<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 N-8B-2
INITIAL REGISTRATION
SEPARATE ACCOUNT SPL-D
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)
Mary Eldridge, Esq
440 Lincoln Street
Worcester, MA 01653
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b)
___ on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a) (1)
___ on (date) pursuant to paragraph (a) (1)
___ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
SINGLE PREMIUM VARIABLE LIFE
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 ("1933 Act"). The Rule 24f-2 Notice
for the issuer's fiscal year ended December 31, 1998 was filed on or before
March 30, 1999.
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>
Registrant is making this filing in order to register a new flexible premium
variable life policy, under the Securities Act of 1933.
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
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<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.......................The Company, The Variable Account
6.......................The Variable Account
7.......................Not Applicable
8.......................Not Applicable
9.......................Legal Proceedings
10......................Summary; Description of the Company, Variable Account and the Delaware Group
Premium Fund, Inc.; The Contract; Contract Termination and Reinstatement; Other
Contract Provisions
11......................Summary; DGPF; Investment Objectives and Policies
12......................Summary; DGPF
13......................Summary; DGPF; Investment Advisory Services to DGPF; Charges and Deductions
14......................Summary; Applying for a Contract
15......................Summary; Applying for a Contract; Premium Payments; Allocation of Net
Premiums
16......................The Variable Account; DGPF; Allocation of Net
Premiums
17......................Summary; Surrender; Partial Withdrawal; Charges and Deductions; Contract
Termination and Reinstatement
18......................The Variable Account; DGPF
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......................The Company
28......................Directors and Principal Officers
29......................The Company
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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
40......................Not Applicable
41......................The Company, Distribution
42......................Not Applicable
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......................The Company
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>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
WORCESTER, MASSACHUSETTS
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACTS
DELAWARE SPL
PLEASE READ THIS This Prospectus provides important information about
PROSPECTUS CAREFULLY Delaware SPL, a modified single payment variable life
BEFORE INVESTING AND insurance contract issued by Allmerica Financial Life
KEEP IT FOR FUTURE Insurance and Annuity Company. The Contracts are
REFERENCE. funded through the Separate Account SPL-D, a separate
investment account of the Company that is referred to
as the Variable Account.
VARIABLE LIFE The Variable Account is subdivided into Sub-Accounts.
POLICIES INVOLVE Each Sub-Account invests its assets in the following
RISKS investment portfolios of the Delaware Group Premium
INCLUDING POSSIBLE Fund, Inc. (certain Underlying Funds may not be
LOSS OF PRINCIPAL. available in all states).
<TABLE>
<C> <S> <C>
THIS PROSPECTUS Growth & Income Series Emerging Markets Series
MUST BE Devon Series Delaware Balanced Series
ACCOMPANIED BY DelCap Series Convertible Securities Series
PROSPECTUSES OF Aggressive Growth Series Delchester Series
THE FUNDS. Social Awareness Series Capital Reserves Series
REIT Series Strategic Income Series
Small Cap Value Series Cash Reserve Series
Trend Series Global Bond Series
International Equity Series
</TABLE>
Contract values may also be allocated to the Fixed
Account, which is part of the Company's General
Account.
The Contract provides for life insurance coverage and
THIS LIFE POLICY for the accumulation of a Contract Value, which will
IS accumulate on a variable basis. The Contract requires
NOT: the Contract Owner to make an initial payment of at
- A BANK DEPOSIT OR least $25,000.
OBLIGATION; Each Contract is a modified endowment contract for
- FEDERALLY INSURED; federal income tax purposes, except in certain
- ENDORSED BY ANY circumstances described in FEDERAL TAX
BANK OR CONSIDERATIONS. A loan, distribution or other amounts
GOVERNMENTAL received from a modified endowment contract during
AGENCY. 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. See
FEDERAL TAX CONSIDERATIONS.
This Prospectus can also be obtained from the
Securities and Exchange Commission's website
(http://www.sec.gov).
IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING
INSURANCE WITH THE CONTRACT.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED THAT THE INFORMATION IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CORRESPONDENCE MAY BE DATED , 1999
MAILED TO 440 LINCOLN STREET
ALLMERICA LIFE WORCESTER, MASSACHUSETTS
P.O. BOX 8179 01653
BOSTON, MA 02266-8179 (508) 855-1000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS........................................................................ 3
SUMMARY.............................................................................. 6
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, AND DELAWARE GROUP PREMIUM FUND,
INC................................................................................ 12
INVESTMENT OBJECTIVES AND POLICIES................................................... 13
INVESTMENT ADVISORY SERVICES......................................................... 15
THE CONTRACT......................................................................... 17
Applying for a Contract........................................................ 17
Free Look Period............................................................... 17
Conversion Privilege........................................................... 18
Payments....................................................................... 18
Allocation of Payments......................................................... 18
Transfer Privilege............................................................. 19
Death Benefit.................................................................. 20
Guaranteed Death Benefit Rider................................................. 21
Contract Value................................................................. 22
Payment Options................................................................ 23
Optional Insurance Benefits.................................................... 23
Surrender...................................................................... 24
Partial Withdrawal............................................................. 24
CHARGES AND DEDUCTIONS............................................................... 24
Monthly Deductions............................................................. 25
Surrender Charge............................................................... 26
Transfer Charges............................................................... 27
CONTRACT LOANS....................................................................... 28
CONTRACT TERMINATION AND REINSTATEMENT............................................... 29
OTHER CONTRACT PROVISIONS............................................................ 30
FEDERAL TAX CONSIDERATIONS........................................................... 31
The Company and the Variable Account........................................... 31
Taxation of the Contracts...................................................... 32
Modified Endowment Contracts................................................... 32
Contract Loans................................................................. 32
VOTING RIGHTS........................................................................ 33
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY...................................... 34
DISTRIBUTION......................................................................... 35
REPORTS.............................................................................. 35
LEGAL PROCEEDINGS.................................................................... 36
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS.................................... 36
FURTHER INFORMATION.................................................................. 36
MORE INFORMATION ABOUT THE FIXED ACCOUNT............................................. 37
INDEPENDENT ACCOUNTANTS.............................................................. 37
YEAR 2000 DISCLOSURE................................................................. 38
FINANCIAL STATEMENTS................................................................. 38
APPENDIX A - MINIMUM SUM INSURED TABLE............................................... A-1
APPENDIX B - OPTIONAL INSURANCE BENEFITS............................................. B-1
APPENDIX C - PAYMENT OPTIONS......................................................... C-1
APPENDIX D - ILLUSTRATIONS........................................................... D-1
APPENDIX E - PERFORMANCE INFORMATION................................................. E-1
FINANCIAL STATEMENTS................................................................. F-1
</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.
BENEFICIARY: the person or persons you name to receive the Net Death Benefit
when the Insured dies.
COMPANY: Allmerica Financial Life Insurance and Annuity Company. "We," "our,"
"us," and "the Company" also refer to Allmerica Financial Life Insurance and
Annuity Company in this prospectus.
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.
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.
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, whichever is greater. After the
Final Payment Date, if the Guaranteed Death Benefit Rider is in effect, the
Death Benefit will be the greater of the Face Amount as of the Final Payment
Date or the Contract Value as of the date due proof of death is received by the
Company.
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: the part of the Company's General Account that guarantees
principal and a fixed interest rate.
GENERAL ACCOUNT: all our assets other than those held in separate investment
accounts.
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
GUIDELINE SINGLE PREMIUM: used to determine the Face Amount under the Contract.
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.
3
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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 and
State Payment Tax Charge.
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, if the Guaranteed Death Benefit Rider is NOT in
effect, the Net Death Benefit is:
- The Contract Value; MINUS
- Any Outstanding Loan on the Insured's death.
If the Guaranteed Death Benefit Rider is in effect after the Final Payment Date,
the Death Benefit will be either the Face Amount as of the Final Payment Date or
the Contract Value as of the date due proof of death is received by the Company,
whichever is greater, reduced by an Outstanding Loan through the Contract month
in which the Insured dies.
OUTSTANDING LOAN: all unpaid Contract loans plus loan interest due or accrued.
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.
SECOND-TO-DIE: the Contract may be issued as a joint survivorship
("Second-to-Die") Contract. Life insurance coverage is provided for two
Insureds, with death benefits payable at the death of the last surviving
Insured.
SUB-ACCOUNT: a subdivision of the Separate Account. Each Sub-Account invests
exclusively in the shares of a corresponding Series of Delaware Group Premium
Fund, Inc. ("DGPF").
SURRENDER VALUE: the amount payable on a full surrender. It is the Contract
Value less any Outstanding Loan and surrender charges.
UNDERLYING FUNDS ("FUNDS"): the Growth & Income Series, Devon Series, DelCap
Series, Aggressive Growth Series, Social Awareness Series, REIT Series, Small
Cap Value Series, Trend Series, International Equity Series, Emerging Markets
Series, Delaware Balanced Series, Convertible Securities Series, Delchester
4
<PAGE>
Series, Capital Reserves Series, Strategic Income Series, Cash Reserve Series,
and Global Bond Series of Delaware Group Premium Fund, Inc.
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
Underlying 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: Separate Account SPL-D, one of the Company's separate
investment accounts.
WRITTEN REQUEST: your request in writing, satisfactory to us, received at our
Principal Office.
5
<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; 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. If the Contract was issued as a Second-to-Die
Contract, the Net Death Benefit will be paid on the death of the last surviving
Insured.
Before the Final Payment Date, the Death Benefit is either the Face Amount (the
amount of insurance determined by your payment) or the minimum death benefit
provided by the Guideline Minimum Sum Insured, 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.
After the Final Payment Date, if the Guaranteed Death Benefit is NOT in effect,
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 one of the
Company's payment options. If the Guaranteed Death Benefit Rider is in effect on
the Final Payment Date, a Guaranteed Death Benefit will be provided unless the
Rider is subsequently terminated. The Guaranteed Death Benefit will be either
the Face Amount as of the Final Payment Date or the Contract Value as of the
date due proof of death is received by the Company, whichever is greater,
reduced by any Outstanding Loan through the Contract month in which the insured
dies. For more information, see "Guaranteed Death Benefit Rider."
6
<PAGE>
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 your entire payment.
If your Contract does not provide for a full refund, you will receive:
- Amounts allocated to the Fixed Account; PLUS
- The value of the Units in the Variable Account; PLUS
All fees, charges and taxes which have been imposed.
Your refund will be determined as of the Valuation Date that the Contract is
received at our Principal Office.
WHAT ARE MY INVESTMENT CHOICES?
Each Sub-Account invests exclusively in a corresponding Underlying Fund of the
Delaware Group Premium Fund, Inc. ("DGPF") managed by Delaware International
Advisers Ltd. ("Delaware International"); and Delaware Management Company, Inc.
("Delaware Management"). The Contract also offers a Fixed Account.
This range of investment choices allows you to allocate your money among the
various Underlying 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 Cash Reserve
Series during the Right to Cancel period. Reallocation 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.
You may allocate and transfer money among the following investment options:
<TABLE>
<S> <C>
Growth & Income Series Emerging Markets Series
Devon Series Delaware Balanced Series
DelCap Series Convertible Securities Series
Aggressive Growth Series Delchester Series
Social Awareness Series Capital Reserves Series
REIT Series Strategic Income Series
Small Cap Value Series Cash Reserve Series
Trend Series Global Bond Series
International Equity Series
</TABLE>
CAN I MAKE TRANSFERS AMONG THE UNDERLYING FUNDS AND THE FIXED ACCOUNT?
Yes. You may transfer among the Underlying 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."
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.
7
<PAGE>
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
the Surrender Value. 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 a
partial withdrawal transaction fee and any applicable surrender charges. The
Face Amount is proportionately 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 FEDERAL TAX
CONSIDERATIONS -- "Taxation of the 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 Underlying Funds, with no
taxes incurred under current law; and
- Add or remove the optional insurance benefits provided by rider.
CAN I CONVERT MY CONTRACT INTO A FIXED 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.
8
<PAGE>
We deduct the following monthly charges from the Contract Value:
- A $2.50 Maintenance Fee from Contracts with a Contract Value of less than
$100 (See "Maintenance Fee");
- 0.20% on an annual basis for the administrative expenses (See
"Administration Charge");
- A deduction for the cost of insurance, which varies depending on the type
of Contract and Underwriting Class (See "Monthly Insurance Protection
Charge"); and
- For the first ten Contract years only, 0.90% on an annual basis for
distribution expenses (See "Distribution Fee"); and
- For the first Contract year only, 1.50% on an annual basis for federal,
state and local taxes (See "Federal and 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 Underlying
Funds that are described in the accompanying prospectuses.
WHAT ARE THE EXPENSES AND FEES OF THE UNDERLYING FUNDS?
The following table shows the expenses of the Underlying Funds for 1998. For
more information concerning fees and expenses, see the prospectuses of the
Underlying Funds.
CHARGES OF THE UNDERLYING UNDERLYING FUNDS
In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Underlying Funds. The levels of fees and
expenses vary among the Underlying Funds. The following table shows the expenses
of the Underlying Funds for 1998. For more information concerning fees and
expenses, see the prospectus of the Underlying Funds.
<TABLE>
<CAPTION>
MANAGEMENT FEE OTHER EXPENSES TOTAL FUND EXPENSES
(AFTER ANY VOLUNTARY (AFTER ANY APPLICABLE (AFTER ANY WAIVERS/
UNDERLYING FUND WAIVERS) REIMBURSEMENTS) REIMBURSEMENTS)
- ------------------------------ ----------------------- ----------------------- ------------------------
<S> <C> <C> <C>
Growth & Income Series 0.60% 0.11% 0.71%(2)
Devon Series 0.65% 0.06% 0.71%(2)
DelCap Series 0.74% 0.11% 0.85%(1)(2)
Aggressive Growth Series @ 0.68% 0.17% 0.85%(1)(2)
Social Awareness Series 0.71% 0.14% 0.85%(1)(2)
REIT Series @ 0.58% 0.27% 0.85%(1)(2)
Small Cap Value Series 0.75% 0.10% 0.85%(2)
Trend Series 0.75% 0.10% 0.85%(2)
International Equity Series 0.82% 0.13% 0.95%(1)(2)
Emerging Markets Series 1.08% 0.42% 1.50%(1)(2)
Delaware Balanced Series 0.65% 0.10% 0.75%(2)
Convertible Securities Series 0.75% 0.07% 0.82%(2)
Delchester Series 0.65% 0.10% 0.75%(2)
Capital Reserves Series 0.50% 0.19% 0.69%(2)
Strategic Income Series 0.64% 0.16% 0.80%(1)(2)
Cash Reserve Series 0.45% 0.09% 0.54%(2)
Global Bond Series 0.68% 0.17% 0.85%(1)(2)
</TABLE>
9
<PAGE>
@ The Aggressive Growth Series had not commenced operations as of December 31,
1998. Expenses shown are based on estimated and annualized amounts. Actual
expenses may be greater or less than shown. The REIT Series commenced operations
on May 1, 1998. Expenses shown are based on annualized amounts.
(1) For the fiscal year ended December 31, 1998, before waiver and/or
reimbursement by the investment adviser, total Series expenses as a percentage
of average daily net assets were 0.86% for DelCap Series, 0.89% for Social
Awareness Series, 1.02% for REIT Series, 1.67% for Emerging Markets Series,
0.81% for Strategic Income Series, 0.92% for Global Bond Series, 0.88% for
International Equity Series and are anticipated to be 0.92% for Aggressive
Growth Series.
(2) The investment adviser for the Growth & Income Series (formerly known as
"Decatur Total Return Series"), Devon Series, DelCap Series, Aggressive Growth
Series, Social Awareness Series, REIT Series, Small Cap Value Series, Trend
Series, Delaware Balanced Series (formerly known as "Delaware Series"),
Convertible Securities Series, Delchester Series, Capital Reserves Series,
Strategic Income Series, and Cash Reserve Series is Delaware Management Company,
Inc. ("Delaware Management"). The investment adviser for the International
Equity Series, Emerging Markets Series and the Global Bond Series is Delaware
International Advisers Ltd. ("Delaware International"). Effective May 1, 1999
through October 31, 1999, the investment advisers for the Series of DGPF have
agreed voluntarily to waive their management fees and reimburse each Series for
expenses to the extent that total expenses will not exceed 1.50% for the
Emerging Markets Series; 0.95% for the International Equity Series; 0.85% for
DelCap Series, Aggressive Growth Series, Social Awareness Series, REIT Series,
Small Cap Value Series, Trend Series, Convertible Securities Series and Global
Bond Series and 0.80% for all other Series. The fee ratios shown above have been
restated, if necessary, to reflect the new voluntary limitations which took
effect on May 1, 1999. The declaration of a voluntary expense limitation does
not bind the investment advisers to declare future expense limitations with
respect to these Funds. Pursuant to a vote of the Fund's shareholders on March
17, 1999, a new management fee structure based on average daily net assets was
approved. The above ratios have been restated to reflect the new management fee
structure which took effect on May 1, 1999.
The Underlying Fund information above was provided by the Underlying Funds and
was not independently verified by the Company.
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:
- Surrender Charge -- A surrender charge on a withdrawal exceeding the "Free
10% Withdrawal," described below. This Charge applies on surrenders or
partial withdrawals within ten Contract years from Date of Issue. The
surrender charge begins at 10.00% of the amount that exceeds the Free 10%
Withdrawal amount and decreases to 0% by the tenth Contract year.
- Partial Withdrawal Transaction Fee -- A transaction fee of 2.0% of the
amount withdrawn, not to exceed $25, for each partial withdrawal for
processing costs. The transaction fee applies to all partial withdrawals,
including a Withdrawal without a surrender charge.
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. If the Guaranteed Death Benefit Rider is in effect, the Contract will
not lapse. However, if the Guaranteed Death Benefit Rider terminates, the
Contract may then lapse. See THE CONTRACT -- "Guaranteed Death Benefit Rider."
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HOW IS MY CONTRACT TAXED?
The Contract has been designed to be a "modified endowment contract." However,
under Section 1035 of the Internal Revenue Code of 1986, as amended ("Code"), an
exchange of (1) a life insurance contract entered into before June 21, 1988 or
(2) a life insurance contract that is not itself a modified endowment contract,
will not cause the Contract to be treated as a modified endowment contract if no
additional payments are made 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. 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 FEDERAL TAX CONSIDERATIONS -- "Taxation
of the Contracts."
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.
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DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
AND THE DELAWARE GROUP PREMIUM FUND, INC.
THE COMPANY
Allmerica Financial Life Insurance and Annuity Company ("Company" or "Allmerica
Financial") is a life insurance company organized under the laws of Delaware in
1974. As of December 31, 1998, the Company had over $14 billion in assets and
over $26 billion of life insurance in force. The Company is a wholly-owned
subsidiary of First Allmerica Financial Life Insurance Company ("First
Allmerica"), which in turn is a wholly-owned subsidiary of Allmerica Financial
Corporation. First Allmerica was formerly named State Mutual Life Assurance
Company of America. First Allmerica was organized under the laws of
Massachusetts in 1844 and is the fifth oldest life insurance company in America.
Our principal office is 440 Lincoln Street, Worcester, Massachusetts 01653,
telephone 1-508-855-1000. 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 Company is a charter member of the Insurance Marketplace Standards
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE VARIABLE ACCOUNT
The Variable Account is a separate investment account with seventeen (17)
Sub-Accounts. Each Sub-Account invests in a Portfolio of Delaware Group Premium
Fund, Inc. ("DGPF"). 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 the
Company. We reserve the right, subject to law, to change the names of the
Variable Account and the Sub-Accounts.
DELAWARE GROUP PREMIUM FUND, INC.
Delaware Group Premium Fund, Inc. ("DGPF") is an open-end, diversified
management investment company registered with the SEC under the 1940 Act. Such
registration does not involve supervision by the SEC of the investments or
investment policy of DGPF or its separate investment series. DGPF was
established to serve as an investment vehicle for various separate accounts
supporting variable insurance contracts. DGPF currently has 17 investment
portfolios, each issuing a series of shares: Growth & Income Series, Devon
Series, DelCap Series, Aggressive Growth Series, Social Awareness Series, REIT
Series, Small Cap Value Series, Trend Series, International Equity Series,
Emerging Markets Series, Delaware Balanced Series, Convertible Securities
Series, Delchester Series, Capital Reserves Series, Strategic Income Series,
Cash Reserve Series, and Global Bond Series (collectively, the "Underlying
Funds"). The assets of each Underlying Fund are held separate from the assets of
the other Underlying Funds. Each Underlying Fund operates as a separate
investment vehicle, and the income or losses of one Underlying Fund have no
effect on the investment
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performance of another Underlying Fund. Shares of the Underlying Funds are not
offered to the general public but solely to separate accounts of life insurance
companies.
The investment adviser for the Growth & Income Series, Devon Series, DelCap
Series, Aggressive Growth Series, Social Awareness Series, REIT Series, Small
Cap Value Series, Trend Series, Delaware Balanced Series, Convertible Securities
Series, Delchester Series, Capital Reserves Series, Strategic Income Series, and
Cash Reserve Series is Delaware Management Company, Inc. ("Delaware
Management"). The investment adviser for the International Equity Series,
Emerging Markets Series and the Global Bond Series is Delaware International
Advisers Ltd. ("Delaware International").
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Underlying Funds is set forth
below. MORE DETAILED INFORMATION REGARDING THE INVESTMENT OBJECTIVES,
RESTRICTIONS AND RISKS, EXPENSES PAID BY THE UNDERLYING FUNDS AND OTHER RELEVANT
INFORMATION REGARDING THE UNDERLYING INVESTMENT COMPANY MAY BE FOUND IN THE
PROSPECTUS WHICH ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ CAREFULLY BEFORE
INVESTING. The statement of additional information of the Underlying Funds is
available upon request. There can be no assurance that the investment objectives
of the Underlying Funds can be achieved.
GROWTH & INCOME SERIES -- seeks the highest possible total rate of return by
selecting issues that exhibit the potential for capital appreciation while
providing higher than average dividend income. This Fund formerly was known as
Decatur Total Return Series.
DEVON SERIES -- seeks current income and capital appreciation. It seeks to
achieve its objective by investing primarily in income-producing common stocks,
with a focus on common stocks that the investment manager believes exhibit the
potential for above-average dividend increases over time.
DELCAP SERIES -- seeks long-term capital appreciation by investing its assets in
a diversified portfolio of securities exhibiting the potential for significant
growth. This Series formerly was known as the Growth Series.
AGGRESSIVE GROWTH SERIES -- seeks to provide long-term capital appreciation
which the Fund attempts to achieve by investing primarily in equity securities
of companies which the investment manager believes have the potential for high
earnings growth.
SOCIAL AWARENESS SERIES -- seeks to achieve long-term capital appreciation. It
seeks to achieve its objective by investing primarily in equity securities of
medium- to large-sized companies expected to grow over time that meet the
Series' "Social Criteria" strategy.
REIT SERIES -- seeks to achieve maximum long-term total return. Capital
appreciation is a secondary objective. It seeks to achieve its objective by
investing in securities of companies primarily engaged in the real estate
industry.
SMALL CAP VALUE SERIES -- seeks capital appreciation by investing in small-to-
mid cap common stocks whose market value appears low relative to their
underlying value or future earnings and growth potential. Emphasis also will be
placed on securities of companies that temporarily may be out of favor or whose
value is not yet recognized by the market.
TREND SERIES -- seeks long-term capital appreciation by investing primarily in
small-cap common stocks and convertible securities of emerging and other
growth-oriented companies. These securities will have been judged to be
responsive to changes in the marketplace and to have fundamental characteristics
to support growth. Income is not an objective.
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<PAGE>
INTERNATIONAL EQUITY SERIES -- seeks long-term growth without undue risk to
principal by investing primarily in equity securities of foreign issuers
providing the potential for capital appreciation and income.
EMERGING MARKETS SERIES -- seeks to achieve long-term capital appreciation. It
seeks to achieve its objective by investing primarily in equity securities of
issuers located or operating in emerging countries. The Series is an
international fund. As such, under normal market conditions, at least 65% of the
Series' assets will be invested in equity securities of issuers organized or
having a majority of their assets or deriving a majority of their operating
income in at least three countries that are considered to be emerging or
developing.
