [(1+.08)/(1+.06)]2555/365-1
= (1.01887)7-1
= .13981
The market value adjustment = Minimum of the market value factor multiplied by
the withdrawal or the excess interest earned over
3%
= Minimum of (.13981*$62,985.60 or $8,349.25)
= Minimum of ($8,806.02 or $8,349.25)
= $8,349.25
</TABLE>
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<PAGE>
APPENDIX C
THE DEATH BENEFIT
PART 1: DEATH OF THE ANNUITANT
DEATH BENEFIT ASSUMING NO WITHDRAWALS
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume there are no withdrawals and that the Death Benefit
Effective Annual Yield is equal to 5%. The table below presents examples of the
Death Benefit based on the hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL
HYPOTHETICAL MARKET HYPOTHETICAL
ACCUMULATED VALUE DEATH DEATH DEATH DEATH
YEAR VALUE ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) BENEFIT
--- ------------ ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1 53,000.00 0.00 53,000.00 52,500.00 50,000.00 53,000.00
2 53,530.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 58,883.00 0.00 58,883.00 57,881.25 55,125.00 58,883.00
4 52,994.70 500.00 53,494.70 60,775.31 58,883.00 60,775.31
5 58,294.17 0.00 58,294.17 63,814.08 60,775.31 63,814.08
6 64,123.59 500.00 64,623.59 67,004.78 63,814.08 67,004.78
7 70,535.95 0.00 70,535.95 70,355.02 67,004.78 70,535.95
8 77,589.54 500.00 78,089.54 73,872.77 70,535.95 78,089.54
9 85,348.49 0.00 85,348.49 77,566.41 78,089.54 85,348.49
10 93,883.34 0.00 93,883.34 81,444.73 85,348.49 93,883.34
</TABLE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment.
Death Benefit (b) is the gross payments accumulated daily at the Death Benefit
Effective Annual Yield reduced proportionately to reflect withdrawals.
Death Benefit (c) is the death benefit that would have payable on the most
recent contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c).
DEATH BENEFIT ASSUMING WITHDRAWALS
Assume a Payment of $50,000 is made on the Date of Issue 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 MARKET HYPOTHETICAL
ACCUMULATED PARTIAL VALUE DEATH DEATH DEATH DEATH
YEAR VALUE WITHDRAWAL ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) BENEFIT
--- ------------ ----------- ------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 53,000.00 0.00 0.00 53,000.00 52,500.00 50,000.00 53,000.00
2 53,530.00 0.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 3,883.00 50,000.00 0.00 3,883.00 3,816.94 3,635.18 3,883.00
4 3,494.70 0.00 500.00 3,994.70 4,007.79 3,883.00 4,007.79
5 3,844.17 0.00 0.00 3,844.17 4,208.18 4,007.79 4,208.18
6 4,228.59 0.00 500.00 4,728.59 4,418.59 4,208.18 4,728.59
7 4,651.45 0.00 0.00 4,651.45 4,639.51 4,728.59 4,728.59
8 5,116.59 0.00 500.00 5,616.59 4,871.49 4,728.59 5,616.59
9 5,628.25 0.00 0.00 5,628.25 5,115.07 5,616.59 5,628.25
10 691.07 5,000.00 0.00 691.07 599.51 628.25 691.07
</TABLE>
43
<PAGE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment
Death Benefit (b) is the gross payments accumulated daily at the Death Benefit
Effective Annual Yield reduced proportionately to reflect withdrawals.
Death Benefit (c) is the death benefit that would have payable on the most
recent contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c)
PART 2: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT
Assume a Payment of $50,000 is made on the Date of Issue and no additional
Payments are made. Assume there are no withdrawals and that the Death Benefit
Effective Annual Yield is equal to 5%. The table below presents examples of the
Death Benefit based on the hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL
HYPOTHETICAL MARKET HYPOTHETICAL
ACCUMULATED VALUE DEATH
YEAR VALUE ADJUSTMENT BENEFIT
--- ------------ ------------ ------------
<S> <C> <C> <C>
1 53,000.00 0.00 53,000.00
2 53,530.00 500.00 54,030.00
3 58,883.00 0.00 58,883.00
4 52,994.70 500.00 53,494.70
5 58,294.17 0.00 58,294.17
6 64,123.59 500.00 64,623.59
7 70,535.95 0.00 70,535.95
8 77,589.54 500.00 78,089.54
9 85,348.49 0.00 85,348.49
10 93,883.34 0.00 93,883.34
</TABLE>
The hypothetical Death Benefit is the Accumulated Value increased by any
positive Market Value Adjustment.
44
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION
FOR
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY CONTRACTS
FUNDED THROUGH
SUB-ACCOUNTS OF
VARIABLE ACCOUNT KG
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS FOR THE VARIABLE ACCOUNT DATED OCTOBER ,
1996, ("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ALLMERICA
INVESTMENTS, INC., 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653,
800-782-8380.
DATED OCTOBER, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE
COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 5
TAX-DEFERRED ACCUMULATION . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 8
GENERAL INFORMATION AND HISTORY
Separate Account KG ("Variable Account") is a separate investment account of
Allmerica Financial Life Insurance and Annuity Company ("Company") authorized
by vote of the Board of Directors on June 13, 1996. The Company is a life
insurance company organized under the laws of Delaware in July, 1974. Its
Principal Office is located at 440 Lincoln Street, Worcester, Massachusetts
01653, Telephone 508-855-1000. The Company is subject to the laws of the
state of Delaware governing insurance companies and to regulation by the
Commissioner of Insurance of Delaware. In addition, the Company is subject
to the insurance laws and regulations of other states and jurisdictions in
which it is licensed to operate. As of December 31, 1995, the Company had
over $5 billion in assets and over $18 billion of life insurance in force.
Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirectly wholly-owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica"), which in turn is a wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company on October 16, 1995 and adopted its
present name. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1995 First Allmerica and its subsidiaries
(including the Company) had over $11 billion in combined assets and over $35.2
billion in life insurance in force.
Each Sub-Account invests in a corresponding investment portfolio of Kemper
Investors Fund ("the Fund"), a series type mutual fund registered with the
Securities and Exchange Commission (the "SEC") as an open-end, diversified,
management investment company. Currently, 14 Sub-Accounts of the Variable
Account are available under the Contracts. The Money Market Portfolio, Total
Return Portfolio, High Yield Portfolio, Growth Portfolio, Government Securities
Portfolio, International Portfolio, Small Cap Growth Portfolio, Investment Grade
Bond Portfolio, Value Portfolio, Small Cap Value Portfolio, Value+Growth
Portfolio, Horizon 20+Portfolio, Horizon 10+Portfolio, and Horizon 5 Portfolio.
Each Portfolio available under the Contracts has its own investment objectives
and certain attendant risks.
TAXATION OF THE CONTRACT, VARIABLE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
Contract, other than for state and local
-2-
<PAGE>
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 Code and files a consolidated tax return with its parent and
affiliated companies.
The Company reserves the right to make a charge for any effect which the income,
assets, or existence of Contracts or the Variable Account may have upon its tax.
Such charge for taxes, if any, will be assessed on a fair and equitable basis in
order to preserve equity among classes of Contract Owners. 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. Trust shares owned by the Sub-Accounts are held on an open
account basis. A Sub-Account's ownership of Trust shares is reflected on the
records of the Trust and not represented by any transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995,
included in this Statement of Additional Information constituting part of the
Registration Statement, have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Contracts.
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 for the Contracts pursuant to a contract with the Company and the
Variable Account. Allmerica Investments distributes the Contracts on a best
efforts basis. Allmerica Investments, 440 Lincoln Street, Worcester,
Massachusetts 01653 was organized in 1969 as a wholly-owned subsidiary of
First Allmerica and is an indirect wholly-owned subsidiary of First
Allmerica.
The Contracts offered by this Prospectus are offered continuously and may be
purchased from certain independent broker-dealers which are NASD members and
whose representatives are authorized by applicable law to sell variable
annuity contracts.
All persons selling contracts 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 6.0% of purchase payments to entities
which sell the Contracts. To the extent permitted by NASD rules, promotional
incentives or payments may also 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 Contracts, including the recruitment and training of
personnel, production of promotional literature, and similar services.
Commissions paid on the Contracts, including additional incentives or payments,
do not result in any additional charge to Contract Owners or to the Variable
Account.
-3-
<PAGE>
Commissions are paid by The Company and do not result in any charge to Contract
Owners or to the Variable Account in addition to the charges described under
"CHARGES AND DEDUCTIONS" in the Prospectus. The Company intends to recoup the
commission and other sales expense through a combination of anticipated
surrender, withdrawal, and/or annuitization charges, profits from The Company's
general account, including the investment earnings on amounts allocated to
accumulate on a fixed basis in excess of the interest credited on fixed
accumulations by The Company, and the profit, if any, from the mortality and
expense risk charge.
ANNUITY PAYMENTS
The method by which the Accumulated Value under the Contract is determined is
described in detail under "COMPUTATION OF CONTRACT VALUES AND ANNUITY PAYMENTS"
in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the Net Asset Value of a
portfolio share held in a Sub-Account at the end of a one-day Valuation Period
were $1.135000; that the Net Asset Value on the previous date was $1.132000;
that the value of an Accumulation Unit on the previous date was $1.117500; and
that during the Valuation Period, the dividends and capital gain
distributions were $0.000335 per share. The Accumulation Unit Value at the end
of the current Valuation Period would be calculated as follows:
(1) Accumulation Unit Value - Previous Valuation Period. . . . . . . $1.117500
(2) Net Asset Value - Previous Valuation Period. . . . . . . . . . . $1.132000
(3) Net Asset Value - Current Valuation Period . . . . . . . . . . . $1.135000
(4) Dividends and capital gain distributions . . . . . . . . . . . . $0.000335
(5) Annual Charge (one day equivalent of 1.40% per annum). . . . . . 0.000039
(6) Net Investment Factor { [(3) + (4)] (2)} - (5) . . . . . . . . . 1.002908
(8) Accumulation Unit Value - Current Valuation Period (1) X (6) . . $1.120750
The method for determining the amount of annuity payments is described in detail
under "COMPUTATION OF CONTRACT VALUES AND ANNUITY PAYMENTS" in the Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY PAYMENT CALCULATION USING HYPOTHETICAL EXAMPLE.
The determination of the Annuity Unit value and the variable annuity payment may
be illustrated by the following hypothetical example: Assume an Annuitant has
40,000 Accumulation Units in a Separate Account, and that the value of an
Accumulation Unit on the Valuation Date used to determine the amount of the
first variable annuity payment is $1.120000. Therefore, the Accumulation Value
of the Contract is $44,800 (40,000 x $1.120000). Assume also that the Contract
Owner elects an option for which the first monthly payment is $6.57 per $1,000
of Accumulated Value applied. Assuming no premium tax or contingent deferred
sales charge, the first monthly payment would be 44.800 multiplied by $6.57, or
$294.34.
Next, assume that the Annuity Unit value for the assumed rate of 3-1/2% per
annum for the Valuation Date as of which the first payment was calculated was
$1.100000. Annuity Unit values will not be the same as Accumulation Unit values
because
-4-
<PAGE>
the former reflect the 3-1/2% assumed interest rate used in the annuity rate
calculations. When the Annuity Unit value of $1.100000 is divided into the
first monthly payment the number of Annuity Units represented by that payment
is determined to be 267.5818. The value of this same number of Annuity Units
will be paid in each subsequent month under most options. Assume further that
the net investment factor for the Valuation Period applicable to the next
annuity payment is 1.000190. Multiplying this factor by .999906 (the one-day
adjustment factor for the assumed interest rate of 3-1/2% per annum) produces a
factor of 1.000096. This is then multiplied by the Annuity Unit value on the
immediately preceding Valuation Date (assumed here to be $1.105000). The result
is an Annuity Unit value of $1.105106 for the current monthly payment. The
current monthly payment is then determined by multiplying the 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 Variable Annuity Option V Redemption and Illustration
Using Hypothetical Example. As discussed in the Prospectus under "DESCRIPTION
OF VARIABLE ANNUITY OPTIONS," the Annuitant, or the beneficiary if the Annuitant
has died, may choose at any time to withdraw the Contract and receive its
commuted value. Commuted value is the present value of remaining payments
commuted at 3 1/2% interest. However, if the annuitant elects the withdrawal,
the remaining payments are deemed to be the remaining payments that would have
been payable had the Surrender Value, rather than the Accumulation Value, been
applied at the Annuity Date. The determination of the commuted value upon
redemption by an Annuitant may be illustrated by the following hypothetical
example.
Assume an annuity period of 10 years or longer is elected. The number of
Annuity Units each payment is based on would be calculated using the
Accumulated Value. Assume this results in 267.5818 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 $321.10 a month for 60 months.
If the commuted value was requested by a beneficiary, the value would be
based on the present value at 3 1/2% interest of this stream of annuity
payments. The commuted value would be $17,725.49. However, if the commuted
value is requested by an Annuitant, the value is calculated as if the
Surrender Value, not the Accumulated Value, had been used to calculate the
number of Annuity units. Assume this results in 250 Annuity units. Based on
these assumptions, the dollar amount of remaining payments would be $300 a
month for 60 months. The present value at 3 1/2% of all remaining payments
would be $16,560.72.
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 materials information on
various topics of interest to Contract owners and prospective Contract
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
Contracts and the characteristics of and market for such financial
instruments.
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-Accounts asset charge and any applicable contingent deferred
sales charge which would be assessed upon complete redemption of the investment.
Total Return figures are calculated by standardized methods prescribed by
rules of the Securities and Exchange Commission. The quotations are computed
by finding the average annual compounded rates of return over the specified
periods that would equate the initial amount invested to the ending
redeemable values, according to the following formula:
n
P(1 + T) = ERV
-5-
<PAGE>
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 asset of
the Sub-Account. This charge is 1.40% on an annual basis. The calculation of
ending redeemable value assumes (1) the policy was issued at the beginning of
the period and (2) a complete surrender of the policy at the end of the period.
The deduction of the contingent deferred sales charge, if any, applicable at the
end of the period is included in the calculation, according to the following
schedule:
Years from date of Charge as Percentage of
Payment New Payments Withdrawn*
------------------ -----------------------
Less than 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 0%
Thereafter 0%
*Subject to the maximum limit described in the prospectus.
No contingent deferred sales charge is deducted upon expiration of the
periods specified above. In all calendar years, an amount equal to (a) 15% of
the Accumulated Value or (b) cumulative earnings (Accumulated Value less
total gross payments not previously withdrawn) is not subject to a contingent
deferred sales charge.
The calculations of Total Return effect the deduction of an 0.88 Annual
Contract Fee, representing a pro-rata portion of the $35 Annual Contract fee
based on a mean contract of $40,000.
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.
However, it is assumed 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
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
-6-
<PAGE>
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
policy is NOT withdrawn at the end of the specified period, and there is
therefore no adjustment for the contingent deferred sales charge that would be
applicable if the policy was withdrawn at the end of the period.
The calculations of Supplemental Total Return include the deduction of an
0.88 Annual Contract Fee, representing a pro-rata portion of the $35 Annual
Contract fee based on a mean contract size of $40,000.
YIELD AND EFFECTIVE YIELD - 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, 1995:
Yield 3.92%
Effective Yield 4.00%
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, subtracting
a charge reflecting the annual 1.40% deduction for mortality and expense risk
and the administrative charge, dividing the difference by the value of the
account at the beginning of the same period to obtain the base period return,
and then multiplying the return for a seven-day base period by (365/7), with the
resulting yield carried to the nearest hundredth of one percent.
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 do NOT reflect the $35 Annual
Contract fee.
TAX-DEFERRED ACCUMULATION
<TABLE>
<CAPTION>
NON-QUALIFIED CONVENTIONAL
ANNUITY CONTRACT SAVINGS PLAN
After-tax contributions
and tax-deferred earnings
---------------------------------
Taxable Lump After-tax contributions
No Withdrawals Sum Withdrawal and taxable earnings
-------------- -------------- -----------------------
<S> <C> <C> <C>
10 years. . . . . $107,946 $ 86,448 $ 81,693
20 years. . . . . 233,048 165,137 133,476
30 years. . . . . 503,133 335,021 218,082
</TABLE>
This chart compares the accumulation of a $50,000 initial investment into a
non-qualified annuity contract and a conventional savings plan. Contributions
to the non-qualified annuity contract and the conventional savings plan are
made after-tax. Only the gain in the non-qualified annuity contract will be
subject to income tax in a taxable lump sum withdrawal. The chart assumes a
37.1% federal marginal tax rate and an 8% annual return. The 37.1% federal
marginal tax is based on a marginal tax rate of 36%, representative of
the target market, adjusted to reflect a decrease of $3 of itemized
deductions for each $100 of income over $117,950. Tax rates are subject to
change as is the tax-deferred treatment of the Contracts. Income on
non-qualified annuity contracts is taxed as ordinary income upon withdrawal.
A 10% tax penalty may apply to early withdrawals. See "Federal Income Taxes"
in the prospectus.
The chart does not reflect the following charges and expenses under the
contract: 1.25% for mortality and expense risk; 0.15% administration charges;
7% maximum deferred withdrawal charge; and $35 annual records maintenance
charge. The tax-deferred accumulation would be reduced if these charges were
reflected. No implication is intended by the use of these assumptions that
the return shown is guaranteed in any way or that the return shown represents
an average or expected rate of return over the period of the Contracts.
[IMPORTANT - THIS IS NOT AN ILLUSTRATION OF YIELD OR RETURN.]
Unlike savings plans, contributions to non-qualified annuity contracts
provide tax-deferred treatment on earnings. In addition, contributions to
tax-deferred retirement annuities are not subject to current tax in the
year of contribution. When monies are received from a non-qualified annuity
contract (and you have many different options on how you receive your funds),
they are subject to income tax. At the time of receipt, if the person
receiving the monies is retired, not working or has additional tax
exemptions, these monies may be taxed at a lesser rate.
FINANCIAL STATEMENTS
Financial Statements are included for Allmerica Financial Life Insurance and
Annuity Company. Financial Statements for KG Variable Account are not
included as the Variable Account has not begun operations.
-7-
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
(formerly SMA Life Assurance Company)
STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
December 31, 1995
Statutory Financial Statements
Report of Independent Accountants . . . . . . . . . . . . . . . . . 1
Statement of Assets, Liabilities, Surplus and Other Funds . . . . . 3
Statement of Operations and Changes in Capital and Surplus. . . . . 4
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Statutory Financial Statements . . . . . . . . . . . . . . 6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company)
We have audited the accompanying statutory basis statement of assets,
liabilities, surplus and other funds of Allmerica Financial Life Insurance and
Annuity Company as of December 31, 1995 and 1994, and the related statutory
basis statements of operations and changes in capital and surplus, and of cash
flows for each of the three years ended December 31, 1995. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, which practices
differ from generally accepted accounting principles. The effects on the
financial statements of the variances between the statutory basis of accounting
and generally accepted accounting principles, although not reasonably
determinable, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Allmerica Financial Life Insurance and Annuity Company as of December 31,
1995 and 1994, or the results of its operations or its cash flows for each of
the three years ended December 31, 1995.
<PAGE>
To the Board of Directors and Stockholder of
Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company)
Page 2
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities, surplus and other funds of
Allmerica Financial Life Insurance and Annuity Company as of December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years ended December 31, 1995, on the basis of accounting described in
Note 1.
As discussed in Note 1 to the financial statements, the Company's parent, State
Mutual Life Assurance Company of America, converted from a Massachusetts mutual
life insurance company to a Massachusetts stock life insurance company on
October 16, 1995. In connection with this transaction, the Company changed its
name to Allmerica Financial Life Insurance and Annuity Company and its parent
became a wholly-owned subsidiary of Allmerica Financial Corporation.
/s/Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Boston, MA
February 5, 1996
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF ASSETS, LIABILITIES, SURPLUS AND
OTHER FUNDS
as of December 31,
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash $ 7,791 $ 7,248
Investments:
Bonds 1,659,575 1,595,275
Stocks 18,132 12,283
Mortgage loans 239,522 295,532
Policy loans 122,696 116,600
Real estate 40,967 51,288
Short term investments 3,500 45,239
Other invested assets 40,196 27,443
----------- -----------
Total cash and investments 2,132,379 2,150,908
Premiums deferred and uncollected (1,231) 5,452
Investment income due and accrued 38,413 39,442
Other assets 6,060 10,569
Assets held in separate accounts 2,978,409 1,869,695
----------- -----------
$ 5,154,030 $ 4,076,066
----------- -----------
----------- -----------
LIABILITIES, SURPLUS AND OTHER FUNDS
Liabilities:
Policy liabilities:
Life reserves $ 856,239 $ 890,880
Annuity and other fund reserves 865,216 928,325
Accident and health reserves 167,246 121,580
Claims payable 11,047 11,720
----------- -----------
Total policy liabilities 1,899,748 1,952,505
Expenses and taxes payable 20,824 17,484
Other liabilities 27,499 36,466
Asset valuation reserve 31,556 20,786
Obligations related to separate account business 2,967,547 1,859,502
----------- -----------
Total liabilities 4,947,174 3,886,743
----------- -----------
Surplus and Other Funds:
Common stock, $1,000 par value
Authorized - 10,000 shares
Issued and outstanding - 2,517 shares 2,517 2,517
Paid-in surplus 199,307 199,307
Unassigned surplus (deficit) 4,282 (13,621)
Special contingency reserves 750 1,120
----------- -----------
Total surplus and other funds 206,856 189,323
----------- -----------
$ 5,154,030 $ 4,076,066
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF OPERATIONS AND
CHANGES IN CAPITAL AND SURPLUS
for the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
REVENUE 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Premiums and other considerations:
Life $ 156,864 $ 195,633 $ 189,285
Annuities 729,222 707,172 660,143
Accident and health 31,790 31,927 35,718
Reinsurance commissions and reserve adjustments 20,198 4,195 2,309
---------- ---------- ----------
Total premiums and other considerations 938,074 938,927 887,455
Net investment income 167,470 170,430 177,612
Realized capital losses, net of tax (2,295) (17,172) (7,225)
Other revenue 37,466 26,065 19,055
---------- ---------- ----------
Total revenue 1,140,715 1,118,250 1,076,897
---------- ---------- ----------
POLICY BENEFITS AND OPERATING EXPENSES
Policy benefits:
Claims, surrenders and other benefits 391,254 331,418 275,290
Increase (decrease) in policy reserves (22,669) 40,113 15,292
---------- ---------- ----------
Total policy benefits 368,585 371,531 290,582
Operating and selling expenses 150,215 164,175 160,928
Taxes, except capital gains tax 26,536 22,846 19,066
Net transfers to separate accounts 556,856 553,295 586,539
---------- ---------- ----------
Total policy benefits and operating expenses 1,102,192 1,111,847 1,057,115
---------- ---------- ----------
NET INCOME 38,523 6,403 19,782
CAPITAL AND SURPLUS, BEGINNING OF YEAR 189,323 182,216 171,941
Unrealized capital gains (losses) on investments 8,279 12,170 (9,052)
Transfer from (to) asset valuation reserve (10,770) (9,822) 1,974
Other adjustments (18,499) (1,644) (2,429)
---------- ---------- ----------
CAPITAL AND SURPLUS, END OF YEAR $ 206,856 $ 189,323 $ 182,216
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF CASH FLOWS
for the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Premiums, deposits and other income $ 964,129 $ 962,147 $ 902,725
Allowances and reserve adjustments on
reinsurance ceded 20,693 3,279 22,185
Net investment income 170,949 173,294 182,843
Net increase in policy loans (6,096) (7,585) (7,812)
Benefits to policyholders and beneficiaries (393,472) (330,900) (298,612)
Operating and selling expenses and taxes (153,504) (193,796) (171,533)
Net transfers to separate accounts (608,480) (600,760) (634,021)
Federal income tax (excluding tax on capital gains) (6,771) (19,603) (4828)
Other sources (applications) (13,642) 19,868 7,757
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (26,194) 5,944 (1,296)
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Sales and maturities of long term investments:
Bonds 572,640 478,512 386,414
Stocks 481 63 64
Real estate and other invested assets 13,008 3,008 11,094
Repayment of mortgage principal 55,202 65,334 79,844
Capital gains tax (400) (968) (3,296)
Acquisition of long term investments:
Bonds (640,339) (508,603) (466,086)
Stocks (44) - -
Real estate and other invested assets (11,929) (24,544) (2,392)
Mortgage loans (415) (364) (2,266)
Other investing activities (3,206) 18,934 (27,254)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (15,002) 31,372 (23,878)
---------- ---------- ----------
Net change in cash and short term investments (41,196) 37,316 (25,174)
CASH AND SHORT TERM INVESTMENTS
Beginning of the year 52,487 15,171 40,345
---------- ---------- ----------
End of the year $ 11,291 $ 52,487 $ 15,171
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTES TO STATUTORY FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION - Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Financial" or the "Company", formerly SMA Life
Assurance Company) is a wholly owned subsidiary of SMA Financial Corp., which is
wholly owned by First Allmerica Financial Life Insurance Company ("First
Allmerica", formerly, State Mutual Life Assurance Company of America), a stock
life insurance company. On October 16, 1995, First Allmerica converted from a
mutual life insurance company to a stock life insurance company. Concurrent
with this transaction, First Allmerica became a wholly owned subsidiary of
Allmerica Financial Corporation ("AFC").
The stockholder's equity of the Company is being maintained at a minimum level
of 5% of general account assets by First Allmerica in accordance with a policy
established by vote of First Allmerica's Board of Directors.
The Company's financial statements have been prepared on the basis of accounting
practices prescribed or permitted by the Insurance Department of the State of
Delaware and in conformity with practices prescribed by the National Association
of Insurance Commissioners (NAIC), which while common in the industry, vary in
some respects from generally accepted accounting principles. Significant
differences include:
- Bonds considered to be "available-for-sale" or "trading" are not
carried at fair value and changes in fair value are not recognized
through surplus or the statement of operations, respectively;
- The Asset Valuation Reserve, represents a reserve against possible
losses on investments and is recorded as a liability through a charge
to surplus. The Interest Maintenance Reserve is designed to include
deferred realized gains and losses (net of applicable federal income
taxes) due to interest rate changes and is also recorded as a
liability, however, the deferred net realized investment gains and
losses are amortized into future income generally over the original
period to maturity of the assets sold. These liabilities are not
required under generally accepted accounting principles;
- Total premiums, deposits and benefits on certain investment-type
contracts are reflected in the statement of operations, instead of
using the deposit method of accounting;
- Policy acquisition costs, such as commissions, premium taxes and other
items, are not deferred and amortized in relation to the revenue/gross
profit streams from the related contracts;
- Benefit reserves are determined using statutorily prescribed interest,
morbidity and mortality assumptions instead of using more realistic
expense, interest, morbidity, mortality and voluntary withdrawal
assumptions with provision made for adverse deviation;
- Amounts recoverable from reinsurers for unpaid losses are not recorded
as assets, but as offsets against the respective liabilities;
- Deferred federal income taxes are not provided for temporary
differences between amounts reported in the financial statements and
those included in the tax returns;
- Certain adjustments related to prior years are recorded as direct
charges or credits to surplus;
- Certain assets, designated as "non-admitted" assets (principally
agents' balances), are not recorded as assets, but are charged to
surplus; and,
- Costs related to other postretirement benefits are recognized only for
employees that are fully vested.
6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The preparation of financial statements in accordance with practices prescribed
or permitted by the Insurance Department of the State of Delaware and in
conformity with practices prescribed by the NAIC 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.
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.
VALUATION OF INVESTMENTS - Investments in bonds are carried principally at
amortized cost, in accordance with NAIC guidelines. Preferred stocks are
carried generally at cost and common stocks are carried at market value. Policy
loans are carried principally at unpaid principal balances.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts. Mortgage loans are reduced for losses expected by
management to be realized on transfers of mortgage loans to real estate (upon
foreclosure), on the disposition or settlement of mortgage loans and on mortgage
loans which management believes may not be collectible in full. In determining
the amount of the loss, management considers, among other things, the estimated
fair value of the underlying collateral. Investment real estate and real estate
acquired through foreclosure are carried at the lower of depreciated cost or
market value. Depreciation is generally calculated using the straight-line
method.
An asset valuation reserve (AVR) for bonds, mortgage loans, stocks, real estate,
and other invested assets is maintained by appropriations from surplus in
accordance with a formula specified by the NAIC and is classified as a
liability.
FINANCIAL INSTRUMENTS - In the normal course of business, the Company enters
into transactions involving various types of financial instruments including
investments such as bonds, stocks and mortgage loans and investment and loan
commitments. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuations. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
RECOGNITION OF PREMIUM INCOME AND ACQUISITION COSTS - In general, premiums are
recognized as revenue over the premium paying period of the policies;
commissions and other costs of acquiring the policies are charged to operations
when incurred.
SEPARATE ACCOUNTS - Separate account assets and liabilities represent segregated
funds administered and invested by the Company for the benefit of certain
variable annuity and variable life contract holders. 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 contract holders 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 capital and surplus.
INSURANCE RESERVES AND ANNUITY AND OTHER FUND RESERVES - Reserves for life
insurance, annuities, and accident and health insurance are established in
amounts adequate to meet the estimated future obligations of policies in
force. These liabilities are computed based upon mortality, morbidity and
interest rate assumptions applicable to these coverages, including provision
for adverse deviation. Reserves are computed using interest rates ranging
from 3% to 6% for individual life insurance policies, 3% to 5 1/2% for
accident and health policies and 3 1/2% to 9 1/2% for annuity contracts.
Mortality, morbidity and withdrawal assumptions for all policies are based on
the Company's own experience and industry standards. The assumptions vary by
plan, age at issue, year of issue and duration. Claims reserves are computed
based on historical experience modified for expected trends in frequency and
severity. Withdrawal characteristics of annuity and other fund reserves vary
by contract. At December 31, 1995 and 1994, approximately 84% and 77%,
respectively, of the contracts (included in both the general account and
separate accounts of the Company) were not subject to discretionary
withdrawal or were subject to withdrawal at book value less surrender charge.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, management
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
FEDERAL INCOME TAXES - AFC, its life insurance subsidiaries, First Allmerica and
Allmerica Financial and its non-insurance domestic subsidiaries file a
life-nonlife 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 taxable operating losses that can be applied to offset life
company taxable income. Allmerica P&C and its subsidiaries file a separate
United States Federal income tax return.
The federal income tax allocation policies and procedures 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.
CAPITAL GAINS AND LOSSES - Realized capital gains and losses, net of applicable
capital gains tax or benefit, exclusive of those transferred to the interest
maintenance reserve ("IMR"), are included in the statement of operations.
