<PAGE>
Registration No. ________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM
N8B-2
Initial Registration
FULCRUM VARIABLE LIFE SEPARATE ACCOUNT OF ALLMERICA FINANCIAL
LIFE INSURANCE AND ANNUITY COMPANY
(Exact Name of Registrant)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
440 Lincoln Street
Worcester, MA 01653
(Address of Principal Executive Office)
Abigail M. Armstrong, Secretary and Counsel
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
It is proposed that this filing will become effective:
_____immediately upon filing pursuant to paragraph (b)
_____On (________)pursuant to paragraph (b)
_____60 days after filing pursuant to paragraph (a) (1)
_____On (date) pursuant to paragraph (a) (1)
_____On (date) pursuant to paragraph (a)(2) of Rule 485
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>
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8b-2 AND THE PROSPECTUS
<TABLE>
<CAPTION>
Item No. of
Form N-8b-2 Caption in Prospectus
- ----------- ---------------------
<S> <C>
1. . . . . . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . . . . . Cover Page
3. . . . . . . . . . . . . . . . Not Applicable
4. . . . . . . . . . . . . . . . Distribution
5. . . . . . . . . . . . . . . . Allmerica Financial, The Variable Account
6. . . . . . . . . . . . . . . . The Variable Account
7. . . . . . . . . . . . . . . . Not Applicable
8. . . . . . . . . . . . . . . . Not Applicable
9. . . . . . . . . . . . . . . . Legal Proceedings
10 . . . . . . . . . . . . . . . Summary; Description of Allmerica Financial,
The Variable Account, The Palladian Trust and
Allmerica Investment Trust; The Contract;
Contract Termination and Reinstatement; Other
Contract Provisions
11 . . . . . . . . . . . . . . . Summary; The Palladian Trust and Allmerica
Investment Trust; Investment Objectives and
Policies
12 . . . . . . . . . . . . . . . Summary; The Palladian Trust and Allmerica
Investment Trust
13 . . . . . . . . . . . . . . . Summary; The Palladian Trust and Allmerica
Investment Trust; Investment Advisory
Services to The Palladian Trust; Investment
Advisory Services to Allmerica Investment
Trust; Charges and Deductions
14 . . . . . . . . . . . . . . . Summary; Application for a Contract
15 . . . . . . . . . . . . . . . Summary; Application for a Contract; Premium
Payments; Allocation of Net Premiums
16 . . . . . . . . . . . . . . . The Variable Account; The Palladian Trust and
Allmerica Investment Trust; Allocation of Net
Premiums
17 . . . . . . . . . . . . . . . Summary; Surrender; Partial Withdrawal;
Charges and Deductions; Contract Termination
and Reinstatement
18 . . . . . . . . . . . . . . . The Variable Account; The Palladian Trust and
Allmerica Investment Trust; Premium Payments
19 . . . . . . . . . . . . . . . Reports; Voting Rights
20 . . . . . . . . . . . . . . . Not Applicable
21 . . . . . . . . . . . . . . . Summary; Contract Loans; Other Contract
Provisions
22 . . . . . . . . . . . . . . . Other Contract Provisions
23 . . . . . . . . . . . . . . . Not Required
24 . . . . . . . . . . . . . . . Other Contract Provisions
25 . . . . . . . . . . . . . . . Allmerica Financial
26 . . . . . . . . . . . . . . . Not Applicable
27 . . . . . . . . . . . . . . . Allmerica Financial
28 . . . . . . . . . . . . . . . Directors and Principal Officers of Allmerica
Financial
29 . . . . . . . . . . . . . . . Allmerica Financial
30 . . . . . . . . . . . . . . . Not Applicable
31 . . . . . . . . . . . . . . . Not Applicable
32 . . . . . . . . . . . . . . . Not Applicable
33 . . . . . . . . . . . . . . . Not Applicable
34 . . . . . . . . . . . . . . . Not Applicable
35 . . . . . . . . . . . . . . . Distribution
36 . . . . . . . . . . . . . . . Not Applicable
37 . . . . . . . . . . . . . . . Not Applicable
38 . . . . . . . . . . . . . . . Summary; Distribution
39 . . . . . . . . . . . . . . . Summary; Distribution
40 . . . . . . . . . . . . . . . Not Applicable
41 . . . . . . . . . . . . . . . Allmerica Financial; Distribution
42 . . . . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE>
<TABLE>
<S> <C>
43 . . . . . . . . . . . . . . . Not Applicable
44 . . . . . . . . . . . . . . . Premium Payments; Contract Value and Cash
Surrender Value
45 . . . . . . . . . . . . . . . Not Applicable
46 . . . . . . . . . . . . . . . Contract Value and Cash Surrender Value;
Federal Tax Considerations
47 . . . . . . . . . . . . . . . Allmerica Financial
48 . . . . . . . . . . . . . . . Not Applicable
49 . . . . . . . . . . . . . . . Not Applicable
50 . . . . . . . . . . . . . . . The Variable Account
51 . . . . . . . . . . . . . . . Cover Page; Summary; Charges and Deductions;
The Contract; Contract Termination and
Reinstatement; Other Contract Provisions
52 . . . . . . . . . . . . . . . Addition, Deletion or Substitution of
Investments
53 . . . . . . . . . . . . . . . Federal Tax Considerations
54 . . . . . . . . . . . . . . . Not Applicable
55 . . . . . . . . . . . . . . . Not Applicable
56 . . . . . . . . . . . . . . . Not Applicable
57 . . . . . . . . . . . . . . . Not Applicable
58 . . . . . . . . . . . . . . . Not Applicable
59 . . . . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE>
THE FULCRUM FUND-SM- NEXT GENERATION
A MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
Funded Through
FULCRUM VARIABLE LIFE SEPARATE ACCOUNT
by
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
This prospectus describes The Fulcrum Fund-SM- Next Generation contracts ("the
Contract"), a modified single payment variable life insurance contract offered
by Allmerica Financial Life Insurance and Annuity Company ("we, our, us or
Company.") The Contract provides for life insurance coverage and for the
accumulation of a Contract Value. The Contract requires the Contract Owner makes
an initial Payment of at least $25,000.
Contract Value may accumulate on a variable basis in the Contract's variable
account, known as the Fulcrum Variable Life Separate Account ("Variable
Account.") The Assets of the Variable Account are divided into sub-accounts
("Sub-Account"), each investing exclusively in shares of one of the series of an
underlying investment company. The following portfolios of THE PALLADIAN-SM-
TRUST ("Palladian-SM-") 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 ("Trust") is offered under
the Contract:
MONEY MARKET FUND
Contract Values may also be allocated to the Fixed Account, which is part of the
Company's General Account. Amounts allocated to the Fixed Account earn interest
at a guaranteed rate from the date allocated to the next Contract anniversary.
Each Contract is a "modified endowment contract" for federal income tax
purposes, except in certain circumstances described in "FEDERAL TAX
CONSIDERATIONS." A loan, distribution or other amounts received from a modified
endowment contract during the life of the Insured will be taxed to the extent of
accumulated income in the Contract. Death benefits under a modified endowment
contract, however, are generally not subject to federal income tax, except in
certain cases described in "FEDERAL TAX CONSIDERATIONS."
IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING INSURANCE WITH THE CONTRACT. THIS
PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF THE
PALLADIAN-SM- TRUST AND ALLMERICA INVESTMENT TRUST. INVESTORS SHOULD RETAIN A
COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES COMMISSIONS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED ON 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. INVESTMENTS IN THE
CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.
DATED , 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS........................................................... 3
SUMMARY................................................................. 5
DESCRIPTION OF ALLMERICA FINANCIAL, THE VARIABLE ACCOUNT,
THE PALLADIAN-SM- TRUST AND ALLMERICA INVESTMENT TRUST................. 10
Allmerica Financial................................................. 10
The Variable Account................................................ 10
The Palladian-SM- Trust............................................. 10
Allmerica Investment Trust.......................................... 11
Investment Objectives and Policies.................................. 12
THE CONTRACT............................................................ 12
Application for a Contract.......................................... 12
Free Look Period.................................................... 13
Conversion Privilege................................................ 13
Payments............................................................ 13
Allocation of Payments.............................................. 14
Transfer Privilege.................................................. 14
Death Benefit....................................................... 15
Contract Value...................................................... 16
Payment Options..................................................... 18
Optional Insurance Benefits......................................... 18
Surrender........................................................... 18
Partial Withdrawal.................................................. 18
CHARGES AND DEDUCTIONS.................................................. 18
Monthly Deductions.................................................. 19
Daily Deductions.................................................... 20
Surrender Charge.................................................... 20
Partial Withdrawal Costs............................................ 20
Transfer Charges.................................................... 21
CONTRACT LOANS.......................................................... 21
CONTRACT TERMINATION AND REINSTATEMENT.................................. 22
OTHER CONTRACT PROVISIONS............................................... 23
FEDERAL TAX CONSIDERATIONS..............................................
Allmerica Financial and the Variable Account........................
Taxation of the Contracts...........................................
VOTING RIGHTS........................................................... 25
DIRECTORS AND PRINCIPAL OFFICERS........................................ 26
DISTRIBUTION............................................................ 27
REPORTS................................................................. 27
PERFORMANCE INFORMATION................................................. 27
LEGAL PROCEEDINGS....................................................... 29
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS....................... 29
FURTHER INFORMATION..................................................... 29
INDEPENDENT ACCOUNTANTS................................................. 30
MORE INFORMATION ABOUT THE FIXED ACCOUNT................................ 30
FINANCIAL STATEMENTS.................................................... 30
APPENDIX A -- GUIDELINE MINIMUM SUM INSURED TABLE....................... A-1
APPENDIX B -- OPTIONAL INSURANCE BENEFITS............................... A-2
APPENDIX C -- PAYMENT OPTIONS........................................... A-3
APPENDIX D -- ILLUSTRATIONS............................................. A-4
</TABLE>
2
<PAGE>
SPECIAL TERMS
AGE: how old the Insured is on his/her last birthday measured on the Date of
Issue and each Contract anniversary.
ALLMERICA FINANCIAL: Allmerica Financial Life Insurance and Annuity Company.
"We," "our," "us" and "Company" refer to Allmerica Financial in this prospectus.
BENEFICIARY: the person or persons you name to receive the Net Death Benefit
when the Insured dies.
CONTRACT VALUE: the total value of your Contract. It is the SUM of the:
- Value of the units of the Sub-Accounts credited to your
Contract; PLUS
- Accumulation in the Fixed Account credited to the Contract.
CONTRACT OWNER: the person who may exercise all rights under the Contract, with
the consent of any irrevocable Beneficiary. "You" and "your" refer to the
Contract Owner in this prospectus.
DATE OF ISSUE: the date the Contract was issued, used to measure the Monthly
Processing Date, Contract months, Contract years and Contract anniversaries.
DEATH BENEFIT: the Face Amount (the amount of insurance determined by your
Payment) or the Guideline Minimum Sum Insured ( the minimum death benefit
federal law requires), whichever is greater.
EVIDENCE OF INSURABILITY: information, including medical information, used to
decide the Insured's Underwriting Class.
FACE AMOUNT: the amount of insurance coverage. The Face Amount is shown in your
Contract.
FINAL PAYMENT DATE: the Contract anniversary before the Insured's 100th
birthday. After this date, no Payments may be made and the Net Death Benefit is
the Contract value less any Outstanding Loan.
FIXED ACCOUNT: a guaranteed account of the General Account that guarantees
principal and a fixed minimum interest rate.
FUNDS: the portfolios of The Palladian-SM- Trust and the 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.
GENERAL ACCOUNT: all our assets other than those held in separate investment
accounts.
GUIDELINE SINGLE PREMIUM: used to determine the Face Amount under the Contract.
GUIDELINE MINIMUM SUM INSURED: the minimum death benefit required to qualify the
Contract as "life insurance" under federal tax laws. The guideline minimum sum
insured is the PRODUCT of
- The Contract Value TIMES
- A percentage based on the Insured's age
ISSUANCE AND ACCEPTANCE: the date we mail the Contract if the application is
approved with no changes requiring your consent; otherwise, the date we receive
your written consent to any changes.
INSURED: the person or persons covered under the Contract. If more than one
person is named, all provisions of the Contract that are based on the death of
the Insured will be based on the date of death of the last surviving Insured.
LOAN VALUE: the maximum amount you may borrow under the Contract.
MONTHLY DEDUCTIONS: the amount of money that we deduct from the Contract Value
each month to pay for the Monthly Maintenance Fee, Administration Charge,
Monthly Insurance Protection Charge, Distribution Charge and the Federal & State
Payment Tax Charge.
3
<PAGE>
MONTHLY INSURANCE PROTECTION CHARGE: the amount of money that we deduct from the
Contract Value each month to pay for the insurance.
MONTHLY PROCESSING DATE: the date, shown in your Contract, when Monthly
Deductions are deducted.
NET DEATH BENEFIT: Before the Final Payment Date, the Net Death Benefit is:
- The Death Benefit; MINUS
- Any Outstanding Loan on the Insured's death, rider charges and
Monthly Deductions due and unpaid through the Contract month in
which the Insured dies, as well as any partial withdrawal costs
and surrender charges.
After the Final Payment Date, the Net Death Benefit is:
- The Contract Value; MINUS
- Any Outstanding Loan on the Insured's death.
OUTSTANDING LOAN: all unpaid Contract loans plus loan interest due or accrued.
PAYMENT: the payment you must make to us.
PRINCIPAL OFFICE: our office at 440 Lincoln Street, Worcester, Massachusetts
01653.
PRO-RATA ALLOCATION: an allocation among the Fixed Account and the Sub-Accounts
of the Variable Account in the same proportion that, on the date of allocation,
the Contract Value in the Fixed Account (other than value subject to Outstanding
Loan) and the Contract Value in each Sub-Account bear to the total Contract
Value.
SUB-ACCOUNT: a subdivision of the Variable Account investing exclusively in the
shares of a Fund.
SURRENDER VALUE: the amount payable on a full surrender. It is the Contract
Value less any Outstanding Loan and surrender charges.
UNDERWRITING CLASS: the insurance risk classification that we assign the Insured
based on the information in the application and other Evidence of Insurability
we consider. The Insured's underwriting class will affect the Monthly Insurance
Protection Charge.
UNIT: a measure of your interest in a Sub-Account.
VALUATION DATE: any day on which the net asset value of the shares of any Funds
and Unit values of any Sub-Accounts are computed. Valuation dates currently
occur on:
- Each day the New York Stock Exchange is open for trading; and
- Other days (other than a day during which no Payment, partial
withdrawal or surrender of a Contract was received) when there
is a sufficient degree of trading in a Fund's portfolio
securities so that the current net asset value of the Sub-
Accounts may be materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
VARIABLE ACCOUNT: Fulcrum Variable Life Separate Account, one of Allmerica
Financial's separate investment accounts.
WRITTEN REQUEST: your request in writing, satisfactory to us, received at our
Principal Office.
4
<PAGE>
SUMMARY
WHAT IS THE CONTRACT'S OBJECTIVE?
The objective of the Contract is to give permanent life insurance protection
and to help you build assets tax-deferred. Benefits available through the
Contract include:
- A life insurance benefit that can protect your family;
- Payment options that can guarantee an income for life, if you
want to use your Contract for retirement income;
- A personalized investment portfolio you may tailor to meet your
needs, time frame and risk tolerance level;
- Experienced professional investment advisers who are
compensated on an incentive fee basis; and
- Tax deferral on earnings while your money is accumulating.
The Contract combines features and benefits of traditional life insurance with
the advantages of professional money management. However, unlike the fixed
benefits of ordinary life insurance, the Contract Value will increase or
decrease depending on investment results. Unlike traditional insurance policies,
the Contract has no fixed schedule for payments.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is a contract between you and us. Each Contract has a Contract
Owner ("you"), the Insured and a Beneficiary. As Contract Owner, you make the
payment, choose investment allocations and select the Insured and Beneficiary.
The Insured is the person covered under the Contract. The Beneficiary is the
person who receives the Net Death Benefit when the Insured dies.
WHAT HAPPENS WHEN THE INSURED DIES?
We will pay the Net Death Benefit to the Beneficiary when the Insured dies while
the Contract is in effect. For second-to-die contracts, the Net Death Benefit
will be paid on the death of the last surviving Insured. The Death Benefit is
the Face Amount (the amount of insurance determined by your Payment) or the
minimum death benefit federal tax law requires, whichever is greater. The Net
Death Benefit is the Death Benefit less any Outstanding Loan, rider charges and
Monthly Deductions due and unpaid through the Contract month in which the
Insured dies, as well as any partial withdrawals and surrender charges. However,
after the Final Payment Date, the Net Death Benefit is the Contract Value less
any Outstanding Loan. The Beneficiary may receive the Net Death Benefit in a
lump sum or under a payment option we offer.
CAN I EXAMINE THE CONTRACT?
Yes. You have the right to examine and cancel your Contract by returning it to
us or to one of our representatives within 10 days (or such later date as
required in your state) after you receive the Contract.
If your Contract provides for a full refund under its "Right to Cancel"
provision as required in your state, your refund will be the GREATER of:
- Your entire Payment: OR
- The Contract Value PLUS deductions under the Contract or by the
Funds for taxes, charges or fees.
If your Contract does not provide for a full refund, you will receive:
- Amounts allocated to the Fixed Account; PLUS
- The Contract Value in the Variable Account; PLUS
- All fees, charges and taxes which have been imposed.
5
<PAGE>
Your refund will be determined as of the Valuation Date that the Contract is
received at our Principal Office.
WHAT ARE MY INVESTMENT CHOICES?
You currently 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.; and
- Money Market Fund of Allmerica Investment Trust.
Managed by Allmerica Asset Management, Inc.
This range of investment choices allows you to allocate your money among the
various Funds to meet your investment needs. If your Contract provides for a
full refund under its "Right to Cancel" provision as required in your state, we
will allocate all Sub-Account investments to the Money Market Fund. Relocation
will then be made to the Sub-Account investments you selected on the application
no later than the expiration of the Right to Cancel period.
The Contract also offers a Fixed Account. The Fixed Account is a guaranteed
account offering a minimum interest rate. It is part of the General Account of
the Company.
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 provide research concerning registered investment
advisers to be retained by Palladian-SM- as Portfolio Managers, to monitors and
assist PAI with the periodic reevaluation of existing Portfolio Managers and to
make 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.
For more information, see "The Palladian-SM- Trust" and "Allmerica Investment
Trust."
6
<PAGE>
CAN I MAKE TRANSFERS AMONG THE FUNDS AND THE FIXED ACCOUNT?
Yes. You may transfer among the Funds and the Fixed Account, subject to our
consent and then current rules. You will incur no current taxes on transfers
while your money is 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 Contract requires a single payment on or before the Date of Issue.
Additional Payment(s) of at least $10,000 may be made as long as the total
Payments do not exceed the Maximum Payment amount specified in the Contract.
WHAT IF I NEED MY MONEY?
You may borrow up to the Loan Value of your Contract. The Loan Value is 90% of
your Contract Value less the surrender charge. You may also make partial
withdrawals and surrender the Contract for its Surrender Value.
The guaranteed annual interest rate credited to the Contract Value securing a
loan will be at least 4.0%. However, any portion of the Outstanding Loan that is
a preferred loan will be credited with not less than 5.50%.
We will allocate Contract loans among the Sub-Accounts and the Fixed Account
according to your instructions. If you do not make an allocation, we will make a
Pro-Rata Allocation. We will transfer the Contract Value in each Sub-Account
equal to the Contract loan to the Fixed Account.
You may surrender your Contract and receive its Surrender Value. You may make
partial withdrawals of $1,000 or more from the Contract Value, subject to
partial withdrawal costs and any applicable surrender charges. The Face Amount
is reduced by each partial withdrawal. We will not allow a partial withdrawal if
it would reduce the Contract Value below $25,000. A surrender or partial
withdrawal may have tax consequences. See "TAXATION OF CONTRACTS."
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
Yes. There are several changes you can make after receiving your Contract,
within limits. You may
- Cancel your Contract under its "Right to Cancel" provision;
- Transfer your ownership to someone else;
- Change the Beneficiary;
- Change the allocation for any additional Payment, with no tax
consequences under current law;
- Make transfers of the Contract Value among the Funds, with no
taxes incurred under current law; and
- Add or remove the optional insurance benefits provided by the
rider.
CAN I CONVERT MY CONTRACT INTO A NON-VARIABLE CONTRACT?
Yes. You can convert your Contract without charge during the first 24 months
after the Date of Issue. On conversion, we will transfer the Contract Value in
the Variable Account to the Fixed Account. We will allocate any future
payment(s) to the Fixed Account, unless you instruct us otherwise.
WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
The following charges will apply to your Contract under the circumstances
described. Some of these charges apply throughout the Contract's duration.
We deduct the following monthly charges from the Contract Value:
7
<PAGE>
- a $2.50 Maintenance Fee from Contracts with a Contract Value of
less than $50,000 (See "Maintenance Fee.");
- 0.40% on an annual basis for the administrative expenses (See
"Administration Charge.");
- 0.20% to 2.50%(depending on the type of Contract and
Underwriting Class) on an annual basis for the cost of
insurance (See "Monthly Insurance Protection Charge."); and For
the first ten Contract years:
- 0.30% on an annual basis for distribution expenses (See
"Distribution Fee."); and
- 0.40% on an annual basis for federal, state and local
taxes (See "Federal & State Payment Tax Charge.").
The following daily charge is deducted from the Variable Account:
- 0.90% on an annual basis for the mortality and expense risks
(See "Mortality and Expense Risk Charge.").
There are deductions from and expenses paid out of the assets of the Funds that
are described in the accompanying prospectuses.
WHAT ARE THE EXPENSES AND FEES OF THE FUNDS?
The following table shows the expenses of the Funds.
<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 Trust for the
first 12 months of operations is 0.80% of its average daily nets 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 preceding expense information was provided to us by the Funds, and we have
not independently verified such information. These Fund expenses are not direct
charges against Sub-Account assets or reductions from Contract value; rather,
these Fund expenses are taken into consideration in computing each Fund's net
asset value, which is the share price used the calculate the unit values of the
Sub-Accounts. For more information concerning fees and expenses, see the
prospectuses of The Palladian-SM- Trust and Allmerica Investment Trust.
WHAT CHARGES DO I INCUR IF I SURRENDER MY CONTRACT OR MAKE A PARTIAL WITHDRAWAL?
The charges below apply only if you surrender your Contract or make partial
withdrawals:
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- Surrender Charge -- This charge applies on full surrenders
within ten Contract years. The surrender charge begins at 9.75%
of the Payment(s) and decreases to 0% by the tenth Contract
year.
- Partial Withdrawal Costs -- We deduct from the Contract Value
the following for partial withdrawals:
- A transaction fee of 2.0% of the amount withdrawn, not
to exceed $25, for each partial withdrawal for
processing costs; and
- A surrender charge on a withdrawal exceeding the "Free
10% Withdrawal," described below.
The first 12 transfers of Contract Value in a Contract year are free. A transfer
charge not to exceed $25 may apply for each additional transfer in the same
Contract year. This charge is for the costs of processing the transfer.
WHAT ARE THE EXPENSES AND FEES OF THE FUNDS?
The following table shows the expenses of the Funds for 1995. For more
information concerning fees and expenses, see the prospectuses of the Funds.
<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.
WHAT ARE THE LAPSE AND REINSTATEMENT PROVISIONS OF MY CONTRACT?
The Contract will not lapse unless the Surrender Value on a Monthly Processing
Date is less than zero.
There is a 62-day grace period in this situation.
You may reinstate your Contract within three years after the grace period,
within limits.
HOW IS MY CONTRACT TAXED?
The Contract has been designed to be a "modified endowment contract." However,
an exchange under Section 1035 of the Code of a life insurance contract entered
into before June 21, 1988 will not cause this Contract to be treated as a
modified endowment contract if no additional premiums are paid and there is no
increase in the death benefit as a result of the exchange.
If the Contract is considered a modified endowment contract, all distributions
(including Contract loans, partial withdrawals, surrenders and assignments) will
be taxed on an "income-first" basis. Also, a 10% penalty tax may be imposed on
that part of a distribution that is includible in income.
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<PAGE>
However, the Net Death Benefit under the Contract is excludable from the gross
income of the Beneficiary. In some circumstances, federal estate tax may apply
to the Net Death Benefit or the Contract Value. See "TAXATION OF THE CONTRACT."
This Summary is intended to provide only a very brief overview of the more
significant aspects of the Contract. This prospectus and the Contract provide
further detail. The Contract provides insurance protection for the named
Beneficiary. The Contract and its attached application are the entire agreement
between you and the Company.
DESCRIPTION OF ALLMERICA FINANCIAL, THE VARIABLE ACCOUNT,
THE PALLADIAN-SM- TRUST AND ALLMERICA INVESTMENT TRUST
ALLMERICA FINANCIAL -- Allmerica Financial is a life insurance company organized
under the laws of Delaware in 1974. We are an indirect, wholly owned subsidiary
of First Allmerica Financial Life Insurance Company, formerly named State Mutual
Life Assurance Company of America ("First Allmerica"). First Allmerica was
organized under the laws of Massachusetts in 1844 and is the fifth oldest life
insurance company in America. On December 31, 1995, First Allmerica and its
subsidiaries had over $11 billion in combined assets and over $35.2 billion of
life insurance in force. Allmerica Financial accounted for over $5 billion in
assets and over $18 billion of life insurance in force.
Our Principal Office is 440 Lincoln Street, Worcester, Massachusetts 01653,
Telephone 1-800-366-1492. We are subject to the laws of the state of Delaware,
to regulation by the Commissioner of Insurance of Delaware, and to other laws
and regulations where we are licensed to operate.
THE VARIABLE ACCOUNT -- The Variable Account is a separate investment account
with six Sub-Accounts. Each Sub-Account invests in a Fund of The Palladian Trust
and Allmerica Investment Trust. The assets used to fund the variable part of the
Contracts are set aside in Sub-Accounts and are separate from our general
assets. We administer and account for each Sub-Account as part of our general
business. However, income, capital gains and capital losses are allocated to
each Sub-Account without regard to any of our other income, capital gains or
capital losses. Under Delaware law, the assets of the Variable Account may not
be charged with any liabilities arising out of any other business of ours.
Our Board of Directors authorized the Variable Account by vote on June 13, 1996.
The Variable Account meets the definition of "separate account" under federal
securities laws. It is registered with the Securities and Exchange Commission
("SEC") as a unit investment trust under the Investment Company Act of 1940
("1940 Act"). This registration does not involve SEC supervision of the
management or investment practices or policies of the Variable Account or of
Allmerica Financial. We reserve the right, subject to law, to change the names
of the Variable Account and the Sub-Accounts.
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 are currently
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 Consultants, to
research, evaluate, recommend and monitor the Portfolio Managers. PAI is located
at 4225 Executive Square, Suite 355, La Jolla, California 92037.
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<PAGE>
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 free for PAI, Tremont and the Portfolio Managers for the
first 12 months of operations is, for each Portfolio, 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 lower fee for sub-par performance. The base fee will be 2.00%, but may vary
from 0.00% to 4.00% depending on the Portfolio's performance. Each Portfolio
Manager also has invested $1 million in the Portfolios 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 Contracts
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 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 First Allmerica and
its affiliates and its subsidiaries, 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
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<PAGE>
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 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 Palladian-SM- and
the Trust 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 Payment(s) 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.
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 Contract Value
allocated to that Fund, he or she may have the Contract Value reallocated
without charge to another Fund or to the Fixed 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.
THE CONTRACT
APPLICATION FOR A CONTRACT -- Individuals wishing to purchase a Contract must
complete an application and submit it to an authorized registered agent or to
Allmerica Financial at its Principal Office. We offer Contracts to applicants 89
years old and under. After receiving a completed application from a prospective
Contract Owner, we will begin underwriting to decide the insurability of the
proposed Insured. We may require medical examinations and other information
before deciding insurability. We issue a Contract only after underwriting has
been completed. We may reject an application that does not meet our underwriting
guidelines.
If a prospective Contract Owner makes the initial Payment with the application,
we will provide fixed conditional insurance during underwriting. The conditional
insurance will be based upon Death Benefit Factors shown in the Conditional
Insurance Agreement, up to a maximum of $500,000,
12
<PAGE>
depending on Age and Underwriting Class. This coverage will continue for a
maximum of 90 days from the date of the application or, if required, the
completed medical exam. If death is by suicide, we will return only the Payment
made.
If the initial Payment is not made with the application, on Contract delivery we
will require the initial Payment to place the insurance in force.
If you made the initial Payment before the date of Issuance and Acceptance, we
will allocate the Payment to our General Account within two business days of
receipt of the Payment at our Principal Office. IF WE ARE UNABLE TO ISSUE THE
CONTRACT, WE WILL ISSUE AN ANNUITY CONTRACT. HOWEVER, IF THE CONTRACT OWNER HAS
ELECTED NOT TO RECEIVE THE ANNUITY CONTRACT ON THE APPLICATION, THE PAYMENT WILL
BE RETURNED TO THE CONTRACT OWNER WITHOUT INTEREST.
If your application is approved and the Contract is issued and accepted, we will
allocate your Contract Value on Issuance and Acceptance according to your
instructions. However, if your Contract provides for a full refund of Payments
under its "Right to Cancel" provision as required in your state (see "THE
CONTRACT -- "FREE LOOK PERIOD"), we will initially allocate your Sub-Account
investments to the Money Market Fund. We will reallocate all amounts according
to your investment choices no later than the expiration of the right to cancel
period.
FREE LOOK PERIOD -- The Contract provides for a free look period under the Right
to Cancel provision. You have the right to examine and cancel your Contract by
returning it to us or to one of our representatives on or before the tenth day
(or such later date as required in your state) after you receive the Contract.
If your Contract provides for a full refund under its "Right to Cancel"
provision as required in your state, your refund will be your entire payment.
If your Contract does not provide for a full refund, you will receive:
- Amounts allocated to the Fixed Account; PLUS
- The Contract Value in the Variable Account: PLUS
- All fees, charges and taxes which have been imposed.
We may delay a refund of any Payment made by check until the check has cleared
your bank. Your refund will be determined as of the Valuation Date that the
Contract is received at our Principal Office.