DELAWARE BALANCED SERIES -- seeks a balance of capital appreciation, income and
preservation of capital. It uses a dividend-oriented valuation strategy to
select securities issued by established companies that are believed to
demonstrate potential for income and capital growth. This Series formerly was
known as Delaware Series.
CONVERTIBLE SECURITIES SERIES -- seeks a high level of total return on its
assets through a combination of capital appreciation and current income by
investing primarily in convertible securities, which may include privately
placed convertible securities.
DELCHESTER SERIES -- seeks as high a current income as possible by investing in
rated and unrated corporate bonds (including high-yield bonds commonly known as
"junk bonds"), U.S. government securities and commercial paper. Please read the
Fund's prospectus disclosure regarding the risk factors before investing in this
Series.
CAPITAL RESERVES SERIES -- seeks a high, stable level of current income while
minimizing fluctuations in principal by investing in a diversified portfolio of
short- and intermediate-term securities.
STRATEGIC INCOME SERIES -- seeks high current income and total return. It seeks
to achieve its objective by using a multi-sector investment approach, investing
primarily in three sectors of the fixed-income securities market: high yield,
higher-risk securities; investment grade fixed-income securities; and foreign
government and other foreign fixed- income securities. The Series also may
invest in U.S. equity securities.
CASH RESERVE SERIES -- a money market fund which seeks the highest level of
income consistent with the preservation of capital and liquidity through
investments in short-term money market instruments.
GLOBAL BOND SERIES -- seeks current income consistent with preservation of
principal by investing primarily in fixed-income securities that also may
provide the potential for capital appreciation. At least 65% of the Series'
assets will be invested in fixed-income securities of issuers organized or
having a majority of their assets in or deriving a majority of the operating
income in at least three different countries, one of which may be the United
States.
CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR TO
THOSE OF CERTAIN OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE SUB-ACCOUNTS
WHICH WILL BEST MEET YOUR NEEDS AND OBJECTIVES, CAREFULLY READ THE PROSPECTUS OF
THE UNDERLYING FUNDS ALONG WITH THIS PROSPECTUS. IN SOME STATES, INSURANCE
REGULATIONS MAY RESTRICT THE AVAILABILITY OF PARTICULAR SUB-ACCOUNTS.
If required in your state, in the event of a material change in the investment
policy of a Sub-Account or the Underlying Fund in which it invests, you will be
notified of the change. If you have Contract Value in that Sub-Account, the
Company will transfer it without charge on written request by you to another
Sub-Account or to the General Account. The Company must receive your Written
Request within sixty (60) days of the later of (1) the effective date of such
change in the investment policy, or (2) the receipt of the notice of your right
to transfer. You may then change your premium and deduction allocation
percentages.
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INVESTMENT ADVISORY SERVICES
Investment advisers are paid an annual fee based on the average daily net assets
of their respective Underlying Series for management services. The management
fee rates are as follows:
<TABLE>
<S> <C> <C>
Cash Reserve Series First $500 Million 0.45%
Next $500 Million 0.40%
Next $1,500
Million 0.35%
Over $2,500
Million 0.30%
Capital Reserves Series First $500 Million 0.50%
Next $500 Million 0.475%
Next $1,500
Million 0.45%
Over $2,500
Million 0.425%
Growth & Income Series First $500 Million 0.65%
Next $500 Million 0.60%
Next $1,500
Million 0.55%
Over $2,500
Million 0.50%
Delchester Series First $500 Million 0.65%
Next $500 Million 0.60%
Next $1,500
Million 0.55%
Over $2,500
Million 0.50%
Delaware Balanced Series First $500 Million 0.65%
Next $500 Million 0.60%
Next $1,500
Million 0.55%
Over $2,500
Million 0.50%
Devon Series First $500 Million 0.65%
Next $500 Million 0.60%
Next $1,500
Million 0.55%
Over $2,500
Million 0.50%
Strategic Income Series First $500 Million 0.65%
Next $500 Million 0.60%
Next $1,500
Million 0.55%
Over $2,500
Million 0.50%
Del Cap Series First $500 Million 0.75%
Next $500 Million 0.70%
Next $1,500
Million 0.65%
Over $2,500
Million 0.60%
Aggressive Growth Series First $500 Million 0.75%
Next $500 Million 0.70%
Next $1,500
Million 0.65%
Over $2,500
Million 0.60%
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Small Cap Value Series First $500 Million 0.75%
Next $500 Million 0.70%
Next $1,500
Million 0.65%
Over $2,500
Million 0.60%
Trend Series First $500 Million 0.75%
Next $500 Million 0.70%
Next $1,500
Million 0.65%
Over $2,500
Million 0.60%
Social Awareness Series First $500 Million 0.75%
Next $500 Million 0.70%
Next $1,500
Million 0.65%
Over $2,500
Million 0.60%
REIT Series First $500 Million 0.75%
Next $500 Million 0.70%
Next $1,500
Million 0.65%
Over $2,500
Million 0.60%
Convertible Securities Series First $500 Million 0.75%
Next $500 Million 0.70%
Next $1,500
Million 0.65%
Over $2,500
Million 0.60%
Global Bond Series First $500 Million 0.75%
Next $500 Million 0.70%
Next $1,500
Million 0.65%
Over $2,500
Million 0.60%
International Equity Series First $500 Million 0.85%
Next $500 Million 0.80%
Next $1,500
Million 0.75%
Over $2,500
Million 0.70%
Emerging Markets Series First $500 Million 1.25%
Next $500 Million 1.20%
Next $1,500
Million 1.15%
Over $2,500
Million 1.10%
</TABLE>
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THE CONTRACT
APPLYING FOR A CONTRACT
Individuals wishing to purchase a Contract must complete an application and
submit it to an authorized representative or to the Company 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, 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 Fixed Account within two business days of
receipt of the payment at our Principal Office. IF WE ARE UNABLE TO ISSUE THE
CONTRACT, 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," below), we will initially allocate your
Sub-Account investments to the Cash Reserve Series. We will reallocate all
amounts according to your investment choices no later than the expiration of the
right to cancel period.
If your initial payment is equal to the amount of the Guideline Single Premium,
the Contract will be issued with the Guaranteed Death Benefit Rider at no
additional cost. If the Guaranteed Death Benefit Rider is in effect on the Final
Payment Date, a guaranteed Net Death Benefit will be provided thereafter unless
the Guaranteed Death Benefit Rider is terminated. (See THE CONTRACT -- "Death
Benefit" -- "Guaranteed Death Benefit Rider," below)
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, the Company will mail a refund to you within seven days. We may delay
a refund of any payment made by check until the check has cleared your bank.
Where required by state law, the refund will be your entire payment. In all
other states, the refund will equal the sum of:
- Amounts allocated to the Fixed Account; PLUS
- The Contract Value in the Variable Account; PLUS
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- All fees, charges and taxes which have been imposed.
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
fixed 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 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.
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 the Company. 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-Accounts 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 1.00% 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 the Company
and its representatives and affiliates is that they will not be responsible for
losses resulting from acting on telephone requests reasonably believed to be
genuine. The Company will employ
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<PAGE>
reasonable methods to confirm that instructions communicated by telephone are
genuine; otherwise, the Company may be liable for any losses from unauthorized
or fraudulent instructions. Such procedures may include, among others, requiring
some form of personal identification prior to acting upon instructions received
by telephone. 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.
Transfers to and from 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
DOLLAR-COST AVERAGING OPTION AND AUTOMATIC REBALANCING OPTION
You may have automatic transfers of at least $100 made on a periodic basis:
- from the Fixed Account or the Sub-Accounts which invests in the Cash
Reserve Series to one or more of the other Sub-Accounts ("Dollar-Cost
Averaging Option"), or
- to reallocate Contract Value among the Sub-Accounts ("Automatic
Rebalancing Option").
Automatic transfers may be made every one, three, six or twelve months.
Generally, all transfers will be processed on the 15th of each scheduled month.
If the 15th is not a business day, however, or is the Monthly Processing Date,
the automatic transfer will be processed on the next business day. The
Dollar-Cost Averaging Option and the Automatic Account Rebalancing Option may
not be in effect at the same time. The Fixed Account is not included in
Automatic Account Rebalancing.
If the Contract Value in the Sub-Account from which the automatic transfer is to
be made is reduced to zero, the automatic transfer option will terminate. The
Contract Owner must reapply for any future automatic transfers.
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.
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<PAGE>
ASSET ALLOCATION MODEL REALLOCATIONS
If a Contract Owner elects to follow an asset allocation strategy, the Contract
Owner may preauthorize transfers in accordance with the chosen strategy. The
Company may provide administrative or other support services to independent
third parties who provide recommendations as to such allocation strategies.
However, the Company does not engage any third parties to offer investment
allocation services of any type under this Contract, does not endorse or review
any investment allocations recommendations made by such third parties, and is
not responsible for the investment allocations and transfers transacted on the
Contract Owner's behalf. The Company does not charge for providing additional
asset allocation support services. Additional information concerning asset
allocation programs for which the Company is currently providing support
services may be obtained from a registered representative or the Company.
TRANSFER PRIVILEGES SUBJECT TO POSSIBLE LIMITS
All of the transfer privileges described above are 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.
These rules are subject to change by the Company.
DEATH BENEFIT (WITHOUT GUARANTEED DEATH BENEFIT RIDER)
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 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.
The Death Benefit is the GREATER of the:
- Face Amount OR
- Minimum Sum Insured.
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.
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<PAGE>
In most states, we will compute the Net Death Benefit on the date we receive due
proof of the Insured's death.
GUARANTEED DEATH BENEFIT RIDER (NOT AVAILABLE IN ALL STATES)
If at the time of issue the Contract Owner has made payments equal to 100% of
the Guideline Single Premium, a Guaranteed Death Benefit Rider will be added to
the Contract at no additional charge. The Contract will not lapse while the
Guaranteed Death Benefit Rider is in force. The Death Benefit before the Final
Payment Date will be the greater of the:
- Face Amount OR
- Minimum Sum Insured.
If the Guaranteed Death Benefit Rider is in effect on the Final Payment Date, a
guaranteed Net Death Benefit will be provided thereafter unless the Guaranteed
Death Benefit Rider is terminated, as described below. The guaranteed Net Death
Benefit will be:
- the GREATER of (a) the Face Amount as of the Final Payment Date or (b) the
Contract Value as of the date due proof of death is received by the
Company,
- REDUCED by the Outstanding Loan, if any, through the Contract month in
which the Insured dies.
The Guaranteed Death Benefit Rider will terminate (AND MAY NOT BE REINSTATED) on
the first to occur of the following:
- Foreclosure of the Outstanding Loan, if any; or
- Any Contract change that results in a negative guideline level premium; or
- A request for a partial withdrawal or preferred loan after the Final
Payment Date; or
- Upon your written request.
MINIMUM SUM INSURED -- The minimum sum insured is a percentage of the Contract
Value as set forth in APPENDIX A -- MINIMUM SUM INSURED TABLE. The 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. The minimum sum insured under
this Contract meets or exceeds the IRS Guideline Minimum Sum Insured.
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 265% of
Contract Value, if the Contract Value exceeds $37,740 the Death Benefit will
exceed the $100,000 Face Amount. In this example, each dollar of Contract Value
above $37,740 will increase the Death Benefit by $2.65. For example, a Contract
with a Contract Value of $50,000 will have a guideline minimum sum insured of
$132,500 ($50,000 X 2.65); Contract Value of $60,000 will produce a guideline
minimum sum insured of $159,000 ($60,000 X 2.65); and Contract Value of $75,000
will produce a guideline minimum sum insured of $198,750 ($75,000 X 2.65).
Similarly, if Contract Value exceeds $37,740, each dollar taken out of Contract
Value will reduce the Death Benefit by $2.65. 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
$159,000
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<PAGE>
to $132,500. 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 200%. The Death Benefit would
not exceed the $100,000 Face Amount unless the Contract Value exceeded $50,000
(rather than $37,740), and each dollar then added to or taken from Contract
Value would change the Death Benefit by $2.00.
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 Underlying 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:
- Your payment plus any interest earned during the underwriting period it
was allocated to the Fixed Account (see THE CONTRACT -- "Applying 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.
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<PAGE>
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 Underlying 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 Underlying 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 Underlying 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 the Company. 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.
OPTIONAL INSURANCE BENEFITS
You may add an optional insurance benefit to the Contract by rider, as described
in APPENDIX B -- OPTIONAL INSURANCE BENEFITS.
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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 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 transaction fee and any applicable
surrender fee. See CHARGES AND DEDUCTIONS -- "Surrender Charge." We will
normally pay the partial withdrawal within seven days following our receipt of
the written request. We may delay payment as described in OTHER CONTRACT
PROVISIONS -- "Delay of 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 are imposed, and no commissions are paid where the Insured
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 Directors of First
Allmerica and its affiliates and subsidiaries, 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
or children of the above persons. However, such Insured will be subject to the
Distribution Expense Charge.
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<PAGE>
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. (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 $100 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 0.20% 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 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 Insureds 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 expenses which are incurred
by us with respect to the Contracts. This charge is equal to an annual rate of
0.90% of the Contract Value.
- - FEDERAL AND STATE PAYMENT TAX CHARGE: During the first Contract year, we make
a monthly deduction to partially compensate the Company for the increase in
federal tax liability from the application of Section 848 of the Internal
Revenue Code and to offset a portion of the average premium tax the Company is
expected to pay to various state and local jurisdictions. This charge is equal
to an annual rate of 1.50% of the Contract Value. Premium taxes vary from
state to state, ranging from zero to 5%. The deduction may be higher or lower
than the actual premium tax imposed by the applicable jurisdiction, and is
made whether or not any premium tax applies. The Company does not intend to
profit from the premium tax portion of this charge.
- - 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.
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- - 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. If the charge
provides us with a profit, the profit will be available for our use to pay
distribution, sales and other expenses.
- - UNDERLYING 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 the Funds 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
A contingent surrender charge is deducted from Contract Value in the case of
surrender and/or a partial withdrawal for up to 10 years from Date of Issue of
the Contract. The payments you make for the Contract are the maximum amount
subject to a surrender charge. Certain withdrawals may be made without surrender
charges, but any part of a withdrawal that is assessed a surrender charge
reduces the remaining payments that will be subject to a surrender charge in the
future.
In any Contract year, you may withdraw, without a surrender charge, up to:
- 10% of the Contract Value at the time of the withdrawal, MINUS
- The total of any prior free withdrawals in the same Contract year ("Free
10% Withdrawal.")
The 10% Free Withdrawal amount applies to both partial withdrawals and a full
surrender of the Contract.
We will apply a surrender charge only to the amount by which your requested
withdrawal exceeds the remaining 10% Free Withdrawal amount for that Contract
year. This excess withdrawal amount, which is subject to a surrender charge
based on the table below, reduces the remaining amount of your payments that
will be subject to a surrender charge in the future. If the amount of the
remaining payments that are subject to a surrender charge is reduced to zero, we
will no longer assess a surrender charge, even if the surrender or partial
withdrawal is within 10 years of the Contract's Date of Issue. During the first
Contract year, the surrender charge could be as much as 10% of your purchase
payments. See the EXAMPLES, below.
The surrender charge applicable to the excess withdrawal amount will depend upon
the number of years that the Contract has been in force, based on the following
schedule:
<TABLE>
<CAPTION>
Contract Year* 1 2 3 4 5 6 7 8 9 10+
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Surrender Charge 10.00% 9.25% 8.50% 7.75% 7.00% 6.25% 4.75% 3.25% 1.50% 0%
</TABLE>
* For a Contract that lapses and reinstates, see CONTRACT TERMINATION AND
REINSTATEMENT.
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<PAGE>
The amount withdrawn from Contract Value equals the amount you request plus the
contingent surrender charge and the partial withdrawal transaction fee
(described below).
The right to make the Free 10% Withdrawal is not cumulative from Contract year
to Contract year. For example, if you withdraw only 8% of Contract Value 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.
PARTIAL WITHDRAWAL TRANSACTION FEE
For each partial withdrawal (including a Free 10% 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 partial withdrawal. The
transaction fee applies to all partial withdrawals, including a Withdrawal
without a surrender charge (described below).
EXAMPLES
In each example below, it is assumed that you have not taken any loans from the
Contract.
EXAMPLE 1. Assume that you made an initial payment of $100,000 to the Contract,
and that the Contract Value is $120,000 when you request a full surrender of the
Contract eight months later. The amount of the Free 10% Withdrawal is $12,000
(10% of Contract Value). The amount of the Contract Value that is subject to a
surrender charge is $108,000 (the $120,000 Contract Value minus the Free 10%
Withdrawal of $12,000). However, the amount of the surrender charge is capped at
$10,000 (the first year surrender charge of 10% times your $100,000 payment to
the Contract). The Surrender Value is $110,000 (the Contract Value of $120,000
minus the surrender charge of $10,000).
EXAMPLE 2. Assume that you made an initial payment of $100,000 for the Contract,
and that you request a partial withdrawal of $15,000 at the beginning of the
fifth Contract year when the Contract Value is $130,000. The amount of the Free
10% Withdrawal is $13,000 (10% of the Contract Value). The amount of the partial
withdrawal that is subject to a surrender charge is $2,000 (the $15,000 you
requested minus the Free 10% Withdrawal of $13,000). The amount of the surrender
charge is $140 ($2,000 times the 7.00% surrender charge applicable in the fifth
Contract year). The remaining Contract Value is $114,835 (the $130,000 Contract
Value at the time of the withdrawal minus the $15,000 you requested, the $140
surrender charge, and the $25 partial withdrawal transaction fee). The amount of
the Contract Value that is subject to a surrender charge is $98,000 (your
$100,000 initial payment minus the $2,000 that was subject to the surrender
charge).
Assume that, later in the same year, your Contract Value has grown to $150,000
and you make a request for a partial withdrawal of $10,000. The amount of the
Free 10% Withdrawal is $2,000 (the $15,000 that is 10% of Contract Value at the
time of withdrawal minus the prior Free 10% Withdrawal in that year of $13,000).
The amount of the withdrawal that is subject to a surrender charge is $8,000
(the $10,000 you requested minus the current Free 10% Withdrawal of $2,000). The
amount of the surrender charge is $560 ($8,000 times the 7.00% surrender charge
applicable in the fifth Contract year). The remaining Contract Value is $139,415
(the $150,000 Contract Value at the time of the withdrawal minus the $10,000 you
requested, the $560 surrender charge, and the $25 partial withdrawal transaction
fee). The amount of the Contract Value that is subject to a surrender charge is
now $90,000 (the $98,000 of the initial payment that was still subject to a
surrender charge after the first withdrawal minus the $8,000 that is subject to
the surrender charge at the second 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.
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<PAGE>
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 in that
Contract year or in later Contract years. However, if you change your
instructions for automatic transfers, the first automatic transfer thereafter
will count as one transfer.
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, both during and after the
first Contract year. The total amount you may borrow is the Loan Value. The Loan
Value is 90% of the Surrender Value. Contract Value equal to the Outstanding
Loan will earn monthly interest in the Fixed Account at an annual rate of at
least 4.0%.
The minimum loan amount 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 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.
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 1 2 3 4 5 6 7 8 9 10 11
Contract Year ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unloaned Gain 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Available
</TABLE>
The guaranteed annual interest rate credited to the Contract Value securing a
preferred loan will be at least 5.5%.
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.
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<PAGE>
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
Unless the Guaranteed Death Benefit Rider is in effect, 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. See THE CONTRACT -- "Guaranteed Death Benefit
Rider."
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. The Guaranteed
Death Benefit Rider may not be reinstated.
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<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 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 CHALLENGE 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.
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SUICIDE
The Net Death Benefit will not be paid if the Insured commits suicide 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 the Death Benefit and the Face Amount 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.
DELAY OF PAYMENTS
We may delay paying any amounts derived from a payment you made by check until
the check has cleared your bank. 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 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.
THE COMPANY AND THE VARIABLE ACCOUNT
The Company 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 with respect to 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, the Company 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.
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TAXATION OF THE CONTRACTS
We believe that the Contracts described in this prospectus are life insurance
contracts under Section 7702 of the Code. Section 7702 affects the taxation of
life insurance contracts and places limits on the total amount of premiums and
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.
MODIFIED ENDOWMENT CONTRACTS
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 cannot 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.
The Company 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 (1) a life insurance contract entered into before June 21, 1988 or (2) a
life insurance contract that is not itself a modified endowment contract, will
not cause the new Contract to be treated as a modified endowment contract if no
additional payments 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.
CONTRACT LOANS
Consumer interest paid on Contract loans under an individually owned Contract is
not tax deductible. A business may deduct interest on loans up to $50,000
subject to a prescribed maximum amount, provided that
32
<PAGE>
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 Underlying Funds, we believe
that the Underlying 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.
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, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that Fund shares be voted so as
(1) to cause to change in the sub-classification or investment objective of one
or more of the Underlying Funds, or (2) to approve or disapprove an investment
advisory contract for the Underlying Funds. In addition, we may disregard voting
instructions that are in favor of any change in the investment policies or in
any investment adviser or principal underwriter if the change has been initiated
by Contract Owners or the Trustees. Our disapproval of any such change must be
reasonable and, in the case of a change in investment policies or investment
adviser, based on a good faith determination that such change would be contrary
to state law or otherwise is inappropriate in light of the objectives and
purposes of the Underlying Funds. In the event we do disregard voting
instructions, a summary of and the reasons for that action will be included in
the next periodic report to Contract Owners.
33
<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AND POSITION WITH COMPANY PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ----------------------------------- ---------------------------------------------------
<S> <C>
Bruce C. Anderson Director (since 1996), Vice President (since 1984)
Director and Assistant Secretary (since 1992) of First
Allmerica
Mary Eldridge Secretary (since 1999) of First Allmerica;
Secretary Secretary (since 1999) of Allmerica Investments,
Inc.; and Secretary (since 1999) of Allmerica
Financial Investment Management Services, Inc.,
Attorney with First Allmerica (since 1998),
Employee of First Allmerica (since 1992)
Warren E. Barnes Vice President (since 1996) and Corporate
Vice President and Corporate Controller (since 1998) of First Allmerica
Controller
Robert E. Bruce Director and Chief Information Officer (since 1997)
Director and Chief Information and Vice President (since 1995) of First
Officer Allmerica; and Corporate Manager (1979 to 1995)
of Digital Equipment Corporation
John P. Kavanaugh Director and Chief Investment Officer (since 1996)
Director, Vice President and and Vice President (since 1991) of First
Chief Investment Officer Allmerica; and Vice President (since 1998) of
Allmerica Financial Investment Management
Services, Inc.
John F. Kelly Director (since 1996), Senior Vice President (since
Director, Vice President and 1986), General Counsel (since 1981) and Assistant
General Counsel Secretary (since 1991) of First Allmerica;
Director (since 1985) of Allmerica Investments,
Inc.; and Director (since 1990) of Allmerica
Financial Investment Management Services, Inc.
J. Barry May Director (since 1996) of First Allmerica; Director
Director and President (since 1996) of The Hanover
Insurance Company; and Vice President (1993 to
1996) of The Hanover Insurance Company
James R. McAuliffe Director (since 1996) of First Allmerica; Director
Director (since 1992), President (since 1994) and Chief
Executive Officer (since 1996) of Citizens
Insurance Company of America
John F. O'Brien Director, President and Chief Executive Officer
Director and Chairman of the (since 1989) of First Allmerica; Director (since
Board 1989) of Allmerica Investments, Inc.; and
Director and Chairman of the Board (since 1990)
of Allmerica Financial Investment Management
Services, Inc.
Edward J. Parry, III Director and Chief Financial Officer (since 1996)
Director, Vice President, Chief and Vice President and Treasurer (since 1993) of
Financial Officer and Treasurer First Allmerica; Treasurer (since 1993) of
Allmerica Investments, Inc.; and Treasurer (since
1993) of Allmerica Financial Investment
Management Services, Inc.