Unrealized capital gains and losses are reflected as direct credits or charges
to capital and surplus. The IMR, which is included in other liabilities,
establishes a reserve for realized gains and losses, net of tax, resulting from
changes in interest rates on short and long term fixed income investments. Net
realized gains and losses charged to the IMR are amortized into net investment
income over the remaining life of the investment sold. The Company uses the
seriatim method of amortization for interest related gains and losses arising
from the sale of mortgages, and uses the group method to amortize interest
related gains and losses arising from all other fixed income investments.
NOTE 2 - INVESTMENTS
BONDS - The carrying value and fair value of investments in bonds are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
<S> <C> <C> <C> <C>
Federal government bonds $ 67,039 $ 3,063 $ - $ 70,102
State, local and government agency bonds 13,607 2,290 23 15,874
Foreign government bonds 12,121 772 249 12,644
Corporate securities 1,471,422 55,836 6,275 1,520,983
Mortgage-backed securities 95,385 951 - 96,336
---------- ---------- ---------- ----------
Total $1,659,574 $ 62,912 $ 6,457 $1,715,939
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
December 31, 1995
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
Federal government bonds $ 17,651 $ 8 $ 762 $ 16,897
State, local and government agency bonds 1,110 54 - 1,164
Foreign government bonds 31,863 83 3,735 28,211
Corporate securities 1,462,871 8,145 56,011 1,415,005
Mortgage-backed securities 81,780 268 1,737 80,311
---------- ---------- ---------- ----------
Total $1,595,275 $ 8,558 $ 62,245 $1,541,588
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The carrying value and fair value by contractual maturity at December 31, 1995,
are shown below. Actual maturities will 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 obligation back to the issuer. Mortgage-backed securities are
classified based on expected maturities.
<TABLE>
<CAPTION>
Carrying Fair
(In thousands) Value Value
----- -----
<S> <C> <C>
Due in one year or less $ 250,578 $ 258,436
Due after one year through five years 736,003 763,179
Due after five years through ten years 538,897 558,445
Due after ten years 134,097 135,880
---------- ----------
Total $1,659,575 $1,715,940
---------- ----------
---------- ----------
</TABLE>
MORTGAGE LOANS AND REAL ESTATE - Mortgage loans and real estate investments, 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 are generally no more than 75% of the property value
at the time the original loan is made. At December 31, 1995 and 1994, mortgage
loan and real estate investments were distributed by the following types and
geographic regions:
<TABLE>
<CAPTION>
(In thousands)
Property Type 1995 1994
- ------------- ---- ----
<S> <C> <C>
Office buildings $ 127,149 $ 140,292
Residential 59,934 57,061
Retail 29,578 72,787
Industrial/Warehouse 38,192 39,424
Other 25,636 37,256
----------- -----------
Total $ 280,489 $ 346,820
----------- -----------
----------- -----------
Geographic Region 1995 1994
- ----------------- ---- ----
South Atlantic $ 86,410 $ 92,934
East North Central 55,991 72,704
Middle Atlantic 38,666 48,688
Pacific 32,803 39,892
West North Central 21,486 27,377
Mountain 9,939 12,211
New England 24,886 26,613
East South Central 5,487 6,224
West South Central 4,821 20,177
---------- ----------
Total $ 280,489 $ 346,820
---------- ----------
---------- ----------
</TABLE>
Reserves for mortgage loans and real estate reflected in the above amounts were
$18.9 million and $21.0 million at December 31, 1995 and 1994, respectively.
9
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NET INVESTMENT INCOME - The components of net investment income for the year
ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Bonds $ 122,318 $ 123,495 $ 126,729
Stocks 1,653 1,799 953
Mortgage loans 26,356 31,945 40,823
Real estate 9,139 8,425 9,493
Policy loans 9,486 8,797 8,215
Other investments 3,951 1,651 674
Short term investments 2,252 1,378 840
---------- ---------- ----------
175,155 177,490 187,727
Less investment expenses 9,703 9,138 11,026
---------- ---------- ----------
Net investment income, before IMR amortization 165,452 168,352 176,701
IMR amortization 2,018 2,078 911
---------- ---------- ----------
Net investment income $ 167,470 $ 170,430 $ 177,612
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES - Realized capital gains (losses) on
investments for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Bonds $ 727 $ 645 $ 10,133
Stocks (263) (62) 16
Mortgage loans (1,083) (17,142) (83)
Real estate (1,892) 605 (2,044)
--------- --------- ---------
(2,511) (15,954) 8,022
Less income tax 400 968 3,296
--------- --------- ---------
Net realized capital gains (losses) before transfer to IMR (2,911) (16,922) 4,726
Net realized capital gains transferred to IMR 616 (250) (11,951)
--------- --------- ---------
Net realized capital gains (losses) $ (2,295) $(17,172) $ (7,225)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Proceeds from voluntary sales of investments in bonds during 1995, 1994 and 1993
were $22.4 million, $17.9 million, and $13.2 million, respectively. Gross gains
of $4.3 million, $3.0 million, and $4.5 million and gross losses of $5.2
million, $4.6 million, and $ .5 million, respectively, were realized on those
sales.
NOTE 3 - FAIR VALUE DISCLOSURES OF FINANCIAL INFORMATION
Statement of Financial Accounting Standards 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 recognized 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.
10
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
FINANCIAL ASSETS:
CASH AND SHORT TERM INVESTMENTS - The carrying amounts reported in the statement
of assets, liabilities, surplus and other funds approximate fair value.
BONDS - 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.
STOCKS - 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 statement of assets,
liabilities, surplus and other funds approximates fair value since policy loans
have no defined maturity dates and are inseparable from the insurance contracts.
FINANCIAL LIABILITIES:
ANNUITY AND OTHER FUND RESERVES (WITHOUT MORTALITY/MORBIDITY FEATURES) - Fair
values for the Company's liabilities under individual annuity contracts are
estimated based on current surrender values.
The estimated fair values of the financial instruments as of December 31 were as
follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 7,791 $ 7,791 $ 7,248 $ 7,248
Short term investments 3,500 3,500 45,239 45,239
Bonds 1,659,575 1,715,940 1,595,275 1,541,588
Stocks 18,132 18,414 12,283 12,590
Mortgage loans 239,522 250,196 295,532 291,704
Policy loans 122,696 122,696 116,600 116,600
Financial Liabilities:
Individual annuity contracts 803,099 797,024 869,230 862,662
Supplemental contracts without life
contingencies 16,796 16,796 16,673 16,673
Other contract deposit funds 632 632 1,105 1,105
</TABLE>
11
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTE 4 - FEDERAL INCOME TAXES
The federal income tax provisions for 1995, 1994 and 1993 were $17.4 million,
$13.1 million and $8.6 million, respectively, which include taxes applicable to
realized capital gains of $.4 million, $1.0 million and $3.3 million.
The effective federal income tax rates were 27%, 67% and 30% in 1995, 1994 and
1993, respectively. The differences between the federal statutory rate and the
Company's effective tax rates are primarily related to decreases in taxable
income for the write-offs of mortgage loans; and increases in taxable income for
differences in policyholder liabilities for federal income tax purposes and
financial reporting purposes and the deferral of policy acquisition costs for
federal tax purposes.
The consolidated federal income tax returns are routinely audited by the
Internal Revenue Service (IRS) and provisions are routinely made in the
financial statements in anticipation of the results of these audits. The IRS
has completed its examination of all of the consolidated federal income tax
returns through 1988. In management's opinion, adequate tax liabilities have
been established for all years. However, the amount of these liabilities could
be revised in the near term if estimates of the Company's ultimate liability are
revised.
NOTE 5 - REINSURANCE
The Company participates in reinsurance to reduce overall risks, including
exposure to large losses and to permit recovery of a portion of direct losses.
Reinsurance contracts do not relieve the Company from its obligation to its
policyholders. Reinsurance financial data for the years ended December 31, is
as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Reinsurance premiums assumed $ 3,442 $ 3,788 $ 4,190
Reinsurance premiums ceded
42,914 17,430 14,798
Deduction from insurance
liability including
reinsurance recoverable on
unpaid claims 82,227 46,734 42,805
</TABLE>
Individual life premiums ceded to First Allmerica aggregated $6.8 million, $7.8
million and $9.0 million in 1995, 1994 and 1993, respectively. The Company has
also entered into various reinsurance agreements with First Allmerica under
which certain insurance risks related to individual accident and health
business, premium income and related expenses are assumed by the Company from
First Allmerica. Premiums assumed pursuant to these agreements aggregated $3.4
million, $3.8 million and $4.2 million in 1995, 1994 and 1993, respectively .
During the year Allmerica Financial entered into a coinsurance agreement to
reinsure substantially all of its yearly renewable term life insurance.
Premiums ceded and reinsurance credits taken under this agreement amounted to
$25.4 million and $20.7 million, respectively. At December 31, 1995, the
deduction from insurance liability, including reinsurance recoverable on unpaid
claims under this agreement was $12.7 million.
NOTE 6 - ACCIDENT AND HEALTH POLICY AND CLAIM LIABILITIES
The Company regularly updates its estimates of policy and claims liabilities as
new information becomes available and further events occur which may impact the
resolution of unsettled claims for its accident and health line of business.
Changes in prior estimates are generally reflected in results of operations in
the year such changes are determined to be needed and recorded.
The policy and claims liabilities related to the Company's accident and health
business were $169.7 million and $123.5 million at December 31, 1995 and 1994,
respectively. Accident and health policy and claims liabilities have been
re-estimated for all prior years and were increased by $42.5 million, $10.9
million and $13.2 million, in 1995, 1994 and 1993, respectively, including $21.9
million and $2.8 million recorded as an adjustment to surplus in 1995 and 1993,
respectively. The unfavorable development is primarily due to reserve
strengthening and adverse experience in the Company's individual accident and
health line of business.
12
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTE 7 - DIVIDEND RESTRICTIONS
Delaware has enacted laws governing the payment of dividends to stockholders by
insurers. These laws affect the dividend paying ability of the Company.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its 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 (not including realized capital gains) for the preceding calendar year
(if such insurer is not a life company). Any dividends to be paid by an
insurer, whether or not in excess of the aforementioned threshold, from a source
other than statutory earned surplus would also require the prior approval of the
Delaware Commissioner of Insurance. At January 1, 1996, the Company could pay
dividends of $4.3 million to First Allmerica, without prior approval.
NOTE 8 - OTHER RELATED PARTY TRANSACTIONS
First Allmerica provides management, operating personnel and facilities on a
cost reimbursement basis to the Company. Expenses for services received from
First Allmerica were $ 85.8 million, $102.5 million and $98.9 million in 1995,
1994 and 1993, respectively. The net amounts payable to First Allmerica and
affiliates for accrued expenses and various other liabilities and receivables
were $12.6 million and $8.3 million at December 31, 1995 and 1994, respectively.
NOTE 9 - FUNDS ON DEPOSIT
In March 1994, the Company voluntarily withdrew from being licensed in New York.
In connection with the withdrawal First Allmerica, which is licensed in New
York, became qualified to sell the products previously sold by Allmerica
Financial in New York. The Company 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 the Company for New York
policyholders, claimants and creditors. As of December 31, 1995, the carrying
value and fair value of the assets or deposit was $295.0 million and $303.6
million, respectively, which is in excess of the required amount.
Additional securities with a carrying value of $4.2 million and $3.9 million
were on deposit with various other state and governmental authorities as of
December 31, 1995 and 1994, respectively.
NOTE 10 - LITIGATION
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the opinion of management, based on the
advice of legal counsel, the ultimate resolution of these proceedings will not
have a material effect on the Company's financial statements.
13
<PAGE>
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
FINANCIAL STATEMENTS INCLUDED IN PART A
None
FINANCIAL STATEMENTS INCLUDED IN PART B
Financial Statements for Allmerica Financial Life Insurance and Annuity
Company
FINANCIAL STATEMENTS INCLUDED IN PART C
None
(b) EXHIBITS
Exhibit 1 - Vote of Board of Directors Authorizing Establishment of
Registrant dated June 13, 1996.
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) Proposed Form of Wholesaling Agreement is filed herewith
(b) Form of Sales Agreement is filed herewith
(c) Broker's Agreement and Specimen Schedule of Sales
Commissions for Variable Annuity Policies were previously
filed on November 3, 1994 in Registration Statement
No. 33-85916, and are incorporated by reference herein.
Exhibit 4 - Policy Form is filed herewith.
Exhibit 5 - Application Form is filed herewith.
Exhibit 6 - The Depositor's Articles of Incorporation, as amended effective
October 1, 1995 to reflect its new name, and Bylaws are filed
herewith
Exhibit 7 - Not Applicable.
Exhibit 8 - None
Exhibit 9 - Consent and Opinion of Counsel is filed herewith
Exhibit 10 - Consent of Independent Accountants is filed herewith
Exhibit 11 - None.
Exhibit 12 - None.
Exhibit 13 - Performance Calculations are filed herewith.
Exhibit 15- Form of Participation Agreement is filed herewith.
<PAGE>
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR.
The principal business address of all the following Directors and
Officers is:
440 Lincoln Street
Worcester, Massachusetts 01653
<TABLE>
<CAPTION>
Name and Position Principal Occupation
----------------- --------------------
<S> <C>
Barry Z. Aframe Vice President and Counsel, First Allmerica
Vice President and Counsel Financial Life Insurance Company
Abigail M. Armstrong Secretary and Counsel, First Allmerica Financial
Secretary and Counsel Life Insurance Company
Richard J. Baker Vice President and Assistant Secretary,
Vice President First Allmerica Financial Life Insurance Company
Whitworth F. Bird, Jr., M.D. Vice President and Medical Director, First
Vice President and Allmerica Financial Life Insurance Company
Medical Director
Alan R. Boyer Vice President, First Allmerica Financial
Vice President Life Insurance Company
Mark R. Colborn Vice President and Controller, First Allmerica
Vice President and Controller Financial Life Insurance Company
Lisa M. Coleman Vice President, First Allmerica Financial Life
Vice President Insurance Company
Dix F. Davis Vice President, First Allmerica Financial Life
Vice President Insurance Company
Bruce A. Emond Vice President, First Allmerica Financial Life
Vice President Insurance Company
Kruno Huitzingh Director, Vice President and Chief Information Officer,
Director, Vice President and First Allmerica Financial Life Insurance Company
Chief Information Officer
John P. Kavanaugh Vice President, First Allmerica Financial Life Insurance
Director and Vice President Company
John F. Kelly Senior Vice President, General Counsel and Director,
Director First Allmerica Financial Life Insurance Company
Joseph W. MacDougall, Jr. Vice President, Associate General Counsel, and
Vice President, Associate Assistant Secretary, First Allmerica Financial Life Insurance
General Counsel Company
and Assistant Secretary
James R. McAuliffe Director and President, Citizens Insurance Company
Director of America
<PAGE>
Roderick A. McGarry, II Vice President, First Allmerica Financial Life
Vice President Insurance Company
John W. Nunley Vice President, First Allmerica Financial Life
Vice President Insurance Company
John F. O'Brien Director, President and Chief Executive Officer,
Director and Chairman of First Allmerica Financial Life Insurance Company
the Board
Edward J. Parry, III Vice President and Treasurer, First Allmerica Financial
Vice President and Treasurer Life Insurance Company
Richard M. Reilly Director and Vice President, First Allmerica Financial
Director, President and CEO Life Insurance Company
Eric A. Simonsen Director, Vice President and Chief Financial Officer,
Director, Vice President and First Allmerica Financial Life Insurance Company
Chief Financial Officer
Ann K. Tripp Vice President, First Allmerica Financial Life Insurance
Vice President Company
Jerome F. Weihs Vice President, First Allmerica Financial Life Insurance
Vice President Company
</TABLE>
Item 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT. See attached
organization chart.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
<TABLE>
<CAPTION>
NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
Allmerica Asset Management, Inc. 440 Lincoln Street Investment advisory
Worcester MA 01653 services
Allmerica Employees Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Financial Life Insurance 440 Lincoln Street Life insurance, accident
and Annuity Company Worcester MA 01653 & health insurance,
annuities, variable
annuities and variable
life insurance
Allmerica Financial Services 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester, MA 01653
Allmerica Funds 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Institutional Services, Inc. 440 Lincoln Street Accounting, marketing
Worcester MA 01653 and shareholder
<PAGE>
services for investment
companies
Allmerica Investment Services, Inc. 440 Lincoln Street Holding Company
(formerly Allmerica Financial Worcester, MA 01653
Services, Inc.)
Allmerica Investment Management 440 Lincoln Street Investment Advisory
Company, Inc. Worcester MA 01653 Services
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-
Worcester MA 01653 dealer
Allmerica Investment Trust 440 Lincoln Street Investment Company
(formerly SMA Investment Trust) Worcester MA 01653
Allmerica Property and Casualty 440 Lincoln Street Holding Company
Companies, Inc. Worcester MA 01653
Allmerica Realty Advisors, Inc. 440 Lincoln Street Investment Advisory
Worcester MA 01653 services
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services, Inc. 440 Lincoln Street Service Company
Worcester MA 01653
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national
Worcester MA 01653 trust company
AMGRO, Inc. 472 Lincoln Street Premium financing
Worcester MA 01653
APC Funding Corp. 440 Lincoln Street Special purpose funding
Worcester MA 01653 vehicle for commercial
paper
Beltsville Drive Limited 440 Lincoln Street Real estate partnership
Partnership Worcester MA 01653
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company of America 645 West Grand River Multi-line fire &
Howell MI 48843 casualty insurance
Citizens Insurance Company of Ohio 645 West Grand River Multi-line fire &
Howell MI 48843 casualty insurance
Citizens Management, Inc. 645 West Grand River Services management
Howell MI 48843 company
Greendale Special Placements Fund 440 Lincoln Street Massachusetts Grantor
Worcester MA 01653 Trust
The Hanover American Insurance 100 North Parkway Multi-line fire &
Company Worcester MA 01653 casualty insurance
The Hanover Insurance Company 100 North Parkway Multi-line fire &
Worcester MA 01605 casualty insurance
Hanover Texas Insurance 801 East Campbell Road Incorporated Branch
Management Company, Inc. Richardson TX 75081 Office of The Hanover
Insurance Company
Hanover Lloyd's Insurance Company 801 East Campbell Road Multi-line fire &
Richardson TX 75081 casualty insurance
<PAGE>
Hollywood Center, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Linder Skokie Real Estate 440 Lincoln Street General business
Corporation Worcester MA 01653 corporation
Lloyds Credit Corporation 440 Lincoln Street Premium financing
Worcester MA 01653 service franchises
Logan Wells Water Company, Inc. 603 Heron Drive Water Company, serving
Bridgeport NJ 08014 land development
investment
Massachusetts Bay Insurance 100 North Parkway Multi-line fire &
Company Worcester MA 01653 casualty
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Somerset Square, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Sterling Risk Management Services, Inc. 100 North Parkway Risk management
Worcester MA 01605 services
</TABLE>
Item 27. NUMBER OF CONTRACT OWNERS.
The Variable Account has no Policyholders because operations have not
yet begun.
Item 28. INDEMNIFICATION.
Article VIII of the Bylaws of the Depositor state: Each Director and each
Officer of the Corporation, whether or not in office, (and his executors or
administrators), shall be indemnified or reimbursed by the Corporation against
all expenses actually and necessarily incurred by him in the defense or
reasonable settlement of any action, suit, or proceeding in which he is made a
party by reason of his being or having been a Director or Officer of the
Corporation, including any sums paid in settlement or to discharge judgement,
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, Group Vel, Separate Accounts VA-A, VA-B,
VA-C, VA-G, VA-H, VA-K, VA-P, Allmerica Select Separate Account and
Inheiritage Account of Allmerica Financial Life Insurance and Annuity
Company
- Separate Accounts I, VA-K, VA-P, VEL II Account, Inheiritage 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
Name Position or Office with Underwriter
---- -----------------------------------
Emil J. Aberizk Vice President
Abigail M. Armstrong Secretary and Counsel
Phillip J. Coffey Vice President
Thomas J. Cunningham Vice President, Chief Financial Officer
and Controller
<PAGE>
John F. Kelly Director
William F. Monroe, Jr. Vice President
David J. Mueller Vice President
John F. O'Brien Director
Stephen Parker President, Director and Chief
Executive Officer
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric a. Simonsen Director
Mark Steinberg Senior Vice President
Item 30. LOCATION OF ACCOUNTS AND RECORDS.
Each account, book or other document required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are
maintained by the Company at 440 Lincoln Street, Worcester, Massachusetts or on
behalf of the Company by The First Data Investor Services, Inc. at 4400 Computer
Drive, Westboro, Massachusetts 01581.
Item 31. MANAGEMENT SERVICES.
The Company provides daily unit value calculations and related services for
the Company's separate accounts.
Item 32. UNDERTAKINGS.
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
(b) The registrant hereby undertakes to include in the prospectus a postcard
that the applicant can remove to send for a Statement of Additional Information.
(c) The registrant hereby undertakes to deliver a Statement of Additional
Information promptly upon written or oral request, according to the requirements
of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act may be
permitted to Directors, Officers and Controlling Persons of Registrant under any
registration statement, underwriting agreement or otherwise, Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a Director, Officer or Controlling Person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, Officer or Controlling Person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Item 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(b)
PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM.
Registrant, a separate account of Allmerica Financial Life Insurance and Annuity
Company ("Company"), states that it is (a) relying on Rule 6c-7 under the 1940
Act with respect to withdrawal restrictions under the Texas Optional Retirement
Program ("Program") and (b) relying on the "no-action" letter (Ref. No. IP-6-88)
issued on November 28, 1988 to the American Council of Life Insurance, in
applying the withdrawal restrictions of Internal Revenue Code Section
403(b)(11). Registrant has taken the following steps in reliance on the letter:
1. Appropriate disclosures regarding the redemption 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
<PAGE>
Company's variable contracts.
2. Appropriate disclosures regarding the redemption restrictions imposed by
the Program and by Section 403(b)(11) have been included in sales
literature used in connection with the offer of the Company's variable
contracts.
3. Sales Representatives who solicit participants to purchase the variable
contracts have been instructed to specifically bring the redemption
restrictions imposed by the Program and by Section 403(b)(11) to the
attention of potential participants.
4. A signed statement acknowledging the participant's understanding of (I) the
restrictions on redemption imposed by the Program and by Section 403(b)(11)
and (ii) the investment alternatives available under the employer's
arrangement will be obtained from each participant who purchases a variable
annuity contract prior to or at the time of purchase.
Registrant hereby represents that it will not act to deny or limit a transfer
request except to the extent that a Service-Ruling or written opinion of
counsel, specifically addressing the fact pattern involved and taking into
account the terms of the applicable employer plan, determines that denial or
limitation is necessary for the variable annuity contracts to meet the
requirements of the Program or of Section 403(b). Any transfer request not so
denied or limited will be effected as expeditiously as possible.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Initial Registration
Statement to be signed by the undersigned, in the City of Worcester, and
Commonwealth of Massachusetts, on the 9 day of August, 1996.
SEPARATE ACCOUNT KG OF
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
------------------------------
Richard M. Reilly, President
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ John F. O'Brien Director and Chairman
John F. O'Brien of the Board
/s/ Bruce C. Anderson Director
Bruce C. Anderson
/s/ Kruno Huitzingh Director, Vice President and August 9, 1996
Kruno Huitzingh Chief Information Officer
/s/ John P. Kavanaugh Director and
John P. Kavanaugh Vice President
/s/ John F. Kelly Director
John F. Kelly
/s/ James R. McAuliffe Director
James R. McAuliffe
/s/ Edward J. Parry III Vice President and Treasurer
Edward J. Parry III (Chief Accounting Officer)
/s/ Richard M. Reilly Director, President and Chief
Richard M. Reilly Executive Officer
/s/ Larry C. Renfro Director
Larry C. Renfro
/s/ Theodore J. Rupley Director
Theodore J. Rupley
/s/ Eric A. Simonsen Director, Vice President and Chief
Eric A. Simonsen Financial Officer
/s/ Phillip E. Soule Director
Phillip E. Soule
<PAGE>
EXHIBIT TABLE
Exhibit 1 - Vote of Board of Directors Authorizing Establishment of
Registrant dated June 13, 1996.
Exhibit 3 - (a) Proposed Form of Wholesaling Agreement
(b) Form of Sales Agreement
Exhibit 4 - Policy Form.
Exhibit 5 - Application Form.
Exhibit 6 - The Depositor's Articles of Incorporation, as amended effective
October 1, 1995 to reflect its new name, and Bylaws.
Exhibit 9 - Consent and Opinion of Counsel.
Exhibit 10 - Consent of Independent Accountants
Exhibit 13 - Performance Calculations
Exhibit 15 - Participation Agreement
<PAGE>
First Allmerica Financial Life Insurance Company
I, Abigail M. Armstrong, Secretary and Counsel of First Allmerica Financial Life
Insurance Company ("Company"), do hereby certify and attest that the following
is a true copy of a vote of the Board of Directors of the Company on June 13,
1996, that said vote has not been amended or repealed and is in full force and
effect as of the date hereof.
Whereas, the Company may from time-to-time desire to issue variable annuity
contracts, variable life contracts, or other contracts ("Contracts"), which may
provide, among other things, that benefits or contractual payments shall vary,
in whole or in part, so as to reflect the investment results of a separate
account or accounts, or that benefits funded by a separate account shall be
payable in fixed amounts and the Contract values shall be guaranteed by the
Company as to principal amount, or that the performance of the separate account
shall be guaranteed as to principal and a stated rate of interest;
Now, therefore, it is voted:
That pursuant to the provisions of Section 132F and Section 132G of Chapter 175
of the Massachusetts General Laws, the appropriate officers of the Company are
hereby authorized to establish from time-to-time and to maintain one or more
separate accounts (collectively, "Separate Accounts") independent and apart from
the Company's general investment account for the purpose of providing for the
issuance by the Company of such Contracts as may be determined from time-to-
time;
That separate investment divisions ("Sub-Accounts") may be established within
each Separate Account to which net payments may be allocated in accordance with
the terms of the relevant Contracts, and that the appropriate officers of the
Company be and hereby are authorized to increase or decrease the number of Sub-
Accounts in a Separate Account, as may be deemed necessary or appropriate from
time-to-time;
That in accordance with the terms of the relevant Contracts, the portion of the
assets of each such Separate Account equal to the separate account reserves and
other contract liabilities shall not be chargeable with liabilities arising out
of any other business the Company may conduct;
That the income and gains and losses, whether or not realized, from assets
allocated to a Separate Account shall be credited to or charged against such
Separate Account without regard to other income, gains or losses of the Company
or any other Separate Account, and that the income and gains and losses, whether
or not realized, from assets allocated to each Sub-Account of a Separate Account
shall be credited to or charged against such Sub-Account without regard to other
income, gains or losses of the Company, any other Sub-Account or any other
Separate Account;
That the appropriate officers of the Company are authorized to determine
investment objectives and appropriate underwriting criteria, investment
management policies and other requirements necessary or desirable for the
operation and management of each of the Company's Separate Accounts and Sub-
Accounts thereof; provided, however, that if a Separate Account is registered
with the Securities and Exchange Commission as a unit investment trust, each
such Sub-Account thereof shall invest only in the shares of a single investment
company or a single series or portfolio of an investment company organized as a
series fund pursuant to the Investment Company Act of 1940;
That the appropriate officers of the Company be and they hereby are authorized
to deposit such amounts in a Separate Account and the Sub-Accounts thereof as
may be necessary or appropriate to facilitate the commencement of operations;
That the appropriate officers of the Company be and they hereby are authorized
to transfer funds from time-to-time between the Company's general account and
the Separate Accounts as deemed necessary or
<PAGE>
appropriate and consistent with the terms of the relevant Contracts;
That the appropriate officers of the Company be and they hereby are authorized
to change the name or designation of a Separate Account and Sub-Accounts thereof
to such other names or designations as they may deem necessary or appropriate;
That the appropriate officers of the Company, with such assistance from the
Company's auditors, legal counsel and independent consultants, or others as they
may require, are hereby severally authorized to take all appropriate action, if
in their discretion deemed necessary, to: (a) register the Separate Accounts
under the Investment Company Act of 1940, as amended; (b) register the relevant
Contracts in such amounts, which may be an indefinite amount, as the appropriate
officers of the Company shall from time-to-time deem appropriate under the
Securities Act of 1933; (c) to claim exemptions from registration of a Separate
Accounts and/or the relevant Contracts, if appropriate; and (d) take all other
actions which are necessary in connection with the offering of the Contracts for
sale and the operation of the Separate Accounts in order to comply with the
Investment Company Act of 1940, the Securities Exchange Act of 1934, the
Securities Act of 1933, and other applicable federal laws, including the filing
of any amendments to registration statements, any undertakings, any applications
for exemptions from the Investment Company Act of 1940 or other applicable
federal laws, and the filing of any documents necessary to claim or to maintain
such exemptions, as the appropriate officers of the Company shall deem necessary
or appropriate;
That the Secretary and Counsel is hereby appointed as agent for service under
any such registration statement and is duly authorized to receive communications
and notices from the Securities and Exchange Commission with respect thereto and
to exercise the powers given to such agent in the rules and regulations of the
Securities and Exchange Commission under the Securities Act of 1933, the
Securities Exchange Act of 1934, or the Investment Company Act of 1940;
That the appropriate officers of the Company are hereby authorized to establish
procedures under which the Company will institute procedures for providing
voting rights for owners of such Contracts with respect to securities owned by
the Separate Accounts;
That the appropriate officers of the Company are hereby authorized to execute
such agreement or agreements as deemed necessary and appropriate (i) with
Allmerica Investments, Inc., or other qualified entity under which Allmerica
Investments, Inc., or other such entity, will be appointed principal underwriter
and distributor for the Contracts, (ii) with one or more qualified banks or
other qualified entities to provide administrative and/or custodial services in
connection with the establishment and maintenance of the Separate Accounts and
the design, issuance and administration of the Contracts;
That, since it is anticipated that the Separate Accounts will invest in
securities, the appropriate officers of the Company are hereby authorized to
execute such agreement or agreements as may be necessary or appropriate to
enable such investments to be made;
That the appropriate officers of the Company, and each of them, are hereby
authorized to execute and deliver all such documents and papers and to do or
cause to be done all such acts and things as they may deem necessary or
desirable to carry out the foregoing votes and the intent and purposes thereof.
* * *
Attested to this 13th day of June, 1996.
/s/ Abigail M. Armstrong
------------------------------
Abigail M. Armstrong
<PAGE>
FORM OF
WHOLESALING AGREEMENT
AGREEMENT dated as of March 1, 1995 by and between ALLMERICA FINANCIAL LIFE
INSURANCE AND ANNUITY COMPANY, a Delaware insurance company ("Company"),
ALLMERICA INVESTMENTS, INC., a Massachusetts corporation (the "Underwriter"),
**********., *************************** (the "Distributor"), and the insurance
agencyaffiliates of the Distributor listed on Schedule 1 to this Agreement
(hereinafter referred to as "Distributor Agency Affiliates).