CONVERSION PRIVILEGE -- Within 24 months of the Date of Issue, you can convert
your Contract into a non-variable Contract by transferring all Contract Value in
the Sub-Accounts to the Fixed Account. The conversion will take effect at the
end of the Valuation Period in which we receive, at our Principal Office, notice
of the conversion satisfactory to us. There is no charge for this conversion. We
will allocate any future Payment(s) to the Fixed Account, unless you instruct us
otherwise.
PAYMENTS -- The Contracts are designed for a large single Payment to be paid by
the Contract Owner on or before the Date of Issue. The minimum initial Payment
Allmerica Financial requires for a contract is $25,000. The initial Payment is
used to determine the Face Amount. The Face Amount will be determined by
treating the Payment as equal to 100% of the Guideline Single Premium. You may
indicate the desired Face Amount on the application. If the Face Amount
specified exceeds 100% of the Guideline Single Premium for the Payment amount,
the application will be amended and a Contract with a higher Face Amount will be
issued. If the Face Amount specified is less than 80% of the Guideline Single
Premium for the Payment amount, the application will be amended and a Contract
with a lower Face Amount will be issued. The Contract Owner must agree to any
amendment to the application.
13
<PAGE>
Under our underwriting rules, the Face Amount must be based on 100% of the
Guideline Single Premium to be eligible for simplified underwriting.
Payments are payable to Allmerica Financial. Payments may be made by mail to our
Principal Office or through our authorized representative. Any additional
Payment, after the initial Payment, is credited to the Variable Account or Fixed
Account on the date of receipt at the Principal Office.
The Contract limits the ability to make additional Payments. However, no
additional Payment may be less than $10,000 without our consent. Any additional
Payment(s) may not cause total Payments to exceed the Maximum Payment on the
specifications page of your Contract.
Total Payments may not exceed the current maximum payment limits under federal
tax law. Where total Payments would exceed the current maximum payment limits,
we will only accept that part of a Payment that will make total Payments equal
the maximum. We will return any part of a Payment that is greater than that
amount. However, we will accept a Payment needed to prevent Contract lapse
during a Contract year. See "CONTRACT TERMINATION AND REINSTATEMENT."
ALLOCATION OF PAYMENTS -- In the application for your Contract, you decide the
initial allocation of the Payment among the Sub-Account and the Fixed Account.
You may allocate the Payment to one or more of the Sub-Accounts and/or the Fixed
Account. The minimum amount that you may allocate to a Sub-Account is 1.0% of
the Payment. Allocation percentages must be in whole numbers (for example, 33
1/3% may not be chosen) and must total 100%.
You may change the allocation of any future Payment by Written Request or
telephone request. You have the privilege to make telephone requests, unless you
elected not to have the privilege on the application. The policy of Allmerica
Financial and its representatives and affiliates are that they will not be
responsible for losses resulting from acting on telephone requests reasonably
believed to be genuine. We will use reasonable methods to confirm that
instructions communicated by telephone are genuine; otherwise, Allmerica
Financial may be liable for any losses from unauthorized or fraudulent
instructions. We require that callers on behalf of a Contract Owner identify
themselves by name and identify the Contract Owner by name, date of birth and
social security number. All telephone requests are tape recorded. An allocation
change will take effect on the date of receipt of the notice at the Principal
Office. No charge is currently imposed for changing Payment allocation
instructions. We reserve the right to impose a charge in the future, but
guarantee that the charge will not exceed $25.
The Contract Value in the Sub-Accounts will vary with investment experience. You
bear this investment risk. Investment performance may also affect the Death
Benefit. Review your allocations of Contract Value as market conditions and your
financial planning needs change.
TRANSFER PRIVILEGE -- At any time prior to the election of a Payment Option,
subject to our then current rules, you may transfer amounts among the
Sub-Accounts or between a Sub-Account and the Fixed Account. (You may not
transfer that portion of the Contract Value held in the Fixed Account that
secures a Contract loan.)
We will make transfers at your Written Request or telephone request, as
described in "THE CONTRACT -- ALLOCATION OF PAYMENTS." Transfers are effected at
the value next computed after receipt of the transfer order.
The first 12 transfers in a Contract year are free. After that, we will deduct a
transfer charge not to exceed $25 from amounts transferred in that Contract
year.
You may apply for automatic transfers from the Fixed Account, the Global
Strategic Income Sub-Account or the Money Market Sub-Account to one or more of
the other Sub-Accounts every one, two, three, six or twelve months. Each
automatic transfer must be at least $100. If the Fixed Account or the
Sub-Account from which the automatic transfer is to be made is zero, the
automatic transfer will cease. The Contract Owner must reapply for any future
automatic transfers.
14
<PAGE>
You may also apply for automatic account rebalancing allocate Contract Value
among the Sub-Accounts every one, two, three, six or twelve months. The Fixed
Account is not included in the automatic account rebalancing.
We will process automatic transfers or automatic rebalancing on the 15th of each
scheduled month. If the 15th is not a business day or is the Monthly Processing
Date, we will process the automatic transfer or automatic rebalancing on the
next business day.
The first automatic transfer counts as one transfer toward the 12 free transfers
allowed in each Contract year. Each subsequent automatic transfer is free and
does not reduce the remaining number of transfers that are free in a Contract
year. Any transfers made for a conversion privilege, Contract loan or material
change in investment policy will not count toward the 12 free transfers.
The transfer privilege is subject to our consent. We reserve the right to impose
limits on transfers including, but not limited to, the:
- Minimum amount that may be transferred;
- Minimum amount that may remain in a Sub-Account following a
transfer from that Sub-Account;
- Minimum period between transfers involving the Fixed Account;
and
- Maximum amounts that may be transferred from the Fixed Account.
Transfers involving the Fixed Account are currently permitted only if:
- There has been at least a ninety (90) day period since the last
transfer from the Fixed Account; and
- The amount transferred from the Fixed Account in each transfer
does not exceed the lesser of $100,000 or 25% of the Contract
Value.
These rules are subject to change by Allmerica Financial.
DEATH BENEFIT -- If the Contract is in force on the Insured's death, we will,
with due proof of death, pay the Net Death Benefit to the named Beneficiary. For
second-to-die Contracts, the Net Death Benefit is payable on the death of the
last surviving Insured. There is no Death Benefit payable on the death of the
first Insured to die. We will normally pay the Net Death Benefit within seven
days of receiving due proof of the Insured's death, but we may delay payment of
Net Death Benefits. See "OTHER CONTRACT PROVISIONS -- Delay of Benefit
Payments." The Beneficiary may receive the Net Death Benefit in a lump sum or
under a payment option, unless the payment option has been restricted by the
Contract owner. See "APPENDIX C -- PAYMENT OPTIONS."
Before the Final Payment Date, the Net Death Benefit is:
- The Death Benefit: MINUS
- Any Outstanding Loan, rider charges and Monthly Deductions due
and unpaid through the Contract month in which the Insured
dies, as well as any partial withdrawals and surrender charges.
After the Final Payment Date, the Net Death benefit is:
- The Contract Value; MINUS
- Any Outstanding Loan.
In most states, we will compute the Net Death Benefit on the date we receive due
proof of the Insured's death.
The Death Benefit is the GREATER of the:
15
<PAGE>
- Face Amount; OR
- Guideline Minimum Sum Insured.
GUIDELINE MINIMUM SUM INSURED -- The guideline minimum sum insured is a
percentage of the Contract Value as set forth in "APPENDIX A -- GUIDELINE
MINIMUM SUM INSURED TABLE." The guideline minimum sum insured is computed based
on federal tax regulations to ensure that the Contract qualifies as a life
insurance contract and that the insurance proceeds will be excluded from the
gross income of the Beneficiary.
ILLUSTRATION -- In this illustration, assume that the Insured is under the age
of 40, and that there is no Outstanding Loan.
A Contract with a $100,000 Face Amount will have a Death Benefit of $100,000.
However, because the Death Benefit must be equal to or greater than 250% of
Contract Value, if the Contract Value exceeds $40,000 the Death Benefit will
exceed the $100,000 Face Amount. In this example, each dollar of Contract Value
above $40,000 will increase the Death Benefit by $2.50. For example, a Contract
with a Contract Value of $50,000 will have a guideline minimum sum insured of
$125,000 ($50,000 X 2.50); Contract Value of $60,000 will produce a guideline
minimum sum insured of $150,000 ($60,000 X 2.50); and Contract Value of $75,000
will produce a guideline minimum sum insured of $187,500 ($75,000 X 2.50).
Similarly, if Contract Value exceeds $40,000, each dollar taken out of Contract
Value will reduce the Death Benefit by $2.50. If, for example, the Contract
Value is reduced from $60,000 to $50,000 because of partial withdrawals, charges
or negative investment performance, the Death Benefit will be reduced from
$150,000 to $125,000. If, however, the Contract Value multiplied by the
applicable percentage from the table in Appendix A is less than the face amount,
the Death Benefit will equal the Face Amount.
The applicable percentage becomes lower as the Insured's age increases. If the
Insured's age in the above example were, for example, 50 (rather than between
zero and 40), the applicable percentage would be 185%. The Death Benefit would
not exceed the $100,000 face amount unless the Contract Value exceeded $54,054
(rather than $40,000), and each dollar then added to or taken from Contract
Value would change the Death Benefit by $1.85.
CONTRACT VALUE -- The Contract Value is the total value of your Contract. It is
the SUM of:
- Your accumulation in the Fixed Account; PLUS
- The value of your Units in the Sub-Accounts.
There is no guaranteed minimum Contract Value. The Contract Value on any date
depends on variables that cannot be predetermined.
Your Contract Value is affected by the:
- Amount of your Payment(s);
- Interest credited in the Fixed Account;
- Investment performance of the Funds you select;
- Partial withdrawals;
- Loans, loan repayments and loan interest paid or credited; and
- Charges and deductions under the Contract.
COMPUTING CONTRACT VALUE -- We compute the Contract Value on the Date of Issue
and on each Valuation Date. On the Date of Issue, the Contract Value is:
16
<PAGE>
- Your Payment plus any interest earned during the period it was
allocated to the General Account (see "The Contract --
Application for a Contract"); MINUS
- The Monthly Deductions due.
On each Valuation Date after the Date of Issue, the Contract Value is the sum
of:
- Accumulations in the Fixed Account; PLUS
- The SUM of the PRODUCTS of:
- The number of Units in each Sub-Account; TIMES
- The value of a Unit in each Sub-Account on the Valuation
Date.
THE UNIT -- We allocate each Payment to the Sub-Accounts you selected. We credit
allocations to the Sub-Accounts as Units. Units are credited separately for each
Sub-Account.
The number of Units of each Sub-Account credited to the Contract is the QUOTIENT
of:
- That part of the Payment allocated to the Sub-Account; DIVIDED
BY
- The dollar value of a Unit on the Valuation Date the Payment is
received at our Principal Office.
The number of Units will remain fixed unless changed by a split of Unit value,
transfer, loan, partial withdrawal or surrender. Also, Monthly Deductions taken
from a Sub-Account will result in cancellation of Units equal in value to the
amount deducted.
The dollar value of a Unit of a Sub-Account varies from Valuation Date to
Valuation Date based on the investment experience of that Sub-Account. This
investment experience reflects the investment performance, expenses and charges
of the Fund in which the Sub-Account invests. The value of each Unit was set at
$1.00 on the first Valuation Date of each Sub-Account.
The value of a Unit on any Valuation Date is the PRODUCT of:
- The dollar value of the Unit on the preceding Valuation Date;
TIMES
- The net investment factor.
NET INVESTMENT FACTOR -- The net investment factor measures the investment
performance of a Sub-Account during the Valuation Period just ended. The net
investment factor for each Sub-Account is the result of:
- The net asset value per share of a Fund held in the Sub-Account
determined at the end of the current Valuation Period; PLUS
- The per share amount of any dividend or capital gain
distributions made by the Fund on shares in the Sub-Account if
the "ex-dividend" date occurs during the current Valuation
Period; DIVIDED BY
- The net asset value per share of a Fund share held in the
Sub-Account determined as of the end of the immediately
preceding Valuation Period; MINUS
- The mortality and expense risk charge for each day in the
Valuation Period, currently at an annual rate of 0.90% of the
daily net asset value of that Sub-Account.
The net investment factor may be greater or less than one.
PAYMENT OPTIONS -- The Net Death Benefit payable may be paid in a single sum or
under one or more of the payment options then offered by Allmerica Financial.
See "APPENDIX C -- PAYMENT OPTIONS." These payment options also are available at
the Final Payment Date or if the Contract is surrendered. If no election is
made, we will pay the Net Death Benefit in a single sum.
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OPTIONAL INSURANCE BENEFITS -- You may add an optional insurance benefit to the
Contract by rider, as described in "APPENDIX B -- OPTIONAL BENEFIT."
SURRENDER -- You may surrender the Contract and receive its Surrender Value. The
Surrender Value is:
- The Contract Value; MINUS
- Any Outstanding Loan and surrender charges.
We will compute the Surrender Value on the Valuation Date on which we receive
the Contract with a Written Request for surrender. We will deduct a surrender
charge if you surrender the Contract within 10 full Contract years of the Date
of Issue. See "CHARGES AND DEDUCTIONS -- SURRENDER CHARGE."
The Surrender Value may be paid in a lump sum or under a payment option then
offered by us. See "APPENDIX C -- PAYMENT OPTIONS." We will normally pay the
Surrender Value within seven days following our receipt of Written Request. We
may delay benefit payments under the circumstances described in "OTHER CONTRACT
PROVISIONS -- Delay of Benefit Payments."
For important tax consequences of a surrender, see "FEDERAL TAX CONSIDERATIONS."
PARTIAL WITHDRAWAL -- You may withdraw part of the Contract Value of your
Contract on Written Request. Your Written Request must state the dollar amount
you wish to receive. You may allocate the amount withdrawn among the
Sub-Accounts and the Fixed Account. If you do not provide allocation
instructions, we will make a Pro-Rata Allocation. Each partial withdrawal must
be at least $1,000. We will not allow a partial withdrawal if it would reduce
the Contract Value below $25,000. The Face Amount is reduced proportionately
based on the ratio of the amount of the partial withdrawal and charges to the
Contract Value on the date of withdrawal.
On a partial withdrawal from a Sub-Account, we will cancel the number of Units
equal in value to the amount withdrawn. The amount withdrawn will be the amount
you requested plus the partial withdrawal costs and any applicable surrender
fee. See "CHARGES AND DEDUCTIONS -- SURRENDER CHARGES" and "CHARGES AND
DEDUCTIONS -- PARTIAL WITHDRAWAL COSTS." We will normally pay the partial
withdrawal within seven days following our receipt of written request. We may
delay payment as described in "OTHER CONTRACT PROVISIONS -- Delay of Benefit
Payments."
For important tax consequences of partial withdrawals, see "FEDERAL TAX
CONSIDERATIONS."
CHARGES AND DEDUCTIONS
The following charges will apply to your Contract under the circumstances
described. Some of these charges apply throughout the Contract's duration.
No surrender charges or partial withdrawal charges are imposed, and no
commissions are paid where the Contract Owner as of the date of application is
within the following class of individuals:
- All employees of First Allmerica and its affiliates and
subsidiaries located at First Allmerica's home office (or at
off-site locations if such employees are on First Allmerica's
home office payroll); all employees and registered
representatives of any broker-dealer that has entered into a
sales agreement with us or Allmerica Investments, Inc. to sell
the Contracts and any spouses of the above persons or any
children of the above persons.
MONTHLY DEDUCTIONS -- On the Monthly Processing Date, the Company will deduct an
amount to cover charges and expenses incurred in connection with the Contract.
This Monthly Deduction will be deducted by subtracting values from the Fixed
Account accumulation and/or canceling Units from each applicable Sub-Account in
the ratio that the Contract Value in the Sub-Account bears to the
18
<PAGE>
Contract Value. The amount of the Monthly Deduction will vary from month to
month. If the Contract Value is not sufficient to cover the Monthly Deduction
which is due, the Contract may lapse. (See "CONTRACT TERMINATION AND
REINSTATEMENT.") The Monthly Deduction is comprised of the following charges:
- MAINTENANCE FEE: The Company will make a deduction of $2.50 from any
Contract with less than $50,000 in Contract Value to cover charges and
expenses incurred in connection with the Contract. This charge is to
reimburse the Company for expenses related to issuance and maintenance
of the Contract. The Company does not intend to profit from this
charge.
- ADMINISTRATION CHARGE: The Company imposes a monthly charge at an
annual rate of 0.40% of the Contract Value. This charge is to
reimburse us for administrative expenses incurred in the
administration of the Contract. It is not expected to be a source of
profit.
- MONTHLY INSURANCE PROTECTION CHARGE: Immediately after the Contract is
issued, the Death Benefit will be greater than the Payment. While the
Contract is in force, prior to the Final Payment Date, the Death
Benefit will generally be greater than the Contract Value. To enable
us to pay this excess of the Death Benefit over the Contract Value, a
monthly cost of insurance charge is deducted. This charge varies
between an annual rate of 0.20% and 2.50% of the Contract Value
depending on the type of Contract and the Underwriting Class. In no
event will the current deduction for the cost of insurance exceed the
guaranteed maximum insurance protection rates set forth in the
Contract. These guaranteed rates are based on the Commissioners 1980
Standard Ordinary Mortality Tables, Tobacco User or Non-Tobacco User
(Mortality Table B for unisex Contracts and Mortality Table D for
second-to-die Contracts) and the Insured's sex and age. The Tables
used for this purpose set forth different mortality estimates for
males and females and for tobacco user and non-tobacco user. Any
change in the insurance protection rates will apply to all Insured of
the same age, sex and Underwriting Class whose Contracts have been in
force for the same period.
The Underwriting Class of an Insured will affect the insurance
protection rate. We currently place Insureds into standard
Underwriting Classes and non-standard Underwriting Classes. The
Underwriting Classes are also divided into two categories: tobacco
user and non-tobacco user. We will place Insureds under the age of 18
at the Date of Issue in a standard or non-standard Underwriting Class.
We will then classify the Insured as a non-tobacco user.
- DISTRIBUTION EXPENSE: During the first ten Contract years, we make a
monthly deduction to compensate for a portion of the sales expense
which are incurred by us with respect to the Contracts. This charge is
equal to 0.30% of the Contract Value. We will monitor distribution
charges, federal tax charges and the sales charge portion of the
surrender fee deducted under a Contract to ensure that the sum of
these charges will never exceed 9% of the Payment(s) made under the
Contract.
- FEDERAL & STATE PAYMENT TAX CHARGE: During the first ten Contract
years, we make a monthly deduction to compensate the Company for the
increase in federal tax liability from the application of Section 848
of the Internal Revenue Code and to offset the average premium tax the
Company is expected to pay to various state and local jurisdictions
but will not necessarily equal the premium tax paid by us for a
particular Contract. The Company currently treats the federal tax
portion of this charge as if it were a sales load for purposes of
determining compliance with the maximum sales loads permitted under
SEC rules. The Company expects to pay an average premium tax of
approximately 2.5% of premiums in all states, although such rates can
generally range from 0% to 4%. The Company does not intend to profit
from the premium tax portion of this charge.
19
<PAGE>
DAILY DEDUCTIONS -- We assess each Sub-Account with a charge for mortality and
expense risks we assume. Fund expenses are also reflected in the Variable
Account.
- MORTALITY AND EXPENSE RISK CHARGE: We impose a daily charge at a
current annual rate of 0.90% of the average daily net asset value of
each Sub-Account. This charge compensates us for assuming mortality
and expense risks for variable interests in the Contracts.
The mortality risk we assume is that Insureds may live for a shorter
time than anticipated. If this happens, we will pay more Net Death
Benefits than anticipated. The expense risk we assume is that the
expenses incurred in issuing and administering the Contracts will
exceed those compensated by the maintenance fee and administration
charges in the Contracts. If the charge for mortality and expense
risks is not sufficient to cover mortality experience and expenses, we
will absorb the losses. If the charge turns out to be higher than
mortality and expense risk expenses, the difference will be a profit
to us.
- FUND EXPENSES -- The value of the Units of the Sub-Accounts will
reflect the investment advisory fee and other expenses of the Funds
whose shares the Sub-Accounts purchase. The prospectuses and
statements of additional information of PalladianSM and the Trust
contain more information concerning the fees and expenses.
No charges are currently made against the Sub-Accounts for federal or state
income taxes. Should income taxes be imposed, we may make deductions from the
Sub-Accounts to pay the taxes. See "FEDERAL TAX CONSIDERATIONS."
SURRENDER CHARGE -- The Contract's contingent surrender charge is a deferred
sales charge and an unrecovered payment tax charge. The deferred sales charge
compensates us for distribution expenses, including commissions to our
representatives, advertising and the printing of prospectuses and sales
literature. The unrecovered payment tax charge is designed to reimburse us for
the unrecovered federal and state taxes the Company has paid.
<TABLE>
<CAPTION>
Contract Year* 1 2 3 4 5 6 7 8 9
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Deferred Sale Charge 7.50% 7.50% 6.00% 6.00% 4.50% 4.50% 3.00% 3.00% 1.50%
Unrecovered Payment
Tax Charge 2.25% 2.00% 1.75% 1.50% 1.25% 1.00% 0.75% 0.50% 0.25%
- -------------------------------------------------------------------------------------------
Total Surrender
Charge 9.75% 9.50% 7.75% 7.50% 5.75% 5.50% 3.75% 3.50% 1.75%
<CAPTION>
Contract Year* 10+
<S> <C>
- ---------------------
Deferred Sale Charge 0%
Unrecovered Payment
Tax Charge 0%
- ---------------------
Total Surrender
Charge 0%
</TABLE>
The surrender charge applies for ten Contract years. We impose the surrender
charge only if, during its duration, you request a full surrender or a partial
withdrawal in excess of the free withdrawal amount.
* For a Contract that lapses and reinstates, see "REINSTATEMENT."
PARTIAL WITHDRAWAL COSTS -- For each partial withdrawal, we deduct a transaction
fee of 2.0% of the amount withdrawn, not to exceed $25. This fee is intended to
reimburse us for the cost of processing the withdrawal.
A partial withdrawal charge may also be deducted from Contract Value. However,
in any Contract year, you may withdraw, without a partial withdrawal charge, up
to:
- 10% of the Contract Value; minus
- The total of any prior free withdrawals in the same Contract
year ("Free 10% Withdrawal.")
20
<PAGE>
The right to make the Free 10% Withdrawal is not cumulative from Contract year
to Contract year. For example, if only 8% of Contract Value were withdrawn in
the second Contract year, the amount you could withdraw in future Contract years
would not be increased by the amount you did not withdraw in the second Contract
year.
We impose any applicable surrender charge on any withdrawal greater than the
Free 10% Withdrawal.
TRANSFER CHARGES -- The first 12 transfers in a Contract year are free. After
that, we may deduct a transfer charge not to exceed $25 from amounts transferred
in that Contract year. This charge reimburses us for the administrative costs of
processing the transfer.
If you apply for automatic transfers, the first automatic transfer counts as one
transfer. Each future automatic transfer is without charge and does not reduce
the remaining number of transfers that may be made without charge.
Each of the following transfers of Contract Value from the Sub-Accounts to the
Fixed Account is free and does not count as one of the 12 free transfers in a
Contract year:
- A conversion within the first 24 months from Date of Issue;
- A transfer to the Fixed Account to secure a loan; and
- A transfer from the Fixed Account as a result of a loan
repayment.
CONTRACT LOANS
You may borrow money secured by your Contract Value. The total amount you may
borrow is the Loan Value. The Loan Value is 90% of:
- The Contract Value; MINUS
- Any surrender charges.
The minimum loan is $1,000. The maximum loan is the Loan Value minus any
Outstanding Loan. We will usually pay the loan within seven days after we
receive the Written Request. We may delay the payment of loans as stated in
"OTHER CONTRACT PROVISIONS -- Delay of Benefit Payments."
We will allocate the loan among the Sub-Accounts and the Fixed Account according
to your instructions. If you do not make an allocation, we will make a Pro-Rata
Allocation. We will transfer Contract Value in each Sub-Account equal to the
Contract loan to the Fixed Account. We will not count this transfer as a
transfer subject to the transfer charge.
Contract Value equal to the Outstanding Loan will earn monthly interest in the
Fixed Account at an annual rate of at least 4.0%.
PREFERRED LOAN OPTION -- Any portion of the Outstanding Loan that represents
earnings in this Contract, a loan from an exchanged life insurance policy that
was as carried over to this Contract or the gain in the exchanged life insurance
policy that was carried over to this Contract may be treated as a preferred
loan. The available percentage of the gain carried over from an exchanged policy
less any policy loan carried over which will be eligible for preferred loan
treatment is as follows:
<TABLE>
<CAPTION>
Beginning of
Contract Year 1 2 3 4 5 6 7 8 9 10
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------
Unloaned Gain Available 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
<CAPTION>
Beginning of
Contract Year 11
<S>
------------------------
Unloaned Gain Available 100%
</TABLE>
The guaranteed annual interest rate credited to the Contract Value securing a
preferred loan will be at least 5.5%.
21
<PAGE>
LOAN INTEREST CHARGED -- Interest accrues daily at the annual rate of 6.0%.
Interest is due and payable in arrears at the end of each Contract year or for
as short a period as the loan may exist. Interest not paid when due will be
added to the Outstanding Loan by transferring Contract Value equal to the
interest due to the Fixed Account. The interest due will bear interest at the
same rate.
REPAYMENT OF OUTSTANDING LOAN -- You may pay any loans before Contract lapse. We
will allocate that part of the Contract Value in the Fixed Account that secured
a repaid loan to the Sub-Accounts and Fixed Account according to your
instructions. If you do not make a repayment allocation, we will allocate
Contract Value according to your most recent Payment allocation instructions.
However, loan repayments allocated to the Variable Account cannot exceed
Contract Value previously transferred from the Variable Account to secure the
outstanding loan.
If the Outstanding Loan exceeds the Contract Value less the surrender charge,
the Contract will terminate. We will mail a notice of termination to the last
known address of you and any assignee. If you do not make sufficient payment
within 62 days after this notice is mailed, the Contract will terminate with no
value. See "CONTRACT TERMINATION AND REINSTATEMENT."
EFFECT OF CONTRACT LOANS -- Contract loans will permanently affect the Contract
Value and Surrender Value, and may permanently affect the Death Benefit. The
effect could be favorable or unfavorable, depending on whether the investment
performance of the Sub-Accounts is less than or greater than the interest
credited to the Contract Value in the Fixed Account that secures the loan.
We will deduct any Outstanding Loan from the proceeds payable when the Insured
dies or from a surrender.
CONTRACT TERMINATION AND REINSTATEMENT
TERMINATION -- The Contract will terminate if on a Monthly Processing Date the
Surrender Value is less than $0 (zero.) If this situation occurs, the Contract
will be in default. You will then have a grace period of 62 days, measured from
the date of default, to make a Payment sufficient to prevent termination. On the
date of default, we will send a notice to you and to any assignee of record. The
notice will state the Payment due and the date by which it must be paid.
Failure to make a sufficient Payment within the grace period will result in the
Contract terminating without value. If the Insured dies during the grace period,
we will deduct from the Net Death Benefit any overdue charges.
REINSTATEMENT -- A terminated Contract may be reinstated within three years of
the date of default and before the Final Payment Date. The reinstatement takes
effect on the Monthly Processing Date following the date you submit to us:
- Written application for reinstatement;
- Evidence of Insurability showing that the Insured is insurable
according to our current underwriting rules;
- A Payment that is large enough to cover the cost of all
Contract charges that were due and unpaid during the grace
period;
- A Payment that is large enough to keep the Contract in force
for three months; and
- A Payment or reinstatement of any loan against the Contract
that existed at the end of the grace period.
Contracts which have been surrendered may not be reinstated.
22
<PAGE>
SURRENDER CHARGE -- For the purpose of measuring the surrender charge period,
the contract will be reinstated as of the date of default. The surrender charge
on the date of reinstatement is the surrender charge that would have been in
effect on the date of default.
CONTRACT VALUE ON REINSTATEMENT -- The Contract Value on the date of
reinstatement is:
- The Payment made to reinstate the Contract and interest earned
from the date the Payment was received at our Principal Office;
PLUS
- The Contract Value less any Outstanding Loan on the date of
default; MINUS
- The Monthly Deductions due on the date of reinstatement.
You may reinstate any Outstanding Loan.
OTHER CONTRACT PROVISIONS
CONTRACT OWNER -- The Contract Owner named on the specifications page of the
Contract is the Insured unless another Contract Owner has been named in the
application. As Contract Owner, you are entitled to exercise all rights under
your Contract while the Insured is alive, with the consent of any irrevocable
Beneficiary.
BENEFICIARY -- The Beneficiary is the person or persons to whom the Net Death
Benefit is payable on the Insured's death. Unless otherwise stated in the
Contract, the Beneficiary has no rights in the Contract before the Insured dies.
While the Insured is alive, you may change the Beneficiary, unless you have
declared the Beneficiary to be irrevocable. If no Beneficiary is alive when the
Insured dies, the Contract Owner (or the Contract Owner's estate) will be the
Beneficiary. If more than one Beneficiary is alive when the Insured dies, we
will pay each Beneficiary in equal shares, unless you have chosen otherwise.
Where there is more than one Beneficiary, the interest of a Beneficiary who dies
before the Insured will pass to surviving Beneficiaries proportionally, unless
the Contract owner has requested otherwise.
ASSIGNMENT -- You may assign a Contract as collateral or make an absolute
assignment. All Contract rights will be transferred as to the assignee's
interest. The consent of the assignee may be required to make changes in Payment
allocations, make transfers or to exercise other rights under the Contract. We
are not bound by an assignment or release thereof, unless it is in writing and
recorded at our Principal Office. When recorded, the assignment will take effect
on the date the Written Request was signed. Any rights the assignment creates
will be subject to any payments we made or actions we took before the assignment
is recorded. We are not responsible for determining the validity of any
assignment or release.
The following Contract provisions may vary by state.
LIMIT ON RIGHT TO CONTEST THE CONTRACT -- We cannot challenge the validity of
your Contract if the Insured was alive after the Contract had been in force for
two years from the Date of Issue.
SUICIDE -- The Net Death Benefit will not be paid if the Insured commits
suicide, while sane or insane, within two years from the Date of Issue. Instead,
we will pay the Beneficiary all Payments made for the Contract, without
interest, less any Outstanding Loan and partial withdrawals.