Richard M. Reilly Director (since 1996) and Vice President (since
Director, President and Chief 1990) of First Allmerica; Director (since 1990)
Executive Officer of Allmerica Investments, Inc.; and Director and
President (since 1998) of Allmerica Financial
Investment Management Services, Inc.
Robert P. Restrepo, Jr. Director and Vice President (since 1998) of First
Director Allmerica; Chief Executive Officer (1996 to 1998)
of Travelers Property & Casualty; Senior Vice
President (1993 to 1996) of Aetna Life & Casualty
Company
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION WITH COMPANY PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ----------------------------------- ---------------------------------------------------
<S> <C>
Eric A. Simonsen Director (since 1996) and Vice President (since
Director and Vice President 1990) of First Allmerica; Director (since 1991)
of Allmerica Investment, Inc.; and Director
(since 1991) of Allmerica Financial Investment
Management Services, Inc.
Phillip E. Soule Director (since 1996) and Vice President (since
Director 1987) of First Allmerica
</TABLE>
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.
The Company pays commissions not to exceed 7.5% of the payment to broker-dealers
which sell the Contracts. Alternative commission schedules are available with
lower initial commission amounts, plus ongoing annual compensation of up to
1.00% of Contract Value. To the extent permitted by NASD rules, overrides and
promotional incentives or payments may also be provided to General Agents,
independent marketing organizations, and 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, distribution expense charge and investment
earnings on amounts allocated under the Contracts to the Fixed Account in excess
of the interest credited on amounts in 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 and the Underlying Funds as the 1940 Act requires.
35
<PAGE>
LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Variable Account is a party,
or to which the assets of the Variable Account are subject. The Company and
Allmerica Investments, Inc. are not involved in any litigation that is of
material importance in relation to their total assets or that relates to the
Variable Account.
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 Underlying Funds are issued to other separate accounts of the
Company and its affiliates that fund variable annuity contracts ("mixed
funding"). Shares of the Underlying Funds may also be 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. The Company
and the Underlying Funds do not believe that mixed funding is currently
disadvantageous to either variable life insurance contract owners or variable
annuity contract owners. The Company will monitor events to identify any
material conflicts among contract owners because of mixed funding. If the
Company concludes that separate Underlying 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 registration statement under the Securities Act of 1933 ("1933
Act") 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.
36
<PAGE>
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 may deduct a
transfer charge not to exceed $25 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.
INDEPENDENT ACCOUNTANTS
The financial statements of the Company as of December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998, included in this
Prospectus constituting part of this Registration Statement, have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Policy.
37
<PAGE>
YEAR 2000 DISCLOSURE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
Based on a third party assessment, the Company determined that significant
portions of its software required modification or replacement to enable its
computer systems to properly process dates beyond December 31, 1999. The Company
has completed the process of modifying or replacing existing software and
believes that this action will resolve the Year 2000 issue. However, should
there be serious unanticipated interruptions from unknown sources, the Year 2000
issue could have a material adverse impact on the operations of the Company.
Specifically, the Company could experience, among other things, an interruption
in its ability to collect and process premiums, process claim payments,
safeguard and manage its invested assets, accurately maintain policyholder
information, accurately maintain accounting records, and perform customer
service. Any of these specific events, depending on duration, could have a
material adverse impact on the results of operations and the financial position
of the Company.
The Company is engaged in formal communications with all of its suppliers to
determine the extent to which the Company is vulnerable to those third parties'
failure to remediate their own Year 2000 issue. The Company's total Year 2000
project cost and estimates to complete the project include the estimated costs
and time associated with the Company's involvement on a third party's Year 2000
issue, and are based on presently available information. However, there can be
no guarantee that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems, would not have
material adverse effect on the Company. The Company does not believe that it has
material exposure to contingencies related to the Year 2000 issue for the
products it has sold. Although the Company does not believe that there is a
material contingency associated with the Year 2000 project, there can be no
assurance that exposure for material contingencies will not arise.
The cost of the Year 2000 project is being expensed as incurred and is being
funded primarily through a reallocation of resources from discretionary projects
and a reduction in systems maintenance and support costs. Therefore, the Year
2000 project is not expected to result in any significant incremental technology
cost and is not expected to have a material effect on the results of operations.
The Company and its affiliates have incurred and expensed approximately $57
million related to the assessment, plan development and substantial completion
of the Year 2000 project, through March 31, 1999. The total remaining cost of
the project is estimated between $10-20 million.
FINANCIAL STATEMENTS
Financial Statements for the Company are included in this Prospectus, beginning
immediately after the Appendices. The financial statements of the Company 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.
38
<PAGE>
APPENDIX A -- MINIMUM SUM INSURED TABLE
The minimum sum insured is a percentage of the Contract Value as set forth
below. The minimum sum insured meets or exceeds the minimum guideline sum
insured according to federal tax regulations.
MINIMUM SUM INSURED
<TABLE>
<CAPTION>
Age of Insured Percentage of
on Date of Death Contract Value
- -------------------------------------------------------------- ---------------
<S> <C>
0-40...................................................... 265%
45....................................................... 230%
50....................................................... 200%
55....................................................... 165%
60....................................................... 145%
65....................................................... 135%
70....................................................... 130%
71....................................................... 128%
72....................................................... 128%
75....................................................... 128%
80....................................................... 128%
85....................................................... 128%
90....................................................... 128%
91....................................................... 128%
92....................................................... 128%
93....................................................... 128%
94....................................................... 128%
95....................................................... 128%
96....................................................... 121%
97....................................................... 114%
98....................................................... 107%
99....................................................... 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. Certain riders may not
be available in all states.
OPTION TO ACCELERATE BENEFITS (LIVING BENEFITS) RIDER
This rider 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.
LIFE INSURANCE 1035 EXCHANGE RIDER
This rider provides preferred loan rates to: (a) any outstanding loan
carried over from an exchanged policy, the proceeds of which are applied to
purchase the Contract; and (b) a percentage of the gain under the exchanged
policy, less the outstanding policy loans carried over to the Contract, as
of the date of exchange.
GUARANTEED DEATH BENEFIT RIDER
This rider provides a guaranteed Net Death Benefit which is the greater of
(a) the Face Amount as of the Final Payment Date or (b) the Contract Value
as of the date due proof of death is received by the Company, reduced by the
Outstanding Loan, if any, through the Contract month in which the Insured
dies. If the Contract Owner pays an initial payment equal to the Guideline
Single Premium, the Contract will be issued with the Guaranteed Death
Benefit Rider at no additional charge. The rider may terminate under certain
circumstances.
B-1
<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 the Company. 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 Contract
will be provided to the payee describing the payment option selected.
The amounts payable under a payment option are paid from the Fixed 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:
- - the rate per $1,000 of benefit based on our non-guaranteed current benefit
option rates for this class of Contracts, or
- - 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.
C-1
<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.
C-2
<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.
ASSUMPTIONS
The tables illustrate the following Contracts: a Contract issued to a male, age
55, under a standard underwriting class and qualifying for the non-tobacco user
discount; a Contract issued on a unisex basis to an Insured, age 55, under a
standard underwriting class and qualifying for the non-tobacco user discount; 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; and a Second-to-Die Contract issued on a unisex basis to two Insureds
both 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. On request, we will provide a comparable illustration based on the
proposed Insured's age, sex, and Underwriting Class, and a specified payment.
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). The tables also assume that
the Guaranteed Death Benefit Rider is in effect. (The Contract will lapse when
the Surrender Value or Contract Value is zero, unless the Guaranteed Death
Benefit Rider is in effect.)
The tables assume that the initial payment is allocated to and remains 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 annual
rates of 0%, 6%, and 12%. The second column of the tables shows the amount that
would accumulate if the initial payment was invested to earn interest (after
taxes) at 5% compounded annually.
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 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.
DEDUCTIONS FOR CHARGES
The amounts shown for the Death Proceeds and Contract Values take into account
the deduction from payment for the tax expense charge, the Monthly Deductions
from Contract Value (including the administrative charge (equivalent to 0.20% on
an annual basis), and the distribution charge (equivalent to 0.90% on an annual
basis, for the first ten Contract years only), and the daily charge against the
Variable Account for mortality and expense risks (0.90% on an annual basis). In
both the Current Cost of Insurance Charges illustrations and Guaranteed Cost of
Insurance Charges illustrations, the Variable Account charges currently are
equivalent to an effective annual rate of 0.90% of the average daily value of
the assets in the Variable Account.
D-1
<PAGE>
EXPENSES OF THE UNDERLYING FUNDS
The amounts shown in the tables also take into account the Underlying Fund
advisory fees and operating expenses. These are assumed to be at an annual rate
of 0.85% of the average daily net assets of the Underlying Funds, which is the
approximate average of the expenses of the Underlying Funds in 1998. The actual
fees and expenses of each Underlying Fund vary, and, in 1998, ranged from an
annual rate of 0.54% to an annual rate of 1.50% of average daily net assets. The
fees and expenses associated with the Contract may be more or less than 0.95% in
the aggregate, depending upon how you make allocations of the Contract Value
among the Sub-Accounts.
For the fiscal year ended December 31, 1998, before waiver and/or reimbursement
by the investment adviser, total Series expenses as a percentage of average
daily net assets were 0.86% for DelCap Series, 0.89% for Social Awareness
Series, 1.02% for REIT Series, 1.67% for Emerging Markets Series, 0.81% for
Strategic Income Series, 0.92% for Global Bond Series, 0.88% for International
Equity Series and are anticipated to be 0.92% for Aggressive Growth Series.
The investment adviser for the Growth & Income Series (formerly known as
"Decatur Total Return Series"), Devon Series, DelCap Series, Aggressive Growth
Series, Social Awareness Series, REIT Series, Small Cap Value Series, Trend
Series, Delaware Balanced Series (formerly known as "Delaware Series"),
Convertible Securities Series, Delchester Series, Capital Reserves Series,
Strategic Income Series, and Cash Reserve Series is Delaware Management Company,
Inc. ("Delaware Management"). The investment adviser for the International
Equity Series, Emerging Markets Series and the Global Bond Series is Delaware
International Advisers Ltd. ("Delaware International"). Effective May 1, 1999
through October 31, 1999, the investment advisers for the Series of DGPF have
agreed voluntarily to waive their management fees and reimburse each Series for
expenses to the extent that total expenses will not exceed 1.50% for the
Emerging Markets Series; 0.95% for the International Equity Series; 0.85% for
DelCap Series, Aggressive Growth Series, Social Awareness Series, REIT Series,
Small Cap Value Series, Trend Series, Convertible Securities Series and Global
Bond Series and 0.80% for all other Series. The fee ratios shown above have been
restated, if necessary, to reflect the new voluntary limitations which took
effect on May 1, 1999. The declaration of a voluntary expense limitation does
not bind the investment advisers to declare future expense limitations with
respect to these Funds. Pursuant to a vote of the Fund's shareholders on March
17, 1999, a new management fee structure based on average daily net assets was
approved. The above ratios have been restated to reflect the new management fee
structure which took effect on May 1, 1999.
The Underlying Fund information above was provided by the Underlying Funds and
was not independently verified by the Company.
NET ANNUAL RATES OF INVESTMENT
Taking into account the Separate Account mortality and expense risk charge of
0.90%, and the assumed 0.85% charge for Underlying Fund advisory fees and
operating expenses, the gross annual rates of investment return of 0%, 6% and
12% correspond to net annual rates of -1.75%, 4.25% and 10.25%, respectively.
The hypothetical returns shown in the table do not reflect any charges for
income taxes against the Separate Account since no charges are currently made.
However, if in the future such charges are made, in order to produce illustrated
death benefits and Contract Values, the gross annual investment rate of return
would have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax
charges.
UPON REQUEST, THE COMPANY WILL PROVIDE A COMPARABLE ILLUSTRATION BASED UPON THE
PROPOSED INSURED'S AGE AND UNDERWRITING CLASSIFICATION, AND THE REQUESTED FACE
AMOUNT, SUM INSURED OPTION, AND RIDERS.
D-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DELAWARE SPL
SINGLE PREMIUM VARI-EXCEPTIONAL LIFE
MALE NON-SMOKER AGE 55
SPECIFIED FACE AMOUNT = $74,596
CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS
PAID PLUS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
INTEREST GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
AT 5% ----------------------------- ----------------------------- ---------------------------------
CONTRACT PER SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH
YEAR YEAR(1) VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT
- ------ --------- --------- ------- -------- --------- ------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,288 23,788 74,596 22,741 25,241 74,596 24,194 26,694 74,596
2 27,563 20,665 22,978 74,596 23,557 25,870 74,596 26,621 28,934 74,596
3 28,941 20,070 22,195 74,596 24,390 26,515 74,596 29,236 31,361 74,596
4 30,388 19,501 21,439 74,596 25,238 27,175 74,596 32,055 33,993 74,596
5 31,907 18,959 20,709 74,596 26,103 27,853 74,596 35,095 36,845 74,596
6 33,502 18,441 20,003 74,596 26,984 28,547 74,596 38,374 39,937 74,596
7 35,178 18,134 19,322 74,596 28,071 29,258 74,596 42,100 43,288 74,596
8 36,936 17,851 18,663 74,596 29,175 29,987 74,596 46,107 46,920 74,596
9 38,783 17,653 18,028 74,596 30,360 30,735 74,596 50,482 50,857 74,596
10 40,722 17,413 17,413 74,596 31,501 31,501 74,596 55,124 55,124 75,520
11 42,758 17,006 17,006 74,596 32,643 32,643 74,596 60,411 60,411 81,555
12 44,896 16,609 16,609 74,596 33,827 33,827 74,596 66,205 66,205 88,714
13 47,141 16,220 16,220 74,596 35,053 35,053 74,596 72,554 72,554 96,497
14 49,498 15,841 15,841 74,596 36,324 36,324 74,596 79,512 79,512 104,956
15 51,973 15,471 15,471 74,596 37,642 37,642 74,596 87,138 87,138 114,150
16 54,572 15,109 15,109 74,596 39,007 39,007 74,596 95,494 95,494 124,143
17 57,300 14,756 14,756 74,596 40,421 40,421 74,596 104,653 104,653 133,955
18 60,165 14,411 14,411 74,596 41,887 41,887 74,596 114,689 114,689 146,802
19 63,174 14,074 14,074 74,596 43,406 43,406 74,596 125,688 125,688 160,881
20 66,332 13,745 13,745 74,596 44,980 44,980 74,596 137,742 137,742 176,310
Age 60 31,907 18,959 20,709 74,596 26,103 27,853 74,596 35,095 36,845 74,596
Age 65 40,722 17,413 17,413 74,596 31,501 31,501 74,596 55,124 55,124 75,520
Age 70 51,973 15,471 15,471 74,596 37,642 37,642 74,596 87,138 87,138 114,150
Age 75 66,332 13,745 13,745 74,596 44,980 44,980 74,596 137,742 137,742 176,310
</TABLE>
(1) Assumes a $25,000 premium is paid at the beginning of the first Contract
year. Values will be different if premiums are paid with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
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. VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE RATES OF RETURN AVERAGED THE HYPOTHETICAL 0%, 6%, AND 12%, BUT
FLUCTUATED ABOVE AND BELOW THE AVERAGE IN INDIVIDUAL CONTRACT YEARS.
D-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DELAWARE SPL
SINGLE PREMIUM VARI-EXCEPTIONAL LIFE
MALE NON-SMOKER AGE 55
SPECIFIED FACE AMOUNT = $74,596
GUARANTEED COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS
PAID PLUS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
INTEREST GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
AT 5% ----------------------------- ----------------------------- ---------------------------------
CONTRACT PER SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH
YEAR YEAR(1) VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT
- ------ --------- --------- ------- -------- --------- ------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,029 23,529 74,596 22,483 24,983 74,596 23,938 26,438 74,596
2 27,563 20,094 22,407 74,596 22,994 25,307 74,596 26,069 28,382 74,596
3 28,941 19,131 21,256 74,596 23,470 25,595 74,596 28,350 30,475 74,596
4 30,388 18,138 20,075 74,596 23,910 25,847 74,596 30,799 32,736 74,596
5 31,907 17,100 18,850 74,596 24,300 26,050 74,596 33,428 35,178 74,596
6 33,502 16,015 17,578 74,596 24,640 26,203 74,596 36,261 37,824 74,596
7 35,178 15,055 16,242 74,596 25,103 26,291 74,596 39,507 40,694 74,596
8 36,936 14,022 14,834 74,596 25,493 26,306 74,596 43,004 43,817 74,596
9 38,783 12,960 13,335 74,596 25,857 26,232 74,596 46,847 47,222 74,596
10 40,722 11,719 11,719 74,596 26,047 26,047 74,596 50,944 50,944 74,596
11 42,758 10,078 10,078 74,596 25,986 25,986 74,596 55,542 55,542 74,981
12 44,896 8,275 8,275 74,596 25,800 25,800 74,596 60,598 60,598 81,201
13 47,141 6,286 6,286 74,596 25,468 25,468 74,596 66,073 66,073 87,878
14 49,498 4,081 4,081 74,596 24,966 24,966 74,596 71,997 71,997 95,036
15 51,973 1,628 1,628 74,596 24,266 24,266 74,596 78,400 78,400 102,704
16 54,572 0 0 74,596 23,324 23,324 74,596 85,309 85,309 110,901
17 57,300 0 0 74,596 22,080 22,080 74,596 92,786 92,786 118,766
18 60,165 0 0 74,596 20,471 20,471 74,596 100,786 100,786 129,006
19 63,174 0 0 74,596 18,402 18,402 74,596 109,306 109,306 139,912
20 66,332 0 0 74,596 15,776 15,776 74,596 118,348 118,348 151,485
Age 60 31,907 17,100 18,850 74,596 24,300 26,050 74,596 33,428 35,178 74,596
Age 65 40,722 11,719 11,719 74,596 26,047 26,047 74,596 50,944 50,944 74,596
Age 70 51,973 1,628 1,628 74,596 24,266 24,266 74,596 78,400 78,400 102,704
Age 75 66,332 0 (16,938) 74,596 15,776 15,776 74,596 118,348 118,348 151,485
</TABLE>
(1) Assumes a $25,000 premium is paid at the beginning of the first Contract
year. Values will be different if premiums are paid with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
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. VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE RATES OF RETURN AVERAGED THE HYPOTHETICAL 0%, 6%, AND 12%, BUT
FLUCTUATED ABOVE AND BELOW THE AVERAGE IN INDIVIDUAL CONTRACT YEARS.
D-4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DELAWARE SPL
SINGLE PREMIUM VARI-EXCEPTIONAL LIFE
UNISEX NONSMOKER AGE 55
SPECIFIED FACE AMOUNT = $76,948
CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS
PAID PLUS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
INTEREST GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
AT 5% ----------------------------- ----------------------------- ---------------------------------
CONTRACT PER SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH
YEAR YEAR(1) VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT
- ------ --------- --------- ------- -------- --------- ------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,288 23,788 76,948 22,741 25,241 76,948 24,194 26,694 76,948
2 27,563 20,665 22,978 76,948 23,557 25,870 76,948 26,621 28,934 76,948
3 28,941 20,070 22,195 76,948 24,390 26,515 76,948 29,236 31,361 76,948
4 30,388 19,501 21,439 76,948 25,238 27,175 76,948 32,055 33,993 76,948
5 31,907 18,959 20,709 76,948 26,103 27,853 76,948 35,095 36,845 76,948
6 33,502 18,441 20,003 76,948 26,984 28,547 76,948 38,374 39,937 76,948
7 35,178 18,134 19,322 76,948 28,071 29,258 76,948 42,100 43,288 76,948
8 36,936 17,851 18,663 76,948 29,175 29,987 76,948 46,107 46,920 76,948
9 38,783 17,653 18,028 76,948 30,360 30,735 76,948 50,482 50,857 76,948
10 40,722 17,413 17,413 76,948 31,501 31,501 76,948 55,124 55,124 76,948
11 42,758 17,006 17,006 76,948 32,643 32,643 76,948 60,411 60,411 81,555
12 44,896 16,609 16,609 76,948 33,827 33,827 76,948 66,205 66,205 88,714
13 47,141 16,220 16,220 76,948 35,053 35,053 76,948 72,554 72,554 96,497
14 49,498 15,841 15,841 76,948 36,324 36,324 76,948 79,512 79,512 104,956
15 51,973 15,471 15,471 76,948 37,642 37,642 76,948 87,138 87,138 114,150
16 54,572 15,109 15,109 76,948 39,007 39,007 76,948 95,494 95,494 124,143
17 57,300 14,756 14,756 76,948 40,421 40,421 76,948 104,653 104,653 133,955
18 60,165 14,411 14,411 76,948 41,887 41,887 76,948 114,689 114,689 146,802
19 63,174 14,074 14,074 76,948 43,406 43,406 76,948 125,688 125,688 160,881
20 66,332 13,745 13,745 76,948 44,980 44,980 76,948 137,742 137,742 176,310
Age 60 31,907 18,959 20,709 76,948 26,103 27,853 76,948 35,095 36,845 76,948
Age 65 40,722 17,413 17,413 76,948 31,501 31,501 76,948 55,124 55,124 76,948
Age 70 51,973 15,471 15,471 76,948 37,642 37,642 76,948 87,138 87,138 114,150
Age 75 66,332 13,745 13,745 76,948 44,980 44,980 76,948 137,742 137,742 176,310
</TABLE>
(1) Assumes a $25,000 premium is paid at the beginning of the first Contract
year. Values will be different if premiums are paid with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this to lapse because of insufficient Contract Value.
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. VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE RATES OF RETURN AVERAGED THE HYPOTHETICAL 0%, 6%, AND 12%, BUT
FLUCTUATED ABOVE AND BELOW THE AVERAGE IN INDIVIDUAL CONTRACT YEARS.
D-5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DELAWARE SPL
SINGLE PREMIUM VARI-EXCEPTIONAL LIFE
UNISEX NON-SMOKER AGE 55
SPECIFIED FACE AMOUNT = $76,948
GUARANTEED COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS
PAID PLUS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
INTEREST GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
AT 5% ----------------------------- ----------------------------- ---------------------------------
CONTRACT PER SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH
YEAR YEAR(1) VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT
- ------ --------- --------- ------- -------- --------- ------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,029 23,529 76,948 22,483 24,983 76,948 23,937 26,437 76,948
2 27,563 20,092 22,405 76,948 22,991 25,304 76,948 26,065 28,377 76,948
3 28,941 19,139 21,264 76,948 23,475 25,600 76,948 28,350 30,475 76,948
4 30,388 18,153 20,091 76,948 23,920 25,857 76,948 30,801 32,739 76,948
5 31,907 17,135 18,885 76,948 24,325 26,075 76,948 33,439 35,189 76,948
6 33,502 16,074 17,637 76,948 24,684 26,247 76,948 36,282 37,844 76,948
7 35,178 15,143 16,331 76,948 25,170 26,357 76,948 39,535 40,723 76,948
8 36,936 14,144 14,956 76,948 25,586 26,398 76,948 43,040 43,852 76,948
9 38,783 13,121 13,496 76,948 25,979 26,354 76,948 46,885 47,260 76,948
10 40,722 11,930 11,930 76,948 26,208 26,208 76,948 50,983 50,983 76,948
11 42,758 10,347 10,347 76,948 26,190 26,190 76,948 55,572 55,572 76,948
12 44,896 8,617 8,617 76,948 26,058 26,058 76,948 60,657 60,657 81,280
13 47,141 6,716 6,716 76,948 25,792 25,792 76,948 66,185 66,185 88,026
14 49,498 4,624 4,624 76,948 25,373 25,373 76,948 72,177 72,177 95,273
15 51,973 2,302 2,302 76,948 24,771 24,771 76,948 78,663 78,663 103,048
16 54,572 0 (312 ) 76,948 23,935 23,935 76,948 85,669 85,669 111,369
17 57,300 0 (3,286 ) 76,948 22,829 22,829 76,948 93,265 93,265 119,379
18 60,165 0 (6,650 ) 76,948 21,401 21,401 76,948 101,419 101,419 129,816
19 63,174 0 (10,514) 76,948 19,563 19,563 76,948 110,134 110,134 140,971
20 66,332 0 (14,984) 76,948 17,222 17,222 76,948 119,412 119,412 152,848
Age 60 31,907 17,135 18,885 76,948 24,325 26,075 76,948 33,439 35,189 76,948
Age 65 40,722 11,930 11,930 76,948 26,208 26,208 76,948 50,983 50,983 76,948
Age 70 51,973 2,302 2,302 76,948 24,771 24,771 76,948 78,663 78,663 103,048
Age 75 66,332 0 (14,984) 76,948 17,222 17,222 76,948 119,412 119,412 152,848
</TABLE>
(1) Assumes a $25,000 premium is paid at the beginning of the first Contract
year. Values will be different if premiums are paid with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
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. VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE RATES OF RETURN AVERAGED THE HYPOTHETICAL 0%, 6%, AND 12%, BUT
FLUCTUATED ABOVE AND BELOW THE AVERAGE IN INDIVIDUAL CONTRACT YEARS.