WITNESSETH:
WHEREAS, the Company proposes to register with the Securities and Exchange
Commission interests in certain variable annuity contracts and variable life
insurance contracts under the Securities Act of 1933 and to issue and sell such
contracts through Underwriter acting as the principal underwriter for such
contracts; and
WHEREAS, the Company, Underwriter and Distributor desire to establish an
arrangement whereby the Distributor will act as a wholesaler for such variable
annuity contracts and variable life insurance contracts and, as such, will
recruit business firms to distribute such contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
Underwriter and Distributor hereby agree as follows:
1. DEFINITIONS
a. ACCOUNT -- Each and any separate account established by the Company and
listed on Schedule 2 to this Agreement, as amended from time to time. The
phrase "Account supporting the Contracts" or "Account supporting a class of
Contracts" shall mean the separate account identified in such Contracts as
the separate account to which the Purchase Payments made under such
Contracts are allocated and as to which income, gains and losses, whether
or not realized, from assets allocated to such separate account, are, in
accordance with such Contracts, credited to or charged against such
separate account without regard to other income, gains, or losses of a
Company or any other separate account established by such Company.
b. CONTRACTS -- The variable annuity contracts or variable life insurance
contracts described more specifically on Schedule 3 to this Agreement, as
amended from time to time. The term "Contracts" shall include any riders
to such contracts and any other contracts offered in connection therewith
or any contracts for which such Contracts may be exchanged or converted.
The phrase "a class of Contracts" shall mean those variable annuity
contracts or variable life insurance contracts, as the case may be, issued
on the same policy form or forms and covered by the same Registration
Statement, as shown on Schedule 3 to this Agreement.
c. REGISTRATION STATEMENT -- At any time while this Agreement is in
effect, the currently effective registration statement filed with the SEC
under the 1933 Act, or currently effective post-effective amendment
thereto, relating to a class of Contracts, including financial statements
included in, and all exhibits to, such registration statement or
post-effective amendment. (For purposes of Sections 5.a and 11 of this
Agreement, however, the term "Registration Statement" means any document
that is or at any time was a Registration Statement within the meaning of
this Section 1.c.)
d. PROSPECTUS -- The prospectus and any statement of additional
information included within a Registration Statement, except that, if the
prospectus and statement of additional information most recently filed with
the SEC pursuant to Rule 497 under the 1933 Act after the date on which the
Registration Statement became effective differs from the prospectus and
statement of additional information included within the Registration
Statement at the time it became effective, the term "Prospectus" shall
refer to the most recently filed prospectus and statement of additional
information filed under Rule 497 under the 1933 Act from and after the date
on which they each shall have been filed. (For purposes of Sections 5.a and
11 of this Agreement,
<PAGE>
however, the term "any Prospectus" means any document that is or at any
time was a Prospectus within the meaning of this Section l.c.)
e. FUND -- Pioneer Variable Contracts Trust
f. FUND REGISTRATION STATEMENT -- At any time while this Agreement is in
effect, the currently effective registration statement filed with the SEC
under the 1933 Act, or currently effective post-effective amendment
thereto, for shares of the Fund. (For purposes of Section 11 of this
Agreement, however, the term "Fund Registration Statement" means any
document that is or at any time was a Fund Registration Statement within
the meaning of this Section l.f.)
g. FUND PROSPECTUS -- At any time while this Agreement is in effect, the
prospectus and statement of additional information for the Fund most
recently filed with the SEC pursuant to Rule 497 under the 1933 Act. (For
purposes of Section 11 of this Agreement, however, the term "Fund
Prospectus" means any document that is or at any time was a Fund Prospectus
within the meaning of this Section l.g.)
h. 1933 ACT -- The Securities Act of 1933, as amended.
i. 1934 ACT -- The Securities Exchange Act of 1934, as amended.
j. 1940 ACT -- The Investment Company Act of 1940, as amended.
k. SEC -- The Securities and Exchange Commission.
l. NASD -- The National Association of Securities Dealers, Inc.
m. REGULATIONS -- The rules and regulations promulgated by the SEC under
the 1933 Act, the 1934 Act and the 1940 Act as in effect at the time
this Agreement is executed or thereafter promulgated, and as they may
be amended from time to time.
n. TERRITORY -- The fifty states of the United States, the District of
Columbia, and all other territories of the United States.
o. STATE -- any state or commonwealth of the United States, the District
of Columbia or any other territory of the United States.
p. BROKER-DEALER -- An entity registered as a broker-dealer and licensed
as a life insurance agent or affiliated with an entity so licensed, and
recruited by the Distributor and subsequently authorized by the Company and
Underwriter to distribute the Contracts pursuant to a sales agreement with
the Company and Underwriter entered into in accordance with Section 3 of
this Agreement.
q. ASSOCIATED PERSON -- This term as used in this Agreement shall have the
meaning assigned to it in the 1934 Act.
r. REPRESENTATIVE -- An Associated Person of the Distributor or a Broker-
Dealer registered with the NASD as a registered representative or principal
of the Distributor or Broker-Dealer, as the case may be.
s. PURCHASE PAYMENT -- A payment made under a Contract by an applicant or
purchaser to purchase benefits under the Contract.
t. PROCEDURES -- The administrative procedures prepared and distributed by
the Company, as such may be amended or supplemented from time to time,
relating to the solicitation, sale and delivery of the Contracts.
u. PARTICIPATION AGREEMENT -- The agreement dated as of December 22, 1994
among the Company,
2
<PAGE>
Distributor and the Fund relating to the investment of assets of the
separate accounts of the Company in the Fund.
2. APPOINTMENT AND WHOLESALING RIGHT
a. The Company hereby authorizes the Distributor to represent the Company
in the wholesaling activities contemplated by this Agreement. Where
required by relevant state insurance law, the Company hereby appoints the
Distributor as an agent under such state insurance laws to represent the
Company in the wholesaling activities contemplated by this Agreement. In
those states in which the Distributor is not licensed as an insurance agent
and the relevant state insurance law requires that the Distributor be
licensed as an insurance agent, the Company hereby appoints the appropriate
entity or individual ("Distributor Agency Affiliate") affiliated with the
Distributor (as set forth on Schedule 1 to this Agreement, as such Schedule
may be amended from time to time by the Distributor to reflect changes in
the licensing status, if any, as required by relevant state insurance law
of the Distributor or Distributor Agency Affiliates) as its agent under the
insurance laws to engage in such wholesaling activities. The Underwriter
hereby authorizes the Distributor under applicable securities laws to
engage in the activities contemplated in this Agreement relating to the
wholesaling of the Contracts for which the Underwriter acts or may act as
principal underwriter.
b. The Distributor (both on its own behalf and on behalf of Distributor
Agency Affiliates) undertakes to use its best efforts to recruit Broker-
Dealers in accordance with Section 3 of this Agreement, consistent with
market conditions and compliance with its responsibilities under the federal
securities laws and NASD rules and regulations. The obligations of the
Distributor and Distributor Agency Affiliates hereunder are further subject
to the accuracy of the representations and warranties of the Company and
Underwriter contained in this Agreement and to the performance by the
Company of its obligations hereunder.
c. The appointment and authorization of the Distributor and Distributor
Agency Affiliates to engage in wholesaling activities pursuant to this
Agreement is exclusive as to the Contracts listed on Schedule 3, as amended
from time to time in accordance with Section 2.e of this Agreement.
Neither the Company nor Underwriter shall authorize any other person (as
principal underwriter or otherwise) to engage in wholesaling or
distribution activities with respect to the Contracts or to recruit
business firms to engage in wholesaling or distribution activities with
respect to the Contracts (other than business firms recommended by the
Distributor pursuant to Section 3 of this Agreement) without the
Distributor's prior written consent, nor shall the Company or Underwriter
separately engage in wholesaling or distribution activities relating to the
Contracts.
The Company shall design the Contracts, subject to consultation with the
Distributor and subject to the Distributors's right to refuse to engage in
wholesaling activities with respect to a class of Contracts that the
Distributor reasonably determines to be unattractive from a marketing or
business perspective. The Contracts shall be issued by the Company and the
variable portion thereof shall be supported by the Accounts. The Company
alone shall be responsible for filing the initial Registration Statements
and any amendments thereto with the SEC in accordance with the 1933 Act,
1934 Act, 1940 Act and the Regulations to register interests in each class
of Contracts. The Company will not make any amendment or rider to the
Contracts or a class of Contracts, or file a Registration Statement, or
make an amendment to a Registration Statement or supplement to a
Prospectus, without the Distributor having been given the opportunity to
review any such filing, amendment, rider or supplement. However, such
opportunity to review shall not make the Distributor responsible for the
content of any such filing, amendment, rider or supplement; the Company
alone shall be responsible for such content.
Each Company shall register its Accounts with the SEC. The subaccounts of
each Account available under the Contracts or a class of Contracts are
listed on Schedule 3 to this Agreement, as amended from time to time. All
amounts available under the Contracts shall be invested only in the Fund
(through the Account(s) supporting the Contracts) and/or allocated to the
Company's general account, provided that
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such amounts may also be invested in an investment company or investment
vehicle other than the Fund if: (1) such other investment company is
advised by the Fund's investment adviser; (2) the Fund and/or Distributor,
in their sole discretion, consents to the use of such other investment
company or investment vehicle; (3) there is a substitution of the Fund made
in accordance with Section 10.1(e) of the Participation Agreement; or (4)
the Participation Agreement is terminated pursuant to Article X of the
Participation Agreement. The Company will not take action to operate any
Account, or any subaccount(s) of an Account listed on Schedule 3 to this
Agreement, as amended from time to time, as a management investment company
under the 1940 Act without the Fund's and Distributor's prior written
consent.
d. The Company shall obtain appropriate authorizations, to the extent
necessary, whether by registration, qualification, approval or otherwise,
for the issuance and sale of the Contracts in each State in the Territory
(provided, however, that it shall be within the Company's discretion
whether to obtain such authorization in Guam). From time to time, the
Company shall notify the Distributor in writing of all States in the
Territory in which each class of Contracts can then lawfully be offered.
To the extent that the Company is not authorized to issue the Contracts or
any class of Contracts in any State in the Territory, the Company shall
employ all reasonable efforts to obtain such authorization in such State
(provided, however, that it shall be within such Company's discretion
whether to obtain such authorization in Guam).
e. The Distributor may unilaterally amend Schedule 1 from time to time
pursuant to Section 2.a of this Agreement. The parties to this Agreement
may amend Schedules 2 and 3 to this Agreement from time to time by mutual
agreement to reflect changes in or relating to the Contracts and the
Accounts and to add new classes of variable annuity contracts and variable
life insurance contracts to be issued by the Company or which the
Distributor will act as wholesaler. The provisions of this Agreement shall
be equally applicable to each such class of Contracts, unless the context
otherwise requires. Schedule 4 to this Agreement may be amended only by
mutual agreement of the parties to this Agreement pursuant to Section 9 of
this Agreement.
3. RECRUITMENT OF BROKER-DEALERS AND RELATED RESPONSIBILITIES
a. The Company and Underwriter hereby authorize the Distributor and any
Distributor Agency Affiliates to contact and recommend business firms to
act as Broker-Dealers for the sale of the Contracts. The Company shall
have the right to reject any such recommendation, but shall not do so
arbitrarily or unreasonably.
b. The Company and Underwriter shall have the responsibility for: (i)
executing appropriate sales agreements with the business firms recommended
by the Distributor or Distributor Agency Affiliates and (ii) except as
limited in Section 9.c of this Agreement, appointing such business firms,
and/or Associated Persons of such firms, as insurance agents of the Company
in those States where such business firms and/or Associated Persons possess
insurance agent licenses. None of the Distributor, Distributor Agency
Affiliates, the Company or Underwriter shall have responsibility for, or
bear the cost of, any registration or licensing of Broker-Dealers or any of
their Associated Persons with the SEC, NASD or any state insurance
governmental or regulatory agency. The costs of appointment shall be borne
as provided in Section 9.c hereof. The Company shall maintain the
appointment records of all agents appointed by the Company to distribute
the Contracts or, if required by relevant state law, to engage in the
wholesaling activities contemplated by this Agreement.
c. Any sales agreement entered into by the Company and/or Underwriter with
a Broker-Dealer shall provide that:
(i) The Broker-Dealer (or an affiliated person duly registered as a
broker-dealer with the SEC) shall train, supervise, and be solely
responsible for the conduct of all of its Associated Persons in the
proper method of solicitation, sale and delivery of the Contracts for
the purpose of complying on a continuous basis with the NASD Rules of
Fair Practice and with federal and state securities and insurance law
requirements applicable in connection with the offering and sale of the
Contracts;
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(ii) Purchase Payments shall be made payable to the Company and shall
be delivered together with all applications and related information in
accordance with the Procedures;
(iii) The Broker-Dealer shall be solely responsible for all
compensation paid to its Representatives and all related tax reporting
that may be required under applicable law;
(iv) The Broker-Dealer and its Representatives shall not use, develop
or distribute any promotional, sales or advertising material that has
not been approved in writing by the Company, Underwriter and
Distributor and filed with the appropriate governmental or regulatory
agencies; and
(v) The Broker-Dealer shall not have authority, on behalf of the
Company, Underwriter, Distributor or Distributor Agency Affiliates: to
make, alter or discharge any Contract or other contract entered into
pursuant to a Contract; to waive any Contract forfeiture provision; to
extend the time of paying any Purchase Payment; to receive any monies
or Purchase Payments (except for the sole purpose of forwarding monies
or Purchase Payments to the Company); or to expend, or contract for the
expenditure of, funds of the Company, Underwriter, Distributor or
Distributor Agency Affiliates.
d. The Distributor and Distributor Agency Affiliates shall provide
assistance to the Company in the appointment procedure applicable to
Broker-Dealers and their Representatives as may be reasonably acceptable to
the Company.
e. The Distributor shall train, supervise, and be solely responsible for
the conduct of all of its Associated Persons (including Distributor Agency
Affiliates, but not Broker-Dealers or their Representatives unaffiliated
with the Distributor or Distributor Agency Affiliates), for the purpose of
complying on a continuous basis with the NASD Rules of Fair Practice and
with federal and state securities and insurance laws applicable to the
wholesaling activities contemplated in this Agreement. The Distributor and
Distributor Agency Affiliates shall be responsible for the maintenance of
licenses, certifications or permits that they determine to be necessary for
themselves and/or their Associated Persons pursuant to any federal or state
securities law or state insurance law.
f. None of the Distributor, Distributor Agency Affiliates, the Company or
Underwriter will have any supervisory responsibility (as such supervision
is contemplated by the 1934 Act or the NASD's Rules of Fair Practice) with
respect to Broker-Dealers or their Representatives. Under no circumstances
will the Distributor or Distributor Agency Affiliates be responsible for
Broker-Dealers' or their Representatives' failure to comply with applicable
law or the Procedures.
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g. The Distributor shall not have authority on behalf of the Company: to
make, alter or discharge any Contract or other contract entered into
pursuant to a Contract; to waive any Contract forfeiture provision; to
extend the time of paying any Purchase Payment; or to receive any monies or
Purchase Payments. The Distributor shall not expend, nor contract for the
expenditure of, funds of the Company; nor shall the Distributor possess or
exercise any authority on behalf of the Company other than that expressly
conferred on the Distributor by this Agreement.
h. The Distributor and Distributor Agency Affiliates shall act as
independent contractors in the performance of their duties and obligations
under this Agreement and nothing contained in this Agreement shall
constitute the Distributor or any Distributor Agency Affiliate or their
respective Associated Persons as employees of the Company or Underwriter in
connection with the wholesaling activities contemplated by this Agreement
or otherwise.
4. MARKETING AND SALES
a. The Company shall be responsible for the design and cost of initial
promotional, sales and advertising material relating to the Contracts,
which include the marketing brochure, application, broker-dealer guide
book, and asset allocator worksheet..
Prior to use with any member of the public, the Company shall provide to
the Distributor copies of all promotional, sales and advertising material
developed by the Company for the Distributor's review and written approval.
Upon receipt of such material from the Company, the Distributor shall be
given a reasonable amount of time to complete its review. The Distributor
will respond on a prompt and timely basis in approving any such material.
Failure to respond shall not relieve the Company of the obligation to
obtain the prior written approval of the Distributor.
In the event that the Distributor shall design any promotional, sales or
advertising material relating to the Contracts, the Distributor shall
provide to the Company copies of such material for the Company's review and
written approval. Upon receipt of such material from the Distributor, the
Company shall be given a reasonable amount of time to complete its review.
The Company will respond on a prompt and timely basis in approving any such
material. Failure to respond shall not relieve the Distributor of the
obligation to obtain the prior written approval of the Company.
The Underwriter shall be responsible for filing, as required, all
promotional, sales or advertising material, whether developed by the
Company, Underwriter or Distributor, with the NASD and any federal and
state securities governmental or regulatory agencies. The Company shall be
responsible for filing, as required, such material, whether developed by
the Company, Underwriter or Distributor, with any state insurance
governmental or regulatory agencies. Neither the Distributor nor
Distributor Agency Affiliates shall have any responsibility for any of the
filings referred to in this paragraph.
If any such promotional, sales or advertising material names the Fund or
the Fund's investment adviser, the Company shall furnish such material to
the Fund or the Fund's distributor (if other than the Distributor) prior
to its use. Such material shall not be used unless written approval has
been obtained from the Fund or the Fund's distributor. Failure of the Fund
or the Fund's distributor to respond shall not relieve the Company or
Underwriter of the obligation to obtain the prior written approval of the
Fund or the Fund's distributor.
b. The Distributor acknowledges that the Company shall have the
unconditional right to reject, in whole or in part, any application for a
Contract. In the event an application is rejected, any Purchase Payment
submitted will be returned by or on behalf of the Company to the applicant.
The Company will notify the Distributor and the Broker-Dealer who submitted
the Purchase Payment of such action. In the event that a purchaser
exercises his/her free look right under his/her Contract, any amount to be
refunded as provided in such Contract will be so refunded to the purchaser
by or on behalf of the Company. The Company will notify the Distributor
and the Broker-Dealer who solicited the sale of the Contract of such
action.
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c. The Company and Distributor shall equally share the costs (other than
those borne by the Fund pursuant to the Participation Agreement) for
printing any preliminary and all definitive Prospectuses for the Contracts
and Fund Prospectuses and any supplements thereto.
d. The Distributor will pay the following expenses related to its
wholesaling activities contemplated by this Agreement:
(i) the compensation, if any, of its Associated Persons;
(ii) expenses associated with the initial licensing, if any, and
training of its Associated Persons involved in the wholesaling
activities;
(iii) the printing and mailing of any promotional, sales or advertising
material for use in connection with the distribution of the Contracts;
(iv) the printing, mailing, and all other activities associated with
proxy solicitations;
(v) expenses associated with telecommunications with the Company at the
sites of the Distributor or its Associated Persons, including site
installations and purchases, leases or rentals of modems, terminals and
other hardware, and lease line telephone charges; and
(vi) any other expenses incurred by the Distributor or its Associated
Persons for the purpose of carrying out the obligations of the
Distributor hereunder.
Except for such expenses and the expenses described in Section 4.c of
this Agreement, the Distributor shall not be responsible for any
expenses relating to the Contracts or distribution of the Contracts or
the processing of Contracts or applications, including without
limitation any expenses incurred in connection with the return of
Purchase Payments solicited by Broker-Dealers for applications rejected
or not timely received by the Company, or relating to any of the
matters or acts contemplated by this Agreement.
e. The Company will pay all expenses in connection with:
(i) the preparation and filing with appropriate governmental or
regulatory agencies of the Registration Statements and each preliminary
Prospectus and definitive Prospectus;
(ii) the preparation and issuance of the Contracts;
(iii) any authorization, registration, qualification or approval of the
Contracts required under the securities, blue-sky laws or insurance
laws of the States in the Territory;
(iv) registration fees for the Contracts payable to the SEC, the NASD
or any other governmental or regulatory agency;
(v) the mailing of Prospectuses for the Contracts and Fund
Prospectuses, any supplements thereto, as required by federal
securities laws, and periodic reports relating to the Fund or the
Accounts to Contract owners;
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<PAGE>
(vi) the preparation and printing of administrative forms utilized in
connection with the distribution of the Contracts;
(vii) the preparation of Contract Owner lists for the purposes of proxy
solicitations;
(viii) compensation as provided in Section 9 hereof; and
(ix) any other expenses related to the distribution of the Contracts
except those set forth in Section 4.d of this Agreement and except as
provided in Section 4.c of this Agreement.
f. The Company alone shall be responsible for and bear the cost of
administration of the Contracts following their issuance including all
Contract Owner service and communication activities, but the Distributor
shall be responsible for answering inquiries from Broker-Dealers or
Representatives regarding the investment performance of the Contracts as
permitted by applicable law.
g. The Company, as agent for the Underwriter, will confirm to each
applicant for and owner of a Contract in accordance with Rule lOb-10 under
the 1934 Act its acceptance of Purchase Payments and such other
transactions as are required by Rule l0b-10 or administrative
interpretations thereunder and in accordance with Release 8389 under the
1934 Act.
h. At the end of 15 months from the date (a) on which the Company
notifies the Underwriter that it has received approval of the Contracts
from twenty (20) or more states (as provided in Section 2(d), or (b) on
such date as the Contracts may be legally distributed under the federal
securities laws, or (c) from March 1, 1995, whichever is later, the
Underwriter agrees to reimburse the Company for development and
administrative costs of the Contracts based on the following schedule:
Aggregate Sales Reimbursement
---------------- -------------
$0 up to $60,000,000 $250,000
$60,000,001 to $70,000,000 $200,000
$70,000,001 to $80,000,000 $150,000
$80,000,001 to $90,000,000 $100,000
$90,000,001 to $100,000,000 $ 50,000
$100,000,001 and over $ 0
5. REPRESENTATIONS AND WARRANTIES
a. The Company and Underwriter each represent and warrant to the
Distributor and each Distributor Agency Affiliate, on the effective date of
each Registration Statement for the Contracts (or class of Contracts) and
at each time that a Contract is sold and, with respect to Clauses (vii),
(viii), (xi) and (xii) below, also on the date of this Agreement, as
follows:
(i) The Registration Statement has been declared effective by the SEC
or has become effective in accordance with the Regulations.
(ii) The Registration Statements and the Prospectuses each comply in
all material respects with the provisions of the 1933 Act and the 1940
Act and the Regulations, and neither the Registration Statements nor
the Prospectuses contain an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not
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<PAGE>
misleading, in light of the circumstances in which they were made;
provided, however, that none of the representations and warranties in
this Section 5.a(2) shall apply to statements in or omissions from the
Registration Statements or Prospectuses made in reliance upon and in
conformity with information furnished to the Company in writing by the
Distributor expressly for use in the Registration Statements.
(iii) Neither the Company nor Underwriter has received any notice from
the SEC with respect to the Registration Statement or the Account
supporting the Contracts described in the Registration Statements
pursuant to Section 8(e) of the 1940 Act and no stop order under the
1933 Act has been issued and no proceeding therefor has been instituted
or threatened by the SEC.
(iv) The accountants who certified the financial statements included in
the Registration Statements and Prospectuses are independent public
accountants as required by the 1933 Act and the Regulations.
(v) The financial statements included in the Registration Statements
present fairly the respective financial positions of the Company and
the Account supporting the Contracts described in the Registration
Statements as of the dates indicated; and such financial statements
have been prepared in conformity with generally accepted accounting
principles in the United States applied on a consistent basis.
(vi) Subsequent to the respective dates as of which information is
given in the Registration Statement or the Prospectus, there has not
been any material adverse change in the condition, financial or
otherwise, of the Company, Underwriter or the Account supporting the
Contracts described in the Registration Statements that would cause
such information to be materially misleading.
(vii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of its state of domicile
with full power and authority to own, lease and operate its properties
and conduct its business in the manner described in the Prospectus; is
duly qualified to transact the business of a life insurance company;
and is in good standing, in each State in the Territory in which the
Contracts are or will be offered.
(viii) The Underwriter has been duly organized and is validly existing
as a corporation in good standing under the laws of the Commonwealth of
Massachusetts with full power and authority to own, lease and operate
its properties and conduct its business in the manner described in the
Prospectuses; is duly registered as a broker-dealer with the SEC and
with the securities commission of every state in the Territory with
which such registration is required; and is a member in good standing
with the NASD.
(ix) Each Account supporting the Contracts described in the
Registration Statements has been duly authorized and established and is
validly existing as a separate account under the insurance code of the
respective Company's state of domicile, and is duly registered with the
SEC as a unit investment trust under the 1940 Act.
(x) The form of the Contracts has been approved to the extent required
by the Insurance Commissioner of each Company's respective state of
domicile and by the governmental agency responsible for regulating
insurance companies in each other State in the Territory in which the
contracts are offered.
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(xi) The execution and delivery of this Agreement and the consummation
of the transactions contemplated in this Agreement have been duly
authorized by all necessary corporate action by the Company and
Underwriter and when so executed and delivered this Agreement will be
the valid and binding obligation of the Company and Underwriter
enforceable in accordance with its terms.
(xii) The consummation of the transactions contemplated by this
Agreement, and the fulfillment of the terms of this Agreement, will not
conflict with, result in any breach of any of the terms and provisions
of, or constitute (with or without notice or lapse of time) a default
under, the charter or bylaws of the Company or Underwriter, or any
indenture, agreement, mortgage, deed of trust, or other instrument to
which the Company or Underwriter is a party or by which either is
bound, or violate any law, or, to the best of the Company's or
Underwriter's knowledge, any order, rule or regulation applicable to
the Company or Underwriter of any court or of any federal or state
regulatory body, administrative agency or any other governmental
instrumentality having jurisdiction over the Company or Underwriter or
any of their respective properties.
(xiii) No consent, approval, authorization or order of any court or
governmental authority or agency is required for the issuance or sale
of the Contracts or for the consummation of the transactions
contemplated by this Agreement, that has not been obtained.
(xiv) The Company has filed with the SEC all statements and other
documents required for registration under the provisions of the 1940
Act and the Regulations thereunder of the Account supporting the
Contracts described in the Registration Statement, and such
registration has been effected; there are no agreements or documents
required by the 1933 Act, the 1940 Act, or the Regulations to be filed
with the SEC as exhibits to the Registration Statement, that have not
been so filed; and the Company has obtained all exemptive or other
orders of the SEC necessary to make the public offering and consummate
the sale of the Contracts pursuant to this Agreement and to permit the
operation of the Accounts supporting the Contracts described in the
Registration Statements, as contemplated in the Prospectuses.
(xv) The Contracts have been duly authorized by the Company and
conform to the descriptions thereof in the Registration Statements and
the Prospectuses and, when issued as contemplated by the Registration
Statements, will constitute legal, validly issued and binding
obligations of the Company in accordance with their terms.
b. The Distributor represents and warrants to the Company on the date
hereof as follows:
(i) the Distributor has taken all action including, without
limitation, those necessary under its articles of incorporation,
by-laws and applicable state corporate law, necessary to authorize the
execution, delivery and performance of this Agreement and all
transactions contemplated hereunder.
(ii) the Distributor is and during the term of this Agreement shall
remain duly registered as a broker-dealer under the 1934 Act, a member
in good standing with the NASD, and duly registered as a broker-dealer
under applicable state securities laws.
6. ADDITIONAL RESPONSIBILITIES OF THE COMPANY
a. The Company shall use its best efforts:
(i) to maintain the registration of the Contracts with the SEC and
any state securities commissions of any State in the Territory where
the securities or blue-sky laws of such State require registration of
the Contracts, including without limitation using its best efforts to
prevent a stop order from being issued or if a stop order has been
issued to cause such stop order to be withdrawn;
(ii) to gain approval or other authorization of the Contract forms
where required under the insurance
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<PAGE>
laws and regulations of each State in the Territory (provided, however,
that it shall be within the Company's discretion whether to obtain such
approval or authorization in Guam); and
(iii) to keep such registration, approval and authorization in effect
thereafter so long as the Contracts are outstanding.
b. During the term of this Agreement the Company shall take all action
required to cause each class of Contracts to comply, and to continue to
comply, as annuity contracts or life insurance contracts, as the case may
be, and to cause the Registration Statements and the Prospectus for each
class of Contracts to comply, and to continue to comply, with: all
applicable federal laws and regulations and all applicable laws and
regulations of each State in the Territory.
c. The Company, during the term of this Agreement, shall notify the
Distributor immediately:
(i) when each Registration Statement has become effective or any
post-effective amendment with respect to the Registration Statement
thereafter becomes effective;
(ii) of any request by the SEC for any amendment to a Registration
Statement or supplement to a Prospectus or for additional information;
(iii) of any event that makes any material statement made in a
Registration Statement or a Prospectus untrue in any material respect
or results in a material omission in a Registration Statement or a
Prospectus;
(iv) of the issuance by the SEC of any stop order with respect to a
Registration Statement or any amendment thereto, or the initiation of
any proceedings for that purpose, or for any other purpose relating to
the registration and/or offering of the Contracts (or class of
Contracts);
(v) in which States in the Territory registration of the Contracts
(or class of Contracts) is required under the securities or blue-sky
laws, and when such registrations have become effective.
d. The Company shall furnish to the Distributor without charge promptly
after filing five (5) copies of each Registration Statement as originally
filed and any pre-effective or post-effective amendment thereto, including
financial statements and all exhibits, including exhibits incorporated
therein by reference.
e. The Company shall timely file all reports, statements and amendments
required to be filed by or for each Account or class of Contracts under the
1933 Act and/or the 1940 Act or the Regulations.
f. The Company shall deliver to the Distributor, as soon as practicable
after it becomes available, the Annual Statements for the Company and for
each Account in the form filed with their respective state of domicile, and
any quarterly reports upon the Distributor's request.
g. The Company and Underwriter will provide the Distributor access to such
records, officers and employees of the Company, Underwriter and each
Account at reasonable times as is necessary to enable the Distributor to
fulfill its obligations under the federal securities laws and NASD rules.
The Distributor will provide the Company and Underwriter access to such of
its records, officers and employees at reasonable times as is necessary to
enable the Company and Underwriter to fulfill their obligations under the
federal securities laws and NASD rules.