MISSTATEMENT OF AGE OR SEX -- If the Insured's age or sex is not correctly
stated in the Contract application, we will adjust benefits under the Contract
to reflect the correct age and sex. The adjustment will be based upon the ratio
of the Maximum Payment for the Contract to the Maximum Payment for the Contract
issued for the correct age or sex. We will not reduce the Death Benefit to less
than the Guideline Minimum Sum Insured. For a unisex Contract, there is no
adjusted benefit for misstatement of sex.
23
<PAGE>
DELAY OF PAYMENTS -- Amounts payable from the Variable Account for surrender,
partial withdrawals, Net Death Benefit, Contract loans and transfers may be
postponed whenever:
- The New York Stock Exchange is closed other than customary
weekend and holiday closings;
- The SEC restricts trading on the New York Stock Exchange; or
- The SEC determines an emergency exists, so that disposal of
securities is not reasonably practicable or it is not
reasonably practicable to compute the value of the Variable
Account's net assets.
We may delay paying any amounts derived from Payments you made by check until
the check has cleared your bank.
We reserve the right to defer amounts payable from the Fixed Account. This delay
may not exceed six months. However, if payment is delayed for 30 days or more,
we will pay interest at least equal to an effective annual yield of 3.0% per
year for the deferment. Amounts from the Fixed Account used to make payments on
contracts that we or our affiliates issue will not be delayed.
FEDERAL TAX CONSIDERATIONS
The following summary of federal tax considerations is based on our
understanding of the present federal income tax laws as they are currently
interpreted. Legislation may be proposed which, if passed, could adversely and
possibly retroactively affect the taxation of the Contracts. This summary is not
exhaustive, does not purport to cover all situations, and is not intended as tax
advice. We do not address tax provisions that may apply if the Contract Owner is
a corporation or the Trustee of an employee benefit plan. You should consult a
qualified tax adviser to apply the law to your circumstances.
ALLMERICA FINANCIAL AND THE VARIABLE ACCOUNT -- Allmerica Financial is taxed as
a life insurance company under Subchapter L of the Internal Revenue Code. We
file a consolidated tax return with our parent and affiliates. We do not
currently charge for any income tax on the earnings or realized capital gains in
the Variable Account. We do not currently charge for federal income taxes
respecting the Variable Account. A charge may apply in the future for any
federal income taxes we incur. The charge may become necessary, for example, if
there is a change in our tax status. Any charge would be designed to cover the
federal income taxes on the investment results of the Variable Account.
Under current laws, Allmerica Financial may incur state and local taxes besides
premium taxes. These taxes are not currently significant. If there is a material
change in these taxes affecting the Variable Account, we may charge for taxes
paid or for tax reserves.
TAXATION OF THE POLICIES -- We believe that the Contracts described in this
prospectus are life insurance contracts under Section 7702 of the Internal
Revenue Code ("Code"). Section 7702 affects the taxation of life insurance
contracts and places limits on the relationship of the Contract Value to the
Death Benefit. As a life insurance contract, the Net Death Benefit of the
Contract is excludable from the gross income of the Beneficiary. Also, any
increase in Contract Value is not taxable until received by you or your
designee. Although the Company believes the Contracts are in compliance with
Section 7702 of the Code, the manner in which Section 7702 should be applied to
a last survivorship life insurance contract is not directly addressed by Section
7702. In absence of final regulations or other guidance issued under Section
7702, there is necessarily some uncertainty whether a Contract will meet the
Section 7702 definition of a life insurance contract. This is true particularly
if the Contract owner pays the full amount of payments permitted under the
Contract. A Contract Owner contemplating the payment of such amounts should do
so only after consulting a tax advisor. If a Contract were determined not to be
a life insurance contract under Section 7702, it would not have most of the tax
advantages normally provided by a life insurance contract.
24
<PAGE>
A life insurance contract is treated as a "modified endowment contract" under
Section 7702A of the Code if it meets the definition of life insurance in
Section 7702 but fails the "seven-pay test"' of Section 7702A. The seven-pay
test provides that payments can not be paid at a rate more rapidly than allowed
by the payment of seven annual payments using specified computational rules
provided in Section 7702A.
If the Contract is considered a modified endowment contract, distributions
(including Contract loans, partial withdrawals, surrenders and assignments) will
be taxed on an "income-first" basis and includible in gross income to the extent
that the Surrender Value exceeds the Contract Owner's investment in the
Contract. Any other amounts will be treated as a return of capital up to the
Contract Owner's basis in the Contract. A 10% tax is imposed on that part of any
distribution that is includible in income, unless the distribution is:
- Made after the taxpayer becomes disabled;
- Made after the taxpayer attains age 59 1/2; OR
- Part of a series of substantially equal periodic payments for
the taxpayer's life or life expectancy or joint life
expectancies of the taxpayer and beneficiary.
Allmerica Financial has designed this Contract to meet the definition of a
modified endowment contract.
Any Contract received in exchange for a modified endowment contract will also be
a modified endowment contract. However, an exchange under Section 1035 of the
Code of a life insurance contract entered into before June 21, 1988 will not
cause the new Contract to be treated as a modified endowment contract if no
additional premiums are paid and there is no increase in the death benefit as a
result of the exchange.
All modified endowment contracts issued by the same insurance company to the
same Contract Owner during any 12-month period will be treated as a single
modified endowment contract in computing taxable distributions.
Consumer interest paid on Contract loans under an individually owned Contract is
not tax deductible. A business may deduct interest on loans up $50,000 subject
to a prescribed maximum amount, provided that the Insured is a "key person" of
that business. The Code defines "key person" to mean an officer or a 20% owner.
Federal tax law requires that the investment of each Sub-Account funding the
Contracts is adequately diversified according to Treasury regulations. Although
we do not have control over the investments of the Funds, we believe that the
Funds currently meet the Treasury's diversification requirements. We will
monitor continued compliance with these requirements.
The Treasury Department has announced that previous regulations on
diversification do not provide guidance concerning the extent to which Contract
Owners may direct their investments to divisions of a separate investment
account. Regulations may provide guidance in the future. The Contracts or our
administrative rules may be modified as necessary to prevent a Contract Owner
from being considered the owner of the assets of the Variable Account.
VOTING RIGHTS
Where the law requires, we will vote Fund shares that each Sub-Account holds
according to instructions received from Contract Owners with Contract Value in
the Sub-Account. If, under the 1940 Act or its rules, we may vote shares in our
own right, whether or not the shares relate to the Contracts, we reserve the
right to do so.
25
<PAGE>
We will provide each person having a voting interest in a Fund with proxy
materials and voting instructions. We will vote shares held in each Sub-Account
for which no timely instructions are received in proportion to all instructions
received for the Sub-Account. We will also vote in the same proportion our
shares held in the Variable Account that do not relate to the Contracts.
We will compute the number of votes that a Contract Owner has the right to
instruct on the record date established for the Fund. This number is the
quotient of:
- Each Contract Owner's Contract Value in the Sub-Account;
divided by
- The net asset value of one share in the Fund in which the
assets of the Sub-Account are invested.
We may disregard voting instructions Contract Owners or the Trustees initiate in
favor of any change in the investment policies or in any investment adviser or
principal underwriter. Our disapproval of any change must be reasonable. A
change in investment policies or investment adviser must be based on a good
faith determination that the change would be contrary to state law or otherwise
is improper under the objectives and purposes of the funds. If we do disregard
voting instructions, we will include a summary of and reasons for that action in
the next report to Contract Owners.
DIRECTORS AND PRINCIPAL OFFICERS
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- -------------------------------------------- --------------------------------------------------------------------
<S> <C>
Bruce C. Anderson Director of First Allmerica since 1996; Vice President, First
Director Allmerica
Abigail M. Armstrong Secretary of First Allmerica since 1996; Counsel, First Allmerica
Secretary and Counsel
John P. Kavanaugh Director of First Allmerica since 1996; Vice President, First
Director and Vice President Allmerica
John F. Kelly Director of First Allmerica since 1996; Senior Vice President,
Director General Counsel and Assistant Secretary, First Allmerica
James R. McAuliffe Director of First Allmerica since 1996; President and CEO, Citizens
Director Insurance Company of America since 1994; Vice President, First
Allmerica, 1982 to 1994; Chief Investment Officer, First Allmerica,
1986 to 1994
John F. O'Brien Director, Chairman of the Board, President and Chief Executive
Director and Chairman of the Board Officer, First Allmerica
Edward J. Parry Vice President and Treasurer of First Allmerica since 1993;
Vice President and Treasurer Assistant Vice President, 1992 to 1993; Manager, Price Waterhouse,
(Chief Accounting Officer) 1987 to 1992
Richard M. Reilly Director of First Allmerica since 1996; Vice President, First
Director, President and Allmerica; Director, Allmerica Investments, Inc.; Director and
Chief Executive Officer President, Allmerica Investment Management Company, Inc. since 1990
Larry C. Renfro Director of First Allmerica since 1996; Vice President, First
Director Allmerica
Eric A. Simonsen Director of First Allmerica since 1996; Vice President and Chief
Director, Vice President and Financial Officer, First Allmerica
Chief Financial Officer
Phillip E. Soule Director of First Allmerica since 1996; Vice President, First
Director Allmerica
</TABLE>
26
<PAGE>
DISTRIBUTION
Allmerica Investments, Inc., an indirect wholly owned subsidiary of First
Allmerica, acts as the principal underwriter and general distributor of the
Contracts. Allmerica Investments, Inc. is registered with the SEC as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. ("NASD"). Broker-dealers sell the Contracts through their registered
representatives who are appointed by us.
We pay to broker-dealers who sell the Contract commissions based on a commission
schedule. After the Date of Issue, commissions will not exceed 8.5% of the
Payment. Alternative commission schedules are available with lower commission
amounts based upon the age of the Contract Owner. In Contract year 11, we pay
broker-dealer up to 50% of the standard Monthly Insurance Production Charge
collected for Contract years one through ten and commence paying annual
compensation of up to 0.25% of unloaned Contract Value. To the extent permitted
by NASD rules, promotional incentives or payments may also be provided to
broker-dealers based on sales volumes, the assumption of wholesaling functions
or other sales-related criteria. Other payments may be made for other services
that do not directly involve the sale of the Contracts. These services may
include the recruitment and training of personnel, production of promotional
literature, and similar services.
We intend to recoup commissions and other sales expenses through a combination
of the contingent surrender charge and investment earnings on amounts allocated
under the Contracts to the Fixed Account.
Commissions paid on the Contracts, including other incentives or payments, are
not charged to Contract Owners or to the Separate Account.
REPORTS
We will maintain the records for the Variable Account. We will promptly send you
statements of transactions under your Contract, including:
- Payments;
- Transfers among Sub-Accounts and the Fixed Account;
- Partial withdrawals;
- Increases in loan amount or loan repayments;
- Lapse or termination for any reason; and
- Reinstatement.
We will send an annual statement to you that will summarize all of the above
transactions and deductions of charges during the Contract year. It will also
set forth the status of the Death Benefit, Contract Value, Surrender Value,
amounts in the Sub-Accounts and Fixed Account, and any Contract loans. We will
send you reports containing financial statements and other information for the
Variable Account, Palladian-SM- and the Trust as the 1940 Act requires.
PERFORMANCE INFORMATION
The Contracts were first offered to the public in 1996. However, Allmerica
Financial 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 Contracts being offered will
be calculated as if the Contracts had been offered during that period of time,
with all charges assumed to be those applicable to the Sub-Accounts and the
Funds.
Total return and average annual total return are based on the hypothetical
profile of a representative Contract Owner and historical earnings and are not
intended to indicate future performance. "Total return" is the total income
generated net of certain expenses and charges. "Average annual total
27
<PAGE>
return" is net of the same expenses and charges, but reflects the hypothetical
return compounded annually. This hypothetical return is equal to cumulative
return had performance been constant over the entire period. Average annual
total returns are not the same as yearly results and tend to smooth out
variations in the Fund's return.
Performance information under the Contracts is net of Fund expenses, Monthly
Deductions and surrender charges. We take a representative Contract Owner and
assume that:
- The Insured is a male Age 36, standard (non-smoker)
Underwriting Class;
- The Contract Owner had allocations in each of the Sub-Accounts
for the Fund durations shown; and
- There was a full surrender at the end of the applicable period.
We may compare performance information for a Sub-Account in reports and
promotional literature to:
- Standard & Poor's 500 Stock Index ("S & P 500");
- Dow Jones Industrial Average ("DJIA");
- Shearson Lehman Aggregate Bond Index;
- Other unmanaged indices of unmanaged securities widely regarded
by investors as representative of the securities markets;
- Other groups of variable life separate accounts or other
investment products tracked by Lipper Analytical Services;
- Other services, companies, publications, or persons such as
Morningstar, Inc., who rank the investment products on
performance or other criteria; and
- The Consumer Price Index.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for insurance and administrative charges, separate account
charges and fund management costs and expenses. Performance information for any
Sub-Account reflects only the performance of a hypothetical investment in the
Sub-Account during a period. It is not representative of what may be achieved in
the future. However, performance information may be helpful in reviewing market
conditions during a period and in considering a fund's success in meeting its
investment objectives.
In advertising, sales literature, publications or other materials, we may give
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 and
automatic account rebalancing);
- The advantages and disadvantages of investing in tax-deferred
and taxable investments;
- Customer profiles and hypothetical Payment and investment
scenarios;
- Financial management and tax and retirement planning; and
- Investment alternatives to certificates of deposit and other
financial instruments, including comparisons between the
Policies and the characteristics of and market for the
financial instruments.
PERFORMANCE INFORMATION REFLECTS ONLY THE PERFORMANCE OF A HYPOTHETICAL
INVESTMENT DURING THE PARTICULAR TIME PERIOD ON WHICH THE CALCULATIONS ARE
BASED. ONE-YEAR TOTAL RETURN AND AVERAGE ANNUAL TOTAL RETURN FIGURES ARE BASED
ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE.
PERFORMANCE
28
<PAGE>
INFORMATION SHOULD BE CONSIDERED IN LIGHT OF THE INVESTMENT OBJECTIVES AND
POLICIES, CHARACTERISTICS AND QUALITY OF THE PORTFOLIO OF THE FUND IN WHICH A
SUB-ACCOUNT INVESTS AND THE MARKET CONDITIONS DURING THE GIVEN TIME PERIOD, AND
SHOULD NOT BE CONSIDERED AS A REPRESENTATION OF WHAT MAY BE ACHIEVED IN THE
FUTURE.
LEGAL PROCEEDINGS
There are no pending legal proceedings involving the Variable Account or its
assets. Allmerica Financial is not involved in any litigation that is materially
important to its total assets.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to law, to make additions to, deletions from, or
substitutions for the shares that are held in the Sub-Accounts. We may redeem
the shares of a Fund and substitute shares of another registered open-end
management company, if:
- The shares of the Fund are no longer available for investment:
OR
- In our judgment further investment in the Fund would be
improper based on the purposes of the Variable Account or the
affected Sub-Account.
Where the 1940 Act or other law requires, we will not substitute any shares
respecting a Contract interest in a Sub-Account without notice to Contract
Owners and prior approval of the SEC and state insurance authorities. The
Variable Account may, as the law allows, purchase other securities for other
contracts or allow a conversion between contracts on a contract owner's request.
We reserve the right to establish additional Sub-Accounts funded by a new fund
or by another investment company. Subject to law, we may, in our sole
discretion, establish new Sub-Accounts or eliminate one or more Sub-Accounts.
Shares of the Funds are issued to other Separate Accounts of Allmerica Financial
and its affiliates that fund variable annuity contracts ("mixed funding.")
Shares of the Portfolios of PalladianSM are also issued to other unaffiliated
insurance companies ("shared funding.") It is conceivable that in the future
such mixed funding or shared funding may be disadvantageous for variable life
contract owners or variable annuity contract owners. Allmerica Financial,
PalladianSM and the Trust do not believe that mixed funding is currently
disadvantageous to either variable life insurance Contract Owners or variable
annuity contract owners. Allmerica Financial will monitor events to identify any
material conflicts among Contract Owners because of mixed funding. If the
Company concludes that separate funds should be established for variable life
and variable annuity separate accounts, we will bear the expenses.
We may change the Contract to reflect a substitution or other change and will
notify Contract Owners of the change. Subject to any approvals the law may
require, the variable account or any sub-accounts may be:
- Operated as a management company under the 1940 Act;
- Deregistered under the 1940 Act if registration is no longer
required; OR
- Combined with other sub-accounts or our other separate
accounts.
FURTHER INFORMATION
We have filed a 1933 Act registration statement for this offering with the SEC.
Under SEC rules and regulations, we have omitted from this prospectus parts of
the registration statement and amendments. Statements contained in this
prospectus are summaries of the Contract and other legal documents. The complete
documents and omitted information may be obtained from the SEC's principal
office in Washington, D.C., on payment of the SEC's prescribed fees.
29
<PAGE>
INDEPENDENT ACCOUNTANTS
The financial statements of Allmerica Financial 1995 and 1994 and for each of
the three years in the period ended December 31, 1995 included in this
prospectus 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 Allmerica Financial included herein should be
considered only as bearing on the ability of Allmerica Financial to meet its
obligations under the Contracts.
MORE INFORMATION ABOUT THE FIXED ACCOUNT
This prospectus serves as a disclosure document only for the aspects of the
Contract relating to the Variable Account. For complete details on the Fixed
Account, read the Contract itself. The Fixed Account and other interests in the
General Account are not regulated under the 1933 Act or the 1940 Act because of
exemption and exclusionary provisions. 1933 Act provisions on the accuracy and
completeness of statements made in prospectuses may apply to information on the
fixed part of the Contract and the Fixed Account. The SEC has not reviewed the
disclosures in this section of the prospectus.
GENERAL DESCRIPTION -- You may allocate part or all of your Payment to
accumulate at a fixed rate of interest in the Fixed Account. The Fixed Account
is a part of our General Account. The General Account is made up of all of our
general assets other than those allocated to any Separate Account. Allocations
to the Fixed Account become part of our General Account assets and are used to
support insurance and annuity obligations.
FIXED ACCOUNT INTEREST -- We guarantee amounts allocated to the Fixed Account as
to principal and a minimum rate of interest. The minimum interest we will credit
on amounts allocated to the Fixed Account is 4.0% compounded annually. "Excess
interest" may or may not be credited at our sole discretion. We will guarantee
initial rates on amounts allocated to the Fixed Account, either as a Payment or
a transfer, to the next Contract anniversary.
TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND CONTRACT LOANS -- If a Contract
is surrendered or if a partial withdrawal is made, a surrender charge and/or
partial withdrawal charge may be imposed. We deduct partial withdrawals from
Contract Value allocated to the Fixed Account on a last-in/first out basis.
The first 12 transfers in a Contract year are free. After that, we will deduct a
$25 transfer charge for each transfer in that Contract year. The transfer
privilege is subject to our consent and to our then current rules.
Contract loans may also be made from the Contract Value in the Fixed Account. We
will credit that part of the Contract value that is equal to any Outstanding
Loan with interest at an effective annual yield of at least 4.0% (5.5% for
preferred loans).
We may delay transfers, surrenders, partial withdrawals, Net Death Benefits and
Contract loans up to six months. However, if payment is delayed for 30 days or
more, we will pay interest at least equal to an effective annual yield of 3.0%
per year for the deferment. Amounts from the Fixed Account used to make payments
on contracts that we or our affiliates issue will not be delayed.
FINANCIAL STATEMENTS
Financial Statements for Allmerica Financial are included in this prospectus,
starting on the next page. The financial statements of Allmerica Financial
should be considered only as bearing on our ability to meet our obligations
under the Contract. They should not be considered as bearing on the investment
performance of the assets held in the Variable Account.
30
<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....................................................... 1
Statement of Assets, Liabilities, Surplus and Other Funds............................... 3
Statement of Operations and Changes in Capital and Surplus.............................. 4
Statement of Cash Flows................................................................. 5
Notes to Statutory Financial Statements................................................. 6
</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.
<PAGE>
TO THE BOARD OF DIRECTORS AND STOCKHOLDER OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(FORMERLY KNOWN AS SMA LIFE ASSURANCE COMPANY)
Page 2
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities, surplus and other funds of
Allmerica Financial Life Insurance and Annuity Company as of December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years ended December 31, 1995, on the basis of accounting described in
Note 1.
As discussed in Note 1 to the financial statements, the Company's parent, State
Mutual Life Assurance Company of America, converted from a Massachusetts mutual
life insurance company to a Massachusetts stock life insurance company on
October 16, 1995. In connection with this transaction, the Company changed its
name to Allmerica Financial Life Insurance and Annuity Company and its parent
became a wholly-owned subsidiary of Allmerica Financial Corporation.
/s/ Price Waterhouse LLP
- ------------------
Price Waterhouse LLP
Boston, MA
February 5, 1996
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
STATEMENT OF ASSETS, LIABILITIES, SURPLUS AND OTHER FUNDS
AS OF DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1995 1994
---------- ----------
<S> <C> <C>
Cash......................................... $ 7,791 $ 7,248
Investments:
Bonds...................................... 1,659,575 1,595,275
Stocks..................................... 18,132 12,283
Mortgage loans............................. 239,522 295,532
Policy loans............................... 122,696 116,600
Real estate................................ 40,967 51,288
Short term investments..................... 3,500 45,239
Other invested assets...................... 40,196 27,443
---------- ----------
Total cash and investments............. 2,132,379 2,150,908
Premiums deferred and uncollected............ (1,231) 5,452
Investment income due and accrued............ 38,413 39,442
Other assets................................. 6,060 10,569
Assets held in separate accounts............. 2,978,409 1,869,695
---------- ----------
$5,154,030 $4,076,066
---------- ----------
---------- ----------
LIABILITIES, SURPLUS AND OTHER FUNDS
Liabilities:
Policy liabilities:
Life reserves.............................. $ 856,239 $ 890,880
Annuity and other fund reserves............ 865,216 928,325
Accident and health reserves............... 167,246 121,580
Claims payable............................. 11,047 11,720
---------- ----------
Total policy liabilities............... 1,899,748 1,952,505
Expenses and taxes payable................... 20,824 17,484
Other liabilities............................ 27,499 36,466
Asset valuation reserve...................... 31,556 20,786
Obligations related to separate account
business.................................... 2,967,547 1,859,502
---------- ----------
Total liabilities...................... 4,947,174 3,886,743
---------- ----------
Surplus and Other Funds:
Common stock, $1,000 par value
Authorized -- 10,000 shares
Issued and outstanding -- 2,517
shares.................................... 2,517 2,517
Paid-in surplus............................ 199,307 199,307
Unassigned surplus (deficit)............... 4,282 (13,621)
Special contingency reserves............... 750 1,120
---------- ----------
Total surplus and other funds.......... 206,856 189,323
---------- ----------
$5,154,030 $4,076,066
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
STATEMENT OF OPERATIONS AND CHANGES IN CAPITAL AND SURPLUS
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
REVENUE 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Premiums and other considerations:
Life..................................... $ 156,864 $ 195,633 $ 189,285
Annuities................................ 729,222 707,172 660,143
Accident and health...................... 31,790 31,927 35,718
Reinsurance commissions and reserve
adjustments............................. 20,198 4,195 2,309
----------- ----------- -----------
Total premiums and other
considerations........................ 938,074 938,927 887,455
Net investment income...................... 167,470 170,430 177,612
Realized capital losses, net of tax........ (2,295) (17,172) (7,225)
Other revenue.............................. 37,466 26,065 19,055
----------- ----------- -----------
Total revenue.......................... 1,140,715 1,118,250 1,076,897
----------- ----------- -----------
POLICY BENEFITS AND OPERATING EXPENSES
Policy benefits:
Claims, surrenders and other benefits.... 391,254 331,418 275,290
Increase (decrease) in policy reserves... (22,669) 40,113 15,292
----------- ----------- -----------
Total policy benefits.................. 368,585 371,531 290,582
Operating and selling expenses............. 150,215 164,175 160,928
Taxes, except capital gains tax............ 26,536 22,846 19,066
Net transfers to separate accounts......... 556,856 553,295 586,539
----------- ----------- -----------
Total policy benefits and operating
expenses.............................. 1,102,192 1,111,847 1,057,115
----------- ----------- -----------
NET INCOME................................... 38,523 6,403 19,782
Capital and Surplus, Beginning of Year....... 189,323 182,216 171,941
Unrealized capital gains (losses) on
investments............................... 8,279 12,170 (9,052)
Transfer from (to) asset valuation
reserve................................... (10,770) (9,822) 1,974
Other adjustments.......................... (18,499) (1,644) (2,429)
----------- ----------- -----------
CAPITAL AND SURPLUS, END OF YEAR............. $ 206,856 $ 189,323 $ 182,216
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Premiums, deposits and other income......... $ 964,129 $ 962,147 $ 902,725
Allowances and reserve adjustments on
reinsurance ceded......................... 20,693 3,279 22,185
Net investment income...................... 170,949 173,294 182,843
Net increase in policy loans............... (6,096) (7,585) (7,812)
Benefits to policyholders and
beneficiaries............................. (393,472) (330,900) (298,612)
Operating and selling expenses and taxes... (153,504) (193,796) (171,533)
Net transfers to separate accounts......... (608,480) (600,760) (634,021)
Federal income tax (excluding tax on
capital gains)............................ (6,771) (19,603) (4828)
Other sources (applications)............... (13,642) 19,868 7,757
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.................................. (26,194) 5,944 (1,296)
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Sales and maturities of long term
investments:
Bonds.................................... 572,640 478,512 386,414
Stocks................................... 481 63 64
Real estate and other invested assets.... 13,008 3,008 11,094
Repayment of mortgage principal.......... 55,202 65,334 79,844
Capital gains tax........................ (400) (968) (3,296)
Acquisition of long term investments:
Bonds.................................... (640,339) (508,603) (466,086)
Stocks................................... (44) -- --
(24,544)
Real estate and other invested assets.... (11,929) ( 392)
Mortgage loans........................... (415) (364) (2,266)
Other investing activities............... (3,206) 18,934 (27,254)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES.................................. (15,002) 31,372 (23,878)
---------- ---------- ----------
Net change in cash and short term
investments................................. (41,196) 37,316 (25,174)
CASH AND SHORT TERM INVESTMENTS
Beginning of the year...................... 52,487 15,171 40,345
---------- ---------- ----------
End of the year............................ $ 11,291 $ 52,487 $ 15,171
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
NOTES TO STATUTORY FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION -- Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Financial" or the "Company", formerly SMA Life
Assurance Company) is a wholly owned subsidiary of SMA Financial Corp., which is
wholly owned by First Allmerica Financial Life Insurance Company ("First
Allmerica", formerly, State Mutual Life Assurance Company of America), a stock
life insurance company. On October 16, 1995, First Allmerica converted from a
mutual life insurance company to a stock life insurance company. Concurrent with
this transaction, First Allmerica became a wholly owned subsidiary of Allmerica
Financial Corporation ("AFC").
The stockholder's equity of the Company is being maintained at a minimum level
of 5% of general account assets by First Allmerica in accordance with a policy
established by vote of First Allmerica's Board of Directors.
The Company's financial statements have been prepared on the basis of accounting
practices prescribed or permitted by the Insurance Department of the State of
Delaware and in conformity with practices prescribed by the National Association
of Insurance Commissioners (NAIC), which while common in the industry, vary in
some respects from generally accepted accounting principles. Significant
differences include:
- Bonds considered to be "available-for-sale" or "trading" are
not carried at fair value and changes in fair value are not
recognized through surplus or the statement of operations,
respectively;
- The Asset Valuation Reserve, represents a reserve against
possible losses on investments and is recorded as a liability
through a charge to surplus. The Interest Maintenance Reserve
is designed to include deferred realized gains and losses (net
of applicable federal income taxes) due to interest rate
changes and is also recorded as a liability, however, the
deferred net realized investment gains and losses are amortized
into future income generally over the original period to
maturity of the assets sold. These liabilities are not required
under generally accepted accounting principles;
- Total premiums, deposits and benefits on certain
investment-type contracts are reflected in the statement of
operations, instead of using the deposit method of accounting;
- Policy acquisition costs, such as commissions, premium taxes
and other items, are not deferred and amortized in relation to
the revenue/gross profit streams from the related contracts;
- Benefit reserves are determined using statutorily prescribed
interest, morbidity and mortality assumptions instead of using
more realistic expense, interest, morbidity, mortality and
voluntary withdrawal assumptions with provision made for
adverse deviation;
- Amounts recoverable from reinsurers for unpaid losses are not
recorded as assets, but as offsets against the respective
liabilities;
- Deferred federal income taxes are not provided for temporary
differences between amounts reported in the financial
statements and those included in the tax returns;
6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED
- 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.
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
7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED
contract holders and therefore, are not included in the Company's net income.
Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in capital
and surplus.
INSURANCE RESERVES AND ANNUITY AND OTHER FUND RESERVES -- Reserves for life
insurance, annuities, and accident and health insurance are established in
amounts adequate to meet the estimated future obligations of policies in force.
These liabilities are computed based upon mortality, morbidity and interest rate
assumptions applicable to these coverages, including provision for adverse
deviation. Reserves are computed using interest rates ranging from 3% to 6% for
individual life insurance policies, 3% to 5 1/2% for accident and health
policies and 3 1/2% to 9 1/2% for annuity contracts. Mortality, morbidity and
withdrawal assumptions for all policies are based on the Company's own
experience and industry standards. The assumptions vary by plan, age at issue,
year of issue and duration. Claims reserves are computed based on historical
experience modified for expected trends in frequency and severity. Withdrawal
characteristics of annuity and other fund reserves vary by contract. At December
31, 1995 and 1994, approximately 84% and 77%, respectively, of the contracts
(included in both the general account and separate accounts of the Company) were
not subject to discretionary withdrawal or were subject to withdrawal at book
value less surrender charge.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, management
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
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.
