<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 Statement
SEPARATE ACCOUNT FUVUL
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, Secretary
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) of Rule 485
_____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
FLEXIBLE PREMIUM VARIABLE LIFE
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940 ("1940
Act"), Registrant hereby declares that an indefinite amount of its securities is
being registered under the Securities Act of 1933 ("1933 Act").
<PAGE>
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 Registrations 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.
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
<TABLE>
<CAPTION>
ITEM NO. OF
FORM N-8B-2 CAPTION IN PROSPECTUS
<S> <C>
1................................. Cover Page
2................................. Cover Page
3................................. Not Applicable
4................................. Distribution
5................................. The Company, The Separate Account and the Underlying Funds
6................................. The Separate Account
7................................. Not Applicable
8................................. Not Applicable
9................................. Legal Proceedings
10................................ Summary; Description of the Company, The Separate Account and the Underlying
Funds; The Policy; Policy Termination and Reinstatement; Other Policy Provisions
11................................ Summary; the Underlying Funds; Investment Objectives and Policy
12................................ Summary; the Underlying Funds;
13................................ Summary; the Underlying Funds; Investment Advisory Services to the Underlying
Funds; Charges and Deductions
14................................ Summary; Applying for a Policy
15................................ Summary; Applying for a Policy; Payments; Allocation of Premiums
16................................ The Separate Account; the Underlying Funds; Payments; Allocation of Net Premiums
17................................ Summary; Surrender; Partial Withdrawal; Charges and Deductions; Policy
Termination and Reinstatement
18................................ The Separate Account; the Underlying Funds; Payments
19................................ Reports; Voting Rights
20................................ Not Applicable
21................................ Summary; Policy Loans; Other Policy Provisions
22................................ Other Policy Provisions
23................................ Not Required
24................................ Other Policy Provisions
25................................ The Company
26................................ Not Applicable
27................................ The Company
28................................ Directors and Principal Officers of the Company
29................................ The Company
30................................ Not Applicable
31................................ Not Applicable
32................................ Not Applicable
33................................ Not Applicable
34................................ Not Applicable
35................................ Distribution
</TABLE>
<PAGE>
<TABLE>
<S> <C>
36................................ Not Applicable
37................................ Not Applicable
38................................ Summary; Distribution
39................................ Summary; Distribution
40................................ Not Applicable
41................................ The Company, Distribution
42................................ Not Applicable
43................................ Not Applicable
44................................ Payments; Policy Value and Cash Surrender Value
45................................ Not Applicable
46................................ Policy Value and Cash Surrender Value; Federal Tax Considerations
47................................ The Company
48................................ Not Applicable
49................................ Not Applicable
50................................ The Separate Account
51................................ Cover Page; Summary; Charges and Deductions; The Policy; Policy Termination
and Reinstatement; Other Policy 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
INDIVIDUAL FLEXIBLE PAYMENT VARIABLE LIFE INSURANCE POLICIES
<TABLE>
<C> <S>
PLEASE READ THIS This Prospectus provides important information about an
PROSPECTUS CAREFULLY individual flexible payment variable life insurance policy
BEFORE INVESTING AND issued by Allmerica Financial Life Insurance and Annuity
KEEP IT FOR FUTURE Company. The policies are funded through the Separate
REFERENCE. Account FUVUL, a separate investment account of the Company
VARIABLE LIFE POLICIES that is referred to as the Variable Account.
INVOLVE RISKS The Separate Account is subdivided into Sub-Accounts. Each
INCLUDING POSSIBLE Sub-Account invests exclusively in shares of one of the
LOSS OF PRINCIPAL. following Funds:
THIS PROSPECTUS MUST Evergreen VA Equity Index Fund
BE ACCOMPANIED BY Evergreen VA Foundation Fund
PROSPECTUSES OF THE Evergreen VA Global Leaders Fund
FUNDS. Evergreen VA Small Cap Value Fund
</TABLE>
<TABLE>
<C> <S>
THIS LIFE POLICY IS Policy owners may, within limits, choose the amount of
NOT: initial payment and vary the frequency and amount of future
- - A BANK DEPOSIT OR payments. The Policy allows partial withdrawals and full
OBLIGATION; surrender of the Policy's Surrender Value, within limits.
- - FEDERALLY INSURED; The Policies are not suitable for short-term investment.
- - ENDORSED BY ANY This Prospectus can also be obtained from the Securities and
BANK OR Exchange Commission's website (http://www.sec.gov).
GOVERNMENTAL IT MAY NOT BE ADVANTAGEOUS TO REPLACE EXISTING INSURANCE
AGENCY. WITH THE POLICY.
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.
</TABLE>
<TABLE>
<C> <S> <C>
CORRESPONDENCE MAY BE MAILED TO DATED , 1999
ALLMERICA LIFE WORCESTER, MASSACHUSETTS 01653
P.O. BOX 8179 (508) 855-1000
BOSTON, MA 02266-8179
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS............................................... 4
SUMMARY OF FEES AND EXPENSES................................ 7
SUMMARY OF POLICY FEATURES.................................. 9
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT AND THE
UNDERLYING FUNDS............................................ 15
INVESTMENT OBJECTIVES AND POLICIES.......................... 16
INVESTMENT ADVISORY SERVICES................................ 16
THE POLICY.................................................. 17
Applying for a Policy..................................... 17
Free-Look Period.......................................... 17
Conversion Privilege...................................... 18
Payments.................................................. 18
Allocation of Payments.................................... 19
Transfer Privilege........................................ 19
Death Benefit............................................. 20
Election of Death Benefit Options......................... 21
Changing Between Death Benefit Option 1 and Death Benefit
2........................................................... 24
Guaranteed Death Benefit Rider............................ 25
Change in Face Amount..................................... 26
Policy Value.............................................. 27
Payment Options........................................... 28
Optional Insurance Benefits............................... 29
Surrender................................................. 29
Partial Withdrawal........................................ 29
CHARGES AND DEDUCTIONS...................................... 29
Monthly Charges (The Monthly Deduction)................... 30
Computing Monthly Policy Charges.......................... 31
Fund Expenses............................................. 33
Partial Withdrawal Transaction Charge..................... 33
Transfer Charges.......................................... 33
Other Administrative Charges.............................. 33
POLICY LOANS................................................ 33
Preferred Loan Option..................................... 34
Repayment of Outstanding Loan............................. 34
Effect of Policy Loans.................................... 34
POLICY TERMINATION AND REINSTATEMENT........................ 35
Termination............................................... 35
Reinstatement............................................. 35
OTHER POLICY PROVISIONS..................................... 36
Policy Owner.............................................. 36
Beneficiary............................................... 36
Assignment................................................ 36
Limit on Right to Challenge Policy........................ 36
Suicide................................................... 36
Misstatement of Age or Sex................................ 37
Delay of Payments......................................... 37
FEDERAL TAX CONSIDERATIONS.................................. 37
The Company and The Variable Account...................... 37
Taxation of The Policies.................................. 38
Policy Loans.............................................. 38
Modified Endowment Policies............................... 38
VOTING RIGHTS............................................... 39
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY............. 40
DISTRIBUTION................................................ 41
REPORTS..................................................... 41
LEGAL PROCEEDINGS........................................... 42
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS........... 42
FURTHER INFORMATION......................................... 42
MORE INFORMATION ABOUT THE FIXED ACCOUNT.................... 43
General Description....................................... 43
Fixed Account Interest.................................... 43
Partial Withdrawals and Transfers......................... 43
INDEPENDENT ACCOUNTANTS..................................... 43
YEAR 2000 DISCLOSURE........................................ 44
FINANCIAL STATEMENTS........................................ 44
APPENDIX A -- GUIDELINE MINIMUM DEATH BENEFIT FACTORS
TABLE....................................................... A-1
APPENDIX B -- OPTIONAL INSURANCE BENEFITS................... B-1
APPENDIX C -- GUARANTEED MONTHLY POLICY CHARGE RATES........ C-1
APPENDIX D -- ILLUSTRATIONS................................. D-1
APPENDIX E -- PERFORMANCE INFORMATION....................... E-1
FINANCIAL STATEMENTS........................................ FIN-1
</TABLE>
3
<PAGE>
SPECIAL TERMS
AGE: how old the Insured is on the birthday closest to a Policy 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" refer to Allmerica Financial Life Insurance and Annuity
Company in this Prospectus.
DATE OF ISSUE: the date the Policy was issued, used to measure the monthly
processing date, Policy months, Policy years and Policy anniversaries.
DEATH BENEFIT: the amount payable when the Insured dies prior to the Final
Payment Date, before deductions for any Outstanding Loan, partial withdrawals,
partial withdrawal transaction charge, and due and unpaid Monthly Deductions.
EVIDENCE OF INSURABILITY: information, including medical information, used to
decide the Insured's underwriting class.
FACE AMOUNT: the amount of insurance coverage applied for. The initial Face
Amount is shown in your Policy.
FINAL PAYMENT DATE: the Policy anniversary nearest the Insured's 100th birthday.
After this date, no payments may be made. The Net Death Benefit may be different
before and after the Final Payment Date. See NET DEATH BENEFIT.
FIXED ACCOUNT: a guaranteed account of the general account that guarantees
principal and a fixed interest rate.
FUNDS (UNDERLYING FUNDS): the investment portfolios of the Evergreen Variable
Annuity Trust that are offered under the Policy.
GENERAL ACCOUNT: all our assets other than those held in a separate investment
account.
GUIDELINE MINIMUM DEATH BENEFIT: the minimum death benefit required to qualify
the Policy as "life insurance" under federal tax laws. The Guideline Minimum
Death Benefit is the PRODUCT of:
- the Policy Value TIMES
- a percentage factor.
The percentage factor is a percentage that, when multiplied by the Policy Value,
determines the minimum death benefit required under federal tax laws. If Death
Benefit Option 3 is in effect, the percentage factor is based on the Insured's
attained age, sex, and underwriting class, as set forth in the Policy. If Death
Benefit Option 1 or Death Benefit Option 2 is in effect, the percentage factor
is based on the Insured's attained age, as set forth in APPENDIX A, Guideline
Minimum Death Benefit Factors Table.
INSURANCE AMOUNT: the death benefit less the Policy Value.
LOAN VALUE: the maximum amount you may borrow under the Policy.
4
<PAGE>
MINIMUM MONTHLY PAYMENT: a monthly amount shown in your Policy. If you pay this
amount, we guarantee that your Policy will not lapse before the 49th monthly
processing date from the Date of Issue or increase in Face Amount, within
limits.
MONTHLY PROCESSING DATE: the date, shown in your Policy, when Monthly Deductions
are taken from Policy Value.
NET DEATH BENEFIT: Before the Final Payment Date, the Net Death Benefit is:
- the death benefit under either Death Benefit Option 1, Death Benefit
Option 2, or Death Benefit Option 3, MINUS
- any Outstanding Loan on the Insured's death, partial withdrawals, partial
withdrawal transaction charge, and due and unpaid Monthly Deductions.
Where permitted by state law, we will compute the Net Death Benefit on the date
we receive due proof of the Insured's death under Death Benefit Option 2 and on
the date of death for Death Benefit Options 1 and 3. If required by state law,
we will compute the Net Death Benefit on the date of death for Death Benefit
Option 2.
After the Final Payment Date, the Net Death Benefit generally is:
- the Policy Value MINUS
- any Outstanding Loan.
If the Guaranteed Death Benefit Rider is in effect, after the Final Payment
Date, the death benefit is the greater of:
- the Face Amount as of the Final Payment Date; or
- the Policy Value as of the date due proof of death is received by the
Company.
OUTSTANDING LOAN: all unpaid Policy loans plus loan interest due or accrued.
POLICY CHANGE: any change in the Face Amount, the addition or deletion of a
Rider, underwriting reclassifications, or a change in death benefit option
(Option 1 or Option 2).
POLICY OWNER: the person who may exercise all rights under the Policy, with the
consent of any irrevocable beneficiary. "You" and "your" refer to the Policy
owner in this Prospectus.
POLICY VALUE: the total value of your Policy. It is the SUM of the:
- Value of the units of the sub-accounts credited to your Policy PLUS
- Accumulation in the Fixed Account credited to the Policy
PREMIUM: a payment you must make to us to keep the Policy in force.
PRINCIPAL OFFICE: our office at 440 Lincoln Street, Worcester, Massachusetts
01653.
PRO-RATA ALLOCATION: an allocation among the Fixed Account and the Sub-Accounts
in the same proportion that, on the date of allocation, the unloaned Policy
Value in the Fixed Account and the Policy Value in each sub-account bear to the
total unloaned Policy Value.
5
<PAGE>
SUB-ACCOUNT: a subdivision of the Variable Account investing exclusively in the
shares of a fund.
SURRENDER VALUE: the amount payable on a full surrender. It is the Policy Value
less any Outstanding Loan.
UNDERWRITING CLASS: the insurance risk classification that we assign the Insured
based on the information in the application or enrollment form and other
evidence of insurability we consider. The Insured's underwriting class will
affect the monthly charges and the payment required to keep the Policy in force.
UNIT: a measure of your interest in a Sub-Account.
VALUATION DATE: any day on which the net asset value of the shares of any funds
and unit values of any sub-accounts are computed. Valuation Dates currently
occur on:
- Each day the New York Stock Exchange is open for trading
- Other days (other than a day during which no payment, partial withdrawal
or surrender of a Policy 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 FUVUL, one of our separate investment
accounts.
WRITTEN REQUEST: your request in writing, satisfactory to us, received at our
Principal Office.
6
<PAGE>
SUMMARY OF FEES AND EXPENSES
WHAT CHARGES WILL I INCUR UNDER MY POLICY?
Charges will be deducted in connection with the Policy to compensate the Company
for:
- Administering the Policy
- Providing the insurance benefits set forth in the Policy and any optional
insurance benefits added by rider
- Payment of any applicable taxes
- Assuming certain risks in connection with the Policy
- Incurring expenses in distributing the Policy
The following charges will apply to your Policy under the circumstances
described. Some of these charges apply throughout the Policy's duration. Other
charges apply only if you choose options under the Policy.
We deduct the following monthly charges (the "Monthly Deduction") from Policy
Value:
- THE MONTHLY POLICY CHARGE -- will be charged on each monthly processing
date until the Final Payment Date. The primary purpose of the Monthly
Policy Charge is to compensate us for providing life insurance coverage
for the Insured. In addition, a portion of this charge compensates us for
administrative, tax and distribution expenses. The Monthly Policy Charge
is equal to a current Monthly Policy Charge rate per $1,000 times the
Insurance Amount. See CHARGES AND DEDUCTIONS.
- MONTHLY MORTALITY AND EXPENSE RISK CHARGE -- This monthly charge is
currently equal to and may not exceed 1/12 of 0.75% of the Policy Value in
each sub-account for the first 10 Policy years, 1/12 of 0.50% for Policy
Years 11 through 20, and 0.25% for Policy years 21 and later. The charge
is calculated based on the Policy Value in the sub-accounts of the
Variable Account (but not the Fixed Account) as of the prior Monthly
Processing Date. This charge compensates us for assuming mortality and
expense risks for variable interests in the Policies. This charge will
continue to be assessed after the Final Payment Date.
- MONTHLY RIDER CHARGES -- These charges will vary based on the Riders
selected and by the sex, age, and underwriting classification of the
Insured.
The charge below applies only if you make a partial withdrawal:
- PARTIAL WITHDRAWAL TRANSACTION CHARGE -- For each partial withdrawal, we
deduct a transaction fee of 2% of the amount withdrawn, not to exceed $25
for each partial withdrawal.
The charges below are designed to reimburse us for Policy administrative costs,
and apply under the following circumstances:
- CHARGE FOR OPTIONAL GUARANTEED DEATH BENEFIT RIDER -- A one time
administrative charge of $25 will be deducted from Policy Value when the
Rider is elected.
7
<PAGE>
- TRANSFER CHARGE -- Currently, the first 12 transfers of Policy Value in a
Policy year are free. A current transfer charge of $10, never to exceed
$25, applies for each additional transfer in the same Policy year. This
charge is for the costs of processing the transfer.
- OTHER ADMINISTRATIVE CHARGES -- We reserve the right to charge for other
administrative costs we incur. While there are no current charges for
these costs, we may impose a charge for:
- Changing payment allocation instructions
- Changing the allocation of the Monthly Deduction among the various
sub-accounts
- Providing a projection of values
WHAT ARE THE EXPENSES AND FEES OF THE 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.
Underlying Fund Annual Expenses
(as a percentage of underlying fund average net assets, after expense
reimbursements)(1)
<TABLE>
<CAPTION>
TOTAL OPERATING
UNDERLYING FUND MANAGEMENT FEES OTHER EXPENSES EXPENSES
- --------------- --------------- -------------- ---------------
<S> <C> <C> <C>
Evergreen VA Equity Index Fund (2).............. 0.00% 0.30% 0.30%
Evergreen VA Foundation Fund.................... 0.83% 0.17% 1.00%
Evergreen VA Global Leaders Fund................ 0.95% 0.05% 1.00%
Evergreen VA Small Cap Value Fund............... 0.95% 0.05% 1.00%
</TABLE>
(1) Reflects an agreement by the respective investment advisors to voluntarily
limit aggregate operating expenses (including investment advisory fees,
but excluding interest, brokerage commissions and extraordinary expenses) to
0.30% of average daily net assets of the Evergreen VA Equity Index Fund and
1.00% of average daily net assets of the other Funds.
(2) The inception date of the Evergreen VA Equity Index Portfolio is 9/30/99.
Expenses have been estimated based upon current fund contracts.
Absent the voluntary limit on aggregate operating expenses, the actual
Management Fees, Other Expenses and Total Operating Expenses period were as
follows:
<TABLE>
<CAPTION>
TOTAL OPERATING
UNDERLYING FUND MANAGEMENT FEES OTHER EXPENSES EXPENSES
- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C>
Evergreen VA Equity Index Fund (1).............. 0.40% 0.46%(1) 0.86%(1)
Evergreen VA Foundation Fund.................... 0.83% 0.17% 1.00%
Evergreen VA Global Leaders Fund................ 0.95% 0.61% 1.56%
Evergreen VA Small Cap Value Fund............... 0.95% 2.52% 3.47%
</TABLE>
(1) The inception date of the Evergreen VA Equity Index Portfolio is 9/30/99.