7. CONFIDENTIALITY
a. The Company and Underwriter acknowledge that the names and addresses of
all customers and prospective customers (for purposes of this Section 7.a,
the terms "customers" and "prospective customers" shall not mean Broker-
Dealers) of the Distributor, of its parent company and of any affiliated
person of the
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Distributor, Distributor Agency Affiliates or of any Broker-Dealer that may
come to the attention of the Company, Underwriter or any person affiliated
with the Company or Underwriter as a result of their relationship with the
Distributor, its parent company or any affiliated person of the
Distributor, Distributor Agency Affiliates or any Broker-Dealer and not
from any independent source, are confidential and shall not be used by the
Company or Underwriter or any person affiliated with the Company or
Underwriter for any purpose whatsoever except as may be necessary in
connection with the administration of the Contracts sold by the
Broker-Dealers, including responses to specific requests made to the
Company for service by Contract owners or efforts to prevent the
replacement of such Contracts or to encourage the exercise of options under
the terms of the Contracts. The restrictions set forth in the previous
sentence do not apply if and to the extent a Broker-Dealer knowingly
discloses the names and addresses of its customers or prospective customers
to the Company or Underwriter outside the operation of this Agreement. In
no event shall the names and addresses of such customers and prospective
customers be furnished by the Company, Underwriter or any of their
affiliated persons to any other person. The intent of this paragraph is
that neither the Company nor Underwriter, nor persons affiliated with the
Company or Underwriter, shall utilize, or permit to be utilized, their
knowledge of the Distributor, of its parent company or of any affiliated
person of the Distributor, Distributor Agency Affiliates or any
Broker-Dealer, derived as a result of the relationship created through the
funding and sale of the Contracts or the solicitation of sales of any
product or service. This paragraph shall remain operative and in full
force and effect regardless of the termination of this Agreement, and shall
survive any such termination.
8. RECORDS
The Company, Underwriter, Distributor and Distributor Agency Affiliates
shall each maintain such accounts, books and other documents as are
required to be maintained by each of them by applicable laws and
regulations and shall preserve such accounts, books and other documents for
the periods prescribed by such laws and regulations. The accounts, books
and records of the Company, Underwriter, the Account, the Distributor and
Distributor Agency Affiliates as to all transactions hereunder shall be
maintained so as to clearly and accurately disclose the nature and details
of the transactions, including such accounting information as necessary to
support the reasonableness of the amounts paid by the Company hereunder.
Each party shall have the right to inspect and audit such accounts, books
and records of the other party during normal business hours upon reasonable
written notice to the other party. Each party shall keep confidential all
information obtained pursuant to such an inspection or audit, and shall
disclose such information to third parties only upon receipt of written
authorization from the other party, except as required by law.
9. BROKER-DEALER COMPENSATION AND DISTRIBUTOR PROMOTIONAL ALLOWANCES
a. The Company shall compensate Broker-Dealers for sales of the Contracts
by the Broker-Dealers pursuant to Schedule 4 to this Agreement, as such
Schedule may be amended from time to time upon mutual agreement of the
parties to this Agreement. Such compensation shall be based on Purchase
Payments received and accepted by the Company for all Contracts issued on
applications obtained by the Broker-Dealers or any of their respective
Representatives. The Company will pay compensation due Broker-Dealers in
accordance with the procedures set forth on Schedule 4. The compensation
provided for in this Section 9 shall be payable to the Broker-Dealer in
accordance with the Sales Agreement between the Underwriter and the
Broker-Dealer for so long as the Contracts are outstanding regardless of
whether this Agreement is still in effect. In addition to the Compensation
payable to Broker-Dealers, the Company shall pay Distributor a Promotional
Allowance as a reimbursement for its expenses incurred relating to its
wholesaling activities contemplated by this Agreement. Promotional
Allowances shall be payable to Distributor in such amount and in accordance
with the procedures as set forth on Schedule 4, as such Schedule may be
amended from time to time upon mutual agreement of the parties to this
Agreement. Promotional Allowances shall be payable to Distributor for so
long as the Contracts are outstanding and this Agreement remains in effect.
If any State in the Territory by insurance rule, regulation or statute,
prohibits payment of Promotional
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Allowances to the Distributor, the Distributor shall designate in writing a
business entity or natural person, including Distributor Agency Affiliates,
meeting the requirements of such State to receive any amounts that may
otherwise be payable to the Distributor hereunder. The Distributor may
change such designation from time to time upon written notice to the
Company. Any payments made by the Company to any person or entity so
designated by the Distributor shall discharge the Company's liability to
the Distributor hereunder.
If a purchaser rescinds a Contract or exercises a right to surrender a
contract for return of all Purchase Payments, the Distributor will pay on
demand the amount of any Promotional Allowances it received on the Purchase
Payments returned.
b. INDEBTEDNESS. Nothing in this Agreement shall be construed as giving
the Distributor the right to incur any indebtedness on behalf of the
Company.
c. APPOINTMENT FEES. The Company will pay the initial and renewal fees
for agent appointment by the Company of duly licensed Distributor Agency
Affiliates and Broker-Dealers and their respective Associated Persons;
provided, however, (a) that if total annual sales of the Contracts do not
exceed $20 million during any calendar year beginning after December 31,
1996, the Distributor will reimburse the Company for the total amount of
initial or renewal fees paid by the Company during such calendar year(s),
and (b) that the Company reserves the right to refuse to pay renewal fees
for individuals not meeting such minimal sales as may be agreed upon from
time to time.
d. REPORTING. The Distributor shall be responsible for all tax reporting
information, if any, that the Distributor is required to provide under
applicable tax law to its Associated Persons with respect to the Contracts.
Nothing contained in this Agreement or any sales agreement with a
Broker-Dealer is to be construed to require the Distributor to provide any
tax reporting information directly or indirectly to any Broker-Dealer or
its Representatives.
e. SURVIVAL. This Section 9 shall remain operative and in full force and
effect regardless of the termination of this Agreement, and shall survive
any such termination.
10. INVESTIGATION AND PROCEEDINGS
a. The Company, Underwriter and Distributor will cooperate fully in any
securities or insurance governmental or regulatory investigation or
proceeding or judicial proceeding arising in connection with the offering,
sale or distribution of the Contracts for which the Distributor acts as
wholesaler pursuant to this Agreement. Without limiting the foregoing, the
Company, Underwriter and Distributor agree to notify one another promptly
of any customer complaint or notice of any governmental or regulatory
investigation or proceeding or judicial proceeding received by any of them
with respect to the Company, Underwriter, Distributor or any of their
respective Associated Persons or that may affect the issuance of any
Contract for which the Distributor acts as wholesaler pursuant to this
Agreement.
b. In the case of a substantive customer complaint, the Company,
Underwriter, Distributor and Distributor Agency Affiliates will cooperate
in investigating such complaint and any response by the Company or
Underwriter, as one party, or the Distributor or Distributor Agency
Affiliates, as another party, to such complaint will be sent to the other
party for approval not less than five business days prior to its being sent
to the customer or any governmental or regulatory agency, except that if a
more prompt response is required, the proposed response shall be
communicated by telephone, telegraph or facsimile. Neither such party will
release any such response without the other party's prior written approval,
unless otherwise required by applicable law.
11. INDEMNIFICATION
a. The Company and Underwriter, jointly and severally, shall indemnify and
hold harmless the Distributor and Distributor Agency Affiliates and each
person who controls or is associated with the Distributor or
13
<PAGE>
Distributor Agency Affiliates within the meaning of such terms under the
federal securities laws, and any officer, director, employee or agent of
the foregoing, against any and all losses, claims, damages or liabilities,
joint or several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in settlement
of, any action, suit or proceeding or any claim asserted), to which the
Distributor, Distributor Agency Affiliates and/or such person may become
subject, under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration
Statement, Prospectus, blue sky application or other document executed
by the Company specifically for the purpose of qualifying any or all of
the Contracts for sale under the securities laws of any State,
promotional, sales or advertising material for the Contracts, or the
Contracts themselves (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 in
light of the circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such untrue statement or
omission or such alleged untrue statement or alleged omission was made
in reliance upon and in conformity with information furnished in
writing to the Company or Underwriters by the Distributor specifically
for use in the preparation of any such Registration Statement,
Prospectus or blue-sky application or other document, material or
Contract (or any such amendment or supplement thereto); or
(ii) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Fund Registration
Statement, Fund Prospectus, blue sky application or other document
executed by the Fund specifically for the purpose of qualifying any or
all of the shares of the Fund for sale under the securities law of any
State, or in any promotional, sales or advertising material or written
information relating to the shares of the Fund authorized by 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 in light of the
circumstances in which they were made, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and
in conformity with information furnished in writing to the Distributor
or the Fund by the Company specifically for use in the preparation of
any such Fund Registration Statement, Fund Prospectus, blue-sky
application or other document (or any such amendment or supplement
thereto); or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement or omission or alleged omission of a material fact by
or on behalf of the Company or Underwriter (other than statements or
representations contained in the Fund Registration Statement, Fund
Prospectus or promotional, sales or advertising material of the Fund
that were not supplied by the Company, Underwriter or persons under
their control) or wrongful conduct of the Company or Underwriter or
persons under their control with respect to the sale or distribution of
the Contracts; or
(iv) result because of the terms of any Contract or because of any
material breach by the Company or Underwriter of any terms of this
Agreement or of any Contract or that proximately result from any
activities of the Company' or Underwriter' officers, directors,
employees or agents or their failure to take action in connection with
the sale of a Contract, to the extent of the Company's or Underwriter's
obligations under this Agreement or otherwise, or the processing or
administration of the Contracts.
This indemnification obligation will be in addition to any liability
that the Company or Underwriter may otherwise have; provided, however,
that no person shall be entitled to indemnification pursuant to this
Section ll.a if such loss, claim, damage or liability is due to the
willful misfeasance, bad faith, gross negligence or reckless disregard
of duty by the person seeking indemnification.
b. The Distributor shall indemnify and hold harmless the Company and
Underwriter and each person who
14
<PAGE>
controls or is associated with the Company or Underwriter within the
meaning of such terms under the federal securities laws and any officer,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection
with, and any amounts paid in settlement of, any action, suit or proceeding
or any claim asserted), to which the Company and/or any such person may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities arise out of or are
based upon:
(i) any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement, Prospectus or blue-sky
application or other document executed by the Company specifically for
the purposes of qualifying any or all of the Contracts for sale under
the securities law of any State (or any amendment or supplement to the
foregoing), or omission or alleged omission to state therein a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, in light of the circumstances in
which they were made, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in
conformity with information furnished in writing to the Company or
Underwriter by the Distributor specifically for use in the preparation
of any such Registration Statement, Prospectus, such blue-sky
application or other document (or any such amendment or supplement
thereto); or
(ii) any use of promotional, sales or advertising material for the
Contracts not authorized by the Company or any verbal or written
misrepresentations or any unlawful sales practices concerning the
Contracts by the Distributor or Distributor Agency Affiliates under
federal securities laws or NASD regulations (but not including state
insurance laws compliance with which is a responsibility of the Company
or Underwriter under this Agreement or otherwise); or
(iii) claims by agents, representatives or employees of the
Distributor for compensation or other remuneration of any type; or
(iv) any material breach by the Distributor or Distributor Agency
Affiliates of any provision of this Agreement.
This indemnification obligation will be in addition to any liability
that the Distributor may otherwise have; provided, however, that no
person shall be entitled to indemnification pursuant to this Section
ll.b if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty
by the person seeking indemnification.
c. After receipt by a party entitled to indemnification ("indemnified
party") under this Section 11 of notice of the commencement of any action,
if a claim in respect thereof is to be made by the indemnified party
against any person obligated to provide indemnification under this Section
11 ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as
practicable thereafter, provided that the omission to so notify the
indemnifying party will not relieve it from any liability under this
Section 11, except to the extent that the omission results in a failure of
actual notice to the indemnifying party and such indemnifying party is
damaged solely as a result of the failure to give such notice. The
indemnifying party, upon the request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in
such proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified party
shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless
(i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any
such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The indemnifying party shall
not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnified party
15
<PAGE>
shall indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
d. The indemnification provisions contained in this Section 11 shall
remain operative in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company or by or on behalf of any
controlling person thereof, (ii) delivery of any Contracts and Purchase
Payments therefor, or (iii) any termination of this Agreement. A successor
by law of the Distributor or the Company, as the case may be, shall be
entitled to the benefits of the indemnification provisions contained in
this Section 11.
12. TERMINATION
a. This Agreement may be terminated at the option of any party upon six
months advance written notice to the other parties, such termination to be
effective no earlier than one year following the date on which the first
Contract is issued to the public.
b. This Agreement shall terminate automatically if it is assigned. This
Agreement may be terminated at the option of the Company and Underwriter,
as one party, or the Distributor and Distributor Agency Affiliates, as one
party, upon the other party's material breach of any provision of this
Agreement.
c. Upon termination of this Agreement all authorizations, rights and
obligations shall cease except: (i) the obligation to settle accounts
hereunder, as set forth in Schedule 4; (ii) the provisions contained in
Sections 7, 9 and 11 of this Agreement; and (iii) the indemnification
provisions set forth in Section 11 of this Agreement, or as otherwise
specifically noted in this Agreement.
13. RIGHTS, REMEDIES, ETC. ARE 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, which the parties to this Agreement are
entitled to under state and federal laws. Failure of the Distributor or
Distributor Agency Affiliates, as one party, or the Company or Underwriter,
as another party, to insist upon strict compliance by the other party with
any of the conditions of this Agreement shall not be construed as a waiver
of any of the conditions, but the same shall remain in full force and
effect. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provisions, whether or
not similar, nor shall any waiver constitute a continuing waiver.
14. NOTICES
All notices hereunder are to be made in writing and shall be given:
if to the Company to:
Lila M. Weihs, Director
State Mutual Life Assurance Company of America
440 Lincoln Street
Worcester, MA 01653
if to the Underwriter:
Richard M. Reilly, President
Allmerica Investments Inc.
440 Lincoln Street
Worcester, MA 01653
if to the Distributor or Distributor Agency Affiliates, to:
16
<PAGE>
Steven Graziano
Senior Vice President
Pioneer Funds Distributor, Inc.
60 State Street
Boston, MA 02109
or such other address as such party may hereafter specify in writing. Each
such notice to a party shall be either hand delivered or transmitted by
registered or certified United States mail with return receipt requested,
and shall be effective upon delivery.
15. INTERPRETATION, JURISDICTION ETC.
This Agreement constitutes the whole agreement between the parties to this
Agreement relating to the wholesaling activities contemplated in this
Agreement, and supersedes all prior oral or written negotiations between
the parties to this Agreement with respect to the subject matter of this
Agreement. The parties acknowledge that the Company, the Distributor and
the Fund have entered into the Participation Agreement in contemplation of
entering into this Agreement. This Agreement shall be construed and the
provisions of this Agreement interpreted under and in accordance with the
internal laws of the Commonwealth of Massachusetts without giving effect to
principles of conflict of laws.
16. ARBITRATION
Any controversy or claim arising out of or relating to this Agreement, or
the breach of this Agreement, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
17
<PAGE>
17. HEADINGS
The headings in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions of this
Agreement or otherwise affect their construction or effect.
18. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
taken together shall constitute one and the same instrument.
19. SEVERABILITY
This is a severable agreement and in the event that any part or parts of
this Agreement shall be held to be unenforceable to its or their full
extent, then it is the intention of the parties to this Agreement that such
part or parts shall be enforced to the extent permitted under the law, and,
in any event, that all other parts of this Agreement shall remain valid and
duly enforceable as if the unenforceable part or parts had never been a
part of this Agreement.
20. REGULATION
This Agreement shall be subject to the provisions of the 1933 Act, 1934 Act
and 1940 Act and the Regulations and the rules and regulations of the NASD,
from time to time in effect, including such exemptions from the 1940 Act as
the SEC may grant, and the terms of this Agreement shall be interpreted and
construed in accordance therewith. Without limiting the generality of the
foregoing, the term "assigned" shall not include any transaction exempted
from Section 15(b)(2) of the 1940 Act.
21. MISCELLANEOUS
For the purposes of Section 4(h), "Aggregate Sales" shall refer to the
aggregate sales through Distributor pursuant both to this Agreement and to
the Wholesaling Agreement with Allmerica Financial Life Insurance and
Annuity Company ("AFLIAC") dated March 1, 1995 ("AFLIAC Life Agreement").
Based on such Aggregate Sales, Distributor shall be responsible for only a
single Reimbursement amount, and such Reimbursement shall be divided
between the Company and AFLIAC as they may mutually agree. For the
purposes of Section 9(c)(a), "total annual sales" shall refer to the total
annual sales through Distributor pursuant both to this Agreement and to
the AFLIAC Agreement, and "total amount of initial or renewal fees" shall
refer to the aggregate amount of such fees incurred by the Company and
AFLIAC.
18
<PAGE>
IN WITNESS WHEREOF, each party hereto represents that the officer signing
this Agreement on the party's behalf is duly authorized to execute this
Agreement; and each party has caused this Agreement to be duly executed by
such authorized officer on the date specified below.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Date: By:
-----------------------------------
Name:
Title:
ALLMERICA INVESTMENTS, INC.
Date: By:
-----------------------------------
Name:
Title:
(on its own behalf and on behalf of
the Distributor Agency Affiliates)
Date: By:
-----------------------------------
Name:
Title:
19
<PAGE>
SCHEDULE I
Distributor Agency Affiliates
Effective March 1, 1995
Name of
Distributor Agency Affiliate State(s) In
- ---------------------------- Which Licensed
--------------
None
20
<PAGE>
SCHEDULE 2
Separate Account Subaccounts
Available under the Contracts
Effective , 1996
Name of Separate Account Subaccounts Fund Portfolio
------------------------ ----------- --------------
Separate Account ****** of Kemper MM
Allmerica Financial Life Kemper Gov Sec
Insurance And Annuity Kemper Inv Grade
Company Kemper High Yield
Kemper Horizon 5
Kemper Horizon 10+
Kemper Horizon 20+
Kemper Total Return
Kemper Growth
Kemper Value
Kemper Value & Growth
Kemper Small Cap Value
Kemper Small Cap Growth
Kemper International
21
<PAGE>
SCHEDULE 3
Contracts Subject to Promotional Agent Agreement
Effective March 1, 1995
SEC
Marketing Policy Registration Name of
Name Form No. No. Separate Account
---- -------- ------------ ----------------
22
<PAGE>
SCHEDULE 4
BROKER-DEALER COMPENSATION AND
DISTRIBUTOR PROMOTIONAL ALLOWANCE SCHEDULE
The maximum Broker-Dealer Compensation and Distributor Promotional Allowances
payable by the Company with respect to the sale and distribution of the
Contracts shall be 6.75% of initial and subsequent Purchase Payments received
and accepted by the Company. Of this amount, 5.00% shall be payable to
Broker-Dealers as sales commissions. The remaining 1.75%* ("Promotional
Allowance") shall be payable to Distributor as reimbursement for its expenses
incurred with respect to the distribution of the Contracts ("Support Services");
provided, however, that the Company shall pay such amounts from the Promotional
Allowances to Broker-Dealers who provide Support Services, as Distributor may
from time to time direct.
Actual Promotional Allowances paid to the Distributor will be net of a charge to
the Distributor in the amount of $30 for each policy anniversary and surrender
of any Contract issued to a Trustee of a 401(k) plan where the Accumulated was
$50,000 or less. This charge will apply only to the extent that the Company
waives its policy fee for such 401(k) plans.
Commissions and Promotional Allowances will be paid according to the then
current practice of the Company but no less frequently than twice each month.
* Reduced by 0.50% for Contracts issued in Maine, Pennsylvania and
South Dakota on which an upfront premium tax is levied.
23
<PAGE>
ALLMERICA FINANCIAL
PRINCIPAL OFFICE: WORCESTER, MASSACHUSETTS 01653
FORM OF
SALES AGREEMENT
First Allmerica Financial Life Insurance Company and Allmerica Financial Life
Insurance and Annuity Company (herein collectively referred to as "the Assurance
Companies" and individually as "First Allmerica Financial Life Insurance
Company" and "Allmerica Financial Life Insurance and Annuity Company",
respectively) and Allmerica Investments, Inc. (herein referred to as "the
Underwriter") do hereby appoint________________________________________________
_________________________________ and _________________________________________
the NASD Registered Broker-Dealer (herein "Broker") their Broker to solicit
application for life insurance and annuity policies, this appointment to be
effective on ___________________________, 199__.
Broker accepts this appointment, subject to the terms and provisions set
forth in this Agreement.
AUTHORITY TO SOLICIT BUSINESS
SECTION 1. Through appointed sub-agents, Broker may solicit life
insurance and annuity policy applications for the Assurance
Companies on a non-exclusive basis.
RELATIONSHIP OF PARTIES
SECTION 2. Nothing in this Agreement will be construed to create the
relationship of employer and employee between either Assurance
Company or the Underwriter and any sub-agent or employee of
Broker. Broker and any sub-agent of Broker will be
free to exercise their independent judgment as to the
time, place and manner of solicitation and servicing of
business underwritten by the Assurance Companies.
However, neither Broker nor any employee or sub-agent
of Broker shall have authority to act on behalf of the
Assurance Companies or the Underwriter in a manner
which does not conform to applicable statutes,
ordinances, or governmental regulations or to
reasonable rules adopted from time to time by the
Assurance Companies or the Underwriter.
Broker understands and agrees that it is responsible for its
continued compliance and the continued compliance of Broker's
sub-agents with the NASD Rules of Fair Practice and Federal and
state securities laws.
<PAGE>
SUB-AGENTS
SECTION 3. Broker may only solicit life insurance and annuity policy
applications on behalf of the Assurance Companies through sub-
agents properly licensed with the Assurance Companies.
LIMITATIONS ON AUTHORITY
SECTION 4. Neither Broker nor any sub-agent of Broker will have authority to
accept risks of any kind; to make, alter or discharge contracts
of insurance or annuities; to waive forfeitures or exclusions; to
fix any premium for hazardous or substandard risks; to alter or
amend any papers received from either Assurance Company; to
deliver any policy of insurance or any document, agreement or
endorsement changing the amount of insurance coverage if Broker
knows or has reason to believe that the insured is uninsurable;
to collect any premium after the expiration of the policy grace
period except in connection with a policy reinstatement; or to
accept payment of any premium unless the premium meets the
minimum premium requirement for the policy established by the
Assurance Company.
APPLIED AUTHORITY
SECTION 5. Neither Broker nor any sub-agent of Broker will have any power or
authority other than as expressly provided in this Agreement and
no other power or authority shall be implied from the grant or
denial of power specifically mentioned in this Agreement.
__________ COMPLIANCE NEGATIVE OBLIGATIONS
SECTION 6. Broker agrees that neither Broker nor any sub-agent of Broker
will intentionally violate any applicable state or Federal law,
ruling or regulation pertaining to the business of the Assurance
Companies or any rule or regulation of either Assurance Company
or the Underwriter. Neither Broker nor any sub-agent of Broker
will knowingly engage in any activity which is detrimental to the
best interests of either Assurance Company or the Underwriter or
any of their affiliates.
Broker shall have the sole responsibility for the training and
supervision of all persons appointed as sub-agents hereunder.
Broker shall obtain and maintain for itself, its officers,
directors, employees and sales personnel, all licenses,
registrations and appointments required by any law, regulation or
other requirement of the SEC, the NASD or of any jurisdiction
where variable life insurance or variable annuity policies are
sold. Broker shall comply and shall have the responsibility to
ensure that all persons associated with it
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<PAGE>
comply with all laws; rules and regulations applicable to
variable life insurance or variable annuity products, including
those requirements applicable to delivery of prospectuses and
determination of client suitability. Broker is responsible for
the education, supervision and instruction of all its associated
persons, including sub-agents of Broker, in the proper method of
solicitation, sale and delivery of variable life insurance or
variable annuity policies. Broker and all persons associated
with it shall use only those sales, advertising and promotional
materials which have been approved in writing by the affected
Assurance Company and the Underwriter.
SUBMISSION OF APPLICATIONS; DELIVERY OF POLICIES; REJECTED BUSINESS
SECTION 7. Broker will submit directly to the Principal Office of the
Assurance Companies all Assurance Company life insurance and
annuity policy applications solicited by sub-agents of the
Broker. Broker will deliver, or cause to be delivered, within 10
days of the date of issue all policies issued on applications
submitted by sub-agents of Broker and will return to the
Assurance Companies any policy which is declined by the applicant
or which cannot be delivered within the time permitted by the
Assurance Company's rules.
ILLUSTRATIONS AND PROPOSALS
SECTION 8. Neither Broker nor any sub-agent of Broker will furnish any
prospective policyowner an illustration of the financial or other
aspects of a policy or a proposal for a policy of either
Assurance Company unless the same has been either furnished by
the Assurance Companies or prepared from computer software or
other material furnished or approved by the Assurance Companies.
Any illustration or proposal delivered by Broker or by any sub-
agent of Broker will conform to standards of completeness and
accuracy established by the Assurance Companies. If the proposal
or illustration was nor furnished by the Assurance Companies,
Broker will relate in its records for availability to the
Assurance Companies a copy thereof or the means to duplicate the
same. Any computer software or materials furnished by either
Assurance Company will be and remain its property.
ACCOUNTING FOR FUNDS COLLECTED
SECTION 9. In accordance with the rules of the Assurance Companies, Broker
will account for and remit immediately to the Principal Office of
the Assurance Companies all funds received or collected by Broker
or by a sub-agent of Broker for or on behalf of either Assurance
Company without deduction for any commissions, or other claim
Broker or the sub-agent may have against
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<PAGE>
either Assurance Company and will make such reports and file such
substantiating documents and records as the Assurance Companies may
require.
INDEMNIFICATION
SECTION 10. If, due to the inaction or negligence of Broker or its sub-agents
or employees, a life insurance or annuity policy is not delivered
to the policy owner within 10 days of the date of issue of the
policy and if after delivery the owner returns the policy to the
Assurance Company and receives a full refund of all premiums
paid, the difference between the premium refunded and the cash
value of the policy on the date the policy is received by the
Assurance Company at its Principal Office shall be reimbursed to
the Assurance Company by the Broker in any case where the cash
value is less than the premium refunded. Any such reimbursement
shall be paid by the Broker to the affected Assurance Company
within 30 days of Broker's receipt of a written request for
payment.
Broker shall indemnify and hold the Assurance Companies and the
Underwriter and their officers, directors, and employees, harmless
from any liability arising from any act or omission of Broker or of
any officer, director, employee of Broker or of sub-agents or other
sales persons associated with Broker.
The Assurance Companies and the Underwriter shall, jointly or
severally, indemnify and hold the Broker and its sub-agents,
officers, directors and employees harmless from any liability
arising from any act or omission of either Assurance Company or
the Underwriter, or of any officer, director, employee or agent of
any such person.
The indemnifications provided by this Section 10 shall survive
termination of this Agreement and expressly include reimbursement of
reasonable attorneys' fees incurred by the indemnified party in
connection with the defense of any claim indemnified hereunder.
LIABILITY FOR REFUND OF COMMISSIONS AND FEES
SECTION 11. If a policyholder rescinds a policy or exercises a right to
surrender a policy for return of all premiums paid, Broker will
pay on demand the amount of any commissions received on the
premiums returned.
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<PAGE>
_________ OF COMPENSATION
SECTION 12. Broker's compensation will consist of commissions payable on
premiums for life insurance and annuity policies placed with the
Assurance Companies. Annuity commissions shall be payable at the
rates set forth in Commission Schedule DG-1, attached, as in
effect from time to time. Life insurance commissions shall be
payable at the rate or rates set forth in a Commission Schedule
to be furnished to Broker at such time as Broker begins to
solicit life insurance applications on behalf of the Assurance
Companies.
All compensation due Broker under this Agreement will be paid by
Allmerica Financial as the common paymaster.
TIME OF PAYMENT OF COMMISSIONS
SECTION 13. A premium will not be considered paid until it has been received
by the Assurance Company at its Principal Office. On premiums
paid, commissions will be paid twice each month in accordance
with the rules of the Assurance Companies.
TERMINATION WITHOUT CAUSE
SECTION 14. Whether or not there is a breach of this Agreement, either party
may terminate this Agreement by giving ten (10) days' written
notice to the other party at any time during the first year
hereof, and by giving thirty (30) days' written notice after the
expiration of the first year hereof. If this Agreement
terminates without breach of its provisions by Broker, annuity
commissions provided for under Section 12 shall continue to be
paid the Broker in accordance with Schedule DG-1 as if this
Agreement had not terminated. Provided, that no annuity
commissions will be paid on premiums paid during the 11th or
subsequent policy year.
TERMINATION FOR CAUSE
SECTION 15. This Agreement may be terminated for cause and without notice if
Broker or any sub-agent of Broker:
(a) misappropriates any funds belonging to or received on behalf
of either Assurance Company or any of its affiliates; or
(b) withholds any funds or other property belonging to either
Assurance Company after the same should have been reported and
transmitted to said Assurance Company or after a demand has
been made for the same; or
-5-
<PAGE>
(c) commits any willful or dishonest act which injuries either
Assurance Company; or
(d) willfully violates any of the provisions of this Agreement.
No commissions will be paid following termination of this Agreement,
if it is terminated for cause, nor will commissions continue to be
paid after termination of this Agreement if thereafter Broker or any
sub-agent of Broker breaches any of its terms or conditions by the
commission of an act prohibited by its terms.
TOP SET-OFF
SECTION 16. The Assurance Companies will have a lieu on any commissions
payable under this Agreement, whether or not such payments are
now due or hereafter become due, and may apply any such monies to
be satisfaction of indebtedness to either Assurance Company to
the extent permitted by law.
__________ WAIVER OF __________________________
SECTION 17. Waiver of any breach of any provision of this Agreement will not
be construed as a waiver of the provision or of the right of the
Assurance Companies to enforce said provision thereafter.
SIGNABILITY
SECTION 18. This Agreement is not transferable. Without the consent of the
Assurance Companies, no rights or interest in or to commissions
will be subject to assignment, and any attempted absolute
assignment, sale or transfer of this Agreement or of any
commissions without the written consent of the Assurance
Companies will immediately make this Agreement void and be a
release to the Assurance Companies in full of any and all of
their obligations hereunder.
RESERVATION OF RIGHT TO CHANGE
SECTION 19. The Assurance Companies reserve the right at any time, and from
time to time, to change the terms and conditions or this
Agreement, including but not limited to, the rates of commissions
or to discontinue the payment of any commissions. The Assurance
Companies may act through Allmerica Financial and a notice of
change given in the name of Allmerica Financial will bind or
benefit (as the case may be) Allmerica Financial Life Insurance
and Annuity Company, even though not named, unless the notice
specifies otherwise.
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<PAGE>
ELECTIVE DATE OF CHANGE
SECTION 20. Any change will become effective on the date specified in a
notice or, if later, 30 days after the notice is given to Broker.
