<PAGE>
File No. ___________
___________
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
FULCRUM SEPARATE ACCOUNT OF ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
(Exact Name of Trust)
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
(508) 855-1000
(Registrant's telephone number including area code)
Abigail M. Armstrong, Secretary and Counsel
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
(Name and complete address of agent for service)
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.
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
<TABLE>
<CAPTION>
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
- ----------------- ---------------------
<S> <C>
1................................ Cover Page
2................................ "Special Terms"
3................................ "Summary"; "Annual and Transaction Expenses"
4................................ Omitted
5................................ "Description of the Company, the Variable Account,
the Palladian Trust and Allmerica Investment Trust."
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"; "Withdrawals"
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"
</TABLE>
<PAGE>
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 the Fulcrum Fund-SM- Variable Annuity
Contracts, which are 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 Contract's Variable
Account, known as the Fulcrum Separate Account. The Assets of the Variable
Account are divided into Sub-Accounts, each investing exclusively in shares of
one series of an underlying investment company. The following portfolios of THE
PALLADIAN-SM- TRUST are offered under the Contract:
VALUE PORTFOLIO
GROWTH PORTFOLIO
INTERNATIONAL GROWTH PORTFOLIO
GLOBAL STRATEGIC INCOME PORTFOLIO
GLOBAL INTERACTIVE/TELECOMM PORTFOLIO
The following series of ALLMERICA INVESTMENT TRUST is offered under the
Contract:
MONEY MARKET FUND
In most jurisdictions, values may also be allocated on a fixed basis to the
Fixed Account, which is part of the Company's General Account, and during the
accumulation period to one or more of the Guarantee Period Accounts. Amounts
allocated to the Fixed Account earn interest at a guaranteed rate for one year
from the date allocated. Amounts allocated to a Guarantee Period Account earn a
fixed rate of interest for the duration of the applicable Guarantee Period. The
interest earned is guaranteed if held for the entire Guarantee Period. If
removed prior to the end of the Guarantee Period the value may be increased or
decreased by a Market Value Adjustment. 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, 508-855-3590.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
ALLMERICA INVESTMENT TRUST AND THE PALLADIAN-SM- TRUST. THE GLOBAL STRATEGIC
INCOME PORTFOLIO MAY INVEST IN HIGHER YIELDING, LOWER RATED DEBT SECURITIES (SEE
"INVESTMENT OBJECTIVES AND POLICIES"). 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. THE CONTRACTS ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT
UNION. THE CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENT IN THE
CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.
DATED , 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <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 INDIVIDUAL RETIREMENT ANNUITY........................... 12
RIGHT TO REVOKE OR SURRENDER IN SOME STATES............................. 13
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
THE PALLADIAN-SM- TRUST, AND ALLMERICA INVESTMENT TRUST................ 13
INVESTMENT OBJECTIVES AND POLICIES...................................... 15
ADDITION, DELETION AND SUBSTITUTION 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 CONTRACT................................................. 22
A. Payments........................................................ 22
B. Transfer Privilege.............................................. 23
C. Surrender....................................................... 23
D. Withdrawals..................................................... 24
E. Death Benefit................................................... 25
F. The Spouse of the Contract Owner as Beneficiary................. 25
G. Assignment...................................................... 26
H. Electing the Form of Annuity and Annuity Date.................... 26
I. Description of Variable Annuity Options......................... 27
J. NORRIS Decision................................................. 28
K. Computation of Variable Account Values and Annuity
Benefit Payments................................................. 28
GUARANTEE PERIOD ACCOUNTS............................................... 30
FEDERAL TAX CONSIDERATIONS.............................................. 32
A. Qualified and Non-Qualified Contracts........................... 32
B. Taxation of the Contracts in General............................ 32
C. Tax Withholding and Penalties................................... 33
D. Provisions Applicable to Qualified Employee Benefit Plans....... 34
E. Qualified Employee Pension and Profit Sharing Trusts............ 34
F. Self-Employed Individuals....................................... 34
G. Individual Retirement Account Plans............................. 34
H. Simplified Employee Pensions..................................... 35
I. Public School Systems and Certain Tax-Exempt Organizations...... 36
J. Texas Optional Retirement Program............................... 36
K. Section 457 Plans for State Governments and Tax-Exempt
Entities......................................................... 36
L. Non-Individual Owners........................................... 36
REPORTS................................................................. 37
LOANS (QUALIFIED CONTRACTS ONLY)........................................ 37
CHANGES IN OPERATION OF THE VARIABLE ACCOUNT............................ 37
DISTRIBUTION............................................................ 37
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
LEGAL MATTERS........................................................... 38
FURTHER INFORMATION..................................................... 38
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT.................. 39
APPENDIX B -- SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT......... 40
APPENDIX C -- DEATH BENEFIT............................................. 42
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 DEFERRED 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
<PAGE>
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.
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: an Annuity payout option providing for annuity benefit payments
which remain fixed in an amount throughout the annuity benefit payment period
selected.
FUNDS: the portfolios of The Palladian-SM- Trust and fund of Allmerica
Investment Trust which are offered under the Contract. These are The Value
Portfolio, Growth Portfolio, International Growth Portfolio, Global Strategic
Income Portfolio, and Global Interactive/Telecomm Portfolio of The Palladian-SM-
Trust and the Money Market Fund of Allmerica Investment Trust.
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 Contract invests exclusively in the shares of a corresponding
portfolio of The Palladian-SM- Trust or fund of Allmerica Investment Trust.
SURRENDER VALUE: the Accumulated Value of the Contract on full surrender after
application of any Contract fee, contingent deferred sales charge, and Market
Value Adjustment.
VALUATION DATE: a day on which the net asset value of the shares of any of the
Funds is determined and Unit values of the Sub-Accounts are determined.
Valuation dates currently occur on each day on which the New York Stock Exchange
is open for trading, and on such other days (other than a day during which no
payment, withdrawal, or surrender of a Contract was received) when there is a
sufficient degree of trading in a Fund's portfolio securities such that the
current net asset value of the Sub-Accounts may be materially affected.
VARIABLE ACCOUNT: the Fulcrum Account, one of the Company's Separate Accounts,
consisting of assets segregated from other assets of the Company. The investment
performance of the assets of the Variable Account is determined separately from
the other assets of the Company and are not chargeable with liabilities arising
out of any other business which the Company may conduct.
VARIABLE ANNUITY: an Annuity payout option providing for payments varying in
amount in accordance with the investment experience of certain of the Funds.
4
<PAGE>
SUMMARY
WHAT IS THE FULCRUM FUND-SM- VARIABLE ANNUITY?
The Fulcrum Fund-SM- Variable Annuity contract (the "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
- Experienced professional investment advisers who are paid on an
incentive fee basis
- Tax deferral on earnings
- Guarantees that can protect your family 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 ("Funds") under your Contract. Your Contract's Accumulated Value is
based on the investment performance of the Funds. 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 Contract permits net payments to be
allocated among the Funds, the Guarantee Period Account, and the Fixed Account.
Each Fund is professionally advised by an investment adviser with experience
managing the types of investments in the Fund. All investment gains or losses of
the Funds will be reflected in the accumulated value under the 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 option 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 Funds) 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; or
- 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 Owner, you make purchase 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.
5
<PAGE>
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 cancelled. (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 individual retirement annuity or provides for a
full refund of the initial purchase 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 purchase payment, or (2) the
accumulated value of the Contract plus any amounts deducted under the Contract
or by the Funds for taxes, charges or fees. If your Contract does not provide
for a full refund of the initial purchase 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 Funds, 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. SIMILARLY, NOT ALL FUNDS MAY BE AVAILABLE IN ALL STATES.
You have a choice of six Funds:
- Value Portfolio of The Palladian-SM- Trust
Managed by GAMCO Investors, Inc.
- Growth Portfolio of The Palladian-SM- Trust
Managed by Stonehill Capital Management, Inc.
- International Growth Portfolio of The Palladian-SM- Trust
Managed by Bee & Associates Incorporated
- Global Strategic Income Portfolio of The Palladian-SM- Trust
Managed by Fischer Francis Trees & Watts, Inc.
- Global Interactive/Telecomm Portfolio of The Palladian-SM-
Trust
Managed by GAMCO Investors, Inc.
- Money Market Fund of Allmerica Investment Trust
Managed by Allmerica Asset Management, Inc.
This range of investment choices enables you to allocate your money among the
Funds to meet your particular investment needs. If your Contract was issued as
an individual retirement annuity or provides for a full refund of the initial
purchase payment under its "Right to Examine" provision (see "RIGHT TO REVOKE
CONTRACT"), for the first 14 days following the date of issue, all Fund
investments and allocations to the Guarantee Period Accounts will be allocated
to the Money Market Fund. Thereafter, all amounts will be allocated according to
your investment choices. For a more detailed description of the Funds, see "THE
PALLADIAN-SM- TRUST" and "ALLMERICA INVESTMENT TRUST," and "INVESTMENT
OBJECTIVES AND POLICIES."
GUARANTEE PERIOD ACCOUNTS -- Assets supporting the guarantees under the
Guarantee Period Accounts are held in the Company's Separate Account GPA, a
non-unitized insulated separate account. Values and benefits calculated on the
basis of Guarantee Period Account allocations, however, are obligations
6
<PAGE>
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 Guarantee Interest Rate depends on the number of years of the Guarantee
Period selected. The Company currently makes available seven Guarantee Periods
ranging from three to ten years in duration (excluding a four-year Guarantee
Period.) Once declared, the Guarantee Interest Rate will not change during the
duration of the Guarantee Period. If amounts allocated to a Guarantee Period
Account are transferred, surrendered or applied to any annuity option at any
time other than the day following the last day of the applicable Guarantee
Period, a Market Value Adjustment will apply that may increase or decrease the
Account's value. 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 INVESTMENT ADVISERS?
THE PALLADIAN-SM- TRUST. Palladian-SM- Advisors, Inc. ("PAI") serves as overall
manager of The Palladian-SM- Trust and is responsible for general investment
supervisory services to the Portfolios. PAI has retained the services of Tremont
Partners, Inc. ("Tremont") to serve as Portfolio Advisor. Tremont provides
research concerning registered investment advisers to be retained by the Trust
as Portfolio Managers, monitors and assists PAI with the periodic reevaluation
of existing Portfolio Managers and makes periodic reports to PAI and The
Palladian-SM- Trust.
The Portfolio Managers of the five Portfolios of The Palladian-SM- Trust are as
follows:
<TABLE>
<CAPTION>
PORTFOLIO PORTFOLIO MANAGER
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Value Portfolio GAMCO Investors, Inc.
Growth Portfolio Stonehill Capital Management, Inc.
International Growth Portfolio Bee & Associates Incorporated
Global Strategic Income Portfolio Fischer Francis Trees & Watts, Inc.
Global Interactive/Telecomm Portfolio GAMCO Investors, Inc.
</TABLE>
ALLMERICA INVESTMENT TRUST. Allmerica Investment Management Company, Inc. is the
investment manager of Allmerica Investment Trust and, subject to the direction
of its Board of Trustees, handles the day-to-day affairs of the Trust. Allmerica
Investment Management Company, Inc. has entered into a Sub-Adviser Agreement
with its affiliate, Allmerica Asset Management, Inc., for investment management
services for the Money Market Fund. Both Allmerica Investment Management
Company, Inc. and Allmerica Asset Management, Inc. are located at 440 Lincoln
Street, Worcester, Massachusetts 01653.
For more information, see "The Palladian-SM- Trust" and "Allmerica Investment
Trust."
CAN I MAKE TRANSFERS AMONG THE FUNDS?
Yes. Prior to the Annuity Date, you may transfer among the Funds, the Guarantee
Period Accounts, and the Fixed Account. You will incur no current taxes on
transfers while your money remains in the Contract. You also may elect automatic
account rebalancing so that assets remain allocated according to a desired mix
or choose automatic dollar cost averaging to gradually move funds into one or
more Sub-Accounts. 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."
7
<PAGE>
WHAT IF I NEED MY MONEY BEFORE MY ANNUITY 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 withdrawals any time before your annuity phase
begins, subject to the restrictions discussed in "Surrender," "Withdrawals," and
"GUARANTEE PERIOD ACCOUNTS." Certain charges may apply (see "CHARGES AND
DEDUCTIONS"), and there may be a tax penalty assessed under the Internal Revenue
Code ("the Code"). See "FEDERAL TAX CONSIDERATIONS."
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
- 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 PAYOUT OPTIONS UNDER THE CONTRACT?
You may choose variable annuity benefit payments based on the investment
performance of certain Funds, 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
$100,000 or less, the Company will deduct a $30 Contract fee from your Contract.
There will be no Contract fee if the Accumulated Value is $100,000 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 the 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 1% and 7% of
payments withdrawn, based on when the payments were made.
Depending upon the state in which you live, a deduction for state and local
premium taxes, if any, may be made as described under "Premium Taxes."
Currently, the Company does not 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.
8
<PAGE>
The Company will deduct a daily Mortality and Expense Risk Charge and
Administrative Expense Charge equal to 1.25% and 0.20%, respectively, of the
average daily net assets invested in each Fund. The Funds will incur certain
management fees and expenses which are more fully described in "ANNUAL AND
TRANSACTION EXPENSES" and in the prospectus of the Funds, 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.
ANNUAL AND TRANSACTION EXPENSES
The purpose of the following tables is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly under the Contracts. The tables reflect charges under the
Contract, expenses of the Sub-Accounts, and expenses of the Underlying Series.
In addition to the charges and expenses described below, in some states premium
taxes may be applicable.
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CONTRACT
YEAR
AFTER DATE
OF
Contingent Deferred Sales Charge PAYMENT CHARGE
------------ ---------
<S> <C> <C>
The charge (as a percentage of payments, applied to the amount 0-1 7%
surrendered in excess of the amount, if any, which 2 6%
may be surrendered free of charge) will be assessed 3 5%
upon surrender, redemption, or annuitization under any 4 4%
commutable period certain option or a noncommutable 5 3%
period certain less than 10 years. 6 2%
7 1%
more than 7 0%
TRANSFER CHARGE
The Company currently makes no charge for processing transfers. The None
Company guarantees that the first twelve transfers in a Contract
year will be free of a transfer charge. For the thirteenth and
each subsequent transfer, the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse the Company
for the costs of processing the transfer.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C>
ANNUAL CONTRACT FEE
An annual Contract fee, equal to $30, is deducted when Accumulated $30
Value is $100,000 or less. The Contract fee is currently waived
for contracts issued to a trustee of a 401(k) plan, but the
Company reserves the right to impose the Contract fee on such
contracts.
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Charge 1.25%
Variable Account Administrative Expense Charge 0.20%
---------
Total Annual Expenses 1.45%
</TABLE>
FUND EXPENSES
(annual basis as percentage of average daily net assets)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER OPERATING
FUND FEES EXPENSES(2) EXPENSES
- ------------------------------------------------------------------------- --------------- --------------- --------------
<S> <C> <C> <C>
Value Portfolio 0.80%(1) 0.85%(2) 1.65%
Growth Portfolio 0.80%(1) 1.10%(2) 1.90%
International Growth Portfolio 0.80%(1) 1.23%(2) 2.03%
Global Strategic Income Portfolio 0.80%(1) 1.23%(2) 2.03%
Global Interactive/Telecomm Portfolio 0.80%(1) 0.96%(2) 1.76%
Money Market Fund 0.29% 0.07% 0.36%(3)
</TABLE>
(1) The total advisory fee for the Portfolios of The Palladian-SM- Trust for
the first 12 months of operations is 0.80% of its average daily net assets.
After that time, there is an incentive fee arrangement. The base fee is
2.00%, but may vary from between 0.00% to 4.00%, depending on the
Portfolio's performance.
(2) Based on estimated for the current fiscal year.
(3) Under the Management Agreement with Allmerica Investment Trust, Allmerica
Investment Management Company, Inc. ("Manager") has declared a voluntary
expense limitation of 0.60% for the Money Market Fund.
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 SEC. Because the
expenses of the Funds 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 ten years or any fixed period certain option,
you would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Value Portfolio $ 92 $ 142 $ 193 $ 345
Growth Portfolio $ 95 $ 149 $ 204 $ 368
International Growth Portfolio $ 96 $ 153 $ 210 $ 380
Global Strategic Income Portfolio $ 96 $ 153 $ 210 $ 380
Global Interactive/Telecomm Portfolio $ 93 $ 145 $ 198 $ 355
Money Market Fund $ 80 $ 105 $ 130 $ 217
</TABLE>
10
<PAGE>
b) If, at the end of the applicable time period, you annuitize* under a life
option or a noncommutable period certain option of ten years or longer, or if
you do not surrender or annuitize your contract, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Value Portfolio $ 32 $ 97 $ 165 $ 345
Growth Portfolio $ 34 $ 104 $ 177 $ 368
International Growth Portfolio $ 36 $ 108 $ 183 $ 380
Global Strategic Income Portfolio $ 36 $ 108 $ 183 $ 380
Global Interactive/Telecomm Portfolio $ 33 $ 100 $ 170 $ 355
Money Market Fund $ 19 $ 58 $ 100 $ 217
</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 0.076%, and the amount of the Contract fee is assumed to
be $.075 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 ten years or longer.