Expenses have been estimated based upon current fund contracts.
The Underlying Fund information above was provided by the Underlying Funds and
was not independently verified by the Company.
8
<PAGE>
SUMMARY OF POLICY FEATURES
This Summary is intended to provide only a very brief overview of the more
significant aspects of the Policy. If you are considering the purchase of this
product, you should read the remainder of this Prospectus carefully before
making a decision. It offers a more complete presentation of the topics
presented here, and will help you better understand the product. However, the
Policy, together with its attached application constitutes the entire agreement
between you and the Company.
There is no guaranteed minimum Policy Value. The value of a Policy will vary up
or down to reflect the investment experience of allocations to the Sub-Accounts
and the fixed rates of interest earned by allocations to the General Account.
The Policy Value will also be adjusted for other factors, including the amount
of charges imposed. The Policy will terminate if Policy Value is insufficient to
cover certain monthly charges plus loan interest accrued, or Outstanding Loans
exceed the Policy Value. The Policy Value may decrease to the point where the
Policy will lapse and provide no further death benefit without additional
premium payments, unless the optional Guaranteed Death Benefit Rider is in
effect. This Rider may not be available in all states.
WHAT IS THE POLICY'S OBJECTIVE?
The objective of the Policy is to give permanent life insurance protection and
help you build assets tax-deferred. Features available through the Policy
include:
- A Net Death Benefit that can protect your family
- Payment options that can guarantee an income for life
- A personalized investment portfolio
- Experienced professional investment advisers
- Tax deferral on earnings.
While the Policy is in force, it will provide:
- Life insurance coverage on the Insured
- Policy Value
- Surrender rights and partial withdrawal rights
- Loan privileges
- Optional insurance benefits available by Rider.
The Policy 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 Policy Value and the Death Benefit will increase
or decrease depending on investment results. Unlike traditional insurance
policies, the Policy has no fixed schedule for payments. Within limits, you may
make payments of any amount and frequency. While you may establish a schedule of
payments ("planned payments"), the Policy will not necessarily lapse if you fail
to make planned payments. Also, making planned payments will not guarantee that
the Policy will remain in force.
9
<PAGE>
WHO ARE THE KEY PERSONS UNDER THE POLICY?
The Policy is a contract between you and us. Each Policy has a Policy Owner
(you), an Insured (you or another individual you select) and a beneficiary. As
Policy Owner, you make payments, choose investment allocations and select the
Insured and beneficiary. The Insured is the person covered under the Policy. 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 Policy is in effect. You may choose between three death benefit options.
Under Death Benefit Option 1 and Death Benefit Option 3, the death benefit is
the greater of (1) the Face Amount (the amount of insurance applied for) or (2)
the Guideline Minimum Death Benefit (the Guideline Minimum Death Benefit federal
tax law requires). Under Death Benefit Option 2, the death benefit is the
greater of (1) the sum of the Face Amount and Policy Value or (2) the Guideline
Minimum Death Benefit. For more information, see "Election of Death Benefit
Option" under THE POLICY.
The Net Death Benefit is the death benefit less any Outstanding Loan, partial
withdrawals, partial withdrawal transaction charge, and due and unpaid Monthly
Deductions. However, after the Final Payment Date, the Net Death Benefit is the
Policy Value less any Outstanding Loan. The beneficiary may receive the Net
Death Benefit in a lump sum or under a payment option we offer.
An optional Guaranteed Death Benefit Rider is available ONLY AT ISSUE OF THE
POLICY. (The Guaranteed Death Benefit Rider may not be available in all states,
and is not available if the Policy is issued on a simplified underwriting
basis). If this Rider is in effect, the Company:
- guarantees that your Policy will not lapse regardless of the investment
performance of the Variable Account; and
- provides a guaranteed Net Death Benefit.
In order to maintain the Guaranteed Death Benefit Rider, certain minimum premium
payment tests must be met on each policy anniversary and within 48 months
following the Date of Issue and/or the date of any increase in Face Amount, as
described below. In addition, a one-time administrative charge of $25 will be
deducted from Policy Value when the Rider is elected. Certain transactions,
including policy loans, partial withdrawals, underwriting reclassifications,
change in face amount, and changes in Death Benefit Options, can result in the
termination of the Rider. IF THIS RIDER IS TERMINATED, IT CANNOT BE REINSTATED.
FOR MORE INFORMATION, SEE "Guaranteed Death Benefit Rider."
CAN I EXAMINE THE POLICY?
Yes. You have the right to examine and cancel your Policy by returning it to us
or to one of our representatives on or before the 10 days after you receive the
Policy or longer when state law so requires. There may be a longer period in
certain jurisdictions; see the "Right to Examine" provision in your Contract.
If your Policy provides for a full refund of payments under its "Right to
Examine Policy" 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 the bank.
10
<PAGE>
If required by state law, your Policy will provide for a "full refund." Your
refund will be the GREATER of:
- Your entire payment OR
- The Policy Value PLUS deductions for taxes, charges or fees.
If your Policy does not provide for a full refund, you will receive:
- Amounts allocated to the Fixed Account PLUS
- The Policy Value in the Variable Account PLUS
- Any taxes, fees or other charges imposed on amounts in the Variable
Account.
After an increase in Face Amount, a right to cancel the increase also applies.
WHAT ARE MY INVESTMENT CHOICES?
Each Sub-Account invests exclusively in a corresponding Underlying Fund of the
Evergreen Variable Annuity Trust. In some states, insurance regulations may
restrict the availability of particular Underlying Funds. The Policy also offers
a Fixed Account that is part of the general account of the Company. The Fixed
Account is a guaranteed account offering a minimum interest rate. This range of
investment choices allows you to allocate you money among the Sub-Accounts and
the Fixed Account to meet your investment needs.
If your Policy provides for a full refund under its "Right to Examine Policy"
provision as required in your state, we will allocate all sub-account
investments to the Money Market Fund until the fourth day after the expiration
of the "Right to Examine" provision of your policy. After this, we will allocate
all amounts as you have chosen.
You may allocate and transfer money among the following variable investment
options:
Evergreen VA Equity Index Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Small Capvalue Fund
The value of each Sub-Account will vary daily depending upon the performance of
the Underlying Fund in which it invests. Each Sub-Account reinvests dividends or
capital gains distributions received from an Underlying Fund in additional
shares of that Underlying Fund. There can be no assurance that the investment
objectives of the Underlying Funds can be achieved. For more information, see
DESCRIPTION OF THE COMPANY, SEPARATE ACCOUNT IMO, AND THE UNDERLYING FUNDS.
CAN I MAKE TRANSFERS AMONG THE FUNDS AND THE FIXED ACCOUNT?
Yes. The Policy permits you to transfer Policy Value among the available
Sub-Accounts and between the Sub-Accounts and the General Account of the
Company, subject to certain limitations described under THE POLICY -- "Transfer
Privilege." You will incur no current taxes on transfers while your money is in
the Policy.
11
<PAGE>
HOW MUCH CAN I INVEST AND HOW OFTEN?
The Policy does not limit payments as to frequency and number. However, no
payment may be less than $100 without our consent. Additional payments may be
made at any time before the Final Payment Date. We reserve the right to obtain
evidence of insurability as a condition to accepting any premium that would
increase the death benefit by more than the amount of the payment. You may
choose a monthly automatic payment method of making payments. Under this method,
each month we will deduct payments from your checking account and apply them to
your Policy. The minimum automatic payment allowed is $50. For more information,
see THE CONTRACT -- "Payments".
WHAT IF I NEED MY MONEY?
You may borrow up to the loan value of your Policy. You may also make partial
withdrawals and surrender the Policy for its Surrender Value. There are two
types of loans that may be available to you:
- A non-preferred loan option is always available to you. The maximum total
loan amount is 90% of the Policy Value. The Company will charge interest
on the amount of the loan at a current annual rate of 4.8%. This current
rate of interest may change, but is guaranteed not to exceed 6%. However,
the Company will also credit interest on the Policy Value securing the
loan. The annual interest rate credited to the Policy Value securing a
non-preferred loan is 4.0%.
- A preferred loan option is automatically available to you unless you
request otherwise. The preferred loan option is available on that part of
an Outstanding Loan that is attributable to policy earnings. The term
"policy earnings" means that portion of the Policy Value that exceeds the
sum of the payments made less all partial withdrawals and partial
withdrawal transaction charges. The Company will charge interest on the
amount of the loan at a current annual rate of 4.00%. This current rate of
interest may change, but is guaranteed not to exceed 4.50%. The annual
interest rate credited to the Policy earnings securing a preferred loan is
4.0%.
We will allocate Policy 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 Policy Value in each sub-account equal
to the Policy loan to the Fixed Account.
You may surrender your Policy and receive its Surrender Value. After the first
Policy year, you may make partial withdrawals of $500 or more from Policy Value,
subject to a partial withdrawal transaction charge. Under Death Benefit Option 1
and Death Benefit Option 3, the Face Amount is reduced by each partial
withdrawal. We will not allow a partial withdrawal if it would reduce the Face
Amount below $40,000. A surrender or partial withdrawal may have tax
consequences. See "Taxation of the Policies."
A request for a preferred loan after the Final Payment Date, a partial
withdrawal after the Final Payment Date, or the foreclosure of an Outstanding
Loan will terminate a Guaranteed Death Benefit Rider. See "Guaranteed Death
Benefit Rider." Policy loans may have tax consequences. There is some
uncertainty as to the tax treatment of a preferred loan, which may be treated as
a taxable withdrawal from the Policy. See FEDERAL TAX CONSIDERATIONS, "Policy
Loans."
CAN I MAKE FUTURE CHANGES UNDER MY POLICY?
Yes. There are several changes you can make after receiving your Policy, within
limits. You may:
- Cancel your Policy under its right-to-examine provision
- Transfer your ownership to someone else
12
<PAGE>
- Change the beneficiary
- Change the allocation of payments, with no tax consequences under current
law
- Make transfers of Policy Value among the funds
- Adjust the death benefit by increasing or decreasing the Face Amount
- Change your choice of death benefit options between Death Benefit Option 1
and Death Benefit Option 2
- Add or remove optional insurance benefits provided by Rider
CAN I CONVERT MY POLICY INTO A FIXED POLICY?
Yes. You can convert your Policy without charge during the first 24 months after
the Date of Issue or after an increase in Face Amount. On conversion, we will
transfer the Policy Value in the Variable Account to the Fixed Account. We will
allocate all future payments to the Fixed Account, unless you instruct us
otherwise.
WHAT ARE THE LAPSE AND REINSTATEMENT PROVISIONS OF MY POLICY?
The Policy will not lapse if you fail to make payments unless:
- The Policy Value is insufficient to cover the next Monthly Deduction and
loan interest accrued; or
- Outstanding Loans exceed Policy Value
There is a 62-day grace period in either situation.
If you make payments at least equal to minimum monthly payments, we guarantee
that your Policy will not lapse before the 49th monthly processing date from
Date of Issue or increase in Face Amount, within limits and excluding loan
foreclosure. If the Guaranteed Death Benefit Rider is in effect, the Policy will
not lapse regardless of the investment performance of the Variable Account
(excluding loan foreclosure). For more information, see "Guaranteed Death
Benefit Rider."
If the Insured has not died, you may reinstate your Policy within three years
after the grace period. The Insured must provide evidence of insurability
subject to our then current underwriting standards. In addition, you must either
repay or reinstate any Outstanding Loan and make payments sufficient to keep the
Policy in force for three months. See POLICY TERMINATION AND REINSTATEMENT.
HOW IS MY POLICY TAXED?
The Policy is given federal income tax treatment similar to a conventional fixed
benefit life insurance policy. On a withdrawal of Policy Value, Policy owners
currently are taxed only on the amount of the withdrawal that exceeds total
payments. Withdrawals greater than payments made are treated as ordinary income.
During the first 15 Policy years, however, an "interest first" rule applies to
distributions of cash required under Section 7702 of the Internal Revenue Code
("Code") because of a reduction in benefits under the Policy.
The Net Death Benefit under the Policy is excludable from the gross income of
the beneficiary. However, in some circumstances federal estate tax may apply to
the Net Death Benefit or the Policy Value.
A Policy may be considered a "modified endowment contract." This may occur if
total payments during the first seven Policy years (or within seven years of a
material change in the Policy) exceed the total net level
13
<PAGE>
payments payable, if the Policy had provided paid-up future benefits after seven
level payments. If the Policy is considered a modified endowment contract, all
distributions (including Policy 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.
This Summary is intended to provide only a very brief overview of the more
significant aspects of the Policy. The Prospectus and the Policy provide further
detail. The Policy provides insurance protection for the named beneficiary. The
Policy and its attached application or enrollment form are the entire agreement
between you and the Company.
------------------------
IT MAY NOT BE ADVANTAGEOUS TO PURCHASE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
AS A REPLACEMENT FOR YOUR CURRENT LIFE INSURANCE, OR IF YOU ALREADY OWN A
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY.
THE PURPOSE OF THE POLICY IS TO PROVIDE INSURANCE PROTECTION FOR THE
BENEFICIARY. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR
COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND. THE POLICY,
TOGETHER WITH ITS ATTACHED APPLICATION, CONSTITUTES THE ENTIRE AGREEMENT BETWEEN
YOU AND THE COMPANY.
14
<PAGE>
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT,
AND THE UNDERLYING FUNDS
THE COMPANY
The Company 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. We are a wholly owned subsidiary of
First Allmerica Financial Life Insurance Company, formerly named State Mutual
Life Assurance Company of America ("First Allmerica"), which in turn is a
wholly-owned subsidiary of Allmerica Financial Corporation. 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 1-800-628-6267. 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 that is currently
comprised of four sub-accounts. Each sub-account invests in a corresponding fund
of the Evergreen Variable Annuity Trust. The assets used to fund the variable
part of the Policies 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 establishment of 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.
EVERGREEN VARIABLE ANNUITY TRUST
The Evergreen Variable Annuity Trust (the "Trust") is an open-end management
investment company commonly referred to as a "mutual Fund." The Trust is
designed to provide investors with a selection of investment alternatives that
seek to provide capital growth, income and diversification through its six
investment series (the "Funds"). Shares of the Funds are sold to separate
accounts funding variable annuity contracts and variable life insurance policies
issued by life insurance companies.
15
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of the funds is set forth below. BEFORE
INVESTING, READ CAREFULLY THE PROSPECTUS OF THE EVERGREEN VARIABLE ANNUITY TRUST
THAT ACCOMPANIES THIS PROSPECTUS. IT CONTAINS MORE DETAILED INFORMATION ON THE
INVESTMENT OBJECTIVES, RESTRICTIONS, RISKS AND EXPENSE OF THE UNDERLYING FUNDS.
Statements of Additional Information for the funds are available on request. The
investment objectives of the funds may not be achieved. Policy Value may be less
than the aggregate payments made under the Policy.
EVERGREEN VA EQUITY INDEX FUND -- seeks investment results that achieve price
and yield performance similar to the Standard and Poor's 500 Composite Stock
Price Index. The Fund invests substantially all of its total assets in equity
securities that represent a composite of the S&P 500 Index.
EVERGREEN VA FOUNDATION FUND -- seeks, in order of priority, reasonable income,
conservation of capital and capital appreciation. The Fund invests principally
in income-producing common and preferred stocks, securities convertible into or
exchangeable for common stocks and fixed income securities.
EVERGREEN VA GLOBAL LEADERS FUND -- seeks to achieve capital appreciation by
investing primarily in a diversified portfolio of U.S. and non-U.S. equity
securities of companies located in the world's major industrialized countries.
The Fund's investment adviser will attempt to screen the largest companies in
the world's major industrialized countries and cause the Fund to invest, in the
opinion of the Fund's investment adviser, in the 100 best based on certain
qualitative and quantitative criteria.
EVERGREEN VA SMALL CAP VALUE FUND -- seeks to achieve a return consisting of
current income and capital appreciation in the value of its shares. The Fund
invests in common and preferred stocks, securities convertible into or
exchangeable for common stocks and fixed income securities. In attempting to
achieve its objective, the Fund invests primarily in companies with total market
capitalizations of less than $500 million.
* * *
If there is a material change in the investment policy of an Underlying Fund, we
will notify you of the change. If you have Policy Value allocated to that fund,
you may without charge reallocate the Policy Value to another fund or to the
Fixed Account. We must receive your written request within 60 days of the LATEST
of the:
- Effective date of the change in the investment policy OR
- Receipt of the notice of your right to transfer.
INVESTMENT ADVISORY SERVICES
Each Underlying Fund pays a management fee to an investment manager or adviser
for managing and providing services to the Underlying Fund; however, management
fee waivers and/or reimbursements may be in effect for certain or all of the
Underlying Funds. For specific information regarding the existence and effect of
any waivers/reimbursements see "Annual Underlying Fund Expenses" under the
SUMMARY OF FEES AND EXPENSES section. The prospectuses of the Underlying Funds
also contain information regarding fees for advisory services and should be read
in conjunction with this Prospectus.
The investment adviser to the Evergreen VA Equity Index Fund is Evergreen
Investment Management ("EIM"). EIM, also known as First Capital Group, is a
division of First Union National Bank of North Carolina, which in turn is a
subsidiary of First Union Corporation. The investment adviser to the Evergreen
VA Global Leaders Fund and Evergreen VA Small Cap Value Fund is Evergreen Asset
Management Corp. ("EAMC"), a wholly-owned subsidiary of FUNB. EAMC is entitled
to receive from each of these Funds an annual fee equal to 0.95% of the average
daily net assets of each Fund. Lieber & Company acts as sub-advisor to these and
provides investment research, information, investment recommendation advice and
assistance to EAMC, and is reimbursed by EAMC for the costs of providing such
sub-advisory services.
16
<PAGE>
EAMC is also the investment adviser to the Evergreen VA Foundation Fund. EAMC is
entitled to receive from the Fund an annual fee equal to 0.825% of the average
daily net assets of each Fund.
THE POLICY
APPLYING FOR A POLICY
After receiving a completed application or enrollment form from a prospective
Policy 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 Policy only after underwriting has been
completed. We may reject an application or enrollment form that does not meet
our underwriting guidelines.