However, the requirement to give advance notice shall not apply
if the change becomes necessary or expedient by reason of
legislation or the requirements of any governmental body and, in
the opinion of the Assurance Companies, it is not reasonably
possible to meet the 30 day requirement. Changes will not be
retroactive and will apply only to life insurance coverage
solicited or annuity premiums paid on or after the effective date
of the change. Notice of any change may be given by a Allmerica
Financial or Allmerica Financial Life Insurance and Annuity
Company bulletin or announcement and distribution of the bulletin
or announcement in the usual manner will constitute notice to
Broker.
NOTICE
SECTION 21. Whenever this Agreement requires a notice to be given, the
requirement will be considered to have been met, in the case of
notice to the Assurance Companies or to the Underwriter, if
delivered or mailed postage prepaid to the Vice President,
Individual Marketing, or to such other officer as may be
specified and, in the case of notice to Broker, if delivered or
mailed postage prepaid to Broker's principal place of business
(as specified above).
CAPTIONS
SECTION 22. Captions are used for informational purposes only and no caption
shall be construed to effect the substance of any provision of
this Agreement.
__________
SECTION 23. This Agreement contains the entire contract between the parties.
Upon execution it will replace all previous agreements between
Broker and the Assurance Companies, or either of them or the
Underwriter, relating to the solicitation or life insurance or
annuity policies. It is hereby understood and agreed that any
other agreement or representation, commitment, promise or
statement of any nature, whether oral or written, relating to or
purporting to relate to the relationship of the parties is hereby
rendered null and void.
-7-
<PAGE>
UNDERSTOOD THAT THIS IS AN "AT WILL" RELATIONSHIP WHICH MAY BE TERMINATED BY
EITHER PARTY WITHOUT CAUSE OR REASON AS PROVIDED FOR IN SECTION 14.
WITNESS WHEREOF, the parties have executed this Agreement in duplicate to
take effect on effective date.
First Allmerica Financial Life Insurance Company
and
Allmerica Financial Life Insurance and Annuity Company
- --------------------------------------
(Name of Broker)
- --------------------------------------
By:
-------------------------------------------
Vice President
Allmerica Investments, Inc.
By:
-------------------------------------------
Title:
-8-
<PAGE>
PLEASE READ THIS CONTRACT CAREFULLY
ANNUITY BENEFIT PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED
ON THE INVESTMENT PERFORMANCE OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE
AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT. PLEASE REFER TO THE VALUE OF
THE VARIABLE ACCOUNT SECTION FOR ADDITIONAL INFORMATION.
VALUES REMOVED FROM A GUARANTEE PERIOD ACCOUNT PRIOR TO THE END OF ITS GUARANTEE
PERIOD MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT THAT MAY INCREASE OR DECREASE
THE VALUES. A NEGATIVE MARKET VALUE ADJUSTMENT WILL NEVER BE APPLIED TO THE
DEATH BENEFIT. A POSITIVE MARKET VALUE ADJUSTMENT, IF APPLICABLE, WILL BE ADDED
TO THE DEATH BENEFIT WHEN THE BENEFIT PAID IS THE CONTRACT'S ACCUMULATED VALUE.
PLEASE REFER TO THE MARKET VALUE ADJUSTMENT SECTION FOR ADDITIONAL INFORMATION.
RIGHT TO EXAMINE CONTRACT
The Owner may cancel this contract by returning it to the Company or one of its
authorized representatives within ten days after receipt. If returned, the
Company will refund an amount equal to the sum of (1) gross payments, less any
amounts allocated to the Variable Account, (2) the Accumulated Value of amounts
allocated to the Variable Account on the date the returned contract is received
at the Principal Office and (3) any fees or other charges imposed on the amounts
allocated to the Variable Account. If, however, the contract is issued as an
Individual Retirement Annuity (IRA), the Company will refund the greater of the
above or the gross payments.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
This is a legal contract between Allmerica Financial Life Insurance and Annuity
Company (the Company) and the Owner and is issued in consideration of the
initial payment shown on the Specifications page. Additional payments are
permitted and may be made either to the Principal Office or to an authorized
representative of the Company. Payments may be allocated to Variable Sub-
Accounts, the Fixed Account or Guarantee Period Accounts. While this contract
is in effect, the Company agrees to pay annuity benefits to the Annuitant
beginning on the Annuity Date or to pay a death benefit to the Beneficiary if
either the Owner or Annuitant dies prior to the Annuity Date.
/s/ Richard M. Reilly /s/ Abigail M. Armstrong
President Secretary
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY
NON-PARTICIPATING
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
OWNER AND BENEFICIARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
VALUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
WITHDRAWAL AND SURRENDER . . . . . . . . . . . . . . . . . . . . . . . . . . .10
DEATH BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
ANNUITY BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
ANNUITY OPTION TABLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
2
<PAGE>
SPECIFICATIONS
Annuitant: Contract Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Issue Date: Contract Type:
Annuitant Sex: Annuitant Date of Birth:
Owner: Owner Date of Birth:
Joint Owner: Joint Owner Date of Birth:
Annuity Date: [The earlier of the date, if any, Beneficiary:
selected by the Owner or the later
of annuitant's age 85 or birthday following the
tenth contract anniversary not to exceed 90]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Minimum Fixed Account Guaranteed Interest Rate: [3%] Minimum Additional Payment: [$50]
Minimum Guarantee Period Account Interest Rate: [3% ] Minimum Guarantee Period Account Allocation: [$1,000]
Death Benefit Effective Annual Yield: [5%] Minimum Withdrawal Amount: [$100]
Minimum Annuity Benefit Payment: [$50] Minimum Accumulated Value After Withdrawal: [$1,000]
</TABLE>
Maximum Alternative Annuity Date: No later than the first of the month
preceding the Annuitant's [90th]
birthday and within life expectancy
Surrender Charge Table:
Years Measured From Surrender Charge as a
Date of Payment Percent of the Payments
To Date of Withdrawal Withdrawn
------------------------------------------------------
[Less than: 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 0%
Thereafter 0%]
Withdrawal without Surrender Charge: [15%]
Mortality and Expense Risk Charge: [1.25%] on an annual basis of the daily
value of the Sub-Account assets.
Administrative Charge: [.15%] on an annual basis of the daily value of the
Sub-Account assets.
Contract Fee: [$35, if the Accumulated Value is less than $50,000].
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
[( )]
3
<PAGE>
SPECIFICATIONS (continued)
Annuitant: Contract Number:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Initial Net Payment:
Initial Net Payment Allocation:
VARIABLE SUB-ACCOUNTS
FIXED ACCOUNT
Initial Interest Rate:
GUARANTEE PERIOD ACCOUNTS
GUARANTEED
GUARANTEE INTEREST EXPIRATION
PERIOD RATE DATE
--------- ---------- ----------
[2 years
3 years
4 years
5 years
6 years
7 years
8 years
9 years
10 years]
-----
100% TOTAL
4
<PAGE>
DEFINITIONS
ACCUMULATED The value of all accounts in this contract before
VALUE the Annuity Date. As long as the Accumulated
Value is greater than zero, the contract will stay
in effect.
ACCUMULATION A measure used to calculate the value of a Sub-
UNIT Account before annuity benefit payments begin.
ANNUITY DATE The date annuity benefit payments begin. The
Annuity Date is shown on the Specifications page,
unless the Owner elects an alternative Annuity
Date.
ANNUITY UNIT A measure used to calculate annuity benefit
payments under a variable annuity option.
BENEFICIARY The person, persons or entity entitled to the death benefit.
COMPANY Allmerica Financial Life Insurance and Annuity Company.
CONTRACT YEAR A period of one year computed from the date of issue or from
an anniversary of the date of issue.
EFFECTIVE The Valuation Date on or immediately following the
VALUATION DATE day a payment, request for transfer, withdrawal or
surrender, or proof of death is received at the
Principal Office.
FIXED ACCOUNT The part of the Company's General Account to which
all or a portion of a payment or transfer may be
allocated.
FUND Each separate investment series eligible for
investment by a Sub-Account of the Variable
Account.
GENERAL ACCOUNT All assets of the Company that are not allocated
to a Separate Account.
GUARANTEED The annual effective rate of interest after daily
INTEREST RATE compounding credited to a Guarantee Period
Account.
GUARANTEE PERIOD The number of years that a Guaranteed Interest
Rate may be credited to a Guarantee Period
Account. The Guarantee Period may range from two
to ten years.
GUARANTEE PERIOD An account which corresponds to a Guaranteed
ACCOUNT Interest Rate for a specified Guarantee Period and
is supported by assets in a Separate Account.
MARKET VALUE A positive or negative adjustment assessed if any
ADJUSTMENT portion of a Guarantee Period Account is withdrawn
or transferred prior to the end of its Guarantee Period.
OWNER The person, persons or entity entitled to exercise
the rights and privileges under this contract.
Joint owners are permitted if one of the two is
the annuitant.
PRINCIPAL OFFICE The Company's office at 440 Lincoln Street,
Worcester, Massachusetts, 01653.
PRO RATA How a payment or withdrawal may be allocated among
the accounts. A Pro Rata allocation or withdrawal
will be made in the same proportion that the value
of each account bears to the Accumulated Value.
5
<PAGE>
SEPARATE ACCOUNT A segregated account established by the Company.
The assets are not commingled with the Company's
general assets and obligations.
SUB-ACCOUNT A Variable Account subdivision that invests
exclusively in shares of a corresponding Fund.
SURRENDER VALUE The amount payable to the Owner on full surrender
after application of any Surrender Charge, Market
Value Adjustment and contract fee.
TELEPHONE A request by telephone to the Principal Office. A
REQUEST signed authorization must be on file for such
requests to be honored.
VALUATION DATE A day the values of all units are determined.
Valuation Dates occur at the close of business on
each day the New York Stock Exchange is open for trading.
VALUATION PERIOD The interval between two consecutive Valuation Dates.
VARIABLE ACCOUNT The Company's Separate Account, consisting of Sub-Accounts
that invest in the underlying Funds.
WRITTEN REQUEST A request or notice in writing satisfactory to the
OR WRITTEN Company and filed at the Principal Office.
NOTICE
6
<PAGE>
OWNER AND BENEFICIARY
OWNER During the lifetime of the Annuitant and before
the Annuity Date, the Owner will be as shown on
the Specifications page unless changed in
accordance with the terms of this contract. On
and after the Annuity Date, the Annuitant will be
the Owner unless the Owner immediately prior to
the Annuity Date is not a person. In that case,
ownership will remain the same on and after the
Annuity Date.
The Owner may exercise all rights and options
granted in this contract or by the Company,
subject to the consent of any irrevocable
Beneficiary. Where the contract is owned jointly,
the consent of both is required in order to
exercise any ownership rights.
ASSIGNMENT The Owner may be changed at any time prior to the Annuity
Date and while the Annuitant is alive. Only the Owner
may assign this contract. An absolute assignment will
transfer ownership to the assignee. This contract may
also be collaterally assigned as security. The
limitations on ownership rights while the collateral
assignment is in effect are stated in the assignment.
Additional limitations may exist for contracts issued
under provisions of the Internal Revenue Code.
An assignment will take place only when the Company has
received Written Notice and recorded the change at the
Principal Office. The Company will not be deemed to know
of the assignment until it has received Written Notice.
When recorded, the assignment will take effect as of the
date it was signed. The assignment will be subject to
payments made or actions taken by the Company before the
change was recorded.
The Company will not be responsible for the validity of
any assignment nor the extent of any assignee's interest.
The interests of the Annuitant and the Beneficiary will
be subject to any assignment.
BENEFICIARY The Beneficiary is as named on the Specifications page
unless subsequently changed. The Owner may declare any
Beneficiary to be revocable or irrevocable. A revocable
Beneficiary may be changed at any time. An irrevocable
Beneficiary must consent in writing to any change.
Unless otherwise indicated, the Beneficiary will be
revocable.
A Beneficiary change must be made in writing on a
Beneficiary designation form and will be subject to the
rights of any assignee of record. When the Company
receives the form, the change will take place as of the
date it was signed, even if the Owner or Annuitant is
then deceased. Any rights created by the change will be
subject to payments made or actions taken by the Company
before the change was recorded.
All death benefits provided by this contract will be
divided equally among the surviving Beneficiaries of the
same class, unless the Owner directs otherwise. If there
is no surviving Beneficiary, the deceased Beneficiary's
interest will pass to the Owner or the Owner's estate.
PROTECTION OF To the extent allowed by law, this contract and any
PROCEEDS payments made under it will be exempt from the claims of
creditors. Neither the Annuitant nor the Beneficiary can
assign, transfer, commute, anticipate or encumber the
proceeds or payments unless given that right by the Owner.
7
<PAGE>
PAYMENTS
The Initial Payment is shown on the Specifications page.
ADDITIONAL Prior to the Annuity Date, the Owner may make
PAYMENTS additional payments of at least the Minimum
Additional Payment (see Specifications page).
Total payments made may not exceed $5,000,000
without the Company's consent.
NET PAYMENTS Each Net Payment is equal to the gross payment
less the amount of any applicable premium tax.
The Company reserves the right to deduct the
amount of the premium tax from the Accumulated
Value at a later date rather than when the tax
is first incurred. In no event will an amount
be deducted for premium taxes before the Company
has incurred a tax liability under applicable
state law.
NET PAYMENT The initial Net Payment is allocated as shown on
ALLOCATIONS the Specifications page. Additional Net
Payments will be allocated in the same
proportion as the initial Net Payment, unless
changed by the Owner's Written or Telephone
Request.
If the Right To Examine Contract provision
provides for a full refund of all payments, any
portion of a Net Payment allocated to a Sub-
Account or a Guarantee Period Account will be
held in the Money Market Sub-Account during the
contract's first fifteen days. After fifteen
days, these amounts will be allocated as
requested.
The minimum that may be allocated to a Guarantee
Period Account is shown on the Specifications
page. If less is allocated to a Guarantee
Period Account, the Company reserves the right
to apply that amount to the Money Market Sub-
Account.
VALUES
VALUE OF THE The value of a Sub-Account on a Valuation Date
VARIABLE ACCOUNT is determined by multiplying the Accumulation
Units in that Sub-Account by the Accumulation
Unit value as of the Valuation Date.
Accumulation Units are credited when an amount
is allocated to a Sub-Account. The number of
Accumulation Units credited equals that amount
divided by the applicable Accumulation Unit
Value as of the Effective Valuation Date.
ACCUMULATION The value of a Sub-Account Accumulation Unit as
UNIT VALUES of any Valuation Date is determined by
multiplying the value of an Accumulation Unit
for the preceding Valuation Date by the net
investment factor for that Valuation Period.
NET INVESTMENT The net investment factor measures the
FACTOR investment performance of a Sub-Account from one
Valuation Period to the next. This factor is
equal to 1.000000 plus the result from dividing
(a) by (b) and subtracting (c) and (d) where:
(a) is the investment income of a Sub-Account for the
Valuation Period, including realized or unrealized
capital gains and losses during the Valuation Period,
adjusted for provisions made for taxes, if any;
8
<PAGE>
(b) is the value of that Sub-Account's assets at the
beginning of the Valuation Period;
(c) is the Mortality and Expense Risk Charge (see
Specifications page); and
(d) is the Administrative Charge (see Specifications page).
The Company assumes the risk that actual
mortality and expenses may exceed the amount
provided for such costs and guarantees that the
charge for mortality and expense risks and the
administrative charge will not be increased.
Subject to applicable state and federal laws,
these charges may be decreased or the method
used to determine the net investment factor may
be changed.
VALUE OF THE Allocations to the Fixed Account are credited
FIXED ACCOUNT interest at rates periodically set by the
Company. The Company guarantees that the rate
of interest in effect when an amount is
allocated to the Fixed Account will remain in
effect for that amount for one year.
Thereafter, the rate of interest for that amount
will be the Company's current interest rate, but
no less than the Minimum Fixed Account
Guaranteed Interest Rate (see Specifications page).
The value of the Fixed Account on any date is
the sum of allocations to the Fixed Account plus
interest compounded and credited daily at the
rates applicable to those allocations. The
value of the Fixed Account will be at least
equal to the minimum required by law in the
state in which this contract is delivered.
VALUE OF THE A Guarantee Period Account will be established
GUARANTEE PERIOD on the date a Net Payment or transfer is
ACCOUNTS allocated to a specific Guarantee Period.
Amounts allocated to the same Guarantee Period
on the same day will be treated as one Guarantee
Period Account. The interest rate in effect
when an amount is allocated is guaranteed for
the duration of the Guarantee Period. Additional
amounts allocated to Guarantee Periods of the
same or different durations will result in
additional Guarantee Period Accounts, each with
its own Guaranteed Interest Rate and expiration
date.
The value of a Guarantee Period Account on any
date is the sum of the allocation to that
Guarantee Period Account plus interest
compounded and credited daily at the rate
applicable to that allocation.
GUARANTEED The Company will periodically set Guaranteed
INTEREST RATES Interest Rates for each available Guarantee
Period. These rates will be guaranteed for the
duration of the respective Guarantee Periods. A
Guaranteed Interest Rate will never be less than
the Minimum Guarantee Period Account Interest
Rate (see Specifications page.)
RENEWAL At least 45 days, but not more than 75 days
GUARANTEE prior to the end of a Guarantee Period, the
PERIODS Company will notify the Owner in writing of the
expiration of that Guarantee Period. The Owner
may transfer amounts to the Sub-Accounts, the
Fixed Account or establish a new Guarantee
Period Account of any duration then offered by
the Company as of the day following the
expiration of the Guarantee Period without a
Market Value Adjustment. Guaranteed Interest
Rates corresponding to the available Guarantee
Periods may be higher or lower than the previous
Guaranteed Interest Rate. If reallocation
instructions are not received at the Principal
Office before the end of a Guarantee Period,
9
<PAGE>
the Guarantee Period Account value will be
automatically applied to a new Guarantee Period
Account with the same Guarantee Period unless:
(a) less than the Minimum Guarantee Period Account
Allocation (see Specifications page) remains in the
Guarantee Period Account on the expiration date; or
(b) the Guarantee Period would extend beyond the Annuity
Date or is no longer available.
In such cases, the Guarantee Period Account
value will be transferred to the Money Market
Sub-Account.
CONTRACT FEE The Company will deduct a contract fee (see
Specifications page) Pro Rata on each contract
anniversary prior to the Annuity Date and when
the contract is surrendered. If the contract is
issued to and maintained by the Trustee of a
401(k) Plan, the Company will waive the contract
fee, but reserves the right to impose a fee of
not more than $30.
TRANSFERS
Prior to the Annuity Date, the Owner may transfer amounts
among accounts by Written or Telephone Request to the
Principal Office. Transfers to a Guarantee Period Account
will be subject to the Minimum Guarantee Period Account
Allocation (see Specifications page). If less would be
allocated to a Guarantee Period Account, the Company may
transfer that amount to the Money Market Sub-Account.
Any transfer from a Guarantee Period Account prior to the
end of its Guarantee Period will be subject to a Market
Value Adjustment. In the case of a partial transfer of a
Guarantee Period Account the Market Value Adjustment will
be applied to the value remaining in the account.
There is no charge for the first twelve transfers per
contract year. A transfer charge of up to $25 may be
imposed on each additional transfer.
WITHDRAWAL AND SURRENDER
The Owner may, by Written Request, withdraw a part of the
Accumulated Value of this contract or surrender it for
its Surrender Value prior to the Annuity Date.
Any withdrawal must be at least the Minimum Withdrawal
Amount (see Specifications page). A withdrawal will not
be permitted if the Accumulated Value remaining in the
contract would be less than the Minimum Accumulated Value
After Withdrawal (see Specifications page). The Written
Request must indicate the dollar amount to be paid and
the accounts from which it is to be withdrawn.
When surrendered, this contract terminates and the
Company has no further liability under it. The Surrender
Value will be based on the Accumulated Value on the
Effective Valuation Date.
10
<PAGE>
Amounts taken from the Variable Account will be paid
within 7 days of the date a Written Request is received
(plus any period of extension under applicable laws,
rules and regulations governing variable annuities).
Amounts taken from the Fixed Account or the Guarantee
Period Accounts will normally be paid within 7 days of
receipt of a Written Request. The Company may defer
payment for up to six months from the receipt date. If
deferred for 30 days or more, the amount payable will be
credited interest at a rate of at least 3%.
WITHDRAWAL WITHOUT In each calendar year, withdrawals up to the greater of
SURRENDER CHARGE (a) or (b) may be made without a surrender charge where:
(a) is cumulative earnings, calculated as the Accumulated
Value as of the Effective Valuation Date reduced by
total gross payments not previously withdrawn; and
(b) is a percent (see Specifications page) of the
Accumulated Value as of the Effective Valuation Date
reduced by any prior withdrawal without surrender charge
made in the same calendar year.
The withdrawal without surrender charge will first be
deducted from cumulative earnings even if it is based
upon (b) above. To the extent that it exceeds cumulative
earnings, the excess will be considered withdrawn on a
(last-in, first-out basis from payments not previously
withdrawn. Amounts withdrawn from a Guarantee Period
Account prior to the end of the applicable Guarantee
Period will be subject to a Market Value Adjustment.
LIFE EXPECTANCY In each calendar year, the amount of the life
DISTRIBUTION expectancy distribution available under the
BENEFIT Company's then current life expectancy
distribution rules that exceeds the withdrawal
without surrender charge may also be withdrawn
without charge. Life expectancy distribution is
available only if the Annuitant is an Owner.
WITHDRAWAL WITH Any amounts withdrawn or surrendered in excess
SURRENDER CHARGE of the withdrawal without surrender charge or
life expectancy distribution benefit may be
subject to a surrender charge.
These amounts will be taken on a first-in,
first-out basis from payments not previously
considered withdrawn. The Company will compute
applicable charges using the Surrender Charge
Table (see Specifications page) until the total
amount withdrawn equals the amount of the
withdrawal requested plus the withdrawal charge
or, if a surrender, until all remaining payments
have been exhausted. The surrender charge will
then be deducted from the Accumulated Value in
the same manner as the withdrawals.
WAIVER OF The surrender charge will be waived if an Owner,
SURRENDER CHARGE or the Annuitant if the Owner is not a person
is:
(a) admitted to a "medical care facility" after the issue
date of the contract and remains confined there until
the later of one year after the issue date or 90
consecutive days;
(b) first diagnosed by a licensed "physician" as having a
"fatal illness" after the issue date of the contract; or
11
<PAGE>
(c) physically disabled after the issue date of the
contract and before attaining age 65. The Company may
require proof of continuing disability, including
written confirmation of receipt and approval of any
claim for Social Security Disability Benefits, and
reserves the right to obtain an examination by a
licensed physician of its choice and at its expense.
"Medical care facility" means any state licensed
facility providing medically necessary inpatient
care which is prescribed by a licensed
"physician" in writing and based on physical
limitations which prohibit daily living in a
non-institutional setting. "Fatal illness"
means a condition diagnosed by a licensed
"physician" which is expected to result in death
within two years of the diagnosis. "Physician"
means a person other than the Owner, the
Annuitant or a member of one of their families
who is state licensed to give medical care or
treatment and is acting within the scope of that
license.
No additional payments are permitted after this
provision becomes effective.
MARKET VALUE A transfer, withdrawal or surrender from a
ADJUSTMENT Guarantee Period Account at the end of its
Guarantee Period will not be subject to a Market
Value Adjustment. A Market Value Adjustment
will apply to all other transfers or
withdrawals, or a surrender. Amounts applied
under an annuity option are treated as
withdrawals when calculating the Market Value
Adjustment. The Market Value Adjustment will be
determined by multiplying the amount taken from
each Guarantee Period Account before deduction
of any Surrender Charge by the market value
factor. The market value factor for each
Guarantee Period Account is equal to:
[(1+i)/(1+j)]n/365 -1
where:
i is the Guaranteed Interest Rate expressed as
a decimal (for example: 3% = 0.03) being
credited to the current Guarantee Period;
j is the new Guaranteed Interest Rate,
expressed as a decimal, for a
Guarantee Period with a duration
equal to the number of years
remaining in the current Guarantee
Period, rounded to the next higher
number of whole years. If that rate
is not available, the Company will
use a suitable rate or index allowed
by the Department of Insurance; and
n is the number of days remaining from the
Effective Valuation Date to the end of the
current Guarantee Period.
If the Guaranteed Interest Rate being credited
is lower than the current Guaranteed Interest
Rate, the Market Value Adjustment will decrease
the Guarantee Period Account value. Similarly,
if the Guaranteed Interest Rate being credited
is higher than the current Guaranteed Interest
Rate, the Market Value Adjustment will increase
the Guarantee Period Account value. The Market
Value Adjustment will never result in a change
to the value more than the interest earned in
excess of the Minimum Guarantee Period Account
Interest Rate (see Specifications page)
compounded annually from the beginning of the
current Guarantee Period.
12
<PAGE>
DEATH BENEFIT
At the death of the Annuitant, Owner or joint Owner,
whichever occurs first, the Company will pay to the
Beneficiary a death benefit determined as of the
Effective Valuation Date upon receipt at the Principal
Office of proof of death. If the Annuitant is also an
Owner and dies, the Annuitant's death benefit will apply.
ANNUITANT'S DEATH If the Annuitant dies before the Annuity Date, the death
BENEFIT BEFORE THE benefit will be the greatest of:
ANNUITY DATE
(a) the Accumulated Value increased by any positive Market
Value Adjustment;
(b) gross payments accumulated daily at the Death Benefit
Effective Annual Yield shown on the Specifications page,
starting on the Effective Valuation Date of each gross
payment, reduced proportionately to reflect withdrawals.
For each withdrawal, the proportionate reduction is
calculated as the death benefit under this option
immediately prior to the withdrawal multiplied by the
withdrawal amount and divided by the Accumulated Value
immediately prior to the withdrawal; or,
(c) the death benefit that would have been payable on the
most recent contract anniversary, increased for
subsequent payments, and decreased proportionately for
subsequent withdrawals.
OWNER'S DEATH If an Owner who is not also the Annuitant dies before the
BENEFIT BEFORE Annuity Date, the death benefit will be the Accumulated
THE ANNUITY DATE Value increased by any positive Market Value Adjustment.
PAYMENT OF THE The death benefit will be paid to the Beneficiary within
DEATH BENEFIT 7 days of the Effective Valuation Date unless the Owner
BEFORE THE has specified a death benefit annuity option. Instead,
ANNUITY DATE the Beneficiary may, by Written Request, elect to:
(a) defer distribution of the death benefit for a period
no more than 5 years from the date of death ; or
(b) receive a life annuity or an annuity for a period
certain not extending beyond the Beneficiary's life
expectancy. Annuity benefit payments must begin within
one year from the date of death .
If distribution of the death benefit is deferred under
(a) or (b), any value in the Guarantee Period Accounts
will be transferred to the Money Market Sub-Account. The
excess, if any, of the death benefit over the Accumulated
Value will also be added to the Money Market Sub-Account.
The Beneficiary may, by Written Request, effect transfers
and withdrawals, but may not make additional payments.
If there are multiple Beneficiaries, the consent of all
is required.
If the sole Beneficiary is the deceased Owner's spouse,
the Beneficiary may, by Written Request, continue the
contract and become the new Owner and Annuitant subject
to the following:
(a) any value in the Guarantee Period Accounts will be
transferred to the Money Market Sub-Account.
13
<PAGE>
(b) the excess, if any, of the death benefit over the
contract's Accumulated Value will also be added to the
Money Market Sub-Account;
(c) additional payments may be made. A surrender charge will
apply only to these additional payments; and
(d) any subsequent spouse of the new Owner, if named as the
Beneficiary, may not continue the contract.
DEATH BENEFIT AND If the Annuitant dies after the Annuity Date but before
PAYMENT AFTER THE all guaranteed annuity benefit payments have been made,
ANNUITY DATE the remaining payments will be paid to the Beneficiary at
least as rapidly as under the annuity option in effect on
the Annuitant's death.
ANNUITY BENEFIT
ANNUITY OPTIONS Annuity options are available on a fixed, variable or
combination fixed and variable basis. The annuity options
described below or any alternative option offered by the
Company may be chosen. If no option is chosen, monthly
benefit payments under a variable life annuity with
payments guaranteed for 10 years will be made.
The Owner may also elect to have the death benefit
applied under a life annuity or a period certain annuity
not extending beyond the Beneficiary's life expectancy.
Such an election may not be altered by the Beneficiary.
Fixed annuity options are funded through the Fixed
Account. Variable annuity options may be funded through
one or more of the Sub-Accounts. Not all Sub-Accounts
may be made available.
ANNUITY BENEFIT Annuity benefit payments may be received on a
PAYMENTS monthly, quarterly, semiannual or annual basis.
If the first payment would be less than the
Minimum Annuity Benefit Payment (see
Specifications page), a single payment will be
made instead. The Company reserves the right to
increase the minimum payment amount to not more
than $500, subject to applicable state
regulations. Satisfactory proof of the payee's
date of birth must be received at the Principal
Office before annuity benefit payments begin.
Where a life annuity option has been elected,
the Company may require satisfactory proof that
the payee is alive before any payment is made.
ANNUITY VALUE The amount of the first annuity benefit payment
under all available options except period
certain options will depend on the age of the
payee or payees on the Annuity Date and the
annuity value applied. Period certain options
are based on the duration of payments and the
annuity value.
For life annuity options and non-commutable
period certain options with a duration of 10
years or more, the annuity value will be the
Accumulated Value and may include any applicable
Market Value Adjustment less any premium tax.
For commutable period certain options or any
period certain option less than 10 years, the
annuity value will be the Surrender Value less
any premium tax. For a death benefit annuity,
the annuity value will be the amount of the
death benefit. The annuity value applied under
a variable annuity option is based on the
Accumulation Unit value on a Valuation Date not
more than four weeks, uniformly applied, before
the Annuity Date.
14
<PAGE>
ANNUITY UNIT A Sub-Account Annuity Unit value on any
VALUES Valuation Date is equal to its value on the
preceding Valuation Date multiplied by the
product of:
(a) a discount factor equivalent to the assumed
interest rate; and
(b) the net investment factor of the Sub-Account funding
the annuity benefit payments for the applicable
Valuation Period.
The value of an Annuity Unit as of any date
other than a Valuation Date is equal to its
value as of the preceding Valuation Date.
Each variable annuity benefit payment is equal
to the number of Annuity Units multiplied by the
applicable value of an Annuity Unit, except that
under a Joint and Two-Thirds Option, payments to
the surviving payee are based on two-thirds the
number of Annuity Units that applied when both
payees were living. Variable annuity benefit
payments will increase or decrease with the
value of annuity units. The Company guarantees
that the amount of each variable annuity benefit
payment will not be affected by changes in
mortality and expense experience.
NUMBER OF The number of Annuity Units determining the
ANNUITY UNITS benefit payable is equal to the amount of the
first annuity benefit payment divided by the
value of the Annuity Unit as of the Valuation
Date used to calculate the amount of the first
payment. Once annuity benefit payments begin,
the number of Annuity Units will not change
unless a split is made.