PERFORMANCE INFORMATION
The Contract was first offered to the public in 1996. The Company, however, may
advertise "Total Return and "Average Annual Total Return" performance
information based on the periods that the Funds have been in existence. The
results for any period prior to the Contract being offered will be calculated as
if the Contract had been offered during that period of time, with all charges
assumed to be those applicable to the Sub-Accounts, the Funds, and 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 Fund of the
Allmerica Investment Trust 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, Average Annual Total Return, Yield, and Effective Yield
figures are adjusted to reflect the Sub-Account's asset charges. The Total
Return figures also reflect the $30 annual Contract fee and the contingent
deferred sales charge which would be assessed if the investment were completely
surrendered at the end of the specified period.
The Company also may 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),
11
<PAGE>
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
charge 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.
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 Contract Owner
or an individual chosen by the Contract Owner. The retirement income payments
are called "annuity benefit payments" and the individual receiving the payments
is called the "Annuitant." Annuity benefit payments begin on the Annuity Date.
Under an annuity contract, the insurance company assumes a mortality risk and an
expense risk. The mortality risk arises from the insurance company's guarantee
that annuity benefit payments will continue for the life of the Annuitant,
regardless of how long the Annuitant lives or how long all Annuitants as a group
live. The expense risk arises from the insurance company's guarantee that
charges will not be increased beyond the limits specified in the Contract,
regardless of actual costs of operations.
The Contract Owner's payments, less any applicable deductions, are invested by
the insurance company. After retirement, annuity benefit payments are paid to
the Annuitant for life or for such other period chosen by the Contract Owner. In
the case of a "fixed" annuity, the value of these annuity benefit payments is
guaranteed by the insurance company, which assumes the risk of making the
investments to enable it to make the guaranteed payments. For more information
about fixed annuities see APPENDIX A, "MORE INFORMATION ABOUT THE FIXED
ACCOUNT." With a variable annuity, the value of the Contract and the annuity
benefit payments are not guaranteed but will vary depending on the investment
performance of a portfolio of securities. Any investment gains or losses are
reflected in the value of the Contract and in the annuity benefit payments. If
the portfolio increases in value, the value of the Contract increases. If the
portfolio decreases in value, the value of the Contract decreases.
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY
An individual purchasing a Contract intended to qualify as an Individual
Retirement Annuity ("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
representative through whom the Contract was purchased, to the Principal Office
of the Company at 440 Lincoln Street, Worcester, Massachusetts 01653, or to any
local office of the Company. Mailing or delivery must occur on or before 10 days
after receipt of the Contract for revocation to be effective.
Within seven days the Company will 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 Funds for taxes, charges or fees.
12
<PAGE>
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,
Oregon, South Carolina, Texas, Utah, Washington and West Virginia, any contract
owner may revoke the contract at any time within ten days (20 in Idaho) after
receipt of the contract and receive a refund as described under "RIGHT TO REVOKE
INDIVIDUAL RETIREMENT ANNUITY," 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 premium 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.
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
THE PALLADIAN-SM- TRUST, AND ALLMERICA INVESTMENT TRUST
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 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 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.
THE VARIABLE ACCOUNT -- The Fulcrum Separate Account (the "Variable Account") is
a separate investment account of The Company with six 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 is administered and accounted for as part of the general business of
the Company. The income, capital gains, or capital losses of each Sub-Account,
however, are allocated to each Sub-Account, without regard to any other income,
capital gains, or capital losses of the Company. 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 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.
13
<PAGE>
THE PALLADIAN-SM- TRUST -- The Palladian-SM- Trust was established as a
Massachusetts business trust on September 8, 1993, and is registered with the
SEC as a management investment company. Five investment portfolios currently are
available under the Contract. The assets of each Portfolio are held separate
from the assets of the other Portfolios. Each Portfolio operates as a separate
investment vehicle and the income or losses of one Portfolio have no effect on
the investment performance of another Portfolio. Shares of The Palladian-SM-
Trust are not offered to the general public, but solely to separate accounts of
insurance companies for the purpose of providing a vehicle for the investment of
assets.
Palladian-SM- Advisors, Inc. ("PAI") serves as overall manager of The
Palladian-SM- Trust and is responsible for general investment supervisory
services to the Portfolios. The Palladian-SM- Trust and PAI have retained
several Portfolio Managers to manage the assets of each Portfolio. PAI has also
retained Tremont Advisors, Inc. ("Tremont"), as Portfolio Advisor, to research,
evaluate, recommend and monitor the Portfolio Managers. PAI is located at 4225
Executive Square, Suite 270, La Jolla, California 92037.
The five Portfolios of The Palladian-SM- Trust and their respective Portfolio
Managers are as follows:
<TABLE>
<CAPTION>
PORTFOLIO PORTFOLIO MANAGER
- --------------------------------------------------------- ------------------------------------------
<S> <C>
The Value Portfolio GAMCO Investors, Inc.
The Growth Portfolio Stonehill Capital Management, Inc.
The International Growth Portfolio Bee & Associates Incorporated
The Global Strategic Income Portfolio Fischer Francis Trees & Watts, Inc.
The Global Interactive/Telecomm Portfolio GAMCO Investors, Inc.
</TABLE>
The Palladian-SM- Trust pays PAI and the Portfolio Managers a monthly fee (the
"advisory fee") based on the average daily net assets of each Portfolio. Each
Portfolio Manager is paid on an incentive fee basis, which could result in
either higher than average advisory fees or, possibly, no advisory fee at all,
depending on how well each Portfolio Manager performs. There are two components
to the advisory fee: the basic fee and the incentive fee. The advisory fee is
structured to vary based upon the Portfolio's performance (after expenses)
compared to that of an appropriate market benchmark selected for that Portfolio.
The total advisory fee for PAI, Tremont and the Portfolio Managers for the first
12 months of operations is, for each Portfolio, 0.80% of average daily net
assets. As of February 1, 1997, the Management and Advisory fee schedule
provides for an incentive performance fee for superior performance, and provides
for a lower fee for sub-par performance. The base fee will be 2.00%, but it may
vary from 0.00% to 4.00% depending on the Portfolio's performance. Each
Portfolio Manager also has invested $1 million in the Portfolio it manages, so
it is managing a portion of its money along with your money. PAI is responsible
for paying the fee of Tremont, which is structured to vary based on how well the
Portfolio Managers perform. See the prospectus of The Palladian-SM- Trust for
more details.
ALLMERICA INVESTMENT TRUST -- Allmerica Investment Trust is an open-end,
diversified management investment company registered with the SEC under the 1940
Act.
Allmerica Investment Trust was established as a Massachusetts business trust on
October 11, 1984, for the purpose of providing a vehicle for the investment of
assets of various variable accounts established by the Company or other
affiliated insurance companies. The Money Market Fund of Allmerica Investment
Trust is currently available under the Contract. Shares of the Trust are not
offered to the general public, but solely to such variable accounts. Other funds
of Allmerica Investment Trust are not currently offered under the Contract.
Allmerica Investment Management Company, Inc. ("AIMCO") is the investment
manager of Allmerica Investment Trust and, subject to the direction of the Board
of Trustees, handles the day-to-day affairs of the Trust. AIMCO has entered into
a Sub-Adviser Agreement with its affiliate, Allmerica Asset Management, Inc.
("AAM") for investment management services for the Money Market Fund. Under the
Sub-Adviser Agreement, AAM is authorized to engage in portfolio transactions on
behalf of
14
<PAGE>
the Money Market Fund, subject to such general or specific instructions as may
be given by the Trustees. The terms of the Sub-Adviser Agreement cannot be
materially changed without the approval of a majority in interest of the
shareholders of the Fund. Both AIMCO and AAM are located at 440 Lincoln Street,
Worcester, Massachusetts 01653.
Other than the expenses specifically assumed by AIMCO under the Management
Agreement, all expenses incurred in the operation of the Trust are borne by it,
including fees and expenses associated with the registration and qualification
of the Trust's shares under the Securities Act of 1933, other fees payable to
the SEC, independent public accountant, legal and custodian fees, association
membership dues, taxes, interest, insurance premiums, brokerage commission, fees
and expenses of the Trustees who are not affiliated with the Manager, expenses
for proxies, prospectuses, reports to shareholders and other expenses.
For providing its services under the Management Agreement, AIMCO will receive a
fee, computed daily at an annual rate based on the average daily net asset value
of the Money Market Fund as follows: 0.35% on net asset value up to $50,000,000;
0.25% on the next $200,000,000; and 0.20% on the remainder. The fee is paid from
the assets of the Money Market Fund. AIMCO is solely responsible for the payment
of all fees for investment management services to AAM, which will be paid a fee
of 0.10%, computed daily at an annual rate based on the average daily net asset
value of the Money Market Fund.
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Funds is set forth below. MORE
DETAILED INFORMATION REGARDING THE INVESTMENT OBJECTIVES, RESTRICTIONS AND
RISKS, EXPENSES PAID BY THE FUNDS, AND OTHER RELEVANT INFORMATION REGARDING THE
FUNDS MAY BE FOUND IN THE PROSPECTUSES OF THE PALLADIAN-SM- TRUST AND ALLMERICA
INVESTMENT TRUST WHICH ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ CAREFULLY
BEFORE INVESTING. The Statements of Additional Information of the Trusts are
available upon request. There can be no assurance that the investment objectives
of the Funds can be achieved or that the value of a Contract will equal or
exceed the aggregate amount of the payments made under the Contract.
VALUE PORTFOLIO seeks to make money for investors by investing primarily in
companies that the Portfolio Manager believes are undervalued and that by virtue
of anticipated developments may, in the Portfolio Manager's judgment, achieve
significant capital appreciation.
GROWTH PORTFOLIO seeks to make money for investors by investing primarily in
securities selected for their long-term growth prospects.
INTERNATIONAL GROWTH PORTFOLIO seeks to make money for investors by investing
internationally for long-term capital appreciation, primarily in equity
securities.
GLOBAL STRATEGIC INCOME PORTFOLIO seeks to make money for investors by investing
for high current income and capital appreciation in a variety of domestic and
foreign fixed-income securities.
GLOBAL INTERACTIVE/TELECOMM PORTFOLIO seeks to make money for investors
primarily by investing globally in equity securities of companies engaged in the
development, manufacture or sale of interactive and/or telecommunications
services and products.
MONEY MARKET FUND seeks to obtain maximum current income consistent with the
preservation of capital and liquidity. Allmerica Asset Management, Inc. is the
Sub-Adviser of the Money Market Fund.
If there is a material change in the investment policy of a Fund, the Contract
Owner will be notified of the change. If the Contract Owner has Accumulated
Value allocated to that Fund, he or she may have the Accumulated Value
reallocated without charge to another Fund or to the Fixed Account or a
Guarantee Period Account, where available, on written request received by the
Company within sixty (60) days of the later of (1) the effective date of such
change in the investment policy or (2) the receipt of the notice of the Contract
Owner's right to transfer.
15
<PAGE>
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any Fund
are no longer available for investment or if in the Company's judgment further
investment in any Fund 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 Fund and substitute shares of another registered open-end
management company. The Company will not substitute any shares attributable to a
Contract interest in a Sub-Account without notice to the Contract Owner and
prior approval of the SEC and state insurance authorities, to the extent
required by the 1940 Act or other applicable law. The Variable Account may, to
the extent permitted by law, purchase other securities for other contracts or
permit a conversion between contracts upon request by the 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
Fund or in shares of another investment company having a specified investment
objective. Subject to applicable law and any required SEC approval, the Company
may, in its sole discretion, establish new Sub-Accounts or eliminate one or more
Sub-Accounts if marketing needs, tax considerations or investment conditions
warrant. Any new Sub-Accounts may be made available to existing contract owners
on a basis to be determined by the Company.
Shares of the Funds are also issued to variable accounts of the Company and its
affiliates which issue variable life contracts ("mixed funding"). Shares of the
Funds also may be also issued to other unaffiliated insurance companies ("shared
funding"). It is conceivable that in the future such mixed funding or shared
funding may be disadvantageous for variable life contract owners or variable
annuity contract owners. Although the Company and the Trustees of The
Palladian-SM- Trust and of Allmerica Investment Trust do not currently foresee
any such disadvantages to either variable life insurance contract owners or
variable annuity contract owners, the Company and the respective Trustees 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 funds should be
established for variable life and variable annuity separate accounts, the
Company will bear the attendant expenses.
If any of these substitutions or changes are made, the Company may, by
appropriate endorsement, change the Contract to reflect the substitution or
change and will notify contract owners of all such changes. If the Company deems
it to be in the best interest of contract owners, and subject to any approvals
that may be required under applicable law, the Variable Account or any
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 Fund 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 Fund together with a form with which to
give voting instructions to the Company. Shares for which no timely instructions
are received will be voted in proportion to the instructions which are received.
The Company also will vote shares in a Sub-Account that it owns and which are
not attributable to contracts in the same proportion. If the 1940 Act or any
rules thereunder should be amended or if the present interpretation of the 1940
Act or such rules should change, and as a result the Company determines that it
is permitted to vote shares in its own right, whether or not such shares are
attributable to the contract, the Company reserves the right to do so.
16
<PAGE>
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 Fund. During
the accumulation period, the number of Fund 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 Fund
share. During the annuity period, the number of Fund 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 Fund share.
Ordinarily, the annuitant's voting interest in the Fund will decrease as the
reserve for the variable annuity is depleted.
CHARGES AND DEDUCTIONS
Deductions under the Contract and charges against the assets of the Sub-Accounts
are described below. Other deductions and expenses paid out of the assets of the
Funds are described in the Prospectus and Statement of Additional Information of
The Palladian-SM- Trust and Allmerica Investment Trust.
A. ANNUAL CHARGES AGAINST VARIABLE ACCOUNT ASSETS.
MORTALITY AND EXPENSE RISK CHARGE -- The Company makes a charge of 1.25% on an
annual basis of the daily value of each 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 period. The mortality risk arises from the Company's
guarantee that it will make annuity benefit payments in accordance with annuity
rate provisions established at the time the Contract is issued for the life of
the Annuitant (or in accordance with the annuity option selected), no matter how
long the Annuitant (or other payee) lives and no matter how long all annuitants
as a class live. Therefore, the mortality charge is deducted during the annuity
phase on all contracts, including those that do not involve a life contingency,
even though the Company does not bear direct mortality risk with respect to
variable annuity settlement options that do not involve life contingencies. The
expense risk arises from the Company's guarantee that the charges it makes will
not exceed the limits described in the 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 0.80% for mortality risk and
0.45% for expense risk.
ADMINISTRATIVE EXPENSE CHARGE -- The Company assesses each Sub-Account with a
daily charge at an annual rate of 0.20% of the average daily net assets of the
Sub-Account. The charge is imposed during both the accumulation period and the
annuity period. The daily Administrative Expense Charge is assessed to help
defray administrative expenses actually incurred in the administration of the
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 Contract includes, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and
17
<PAGE>
supplies, expenses of preparing and printing registration statements, expense of
preparing and typesetting prospectuses and the cost of printing prospectuses not
allocable to sales expense, filing and other fees.
OTHER CHARGES -- Because the Sub-Accounts purchase shares of the Funds, the
value of the net assets of the Sub-Accounts will reflect the investment advisory
fee and other expenses incurred by the Underlying Funds. The Prospectus and
Statement of Additional Information of The Palladian-SM- Trust and Allmerica
Investment Trust contain additional information concerning expenses of the
Funds.
B. CONTRACT FEE.
A $30 Contract fee currently is deducted on the Contract anniversary date and
upon full surrender of the Contract when the Accumulated Value is $100,000 or
less. The Contract fee is waived for contracts issued to and maintained by the
trustee of a 401(k) plan. Where Contract value has been allocated to more than
one account, a percentage of the total Contract fee will be deducted from the
Value in each account. The portion of the charge deducted from each account will
be equal to the percentage which the Value in that account bears to the
Accumulated Value under the Contract. The deduction of the Contract fee from a
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 of and/or withdrawals
from the Contract or at the time annuity benefit payments begin, within certain
time limits described below.