Simplified underwriting may be available if the Face Amount applied for is
$250,000 or less. However, if a Policy is issued on the basis of simplified
underwriting, cost of Monthly Policy Charge rates are higher than they would be
if the Policy were issued using conventional underwriting methods. In addition,
if the Policy is issued on the basis of simplified underwriting, optional
benefit riders may not be available.
If a prospective Policy owner makes an initial payment of at least one minimum
monthly payment, we will provide fixed temporary insurance during underwriting.
The fixed temporary insurance will be the insurance applied for, 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 enrollment
form or, if required the completed medical exam. If death is by suicide, we will
return only the premium paid.
If no temporary insurance was in effect, on Policy delivery we will require a
sufficient payment to place the insurance in force. If you made payments before
the date of issue, we will allocate the payments to the Fixed Account. IF THE
POLICY IS NOT ISSUED AND ACCEPTED BY YOU, THE PAYMENTS WILL BE RETURNED TO YOU
WITHOUT INTEREST.
If the Policy is issued, we will allocate your Policy Value on issuance
according to your instructions. However, if your Policy provides for a full
refund of payments under its "Right to Examine Policy" provision as required in
your state (see THE POLICY -- "Free-Look Period"), we will initially allocate
your sub-account investments to the Money Market Fund. This allocation to the
Money Market Fund will be until the fourth day after the expiration of the
"Right to Examine" provision of your policy.
After this, we will allocate all amounts according to your investment choices.
FREE-LOOK PERIOD
The Policy provides for a free look period. You have the right to examine and
cancel your Policy by returning it to us or to one of our representatives on or
before the 10 days after you receive the Policy or longer when state law so
requires. There may be a longer period in certain jurisdictions; see the "Right
to Examine" provision in your Contract.
If your Policy provides for a full refund under its "Right to Examine Policy"
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, however, your refund will be the GREATER of
- Your entire payment OR
- The Policy Value PLUS deductions under the Policy for taxes, charges or
fees
17
<PAGE>
If your Policy does not provide for a full refund, you will receive
- Amounts allocated to the Fixed Account PLUS
- The Policy Value in the Variable Account PLUS
- All fees, charges and taxes which have been imposed on amounts in the
Variable Account.
After an increase in Face Amount, we will mail or deliver a notice of a free
look for the increase. You will have the right to cancel the increase before the
10 days after you receive the Policy or longer when state law so requires. There
may be a longer period in certain jurisdictions; see the "Right to Examine"
provision in your Contract.
On canceling the increase, you will receive a credit to your Policy Value of the
charges deducted for the increase. Upon request, we will refund the amount of
the credit to you.
CONVERSION PRIVILEGE
Within 24 months of the Date of Issue or an increase in Face Amount, you can
convert your Policy into a Fixed Policy by transferring all Policy 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 all future payments to the Fixed Account, unless you instruct us
otherwise.
PAYMENTS
Payments are payable to the Company. Payments may be made by mail to our
Principal Office or through our authorized representative. All payments after
the initial payment are credited to the Variable Account or Fixed Account on the
date of receipt at the Principal Office.
You may establish a schedule of planned payments. If you do, we will bill you at
regular intervals. Making planned payments will not guarantee that the Policy
will remain in force. The Policy will not necessarily lapse if you fail to make
planned payments. You may make unscheduled payments before the Final Payment
Date or skip planned payments. If the Guaranteed Death Benefit Rider is in
effect, there are certain minimum payment requirements.
The Policy does not limit payments as to frequency and number. However, no
payment may be less than $100 without our consent. You may choose a monthly
automatic payment method of making payments. Under this method, each month we
will deduct payments from your checking account and apply them to your Policy.
The minimum automatic payment allowed is $50. Payments must be sufficient to
provide a positive Policy Value (less Outstanding Loans) at the end of each
Policy month or the Policy may lapse. See POLICY TERMINATION AND REINSTATEMENT.
During the first 48 Policy months following the Date of Issue or an increase in
Face Amount, a guarantee may apply to prevent the Policy from lapsing. The
guarantee will apply during this period if you make payments that, when reduced
by policy loans, partial withdrawals and partial withdrawal transaction charge,
equal or exceed the required minimum monthly payments. The required minimum
monthly payments are based on the number of months the Policy, increase in Face
Amount or policy change that causes a change in the minimum monthly payment has
been in force. MAKING MONTHLY PAYMENTS EQUAL TO THE MINIMUM MONTHLY PAYMENTS
DOES NOT GUARANTEE THAT THE POLICY WILL REMAIN IN FORCE, EXCEPT AS STATED IN
THIS PARAGRAPH.
18
<PAGE>
Under Death Benefit Option 1 and Death Benefit Option 2, total payments may not
exceed the current maximum payment limits under federal tax law. These limits
will change with a change in Face Amount, underwriting reclassifications, the
addition or deletion of a Rider, or a change between Death Benefit Option 1 and
Death Benefit Option 2. Where total payments would exceed the current maximum
payment limits, the excess first will be applied to repay any Outstanding Loans.
If there are remaining excess payments, any such excess payments will be
returned to you. However, we will accept a payment needed to prevent Policy
lapse during a Policy year. See POLICY TERMINATION AND REINSTATEMENT.
ALLOCATION OF PAYMENTS
In the application or enrollment form for your Policy, you decide the initial
allocation of the payment among the Fixed Account and the sub-accounts. You may
allocate payments to one or more of the sub-accounts. The minimum amount that
you may allocate to a sub-account is 100% 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 future payments 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 or enrollment form. 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 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 Policy Value in the sub-accounts will vary with investment experience. You
bear this investment risk. Investment performance may also affect the death
benefit. Please review your allocations of payments and Policy Value as market
conditions and your financial planning needs change.
TRANSFER PRIVILEGE
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 Policy Value held in the Fixed Account that secures
a Policy loan.) We will make transfers at your written request or telephone
request, as described in THE POLICY -- "Allocation of Payments." Transfers are
effected at the value next computed after receipt of the transfer order.
Currently, the first 12 transfers in a Policy year are free. After that, we will
deduct a $10 transfer charge from amounts transferred in that Policy year. We
reserve the right to increase the charge, but we guarantee the charge will never
exceed $25. Any transfers made for a conversion privilege, Policy loan or
material change in investment policy or under an automatic transfer option will
not count toward the 12 free transfers.
The transfer privilege is subject to our consent. We reserve the right to impose
limits on transfers including, but not limited to, the:
- Minimum amount that may be transferred
- Minimum amount that may remain in a sub-account following a transfer from
that sub-account
- Minimum period between transfers involving the Fixed Account
19
<PAGE>
- Maximum amounts that may be transferred from the Fixed Account
Transfers to and from the Fixed Account are currently permitted only if:
- the amount transferred from the Fixed Account in each transfer may not
exceed the lesser of $100,000 or 25% of the Policy Value in the Fixed
Account.
- You may make only one transfer involving the Fixed Account in each policy
quarter
These rules are subject to change by the Company.
DOLLAR-COST AVERAGING OPTION AND AUTOMATIC REBALANCING OPTION
You may have automatic transfers of at least $100 a month made on a periodic
basis:
- from the Sub-Accounts which invest in the Money Market Fund of the Trust
and the Fixed Account, respectively, to one or more of the other
Sub-Accounts ("Dollar-Cost Averaging Option"), or
- to reallocate Policy Value among the Sub-Accounts ("Automatic Rebalancing
Option").
Automatic transfers may be made on a monthly, quarterly, semi-annual or annual
schedule. You may request the day of the month on which automatic transfers will
occur (the "transfer date). If you do not choose a transfer date, the transfer
date will be the 15th of the scheduled month. However, if the transfer date is
not a business day, the automatic transfer will be processed on the next
business day. Each automatic transfer is free, and will not reduce the remaining
number of transfers that are free in a Policy year.
DEATH BENEFIT
GUIDELINE MINIMUM DEATH BENEFIT. In order to qualify as "life insurance" under
the Federal tax laws, this Policy must provide a Guideline Minimum Death
Benefit. The Guideline Minimum Death Benefit will be determined as of the date
of death. If Death Benefit Option 1 or Death Benefit Option 2 is in effect, the
Guideline Minimum Death Benefit is obtained by multiplying the Policy Value by a
percentage factor for the Insured's attained age, as shown in the table in
Appendix A. If Death Benefit Option 3 is in effect, the Guideline Minimum Death
Benefit is obtained by multiplying the Policy Value by a percentage for the
Insured's attained age, sex, and underwriting class, as set forth in the Policy.
Guideline Minimum Death Benefit Table in Appendix A is used when Death Benefit
Option 1 or Death Benefit Option 2 is in effect. The Guideline Minimum Death
Benefit Table in Appendix A reflects the requirements of the "guideline
premium/guideline death benefit" test set forth in the Federal tax laws.
Guideline Minimum Death Benefit factors are set forth in the Policy when Death
Benefit Option 3 is in effect. These factors reflect the requirements of the
"cash value accumulation" test set forth in the Federal tax laws. The Guideline
Minimum Death Benefit factors will be adjusted to conform to any changes in the
tax laws. For more information, see ELECTION OF DEATH BENEFIT OPTIONS, below.
NET DEATH BENEFIT. If the Policy is in force on the Insured's death, we will,
with due proof of death, pay the Net Death Benefit to the named beneficiary. 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 POLICY PROVISIONS -- "Delay of Payments." The beneficiary may receive the
Net Death Benefit in a lump sum or under a payment option. See THE POLICY --
"Payment Options."
20
<PAGE>
The Net Death Benefit depends on the current Face Amount and Death Benefit
Option that is in effect on the date of death. Before the Final Payment Date,
the Net Death Benefit is:
- The death benefit provided under Death Benefit Option 1, Death Benefit
Option 2, or Death Benefit Option 3, whichever is elected and in effect on
the date of death, PLUS
- Any other insurance on the Insured's life that is provided by Rider, MINUS
- Any Outstanding Loan, any partial withdrawals, partial withdrawal
transaction charge, and due and unpaid monthly charges through the Policy
month in which the Insured dies.
After the Final Payment Date, if the Guaranteed Death Benefit Rider is not in
effect, the Net Death Benefit is:
- The Policy Value MINUS
- Any Outstanding Loan
Where permitted by state law, we will compute the Net Death Benefit on
- The date we receive due proof of the Insured's death under Death Benefit
Option 2 OR
- The date of death for Death Benefit Options 1 and 3.
If required by state law, we will compute the Net Death Benefit on the date of
death for Death Benefit Option 2 as well as for Death Benefit Options 1 and 3.
ELECTION OF DEATH BENEFIT OPTIONS
Federal tax law requires a Guideline Minimum Death Benefit in relation to Policy
Value for a Contract to qualify as life insurance. Under current Federal tax
law, either the Guideline Premium Test or the Cash Value Accumulation Test can
be used to determine if the Contract complies with the definition of "life
insurance" under the Code. At the time of application, you may elect either of
the tests. If you elect the Guideline Premium Test, you will have the choice of
electing Death Benefit Option 1 or Death Benefit Option 2. If you elect the Cash
Value Accumulation Test, Death Benefit Option 3 will apply. APPLICANTS FOR A
POLICY SHOULD CONSULT A QUALIFIED TAX ADVISER IN CHOOSING BETWEEN THE GUIDELINE
PREMIUM TEST AND THE CASH VALUE ACCUMULATION TEST AND IN CHOOSING A DEATH
BENEFIT OPTION.
GUIDELINE PREMIUM TEST AND CASH VALUE ACCUMULATION TEST -- There are two main
differences between the Guideline Premium Test and the Cash Value Accumulation
Test. First, the Guideline Premium Test limits the amount of premium that may be
paid into a Contract, while no such limits apply under the Cash Value
Accumulation Test. Second, the factors that determine the Guideline Minimum
Death Benefit relative to the Policy Value are different.
The Guideline Premium Test limits the amount of premiums payable under a
Contract to a certain amount for an Insured of a particular age, sex, and
underwriting class. Under the Guideline Premium Test, you may choose between
Death Benefit Option 1 or Death Benefit Option 2, as described below. After
issuance of the Contract, you may change the selection from Death Benefit Option
1 to Death Benefit Option 2, or vice versa.
The Cash Value Accumulation Test requires that the Death Benefit must be
sufficient so that the cash Surrender Value does not at any time exceed the net
single premium required to fund the future benefits under the Contract. Under
the Cash Value Accumulation Test, required increases in the Guideline Minimum
Death Benefit (due to growth in Policy Value) will generally be greater than
under the Guideline Premium Test. If
21
<PAGE>
you choose the Cash Value Accumulation Test, ONLY Death Benefit Option 3 is
available. You may NOT switch between Death Benefit Option 3 to Death Benefit
Option 1 or to Death Benefit Option 2, or vice versa.
DEATH BENEFIT OPTION 1 -- LEVEL DEATH BENEFIT WITH GUIDELINE PREMIUM TEST. Under
Option 1, the Death Benefit is equal to the greater of the Face Amount or the
Guideline Minimum Death Benefit, as set forth in Table A in Appendix A. The
Death Benefit will remain level unless the Guideline Minimum Death Benefit is
greater than the Face Amount. If the Guideline Minimum Death Benefit is greater
than the Face Amount, the Death Benefit will vary as the Policy Value varies.
Death Benefit Option 1 will offer the best opportunity for the Policy Value to
increase without increasing the Death Benefit as quickly as it might under the
other options. The Death Benefit will never go below the Face Amount.
DEATH BENEFIT OPTION 2 -- ADJUSTABLE DEATH BENEFIT WITH GUIDELINE PREMIUM TEST.
Under Option 2, the Death Benefit is equal to the greater of (1) the Face Amount
plus the Policy Value or (2) the Guideline Minimum Death Benefit, as set forth
in Table A in Appendix A. The Death Benefit will vary as the Policy Value
changes, but will never be less than the Face Amount.
Death Benefit Option 2 will offer the best opportunity to have an increasing
Death Benefit as early as possible. The Death Benefit will increase whenever
there is an increase in the Policy Value, and will decrease whenever there is a
decrease in the Policy Value. The Death Benefit will never go below the Face
Amount.
DEATH BENEFIT OPTION 3 -- LEVEL DEATH BENEFIT WITH CASH VALUE ACCUMULATION TEST.
Under Option 3, the Death Benefit will equal the greater of (1) the Face Amount
or (2) the Policy Value multiplied by the applicable factor as set forth in the
Policy. The applicable factor depends upon the Underwriting Class, sex (unisex
if required by law), and then-attained age of the Insured. The factors decrease
slightly from year to year as the attained age of the Insured increases.
Death Benefit Option 3 will offer the best opportunity for an increasing death
benefit in later Policy years and/ or to fund the Policy at the "seven-pay"
limit for the full seven years. When the Policy Value multiplied by the
applicable death benefit factor exceeds the Face Amount, the Death Benefit will
increase whenever there is an increase in the Policy Value, and will decrease
whenever there is a decrease in the Policy Value. However, the Death Benefit
will never go below the Face Amount.
ALL DEATH BENEFIT OPTIONS MAY NOT BE AVAILABLE IN ALL STATES.
ILLUSTRATIONS
For the purposes of the following illustrations, assume that the Insured is
under the age of 40, and that there is no Outstanding Loan.
ILLUSTRATION OF DEATH BENEFIT OPTION 1 -- Under Option 1, a Policy with a
$100,000 Face Amount will have a death benefit of $100,000. However, because the
death benefit must be equal to or greater than 250% of Policy Value (from
Appendix A), if the Policy Value exceeds $40,000 the death benefit will exceed
the $100,000 Face Amount. In this example, each dollar of Policy Value above
$40,000 will increase the death benefit by $2.50.
For example, a Policy with a Policy Value of:
- $50,000 will have a Guideline Minimum Death Benefit of $125,000 (e.g.,
$50,000 X 2.50);
- $60,000 will produce a Guideline Minimum Death Benefit of $150,000 (e.g.,
$60,000 X 2.50)
22
<PAGE>
- $75,000 will produce a Guideline Minimum Death Benefit of $187,500 (e.g.,
$75,000 X 2.50).
Similarly, if Policy Value exceeds $40,000, each dollar taken out of Policy
Value will reduce the death benefit by $2.50. If, for example, the Policy Value
is reduced from $60,000 to $50,000 because of partial withdrawals, charges or
negative investment performance, the death benefit will be reduced from $150,000
to $125,000. However, the death benefit will never be less than the Face Amount
of the Policy.
The Guideline Minimum Death Benefit Factor becomes lower as the Insured's age
increases. If the Insured's age in the above example were, for example, 50
(rather than between zero and 40), the applicable percentage would be 185%. The
death benefit would be greater than $100,000 Face Amount when the Policy Value
exceeds $54,054 (rather than $40,000), and each dollar then added to or taken
from Policy Value would change the death benefit by $1.85.
ILLUSTRATION OF DEATH BENEFIT OPTION 2 -- Under Option 2, assume that the
Insured is under the age of 40 and that there is no Outstanding Loan. The Face
Amount of the Policy is $100,000.
Under Death Benefit Option 2, a Policy with a Face Amount of $100,000 will
produce a death benefit of $100,000 plus Policy Value. For example, a Policy
with Policy Value of :
- $10,000 will produce a death benefit of $110,000 (e.g., $100,000 +
$10,000);
- $25,000 will produce a death benefit of $125,000 (e.g., $100,000 +
$25,000);
- $50,000 will produce a death benefit of $150,000 (e.g., $100,000 +
$50,000).
However, the Guideline Minimum Death Benefit must be at least 250% of the Policy
Value. Therefore, if the Policy Value is greater than $66,667, 250% of the
Policy Value will be Guideline Minimum Death Benefit. The Guideline Minimum
Death Benefit will be greater than the Face Amount plus Policy Value. In this
example, each dollar of Policy Value above $66,667 will increase the death
benefit by $2.50. For example, if the Policy Value is:
- $70,000, the Guideline Minimum Death Benefit will be $175,000 (e.g.,
$70,000 X 2.50);
- $80,000, the Guideline Minimum Death Benefit will be $200,000 (e.g.,
$80,000 X 2.50);
- $90,000, the Guideline Minimum Death Benefit will be $225,000 (e.g.,
$90,000 X 2.50).