D-6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DELAWARE SPL
SINGLE PREMIUM VARI-EXCEPTIONAL LIFE
MALE NON-SMOKER AGE 65
FEMALE NON-SMOKER AGE 65
SPECIFIED FACE AMOUNT = $73,207
CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS
PAID PLUS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
INTEREST GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
AT 5% ----------------------------- ----------------------------- ---------------------------------
CONTRACT PER SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH
YEAR YEAR(1) VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT
- ------ --------- --------- ------- -------- --------- ------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,416 23,916 73,207 22,877 25,377 73,207 24,339 26,839 73,207
2 27,563 20,876 23,189 73,207 23,803 26,115 73,207 26,903 29,215 73,207
3 28,941 20,341 22,466 73,207 24,721 26,846 73,207 29,644 31,769 73,207
4 30,388 19,828 21,766 73,207 25,661 27,598 73,207 32,600 34,538 73,207
5 31,907 19,338 21,088 73,207 26,621 28,371 73,207 35,798 37,548 73,207
6 33,502 18,868 20,430 73,207 27,603 29,165 73,207 39,259 40,821 73,207
7 35,178 18,606 19,794 73,207 28,795 29,982 73,207 43,192 44,379 73,207
8 36,936 18,364 19,177 73,207 30,009 30,822 73,207 47,435 48,248 73,207
9 38,783 18,204 18,579 73,207 31,310 31,685 73,207 52,078 52,453 73,207
10 40,722 18,000 18,000 73,207 32,572 32,572 73,207 57,026 57,026 73,207
11 42,758 17,615 17,615 73,207 33,821 33,821 73,207 62,620 62,620 80,153
12 44,896 17,237 17,237 73,207 35,117 35,117 73,207 68,763 68,763 88,016
13 47,141 16,868 16,868 73,207 36,463 36,463 73,207 75,508 75,508 96,650
14 49,498 16,507 16,507 73,207 37,861 37,861 73,207 82,915 82,915 106,132
15 51,973 16,153 16,153 73,207 39,313 39,313 73,207 91,049 91,049 116,543
16 54,572 15,807 15,807 73,207 40,820 40,820 73,207 99,981 99,981 127,976
17 57,300 15,468 15,468 73,207 42,385 42,385 73,207 109,789 109,789 140,530
18 60,165 15,137 15,137 73,207 44,010 44,010 73,207 120,559 120,559 154,316
19 63,174 14,813 14,813 73,207 45,697 45,697 73,207 132,386 132,386 169,454
20 66,332 14,495 14,495 73,207 47,449 47,449 73,207 145,373 145,373 186,077
Age 70 31,907 19,338 21,088 73,207 26,621 28,371 73,207 35,798 37,548 73,207
Age 75 40,722 18,000 18,000 73,207 32,572 32,572 73,207 57,026 57,026 73,207
</TABLE>
(1) Assumes a $25,000 premium is paid at the beginning of the first Contract
year. Values will be different if premiums are paid with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
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. VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE RATES OF RETURN AVERAGED THE HYPOTHETICAL 0%, 6%, AND 12%, BUT
FLUCTUATED ABOVE AND BELOW THE AVERAGE IN INDIVIDUAL CONTRACT YEARS.
D-7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DELAWARE SPL
SINGLE PREMIUM VARI-EXCEPTIONAL LIFE
MALE NON-SMOKER AGE 65
FEMALE NON-SMOKER AGE 65
SPECIFIED FACE AMOUNT = $73,207
GUARANTEED COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
PAID 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(2) BENEFIT VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT
- ------ --------- --------- ------- -------- --------- ------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,416 23,916 73,207 22,877 25,377 73,207 24,339 26,839 73,207
2 27,563 20,876 23,189 73,207 23,803 26,115 73,207 26,903 29,215 73,207
3 28,941 20,310 22,435 73,207 24,708 26,833 73,207 29,644 31,769 73,207
4 30,388 19,709 21,646 73,207 25,585 27,523 73,207 32,574 34,511 73,207
5 31,907 19,059 20,809 73,207 26,425 28,175 73,207 35,709 37,459 73,207
6 33,502 18,346 19,908 73,207 27,214 28,777 73,207 39,068 40,630 73,207
7 35,178 17,735 18,922 73,207 28,125 29,312 73,207 42,856 44,044 73,207
8 36,936 17,011 17,824 73,207 28,947 29,759 73,207 46,912 47,725 73,207
9 38,783 16,203 16,578 73,207 29,716 30,091 73,207 51,330 51,705 73,207
10 40,722 15,142 15,142 73,207 30,275 30,275 73,207 56,028 56,028 73,207
11 42,758 13,598 13,598 73,207 30,560 30,560 73,207 61,272 61,272 78,428
12 44,896 11,747 11,747 73,207 30,640 30,640 73,207 66,919 66,919 85,656
13 47,141 9,525 9,525 73,207 30,473 30,473 73,207 72,969 72,969 93,400
14 49,498 6,853 6,853 73,207 30,006 30,006 73,207 79,421 79,421 101,659
15 51,973 3,625 3,625 73,207 29,165 29,165 73,207 86,265 86,265 110,420
16 54,572 0 0 73,207 27,854 27,854 73,207 93,477 93,477 119,650
17 57,300 0 0 73,207 25,936 25,936 73,207 101,011 101,011 129,294
18 60,165 0 0 73,207 23,221 23,221 73,207 108,802 108,802 139,267
19 63,174 0 0 73,207 19,454 19,454 73,207 116,761 116,761 149,454
20 66,332 0 0 73,207 14,286 14,286 73,207 124,782 124,782 159,720
Age 70 31,907 19,059 20,809 73,207 26,425 28,175 73,207 35,709 37,459 73,207
Age 75 40,722 15,142 15,142 73,207 30,275 30,275 73,207 56,028 56,028 73,207
</TABLE>
(1) Assumes a $25,000 premium is paid at the beginning of the first Contract
year. Values will be different if premiums are paid with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
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. VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE RATES OF RETURN AVERAGED THE HYPOTHETICAL 0%, 6%, AND 12%, BUT
FLUCTUATED ABOVE AND BELOW THE AVERAGE IN INDIVIDUAL CONTRACT YEARS.
D-8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DELAWARE SPL
SINGLE PREMIUM VARI-EXCEPTIONAL LIFE
UNISEX NON-SMOKER AGE 65
UNISEX NON-SMOKER AGE 65
SPECIFIED FACE AMOUNT = $72,969
CURRENT COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS
PAID PLUS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
INTEREST GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
AT 5% ----------------------------- ----------------------------- ---------------------------------
CONTRACT PER SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH
YEAR YEAR(1) VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT
- ------ --------- --------- ------- -------- --------- ------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,416 23,916 72,969 22,877 25,377 72,969 24,338 26,838 72,969
2 27,563 20,874 23,186 72,969 23,800 26,113 72,969 26,901 29,213 72,969
3 28,941 20,339 22,464 72,969 24,719 26,844 72,969 29,639 31,764 72,969
4 30,388 19,826 21,764 72,969 25,658 27,596 72,969 32,595 34,532 72,969
5 31,907 19,336 21,086 72,969 26,619 28,369 72,969 35,792 37,542 72,969
6 33,502 18,866 20,428 72,969 27,600 29,163 72,969 39,252 40,815 72,969
7 35,178 18,604 19,792 72,969 28,792 29,979 72,969 43,185 44,372 72,969
8 36,936 18,362 19,175 72,969 30,006 30,819 72,969 47,428 48,240 72,969
9 38,783 18,202 18,577 72,969 31,307 31,682 72,969 52,070 52,445 72,969
10 40,722 17,998 17,998 72,969 32,569 32,569 72,969 57,017 57,017 72,981
11 42,758 17,613 17,613 72,969 33,818 33,818 72,969 62,610 62,610 80,141
12 44,896 17,236 17,236 72,969 35,114 35,114 72,969 68,752 68,752 88,002
13 47,141 16,866 16,866 72,969 36,460 36,460 72,969 75,496 75,496 96,635
14 49,498 16,505 16,505 72,969 37,858 37,858 72,969 82,902 82,902 106,115
15 51,973 16,151 16,151 72,969 39,310 39,310 72,969 91,035 91,035 116,525
16 54,572 15,805 15,805 72,969 40,817 40,817 72,969 99,965 99,965 127,956
17 57,300 15,467 15,467 72,969 42,381 42,381 72,969 109,772 109,772 140,508
18 60,165 15,136 15,136 72,969 44,006 44,006 72,969 120,540 120,540 154,291
19 63,174 14,811 14,811 72,969 45,693 45,693 72,969 132,365 132,365 169,427
20 66,332 14,494 14,494 72,969 47,445 47,445 72,969 145,350 145,350 186,048
Age 70 31,907 19,336 21,086 72,969 26,619 28,369 72,969 35,792 37,542 72,969
Age 75 40,722 17,998 17,998 72,969 32,569 32,569 72,969 57,017 57,017 72,981
</TABLE>
(1) Assumes a $25,000 premium is paid at the beginning of the first Contract
year. Values will be different if premiums are paid with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
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. VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE RATES OF RETURN AVERAGED THE HYPOTHETICAL 0%, 6%, AND 12%, BUT
FLUCTUATED ABOVE AND BELOW THE AVERAGE IN INDIVIDUAL CONTRACT YEARS.
D-9
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DELAWARE SPL
SINGLE PREMIUM VARI-EXCEPTIONAL LIFE
UNISEX NON-SMOKER AGE 65
UNISEX NON-SMOKER AGE 65
SPECIFIED FACE AMOUNT = $72,969
GUARANTEED COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
PREMIUMS
PAID PLUS HYPOTHETICAL 0% HYPOTHETICAL 6% HYPOTHETICAL 12%
INTEREST GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
AT 5% ----------------------------- ----------------------------- ---------------------------------
CONTRACT PER SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH SURRENDER CONTRACT DEATH
YEAR YEAR(1) VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT VALUE VALUE(2) BENEFIT
- ------ --------- --------- ------- -------- --------- ------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 21,416 23,916 72,969 22,877 25,377 72,969 24,338 26,838 72,969
2 27,563 20,874 23,186 72,969 23,800 26,113 72,969 26,901 29,213 72,969
3 28,941 20,305 22,430 72,969 24,703 26,828 72,969 29,638 31,763 72,969
4 30,388 19,698 21,636 72,969 25,575 27,512 72,969 32,564 34,501 72,969
5 31,907 19,041 20,791 72,969 26,407 28,157 72,969 35,693 37,443 72,969
6 33,502 18,316 19,878 72,969 27,185 28,748 72,969 39,041 40,604 72,969
7 35,178 17,689 18,876 72,969 28,081 29,268 72,969 42,818 44,005 72,969
8 36,936 16,948 17,761 72,969 28,887 29,699 72,969 46,862 47,674 72,969
9 38,783 16,119 16,494 72,969 29,637 30,012 72,969 51,267 51,642 72,969
10 40,722 15,035 15,035 72,969 30,175 30,175 72,969 55,952 55,952 72,969
11 42,758 13,465 13,465 72,969 30,435 30,435 72,969 61,180 61,180 78,310
12 44,896 11,586 11,586 72,969 30,489 30,489 72,969 66,808 66,808 85,514
13 47,141 9,336 9,336 72,969 30,295 30,295 72,969 72,837 72,837 93,231
14 49,498 6,636 6,636 72,969 29,800 29,800 72,969 79,266 79,266 101,461
15 51,973 3,384 3,384 72,969 28,933 28,933 72,969 86,087 86,087 110,191
16 54,572 0 0 72,969 27,597 27,597 72,969 93,275 93,275 119,392
17 57,300 0 0 72,969 25,657 25,657 72,969 100,787 100,787 129,008
18 60,165 0 0 72,969 22,927 22,927 72,969 108,561 108,561 138,957
19 63,174 0 0 72,969 19,152 19,152 72,969 116,508 116,508 149,130
20 66,332 0 0 72,969 13,989 13,989 72,969 124,525 124,525 159,392
Age 70 31,907 19,041 20,791 72,969 26,407 28,157 72,969 35,693 37,443 72,969
Age 75 40,722 15,035 15,035 72,969 30,175 30,175 72,969 55,952 55,952 72,969
</TABLE>
(1) Assumes a $25,000 premium is paid at the beginning of the first Contract
year. Values will be different if premiums are paid with a different
frequency or in different amounts.
(2) Assumes that no Contract loan has been made. Excessive loans or withdrawals
may cause this Contract to lapse because of insufficient Contract Value.
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. VALUES WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE RATES OF RETURN AVERAGED THE HYPOTHETICAL 0%, 6%, AND 12%, BUT
FLUCTUATED ABOVE AND BELOW THE AVERAGE IN INDIVIDUAL CONTRACT YEARS.
D-10
<PAGE>
APPENDIX E
PERFORMANCE INFORMATION
The Contracts were first offered to the public in 1999. However, the Company may
advertise "Total Return" and "Average Annual Total Return" performance
information based on the periods that the Underlying 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
Underlying 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 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.
In Tables IA and IIA, 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-tobacco user) 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.
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.
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 Inc.;
- 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.
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:
E-1
<PAGE>
- 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 Contracts of deposit and other financial
instruments, including comparisons between the Contracts and the
characteristics of and market for the financial instruments.
At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of the Company's relative financial
strength and operating performance in comparison to the norms of the life/health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues but
do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the Underlying
Funds.
E-2
<PAGE>
TABLE IA
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNTS
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF SUB-ACCOUNTS
NET OF ALL CHARGES AND ASSUMING SURRENDER OF THE CONTRACT
The following performance information is based on the periods that the
Sub-Accounts have been in existence. The data is net of expenses of the Funds,
all Sub-Account charges, and all Contract charges (including surrender charges)
for a representative Contract. It is assumed that the Insured is Male, Age 36,
standard (non-tobacco user) underwriting class, that a single payment of $25,000
was made, that the entire payment was allocated to each Sub-Account
individually, and that there was a full surrender of the Contract at the end of
the applicable period.
<TABLE>
<CAPTION>
Ten Years or
Since
One Year Five Inception
Underlying Fund Total Return Years (if less)
<S> <C> <C> <C>
Growth & Income Series -3.02% 14.98% 10.45%
Devon Series 9.18% N/A 21.13%
DelCap Series 4.14% 10.23% 8.81%
Aggressive Growth Series N/A N/A N/A
Social Awareness Series 0.92% N/A 16.32%
REIT Series N/A N/A -48.70%
Small Cap Value Series -18.53% 10.02% 8.83%
Trend Series 1.48% 12.65% 11.46%
International Equity Series -4.00% 6.41% 6.52%
Emerging Markets Series -45.13% N/A -36.78%
Delaware Balanced Series 3.96% 12.96% 11.59%
Convertible Securities 3.96% 12.96% 11.59%
Delchester Series -15.69% 2.96% 6.38%
Capital Reserves Series -7.41% 1.61% 3.85%
Strategic Income Series -11.40% N/A -4.75%
Cash Reserve Series -9.05% 0.62% 2.02%
Global Bond -6.41% N/A -4.55%
</TABLE>
The inception dates for the Underlying Funds are not available.
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 INFORMATION SHOULD BE CONSIDERED IN LIGHT OF THE INVESTMENT
OBJECTIVES AND POLICIES, CHARACTERISTICS AND QUALITY OF THE PORTFOLIO OF THE
UNDERLYING 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.
E-3
<PAGE>
TABLE IB
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNTS
FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF SUB-ACCOUNTS
EXCLUDING MONTHLY POLICY CHARGES AND SURRENDER CHARGES
The following performance information is based on the periods that the
Sub-Accounts have been in existence. The performance information is net of total
Fund expenses and all Sub-Account charges. THE DATA DOES NOT REFLECT MONTHLY
CHARGES UNDER THE CONTRACTS OR SURRENDER CHARGES. It is assumed that a single
premium payment of $25,000 has been made and that the entire payment was
allocated to each Sub-Account individually.
<TABLE>
<CAPTION>
Ten Years or
Since
One Year Five Inception
Underlying Fund Total Return Years (if less)
<S> <C> <C> <C>
Growth & Income Series 10.35% 17.99% 12.65%
Devon Series 22.93% N/A 30.26%
DelCap Series 17.74% 13.29% 11.73%
Aggressive Growth Series N/A N/A N/A
Social Awareness Series 14.41% N/A 25.42%
REIT Series N/A N/A -9.54%
Small Cap Value Series -5.65% 13.09% 13.52%
Trend Series 15.00% 15.68% 16.10%
International Equity Series 9.34% 9.55% 10.14%
Emerging Markets Series -33.09% N/A -27.03%
Delaware Balanced Series 17.55% 15.99% 13.80%
Convertible Securities -2.06% N/A 7.93%
Delchester Series -2.71% 6.18% 8.56%
Capital Reserves Series 5.82% 4.87% 6.04%
Strategic Income Series 1.71% N/A 4.34%
Cash Reserve Series 4.13% 3.91% 4.21%
Global Bond 6.85% N/A 6.64%
</TABLE>
The inception dates for the Underlying Funds are: 10/29/92 for International
Equity Series; 12/27/93 for Small Cap Value and Trend Series; 7/2/91 for DelCap
Series; 7/28/88 for Delaware Balanced Series, Growth & Income Series, Delchester
Series, Capital Reserves Series, and Cash Reserve Series; 5/1/97 for Devon
Series, Social Awareness Series, Emerging Markets Series, and Strategic Income
Series; and 5/1/98 for REIT Series.
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 INFORMATION SHOULD BE CONSIDERED IN LIGHT OF THE INVESTMENT
OBJECTIVES AND POLICIES, CHARACTERISTICS AND QUALITY OF THE PORTFOLIO OF THE
UNDERLYING 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.
E-4
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(IN MILLIONS) 1999 1998
----------------------------------------------- -------- --------
(UNAUDITED)
<S> <C> <C>
REVENUES
Premiums..................................... $ 0.2 $ 0.4
Universal life and investment product policy
fees....................................... 75.5 61.9
Net investment income........................ 36.7 38.7
Net realized investment (losses) gains....... (0.5) 17.1
Other income................................. -- 0.9
-------- --------
Total revenues............................. 111.9 119.0
-------- --------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses........................ 47.5 40.0
Policy acquisition expenses.................. 2.7 16.8
Other operating expenses..................... 31.6 25.4
-------- --------
Total benefits, losses and expenses........ 81.8 82.2
-------- --------
Income before federal income taxes............. 30.1 36.8
-------- --------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current...................................... 1.7 14.2
Deferred..................................... 8.8 (1.1)
-------- --------
Total federal income tax expense........... 10.5 13.1
-------- --------
Net income..................................... $ 19.6 $ 23.7
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(IN MILLIONS) 1999 1998
----------------------------------------------- -------- --------
(UNAUDITED)
<S> <C> <C>
COMMON STOCK................................... $ 2.5 $ 2.5
-------- --------
ADDITIONAL PAID IN CAPITAL
Balance at beginning and end of period....... 407.9 386.9
-------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Net unrealized appreciation on investments:
Balance at beginning of period............... 24.1 38.5
Appreciation (depreciation) during the
period:
Net (depreciation) on available-for-sale
securities............................... (17.0) (5.9)
Benefit for deferred federal income
taxes.................................... 5.9 2.1
-------- --------
Other comprehensive (loss)................. (11.1) (3.8)
-------- --------
Balance at end of period..................... 13.0 34.7
-------- --------
RETAINED EARNINGS
Balance at beginning of period............... 275.4 213.1
Net income................................... 19.6 23.7
-------- --------
Balance at end of period..................... 295.0 236.8
-------- --------
Total shareholder's equity................. $ 718.4 $ 660.9
-------- --------
-------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN MILLIONS)
- -------------------------------------------------------------------------------------- MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of $1,272.5 and $1,284.6).......... $ 1,300.3 $ 1,330.4
Equity securities at fair value (cost of $34.5 and $27.4)......................... 32.1 31.8
Mortgage loans.................................................................... 225.0 230.0
Real estate....................................................................... 14.5 14.5
Policy loans...................................................................... 154.0 151.5
Other long term investments....................................................... 9.1 9.1
----------- ------------
Total investments............................................................... 1,735.0 1,767.3
----------- ------------
Cash and cash equivalents........................................................... 228.7 217.9
Accrued investment income........................................................... 31.1 33.5
Deferred policy acquisition costs................................................... 1,010.9 950.5
Reinsurance receivables on paid and unpaid losses, future policy benefits and
unearned premiums................................................................. 329.3 308.0
Other assets........................................................................ 48.1 46.9
Separate account assets............................................................. 11,666.9 11,020.4
----------- ------------
Total assets.................................................................... $ 15,050.0 $ 14,344.5
----------- ------------
----------- ------------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits............................................................ $ 2,301.6 $ 2,284.8
Outstanding claims, losses and loss adjustment expenses........................... 14.8 17.9
Unearned premiums................................................................. 2.7 2.7
Contractholder deposit funds and other policy liabilities......................... 40.4 38.1
----------- ------------
Total policy liabilities and accruals........................................... 2,359.5 2,343.5
----------- ------------
Expenses and taxes payable.......................................................... 167.9 146.2
Reinsurance premiums payable........................................................ 56.3 45.7
Deferred federal income taxes....................................................... 81.6 78.8
Separate account liabilities........................................................ 11,666.3 11,020.4
----------- ------------
Total liabilities............................................................... 14,331.6 13,634.6
----------- ------------
Commitments and contingencies (Note 5)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares authorized, 2,524
Shares issued and outstanding..................................................... 2.5 2.5
Additional paid in capital.......................................................... 407.9 407.9
Accumulated other comprehensive income.............................................. 13.0 24.1
Retained earnings................................................................... 295.0 275.4
----------- ------------
Total shareholder's equity...................................................... 718.4 709.9
----------- ------------
Total liabilities and shareholder's equity...................................... $ 15,050.0 $ 14,344.5
----------- ------------
----------- ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MARCH MARCH
31, 31,
(IN MILLIONS) 1999 1998
-------------------------------------------- ------- -------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)....................... $ 19.6 $ 23.7
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Net realized (gains) losses......... 0.5 (17.1)
Net amortization and depreciation... -- (0.2)
Deferred federal income taxes....... 8.8 (1.1)
Change in deferred acquisition
costs............................. (52.0) (35.7)
Change in premiums and notes
receivable, net of reinsurance.... 10.6 11.1
Change in accrued investment
income............................ 2.3 0.9
Change in policy liabilities and
accruals, net..................... 15.6 11.2
Change in reinsurance receivable.... (21.3) (36.6)
Change in expenses and taxes
payable........................... 15.7 10.8
Separate account activity, net...... (0.6) 1.3
Other, net.......................... 3.4 1.2
------- -------
Net cash used in operating
activities.................... 2.6 (30.5)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................ 60.3 52.1
Proceeds from disposals of equity
securities............................ 11.8 37.6
Proceeds from mortgages matured or
collected............................. 4.9 29.1
Purchase of available-for-sale fixed
maturities............................ (55.3) (69.6)
Purchase of equity securities........... (11.8) (25.5)
Purchase of other investments........... (1.7) (21.6)
------- -------
Net cash provided by (used in)
investing activities.............. 8.2 2.1
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in short term debt............... -- 6.9
------- -------
Net cash provided by financing
activities........................ -- 6.9
------- -------
Net change in cash and cash equivalents..... 10.8 (21.5)
Cash and cash equivalents, beginning of
period..................................... 217.9 31.1
------- -------
Cash and cash equivalents, end of
period................................ $228.7 $ 9.6
------- -------
------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(IN MILLIONS) 1999 1998
-------------------------------------------- ------- -------
(UNAUDITED)
<S> <C> <C>
Net income.................................. $ 19.6 $ 62.3
------- -------
Other comprehensive income:
Net (depreciation) appreciation on
available-for-sale securities......... (17.0) (23.4)
Benefit for deferred federal income
taxes................................. 5.9 9.0
------- -------
Other comprehensive income.......... (11.1) (14.4)
------- -------
Comprehensive income.................... $ 8.5 $ 47.9
------- -------
------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC" or the
"Company") is organized as a stock life insurance company, and is a wholly owned
subsidiary of SMA Financial Corporation ("SMAFCO"), which is wholly owned by
First Allmerica Financial Life Insurance Company ("FAFLIC"). FAFLIC is a wholly
owned subsidiary of Allmerica Financial Corporation ("AFC"). The accompanying
unaudited consolidated financial statements of AFLIAC have been prepared in
accordance with generally accepted accounting principles for stock life
insurance companies for interim financial information.