For purposes of determining the contingent deferred sales charge, the
Accumulated Value is divided into three categories: (1) New Payments -- payments
received by the Company during the seven years preceding the date of the
surrender; (2) Old Payments -- Accumulated payments not defined as New Payments;
and (3) Earnings -- the amount of Contract Value in excess of all payments that
have not been previously surrendered. For purposes of determining the amount of
any contingent deferred sales charge, surrenders will be deemed to be taken
first from Old Payments, then from New Payments. Old Payments may be withdrawn
from the Contract at any time without the imposition of a contingent deferred
sales charge. If a withdrawal is attributable all or in part to New Payments, a
contingent deferred sales charge may apply.
18
<PAGE>
CHARGES FOR SURRENDER AND WITHDRAWALS. If the 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. The amount of the
charge will depend upon the number of years that the New Payments, if any, to
which the withdrawal is attributed have remained credited under the Contract.
Amounts withdrawn are deducted first from Old Payments. Then, for the purpose of
calculating surrender charges for New Payments, all amounts withdrawn are
assumed to be deducted first from the earliest New Payment and then from the
next earliest New Payment and so on, until all New Payments have been exhausted
pursuant to the first-in-first-out ("FIFO") method of accounting. (See "FEDERAL
TAX CONSIDERATIONS" for a discussion of how withdrawals are treated for income
tax purposes.)
The Contingent Deferred Sales Charges are as follows:
<TABLE>
<CAPTION>
YEARS FROM DATE
OF CHARGE AS PERCENTAGE OF NEW
PAYMENT PAYMENTS WITHDRAWN
- ----------------- ----------------------------------
<S> <C>
Less than 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
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 7.0% 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 WITHDRAWAL CHARGES. Where permitted by law, the
Company will waive the contingent deferred sales charge in the event that an
Owner (or the Annuitant, if the Owner is not an individual) is: (a) admitted to
a medical care facility after the issue date of the Contract and remains
confined there until the later of one year after the issue date or 90
consecutive days; (b) first diagnosed by a licensed physician as having a fatal
illness after the issue date of the Contract; (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 in writing by a licensed "physician" 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 the
situations discussed above, no additional payments under this Contract will be
accepted. Where permitted by law, no contingent deferred sales charge is imposed
(and no commissions will be paid) on contracts issued where both the Contract
Owner and the Annuitant on the date of issue are within the following classes
19
<PAGE>
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
Funds, investment managers or sub-advisers; and the spouses, children and other
legal dependants (under age 21) of such eligible persons.
In addition, from time to time the Company may also reduce the amount of the
contingent deferred sales, the period during which it applies, or both, when
contracts are sold to individuals or groups of individuals in a manner that
reduces sales expenses. The Company will consider (a) the size and type of
group; (b) the total amount of payments to be received; (c) other transactions
where sales expenses are likely to be reduced. Any reduction or elimination in
the amount or duration of the contingent deferred sales charge will not
discriminate unfairly between Contract Owners. The Company will not make any
changes to this charge where prohibited by law.
WITHDRAWAL WITHOUT SURRENDER CHARGE. In each calendar year, the Company will
waive the contingent deferred sales charge, if any, on an amount ("Withdrawal
Without Surrender Charge") equal to the greatest of (1), (2) or (3):
Where (1) is:
The Accumulated Value as of the Valuation Date coincident with or next
following the date of receipt of the request for withdrawal, reduced by
total gross payments not previously 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) Life Expectancy Distribution (see LED DISTRIBUTIONS, below) 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 waive the contingent deferred sales load, if any, until the entire
Withdrawal Without Surrender Charge amount 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
20
<PAGE>
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 the 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 the Contract Owner makes withdrawals under the LED distribution prior to age
59 1/2, the withdrawals may be treated by the Internal Revenue Service ("IRS")
as premature distributions from the Contract. The payments then would 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 withdrawal, including minimum limits on
amount withdrawn and amounts remaining under the Contract in the case of
withdrawal, 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 ten years
is chosen, a contingent deferred sales charge will be deducted from the
Accumulated Value of the Contract if the Annuity Date occurs at any time when
the surrender charge would still apply had the Contract been surrendered on the
Annuity Date.
No contingent deferred sales charge is imposed at the time of annuitization in
any Contract year under an option involving a life contingency or for any
non-commutable period certain option for ten years or more. A Market Value
Adjustment, however, 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 the 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.
21
<PAGE>
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-Account which invests in the Money Market Fund
or the Global Strategic Portfolio or from the Fixed Account to one or more of
the other Sub-Accounts; or (b) in order to reallocate Contract value among the
Sub-Accounts. The first automatic transfer counts as one transfer towards the
twelve transfers which are guaranteed to be free of a transfer charge in each
contract year. For more information, see "The Contract Transfer Privilege."
DESCRIPTION OF THE CONTRACT
The Contract is 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 Contract may be subject to the
terms and conditions of the plans themselves, regardless of the terms and
conditions of the Contract.
The Contract offered by this Prospectus may be purchased from representatives of
Allmerica Investments, Inc. and of certain independent broker-dealers that are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc. (NASD). The Principal
Underwriter of the Contract is Allmerica Investments, Inc., 440 Lincoln Street,
Worcester, Massachusetts 01653, an indirect wholly owned subsidiary of First
Allmerica.
Contract owners may direct any inquiries to Annuity Customer Services, Allmerica
Financial Life Insurance and Annuity Company, 440 Lincoln Street, Worcester,
Massachusetts 01653.
A. PAYMENTS.
The Company's underwriting requirements, which include receipt of the initial
payment and allocation instructions by the Company at its Principal Office, must
be met before a contract can be issued. These requirements also may 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 Contract 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.
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
$25,000. Under a salary deduction or monthly automatic payment plan, the minimum
initial payment is $50. In all cases, each subsequent payment must be at least
$50. Where the contribution on behalf of an employee under an 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 Fund.
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
22
<PAGE>
recent allocation instructions. To the extent permitted by state law, however,
if the Contract is issued as an IRA or is issued in Georgia, Idaho, Indiana,
Michigan, Missouri, North Carolina, Oklahoma, Oregon, South Carolina, Texas,
Utah, Washington or West Virginia, any portion of the initial net payment and of
additional net payments received during the Contract'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 Fund until the end of the 15-day
period. Thereafter, these amounts will be allocated as requested.
The Contract Owner may change allocation instructions for new payments pursuant
to a written or telephone request. If telephone requests are elected by the
Contract Owner, a properly completed authorization must be on file before
telephone requests will be honored. The policy of the Company and its agents and
affiliates is that they will not be responsible for losses resulting from acting
upon telephone requests reasonably believed to be genuine. The Company will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; otherwise, the Company may be liable for any losses due
to unauthorized or fraudulent instructions. The procedures the Company follows
for transactions initiated by telephone include requirements that callers on
behalf of the 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 the 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
Fund.
The Contract Owner may have automatic transfers of at least $100 each made on a
periodic basis from the Money Market Fund, from the Fixed Account to one or more
of the other Sub-Accounts or may elect automatic reallocation Contract values
among the Sub-Accounts. Automatic transfers or automatic rebalancing may be made
on a monthly, bimonthly, quarterly, semiannual or annual schedule. The first
automatic transfer counts as one transfer towards the twelve transfers discussed
below. Any subsequent automatic transfer will not count as a transfer for the
purposes of the charge.
Currently, the Company makes no charge for transfers. The first twelve (12)
transfers in a Contract year are guaranteed to be free of any charge. For each
subsequent transfer in a Contract year the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse it for the expense of
processing transfers.
C. SURRENDER.
At any time prior to the Annuity Date, the Contract Owner may surrender the
Contract and receive its Accumulated Value, less applicable charges and adjusted
for any Market Value Adjustment ("Surrender Amount"). The Contract Owner must
return the Contract and a signed, written request for surrender, satisfactory to
the Company, to the Company's Principal Office. The amount payable to the
Contract Owner upon surrender will be based on the Contract's Accumulated Value
as of the Valuation Date on which the request and the Contract are received at
the Company's Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted when
a Contract is surrendered if payments have been credited to the Contract during
the last seven full contract years. See "CHARGES AND DEDUCTIONS." The Contract
Fee will be deducted upon surrender of the Contract.
23
<PAGE>
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 Value 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 amount withdrawn
equals 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.
Each withdrawal must be in a minimum amount of $100. No withdrawals 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 surrender and withdrawals,
see "FEDERAL TAX CONSIDERATIONS."
24
<PAGE>
E. DEATH BENEFIT.
In the event that the Annuitant, Owner or Joint Owner, if applicable, dies while
the Contract is in force, the Company will pay the Beneficiary a death benefit,
except where the Contract is continued in force as provided in "F. "THE SPOUSE
OF THE CONTRACT OWNER AS BENEFICIARY." The amount of the death benefit and the
time requirements for receipt of payment may vary depending upon whether the
Annuitant or an Owner dies first and whether death occurs prior to or after the
Annuity Date.
DEATH OF THE ANNUITANT PRIOR TO THE ANNUITY DATE. At the death of the Annuitant
(including an Owner who is also the Annuitant), the 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 at 5% annual
interest 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) the death benefit that would
have been payable on the most recent Contract anniversary, increased for
subsequent payment and reduced proportionately to reflect withdrawals after that
date.
DEATH OF AN OWNER WHO IS NOT ALSO THE ANNUITANT PRIOR TO THE ANNUITY DATE. If an
Owner who is not also the Annuitant dies before the Annuity Date, the death
benefit will be the Accumulated Value increased by any positive Market Value
Adjustment. The death benefit will never be reduced by a negative Market Value
Adjustment.
PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit will
generally be paid to the Beneficiary in one sum within 7 business days of the
receipt of due proof of death at the Company's Principal Office unless the Owner
has specified a death benefit annuity option. Instead of payment in one sum, the
Beneficiary may, by written request, elect to:
(a) defer distribution of the death benefit for a period no more than five
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, with annuity benefit payments
beginning 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 Fund. The excess, if any, of the death benefit over the
Accumulated Value will also be added to the Money Market Fund. 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. The death benefit will reflect any earnings or losses experienced
during the deferral period. If there are multiple beneficiaries, the consent of
all is required.
With respect to the death benefit, the Accumulated Value under the Contract will
be based on the unit values next computed after due proof of the death has been
received.
DEATH OF THE ANNUITANT AFTER THE ANNUITY DATE. If the Annuitant's death occurs
on or after the Annuity Date but before completion of all guaranteed annuity
benefit payments, any unpaid amounts or installments will be paid to the
Beneficiary. The Company must pay out the remaining payments at least as rapidly
as under the payment option in effect on the date of the Annuitant's death.
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 Sub-Account investing in the Money
Market Fund; (b) the excess, if any, of the death benefit over the Contract's
Accumulated Value will
25
<PAGE>
also be added to the Sub-Account investing in the Money Market Fund. 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 Contract, 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
Sub-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 payout, 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 meets 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.
The Annuity Date is selected by the Contract Owner. To the extent permitted in
the Contract Owner's 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 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.
26
<PAGE>
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
Portfolios and the Money Market Fund.
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.
Payments, however, 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 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 30.
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.
27
<PAGE>
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 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 Funds. 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:
(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 0.20% 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
28
<PAGE>
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 the Surrender
Value less any premium tax. For a death benefit annuity, the annuity value will
be the amount of the death benefit. The annuity rates in the Contract are based
on a modification of the 1983(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. 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 a variable annuity benefit payment calculation using a
hypothetical example, see "ANNUITY PAYMENTS" in the Statement of Additional
Information.
29
<PAGE>
GUARANTEE PERIOD ACCOUNTS
Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Company's Fixed Account are
not registered as an investment company under the provisions of the Securities
Act of 1933 or the 1940 Act. Accordingly, the staff of the SEC has not reviewed
the disclosures in this Prospectus relating to the Guarantee Period Accounts or
the Fixed Account. Nevertheless, disclosures regarding the Guarantee Period
Accounts and the Fixed Account of this 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 this
Prospectus.
INVESTMENT OPTIONS. In most jurisdictions, there currently are seven Guarantee
Periods available under the Contract with durations of three, five, six, seven,
eight, nine and ten years. Each Guarantee Period Account established for the
Contract Owner is accounted for separately in a non-unitized segregated account.
Each Guarantee Period Account provides for the accumulation of interest at a
Guaranteed Interest Rate. The Guaranteed Interest Rate on amounts allocated or
transferred to a Guarantee Period Account is determined from time-to-time by the
Company in 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 the Contract initially was 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 Fund. The Contract Owner may
allocate amounts to any of the Guarantee Periods available. Notwithstanding any
other provision in this Prospectus, with respect to contracts issued in
Pennsylvania, no amounts may be allocated or transferred to any Guarantee Period
that would extend more than six months beyond the Annuity Date in effect on the
date the allocation or transfer is effected.
At least 45 days, but not more than 75 days, prior to the end of a Guarantee
Period, the Company will notify the Contract Owner in writing of the expiration
of that Guarantee Period. At the end of a Guarantee Period the Owner may
transfer amounts to the 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) 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 Fund. Where amounts have been
automatically renewed into 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
30
<PAGE>
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, 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 Contract Owner. As discussed in "A.
Payments," if the Contract is issued as an IRA or is issued in Georgia, Idaho,
Indiana, Michigan, Missouri, North Carolina, Oklahoma, Oregon, South Carolina,
Texas, Utah, Washington or West Virginia, the allocation to the Guarantee Period
Account and to any Sub-Account will be held in the Money Market Fund for the
first 15 days.
WITHDRAWALS -- Prior to the Annuity Date, the Contract Owner may make
withdrawals of amounts held in the Guarantee Period Accounts. Withdrawals from
these accounts will be made in the same manner and be subject to the same rules
as set forth under "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
31
<PAGE>
Account is requested, the adjustment will be made to the amount payable. If a
contingent deferred sales charge applies to the withdrawal, it will be
calculated as set forth under "Contingent Deferred Sales Charge" after
application of the Market Value Adjustment.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of the 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 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 Contract, the Variable Account or the Sub-Accounts may have
upon its tax. The Variable Account presently is not subject to tax, but the
Company reserves the right to assess a charge for taxes should the Variable
Account at any time become subject to tax. Any charge for taxes will be assessed
on a fair and equitable basis in order to preserve equity among classes of
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 Code. The Company files a consolidated tax return with its affiliates.
The IRS has issued regulations relating to the diversification requirements for
variable annuity and variable life insurance contracts under Section 817(h) of
the 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 the 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 of The
Palladian-SM- Trust and the Money Market Fund of the Allmerica Investment Trust
will comply with the diversification requirements.
A. QUALIFIED AND NON-QUALIFIED CONTRACTS.
From a federal tax viewpoint there are two types of variable annuity contracts:
"qualified" contracts and "non-qualified" contracts. A qualified contract is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, 408, or 457 of the Code, while a
non-qualified contract is one that is not purchased in connection with one of
the indicated retirement plans. The tax treatment for certain 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 CONTRACT IN GENERAL.
The Company believes that the Contract described in this Prospectus will, with
certain exceptions (see K below), be considered an annuity contract 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).
32
<PAGE>
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 investment gain in value over the cost basis of the Contract would
be taxed as ordinary income. Under the current provisions of the Code, amounts
received under a non-qualified contract prior to the Annuity Date (including
payments made upon the death of the Annuitant or Contract Owner), or as
non-periodic payments after the Annuity Date, are generally first attributable
to any investment gains credited to the Contract over the taxpayer's basis (if
any) in the Contract. Such amounts will be treated as income subject to federal
income taxation.
A 10% penalty tax may be imposed on the withdrawal of investment gains if the
withdrawal is made prior to age 59 1/2. The penalty tax will not be imposed
after age 59 1/2, or if the withdrawal follows the death of the Contract Owner
(or, if the Contract Owner is not an individual, the death of the primary
Annuitant, as defined in the Code), or in the case of the "total disability" (as
defined in the Code) of the Contract Owner. Furthermore, under Section 72 of the
Code, this penalty tax will not be imposed, irrespective of age, if the amount
received is one of a series of "substantially equal" periodic payments made at
least annually for the life or life expectancy of the payee. This requirement is
met when the Contract Owner elects to have distributions made over the Contract
Owner's life expectancy, or over the joint life expectancy of the Contract Owner
and Beneficiary. The requirement that the amount be paid out as one of a series
of "substantially equal" periodic payments is met when the number of units
withdrawn to make each distribution is substantially the same.
In a Private Letter Ruling, the IRS took the position that where distributions
from a variable annuity contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy (such as
under the Contract's life expectancy distribution ("LED") option), and the
option could be changed or terminated at any time, the distributions failed to
qualify as part of a "series of substantially equal payments" within the meaning
of Section 72 of the Code. The distributions were therefore subject to the 10%
federal penalty tax. This Private Letter Ruling may be applicable to a Contract
Owner who receives distributions under the LED option prior to age 59 1/2.