Similarly, if Policy Value exceeds $66,667, each dollar taken out of Policy
Value will reduce the death benefit by $2.50. If, for example, the Policy Value
is reduced from $80,000 to $70,000 because of partial withdrawals, charges or
negative investment performance, the death benefit will be reduced from $200,000
to $175,000. If, however, the Policy Value TIMES
- the Guideline Minimum Death Benefit factor is LESS THAN
- The Face Amount PLUS Policy Value, THEN
- The death benefit will be the Face Amount PLUS Policy Value.
The Guideline Minimum Death Benefit factor becomes lower as the Insured's age
increases. If the Insured's age in the above example were 50, the death benefit
must be at least 185% of the Policy Value. The death benefit would be the sum of
the Policy Value plus $100,000 unless the Policy Value exceeded $117,647 (rather
than $66,667). Each dollar added to or subtracted from the Policy would change
the death benefit by $1.85.
23
<PAGE>
ILLUSTRATION OF DEATH BENEFIT OPTION 3 -- In this illustration, assume that the
insured is a male, age 35, non-smoker and that there is no Outstanding Loan.
Under Death Benefit Option 3, a Policy with a Face Amount of $100,000 will have
a death benefit of $100,000. However, because the death benefit must be equal to
or greater than 437% of Policy Value (in policy year 1), if the Policy Value
exceeds $22,883 the death benefit will exceed the $100,000 face amount. In this
example, each dollar of Policy Value above $22,883 will increase the death
benefit by $4.37.
For example, a Policy with a Policy Value of:
- $50,000 will have a Death Benefit of $218,500 ($50,000 x 4.37);
- $60,000 will produce a Death Benefit of $262,200 ($60,000 x 4.37);
- $75,000 will produce a Death Benefit of $327,750 ($75,000 x 4.37).
Similarly, if Policy Value exceeds $22,883, each dollar taken out of Policy
Value will reduce the death benefit by $4.37. If, for example, the Policy 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 $262,200
to $218,500. If, however, the product of the Policy Value times the applicable
percentage 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 35), the
applicable percentage would be 270% (in policy year 1). The death benefit would
not exceed the $100,000 face amount unless the Policy Value exceeded $37,037
(rather than $22,883), and each dollar then added to or taken from Policy Value
would change the death benefit by $2.70.
CHANGING BETWEEN DEATH BENEFIT OPTION 1 AND DEATH BENEFIT 2
You may change between Death Benefit Option 1 and Death Benefit Option 2 once
each Policy year by written request. (YOU MAY NOT CHANGE BETWEEN DEATH BENEFIT
OPTION 3 TO DEATH BENEFIT OPTION 1 OR TO DEATH BENEFIT OPTION 2, OR VICE VERSA).
Changing options may require evidence of insurability. The change takes effect
on the monthly processing date on or following the date of underwriting
approval. We do not impose a charge for changes in death benefit options.
CHANGE FROM DEATH BENEFIT OPTION 1 TO DEATH BENEFIT OPTION 2. If you change
Death Benefit Option 1 to Death Benefit Option 2, we will decrease the Face
Amount to equal:
- The death benefit MINUS
- The Policy Value on the date of the change
The change may not be made if the Face Amount would fall below $50,000. After
the change from Death Benefit Option 1 to Death Benefit Option 2, future Monthly
Policy Charges may be higher or lower than if no change in option had been made.
However, the Insurance Amount will always equal the Face Amount, unless the
Guideline Minimum Death Benefit applies.
CHANGE FROM DEATH BENEFIT OPTION 2 TO DEATH BENEFIT OPTION 1. If you change
Death Benefit Option 2 to Death Benefit Option 1, we will increase the Face
Amount by the Policy Value on the date of the change. The death benefit will be
the GREATER of:
- The new Face Amount or
24
<PAGE>
- The Guideline Minimum Death Benefit under Death Benefit Option 1
After the change from Death Benefit Option 2 to Death Benefit Option 1, an
increase in Policy Value will reduce the Insurance Amount and the Monthly Policy
Charge. A decrease in Policy Value will increase the Insurance Amount and the
Monthly Policy Charge.
A change in death benefit option may result in total payments exceeding the then
current maximum payment limitation under federal tax law. Where total payments
would exceed the current maximum payment limits, the excess first will be
applied to repay any Outstanding Loans. If there are remaining excess payments,
any such excess payments will be returned to you. However, we will accept a
payment needed to prevent Policy lapse during a Policy year.
A change from Death Benefit Option 2 to Death Benefit Option 1 within five
policy years of the Final Payment Date will terminate a Guaranteed Death Benefit
Rider.
GUARANTEED DEATH BENEFIT RIDER (NOT AVAILABLE IN ALL STATES)
An optional Guaranteed Death Benefit Rider is available only at issue of the
Policy. The Guaranteed Death benefit Rider is not available if the Policy is
issued on the basis of simplified underwriting. If this Rider is in effect, the
Company:
- guarantees that your Policy will not lapse regardless of the investment
performance of the Variable Account and
- provides a guaranteed Net Death Benefit.
In order to maintain the Guaranteed Death Benefit Rider, certain minimum premium
payment tests must be met on each Policy anniversary and within 48 months
following the Date of Issue and/or the date of any increase in Face Amount, as
described below. In addition, a one-time administrative charge of $25 will be
deducted from Policy Value when the Rider is elected. Certain transactions,
including policy loans, partial withdrawals, underwriting reclassifications,
change in face amount, and change in Death benefit Option, can result in the
termination of the Rider. If this Rider is terminated, it cannot be reinstated.
GUARANTEED DEATH BENEFIT TESTS.
While the Guaranteed Death Benefit Rider is in effect, the Policy will not lapse
if the following two tests are met:
1. Within 48 months following the Date of Issue of the Policy or of any
increase in the Face Amount, the sum of the premiums paid, less any
Outstanding Loans, partial withdrawals and partial withdrawal transaction
charges, must be greater than the minimum monthly payment multiplied by the
number of months which have elapsed since the relevant Date of Issue; and
2. On each Policy anniversary, (a) must exceed (b), where, since the Date of
Issue:
(a) is the sum of your premiums, less any withdrawals, partial withdrawal
transaction charges and Outstanding Loans, which is classified as a
preferred loan; and
(b) is the sum of the minimum Guaranteed Death Benefit premiums, as shown on
the specifications page of the Policy.
25
<PAGE>
GUARANTEED DEATH BENEFIT.
If the Guaranteed Death Benefit Rider is in effect on the Final Premium Payment
Date, a guaranteed Death Benefit will be provided as long as the Rider is in
force. The Death Benefit will be the greater of:
- the Face Amount as of the Final Premium Payment Date; or
- the Policy Value as of the date due proof of death is received by the
Company.
TERMINATION OF THE GUARANTEED DEATH BENEFIT RIDER.
The Guaranteed Death Benefit Rider will end and may not be reinstated on the
first to occur of the following:
- foreclosure of an Outstanding Loan; or
- the date on which the sum of your payments less withdrawals and loans does
not meet or exceed the applicable Guaranteed Death Benefit test (above);
or
- any Policy change that results in a negative guideline level premium;
- the effective date of a change from Death Benefit Option 2 to Death
Benefit Option 1, if such changes occur within 5 policy years of the Final
Payment Date; or
- a request for a partial withdrawal or preferred loan is made after the
Final Premium Payment Date.
It is possible that the Policy Value will not be sufficient to keep the Policy
in force on the first Monthly Payment Date following the date the Rider
terminates.
CHANGE IN FACE AMOUNT
You may increase or decrease the Face Amount by written request. An increase or
decrease in the Face Amount takes effect on the LATER of the:
- The monthly processing date on or next following date of receipt of your
written request or
- The date of approval of your written request, if evidence of insurability
is required
INCREASES -- You must submit with your written request for an increase
satisfactory evidence of insurability. The consent of the Insured is also
required whenever the Face Amount is increased. An increase in Face Amount may
not be less than $10,000. You may not increase the Face Amount after the Insured
reaches age 80. A written request for an increase must include a payment if the
Policy Value less debt is less than the sum of three minimum monthly payments
An increase in the Face Amount will increase the Insurance Amount and,
therefore, the Monthly Policy Charges.
After increasing the Face Amount, you will have the right, during a free-look
period, to have the increase canceled. See THE POLICY - "Free-Look Period." If
you exercise this right, we will credit to your Policy the charges deducted for
the increase, unless you request a refund of these charges.
26
<PAGE>
DECREASES -- You may decrease the Face Amount by written request. The minimum
amount for a decrease in Face Amount is $10,000. The minimum Face Amount
required after a decrease is $50,000. If
- you have chosen the Guideline Premium Test and the Policy would not comply
with the maximum payment limitations under federal tax law; and
- If you have previously made payments in excess of the amount allowed for
the lower Face Amount, then the excess payments will first be used to
repay Outstanding Loans, if any. If there are any remaining excess
payments, we will pay any such excess to you. A return of Policy Value may
result in tax liability to you.
A decrease in the Face Amount will lower the insurance protection amount and,
therefore, the Monthly Policy Charge. In computing the Monthly Policy Charge, a
decrease in the Face Amount will reduce the Face Amount in the following order:
- the Face Amount provided by the most recent increase;
- the next most recent increases successively; and
- the initial Face Amount.
POLICY VALUE
The Policy Value is the total value of your Policy. 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
Policy Value. Policy Value on any date depends on variables that cannot be
predetermined.
Your Policy Value is affected by the:
- Frequency and amount of your payments
- Interest credited in the Fixed Account
- Investment performance of your sub-accounts
- Partial withdrawals
- Loans, loan repayments and loan interest paid or credited
- Charges and deductions under the Policy
- Death Benefit Option
COMPUTING POLICY VALUE -- We compute the Policy Value on the Date of Issue and
on each Valuation Date. On the Date of Issue, the Policy Value is:
- Accumulations in the Fixed Account, MINUS
- The Monthly Deductions due
27
<PAGE>
On each Valuation Date after the Date of Issue, the Policy Value is the SUM of:
- Accumulations in the Fixed Account PLUS
- The SUM of the PRODUCTS of:
- The number of units in each sub-account TIMES
- The value of a unit in each sub-account on the Valuation Date
THE UNIT -- We allocate each payment to the sub-accounts you selected. We credit
allocations to the sub-accounts as units. Units are credited separately for each
sub-account.
The number of units of each sub-account credited to the Policy 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, partial withdrawal or surrender. Also, each deduction of charges from
a sub-account will result in cancellation of units equal in value to the amount
deducted.
The dollar value of a unit of a sub-account varies from Valuation Date to
Valuation Date based on the investment experience of that sub-account. This
investment experience reflects the investment performance, expenses and charges
of the fund in which the sub-account invests. The value of each unit was set at
$1.00 on the first Valuation Date of each sub-account. The value of a unit on
any Valuation Date is the PRODUCT of:
- The dollar value of the unit on the preceding Valuation Date TIMES
- The net investment factor
NET INVESTMENT FACTOR -- The net investment factor measures the investment
performance of a sub-account during the valuation period just ended. The net
investment factor for each sub-account is 1.0000 PLUS the QUOTIENT of:
- The investment income of that sub-account for the valuation period,
adjusted for realized and unrealized capital gains and losses and for
taxes during the valuation period, DIVIDED BY
- The value of that sub-account's assets at the beginning of the valuation
period
The net investment factor may be greater or less than one.
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. These payment options also are available at the Final Payment Date or
if the Policy is surrendered. If no election is made, we will pay the Net Death
Benefit in a single sum. A certificate will be provided to the payee describing
the payment option selected.
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 Policy Owner and beneficiary provisions, any option
28
<PAGE>
selection may be changed before the Net Death Benefit becomes payable. If you
make no selection, the beneficiary may select an option when the Net Death
Benefit becomes payable.
The amounts payable under a payment option are paid from the General Account.
These amounts are not based on the investment experience of the Variable
Account.
OPTIONAL INSURANCE BENEFITS
You may add optional insurance benefits to the Policy by Rider, as described in
APPENDIX B -- OPTIONAL INSURANCE BENEFITS. The cost of certain optional
insurance benefits becomes part of the Monthly Deduction.
SURRENDER
You may surrender the Policy and receive its Surrender Value. The Surrender
Value is:
- The Policy Value MINUS
- Any Outstanding Loan.
We will compute the Surrender Value on the Valuation Date on which we receive
the Policy with a written request for surrender.
The Surrender Value may be paid in a lump sum or under a payment option then
offered by us. 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 POLICY PROVISIONS -- "Delay of Payments."
For important tax consequences of surrender, see FEDERAL TAX CONSIDERATIONS.
PARTIAL WITHDRAWAL
After the first Policy year, you may withdraw part of the Surrender Value of
your Policy 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 $500. Under both Level Death Benefit Options, the Face Amount is
reduced by the partial withdrawal. We will not allow a partial withdrawal if it
would reduce Death Benefit Option 1 and 3 Face Amount below $40,000.
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 charge. See CHARGES AND
DEDUCTIONS -- "Partial Withdrawal Transaction Charge." We will normally pay the
partial withdrawal within seven days following our receipt of written request.
We may delay payment as described in OTHER POLICY PROVISIONS -- "Delay of
Payments."
For important tax consequences of partial withdrawals, see FEDERAL TAX
CONSIDERATIONS.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate the Company
for:
- Administering the Policy
29
<PAGE>
- Providing the insurance benefits set forth in the Policy and any optional
insurance benefits added by Rider
- Payment of any applicable taxes
- Assuming certain risks in connection with the Policy
- Incurring expenses in distributing the Policy
MONTHLY CHARGES (THE MONTHLY DEDUCTION)
On each monthly processing date, we will deduct certain monthly charges (the
"Monthly Deduction") from Policy Value. You may allocate the Monthly Deduction
to any number of sub-accounts. If you make no allocation, we will make a
pro-rata allocation. If the sub-accounts you chose do not have sufficient funds
to cover the Monthly Deduction, we will make a pro-rata allocation.
The Monthly Deduction is comprised of the following:
- MONTHLY POLICY CHARGE -- The Monthly Policy Charge will be charged on each
monthly processing date until the Final Payment Date. The primary purpose
of the Monthly Policy Charge is to compensate us for providing life
insurance coverage for the Insured. In addition, a portion of this charge
compensates us for administrative, tax, and distribution expenses. The
Monthly Policy Charge is equal to a current rate per $1,000 times the
Insurance Amount (the "Monthly Policy Charge rate"). The current Monthly
Policy Charge rates are based on our expectations as to future mortality
experience. Any change in the current Monthly Policy Charge rates will
apply to all Insureds of the same age, sex and underwriting class whose
Policies have been in force for the same period.
The current Monthly Policy Charge rate may vary based on:
- Sex of the Insured (male, female, or blended unisex)
- Issue age and underwriting class of the Insured
- Issue date of the Policy or effective date of an increase or date of any
Rider.
For the initial Face Amount, the Monthly Policy Charge rate is based on the
issue age of the Insured and the Policy year. For an increase in Face Amount or
for a Rider, the Monthly Policy Charge rate is based on the age of the Insured
as of the effective date of the increase or Rider and the years since then. Our
Monthly Policy Charge rates are generally higher under a Policy that has been in
force for some period of time than they would be under an otherwise identical
Policy purchased more recently on the same insured person.
The underwriting class of an Insured will affect the Monthly Policy Charge
rates. We currently place Insureds into standard underwriting classes,
non-standard underwriting classes, and simplified underwriting classes. The
underwriting classes are also divided into two categories: smokers and
non-smokers. We compute the Monthly Policy Charge separately for the initial
Face Amount and for any increase in Face Amount. However, if the Insured's
underwriting class improves on an increase, the current Monthly Policy Charge
rates for the better class will apply to the total Face Amount.
The current rates for the Monthly Policy Charge will not be greater than the
guaranteed rates set forth in the Policy, which in turn will never exceed the
Commissioners 1980 Standard Ordinary Mortality Tables (Mortality Table B for
unisex Policies) and the Insured's sex and age. The Tables used for this purpose
set forth different mortality estimates for males and females. See APPENDIX C --
GUARANTEED MONTHLY INSURANCE CHARGE RATES.
30
<PAGE>
We deduct the Monthly Policy Charge on each monthly processing date starting
with the Date of Issue, but do not deduct the Monthly Policy Charge after the
Final Payment Date.
- MONTHLY MORTALITY AND EXPENSE RISK CHARGE -- This monthly charge is
currently equal to (and is guaranteed not to exceed) 1/12 of 0.75% of the
Policy Value in each sub-account for the first 10 Policy years, 1/12 of
0.50% for Policy Years 11 through 20, and 0.25% for Policy years 21 and
later. The charge is based on the Policy Value in the sub-accounts as of
the prior Monthly Processing Date. The charge will continue to be assessed
after the Final Payment Date.
This charge compensates us for assuming mortality and expense risks for variable
interests in the Policies. 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 Policies will exceed those compensated
by the administrative charges in the Policies. 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.
- Monthly Rider Charges -- Rider Charges will vary depending upon the riders
selected, and by the sex, underwriting classification of the Insured.
COMPUTING MONTHLY POLICY CHARGES
Monthly Policy Charges can vary depending upon the Death Benefit Option you
select. Monthly Policy Charges will also be different for the initial Face
Amount, any increases in Face Amount, and for that part of the death benefit
subject to the Guideline Minimum Death Benefit.
DEATH BENEFIT OPTION 1 AND DEATH BENEFIT OPTION 3
INITIAL FACE AMOUNT. -- For the initial Face Amount under Death Benefit Option 1
and Death Benefit Option 3, the Monthly Policy Charge is the PRODUCT of:
- the current Monthly Policy Charge rate TIMES
- the DIFFERENCE between
- the initial Face Amount AND
- the Policy Value (MINUS any Rider charges) at the beginning of the
Policy month.
Under Death Benefit Option 1 and Death Benefit Option 3, the Monthly Policy
Charge decreases as the Policy Value increases (if the Guideline Minimum Death
Benefit is not in effect).