ANNUITY BENEFIT VARIABLE OR FIXED LIFE ANNUITY WITH PAYMENTS
PAYMENT OPTIONS GUARANTEED FOR 10 YEARS: Periodic annuity
benefit payments during the payee's life. If
the payee dies before all guaranteed payments
have been made, the remaining payments will be
made to the Beneficiary.
VARIABLE OR FIXED LIFE ANNUITY: Periodic
annuity benefit payments during the payee's
life.
UNIT REFUND VARIABLE OR FIXED LIFE ANNUITY:
Periodic annuity benefit payments during the
payee's life. If the payee dies and the annuity
value initially applied to purchase the option,
divided by the first payment, exceeds the number
of payments made before the payee's death,
payments will continue to the Beneficiary until
the number of payments equals the Annuity Value
divided by the first payment.
JOINT AND SURVIVOR VARIABLE OR FIXED LIFE
ANNUITY: Periodic annuity benefit payments
during the joint lifetime of two payees with
payments continuing during the lifetime of the
survivor. One of the payees must be the
Annuitant or, if the Annuitant is not living
when payments begin, one of the payees must be
the Beneficiary.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE OR FIXED
LIFE ANNUITY: Periodic annuity benefit
payments during the joint lifetime of two payees
with payments continuing during the lifetime of
the survivor at two-thirds the amount payable
when both payees were living. One of the payees
must be the Annuitant or, if the Annuitant is
not living when payments begin, one of the
payees must be the Beneficiary.
VARIABLE OR FIXED ANNUITY FOR A PERIOD CERTAIN:
Periodic annuity benefit payments for a chosen
number of years. The number of years
15
<PAGE>
selected may be from 1 to 30. If the payee dies before
the end of the period, remaining payments will
continue to the Beneficiary.
ANNUITY TABLES The first annuity benefit payment will be based on the
greater of the guaranteed annuity rates shown in the
following tables or the Company's non-guaranteed current
annuity option rates applicable to this class of
contracts. Second and subsequent annuity benefit
payments, when based on the investment experience of the
Variable Account, may increase or decrease.
16
<PAGE>
ANNUITY OPTION TABLES
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
Age Life Annuity with Life Unit Refund
Nearest Payments Guaranteed Annuity Life Annuity
Birthday for 10 Years
- --------------------------------------------------------------------------------
50 4.22 4.24 4.14
51 4.28 4.31 4.19
52 4.34 4.37 4.25
53 4.41 4.44 4.31
54 4.48 4.52 4.37
55 4.55 4.59 4.43
56 4.63 4.68 4.50
57 4.71 4.76 4.57
58 4.80 4.86 4.65
59 4.89 4.96 4.73
60 4.98 5.06 4.82
61 5.08 5.18 4.90
62 5.19 5.30 5.00
63 5.30 5.43 5.10
64 5.42 5.56 5.20
65 5.55 5.71 5.31
66 5.68 5.87 5.43
67 5.81 6.04 5.55
68 5.96 6.22 5.68
69 6.11 6.41 5.81
70 6.26 6.62 5.96
71 6.43 6.84 6.11
72 6.60 7.08 6.27
73 6.77 7.34 6.44
74 6.95 7.62 6.62
75 7.13 7.91 6.81
- --------------------------------------------------------------------------------
These tables are based on an annual interest rate of 3 1/2%
and the 1983(a) Individual Mortality Table.
17
<PAGE>
<PAGE>
Exhibit 5
Allmerica Financial Life Insurance
[LOGO] and Annuity Company
KEMPER GATEWAY ELITE 440 Lincoln Street, Worcester, MA 01653
- ----------------------------------------------------------------------------
Please Print Clearly
1. ANNUITANT
First MI Last
________________________________________________
Street Address Apt.
________________________________________________
City State Zip
Daytime Telephone / / Male Date of Birth
( ) / / Female / /
________________________________________________
Social Security Number _________________________
Please Print Clearly
2. OWNER Complete this section only if (check one):
/ / The owner is other than the annuitant, or
/ / This is a joint owner with the annuitant
First MI Last
________________________________________________
Street Address Apt.
________________________________________________
City State Zip
Daytime Telephone Date of Birth Date of Trust
( ) / / / /
________________________________________________
Social Security/Tax I.D. Number ________________
3. BENEFICIARY
Primary Relationship to Annuitant
________________________________________________
Contingent Relationship to Annuitant
________________________________________________
4. TYPE OF PLAN
/ / Nonqualified / / 403(b) TSA*
/ / Nonqualified Def. Comp. / / 408(b) IRA
/ / 401(a) Pension/Profit Sharing* / / 408(k) SEP-IRA*
/ / 401(k) Profit Sharing* / / 457 Def. Comp.
*Attach required additional forms.
5. INITIAL PAYMENT
Initial Payment $____________________________________________
Make check payable to Allmerica Financial.
If IRA or SEP-IRA application, the applicant has received a
Disclosure Buyer's Guide and this payment is a (check one):
/ / Rollover / / Trustee to Trustee Transfer
/ / Regular or SEP-IRA Payment for Tax Year _______
6. ALLOCATION OF PAYMENTS
___% Small Cap Value ___% Horizon 5
___% Small Cap Growth ___% High Yield
___% Value ___% Investment
___% International Grade Bond
___% Growth ___% Government
___% Value + Growth Securities
___% Horizon 20+ ___% Money Market
___% Total Return ___% Fixed Account
___% Horizon 10+ ___% _____________
Guarantee Period Accounts (GPA) ($1,000 minimum per Account)
___% 2 Year ___% 5 Year ___% 8 Year
___% 3 Year ___% 6 Year ___% 9 Year
% 4 Year ___% 7 Year ___% 10 Year
(ALL ALLOCATIONS ABOVE MUST TOTAL 100%)
________________________________________________
SECURE YOUR FUTURE PROGRAM
/ / Allocate a portion of my initial payment to the _______ year
GPA such that, at the end of the guarantee period, the GPA will
have grown to an amount equal to the total initial payment
assuming no withdrawals or transfers of any kind. The remaining
balance will be applied as indicated above in Section 7.
________________________________________________
/ / I elect Automatic Account Rebalancing (AAR) among the above
accounts (excluding Fixed and Guarantee Period Accounts)
starting on the 16th day after issue date and continuing every:
/ / 1 / / 2 / / 3 / / 6 / / 12 Months
________________________________________________
Note: If the contract applied for provides for a full refund of the
initial payment under its "Right to Examine" provision, that
portion of each payment not allocated to the Fixed Account will
be allocated solely to the Money Market Portfolio during its first
15 days. Reallocation will then be made as specified.
7. REPLACEMENT
Will the proposed contract replace or change any existing annuity or insurance
policy?
/ / No / / Yes (If yes, list company name and policy number) _______________
8. TELEPHONE TRANSFER
I/We authorize and direct Allmerica Financial Life Insurance and Annuity
Company to accept telephone instructions from any person who can furnish
proper identification to effect transfers and future payment allocation
changes. I/We agree to hold harmless and indemnify Allmerica Financial Life
Insurance and Annuity Company and its affiliates and their collective
directors, employees and agents against any claim arising from such action.
/ / I/We DO NOT accept this telephone transfer privilege.
1129(11/96) GATE-10
<PAGE>
9. DOLLAR COST AVERAGING
Please transfer $ ________________ from (check ONE source account):
($100 minimum)
/ / Fixed Account / / Government Securities / / Money Market
Every: / / 1 / / 2 / / 3 / / 6 / / 12 Months
To: $ _______ Small Cap Value
$ _______ Small Cap Growth
$ _______ Value
$ _______ International
$ _______ Growth
$ _______ Value & Growth
$ _______ Horizon 20+
$ _______ Total Return
$ _______ Horizon 10+
$ _______ Horizon 5
$ _______ High Yield
$ _______ Investment Grade Bond
$ _______ Government Securities
$ _______ Money Market
$ _______ ______________________
Dollar Cost Averaging (DCA) begins on the 16th day after
the issue date and ends when the source account value is
exhausted. DCA INTO THE FIXED OR GUARANTEE PERIOD
ACCOUNTS IS NOT AVAILABLE.
10. MONTHLY AUTOMATIC PAYMENTS (MAP)
/ / I wish to authorize monthly automatic deductions from my
checking account for application to this contract. ATTACH
COMPLETED MAP APPLICATION (FORM 1968) AND VOIDED CHECK.
11. SYSTEMATIC WITHDRAWALS
Please withdraw $ ________________
($100 million)
Every: / / 1 / / 2 / / 3 / / 6 / / 12 Months
______% From _______________________________________________________
______% From _______________________________________________________
______% From _______________________________________________________
______% From _______________________________________________________
______% From _______________________________________________________
PLEASE / / Do Not Withhold Federal Income Taxes
/ / Do Withhold at 10% or ________ (% or $)
Systematic withdrawals begin on the 16th day after the issue
date and are not available from the Guarantee Period Accounts.
/ / I wish to use Electronic Funds Transfer (Direct Deposit).
I authorize the Company to correct electronically any
overpayments or erroneous credits made to my account.
ATTACH A VOIDED CHECK.
12. OPTIONAL BILLING REMINDERS
/ / I wish to receive periodic reminders that I can include with
future remittances.
ATTACH COMPLETED REQUEST FOR PAYMENT REMINDERS (FORM SML-1203).
13. REMARKS
______________________________________________________________________________
______________________________________________________________________________
14. SIGNATURES
I/We represent to the best of my/our knowledge and belief that the statements
made in this application are true and complete. I/We agree to all terms and
conditions as shown on the front and back. It is indicated and agreed that
the only statements which are to be construed as the basis of the contract
are those contained in this application. I/We acknowledge receipt of a
current prospectus describing the contract applied for. I/WE UNDERSTAND THAT
ALL PAYMENTS AND VALUES BASED ON THE VARIABLE ACCOUNTS MAY FLUCTUATE AND ARE
NOT GUARANTEED AS TO DOLLAR AMOUNTS AND ALL PAYMENTS AND VALUES BASED ON THE
GUARANTEE PERIOD ACCOUNTS ARE SUBJECT TO A MARKET VALUE ADJUSTMENT FORMULA,
THE OPERATION OF WHICH MAY RESULT IN EITHER AN UPWARD OR DOWNWARD ADJUSTMENT.
I/We understand that unless I/we elect otherwise, the Annuity Date will be
the earlier of the date, if any, selected by the Owner, or the later of the
Annuitant's 85th birthday or the birthday following the tenth contract
anniversary, not to exceed age 90.
______________________________________________________________________________
Signature of Owner Signed at (City and State) Date
______________________________________________________________________________
Signature of Joint Owner
15. REGISTERED REPRESENTATIVE / DEALER INFORMATION
Does the contract applied for replace an existing annuity or life insurance
policy? / / Yes (attach replacement forms as required) / / No I certify that
the information provided by the owner has been accurately recorded; a current
prospectus was delivered; no written sales materials other than those
approved by the Principal Office were used; and I have reasonable grounds to
believe the purchase of the contract applied for is suitable for the owner.
Comm. Code: Tel.# ( )
______________________________________________________________________________
Signature of Registered Representative
______________________________________________________________________________
Printed Name of B/D Client Acct. # Printed Name of Broker/Dealer
Registered Representative ( )
______________________________________________________________________________
Branch Office Street Address for Contract Delivery Telephone of Broker/Dealer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
SMA LIFE ASSURANCE COMPANY, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That at a meeting of the Board of Directors of SMA Life Assurance
Company resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is
as follows:
RESOLVED: That the Certificate of Incorporation of this corporation be amended
by changing the Article thereof numbered "First" so that as amended said Article
shall be and read as follows: "THE NAME OF THE CORPORATION IS ALLMERICA
FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY."
SECOND: That at a meeting of the Board of Directors of SMA Life Assurance
Company resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is
as follows:
RESOLVED: That effective October 1, 1995, and subject to the approval of the
Stockholder of the Company, the Certificate of Incorporation of SMA Life
Assurance Company, a Delaware corporation, shall be amended to add the following
as Article Tenth:
"A director or officer of this corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director or officer, except to the extent that exculpation from
liability is not permitted under the General Corporation Law of the State of
Delaware as in effect at the time such liability is determined. No amendment or
repeal of this paragraph shall apply to or have any effect on the liability of
alleged liability of any director or officer of the corporation for or with
respect to any acts or omissions of such director or officer occurring prior to
such amendment or repeal.
THIRD: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware, at which meeting the necessary number of shares as
required by statue were voted in favor of the amendments.
<PAGE>
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FIFTH: That the capital of said corporation shall not be reduced or increased
by reason of said amendment.
SIXTH: That the effective date of said amendments shall be October 1, 1995.
In Witness Whereof, said SMA Life Assurance Company has caused its corporate
seal to be hereunto affixed and this certificate to be signed by Bradford K.
Gallagher, its President, and Abigail M. Armstrong, its Secretary, this 29th day
of June 1995.
By: /s/ Bradford K. Gallagher
------------------------------------
President
(Corporate Seal)
By: /s/ Abigail M. Armstrong
------------------------------------
Secretary
Attest:
/s/ Randi B. Setterlund
__________________________
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
***
American Variable Annuity Life Assurance Company, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of American Variable
Annuity Life Assurance Company resolutions were duly adopted setting forth a
proposed amendment of the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling a meeting of the
stockholders of said corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "FIRST" so that, as amended
said Article shall be and read as follows:
"The name of the corporation is SMA Life Assurance Company"
SECOND: That thereafter, pursuant to resolution of its Board of Directors,
a special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
FIFTH: That the effective date of said amendment shall be January 1,
1982.
IN WITNESS WHEREOF, said American Variable Annuity Life Assurance Company
has caused its corporate seal to be hereunto affixed and this certificate to be
signed by John M. Quinlan, its President, and Sheila B. St. Hilaire, its
Secretary, this 28th day of September, 1981.
/s/ John M. Quinlen
----------------------------------
By: John M. Quinlan
President
/s/ Sheila B. St. Hilaire
---------------------------------
(CORPORATE SEAL) By: Sheila B. St. Hilaire
Secretary
ATTEST: Ralph L. Diller, Asst. Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
OF
AMERICAN VARIABLE ANNUITY LIFE ASSURANCE COMPANY, INC.
KNOW ALL MEN BY THESE PRESENTS: EXHIBIT A
That the following Certificate of Incorporation of AMERICAN VARIABLE ANNUITY
LIFE ASSURANCE COMPANY, INC. shall henceforth be, and constitute the Certificate
of Incorporation of said Corporation as follows:
First: The name of the Corporation is American Variable Annuity Life
Assurance Company, Inc.
Second: Its registered office in the State of Delaware is located at No. 229
South State Street, Dover, County of Kent. The registered agent in
charge thereof at such address is The Prentice-Hall Corporation
System, Inc.
Third: The nature of the business or objects or purposes to be transacted,
promoted, or carried on by the Corporation are as follows:
(a) The insuring of lives of persons and every insurance pertaining
thereto or connected therewith, including accident and health
insurance and the granting or disposing of annuities and the
transacting of disability insurance, whether on a group,
individual, franchise or reinsurance basis, and any other type of
insurance or other business which may be or hereafter be lawfully
conducted by legal reserve life insurance companies organized
under the laws of the State of Delaware. Any such business may be
transacted on a variable basis stated in terms of units or
otherwise but payable in lawful currency, or on a fixed basis
stated in terms of predetermined amounts of lawful currency; the
Corporation may transact any such business in Delaware or
elsewhere.
(b) The Directors of the Corporation shall have the power to segregate
and hold separate from the other funds and assets of the
Corporation premiums or other funds received from the sale of
various types and classes of policies and annuity contracts; the
amount held may be invested in such proportions and in such manner
as determined by the Board of Directors of the Corporation or by a
committee thereof; except as may otherwise by required under
Subsection (c) hereof. The assets held in such separate account
or accounts shall not be chargeable with liabilities arising out
of any other business the Corporation may conduct, but shall be
held and applied exclusively for the benefit of the holders or
beneficiaries of those variable annuity contracts or life
insurance policies with respect to which the account or accounts
have been established;
(c) If a separate account is registered with an Agency of the Federal
Government having jurisdiction over such separate account or
contracts issued in connection therewith, provisions may be made
in the rules and regulations for such separate account for voting
by
<PAGE>
owners of a separate account contracts with respect to the
election of a board of managers for such account, ratification of
the selection of auditors for such account by such board, approval
of investment advisory service contracts for such account, and
such other matters as may be required by applicable law.
Fourth: The authorized capital stock of the Corporation shall be 10,000 shares
of $1,000 par value per share. Stock authorized but not issued may be
issued for such consideration as shall be fixed from time to time by
the Board of Directors, but the consideration shall at all times be
not less than the par value of said shares. When shares of stock
shall be issued, and paid for in cash at the rate determined by the
Board of Directors, such shares shall thereafter be nonassessable.
Fifth: The names and places of residence of the incorporators are as follows:
Ralph L. Diller, 11 Notre Dame Street, Leominster, Massachusetts
01543;
Gaynelle G. Jones, 8 Wabon Street, Dorchester, Massachusetts 02121;
Marilyn G. Quattrocchi, Harris Avenue, Lincoln, Rhode Island 02865
Sixth: The powers of the incorporators shall terminate upon the filing of
this Certificate of Incorporation, and the initial Board of Directors
of the Corporation shall be composed of:
Harold E. Ahlquist 75 Birchwood Drive
Holden, Massachusetts 01520
W. Douglas Bell 50 Wyndhurst Drive
Holden, Massachusetts 01520
Norman C. Cross 35 Leominster Road
Lunenburg, Massachusetts 01420
Roland A. Erickson 20 Church Street
Greenwich, Connecticut 06830
Frederick Fedeli 22 High Street
Southboro, Massachusetts 01772
John H. Freese 85 Wyndhurst Drive
Holden, Massachusetts 01520
Ralph F. Gow 14 Monmouth Road
Worcester, Massachusetts 01609
Paul R. O'Connell 34 Drury Lane
Worcester, Massachusetts 01609
and they shall serve until the Annual Meeting of the Corporation to be
held on the second Wednesday of April, 1975 and until their successors
shall have been elected and qualified.
Seventh: The following additional provisions not inconsistent with law are
hereby established for the management, conduct, and regulation of the
business and officers of the Corporation, and for creating, limiting,
defining, and
<PAGE>
regulating the powers of the Corporation and of its directors and
stockholders:
(a) The affairs and business of the Corporation shall be managed and
controlled by a Board of Directors consisting of not less than
three (3).
(b) The Directors shall be elected in such number, for such terms, and
in such manner as shall be provided in the By-laws and any
Director of the Corporation may be removed at any annual or
special meeting of stockholders by the same vote as that required
to elect a Director.
(c) Meetings of stockholders may be held outside the State of Delaware
if the By-laws so provide, in such place as shall be designated in
the notice of meeting. Except as otherwise required by law, the
presence in person or by proxy of the holders of a majority of the
shares of stock entitled to vote shall constitute a quorum at any
meeting of stockholders.
Eighth: The Corporation shall have perpetual existence unless sooner
terminated by the affirmative vote of the holders of two-thirds (2/3)
of the issued and outstanding stock.
Ninth: These Articles of Incorporation may be amended by written
authorization of the holders of a majority of the shares of stock
outstanding and entitled to vote or by affirmative vote of such a
majority voting at a lawful meeting of such stockholders provided
notice given for such meeting includes due notice of the proposal to
amend.
We, the undersigned, for the purpose of forming a corporation under the laws of
the State of Delaware, do make, file, and record this Certificate, and do
certify that the facts herein stated are true; and we have accordingly hereunto
set our respective hands.
Dated at July 26, 1974.
Ralph L. Diller
Gaynelle G. Jones
Marilyn G. Quattrocchi
<PAGE>
Commonwealth of Massachusetts )
)ss
County of Worcester )
Be it remembered, that on this 26th day of July, 1974, there personally appeared
before me, the undersigned, a notary public, Ralph L. Diller, Gaynelle G. Jones,
Marilyn G. Quattrocchi, parties to the foregoing Certificate of Incorporation,
known to me personally to be such, and I having first made known to them and
each of them the contents of said Certificate, they did each severally
acknowledge that they signed, sealed, and delivered the same as their voluntary
act and deed, and each deposed that the facts therein stated were truly set
forth.
Given under my hand and seal of office the day of the year aforesaid.
Robert G. Juneau
Notary Public
My Commission Expires: May 30, 1980
<PAGE>
AGREEMENT OF MERGER
AMERICAN VARIABLE ANNUITY LIFE ASSURANCE COMPANY
(AN ARKANSAS COMPANY)
AND
AMERICAN VARIABLE ANNUITY LIFE ASSURANCE COMPANY, INC.
(A DELAWARE COMPANY)
This Agreement and Plan of Merger (hereinafter referred to as "Agreement")
made as of this 23rd day of September, 1974, between American Variable Annuity
Life Assurance Company (hereinafter referred to as AVA Co.), a stock insurance
company incorporated and existing under the laws of the State of Arkansas and
having its principal place of business in Little Rock, Arkansas, and American
Variable Annuity Life Assurance Company, Inc. (hereinafter referred to as AVA,
Inc.), a stock insurance company incorporated and existing under the laws of the
State of Delaware and having its registered office in Dover, Delaware and its
principal place of business in Worcester, Massachusetts. (Said companies being
sometimes hereinafter called "Constituent Companies").
Whereas, the purpose of this Agreement is to accomplish the transfer of the
domicile of AVA Co. from the State of Arkansas to the State of Delaware through
the utilization of the merger statutes of the respective states, and
Whereas, after full consideration, the Boards of Directors of the
Constituent Companies have deemed it is in the best interests of the Companies
and their shareholders that the Constituent Companies be merged as a single
company and the Surviving Company of said merger comprise the same business
enterprise as AVA Co.
WITNESSETH:
IN CONSIDERATION of the terms and of the mutual agreements, covenants, and
provisions herein contained, and pursuant to the laws of Arkansas and of
Delaware, this Agreement of Merger is made and entered into by and between the
Board of Directors of the said AVA Co. and the Board of Directors of the said
AVA, Inc., do hereby agree as follows:
(1) At the effective date and time set forth herein, AVA Co. is hereby
merged into and with AVA, Inc. with AVA, Inc. the surviving and continuing
company under the laws of the State of Delaware. At the effective date of
merger AVA, Inc. shall assume the name of American Variable Annuity Life
Assurance Company (hereinafter referred to as the "Surviving Company").
(2) The Surviving Company shall continue as a stock insurance company,
and shall have the objects and purposes stated in its Certificate of
Incorporation, Exhibit A annexed, and in general terms have the power and
authority to transact any business which AVA Co. is empowered and authorized to
transact, and shall have the authority to transact any business which domestic
life and health insurance companies are now or hereafter may be authorized to
transact under the laws of the State of Delaware.
(3) At the said effective date and time, and by operation of the
applicable
<PAGE>
laws and statutes of the State of Arkansas and the State of Delaware relating to
the merger of stock insurance corporations, all of the rights and assets of AVA
Co. including without limitation assets tangible and intangible, real and
personal, of whatsoever kind and character and wheresoever located, including
all separate accounts of AVA Co., shall become the assets of the Surviving
Company.
(4) At the effective date and time and by operation of the applicable
laws and statutes of the State of Arkansas and the State of Delaware, the
Surviving Company shall assume and shall be liable and responsible for any and
all of the legal liabilities and legal obligations of AVA Co. then outstanding,
including without limitation, all liabilities for taxes, all liabilities under
insurance contracts theretofore issued or then on binder, and all other legal
liabilities and obligations of AVA Co.
(5) Prior to the merger, the Board of Directors of AVA, Inc. shall
adopt a resolution to be effective at the time of the merger providing that such
separate account or accounts as may be established and maintained by AVA Co. at
the time of the merger shall be deemed to be separate accounts of the Surviving
Company pursuant to the provisions of Delaware law and that the existence of
such separate account or accounts shall continue uninterrupted.
(6) The Surviving Company, through its appropriate officers and
directors, is hereby authorized in the name of either of the Constituent
Companies or in its own name, to execute, acknowledge, and deliver all
instruments of further assurance and to do all other such acts or things as it
may, at any time, deem necessary or desirable to vest in the Surviving Company
any property or rights of any of the merged corporations, or to carry out any of
the purposes expressed in this Agreement.
(7) The registered office of the Surviving Company in Delaware shall be
in Dover, County of Kent, Delaware. The principal office of the Surviving
Company shall be in the City of Worcester, in the County of Worcester,
Massachusetts.
(8) The present By-Laws of AVA, Inc. set forth in Exhibit 3, shall be
the By-Laws of the Surviving Company unless and until altered, amended or
repealed in the manner therein provided.
(9) All shares if authorized and outstanding capital stock of AVA,
Inc., such stock being owned in its entirety AVA Co., shall be cancelled on the
effective date of the merger.
(10) All shares of authorized and outstanding capital stock of AVA Co.
owned in its entirety by State Mutual Life Assurance Company of America, shall
be cancelled effective the date of the merger and stock of the Surviving Company
shall be issued to State Mutual in amounts equivalent to the stock owned in AVA
Co. prior to the merger.
(11) The Constituent Companies agree to do and perform each and every
act required by the laws of Delaware and Arkansas to effectuate such merger.
(12) The proper officers of the respective companies hereto are
authorized and directed from time to time, as the occasion may arise, to do all
acts and to execute and acknowledge all affidavits, deeds, contracts,
assurances, assignments and instruments in writing, and to sign and deliver all
checks on the bank accounts of the respective parties hereto, and do anything
else deemed necessary or proper to
<PAGE>
carry out the provisions of this Agreement, and to affix the corporate seals of
the respective parties to any such instrument in writing.
(13) The merger shall become effective at the close of business December
31, 1974.
(14) In order to clarify the intention of the parties hereto or to
effect or facilitate the filing, recording or official approval of this
Agreement and Plan of Merger and the consummation hereof in accordance with the
purpose and intent of this Agreement, any of the terms or conditions of this
Agreement may be, at any time prior to the merger, amended by mutual agreement
of the Constituent Companies by action duly taken by the respective Boards of
Directors.
(15) This Agreement shall be contingent upon approval by the
shareholders of the Constituent Companies and upon approval by a majority of the
variable annuity contract owners of AVA Co. as the term majority is defined in
the By-Laws and Regulations of its separate account American Variable Annuity
Fund.
(16) This Agreement shall be and become void and of no effect and the
merger contemplated hereby shall be deemed to be abandoned if a majority of the
Board of Directors of either Constituent Companies, at a meeting thereof duly
called and held, shall be resolution deem that it is inadvisable to consummate
the merger.
(17) This Agreement shall further be contingent upon obtaining necessary
approval from the Commissioners of Insurance in the States of Arkansas and
Delaware and the approval of the appropriate governmental regulatory agencies.
(18) No director or officer of either of the Constituent Companies or of
any parent corporation or subsidiary insurer, shall receive any fee, commission,
other compensation or valuable consideration whatever other than regular salary
directly or indirectly, for in any manner aiding, promoting or assisting in the
merger.
(19) Without further action of the shareholders of AVA Co. or AVA, Inc.
or the Boards of Directors of the Constituent Companies, the officers of the
Surviving Company shall be the officers of AVA, Inc. immediately prior to the
merger and there shall be eight initial directors of the Surviving Company whose
names and addresses are as follows:
Harold E. Ahlquist, Jr. Member
75 Birchwood Drive
Holden MA 01520
W. Douglas Bell Chairman
50 Wyndhurst Drive
Holden MA 01520
Norman C. Cross Member
38 Dusty Miller Road
Falmouth MA 02540
Roland A. Erickson Member
101 M Lewis Street
Greenwich CT 06830
<PAGE>
Frederick Fedeli Member
22 High Street
Southboro MA 01772
John H. Freese Member
85 Wyndhurst Drive
Holden MA 01520
Ralph F. Gow Member
14 Monmouth Road
Worcester MA 01609
Paul R. O'Connell Member
34 Drury Lane
Worcester MA 01609
IN WITNESS WHEREOF, American Variable Annuity Life Assurance Company and
American Variable Annuity Life Assurance Company, Inc. have caused this
Agreement to be executed in their corporate names by their respective officers
and who by majorities of their Boards of Directors on this 23rd day of
September, 1974.
AMERICAN VARIABLE ANNUITY LIFE
ASSURANCE COMPANY
(Corporate Seal) By: John H. Freese, President
Attest: Ralph L. Diller, Secretary
Directors of American Variable Annuity Life Assurance Company:
Harold E. Ahlquist, Jr. Frederick Fedeli
W. Douglas Bell John H. Freese
Norman C. Cross Ralph G. Gow
Roland A. Erickson Paul R. O'Connell
AMERICAN VARIABLE ANNUITY LIFE
ASSURANCE COMPANY, INC.
/s/ John H. Freese
--------------------------------
(Corporate Seal) By: John H. Freese, President
Attest: Ralph L. Diller, Secretary
<PAGE>
Directors of American Variable Annuity Life Assurance Company, Inc.:
Harold E. Ahlquist, Jr. Frederick Fedeli
W. Douglas Bell John H. Freese
Norman C. Cross Ralph F. Gow
Roland A. Erickson Paul R. O'Connell
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
AMERICAN VARIABLE ANNUITY LIFE ASSURANCE COMPANY
INTO
AMERICAN VARIABLE ANNUITY LIFE ASSURANCE COMPANY, INC.
American Variable Annuity Life Assurance Company, a corporation organized under
the laws of the State of Arkansas does hereby certify:
FIRST: That it was organized pursuant to the provisions of the Arkansas
Insurance Laws on the 23rd day of January, 1967.
SECOND: That it owns all of the outstanding shares of capital stock of
American Variable Annuity Life Assurance Company, Inc., a corporation organized
pursuant to the provisions of the General Corporation Laws of the State of
Delaware on the 26th day of July, 1974.
THIRD: That its Board of Directors at a meeting held on the 30th day of July,
1974 determined to merge the Corporation into said American Variable Annuity
Life Assurance company, Inc. and did adopt the following resolution:
"RESOLVED: That subject to the approval of State Mutual Life
Assurance Company of America as the sole shareholder of the
company and the approval of the company's variable annuity
contract owners, the company enter into a merger agreement with
its wholly owned subsidiary, American Variable Annuity Life
Assurance Company, Inc. effective with the close of business,
December 31, 1974. The appropriate officers of the company are
hereby authorized to execute the merger agreement substantially
in the form attached hereto and take whatever action may be
necessary to carry out the terms of said merger agreement."
FOURTH: That the attached copy of the Agreement of Merger is the same as that
approved and authorized by resolution of the Board of Directors of the Company
on July 30,1974.