Subsequent private letter rulings, however, have treated LED-type withdrawal
programs as effectively avoiding the 10% penalty tax. The position of the IRS on
this issue is unclear.
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.
33
<PAGE>
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 from or surrenders of the non-qualified
contract 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
Contract 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 five 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 Contract offered by this Prospectus.
34
<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. For reporting purposes, however, 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.
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
35
<PAGE>
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 ORP, 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 deferred annuities held by
a qualified pension plan, an IRA, a 403(b) plan, estates, employers with respect
to
36
<PAGE>
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
The Contract Owner is sent a report semi-annually which states certain financial
information about the Funds. The Company also will 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 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 Fund.
CHANGES IN OPERATION OF THE VARIABLE ACCOUNT
The Company reserves the right, subject to compliance with applicable law, to
(1) transfer assets from any Separate Account or 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 Fund shares held by a Sub-Account, in the
event that Fund shares are unavailable for investment, or if the Company
determines that further investment in such Fund 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 Contract offered by this Prospectus may be purchased from certain
independent broker-dealers which are registered under the Securities Exchange
Act of 1934 and members of the National Association of Securities Dealers, Inc.
("NASD"). The Contract also is offered through Allmerica Investments, Inc.,
which is the principal underwriter and distributor of the Contract. Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653, is a
registered broker-dealer, member of the NASD, and an indirect wholly owned
subsidiary of First Allmerica.
The Company pays commissions not to exceed 6.0% of payments to broker-dealers
which sell the Contract. Alternative commission schedules are available with
lower initial commission amounts based on payments, plus ongoing annual
compensation of up to 1% of Contract value. To the extent
37
<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 Contract, including the
recruitment and training of personnel, production of promotional literature, and
similar services.
The Company intends to recoup commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges and profits from
the Company's General Account. Commissions paid on the Contract, including
additional incentives or payments, do not result in any additional charge to
Contract Owners or to the Separate Account. Any contingent deferred sales
charges assessed on the 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,
508-855-3590.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted in this
Prospectus pursuant to the rules and regulations of the Commission. The omitted
information may be obtained from the Commission's principal office in
Washington, D.C., upon payment of the Commission's prescribed fees.
38
<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 SEC.
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 Contract, the minimum interest which may be credited on amounts
allocated to the Fixed Account is 3% compounded annually. Additional "Excess
Interest" may or may not be credited at the sole discretion of the Company.
If the Contract is surrendered, or if an 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 seven full
contract years.
In Massachusetts, payments and transfers to the Fixed Account are subject to the
following restrictions:
If a Contract is issued prior to the Annuitant's 60th birthday, allocations
to the Fixed Account will be permitted until the Annuitant's 61st birthday.
On and after the Annuitant's 61st birthday, no additional Fixed Account
allocations will be accepted. If a Contract is issued on or after the
Annuitant's 60th birthday, up through and including the Annuitant's 81st
birthday, Fixed Account allocations will be permitted during the first
Contract year. On and after the first Contract anniversary, no additional
allocations to the Fixed Account will be permitted. If a Contract is issued
after the Annuitant's 81st birthday, no payments to the Fixed Account will
be permitted at any time.
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 Fund.
39
<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 Withdrawal
Without Surrender Charge 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 WITHDRAWAL SURRENDER
ACCOUNT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE CHARGE AMOUNT PERCENTAGE CHARGE
- --------- ------------ ----------------- ------------- ----------
<S> <C> <C> <C> <C>
1 54,000.00 8,100.00 7% 3,213.00
2 58,320.00 8,748.00 6% 2,974.32
3 62,985.60 12,985.60 5% 2,500.00
4 68,024.45 18,024.45 4% 2,000.00
5 73,466.40 23,466.40 3% 1,500.00
6 79,343.72 29,343.72 2% 1,000.00
7 85,691.21 35,691.21 1% 500.00
8 92,546.51 42,546.51 0% 0.00
</TABLE>
WITHDRAWALS
Assume a payment of $50,000 is made on the date of issue and no additional
payments are made. Assume that the Withdrawal Without Surrender Charge 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 surrenders of the
Contract Owner's Account, based on hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
ACCOUNT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE WITHDRAWAL CHARGE AMOUNT PERCENTAGE CHARGE
- --------- ------------- ----------- ----------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
1 54,000.00 0.00 8,100.00 7% 0.00
2 58,320.00 0.00 8,748.00 6% 0.00
3 62,985.60 0.00 12,985.60 5% 0.00
4 68,024.45 30,000.00 18,024.45 4% 479.02
5 41,066.40 10,000.00 6,159.96 3% 115.20
6 33,551.72 5,000.00 5,032.76 2% 0.00
7 30,835.85 10,000.00 4,625.38 1% 53.75
8 22,502.72 15,000.00 3,375.41 0% 0.00
</TABLE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)]n/365-1
The following examples assume:
1. The Payment was allocated to a ten-year Guarantee Period Account with
a guaranteed interest rate of 8%.
2. The date of surrender is seven years (2555 days) from the expiration
date.
3. The value of the Guarantee Period Account is equal to $62,985.60 at
the end of three years.
4. No transfers 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.
40
<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 factor multiplied by the
The market value adjustment withdrawal
= -.12054X$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 factor multiplied by the
The market value adjustment withdrawal
= .06694X$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 (-.17454X$62,985.60 or -$8,349.25)
= Minimum (-$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 (.13981X$62,985.60 or $8,349.25)
= Minimum of ($8,806.02 or $8,349.25)
= $8,349.25
</TABLE>
41
<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>
42
<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 been payable on the most
recent Contract anniversary, increased for subsequent payments, and decreased
proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c)
PART 2: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT
Assume a payment of $50,000 is made on the 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.
43
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION
FOR
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY CONTRACTS FUNDED THROUGH
FULCRUM SEPARATE ACCOUNT
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS FOR THE VARIABLE ACCOUNT DATED __________,
1996, ("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ALLMERICA
INVESTMENTS, INC., 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653,
(508) 855-3590.
DATED ____________, 1996
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY......................................... 2
TAXATION OF THE Contract, THE VARIABLE ACCOUNT AND THE
COMPANY................................................................. 3
SERVICES................................................................ 3
UNDERWRITERS............................................................ 3
ANNUITY PAYMENTS........................................................ 4
PERFORMANCE INFORMATION................................................. 6
TAX DEFERRED ACCUMULATION............................................... 8
FINANCIAL STATEMENTS.................................................... 8
GENERAL INFORMATION AND HISTORY
The Fulcrum Separate Account ("Separate 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 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.
Currently, 6 Sub-Accounts of the Separate Account are available under the
Contracts. Each Sub-Account invests in a corresponding investment portfolio of
The Palladian Trust ("Palladian") or fund of Allmerica Investment Trust
("Trust"). Palladian and the Trust are both open-end, diversified series
investment companies. The following Portfolios of Palladian are available under
the Contract: Value, Growth, International Growth, Global Strategic Income, and
Global Interactive/Telecomm. One Fund of the Trust is available under the
Contracts: the Money Market Fund. Each Portfolio and Fund available under the
Contracts has its own investment objectives and certain attendant risks; for
more information, see the Prospectus and Statement of Additional Information for
Palladian and for the Trust.
2
<PAGE>
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 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 Separate Account.
The Variable Account is considered to be a part of and taxed with the
operations of The Company. The Company is taxed as a life insurance company
under subchapter L of the Internal Revenue Code (the "Code") and files a
consolidated tax return with its parent and affiliated companies.
The Company reserves the right to make a charge for any effect which the income,
assets, or existence of Contracts or the Separate Account may have upon its tax.
Such charge for taxes, if any, will be assessed on a fair and equitable basis in
order to preserve equity among classes of Contract Owners. The Separate Account
presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Separate Account. Shares of the Portfolios of Palladian and of the Money
Market Fund of the Trust which are owned by the Sub-Accounts are held on an open
account basis. A Sub-Account's ownership of Portfolio shares is reflected on
the records of Palladian and of Fund shares on the records of the Trust, and
are 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, Inc., 440 Lincoln Street, Worcester,
Massachusetts 01653 was organized in 1969 as a wholly-owned subsidiary of
First Allmerica and is an indirectly 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. A
Promotional Allowance of 1.1% is paid to Western Capital Financial Group for
administrative and support services with respect to the distribution of the
contracts. Commissions paid on the Contracts, including additional incentives
or payments, and the Promotional Allowance paid to Western Capital Financial
Croup are paid by the Company and do not result in
3
<PAGE>
any charge to Contract Owners or to the Separate Account in addition to the
charges described under "CHARGES AND DEDUCTIONS" in the Prospectus. The
Company intends to recoup the commission and other sales expense through a
combination of anticipated surrender, 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 assets of a Sub-Account at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit value at the end of the current Valuation Period would be
calculated as follows:
(1) Accumulation Unit Value - Previous Valuation Period............. $ 1.135000
(2) Value of Assets - Beginning of Valuation Period................. $5,000,000
(3) Excess of investment income and net gains over capital losses... $1,675
(4) Adjusted Gross Investment Rate for the valuation period (3):(2). 0.000335
(5) Annual Charge (one day equivalent of 1.45% per annum)........... 0.000038
(6) Net Investment Rate (4)-(5)..................................... 0.000297
(7) Net Investment Factor 1.000000 + (6)............................ 1.000297
(8) Accumulation Unit Value - Current Period (1)x(7)................ $ 1.135337
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
accumulated unit value at the end of the Valuation Period would have been
$1.134577.
The method for determining the amount of annuity payments is described in detail
under "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 the former reflect the 3-1/2% assumed interest rate used in the annuity
rate calculations. When the Annuity
4
<PAGE>
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 redeem 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 redemption,
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 $17,725.39. 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.
5
<PAGE>
PERFORMANCE INFORMATION
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to certain indices described in the prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other 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:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment to the Variable Account of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at the end of
the specified period
The calculation of Total Return includes the annual charges against the asset
of the Sub-Account. This charge is 1.45% on an annual basis. The calculation
of ending redeemable value assumes (1) the Contract was issued at the
beginning of the period and (2) a complete surrender of the Contract at the
end of the period. The deduction of the 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 purchase Charge as percentage
payment to date of withdrawal of New Purchase Payments redeemed*
----------------------------- ----------------------------------
0-1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
8 0%
6
<PAGE>
*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 the greater
of: (a) 15% of the Accumulated Value; or (b) cumulative earnings (Accumulated
Value less total gross payments not previously withdrawn) is not subject to
the contingent deferred sales charge.
The calculations of Total Return reflect the deduction of the $30 Annual
Contract fee.
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return information in this section refers to the total
of the income generated by an investment in a Sub-Account and of the changes
of value of the principal invested (due to realized and unrealized capital
gains or losses) for a specified period reduced by the Sub-Account's asset
charges. However, it is assumed that the investment is NOT redeemed at the
end of each period.
The quotations of Supplemental Total Return are computed by finding the
average annual compounded rates of return over the specified periods that
would equate the initial amount invested to the ending values, according to
the following formula:
P(1 + T)n = 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
The calculation of Supplemental Total Return reflects the 1.45% annual charge
against the assets of the Sub-Accounts. The ending value assumes that the
Contract 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 Contract was withdrawn at the end of the period. The
calculations of Supplemental Total Return includes the deduction of the $30
Annual Contract fee.
YIELD AND EFFECTIVE YIELD - MONEY MARKET SUB-ACCOUNT
Set forth below is hypothetical yield and effective yield information for the
Money Market Sub-Account for the seven-day period ended December 31, 1995,
calculated as if the Money Market Sub-account had been in existence at that
time:
Yield ----- %
Effective Yield ----- %
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the Securities and Exchange Commission. Under those
methods, the yield quotation is computed by determining the net change
(exclusive of capital changes) in the value of a hypothetical pre-existing
account having a balance of one accumulation unit of the Sub-Account at the
beginning of the period, subtracting a charge reflecting the annual 1.45%
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:
Effective Yield = [(base period return + 1)(365/7)] - 1
7
<PAGE>
The calculations of yield and effective yield do not reflect the $30 Annual
Contract fee.
TAX-DEFERRED ACCUMULATION
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
-------------- --------------- --------------------
10 Years . . . . . $107,946 $ 86,448 $ 81,693
20 Years . . . . . 233,048 165,137 133,476
30 Years . . . . . 503,133 335,021 218,082
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; 0.20% administration charges;
7% maximum deferred withdrawal charge; and $30 Contract 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. The Fulcrum Separate Account has not begun operations;
therefore, no financials have been included.
8
<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
<TABLE>
<S> <C>
Statutory Financial Statements
Report of Independent Accountants..................................................... F-1
Statement of Assets, Liabilities, Surplus and Other Funds............................. F-2
Statement of Operations and Changes in Capital and Surplus............................ F-3
Statement of Cash Flows............................................................... F-4
Notes to Statutory Financial Statements............................................... F-5
</TABLE>
<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.
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
F-1
<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,
<TABLE>
<CAPTION>
1995 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
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.
F-2
<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,
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE
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.
F-3
<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,
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
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.
F-4
<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.
F-5
<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.
F-6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
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.
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.
F-7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
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
VALUE APPRECIATION DEPRECIATION FAIR VALUE
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
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
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED
VALUE APPRECIATION DEPRECIATION FAIR VALUE
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
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>
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
VALUE FAIR VALUE
------------- -------------
<S> <C> <C>
(IN THOUSANDS)
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>
F-8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
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>
PROPERTY TYPE 1995 1994
- -------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
(IN THOUSANDS)
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
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC REGION 1995 1994
- -------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
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.
NET INVESTMENT INCOME -- The components of net investment income for the year
ended December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
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>
F-9
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
REALIZED CAPITAL GAINS AND LOSSES -- Realized capital gains (losses) on
investments for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
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.
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.
F-10
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
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 CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
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>
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.
F-11
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
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>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
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.
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.
F-12
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
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.
F-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 is filed herein.
Exhibit 2 - Not Applicable. Pursuant to Rule 26a-2, the Insurance Company
may hold the assets of the Registrant NOT pursuant to a trust
indenture or other such instrument.
Exhibit 3 - (a) Proposed Form of Wholesaling Agreement
(b) Form of Sales Agreement
(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
Exhibit 5 - Application Form is filed herewith.
Exhibit 6 - The Depositor's Articles of Incorporation and Bylaws is filed
herewith.
Exhibit 7 - Not Applicable.
Exhibit 8 - Not Applicable.
Exhibit 9 - Consent and Opinion of Counsel.
Exhibit 10 - Consent of Independent Accountants.
Exhibit 11 - None.
Exhibit 12 - None.
Exhibit 13 - Not Applicable.
Exhibit 14 - Not Applicable
Exhibit 15 - Participation Agreement is filed herewith.
<PAGE>
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR.