8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED
NOTE 2 -- INVESTMENTS
BONDS -- The carrying value and fair value of investments in bonds are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) VALUE APPRECIATION DEPRECIATION VALUE
---------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
Federal government bonds................................ $ 67,039 $ 3,063 $ -- $ 70,102
State, local and government agency bonds................ 13,607 2,290 23 15,874
Foreign government bonds................................ 12,121 772 249 12,644
Corporate securities.................................... 1,471,422 55,836 6,275 1,520,983
Mortgage-backed securities.............................. 95,385 951 -- 96,336
---------- ------------- ------------- ----------
Total................................................... $1,659,574 $62,912 $ 6,457 $1,715,939
---------- ------------- ------------- ----------
---------- ------------- ------------- ----------
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) VALUE APPRECIATION DEPRECIATION VALUE
---------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
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 FAIR
(IN THOUSANDS) VALUE VALUE
--------------------
<S> <C> <C>
Due in one year or less................. $ 250,578 $ 258,436
Due after one year through five years... 736,003 763,179
Due after five years through ten
years.................................. 538,897 558,445
Due after ten years..................... 134,097 135,880
--------------------
Total................................... $1,659,575 $1,715,940
--------------------
--------------------
</TABLE>
9
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED
MORTGAGE LOANS AND REAL ESTATE -- Mortgage loans and real estate investments,
are diversified by property type and location. Real estate investments have been
obtained primarily through foreclosure. Mortgage loans are collateralized by the
related properties and are generally no more than 75% of the property value at
the time the original loan is made. At December 31, 1995 and 1994, mortgage loan
and real estate investments were distributed by the following types and
geographic regions:
<TABLE>
<CAPTION>
(IN THOUSANDS)
PROPERTY TYPE 1995 1994
- ---------------------------------------- -------- --------
<S> <C> <C>
Office buildings........................ $127,149 $140,292
Residential............................. 59,934 57,061
Retail.................................. 29,578 72,787
Industrial/Warehouse.................... 38,192 39,424
Other................................... 25,636 37,256
-------- --------
Total................................... $280,489 $346,820
-------- --------
-------- --------
<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>
(IN THOUSANDS) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Bonds........................................ $122,318 $123,495 $126,729
Stocks....................................... 1,653 1,799 953
Mortgage loans............................... 26,356 31,945 40,823
Real estate.................................. 9,139 8,425 9,493
Policy loans................................. 9,486 8,797 8,215
Other investments............................ 3,951 1,651 674
Short term investments....................... 2,252 1,378 840
-------- -------- --------
175,155 177,490 187,727
Less investment expenses................... 9,703 9,138 11,026
-------- -------- --------
Net investment income, before IMR
amortization................................ 165,452 168,352 176,701
IMR amortization........................... 2,018 2,078 911
-------- -------- --------
Net investment income........................ $167,470 $170,430 $177,612
-------- -------- --------
-------- -------- --------
</TABLE>
10
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED
REALIZED CAPITAL GAINS AND LOSSES -- Realized capital gains (losses) on
investments for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Bonds........................................ $ 727 $ 645 $ 10,133
Stocks....................................... (263) (62) 16
Mortgage loans............................... (1,083) (17,142) (83)
Real estate.................................. (1,892) 605 (2,044)
-------- -------- --------
(2,511) (15,954) 8,022
Less income tax.............................. 400 968 3,296
-------- -------- --------
Net realized capital gains (losses) before
transfer to IMR............................. (2,911) (16,922) 4,726
Net realized capital gains transferred to
IMR......................................... 616 (250) (11,951)
-------- -------- --------
Net realized capital gains (losses).......... $ (2,295) $(17,172) $ (7,225)
-------- -------- --------
-------- -------- --------
</TABLE>
Proceeds from voluntary sales of investments in bonds during 1995, 1994 and 1993
were $22.4 million, $17.9 million, and $13.2 million, respectively. Gross gains
of $4.3 million, $3.0 million, and $4.5 million and gross losses of $5.2
million, $4.6 million, and $.5 million, respectively, were realized on those
sales.
NOTE 3 -- FAIR VALUE DISCLOSURES OF FINANCIAL INFORMATION
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure of fair value information
about certain financial instruments (insurance contracts, real estate, goodwill
and taxes are excluded) for which it is practicable to estimate such values,
whether or not these instruments are included in the balance sheet. The fair
values presented for certain financial instruments are estimates which, in many
cases, may differ significantly from the amounts which could be recognized upon
immediate liquidation. In cases where market prices are not available, estimates
of fair value are based on discounted cash flow analyses which utilize current
interest rates for similar financial instruments which have comparable terms and
credit quality.
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.
11
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED
POLICY LOANS -- The carrying amount reported in the statement of assets,
liabilities, surplus and other funds approximates fair value since policy loans
have no defined maturity dates and are inseparable from the insurance contracts.
FINANCIAL LIABILITIES:
ANNUITY AND OTHER FUND RESERVES (WITHOUT MORTALITY/MORBIDITY FEATURES) -- Fair
values for the Company's liabilities under individual annuity contracts are
estimated based on current surrender values.
The estimated fair values of the financial instruments as of December 31 were as
follows:
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash.................................. $ 7,791 $ 7,791 $ 7,248 $ 7,248
Short term investments................ 3,500 3,500 45,239 45,239
Bonds................................. 1,659,575 1,715,940 1,595,275 1,541,588
Stocks................................ 18,132 18,414 12,283 12,590
Mortgage loans........................ 239,522 250,196 295,532 291,704
Policy loans.......................... 122,696 122,696 116,600 116,600
Financial Liabilities:
Individual annuity contracts.......... 803,099 797,024 869,230 862,662
Supplemental contracts without life
contingencies........................ 16,796 16,796 16,673 16,673
Other contract deposit funds............ 632 632 1,105 1,105
</TABLE>
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.
12
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED
NOTE 5 -- REINSURANCE
The Company participates in reinsurance to reduce overall risks, including
exposure to large losses and to permit recovery of a portion of direct losses.
Reinsurance contracts do not relieve the Company from its obligation to its
policyholders. Reinsurance financial data for the years ended December 31, is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Reinsurance premiums assumed................. $ 3,442 $ 3,788 $ 4,190
Reinsurance premiums ceded................... 42,914 17,430 14,798
Deduction from insurance liability including
reinsurance recoverable on unpaid claims.... 82,227 46,734 42,805
</TABLE>
Individual life premiums ceded to First Allmerica aggregated $6.8 million, $7.8
million and $9.0 million in 1995, 1994 and 1993, respectively. The Company has
also entered into various reinsurance agreements with First Allmerica under
which certain insurance risks related to individual accident and health
business, premium income and related expenses are assumed by the Company from
First Allmerica. Premiums assumed pursuant to these agreements aggregated $3.4
million, $3.8 million and $4.2 million in 1995, 1994 and 1993, respectively .
During the year Allmerica Financial entered into a coinsurance agreement to
reinsure substantially all of its yearly renewable term life insurance. Premiums
ceded and reinsurance credits taken under this agreement amounted to $25.4
million and $20.7 million, respectively. At December 31, 1995, the deduction
from insurance liability, including reinsurance recoverable on unpaid claims
under this agreement was $12.7 million.
NOTE 6 -- ACCIDENT AND HEALTH POLICY AND CLAIM LIABILITIES
The Company regularly updates its estimates of policy and claims liabilities as
new information becomes available and further events occur which may impact the
resolution of unsettled claims for its accident and health line of business.
Changes in prior estimates are generally reflected in results of operations in
the year such changes are determined to be needed and recorded.
The policy and claims liabilities related to the Company's accident and health
business were $169.7 million and $123.5 million at December 31, 1995 and 1994,
respectively. Accident and health policy and claims liabilities have been
re-estimated for all prior years and were increased by $42.5 million, $10.9
million and $13.2 million, in 1995, 1994 and 1993, respectively, including $21.9
million and $2.8 million recorded as an adjustment to surplus in 1995 and 1993,
respectively. The unfavorable development is primarily due to reserve
strengthening and adverse experience in the Company's individual accident and
health line of business.
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
13
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(A WHOLLY OWNED SUBSIDIARY OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY)
NOTES TO STATUTORY FINANCIAL STATEMENTS --CONTINUED
the aforementioned threshold, from a source other than statutory earned surplus
would also require the prior approval of the Delaware Commissioner of Insurance.
At January 1, 1996, the Company could pay dividends of $4.3 million to First
Allmerica, without prior approval.
NOTE 8 -- OTHER RELATED PARTY TRANSACTIONS
First Allmerica provides management, operating personnel and facilities on a
cost reimbursement basis to the Company. Expenses for services received from
First Allmerica were $85.8 million, $102.5 million and $98.9 million in 1995,
1994 and 1993, respectively. The net amounts payable to First Allmerica and
affiliates for accrued expenses and various other liabilities and receivables
were $12.6 million and $8.3 million at December 31, 1995 and 1994, respectively.
NOTE 9 -- FUNDS ON DEPOSIT
In March 1994, the Company voluntarily withdrew from being licensed in New York.
In connection with the withdrawal First Allmerica, which is licensed in New
York, became qualified to sell the products previously sold by Allmerica
Financial in New York. The Company agreed with the New York Department of
Insurance to maintain, through a custodial account in New York, a security
deposit, the market value of which will at all times equal 102% of all
outstanding general account liabilities of the Company for New York
policyholders, claimants and creditors. As of December 31, 1995, the carrying
value and fair value of the assets or deposit was $295.0 million and $303.6
million, respectively, which is in excess of the required amount.
Additional securities with a carrying value of $4.2 million and $3.9 million
were on deposit with various other state and governmental authorities as of
December 31, 1995 and 1994, respectively.
NOTE 10 -- LITIGATION
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the opinion of management, based on the advice
of legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's financial statements.
14
<PAGE>
APPENDIX A -- GUIDELINE MINIMUM SUM INSURED TABLE
The guideline minimum sum insured is a percentage of the Contract Value as set
forth below, according to federal tax regulations:
GUIDELINE MINIMUM SUM INSURED
<TABLE>
<CAPTION>
AGE OF INSURED PERCENTAGE OF
ON DATE OF DEATH CONTRACT VALUE
- ----------------------------------------------------------------------------------------- ---------------
<S> <C>
40 and under......................................................................... 250%
45................................................................................. 215%
50................................................................................. 185%
55................................................................................. 150%
60................................................................................. 130%
65................................................................................. 120%
70................................................................................. 115%
75................................................................................. 105%
80................................................................................. 105%
85................................................................................. 105%
90................................................................................. 105%
95 and above....................................................................... 100%
</TABLE>
For the ages not listed, the progression between the listed ages is linear.
A-1
<PAGE>
APPENDIX B -- OPTIONAL INSURANCE BENEFITS
This Appendix provides only a summary of other insurance benefits available by
rider. For more information, contact your representative.
OPTION TO ACCELERATE BENEFITS ENDORSEMENT
This endorsement allows part of the Contract proceeds to be available
before death if the Insured becomes terminally ill or is permanently
confined to a nursing home.
A-2
<PAGE>
APPENDIX C -- PAYMENT OPTIONS
PAYMENT OPTIONS -- On written request, the surrender value or all or part of any
payable Net Death Benefit may be paid under one or more payment options then
offered by Allmerica Financial. If you do not make an election, we will pay the
benefits in a single sum. If a payment option is selected, the beneficiary may
pay to us any amount that would otherwise be deducted from the Death Benefit. A
certificate will be provided to the payee describing the payment option
selected.
The amounts payable under a payment option are paid from the General Account.
These amounts are not based on the investment experience of the Variable
Account. The amounts payable under these options, for each $1,000 applied, will
be:
(a) the rate per $1,000 of benefit based on our non-guaranteed current benefit
option rates for this class of Contracts, or
(b) the rate in your Contract for the applicable benefit option, whichever is
greater.
If you choose a benefit option, the beneficiary may, when filing a proof of
claim, pay us any amount that otherwise would be deducted from the proceeds.
- OPTION A: BENEFITS FOR A SPECIFIED NUMBER OF YEARS -- We will make
equal payments for any selected number of years up to 30 years. These
payments may be made annually, semi-annually, quarterly or monthly,
whichever you choose.
- OPTION B: LIFETIME MONTHLY BENEFIT -- Benefits are based on the age of
the person who receives the money (called the payee) on the date the
first payment will be made. You may choose one of the three following
options to specify when benefits will cease:
- when the payee dies with no further benefits due (Life
Annuity);
- when the payee dies but not before the total benefit
payments made by us equals the amount applied under this
option (Life Annuity with Installment Refund); or
- when the payee dies but not before 10 years have elapsed
from the date of the first payment (Life Annuity with
Payments Guaranteed for 10 years).
- OPTION C: INTEREST BENEFITS -- We will pay interest at a
rate we determine each year. It will not be less than 3% per
year. We will make payments annually, semi-annually,
quarterly, or monthly, whichever is preferred. These
benefits will stop when the amount left has been withdrawn.
If the payee dies, any unpaid balance plus accrued interest
will be paid in a lump sum.
- OPTION D: BENEFITS FOR A SPECIFIED AMOUNT -- Interest will
be credited to the unpaid balance and we will make payments
until the unpaid balance is gone. We will credit interest at
a rate we determine each year, but not less than 3%. We will
make payments annually, semi-annually, quarterly, or
monthly, whichever is preferred. The benefit level chosen
must provide for an annual benefit of at least 8% of the
amount applied.
- OPTION E: LIFETIME MONTHLY BENEFITS FOR TWO PAYEES -- We
will pay a benefit jointly to two payees during their joint
lifetime.
After one payee dies, the benefits to the survivor will be:
- the same as the original amount, or
- in an amount equal to 2/3 of the original amount.
A-3
<PAGE>
Benefits are based on the payees' ages on the date the first payment is
due. Benefits will end when the second payee dies.
SELECTION OF PAYMENT OPTIONS -- The amount applied under any one option for any
one payee must be at least $5,000. The periodic payment for any one payee must
be at least $50. Subject to the Contract Owner and beneficiary provisions, any
option selection may be changed before the Net Death Benefit become payable. If
you make no selection, the beneficiary may select an option when the Net Death
Benefit becomes payable.
If the amount of the monthly benefit under Option B for the age of the payee is
the same for different periods certain, the payee will be entitled to the
longest period certain for the payee's age.
You may give the beneficiary the right to change from Option C or D to any other
option at any time. If Option C or D is chosen by the payee when this contract
becomes a claim, the payee may reserve the right to change to any other option.
The payee who elects to change options must be the payee under the option
selected.
ADDITIONAL DEPOSITS -- An additional deposit may be added to any proceeds when
they are applied under Option B and E. We reserve the right to limit the amount
of any additional deposit. We may levy a charge of no more than 3% on any
additional deposits.
RIGHTS AND LIMITATIONS -- A payee has no right to assign any amount payable
under any option, nor to demand a lump sum benefit in place of any amount
payable under Options B or E. A payee will have the right to receive a lump sum
in place of installments under Option A. The payee must provide us with a
Written Request to reserve this right. If the right to receive a lump sum is
exercised, we will determine the lump sum benefit at the same interest rates
used to calculate the installments. The amount left under Option C and any
unpaid balance under Option D, may be withdrawn only as noted in the Written
Request selecting the option.
A corporate or fiduciary payee may select only Option A, C or D, subject to our
approval.
PAYMENT DATES -- The first payment under any option, except Option C, will be
due on the date this contract matures, by death or otherwise, unless another
date is designated. Benefits under Option C begin at the end of the first
benefit period.
The last payment under any option will be made as stated in the option's
description. However, if a payee under Options B or E dies before the due date
of the second monthly payment, the amount applied, minus the first monthly
payment, will be paid in a lump sum or under any option other than Option E.
This payment will be made to the surviving payee under Option E or the
succeeding payee under Option B.
BENEFIT RATES -- The Benefit Option Tables in your Contract show benefit amounts
for Option A, B and E. If you choose one of these options, either within five
years of the date of surrender or the date the proceeds are otherwise payable,
we will apply either the benefit rates listed in the Tables, or the rates we use
on the date the proceeds are paid, whichever is more favorable. Benefits that
begin more than five years after that date, or as a result of additional
deposits, will be based on the rates we use on the date the first benefit is
due.
A-4
<PAGE>
APPENDIX D -- ILLUSTRATIONS OF DEATH BENEFIT, CONTRACT VALUES
AND ACCUMULATED PAYMENTS
The following tables illustrate the way in which a Contract's Death Benefit and
Contract Value could vary over an extended period. The tables assume that the
initial payment is allocated to and remain in the Variable Account for the
entire period shown. They are based on hypothetical gross investment rates of
return for the fund (i.e., investment income and capital gains and losses,
realized or unrealized) equal to constant gross (after tax) annual rates of 0%,
6%, and 12%.
The tables illustrate a Contract issued to a male, age 55, under a standard
underwriting class and qualifying for the non-tobacco user discount, and a
second-to-die Contract issued to a male, age 65, under a standard underwriting
class and qualifying for the non-tobacco user discount and a female, age 65,
under a standard underwriting class and qualifying for the non-tobacco user
discount . The tables illustrate the guaranteed insurance protection rates and
the current insurance protection rates as presently in effect.
The Contract Values and Death Benefit would be different from those shown if the
gross annual investment rates of return averaged 0%, 6%, and 12% over a period
of years, but fluctuated above or below the averages for individual Contract
years. The values would also be different depending on the allocation of the
Contract's total Contract Value among the Sub-Accounts, if the rates of return
averaged 0%, 6% or 12, but the rates of each fund varied above and below the
averages.
The amounts shown for the Death Benefit and Contract Values take into account
the daily deduction of the mortality and expense risk charge and the deduction
from Contract Value for the Monthly Deductions. The amounts shown in the tables
also take into account Fund advisory fees and operating expenses, which averaged
an annual rate of 1.90% of the average daily net assets of the Funds. The fees
and expenses of each Fund vary, and in 1995 ranged from an annual rate of 0.36%
to an annual rate of 2.03% of average daily net assets. The fees and expenses of
your Contract may be more or less than 1.90% in the aggregate, depending on how
you make allocations of Contract Value among the Sub-Accounts.
Under its management agreement with the Trust, Allmerica Investment has declared
a voluntary expense limitation of 0.60% for the Money Market Fund. In 1995 the
operating expenses of the Trust did not exceed the expense limitation. The total
advisory fees for the Portfolios of The PalladianSM Trust for the first 12
months of operations is 0.80% of the 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.
Applying the mortality and expense risk charge and the average Fund advisory
fees and operating expenses of 1.90% of average net assets, the gross annual
rates of investment return of 0%, 6% and 12% would produce net annual rates of
- -1.90%, 4.10% and 10.10%, respectively.
The hypothetical returns shown in the table do not reflect any charges for
income taxes against the Variable Account since no charges are currently made.
However, if in the future the charges are made, to produce illustrated Death
Benefits and Contract Value, the gross annual investment rate of return would
have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges.
The second column of the tables show the amount that would accumulate if the
initial Payment was invested to earn interest, (after taxes) at 5% compounded
annually.
The tables illustrate Contract Values based on the assumptions that no Contract
loans have been made, that no partial withdrawals have been made, and that no
more than 12 transfers have been made in any Contract year (so that no
transaction or transfer charges have been incurred). On request, we will provide
a comparable illustration based on the proposed Insured's age, sex, and
underwriting class, and a specified Payment.
A-5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THE FULCRUM FUND-SM- NEXT GENERATION MODIFIED SINGLE PAYMENT
VARIABLE LIFE CONTRACT
$25,000 PAYMENT
MALE NON-TOBACCO USER AGE 55
FACE AMOUNT = $67,803
BASED ON CURRENT MONTHLY DEDUCTIONS
<TABLE>
<CAPTION>
PAYMENTS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
MADE PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST ------------------------------- ------------------------------- -------------------------------
CONTRACT AT 5% SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- ---------- ---------- --------- -------- ---------- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,447 23,885 67,803 22,923 25,360 67,803 24,398 26,835 67,803
2 27,563 20,443 22,818 67,803 23,351 25,726 67,803 26,433 28,808 67,803
3 28,941 19,860 21,798 67,803 24,160 26,097 67,803 28,990 30,927 67,803
4 30,388 18,947 20,822 67,803 24,599 26,474 67,803 31,330 33,205 67,803
5 31,907 18,451 19,888 67,803 25,420 26,857 67,803 34,215 35,653 67,803
6 33,502 17,620 18,995 67,803 25,872 27,247 67,803 36,909 38,284 67,803
7 35,178 17,203 18,141 67,803 26,704 27,642 67,803 40,173 41,111 67,803
8 36,936 16,448 17,323 67,803 27,168 28,043 67,803 43,274 44,149 67,803
9 38,783 16,104 16,542 67,803 28,013 28,451 67,803 46,976 47,414 67,803
10 40,722 15,794 15,794 67,803 28,865 28,865 67,803 50,930 50,930 67,803
11 42,758 15,185 15,185 67,803 29,491 29,491 67,803 55,117 55,117 67,803
12 44,896 14,598 14,598 67,803 30,132 30,132 67,803 59,659 59,659 70,994
13 47,141 14,033 14,033 67,803 30,787 30,787 67,803 64,567 64,567 76,189
14 49,498 13,488 13,488 67,803 31,457 31,457 67,803 69,875 69,875 81,754
15 51,973 12,964 12,964 67,803 32,142 32,142 67,803 75,620 75,620 87,719
16 54,572 12,458 12,458 67,803 32,843 32,843 67,803 81,837 81,837 94,113
17 57,300 11,971 11,971 67,803 33,560 33,560 67,803 88,565 88,565 100,079
18 60,165 11,503 11,503 67,803 34,293 34,293 67,803 95,847 95,847 106,390
19 63,174 11,051 11,051 67,803 35,043 35,043 67,803 103,765 103,765 113,104
20 66,332 10,616 10,616 67,803 35,810 35,810 67,803 112,406 112,406 120,274
21 69,649 10,197 10,197 67,803 36,594 36,594 67,803 121,866 121,866 127,960
22 73,132 9,793 9,793 67,803 37,397 37,397 67,803 132,078 132,078 138,682
23 76,788 9,404 9,404 67,803 38,217 38,217 67,803 143,094 143,094 150,248
24 80,627 9,029 9,029 67,803 39,056 39,056 67,803 154,968 154,968 162,716
25 84,659 8,669 8,669 67,803 39,914 39,914 67,803 167,758 167,758 176,146
26 88,892 8,321 8,321 67,803 40,792 40,792 67,803 181,550 181,550 190,628
27 93,336 7,986 7,986 67,803 41,690 41,690 67,803 196,476 196,476 206,300
28 98,003 7,664 7,664 67,803 42,608 42,608 67,803 212,629 212,629 223,261
29 102,903 7,353 7,353 67,803 43,547 43,547 67,803 230,111 230,111 241,616
30 108,049 7,053 7,053 67,803 44,507 44,507 67,803 249,029 249,029 261,480
31 113,451 6,765 6,765 67,803 45,490 45,490 67,803 269,503 269,503 282,978
32 119,124 6,487 6,487 67,803 46,494 46,494 67,803 291,660 291,660 306,243
33 125,080 6,220 6,220 67,803 47,522 47,522 67,803 315,638 315,638 331,420
34 131,334 5,962 5,962 67,803 48,573 48,573 67,803 341,588 341,588 358,668
35 137,900 5,714 5,714 67,803 49,647 49,647 67,803 369,672 369,672 388,155
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
FUNDS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED OVER ANY PERIOD.
A-6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THE FULCRUM FUND-SM- NEXT GENERATION MODIFIED SINGLE PAYMENT
VARIABLE LIFE CONTRACT
$25,000 PAYMENT
MALE NON-TOBACCO USER AGE 55
FACE AMOUNT = $67,803
BASED ON GUARANTEED MONTHLY DEDUCTIONS
<TABLE>
<CAPTION>
PAYMENTS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
MADE PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST ------------------------------- ------------------------------- -------------------------------
CONTRACT AT 5% SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- ---------- ---------- --------- -------- ---------- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,220 23,657 67,803 22,697 25,134 67,803 24,174 26,611 67,803
2 27,563 19,944 22,319 67,803 22,861 25,236 67,803 25,955 28,330 67,803
3 28,941 19,039 20,977 67,803 23,361 25,299 67,803 28,227 30,164 67,803
4 30,388 17,754 19,629 67,803 23,447 25,322 67,803 30,253 32,128 67,803
5 31,907 16,824 18,261 67,803 23,857 25,295 67,803 32,791 34,229 67,803
6 33,502 15,496 16,871 67,803 23,839 25,214 67,803 35,109 36,484 67,803
7 35,178 14,506 15,444 67,803 24,131 25,068 67,803 37,969 38,907 67,803
8 36,936 13,094 13,969 67,803 23,974 24,849 67,803 40,642 41,517 67,803
9 38,783 11,994 12,431 67,803 24,105 24,543 67,803 43,897 44,335 67,803
10 40,722 10,806 10,806 67,803 24,128 24,128 67,803 47,383 47,383 67,803
11 42,758 9,158 9,158 67,803 23,771 23,771 67,803 51,070 51,070 67,803
12 44,896 7,384 7,384 67,803 23,287 23,287 67,803 55,157 55,157 67,803
13 47,141 5,463 5,463 67,803 22,656 22,656 67,803 59,670 59,670 70,411
14 49,498 3,370 3,370 67,803 21,854 21,854 67,803 64,566 64,566 75,542
15 51,973 1,078 1,078 67,803 20,855 20,855 67,803 69,849 69,849 81,025
16 54,572 0 0 0 19,617 19,617 67,803 75,549 75,549 86,882
17 57,300 0 0 0 18,084 18,084 67,803 81,730 81,730 92,355
18 60,165 0 0 0 16,198 16,198 67,803 88,445 88,445 98,174
19 63,174 0 0 0 13,866 13,866 67,803 95,751 95,751 104,369
20 66,332 0 0 0 10,999 10,999 67,803 103,725 103,725 110,986
21 69,649 0 0 0 7,483 7,483 67,803 112,455 112,455 118,078
22 73,132 0 0 0 3,186 3,186 67,803 121,878 121,878 127,972
23 76,788 0 0 0 0 0 0 132,043 132,043 138,645
24 80,627 0 0 0 0 0 0 143,000 143,000 150,150
25 84,659 0 0 0 0 0 0 154,803 154,803 162,543
26 88,892 0 0 0 0 0 0 167,501 167,501 175,876
27 93,336 0 0 0 0 0 0 181,146 181,146 190,203
28 98,003 0 0 0 0 0 0 195,784 195,784 205,573
29 102,903 0 0 0 0 0 0 211,463 211,463 222,036
30 108,049 0 0 0 0 0 0 228,227 228,227 239,638
31 113,451 0 0 0 0 0 0 246,126 246,126 258,433
32 119,124 0 0 0 0 0 0 265,208 265,208 278,469
33 125,080 0 0 0 0 0 0 285,523 285,523 299,799
34 131,334 0 0 0 0 0 0 307,120 307,120 322,476
35 137,900 0 0 0 0 0 0 330,042 330,042 346,544
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
FUNDS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED OVER ANY PERIOD.
A-7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THE FULCRUM FUND-SM- NEXT GENERATION MODIFIED SINGLE PAYMENT
VARIABLE LIFE CONTRACT
$25,000 PAYMENT
MALE NON-TOBACCO USER AGE 65
FEMALE NON-TOBACCO USER AGE 65
FACE AMOUNT = $66,006
BASED ON CURRENT MONTHLY DEDUCTIONS
<TABLE>
<CAPTION>
PAYMENTS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
MADE PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST ------------------------------- ------------------------------- -------------------------------
CONTRACT AT 5% SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- ---------- ---------- --------- -------- ---------- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,554 23,992 66,006 23,037 25,474 66,006 24,519 26,957 66,006
2 27,563 20,616 22,991 66,006 23,553 25,928 66,006 26,666 29,041 66,006
3 28,941 20,092 22,029 66,006 24,444 26,382 66,006 29,334 31,272 66,006
4 30,388 19,232 21,107 66,006 24,969 26,844 66,006 31,801 33,676 66,006
5 31,907 18,784 20,221 66,006 25,877 27,315 66,006 34,831 36,268 66,006
6 33,502 17,997 19,372 66,006 26,419 27,794 66,006 37,687 39,062 66,006
7 35,178 17,619 18,557 66,006 27,345 28,283 66,006 41,135 42,073 66,006
8 36,936 16,900 17,775 66,006 27,905 28,780 66,006 44,444 45,319 66,006
9 38,783 16,587 17,024 66,006 28,850 29,287 66,006 48,380 48,817 66,006
10 40,722 16,305 16,305 66,006 29,803 29,803 66,006 52,609 52,609 66,006
11 42,758 15,724 15,724 66,006 30,543 30,543 66,006 57,105 57,105 66,006
12 44,896 15,163 15,163 66,006 31,301 31,301 66,006 61,986 61,986 66,006
13 47,141 14,620 14,620 66,006 32,079 32,079 66,006 67,307 67,307 70,672
14 49,498 14,097 14,097 66,006 32,877 32,877 66,006 73,064 73,064 76,717
15 51,973 13,590 13,590 66,006 33,696 33,696 66,006 79,308 79,308 83,274
16 54,572 13,101 13,101 66,006 34,535 34,535 66,006 86,087 86,087 90,391
17 57,300 12,629 12,629 66,006 35,397 35,397 66,006 93,444 93,444 98,116
18 60,165 12,172 12,172 66,006 36,281 36,281 66,006 101,430 101,430 106,502
19 63,174 11,731 11,731 66,006 37,187 37,187 66,006 110,099 110,099 115,604
20 66,332 11,305 11,305 66,006 38,117 38,117 66,006 119,509 119,509 125,485
21 69,649 10,894 10,894 66,006 39,071 39,071 66,006 129,723 129,723 136,209
22 73,132 10,496 10,496 66,006 40,050 40,050 66,006 140,810 140,810 147,851
23 76,788 10,111 10,111 66,006 41,054 41,054 66,006 152,845 152,845 160,487
24 80,627 9,740 9,740 66,006 42,084 42,084 66,006 165,908 165,908 174,203
25 84,659 9,381 9,381 66,006 43,140 43,140 66,006 180,088 180,088 189,092
26 88,892 9,034 9,034 66,006 44,224 44,224 66,006 195,479 195,479 205,253
27 93,336 8,700 8,700 66,006 45,335 45,335 66,006 212,186 212,186 220,674
28 98,003 8,376 8,376 66,006 46,476 46,476 66,006 230,321 230,321 237,231
29 102,903 8,063 8,063 66,006 47,646 47,646 66,006 250,006 250,006 255,006
30 108,049 7,761 7,761 66,006 48,846 48,846 66,006 271,373 271,373 274,087
31 113,451 7,469 7,469 66,006 50,077 50,077 66,006 295,156 295,156 295,156
32 119,124 7,187 7,187 66,006 51,370 51,370 66,006 321,023 321,023 321,023
33 125,080 6,915 6,915 66,006 52,697 52,697 66,006 349,158 349,158 349,158
34 131,334 6,651 6,651 66,006 54,058 54,058 66,006 379,758 379,758 379,758
35 137,900 6,397 6,397 66,006 55,454 55,454 66,006 413,040 413,040 413,040
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
FUNDS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED OVER ANY PERIOD.