INCREASES IN FACE AMOUNT. -- For each increase in Face Amount under Death
Benefit Option 1 or Death Benefit Option 3, the Monthly Policy Charge is the
PRODUCT of:
- the current Monthly Policy Charge rate for the increase TIMES
- the DIFFERENCE between
- the increase in Face Amount AND
31
<PAGE>
- any Policy Value (MINUS any Rider charges) IN EXCESS OF than the
initial Face Amount at the beginning of the Policy month and not
allocated to a prior increase.
GUIDELINE MINIMUM DEATH BENEFIT. -- If the Guideline Minimum Death Benefit is in
effect, we will compute a Monthly Policy Charge for that part of the death
benefit subject to the Guideline Minimum Death Benefit that exceeds the current
death benefit not subject to the Guideline Minimum Death Benefit. Under Death
Benefit Option 1 or Death Benefit Option 3, this Monthly Policy Charge is the
PRODUCT of:
- the current Monthly Policy Charge rate for the initial Face Amount TIMES
- the DIFFERENCE between
- the Guideline Minimum Death Benefit AND
- the GREATER of the Face Amount OR the Policy Value.
We will adjust the Monthly Policy Charge for any decreases in Face Amount. See
THE POLICY -- "CHANGE IN FACE AMOUNT: DECREASES."
DEATH BENEFIT OPTION 2
INITIAL FACE AMOUNT. -- For the initial Face Amount under Death Benefit Option
2, the Monthly Policy Charge is the PRODUCT of:
- the current Monthly Policy Charge rate TIMES
- the initial Face Amount.
INCREASES IN FACE AMOUNT. -- For each increase in Face Amount under Death
Benefit Option 2, the Monthly Policy Charge is the PRODUCT of:
- the current Monthly Policy Charge rate for the increase TIMES
- the increase in Face Amount.
GUIDELINE MINIMUM DEATH BENEFIT. -- If the Guideline Minimum Death Benefit is in
effect, we will compute a Monthly Policy Charge for that part of the death
benefit subject to the Guideline Minimum Death Benefit that exceeds the current
death benefit not subject to the Guideline Minimum Death Benefit. Under Death
Benefit Option 2, this Monthly Policy Charge is the PRODUCT of:
- the current Monthly Policy Charge rate for the initial Face Amount TIMES
- the DIFFERENCE between
- the Guideline Minimum Death Benefit AND
- the Face Amount PLUS the Policy Value.
We will adjust the Monthly Policy Charge for any decreases in Face Amount. See
THE POLICY -- "CHANGE IN FACE AMOUNT: DECREASES."
32
<PAGE>
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
Prospectus and Statement of Additional Information of the Evergreen Variable
Annuity Trust contain more information concerning the fees and expenses.
No charges are currently made against the sub-accounts for federal or state
income taxes. Should income taxes be imposed, we may make deductions from the
sub-accounts to pay the taxes. See FEDERAL TAX CONSIDERATIONS.
PARTIAL WITHDRAWAL TRANSACTION CHARGE
For each partial withdrawal, we deduct a transaction fee of 2% of the amount
withdrawn, not to exceed $25. This fee is intended to reimburse us for the cost
of processing the withdrawal. The transaction fee applies to all partial
withdrawals.
TRANSFER CHARGES
Currently, the first 12 transfers in a Policy year are free. We reserve the
right to limit the number of free transfers in a Policy year to six. After that,
we will deduct a $10 transfer charge from amounts transferred in that Policy
year. We reserve the right to increase the charge, but it will never exceed $25.
This charge reimburses us for the administrative costs of processing the
transfer.
Each of the following transfers of Policy Value from the sub-accounts to the
Fixed Account is free and does not count as one of the 12 free transfers in a
Policy year:
- A conversion within the first 24 months from Date of Issue or increase
- A transfer to the Fixed Account to secure a loan
- A reallocation of Policy Value within 20 days of the Date of Issue
- Dollar-Cost Averaging Option and Automatic Rebalancing Option
OTHER ADMINISTRATIVE CHARGES
We reserve the right to charge for other administrative costs we incur. While
there are no current charges for these costs, we may impose a charge for:
- Changing payment allocation instructions
- Changing the allocation of Monthly Policy Charges among the various
sub-accounts and the Fixed Account
- Providing a projection of values
We do not currently charge for these costs. Any future charge is guaranteed not
to exceed $25 per transaction.
POLICY LOANS
You may borrow money secured by your Policy Value at any time. There is no
minimum loan amount. The total amount you may borrow, including any Outstanding
Loan, is the loan value. The loan value is 90% of the Policy Value.
33
<PAGE>
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 POLICY
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 Policy Value in each sub-account equal to the
Policy loan to the Fixed Account. We will not count this transfer as a transfer
subject to the transfer charge.
Policy Value equal to the Outstanding Loan will earn monthly interest in the
Fixed Account at an annual rate of 4.0%. NO OTHER INTEREST WILL BE CREDITED. The
loan interest rate charged by the Company accrues daily. The current annual
interest rate charged by the Company is 4.80%. The current annual rate of
interest charged on loans may change, but is guaranteed not to exceed 6.00%.
PREFERRED LOAN OPTION
The preferred loan option is automatically available to you, unless you request
otherwise. You may change a preferred loan to a non-preferred loan at any time
upon written request. A request for a preferred loan after the Final Payment
Date will terminate the optional Guaranteed Death Benefit Rider. Any part of the
Outstanding Loan that represents earnings under the Policy may be treated as a
preferred loan. There is some uncertainty as to the tax treatment of a preferred
loan, which may be treated as a taxable withdrawal from the Policy. You should
consult a qualified tax adviser (and see FEDERAL TAX CONSIDERATIONS).
Policy Value equal to the Outstanding Loan will earn monthly interest in the
Fixed Account at an annual rate of at least 4.0%. NO OTHER INTEREST WILL BE
CREDITED. The loan interest rate charged by the Company accrues daily. The
current annual loan interest rate charged by the Company for Preferred Loans is
4.00%. The current annual rate of interest charged on preferred loans may
change, but is guaranteed not to exceed 4.50%.
REPAYMENT OF OUTSTANDING LOAN
You may pay any loans before Policy lapse. We will allocate that part of the
Policy 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 Policy Value according to your most recent payment
allocation instructions. However, loan repayments allocated to the Variable
Account cannot exceed Policy Value previously transferred from the Variable
Account to secure the Outstanding Loan.
If the Outstanding Loan exceeds the next monthly deduction, the Policy 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 Policy will terminate with no value. See POLICY
TERMINATION AND REINSTATEMENT. The foreclosure of an Outstanding Loan will
terminate the optional Guaranteed Death Benefit Rider.
EFFECT OF POLICY LOANS
Policy loans will permanently affect the Policy 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 Policy 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 surrender.
34
<PAGE>
POLICY TERMINATION AND REINSTATEMENT
TERMINATION
Unless the Guaranteed Death Benefit Rider is in effect, the Policy will
terminate if:
- Policy Value is insufficient to cover the next Monthly Deduction plus loan
interest accrued OR
- Outstanding Loans exceed the Policy Value
If one of these situations occurs, the Policy will be in default. You will then
have a grace period of 62 days, measured from the date of default, to pay a
premium 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 premium
due and the date by which it must be paid.
Failure to pay a sufficient premium within the grace period will result in
Policy termination. If the Insured dies during the grace period, we will deduct
from the Net Death Benefit any monthly charges due and unpaid through the Policy
month in which the Insured dies and any other overdue charge.
During the first 48 Policy months following the Date of Issue or an increase in
the Face Amount, a guarantee may apply to prevent the Policy from terminating
because of insufficient Policy Value. This guarantee applies if, during this
period, you pay premiums that, when reduced by partial withdrawals and partial
withdrawal transaction charges, equal or exceed specified minimum monthly
payments. The specified minimum monthly payments are based on the number of
months the Policy, increase in Face Amount or policy change that causes a change
in the minimum monthly payment has been in force. A policy change that causes a
change in the minimum monthly payment is a change in the Face Amount,
underwriting reclassifications, or the addition or deletion of a Rider. Except
for the first 48 months after the Date of Issue or the effective date of an
increase, payments equal to the minimum monthly payment do not guarantee that
the Policy will remain in force.
If the optional Guaranteed Death Benefit Rider is in effect, the Policy will not
lapse regardless of the investment performance of the Variable Account. See
"Guaranteed Death Benefit Rider."
REINSTATEMENT
A terminated Policy 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 underwriting rules and
- A payment that, after the deduction of the payment expense charge, is
large enough to cover the minimum amount payable
Policies which have been surrendered may not be reinstated.
MINIMUM AMOUNT PAYABLE -- If reinstatement is requested when less than 48
Monthly Deductions have been paid since the Date of Issue or increase in the
Face Amount, you must pay for the lesser of three minimum monthly premiums and
three Monthly Deductions.
If you request reinstatement more than 48 Monthly Processing Dates from the Date
of Issue or increase in the Face Amount, you must pay three Monthly Deductions.
35
<PAGE>
POLICY VALUE ON REINSTATEMENT -- The Policy Value on the date of reinstatement
is:
- The payment made to reinstate the Policy and interest earned from the date
the payment was received at our Principal Office PLUS
- The Policy 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 POLICY PROVISIONS
POLICY OWNER
The Policy Owner is the Insured unless another Policy owner has been named in
the application or enrollment form. As Policy owner, you are entitled to
exercise all rights under your Policy while the Insured is alive, with the
consent of any irrevocable beneficiary. The consent of the Insured is required
whenever the Face Amount is increased.
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 Policy, the
beneficiary has no rights in the Policy 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 Policy owner (or the Policy 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.
ASSIGNMENT
You may assign a Policy as collateral or make an absolute assignment. All Policy
rights will be transferred as to the assignee's interest. The consent of the
assignee may be required to make changes in payment allocations, make transfers
or to exercise other rights under the Policy. 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 POLICY PROVISIONS MAY VARY BY STATE.
LIMIT ON RIGHT TO CHALLENGE POLICY
We cannot challenge the validity of your Policy if the Insured was alive after
the Policy had been in force for two years from the Date of Issue. Also, we
cannot challenge the validity of any increase in the Face Amount if the Insured
was alive after the increase was in force for two years from the effective date
of the increase.
SUICIDE
The Net Death Benefit will not be paid if the Insured commits suicide, while
sane or insane, within two years from the Date of Issue. Instead, we will pay
the beneficiary all payments made for the Policy, without interest, less any
Outstanding Loan and partial withdrawals. If the Insured commits suicide, while
sane or insane,
36
<PAGE>
within two years from any increase in Face Amount, we will not recognize the
increase. We will pay to the beneficiary the Monthly Policy Charges paid for the
increase.
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex is not correctly stated in the Policy application or
enrollment form, we will adjust benefits under the Policy to reflect the correct
age and sex. The adjusted benefit will be the benefit that the most recent
Monthly Policy Charge would have purchased for the correct age and sex. We will
not reduce the death benefit to less than the Guideline Minimum Death Benefit.
For a unisex Policy, there is no adjusted benefit for misstatement of sex.
DELAY OF PAYMENTS
Amounts payable from the Variable Account for surrender, partial withdrawals,
Net Death Benefit, Policy 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
- The SEC determines an emergency exists, so that disposal of securities is
not reasonably practicable or it is not reasonably practicable to compute
the value of the Variable Account's net assets
We may delay paying any amounts derived from payments you made by check until
the check has cleared your bank.
We reserve the right to defer amounts payable from the Fixed Account. This delay
may not exceed six months.
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 Policies. 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 Policy 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 Code.
We file a consolidated tax return with our parent and affiliates. We do not
currently charge for any income tax on the earnings or realized capital gains in
the Variable Account. We do not currently charge for federal income taxes
respecting the Variable Account. A charge may apply in the future for any
federal income taxes we incur. The charge may become necessary, for example, if
there is a change in our tax status. Any charge would be designed to cover the
federal income taxes on the investment results of the Variable Account.
Under current laws, 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.
37
<PAGE>
TAXATION OF THE POLICIES
We believe that the Policies 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 relationship of the Policy
Value to the death benefit. So long as the Policies are life insurance
contracts, the Net Death Benefits of the Policies are excludable from the gross
income of the beneficiaries. Also, any increase in Policy Value is not taxable
until received by you or your designee (but see "Modified Endowment Policies").
Federal tax law requires that the investment of each sub-account funding the
Policies be adequately diversified according to Treasury regulations. Although
we do not have control over the investments of the funds, we believe that the
funds currently meet the Treasury's diversification requirements. We will
monitor continued compliance with these requirements.
The Treasury Department has announced that previous regulations on
diversification do not provide guidance concerning the extent to which Policy
owners may direct their investments to divisions of a separate investment
account. Regulations may provide guidance in the future. The Policies or our
administrative rules may be modified as necessary to prevent a Policy owner from
being considered the owner of the assets of the Variable Account.
A surrender, partial withdrawal, change in Death Benefit Option, change in the
Face Amount, lapse with Policy loan outstanding, or assignment of the Policy may
have tax consequences. Within the first fifteen Policy years, a distribution of
cash required under Section 7702 of the Code because of a reduction of benefits
under the Policy will be taxed to the Policy owner as ordinary income respecting
any investment earnings. Federal, state and local income, estate, inheritance
and other tax consequences of ownership or receipt of Policy proceeds depend on
the circumstances of each Insured, policy owner or beneficiary.
POLICY LOANS
We believe that non-preferred loans received under the Policy will be treated as
an indebtedness of the Policy Owner for federal income tax purposes. Under
current law, these loans will not constitute income for the Policy Owner while
the Policy is in force (but see "Modified Endowment Policies"). There is a risk,
however, that a preferred loan may be characterized by the Internal Revenue
Service ("IRS") as a withdrawal and taxed accordingly. At the present time, the
IRS has not issued any guidance on whether loans with the attributes of a
preferred loan should be treated differently than a non-preferred loan. This
lack of specific guidance makes the tax treatment of preferred loans uncertain.
In the event IRS guidelines are issued in the future, you may convert your
preferred loan to a non-preferred loan. However, it is possible that,
notwithstanding the conversion, some or all of the loan could be treated as a
taxable withdrawal from the Policy.
Section 264 of the Code restricts the deduction of interest on Policy loans.
Consumer interest paid on Policy loans under an individually owned Policy is not
tax deductible. Generally, no tax deduction for interest is allowed on Policy
loans, if the Insured is an officer or employee of, or is financially interested
in, any business carried on by the taxpayer. There is an exception to this rule
which permits a deduction for interest on loans up to $50,000 related to
business-owned policies covering officers or 20-percent owners, up to a maximum
equal to the greater of (1) five individuals or (2) the lesser of (a) 5% of the
total number of officers and employees of the corporation or (b) 20 individuals.
MODIFIED ENDOWMENT POLICIES
The Technical and Miscellaneous Revenue Act of 1988 ("1988 Act") adversely
affects the tax treatment of distributions under so-called "modified endowment
contracts." Under the 1988 Act, a Policy may be considered a "modified endowment
contract" if total payments during the first seven Policy years (or within seven
years of a material change in the Policy) EXCEED the total net level payments
payable had the Policy provided for paid-up future benefits after making seven
level annual payments. In addition, if benefits are
38
<PAGE>
reduced at anytime during the life of the Policy, there may be adverse tax
consequences. PLEASE CONSULT YOUR TAX ADVISER.
If the Policy is considered a modified endowment contract, distributions
(including Policy 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 policy owner's investment in the Policy.
Any other amounts will be treated as a return of capital up to the Policy
Owner's basis in the Policy. A 10% additional 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.
All modified endowment contracts issued by the same insurance company to the
same policy owner during any calendar year will be treated as a single modified
endowment contract in computing taxable distributions.
Currently, we review each Policy when payments are received to determine if the
payment will render the Policy a modified endowment contract. If a payment would
so render the Policy, we will notify you of the option of requesting a refund of
the excess payment. The refund process must be completed within 60 days after
the Policy anniversary or the Policy will be permanently classified as a
modified endowment contract.
VOTING RIGHTS
Where the law requires, we will vote fund shares that each sub-account holds
according to instructions received from Policy Owners with Policy 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 Policies, 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 does not relate to the Policies.
We will compute the number of votes that a Policy owner has the right to
instruct on the record date established for the fund. This number is the
quotient of:
- Each Policy Owner's Policy 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 Funds, or (2) to approve or disapprove an investment advisory
contract for the 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 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.
39
<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 Controller
Vice President and Corporate (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 Allmerica;
Officer and Corporate Manager (1979 to 1995) of Digital
Equipment Corporation
John P. Kavanaugh Director and Chief Investment Officer (since 1996)
Director, Vice President and Chief and Vice President (since 1991) of First Allmerica;
Investment Officer 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 Secretary (since 1991) of First Allmerica; Director
Counsel (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 Board (since 1989) of First Allmerica; Director (since
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) and
Director, Vice President, Chief Vice President and Treasurer (since 1993) of First
Financial Officer and Treasurer 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 1990)
Director, President and Chief of First Allmerica; Director (since 1990) of
Executive Officer Allmerica Investments, Inc.; and Director and
President (since 1998) of Allmerica Financial
Investment Management Services, Inc.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION WITH COMPANY PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------------------------ ----------------------------------------------
<S> <C>
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
Eric A. Simonsen Director (since 1996) and Vice President (since 1990)
Director and Vice President of First Allmerica; Director (since 1991) of
Allmerica Investments, Inc.; and Director (since
1991) of Allmerica Financial Investment Management
Services, Inc.
</TABLE>
DISTRIBUTION
Allmerica Investments, Inc., an indirect wholly owned subsidiary of First
Allmerica, acts as the principal underwriter and general distributor of the
Policies. 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 Policies through their registered
representatives who are appointed by us.
Broker-dealers who sell the Policy receive commissions based on a commission
schedule. Commissions will not exceed 8.50% for payments in Years 1-4, 4.5% in
Years 5-10, and 2% thereafter. To the extent permitted by NASD rules, overrides
and promotional incentives or payments 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 Policies.
These services may include the recruitment and training of personnel, production
of promotional literature, and similar services.
Commissions paid on the Policies, including other incentives or payments, are
not charged to Policy Owners or to the Variable Account.