The principal business address of all the following Officers is:
440 Lincoln Street
Worcester, Massachusetts 01653
NAME AND POSITION PRINCIPAL OCCUPATION
- ----------------- ---------------------
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
Secretary and Counsel Financial Life Insurance Company
Richard J. Baker Vice President and Assistant Secretary, First
Vice President Allmerica Financial Life Insurance Company
Whitworth F. Bird, Jr., M.D. Vice President and Medical Director,
Vice President and Medical First Allmerica Financial Life Insurance Company
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
Vice President Life Insurance Company
Dix F. Davis Vice President, First Allmerica Financial
Vice President Life Insurance Company
Bruce A. Emond Vice President, First Allmerica Financial
Vice President Life Insurance Company
Kruno Huitzingh, Director Director, Vice President and Chief Information
Vice President and Chief Officer, First Allmerica Financial Life
Information Officer Insurance Company
John P. Kavanaugh Vice President, First Allmerica Financial
Director and Vice President Life Insurance 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
General Counsel and Life Insurance Company
Assistant Secretary
William H. Mawdsley Vice President and Actuary, First Allmerica
Vice President and Actuary Financial Life Insurance Company
James R. McAuliffe Director and President, Citizens Insurance
Director Company of America
Roderick A. McGarry, II Vice President, First Allmerica Financial Life
Vice President Insurance Company
John W. Nunley Vice President, First Allmerica Financial
Vice President Life Insurance Company
John F. O'Brien Director, President and Chief Executive
Director and Chairman of the Officer, First Allmerica Financial Life
Board Insurance Company
<PAGE>
Edward J. Parry, III Vice President and Treasurer, First
Vice President and Treasurer Allmerica Financial Life Insurance Company
Richard M. Reilly Director and Vice President, First Allmerica
Director, President and CEO Financial Life Insurance Company
Eric A. Simonsen Director, Vice President and Chief Financial
Vice President and Chief Officer, First Allmerica Financial Life
Financial Officer Insurance Company
Ann K. Tripp Vice President, First Allmerica Financial
Vice President Life Insurance Company
Jerome F. Weihs Vice President, First Allmerica Financial
Vice President Life Insurance Company
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 440 Lincoln Street Accounting, marketing
Services, Inc. Worcester MA 01653 and shareholder services
for investment companies
Allmerica Investment Services 440 Lincoln Street Holding Company
Inc. (formerly Allmerica Worcester, MA 01653
Financial 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
<PAGE>
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 Worcester MA 01653 partnership
Citizens Corporation 440 Lincoln Street Holding Company
Worcester, MA 01653
Citizens Insurance Company 645 West Grand River Multi-line fire &
of America Howell MI 48843 casualty insurance
Citizens Insurance Company 645 West Grand River Multi-line fire &
of Ohio 8101 N. High Street casualty insurance
Citizens Management, Inc. 645 West Grand River Services management
Howell MI 48843 company
Greendale Special Placements 440 Lincoln Street Massachusetts Grantor
Fund Worcester MA 01653 Trust
The Hanover American 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 801 East Campbell Road Multi-line fire &
Company Richardson TX 75081 casualty insurance
Hollywood Center, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Linder Skokie Real Estate 440 Lincoln Street General business
Corporation Worcester MA 01653 corporation
Lloyds Credit Corporation 440 Lincoln Street Premium financing
Worcester MA 01653 service franchises
Logan Wells Water Company, Inc. 603 Heron Drive Water Company, serving
Bridgeport NJ 08014 land development
investment
<PAGE>
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
Allmerica Financial Life 440 Lincoln Street Life insurance, Insurance and
Annuity Company Worcester MA 01653 accident & health insurance,
annuities, variable life
insurance
Somerset Square, Inc. 440 Lincoln Street General business
Worcester MA 01653 corporation
Sterling Risk Management 100 North Parkway Risk management
Services, Inc. Worcester MA 01605 services
</TABLE>
Item 27. NUMBER OF CONTRACT OWNERS.
There are no Contact holders because operations have not began.
Item 28. INDEMNIFICATION.
Article VIII of the Bylaws of Allmerica Financial Life Insurance and Annuity
Company (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 a principal underwriter for the
following:
-VEL Accounts: VEL '87, V EL '91, VEL Plus, Group VEL, Select VEL
and VEL II, Inheiritage Account, Allmerica Select Separate Account II,
Separate Accounts VA-K and VA-P, Allmerica Select, Individual Variable
Annuities: VA-A, VA-A, VA-A, VA-A, VA-B, VA-C, VA-G, VA-H, Separate
Accounts D, E & F of Allmerica Financial Life Insurance and
Annuity Company.
- Separate Account I, Separate Accounts VA-K and VA-P, Inheiritage
Account, Allmerica Select Separate Account and VEL II 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 Aberizk Vice President
Abigail M. Armstrong Secretary and Counsel
Philip J. Coffey Vice President
Thomas J. Cunningham Vice President, Chief Financial Officer
and Controller
<PAGE>
John F. Kelly Director
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 First Data Investor Services
Group, 4400 Computer Drive, Westboro, Ma 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 as part of the application to
purchase a Contract a space that the applicant can check to request 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 Company's variable contracts.
2. Appropriate disclosures regarding the redemption restrictions imposed
by the Program and by Section
<PAGE>
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>
EXHIBIT TABLE
Exhibit 1 - Vote of Board of Directors dated June 13, 1996
Exhibit 3(a) - Wholesaling Agreement
Exhibit 3(b) - Sales Agreement
Exhibit 4 - Policy Form
Exhibit 5 - Application Form
Exhibit 6 - Articles of Organization and Bylaws
Exhibit 9 - Consent and Opinion of Counsel
Exhibit 10 - Consent of Independent Accountants
Exhibit 15 - Participation Agreement
<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 4th day of September, 1996.
FULCRUM SEPARATE ACCOUNT OF
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
By: /s/ Abigail M. Armstrong
------------------------------
Abigail M. Armstrong
Secretary
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ John F. O'Brien Director and
John F. O'Brien Chairman of the Board
/s/ Bruce C. Anderson Director
Bruce C. Anderson
/s/ Kruno Huitzingh Director, Vice President and September 4, 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
Richard M. Reilly Chief 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>
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>
EXHIBIT 3(a)
WHOLESALING AGREEMENT
AGREEMENT dated as of August __, 1996 by and between Allmerica Financial Life
Insurance and Annuity Company, a Delaware insurance company ("Company"),
ALLMERICA INVESTMENTS, INC., a Massachusetts corporation (the "Underwriter"),
Western Capital Financial Group, a _____________ corporation (the
"Distributor"), and the insurance agency affiliates 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
<PAGE>
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; 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 -- The Palladian 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
2
<PAGE>
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 _________ 1996
among the Company, 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
individual insurance agent, the Company hereby appoints the appropriate
entity or("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.
3
<PAGE>
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 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:
4
<PAGE>
(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;
(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 process 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.
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
5
<PAGE>
as employees of the Company or Underwriter in connection with the
wholesaling activities contemplated by this Agreement or otherwise.
4. Marketing and Sales
A. Prior to use with any member of the public, the Company shall provide to
the Distributor copies of any 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.
C. 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;
6
<PAGE>
(ii) expenses associated with the initial licensing, if any, and
training of its Associated Persons involved in the wholesaling
activities;
(iii) expenses for design and development of (1) marketing kits and
prospectus covers in a design which are agreed upon by the Company
and the Distributor, which meet regulatory requirements as
determined by the Company, and which are provided to the Company
in camera-ready format, and (2) of promotional and advertising
materials;
(iv) printing of promotional and advertising materials (not including
marketing kits and prospectuses);
(v) mailing of any promotional and advertisng material and marketing
kits in connection with the distribution of the contracts
(vi) fulfillment of marketing materials and forms to broker-dealers
(vii) the printing, mailing (such mailing to be conducted by the
Distributor), and all other activities associated with proxy
solicitations;
(viii) mailing of Fund prospectuses, supplements and periodic reports
relating to the Fund to contract owners;
(ix) any additions, inserts, or packaging enhancements to the Company's
basic "Welcome Package";
(x) 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
(xi) 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 this Section 4.C
and in Section 4.G 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.
D. 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, including the
Company's basic "Welcome Package" (any additions, inserts, or
packaging enhancements to the Compay's basic "Welcome Package"
shall be at the expense of the Distributor, as set forth in
Section 4.C.(x), above).
(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;
7
<PAGE>
(iv) registration fees for the Contracts payable to the SEC, the NASD
or any other governmental or regulatory agency;
(v) printing of marketing kits materials, including prospectus (other
than those born by the Fund pursuant to the Participation
Agreement) used in connection with the distribution of the
Contracts based on the schedule for each product as set forth in
Schedule 6.
(vi) the mailing of Contract Prospectuses and any supplements thereto,
as required by federal securities laws, and periodic reports
relating to the Accounts to Contract owners;
(vii) the preparation and printing of administrative forms utilized in
connection with the distribution of the Contracts, including but
not limited to the form of application;
(viii) the preparation of Contract Owner lists for the purposes of proxy
solicitations;
(ix) compensation as provided in Section 9 hereof; and
(x) any other expenses related to the distribution of the Contracts
except those set forth in Section 4.C of this Agreement and except
as provided in Section 4.E of this Agreement.
E. 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.
F. 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.
G. The Distriubtor agrees to reimburse the Company for development and
implementation costs for each new product based upon the schedule set forth
in Schedule 5.
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
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.(ii) 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.
8
<PAGE>
(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.
(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,
9
<PAGE>
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 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.
10
<PAGE>
B. During the term of this Agreement the Company shall take all reasonable
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 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
11
<PAGE>
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 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
12
<PAGE>
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,
as follows:
(i) that if total annual sales of the Contracts exceed $60,000,000
during any calendar year beginning January 1, 1997, the Company
will pay up to $600,000 of appointment fees; provided, however,
if sales do not meet this goal, the Distributor will reimburse
the Company for all appointment fees paid during the calendar
year.
(ii) if total sales of contracts exceed $100,000,000 during any
calendar year, the Company will pay up to $1,300,000 of
appointment fees. If sales do not meet this goal but do exceed
$60,000,000, the Distributor will reimburse the Company for all
appointment fees paid during the calendar year over $600,000.
(iii) The Distributor will reimburse the Company for all appointment
fees over $1,3000,000 during any calendar year, unless prior
agreement is made with the Company.
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
13
<PAGE>
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 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,
14
<PAGE>
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 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
applicationor 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.
15
<PAGE>
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 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
16
<PAGE>
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:
Richard M. Reilly
President
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
if to the Underwriter:
Stephen J. Parker
President and CEO
Allmerica Investments Inc.
440 Lincoln Street
Worcester, MA 01653
if to the Distributor or Distributor Agency Affiliates, to:
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(G), "Aggregate Sales" shall refer to the
aggregate sales through Distributor pursuant both to this Agreement and to
the Wholesaling Agreement with First Allmerica Financial Life Insurance
Company ("First Allmerica") dated __________, 1996 ("First Allmerica
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 First Allmerica as they may
mutually agree. For the purposes of Section 9(C), "total annual sales" shall
refer to the total annual sales through Distributor pursuant both to this
Agreement and to the First Allmerica Agreement, and "total amount of
initial or renewal fees" shall refer to the aggregate amount of such fees
incurred by the Company and First Allmerica. For the purposes of Schedule 6,
"total quantity" shall refer to the total number of marketing kits and
prospectuses provided pursuant both to this Agreement and to the First
Allmerica Agreement.
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:
18
<PAGE>
ALLMERICA INVESTMENTS, INC.
Date: By: ________________________________
Name:
Title:
WESTERN CAPITAL FINANCIAL GROUP
(on its own behalf and on behalf of
the Distributor Agency Affiliates)
Date: By: ________________________________
Name:
Title:
19
<PAGE>
SCHEDULE I
DISTRIBUTOR AGENCY AFFILIATES
Effective______ , 1996
State(s) In
Distributor Agency Affiliate Which Licensed
- ----------------------------- --------------
Palladian Marketing Group, Inc. Connecticut, New York
20
<PAGE>
SCHEDULE 2
FUND PORTFOLIOS
AVAILABLE UNDER THE CONTRACTS
Effective _________, 1996
<TABLE>
<CAPTION>
Name of Separate Account Underlying Funds
- ------------------------ -----------------
<S> <C>
Fulcrum Fund Separate Account of Value Portfolio of The Palladian Trust
Allmerica Financial Life Insurance
and Annuity Company
Growth Portfolio of The Palladian Trust
International Growth Portfolio of The Palladian Trust
Global Strategic Income Portfolio of The Palladian Trust
Global Interactive/Telecomm Portfolio of The Palladian Trust
Money Market Fund of Allmerica Investment Trust
<CAPTION>
Name of Separate Account Underlying Funds
- ------------------------ -----------------
Fulcrum Fund Varialbe Life Value Portfolio of The Palladian Trust
Separate Account of Allmerica Financial
Life Insurance and Annuity Company
Growth Portfolio of The Palladian Trust
International Growth Portfolio of The Palladian Trust
Global Strategic Income Portfolio of The Palladian Trust
Global Interactive/Telecomm Portfolio of The Palladian Trust
Money Market Fund of Allmerica Investment Trust
</TABLE>
21
<PAGE>
SCHEDULE 3
CONTRACTS SUBJECT TO PROMOTIONAL AGENT AGREEMENT
Effective , 1996
<TABLE>
<CAPTION>
SEC
Marketing Policy Registration Name of
Name Form No. No. Separate Account
- --------- -------- ------------ ----------------
<S> <C> <C> <C>
Fulcrum Fund A3025-96 Fulcrum Separate Account of Allmerica
Variable Annuity Financial Life Insurance and Annuity Company
Fulcrum Fund Single 1030-96 Fulcrum Variable Life Separate Account of
Premium Variable Life Policy Allmerica Financial Life Insurance and Annuity Company
</TABLE>
22
<PAGE>
SCHEDULE 4
BROKER-DEALER COMPENSATION AND
DISTRIBUTOR PROMOTIONAL ALLOWANCE SCHEDULE
VARIABLE ANNUITY CONTRACTS
(A). The maximum Broker-Dealer Commission and Distributor Service Fees
Compensation payable by the Company with respect to the sale and distribution of
the Contracts shall be 7.1% of initial and subsequent Purchase Payments received
and accepted by the Company.
(B). Of the amount specified in item (A), above, 6.00% shall be payable by the
Company to Broker-Dealers as sales commissions, or in lieu thereof the Broker-
Dealer may select an alternative trail commission option, if available. In the
event that an annuitant is over 85.5 years old, the only commission option
available to the Broker-Dealer will be a 1% trail option. Commission to the
Broker-Dealer will be reduced by 0.50% for contracts sold is states that require
the Company to pay premium tax at time of issue.
(C). Of the amount specified in item (A), above, 1.10% shall be payable to the
Distributor for administrative and support services ("Promotional Allowance")
with respect to the distribution of the contracts.
(D). Actual compensation paid to the Distributor will be net of an offset of $30
for each policy anniversary and surrender of any contract issued to a 401(k)
plan with Accumulated Value of less than $100,000. This offset will apply only
to the extent that the Company waives its policy fee in connection with
contracts issued in connection with such 401(k) plans.
(E). Promotional Allowances will be paid to the Distributor no less frequently
than twice a month.
(F). To the extent that the commissions paid to the Broker-Dealer as outlined
in item (B), above, increases or decreases, than the Promotional Allowance,
outlined in item (C), above, shall decrease or increase accordingly, such that
the total compensation paid by the Company shall be equal to a maximum of 7.10%.
(G). Notwithstanding item (F), above, the Company reserves the right to reduce
the commission payable to the a Broker-Dealer on any contract sold in connection
with a 401(k) plan, without increasing the compensation payable to the
Distributor under item (C), above.
VARIABLE LIFE CONTRACTS
(A). Maximum compensation payable by the Company with respect to the sale and
distribution of Variable Life Contracts shall be 8.5% of initial and subsequent
payments, plus any deferred compensation paid to the Broker-Dealer on Contracts
in force on and after contract year 11.
(B). Of the amount specified in item (A), above, 7% shall be payable by the
Company to Broker-Dealers. In addition, Broker-Dealers shall be paid deferred
compensation beginning in contract year 11 as follows:
Deferred Compensation- COI based: 50% of COI charges in year 1-10, paid
quarterly beginning in contract year 11
Trail: 0.25% of account value (unloaned assets) each quarter, beginning in
contract year 11.
(C). Of the amount specified in item (A) above, 1.50% shall be payable to the
Distributor for administrative and support services with respect to the
distribution of the Contracts ("Promotional Allowance").
(D). To the extent that the commissions paid to the Broker-Dealer as outlined
in item (B) above increases or decreases, than the Promotional Allowance,
outlined in item (C), above, shall decrease or increase accordingly, such that
the total compensation payable by the Company shall be equal to a maximum
initial compensation of 8.5%.
23
<PAGE>
SCHEDULE 5
DEVELOPMENT AND ADMINISTRATIVE COST REIMBURSEMENT
(A) FULCRUM FUND VARIABLE ANNUITY
(1) With respect to the Fulcrum Fund Variable Annuity product, the Distributor
agrees to reimburse the Company for development and implementation costs at
the end of a period (the "initial Variable Annuity measurement period") of
15 months from the later of the following dates:
(a) the date on which the Company has obtained approval of the product in
35 states (which will include California, Florida, Arizona, Michigan,
Massachusetts, Texas, and Pennsylvania, unless (1) the Company
determines, in good faith and upon notice to the Distributor, that
approval of the product in any such state is not reasonably possible
without material modifications to the contract, or (2) in California,
if approval is not obtained because of any failure of the funds of The
Palladian Trust to satisfy the requirements of California insurance
statutes and regulations, or interpretive positions of the
California Insurance Department).
(b) the date on which the registration statement for the product under the
1933 Act is effective; or
(c) the date on which the product is available for sale to the public, as
determined by the Company.
based on the following schedule unless the combined product sales require
Variable Annuity reimbursement of a lower amount (as described in Section
(A)(2) and Section (B)(2)):
AGGREGATE SALES REIMBURSEMENT
$0 up to $75,000,000 $600,000
$75,000,001 to $95,000,000 $480,000
$95,000,001 to $115,000,000 $360,000
$115,000,001 to $135,000,000 $240,000
$135,000,001 to $155,000,000 $120,000
$155,000,001 to $175,000,000 $ 50,000
$175,000,001 and over $ 0
(2) For sales over $175 million during the initial Variable Annuity measurement
period, the Distributor will receive a credit of $100,000 for each $20
million of annuity sales to offset any SPVUL reimbursement which may be
required for the Fulcrum Fund SPVUL, as set forth in Section (B), below.