A-8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THE FULCRUM FUND-SM- NEXT GENERATION MODIFIED SINGLE PAYMENT
VARIABLE LIFE CONTRACT
$25,000 PAYMENT
MALE NON-TOBACCO USER AGE 65
FEMALE NON-TOBACCO USER AGE 65
FACE AMOUNT = $66,006
BASED ON GUARANTEED MONTHLY DEDUCTIONS
<TABLE>
<CAPTION>
PAYMENTS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
MADE PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST ------------------------------- ------------------------------- -------------------------------
CONTRACT AT 5% SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
--------- ---------- ---------- --------- -------- ---------- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,554 23,992 66,006 23,037 25,474 66,006 24,519 26,957 66,006
2 27,563 19,944 22,991 66,006 23,553 25,928 66,006 26,666 29,041 66,006
3 28,941 19,039 21,989 66,006 24,417 26,355 66,006 29,323 31,260 66,006
4 30,388 17,754 20,976 66,006 24,872 26,747 66,006 31,748 33,623 66,006
5 31,907 16,824 19,940 66,006 25,659 27,096 66,006 34,702 36,139 66,006
6 33,502 15,496 18,865 66,006 26,016 27,391 66,006 37,445 38,820 66,006
7 35,178 14,506 17,734 66,006 26,678 27,616 66,006 40,743 41,680 66,006
8 36,936 13,094 16,520 66,006 26,877 27,752 66,006 43,860 44,735 66,006
9 38,783 11,994 15,191 66,006 27,337 27,775 66,006 47,568 48,005 66,006
10 40,722 10,806 13,710 66,006 27,655 27,655 66,006 51,535 51,535 66,006
11 42,758 9,158 12,124 66,006 27,558 27,558 66,006 55,768 55,768 66,006
12 44,896 7,384 10,281 66,006 27,257 27,257 66,006 60,427 60,427 66,006
13 47,141 5,463 8,126 66,006 26,710 26,710 66,006 65,592 65,592 68,871
14 49,498 3,370 5,590 66,006 25,864 25,864 66,006 71,202 71,202 74,762
15 51,973 1,078 2,582 66,006 24,649 24,649 66,006 77,264 77,264 81,127
16 54,572 0 0 0 22,971 22,971 66,006 83,806 83,806 87,997
17 57,300 0 0 0 20,697 20,697 66,006 90,858 90,858 95,401
18 60,165 0 0 0 17,644 17,644 66,006 98,446 98,446 103,368
19 63,174 0 0 0 13,563 13,563 66,006 106,598 106,598 111,927
20 66,332 0 0 0 8,119 8,119 66,006 115,339 115,339 121,105
21 69,649 0 0 0 849 849 66,006 124,694 124,694 130,929
22 73,132 0 0 0 0 0 0 134,689 134,689 141,424
23 76,788 0 0 0 0 0 0 145,348 145,348 152,615
24 80,627 0 0 0 0 0 0 156,690 156,690 164,525
25 84,659 0 0 0 0 0 0 168,736 168,736 177,172
26 88,892 0 0 0 0 0 0 181,496 181,496 190,570
27 93,336 0 0 0 0 0 0 195,457 195,457 203,275
28 98,003 0 0 0 0 0 0 210,833 210,833 217,158
29 102,903 0 0 0 0 0 0 227,891 227,891 232,449
30 108,049 0 0 0 0 0 0 246,983 246,983 249,453
31 113,451 0 0 0 0 0 0 268,629 268,629 268,629
32 119,124 0 0 0 0 0 0 292,172 292,172 292,172
33 125,080 0 0 0 0 0 0 317,778 317,778 317,778
34 131,334 0 0 0 0 0 0 345,628 345,628 345,628
35 137,900 0 0 0 0 0 0 375,918 375,918 375,918
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY. THEY ARE NOT
A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. INVESTMENT
RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. INVESTMENT RESULTS WILL DEPEND ON
INVESTMENT ALLOCATIONS AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE
FUNDS. THESE HYPOTHETICAL INVESTMENT RATES OF RETURN MAY NOT BE ACHIEVED FOR ANY
ONE YEAR OR SUSTAINED OVER ANY PERIOD.
A-9
<PAGE>
Part II
UNDERTAKING TO FILE REPORTS
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.
RULE 484 UNDERTAKING
Article VIII of Registrant's Bylaws provides: 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.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the 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, the 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 Act and will be governed by the final adjudication of
such issue.
RULE 6e-3(T) REPRESENTATIONS, DESCRIPTIONS AND UNDERTAKINGS
The Company hereby represents that the aggregate fees and charges under the
Contracts offered through this registration statement are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by Allmerica Financial Life Insurance and Annuity Company.
<PAGE>
CONTENTS OF THE REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of ____ pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484 under the Securities Act of 1933.
Representatives, descriptions and undertaking pursuant to Rule
6e-3(T)(b)(13)(iii)(F) under the Investment Company Act of 1940 (the "1940
Act").
The signatures.
<PAGE>
Written consents of the following persons:
1. Price Waterhouse LLP
2. Opinion of Counsel
3. Actuarial Consent
The following exhibits:
1. Exhibit 1
(Exhibits required by paragraph A of the instructions to Form N-8B-2)
(1) Certified copy of Resolutions of the Board of Directors of the
Company dated June 13, 1996 establishing the Fulcrum Variable
Life Separate Account is filed herewith.
(2) Not Applicable.
(3)(a) Form of Underwriting and Administrative Services
Agreement between the Company and Allmerica
Investments, Inc. Is filed herewith.
(4) Not Applicable.
(5) Policy Form is filed herewith.
(6)(a) Company's Articles of Incorporation are filed
herewith.
(b) Company's Restated ByLaws are filed herewith.
(7) Not Applicable.
(8)(a) Form of Participation Agreement with Allmerica Investment Trust
was previously filed by the Company on June 3, 1987 in
Registration Statement No. 33-14672, and is incorporated herein
by reference.
(B) Participation Agreement among The Palladian Trust, Western
Capital Financial Group, Inc. and the Company is filed herewith.
(9) Not Applicable.
(10) Application Form is filed herewith.
2. Form of Policy and Policy riders are included in Exhibit 1 above.
3. Opinion of Counsel.
4. Not Applicable.
5. Not Applicable.
6. Actuarial Consent.
<PAGE>
7. Procedures Memorandum pursuant to Rule 6e-3(T)(b)(12)(ii) under
the 1940 Act which includes conversion procedures pursuant to Rule
6e-3(T)(b)(13)(v)(B) is filed herewith.
8. Consent of Independent Accountants.
10. Wholesaling Agreement is filed herewith.
<PAGE>
Exhibit Table
Exhibit (1) Certified Copy of Resolutions of the Board of Directors of
the Company
Exhibit 1 (3) (a) Form of Underwriting and Administrative Service Agreement
Exhibit 1 (5) Policy Form
Exhibit 1(6) (a) Company's Articles of Incorporation
(b) Restated By-Laws
Exhibit 1(8) (a) Participation Agreement
Exhibit 1 (10) Application Form is filed herewith
Exhibit 3 Opinion of Counsel
Exhibit 6 Actuarial Consent
Exhibit 7 Procedures Memorandum
Exhibit 8 Consent of Independent Accountants
Exhibit 10 Wholesaling 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 1st day of November, 1996.
FULCRUM VARIABLE LIFE SEPARATE ACCOUNT OF
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
By /s/ Abigail M. Armstrong
---------------------------------------
Abigail M. Armstrong, Secretary
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ John F. O'Brien Director and Chairman of the Board
- ----------------------------------
John F. O'Brien
/s/ Bruce C. Anderson Director
- ----------------------------------
Bruce C. Anderson
/s/ Kruno Huitzingh Director, Vice President and
- ---------------------------------- Chief Information Officer
Kruno Huitzingh
/s/ John P. Kavanaugh Director and Vice President
- ----------------------------------
John P. Kavanaugh
/s/ John F. Kelly Director November 1, 1996
- ----------------------------------
John F. Kelly
/s/ James R. McAuliffe Director
- ----------------------------------
James R. McAuliffe
/s/ Edward J. Parry, III Vice President and Treasurer
- ---------------------------------- Chief Accounting Officer
Edward J. Parry, III
/s/ Richard M. Reilly Director, President and
- ---------------------------------- Chief Executive Officer
Richard M. Reilly
/s/ Larry C. Renfro Director
- ----------------------------------
Larry C. Renfro
/s/ Eric A. Simonsen Director, Vice President and
- ---------------------------------- Chief Financial Officer
Eric A. Simonsen
/s/ Phillip E. Soule Director
- ----------------------------------
Phillip E. Soule
</TABLE>
<PAGE>
First Allmerica Financial Life Insurance Company
I, Abigail M. Armstrong, Secretary and Counsel of First Allmerica Financial Life
Insurance Company ("Company"), do hereby certify and attest that the following
is a true copy of a vote of the Board of Directors of the Company on June 13,
1996, that said vote has not been amended or repealed and is in full force and
effect as of the date hereof.
Whereas, the Company may from time-to-time desire to issue variable annuity
contracts, variable life contracts, or other contracts ("Contracts"), which may
provide, among other things, that benefits or contractual payments shall vary,
in whole or in part, so as to reflect the investment results of a separate
account or accounts, or that benefits funded by a separate account shall be
payable in fixed amounts and the Contract values shall be guaranteed by the
Company as to principal amount, or that the performance of the separate account
shall be guaranteed as to principal and a stated rate of interest;
Now, therefore, it is voted:
That pursuant to the provisions of Section 132F and Section 132G of Chapter 175
of the Massachusetts General Laws, the appropriate officers of the Company are
hereby authorized to establish from time-to-time and to maintain one or more
separate accounts (collectively, "Separate Accounts") independent and apart from
the Company's general investment account for the purpose of providing for the
issuance by the Company of such Contracts as may be determined from time-to-
time;
That separate investment divisions ("Sub-Accounts") may be established within
each Separate Account to which net payments may be allocated in accordance with
the terms of the relevant Contracts, and that the appropriate officers of the
Company be and hereby are authorized to increase or decrease the number of Sub-
Accounts in a Separate Account, as may be deemed necessary or appropriate from
time-to-time;
That in accordance with the terms of the relevant Contracts, the portion of the
assets of each such Separate Account equal to the separate account reserves and
other contract liabilities shall not be chargeable with liabilities arising out
of any other business the Company may conduct;
That the income and gains and losses, whether or not realized, from assets
allocated to a Separate Account shall be credited to or charged against such
Separate Account without regard to other income, gains or losses of the Company
or any other Separate Account, and that the income and gains and losses, whether
or not realized, from assets allocated to each Sub-Account of a Separate Account
shall be credited to or charged against such Sub-Account without regard to other
income, gains or losses of the Company, any other Sub-Account or any other
Separate Account;
That the appropriate officers of the Company are authorized to determine
investment objectives and appropriate underwriting criteria, investment
management policies and other requirements necessary or desirable for the
operation and management of each of the Company's Separate Accounts and Sub-
Accounts thereof; provided, however, that if a Separate Account is registered
with the Securities and Exchange Commission as a unit investment trust, each
such Sub-Account thereof shall invest only in the shares of a single investment
company or a single series or portfolio of an investment company organized as a
series fund pursuant to the Investment Company Act of 1940;
That the appropriate officers of the Company be and they hereby are authorized
to deposit such amounts in a Separate Account and the Sub-Accounts thereof as
may be necessary or appropriate to facilitate the commencement of operations;
That the appropriate officers of the Company be and they hereby are authorized
to transfer funds from time-to-time between the Company's general account and
the Separate Accounts as deemed necessary or
<PAGE>
appropriate and consistent with the terms of the relevant Contracts;
That the appropriate officers of the Company be and they hereby are authorized
to change the name or designation of a Separate Account and Sub-Accounts thereof
to such other names or designations as they may deem necessary or appropriate;
That the appropriate officers of the Company, with such assistance from the
Company's auditors, legal counsel and independent consultants, or others as they
may require, are hereby severally authorized to take all appropriate action, if
in their discretion deemed necessary, to: (a) register the Separate Accounts
under the Investment Company Act of 1940, as amended; (b) register the relevant
Contracts in such amounts, which may be an indefinite amount, as the appropriate
officers of the Company shall from time-to-time deem appropriate under the
Securities Act of 1933; (c) to claim exemptions from registration of a Separate
Accounts and/or the relevant Contracts, if appropriate; and (d) take all other
actions which are necessary in connection with the offering of the Contracts for
sale and the operation of the Separate Accounts in order to comply with the
Investment Company Act of 1940, the Securities Exchange Act of 1934, the
Securities Act of 1933, and other applicable federal laws, including the filing
of any amendments to registration statements, any undertakings, any applications
for exemptions from the Investment Company Act of 1940 or other applicable
federal laws, and the filing of any documents necessary to claim or to maintain
such exemptions, as the appropriate officers of the Company shall deem necessary
or appropriate;
That the Secretary and Counsel is hereby appointed as agent for service under
any such registration statement and is duly authorized to receive communications
and notices from the Securities and Exchange Commission with respect thereto and
to exercise the powers given to such agent in the rules and regulations of the
Securities and Exchange Commission under the Securities Act of 1933, the
Securities Exchange Act of 1934, or the Investment Company Act of 1940;
That the appropriate officers of the Company are hereby authorized to establish
procedures under which the Company will institute procedures for providing
voting rights for owners of such Contracts with respect to securities owned by
the Separate Accounts;
That the appropriate officers of the Company are hereby authorized to execute
such agreement or agreements as deemed necessary and appropriate (i) with
Allmerica Investments, Inc., or other qualified entity under which Allmerica
Investments, Inc., or other such entity, will be appointed principal underwriter
and distributor for the Contracts, (ii) with one or more qualified banks or
other qualified entities to provide administrative and/or custodial services in
connection with the establishment and maintenance of the Separate Accounts and
the design, issuance and administration of the Contracts;
That, since it is anticipated that the Separate Accounts will invest in
securities, the appropriate officers of the Company are hereby authorized to
execute such agreement or agreements as may be necessary or appropriate to
enable such investments to be made;
That the appropriate officers of the Company, and each of them, are hereby
authorized to execute and deliver all such documents and papers and to do or
cause to be done all such acts and things as they may deem necessary or
desirable to carry out the foregoing votes and the intent and purposes thereof.
* * *
Attested to this 13th day of June, 1996.
/s/ Abigail M. Armstrong
------------------------------
Abigail M. Armstrong
<PAGE>
FORM OF
UNDERWRITING AND
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made this ____ day of ______________ between and among
Allmerica Financial Life Insurance and Annuity Company, a Delaware
corporation (the "Company"), its Separate Account Fulcrum Variable Life
Separate Account (the "Account"), a separate investment account of the
Company and registered investment company under the Investment Company Act of
1940 (the "1940 Act"), and Allmerica Investments, Inc., a Massachusetts
corporation (the "Distributor").
WITNESSETH:
WHEREAS, the Company and the Account will issue certain variable
insurance policies (the "contracts") which may be deemed to be securities
under the Securities Act of 1933 (the "1933 Act"), and the laws of some
states;
WHEREAS, the Distributor, an affiliate of the Company, is registered as
a broker-dealer with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934 (the "1934 Act") and is a member of the
National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, the parties desire to have the Distributor act as a principal
underwriter for the Account and assume full responsibility for the securities
activities of all "persons associated" (as that term is defined in
Section 3(a)(18) of the 1934 Act) with the Distributor and engaged directly or
indirectly in the variable insurance operation ("associated persons");
WHEREAS, the parties desire to have the Company perform certain
administrative services in connection with the sale of the contracts.
NOW, THEREFORE, in consideration of the covenants and mutual promises of
the parties made to each other, it is hereby covenanted and agreed as
follows:
1. The Distributor will act as the exclusive principal underwriter for the
Account and as such will assume full responsibility for the securities
activities of all its associated persons in connection with the sale of the
contracts. The Distributor will train the associated persons, use its best
efforts to prepare them to complete satisfactorily the applicable NASD and
state examinations so that they may be qualified, register the associated
persons as its registered representatives before they engage in the sale of
the contracts, and supervise and control them in the performance of such
activities. Notwithstanding anything in this Agreement to the contrary, the
Distributor and the Company may enter into sales agreements with independent
broker-dealers for the sale of the contracts. All such sales agreements
entered into by the Distributor
<PAGE>
and the Company with independent broker-dealers shall provide that each
independent broker-dealer will assume full responsibility for continued
compliance by itself and its associated persons with the NASD Rules of Fair
Practice and Federal and state securities laws.
2. The Distributor will assume full responsibility for the continued
compliance by itself and its associated persons with the NASD Rules of Fair
Practice and Federal and state securities laws, to the extent applicable in
connection with the sale of the contracts. The Distributor, directly or
through the Company as its agent, will make timely filings with the SEC,
NASD, and any other securities regulatory authorities of all reports and any
sales literature relating to the Account required by law to be filed by the
Distributor.
3. The Company will prepare and submit to the Account (a) all registration
statements and prospectuses (including amendments) and all reports required
by law to be filed by the Account with Federal and state securities
regulatory authorities, and (b) all notices, proxies, proxy statements, and
periodic reports that are to be transmitted to persons having voting rights
with respect to the Account.
4. The Company will, except as otherwise provided in this Agreement, bear the
cost of all services and expenses, including legal services and expenses,
filing fees, and other fees incurred in connection with (a) registering and
qualifying the Account and the contracts, and (b) preparing, printing, and
distributing all registration statements and prospectuses (including
amendments), contracts, notices, periodic reports, proxy solicitation
material, sales literature, and advertising filed or distributed in
connection with the sale of the contracts.
All cost associated with the variable insurance compliance function
including, but not limited to, fees and expenses associated with qualifying
and licensing associated persons with Federal and state regulatory
authorities and the NASD and with performing compliance-related
administrative services, shall be allocated to the Company. To the extent
that the Distributor incurs out-of-pocket expenses in connection with the
variable insurance compliance function, the Company shall reimburse the
Distributor for such expenses. To the extent that such costs are in
connection with services provided by employees of the Company, they shall
be charged to the Company. The determination and allocation of all such
costs shall be pursuant to the terms of the Company's Cost Policy, as
utilized in connection with the Company's respective Service Agreements
with the Company and the Distributor.
5. All purchase payments made under the contracts will be forwarded by or on
behalf of Contract Owners directly to the Company and shall become the
exclusive property of the Company. The Company agrees to pay all sales
<PAGE>
commissions and any other remuneration due in connection with the sale of
the contracts by associated persons of the Distributor and any independent
broker-dealers having a sales agreement with the Distributor and the
Company. The Distributor or the Company as agent for the Distributor shall
pay all other remuneration due any other person for activities relating to
the sale of the contracts. The Company shall reimburse the Distributor fully
and completely for all amounts paid by the Distributor to any person
pursuant to this Section.
6. The Company will, as the Distributor's agent, (a) maintain and preserve in
accordance with Rules 17a-3 and 17a-4 under the 1934 Act all books and
records required to be maintained by the Distributor in connection with the
offer and sale of the contracts being offered for sale pursuant to this
Agreement, which books and records shall remain the property of the
Distributor, and shall at all times be subject to inspection by the SEC in
accordance with Section 17(a) of the 1934 Act, and all other regulatory
bodies having jurisdiction, and (b) send a written confirmation for each
such transaction reflecting the facts of the transaction and showing that it
is being sent on behalf of the Distributor acting in the capacity of agent
for the Account, in conformance with the requirements of Rule 10b-10 of the
1934 Act.
7. Each party hereto shall advise the others promptly of (a) any action of
the SEC or any authorities of any state or territory of which it has
knowledge, affecting registration or qualification of the Account or the
contracts, or the right to offer the contracts for sale, and (b) the
happening of any event which makes untrue any statement, or which requires
the making of any change in the registration statement or prospectus in
order to make the statements therein not misleading.
8. The Company agrees to be responsible to the Account for all sales and
administrative expenses incurred in connection with the administration of
the contracts and the Account other than applicable taxes arising from
income and capital gains of the Account and any other taxes arising from
the existence and operation of the Account.
9. As compensation for services performed and expenses incurred under this
Agreement, the Company will receive the charges and deductions as provided
in each outstanding series of the Company's contracts. Distributor will
receive no compensation under this Agreement, except as provided in
Section 4.
10. Each party hereto agrees to furnish any other state insurance
commissioner or regulatory authority with jurisdiction over the contracts
with any information or reports in connection with services provided under
this Agreement which may be requested in order to ascertain whether the
variable
<PAGE>
insurance product operations of the Company are being conducted in a
manner consistent with applicable statutes, rules and regulations.
11. This Agreement shall upon execution become effective as of the date first
above written, and
(a) Unless otherwise terminated, this Agreement shall continue in effect
from year-to-year;
(b) This Agreement may be terminated by any party at any time upon giving
60 days' written notice to the other parties hereto; and
(c) This Agreement shall automatically terminate in the event of its
assignment.
12. This Agreement may be amended at any time by mutual consent of the
parties.
13. This Agreement shall be governed by and construed in accordance with the
laws of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
FULCRUM VARIABLE LIFE SEPARATE ACCOUNT OF
ALLMERICA FINANCIAL
LIFE INSURANCE AND ANNUITY COMPANY
Witness: /s/ Richard J. Baker By: /s/ Joseph W. MacDougall
---------------------------- ------------------------------------
V.P. Title: Vice President and Asst. Secretary
ALLMERICA FINANCIAL
LIFE INSURANCE AND ANNUITY COMPANY
Witness: /s/ Richard J. Baker By: /s/ Joseph W. MacDougall
---------------------------- ------------------------------------
V.P. Title: Vice President and Asst. Secretary
ALLMERICA INVESTMENTS, INC.
Witness: /s/ Abigail M. Armstrong By: /s/ Thomas P. Cunningham
---------------------------- ------------------------------------
Secretary and Counsel Title: Vice President &
Chief Financial Officer
and Controller
<PAGE>
EXHIBIT (5)(a)
PLEASE READ THIS CONTRACT CAREFULLY
THE DEATH BENEFIT AND CONTRACT VALUE, WHEN BASED ON THE INVESTMENT PERFORMANCE
OF THE VARIABLE ACCOUNT, MAY INCREASE OR DECREASE AND ARE NOT GUARANTEED AS TO A
FIXED DOLLAR AMOUNT. PLEASE REFER TO THE VARIABLE ACCOUNT AND DEATH BENEFIT
SECTIONS FOR ADDITIONAL INFORMATION. WE AGREE TO PAY THE BENEFITS OF THIS
CONTRACT IN ACCORDANCE WITH ITS TERMS.
RIGHT TO CANCEL
We want you to be satisfied with the contract you have purchased and we urge you
to examine it closely. If for any reason you are not satisfied, you may return
the contract to us or an authorized representative within 10 days after receipt
of the contract.
If you return the contract, it will be void from the Date of Issue, and you will
receive a refund equal to the total of:
1. the difference between any payments made, including fees or any other
charges, and the amounts allocated to the Variable Account;
2. the value of the amounts in the Variable Account on the date the
returned contract is received at our Principal Office; and
3. any fees or other charges imposed on amounts in the Variable Account.
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 and the owner. It is issued in consideration of the payment
shown on the Specifications Page.
/s/ Richard M. Reilly /s/ Abigail M. Armstrong
President Secretary
Modified Single Payment Variable Life Insurance Contract
Non-Participating
Form 1030-86
<PAGE>
SPECIFICATIONS
Contract Number: Specimen
<TABLE>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
<S> <C>
[First] Insured: John Doe [First] Insured's Sex: Male
[First] Insured's Age: 35 [First] Insured's Underwriting Risk Class: Non-Smoker
- ------------------------------------------------------------------------------------------------------------
[ Second Insured:] [ Second Insured's Sex:]
[ Second Insured's Age:] [Second Insured's Underwriting Risk Class:]
- ------------------------------------------------------------------------------------------------------------
Date of Issue: 08/20/96 Contract Plan: Modified Single
Payment Variable Life
Insurance Contract
Face Amount: $318,554 Monthly Processing Date: 1st of each month
Owner(s): John Doe Rider: Living Benefits Rider
Beneficiary at Issue: Mary Doe Rider Date of Issue: 08/20/96
- ------------------------------------------------------------------------------------------------------------
Payment: $50,000
Maximum Payment: The greater of [$50,000] or [$4,123.06] times the current contract year.
Final Payment Date: 08/20/60
Initial Payment Allocation:
</TABLE>
<TABLE>
<CAPTION>
VARIABLE SUB-ACCOUNTS MANAGED BY:
- --------------------- --------------
<S> <C>
[30% Value Portfolio [GAMCO Investors, Inc.
10% Growth Portfolio Stonehill Capital Management, Inc.
10% International Growth Portfolio Bee & Associates Incorporated
10% Global Strategic Income Portfolio Fischer, Francis, Trees & Watts, Inc.
10% Global Interactive/Telecomm Portfolio GAMCO Investors, Inc.
20% Money Market Fund] Allmerica Asset Management, Inc.]
FIXED ACCOUNT
-------------
10% Initial Interest Rate: [4%]
</TABLE>
Form 9030-96 3
<PAGE>
SPECIFICATIONS (continued)
[First] Insured: John Doe Contract Number: Specimen
[Second Insured:]
<TABLE>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C>
Minimum Additional Payment: [$10,000]
Minimum Fixed Account Interest Rate: [4% of value not subject to Outstanding Loan]
[4% of value securing Outstanding Loan - not preferred loan]
[5 1/2% of value securing Outstanding Loan - preferred loan]
Outstanding Loan Interest Rate [6%]
Maximum Loan Amount: [90% of Contract Value less the surrender charge]
Minimum Loan Amount: [$1,000]
Minimum Balance After Withdrawal: [$25,000]
Free Withdrawal Amount: [10% of Contract Value]
</TABLE>
<TABLE>
<CAPTION>
Fees and Deductions: CURRENT GUARANTEED
- ------------------- ------- ----------
<S> <C> <C>
Administration Charge: [0.40%] Annually (1) [0.40%] Annually (1)
Distribution Fee (Contract Years 1 - 10): [0.30%] Annually (1) [0.30%] Annually (1)
Federal & State Payment Tax Charge (Contract Years 1 - 10): [0.40%] Annually (1) [0.40%] Annually (1)
Insurance Protection Charge: [0.50%] Annually (1) See Page 5
Mortality & Expense Risk Charge: [0.90%] Annually (2) [0.90%] Annually (2)
Monthly Maintenance Fee: [$2.50] Monthly (3) [$2.50] Monthly (3)
</TABLE>
(1) This charge is deducted monthly from the Contract Value on a Pro Rata
basis. The monthly charge is equal to one-twelfth of this factor times the
Contract Value.
(2) This charge is deducted daily from the Variable Accounts on a pro rata
basis.
(3) This charge is deducted only when the Contract Value is less than
[$50,000.]
If you have any questions, need information about your coverage or require
assistance, please call our Principal Office. The number is [(508)855-1000].
Form 9030-96 4
<PAGE>
SPECIFICATIONS (continued)
[First] Insured: John Doe Contract Number: Specimen
[Second Insured:]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GUARANTEED MAXIMUM MONTHLY INSURANCE PROTECTION RATE TABLE
- --------------------------------------------------------------------------------
[Age] [Age]
[Age Younger Insurance Protection [Age Younger Insurance Protection
Insured] Rate Per $1,000 Insured] Rate Per $1,000
- --------------------------------------------------------------------------------
35 0.14 65 1.87
36 0.15 66 2.07
37 0.16 67 2.29
38 0.17 68 2.53
39 0.18 69 2.79
40 0.19 70 3.09
41 0.21 71 3.44
42 0.22 72 3.83
43 0.24 73 4.29
44 0.26 74 4.79
45 0.28 75 5.33
46 0.31 76 5.90
47 0.33 77 6.51
48 0.36 78 7.15
49 0.39 79 7.84
50 0.42 80 8.62
51 0.46 81 9.49
52 0.51 82 10.50
53 0.56 83 11.62
54 0.62 84 12.86
55 0.68 85 14.17
56 0.75 86 15.56
57 0.83 87 17.00
58 0.91 88 18.48
59 1.01 89 20.04
60 1.11 90 21.69
61 1.23 91 23.48
62 1.36 92 25.50
63 1.51 93 27.96
64 1.69 94 31.38
95 36.79
96 46.58
97 67.04
98 83.33
99 83.33
- --------------------------------------------------------------------------------
[Note: Single life, Male, Age 35, Non-smoker]
[Based on 1980 CSO Age Last Birthday Table]
Form 9030-96 5
<PAGE>
SPECIFICATIONS (continued)
[First] Insured: John Doe Contract Number: Specimen
[Second Insured:]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GUIDELINE MINIMUM SUM INSURED TABLE
- ------------------------------------------------------------------------
[Age] [Age]
[Younger Insured [Younger Insured
Age] Percentage Age] Percentage
- ------------------------------------------------------------------------
[thru 40 250% 60 130%
41 243% 61 128%
42 236% 62 126%
43 229% 63 124%
44 222% 64 122%
45 215% 65 120%
46 209% 66 119%
47 203% 67 118%
48 197% 68 117%
49 191% 69 116%
50 185% 70 115%
51 178% 71 113%
52 171% 72 111%
53 164% 73 109%
54 157% 74 107%
55 150% 75 thru 90 105%
56 146% 91 104%
57 142% 92 103%
58 138% 93 102%
59 134% 94 101%
95 and over 100%]
- ------------------------------------------------------------------------
SURRENDER CHARGE TABLE (PERCENT OF TOTAL PAYMENTS WITHDRAWN)
- ------------------------------------------------------------------------
Contract Contingent Deferred Unrecovered Total
Year* Sales Load Payment Tax Surrender Charge
- ------------------------------------------------------------------------
[ 1 7.5% 2.25% 9.75%
2 7.5% 2.00% 9.50%
3 6.0% 1.75% 7.75%
4 6.0% 1.25% 7.50%
5 4.5% 1.25% 5.75%
6 4.5% 1.00% 5.50%
7 3.0% 0.75% 3.75%
8 3.0% 0.50% 3.50%
9 1.5% 0.25% 1.75%
10 0% 0% 0%]
- ------------------------------------------------------------------------
* For a contract that lapses and is restored, see Reinstatement provisions.
Form 9030-96 6
<PAGE>
DEFINITIONS
AGE means how old the Insured is on his/her last
birthday measured on the Date of Issue and each
contract anniversary.