The interim consolidated financial statements of AFLIAC include the accounts of
Somerset Square, Inc., a wholly-owned non-insurance company, which was
transferred from SMAFCO effective November 30, 1997 and dissolved as a
subsidiary, effective November 30, 1998. Its results of operations are included
for 11 months of 1998.
The accompanying interim consolidated financial statements reflect, in the
opinion of the Company's management, all adjustments, consisting of only normal
and recurring adjustments, necessary for a fair presentation of the financial
position and results of operations. The results of operations for the three
months ended March 31, 1999 are not necessarily indicative of the results to be
expected for the full year. These financial statements should be read in
conjunction with the Company's 1998 Annual Audited Financial Statements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company 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.
2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), which establishes
accounting and reporting standards for derivative instruments. Statement No. 133
requires that an entity recognize all derivatives as either assets or
liabilities at fair value in the statement of financial position, and
establishes special accounting for the following three types of hedges; fair
value hedges, cash flow hedges, and hedges of foreign currency exposures of net
investment in foreign operations. This statement is effective for fiscal years
beginning after June 15, 1999. The Company is currently assessing the impact of
adoption of Statement No. 133.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SoP 98-1"). SoP 98-1 requires that
certain costs incurred in developing internal-use computer software be
capitalized and provides guidance for determining whether computer software is
to be considered for internal use. This statement is effective for fiscal years
beginning after December 15, 1998. In the second quarter of 1998, the Company
adopted SoP 98-1 effective January 1, 1998, resulting in an increase in pre-tax
income of $9.8 million through December 31, 1998. The adoption of SOP 98-1 did
not have a material effect on the results of operations or financial position
for the three months ended March 31, 1998. The effect of SOP 98-1 was $3.8
million in the first quarter of 1999.
F-6
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT TRANSACTIONS
Effective January 1, 1998, the Company entered into an agreement with a highly
rated reinsurer to reinsure the mortality risk on the universal life and
variable universal life blocks of business. This agreement did not have a
material effect on the Company's results of operations or financial position.
During 1998, SMAFCO contributed $21.0 million of additional paid-in capital to
the Company. There were no capital contributions in the first quarter of 1999
and 1998.
4. FEDERAL INCOME TAXES
Federal income tax expense for the periods ended March 31, 1999 and 1998, has
been computed using estimated effective tax rates. These rates are revised, if
necessary, at the end of each successive interim period to reflect the current
estimates of the annual effective tax rates.
5. COMMITMENTS AND CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company is not able to reasonably estimate the potential
effect on it of any such future assessments or voluntary payments.
LITIGATION
In July 1997, a lawsuit on behalf of a putative class was instituted in
Louisiana against AFC and certain of its subsidiaries including AFLIAC, by
individual plaintiffs alleging fraud, unfair or deceptive acts, breach of
contract, misrepresentation, and related claims in the sale of life insurance
policies. In October 1997, plaintiffs voluntarily dismissed the Louisiana suit
and filed a substantially similar action in Federal District Court in Worcester,
Massachusetts. In early November 1998, AFC and the plaintiffs entered into a
settlement agreement, to which the court granted preliminary approval on
December 4, 1998. A hearing was held on March 19, 1999 to consider final
approval of the settlement agreement. On May 19, 1999, the Court issued an order
certifying the class for settlement purposes and granting final approval. AFLIAC
recognized a $16.4 million charge to surplus during the third quarter of 1998
related to this litigation. Although the Company believes that this charge
reflects appropriate recognition of its obligation under the settlement, this
estimate assumes the availability of insurance coverage for certain claims and
the estimate may be revised based on an amount of reimbursement actually
tendered by AFLIAC's insurance carriers, if any, and based on changes in the
Company's estimate of the ultimate cost of the benefits to be provided to
members of the class.
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the Company's opinion, based on the advice of
legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's financial statements. However, liabilities
related to these proceedings could be established in the near term if estimates
of the ultimate resolution of these proceedings are revised.
F-7
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Although the Company does not believe that there is a material contingency
associated with the Year 2000 project, there can be no assurance that exposure
for material contingencies will not arise.
6. SUBSEQUENT EVENTS
AFC has proposed certain changes to its corporate structure. These changes
include transfer of FAFLIC's ownership of Allmerica P&C, as well as several
other non-insurance subsidiaries, from FAFLIC to AFC. FAFLIC would retain its
ownership of AFLIAC and certain other subsidiaries. Under the proposal, AFC
would contribute to FAFLIC capital of $125 million and agree to maintain
FAFLIC's statutory surplus at specified levels during the following six years.
In addition, any dividend from FAFLIC to AFC during 2000 and 2001 would require
the prior approval of the Commonwealth of Massachusetts Insurance Commissioner
(the "Commissioner"). This proposed transaction was approved by the Commissioner
on May 24, 1999.
F-8
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Allmerica Financial Life Insurance and Annuity Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, shareholder's equity
and cash flows present fairly, in all material respects, the financial position
of Allmerica Financial Life Insurance and Annuity Company (the "Company") at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 1999, except for paragraph 2 of Note 12,
which is as of March 19, 1999
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
----------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
REVENUES
Premiums................................... $ 0.5 $ 22.8 $ 32.7
Universal life and investment product
policy fees.............................. 267.4 212.2 176.2
Net investment income...................... 151.3 164.2 171.7
Net realized investment gains (losses)..... 20.0 2.9 (3.6)
Other income............................... 0.6 1.4 0.9
------- ------- -------
Total revenues......................... 439.8 403.5 377.9
------- ------- -------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 153.9 187.8 192.6
Policy acquisition expenses................ 64.6 2.8 49.9
Sales practice litigation.................. 21.0 -- --
Loss from cession of disability income
business................................. -- 53.9 --
Other operating expenses................... 104.1 101.3 86.6
------- ------- -------
Total benefits, losses and expenses.... 343.6 345.8 329.1
------- ------- -------
Income before federal income taxes............. 96.2 57.7 48.8
------- ------- -------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 22.1 13.9 26.9
Deferred................................... 11.8 7.1 (9.8)
------- ------- -------
Total federal income tax expense....... 33.9 21.0 17.1
------- ------- -------
Net income..................................... $ 62.3 $ 36.7 $ 31.7
------- ------- -------
------- ------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
-------------------------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,284.6 and $1,340.5)............................ $ 1,330.4 $ 1,402.5
Equity securities at fair value (cost of $27.4 and
$34.4)............................................ 31.8 54.0
Mortgage loans...................................... 230.0 228.2
Real estate......................................... 14.5 12.0
Policy loans........................................ 151.5 140.1
Other long-term investments......................... 9.1 20.3
---------- ----------
Total investments............................... 1,767.3 1,857.1
---------- ----------
Cash and cash equivalents............................. 217.9 31.1
Accrued investment income............................. 33.5 34.2
Deferred policy acquisition costs..................... 950.5 765.3
Reinsurance receivables on paid and unpaid losses,
future policy benefits and unearned premiums........ 308.0 251.1
Other assets.......................................... 46.9 10.7
Separate account assets............................... 11,020.4 7,567.3
---------- ----------
Total assets.................................... $ 14,344.5 $ 10,516.8
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,284.8 $ 2,097.3
Outstanding claims, losses and loss adjustment
expenses.......................................... 17.9 18.5
Unearned premiums................................... 2.7 1.8
Contractholder deposit funds and other policy
liabilities....................................... 38.1 32.5
---------- ----------
Total policy liabilities and accruals........... 2,343.5 2,150.1
---------- ----------
Expenses and taxes payable............................ 146.2 77.6
Reinsurance premiums payable.......................... 45.7 4.9
Deferred federal income taxes......................... 78.8 75.9
Separate account liabilities.......................... 11,020.4 7,567.3
---------- ----------
Total liabilities............................... 13,634.6 9,875.8
---------- ----------
Commitments and contingencies (Note 12)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares
authorized, 2,524 and 2,521 shares issued and
outstanding......................................... 2.5 2.5
Additional paid-in capital............................ 407.9 386.9
Accumulated other comprehensive income................ 24.1 38.5
Retained earnings..................................... 275.4 213.1
---------- ----------
Total shareholder's equity...................... 709.9 641.0
---------- ----------
Total liabilities and shareholder's equity...... $ 14,344.5 $ 10,516.8
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
----------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
COMMON STOCK................................... $ 2.5 $ 2.5 $ 2.5
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............. 386.9 346.3 324.3
Issuance of common stock................... 21.0 40.6 22.0
-------- -------- --------
Balance at end of period................... 407.9 386.9 346.3
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Net unrealized appreciation on investments:
Balance at beginning of period............. 38.5 20.5 23.8
Appreciation (depreciation) during the
period:
Net (depreciation) appreciation on
available-for-sale securities........ (23.4) 27.0 (5.1)
Benefit (provision) for deferred
federal income taxes................. 9.0 (9.0) 1.8
-------- -------- --------
(14.4) 18.0 (3.3)
-------- -------- --------
Balance at end of period................... 24.1 38.5 20.5
-------- -------- --------
RETAINED EARNINGS
Balance at beginning of period............. 213.1 176.4 144.7
Net income................................. 62.3 36.7 31.7
-------- -------- --------
Balance at end of period................... 275.4 213.1 176.4
-------- -------- --------
Total shareholder's equity............. $ 709.9 $ 641.0 $ 545.7
-------- -------- --------
-------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
-------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Net income.................................. $ 62.3 $ 36.7 $ 31.7
Other comprehensive income:
Net (depreciation) appreciation on
available-for-sale securities......... (23.4) 27.0 (5.1)
Benefit (provision) for deferred federal
income taxes.......................... 9.0 (9.0) 1.8
------- ------- -------
Other comprehensive income.......... (14.4) 18.0 (3.3)
------- ------- -------
Comprehensive income.................... 47.9 $ 54.7 $ 28.4
------- ------- -------
------- ------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
-------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 62.3 $ 36.7 $ 31.7
Adjustments to reconcile net income to
net cash used in operating activities:
Net realized gains.................. (20.0) (2.9) 3.6
Net amortization and depreciation... (7.1) -- 3.5
Sales practice litigation expense... 21.0
Loss from cession of disability
income business................... -- 53.9 --
Deferred federal income taxes....... 11.8 7.1 (9.8)
Payment related to cession of
disability income business........ -- (207.0) --
Change in deferred acquisition
costs............................. (177.8) (181.3) (66.8)
Change in reinsurance premiums
payable........................... 40.8 3.9 (0.2)
Change in accrued investment
income............................ 0.7 3.5 1.2
Change in policy liabilities and
accruals, net..................... 193.1 (72.4) (39.9)
Change in reinsurance receivable.... (56.9) 22.1 (1.5)
Change in expenses and taxes
payable........................... 55.4 0.2 32.3
Separate account activity, net...... (0.5) 1.6 8.0
Other, net.......................... (28.0) (8.7) 2.3
-------- -------- --------
Net cash provided by (used in)
operating activities.......... 94.8 (343.3) (35.6)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................ 187.0 909.7 809.4
Proceeds from disposals of equity
securities............................ 53.3 2.4 1.5
Proceeds from disposals of other
investments........................... 22.7 23.7 17.4
Proceeds from mortgages matured or
collected............................. 60.1 62.9 34.0
Purchase of available-for-sale fixed
maturities............................ (136.0) (579.7) (795.8)
Purchase of equity securities........... (30.6) (3.2) (13.2)
Purchase of other investments........... (22.7) (9.0) (13.9)
Purchase of mortgages................... (58.9) (70.4) (22.3)
Other investing activities, net......... (3.9) -- (2.0)
-------- -------- --------
Net cash provided by investing
activities........................ 71.0 336.4 15.1
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and
capital paid in....................... 21.0 19.2 22.0
-------- -------- --------
Net cash provided by financing
activities........................ 21.0 19.2 22.0
-------- -------- --------
Net change in cash and cash equivalents..... 186.8 12.3 1.5
Cash and cash equivalents, beginning of
period..................................... 31.1 18.8 17.3
-------- -------- --------
Cash and cash equivalents, end of period.... $ 217.9 $ 31.1 $ 18.8
-------- -------- --------
-------- -------- --------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ 0.6 $ -- $ 3.4
Income taxes paid....................... $ 36.2 $ 5.4 $ 16.5
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC" or the
"Company") is organized as a stock life insurance company, and is a wholly owned
subsidiary of SMA Financial Corporation ("SMAFCO"), which is wholly owned by
First Allmerica Financial Life Insurance Company ("FAFLIC"). FAFLIC is a wholly
owned subsidiary of Allmerica Financial Corporation ("AFC").
The consolidated financial statements of AFLIAC include the accounts of Somerset
Square, Inc., a wholly-owned non-insurance company, which was transferred from
SMAFCO effective November 30, 1997 and dissolved as a subsidiary, effective
November 30, 1998. Its results of operations are included for 11 months of 1998
and for the month of December, 1997.
The Statutory stockholder's equity of the Company is being maintained at a
minimum level of 5% of general account assets by FAFLIC in accordance with a
policy established by vote of FAFLIC's Board of Directors.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
B. VALUATION OF INVESTMENTS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 115 ("Statement No. 115"), "Accounting for Certain Investments in Debt and
Equity Securities", the Company is required to classify its investments into one
of three categories: held-to-maturity, available-for-sale or trading. The
Company determines the appropriate classification of debt securities at the time
of purchase and re-evaluates such designation as of each balance sheet date.
Marketable equity securities and debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of shareholder's equity. The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by the Company to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which the Company believes may not be collectible in
full. In establishing reserves, the Company considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
During 1997, the Company adopted to a plan to dispose of all real estate assets
by the end of 1998. As of December 31, 1998, there was 1 property remaining in
the Company's real estate portfolio, which is being actively marketed. As a
result of the Plan, real estate held by the Company and real estate joint
ventures were written down to the estimated fair value less cost of disposal.
Depreciation is not recorded on this asset while it is held for disposal.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other-than-temporary impairment of the value of a specific
investment or a group of investments is determined, a realized investment loss
is recorded. Changes in the valuation allowance for mortgage loans are included
in realized investment gains or losses.
C. FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including debt, investments such as
fixed maturities, mortgage loans and equity securities and investment and loan
commitments. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuation. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
D. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
E. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Acquisition costs related to universal life products, variable annuities and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits from investment yields, mortality, surrender charges and
expense margins over the expected life of the contracts. This amortization is
reviewed annually and adjusted retrospectively when the Company revises its
estimate of current or future gross profits to be realized from this group of
products, including realized and unrealized gains and losses from investments.
Acquisition costs related to fixed annuities and other life insurance products
are deferred and amortized, generally in proportion to the ratio of annual
revenue to the estimated total revenues over the contract periods based upon the
same assumptions used in estimating the liability for future policy benefits.
Deferred acquisition costs for each product are reviewed to determine if they
are recoverable from future income, including investment income. If such costs
are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, the Company believes it is more likely than not that all of these costs
will be realized. The amount of deferred policy acquisition costs considered
realizable, however, could be reduced in the near term if the estimates of gross
profits or total revenues discussed above are reduced. The amount of
amortization of deferred policy acquisition costs could be revised in the near
term if any of the estimates discussed above are revised.
F. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of certain pension, variable annuity
and variable life insurance contractholders. Assets consist principally of
bonds, common stocks, mutual funds, and short-term obligations at market value.
The investment income, gains and losses of these accounts generally accrue to
the contractholders and, therefore, are not included in the Company's net
income. Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholder's equity or net investment income.
G. POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, disability income and annuity
products. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. The liabilities associated
with traditional life insurance products are computed using the net level
premium method for
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
individual life and annuity policies, and are based upon estimates as to future
investment yield, mortality and withdrawals that include provisions for adverse
deviation. Future policy benefits for individual life insurance and annuity
policies are computed using interest rates ranging from 3% to 6% for life
insurance and 3 1/2% to 9 1/2% for annuities. Mortality, morbidity and
withdrawal assumptions for all policies are based on the Company's own
experience and industry standards. Liabilities for universal life include
deposits received from customers and investment earnings on their fund balances,
less administrative charges. Universal life fund balances are also assessed
mortality and surrender charges.
Individual disability income benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future morbidity,
withdrawals and interest which provide a margin for adverse deviation. Benefit
liabilities for disabled lives are estimated using the present value of benefits
method and experience assumptions as to claim terminations, expenses and
interest.
Liabilities for outstanding claims, losses and loss adjustment expenses are
estimates of payments to be made for reported claims and estimates of claims
incurred but not reported for individual life and disability income policies.
These estimates are continually reviewed and adjusted as necessary; such
adjustments are reflected in current operations.
Contractholder deposit funds and other policy liabilities include
investment-related products and consist of deposits received from customers and
investment earnings on their fund balances.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, the Company
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
H. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life and individual annuity products, excluding
universal life and investment-related products, are considered revenue when due.
Individual disability income insurance premiums are recognized as revenue over
the related contract periods. The unexpired portion of these premiums is
recorded as unearned premiums. Benefits, losses and related expenses are matched
with premiums, resulting in their recognition over the lives of the contracts.
This matching is accomplished through the provision for future benefits,
estimated and unpaid losses and amortization of deferred policy acquisition
costs. Revenues for investment-related products consist of net investment income
and contract charges assessed against the fund values. Related benefit expenses
primarily consist of net investment income credited to the fund values after
deduction for investment and risk charges. Revenues for universal life and group
variable universal life products consist of net investment income, with
mortality, administration and surrender charges assessed against the fund
values. Related benefit expenses include universal life benefit claims in excess
of fund values and net investment income credited to universal life fund values.
Certain policy charges that represent compensation for services to be provided
in future periods are deferred and amortized over the period benefited using the
same assumptions used to amortize capitalized acquisition costs.
I. FEDERAL INCOME TAXES
AFC and its domestic subsidiaries file a consolidated United States federal
income tax return. Entities included within the consolidated group are
segregated into either a life insurance or non-life insurance company subgroup.
The consolidation of these subgroups is subject to certain statutory
restrictions on the percentage of eligible non-life tax losses that can be
applied to offset life insurance company taxable income.
The Board of Directors has delegated to AFC management, the development and
maintenance of appropriate federal income tax allocation policies and
procedures, which are subject to written agreement between the
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
companies. The Federal income tax for all subsidiaries in the consolidated
return of AFC is calculated on a separate return basis. Any current tax
liability is paid to AFC. Tax benefits resulting from taxable operating losses
or credits of AFC's subsidiaries are not reimbursed to the subsidiary until such
losses or credits can be utilized by the subsidiary on a separate return basis.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes, and for
other temporary taxable and deductible differences as defined by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement
No. 109). These differences result primarily from policy reserves, policy
acquisition expenses, and unrealized appreciation or depreciation on
investments.
J. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), which establishes
accounting and reporting standards for derivative instruments. Statement No. 133
requires that an entity recognize all derivatives as either assets or
liabilities at fair value in the statement of financial position, and
establishes special accounting for the following three types of hedges; fair
value hedges, cash flow hedges, and hedges of foreign currency exposures of net
investment in foreign operations. This statement is effective for fiscal years
beginning after June 15, 1999. The Company is currently assessing the impact of
adoption of Statement No. 133.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SoP 98-1"). SoP 98-1 requires that
certain costs incurred in developing internal-use computer software be
capitalized and provides guidance for determining whether computer software is
to be considered for internal use. This statement is effective for fiscal years
beginning after December 15, 1998. In the second quarter, the Company adopted
SoP 98-1 effective January 1, 1998, resulting in an increase in pre-tax income
of $9.8 million through December 31, 1998. The adoption of SoP 98-1 did not have
a material effect on the results of operations or financial position for the
three months ended March 31, 1998.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments" ("SoP 97-3"). SoP 97-3 provides
guidance when a liability should be recognized for guaranty fund and other
assessments and how to measure the liability. This statement allows for the
discounting of the liability if the amount and timing of the cash payments are
fixed and determinable. In addition, it provides criteria for when an asset may
be recognized for a portion or all of the assessment liability or paid
assessment that can be recovered through premium tax offsets or policy
surcharges. This statement is effective for fiscal years beginning after
December 15, 1998. The Company believes that the adoption of this statement will
not have a material effect on the results of operations or financial position.
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("Statement No. 131"). This statement
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that
selected information about those operating segments be reported in interim
financial statements. This statement supersedes Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement No. 131 requires
that all public enterprises report financial and descriptive information about
their reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This statement
is effective for fiscal years
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
beginning after December 15, 1997. AFLIAC consists of one segment, Allmerica
Financial Services, which underwrites and distributes variable annuities and
variable universal life via retail channels.
In June 1997, the FASB also issued Statement No. 130, "Reporting Comprehensive
Income" ("Statement No. 130"), which established standards for the reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. All items that are required to be
recognized under accounting standards as components of comprehensive income are
to be reported in a financial statement that is displayed with the same
prominence as other financial statements. This statement stipulates that
comprehensive income reflect the change in equity of an enterprise during a
period from transactions and other events and circumstances from non-owner
sources. This statement is effective for fiscal years beginning after December
15, 1997. The Company adopted Statement No. 130 for the first quarter of 1998,
which resulted primarily in reporting unrealized gains and losses on investments
in debt and equity securities in comprehensive income.
2. SIGNIFICANT TRANSACTIONS
Effective January 1, 1998, the Company entered into an agreement with a highly
rated reinsurer to reinsure the mortality risk on the universal life and
variable universal life blocks of business. The agreement does not have a
material effect on the results of operations or financial position of the
Company.
On April 14, 1997, the Company entered into an agreement in principle to cede
substantially all of the Company's individual disability income line of business
under a 100% coinsurance agreement with a highly rated reinsurer. The
coinsurance agreement became effective October 1, 1997. The transaction has
resulted in the recognition of a $53.9 million pre-tax loss in the first quarter
of 1997.
During 1998, 1997 and 1996 , SMAFCO contributed $21.0 million, $40.6 million and
$22.0 million, respectively, of additional paid-in capital to the Company. The
nature of the 1997 contribution was $19.2 million in cash and $21.4 million in
other assets including Somerset Square, Inc.
3. INVESTMENTS
A. SUMMARY OF INVESTMENTS
The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with the provisions of Statement No. 115.