Under no circumstances will the Company make any payments to the Distributor
for the credit.
(3) If Variable Annuity reimbursement is required, it will be payable in equal
monthly installments over a 24 month period from the date the Company
provides notice to the Distributor that Variable Annuity reimbursement is
due the Company.
(4) If Variable Annuity reimbursement is required and during the next 15 month
period from date of expiration of the initial Variable Annuity measurement
period (the "subsequent Variable Annuity measurement period") cumulative
sales for any consecutive 15 month period reach $175 million, then the
Distributor will no longer be required to make Variable Annuity
reimbursement payments and the Company will refund all Variable Annuity
reimbursement payments made to date. If during the subsequent Variable
Annuity measurement period, cumulative sales for any three month period
(which may include the last 3 months of the initial Variable Annuity
measurement period), exceeds $44 million, then the Distributor may suspend
Variable Annuity reimbursement payments until the end of the subsequent
Variable Annuity measurement period, at which time the Company will make a
determination as to whether Variable
24
<PAGE>
Annuity reimbursement payments are due. If cumulative sales reach $190
million for any period of 15 consecutive months by the end of the
subsequent Variable Annuity measurement period, then the Distributor will
no longer be required to make Variable Annuity reimbursement payments and
the Company will refund all Variable Annuity reimbursement payments which
have been made.
(5) If during the initial Variable Annuity measurement period or the subsequent
Variable Annuity measurement period there should be material changes to
federal tax laws ("Material Tax Law Change"), which have a significant
negative impact on the sales of variable annuities, then each Variable
Annuity reimbursement amount set forth above in Section (A)(1) will be
reduced by 50%. For the purposes of this section, "significant negative
impact" shall mean a reduction of ______ % or more in the average monthly
industry sales of individual variable annuity contracts from the average
monthly industry sales of individual variable annuity contracts for the
consecutive three month period prior to the Material Tax Law Change, as
reported by VARDS, and the Company agrees that the reduction is reasonably
attributable to the Material Tax Law Change.
(B) FULCRUM FUND SPVUL
(1) With respect to the Fulcrum Fund SPVUL product, the Distributor agrees to
reimburse the Company for development and implementation costs at the end
of a period (the "initial SPVUL measurement period") of 18 months from the
later of the following dates:
a) the date on which the Company has obtained approval of the product in
35 states (which will include California, Florida, Arizona, Michigan,
Massachusetts, Texas, and Pennsylvania, unless (1) the Company
determines, in good faith and upon notice to the Distributor, that
approval of the product in any such state is not reasonably possible
without material modifications to the contract, or (2) in California,
if approval is not obtained because of any failure of the funds of The
Palladian Trust to satisfy the requirements of California insurance
statutes and regulations, or interpretive positions of the California
Insurance Department).
b) the date on which the registration statement for the Fulcrum Fund SPVUL
under the 1933 Act is effective; or
c) the date on which the product is available for sale to the public, as
determined by the Company,
based on the following schedule unless the combined product sales require
SPVUL reimbursement of a lower amount (as described in Section (A)(2) and
Section (B)(2)):
AGGREGATE SALES REIMBURSEMENT
$0 up to $80,000,000 $700,000
$80,000,001 to $100,000,000 $580,000
$100,000,001 to $120,000,000 $460,000
$120,000,001 to $140,000,000 $340,000
$140,000,001 to $160,000,000 $220,000
$160,000,001 to $175,000,000 $100,000
$175,000,001 and over $ 0
2) For sales over $175 million during the initial SPVUL measurement period,
the Distributor will receive a credit of $100,000 for each $20 million of
SPVUL sales to offset any reimbursement which may be required for the
Fulcrum Fund Variable Annuity. Under no circumstances will the Company make
any payments to the Distributor for the credit.
25
<PAGE>
(3) If SPVUL reimbursement is required it will be payable in equal monthly
installments over the 24 month period from the date the Company provides
notice to the Distributor that SPVUL reimbursement is due the Company.
(4) If SPVUL reimbursement is required, and during the next 24 month period from
date of expiration of the initial SPVUL measurement period ("the subsequent
SPVUL measurement period") cumulative sales for any consecutive 15 month
period reach $175 million, then the Distributor will no longer be required
to pay SPVUL reimbursement expenses and the Company will refund all SPVUL
reimbursement payments made to date. If during the subsequent SPVUL
measurement period, cumulative sales for any three month period (which may
include up to 3 months of the initial SPVUL measurement period), exceeds
$43.75 million, then the Distributor can suspend SPVUL reimbursement
payments until the end of the subsequent SPVUL measurement period, at which
time the Company will make a determination as to whether SPVUL reimbursement
is due. If cumulative SPVUL sales reach $175 million for any period of 15
consecutive months by the end of the subsequent SPVUL measurement period,
then the Distributor will no longer be required to pay SPVUL reimbursement
to the Company and the Company will refund all SPVUL reimbursement payments
which have been made.
(5) If during the initial or the subsequent SPVUL measurement period there
should be material changes to federal tax laws ("Material Tax Law Change"),
which have a significant negative impact on the sales of single premium
variable life contracts, then each SPVUL reimbursement amount set forth
above in Section (B)(1) will be reduced by 50%. For the purposes of this
section, "significant negative impact" shall mean a reduction of ______ %
or more in the average monthly industry sales of single premium variable
life insurance from the average monthly industry sales of single premium
variable life insurance over the three month period prior to the Material
Tax Law Change, as reported by VARDS, and the Company agrees that the
reduction is reasonably attributable to the Material Tax Law Change.
26
<PAGE>
SCHEDULE 6
MARKETING KIT AND PROSPECTUS SALES MATERIALS
FULCRUM FUND VARIABLE ANNUITIES
The Company will print an initial total quantity of 25,000 marketing kits and
prospectuses to be available at the time of the product launch or on a schedule
agreed upon between the Company and the Distributor. Additional quantities may
be provided at the discretion of the Company.
The Company will provide a minimum total quantity of 65,000 marketing kits and
prospectuses each year up to a rate of 25,000 kits per $100,000,000 of sales.
Additional quantities may be provided at the discretion of the Company.
FULCRUM FUND SPVUL
The Company will print an initial total quantity of 10,000 marketing kits and
prospectuses to be available at the time of the product launch or on a schedule
agreed upon between the Company and the Distributor. Additional quantities may
be provided at the discretion of the Company.
The Company will provide a minimum total quantity of 20,000 marketing kits and
prospectuses per year up to a total quantity of 20,000 marketing kits and
prospectus per $100,000,000 of sales. Additional quantities may be provided at
the discretion of the Company.
27
<PAGE>
EXHIBIT 3(b)
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
-2-
<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
-3-
<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.
-4-
<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.
-6-
<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
/s/
- --------------------------------------
(Name of Broker)
- --------------------------------------
By: /s/
-------------------------------------------
Vice President
Allmerica Investments, Inc.
By: /s/
-------------------------------------------
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 Armstrong
President Secretary
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY
NON-PARTICIPATING
FORM A3026-96
<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. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ANNUITY OPTION TABLES. . . . . . . . . . . . . . . . . . . . . . . . 16
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . 18
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2
<PAGE>
SPECIFICATIONS
Annuitant: John Doe Contract Number: 0000000000
- -------------------------------------------------------------------------------
Issue Date: 07/29/96 Contract Type:
Annuitant Sex: Male Annuitant Date of Birth: 10/19/57
Owner: John Doe Owner Date of Birth: 10/19/57
Joint Owner: Joint Owner Date of Birth:
Annuity Date: [10/01/42] Beneficiary: Mary Doe
Tom Doe
- -------------------------------------------------------------------------------
Minimum Fixed Account Guaranteed Interest Rate: [3%]
Minimum Additional Payment: [$100]
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]
Maximum Alternative Annuity Date: No later than the first of the month
preceding the Annuitant's [90th] birthday
and within life expectancy
Surrender Charge Table:
Years Measured From | Surrender Charge as a
Date of Payment | Percent of the Payments
To Date of Withdrawal | Withdrawn
-----------------------------------------------------
[Less than: 1 | 7%
2 | 6%
3 | 5%
4 | 4%
5 | 3%
6 | 2%
7 | 1%
More than 7 | 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: [.20%] on an annual basis of the daily value of the
Sub-Account assets.
Contract Fee: [$30, if the Accumulated Value is less than $50,000.]
Principal Office: 440 Lincoln Street, Worcester, Massachusetts 01653
[(1-800-688-9915)]
3
<PAGE>
SPECIFICATIONS (continued)
Annuitant: John Doe Contract Number: 0000000000
- -------------------------------------------------------------------------------
Initial Net Payment: $100,000
Initial Net Payment Allocation:
VARIABLE SUB-ACCOUNTS
Value Portfolio
Growth Portfolio
International Growth Portfolio
Global Strategic Income Portfolio
Global Interactive/Telecomm Portfolio
Money Market
FIXED ACCOUNT
[Initial Interest Rate:]
GUARANTEE PERIOD ACCOUNTS
GUARANTEED
GUARANTEE INTEREST EXPIRATION
PERIOD RATE DATE
---------- ----------- -----------
[ years
years
years
years
years
years
years
years
years
]
-------
100% TOTAL
4
<PAGE>
DEFINITIONS
ACCUMULATED VALUE The value of all accounts in this contract before
the Annuity Date. As long as the Accumulated Value
is greater than zero, the contract will stay in
effect.
ACCUMULATION UNIT A measure used to calculate the value of a
Sub-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 VALUATION DATE The Valuation Date on or immediately following the
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 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
may be credited to a Guarantee Period Account. The
Guarantee Period may range from two to ten years.
GUARANTEE PERIOD ACCOUNT An account which corresponds to a Guaranteed
Interest Rate for a specified Guarantee Period and
is supported by assets 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.
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 REQUEST A request by telephone to the Principal Office. A
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 OR
WRITTEN NOTICE A request or notice in writing satisfactory to the
Company and filed at the Principal Office.
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 PROCEEDS To the extent allowed by law, this contract and any
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 PAYMENTS Prior to the Annuity Date, the Owner may make
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 ALLOCATIONS The initial Net Payment is allocated as shown on 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 VARIABLE
ACCOUNT The value of a Sub-Account on a Valuation Date 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 UNIT
VALUES The value of a Sub-Account Accumulation Unit as 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 FACTOR The net investment factor 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:
(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 FIXED
ACCOUNT Allocations to the Fixed Account are credited
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 GUARANTEE
PERIOD ACCOUNTS A Guarantee Period Account will be established on
the date a Net Payment or transfer is 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 INTEREST
RATES The Company will periodically set Guaranteed
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 GUARANTEE
PERIODS At least 45 days, but not more than 75 days prior to
the end of a Guarantee Period, the Company will
notify the Owner in writing of the expiration of
that Guarantee Period. 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
SURRENDER CHARGE In each calendar year, withdrawals may be made
without a surrender charge. 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 may be withdrawn without charge.
The withdrawal without surrender charge will first
be deducted from cumulative earnings. 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
DISTRIBUTION BENEFIT In each calendar year, the amount of the life
expectancy distribution available under the
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
SURRENDER CHARGE Any amounts withdrawn or surrendered in excess 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.
MARKET VALUE ADJUSTMENT A transfer, withdrawal or surrender from a 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;
11
<PAGE>
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.
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
BENEFIT BEFORE THE
ANNUITY DATE If the Annuitant dies before the Annuity Date, the
death benefit will be the greater of:
(a) the Accumulated Value increased by any positive
Market Value Adjustment; or
(b) the sum of the gross payments made under this
contract reduced to reflect all partial
withdrawals reduced proportionately. 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.
OWNER'S DEATH BENEFIT
BEFORE THE ANNUITY DATE If an Owner who is not also the Annuitant dies
before the Annuity Date, the death benefit will be
the Accumulated Value increased by any positive
Market Value Adjustment.
PAYMENT OF THE DEATH
BENEFIT BEFORE THE
ANNUITY DATE The death benefit will be paid to the Beneficiary
within 7 days of the Effective Valuation Date 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.
12
<PAGE>
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.
(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
PAYMENT AFTER THE
ANNUITY DATE 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 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
PAYMENTS Annuity benefit payments may be received on a
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.
13
<PAGE>
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.
ANNUITY UNIT VALUES A Sub-Account Annuity Unit value on any 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 ANNUITY UNITS The number of Annuity Units determining the 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 PAYMENT
OPTIONS VARIABLE OR FIXED LIFE ANNUITY WITH PAYMENTS
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.
14
<PAGE>
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 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.
15
<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.
16
<PAGE>
ANNUITY OPTION TABLES (Continued)
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
<TABLE>
<CAPTION>
Joint and Survivor Life Annity Joint and Two-Thirds Survivor Life Annuity
Older Age Older Age
- ------------------------------------------------------------------------------------------------------
50 55 60 65 70 75 80 50 55 60 65 70 75 80
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Y 50 3.91 3.97 4.02 4.05 4.07 4.09 4.10 4.25 4.40 4.57 4.76 4.96 5.18 5.39
O
U 55 4.18 4.26 4.32 4.36 4.39 4.41 4.60 4.80 5.02 5.26 5.50 5.75
N
G 60 4.54 4.65 4.73 4.78 4.81 5.08 5.35 5.63 5.92 6.21
E
R 65 5.04 5.19 5.29 5.35 5.74 6.10 6.46 6.82
70 5.75 5.95 6.08 6.67 7.15 7.62
A 75 6.77 7.06 8.04 8.69
G
E 80 8.29 10.05
</TABLE>
These tables are based on an annual interest rate of 3 1/2%
and the 1983(a) Individual Mortality Table.
FIRST MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE APPLIED
<TABLE>
<CAPTION>
NUMBER OF VARIABLE OR FIXED ANNUITY NUMBER OF VARIABLE OR FIXED ANNUITY
YEARS FOR A PERIOD CERTAIN YEARS FOR A PERIOD CERTAIN
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 84.65 16 6.76
2 43.05 17 6.47
3 29.19 18 6.20
4 22.27 19 5.97
5 18.12 20 5.75
6 15.35 21 5.56
7 13.38 22 5.39
8 11.90 23 5.24
9 10.75 24 5.09
10 9.83 25 4.96
11 9.09 26 4.84
12 8.46 27 4.73
13 7.94 28 4.63
14 7.49 29 4.53
15 7.10 30 4.45
</TABLE>
These tables are based on an annual interest rate of 3 1/2%.
17
<PAGE>
GENERAL PROVISIONS
ENTIRE CONTRACT The entire contract consists of this contract, any
application attached at issue and any endorsements.
MISSTATEMENT OF AGE If a payee's age is misstated, the Company will adjust
all annuity benefit payments to those that the annuity
value applied would have purchased at the correct age.
Any underpayments already made by the Company will be
paid immediately. Any overpayments will be deducted
from future annuity benefits.
MODIFICATIONS Only the President, a Vice President or Secretary of
the Company may modify or waive any provisions of this
contract. Agents or Brokers are not authorized to do so.
INCONTESTABILITY The Company cannot contest this contract.
CHANGE OF ANNUITY DATE The Owner may change the Annuity Date by Written
Request at any time after the contract has been
issued. The request must be received at the Principal
Office at least one month before the new Annuity Date.
The alternative Annuity Date must be the first of any
month prior to the Maximum Alternative Annuity Date
shown on the Specifications page and must be within
the life expectancy of the Annuitant. The Company will
determine life expectancy at the time a change in the
Annuity Date is requested.
MINIMUMS All values, benefits or settlement options available
under this contract equal or exceed those required by
the state in which the contract is delivered.
ANNUAL REPORT The Company will furnish an annual report to the Owner
containing a statement of the number and value of
Accumulation Units credited to the Sub-Accounts, the
value of the Fixed Account and the Guarantee Period
Accounts and any other information required by
applicable law, rules and regulations.
ADDITION, DELETION, OR
SUBSTITUTION OF
INVESTMENTS The Company reserves the right, subject to compliance
with applicable law, to add to, delete from, or
substitute for the shares of a Fund that are held by
the Sub-Accounts or that the Sub-Accounts may
purchase. The Company also reserves the right to
eliminate the shares of any Fund no longer available
for investment or if the Company believes further
investment in the Fund is no longer appropriate for
the purposes of the Sub-Accounts.
The Company will not substitute shares attributable to
any interest in a Sub-Account without notice to the
Owner and prior approval of the Securities and
Exchange Commission as required by the Investment
Company Act of 1940. This will not prevent the
Variable Account from purchasing other securities for
other series or classes of contracts, or from
permitting a conversion between series or classes of
contracts on the basis of requests made by Owners.