APPLICATION is the form you complete to apply for this
contract. It contains your payment, payment
allocation and other information that enable us to
prepare this contract. If a medical
questionnaire or other forms are required, they
become a part of the application. It is signed by
you and the Insured and becomes a part of this
contract.
ASSIGNEE is the person to whom you have transferred your
ownership of this contract.
COMPANY means Allmerica Financial Life Insurance and
Annuity Company, also referred to as we, our, and
us.
CONTRACT CHANGE means any change in the Underwriting Risk Class or
the addition or deletion of a Rider.
CONTRACT VALUE is the sum of your values in the Variable Account
and the Fixed Account.
DATE OF ISSUE is stated on the Specifications Page. Contract
months, years and anniversaries are measured from
this date.
EARNINGS means the amount by which the Contract Value
exceeds the sum of the payments made less any
payments that were previously considered
withdrawn. Earnings are calculated on each
Monthly Processing Date.
EVIDENCE OF INSURABILITY is the information, including medical information,
that we use to decide the Underwriting Risk Class
of the Insured.
FACE AMOUNT is the amount of insurance coverage. The Face
Amount is shown on the Specifications Page of the
contract. The death benefit is based on the Face
Amount; see the Death Benefit section.
FINAL PAYMENT DATE is the contract anniversary before the insured's
(younger insured's) 100th birthday. This date is
shown on the Specifications Page. The net death
benefit after this date will equal the Contract
Value minus any Outstanding Loan.
FIXED ACCOUNT is the part of the Company's General Account to
which all or a portion of a payment or transfer
may be allocated.
FUND is a separate investment series for investment by
a Sub-Account of the Variable Account.
GENERAL ACCOUNT is the assets of the Company that are not
allocated to a Separate Account.
INSURANCE PROTECTION AMOUNT is the death benefit minus the Contract Value.
INSURED is the person or persons covered as indicated on
the Specifications Page. If more than one person
is named, all provisions of the Contract that are
based on the death of the "Insured" will be based
on the date of death of the last survivor of the
persons named.
Form 1030-96 7
<PAGE>
MONTHLY INSURANCE is the amount of money that we deduct from the
PROTECTION CHARGE Contract Value each month to pay for the
insurance.
MONTHLY PROCESSING DATE is the date the monthly charges are deducted from
the Contract Value. This date is shown on the
Specifications Page. If the Company is not open
on this date, the Monthly Processing Date will be
the next business date.
OUTSTANDING LOAN means all unpaid contract loans plus interest due
or accrued on such loans.
PRINCIPAL OFFICE is the Company's office at 440 Lincoln Street,
Worcester, Massachusetts, 01653.
PRO RATA refers to an allocation among the Sub-Accounts of
the Variable Account and the Fixed Account. A Pro
Rata allocation will be in the same proportion
that the Contract Value in each Sub-Account of the
Variable Account and the Contract Value in the
Fixed Account (other than value that is subject to
Outstanding Loan) have to the total Contract
Value.
RIDER is an optional benefit that may be added to your
contract.
SEPARATE ACCOUNT is a segregated account established by the
Company. The assets are not commingled with the
Company's general assets.
SPECIFICATIONS PAGES contain information specific to your contract and
are located after the Table of Contents.
SUB-ACCOUNTS are subdivisions of the Variable Account investing
exclusively in the shares of one or more Funds.
UNDERWRITING RISK CLASS means the insurance risk classification that we
assign to the Insured based on the information in
the Application and any other Evidence of
Insurability we obtain. The Underwriting Risk
Class affects the Monthly Insurance Protection
Charge.
VARIABLE ACCOUNT is the Company's Separate Account, consisting of
Sub-Accounts that invest in the underlying Funds.
WRITTEN REQUEST is a request you make in written form that is
satisfactory to us and filed at our Principal
Office.
YOU OR YOUR means the owner of this contract as shown in the
Application or in the latest change filed with us.
Form 1030-96 8
<PAGE>
GENERAL TERMS
ENTIRE CONTRACT This contract, with a copy of the Application, and
any attached endorsements, is the entire contract
between you and us. The entire contract also
includes: a copy of any Application to change to
a better Underwriting Risk Class, any new
Specifications Pages, and any supplemental pages
issued.
We assume that the information you and the Insured
provide in any Application is accurate and
complete to the best of your knowledge. If we
contest this contract or deny a claim, we may use
only the information you and the Insured provided
in an Application. Our representatives are not
permitted to change this contract or extend the
time for making payments. Only our President, a
Vice President or Secretary may change the
provisions of this contract, and then only in
writing.
RIGHT TO CONTEST THE A contest is any action taken by us to cancel your
CONTRACT IS LIMITED insurance or deny a claim based on untrue or
incomplete answers in your Application. We cannot
contest the Face Amount of the contract if it has
been in force for two years from the Date of Issue
and the Insured is alive at the end of this two-
year period.
If the Underwriting Risk Class is changed at your
request, we cannot contest the change after it has
been in force for two years from its effective
date and the Insured is alive.
NON-PARTICIPATING No insurance dividends will be paid on this
contract.
ADJUSTMENT OF INTEREST We determine the Fixed Account interest rates used
RATES to calculate the Contract Value, subject to the
guarantees on the Specifications Page. Any
changes in these rates will be based on changes in
our future expectations for our investment
earnings.
SUICIDE EXCLUSION If an Insured, while sane or insane, commits
suicide within two years of the Date of Issue of
this contract, we will not pay a death benefit.
The beneficiary will receive only the total amount
of payments made to us less any Outstanding Loan
and amounts withdrawn.
NOTICE OF FIRST TO DIE In the case of second-to-die insurance, upon the
death of the Insured who dies first, the owner
agrees to mail to the Principal Office, within 90
days of the date of death, or as soon thereafter
as is reasonably possible, proof of death.
MISSTATEMENT OF AGE OR On the date of death of the insured, the death
SEX benefit will be reduced or increased if the Age or
sex is misstated. The adjustment will be based
upon the ratio of the Maximum Payment for this
contract to the Maximum Payment for the contract
issued at the correct Age or sex.
PROTECTION OF BENEFITS To the extent allowed by law, the benefits
provided by this contract cannot be reached by the
beneficiary's creditors. No beneficiary may
assign, transfer, anticipate, or encumber the
Contract Value or benefit unless you give them
this right.
PERIODIC REPORT We will mail a report to you at your last known
address at least once a year. This report will
provide the following information:
- Contract Values in each Sub-Account and in the
Fixed Account;
- the value of the contract if surrendered;
Form 1030-96 9
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- payments made by you and charges deducted by us
since the last report;
- the Outstanding Loan and any other information
required by law; and
- the death benefit.
Form 1030-96 10
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INFORMATION ABOUT YOU AND THE BENEFICIARY
OWNER The owner of the contract is shown on the
Specifications Page. The owner may change the
ownership of this contract without the consent of
any beneficiary. However, an irrevocable
beneficiary must agree to the change in writing.
ASSIGNMENT You may change the ownership of this contract by
sending us a Written Request. An absolute
assignment will transfer ownership of the contract
from you to another person called the Assignee.
You may also assign this contract as collateral to
a collateral Assignee. The limitations on your
ownership rights while a collateral assignment is
in effect are specified in the assignment.
An assignment will take place only when the
Written Request is recorded at our Principal
Office. When recorded, it will take effect on the
date it was signed by you. Any rights created by
the assignment will be subject to any payments
made or actions taken by us before the change is
recorded. We are not responsible for assuring
that any assignment or any Assignee's interest is
valid.
BENEFICIARY You name the beneficiary to receive the net death
benefit. The beneficiary's interest will be
affected by any assignment you make. If you
assign this contract as collateral, all or a
portion of the net death benefit will first be
paid to the collateral Assignee; any money left
over from the amount due the Assignee will go to
those otherwise entitled.
Your choice of beneficiary may be revocable or
irrevocable. You may change a revocable
beneficiary at any time by Written Request; but an
irrevocable beneficiary must agree to any change
in writing. You will also need an irrevocable
beneficiary's permission to exercise other rights
and options granted by this contract. Unless you
have asked otherwise, the beneficiary will be
revocable.
Any change of the beneficiary must be made while
the Insured is living. This change will take
place on the date the request is signed, even if
the Insured is not living on the day we receive it
at the Principal Office. Any rights created by
the change will be subject to any payments made,
or actions taken, before we receive the Written
Request.
If a beneficiary dies before the Insured, his or
her interest in this contract will pass to any
surviving beneficiaries in proportion to their
share in the net death benefit, unless you have
requested otherwise. If all beneficiaries die
before the Insured, the net death benefit will
pass to you or your estate.
COMMON DISASTER OPTION The common disaster option may be elected by
Written Request. If the common disaster option is
in effect on the date of the Insured's death, the
beneficiary must be alive a certain number of days
following the Insured's date of death in order to
be entitled to receive a benefit. Otherwise, we
will pay the net death benefit as though the
beneficiary died before the Insured. The number
of days that the beneficiary must live after the
Insured's death is selected by you when you elect
the common disaster option.
Form 1030-96 11
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WHAT YOU SHOULD KNOW ABOUT THE PAYMENTS
PAYMENTS This contract will not be in force until the
payment is made to us. The payment must be sent
to either our Principal Office or an authorized
representative. If you request it in writing, we
will send you a signed receipt after the payment
is received.
Additional payments under the contract will be
permitted prior to the Final Payment Date only
under the following circumstances:
1. An additional payment is required to keep the
contract in force subject to the Grace Period
provisions.
2. An additional payment is required for
reinstatement.
3. Additional payments may be made at any time
provided total payments do not exceed the
Maximum Payment shown on the Specifications
Page. The minimum amount of the additional
payment is indicated on the Specifications
Page. We may require Evidence of Insurability
if the additional payment would increase the
net death benefit. A payment received while
there is an Outstanding Loan on the contract
will be considered a loan repayment rather than
an additional payment.
GRACE PERIOD This contract will terminate 62 days after a
Monthly Processing Date on which the surrender
value is less than zero. The 62 day period is a
grace period. At least 61 days before the end of
the grace period, we will mail the owner and any
Assignee written notice of the amount of payment
that will be required to continue this contract in
force. The required payment will be no greater
than the amount required to pay the monthly
deductions for three months as of the day the
grace period began. If that payment is not paid
by the end of the grace period, the contract will
terminate without value.
The death benefit during the grace period will be
reduced by any overdue charges. The contract will
lapse if the amount shown in the notice remains
unpaid at the end of the grace period. The
contract terminates on the date of lapse.
REINSTATEMENT If this contract has lapsed or foreclosed for
failure to pay loan interest and has not been
surrendered, it may be restored (called
"reinstated" in this contract) within three years
after the date of default or foreclosure. We will
reinstate the contract on the Monthly Processing
Date following the day we receive all of the
following items:
- a written Application for reinstatement;
- Evidence of Insurability showing the Insured is
insurable according to our underwriting rules at
that time;
- a payment sufficient to cover the cost of all
contract charges that were due and unpaid during
the grace period;
- a payment large enough to keep the contract in
force for three months; and
- a payment or reinstatement of any loans against
the contract that existed at the end of the
grace period.
Form 1030-96 12
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Your reinstatement payment will be allocated to
the Fixed Account until we approve your
Application. At that time, we will transfer the
reinstatement payment, plus accrued interest, as
you directed in your last payment allocation
request.
The Contract Value on the reinstatement date is:
- the payment to reinstate the contract, including
the interest earned from the date we received
your payment; plus
- an amount equal to the Contract Value less any
Outstanding Loan on the default date; less
- the monthly deductions due on the reinstatement
date.
For the purpose of measuring the surrender charge
period, the contract will be reinstated as of the
date of default. The surrender charge on the
reinstatement date is the charge that was in
effect on the date of default.
Form 1030-96 13
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WHAT YOU SHOULD KNOW ABOUT YOUR CONTRACT VALUE
Your Contract Value is the sum of the Variable
Account value and the Fixed Account value.
ALLOCATION OF INITIAL If you make a payment with your Application or at
PAYMENTS any time before your right to examine the contract
expires, we may put that payment into the Money
Market Fund Sub-Account on the date it is received
at our Principal Office or the Date of Issue, if
later. We will transfer the Contract Value as you
directed in your Application, or by later request,
no later than the expiration of the period during
which you may exercise your right to cancel the
contract.
MONTHLY DEDUCTION Beginning on the date this contract is issued and
on every Monthly Processing Date until the Final
Payment Date, we will deduct the following monthly
charges Pro Rata from the Contract Value:
- the Administration Charge;
- the Distribution Fee;
- the Federal & State Payment Tax Charge;
- the Insurance Protection Charge; and
- the Monthly Maintenance Fee.
These amounts are shown on the Specifications
Page.
Charges allocated to the Fixed Account will be
deducted on a last-in, first-out basis. This
means that we use the most recent payments to pay
the fees.
ADMINISTRATION CHARGE The Administration Charge compensates us for the
cost of providing administrative services
attributable to this Contract.
DISTRIBUTION FEE The Distribution Fee compensates us for
distribution expenses.
FEDERAL & STATE PAYMENT This charge compensates us for federal, state and
TAX CHARGE local taxes we must pay.
INSURANCE PROTECTION The Insurance Protection Charge compensates us for
CHARGE the cost of providing a death benefit in excess of
the Contract Value. This charge will not exceed
the guaranteed maximum Insurance Protection
Charge. The guaranteed maximum Insurance
Protection Charge for any contract month is equal
to (a) times (b), where;
(a) is the rate shown in the Guaranteed Maximum
Monthly Insurance Protection Table shown on
the Specifications Page, and
(b) is the Insurance Protection Amount.
The insurance protection rates actually charged
will usually be lower than, and never will be
higher than, the guaranteed rates. We may change
the monthly insurance protection rate from time to
time based on our expectations as to future
experience for mortality, expenses, taxes, or
persistency. Any change in insurance protection
rates will apply to all individuals in the same
Underwriting Risk Class as the Insured. We will
review the actual insurance protection rates for
this contract
Form 1030-96 14
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whenever we change these rates for new contracts.
In any event, rates will be reviewed no more often
than once each year, but not less than once in a
five-year period.
MONTHLY MAINTENANCE The Monthly Maintenance Fee shown on the
FEE Specifications Page will be deducted on each
Monthly Processing Date.
Form 1030-96 15
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WHAT YOU SHOULD KNOW ABOUT THE VARIABLE ACCOUNT
VARIABLE ACCOUNT The value of your contract will vary if it is
funded through investments in the Sub-Accounts of
the Variable Account. This account is separate
from our Fixed Account. We have exclusive and
absolute ownership and control of all assets,
including those in the Variable Account. However,
the portion of assets in the Variable Account
equal to the reserves and liabilities of the
contracts that are supported by this account will
not be charged with liabilities that arise out of
any other business we conduct.
This account, established to support variable life
insurance contracts, is registered with the
Securities and Exchange Commission (SEC) as a unit
investment trust under the Investment Company Act
of 1940. It is also governed by the laws of the
State of Delaware.
This account has several Sub-Accounts. Each Sub-
Account invests its assets in a separate series of
a registered investment company (called a "Fund").
We reserve the right, when the law allows, to
change the name of the Variable Account or any of
its Sub-Accounts. A list of the available Sub-
Accounts in which you may choose to invest is on
the Application.
VARIABLE ACCOUNT The portion of the payment you make to us which is
CONTRACT VALUE not allocated to the Fixed Account will be
allocated to the Money Market Fund Sub-Account on
the date we receive the payment or the Date of
Issue, if it occurs after the date we receive the
payment. This value will be transferred to the
Sub-Accounts in accordance with your payment
allocation no later than the expiration of the
period during which you may exercise your right to
cancel the contract. Payments made thereafter
that are allocated to the Sub-Accounts will
purchase additional units of the Sub-Accounts.
The number of units purchased in each Sub-Account
is equal to the portion of the payment allocated
to the Sub-Account, divided by the value of the
applicable unit as of the valuation date the
payment is received at our Principal Office, or on
the valuation date that value is transferred to
the Sub-Account from another Sub-Account or the
Fixed Account.
The number of units will remain fixed unless (1)
changed by a subsequent split of unit value, or
(2) reduced because of a transfer, contract loan,
partial withdrawal, partial withdrawal transaction
charge, monthly deductions, surrender or surrender
charge allocated to the Sub-Account. Any
transaction described in (2) will result in the
cancellation of an appropriate number of units.
On each valuation date, we will value the assets
of each Sub-Account where activity has occurred.
The Contract Value in a Sub-Account at any time is
equal to the number of units this contract then
has in that Sub-Account multiplied by the Sub-
Account's unit value. The value of a unit for any
Sub-Account for any valuation period is determined
by multiplying that Sub-Account's unit value for
the immediately preceding valuation period by the
net investment factor for the valuation period for
which the unit value is being calculated. The
unit value will reflect the investment advisory
fee and other expenses incurred by the registered
investment companies.
NET INVESTMENT FACTOR This measures the investment performance of a Sub-
Account during the valuation period that has just
ended. The net investment factor is the result of
(a) plus (b), divided by (c), minus (d) where:
(a) is the net asset value per share of a Fund
share held in the Sub-Account determined at
the end of the current valuation period, plus
Form 1030-96 16
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(b) is the per share amount of any dividend or
capital gain distributions made by the Fund
on shares held in the Sub-Account if the "ex-
dividend " date occurs during the current
valuation period.
(c) is the net asset value per share of a Fund
share held in the Sub-Account determined as
of the end of the immediately preceding
valuation period.
(d) is a charge for mortality and expense risks
in the valuation period. The current
mortality and expense risk charge is shown on
the Specifications Page. This charge may be
increased or decreased, but will never exceed
the maximum mortality and expense risk charge
shown on the Specifications Page. Expense
and mortality results may not adversely
affect this maximum charge.
Since the net investment factor may be more or
less than one, the unit value may increase or
decrease. You bear the investment risk. We
reserve the right, subject to any required
regulatory approvals, to change the method we use
to determine the net investment factor.
VALUATION DATES AND A valuation date is each day that the New York
PERIODS Stock Exchange (NYSE) is open for business and any
other day that there is enough trading in the
Variable Account's underlying portfolio securities
to materially affect the value of the Variable
Account. A valuation period is the period between
valuation dates.
ADDITION, DELETION OR We may not change the investment policy of the
SUBSTITUTION OF Variable Account without the approval of the
INVESTMENTS Insurance Commissioner of Delaware. This approval
process is on file with the Commissioner of your
state.
We reserve the right, subject to compliance with
applicable law, to add, delete, or substitute the
shares of a Fund that are held by the Variable
Account or that the Variable Account may purchase.
We also reserve the right to eliminate the shares
of any Fund if they are no longer available for
investment, or if we believe investing more in any
Fund is no longer appropriate for the purposes of
the Variable Account.
We will notify you before we substitute any of
your shares in the Variable Account. This will
not, however, prevent the Variable Account from
buying other shares of underlying securities for
other series or classes of policies, or from
permitting a conversion between series or classes
of policies or contracts when requested by the
contract owner.
We reserve the right to establish other Sub-
Accounts, and to make them available to any class
or series of policies as we think appropriate.
Each new Sub-Account would invest in a new
investment company or in shares of another
open-end investment company. We also reserve the
right to eliminate or combine existing
Sub-Accounts of the Variable Account and to
transfer the assets between Sub-Accounts, when
allowed by law.
If we make any substitutions or changes that we
believe are necessary or appropriate, we may make
changes in this contract by written notice to
reflect the substitution or change. If we think
it is in the best interests of our contract
owners, we may operate the Variable Account as a
management company under the Investment Company
Act of 1940, or we may de-register it under that
Act if registration is no longer required. We may
also combine it with other Separate Accounts.
Form 1030-96 17
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FEDERAL TAXES If we must pay taxes on the Variable Account, we
will charge you for that tax. Although the
Variable Account is currently not taxable, we
reserve the right to charge for taxes if it
becomes taxable.
SPLITTING OF UNITS We reserve the right to split the value of a unit,
to either increase or decrease the number of
units. Any splitting of units will have no
material effect on contract benefits.
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WHAT YOU SHOULD KNOW ABOUT THE FIXED ACCOUNT
FIXED ACCOUNT The Fixed Account is a part of our General
Account. The General Account consists of all
assets owned by us, other than those in the
Variable Account and other Separate Accounts.
Except as limited by law, we have sole control
over the investment of these General Account
assets. You do not share directly in the
investment experience of the General Account,
but are allowed to allocate and transfer funds
into the Fixed Account.
FIXED ACCOUNT INTEREST The interest rate credited to Contract Value in
RATES the Fixed Account is set by us. We will review
this interest rate from time to time, at least
once a year. The following guarantees apply to
money in the Fixed Account:
- The interest rate in effect on the Date of Issue
is guaranteed until the next contract
anniversary, unless you borrow money from that
Contract Value.
- The interest rate in effect on the day funds are
transferred from a Sub-Account of the Variable
Account to the Fixed Account is guaranteed until
the next contract anniversary, unless you borrow
from that Contract Value.
- The interest rate in effect on a contract
anniversary is guaranteed for one year for those
Contract Values in the Fixed Account on the
contract anniversary as long as those values
remain in the Fixed Account and are not
borrowed.
- The interest rate(s) we use for that portion of
the Contract Value that equals the Outstanding
Loan will be at least the minimum rates shown on
the Specifications Page. One of the rates shown
is the Preferred Loan Rate which applies only to
the portion of the Outstanding Loan that is
secured by Earnings.
FIXED ACCOUNT CONTRACT On each Monthly Processing Date, the Contract
VALUE Value of the Fixed Account is equal to:
- the Contract Value in this account on the
preceding Monthly Processing Date increased by
one month's interest, plus
- payments received since the last Monthly
Processing Date that are allocated to the Fixed
Account plus the interest accrued from the date
the payments are received by us, plus
- Variable Account Contract Value transferred to
the Fixed Account from any Sub-Accounts since
the preceding Monthly Processing Date, increased
by interest from the date the Contract Value is
transferred, minus
- Contract Value transferred from the Fixed
Account to a Sub-Account since the preceding
Monthly Processing Date and interest accrued on
these transfers from the transfer date to the
Monthly Processing Date, minus
- partial withdrawals from the Fixed Account,
partial withdrawal transaction charges and
surrender charges since the last Monthly
Processing Date, interest accrued on these
withdrawals, and charges from the withdrawal
date to the Monthly Processing Date, minus
- the portion of the Monthly Deductions allocated
to the Contract Value in the Fixed Account.
19
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During any contract month the Fixed Account
Contract Value will be calculated on a consistent
basis.
BASIS OF VALUE OF THE We base the minimum surrender value in the Fixed
FIXED ACCOUNT Account on the minimum Fixed Account interest
rates and mortality table shown on the
Specifications Page. Actual Contract Values are
based on interest and insurance protection rates
that we set. We have filed a detailed description
of the way we determine this value with the State
Insurance Department. All values equal or exceed
the minimums required by law in the state in which
this contract is delivered.
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WHAT YOU SHOULD KNOW ABOUT TRANSFERS
While the contract is in force, you may transfer
amounts between the Fixed Account and the Sub-
Accounts or among Sub-Accounts on request.
You may transfer, without charge, all of the
Contract Value in the Variable Account to the
Fixed Account once during the first 24 months
after the contract is issued in order to convert
to a fixed-only product. If you do so, future
payments will be allocated to the Fixed Account
unless you specify otherwise. All other transfers
are subject to the following rules and will be
permitted with our approval.
We will determine the minimum and maximum amounts
that may be transferred according to the rules
that are in effect at the time of the transfer.
We also reserve the right to limit the number of
transfers that can be made in each contract year
and set other reasonable rules controlling
transfers.
If a transfer would reduce the Contract Value in a
Sub-Account to less than the current minimum
balance required for such accounts, we reserve the
right to include the remaining value in the amount
transferred.
You will not be charged for the first twelve
transfers in a contract year, but a transfer
charge of up to $25 may be made on each additional
transfer. Any transfer charge will be deducted
from the amount that is transferred. There is no
charge for transfers that result from a contract
loan or repayment of a loan.
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WHAT YOU SHOULD KNOW ABOUT BORROWING FROM YOUR
CONTRACT
To borrow from this contract, the only collateral
you will need is the contract itself.
AMOUNT YOU MAY BORROW The maximum loan amount is 90% of the Contract
Value less the surrender charge. You may borrow
an amount subject to the minimum shown on the
Specifications Page, up to the maximum loan amount
minus any Outstanding Loan.
If you do not specify from which accounts you want
to borrow, we will allocate the loan Pro Rata. In
order to secure the Outstanding Loan, we will
transfer the Contract Value in each Sub-Account
equal to the contract loan allocated to each Sub-
Account to the Fixed Account.
LOAN INTEREST You will pay interest on your loan at an annual
rate indicated on the Specifications Page.
Interest accrues daily and is payable at the end
of each contract year. Any interest that is not
paid on time will be added to the loan principal
and bear interest at the same rate. If this makes
the principal higher than the Contract Value in
the Fixed Account, we will offset this shortfall
by transferring funds from the Sub-Accounts to the
Fixed Account. We will allocate the transferred
amount among the Sub-Accounts in the same
proportion that the value in each Sub-Account has
to the total value in all of them.
REPAYING THE You may repay the Outstanding Loan at any time
OUTSTANDING LOAN before this contract lapses. When you repay it,
we will transfer the Contract Value that is
securing the loan in the Fixed Account to the
various Sub-Accounts and increase the value in
them. You may tell us how to allocate
repayments. Otherwise, we may allocate them
according to the most recent payment allocation
choices you have made. Loan repayments made to
the Variable Account cannot be higher than the
amounts you transferred to secure the
Outstanding Loan.
FORECLOSURE If at any time the amount of the Outstanding
Loan is higher than the Contract Value minus
the surrender charge, we will terminate the
contract. We will mail a notice of this
termination to the last known address of you
and any Assignee. If the excess Outstanding
Loan is not paid within 62 days after this
notice is mailed, the contract will terminate
with no value. You may reinstate this contract
according to the Reinstatement provision.
22
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WHAT YOU SHOULD KNOW ABOUT SURRENDERS AND PARTIAL
WITHDRAWALS
SURRENDER You may cancel this contract and receive its
surrender value as long as the Insured is living
on the date we receive your Written Request at our
Principal Office. The contract will be canceled
on that day. You may choose to receive the
surrender value in a lump sum or under a benefit
option.
SURRENDER VALUE The surrender value equals the Contract Value
minus the Outstanding Loan and surrender charge.
You will find the surrender charge on the
Specifications Page.
PARTIAL WITHDRAWALS You may withdraw part of the surrender value on
Written Request. Each withdrawal must be at least
$1,000. We will deduct a 2% withdrawal
transaction charge (maximum $25) from the Contract
Value each time you make a partial withdrawal.
We will not permit a partial withdrawal if it
reduces the Contract Value amount to less than the
minimum amount shown on the Specifications Page.
The Face Amount will be reduced proportionately
based on the ratio of the amount of the partial
withdrawal and charges to the Contract Value on
the date of withdrawal. The Contract Value will
be reduced by the amount of the partial
withdrawal, the partial withdrawal transaction
charge and any applicable surrender charges.
If you do not allocate a partial withdrawal and
its charges between the Fixed Account and each
Sub-Account, we will automatically allocate them
Pro Rata.
FREE WITHDRAWAL AMOUNT The free withdrawal amount will not be subject to
the surrender charge as described on the
Specifications Page. This amount equals (a) minus
(b), where:
(a) is the free withdrawal amount shown on the
Specifications Page, and
(b) is the total of the withdrawals (or portions
of them) made in the same contract year that
were exempt from the surrender charge.
The free withdrawal amount is first deducted from
Earnings. Withdrawals in excess of the free
withdrawal amount are deducted from payments not
previously considered withdrawn on a last-in,
first-out basis. Surrender charges applicable to
the excess withdrawal are described on the
Specifications Page.
POSTPONEMENT OF We may postpone any transfer from the Variable
PAYMENT Account, or payment of any amount payable on:
- surrender
- partial withdrawal
- transfer
- contract loan
- death of the Insured
The postponement will continue during any period
when:
- trading on the New York Stock Exchange is
restricted as determined by the Securities and
Exchange Commission, or the New York Stock
Exchange is closed for days other than weekends
and holidays, or
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- the Securities and Exchange Commission by order
has permitted such suspension, or
- the Securities and Exchange Commission has
determined that such an emergency exists that
disposal of portfolio securities or valuation of
assets is not reasonably practical.
We also may postpone any transfer from the Fixed
Account or payment of any portion of the amount
payable on a surrender, partial withdrawal or
contract loan from the Fixed Account for not more
than six months from the day we receive your
Written Request and your contract, if it is
required. If we postpone those payments for 30
days or more, the amount postponed will earn
interest during that period of not less than 3%
per year or such higher rate as required by law.
We will not postpone payments to make payments on
our policies.
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WHAT YOU SHOULD KNOW ABOUT THE DEATH BENEFIT
NET DEATH BENEFIT If the Insured dies before the Final Payment Date,
we will pay the net death benefit upon receipt at
the Principal Office of proof of the Insured's
death. The net death benefit is the Face Amount
at the time of death or the guideline minimum sum
insured, if greater, reduced by any Outstanding
Loan, rider charges and monthly deductions due and
unpaid through the contract month in which the
Insured dies, as well as any partial withdrawals
and surrender charges. We will pay interest from
the date of death to the date the net death
benefit is paid. If the Insured dies after the
Final benefit Payment Date, we will pay the
Contract Value minus any Outstanding Loans. We
will pay interest from the date we receive the
death certificate. If you choose a lump sum
payment, the interest rate will be at least 3% a
year, or the minimum rate set by law, if greater.
REQUIRED MINIMUM In order to qualify as "life insurance" under the
AMOUNT OF DEATH BENEFIT federal tax law, this contract must provide a
minimum death benefit. This is called the
"guideline minimum sum insured" in the tax code.
This is calculated by multiplying the Contract
Value by the percentages shown on the
Specifications Page. The guideline minimum sum
insured varies by Age. The amounts shown in the
Table are determined according to federal tax law,
and will be adjusted according to any changes in
that law.
Form 1030-96 25
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WHAT YOU SHOULD KNOW ABOUT THE BENEFIT OPTIONS
BENEFIT OPTIONS You may choose one of the following options for
receiving the surrender value or the net death
benefit. We will give the payee a certificate
describing the benefit option you selected. If you
make no choice, we will pay the benefits in a
single, lump sum.