The amortized cost and fair value of available-for-sale fixed maturities and
equity securities were as follows:
<TABLE>
<CAPTION>
1998
----------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 5.8 $ 0.8 $-- $ 6.6
States and political subdivisions....... 2.7 0.2 -- 2.9
Foreign governments..................... 48.8 1.6 1.5 48.9
Corporate fixed maturities.............. 1,096.0 58.0 17.7 1,136.3
Mortgage-backed securities.............. 131.3 5.8 1.4 135.7
--------- ----- ----- --------
Total fixed maturities.................. $ 1,284.6 $66.4 $20.6 $1,330.4
--------- ----- ----- --------
--------- ----- ----- --------
Equity securities....................... $ 27.4 $ 8.9 $ 4.5 $ 31.8
--------- ----- ----- --------
--------- ----- ----- --------
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C> <C> <C> <C>
1997
----------------------------------------------
<CAPTION>
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 6.3 $ 0.5 $-- $ 6.8
States and political subdivisions....... 2.8 0.2 -- 3.0
Foreign governments..................... 50.1 2.0 -- 52.1
Corporate fixed maturities.............. 1,147.5 58.7 3.3 1,202.9
Mortgage-backed securities.............. 133.8 5.2 1.3 137.7
--------- ----- ----- --------
Total fixed maturities.................. $ 1,340.5 $66.6 $ 4.6 $1,402.5
--------- ----- ----- --------
--------- ----- ----- --------
Equity securities....................... $ 34.4 $19.9 $ 0.3 $ 54.0
--------- ----- ----- --------
--------- ----- ----- --------
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
In connection with AFLIAC's voluntary withdrawal of its license in New York,
AFLIAC agreed with the New York Department of Insurance to maintain, through a
custodial account in New York, a security deposit, the market value of which
will at all times equal 102% of all outstanding liabilities of AFLIAC for New
York policyholders, claimants and creditors. At December 31, 1998, the amortized
cost and market value of these assets on deposit in New York were $268.5 million
and $284.1 million, respectively. At December 31, 1997, the amortized cost and
market value of assets on deposit were $276.8 million and $291.7 million,
respectively. In addition, fixed maturities, excluding those securities on
deposit in New York, with an amortized cost of $4.2 million were on deposit with
various state and governmental authorities at December 31, 1998 and 1997.
There were no contractual fixed maturity investment commitments at December 31,
1998 and 1997, respectively.
The amortized cost and fair value by maturity periods for fixed maturities are
shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties, or the Company may have the right to put or sell the
obligations back to the issuers. Mortgage backed securities are included in the
category representing their ultimate maturity.
<TABLE>
<CAPTION>
1998
--------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------------------------------------------------------ --------- --------
<S> <C> <C>
Due in one year or less..................................... $ 97.7 $ 98.9
Due after one year through five years....................... 269.1 278.3
Due after five years through ten years...................... 638.2 658.5
Due after ten years......................................... 279.6 294.7
--------- --------
Total....................................................... $ 1,284.6 $1,330.4
--------- --------
--------- --------
</TABLE>
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The proceeds from voluntary sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, PROCEEDS FROM GROSS GROSS
(IN MILLIONS) VOLUNTARY SALES GAINS LOSSES
- ------------------------------------------------------------ --------------- ----- ------
<S> <C> <C> <C>
1998
Fixed maturities............................................ $ 60.0 $ 2.0 $ 2.0
Equity securities........................................... $ 52.6 $17.5 $ 0.9
1997
Fixed maturities............................................ $702.9 $11.4 $ 5.0
Equity securities........................................... $ 1.3 $ 0.5 $ --
1996
Fixed maturities............................................ $496.6 $ 4.3 $ 8.3
Equity securities........................................... $ 1.5 $ 0.4 $ 0.1
</TABLE>
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- -------
<S> <C> <C> <C>
1998
Net appreciation, beginning of year......................... $ 22.1 $ 16.4 $ 38.5
---------- ------ -------
Net depreciation on available-for-sale securities........... (16.2) (14.3) (30.5)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 7.1 -- 7.1
Benefit from deferred federal income taxes.................. 3.2 5.8 9.0
---------- ------ -------
(5.9) (8.5) (14.4)
---------- ------ -------
Net appreciation, end of year............................... $ 16.2 $ 7.9 $ 24.1
---------- ------ -------
---------- ------ -------
1997
Net appreciation, beginning of year......................... $ 12.7 $ 7.8 $ 20.5
---------- ------ -------
Net appreciation on available-for-sale securities........... 24.3 12.5 36.8
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (9.8) -- (9.8)
Provision for deferred federal income taxes................. (5.1) (3.9) (9.0)
---------- ------ -------
9.4 8.6 18.0
---------- ------ -------
Net appreciation, end of year............................... $ 22.1 $ 16.4 $ 38.5
---------- ------ -------
---------- ------ -------
1996
Net appreciation, beginning of year......................... $ 20.4 $ 3.4 $ 23.8
---------- ------ -------
Net (depreciation) appreciation on available-for-sale
securities................................................. (20.8) 6.7 (14.1)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 9.0 -- 9.0
Benefit (provision) for deferred federal income taxes....... 4.1 (2.3) 1.8
---------- ------ -------
(7.7) 4.4 (3.3)
---------- ------ -------
Net appreciation, end of year............................... $ 12.7 $ 7.8 $ 20.5
---------- ------ -------
---------- ------ -------
</TABLE>
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) Includes net appreciation on other investments of $.9 million, $1.3 million,
and $2.2 million in 1998, 1997, and 1996, respectively.
B. MORTGAGE LOANS AND REAL ESTATE
AFLIAC's mortgage loans and real estate are diversified by property type and
location. Real estate investments have been obtained primarily through
foreclosure. Mortgage loans are collateralized by the related properties and
generally are no more than 75% of the property's value at the time the original
loan is made.
The carrying values of mortgage loans and real estate investments net of
applicable reserves were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------- -------
<S> <C> <C>
Mortgage loans.............................................. $ 230.0 $ 228.2
Real estate held for sale................................... 14.5 12.0
------- -------
Total mortgage loans and real estate........................ $ 244.5 $ 240.2
------- -------
------- -------
</TABLE>
Reserves for mortgage loans were $3.3 million and $9.4 million at December 31,
1998 and 1997, respectively.
During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. At December 31, 1998, there was 1 property remaining
in the Company's real estate portfolio, which is being actively marketed. As a
result of the Plan, during 1997, real estate assets with a carrying amount of
$15.7 million were written down to the estimated fair value less cost to sell of
$12.0 million, and a net realized investment loss of $3.7 million was
recognized. Depreciation was not recorded on these assets while they were held
for disposal.
There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1998 and 1997. During 1996, non-cash
investing activities included real estate acquired through foreclosure of
mortgage loans, which had a fair value of $0.9 million.
There were no contractual commitments to extend credit under commercial mortgage
loan agreements at December 31, 1998. These commitments generally expire within
one year.
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
Property type:
Office building........................................... $129.2 $101.7
Residential............................................... 18.9 19.3
Retail.................................................... 37.4 42.2
Industrial/warehouse...................................... 59.2 61.9
Other..................................................... 3.1 24.5
Valuation allowances...................................... (3.3) (9.4)
------ ------
Total....................................................... $244.5 $240.2
------ ------
------ ------
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ ------ ------
Geographic region:
<S> <C> <C>
South Atlantic............................................ $ 55.5 $ 68.7
Pacific................................................... 80.0 56.6
East North Central........................................ 41.4 61.4
Middle Atlantic........................................... 22.5 29.8
West South Central........................................ 6.7 6.9
New England............................................... 26.9 12.4
Other..................................................... 14.8 13.8
Valuation allowances...................................... (3.3) (9.4)
------ ------
Total....................................................... $244.5 $240.2
------ ------
------ ------
</TABLE>
At December 31, 1998, scheduled mortgage loan maturities were as follows: 1999
- -- $24.8 million; 2000 -- $43.5 million; 2001 -- $6.6 million; 2002 -- $11.5
million; 2003 -- $0.6 million; and $143.0 million thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties and loans may be
refinanced. During 1998, the Company did not refinance any mortgage loans based
on terms which differed from those granted to new borrowers.
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances, which have been deducted in arriving at
investment carrying values as presented in the balance sheet and changes thereto
are shown below.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 PROVISIONS WRITE-OFFS DECEMBER 31
- ------------------------------------------------------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1998
Mortgage loans.............................................. $ 9.4 $(4.5) $1.6 $ 3.3
----- ----- --- -----
----- ----- --- -----
1997
Mortgage loans.............................................. $ 9.5 $ 1.1 $1.2 $ 9.4
Real estate................................................. 1.7 3.7 5.4 --
----- ----- --- -----
Total................................................... $11.2 $ 4.8 $6.6 $ 9.4
----- ----- --- -----
----- ----- --- -----
1996
Mortgage loans.............................................. $12.5 $ 4.5 $7.5 $ 9.5
Real estate................................................. 2.1 -- 0.4 1.7
----- ----- --- -----
Total................................................... $14.6 $ 4.5 $7.9 $11.2
----- ----- --- -----
----- ----- --- -----
</TABLE>
Provisions on mortgages during 1998 reflect the release of redundant reserves.
Write-offs of $5.4 million to the investment valuation allowance related to real
estate in 1997 primarily reflect write downs to the estimated fair value less
cost to sell pursuant to the aforementioned 1997 plan of disposal.
The carrying value of impaired loans was $15.3 million and $20.6 million, with
related reserves of $1.5 million and $7.1 million as of December 31, 1998 and
1997, respectively. All impaired loans were reserved as of December 31, 1998 and
1997.
The average carrying value of impaired loans was $17.0 million, $19.8 million
and $26.3 million, with related interest income while such loans were impaired
of $2.0 million, $2.2 million and $3.4 million as of December 31, 1998, 1997 and
1996, respectively.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. OTHER
At December 31, 1998, AFLIAC had no concentration of investments in a single
investee exceeding 10% of shareholder's equity.
4. INVESTMENT INCOME AND GAINS AND LOSSES
A. NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $107.7 $130.0 $137.2
Mortgage loans.............................................. 25.5 20.4 22.0
Equity securities........................................... 0.3 1.3 0.7
Policy loans................................................ 11.7 10.8 10.2
Real estate................................................. 3.3 3.9 6.2
Other long-term investments................................. 1.5 1.0 0.8
Short-term investments...................................... 4.2 1.4 1.4
------ ------ ------
Gross investment income..................................... 154.2 168.8 178.5
Less investment expenses.................................... (2.9) (4.6) (6.8)
------ ------ ------
Net investment income....................................... $151.3 $164.2 $171.7
------ ------ ------
------ ------ ------
</TABLE>
There were no mortgage loans or fixed maturities on non-accrual status at
December 31, 1998. The effect of non-accruals, compared with amounts that would
have been recognized in accordance with the original terms of the investment,
had no impact in 1998 and 1997, and reduced net income by $0.1 million in 1996.
The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $12.6 million, $21.1 million and $25.4 million at December 31,
1998, 1997 and 1996, respectively. Interest income on restructured mortgage
loans that would have been recorded in accordance with the original terms of
such loans amounted to $1.4 million, $1.9 million and $3.6 million in 1998,
1997, and 1996, respectively. Actual interest income on these loans included in
net investment income aggregated $1.8 million, $2.1 million and $2.2 million in
1998, 1997, and 1996, respectively.
There were no fixed maturities or mortgage loans which, were non-income
producing for the twelve months ended December 31, 1998.
B. REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $ (6.1) $ 3.0 $ (3.3)
Mortgage loans.............................................. 8.0 (1.1) (3.2)
Equity securities........................................... 15.7 0.5 0.3
Real estate................................................. 2.4 (1.5) 2.5
Other....................................................... -- 2.0 0.1
------ ------ ------
Net realized investment gains (losses)...................... $ 20.0 $ 2.9 $ (3.6)
------ ------ ------
------ ------ ------
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. OTHER COMPREHENSIVE INCOME RECONCILIATION
The following table provides a reconciliation of gross unrealized gains to the
net balance shown in the Statement of Comprehensive income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------- ------- -------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period (net of taxes
of $(5.6) million, $10.2 million and $(2.9) million in
1998, 1997 and 1996 respectively).......................... $ (8.2) $ 20.3 $ (5.3)
Less: reclassification adjustment for gains included in net
income (net of taxes of $3.4 million, $1.2 million and
$(1.0) million in 1998, 1997 and 1996 respectively)........ 6.2 2.3 (2.0)
------- ------- -------
Other comprehensive income.................................. $ (14.4) $ 18.0 $ (3.3)
------- ------- -------
------- ------- -------
</TABLE>
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures about Fair Value of Financial Instruments"
("Statement No, 107"), requires disclosure of fair value information about
certain financial instruments (insurance contracts, real estate, goodwill and
taxes are excluded) for which it is practicable to estimate such values, whether
or not these instruments are included in the balance sheet. The fair values
presented for certain financial instruments are estimates which, in many cases,
may differ significantly from the amounts which could be realized upon immediate
liquidation. In cases where market prices are not available, estimates of fair
value are based on discounted cash flow analyses, which utilize current interest
rates for similar financial instruments, which have comparable terms and credit
quality.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair value.
FIXED MATURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.
EQUITY SECURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans is
limited to the lesser of the present value of the cash flows or book value.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
POLICY LOANS
The carrying amount reported in the balance sheet approximates fair value since
policy loans have no defined maturity dates and are inseparable from the
insurance contracts.
INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under investment type contracts are
estimated based on current surrender values.
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 217.9 $ 217.9 $ 31.1 $ 31.1
Fixed maturities.......................................... 1,330.4 1,330.4 1,402.5 1,402.5
Equity securities......................................... 31.8 31.8 54.0 54.0
Mortgage loans............................................ 230.0 241.9 228.2 239.8
Policy loans.............................................. 151.5 151.5 140.1 140.1
--------- --------- --------- ---------
$ 1,961.6 $ 1,973.5 $ 1,855.9 $ 1,867.5
--------- --------- --------- ---------
--------- --------- --------- ---------
FINANCIAL LIABILITIES
Individual fixed annuity contracts........................ $ 1,069.4 $ 1,034.6 $ 876.0 $ 850.6
Supplemental contracts without life Contingencies......... 16.6 16.6 15.3 15.3
--------- --------- --------- ---------
$ 1,086.0 $ 1,051.2 $ 891.3 $ 865.9
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
6. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of Statement No. 109. A summary of the federal income tax expense
(benefit) in the statement of income is shown below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ----- ----- -----
<S> <C> <C> <C>
Federal income tax expense (benefit)
Current................................................... $22.1 $13.9 $26.9
Deferred.................................................. 11.8 7.1 (9.8)
----- ----- -----
Total....................................................... $33.9 $21.0 $17.1
----- ----- -----
----- ----- -----
</TABLE>
The provision for federal income taxes does not materially differ from the
amount of federal income tax determined by applying the appropriate U.S.
statutory income tax rate to income before federal income taxes.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The deferred tax liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1998 1997
- ------------------------------------------------------------ -------- --------
<S> <C> <C>
Deferred tax (assets) liabilities
Policy reserves........................................... $ (205.1) $ (175.8)
Deferred acquisition costs................................ 278.8 226.4
Investments, net.......................................... 12.5 27.0
Sales practice litigation................................. (7.4) --
Bad debt reserve.......................................... (0.4) (2.0)
Other, net................................................ 0.4 0.3
-------- --------
Deferred tax liability, net................................. $ 78.8 $ 75.9
-------- --------
-------- --------
</TABLE>
Gross deferred income tax liabilities totaled $291.7 million and $253.7 million
at December 31, 1998 and 1997, respectively. Gross deferred income tax assets
totaled $212.9 million and $177.8 at December 31, 1998 and 1997, respectively.
The Company believes, based on its recent earnings history and its future
expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, the Company considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary.
The Company's federal income tax returns are routinely audited by the IRS, and
provisions are routinely made in the financial statements in anticipation of the
results of these audits. The IRS has examined the consolidated group's federal
income tax returns through 1994. The Company has appealed certain adjustments
proposed by the IRS with respect to the consolidated group's federal income tax
returns for 1992, 1993, and 1994. Also, certain adjustments proposed by the IRS
with respect to FAFLIC/AFLIAC's federal income tax returns for 1982 and 1983
remain unresolved. If upheld, these adjustments would result in additional
payments; however, the Company will vigorously defend its position with respect
to these adjustments. In the Company's opinion, adequate tax liabilities have
been established for all years. However, the amount of these tax liabilities
could be revised in the near term if estimates of the Company's ultimate
liability are revised.
7. RELATED PARTY TRANSACTIONS
The Company has no employees of its own, but has agreements under which FAFLIC
provides management, space and other services, including accounting, electronic
data processing, human resources, legal and other staff functions. Charges for
these services are based on full cost including all direct and indirect overhead
costs, and amounted to $145.4 million and $124.1 million in 1998 and 1997. The
net amounts payable to FAFLIC and affiliates for accrued expenses and various
other liabilities and receivables were $16.4 million and $15.0 million at
December 31, 1998 and 1997, respectively.
8. 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 policyholders' surplus as of the preceding December 31
or (ii) the individual company's statutory net gain from operations for the
preceding calendar year (if such insurer is a
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
life company) or its net income (not including realized capital gains) for the
preceding calendar year (if such insurer is not a life company). Any dividends
to be paid by an insurer, whether or not in excess of the aforementioned
threshold, from a source other than statutory earned surplus would also require
the prior approval of the Delaware Commissioner of Insurance.
No dividends were declared by the Company during 1998, 1997 and 1996. During
1999, AFLIAC could pay dividends of $26.1 million to FAFLIC without prior
approval.
9. REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Reinsurance transactions are accounted for in
accordance with the provisions of Statement No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts" ("Statement No.
113").
The Company reinsures 100% of its traditional individual life and certain blocks
of its universal life business, substantially all of its disability income
business, and effective January 1, 1998, the mortality risk on the variable
universal life and remaining universal life blocks of business in-force at
December 31, 1997.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policy. Reinsurance contracts
do not relieve the Company from its obligations to policyholders. Failure of
reinsurers to honor their obligations could result in losses to the Company;
consequently, allowances are established for amounts deemed uncollectible. The
Company determines the appropriate amount of reinsurance based on evaluation of
the risks accepted and analyses prepared by consultants and reinsurers and on
market conditions (including the availability and pricing of reinsurance). The
Company also believes that the terms of its reinsurance contracts are consistent
with industry practice in that they contain standard terms with respect to lines
of business covered, limit and retention, arbitration and occurrence. Based on
its review of its reinsurers' financial statements and reputations in the
reinsurance marketplace, the Company believes that its reinsurers are
financially sound.
Amounts recoverable from reinsurers at December 31, 1998 and 1997 for the
disability income business were $230.8 million and $216.1 million, respectively,
traditional life were $11.4 million and $15.2 million, respectively, and
universal and variable universal life were $65.8 million and $19.8 million,
respectively.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Insurance premiums:
Direct.................................................... $ 45.5 $ 48.8 $ 53.3
Assumed................................................... -- 2.6 3.1
Ceded..................................................... (45.0) (28.6) (23.7)
------ ------ ------
Net premiums................................................ $ 0.5 $ 22.8 $ 32.7
------ ------ ------
------ ------ ------
</TABLE>
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
Insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
<S> <C> <C> <C>
Direct.................................................... $204.0 $226.0 $206.4
Assumed................................................... -- 4.2 4.5
Ceded..................................................... (50.1) (42.4) (18.3)
------ ------ ------
Net policy benefits, claims, losses and loss adjustment
expenses................................................... $153.9 $187.8 $192.6
------ ------ ------
------ ------ ------
</TABLE>
10. DEFERRED POLICY ACQUISITION COSTS
The following reflects the changes to the deferred policy acquisition asset:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Balance at beginning of year................................ $765.3 $632.7 $555.7
Acquisition expenses deferred............................. 242.4 184.2 116.6
Amortized to expense during the year...................... (64.6) (53.1) (49.9)
Adjustment to equity during the year...................... 7.4 (10.2) 10.3
Adjustment for cession of disability income insurance..... -- (38.6) --
Adjustment for revision of universal life and variable
universal life insurance mortality assumptions.......... -- 50.3 --
------ ------ ------
Balance at end of year...................................... $950.5 $765.3 $632.7
------ ------ ------
------ ------ ------
</TABLE>
On October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.3 million recapitalization of deferred policy acquisition costs.
11. LIABILITIES FOR INDIVIDUAL DISABILITY INCOME BENEFITS
The Company regularly updates its estimates of liabilities for future policy
benefits and outstanding claims, losses and loss adjustment expenses as new
information becomes available and further events occur which may impact the
resolution of unsettled claims. Changes in prior estimates are recorded in
results of operations in the year such changes are determined to be needed.
The liability for future policy benefits and outstanding claims, losses and loss
adjustment expenses related to the Company's disability income business was
$233.3 million and $219.9 million at December 31, 1998 and 1997. Due to the
reinsurance agreement whereby the Company has ceded substantially all of its
disability income business to a highly rated reinsurer, the Company believes
that no material adverse development of losses will occur. However, the amount
of the liabilities could be revised in the near term if the estimates are
revised.
12. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recovered through a reduction in future premium taxes in some states. The
Company is not able to reasonably estimate the potential effect on it of any
such future assessments or voluntary payments.
LITIGATION
In July 1997, a lawsuit on behalf of a putative class was instituted in
Louisiana against AFC and certain of its subsidiaries including AFLIAC, by
individual plaintiffs alleging fraud, unfair or deceptive acts, breach of
contract, misrepresentation, and related claims in the sale of life insurance
policies. In October 1997, plaintiffs voluntarily dismissed the Louisiana suit
and filed a substantially similar action in Federal District Court in Worcester,
Massachusetts. In early November 1998, AFC and the plaintiffs entered into a
settlement agreement, to which the court granted preliminary approval on
December 4, 1998. A hearing was held on March 19, 1999 to consider final
approval of the settlement agreement. A decision by the court is expected to be
rendered in the near future. Accordingly, AFLIAC recognized a $21.0 million
pre-tax expense during the third quarter of 1998 related to this litigation.
Although the Company believes that this expense reflects appropriate recognition
of its obligation under the settlement, this estimate assumes the availability
of insurance coverage for certain claims, and the estimate may be revised based
on the amount of reimbursement actually tendered by AFC's insurance carriers, if
any, and based on changes in the Company's estimate of the ultimate cost of the
benefits to be provided to members of the class.
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the Company's opinion of, 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. However, liabilities
related to these proceedings could be established in the near term if estimates
of the ultimate resolution of these proceedings are revised.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Although the Company does not believe that there is a material contingency
associated with the Year 2000 project, there can be no assurance that exposure
for material contingencies will not arise.
13. STATUTORY FINANCIAL INFORMATION
The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles
primarily because policy acquisition costs are expensed when incurred,
investment reserves are based on different assumptions, life insurance reserves
are based on different assumptions and income tax expense reflects only taxes
paid or currently payable. Statutory net income and surplus are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 1996
- ------------------------------------------------------------ ------ ------ ------
<S> <C> <C> <C>
Statutory net income........................................ $ (8.2) $ 31.5 $ 5.4
Statutory shareholder's surplus............................. $309.7 $307.1 $234.0
</TABLE>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT ACCOUNTANTS' REPORT (UNAUDITED)
AFC has proposed certain changes to its corporate structure. These changes
include transfer of FAFLIC's ownership of Allmerica P&C, as well as several
non-insurance subsidiaries, from FAFLIC to AFC. FAFLIC would retain its
ownership of AFLIAC and certain other subsidiaries. Under the proposal, AFC
would contribute to FAFLIC capital of $125.0 million and agree to maintain
FAFLIC's statutory surplus at specified levels during the following six years.
In addition, any dividend from FAFLIC to AFC during 2000 and 2001 would require
the prior approval of the Commonwealth of Massachusetts Insurance Commissioner
(the "Commissioner"). This proposed transaction was approved by the Commissioner
on May 24, 1999.
On May 19, 1999, the Federal District Court in Worcester, Massachusetts issued
an order relating to the litigation mentioned in Note 12, above, certifying the
class for settlement purposes and granting final approval of the settlement
agreement.
F-22
<PAGE>
PART II
UNDERTAKINGS AND REPRESENTATIONS
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 Act 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.
REPRESENTATIONS PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF 1940
- -------------------------------------------------------------------------------
The Company hereby represents that the aggregate fees and charges under the
Policy are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the 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.
Representations pursuant to Section 26(e) of the 1940 Act.
The signatures.