The Company reserves the right, subject to compliance
with applicable laws, to establish additional
Guarantee Period Accounts and Sub-Accounts and to make
them available to any class or series of contracts as
the Company considers appropriate. Each new
Sub-Account will invest in a new investment company or
in shares of another open-end investment company. The
Company also reserves the right to eliminate or
combine existing Sub-Accounts and to transfer the
assets of any Sub-Accounts to any other Sub-Accounts.
In the event of any substitution or change, the
Company may, by appropriate notice,
18
<PAGE>
make such changes in this and other contracts as may
be necessary or appropriate to reflect the
substitution or change. If the Company considers it to
be in the best interests of contract Owners, the
Variable Account or any Sub-Account may be operated as
a management company under the Investment Company Act
of 1940, or may be deregistered under that Act in the
event registration is no longer required, or may be
combined with other accounts of the Company.
CHANGE OF NAME Subject to compliance with applicable law, the Company
reserves the right to change the names of the Variable
Account or the Sub-Accounts.
FEDERAL TAX
CONSIDERATIONS The Variable Account is not currently subject to tax,
but the Company reserves the right to assess a charge
for taxes if the Variable Account becomes subject to tax.
SPLITTING OF UNITS The Company reserves the right to split the value of a
unit, either to increase or decrease the number of
units. Any splitting of units will have no material
effect on the benefits, provisions or investment
return of this contract or upon the Owner, the
Annuitant, any Beneficiary, or the Company.
INSULATION OF SEPARATE
ACCOUNT The investment performance of Separate Account assets
is determined separately from the other assets of the
Company. The assets of a Separate Account equal to
the reserves and liabilities of the contracts
supported by the account will not be charged with
liabilities from any other business that the Company
may conduct.
VOTING RIGHTS
The Company will notify Owners with voting interests
of any shareholders' meeting at which Fund shares held
by each Sub-Account will be voted and will provide
proxy materials together with a form to be used to
give voting instructions to the Company. The Company
will vote Fund shares for which no timely instructions
have been received in the same proportion as shares of
that Fund for which instructions have been received.
Prior to the Annuity Date, the number of shares is
determined by dividing the dollar value of the
Sub-Account Accumulation Units by the net asset value
of one Fund share. After the Annuity Date, the number
of Fund shares is determined by dividing the reserves
held in each Sub-Account to meet the annuity
obligations by the net asset value of one Fund share.
19
<PAGE>
Flexible Payment Deferred Variable and Fixed Annuity
Annuity Benefits Payable to Annuitant on the Annuity Date
Death Benefit Payable to Beneficiary if either Owner or Annuitant Dies
prior to Annuity Date
Non-Participating
20
<PAGE>
Exhibit 5
Allmerica Financial Life Insurance
[LOGO] and Annuity Company
FULCRUM SEPARATE ACCOUNT 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. OPTIONAL RIDERS
Check all Riders that apply: / / Enhanced Death Benefit Rider
/ / Living Benefits Rider / / Disability Rider
5. 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.
6. 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 _______
7. ALLOCATION OF PAYMENTS
___% Value Portfolio ___% International
___% Value Portfolio ___% Global Strategic
___% Growth Portfolio Income Portfolio
___% International Growth ___% Global Interactive/
Portfolio Telecomm Portfolio
___% Money Market
___% Fixed Account
___% _____________
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.
8. REPLACEMENT
Will the proposed contract replace or change any existing annuity or insurance
policy?
/ / No / / Yes (If yes, list company name and policy number) _______________
9. 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.
1119(11/96) GATEC-10
<PAGE>
10. 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: $ _______ Value Portfolio
$ _______ Growth Portfolio
$ _______ International Growth Portfolio
$ _______ Global Strategic Income Portfolio
$ _______ Global Interactive/Telecomm Portfolio
$ _______ Money Market
$ _______ Fixed Account
$ _______ ______________________
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.
11. 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.
12. 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.
13. 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).
14. REMARKS
______________________________________________________________________________
______________________________________________________________________________
15. 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
16. 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>
EXHIBIT 9
September 4, 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 Fulcrum Separate Account 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. Fulcrum Separate Account 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 Fulcrum Separate Account 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 Fulcrum Separate Account filed under the Securities Act of 1933.
Very truly yours,
/s/Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
<PAGE>
EXHIBIT 10
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this initial Registration Statement for Fulcrum Separate
Account 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, Massachusetts
September 4, 1996
<PAGE>
EXHIBIT 15
PARTICIPATION AGREEMENT
Among
THE PALLADIAN TRUST
WESTERN CAPITAL FINANCIAL GROUP
and
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THIS AGREEMENT, made and entered into as of this ___ day of August, 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 segregated asset account of the Company set forth on
Schedule A hereto as may be amended from time to time ( hereinafter referred
to as the "Accounts"), The Palladian Trust, a business trust organized under
the laws of Massachusetts (hereinafter referred to as the "Fund"), and
Western Capital Financial Group, the underwriter of the Fund (hereinafter the
"Distributor"), a ________________ corporation.
WHEREAS, the Fund is engaged in business as an open-end management investment
company and wishes to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity
contracts (collectively referred to as "Variable Insurance Contracts" and
the owners of such products being referred to as "Contract Owners") to be
offered by insurance companies which have entered into participation
agreements with the Fund ("Participating Insurance Companies"); and
WHEREAS, the shares of the Fund (the "Fund shares") consist of separate
classes or series of shares, each designated a "Portfolio" and each series of
shares ("Portfolio shares") representing an interest in a particular managed
portfolio of securities and other assets; and
WHEREAS, the Fund has filed a registration statement (referred to herein as
the "Fund Registration Statement" and the prospectus contained therein,
referred to herein as the "Fund Prospectus") with the Securities and Exchange
Commission (the "SEC") on Form N-lA to register itself as an open-end
management investment company (File No. ) under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the Fund shares (File
No. 33- ) under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, each Account is a validly existing separate account duly authorized
and established by resolution of the Board of Directors of the Company on
the date set forth on Schedule 2, and sets aside and invests assets
attributable to the Contracts , and the Company has registered or will have
registered each Account with the SEC as a unit investment trust under the
1940 Act before any Contracts are issued by the Account; and
WHEREAS, the Company has filed or will file registration statements with the
SEC to register under the 1933 Act certain variable annuity contracts and
variable life contracts described in Schedule 1 to this Agreement, as may be
amended from time-to-time (the "Contracts"), each such registration statement
for a class or classes of contracts listed on Schedule 1 being referred to as
the "Contracts Registration Statement," and the prospectus for each such
class or classes being referred to herein as the "Contracts Prospectus," and
the owners of such contracts; and,
WHEREAS, the Fund has obtained or has filed an application to obtain an order
from the Securities
1
<PAGE>
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(b)(15) and 6e(T)(b)(15) thereunder, if any 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 Exemptive Order");
and
WHEREAS, Palladian Advisors, Inc. (the "Investment Manager") is registered as
investmet advisers under hte 1940 Act and any applicable state securities
laws and serve as overall manager to the Fund; and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a
member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"), and
WHEREAS, the Distributor and the Fund have entered into a Distribution
Agreement (the "Fund Distribution Agreement") dated ______________, 199 _
pursuant to which the Distributor will distribute Fund shares, and to the
extent permitted by applicable insurance laws and regulations, the Company
intends to purchase Portfolio shares on behalf of the Accounts to fund the
Contracts and the Distributor is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Distributor agree as follows:
ARTICLE I. Transactions in Fund Shares
1.1. The Fund agrees to sell to the Company those shares of the Fund which
the Company orders on behalf of the Accounts, executing such orders on a
daily basis in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make the shares of its Portfolios available for
purchase by the Company on behalf of the Accounts at the then applicable net
asset value per share on Business Days as defined in Section 1.4 of this
Agreement, and the Fund shall use reasonable efforts to calculate such net
asset value on each such Business Day. Notwithstanding any other provision
in this Agreement to the contrary, the Board of Directors of the Fund (the
"Board") may suspend or terminate the offering of Fund shares of any
Portfolio, if such action is required by law or by regulatory authorities
having jurisdiction or if, 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, suspension or termination is necessary and in the best interests
of the shareholders of any Portfolio.
1.3. The Fund agrees to redeem, upon request, any full or fractional shares
of the Fund held by the Accounts or the Company, executing such requests at
net asset value on a daily basis in accordance with Section 1.4 of this
Agreement and applicable provisions of the 1940 Act. Notwithstanding the
foregoing, the Fund may delay redemption of Fund shares to the extent
permitted by the 1940 Act, or any rules, regulations or orders thereunder.
2
<PAGE>
1.4. (a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall be the
agent of the Fund for the limited purpose of receiving redemption and
purchase requests from the Account (but not from the general accounts of the
Company), and receipt on any Business Day by the Company as such limited
agent of the Fund by the time prescribed in the current Contracts Prospectus
(which as of the date of execution of this Agreement is expected to be 4
p.m.). shall constitute receipt by the Fund on that same Business Day,
provided that the Fund receives notice of such redemption or purchase request
by 11:00 a.m. Eastern Time on the next following Business Day. For purposes
of this Agreement, "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading or as otherwise provided in the Fund's
then currently effective Fund Prospectus.
(b) The Company shall pay for shares of each Portfolio on the same day
that it places an order with the Fund to purchase those Portfolio shares.
Payment for Portfolio shares will be made by the Account or the Company in
Federal funds transmitted to the Fund by wire to be received by 11:00 a.m. on
the day the Fund is notified of the purchase order for Portfolio shares
(unless sufficient proceeds are available from redemption of shares of other
Portfolios). If Federal funds are not received on time, such funds will be
invested, and Portfolio shares purchased thereby will be issued, as soon as
practicable.
(c) Payment for Portfolio shares redeemed by the Accounts or the Company
will be made in Federal Funds transmitted to the Company by wire on the day
the Fund is notified of the redemption order of Fund shares (unless
redemption proceeds are applied to the purchase of shares of other
Portfolios), except that the Fund reserves the right to delay payment of
redemption proceeds, but in no event may such payment be delayed longer than
the period permitted under Section 22(e) of the 1940 Act. The Fund shall
bear no responsibility whatsoever for the disbursement or crediting of
redemption proceeds.
1.5. Issuance and transfer of Fund shares will be by book entry only. Stock
certificates will not be issued to the Company or the Accounts. Purchase and
redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate SubAccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to the
Company of any income dividends or capital gain distributions payable on Fund
shares. The Company hereby elects to receive all such dividends and
distributions as are payable on any Portfolio shares in the form of
additional shares of that Portfolio. The Company reserves the right to
revoke this election and to receive all such dividends in cash. The Fund
shall notify the Company of the number of Portfolio shares so issued as
payment of such dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset value per
share for each Portfolio available to the Company by 7 p.m. Eastern Time each
Business Day, and in any event, as soon as reasonably practicable after the
net asset value per share for such series is calculated, and shall calculate
such net asset value in accordance with the then currently effective Fund
Prospectus. Neither the Fund, the Distributor, nor the Investment Manager
nor any of their affiliates shall be liable for any information provided to
the Company pursuant to this Agreement which information is based on
incorrect information supplied by the Company to the Fund, the Distributor or
the Investment Manager.
1.8. While this Agreement is in effect, the Company agrees that all amounts
available for investment
3
<PAGE>
under the Contracts shall be invested only in the Fund and/or allocated to
the Company's general account, provided that such amounts may also be
invested in an investment other than the Fund if:
(a) such other investment company is advised by the Fund's Investment
Manager;
(b) the Fund and/or the Distributor, in their sole discretion, consents to
the use of such other investment company;
(c) this Agreement is terminated pursuant to Article X of this Agreement.
The Company also agrees that it will not take any action to operate the
Accounts as management investment companies under the 1940 Act without the
Fund's and Distributor's prior written consent.
1.9. The Fund and the Distributor agree that Fund shares will be sold only
to Participating Insurance Companies, their separate accounts, and to certain
qualified pension plans, as may be permitted by Section 817 of the Internal
Revenue Code of 1986, as amended. The Fund and the Distributor will not
sell Fund shares to any insurance company, separate account, or qualified
pension plan unless an agreement containing provisions substantially the same
as Article VII of this Agreement, as it may be amended from time to time, is
in effect to govern such sales. No Fund shares of any Portfolio will be sold
to the general public.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants:
(a) that the Contracts are registered under the 1933 Act or will be so
registered before the issuance thereof;
(b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws; and
(c) that the Company will require of every person distributing the
Contracts (i) that the Contracts be offered and sold in compliance in all
material respects with all applicable Federal and state laws and (ii) that at
the time it is issued each Contract is a suitable purchase for the applicant
therefor under applicable state insurance laws.
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 authorized each of its Accounts as a separate account
under the insurance law of its state of domicile, and has registered or,
prior to the issuance of any Contracts, will register the Accounts as unit
investment trusts in accordance with the provisions of the 1940 Act to serve
as separate accounts for the Contracts, and that such registration will be
maintained for as long as any Contracts are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is a business
trust duly organized and in good standing under the laws of Delaware.
4
<PAGE>
2.3. The Fund represents that each series currently qualifies and will make
every effort to continue to qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code")
and to maintain such qualification (under Subchapter M or any successor or
similar provision), and that the Fund will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify
or that it might not so qualify in the future.
2.4. The Fund represents that each series currently complies with and will
make every effort to continue to comply with Section 817(h) (or any successor
or similar provision) of the Code, and all regulations issued thereunder, and
that the Fund will notify the Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not so
qualify in the future.
2.5. The Company represents that the Contracts are currently and at the time
of issuance will be treated as annuity contracts or life insurance policies,
whichever is appropriate, under applicable provisions of the Code. The
Company shall make every effort to maintain such treatment and shall notify
the Fund and the Distributor immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses and operations are and shall at all times remain in material
compliance with the laws of Delaware and of Massachusetts, to the extent
required to perform this Agreement. The Fund, however, makes no
representation as to whether any aspect of its operations (including, but not
limited to, fees and expenses and investment policies) otherwise complies
with the insurance laws or regulations of any states.
2.7. The Distributor represents and warrants that the Distributor is duly
registered as a broker-dealer under the 1934 Act, is a member in good
standing with the NASD, and is duly registered as a broker-dealer under
applicable state securities laws; its operations are in compliance with
applicable law, and it will distribute the Fund shares according to
applicable law.
2.8. The Distributor, on behalf of the Investment Manager, represents and
warrants that the Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940 and is in compliance with
applicable federal and state securities laws.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS;
SALES MATERIAL AND OTHER INFORMATION
3.1 At lease annually, the Fund or its designee shall provide the Company,
free of charge, with "camera ready" copy of the new prospectus as set in
type, or, at the request of the Company, as a diskette in the form sent to a
financial printer, and other assistance as is reasonably necessary in order
for the parties hereto once each year (or more frequently if the prospectus
for the Fund is supplemented or amended) to have the prospectus for the
Contracts and the prospectus for the shares printed together in one document.
The Fund or its designee shall bear the cost of printing
5
<PAGE>
and mailing the Fund's prospectus portion of such document for distribution
to Contract owners of existing Contracts, and the Company shall bear the
expenses of printing and mailing the portion of such document relating to the
Accounts; provided, however, that the Company shall bear all printing
expenses of such combined document where used for distribution to prospective
purchasers.
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Distributor
(or, in the Fund's discretion, from the Fund),and the Distributor (or the
Fund) at its expense, shall print, or otherwise reproduce, and provide a copy
of such SAI free of charge to the Company for itself and for any Contract
owner who requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners. The Fund or its designee shall bear the
cost of printing, duplicating, and mailing of these documents to current
Contract owners, and the Company shall bear the cost for such documents used
for purposes other than distribution to current Contract owners.
3.4. The Company shall furnish each piece of sales literature or other
promotional material in which the Fund or the Investment Manager or the
Distributor is named to the Fund or the Distributor prior to its use. No
such material shall be used, except with the prior written permission of the
Fund or the Distributor. The Fund and the Distributor agree to respond to
any request for approval on a prompt and timely basis. Failure to respond
shall not relieve the Company of the obligation to obtain the prior written
permission of the Fund or the Distributor.
3.5. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund other than the
information or representations contained in the Fund Registration Statement
or Fund Prospectus, as such Registration Statement and Prospectus may be
amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved
by the Fund or by the Distributor, except with the prior written permission
of the Fund or the Distributor. The Fund and the Distributor agree to
respond to any request for permission on a prompt and timely basis. Failure
to respond shall not relieve the Company of the obligation to obtain the
prior written permission of the Fund or the Distributor.