We will pay all benefits from the Fixed Account.
Benefits may not be allocated to the Variable
Account. The amounts payable under these options,
for each $1,000 applied, will be:
(a) the rate per $1,000 of benefit based on our non-
guaranteed current benefit option rates for this
class of contracts, or
(b) the rate in this contract for the applicable
benefit option, whichever is greater.
If you choose a benefit option, the beneficiary
may, when filing a proof of claim, pay us any
amount that otherwise would be deducted from the
proceeds.
OPTION A: BENEFITS FOR A We will make equal payments for any selected number
SPECIFIED NUMBER OF of years up to 30 years. These payments may be
YEARS (TABLE A) made annually, semi-annually, quarterly or monthly,
whichever you choose.
OPTION B: LIFETIME Benefits are based on the age of the person who
MONTHLY BENEFIT (TABLE receives the money (called the payee) on the date
B) the first payment will be made. You may choose one
of the three following options to specify when
benefits will cease:
- when the payee dies with no further benefits due
(Life Annuity);
- when the payee dies but not before the total
benefit payments made by us equals the amount
applied under this option (Life Annuity with
Installment Refund); or
- when the payee dies but not before 10 years have
elapsed from the date of the first payment (Life
Annuity with Payments Guaranteed for 10 years).
OPTION C: INTEREST We will pay interest at a rate we determine
BENEFITS each year. It will not be less than 3% per
year. We will make payments annually,
semi-annually, quarterly, or monthly, whichever
is preferred. These benefits will stop when
the amount left has been withdrawn. If the
payee dies, any unpaid balance plus accrued
interest will be paid in a lump sum.
OPTION D: BENEFITS FOR A
SPECIFIED AMOUNT Interest will be credited to the unpaid balance and
we will make payments until the unpaid balance is
gone. We will credit interest at a rate we
determine each year, but not less than 3%. We will
make payments annually, semi-annually, quarterly,
or monthly, whichever is preferred. The benefit
level chosen must provide for an annual benefit of
at least 8% of the amount applied.
OPTION E: LIFETIME We will pay a benefit jointly to two payees during
MONTHLY BENEFITS FOR TWO their joint lifetime.
PAYEES (TABLE E)
After one payee dies, the benefits to the survivor
will be:
- the same as the original amount, or
- in an amount equal to 2/3 of the original amount.
Form 1030-96 26
<PAGE>
Benefits are based on the payees' ages on the date
the first payment is due. Benefits will end when
the second payee dies.
SELECTING BENEFIT The amount we apply under any one option for any
OPTIONS one payee must be at least $5,000, and the periodic
payment for any one payee must be at least $50.
You may change any option you select before the net
death benefit is paid, subject to the Owner and
Beneficiary provisions. If you make no selection,
the beneficiary may choose an option when the
benefits become payable.
If the amount of monthly income benefits under
Option B for the age of the payee is the same for
different periods certain, the payee will be
entitled to the longest period certain for the
payee's age.
You may give the beneficiary the right to change
from Option C or D to any other option at any time.
If Option C or D is chosen by the payee when this
contract becomes a claim, the payee may reserve the
right to change to any other option. The payee who
elects to change options must be the payee under
the option selected.
ADDITIONAL DEPOSITS An additional deposit may be added to any proceeds
when they are applied under Option B and E. We
reserve the right to limit the amount of any
additional deposit. We may levy a charge of no more
than 3% on any additional deposits.
RIGHTS AND LIMITATIONS A payee has no right to assign any amount payable
under any option, nor to demand a lump sum benefit
in place of any amount payable under Options B or
E. A payee will have the right to receive a lump
sum in place of installments under Option A. The
payee must provide us with a Written Request to
reserve this right. If the right to receive a lump
sum is exercised, we will determine the lump sum
benefit at the same interest rates used to
calculate the installments. The amount left under
Option C and any unpaid balance under Option D, may
be withdrawn only as noted in the Written Request
selecting the option.
A corporate or fiduciary payee may select only
Option A, C or D, subject to our approval.
BENEFIT DATES The first payment under any option, except Option
C, will be due on the date this contract matures,
by death or otherwise, unless another date is
designated. Benefits under Option C begin at the
end of the first benefit period.
The last payment under any option will be made as
stated in the option's description. However, if a
payee under Options B or E dies before the due date
of the second monthly payment, the amount applied,
minus the first monthly payment, will be paid in a
lump sum or under any option other than Option E.
This payment will be made to the surviving payee
under Option E or the succeeding payee under Option
B.
BENEFIT RATES The Benefit Option Tables show benefit amounts for
Option A, B and E. If you choose one of these
options, either within five years of the date of
surrender or the date the proceeds are otherwise
payable, we will apply either the benefit rates
listed in the Tables, or the rates we use on the
date the proceeds are paid, whichever is more
favorable. Benefits that begin more than five
years after that date, or as a result of additional
deposits, will be based on the rates we use on the
date the first benefit is due.
Form 1030-96 27
<PAGE>
BENEFIT OPTIONS
TABLE A
BENEFITS FOR SPECIFIED NUMBER OF YEARS
PAYMENT FOR EACH $1,000 OF CONTRACT VALUE APPLIED
[These tables are based on an annual interest rate of 3 1/2%.]
- --------------------------------------------------------------
- --------------------------------------------------------------
SEMI- QUAR-
YEARS ANNUAL ANNUAL TERLY MONTHLY
- --------------------------------------------------------------
[1 1000.00 504.30 253.23 84.65
2 508.60 256.49 128.79 43.05
3 344.86 173.91 87.33 29.19
4 263.04 132.65 66.61 22.27
5 213.99 107.92 54.19 18.12
6 181.32 91.44 43.92 15.35
7 158.01 79.69 40.01 13.38
8 140.56 70.88 35.59 11.90
9 127.00 64.05 32.16 10.75
10 116.18 58.59 29.42 9.83
11 107.34 54.13 27.18 9.09
12 99.98 50.42 25.32 8.46
13 93.78 47.29 23.75 7.94
14 88.47 44.62 22.40 7.49
15 83.89 42.31 21.24 7.10
16 79.89 40.29 20.23 6.76
17 76.37 38.51 19.34 6.47
18 73.25 36.94 18.55 6.20
19 70.47 35.54 17.85 5.97
20 67.98 34.28 17.22 5.75
21 65.74 33.15 16.65 5.56
22 63.70 32.13 16.13 5.39
23 61.85 31.19 15.66 5.24
24 60.17 30.34 15.24 5.09
25 58.62 29.56 14.85 4.96
26 57.20 28.85 14.49 4.84
27 55.90 28.19 14.15 4.73
28 54.69 27.58 13.85 4.63
29 53.57 27.02 13.57 4.53
30 52.53 26.49 13.3 4.45]
- --------------------------------------------------------------
- --------------------------------------------------------------
Form 1030-96 28
<PAGE>
BENEFIT OPTIONS (CONTINUED)
LIFE INCOME OPTION TABLES
MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF CONTRACT VALUE APPLIED
TABLE B
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AGE LIFE ANNUITY WITH LIFE LIFE ANNUITY
NEAREST PAYMENTS GUARANTEED ANNUITY WITH INSTALLMENT
BIRTHDAY FOR 10 YEARS REFUND
- -------------------------------------------------------------------------------
[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 using a blend reflecting 40% of the male rate and 60%
of the female rate. ]
Form 1030-96 29
<PAGE>
BENEFIT OPTIONS (CONTINUED)
MONTHLY ANNUITY BENEFIT PAYMENT
FOR EACH $1,000 OF CONTRACT VALUE APPLIED
<TABLE>
<CAPTION>
TABLE E1 TABLE E2
- ----------------------------------------------------------------- ------------------------------------------------------
- ----------------------------------------------------------------- ------------------------------------------------------
Joint and Survivor Life Annuity 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> <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 ---- 75
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 using a proportional blend of
50% male and 50% female.]
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
NON-PARTICIPATING
Form 1030-96 30
<PAGE>
Exhibit (1) 6(a)
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>
Exhibit (1) 6(b)
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.
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<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.
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<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.
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<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>
PARTICIPATION AGREEMENT
Among
THE PALLADIAN TRUST
WESTERN CAPITAL FINANCIAL GROUP, INC.
and
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THIS AGREEMENT, made and entered into as of this 24th day of October, 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, Inc., the underwriter of the Fund
(hereinafter the "Distributor"), a California 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. 811-08278) under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the Fund shares (File No. 33- 73882) 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 an
investment adviser under the Investment Advisers Act of 1940 and any applicable
state securities laws and serves 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 October 12, 1995 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
4
<PAGE>
Massachusetts.
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.
5
<PAGE>
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 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 least 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 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.
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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 and the Distributor prior to its use. No such
material shall be used, except with the prior written permission of the Fund and
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 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
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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.
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.
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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 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).
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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 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
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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 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.
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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:
(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.
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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 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
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the party seeking indemnification.
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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 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 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 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
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.
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.
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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
(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
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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
(l) at the option of the Company, if (1) 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 (2) the Company shall have notified the Fund in writing of such determination
and the basis therefore, and (3) after sixty (60) dates after notice the Company
again makes the same determination;
(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.
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
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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.
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
20
<PAGE>
class of contracts or policies, unless the context otherwise requires.
21
<PAGE>
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:
The Palladian Trust
Attn: President
4225 Executive Square, Suite 270
La Jolla, CA 92037
If to the Distributor:
Western Capital Financial Group, Inc.
Attn: President
4285 Executive Square, Suite 325
La Jolla, CA 92037
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 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
22
<PAGE>
define or delineate any of the provisions hereof or otherwise affect their
construction or effect.
23
<PAGE>
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.
13.9 A copy of the Fund's Declaration of Trust is on file with the Secretary
of the Commonwealth of Massachusetts. The Declaration of Trust has been
executed on behalf of the Fund by certain Trustees in their capacity as
Trustees of the Trust and not individually. All persons dealing with the
Fund must look solely to the property of the Fund for the enforcement of any
claims against the Fund as neither the Board, officers, agents, or
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.
24
<PAGE>
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: /s/ Richard M. Reilly
-------------------------------------
Title: President
----------------------------------
Date: 10/16/96
-----------------------------------
FUND: THE PALLADIAN TRUST
By: /s/ M. Michael Schwartz
-------------------------------------
Title: President
----------------------------------
Date: 10/24/96
-----------------------------------
DISTRIBUTOR: WESTERN CAPITAL FINANCIAL GROUP, INC.
By: /s/ M. Michael Schwartz
-------------------------------------
Title: President
----------------------------------
Date: 10/24/96
-----------------------------------
25
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Name of Separate Account
(Date Authorized
By Board of Directors) Contracts Designated Portfolios
- ---------------------- --------- ---------------------
<S> <C> <C>
Fulcrum Separate Account Policy Form 3025-96/8025-96 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>
26
<PAGE>
27
<PAGE>
[LOGO] ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
440 Lincoln Street, Worcester, MA 01653
- --------------------------------------------------------------------------------
1. INSURED
- --------------------------------------------------------------------------------
Name (First, MI, Last)
JOHN DOE
----------------------------------------------------------------
Street Address Apt.
5 MAIN STREET
----------------------------------------------------------------
City State Zip
ANYTOWN USA 12345
----------------------------------------------------------------
Home Telephone /X/ Male Date of Birth
(508) 855-2000 / / Female 05 / 19 / 61
Social Security # 000-00-0000
-------------
----------------------------------------------------------------
Employer
ACME COMPANY
----------------------------------------------------------------
Occupation/Duties
COMPUTER PROGRAMMER
----------------------------------------------------------------
Daytime Telephone Annual Income Net Worth
(508) 855-3000 $80,000 $125,000
----------------------------------------------------------------
Drivers License # Height Weight
000-00-0000 6'-2" 185
----------------------------------------------------------------
Have you smoked cigarettes, cigars, pipes or used chewing
tobacco in the past 12 months ? No /X/ Yes / /
- --------------------------------------------------------------------------------
2. SECOND INSURED - Complete if applicable
- --------------------------------------------------------------------------------
If completed, second-to-die insurance coverage will be issued.
Name (First, MI, Last)
----------------------------------------------------------------
Street Address Apt.
----------------------------------------------------------------
City State Zip
----------------------------------------------------------------
Home Telephone / / Male Date of Birth
( ) / / Female / /
----------------------------------------------------------------
Social Security #
-------------
----------------------------------------------------------------
Employer
----------------------------------------------------------------
Occupation/Duties
----------------------------------------------------------------
Daytime Telephone Annual Income Net Worth
( )
----------------------------------------------------------------
Drivers License # Height Weight
----------------------------------------------------------------
Have you smoked cigarettes, cigars, pipes or used chewing
tobacco in the past 12 months? / / No / / Yes
- --------------------------------------------------------------------------------
3. OWNER - Complete if other than Insured
- --------------------------------------------------------------------------------
Name (First, MI, Last)
----------------------------------------------------------------
Street Address Apt.
----------------------------------------------------------------
City State Zip
----------------------------------------------------------------
Home Telephone / / Male Date of Birth
( ) / / Female / /
----------------------------------------------------------------
Social Security #
-----------------
----------------------------------------------------------------
Date of Trust
/ / Tax I.D. #
----- ----- ----- -----------------
- --------------------------------------------------------------------------------
4. BENEFICIARY
- --------------------------------------------------------------------------------
Primary Beneficiary Relationship to the Insured
MARY DOE WIFE
----------------------------------------------------------------
Contingent Beneficiary Relationship to the Insured
SALLY DOE DAUGHTER
----------------------------------------------------------------
- --------------------------------------------------------------------------------
5. ALLOCATION OF PAYMENTS
- --------------------------------------------------------------------------------
30 % [Value Portfolio
----- (Gabelli Asset Management)
10 % Growth Portfolio
----- (Stonehill Capital Management)
10 % International Growth Portfolio
----- (Bee & Associates)
10 % Global Strategic Income Portfolio
----- (Fischer Francis Trees & Watts)
10 % Global Interactive/Telecomm Portfolio
----- (Gabelli Asset Management)
20 % Allmerica Money Market
-----
10 % Fixed Account
-----
% _______________________]
-----
100 % (All allocations above must be in whole percentages and total 100%)
-----
/X/ I elect Automatic Account Rebalancing among the above accounts (excluding
the Fixed Account) starting on the 15th day of the month after expiration
of the right to cancel period and continuing:
/ / 1 / / 2 /X/ 3 / / 6 / / 12 Months
Note: If the contract applied for provides for a full refund of the payment
under its "Right to Cancel" provision, that portion of the payment not
allocated to the Fixed Account will be allocated solely to the Money Market
Portfolio. Reallocation will then be made as specified no later than the
expiration of the right to cancel period.
<PAGE>
- --------------------------------------------------------------------------------
6. REPLACEMENT
- --------------------------------------------------------------------------------
Will the proposed contract replace any existing annuity or life insurance
policy? /X/ No / / Yes
(If yes, list company name and policy number)___________________________________
- --------------------------------------------------------------------------------
7. PAYMENT/FACE AMOUNT INFORMATION
- --------------------------------------------------------------------------------
Complete 7a. or 7b.:
7a. Check all that apply. Total payment must equal at least $25,000.
/X/ A check for the payment of $50,000 is enclosed and I have received
-------
a conditional insurance agreement. (Please make check payable to
Allmerica Financial). IF WE ARE UNABLE TO ISSUE A LIFE INSURANCE
CONTRACT, WE WILL ISSUE AN ANNUITY CONTRACT. DO NOT ISSUE AN ANNUITY
CONTRACT. / /
/ / My payment of approximately $___________ will be transferred from a
life insurance contract.
My present contract has a loan that I wish to carry over to the new
contract / / Yes / / No
Loan carry over amount $___________
Total approximate transfer amount
(transfer payment + loan carry over) $___________
/ / My payment of approximately $___________ will be transferred from
another investment contract or provider.
7b. The Face Amount will be determined by treating your payment as equal to
100% of the Maximum Payment, unless you designate a different Face Amount
$___________ .
THE FACE AMOUNT MUST BE BASED ON 100% OF MAXIMUM PAYMENT TO BE ELIGIBLE FOR
THE SIMPLIFIED APPROVAL PROCESS.
- --------------------------------------------------------------------------------
8. DOLLAR COST AVERAGING
- --------------------------------------------------------------------------------
Please transfer $___________ ($100 minimum)
Check one source account:
FROM: [ / / Fixed Account / / Global Strategic Income
/ / Allmerica Money Market]
EVERY: / / 1 / / 2 / / 3 / / 6 / / 12 Months
TO: [$_____________ Value Portfolio
(Gabelli Asset Management)
$_____________ Growth Portfolio
(Stonehill Capital Management)
$_____________ International Growth Portfolio
(Bee & Associates)
$_____________ Global Strategic Income Portfolio
(Fischer Francis Trees & Watts)
$_____________ Global Interactive/Telecomm Portfolio
(Gabelli Asset Management)
$_____________ Allmerica Money Market
$____________________________________]
Dollar Cost Averaging begins on the 15th day of the month after the
expiration of the right to cancel period and ends when the source account
value is exhausted.
Dollar Cost Averaging into the Fixed Account is not available.
- --------------------------------------------------------------------------------
9. INFORMATION ABOUT THE INSURED(S) -
Please read Application Instructions before completing.
- --------------------------------------------------------------------------------
SIMPLIFIED APPROVAL PROCESS QUESTIONS: Second
Insured Insured
------- -------
Yes No Yes No
1. In the past 10 years have you had, or been treated for
heart, liver, lung or kidney trouble, high blood
pressure, stroke, diabetes, cancer, nervous or
psychological disorders or alcohol or drug abuse? / / /X/ / / / /
2. In the past 10 years have you been diagnosed as having
AIDS, AIDS Related Complex or another immune disorder? / / /X/ / / / /
IF YOU ANSWERED YES TO EITHER QUESTION, PROVIDE DETAILS IN SECTION 10.
OTHERWISE, PROCEED TO SECTION 11.
BASIC APPROVAL PROCESS QUESTIONS: Second
Insured Insured
------- -------
Yes No Yes No
1. In the past 10 years have you had, or been treated for
heart, liver, lung or kidney trouble, high blood pressure,
stroke, diabetes, cancer, nervous or psychological
disorders or alcohol or drug abuse? / / / / / / / /
2. In past 2 years, have you ever flown, or have intention
of flying, other than as a fare paying passenger in an
aircraft? If yes, submit aviation questionnaire. / / / / / / / /
3. In the past 5 years, have you participated in, or
have intention of participating in any type of land,
water or aircraft racing, parachuting, hang/kite gliding
or skin/scuba diving? If yes, submit appropriate supplement. / / / / / / / /
4. In the past 3 years, have you had your motor vehicle
license suspended or revoked or have you been convicted of
driving under the influence of drugs or alcohol or been
convicted of more than one violation? / / / / / / / /
5. Please provide us with the information about your personal
physician or health care provider.
Insured Second Insured
Name DR. PAUL B. SMITH
-------------------------- -------------------------
Telephone (508) 855-5000
-------------------------- -------------------------
Address 123 MAIN STREET
-------------------------- -------------------------
ANYTOWN, USA
-------------------------- -------------------------
Reason for visit? ROUTINE EXAM
---------------------- -------------------------
Date of last visit? 3-35-96
-------------------- -------------------------
IF YOU ANSWERED YES TO QUESTION 1, PROVIDE DETAILS IN SECTION 10. OTHERWISE,
PROCEED TO SECTION 11.
<PAGE>
- -------------------------------------------------------------------------------
10. ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ques no. Insured or Diagnosis/Reason for Treatment Doctor/Facility/Health Care Provider Date of Currently
Second Insured Address & Phone # Last Visit Being
Treated?
Yes No
- ------- -------------- ------------------------------ ----------------------------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
/ / / /
- --------------------------------------------------------------------------------------------------------------------------
/ / / /
- --------------------------------------------------------------------------------------------------------------------------
/ / / /
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
11. 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, officers, employees and agents against any claim arising from such
action.
/ / I/we do not accept this Telephone Access privilege.
- -------------------------------------------------------------------------------
12. REMARKS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
13. SIGNATURES
- -------------------------------------------------------------------------------
I/we agree that (1) the application consists of this application form and, if
applicable, the medical questionnaire; (2) the representations are true and
complete to the best of my knowledge and belief: (3) no liability exists and
the insurance applied for will not take effect until the contract is
delivered and the payment is made during the lifetime of the proposed
insured(s) and then only if the proposed insured(s) has (have) not consulted
or been treated by any physician nor had any tests listed in the applications
since its completion; but, if the payment is paid prior to delivery of the
contract and a conditional insurance agreement is delivered by the
representative, insurance will be effective subject to terms of the
conditional insurance agreement; and (4) no registered representative or
broker is authorized to amend, alter, or modify the terms of this agreement.
I/we acknowledge receipt of a current prospectus describing the contract
applied for. I/we understand that any death benefits and any contract value
based upon the variable account may fluctuate and are not guaranteed as to
the dollar amount. I/we understand that there is no guaranteed minimum
contract value and that the contract value may decrease to the point where
the contract will lapse and provide no further death benefit without
additional payments.
/s/ JOHN DOE ANYTOWN, USA TODAY
____________________________________ ____________________________________
Signature of Insured Signed at (City and State) Date
____________________________________ ____________________________________
Signature of Second Insured Signature of Owner
- -------------------------------------------------------------------------------
14. REGISTERED REPRESENTATIVE / DEALER INFORMATION
- -------------------------------------------------------------------------------
Does the contract applied for replace an existing annuity or life insurance
contract? / / 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 to the owner.
<TABLE>
<S> <C> <C>
/s/ JOE AGENT 0001 (508) 855-6000
----------------------------------------- ------------- -------------------------
Signature of Registered Representative Comm. Code Telephone
JOE AGENT
----------------------------------------- ----------------------------- ------------------
Printed Name of Registered Representative Printed Name of Broker/Dealer B/D Client Acct. #
456 MAIN STREET, ANYTOWN USA (508) 855-6000
----------------------------------------------------- -------------------------
Branch Office Street Address for Contract Delivery Telephone
Additional Information
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
November 5, 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 Variable Life Separate Account on Form N-8B-2 under
the Investment Company Act of 1940 and on Form S-6 under the Securities Act of
1933, with respect to the variable life policies funded by the Fulcrum Variable
Life Separate Account.
I am of the following opinion:
1. Fulcrum Variable Life 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 Variable Life Separate Account equal to the
reserves and other policy liabilities of the Policies which are supported
by the Fulcrum Variable Life Separate Account are not chargeable with
liabilities arising out of any other business the Company many conduct.
3. The Variable Life policies, when issued in accordance with the Prospectus
contained in the S-6 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 Variable Life Separate Account filed under
the Securities Act of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
<PAGE>
November 5, 1996
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
Gentlemen:
This opinion is furnished in connection with the filing by Allmerica
Financial Life Insurance and Annuity Company of an Initial Registration
Statement on Form S-6 under the Securities Act of 1933 with respect to the
modified single payment variable life insurance contracts ("Contracts")
allocated to its SPVUL Account. The prospectus included in the Initial
Registration Statement describes the Contracts. I am familiar with and have
provided actuarial advice concerning the preparation of the Initial
Registration Statement, including exhibits.
In my professional opinion, the illustration of death benefits and cash
values included in Appendix C of the prospectus, based on the assumptions
stated in the illustrations, are consistent with the provisions of the
Contract. The rate structure of the Contracts has not been designed so as to
make the relationship between premiums and benefits, as shown in the
illustrations, appear more favorable to a prospective purchaser of a
Contract for Insureds age 55 than to prospective purchasers of Contracts for
Insureds at other ages or underwriting classes. I am also of the opinion that
the aggregate fees and charges under the Contracts are reasonable in relation
to the services rendered, the expenses expected to be incurred, and the risks
assumed by Allmerica Financial Life Insurance and Annuity Company.
I hereby consent to the use of this opinion as an exhibit to the Initial
Registration Statement.
Sincerely,
/s/ William H. Mawdsley
William H. Mawdsley, FSA, MAAA
Vice President and Actuary
<PAGE>
Description of Issuance, Transfer and Redemption Procedures for Contracts
Offered by the Fulcrum Variable Life Separate Account of
Allmerica Financial Life Insurance and Annuity Company
Pursuant to Rule 6e-3(T)(b)(12)(ii)
under the Investment Company Act of 1940
The Fulcrum Variable Life Separate Account ("FVL Account") of Allmerica
Financial Life Insurance and Annuity Company ("Company") is registered under the
Investment Company Act of 1940 ('1940 Act') as a unit investment trust. Within
the FVL Account are 6 Sub-Accounts. Procedures apply equally to each subaccount
and for purposes of this description are defined in terms of the FVL Account,
except where a discussion of both the FVL Account and the individual
Sub-Accounts is necessary. Each Sub-Account invests, respectively, in shares of
a corresponding investment division of The Palladian Trust ("Palladian") or the
Money Market Fund of Allmerica Investment Trust ("AIT"), each of which is a
"series" type of mutual fund registered under the 1940 Act. The investment
experience of a Sub-Account of the FVL Account depends on the market performance
of its corresponding investment division of Palladian or AIT. Although modified
single payment variable life insurance Contracts funded through the FVL Account
may also provide for fixed benefits supported by the Company's General Account,
this description assumes that net payments are allocated exclusively to the FVL
Account and that all transactions involve only the Sub-Accounts of the FVL
Account, except as otherwise explicitly stated herein.
I. "PUBLIC OFFERING PRICE": PURCHASE AND RELATED TRANSACTIONS -- SECTION 22(d)
AND RULE 22c-l
This section outlines Contract provisions and administrative procedures
which might be deemed to constitute, either directly or indirectly, a
"purchase" transaction. Because of the insurance nature of the Contracts,
the procedures involved necessarily differ in certain significant respects
from the purchase procedures for mutual funds and annuity plans. The chief
differences revolve around the structure of the cost of insurance charges
and the insurance underwriting process. Certain Contract provisions, such
as reinstatement and loan repayment, do not result in the issuance of a
Contract but require certain payments by the Contractowner and involve a
transfer of assets supporting Contract reserve into the FVL Account.
a. INSURANCE CHARGES AND UNDERWRITING STANDARDS
The Contracts are designed as modified single payment variable life
insurance polices. The total of all payments paid can never exceed the
then current maximum payments determined by Internal Revenue Service rules.
If at any time a payment is paid which would result in total payments
exceeding the current maximum payment limitations, the Company will return
the amount in excess of such maximums to the Contractowner.
The Contract will remain in force so long as the Contract value less any
outstanding debt is sufficient to pay certain monthly charges imposed in
connection with the Contract. Cost of insurance charges for the Contracts
will not be the same for all Contractowners. The insurance principle of
pooling and distribution of mortality risks is based upon the assumption
that each Contractowner pays a cost of insurance charge commensurate with
the Insured's mortality risk, which is actuarially determined based upon
factors such as age and health. In the context of life insurance, a
uniform mortality charge (the "cost of insurance charge") for all Insured's
would discriminate unfairly in favor of those Insured's representing
greater mortality risks to the disadvantage of those representing lesser
risks. Accordingly, there will be a different "price" for each actuarial
category of Contractowners because different cost of insurance rates will
apply. Accordingly, while not all Contractowners will be subject to the
same cost of insurance rate, there will be a single "rate" for all
Contractowners in a given actuarial category. The Contracts will be
offered and sold pursuant to the Company's underwriting standards and in
accordance with state insurance laws. Such laws prohibit unfair
discrimination among Insureds, but recognize that payments must be based
upon factors such as age, health and occupation. Tables showing the
maximum cost of insurance charges will be delivered as part of the
Contract.
1
<PAGE>
b. APPLICATION AND INITIAL PAYMENT PROCESSING
Payments are payable only to the Company, and may be mailed to the
Principal Office or paid through an authorized agent of the Company.
All payments are credited to the FVL Account or General Account as of
date of receipt at the Principal Office.
The Contract requires a single payment of at least $25,000 on or
before the date of issue. The initial payment is used to determine
the face amount of the Policy, by treating the initial payment as
equal to 100% of the Guideline Single Premium. The Contract owner
may indicate the desired Face Amount on the application. If the Face
Amount specified exceeds 100% of the Guideline Single Premium for the
amount of the payment, the Application will be amended and a Contract
with a higher Face Amount will be issued.
Additional payments of at least $10,000 may be made as long as the
total payments do not exceed the maximum payment specified in the
Contract. The total of all payments can never exceed the then-current
maximum payment limitation determined by Internal Revenue Service
rules. Where total payments would exceed the current maximum payment
limits, the Company will only accept that part of a payment which will
make total payments equal the maximum. The Company will return any
part of a payment that is greater than that amount. However, the
Company will accept a payment needed to prevent Contract lapse during
a contract year.
Upon receipt of a completed application from a prospective
Contractowner, the Company will follow certain insurance underwriting
procedures designed to determine whether the proposed Insured is
insurable. This process may involve such verification procedures as
medical examinations and may require that further information be
provided by the proposed Contractowner before a determination can be
made. A Contract cannot be issued until this underwriting procedure
has been completed.
If at the time of Application a prospective Contractowner makes a
payment, the Company will provide fixed conditional insurance in the
amount of insurance applied for, up to a maximum of $500,000, pending
underwriting approval. If the application is approved, the Contract
will be issued as of the date of the underwriting approval. If the
prospective Contractowner does not wish to make any payment until the
Contract is issued, upon delivery of the Contract the Company will
require payment of sufficient payment to place the insurance in-force.
Pending completion of insurance underwriting and Contract issuance
procedures, the initial payment will be held in the Company's General
Account. If the application is approved and the Contract is issued
and accepted, the initial payment held in the General Account will be
credited with interest not later than the date of receipt of the
payment at the Company's Principal Office. Not later than three days
of underwriting approval of the Contract, the amounts held in the
Company's General Account will be allocated to the Sub-Accounts
according to Contractowner's instructions; provided, however, that if
the contract is issued in a "full refund" state, the Sub-Account
investments will initially be allocated to the Money Market Fund and
thereafter transfered according to the Contractowner's instructions at
the end of the free look period. Amounts remaining in the General
Account will continue to be credited interest from date of receipt of
the payment at the Principal Office. If a Contract is not issued, the
payments will be returned to the Applicant without interest unless the
Contract Owner has elected on the application to instead receive an
Annuity Contract.
These processing procedures are designed to provide insurance,
starting with the date of the application, to the proposed
Contractowner in connection with payment of the initial payment and
will not dilute any benefit it payable to any existing Contractowner.