Written consents of the following persons:
1. Actuarial Consent
2. Opinion of Counsel
3. Consent of Independent Accountants
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 authorizing the establishment of the
Separate Account SPL-D is filed herewith.
(2) Not Applicable.
(3) (a) Underwriting and Administrative Services Agreement between
the Company and Allmerica Investments, Inc. was filed on
April 15, 1998 in Post-Effective Amendment No. 5 of
Allmerica Select Separate Account II (Registration
No. 33-83604), and is incorporated by reference herein.
(b) Registered Representatives/Agent's Agreement was previously
filed on April 15, 1998 in Post-Effective Amendment No. 5
of Allmerica Select Separate Account II (Registration
No. 33-83604), and is incorporated by reference herein.
(c) Compensation Schedule was previously filed in Registrant's
Initial Registration Statement on July 6, 1998, and is
incorporated by reference herein.
(4) Not Applicable.
(5) (a) Form of Contract;
(b) Option To Accelerate Death Benefits Rider (Living Benefits
Rider);
(c) Section 1035 Rider; and
<PAGE>
(d) Guaranteed Death Benefit Rider is filed herewith.
(6) Articles of Incorporation and Bylaws, as amended, of the Company
were previously filed on October 1, 1995 in Post-Effective
Amendment No. 1 of Allmerica Select Separate Account II
(Registration No. 33-83604), and are incorporated by reference
herein.
(7) Not Applicable.
(8) (a) The Participation Agreement with Delaware Group Premium
Fund, Inc. was previously filed on April 16, 1998 in
Post-Effective Amendment No. 12 of Allmerica VEL II
Separate Account (Registration Statement No. 33-57792),
and is incorporated by reference herein.
(9) (a) BFDS Agreements for lockbox and mailroom services were
previously filed on April 15, 1998 in Post-Effective
Amendment No. 5 of Allmerica Select Separate Account II
(Registration No. 33-83604), and are incorporated by
reference herein.
(b) Directors' Power of Attorney is filed herewith.
<PAGE>
(10) Form of Application is filed herewith.
2. Policy and Policy Riders are included in Exhibit 1(5) above
3. Opinion of Counsel is filed herewith.
4. Not Applicable.
5. Not Applicable.
6. Actuarial Consent is filed herewith.
7. Procedures Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) 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 is filed herewith.
<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 on its behalf by the undersigned, thereto duly
authorized, in the City of Worcester, and Commonwealth of Massachusetts, on
the 12th day of July, 1999.
SEPARATE ACCOUNT SPL-D OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Mary Eldridge
--------------------------
Mary Eldridge, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Initial
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Warren E. Barnes Vice President and Corporate Controller July 12, 1999
- ----------------------------------
Warren E. Barnes
Edward J. Parry III* Director, Vice President, Chief Financial
- ---------------------------------- Officer and Treasurer
Richard M. Reilly* Director, President and
- ---------------------------------- Chief Executive Officer
John F. O'Brien* Director and Chairman of the Board
- ----------------------------------
Bruce C. Anderson* Director
- ----------------------------------
Robert E. Bruce* Director and Chief Information Officer
- ----------------------------------
John P. Kavanaugh* Director, Vice President and
- ---------------------------------- Chief Investment Officer
John F. Kelly* Director, Vice President and
- ---------------------------------- General Counsel
J. Barry May* Director
- ----------------------------------
James R. McAuliffe* Director
- ----------------------------------
Robert P. Restrepo, Jr.* Director
- ----------------------------------
Eric A. Simonsen* Director and Vice President
- ----------------------------------
Phillip E. Soule* Director
- ----------------------------------
</TABLE>
*Sheila B. St. Hilaire, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named Directors and Officers of the
Registrant pursuant to the Power of Attorney dated April 1, 1999 duly
executed by such persons.
/S/ Sheila B. St. Hilaire
- -------------------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact
<PAGE>
FORM S-6 EXHIBIT TABLE
Exhibit 1(1) Vote of the Board
Exhibit 1(5)(a) Form of Contract
Exhibit 1(5)(b) Option to Accelerate Death Benefits
Rider (Living Benefits Rider)
Exhibit 1(5)(c) Section 1035 Rider
Exhibit 1(5)(d) Guaranteed Death Benefit Rider
Exhibit 1(9)(b) Directors' Power of Attorney
Exhibit 3 Opinion of Counsel
Exhibit 6 Actuarial Consent
Exhibit 7 Procedures Memorandum
Exhibit 8 Consent of Independent Accountants
Exhibit 10 Form of Application
<PAGE>
I, Abigail M. Armstrong, Secretary of Allmerica Financial Life Insurance and
Annuity Company, do hereby certify that the following is a resolution approved
by unanimous vote of the Board of Directors on June 13, 1996, and that such
resolution has not been repealed or amended, and is in full force and effect as
of the date hereof:
VOTED: That pursuant to the provisions of Article Third (b) and (c) of
its Certificate of Incorporation and as authorized by Section 2932
of the Delaware Insurance Code, 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;
<PAGE>
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 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;
2
<PAGE>
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.
* * *
IN WITNESS WHEREOF, I set my hand and the seal of the corporation, this 13th day
of June, 1996.
/s/ ABIGAIL M. ARMSTRONG
---------------------------------------
Abigail M. Armstrong, Secretary
3
<PAGE>
Contract 1(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/ Mary Eldridge
President Secretary
MODIFIED SINGLE PAYMENT VARIABLE LIFE INSURANCE CONTRACT
NON-PARTICIPATING
FORM 1030-96
<PAGE>
TABLE OF CONTENTS
SPECIFICATIONS......................................................... 3
DEFINITIONS............................................................ 7
GENERAL TERMS.......................................................... 9
INFORMATION ABOUT YOU AND THE BENEFICIARY.............................. 11
WHAT YOU SHOULD KNOW ABOUT:
THE PAYMENTS...................................................... 12
YOUR CONTRACT VALUE............................................... 14
THE VARIABLE ACCOUNT.............................................. 16
THE FIXED ACCOUNT................................................. 19
TRANSFERS......................................................... 21
BORROWING FROM YOUR CONTRACT...................................... 22
SURRENDERS AND PARTIAL WITHDRAWALS................................ 23
THE DEATH BENEFIT................................................. 25
THE BENEFIT OPTIONS............................................... 26
FORM 1030-96 2
<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 Riders, 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 RATES We determine the Fixed Account interest rates used
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 SEX On the date of death of the insured, the death
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
<PAGE>
- 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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 If you make a payment with your Application or at
INITIAL 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 This charge compensates us for federal, state and
PAYMENT TAX CHARGE local taxes we must pay.
INSURANCE PROTECTION CHARGE The Insurance Protection Charge compensates us for
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
<PAGE>
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 FEE The Monthly Maintenance Fee shown on the
Specifications Page will be deducted on each
Monthly Processing Date.
FORM 1030-96 15
<PAGE>
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
<PAGE>
(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 PERIODS A valuation date is each day that the New York
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
<PAGE>
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.
FORM 1030-96 18
<PAGE>
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 VALUE On each Monthly Processing Date, the Contract
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.
FORM 1030-96 19
<PAGE>
During any contract month the Fixed Account
Contract Value will be calculated on a consistent
basis.
BASIS OF VALUE OF We base the minimum surrender value in the Fixed
THE 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.
FORM 1030-96 20
<PAGE>
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.
FORM 1030-96 21
<PAGE>
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 OUTSTANDING You may repay the Outstanding Loan at any time
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.
FORM 1030-96 22
<PAGE>
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 PAYMENT We may postpone any transfer from the Variable
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
FORM 1030-96 23
<PAGE>
- 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.
FORM 1030-96 24
<PAGE>
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 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 federal tax law, this contract must provide a
BENEFIT 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
<PAGE>
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
SPECIFIED NUMBER OF YEARS number of years up to 30 years. These payments
(TABLE A) may be made annually, semi-annually, quarterly or
monthly, whichever you choose.
OPTION B: LIFETIME MONTHLY Benefits are based on the age of the person who
BENEFIT (TABLE B) 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 We will pay interest at a rate we determine each
BENEFITS 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 Interest will be credited to the unpaid balance
SPECIFIED AMOUNT 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 We will pay a benefit jointly to two payees during
BENEFITS FOR TWO PAYEES their joint lifetime.
(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 OPTIONS The amount we apply under any one option for any
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%.
<TABLE>
<CAPTION>
SEMI- QUAR-
YEARS ANNUAL ANNUAL TERLY MONTHLY
- ----- ------ ------ ----- -------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
Age Life Annuity with Life Life Annuity
Nearest Payments Guaranteed Annuity with Installment
Birthday for 10 Years Refund
- -------- -------------------- ------- ----------------
<S> <C> <C> <C>
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
</TABLE>
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 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
U 60 4.54 4.65 4.73 4.78 4.81 5.08 5.35 5.63 5.92 6.21
N 65 5.04 5.19 5.29 5.35 5.74 6.10 6.46 6.82
G 70 5.75 5.95 6.08 6.67 7.15 7.62
E 75 6.77 7.06 8.04 8.69
R 80 8.29 10.05
A
G
E
</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(5)(b)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
OPTION TO ACCELERATE DEATH BENEFITS
(LIVING BENEFITS RIDER)
This rider is a part of the contract to which it is attached. The Insured under
this rider is the Insured under the contract. This rider does not apply to
any benefits provided by rider.
BENEFIT - While this rider is in force, you may elect to receive a portion of
the net death benefit called the "Living Benefit," prior to the Insured's
death under either the Terminal Illness Option or the Nursing Home Option,
subject to the definitions, conditions and limitations in this rider. This
option may only be exercised once.
DEFINITIONS - "Option Amount" means that portion of the death benefit which you
elect to apply under this rider. The Option Amount must be at least
$25,000 and may not exceed the lesser of:
- - one-half of the death benefit on the date the option is elected; or
- - the amount that would reduce the face amount to our minimum issue limit for
this contract; or
- - $250,000.
"Option Percentage" is the Option Amount divided by the death benefit.
"Living Benefit" is the Option Amount which has been reduced for interest and
other factors. It is the lump sum benefit under this rider, and is the
amount used to determine the monthly benefit. The Living Benefit will
not be less than the surrender value of the contract multiplied by the
Option Percentage. The following factors will be used to calculate the
Living Benefit:
- - age;
- - sex, unless the contract is issued on a unisex basis;
- - life expectancy;
- - Contract Value;
- - Outstanding Loan;
- - rate of interest currently being credited to the Fixed Account including those
values which are subject to Outstanding Loan;
- - Face Amount;
- - current monthly deductions; and
- - an expense charge of $150.
An amount equal to the Outstanding Loan multiplied by the Option Percentage
will be deducted from the Living Benefit. The remaining Outstanding Loan
will continue in force.
The assumptions we use to calculate the Living Benefit may change from time to
time. The factors used to compute the Living Benefit will be set and
changed only prospectively; that is, based on changes in future
expectations. We will not change these factors to recoup any prior losses
or distribute past gains under the rider.
FORM 1030-96
<PAGE>
"Eligible Nursing Home" means an institution or special nursing unit of a
hospital which meets at least one of the following requirements:
1. it is Medicare - approved as a provider of skilled nursing care services;
or
2. it is licensed as a skilled nursing home or as an intermediate care
facility by the state in which it is located;
3. it meets all the requirements listed below;
- - it is licensed as a nursing home by the state in which it is located;
- - its main function is to provide skilled, intermediate or custodial nursing
care;
- - it is engaged in providing continuous room and board accommodations to 3 or
more persons;
- - it is under the supervision of a registered nurse (RN) or licensed practical
nurse (LPN);
- - it maintains a daily medical record of each patient; and
it maintains control and records for all medications dispensed.
Institutions which primarily provide residential facilities are not Eligible
Nursing Homes.
"Proof of claim satisfactory to us" includes:
- - a request signed by the Insured to disclose all facts concerning the
Insured's health;
- - records of the attending physician, including a prognosis of the Insured; and
- - if we request, a medical examination of the Insured at our expense conducted
by a physician we choose.
CONDITIONS - Upon Written Request you may elect to receive payment under one of
the accelerated death benefit options subject to the following conditions:
- - the contract is in force;
- - a written consent has been given by any collateral assignee, irrevocable
beneficiary and the Insured if you are not the Insured; and
- - the Insured qualifies for the option you elect.
TERMINAL ILLNESS OPTION - If you provide proof of claim satisfactory to us that
the Insured's life expectancy is 12 months or less, you may elect to
receive equal monthly payments for 12 months. For each $1,000 of Living
Benefit, each payment will be at least $85.21. This assumes an annual
interest rate of 5%.
If the Insured dies before all the payments have been made, we will pay in one
sum the present value of the remaining payments due under this rider
calculated at the interest rate we use to determine those payments as part
of the net death benefit.
If you do not wish to receive monthly payments, you may elect to receive the
Living Benefit in a lump sum.
NURSING HOME OPTION - If (1) the Insured is confined to an Eligible Nursing
Home and has been confined there continuously for the preceding six
months; and (2) you provide proof of claim satisfactory to us that the
Insured is expected to remain in the nursing home until death, you may
elect level monthly payments for the number of years shown in the table
that follows. For each $1,000 of living benefit, each payment will be at
least the minimum amount shown in that table. The table assumes an annual
interest rate of 5%.
FORM 6005-96
<PAGE>
If the Insured dies before all the payments have been made, we will pay in one
sum the present value of the remaining payments due under this rider
calculated at the interest rate we use to determine those payments as part
of the net benefit.
You may elect a longer payment period than that shown in the table. If you do,
monthly payments will be reduced so that the present value of the monthly
payments for the longer payment period is equal to the present value of
the payments for the period shown in the table, calculated at an interest
rate of at least 5%.
<TABLE>
<CAPTION>
PAYMENT PERIOD MINIMUM MONTHLY PAYMENT FOR PAYMENT PERIOD MINIMUM MONTHLY PAYMENT FOR
IN YEARS EACH $1,000 OF LIVING BENEFIT IN YEARS EACH $1,000 OF LIVING BENEFIT
<S> <C> <C> <C>
1 $85.21 16 $ 7.49
2 $43.64 17 $ 7.20
3 $29.80 18 $ 6.94
4 $22.89 19 $ 6.71
5 $18.74 20 $ 6.51
6 $15.99 21 $ 6.33
7 $14.02 22 $ 6.17
8 $12.56 23 $ 6.02
9 $11.42 24 $ 5.88
10 $10.51 25 $ 5.76
11 $ 9.77 26 $ 5.65
12 $ 9.16 27 $ 5.54
13 $ 8.64 28 $ 5.45
14 $ 8.20 29 $ 5.36
15 $ 7.82 30 $ 5.28
</TABLE>
We reserve the right to set a maximum monthly benefit, which will not be less
than $5,000.
If you do not wish to receive monthly payments, you may elect to receive a
single sum equal to the Living Benefit.
EFFECT ON CONTRACT - The death benefit of the contract will be decreased by
the Option Amount. Such decrease will be effective on the Monthly
Processing Date following the date of your Written Request.
New Specifications Pages will be issued. These pages will include the
following information:
- - the effective date of the decrease; and
- - the amount of the decrease and the reduced face amount.
The Contract Value will be reduced in the same proportion as the reduction in
the death benefit. There will be no surrender charge on the reduction in
Contract Value. The allocation of the Contract Value between Earnings and
Payments will remain the same.
EXCLUSION - No benefit will be paid under this rider if a claim results,
directly or indirectly, from a suicide attempt or a self-
FORM 6005-96
<PAGE>
inflicted injury (while sane or insane) for any period during which a suicide
exclusion is applicable.
TERMINATION - This rider will terminate on the first to occur of:
- - the end of the grace period of a premium in default; or
- - the termination or Final Payment Date of the contract while the Insured is
alive; or
- - at any time on your written request.
GENERAL - The contract Specifications Pages will show the date of issue of
this rider.
The Living Benefit will be made available to you on a voluntary basis only.
Accordingly:
(a) If you are required by law to exercise this option to satisfy the claim of
creditors, whether in bankruptcy or otherwise, you are not eligible
for this benefit.
(b) If you are required by a government agency to exercise this option in
order to apply for, obtain, or retain a government benefit or
entitlement, you are not eligible for this benefit.
Except as otherwise provided, all conditions and provisions of the contract
apply to this rider.
Signed for the Company at Dover, Delaware
FORM 6005-96
<PAGE>
EXHIBIT 1(5)(c)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SECTION 1035 RIDER
This Rider is a part of the contract to which it is attached. The insured
under this endorsement is the insured under the contract.
The contract is issued in consideration for your assignment to us of a life
insurance policy (called the "Exchanged Policy") on the life of the insured.
The "Exchanged Policy" is identified in your application for this contract.
As used in this endorsement, "gain" means the amount by which the cash value
of the Exchanged Policy (including any unpaid policy loan) exceeds your
investment in the Exchanged Policy as reported to us by the company which
issued the Exchanged Policy. We assume no responsibility for the calculation
of your investment in the Exchanged Policy.
The Fixed Account Interest Rates provisions are amended by the addition of
the following:
The Preferred Loan Rate will also be credited to the following amounts:
1. That portion of the Outstanding Loan which is carried over from the
Exchanged Policy and;
2. A percentage of the gain under the Exchanged Policy less the policy
loan carried over to this contract as of the date of exchange.
<TABLE>
<CAPTION>
Beginning of Exchanged Policy's Unloaned Gain
Contract Year Available For Preferred Loan Rate
------------- ---------------------------------
<S> <C>
1 0%
2 10%
3 20%
4 30%
5 40%
6 50%
7 60%
8 70%
9 80%
10 90%
11 100%
</TABLE>
Signed for the Company at Dover, Delaware.
<PAGE>
EXHIBIT 1(5)(d)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Guaranteed Death Benefit Rider (SPVUL)
This rider is a part of the contract to which it is attached.
REQUIRED PAYMENT - This Rider will take effect upon receipt by the Company of
the Guaranteed Death Benefit Payment shown on Specifications Page 3.
GUARANTEED DEATH BENEFIT - The contract will not lapse while this Rider is in
force. The monthly deduction will be made from the Contract Value, if nay,
until the Final payment Date.
NET DEATH BENEFIT -- While this Rider is n force, the net death benefit
provisions of the contract is amended by the addition of the following:
If this Rider is in effect on the Final Payment Date, a death benefit will be
provided thereafter unless the Rider is terminated. The net death benefit
will be the Face Amount as of the Final Payment Date or the Contract Value as
of the date due poof of death is received by the Company, whichever is
greater, reduced by the Outstanding Loan through the contract month in which
the Insured dies. The monthly deduction will not be deducted after the Final
Payment Date.
Termination -- this Rider will terminate and may not be reinstated on the
fist to occur of the following:
- - Foreclosure of the Outstanding Loan; or
- - A request for a partial withdrawal or preferred loan is made after the
Final Payment Date; or
- - Upon your written request.
It is possible that the Contract Value will not be sufficient to keep the
contract in force on the first Monthly Processing Date following the date the
Rider terminated. The net amount payable to keep the contract in force will
never exceed the surrender charge plus the amount required to pay three
monthly deductions
Signed for the Company at Dover, Delaware
/s/ Richard M. Reilly /s/ Mary Eldridge
--------------------- ---------------------------
Richard M. Reilly Mary Eldridge
President Secretary
Form 10257-97
<PAGE>
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint Richard M.
Reilly, John F. Kelly, Joseph W. MacDougall, Jr., and Sheila B. St. Hilaire,
and each of them singly, our true and lawful attorneys, with full power to
them and each of them, to sign for us, and in our names and in any and all
capacities, any and all Registration Statements and all amendments thereto,
including post-effective amendments, with respect to the Separate Accounts
supporting variable life and variable annuity contracts issued by Allmerica
Financial Life Insurance and Annuity Company, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and with any other regulatory agency or
state authority that may so require, granting unto said attorneys and each of
them, acting alone, full power and authority to do and perform each and every
act and thing requisite or necessary to be done in the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys or any of them may lawfully
do or cause to be done by virtue hereof. Witness our hands on the date set
forth below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ John F. O'Brien Director and Chairman of the Board 7/1/99
- ------------------------------ ------
John F. O'Brien
/s/ Bruce C. Anderson Director 7/1/99
- ------------------------------ ------
Bruce C. Anderson
/s/ Robert E. Bruce Director and Chief Information Officer 7/1/99
- ------------------------------ ------
Robert E. Bruce
/s/ John P. Kavanaugh Director, Vice President and
- ------------------------------ Chief Investment Officer 7/1/99
John P. Kavanaugh ------
/s/ John F. Kelly Director, Vice President and
- ------------------------------ General Counsel 7/1/99
John F. Kelly ------
/s/ J. Barry May Director 7/1/99
- ------------------------------ ------
J. Barry May
/s/ James R. McAuliffe Director 7/1/99
- ------------------------------ ------
James R. McAuliffe
/s/ Edward J. Parry, III Director, Vice President, Chief Financial
- ------------------------------ Officer and Treasurer 7/1/99
Edward J. Parry, III ------
/s/ Richard M. Reilly Director, President and
- ------------------------------ Chief Executive Officer 7/1/99
Richard M. Reilly ------
/s/ Robert P. Restrepo, Jr. Director 7/1/99
- ------------------------------ ------
Robert P. Restrepo, Jr.
/s/ Eric A. Simonsen Director and Vice President 7/1/99
- ------------------------------ ------
Eric A. Simonsen
/s/ Phillip E. Soule Director 7/1/99
- ------------------------------ ------
Phillip E. Soule
</TABLE>
<PAGE>
July 27, 1999
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
RE: SEPARATE ACCOUNT SPL-D OF ALLMERICA FINANCIAL
LIFE INSURANCE AND ANNUITY COMPANY
Gentlemen:
In my capacity as Assistant Vice President and Counsel of Allmerica Financial
Life Insurance and Annuity Company (the "Company"), I have participated in
the preparation of this Initial Registration Statement for Separate Account
SPL-D on Form S-6 under the Securities Act of 1933 with respect to the
Company's modified single premium variable life insurance policies.
I am of the following opinion:
1. The Separate Account SPL-D 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 the Separate Account SPL-D equal to the reserves and
other Policy liabilities of the Policies which are supported by the
Separate Account SPL-D are not chargeable with liabilities arising out
of any other business the Company may conduct.
3. The individual modified single premium variable life insurance policies,
when issued in accordance with the Prospectus contained in the Initial
Registration Statement and upon compliance with applicable local law,
will be legal and binding obligations of the Company in accordance with
their terms and when sold will be legally issued, fully paid and
non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to this Initial
Registration Statement of the Separate Account SPL-D on Form S-6 filed under
the Securities Act of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Assistant Vice President and Counsel
<PAGE>
July 12, 1999
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
RE: SEPARATE ACCOUNT SPL-D OF ALLMERICA FINANCIAL
LIFE INSURANCE AND ANNUITY COMPANY
Gentlemen:
This opinion is furnished in connection with the filing by Allmerica
Financial Life Insurance and Annuity Company of the Post-Effective Amendment
to the Registration Statement on Form S-6 of its modified single premium
variable life insurance policies ("Policies") allocated to the Separate
Account SPL-D under the Securities Act of 1933. The Prospectus included in
this Initial Registration Statement describes the Policies. I am familiar
with and have provided actuarial advice concerning the preparation of the
Registration Statement, including exhibits.
In my professional opinion, the illustrations of death benefits and cash
values included in Appendix D of the Prospectus, based on the assumptions
stated in the illustrations, are consistent with the provisions of the
Policy. The rate structure of the Policies 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 Policy
for a person age 55 or a person age 65 than to prospective purchasers of
Policies for people at other ages or underwriting classes. I am also of the
opinion that the aggregate fees and charges under the Policy are reasonable
in relation to the services rendered, the expenses expected to be incurred,
and the risks assumed by the Company.
I am also of the opinion that the aggregate fees and charges under the Policy
are reasonable in relation to the services rendered, the expenses expected to
be incurred, and the risks assumed by the Company.
I hereby consent to the use of this opinion as an exhibit to the Initial
Registration Statement.