REPORTS
We will maintain the records for the Variable Account. We will promptly send you
statements of transactions under your Policy, including:
- Payments
- Changes in Face Amount
- Changes in death benefit option
- Transfers among Sub-Accounts and the Fixed Account
- Partial withdrawals
- Increases in loan amount or loan repayments
- Lapse or termination for any reason
- Reinstatement
We will send an annual statement to you that will summarize all of the above
transactions and deductions of charges during the Policy year. It will also set
forth the status of the death benefit, Policy Value, Surrender Value, amounts in
the Sub-Accounts and Fixed Account, and any Policy loans. We will send you
reports
41
<PAGE>
containing financial statements and other information for the Variable Account
and the Evergreen Variable Annuity Trust.
LEGAL PROCEEDINGS
There are no pending legal proceedings involving the Variable Account or its
assets. The Company and Allmerica Investments, Inc. are not involved in any
litigation that is materially important to their total assets.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to law, to make additions to, deletions from, or
substitutions for the shares that are held in the Sub-Accounts. We may redeem
the shares of a Fund and substitute shares of another registered open-end
management company, if:
- The shares of the fund are no longer available for investment or
- In our judgment further investment in the Fund would be improper based on
the purposes of the Variable Account or the affected Sub-Account
Where the 1940 Act or other law requires, we will not substitute any shares
respecting a Policy interest in a sub-account without notice to Policy Owners
and prior approval of the SEC and state insurance authorities. The Variable
Account may, as the law allows, purchase other securities for other policies or
allow a conversion between policies on a Policy 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") and are also issued to other unaffiliated insurance companies ("shared
funding"). It is conceivable that in the future such mixed funding or shared
funding may be disadvantageous for variable life Policy Owners or variable
annuity Policy Owners. The Company and the Evergreen Variable Annuity Trust do
not believe that mixed funding is currently disadvantageous to either variable
life insurance Policy Owners or variable annuity Policy Owners. The Company and
the Trustees will monitor events to identify any material conflicts among Policy
Owners because of mixed and shared funding. If the Trustees conclude that
separate funds should be established for variable life and variable annuity
separate accounts, we will bear the expenses.
We may change the Policy to reflect a substitution or other change and will
notify Policy 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
- Combined with other sub-accounts or our other separate accounts
FURTHER INFORMATION
We have filed a 1933 Act registration statement for this offering with the SEC.
Under SEC rules and regulations, we have omitted from this Prospectus part of
the registration statement and amendments. Statements contained in this
Prospectus are summaries of the Policy and other legal documents. The complete
42
<PAGE>
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.
MORE INFORMATION ABOUT THE FIXED ACCOUNT
This Prospectus serves as a disclosure document only for the aspects of the
Policy relating to the Variable Account. For complete details on the Fixed
Account, read the Policy 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. The 1933 Act provisions on the accuracy
and completeness of statements made in prospectuses may apply to information on
the fixed part of the Policy 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 payments 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 payments or
transfers, to the next Policy anniversary. At each Policy anniversary, we will
credit the then current interest rate to money remaining in the Fixed Account.
We will guarantee this rate for one year. Thus, if a payment has been allocated
to the Fixed Account for less than one Policy year, the interest rate credited
to such payment may be greater or less than the interest rate credited to
payments that have been allocated to the Policy for more than one Policy year.
Policy loans may also be made from the Policy Value in the Fixed Account. We
will credit that part of the Policy Value that is equal to any Outstanding Loan
with interest at an effective annual yield of at least 4.0%.
We may delay transfers, surrenders, partial withdrawals, Net Death Benefits and
Policy loans up to six months. However, if payment is delayed for 30 days or
more, we will pay interest at our then current interest rate. The rate applied
will be at least equal to the rate required by state law for deferment of
payments. Amounts from the Fixed Account used to make payments on policies that
we or our affiliates issue will not be delayed.
PARTIAL WITHDRAWALS AND TRANSFERS
If a partial withdrawal is made, a partial withdrawal transaction charge may be
imposed. We deduct partial withdrawals from Policy Value allocated to the Fixed
Account on a last-in/first-out basis. This means that the last payments
allocated to Fixed Account will be withdrawn first.
The first 12 transfers in a Policy year currently are free. After that, we may
deduct a $10 transfer charge for each transfer in that Policy year. The transfer
privilege is subject to our consent and to our then current rules.
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
43
<PAGE>
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.
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 $61
million related to the assessment, plan development and substantial completion
of the Year 2000 project, through September 30, 1999. The total remaining cost
of the project is estimated between $10-15 million.
FINANCIAL STATEMENTS
Financial Statements for the Company and for the Variable Account 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 Policy. They should not be considered as bearing
on the investment performance of the assets held in the Variable Account.
44
<PAGE>
APPENDIX A
GUIDELINE MINIMUM DEATH BENEFIT FACTORS TABLE
(DEATH BENEFIT OPTION 1 AND DEATH BENEFIT OPTION 2)
------------------------------------------------
Under Death Benefit Option 1 and Death Benefit Option 2, the Guideline Minimum
Death Benefit is a percentage of the Policy Value as set forth below:
GUIDELINE MINIMUM DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
Percentage of
Attained Age Policy Value
- ------------ -------------
<S> <C>
40 and under.......................................... 250%
41.................................................... 243%
42.................................................... 236%
43.................................................... 229%
44.................................................... 222%
45.................................................... 215%
46.................................................... 209%
47.................................................... 203%
48.................................................... 197%
49.................................................... 191%
50.................................................... 185%
51.................................................... 178%
52.................................................... 171%
53.................................................... 164%
54.................................................... 157%
55.................................................... 150%
56.................................................... 146%
57.................................................... 142%
58.................................................... 138%
59.................................................... 134%
60.................................................... 130%
61.................................................... 128%
62.................................................... 126%
63.................................................... 124%
64.................................................... 122%
65.................................................... 120%
66.................................................... 119%
67.................................................... 118%
68.................................................... 117%
69.................................................... 116%
70.................................................... 115%
71.................................................... 113%
72.................................................... 111%
73.................................................... 109%
74.................................................... 107%
75 - 90............................................... 105%
91.................................................... 104%
92.................................................... 103%
93.................................................... 102%
94.................................................... 101%
95 and above.......................................... 100%
</TABLE>
A-1
<PAGE>
APPENDIX B
OPTIONAL INSURANCE BENEFITS
This Appendix provides only a summary of other insurance benefits that may be
available by Rider for an additional charge. The Riders are not available if the
Policy is issued on the basis of simplified underwriting. For more information,
contact your representative.
WAIVER OF PREMIUM RIDER
This Rider provides that, during periods of total disability continuing more
than four months, we will add to the Policy Value each month an amount you
selected or the amount needed to pay the Monthly Policy Charges, whichever is
greater. This amount will keep the Policy in force. This benefit is subject to
our maximum issue benefits. Its cost will change yearly.
OTHER INSURED RIDER
This Rider provides a term insurance benefit for up to five Insureds. At present
this benefit is only available for the spouse and children of the primary
Insured. The Rider includes a feature that allows the "other Insured" to convert
the coverage to a flexible premium adjustable life insurance policy.
GUARANTEED DEATH BENEFIT RIDER
This Rider, which is available only at issue, (a) guarantees that your Policy
will not lapse regardless of the Performance of the Variable Account and
(b) provides a guaranteed Net Death Benefit.
Certain Riders May Not Be Available in All States.
B-1
<PAGE>
APPENDIX C
GUARANTEED MONTHLY POLICY CHARGE RATES
The Monthly Policy Charge will be charged on each monthly processing date until
the Final Payment Date. The Monthly Policy Charge compensates us for the cost of
providing life insurance coverage for the Insured and for certain
administrative, tax and distribution expenses. The Monthly Policy Charge is
equal to a specified amount that varies with the sex (unisex rates where
required by state law), age, and underwriting class of the Insured and Death
Benefit Option selected, for each $1,000 of the Policy's Face Amount. However,
the rates for the Monthly Policy Charge will never exceed the guaranteed rates
set forth in the Policy, which in turn will not exceed the Commissioners 1980
Standard Ordinary Mortality Tables (Mortality Table B for unisex Policies) and
the Insured's sex and age, as set forth below:
<TABLE>
<CAPTION>
Age Male Female Age Male Female
- --- --------- --------- --- --------- ---------
<S> <C> <C> <C> <C> <C>
0 0.349002 0.241153 34 0.166820 0.131762
1 0.089210 0.072529 35 0.176004 0.137604
2 0.082537 0.067525 36 0.186859 0.146785
3 0.081703 0.065857 37 0.200220 0.157637
4 0.079201 0.064189 38 0.215255 0.170159
5 0.075031 0.063355 39 0.232798 0.185189
6 0.071695 0.060854 40 0.252016 0.201891
7 0.066691 0.060020 41 0.274581 0.220267
8 0.063355 0.058352 42 0.297152 0.239482
9 0.061688 0.057518 43 0.323073 0.257865
10 0.060854 0.056684 44 0.349839 0.277089
11 0.064189 0.057518 45 0.379960 0.297152
12 0.070861 0.060020 46 0.410927 0.317220
13 0.082537 0.062521 47 0.444418 0.338128
14 0.095884 0.066691 48 0.479596 0.361551
15 0.110901 0.070861 49 0.518979 0.386655
16 0.125921 0.075031 50 0.560894 0.414276
17 0.139273 0.079201 51 0.610378 0.443581
18 0.148454 0.081703 52 0.665766 0.476245
19 0.155132 0.085040 53 0.728747 0.513950
20 0.158471 0.087542 54 0.800179 0.552509
21 0.159306 0.089210 55 0.876715 0.592762
22 0.157637 0.090879 56 0.960053 0.633033
23 0.155132 0.092547 57 1.046840 0.671642
24 0.151793 0.095050 58 1.139616 0.708588
25 0.147620 0.096718 59 1.239245 0.748070
26 0.144281 0.099221 60 1.349978 0.792613
27 0.142612 0.101724 61 1.473551 0.848112
28 0.141777 0.105061 62 1.613407 0.917954
29 0.142612 0.108398 63 1.772172 1.007228
30 0.144281 0.112570 64 1.949092 1.110929
31 0.148454 0.116742 65 2.143422 1.224040
32 0.152628 0.120914 66 2.350996 1.343212
33 0.159306 0.125086 67 2.572761 1.464235
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
Age Male Female Age Male Female
- --- --------- --------- --- --------- ---------
<S> <C> <C> <C> <C> <C>
68 2.808822 1.583722 84 12.513845 9.091985
69 3.065321 1.712709 85 13.737727 10.231576
70 3.353673 1.861440 86 15.021846 11.470894
71 3.681989 2.041944 87 16.356613 12.808171
72 4.060290 2.267226 88 17.737983 14.246630
73 4.496204 2.544475 89 19.171986 15.797873
74 4.983518 2.872449 90 20.677655 17.482656
75 5.513313 3.243922 91 22.287142 19.335047
76 6.076525 3.653355 92 24.063468 21.418993
77 6.665690 4.094284 93 26.119927 23.852378
78 7.275881 4.567162 94 28.812996 26.926360
79 7.923872 5.085703 95 32.817580 31.310116
80 8.635205 5.672859 96 39.642945 38.504787
81 9.430778 6.350514 97 53.066045 52.275714
82 10.338952 7.140527 98 83.330000 83.330000
83 11.373499 8.058585 99 83.330000 83.330000
</TABLE>
EXAMPLES
(To Be Completed by Pre-Effective Amendment)
C-2
<PAGE>
APPENDIX D
ILLUSTRATIONS OF DEATH BENEFIT, POLICY VALUES
AND ACCUMULATED PAYMENTS
The following tables illustrate the way in which the Policy's death benefit and
Policy Value could vary over an extended period of time. ON REQUEST, WE WILL
PROVIDE A COMPARABLE ILLUSTRATION BASED ON THE PROPOSED INSURED'S AGE, SEX, AND
UNDERWRITING CLASS, AND THE REQUESTED FACE AMOUNT, DEATH BENEFIT OPTION AND
RIDERS.
ASSUMPTIONS
The tables illustrate a Policy issued to a male, Age 30, under a standard
Underwriting Class and qualifying for the non-smoker discount, and a Policy
issued to a male, Age 45, under a standard Underwriting Class. In each case, one
table illustrates the guaranteed Monthly Policy Charge rates and the other table
illustrates the current Monthly Policy Charge rates as presently in effect.
The tables assume that no Policy loans have been made, that you have not
requested an increase or decrease in the initial Face Amount, that no partial
withdrawals have been made, and that no transfers above 12 have been made in any
Policy year (so that no transaction or transfer charges have been incurred).
The tables assumed that all premiums are allocated to and remain in the Variable
Account for the entire period shown. The tables are based on hypothetical gross
investment rates of return for the Underlying Fund (i.e., investment income and
capital gains and losses, realized or unrealized) equivalent to constant gross
(after tax) annual rate of 0%, 6%, and 12%. The second column of the tables show
the amount which would accumulate if an amount equal to the Guideline Annual
Premium were invested each year to earn interest (after taxes) at 5%, compounded
annually.
The Policy Values and Death Proceeds 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 such averages for individual Policy
years. The values also would be different depending on the allocation of the
Policy's total Policy Value among the Sub-Accounts of the Variable Account, if
the actual rates of return averaged 0%, 6% or 12%, but the rates of each
Underlying Fund varied above and below such averages.
DEDUCTIONS FOR CHARGES
The amounts shown in the tables take into account the monthly deduction from
Policy Value.
EXPENSES OF THE UNDERLYING FUNDS
The amounts shown in the tables also take into account the Underlying Fund
advisory fees and operating expenses, which are assumed to be at an annual rate
of 0.85% of the average daily net assets of the Underlying Funds. The actual
fees and expenses of each Underlying Fund vary, and with expense limitations
range from an annual rate of 0.30% to an annual rate of 1.00% of average daily
net assets. The fees and expenses associated with your Policy may be more or
less than 0.85% in the aggregate, depending upon how you make allocations of
Policy Value among the Sub-Accounts.
Evergreen Investment Management has voluntarily agreed to limit aggregate
operating expenses (including investment advisory fees, but excluding interest,
brokerage commissions and extraordinary expenses) of the Evergreen VA Equity
Index Fund to 0.30% of average daily net assets. Without the voluntarily limit,
total expenses of the Evergreen VA Equity Index Fund for 1999 are estimated to
be 0.86% of average daily assets. Evergreen Asset Management Corp. has
voluntarily agreed to limit aggregate operating expenses (including investment
advisory fees, but excluding interest, brokerage commissions and extraordinary
expenses) of the Evergreen VA Foundation Fund, Evergreen Global Leaders Fund,
and Evergreen VA Small Cap Value Fund to 1.00% of average daily net assets.
Without these voluntary limitations, total expenses of the Funds during
D-1
<PAGE>
1998, as a percentage of average daily net assets, would have been 1.00% for the
Evergreen VA Foundation Fund, 1.56% for Evergreen Global Leaders Fund, and 3.47%
for Evergreen VA Small Cap Value Fund.
NET ANNUAL RATES OF INVESTMENT
Applying the average Fund advisory fees and operating expenses of 0.85% of
average net assets, in the Current Cost of Insurance Charges tables the gross
annual rates of investment return of 0%, 6% and 12% would produce net annual
rates of -0.85%, 5.15%% and 11.15%. In the Guaranteed Cost of Insurance Charges
tables, the gross annual rates of investment return of 0%, 6% and 12% would
produce net annual rates of -0.85%, 5.15%% and 11.15%, respectively.
The hypothetical returns shown in the tables 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 values, the gross annual investment rates of return would have to
exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges. The second
column of the tables shows the amount that would accumulate if the Guideline
Annual Premium were invested to earn interest (after taxes) at 5%, compounded
annually.
D-2
<PAGE>
(To Be Completed by Pre-Effective Amendment)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARIABLE LIFE POLICY
FACE AMOUNT = $75,000
MALE NON-SMOKER AGE 30
DEATH BENEFIT OPTION 2
BASED ON CURRENT MONTHLY INSURANCE
CHARGES WITHOUT RIDERS
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST -------------------------------- --------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR (1) VALUE VALUE (2) BENEFIT VALUE VALUE (2) BENEFIT
- --------------------- ------------ --------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
<CAPTION>
HYPOTHETICAL 12%
GROSS INVESTMENT RETURN
---------------------------------
POLICY SURRENDER POLICY DEATH
YEAR VALUE VALUE (2) BENEFIT
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
</TABLE>
(1) Assumes a $1,400 payment is made at the beginning of each Policy Year.
Values will be different if payments are made with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE
SURRENDER VALUE OF UNITS, POLICY VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGED 0%,
6%, AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR
POLICY VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
D-3
<PAGE>
(To Be Completed by Pre-Effective Amendment)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARIABLE LIFE POLICY
FACE AMOUNT = $75,000
MALE NON-SMOKER AGE 30
DEATH BENEFIT OPTION 2
BASED ON GUARANTEED MONTHLY INSURANCE
CHARGES WITHOUT RIDERS
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST -------------------------------- --------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR (1) VALUE VALUE (2) BENEFIT VALUE VALUE (2) BENEFIT
- --------------------- ------------ --------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
<CAPTION>
HYPOTHETICAL 12%
GROSS INVESTMENT RETURN
---------------------------------
POLICY SURRENDER POLICY DEATH
YEAR VALUE VALUE (2) BENEFIT
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
</TABLE>
(1) Assumes a $1,400 payment is made at the beginning of each Policy Year.
Values will be different if payments are made with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE
SURRENDER VALUE OF UNITS, POLICY VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGED 0%,
6%, AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR
POLICY VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
D-4
<PAGE>
(To Be Completed by Pre-Effective Amendment)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARIABLE LIFE POLICY
FACE AMOUNT = $250,000
MALE NON-SMOKER AGE 45
DEATH BENEFIT OPTION 1
BASED ON CURRENT MONTHLY INSURANCE
CHARGES WITHOUT RIDERS
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST -------------------------------- --------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR (1) VALUE VALUE (2) BENEFIT VALUE VALUE (2) BENEFIT
- --------------------- ------------ --------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
<CAPTION>
HYPOTHETICAL 12%
GROSS INVESTMENT RETURN
---------------------------------
POLICY SURRENDER POLICY DEATH
YEAR VALUE VALUE (2) BENEFIT
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
</TABLE>
(1) Assumes a $4,200 payment is made at the beginning of each Policy Year.