Although a Contract cannot be issued until the underwriting process
has been completed, the proposed Contractowner will receive immediate
insurance coverage, if the proposed Contractowner has paid an initial
payment and proves to be insurable. If the initial payment is not
paid with the application, variability of benefits will commence
within three days of underwriting approval, subject to the
restrictions indicated above.
2
<PAGE>
The Company will require that the Contract be delivered within a
specific delivery period to protect itself against anti-selection by
the prospective Contractowner resulting from a deterioration of the
health of the proposed Insured.
c. PAYMENT ALLOCATIONS
The Contractowner may allocate net payments among the Company's
General Account and the Sub-Accounts of the FVL Account. Each
Sub-Account of the FVL Account invests its assets in shares of a
corresponding Underlying Fund. Purchases and redemptions of such
shares are made at net asset value, with no deduction for sales load.
Payments allocated to a Sub-Account, transfers to that Sub-Account,
and reserve adjustment transfers, if any, will be netted as of each
valuation date against amounts withdrawn from the Sub-Account in
connection with Contract surrenders, partial withdrawals, transfers,
and death benefits, as well as the asset charge and amounts paid to
the Company in lieu of taxes, if any. A net purchase or sale of
Underlying Fund shares will be made for a Sub-Account at net asset
value. All income, dividends and realized gain distributions of a
Underlying Fund will be reinvested in shares of the respective
Underlying Fund at net asset value. Valuation dates currently occur
on each day on which the New York Stock Exchange is open for trading,
and on such other days where there is a sufficient degree of trading
in a Underlying Fund's securities such that the current net asset
value of the Sub-Accounts may be materially affected.
The Contractowner may change the allocation of net payments without
charge at any time by providing written notice to the Principal
Office. The change will be effective as of the date of receipt of the
notice at the Principal Office. The Contractowner may transfer
amounts among all of the Sub-Accounts and the General Account, subject
to certain restrictions.
d. REPAYMENT OF LOAN
The Contractowner may borrow money secured by Contract Value. The
total amount the Contractowner may borrow is the Loan Value. The Loan
Value is 90% of the Contract Value minus any surrender charges.
The minimum loan is $1,000. The maximum loan is the Loan Value minus
any outstanding loans. The Company will usually pay the loan within
seven days after the Company receives a written request for the loan.
The Company will allocate the loan among the Sub-Accounts and the
Fixed Account according to the Contractowner's instructions. If the
Contractowner does not make an allocation, the Company will make a
pro-rata allocation among the Sub-Accounts and Fixed Account. The
Company will transfer Contract Value in each Sub-Account, equal to
the Contract loan amount, to the Fixed Account. The Company will not
count this transfer as a transfer subject to the transfer charge,
described below. Contract Value equal to the outstanding loan amount
will earn monthly interest in the Fixed Account at an annual rate of
at least 4.0%.
Contract loans will permanently affect the Contract Value and
Surrender Value, and may permanently affect the Death Benefit. The
effect could be favorable or unfavorable, depending on whether the
investment performance of the Sub-Accounts is less than or greater
than the interest credited to the Contract Value in the Fixed Account
that secures the loan. A loan made under the Contract may be repaid
with an amount equal to the original loan plus loan interest.
When a loan is made, the Company will transfer from each Sub-Account
of the FVL Account to the General Account an amount of that
Sub-Account's Contract value equal to the loan amount allocated to the
Sub-Account. Since the Company will credit such assets with interest
at a rate which is below the interest rate charged on the loan, the
difference will be retained by the Company to cover certain expenses
and contingencies. Upon repayment of debt, the Company will reduce
the Contract value in the general account attributable to the loan and
transfer assets supporting corresponding reserves
3
<PAGE>
to the Sub-Accounts according to either Contractowner's instruction
or, if none, the payment allocation percentages then in effect.
Loan repayments allocated to the FVL Account cannot exceed Contract
value previously transferred from the FVL Account to secure the debt.
If the surrender value is insufficient to cover the next monthly
deduction plus loan interest accrued, or if Contract debt exceeds the
Contract value less surrender charges, the Company will notify the
Contractowner and any assignee of record. The Contractowner will then
have a grace period of 62 days, measured from the date the notice is
mailed, to make sufficient payments to prevent termination.
Failure to make a sufficient payment within the grace period will
result in termination of the Contract without any Contract value. The
death benefit payable during the grace period will be reduced by any
overdue charges. If the Insured dies during the grace period, the
death proceeds will still be payable, but any monthly deductions due
and unpaid through the Contract month in which the Insured dies will
be deducted from the death proceeds.
If the Contract has not been surrendered and the Insured is alive, the
terminated Contract may be reinstated anytime within three years after
the date of default by submitting the following to the Company: (1) a
written application for reinstatement; (2) evidence of insurability
satisfactory to the Company; and (3) a payment that is large enough
(a) to cover the cost of all contract charges that were due and unpaid
during the grace period, (b) to keep the contract in force for three
months, and (c) to reinstate any loan against the Contract that
existed at the end of the grace period.
The Contract value on the date of reinstatement is the net payment
paid to reinstate the Contract increased by interest from the date the
payment was received at the Company's Principal Office; plus
an amount equal to the Contract value less debt on the date of default
minus the monthly deduction due on the date of reinstatement. The
surrender charge on the date of reinstatement is the surrender charge
which was in effect on the date of default.
PREFERRED LOAN OPTION - Any portion of the Outstanding Loan that
represents earnings in the Contract, a loan from an exchanged life
insurance policy that was as carried over to the Contract or the gain
in the exchanged life insurance policy that was carried over to the
Contract may be treated as a preferred loan. The available
percentage of the gain carried over from an exchanged policy less any
policy loan carried over which will be eligible for preferred loan
treatment is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Contract Year 1 2 3 4 5 6 7 8 9 10 11
- --------------------------------------------------------------------------------------------
Unloaned Gain Available 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
</TABLE>
The guaranteed annual interest rate credited to the Contract Value
securing a preferred loan will be at least 5.5%.
Interest accrues daily at the annual rate of 6.0%. Interest is due
and payable in arrears at the end of each Contract year or for as
short a period as the loan may exist. Interest not paid when due will
be added to the Outstanding Loan by transferring Contract Value equal
to the interest due to the Fixed Account. The interest due will bear
interest at the same rate.
4
<PAGE>
e. CORRECTION OF MISSTATEMENT OF AGE
If the Insured's age or sex is not correctly stated in the Contract
application, the Company will adjust benefits under the Contract to
reflect the correct age and sex. The adjustment will be based upon
the ratio of the maximum payment for the Contract to the maximum
payment for the Contract issued for the correct age or sex. The
Company will not reduce the Death Benefit to less than the Guideline
Minimum Sum Insured. For a unisex Contract, there is no adjusted
benefit for misstatement of sex.
f. CONTESTABILITY
A Contract is contestable for two years, measured from the issue date,
for material misrepresentations made in the initial application for
the Contract. Contract changes may be contested for two years after
the effective date of a change, and a reinstatement may be contested
for two years after the effective date of reinstatement. No statement
will be used to contest a Contract unless it is contained in an
application.
g. REDUCTION IN COST OF INSURANCE RATE CLASSIFICATION
By administrative practice, the Company will reduce the cost of
insurance rate classification for an outstanding Contract if new
evidence of insurability demonstrates that the Contractowner qualifies
for a lower classification. After the reduced rating is determined,
the Contractowner will pay a lower monthly cost of insurance charge
each month.
II. "REDEMPTION PROCEDURE"': SURRENDER AND RELATED TRANSACTIONS
The Contracts provide for the payment of monies to a Contractowner or
beneficiary upon presentation of a Contract. Generally except for the
payments of death proceeds, the imposition of cost of insurance and
administrative charges, and the possible effect of a contingent
surrender charge, the payee will receive a pro rata or proportionate
share of the FVL Account's assets, within the meaning of the 1940
Act, in any transaction involving "redemption procedures". The amount
received by the payee will depend-upon the particular benefit for
which the Contract is presented, including, for example, the cash
surrender value or death benefit. There are also certain Contract
provisions (e.g., partial withdrawals or the loan privilege) under
which the Contract will not be presented to the Company but which will
affect the Contractowner's benefits and may involve a transfer of the
assets supporting the Contract reserve out of the FVL Account. Any
combined transactions on the same day which counteract the effect of
each other will be allowed. The Company will assume the Contractowner
is aware of the possible conflicting nature of the transactions and
desires their combined result. If a transaction is requested which
the Company will not allow (e.g., a request for a decrease in face
amount) the Company will reject the whole transaction and not just the
portion which causes the disallowance. The Contractowner will be
informed of the rejection and will have an opportunity to give new
instructions.
a. FREE LOOK PRIVILEGE - The Contract provides for a free look
period under the Right to Cancel provision. The Contract Owner
has the right to examine and cancel the Contract by returning it
to the Company or one of its representatives on or before the
tenth day (or such later date as may be required by state law)
after the Contract owner receives the Contract.
If the Contract provides for a full refund under its "Right to
Cancel" provision (as may be required by state law), the refund
will be the (a) the entire Payment. If the Contract does not
provide for a full refund (as provided by state law), the
Contract Owner will receive amounts allocated to the Fixed
Account, plus the Contract Value in the Variable Account, plus
all fees, charges and taxes
5
<PAGE>
which have been imposed.
b. CONVERSION PRIVILEGE - During the first 24 Contract months after
the date of issue, subject to certain restrictions, the Contract
Owner may convert the Contract to a flexible payment fixed
Contract by transferring all Contract value in the Sub-Accounts
to the General Account and by simultaneously changing the
allocation of future payments to the General Account.
c. CHARGES AND DEDUCTIONS -- The following charges will apply to
the Contract under the circumstances described. Some of these
charges apply throughout the Contract's duration.
MONTHLY DEDUCTIONS - On the Monthly Processing Date, the Company will
deduct an amount to cover charges and expenses incurred in connection
with the Contract. This Monthly Deduction will be deducted by
subtracting values from the Fixed Account accumulation and/or
canceling Units from each applicable Sub-Account in the ratio that the
Contract Value in the Sub-Account bears to the Contract Value. The
amount of the Monthly Deduction will vary from month to month. If the
Contract Value is not sufficient to cover the Monthly Deduction which
is due, the Contract may lapse. The Monthly Deduction is comprised of
the following charges:
- Maintenance Fee: The Company will make a deduction of $2.50 from
any Contract with less than $50,000 in Contract Value to cover
charges and expenses incurred in connection with the Contract.
This charge is to reimburse the Company for expenses related
to issuance and maintenance of the Contract. The Company does
not intend to profit from this charge.
- Administration Charge: The Company imposes a monthly charge at
an annual rate of 0.40% of the Contract Value. This charge is
to reimburse us for administrative expenses incurred in the
administration of the Contract. It is not expected to be a
source of profit.
- Monthly Insurance Protection Charge: Immediately after the
Contract is issued, the Death Benefit will be greater than the
Payment. While the Contract is in force, prior to the Final
Payment Date, the Death Benefit will generally be greater than
the Contract Value. To enable the Company us to pay this
excess of the Death Benefit over the Contract Value, a monthly
cost of insurance charge is deducted. This charge varies
between an annual rate of 0.20% and 2.50% of the Contract Value
depending on the type of Contract and the Underwriting Class.
In no event will the current deduction for the cost of
insurance exceed the guaranteed maximum insurance protection
rates set forth in the Contract. These guaranteed rates are
based on the Commissioners 1980 Standard Ordinary Mortality
Tables, Tobacco User or Non-Tobacco User (Mortality Table B for
unisex Contracts and Mortality Table D for second-to-die
Contracts) and the Insured's sex and age. The Tables used for
this purpose set forth different mortality estimates for males
and females and for tobacco user and non-tobacco user. Any
change in the insurance protection rates will apply to all
Insured of the same age, sex and Underwriting Class whose
Contracts have been in force for the same period.
The Underwriting Class of an Insured will affect the insurance
protection rate. The Company currently place Insureds into
standard Underwriting Classes and non-standard Underwriting
Classes. The Underwriting Classes are also divided into two
categories: tobacco user and non-tobacco user. The Company will
place Insureds under the age of 18 at the Date of Issue in a
standard or non-standard Underwriting Class. The Company will
then classify the Insured as a non-tobacco user.
- Distribution Expense: During the first ten Contract years, the
Company makes a monthly deduction to compensate for a portion
of the sales expense which are incurred by us with respect to
the Contracts. This charge is equal to 0.30% of the Contract
Value. The Company will monitor distribution charges, federal
tax charges and the sales charge portion of the surrender fee
6
<PAGE>
deducted under a Contract to ensure that the sum of these
charges will never exceed 9% of the Payment(s) made under the
Contract.
- Federal & State Payment Tax Charge: During the first ten
Contract years, the Company makes a monthly deduction to
compensate the Company for the increase in federal tax
liability from the application of Section 848 of the Internal
Revenue Code and to offset the average payment tax the Company
is expected to pay to various state and local jurisdictions but
will not necessarily equal the payment tax paid by us for a
particular Contract. The Company currently treats the federal
tax portion of this charge as if it were a sales load for
purposes of determining compliance with the maximum sales loads
permitted under SEC rules. The Company expects to pay an
average payment tax of approximately 2.5% of payments in all
states, although such rates can generally range from 0% to 4%.
The Company does not intend to profit from the payment tax
portion of this charge.
DAILY DEDUCTIONS - The Company assesses each Sub-Account with a charge
for mortality and expense risks. Fund expenses are also reflected in
the Variable Account.
- Mortality and Expense Risk Charge: The Company imposes a daily
charge at a current annual rate of 0.90% of the average daily
net asset value of each Sub-Account.
- Fund Expenses - The value of the Units of the Sub-Accounts will
reflect the investment advisory fee and other expenses of the
Funds whose shares the Sub-Accounts purchase.
No charges are currently made against the Sub-Accounts for federal or
state income taxes. Should income taxes be imposed, the Company may
make deductions from the Sub-Accounts to pay the taxes.
SURRENDER CHARGE - The Contract's contingent surrender charge is a
deferred sales charge and an unrecovered payment tax charge. The
deferred sales charge compensates us for distribution expenses,
including commissions to our representatives, advertising and the
printing of prospectuses and sales literature. The unrecovered payment
tax charge is designed to reimburse us for the unrecovered federal and
state taxes the Company has paid.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Contract
Year* 1 2 3 4 5 6 7 8 9 10+
- ------------------------------------------------------------------------------------------
Deferred
Sales Charge 7.50% 7.50% 6.00% 6.00% 4.50% 4.50% 3.00% 3.00% 1.50% 0%
Unrecovered 2.25% 2.00% 1.75% 1.50% 1.25% 1.00% 0.75% 0.50% 0.25% 0%
Payment Tax
Charge
- ------------------------------------------------------------------------------------------
Total 9.75% 9.50% 7.75% 7.50% 5.75% 5.50% 3.75% 3.50% 1.75% 0%
Surrender
Charge
</TABLE>
PARTIAL WITHDRAWAL COSTS - For each partial withdrawal, the Company
deducts a transaction fee of 2.0% of the amount withdrawn, not to
exceed $25. This fee reimburses the Company for the cost of
processing the withdrawal. A partial withdrawal charge may also be
deducted from Contract Value. However, in any Contract year, you may
withdraw, without a partial withdrawal charge, up to 10% of the
Contract Value minus the total of any prior free withdrawals in the
same Contract year
7
<PAGE>
("Free 10% Withdrawal.")
The right to make the Free 10% Withdrawal is not cumulative from
Contract year to Contract year. For example, if only 8% of Contract
Value were withdrawn in the second Contract year, the amount which
could be withdrawn in future Contract years would not be increased by
the amount the Contractowner did not withdraw in the second Contract
year.
TRANSFER CHARGES - The first 12 transfers in a Contract year are free.
After that, the Company may deduct a transfer charge not to exceed
$25 from amounts transferred in that Contract year. If the
Contractowner applies for automatic transfers, the first automatic
transfer counts as one transfer. Each future automatic transfer is
without charge and does not reduce the remaining number of transfers
that may be made without charge. Each of the following transfers of
Contract Value from the Sub-Accounts to the Fixed Account is free and
does not count as one of the 12 free transfers in a Contract year:
- A conversion within the first 24 months from Date of Issue;
- A transfer to the Fixed Account to secure a loan; and
- A transfer from the Fixed Account as a result of a loan
repayment.
d. DEATH BENEFIT
The death benefit is the greater of the face amount or Guideline
Minimum Sum Insured. The Company will pay a net death benefit to the
beneficiary within seven days after receipt at its Principal Office of
the Contract, due proof of death of the Insured, and all other
requirements necessary to make payment. For second-to-die Contracts,
the net death benefit is payable on the death of the last surviving
Insured; there is no net death benefit payable on the death of the
first Insured to die. The Company will normally pay the net death
benefit within seven days of receiving due proof of the Insured's
death, but the Company may delay payment of net death benefits. The
Beneficiary may receive the net death benefit in a lump sum or under a
payment option, unless the payment option has been restricted by the
Contractowner.
Before the final payment date, the net death benefit is the death
benefit minus any outstanding loan, rider charges and monthly
deductions due and unpaid through the Contract month in which the
Insured dies, as well as any partial withdrawals and surrender
charges. After the final payment date, the net death benefit is the
Contract value minus any outstanding loan. In most states, the
Company will compute the net death benefit on the date it receives due
proof of the insured's death.
GUIDELINE MINIMUM SUM INSURED - The guideline minimum sum insured is a
percentage of the Contract Value. The guideline minimum sum insured is
computed based on federal tax regulations to ensure that the Contract
qualifies as a life insurance contract and that the insurance proceeds
will be excluded from the gross income of the Beneficiary.
8
<PAGE>
GUIDELINE MINIMUM SUM INSURED
TABLE
AGE OF
INSURED ON PERCENTAGE OF
DATE OF DEATH CONTRACT VALUE
------------- --------------
40 and less 250%
45: ..................................... 215%
50: ..................................... 185%
55: ..................................... 150%
60: ..................................... 130%
65: ..................................... 120%
70: ..................................... 115%
75: ..................................... 105%
80: ..................................... 105%
85: ..................................... 105%
90: ..................................... 105%
95: ..................................... 100%
For the ages not listed, the progression between the listed ages is
linear.
The Company will make payment of the death proceeds out of its general
account, and will transfer assets from the FVL Account to the general
account in an amount equal to the reserve in the FVL Account
attributable to the Contract. The excess, if any, of the death
proceeds over the amount transferred will be paid out of the general
account reserve maintained for that purpose.
e. TRANSFERS AMONG SUBACCOUNTS
The Contracts permit net payments to be allocated either to the
Company's General Account or to the Sub-Accounts of the Fulcrum
Variable Life Separate Account. Each Sub-Account invests exclusively
in a corresponding investment portfolio ("Underlying Fund") of
Palladian or AIT. Subject to the consent of the Company, the Contract
Owner may transfer amounts among all of the Sub-Accounts and between
the Sub-Accounts and the General Account, subject to certain
restrictions.
The Contractowner may apply for automatic transfers from the Fixed
Account, the Global Strategic Income Sub-Account, or the Money Market
Sub-Account to one or more of the other Sub-Accounts. Automatic
transfers may be made at intervals of one, two, three, six or twelve
months. Each automatic transfer must be at least $100. If the Fixed
Account or the Sub-Account from which the automatic transfer is to be
made is reduced to $0 (zero), the automatic transfer will cease. The
Contract Owner must then reapply for any future automatic transfers.
The Contract Owner may also apply for automatic account rebalancing,
in order to reallocate Contract Value among the Sub-Accounts at
intervals of one, two, three, six or twelve months. The Fixed Account
is not included in the automatic account rebalancing.
The first 12 transfers in a Contract year are free. Thereafter, the
Company will deduct a transfer charge not to exceed $25 from amounts
transferred in that Contract year. The first automatic transfer
counts as one transfer toward the 12 free transfers allowed in each
Contract year. Each subsequent automatic transfer is free and does
not reduce the remaining number of transfers that are free in a
Contract year. Any transfers made for a conversion privilege,
Contract loan or material change in investment Contract will not
count toward the 12 free transfers.
The transfer privilege is subject to the Company's consent. The
Company reserves the right to impose limits on transfers including,
but not limited to, the:
9
<PAGE>
- Minimum amount that may be transferred;
- Minimum amount that may remain in a Sub-Account following a
transfer from that Sub-Account;
- Minimum period between transfers involving the Fixed Account; and
- Maximum amounts that may be transferred from the Fixed Account.
f. SURRENDER FOR CASH VALUES
The Company will generally pay the net cash surrender value from the
Sub-Accounts within seven days after receipt, at its Principal Office,
of the Contract and a signed request for surrender (amounts payable
form Fixed Account allocations may be postponed for no more than 6
months). Computations with respect to the investment experience of
each Sub-Account will be made at the close of trading of the New York
Stock Exchange on each day in which the degree of trading in the
corresponding portfolio might materially affect the net return of the
Sub-Account and on which the Company is open. This will enable the
Company to pay a net cash value on surrender based on the next
computed value after the surrender request is received. For valuation
purposes, the surrender is effective on the date the Company receives
the request at its Principal Office (although insurance coverage ends
the day the request is mailed).
The Contract value (equal to the value of all accumulations in the FVL
Account) may increase or decrease from day to day depending on the
investment experience of the FVL Account. Calculation of the Contract
value for any given day will reflect the actual payments, expenses
charged and deductions taken.
g. DEFAULT AND OPTIONS ON LAPSE
The duration of insurance coverage depends upon the Contract value
being sufficient to cover the monthly deductions plus loan interest
accrued. If the surrender value at the beginning of a month is less
than the deductions for that month plus loan interest accrued, a grace
period of 62 days will begin. Written notice will be sent to the
Contractowner and any assignee on the Company's records stating that
such a grace period has begun and giving the amount of payment
necessary to prevent termination.
If sufficient payment is not received during the grace period, the
Contract will terminate without value. Notice of such termination
will be sent to the owner and any assignee. If the Insured should die
during the grace period, an amount sufficient to cover the overdue
monthly deductions and other charges will be deducted from the death
proceeds
10
<PAGE>
Exhibit 8
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
initial Registration Statement for the Fulcrum Variable Life Separate Account
of Allmerica Financial Life Insurance and Annuity Company on Form S-6 of our
report dated February 5, 1996, relating to the consolidated financial
statements of Allmerica Financial Life Insurance and Annuity Company which
appears in such Prospectus. We also consent to the reference to us under the
heading "Independent Accountants" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
Price Waterhouse LLP
Boston, Massachusetts
November 5, 1996
<PAGE>
Exhibit 10
WHOLESALING AGREEMENT
AGREEMENT dated as of October 24, 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, Inc., a California
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
1
<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 October 24, 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 insurance agent, the Company hereby appoints the appropriate
entity or individual ("Distributor Agency Affiliate") affiliated with the
Distributor (as set forth on Schedule 1 to this Agreement, as such Schedule
may be amended from time to time by the Distributor to reflect changes in
the licensing status, if any, as required by relevant state insurance law
of the Distributor or Distributor Agency Affiliates) as its agent under the
insurance laws to engage in such wholesaling activities. The Underwriter
hereby authorizes the Distributor under applicable securities laws to
engage in the activities contemplated in this Agreement relating to the
wholesaling of the Contracts for which the Underwriter acts or may act as
principal underwriter.
B. The Distributor (both on its own behalf and on behalf of Distributor
Agency Affiliates) undertakes to use its best efforts to recruit Broker-
Dealers in accordance with Section 3 of this Agreement, consistent with
market conditions and compliance with its responsibilities under the
federal securities laws and NASD rules and regulations. The obligations of
the Distributor and Distributor Agency Affiliates hereunder are further
subject to the accuracy of the representations and warranties of the
Company and Underwriter contained in this Agreement and to the performance
by the Company of its obligations hereunder.
C. The appointment and authorization of the Distributor and Distributor
Agency Affiliates to engage in wholesaling activities pursuant to this
Agreement is exclusive as to the Contracts listed on Schedule 3, as amended
from time to time in accordance with Section 2.E of this Agreement.
Neither the Company nor Underwriter shall authorize any other person (as
principal underwriter or otherwise) to engage in wholesaling or
distribution activities with respect to the Contracts or to recruit
business firms to engage in wholesaling or distribution activities with
respect to the Contracts (other than business firms recommended by the
Distributor pursuant to Section 3 of this Agreement) without the
Distributor's prior written consent, nor shall the Company or Underwriter
separately engage in wholesaling or distribution activities relating to the
Contracts.
The Company shall design the Contracts, subject to consultation with the
Distributor and subject to the Distributors's right to refuse to engage in
wholesaling activities with respect to a class of Contracts that the
Distributor reasonably determines to be unattractive from a marketing or
business perspective. The Contracts shall be issued by the Company and the
variable portion thereof shall be supported by the Accounts. The Company
alone shall be responsible for filing the initial Registration Statements
and any amendments thereto with the SEC in accordance with the 1933 Act,
1934 Act, 1940 Act and the Regulations to register interests in each class
of Contracts. The Company will not make any amendment or rider to the
Contracts or a class of Contracts, or file a Registration Statement, or
make an amendment to a Registration Statement or supplement to a
Prospectus, without the Distributor having been given the opportunity to
review any such filing, amendment, rider or supplement. However, such
opportunity to review shall not make the Distributor responsible for the
content of any such filing, amendment, rider or supplement; the Company
alone shall be responsible for such content.
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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:
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(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
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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;
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(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 Company'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;
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(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.
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(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,
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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.
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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
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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
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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
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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,
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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 application or other document (or
any such amendment or supplement thereto); or
(ii) any use of promotional, sales or advertising material for
the Contracts not authorized by the Company or any verbal or
written misrepresentations or any unlawful sales practices
concerning the Contracts by the Distributor or Distributor
Agency Affiliates under federal securities laws or NASD
regulations (but not including state insurance laws
compliance with which is a responsibility of the Company or
Underwriter under this Agreement or otherwise); or
(iii) claims by agents, representatives or employees of the
Distributor for compensation or other remuneration of any
type; or
(iv) any material breach by the Distributor or Distributor Agency
Affiliates of any provision of this Agreement.
This indemnification obligation will be in addition to any liability
that the Distributor may otherwise have; provided, however, that no
person shall be entitled to indemnification pursuant to this Section
ll.b if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty
by the person seeking indemnification.
15
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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
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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:
Western Capital Financial Group, Inc.
At.: President
4285 Executive Square, Suite 325
Legale, CA 92037
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.
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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 ("First Allmerica Agreement") with First
Allmerica Financial Life Insurance Company ("First Allmerica"). 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: /s/ Richard M. Reilly
---------------------------------------
Name: Richard M. Reilly
Title: President and Chief Executive Officer
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ALLMERICA INVESTMENTS, INC.
Date: By: /s/ Richard M. Reilly
---------------------------------------
Name: Richard M. Reilly
Title: Director
WESTERN CAPITAL FINANCIAL GROUP, INC.
(on its own behalf and on behalf of
the Distributor Agency Affiliates)
Date: By: /s/ H. Michael Schwartz
---------------------------------------
Name: H. Michael Schwartz
Title: President
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SCHEDULE I
DISTRIBUTOR AGENCY AFFILIATES
Effective______ , 1996
State(s) In
Distributor Agency Affiliate Which Licensed
- ---------------------------- --------------
Palladian Marketing Group, Inc. Connecticut, New York
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SCHEDULE 2
FUND PORTFOLIOS
AVAILABLE UNDER THE CONTRACTS
Effective _________, 1996
Name of Separate Account Underlying Funds
------------------------ ----------------
Fulcrum Fund Separate Value Portfolio of The
Account of Allmerica Palladian Trust
Financial Life
Insurance and Annuity Growth Portfolio of The
Company 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
Name of Separate Account Underlying Funds
------------------------ ----------------
Fulcrum Fund Variable Life Value Portfolio of The
Separate Account of Palladian Trust
Allmerica Financial Life
Insurance Growth Portfolio of The
and Annuity Company 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
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SCHEDULE 3
CONTRACTS SUBJECT TO PROMOTIONAL AGENT AGREEMENT
Effective , 1996
SEC
Marketing Policy Registration Name of
Name Form No. No, Separate Account
--------- ------- ------------ -----------------
Fulcrum Fund A3025-96 Fulcrum Separate
Variable Annuity 333-11377 Account of Allmerica
811-7799 Financial Life
Insurance and
Annuity Company
Fulcrum Fund 1030-96 Fulcrum Variable Life
Single Premium Separate Account of
Variable Life Allmerica Financial
Policy Life Insurance and
Annuity Company
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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 as Broker-Dealer 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 ("Variable Annuity
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). Variable Annuity 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 Variable Annuity
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 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.
SINGLE PREMIUM VARIABLE LIFE CONTRACTS
(A). Maximum Initial Compensation payable by the Company with respect to the
sale and distribution of Variable Life Contracts shall be 8.0% of initial and
subsequent payments. The Maximum Initial Compensation is reduced for issue ages
65 and older, and is payable as follows:
Issue Maximum Initial
Age Compensation
------------ ---------------
65 and Under 8.00%
66 - 75 7.70%
76 - 85 6.75%
86 + 4.95%
Of the Maximum Initial Compensation above, between 6.50% and 7.00% shall be
payable by the Company as Broker-Dealer sales commissions. The remainder shall
be payable to the Distributor for administrative and support services with
respect to the distribution of the Contracts ("Variable Life Promotional
Allowance").
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(B). In addition to the amount specified in (A) above as Maximum Initial
Compensation, 0.50% shall be payable to the Distributor as fees with respect to
product development/consultation ("Product Development Fees").
(C). In addition to the Commissions payable in (A), Broker-Dealers shall be paid
deferred compensation beginning in contract year 11 as follows:
Deferred Compensation- COI based: 50% of standard (even if the Contract charges
substandard rates) 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
(D). If the Distributor should determine that the level of Commissions
payable to the Broker-Dealer as set forth in (A) shall increase or decrease,
than the Variable Life Promotional Allowance shall decrease or increase
accordingly, such that the total compensation payable by the Company shall be
equal to the Maximum Initial Compensation set forth in (A).
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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 (pro rata for a portion thereof), 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
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measurement period, at which time the Company will make a determination
as to whether Variable Annuity reimbursement payments are due. If
cumulative sales reach $175 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 35 % 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 (pro
rata for a portion thereof) 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.
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(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 35% 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.
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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.
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