Sincerely,
/s/ Kevin G. Finneran
Kevin G. Finneran, ASA, MAAA
Assistant Vice President and Actuary
<PAGE>
Description of Issuance, Transfer and Redemption Procedures for Contracts
Offered by the Delaware SPL 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 Separate Account SPL-D ("Separate 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
Separate Account are seventeen Sub-Accounts. Procedures apply equally to
each subaccount and for purposes of this description are defined in terms of
the Separate Account, except where a discussion of both the Separate
Account and the individual Sub-Accounts is necessary. Each Sub-Account
invests in shares of a corresponding investment division of the Delaware
Group Premium Fund, Inc. ("Fund") which is a "series" type of mutual fund
registered under the 1940 Act. The investment experience of a Sub-Account of
the Separate Account depends on the market performance of its corresponding
investment division. Although modified single payment variable life
insurance Contracts funded through the Separate 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 Separate Account
and that all transactions involve only the Sub-Accounts of the Separate
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 Contract Owner and involve a transfer of
assets supporting Contract reserve into the Separate 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 Contract owner.
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 Contract Owners. The insurance principle of
pooling and distribution of mortality risks is based upon the assumption
that each Contract Owner 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 Contract Owners because different cost of
insurance rates will apply. Accordingly, while not all Contract Owners
will be subject to the same cost of insurance rate, there will be a single
"rate" for all Contract Owners in a given actuarial category. The
Contracts will be offered and sold pursuant to the Company's underwriting
standards and in accordance
1
<PAGE>
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.
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 Separate 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 Contract Owner,
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 Contract
Owner 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 Contract Owner 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
Contract Owner 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 Contract
Owner'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 transferred according to
the Contract Owner'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.
2
<PAGE>
These processing procedures are designed to provide insurance, starting
with the date of the application, to the proposed Contract Owner in
connection with payment of the initial payment and will not dilute any
benefit it payable to any existing Contract Owner. Although a Contract
cannot be issued until the underwriting process has been completed, the
proposed Contract Owner will receive immediate insurance coverage, if the
proposed Contract Owner 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. The Company will
require that the Contract be delivered within a specific delivery period
to protect itself against anti-selection by the prospective Contract Owner
resulting from a deterioration of the health of the proposed Insured.
c. PAYMENT ALLOCATIONS
The Contract Owner may allocate net payments among the Company's General
Account and the Sub-Accounts of the Separate Account. Each Sub-Account of
the Separate 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 Contract Owner 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 Contract Owner may transfer amounts among all
of the Sub-Accounts and the General Account, subject to certain
restrictions.
d. REPAYMENT OF LOAN
The Contract Owner may borrow money secured by Contract Value. The total
amount the Contract Owner 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 Contract Owner's instructions. If the Contract Owner
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
3
<PAGE>
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 Separate 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 that 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 to the Sub-Accounts
according to either Contract Owner's instruction or, if none, the payment
allocation percentages then in effect. Loan repayments allocated to the
Separate Account cannot exceed Contract value previously transferred from
the Separate 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 Contract Owner and any
assignee of record. The Contract Owner 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>
<CAPTION>
Beginning 1 2 3 4 5 6 7 8 9 10 11
of Contract
Year
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------
Unloaned 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Gain
Available
</TABLE>
4
<PAGE>
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.
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 Contract Owner qualifies for a lower
classification. After the reduced rating is determined, the Contract Owner
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 Contract Owner 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
Separate 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 Contract Owner's benefits and may involve a
transfer of the assets supporting the Contract reserve out of the Separate
Account. Any combined transactions on the same day that counteract the
effect of each other will be allowed. The Company will assume the Contract
Owner 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 Contract Owner 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
5
<PAGE>
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
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 value of the Units in the Variable
Account, plus all fees, charges and taxes 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 $100 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 0.20% 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.
6
<PAGE>
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 0.90% of the Contract Value.
- Federal & State Payment Tax Charge: During the first Contract year,
the Company makes a monthly deduction equal to 1.50% on an annual
basis 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 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>
<CAPTION>
Contract 1 2 3 4 5 6 7 8 9 10+
Year*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Surrender 10.00% 9.25% 8.50% 7.75% 7.00% 6.25% 4.75% 3.25% 1.50% 0%
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
7
<PAGE>
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).
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 Contract Owner 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 Contract Owner
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 Contract Owner.
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.
Guaranteed Death Benefit Rider - If at the time of issue the Contract
Owner has made purchase payments equal to 100% of the Guideline Single
Premium, a Guaranteed Death Benefit Rider will be added to the Contract
at no additional charge. If the Guaranteed Death Benefit Rider is in
effect on the Final Payment Date, a guaranteed Net Death Benefit will be
provided thereafter unless the Guaranteed Death Benefit Rider is
terminated, as described below. The guaranteed Net Death Benefit will
be:
- the GREATER of (a) the Face Amount as of the Final Payment Date or (b)
the Contract Value as of the date due proof of death is received by the
Company,
- REDUCED by the Outstanding Loan, if any, through the contract
month in which the Insured dies.
The Guaranteed Death Benefit Rider will terminate (and may not be
reinstated) on the first to
8
<PAGE>
occur of the following:
- Foreclosure of the Outstanding Loan, if any; or
- A request for a partial withdrawal or preferred loan after the Final
Payment Date; or
- Upon your written request.
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.
GUIDELINE MINIMUM SUM INSURED
-----------------------------
<TABLE>
<CAPTION>
Age of Insured Percentage of
on Date of Death Contract Value
---------------- --------------
<S> <C>
40 and under.......................... 265%
45.................................... 230%
50.................................... 200%
55.................................... 165%
60.................................... 145%
65.................................... 135%
70.................................... 130%
75.................................... 120%
80.................................... 120%
85.................................... 120%
90.................................... 110%
91.................................... 108%
92.................................... 106%
93.................................... 105%
94.................................... 105%
95.................................... 105%
96.................................... 104%
97.................................... 103%
98.................................... 102%
99 and above.......................... 100%
For the ages not listed, the progression between the listed ages is linear.
</TABLE>
The Company will make payment of the death proceeds out of its general
account, and will transfer assets from the Separate Account to the
general account in an amount equal to the reserve in the Separate
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 Separate Account. Each
Sub-Account invests exclusively in a corresponding investment portfolio
("Underlying Fund") of AIT, Fidelity VIP or T. Rowe. Subject to the consent
of the Company, the Contract Owner may transfer amounts among all of the
9
<PAGE>
Sub-Accounts and between the Sub-Accounts and the General Account,
subject to certain restrictions.
The Contract Owner may apply for automatic transfers from the
Sub-Accounts which invest in the Government Bond Fund or the Money
Market Fund to one or more of the other Sub-Accounts. Automatic
transfers may be made at intervals of one, three, six or twelve months.
Each automatic transfer must be at least $100. If 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:
- 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
Separate Account) may increase or decrease from day to day depending on
the investment experience of the Separate 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
10
<PAGE>
begin. Written notice will be sent to the Contract Owner 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.
11
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Initial Registration Statement of Separate Account SPL-D of Allmerica
Financial Life Insurance and Annuity Company on Form S-6 of our report dated
February 2, 1999, except for paragraph 2 of Note 12, which is as of March 19,
1999, relating to the 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 29, 1999
<PAGE>
EXHIBIT 1(10)
APPLICATION
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND 440 Lincoln Street
ANNUITY COMPANY Worcester, MA 01653 [DELAWARE SPL APPLICATION]
- -------------------------------------------------------------------------------
1 PAYMENT The monetary contribution to the policy.
CHECK ONE:
/ / I have enclosed a check for my initial payment of $____________
and have received a conditional receipt.
(Please make check payable to Allmerica Financial)
/ / My initial payment will be transferred from another insurance
company. Approximate amount $____________. The amount of insurance
purchased will be the minimum allowed by the IRS Guideline Single
Premium unless you designate a higher amount $_________________________.
(Please attach Transfer of Assets form)
2 ALLOCATION How I want my payment allocated.
ALLOCATE MY PAYMENT AS FOLLOWS: Please use whole percentages.
[You may allocate your payment to no more than [14] of the [14] variable
accounts listed below and the Fixed Account.]
YOUR TOTAL ALLOCATION MUST EQUAL 100%
________ %
________ %
________ %
________ %
100% % TOTAL
Any future payment will be allocated according to this selection
unless changed by me.
3 ACCOUNT REBALANCING
/ / I elect Automatic Account Rebalancing of the variable
accounts to the allocations specified in Section 2, above.
/ / Monthly / / Quarterly / / Semi-Annually / / Annually
(Automatic Account Rebalancing and Dollar Cost Averaging cannot be in
effect simultaneously.)
4 DOLLAR COST AVERAGING
Select ONE account from which to transfer money. Be sure you have
money allocated to this account in Section 2.
Transfer $____________ ($100 Minimum)
[FROM: / / Fixed Account or
/ / Select Income* or / / Money Market*
(*This account cannot be selected in the allocation below.)]
EVERY: / / Month / / Quarter / / 6 Mos. / / 12 Mos.
INTO: ________ %
________ %
________ %
________ %
100% % TOTAL
5 INSURED The person upon whose life this insurance coverage is proposed.
For second insured, complete Form AS-426.
- -----------------------------------------------------------------------------
First Name Middle Last
- -----------------------------------------------------------------------------
Street Address
- -----------------------------------------------------------------------------
City State Zip
( )
- -----------------------------------------------------------------------------
Daytime Telephone Number Years at this Address
/ / / / M / / F
- ------------------- Sex ---------------
Date of Birth State of Birth
- ------------------------------------- --------------------------
Social Security/Tax I.D. Number Driver's License Number
6 OWNER The person or entity exercising the policy's contractual rights.
- -----------------------------------------------------------------------------
First Name Middle Last
- -----------------------------------------------------------------------------
Street Address
- -----------------------------------------------------------------------------
City State Zip
- ------------------------------------ -------------------------
Social Security/Tax I.D. Number Date of Trust
AS-401 Page 1 (12/97)
<PAGE>
7 BENEFICIARY
- ------------------------------------------------------------------------------
Name of Primary Beneficiary Relationship to Insured
- ------------------------------------------------------------------------------
Name of Contingent Beneficiary Relationship to Insured
8 REPLACEMENT OF OTHER CONTRACTS
WILL THE PROPOSED POLICY REPLACE ANY EXISTING ANNUITY OR LIFE INSURANCE POLICY?
/ / Yes / / No
If yes, list company name and policy number:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
9 TELEPHONE ACCESS
I WILL AUTOMATICALLY BE ABLE TO TRANSFER ACCOUNT VALUES AND CHANGE THE
ALLOCATION OF FUTURE INVESTMENTS BY TELEPHONE OR FAX UNLESS I CHECK THE BOX
BELOW.
/ / I DO NOT Accept the Telephone Access privilege.
(Please see additional information in the authorization and Signature Section)
10 INFORMATION ABOUT THE INSURED
10a CURRENT EMPLOYMENT.
Employer's Name:
-------------------------------------------------------
Occupation and Responsibilities:
---------------------------------------
-----------------------------------------------------------------------
10b INCOME
My annual earned income is $
--------------
My annual unearned income is $
--------------
My net worth is $
--------------
10c DURING THE PAST YEAR, I HAVE SMOKED ONE OR MORE CIGARETTES, CIGARS,
PIPES, OR USED CHEWING TOBACCO.
/ / Yes / / No
10c Height Weight
---------------- ----------------
11 MEDICAL HISTORY
11a DURING THE PAST 10 YEARS, I HAVE 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.
/ / Yes / / No
11b DURING THE PAST 10 YEARS, I HAVE HAD, OR BEEN TREATED FOR IMMUNE
SYSTEM DISORDER INCLUDING ACQUIRED IMMUNE DEFICIENCY SYNDROME (AIDS),
AIDS-RELATED COMPLEX, OR ANOTHER IMMUNE DISORDER.
/ / Yes / / No
IF YOU ANSWERED "YES" TO 11a OR 11b, PLEASE COMPLETE ITEMS 11c THROUGH 11f:
11c I HAVE BEEN DIAGNOSED OR TREATED FOR:
-----------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
I AM CURRENTLY BEING TREATED: / / YES / / NO
----------------------------------------------------------------------------
Primary Physician's Name
----------------------------------------------------------------------------
Health Care Provider
----------------------------------------------------------------------------
Street Address
----------------------------------------------------------------------------
City State Zip
( ) / /
------------------------------------ ------------------------------------
Telephone Date of Last Visit
11d DURING THE PAST THREE YEARS, I HAVE PARTICIPATED IN, OR INTEND TO
PARTICIPATE IN:
/ / Scuba Diving / / Skydiving / / Land/Water Racing
/ / Hang Gliding or similar flying activity
11e DURING THE PAST TWO YEARS, I HAVE FLOWN, OR INTEND TO FLY, AS A
TRAINEE, PILOT, OR CREW MEMBER.
/ / Yes / / No
11f DURING THE PAST THREE YEARS, I HAVE HAD A MOTOR VEHICLE LICENSE
SUSPENDED OR REVOKED, OR BEEN CONVICTED OF DRIVING WHILE INTOXICATED OR
OF MORE THAN ONE MOVING VIOLATION.
/ / Yes / / No
Page 2
<PAGE>
AUTHORIZATIONS AND SIGNATURES
AUTHORIZATION TO OBTAIN INFORMATION
To all physicians, medical professionals, hospitals, clinics, other health
care providers, employers, Medical Information Bureau, Inc. (MIB), consumer
reporting agencies, other insurance support organizations, the United
States Internal Revenue Service, the Puerto Rico Bureau of Income Tax, and
other persons who have the types of information described about the
proposed insured:
I authorize you to give the Company, its reinsurers, or its agent (a) all
information you have as to illness, injury, medical history, diagnosis,
treatment, and prognosis (including any drug or alcohol abuse condition or
treatment) with respect to any physical or mental condition of the proposed
insured; and (b) any non-medical information, including but not limited to,
an investigative consumer report and copies of my tax returns filed with
the United States Internal Revenue Service and/or Puerto Rico Bureau of
Income Tax, which the Company believes it needs to perform the business
functions described below. I also authorize the Company to give the MIB
health or non-medical information it has about me and that of any minor
member of my family applying for insurance.
The information obtained will be used to determine if the proposed insured
is eligible for: (a) the insurance requested; or (b) benefits under a
policy which is in force. It will also be used for any other business
purpose which relates to the insurance requested or the policy which is in
force. This authorization will be valid for 30 months. I know that under
Federal Regulations I may revoke this authorization as it applies to drug
and alcohol abuse treatment at any time, but my revocation will not effect
any information that has been released prior thereto. I know that I may
request a copy of this form. I agree that a photocopy is as valid as the
original. I have received the Insurance Information Practices notice.
I understand that Allmerica Financial Life Insurance and Annuity Company is
authorized to honor telephone requests by me or by individuals authorized
by me, to transfer account values among sub-accounts and to change the
allocation of my future payments. I also understand that withdrawal of
funds from my policy cannot be transacted by telephone or fax instructions.
VARIABLE PRODUCT DISCLOSURE
I UNDERSTAND THAT ANY DEATH BENEFITS IN EXCESS OF THE FACE AMOUNT AND ANY
POLICY VALUE OF THE POLICY APPLIED FOR, MAY INCREASE OR DECREASE TO REFLECT
THE INVESTMENT EXPERIENCE OF THE SUB-ACCOUNTS OF THE VARIABLE ACCOUNT. THE
POLICY VALUE ALLOCATED TO THE FIXED ACCOUNT WILL ACCUMULATE INTEREST AT A
RATE SET BY THE COMPANY WHICH WILL NOT BE LESS THAN THE MINIMUM GUARANTEED
RATE OF 4% ANNUALLY. THERE IS NO GUARANTEED MINIMUM POLICY VALUE. THE
POLICY VALUE MAY DECREASE TO THE POINT WHERE THE POLICY WILL LAPSE AND
PROVIDE NO FURTHER DEATH BENEFIT WITHOUT ADDITIONAL PAYMENTS.
ACKNOWLEDGEMENTS AND AGREEMENTS
I acknowledge receipt of current Prospectuses describing the [Delaware SPL]
policy that I am applying for, and the underlying funds.
It is agreed that: (1) The application consists of this application form,
the medical questionnaire, if any, and the information on the Second
Insured form, if it applies; (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 policy 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 any physician
or practitioner of any healing art nor had any tests listed in the
application since its completion; but if the payment is paid prior to
delivery of the policy and a conditional receipt is delivered by the
registered representative, insurance will be effective subject to the terms
of the conditional receipt; and (4) No registered representative or broker
is authorized to amend, alter, or modify the terms of this agreement.
-----------------------------------------------------------------------------
Signature of Insured Date
-----------------------------------------------------------------------------
Print Name of Insured
-----------------------------------------------------------------------------
Signed at City State
-----------------------------------------------------------------------------
Signature of Owner (if other than Insured) Date
-----------------------------------------------------------------------------
Print Name of Owner
-----------------------------------------------------------------------------
Signed at City State
Page 3
<PAGE>
FOR FINANCIAL REPRESENTATIVE USE ONLY
Does the policy applied for replace an existing annuity or life insurance
policy?
/ / Yes / / No
If yes, attach replacement forms as required.
As Registered Representative, I certify witnessing the signature of the
applicant and that the information in this application has been accurately
recorded to the best of my knowledge and belief.
Based on the information furnished by the Owner or Insured in this
application, I certify that I have reasonable grounds for believing the
purchase of the policy applied for is suitable for the Owner. I further
certify that the prospectuses were delivered and that no written sales
materials other than those furnished by the Company were used.
-----------------------------------------------------------------------------
Signature of Registered Representative Date
-----------------------------------------------------------------------------
Print Name of Registered Representative Reg Rep #
-----------------------------------------------------------------------------
TR Code (Indicate A, B, or C)
( ) ( )
-----------------------------------------------------------------------------
Telephone Fax
-----------------------------------------------------------------------------
Name of Broker/Dealer Branch #
-----------------------------------------------------------------------------
Branch Office Street Address
-----------------------------------------------------------------------------
City State Zip
REMARKS: ---------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
FOR HOME OFFICE USE ONLY
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
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-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
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Page 4
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND 440 Lincoln Street INFORMATION ON SECOND INSURED
ANNUITY COMPANY Worcester, MA 01653 [DELAWARE SPL APPLICATION]
- -------------------------------------------------------------------------------
1 SECOND INSURED
- -------------------------------------------------------------------------------
First Name Middle Last
- -------------------------------------------------------------------------------
Street Address
- -------------------------------------------------------------------------------
City State Zip
( )
- -------------------------------------------------------------------------------
Daytime Telephone Number Years at this Address
- ------------------ / / M / / F ---------------
Date of Birth Sex State of Birth
- -------------------------------------------------------------------------------
Social Security/Tax I.D. Number Driver's License Number
2 OWNER AND BENEFICIARY
The Owner and Beneficiary are as indicated in Section 6 and 7 of the
accompanying [SPL] application. If Section 6 is Left blank, the owner will
be the insured listed in section 5 Of the [SPL] application.
3 REPLACEMENT OF OTHER CONTRACTS
WILL THE PROPOSED POLICY REPLACE ANY EXISTING ANNUITY OR LIFE INSURANCE
POLICY?
/ / Yes / / No
If yes, list company name and policy number:
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
4 INFORMATION ABOUT THE INSURED
4a CURRENT EMPLOYMENT.
Employer's Name:
--------------------------------------------------------
Occupation and Responsibilities:
----------------------------------------
-------------------------------------------------------------------------
4b INCOME
My annual earned income is $
--------------
My annual unearned income is $
--------------
My net worth is $
--------------
4c DURING THE PAST YEAR, I HAVE SMOKED ONE OR MORE CIGARETTES, CIGARS,
PIPES, OR USED CHEWING TOBACCO.
/ / Yes / / No
4d Height Weight
---------------- ----------------
5 MEDICAL HISTORY
5a DURING THE PAST 10 YEARS, I HAVE 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.
/ / Yes / / No
5b DURING THE PAST 10 YEARS, I HAVE HAD, OR BEEN TREATED FOR IMMUNE
SYSTEM DISORDER INCLUDING ACQUIRED IMMUNE DEFICIENCY SYNDROME (AIDS),
AIDS-RELATED COMPLEX, OR ANOTHER IMMUNE DISORDER.
/ / Yes / / No
IF YOU ANSWERED "YES" TO 5a OR 5b, PLEASE COMPLETE ITEMS 5C THROUGH 5F:
5c I HAVE BEEN DIAGNOSED OR TREATED FOR:
------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
I AM CURRENTLY BEING TREATED: / / YES / / NO
-------------------------------------------------------------------------
Primary Physician's Name
-------------------------------------------------------------------------
Health Care Provider
-------------------------------------------------------------------------
Street Address
-------------------------------------------------------------------------
City State Zip
( ) / /
------------------------------------- --------------------------------
Telephone Date of Last Visit
5d DURING THE PAST THREE YEARS, I HAVE PARTICIPATED IN, OR INTEND TO
PARTICIPATE IN:
/ / Scuba Diving / / Skydiving / / Land/Water Racing
/ / Hang Gliding or similar flying activity
5e DURING THE PAST TWO YEARS, I HAVE FLOWN, OR INTEND TO FLY, AS A
TRAINEE, PILOT, OR CREW MEMBER.
/ / Yes / / No
5f DURING THE PAST THREE YEARS, I HAVE HAD A MOTOR VEHICLE LICENSE
SUSPENDED OR REVOKED, OR BEEN CONVICTED OF DRIVING WHILE INTOXICATED OR
OF MORE THAN ONE MOVING VIOLATION.
/ / YES / / No
Page 1
<PAGE>
AUTHORIZATIONS AND SIGNATURES
AUTHORIZATION TO OBTAIN INFORMATION
To all physicians, medical professionals, hospitals, clinics, other health
care providers, employers, Medical Information Bureau, Inc. (MIB), Consumer
reporting Agencies, other insurance support organizations, the United
States Internal Revenue Service, The Puerto Rico Bureau of income tax, and
other persons who have the types of information described about the
proposed insured:
I authorize you to give the Company, its reinsurers, or its agent (a) all
information you have as to illness, injury, medical history, diagnosis,
treatment, and prognosis (including any drug or alcohol abuse condition or
treatment) with respect to any physical or mental condition of the proposed
insured; and (b) any non-medical information, including but not limited to,
an investigative consumer report and copies of my tax returns filed with
the United States Internal Revenue Service and/or Puerto Rico Bureau of
Income Tax, which the Company believes it needs to perform The business
functions described below. I also authorize the company to give the mib
health or non-medical information it has about me and that of any minor
member of my family applying for insurance.
The information obtained will be used to determine if the proposed insured
is eligible for: (a) the insurance requested; or (b) benefits under a
policy which is in force. It will also be used for any other business
purpose which relates to the insurance requested or the policy which is in
force. This authorization will be valid for 30 months. I know that under
Federal Regulations I may revoke this authorization as it applies to drug
and alcohol abuse treatment at any time, but my revocation will not effect
any information that has been released prior thereto. I know that I may
request a copy of this form. I agree that a photocopy is as valid as the
original. I have received the Insurance Information Practices notice.
ACKNOWLEDGEMENTS AND AGREEMENTS
It is agreed that: (1) The application consists of this Application form,
the medical questionnaire, if any, and the information on the Second
insured form; (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 policy 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 any physician or practitioner
of any healing art nor had any tests listed in the application since its
completion; but if the payment is paid prior to delivery of the policy and
a conditional receipt is delivered by the registered representative,
insurance will be effective subject to the terms of the conditional
receipt; and (4) No registered representative or broker is authorized to
amend, alter, or modify the terms of this agreement.
-----------------------------------------------------------------------------
Signature of Second Insured Date
-----------------------------------------------------------------------------
Print Name of Second Insured
-----------------------------------------------------------------------------
Signed at City State
-----------------------------------------------------------------------------
Signature of Owner (if other than insured) Date
-----------------------------------------------------------------------------
Print Name of Owner
-----------------------------------------------------------------------------
Signed at City State
Page 2