Values will be different if payments are made with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE
SURRENDER VALUE OF UNITS, POLICY VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGED 0%,
6%, AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR
POLICY VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
D-5
<PAGE>
(To Be Completed by Pre-Effective Amendment)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARIABLE LIFE POLICY
FACE AMOUNT = $250,000
MALE NON-SMOKER AGE 45
DEATH BENEFIT OPTION 1
BASED ON GUARANTEED MONTHLY INSURANCE
CHARGES WITHOUT RIDERS
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST -------------------------------- --------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR (1) VALUE VALUE (2) BENEFIT VALUE VALUE (2) BENEFIT
- --------------------- ------------ --------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
<CAPTION>
HYPOTHETICAL 12%
GROSS INVESTMENT RETURN
---------------------------------
POLICY SURRENDER POLICY DEATH
YEAR VALUE VALUE (2) BENEFIT
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
</TABLE>
(1) Assumes a $4,200 payment is made at the beginning of each Policy Year.
Values will be different if payments are made with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE
SURRENDER VALUE OF UNITS, POLICY VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGED 0%,
6%, AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR
POLICY VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
D-6
<PAGE>
(To Be Completed by Pre-Effective Amendment)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARIABLE LIFE POLICY
FACE AMOUNT = $250,000
MALE NON-SMOKER AGE 45
DEATH BENEFIT OPTION 3
BASED ON CURRENT MONTHLY INSURANCE
CHARGES WITHOUT RIDERS
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST -------------------------------- --------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR (1) VALUE VALUE (2) BENEFIT VALUE VALUE (2) BENEFIT
- --------------------- ------------ --------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
<CAPTION>
HYPOTHETICAL 12%
GROSS INVESTMENT RETURN
---------------------------------
POLICY SURRENDER POLICY DEATH
YEAR VALUE VALUE (2) BENEFIT
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
</TABLE>
(1) Assumes a $13,160 payment is made at the beginning of each Policy Year.
Values will be different if payments are made with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE
SURRENDER VALUE OF UNITS, POLICY VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGED 0%,
6%, AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR
POLICY VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
D-7
<PAGE>
(To Be Completed by Pre-Effective Amendment)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARIABLE LIFE POLICY
FACE AMOUNT = $250,000
MALE NON-SMOKER AGE 45
DEATH BENEFIT OPTION 3
BASED ON GUARANTEED MONTHLY INSURANCE
CHARGES WITHOUT RIDERS
<TABLE>
<CAPTION>
PREMIUMS HYPOTHETICAL 0% HYPOTHETICAL 6%
PAID PLUS GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
INTEREST -------------------------------- --------------------------------
POLICY AT 5% SURRENDER POLICY DEATH SURRENDER POLICY DEATH
YEAR PER YEAR (1) VALUE VALUE (2) BENEFIT VALUE VALUE (2) BENEFIT
- --------------------- ------------ --------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
<CAPTION>
HYPOTHETICAL 12%
GROSS INVESTMENT RETURN
---------------------------------
POLICY SURRENDER POLICY DEATH
YEAR VALUE VALUE (2) BENEFIT
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Age 60
Age 65
Age 70
Age 75
</TABLE>
(1) Assumes a $13,160 payment is made at the beginning of each Policy Year.
Values will be different if payments are made with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause this Policy to lapse because of insufficient Policy Value.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER,
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE
SURRENDER VALUE OF UNITS, POLICY VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGED 0%,
6%, AND 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR
POLICY VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE
THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
D-8
<PAGE>
APPENDIX E
PERFORMANCE INFORMATION
The Policies were first offered to the public in 1999. However, we may advertise
"Total Return" and "Average Annual Total Return" performance information based
on the periods that the Sub-Accounts have been in existence (Tables IA and IB),
and based on the periods that the Underlying Funds have been in existence
(Tables IIA and IIB). The results for any period prior to the Policies being
offered will be calculated as if the Policies had been offered during that
period of time, with all charges assumed to be those applicable to the
Sub-Accounts and the Funds.
Total return and average annual total return are based on the hypothetical
profile of a representative Policy 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
Funds' return.
In Tables IA and IIA, performance information under the Policies is net of fund
expenses and Monthly Deductions. We take a representative Policy owner and
assume that:
- The Insured is a male Age 36, standard (non-smoker) underwriting class
- The Policy owner had allocations in each of the sub-accounts for the fund
durations shown, and
- There was a full surrender at the end of the applicable period
We may compare performance information for a sub-account in reports and
promotional literature to:
- Standard & Poor's 500 Composite Stock Price 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
- The Consumer Price Index
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for insurance and administrative charges, separate account
charges and fund management costs and expenses.
Performance information for any sub-account reflects only the performance of a
hypothetical investment in the sub-account during a period. It is not
representative of what may be achieved in the future. However, performance
information may be helpful in reviewing market conditions during a period and in
considering a fund's success in meeting its investment objectives.
E-1
<PAGE>
In advertising, sales literature, publications or other materials, we may give
information on various topics of interest to Policy owners and prospective
Policy owners. These topics may include:
- The relationship between sectors of the economy and the economy as a whole
and its effect on various securities markets, investment strategies and
techniques (such as value investing, market timing, dollar cost averaging,
asset allocation and automatic account rebalancing)
- The advantages and disadvantages of investing in tax-deferred and taxable
investments
- Customer profiles and hypothetical payment and investment scenarios
- Financial management and tax and retirement planning
- Investment alternatives to certificates of deposit and other financial
instruments, including comparisons between the Policies and the
characteristics of and market for the financial instruments.
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/heath
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 do
not measure the ability of such companies to meet other non-policy obligations.
The ratings also do not relate to the performance of the Underlying Portfolios.
In each table below, "One-Year Total Return" refers to the total of the income
generated by a sub-account, based on certain charges and assumptions as
described in the respective tables, for the one-year period ended December 31,
1998. "Average Annual Total Return" is based on the same charges and
assumptions, but reflects the hypothetical annually compounded return that would
have produced the same cumulative return if the Sub-Account's performance had
been constant over the entire period. Because average annual total returns tend
to smooth out variations in annual performance return, they are not the same as
actual year-by-year results.
E-2
<PAGE>
TABLE I(A)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF THE UNDERLYING FUNDS
NET OF ALL CHARGES AND ASSUMING SURRENDER OF THE POLICY
The following performance information is based on the periods that the
Underlying Funds have been in existence. The data is net of expenses of the
Underlying Funds, all Sub-Account charges, and all Policy charges for a
representative Policy. It is assumed that the Insured is male, Age 36, standard
(nonsmoker) Premium Class, that the Face Amount of the Policy is $250,000, that
an annual premium payment of $3,000 was made at the beginning of each Policy
year, that all premiums were allocated to each Sub-Account individually, and
that there was a full surrender of the Policy at the end of the applicable
period.
<TABLE>
<CAPTION>
10 YEARS
ONE-YEAR OR LIFE
TOTAL 5 OF SUB-ACCOUNT
UNDERLYING FUND RETURN YEARS (IF LESS)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(To Be Completed by Pre-Effective Amendment)
</TABLE>
The inception dates for the Underlying Funds are: (To Be Completed by
Pre-Effective Amendment)
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 I(B)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1998
SINCE INCEPTION OF THE UNDERLYING FUNDS
EXCLUDING MONTHLY POLICY CHARGES
The following performance information is based on the periods that the
Underlying Funds have been in existence. The performance information is net of
total Underlying Fund expenses and all Sub-Account charges. THE DATA DOES NOT
REFLECT MONTHLY CHARGES UNDER THE POLICY. It is assumed that an annual premium
payment of $3,000 was made at the beginning of each Policy year and that ALL
premiums were allocated to EACH Sub-Account individually.
<TABLE>
<CAPTION>
10 YEARS
ONE-YEAR OR LIFE
TOTAL 5 OF SUB-ACCOUNT
UNDERLYING FUND RETURN YEARS (IF LESS)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(To Be Completed by Pre-Effective Amendment)
</TABLE>
The inception dates for the Underlying Funds are: (To Be Completed by
Pre-Effective Amendment)
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
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
(IN MILLIONS) 1999 1998 1999 1998
- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Premiums............................................ $ 0.1 $-- $ 0.3 $ 0.4
Universal life and investment product policy fees... 83.6 67.7 240.3 195.7
Net investment income............................... 38.5 38.7 112.7 113.5
Net realized investment (losses) gains.............. (2.5) (2.7) (7.1) 19.5
Other income........................................ 18.0 0.4 17.6 0.3
------ ------ ------ ------
Total revenues.................................. 137.7 104.1 363.8 329.4
------ ------ ------ ------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss adjustment
expenses.......................................... 39.7 32.7 130.0 114.5
Policy acquisition expenses......................... 15.0 13.3 33.5 45.0
Sales practice litigation expense................... -- 21.0 -- 21.0
Other operating expenses............................ 40.9 22.6 96.2 72.5
------ ------ ------ ------
Total benefits, losses and expenses............. 95.6 89.6 259.7 253.0
------ ------ ------ ------
Income from continuing operations before federal income
taxes.................................................. 42.1 14.5 104.1 76.4
------ ------ ------ ------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current............................................. (3.7) 1.5 0.6 19.0
Deferred............................................ 18.5 1.7 35.9 5.9
------ ------ ------ ------
Total federal income tax expense................ 14.8 3.2 36.5 24.9
------ ------ ------ ------
Net income.............................................. $ 27.3 $ 11.3 $ 67.6 $ 51.5
====== ====== ====== ======
</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 BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998
- ------------------------------------ ------------- ------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,283.2 and $1,284.6)................................ $ 1,272.3 $ 1,330.4
Equity securities at fair value (cost of $35.2 and
$27.4)................................................ 35.0 31.8
Mortgage loans.......................................... 220.3 230.0
Real estate............................................. 14.7 14.5
Policy loans............................................ 161.4 151.5
Other long term investments............................. 9.2 9.1
--------- ---------
Total investments................................... 1,712.9 1,767.3
--------- ---------
Cash and cash equivalents................................. 231.1 217.9
Accrued investment income................................. 31.7 33.5
Premiums, accounts and notes receivable................... (0.9) --
Reinsurance receivables on paid and unpaid losses,
benefits and unearned premiums.......................... 285.5 308.0
Deferred policy acquisition costs......................... 1,104.6 950.5
Premiums, accounts and notes receivable................... 3.8 4.8
Other assets.............................................. 75.9 46.9
Separate account assets................................... 12,464.3 11,020.4
--------- ---------
Total assets........................................ $15,909.8 $14,349.3
========= =========
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.................................. $ 2,327.1 $ 2,284.8
Outstanding claims, losses.............................. 17.2 17.9
Unearned premiums....................................... 2.7 2.7
Contractholder deposit funds and other policy
liabilities........................................... 45.8 38.1
--------- ---------
Total policy liabilities and accruals............... 2,392.8 2,343.5
--------- ---------
Expenses and taxes payable................................ 168.8 146.2
Reinsurance premiums payable.............................. 13.3 50.5
Deferred federal income taxes............................. 101.7 78.8
Separate account liabilities.............................. 12,463.7 11,020.4
--------- ---------
Total liabilities................................... 15,140.3 13,639.4
--------- ---------
Commitments and contingencies (Note 5)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares authorized,
2,526 and 2,525 shares issued........................... 2.5 2.5
Additional paid-in capital................................ 423.7 407.9
Accumulated other comprehensive income.................... 0.1 24.1
Retained earnings......................................... 343.0 275.4
--------- ---------
Total shareholder's equity.......................... 769.3 709.9
--------- ---------
Total liabilities and shareholder's equity.......... $15,909.8 $14,349.3
========= =========
</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 STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
(IN MILLIONS) 1999 1998
- ------------- -------- --------
<S> <C> <C>
COMMON STOCK................................................ $ 2.5 $ 2.5
------ ------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period.......................... 407.9 386.9
Issuance of common stock................................ 15.8 8.0
------ ------
Balance at end of period................................ 423.7 394.9
------ ------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Net Unrealized Appreciation on Investments..............
Balance at beginning of period.......................... 24.1 38.5
Net depreciation on available-for-sale securities....... (36.9) (18.9)
Benefit for deferred federal income taxes............... 12.9 6.6
------ ------
Other comprehensive loss................................ (24.0) (12.3)
------ ------
Balance at end of period................................ 0.1 26.2
------ ------
RETAINED EARNINGS
Balance at beginning of period.......................... 275.5 213.1
Net income.............................................. 67.6 51.5
------ ------
Balance at end of period................................ 343.0 264.6
------ ------
Total shareholder's equity.......................... $769.3 $688.2
====== ======
</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 COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
(IN MILLIONS) 1999 1998 1999 1998
- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income................................................ $ 27.3 $ 11.3 $ 67.6 $ 51.5
------ ------ ------ ------
Other comprehensive income:
Net depreciation on available-for-sale securities..... (8.0) (9.8) (36.9) (18.9)
Benefit for deferred federal income taxes............. 2.8 3.4 12.9 6.6
------ ------ ------ ------
Other comprehensive loss.......................... (5.2) (6.4) (24.0) (12.3)
------ ------ ------ ------
Comprehensive income.................................. $ 22.1 $ 4.9 $ 43.6 $ 39.2
====== ====== ====== ======
</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 CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
(IN MILLIONS) 1999 1998
- ------------- -------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 67.6 $ 51.5
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Net realized gains (losses)......................... 7.1 (19.5)
Net amortization and depreciation................... (1.6) (5.9)
Sales practice litigation expense................... -- 21.0
Deferred federal income taxes....................... 35.9 5.9
Change in deferred acquisition costs................ (126.1) (140.1)
Change in premiums and notes receivable, net of
reinsurance....................................... (36.2) 31.3
Change in accrued investment income................. 1.7 2.9
Change in policy liabilities and accruals, net...... 48.3 154.2
Change in reinsurance receivable.................... 22.5 (61.3)
Change in expenses and taxes payable................ 9.7 (3.5)
Separate account activity, net...................... (0.6) 1.6
Other, net.......................................... (28.5) (25.4)
------- -------
Net cash provided by (used in) operating
activities.................................... 9.6 12.7
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities of
available-for-sale fixed maturities................... 241.1 145.9
Proceeds from disposals of equity securities............ 18.0 42.1
Proceeds from disposals of other investments............ 0.4 12.5
Proceeds from mortgages matured or collected............ 22.7 55.3
Purchase of available-for-sale fixed maturities......... (253.2) (77.6)
Purchase of equity securities........................... (6.4) (29.4)
Purchase of other investments........................... (23.2) (62.7)
Other investing activities (net)........................ 0.2 (0.7)
------- -------
Net cash provided by investing activities........... (.4) 85.4
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and capital paid in..... 4.0 8.0
------- -------
Net cash provided by financing activities........... 4.0 8.0
------- -------
Net change in cash and cash equivalents..................... 13.2 106.0
Cash and cash equivalents, beginning of period.............. 217.9 31.1
------- -------
Cash and cash equivalents, end of period.................... $ 231.1 $ 137.1
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Allmerica
Financial Life Insurance and Annuity Company ("AFLIAC" or the "Company") have
been prepared in accordance with generally accepted accounting principles for
interim financial information.
The interim consolidated financial statements of AFLIAC, a wholly-owned
subsidiary of First Allmerica Financial Life Insurance Company ("FAFLIC"),
include the accounts of its non-insurance subsidiaries (principally brokerage
and investment advisory subsidiaries). FAFLIC is a wholly-owned subsidiary of
Allmerica Financial Corporation ("AFC"). AFLIAC was a wholly-owned subsidiary of
SMA Financial Corporation ("SMAFCO") until SMAFCO contributed AFLIAC to FAFLIC
on July 1, 1999. All significant intercompany accounts and transactions have
been eliminated.
The interim consolidated financial statements of AFLIAC include the accounts of
Allmerica Investments, Inc., Allmerica Investment Management Company, Inc.,
Allmerica Financial Investment Management Services, Inc., and Allmerica
Financial Services Insurance Agency, Inc. These wholly-owned non-insurance
subsidiaries were transferred to AFLIAC on July 1, 1999 from SMAFCO. The results
of operations for the subsidiaries are included in the three months ended
September 30, 1999. The financial statements of AFLIAC also 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 necessary for a fair
presentation of the financial position and results of operations. The results of
operations for the nine months ended September 30, 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.
2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board 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. This statement is effective for fiscal
years beginning after June 15, 2000. The Company is currently assessing the
impact of adoption of Statement No. 133.
In December 1997, the AICPA issued Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" ("SoP No.
97-3"). SoP No. 97-3 provides guidance on when a liability should be recognized
for guaranty fund and other assessments and how to measure the liability. This
statement allows for the discounting of the liability if the amount and timing
of the cash payments are fixed and determinable. In addition, it provides
criteria for when an asset may be recognized for a portion or all of the
assessment liability or paid assessment that can be recovered through premium
tax offsets or policy surcharges. This statement is effective for fiscal years
beginning after December 15, 1998. The adoption of SoP No. 97-3 had no effect on
the results of operations or financial position of the Company.
F-6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT TRANSACTIONS
AFC has made certain changes to its corporate structure effective July 1, 1999.
These changes include the transfer of FAFLIC's ownership of Allmerica Property &
Casualty Companies, Inc., as well as several non-insurance subsidiaries, from
FAFLIC to AFC. In addition, certain changes affected AFLIAC. SMAFCO transferred
its ownership in AFLIAC to FAFLIC. Hence, AFLIAC became a wholly-owned
subsidiary of FAFLIC. Further, four non-insurance subsidiaries previously held
by SMAFCO were contributed to AFLIAC. Under an agreement with the Commonwealth
of Massachusetts Insurance Commissioner ("the Commissioner"), AFC has
contributed to FAFLIC capital of $125.0 million and agreed 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 Commissioner. This transaction was approved by the
Commissioner on May 24, 1999.
The equity of the four subsidiaries transferred from SMAFCO to AFLIAC on
July 1, 1999 was $11.8 million. SMAFCO received one share of common stock in
return for transferring the subsidiaries to AFLIAC. For the three months ended
September 30, 1999, the subsidiaries of AFLIAC had total revenue of $16.6
million and total benefits, losses and expenses of $11.5 million.