FIFTH: That the sole stockholder of the Company, State Mutual Life Assurance
Company of America, at a stockholder meeting duly called and held on August 16,
1974 for the purpose of approving the merger voted to approve the merger of the
Company into its wholly owned subsidiary, American Variable Annuity Life
Assurance Company, Inc. pursuant to the Agreement of Merger as authorized by the
Board of Directors of the Company on July 30, 1974.
SIXTH: That pursuant to the Agreement of Merger approved and authorized by
the Company's Board of Directors, the merger of American Variable Annuity Life
Assurance Company into American Variable Annuity Life Assurance Company, Inc.
shall be effective at the close of business December 31, 1974.
SEVENTH: That pursuant to the Agreement of Merger approved and authorized by
the Company's Board of Directors, the surviving company shall, effective with
the
<PAGE>
merger, assume the name American Variable Annuity Life Assurance Company.
IN WITNESS WHEREOF, said American Variable Annuity Life Assurance Company, has
caused this Certificate of Ownership and Merger to be signed by John H. Freese,
its President, and Ralph L. Diller, its Secretary, and its corporate seal to be
affixed thereto this 5th day of December, A.D. 1974.
AMERICAN VARIABLE ANNUITY LIFE
ASSURANCE COMPANY
By: /s/ John H. Freese
--------------------------------
President
By: /s/ Ralph L. Diller
--------------------------------
Secretary
(CORPORATE SEAL)
<PAGE>
STATE OF MASSACHUSETTS
COUNTY OF WORCESTER
BE IT REMEMBERED that on this 5th day of December, 1974, personally came
before me, a Notary Public in and for the County and State aforesaid, John H.
Freese, President and Ralph L. Diller, Secretary of American Variable Annuity
Life Assurance Company, a corporation of the State of Arkansas, and they duly
executed said certificate before me and severally acknowledged the said
certificate to be their act and deed and the act and deed of said corporation
and the facts stated therein are true; that the signatures of the said officers
are in the handwriting of each of said officers respectively; and that the seal
affixed to said certificate is the common or corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the day
and year aforesaid.
Ethel Demark
Notary Public
(SEAL)
<PAGE>
BYLAWS
of
Allmerica Financial Life Insurance and Annuity Company
(Effective October 1, 1995)
ARTICLE I
Meetings of Stockholders
1. The Annual Meeting shall be held on the second Wednesday of April of each
year but if that day is a legal holiday at the place of meeting, the meeting
shall be held on the next following business day not a holiday. If more than
fifteen months are allowed to elapse without an annual stockholders' meeting
being held, any stockholder may call such a meeting to be held. The place of
any Annual Meeting may be outside of the State of Delaware and shall be fixed
from time to time by the Board of Directors.
2. The business to be transacted at the Annual Meeting shall be the election
of Directors, to receive and consider reports of the Corporation's Officers, and
such other business as shall properly be brought before the meeting.
3. At least ten days notice of each Annual Meeting, unless waived in writing,
stating the place, day, and hour thereof shall be given by the Secretary to each
stockholder by mailing postage prepaid to his address as it appears on the
Corporation's books; and no amendments to the Corporation's Articles of
Incorporation may be made at any meeting of the stockholders unless the proposal
to so amend is included in the notice of the meeting.
4. At any time upon written request of the President, any Director, or
stockholders holding in the aggregate one-third of the voting rights of all
stock outstanding, it shall be the duty of the Secretary to call a special
meeting of stockholders to be held at any such time as the Secretary may fix in
the written notice thereof, not less than five nor more than sixty days after
the receipt of request. If the Secretary fails to issue such call, the Director
or stockholders making the request may do so. The notice shall state the
purpose of the meeting and no business of which notice is not so given shall be
transacted at such meeting.
5. The presence in person or by proxy of the holders of the majority of the
shares of stock outstanding and entitled to vote shall constitute a quorum. The
stockholders present at a duly organized meeting can continue to do business
until adjournment notwithstanding the withdrawal of stockholders leaving less
than a quorum.
<PAGE>
6. If a meeting cannot be organized because a quorum has not attended, those
present may adjourn the meeting to such time as they may determine, but in the
case of any meeting called for the election of any Director, the adjournment
must be to the next day and those who attend the adjourned meeting although less
than a quorum as otherwise provided herein shall nevertheless constitute a
quorum for the purpose of electing a Director.
7. If any necessary Officer fails to attend a stockholders' meeting any
stockholder present may be elected to act temporarily in lieu of such absent
Officer.
8. An annual or special meeting of stockholders may be adjourned to another
date without new notice being given.
9. Any action required or permitted to be taken at any annual meeting or
special meeting of the stockholders may be taken without a meeting, without
prior notice, if a consent in writing setting forth the actions so taken is
signed by the holders of all of the outstanding stock of the Company.
ARTICLE II
Stockholders Voting and Other Rights
1. At each meeting of stockholders and upon each proposal presented at each
meeting each stockholder of record shall be entitled to one vote for each share
of stock standing in his name on the books of the Corporation on the record date
as hereafter established.
2. A stockholder may vote or be represented at any stockholders' meeting in
person or by written proxy, which may be revoked at will. The revocation of a
proxy shall not be effective until written notice thereof has been filed with
the Secretary of the Corporation.
3. Unless otherwise provided by law, the Articles of Incorporation, or these
Bylaws, all questions shall be determined by the holders of a majority of the
capital stock voting thereon.
4. The following shall be referred to as a record event:
(a) a meeting of stockholders,
(b) the payment of any dividend,
(c) the allotment of rights,
(d) a change, conversion, or exchange of capital stock.
-2-
<PAGE>
ARTICLE III
Directors
1. The number of Directors which shall constitute the whole Board shall be not
less than three nor more than fifteen. The Directors shall be elected at the
Annual Meeting of Stockholders except as hereinafter provided, and each Director
elected shall hold office for one year or until his successor is elected and
qualified. The Directors need not be stockholders or residents of the State of
Delaware.
2. Vacancies in the Board of Directors may be filled by the remaining members
of the Board, and each person so elected shall be a Director until his successor
is elected by the stockholders at the next Annual Meeting of Stockholders or at
any special meeting of stockholders called for that purpose and held prior to
such Annual Meeting.
3. The Board of Directors may establish the position of Chairman of the Board
and Vice Chairman of the Board and shall choose from among its members for such
positions. The Chairman of the Board as so chosen shall preside at meetings of
the Board and perform such other duties as are assigned to him by the Board. If
the Chairman is absent or unable to discharge the duties of his office, the Vice
Chairman may act in his stead.
4. The Board of Directors shall determine the amount of any expense
reimbursement or remuneration to be paid to its members for attendance at
meetings.
ARTICLE IV
Meetings of the Board of Directors
1. The Board of Directors may hold meetings, both regular and special, either
within or without the State of Delaware.
2. The Board of Directors shall hold an organizational meeting immediately
after the Annual Meeting of Stockholders or at such time as may be fixed by
written consent of a majority of all Directors or by notice given by the
President or Secretary.
3. Regular meetings of the Board of Directors may be held without notice at
such time and at such place as shall from time to time be determined by
resolution of the Board of Directors.
4. Special meetings of the Board may be called by the President on five days
notice to each Director. Special meetings shall be called by the President or
Secretary on like notice on the written request of a majority of the entire
Board of Directors. The notice shall indicate the purpose, time, and place of
the special meeting.
-3-
<PAGE>
5. At the meeting of the Board, a majority or five of the Directors, whichever
is less, shall constitute a quorum for the transaction of business. The
concurrence of a majority of Directors present at any meeting at which there is
a quorum shall constitute the act of the Board of Directors except as may be
otherwise provided by law.
6. Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting, if written
consent thereto is signed by all members of the Board or such Committee, as the
case may be, and such written consent is filed with the minutes of the
proceedings of the Board or Committee.
ARTICLE V
Committees
1. The Board of Directors may elect, from its membership, a Finance Committee
of not less than five Directors, who shall have charge of the investment, sale,
loan, or deposit of funds under the ownership, direction, or control of the
Corporation.
2. The Board may also appoint from its own members, and where permitted by
law, from the Officers and/or employees, other standing committees and temporary
committees, vesting such committees with such powers and prescribing such duties
as the Board shall determine.
3. Each Committee shall keep regular minutes of its meetings and cause them to
be recorded in books to be kept for that purpose and shall report to the Board
from time to time as the Board may request.
ARTICLE VI
Officers
1. The Board of Directors shall choose a President, who shall be a Director, a
Secretary, and a Treasurer. The Directors may also choose one or more Vice
Presidents, Assistant Secretaries, and Assistant Treasurers and such other
Officers as may be deemed necessary. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
2. Any person may hold two (2) or more offices, except that the President
shall not be also the Secretary or Assistant Secretary.
3. The Officers shall hold office for one year and until their successors are
elected and qualified but the Board may remove any officer at will.
-4-
<PAGE>
ARTICLE VII
Duties of Officers
1. The Chief Executive Officer of the Corporation shall be the Chairman of the
Board, or the President, as determined by the Directors, and shall, subject to
the Board of Directors, direct and manage the affairs of the Corporation. If
the Chairman of the Board and Vice Chairman of the Board are both absent or
unable to discharge their duties, the President may fulfill the duties of the
Chairman of the Board.
2. If the President is absent or unable to discharge the duties of his office,
a Vice President may act in his stead. The Chairman of the Board, if he is the
Chief Executive Officer, the President, or any one of the Vice Presidents shall
have the authority to transfer securities, execute releases, extensions, partial
releases, or assignments without recourse of mortgages, to execute deeds and
other instruments or documents, including contracts or insurance and annuities,
on the part of the Company and whenever necessary to affix the Seal of the
Company to the same. The Chairman of the Board, the President, or any Vice
President may, whenever necessary, delegate this authority to perform any of the
acts referred to in this paragraph to any person pursuant to a special power-of-
attorney.
3. The Secretary shall keep a list of stockholders and of the number of shares
standing in the name of each and a record of the transfers thereof. He shall
keep a record of the votes and all other proceedings of all meetings of the
Directors and stockholders; and such other books and records as the Chief
Executive Officer or Directors may require. He shall give, or cause to be
given, notice of all meetings of stockholders and special meetings of the Board
of Directors. He shall have custody of the corporate records and Corporate Seal
and shall have the authority to affix the same to any instrument requiring it;
and when so affixed, it may be attested by his signature or the signature of an
Assistant Secretary; he shall also perform all acts usually incident to the
office of Secretary.
4. If the Secretary is absent or unable to discharge the duties of his office,
an Assistant Secretary may act.
5. The Treasurer shall have charge of all monies and securities of the
Company; and he shall collect all profits from investments which the Company
records establish to be due.
6. The Treasurer shall have authority to transfer securities, to execute
releases, extensions, partial releases, and assignments without recourse of
mortgages, to execute deeds and other instruments or documents on behalf of the
Company, and whenever necessary, to affix the Seal of the Company to the same.
He shall have the power to vote on behalf of the Company in any case where
-5-
<PAGE>
the Company as the holder of any securities had the authority to vote.
7. If the Treasurer is absent or unable to discharge the duties of his office,
an Assistant Treasurer may act.
ARTICLE VIII
Indemnification of Directors and Officers
Each Director and each Officer of the Corporation, whether or not in
office, (and his executors or administrators), shall be indemnified or
reimbursed by the Corporation against all expenses actually and necessarily
incurred by him in the defense or reasonable settlement of any action, suit, or
proceeding in which he is made a party by reason of his being or having been a
Director or Officer of the Corporation, including any sums paid in settlement or
to discharge judgment, except in relation to matters as to which he shall be
finally adjudged in such action, suit, or proceeding to be liable for negligence
or misconduct in the performance of his duties as such Director or Officer; and
the foregoing right of indemnification or reimbursement shall not affect any
other rights to which he may be entitled under the Articles of Incorporation,
any statute, bylaw, agreement, vote of stockholders, or otherwise.
ARTICLE IX
Notice
Whenever any notice is required to be given under the provisions of
statutes, the Articles of Incorporation, or these Bylaws, a waiver thereof, in
writing signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Attendance at any meeting shall constitute a waiver of notice
unless attendance is for the purpose of objecting to the transaction of
business.
ARTICLE X
Corporate Seal
The Corporation's Corporate Seal shall contain the words, "Allmerica
Financial Life Insurance and Annuity Company," surrounding the words, "Corporate
Seal," and the same may be altered by the Board of Directors.
-6-
<PAGE>
ARTICLE XI
Amendment
These Bylaws may be amended or repealed by the Directors or by majority
vote of the shares of stock outstanding and entitled to vote.
I hereby certify that the foregoing is a true copy of the Bylaws of said
Company in force on this date.
WITNESS my hand and the seal of said Company at Worcester, Massachusetts,
this _____ day of ________________, 19___.
____________________________
Secretary
(SEAL)
-7-
<PAGE>
August 9, 1996
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
Gentlemen:
In my capacity as Counsel of Allmerica Financial Life Insurance and Annuity
Company (the "Company"), I have participated in the preparation of the
Initial Registration for the Separate Account KG on Form N-4 under the
Securities Act of 1933 and the Investment Company Act of 1940, with respect
to the Company's individual and group variable annuity policies.
I am of the following opinion:
1. Separate Account KG is a separate account of the company validly existing
pursuant to the Delaware Insurance Code and the regulations issued
thereunder.
2. The assets held in Separate Account KG are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The individual and group variable annuity policies, when issued in
accordance with the Prospectus contained in the Registration Statement
and upon compliance with applicable local law, will be legal and binding
obligations of the Company in accordance with their terms and when sold
will be legally issued, fully paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Initial
Registration of Separate Account KG filed under the Securities Act of 1933.
Very truly yours,
/s/Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Initial Registration Statement for Separate Account
KG of Allmerica Financial Life Insurance and Annuity Company on Form N-4 of
our report dated February 5, 1996, relating to the financial statements of
Allmerica Financial Life Insurance and Annuity Company, which appears in such
Statement of Additional Information. We also consent to the reference to us
under the heading "Experts" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, MA
August 9, 1996
<PAGE>
Exhibit 13 (KEMPER GATEWAY ELITE)
TOTAL RETURN
Following are the calculations of Total Return for the Separate Accounts,
which are included in the Statement of Additional Information in this filing.
The calculations are based on the formula:
n
P (1 + T) = ERV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at the end of
the specified period.
The calculation of the ending value reflects the Separate Account asset
charge, and an $0.88 contract fee which represents a pro-rata portion of the
$35 contract fee based on a mean contract size of $40,000. It is assumed that
the investment is redeemed at the end of the period; therefore, the
calculation reflects the contingent deferred sales load which might be
applicable upon redemption of the policy.
Solving for T results in the following formula:
(1 / n)
T = (ERV / P) - 1
The following intermediate calculations are needed to determine ERV in order
to solve for T.
(1) CALCULATE THE ACCUMULATED VALUE AFTER n YEARS
AV = Sum (from j=0 to n-1) of [AV x (1+NR )-PF]
n j n
Where: AV = Accumulated Value after j years
j
and: AV = P
0
NR = average annual net return for the n year performance period
n
(1/365) (365)
NR = [(1 + GR ) - DFF]
n n
Where: GR = average annual gross return for the underlying funds as
n reported by Lipper Analytical Services.
DFF = daily fee factor equal to 0.0039% representing the daily
deduction of the mortality and expense charge (1.25%
annually) and the administrative charge (0.15% annually).
PF = policy fee equal to $0.88 representing the $35.00 charge
spread across a mean contract size of $40,000.
<PAGE>
Exhibit 13 (KEMPER GATEWAY ELITE)
(2) CALCULATE THE SURRENDER CHARGE
SC = P x SCRATE - PF (if not the end of the policy year)
n n
Where: SC = total charge due assuming surrender at the end of n years
n
SCRATE = contingent deferred sales charge for surrender at the end
n of n years
(3) CALCULATE THE REDUCTION IN SURRENDER CHARGE DUE TO THE WITHDRAWAL WITHOUT
SURRENDER CHARGE PROVISION
SC = SC - FPW x SCRATE
n n n n
Where: FPW = the amount of payment (P) reduced due to the Withdrawal
n without Surrender Charge provision. This is equal to the
amount the withdrawal without surrender charge exceeds the
earnings in the contract at the end of n years.
FPW = max(0; FW - (AV - P))
n n n
Where: FW = the withdrawal without surrender charge available at the
n end of n years
FW = max(AV x 15%; AV - P)
n n n
(4) CALCULATE ERV
ERV = AV - SC
n n
<PAGE>
Exhibit 13 (KEMPER GATEWAY ELITE)
KINF FUNDS AVERAGE ANNUAL RETURNS FOR THE PERIOD ENDING DECEMBER 31, 1995
Source - Lipper Analytical Services
(GR )
n
<TABLE>
<CAPTION>
Underlying Year Ended: Since Inception
Portfolios 12/31/95 3 Years 5 Years 10 Years Inception Date
- ---------- ----------- ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Money Market 5.57% 4.10% 4.32% 5.93% 7.01% 3/5/82
Total Return 25.97% 8.53% 12.38% 11.79% 13.16% 3/5/82
High Yield 17.40% 11.26% 19.75% 11.46% 13.68% 3/5/82
Growth 32.97% 13.52% 19.30% 13.22% 20.80% 12/9/83
Government Securities 18.98% 7.20% 8.51% N/A 8.46% 9/3/87
International 12.83% 13.04% N/A N/A 9.48% 1/6/92
Small Cap Growth 30.07% N/A N/A N/A 20.03% 5/2/94
Investment Grade Bond N/A N/A N/A N/A N/A 5/1/96
Value N/A N/A N/A N/A N/A 5/1/96
Small Cap Value N/A N/A N/A N/A N/A 5/1/96
Value+Growth N/A N/A N/A N/A N/A 5/1/96
Horizon 20+ N/A N/A N/A N/A N/A 5/1/96
Horizon 10+ N/A N/A N/A N/A N/A 5/1/96
Horizon 5+ N/A N/A N/A N/A N/A 5/1/96
</TABLE>
ILLUSTRATION OF TOTAL RETURN FOR n = 1 YEAR, USING THE MONEY MARKET PORTFOLIO
(1/365) (365)
NR = [(1 + 0.0557) - 0.000039] - 1 = 4.08%
1
AV = 1,000 x (1 + 0.0408) - 0.88 = 1,039.92
1
FW = max(1,039.92 x 0.15 ; 1,039.92 - 1,000) = 155.99
1
FPW = max(0 ; 155.99 - (1,039.92 - 1,000)) = 116.07
1
SC = 1,000 x 7% - 116.07 x 7% = 61.88
1
ERV = 1,039.92 - 61.88 = 978.04
(1/1)
T = (978.04 / 1,000) - 1 = -2.20%
<PAGE>
Exhibit 13 (KEMPER GATEWAY ELITE)
ILLUSTRATION OF TOTAL RETURN FOR n = 3 YEARS, USING THE MONEY MARKET PORTFOLIO
(1/365) (365)
NR = [(1 + 0.0410) - 0.000039] - 1 = 2.63%
3
AV = 1,000 x (1 + 0.0263) - 0.88 = 1,025.42
1
AV = 1,025.42 x (1 + 0.0263) - 0.88 = 1,051.51
2
AV = 1,051.51 x (1 + 0.0263) - 0.88 = 1,078.28
3
FW = max(1,078.28 x 0.15 ; 1,078.28 - 1,000) = 161.74
3
FPW = max(0 ; 161.74 - (1,078.28 - 1,000)) = 83.46
3
SC = 1,000 x 5% - 83.46 x 5% = 45.83
3
ERV = 1,078.28 - 45.83 = 1,032.45
(1/3)
T = (1,032.45 / 1,000) - 1 = 1.07%
ILLUSTRATION OF TOTAL RETURN FOR n = 5 YEARS, USING THE MONEY MARKET PORTFOLIO
(1/365) (365)
NR = [(1 + 0.0432) - 0.000039] - 1 = 2.85%
5
AV = 1,000 x (1 + 0.0285) - 0.88 = 1,027.62
1
AV = 1,027.62 x (1 + 0.0285) - 0.88 = 1,056.03
2
AV = 1,056.03 x (1 + 0.0285) - 0.88 = 1,085.24
3
AV = 1,085.24 x (1 + 0.0285) - 0.88 = 1,115.29
4
AV = 1,115.29 x (1 + 0.0285) - 0.88 = 1,146.20
5
FW = max(1,146.20 x 0.15; 1,146.20 - 1,000) = 171.93
5
FPW = max(0 ; 171.93 - (1,146.20 - 1,000)) = 25.73
5
SC = 1,000 x 3% - 25.73 x 3% = 29.23
5
ERV = 1,146.20 - 29.23 = 1,116.97
(1/5)
T = (1,116.97 / 1,000) - 1 = 2.24%
<PAGE>
Exhibit 13 (KEMPER GATEWAY ELITE)
ILLUSTRATION OF TOTAL RETURN FOR n = 10 YEARS, USING THE MONEY MARKET PORTFOLIO
(1/365) (365)
NR = [(1 + 0.0593) - 0.000039] - 1 = 4.43%
10
AV = 1,000 x (1 + 0.0443) - 0.88 = 1,043.42
1
AV = 1,043.42 x (1 + 0.0443) - 0.88 = 1,088.76
2
AV = 1,088.76 x (1 + 0.0443) - 0.88 = 1,136.12
3
AV = 1,136.12 x (1 + 0.0443) - 0.88 = 1,185.57
4
AV = 1,185.57 x (1 + 0.0443) - 0.88 = 1,237.21
5
AV = 1,237.21 x (1 + 0.0443) - 0.88 = 1,291.13
6
AV = 1,291.13 x (1 + 0.0443) - 0.88 = 1,347.45
7
AV = 1,347.45 x (1 + 0.0443) - 0.88 = 1,406.26
8
AV = 1,406.26 x (1 + 0.0443) - 0.88 = 1,467.68
9
AV = 1,467.68 x (1 + 0.0443) - 0.88 = 1,531.82
10
FW = max(1,531.82 x 0.15 ; 1,531.82 - 1,000) = 531.82
10
FPW = max(0 ; 531.82 - (1,531.82 - 1,000)) = 0.00
10
SC = 1,000 x 0% - 0.00 x 0% = 0.00
10
ERV = 1,531.82 - 0.00 = 1,531.82
(1/10)
T = (1,531.82 / 1,000) - 1 = 4.36%
<PAGE>
Exhibit 13 (KEMPER GATEWAY ELITE)
ILLUSTRATION OF TOTAL RETURN FOR n = LIFETIME OF FUND (13 YEARS, 301 DAYS),
USING THE MONEY MARKET PORTFOLIO
(1/365) (365)
NR = [(1 + 0.0701) - 0.000039] - 1 = 5.50%
13 301/365
AV = 1,000 x (1 + 0.0550) - 0.88 = 1,054.12
1
AV = 1,054.12 x (1 + 0.0550) - 0.88 = 1,111.22
2
AV = 1,111.22 x (1 + 0.0550) - 0.88 = 1,171.45
3
AV = 1,171.45 x (1 + 0.0550) - 0.88 = 1,235.00
4
AV = 1,235.00 x (1 + 0.0550) - 0.88 = 1,302.05
5
AV = 1,302.05 x (1 + 0.0550) - 0.88 = 1,372.78
6
AV = 1,372.78 x (1 + 0.0550) - 0.88 = 1,447.40
7
AV = 1,447.40 x (1 + 0.0550) - 0.88 = 1,526.13
8
AV = 1,526.13 x (1 + 0.0550) - 0.88 = 1,609.19
9
AV = 1,609.19 x (1 + 0.0550) - 0.88 = 1,696.81
10
AV = 1,696.81 x (1 + 0.0550) - 0.88 = 1,789.26
11
AV = 1,789.26 x (1 + 0.0550) - 0.88 = 1,886.79
12
AV = 1,886.79 x (1 + 0.0550) - 0.88 = 1,989.68
13
AV = 1,989.68 x (1 + 0.0550) = 2,079.50
13 301/365
FW = max(2,079.50 x 0.15 ; 2,079.50 - 1,000) = 1,079.50
13 301/365
FPW = max(0 ; 1,079.50 - (2,079.50 - 1,000)) = 0.00
13 301/365
SC = 1,000 x 0% - 0.00 x 0% - 0.88 = 0.88
13 301/365
ERV = 2,079.50 - 0.88 = 2,078.62
(1/(13 301/365))
T = (2,078.62 / 1,000) - 1 = 5.44%
<PAGE>
Exhibit 13 (KEMPER GATEWAY ELITE)
SUPPLEMENTAL TOTAL RETURN
Following are the calculations for supplemental total return information
which is included in the Statement of Additional Information in this filing.
The calculations are based on the formula:
n
P(1+T) = EV
Where: P = a hypothetical initial payment to the Separate Account of $1,000
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at the end of the
specified period.
The calculation of the ending value reflects the Separate Account asset
charge, and an $0.88 contract fee which represents a pro-rata portion of the
$35 contract fee based on a mean contract size of $40,000. It is assumed that
the investment is NOT redeemed at the end of the period; therefore, the
calculation does NOT reflect the contingent deferred sales load which might
be applicable upon redemption of the policy.
Solving for T results in the following formula:
(1/n)
T = (EV / P) - 1
The following intermediate calculation is needed to determine EV.
CALCULATE THE ACCUMULATED VALUE AFTER n YEARS
EV = AV = Sum (from j=0 to n-1) of [AV x (1+NR ) - PF]
n j n
Where: AV = Accumulated Value after j years
j
and: AV = P
0
NR = average annual net return for the n year performance period
n
(1/365) (365)
NR = [ (1 + GR) - DFF]
n n
Where: GR = average annual gross return for the underlying funds
n as reported by Lipper Analytical Services.
DFF = daily fee factor equal to 0.0039% representing the
daily deduction of the mortality and expense charge
(1.25% annually) and the administrative charge (0.15%
annually).
PF = policy fee equal to $0.88 representing the $35.00 charge spread
across a mean contract size of $40,000.
<PAGE>
Exhibit 13 (KEMPER GATEWAY ELITE)
KINF FUNDS AVERAGE ANNUAL RETURNS FOR THE PERIOD ENDING DECEMBER 31, 1995
Source - Lipper Analytical Services
(GR )
n
<TABLE>
<CAPTION>
Underlying Year Ended: Since Inception
Portfolios 12/31/95 3 Years 5 Years 10 Years Inception Date
- ---------- ----------- ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Money Market 5.57% 4.10% 4.32% 5.93% 7.01% 3/5/82
Total Return 25.97% 8.53% 12.38% 11.79% 13.16% 3/5/82
High Yield 17.40% 11.26% 19.75% 11.46% 13.68% 3/5/82
Growth 32.97% 13.52% 19.30% 13.22% 20.80% 12/9/83
Government Securities 18.98% 7.20% 8.51% N/A 8.46% 9/3/87
International 12.83% 13.04% N/A N/A 9.48% 1/6/92
Small Cap Growth 30.07% N/A N/A N/A 20.03% 5/2/94
Investment Grade Bond N/A N/A N/A N/A N/A 5/1/96
Value N/A N/A N/A N/A N/A 5/1/96
Small Cap Value N/A N/A N/A N/A N/A 5/1/96
Value+Growth N/A N/A N/A N/A N/A 5/1/96
Horizon 20+ N/A N/A N/A N/A N/A 5/1/96
Horizon 10+ N/A N/A N/A N/A N/A 5/1/96
Horizon 5+ N/A N/A N/A N/A N/A 5/1/96
</TABLE>
ILLUSTRATION OF SUPPLEMENTAL TOTAL RETURN FOR n = 1 YEAR, USING THE MONEY
MARKET PORTFOLIO
(1/365) (365)
NR = [(1 + 0.0557) - 0.000039] - 1 = 4.08%
1
AV = 1,000 x (1 + 0.0408) - 0.88 = 1,039.92
1
EV = 1,039.92
(1/1)
T = (1,039.92 / 1,000) - 1 = 3.99%
ILLUSTRATION OF SUPPLEMENTAL TOTAL RETURN FOR n = 3 YEARS, USING THE MONEY
MARKET PORTFOLIO
(1/365) (365)
NR = [(1 + 0.0410) - 0.000039] - 1 = 2.63%
3
AV = 1,000 x (1 + 0.0263) - 0.88 = 1,025.42
1
AV = 1,025.42 x (1 + 0.0263) - 0.88 = 1,051.51
2
<PAGE>
Exhibit 13 (KEMPER GATEWAY ELITE)
AV = 1,051.51 x (1 + 0.0263) - 0.88 = 1,078.28
3
EV = 1,078.28
(1/3)
T = (1,078.28 / 1,000) - 1 = 2.54%
ILLUSTRATION OF SUPPLEMENTAL TOTAL RETURN FOR n = 5 YEARS, USING THE MONEY
MARKET PORTFOLIO
(1/365) (365)
NR = [(1 + 0.0432) - 0.000039] - 1 = 2.85%
5
AV = 1,000 x (1 + 0.0285) - 0.88 = 1,027.62
1
AV = 1,027.62 x (1 + 0.0285) - 0.88 = 1,056.03
2
AV = 1,056.03 x (1 + 0.0285) - 0.88 = 1,085.24
3
AV = 1,085.24 x (1 + 0.0285) - 0.88 = 1,115.29
4
AV = 1,115.29 x (1 + 0.0285) - 0.88 = 1,146.20
5
EV = 1,146.20
(1/5)
T = (1,146.20 / 1,000) - 1 = 2.77%
ILLUSTRATION OF SUPPLEMENTAL TOTAL RETURN FOR n = 10 YEARS, USING THE MONEY
MARKET PORTFOLIO
(1/365) (365)
NR = [(1 + 0.0593) - 0.000039] - 1 = 4.43%
10
AV = 1,000 x (1 + 0.0443) - 0.88 = 1,043.42
1
AV = 1,043.42 x (1 + 0.0443) - 0.88 = 1,088.76
2
AV = 1,088.76 x (1 + 0.0443) - 0.88 = 1,136.12
3
AV = 1,136.12 x (1 + 0.0443) - 0.88 = 1,185.57
4
AV = 1,185.57 x (1 + 0.0443) - 0.88 = 1,237.21
5
AV = 1,237.21 x (1 + 0.0443) - 0.88 = 1,291.13
6
AV = 1,291.13 x (1 + 0.0443) - 0.88 = 1,347.45
7
AV = 1,347.45 x (1 + 0.0443) - 0.88 = 1,406.26
8
AV = 1,406.26 x (1 + 0.0443) - 0.88 = 1,467.68
9
AV = 1,467.68 x (1 + 0.0443) - 0.88 = 1,531.82
10
FW = max(1,531.82 x 0.15 ; 1,531.82 - 1,000) = 531.82
10
<PAGE>
Exhibit 13 (KEMPER GATEWAY ELITE)
FPW = max(0 ; 531.82 - (1,531.82 - 1,000)) = 0.00
10
SC = 1,000 x 0% - 0.00 x 0% = 0.00
10
EV = 1,531.82
(1/10)
T = (1,531.82 / 1,000) - 1 = 4.36%
ILLUSTRATION OF SUPPLEMENTAL TOTAL RETURN FOR n = LIFETIME OF FUND (13 YEARS,
301 DAYS), USING THE MONEY MARKET PORTFOLIO
(1/365) (365)
NR = [(1 + 0.0701) - 0.000039] - 1 = 5.50%
13 301/365
AV = 1,000 x (1 + 0.0550) - 0.88 = 1,054.12
1
AV = 1,054.12 x (1 + 0.0550) - 0.88 = 1,111.22
2
AV = 1,111.22 x (1 + 0.0550) - 0.88 = 1,171.45
3
AV = 1,171.45 x (1 + 0.0550) - 0.88 = 1,235.00
4
AV = 1,235.00 x (1 + 0.0550) - 0.88 = 1,302.05
5
AV = 1,302.05 x (1 + 0.0550) - 0.88 = 1,372.78
6
AV = 1,372.78 x (1 + 0.0550) - 0.88 = 1,447.40
7
AV = 1,447.40 x (1 + 0.0550) - 0.88 = 1,526.13
8
AV = 1,526.13 x (1 + 0.0550) - 0.88 = 1,609.19
9
AV = 1,609.19 x (1 + 0.0550) - 0.88 = 1,696.81
10
AV = 1,696.81 x (1 + 0.0550) - 0.88 = 1,789.26
11
AV = 1,789.26 x (1 + 0.0550) - 0.88 = 1,886.79
12
AV = 1,886.79 x (1 + 0.0550) - 0.88 = 1,989.68
13
AV = 1,989.68 x (1 + 0.0550) = 2,079.50
13 301/365
EV = 2,079.50
(1/(13 301/365))
T = (2,079.50 / 1,000) - 1 = 5.44%
<PAGE>
GATEWAY
PARTICIPATION AGREEMENT
AMONG
KEMPER INVESTORS FUND
ZURICH KEMPER INVESTMENTS, INC.