3.6. The Fund and the Distributor shall not give any information or make any
representations on behalf of the Company or concerning the Company, the
Accounts or the Contracts other than the information or representations
contained in the Contracts Registration Statement or Contracts Prospectus, as
such Registration Statement and Prospectus may be amended or supplemented
from time to time, or in published reports of the Account which are in the
public domain or approved in writing by the Company for distribution to
Contract Owners, or in sales literature or other promotional material
approved in writing by the Company, except with the prior written permission
of the Company. The Company agrees to respond to any request for permission
on a prompt and timely basis. Failure to respond shall not relieve the Fund
or the Distributor of the obligation to obtain the prior written permission
of the Company.
3.7. Each party will provide to the other party copies of draft versions of
any registration statements, prospectuses, statements
6
<PAGE>
of additional information, reports, proxy statements, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments or supplements to any of the above, to the extent that the other
party reasonably needs such information for purposes of preparing a report or
other filing to be filed with or submitted to a regulatory agency. If a
party requests any such information before it has been filed, the other party
will provide the requested information if then available and in the version
then available at the time of such request.
3.8. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such
as material published, or designed for use, in a newspaper, magazine or other
periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration
statements, prospectuses, Statements of Additional Information, shareholder
reports and proxy materials, and any other material constituting sales
literature or advertising under NASD rules, the 1940 Act or the 1933 Act.
7
<PAGE>
ARTICLE IV. VOTING
4.1 Subject to applicable law, the Company shall:
(a) solicit voting instructions from Contract Owners;
(b) vote Fund shares of each Portfolio attributable to Contract Owners in
accordance with instructions or proxies timely received from such Contract
Owners;
(c) vote Fund shares of each Portfolio attributable to Contract Owners for
which no instructions have been received in the same proportion as Fund
shares of such Portfolio for which instructions have been timely received; and
(d) vote Fund shares of each Portfolio held by the Company on its own behalf
or on behalf of the Account that are not attributable to Contract Owners in
the same proportion as Fund shares of such Portfolio for which instructions
have been timely received.
The Company shall be responsible for assuring that voting privileges for the
Account are calculated in a manner consistent with the provisions set forth
above. The Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law.
4.2 Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive
Order and consistent with any reasonable standards that the Fund may adopt.
4.3 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 Section 16(c) of the 1940 Act (although the Fund is
not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the 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 with respect thereto.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Distributor shall pay no fee or other compensation to the
Company under this Agreement, except that if the Fund or any Portfolio adopts
and implements a plan pursuant to Rule 12b-l under the 1940 Act to finance
distribution expenses, then the Distributor may make payments to the Company
in amounts agreed to by the Company and the Distributor in writing. The
Fund currently does not intend to make any payments to finance distribution
expenses pursuant to Rule 12b-l under the 1940 Act or in contravention of
such rule, although it may make payments pursuant to Rule 12b-l in the
future. Nothing herein shall prevent the parties from otherwise agreeing to
perform, and arranging for appropriate compensation for, other services
relating to the Fund and/or the Accounts.
5.2. All expenses incident to performance by the Fund under this Agreement
(including expenses
8
<PAGE>
expressly assumed by the Fund pursuant to this Agreement) shall be paid by
the Fund to the extent permitted by law. Except as may otherwise be provided
in Sections 1.4 and 3.1 of this Agreement (or Article VII, as it may be
amended), the Company shall not bear any of the expenses for the cost of
registration and qualification of the Fund shares under Federal and any state
securities law, preparation and filing of the Fund Prospectus and Fund
Registration Statement, Fund proxy materials and reports, setting the Fund
Prospectus in type, setting in type and printing and distributing the Fund
proxy materials and reports to shareholders (including the costs of printing
a prospectus that constitutes an annual report), the preparation of all
statements and notices required by any Federal or state securities law, all
taxes on the issuance or transfer of Fund shares, and any expenses permitted
to be paid or assumed by the Fund pursuant to a plan, if any, under Rule
12b-l under the 1940 Act.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Sub-chapter M and Section 817(h) of
the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statement under the
1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company
shall register and qualify the Contracts for sale to the extent required by
applicable securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933 Act
and the 1940 Act from time to time as required in order to effect for so long
as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
probable that such Contract would be a "modified endowment contract," as that
term is defined in Section 7702A of the Code, will identify such Contract as
a modified endowment contract (or policy).
6.5. To the extent that it decides to finance distribution expenses pursuant
to Rule 12b-l, the Fund undertakes to have a Board of Trustees, a majority of
whom are not interested persons of the Fund, formulate and approve any plan
under Rule 12b-l to finance distribution expenses.
ARTICLE VII. POTENTIAL CONFLICTS
The following provisions apply effective upon (a) the issuance of the Shared
Funding Exemptive Order, and (b) investment in the Fund by a separate account
of a Participating Insurance Company supporting variable life insurance
contracts.
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
9
<PAGE>
irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer 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 will report any potential or existing conflicts of which it
is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e. annuity contract
owners, life insurance 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 (2), 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 prelude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account 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. 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 end of that six month period the Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
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 Fund 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
10
<PAGE>
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Fund shall continue to accept and implement orders by the company
for the purchase (and redemption) of shares of the Fund.
7.6 For purposes of Section 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 fan 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 the Account's investment in
the Fund 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 determination by a
majority of the disinterested members of the Board.
7.7 If and to the extent the Shared Funding Order contains terms and
conditions different from Sections, 3.4, 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 Exemptive Order, and Sections 3.4, 3.5, 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 Exemptive 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 Exemptive Order) on terms and conditions materially
different from those contained in the Shared Funding Exemptive 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
The Company agrees to indemnify and hold harmless the Fund, the Distributor
and each person who controls or is associated with the Fund or the
Distributor within the meaning of such terms under the Federal securities
laws and any officer, trustee, 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 they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities:
11
<PAGE>
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Contracts Registration
Statement, Contracts Prospectus, sales literature 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 statement or omission or such alleged statement or alleged
omission was made in reliance upon and in conformity with information
furnished in writing to the Company by the Fund or the Distributor (or a
person authorized in writing to do so on behalf of the Fund or the
Distributor) for use in the Contracts Registration Statement, Contracts
Prospectus or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(b) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact by or on behalf of the Company (other than
statements or representations contained in the Fund Registration Statement,
Fund Prospectus 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 control with respect to the sale or distribution of the Contracts or Fund
shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Fund Registration Statement, Fund Prospectus or
sales literature of the Fund or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made; or
(d) arise out of any material breach by the Company to provide the services
and furnish the materials required under the terms of this Agreement,
including but not limited to any failure to transmit a request for redemption
or purchase of Fund shares on a timely basis in accordance with the procedures
set forth in Article I.
This indemnification will be in addition to any liability which the Company
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. Indemnification by the Distributor
The Distributor agrees to indemnify and hold harmless the Company and each
person who controls or is associated with the Company 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 they or any of them may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any
12
<PAGE>
material fact contained in the Fund Registration Statement, Fund Prospectus
(or any amendment or supplement thereto) or sales literature of the Fund, 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 statement or omission or alleged statement or alleged omission was made
in reliance upon and in conformity with information furnished in writing by
the Company to the Fund or the Distributor for use in the Fund Registration
Statement, Fund Prospectus (or any amendment or supplement thereto) or sales
literature for the Fund or otherwise for use in connection with the sale of
the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact by the Distributor or the Fund (other than
statements or representations contained in the Fund Registration Statement,
Fund Prospectus or sales literature of the Fund not supplied by the
Distributor or the Fund or persons under their control) or wrongful conduct of
the Distributor or persons under its control with respect to the sale or
distribution of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Contracts Registration Statement, Contracts
Prospectus or sales literature for the Contracts (or any amendment 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 in light of the circumstances in which they
were made, if such statement or omission was made in reliance upon information
furnished in writing by the Distributor of the Fund to the Company (or a
person authorized in writing to do so on behalf of the Fund or the
Distributor); or
(d) arise as a result of any material breach by the Distributor or the Fund
to provide the services and furnish the materials required under the terms of
this Agreement (including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification requirements specified in
Article VI of this Agreement).
This indemnification will be in addition to any liability which the
Distributor may otherwise have; provided, however, that no party shall be
entitled to indemnification if such loss, claim, damage or liability is due
to the wilful misfeasance, bad faith, gross negligence or reckless disregard
of duty by the party seeking indemnification.
8.3. Indemnification Procedures
After receipt by a party entitled to indemnification ("indemnified party")
under this Article VIII of notice of the commencement of any action, if a
claim in respect thereof is to be made against any person obligated to provide
indemnification under this Article VIII ("indemnifying party"), such
indemnified party will notify the indemnifying party in writing of the com-
mencement 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 Article VIII, 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
13
<PAGE>
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 par-ties 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 indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to the
benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
14
<PAGE>
8.4 Limitation of Liability
Notwithstanding anything to the contrary above, Company and its respective
officers, directors, employees and agents shall not be responsible for, and
the Fund and the Distributor shall indemnify and hold harmless the Company
from and against any and all losses, damages, charges, costs, reasonable
attorney's fees, payments, expenses and liabilities arising out of or
attributable to the reasonable reliance on information, records or documents
furnished by or on behalf of the Distributor or the Fund. Without limiting
the generality of the foregoing, the Company shall not be liable for any
error, delay, or failures to provide services under this Agreement
attributable, in whole or in part, to the error, delay, or failure of the
Distributor, the Fund or their agents in making the daily net asset value per
share of the Portfolios available to the Company.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the state of Massachusetts, without
giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may
grant, and the terms hereof shall be limited, interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) 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; or
(b) at the option of the Company if shares of any or all Portfolios are not
reasonably available to meet the requirements of the Contracts as determined
by the Company. Prompt notice of the election to terminate for such cause
shall be furnished by the Company, said termination to be effective ten days
after receipt of notice unless the Fund makes available a sufficient number of
Fund shares to meet the requirements of the Contracts within said ten-day
period; or
(c) at the option of the Fund upon institution of formal proceedings against
the Company by the NASD, the SEC, the insurance commission 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 the Account, the
administration of the Contracts or the purchase of Fund shares, or an expected
or anticipated ruling, judgment or outcome which would, in the Fund's
reasonable judgment, materially impair the Company's ability to meet and
perform the Company's obligations and duties hereunder; or
(d) at the option of the Company upon institution of formal proceedings
against the Fund by the NASD, the SEC, or any state securities or insurance
commission or any other regulatory body; or
15
<PAGE>
(e) upon requisite vote of the Contract Owners having an interest in the
affected Portfolio and the written approval of the Distributor (unless
otherwise required by applicable law), to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the Contracts are not
registered, issued or sold in accordance with applicable Federal and/or state
law; or
(g) by either the Company or the Fund upon a determination by a majority of
the Board, or a majority of disinterested Board members, that an
irreconcilable material conflict exists among the interests of (i) all Product
owners or (ii) the interests of the Participating Insurance Companies
investing in the Fund; or
(h) at the option of the Company if any series of the Fund or the Fund
ceases to qualify as a Regulated Investment Company under Subchapter M of the
Code, or under any successor or similar provision, or if the Company
reasonably believes based on an opinion of counsel satisfactory to the Fund
that the series or Fund may fail to so qualify and the Fund does not take
reasonable steps to ensure qualification; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
(j) at the option of the Fund if the Contracts cease to qualify as annuity
contracts or life insurance policies, as applicable, under the Code, or if the
Fund reasonably believes that the Contracts may fail to so qualify; or
(k) at the option of either the Fund or the Distributor if the Fund or the
Distributor, respectively, shall determine, in their sole judgment exercised
in good faith, that either (1) the Company shall have suffered a material
adverse change in its business or financial condition or (2) the Company shall
have been the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of either the Fund or
the Distributor; or
(1) at the option of the Company, if the Company shall determine, in its
sole judgment exercised in good faith, that the Fund or the Distributor shall
have been the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the Company; or
(m) upon the assignment of this Agreement (including, without limitation,
any transfer of the Contracts or the Account to another insurance company
pursuant to an assumption reinsurance agreement) unless the non-assigning
party consents thereto or unless this Agreement is assigned to an affiliate of
the Distributor; or
(n) at the option of Company, as one party, or the Fund and the Distributor,
as one party, upon the other party's material breach of any provision of this
Agreement.
16
<PAGE>
10.2. Notice Requirement
Except as otherwise provided in Section 10.1, no termination of this
Agreement shall be effective unless and until the party terminating this
Agreement gives prior written notice to all other parties to this Agreement
of its intent to terminate which notice shall set forth the basis for such
termination. Furthermore:
(a) In the event that any termination is based upon the provisions of
Article VII or the provisions of Section 10.1(a) of this Agreement, such prior
written notice shall be given in advance of the effective date of termination
as required by such provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1(c) or 10.1(d) of this Agreement, such prior written notice shall
be given at least ninety (90) days before the effective date of termination;
and
(c) in the event that any termination is based upon the provisions of
Section 10.1(e) of this Agreement, such prior written notice shall be given
at least sixty (60) days before the date of any proposed vote to replace the
Fund's shares.
10.3. Except as necessary to implement Contract Owner initiated
transactions, or as required by state insurance laws or regulations, the
Company shall not redeem Fund shares attributable to the Contracts (as
opposed to Fund shares attributable to the Company's assets held in an
Account).
10.4. Effect of Termination
(a) Notwithstanding any termination of this Agreement pursuant to Section
10.1 of this Agreement, the Fund and the Distributor may, at the option of
the Fund, continue to make available additional Fund shares for so long after
the termination of this Agreement as the Fund desires pursuant to the terms
and conditions of this Agreement as provided in paragraph (b) below, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if the Fund or Distributor so elects to make additional Fund
shares available, the owners of the Existing Contracts or the Company,
whichever shall have legal authority to do so, shall be permitted to
reallocate investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts.
(b) In the event of a termination of this Agreement pursuant to Section
10.1 of this Agreement, the Fund and the Distributor shall promptly notify
the Company whether the Distributor and the Fund will continue to make Fund
shares available after such termination. If Fund shares continue to be made
available after such termination, the provisions of this Agreement shall
remain in effect except for Section 10.1(a) and thereafter either the Fund or
the Company may terminate the Agreement, as so continued pursuant to this
Section 10.4, upon prior written notice to the other party, such notice to be
for a period that is reasonable under the circumstances but, if given by the
Fund, need not be for more than six months.
(c) The parties agree that this Section 10.4 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.
17
<PAGE>
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this Agreement from
time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance
policies to be issued by the Company through Separate Accounts investing in
the Fund. The provisions of this Agreement shall be equally applicable to
each such class of contracts or policies, unless the context otherwise
requires.
ARTICLE XII. 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:
If to the Distributor:
If to the Company:
Richard M. Reilly
President
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
ARTICLE XIII. MISCELLANEOUS
13.1 All persons dealing with the Fund must look solely to the property of
such Fund, and in the case of a series company, the respective Designated
Portfolio listed on Schedule A hereto as though such Designated Portfolio had
separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither
the Board, officers, agents or shareholders of the Fund assume any personal
liability or responsibility for obligations entered into by or on behalf of
the Fund.
13.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information
18
<PAGE>
reasonably identified as confidential in writing by any other party hereto
and, except as permitted by this Agreement, shall not disclose, disseminate
or utilize such names and addresses and other confidential information
without the express written consent of the affected party until such time as
such information may come into the public domain.
13.3 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the 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 which such Commissioner may request in order to ascertain
whether the variable annuity operations of the Company are being conducted in
a manner consistent with variable annuity laws and regulations and any other
applicable law or regulations.
13.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
13.8 This Agreement or any of the rights and obligations hereunder may not be
assigned by any party without the prior written consent of all parties hereto.
IN WITNESS WHEREOF, each of the parties hereto 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:____________________________________
19
<PAGE>
FUND: THE PALLADIAN TRUST
By:______________________________________
Title: __________________________________
Date:____________________________________
DISTRIBUTOR: WESTERN CAPITAL FINANCIAL GROUP
By:______________________________________
Title: __________________________________
Date:____________________________________
SCHEDULE A
<TABLE>
<CAPTION>
Name of Separate Account
(Date Authorized
by Board of Directors) Contracts Designated Portfolios
- ------------------------- --------- ---------------------
<S> <C> <C>
Fulcrum Separate Account Value Portfolio
(June 13, 1996) Growth Portfolio
International Growth Portfolio
Global Strategic Income Portfolio
Global Interactive/Telecomm Portfolio
Fulcrum Variable Life Value Portfolio
Separate Account Growth Portfolio
(June 13, 1996) International Growth Portfolio
Global Strategic Income Portfolio
Global Interactive/Telecomm Portfolio
</TABLE>
20