KEMPER DISTRIBUTORS, INC.
AND
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THIS AGREEMENT, made and entered into as of this _____ day of ____________,
1996 by and among Allmerica Financial Life Insurance and Annuity Company
(hereinafter, the "Company"), a Delaware insurance company, 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 account hereinafter referred
to as an "Account"), Kemper Investors Fund, a business trust organized under
the laws of the Commonwealth of Massachusetts (hereinafter the "Fund"),
Zurich Kemper Investments, Inc. (hereinafter the "Adviser"), a Delaware
corporation, and Kemper Distributors, Inc. (hereinafter the "Underwriter"), 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 for variable life insurance and variable annuity contracts
(hereinafter the "Variable Insurance Products") offered by insurance companies
that have entered into participation agreements with the Fund (hereinafter
"Participating Insurance Companies");
WHEREAS, the beneficial interest in the Fund is divided into several series of
shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance 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, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemption Order");
<PAGE>
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act");
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;
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts supported wholly or partially by the
Accounts (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement;
WHEREAS, each Account is duly established and maintained as a separate account,
established by resolution 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 Contracts;
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act;
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC under the
Securities Exchange Act of 1934, as amended ("1934 Act"), and is a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the Portfolios listed in Schedule A
hereto, as it may be amended from time to time at the request of the Fund,
Underwriter and Adviser and with the consent of the Company, which consent will
not be unreasonably withheld ("Designated Portfolios"), on behalf of the
Accounts to fund the aforesaid Contracts, and the Underwriter is authorized to
sell such shares to unit investment trusts such as the Accounts at net asset
value; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company also intends to purchase shares in other open-end investment
companies or series thereof not affiliated with the Fund ("Unaffiliated Funds")
on behalf of the Accounts to fund the Contracts if and to the extent that the
Underwriter and the Adviser so agree, in their sole discretion;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and the Underwriter agree as follows:
2
<PAGE>
ARTICLE I
SALE OF FUND SHARES
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios that the Accounts order, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of each Designated Portfolio available
for purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Fund calculates such Designated Portfolio's
net asset value pursuant to rules of the SEC, and the Fund shall use reasonable
efforts to calculate such net asset value on each day when the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the Board of
Trustees of the Fund ("Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated 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 its fiduciary duties under federal and any
applicable state laws, necessary in the best interest of the shareholders of
such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies or their separate accounts. No
shares of any Designated Portfolios will be sold to the general public. The
Fund and the Underwriter will not sell shares of any Designated Portfolio to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.1, 3.4, 3.5 and 3.6 and Article VII of this
Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios 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, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any rules thereunder, and in accordance with the procedures and
policies of the Fund as described in the Fund's then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Accounts, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order prior to the determination of net
asset value as set forth in the Fund's then current prospectus and the Fund
receives notice of such order by 9:30 a.m. New York 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 SEC.
3
<PAGE>
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the Fund's then current prospectus in accordance
with the provisions of such prospectus.
1.7 The Company shall pay for shares of a Designated Portfolio on the next
Business Day after receipt of an order to purchase shares of such Designated
Portfolio. Payment shall be in federal funds transmitted by wire by 11:00 a.m.
New York time. If payment in federal funds for any purchase is not received or
is received by the Fund after 11:00 a.m. New York time on such Business Day, the
Company shall promptly, upon the Fund's request, reimburse the Fund for any
charges, costs, fees, interest or other expenses incurred by the Fund in
connection with any advances to, or borrowing or overdrafts by, the Fund, or any
similar expenses incurred by the Fund, as a result of portfolio transactions
effected by the Fund based upon such purchase request. For purposes of
Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal funds so
wired, such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Fund.
1.8 Issuance and transfer of the shares of a Designated Portfolio will be
by book entry only. Stock certificates will not be issued to the Company or any
Account. Shares of a Designated Portfolio ordered from the Fund will be
recorded in an appropriate title for each Account or the appropriate subaccount
of each Account.
1.9 The Fund shall furnish same-day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on shares of the Designated Portfolios. The Company
hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on shares of a Designated Portfolio in additional
shares of that Designated Portfolio. The Company reserves the right to revoke
this election and to receive all such income 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. The Fund shall
use its best efforts to furnish advance notice of the day such dividends and
distributions are expected to be paid.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
New York time) and shall use its best efforts to make such net asset value per
share available by 7:00 p.m. New York time.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the shares of the Designated Portfolios (and
other Portfolios of the Fund) may be sold to other insurance companies (subject
to Section 1.3 and Article VII hereof) and the cash value of the Contracts may
be invested in other investment companies, provided, however, that the Adviser
and Underwriter consent to the use of such other investment company in their
sole discretion.
4
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. 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 separate account under the
Delaware insurance laws and has registered or, prior to any issuance or sale of
the Contracts, will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a separate account
for the Contracts.
2.2 The Fund represents and warrants that shares of the Designated
Portfolios sold pursuant to this Agreement shall be registered under the 1933
Act, duly authorized for issuance and sold in compliance with all applicable
federal securities laws and that the Fund is and shall remain registered under
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 of the Designated Portfolios 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 currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future subject to applicable law.
2.4 The Fund makes no representations as to whether any aspect of its
operation, including but not limited to, investments policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the investment policies, fees and
expenses of the Designated Portfolios are and shall at all times remain in
compliance with the insurance laws of the State of Delaware to the extent
required to perform this Agreement. The Company will advise the Fund in writing
as to any requirements of Delaware insurance law that affect the Designated
Portfolios, and the Fund will be deemed to be in compliance with this Section
2.4 so long as the Fund complies with such advice of the Company.
2.5 The Fund represents that it is lawfully organized and validly existing
as a business trust under the laws of the Commonwealth of Massachusetts and that
it does and will comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the shares of
the Designated Portfolios in accordance with any applicable state and federal
securities laws.
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2.7 The Adviser represents and warrants that it is and shall remain duly
registered as an investment adviser under all applicable federal and state
securities laws and that the Adviser shall perform its obligations for the Fund
in compliance in all material respects with any applicable state and federal
securities laws.
2.8 The Fund, the Adviser and the Underwriter represent and warrant that
all their directors, officers, employees, investment advisers, and other
individuals or 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
minimum coverage required currently by Rule 17g-1 of the 1940 Act or such
related provisions as may be promulgated from time to time. The aforesaid bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.9 The Company represents and warrants that all its directors, officers,
employees, investment advisers, and other individuals or entities employed or
controlled by the Company dealing with the money and/or securities of the Fund
are covered by a blanket fidelity bond or similar coverage in an amount not less
than $20 million. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company. The Company agrees
that this bond or another bond containing these provisions will always be in
effect, and agrees to notify the Fund, the Adviser and the Underwriter in the
event that such coverage no longer applies.
2.10 The Company represents and warrants that all shares of the Designated
Portfolios purchased by the Company will be purchased on behalf of one or more
unmanaged separate accounts that offer interests therein that are registered
under the 1933 Act and upon which a registration fee has been or will be paid;
and the Company acknowledges that the Fund intends to rely upon this
representation and warranty for purposes of calculating SEC registration fees
payable with respect to such shares of the Designated Portfolios pursuant to
Instruction B.5 to Form 24F-2 or any similar form or SEC registration fee
calculation procedure that allows the Fund to exclude shares so sold for
purposes of calculating its SEC registration fee. The Company agrees to
cooperate with the Fund on no less than an annual basis to certify as to its
continuing compliance with this representation and warranty.
ARTICLE III
PROSPECTUSES, STATEMENTS OF ADDITIONAL
INFORMATION, AND PROXY STATEMENTS; VOTING
3.1 The Fund shall provide the Company with as many copies of the Fund's
current prospectus for the Designated Portfolios as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus) and other
assistance as is reasonably necessary in order for the Company once each year
(or more frequently if the prospectus for a Designated Portfolio is amended) to
have the prospectus for the Contracts and the prospectus for the Designated
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Portfolios printed together in one document. Expenses with respect to the
foregoing shall be borne as provided under Article V.
3.2 The Fund's prospectus shall disclose that (a) the Fund is intended to
be a funding vehicle for all types of variable annuity and variable life
insurance contracts offered by Participating Insurance Companies, (b) material
irreconcilable conflicts of interest may arise, and (c) the Fund's Board will
monitor events in order to identify the existence of any material irreconcilable
conflicts and determine what action, if any, should be taken in response to such
conflicts. The Fund hereby notifies the Company that disclosure in the
prospectus for the Contracts regarding the potential risks of mixed and shared
funding may be appropriate. Further, the Fund's prospectus shall state that the
current Statement of Additional Information ("SAI") for the Fund is available
from the Company (or, in the Fund's discretion, from the Fund), and the Fund
shall provide a copy of such SAI to any owner of a Contract who requests such
SAI and to the Company in such quantities as the Company may reasonably request.
Expenses with respect to the foregoing shall be borne as provided under Article
V.
3.3 The Fund shall provide the Company with copies of its proxy material,
reports to shareholders, and other communications to shareholders for the
Designated Portfolios in such quantity as the Company shall reasonably require
for distributing to Contract owners. Expenses with respect to the foregoing
shall be borne as provided under Article V.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the shares of each Designated Portfolio in accordance
with instructions received from Contract owners; and
(iii) vote shares of each Designated Portfolio for which no
instructions have been received in the same proportion as
shares of such Designated Portfolio for which instructions
have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote shares
of each Designated Portfolio held in any separate account in its own right, to
the extent permitted by law.
3.5 The Company shall be responsible for assuring that each of its
separate accounts participating in a Designated Portfolio calculates voting
privileges as required by the Shared Funding Exemption Order and consistent with
any reasonable standards that the Fund has adopted or may adopt.
3.6 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 or comply with
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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, Section 16(b). Further, the Fund will act in accordance
with the SEC's interpretation of the requirements of Section 16(a) with respect
to periodic elections of directors or trustees and with whatever rules the SEC
may promulgate from time to time with respect thereto. The Fund reserves the
right, upon prior written notice to the Company, to take all actions, including
but not limited to, the dissolution, termination, merger and sale of all assets
of the Fund or any Designated Portfolio upon the sole authorization of the
Board, to the extent permitted by the laws of the Commonwealth of Massachusetts
and the 1940 Act.
3.7 It is understood and agreed that, except with respect to information
regarding the Fund, the Underwriter, the Adviser or Designated Portfolios
provided in writing by the Fund, the Underwriter or the Adviser, none of the
Fund, the Underwriter or the Adviser is responsible for the content of the
prospectus or statement of additional information for the Contracts.
ARTICLE IV
SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or the Underwriter, each piece of sales literature or other promotional material
("sales literature") that the Company develops or uses and in which the Fund (or
a Designated Portfolio thereof) or the Adviser or the Underwriter is named, at
least fifteen calendar days prior to its use. No such material shall be used if
the Fund or its designee reasonably objects to such use within fifteen calendar
days after receipt of such material. The Fund or its designee reserves the
right to reasonably object to the continued use of such material, and no such
material shall be used if the Fund or its designee so object.
4.2 The Company shall not give any information or make any representation
or statement 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, prospectus or SAI for the shares of the Designated
Portfolios, as such registration statement, prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature approved by the Fund or its designee or by the
Underwriter, except with the permission of the Fund or the Underwriter or the
designee of either.
4.3 The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company, each piece of sales literature that the Fund or
Underwriter develops or uses in which the Company and/or its Account is named,
at least fifteen calendar days prior to its use. No such material shall be used
if the Company reasonably objects to such use within fifteen calendar days after
receipt of such material. The Company reserves the right to reasonably object
to the continued use of such material and no such material shall be used if the
Company so objects.
4.4 The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than
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the information or representations contained in a registration statement,
prospectus, or statement of additional information for the Contracts, as such
registration statement, prospectus or statement of additional information may be
amended or supplemented from time to time, or in published reports for the
Accounts which are the public domain or approved by the Company for distribution
to Contract owners, or in sales literature 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
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Designated Portfolios,
contemporaneously with the filing of such document(s) with the SEC or other
regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
shareholder reports, solicitations for voting instructions, sales literature,
applications for exemptions, request for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Accounts,
contemporaneously with the filing of such document(s) with the SEC or other
regulatory authorities.
4.7 For purposes of this Agreement, the phrase "sales literature"
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, reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article) and educational or
training materials or other communications distributed or made generally
available to some or all agents or employees.
4.8 At the request of any party to this Agreement, any other party will
make available to the requesting party's independent auditors all records, data
and access to operating procedures that may reasonably be requested in
connection with compliance and regulatory requirements related to this Agreement
or any party's obligations under this Agreement.
4.9 The Company shall not without the written consent of the Fund and the
Underwriter directly or indirectly solicit, encourage or induce: (i) Contract
owner transactions that will result in the redemption of shares of a Designated
Portfolio; (ii) Contract owners to change the investment manager or sub-adviser
of a Designated Portfolio; or (iii) Contract owners to change, modify,
substitute, add or delete any investment media.
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ARTICLE V
FEES AND EXPENSES
5.1 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except and as further provided in Schedule B. The
Fund shall see to it that all shares of the Designated Portfolios are
registered, duly authorized for issuance and sold in compliance with applicable
federal securities laws and, if and to the extent deemed advisable by the Fund,
in accordance with applicable state securities laws prior to their sale.
5.2 The parties hereto shall bear the expenses of typesetting, printing
and distributing the Fund's prospectus, SAI, proxy materials and reports as
provided in Schedule B.
5.3 Administrative services to variable Contract owners shall be the
responsibility of the Company and shall not be the responsibility of the Fund,
Underwriter or Adviser. The Fund recognizes the Company as the sole shareholder
of shares of the Designated Portfolios issued under the Agreement.
5.4 The Fund shall not pay and neither the Adviser nor the Underwriter
shall pay any fee or other compensation to the Company under this Agreement,
although the parties will bear certain expenses in accordance with Schedule B
and other provisions of this Agreement.
ARTICLE VI
DIVERSIFICATION AND QUALIFICATION
6.1 The Fund will invest the assets of each Designated Portfolio in such a
manner as to ensure that the Contracts will be treated as annuity or life
insurance contracts, whichever is appropriate, under the Internal Revenue Code
of 1986, as amended ("Code") and the regulations issued thereunder (or any
successor provisions). Without limiting the scope of the foregoing, the Fund
will, with respect to each Designated Portfolio, comply with Section 817(h) of
the Code and Treasury Regulation Section 1.817-5, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, and any amendments or
other modifications or successor provisions to such Section or Regulations. In
the event of a breach of this Article VI, the Fund will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
the affected Designated Portfolio so as to achieve compliance within the grace
period afforded by Treasury Regulation Section 1.817-5.
6.2 The Fund represents that each Designated Portfolio is currently
qualified (and for new Designated Portfolios, intends to qualify) as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that a Designated Portfolio has ceased to so
qualify or that a Designated Portfolio might not so qualify in the future.
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6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make every
effort to maintain such treatment, and that it will notify the Fund, the Adviser
and the Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is
a "modified endowment contract" as that term is defined in Section 7702A of the
Code (or any successor or similar provision), shall identify such contract as a
modified endowment contract.
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 Designated Portfolio are being managed; (e) a difference in
voting instructions given by variable annuity contract 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.
7.2 The Company and the Adviser will report any potential or existing
conflicts of which each is aware to the Board. The Company will assist the
Board in carrying out its responsibilities under the Shared Funding Exemption
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. At least annually, and more frequently if deemed
appropriate by the Board, the Company shall submit to the Adviser, and the
Adviser shall at least annually submit to the Board, such reports, materials and
data as the Board may reasonably request so that the Board may fully carry out
the obligations imposed upon it by the conditions contained in the Shared
Funding Exemption Order; and said reports, materials and data shall be submitted
more frequently if deemed appropriate by the Board. The responsibility to
report such information and conflicts to the Board will be carried out with a
view only to the interests of the contract owners.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and any other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (a),
withdrawing the assets
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allocable to some or all of the separate accounts from the Fund or any
Designated Portfolio and reinvesting such assets in a different investment
medium, which may include another Designated Portfolio of the Fund, or
submitting to a vote of all affected contract owners the question whether such
segregation should be implemented and, as appropriate, segregating the assets of
any appropriate group (I.E. annuity contract owners, life insurance contract
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 (b), establishing a new
registered management investment company or managed separate account.
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 any Designated Portfolio and terminate this Agreement with respect
to such Account 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. The
Company will bear the cost of any remedial action, including such withdrawal and
termination. No penalty will be imposed by the Fund upon the affected Account
for withdrawing assets from the Fund in the event of a material irreconcilable
conflict. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented, and until the effective date of such termination the Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of such Designated Portfolio.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the affected Designated Portfolio and terminate
this Agreement with respect to such Account within six months after the Board
informs the Company in writing that it has determined that such decision has
created an irreconcilable material conflict; 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. Until the effective date of such
termination the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of such Designated
Portfolios.
7.6 For purposes of Sections 7.3 through 7.6 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 to establish a new funding
medium for the Contract 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. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw
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an Account's investment in any Designated Portfolio and terminate this Agreement
within six (6) months after the Board informs the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
7.7 If and to the extent the Shared Funding Exemption Order contains terms
and conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5
of this Agreement, then the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with the
Shared Funding Exemption Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4
and 7.5 of the Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in the
Shared Funding Exemption Order or any amendment thereto. 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 Exemption Order) on terms and conditions materially different from those
contained in the Shared Funding Exemption Order, then (a) 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; and (b) Sections 3.4, 3.5,
3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect only
to the extent that terms and conditions substantially identical to such Sections
are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION BY THE COMPANY.
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, the Underwriter and each of their officers, trustees and directors and
each person, if any, who controls the Fund, the Adviser or the Underwriter
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 or
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 shares of the Designated Portfolios 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, prospectus, or statement of additional information
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
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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 in writing to the Company by
or on behalf of the Fund for use in the Registration Statement, prospectus
or statement of additional information for the Contracts or in the
Contracts or sales literature for the Contracts (for any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or shares of the Designated Portfolios; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus, SAI or sales literature of the Fund not supplied by
the Company or persons under its control) or wrongful conduct of the
Company or persons under its authorization or control, with respect to the
sale or distribution of the Contracts or shares of the Designated
Portfolios; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement,
prospectus, SAI 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
statements therein not misleading if such a statement or omission was made
in reliance upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good faith or
otherwise, to comply with the qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in any
Registration Statement, prospectus, statement of additional information or
sales literature for any Unaffiliated Fund, or arise out of or are based
upon 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, or otherwise pertain to or arise in connection with the
availability of any Unaffiliated Fund as an underlying funding vehicle in
respect of the Contracts; or
(vi) 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;
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c).
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(b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of 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 its obligations or duties under this Agreement.
(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 that it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision, except to the extent that the Company
has been prejudiced by such failure to give notice. In case any such action is
brought against an Indemnified Party, the Company shall be entitled to
participate, at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action and to settle the claim at its own expense
provided, however, that no such settlement shall, without the Indemnified
Parties' written consent, include any factual stipulation referring to the
Indemnified Parties or their conduct. 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.
(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the shares of the Designated Portfolios or the Contracts
or the operation of the Fund.
8.2 INDEMNIFICATION BY THE UNDERWRITER
(a) The Underwriter agrees 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
or 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 shares of the Designated Portfolios 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, prospectus or SAI
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of the Fund or sales literature of the Fund developed by the Underwriter
(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 Underwriter or Fund by
or on behalf of the Company for use in the Registration Statement or
prospectus for the Fund or its sales literature (or any amendment or
supplement thereto) or otherwise for use in connection with the sale of the
Contracts or shares of the Designated Portfolios; 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 Underwriter or persons under its control) or wrongful conduct of the
Fund or Underwriter or person under their control with respect to the sale
or distribution of the Contracts or shares of the Designated Portfolios; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement, prospectus or sales
literature for 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
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise,
to comply with the diversification and other qualification requirements
specified in Article VI 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 Sections 8.2(b) and
8.2(c) hereof.
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Accounts, whichever is applicable.
16
<PAGE>
(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, except to the extent that the
Underwriter has been prejudiced by such failure to give notice. In case any
such action is brought against the Indemnified Party, 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 and to settle the claim at is own
expense; provided, however, that no such settlement shall, without the
Indemnified Parties' written consent, include any factual stipulation referring
to the Indemnified Parties or their conduct. 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 expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
(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 the issuance or sale of the Contracts or the
operation of the Account.
8.3 INDEMNIFICATION BY THE FUND
(a) The Fund agrees 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 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund); or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise,
to comply with the diversification and qualification requirements specified
in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Fund;
17
<PAGE>
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
(b) The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of 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 and duties under this Agreement or to the
Company, the Fund, the Underwriter, the Adviser or the Accounts, whichever is
applicable.
(c) The Fund 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 Fund 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 Fund of any such claim shall not
relieve the Fund from any liability that it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision, except to the extent that the Fund has been
prejudiced by such failure to give notice. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action and to settle the claim at its own expense; provided, however, that no
such settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Fund to such party of the Fund'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 Fund 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.
(d) The Company, the Adviser and the Underwriter agree to notify the
Fund promptly of the commencement of any litigation or proceeding against it or
any of its respective officers or directors in connection with the Agreement,
the issuance or sale of the Contracts, the operation of any Account, or the sale
or acquisition of shares of the Designated Portfolios.
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 Commonwealth of
Massachusetts.
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 the statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding
18
<PAGE>
Exemption 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 with respect to any
Designated Portfolio, by twelve (12) months' advance written notice delivered to
the other parties; provided, however, that such notice shall not be given
earlier than five (5) years following the date of this Agreement; or
(b) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Designated Portfolio based upon
the Company's reasonable and good faith determination that shares of such
Designated Portfolio are not reasonably available to meet the requirements of
the Contracts; or
(c) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Designated Portfolio if the
shares of such Designated Portfolio are not registered, issued or sold in
accordance with applicable state and/or federal securities laws or such law
precludes the use of such shares to fund the Contracts issued or to be issued by
the Company; or
(d) termination by the Fund, the Adviser or Underwriter in the event
that formal administrative proceedings are instituted against the Company or any
affiliate by the NASD, the SEC, or the Insurance Commissioner or like official
of any state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the operation of any
Account, or the purchase of the shares of a Designated Portfolio or the shares
of any Unaffiliated Fund, provided, however, that the Fund, the Adviser or
Underwriter determines in its sole judgement exercised in good faith, that any
such administrative proceedings will have a material adverse effect upon the
ability of the Company to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund, the Adviser or
Underwriter by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body, provided, however, that the Company
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the ability
of the Fund or Underwriter to perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund, the
Adviser and the Underwriter with respect to any Designated Portfolio in the
event that such Designated Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M or fails to comply
19
<PAGE>
with the Section 817(h) diversification requirements specified in Article VI
hereof, or if the Company reasonably believes that such Designated Portfolio may
fail to so qualify or comply; or
(g) termination by the Fund, the Adviser or Underwriter by written
notice to the Company in the event that the Contracts fail to meet the
qualifications specified in Article VI hereof; or
(h) termination by any of the Fund, the Adviser or the Underwriter by
written notice to the Company, if any of the Fund, the Adviser or the
Underwriter, respectively, shall determine, in their sole judgement exercised in
good faith, that the Company has suffered a material adverse change in its
business, operations, financial condition, insurance company rating or prospects
since the date of this Agreement or is the subject of material adverse
publicity; or
(i) 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 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 and that material adverse change or publicity will
have a material adverse on the Fund's or the Underwriter's ability to perform
its obligations under this Agreement; or
(j) at the option of Company, as one party, or the Fund, the Adviser
and the Underwriter, as one party, upon the other party's material breach of any
provision of this Agreement upon 30 days' notice and opportunity to cure.
10.2 EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter may, at their sole option, continue to
make available additional shares of a Designated Portfolio 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"). Specifically, the owners of the Existing Contracts may in such
event be permitted to reallocate investments in the Designated Portfolios,
redeem investments in the Designated Portfolios and/or invest in the Designated
Portfolios upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.2 shall not apply to any
termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
10.3 Notwithstanding termination of this Agreement, the Company shall not
redeem shares of a Designated Portfolio attributable to the Contracts (as
opposed to shares of a Designated Portfolio attributable to the Company's assets
held in an Account) except (i) as necessary to implement Contract owner
initiated or approved transactions provided the Company shall not directly or
indirectly solicit, encourage or induce any such Contract owner initiated or
approved transaction so long as the Fund and the Underwriter continue to make
additional shares of the
20
<PAGE>
Designated Portfolio available pursuant to Section 10.2 above, 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"). Upon request, the Company will promptly furnish to the Fund, the
Adviser and the Underwriter the opinion of counsel for the Company (which
counsel shall be reasonably satisfactory to the Fund, the Adviser and the
Underwriter) to the effect that any redemption pursuant to clause (ii) above is
a Legally Required Redemption. Furthermore, the Company shall not prevent
Contract owners from allocating payments to a Designated Portfolio that was
otherwise available under the Contracts.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI
NOTICES
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:
Kemper Investors Fund
120 South LaSalle Street
Chicago, Illinois 60603
Attention: Secretary
If to the Company:
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, Massachusetts 06158
Attention:
If to the Adviser:
Zurich Kemper Investments, Inc.
120 South LaSalle Street
Chicago, Illinois 60603
Attention: Secretary
21
<PAGE>
If to the Underwriter:
Kemper Distributors, Inc.
120 South LaSalle Street
Chicago, Illinois 60603
Attention: Secretary
ARTICLE XII
MISCELLANEOUS
12.1 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.
12.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.4 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, 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.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Delaware Insurance Commissioner with any information or
reports in connection with services provided under this Agreement that such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Delaware variable annuity laws and regulations and any other applicable law or
regulations.
12.5 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.
12.6 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.
12.7 All persons are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which on file with the
Secretary of the Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund with
respect to a Designated Portfolio hereunder are not binding upon any of the
trustees, officers or shareholders of the Fund
22
<PAGE>
individually, but are binding upon only the assets and property of such
Designated Portfolio. All parties dealing with the Fund with respect to a
Designated Portfolio shall look solely to the assets of such Designated
Portfolio for the enforcement of any claims against the Fund hereunder.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
in its name and on behalf by its duly authorized representative and its seal to
be hereunder affixed hereto as of the date specified below.
COMPANY: Allmerica Financial Life Insurance and Annuity Company
By:
----------------------------------------
Title:
----------------------------------------
Date:
----------------------------------------
FUND: Kemper Investors Fund
By:
----------------------------------------
Title:
----------------------------------------
Date:
----------------------------------------
ADVISER Zurich Kemper Investments, Inc.
By:
----------------------------------------
Title:
----------------------------------------
Date:
----------------------------------------
UNDERWRITER Kemper Distributors, Inc.
By:
----------------------------------------
Title:
----------------------------------------
Date:
----------------------------------------
23
<PAGE>
SCHEDULE A
NAME OF SEPARATE ACCOUNT AND DATE
ESTABLISHED BY BOARD OF DIRECTORS
CONTRACTS FUNDED
BY SEPARATE ACCOUNT
DESIGNATED PORTFOLIOS*
- -------------------------
*Additional Designated Portfolios may be added at the request of the Fund,
Adviser and Underwriter and with the consent of the Company, which consent will
not be unreasonably withheld.
A-1
<PAGE>
SCHEDULE B
EXPENSES
1. In the event the prospectus, SAI, annual report or other communication of
the Fund is combined with a document of another party, the Fund will pay
the costs based upon the relative number of pages attributable to the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESPONSIBLE
ITEM FUNCTION PARTY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
Update Typesetting Fund (1)
- --------------------------------------------------------------------------------
New Sales: Printing Company
Distribution Company
- --------------------------------------------------------------------------------
Existing Printing Fund (1)
Owners:
Distribution Fund (1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF Same as Prospectus Same
ADDITIONAL
INFORMATION
- --------------------------------------------------------------------------------
PROXY MATERIALS OF Typesetting Fund
THE FUND
Printing Fund
Distribution Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL REPORTS &
OTHER COMMUNICATIONS
WITH SHAREHOLDERS
OF THE FUND
- --------------------------------------------------------------------------------
All Typesetting Fund (1)
- --------------------------------------------------------------------------------
Marketing: Printing Company
Distribution Company
- --------------------------------------------------------------------------------
Existing Owners: Printing Fund (1)
Distribution Fund (1)
- --------------------------------------------------------------------------------
B-1
<PAGE>
- --------------------------------------------------------------------------------
OPERATIONS OF FUND All operations and related Fund
expenses, including the cost
of registration and
qualification of the Fund's
shares, preparation and filing
of the Fund's prospectus and
registration statement, proxy
materials and reports, the
preparation of all statements
and notices required by any
federal or state law and all
taxes on the issuance of the
Fund's shares, and all costs
of management of the business
affairs of the Fund.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B-2