During 1998, SMAFCO contributed $21.0 million of additional paid-in capital to
the Company. SMAFCO contributed $4.0 million of additional paid-in capital to
the Company in the second quarter of 1999.
4. FEDERAL INCOME TAXES
Federal income tax expense for the nine months ended September 30, 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. The court granted preliminary approval of the settlement
on December 4, 1998. On May 19, 1999, the Court issued an order certifying the
class for settlement purposes and granting final approval of the settlement
agreement. AFLIAC recognized a $21.0 million pre-tax expense during the third
quarter of 1998 related to
F-7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 an amount of reimbursement actually tendered by
AFLIAC's insurance carriers and based on changes in the Company's estimate of
the ultimate cost of the benefits to be provided to members of the class.
The Company has been named a defendant in various 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.
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.
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 LLP
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>
<CAPTION>
1997
----------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ------------- --------- ---------- ---------- --------
U.S. Treasury securities and U.S. government and agency
<S> <C> <C> <C> <C>
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
- ------------- -------- --------
<S> <C> <C>
Geographic region:
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
- ------------- -------- -------- --------
<S> <C> <C> <C>
Insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
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 made certain changes to its corporate structure effective July 1, 1999.
These changes include the transfer of FAFLIC's ownership of Allmerica Property &
Casualty Companies, Inc., as well as several non-insurance subsidiaries, from
FAFLIC to AFC. In addition, certain changes affected AFLIAC. SMAFCO transferred
its ownership in AFLIAC to FAFLIC. Hence, AFLIAC became a wholly owned
subsidiary of FAFLIC. Further, four non-insurance subsidiaries previously held
by SMAFCO were contributed to AFLIAC. Under an agreement with the Commonwealth
of Massachusetts Insurance Commissioner ("the Commissioner"), AFC has
contributed to FAFLIC capital of $125.0 million and agreed 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 Commissioner. This transaction was approved by the
Commissioner on May 24, 1999.
In 1998, the net income of the subsidiaries, which was reported in SMAFCO's
results of operations, to be transferred to AFLIAC from SMAFCO pursuant to the
aforementioned change in corporate structure was $18.8 million. As of
December 31, 1998, the total assets and total shareholders' equity of these
subsidiaries were $16.8 million and $9.2 million, respectively.
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
- --------------------------------
UNDERTAKINGS 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 ("SEC") such supplementary and
periodic information, documents, and reports as may be prescribed by any rule
or regulation of the SEC 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 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 SEC such indemnification is against public
Policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by 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 1933 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 amendment 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 1933 Act
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 FUVUL is filed herewith.
(2) Not Applicable.
(3) (a) Underwriting and Administrative Services Agreement between
the Company and Allmerica Investments, Inc. was previously
filed on April 16, 1998 in Post-Effective Amendment No. 12
(Registration Statement No. 33-57792), and is incorporated
by reference herein.
(b) Registered Representatives/Agents Agreement was previously
filed on April 16, 1998 in Post-Effective Amendment No. 12
(Registration Statement No. 33-57792), and is incorporated
by reference herein.
(c) Form of Selling Group Agreement with Commission Schedule
is filed herewith.
(d) Commission Schedule is filed herewith in Exhibit 1(3)(b).
(4) Form of Policy Form 1033-99 is filed herewith.
(5) (a) Waiver of Payment Rider;
<PAGE>
(b) Other Insured Rider; and
(c) Guaranteed Death Benefit Rider are filed herewith.
(6) Articles of Incorporation and Bylaws, as amended of the Company,
effective as of October 1, 1995 were previously filed on
September 29, 1995 in Post-Effective Amendment No. 5
Registration Statement No. 33-57792), and are incorporated by
reference herein.
(7) Not Applicable.
(8) (a) Form of Evergreen Participation Agreement is filed
herewith.
(b) Form of First Union Distribution Agreement is filed
herewith.
(9) (a) BFDS Agreements for lockbox and mailroom services were
previously filed on April 16, 1998 in Post-Effective
Amendment No. 12 (Registration Statement No. 33-57792),
and are incorporated by reference herein.
(b) Directors' Power of Attorney is filed herewith.
(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 dated May, 1993 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 3rd day of December, 1999.
SEPARATE ACCOUNT FUVUL
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 December 3, 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
- ------------------------------------
</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 July 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(3)(c) Form of Selling Group Agreement with Commission
Schedule
Exhibit 1(3)(d) Commission Schedule -- included in Exhibit 1(3)(c),
below.
Exhibit 1(4) Form of First Union Policy
Exhibit 1(5)(a) Waiver of Payment Rider
Exhibit 1(5)(b) Other Insured Term Insurance Rider
Exhibit 1(5)(c) Guaranteed Death Benefit Rider
Exhibit 1(8)(a) Form of Evergreen Participation Agreement
Exhibit 1(8)(b) Form of First Union Distribution Agreement
Exhibit 1(9)(b) Directors' Power of Attorney
Exhibit 1(10) Form of Application
Exhibit 3 Opinion of Counsel
Exhibit 6 Actuarial Consent
Exhibit 7 Procedures Memorandum
Exhibit 8 Consent of Independent Accountants
<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>
ALLMERICA DRAFT
DECEMBER 15, 1999
SELLING GROUP AGREEMENT
THIS AGREEMENT ("Agreement") is made as of ___________, 2000 by and between
First Union Securities Inc., a Delaware corporation ("FUS"), and the undersigned
broker-dealer ("Broker-Dealer").
RECITALS:
A. FUS, pursuant to the provisions of a distribution agreement (the
"Distribution Agreement") between FUS and [Allmerica Financial Life Insurance
and Annuity Company - for non-New York sales and First Allmerica Financial Life
Insurance Company - for New York sales] ("Insurance Company"), acts as a
distributor of the variable annuity contracts and/or, as the case may be,
variable life insurance policies of the Insurance Company which are anticipated
to be registered under the Securities Act of 1933, as amended (the "1933 Act"),
identified on the Schedule of Products, attached hereto, and may in the future
act as distributor of other valuable annuity contracts and/or, as the case may
be, variable life insurance policies of the Insurance Company registered under
the 1933 Act which would be identified on a supplement to such Schedule of
Products (such contracts and policies are hereinafter collectively referred to
as the "Products").
B. FUS desires that the Broker-Dealer distribute the Products in those
jurisdictions in which the Broker-Dealer, FUS, the Insurance Company and the
Products are appropriately licensed, qualified or approved, as the case may be,
and the Broker-Dealer desires to sell the Products, through its agents in such
jurisdictions, on the terms and conditions set forth hereinafter.
1
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
C. The Insurance Company, pursuant to the Distribution Agreement, has
authorized FUS to recommend broker-dealers, including the Broker-Dealer, for
appointment by the Insurance Company to engage in the distribution activities
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants hereinafter set forth, the parties agree as follows:
1. AUTHORITY TO SELL PRODUCTS.
1.1 GENERAL. FUS, subject to the terms and conditions contained
herein, hereby authorizes the Broker-Dealer, as an independent contractor, on a
non-exclusive basis, to offer and sell the Products. The Broker-Dealer hereby
agrees to use its best efforts to sell the Products.
1.2 COMPENSATION/EXPENSES. Except as otherwise provided herein,
the Broker-Dealer shall be entitled to commissions with respect to sales of the
Products made by the Broker-Dealer and its Registered Representatives, in
accordance with the Schedule of Commissions attached to this Agreement, as such
Schedule may be amended from time to time. FUS reserves the right to amend the
Schedule of Commissions at any time and from time to time. PROVIDED, HOWEVER,
that any such amendment shall apply only to Products applied for after the
effective date of each such amendment. All commissions shall be payable by FUS.
As a result, the Broker-Dealer understands and agrees that the Insurance Company
shall not be responsible for payment of any compensation due and payable to the
Broker-Dealer hereunder, and that FUS is solely responsible for the payment of
all such compensation. The Broker-Dealer shall be responsible for the payment
2
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
of all expenses incurred by the Broker-Dealer in connection with this Agreement
and the performance of its obligations, and the exercise of its rights
hereunder.
2. REPRESENTATIONS AND WARRANTIES.
The Broker-Dealer represents and warrants to, and covenants with, FUS that:
(a) the Broker-Dealer (i) is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"), (ii) is duly
registered as a broker-dealer with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and registered in each state or other jurisdiction in which the Broker-Dealer is
required to be registered in order to sell the Products, (iii) is licensed and
appointed to sell the Products under the insurance laws of each state or other
jurisdiction in which the Broker-Dealer is required to be licensed and appointed
in order to sell the Products, and (iv) otherwise maintains in effect all
governmental and other registrations, licenses and permits necessary for it to
carry out its obligations, and the transactions contemplated hereunder (the
"Required Registrations");
(b) the Broker-Dealer is in compliance, in all material respects,
with all applicable federal and state securities laws and regulations, the
requirements of the NASD and any applicable securities exchanges of which it is
a member and all codes of conduct and codes of ethics applicable to its
activities (collectively, the "Regulations");
3
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
(c) the Broker-Dealer is a corporation duly organized and in good
standing under the law of its jurisdiction of organization and is qualified to
do business as a corporation in those states or jurisdictions where it is, or
will be, doing business pursuant to this Agreement; and
(d) this Agreement and the transactions contemplated hereby (i)
have been duly approved by all required corporate action on the part of the
Broker-Dealer and (ii) do not conflict with any law, regulation, court order or
agreement to which the Broker-Dealer is subject or the Broker-Dealer's
properties are bound.
3. COVENANTS OF THE BROKER-DEALER.
3.1 SALE OF PRODUCTS. The Broker-Dealer agrees that (a) offers and
sales of the Products will be made only through the use of a then current
prospectus which is a part of a registration statement which is then effective
under the 1933 Act (each a "Prospectus"), (b) a Prospectus relating to the
Product in question will be delivered prior to, or concurrently with any sales
presentation or other offer of such Product, (c) no oral or written statements
will be made by or on behalf of the Broker-Dealer to a prospective purchaser of
a Product other than statements identical to, or based solely on information set
forth in the Prospectus, and (d) in connection with offers and sales of the
Products, the Broker-Dealer will at all times comply with the Regulations and
offer and sell the Products only in those jurisdictions, and in the manner in
which the Products may be lawfully sold.
4
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
3.2 REPRESENTATIONS AND WARRANTIES TRUE, ETC. At all times during the
term hereof the representations and warranties of the Broker-Dealer contained in
Section 2, above, shall be true.
3.3 REGISTERED REPRESENTATIVES. The Broker-Dealer may recommend
persons associated with it who are duly licensed and qualified under applicable
law and regulations to act in the offer or sale of the Products (the "Registered
Representatives") for appointment as insurance agents of the Insurance Company,
PROVIDED that such person: (a) has not been subject to any civil, administrative
or criminal actions or sanctions by, or entered into any settlement agreements
with, any governmental or quasi-governmental regulatory authority or self
regulatory organization, (b) has not been precluded or restricted for any period
of time by any entity from selling any securities, insurance products or other
products of such entity, (c) otherwise is qualified to offer and sell the
Products, (d) agrees in writing (i) to comply with all of the obligations of the
Broker-Dealer and the Registered Representatives hereunder, (ii) not to make any
recommendation to an applicant or prospective purchaser to purchase a Product
without having reasonable grounds to believe that the purchase of the Product is
suitable for the prospective purchaser, (iii) to report promptly in writing to
the Insurance Company and FUS all customer or regulatory complaints or inquiries
with respect to such Registered Representative, whether written or oral, and to
assist the Insurance Company and FUS in resolving any complaint to the
satisfaction of all parties involved, (e) possesses all Required Registrations
and agrees to maintain in force during the term hereof all Required
Registrations, and (f) agrees that prior to soliciting Products on behalf of the
Insurance Company that he/she must be
5
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
appointed as an insurance agent of the Insurance Company. The Broker-Dealer is
authorized, except as hereinafter specifically provided, to cause the Registered
Representatives to offer and sell the Products in the states and jurisdictions
in which the Products, the Broker-Dealer and such Registered Representatives are
registered, licensed and appointed or otherwise appropriately qualified. The
Broker-Dealer shall be solely responsible for the supervision of the Registered
Representatives and shall enforce written supervisory procedures to assure
strict compliance with NASD rules and applicable rules and regulations under the
1934 Act, and other applicable federal and state statutes and regulations. The
Broker-Dealer agrees to provide to the Registered Representatives instructions
sufficient to provide them with information needed to offer and sell the
Products in compliance with this Agreement and the Regulations. The
Broker-Dealer shall direct the sales activities of the Registered
Representatives and shall be solely responsible for the conduct of the
Registered Representatives in the offer and sale of the Products.
3.4 NO AUTHORITY TO MODIFY, ETC. The Broker-Dealer acknowledges and
agrees that neither the Broker-Dealer nor any of the Registered Representatives
shall have the authority, on behalf of FUS or the Insurance Company or
otherwise, to (a) modify any of the terms of the Products, including, but not
limited to, any forfeiture provisions thereof, or (b) extend the time of payment
of any premiums with respect to a Product. The Broker-Dealer acknowledges that
neither the Broker-Dealer nor any Registered Representative may receive any
premiums or other funds from applicants for, or purchasers of the Products
(except for the sole purpose of forwarding such funds
6
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
to the Insurance Company). If the Broker-Dealer or a Registered Representative
inadvertently receives any funds from applicants for, or purchasers of, the
Products they shall hold such funds in a fiduciary capacity on behalf of the
Insurance Company and promptly submit them to the Insurance Company.
3.5 REJECTION OF PRODUCT APPLICATIONS, ETC. The Broker-Dealer
acknowledges and agrees that (a) the Insurance Company, in its sole discretion,
may reject any application for a Product submitted to it by the Broker-Dealer or
any of the Registered Representatives, (b) nothing herein contained shall
constitute the Broker-Dealer or any of its Registered Representatives as
employees of FUS or the Insurance Company, and (c) the Schedule of Products may
be amended by FUS at its sole discretion from time to time to add other Products
distributed by FUS pursuant to the Distribution Agreement or other distribution
agreements with the Insurance Company, or to delete Products therefrom.
3.6 ACCESS TO INFORMATION. The Broker-Dealer shall give FUS and the
Insurance Company full access upon reasonable advance notice during the
Broker-Dealer's normal business hours to all information in the possession or
control of the Broker-Dealer or any Registered Representative relating to,
arising out of or in connection with the offer and sale of Products pursuant to
this Agreement, and shall be required to provide to FUS and the Insurance
Company copies of any documents relating thereto within ten (10) days after a
written request therefor. The Broker-Dealer
7
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
shall be entitled to reimbursement of the expenses it incurs in connection with
providing documents to FUS or the Insurance Company, as required by the
preceding sentence.
3.7 BASIS FOR RECOMMENDATIONS. The Broker-Dealer shall be solely
responsible for the approval of suitability determinations for the purchase of
any Product or the selection of any investment option thereunder, in compliance
with the Regulations and shall appropriately supervise the Registered
Representatives in determining client suitability. The Broker-Dealer, through
the Registered Representatives or otherwise, shall not make any recommendations
to a prospective purchaser to purchase a Product without having reasonable
grounds to believe that the purchase of that Product is suitable for such
prospective purchaser. Among other things, a determination of suitability shall
be based on information supplied to a Registered Representative after a
reasonable inquiry concerning the prospective purchaser's insurance and
investment objectives, financial situation and needs.
3.8 NO MISREPRESENTATIONS; DISCLOSURE. The Broker-Dealer, through the
Registered Representatives or otherwise, shall not (a) make any
misrepresentation of a material fact with respect to the Products or omit to
state a material fact necessary to make statements made with respect to a
Product in light of the circumstances in which they were made, not misleading or
(b) otherwise engage in any deceptive or misleading practice or activity in
connection with the offer and the sale of the Products. The Broker-Dealer,
through the Registered Representatives or otherwise, shall not: (a) give any
oral information or make any representations or statements in connection with
8
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
the offer or sale of a Product that is not the same as, or based solely on the
then current version provided by FUS or the Insurance Company of the
registration statement, Prospectus or statement of additional information, as
the case may be, relating to the such Product, or (b) provide prospective
purchasers of the Products or otherwise utilize in connection with the offer of
sale of the Products any advertising materials, sales literature, signage or
other promotional material, written, electronic, graphic or audio visual
materials other than materials supplied by, or approved in writing in advance,
by FUS or the Insurance Company (the "Disclosure Material"). The Broker-Dealer
shall not modify in any way any Disclosure Material which has been approved for
use by the Broker-Dealer by FUS or the Insurance Company. The Broker-Dealer
shall immediately cease using, and shall cause the Registered Representatives to
immediately cease using, any Disclosure Material previously approved by FUS or
the Insurance Company upon receipt of an oral or written instruction to do so by
FUS or the Insurance Company. FUS agrees to follow-up in writing within three
business days any such oral instruction from FUS or the Insurance Company to
discontinue such use. The Broker-Dealer will maintain complete records
indicating the manner and extent of distribution of any such Disclosure
Material, and will make such records available to the Insurance Company, FUS,
state insurance departments, the NASD, the SEC and any other regulatory agency
which has regulatory authority over the Insurance Company or FUS.
3.9 EXCHANGE OF PRODUCTS. The Broker-Dealer or the Registered
Representatives may solicit exchanges of contracts issued by insurance carriers
other than the Insurance Company
9
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
or any of its affiliates for Products only when the Broker-Dealer can
demonstrate that the exchange would be beneficial to the prospective purchaser
or class of purchasers, as the case may be, and provided that the exchange offer
is approved in advance by an NASD-licensed principal of the Broker-Dealer. The
Broker-Dealer shall maintain records of the basis for any determination that an
exchange would be beneficial to a prospective purchaser, including the name of
such principal approving the exchange offer. Without the express written
permission of the Insurance Company, neither the Broker-Dealer nor the
Registered Representatives may solicit exchanges of contracts issued by the
Insurance Company or any of its affiliates for Products.
3.10 COMPLAINTS AND INVESTIGATION. The Broker-Dealer shall report
in writing within three (3) business days after the occurrence thereof to the
Insurance Company and FUS all customer complaints or inquiries relating to the
offer, sale or ownership of the Products or made by or on behalf of any
prospective purchaser or owner of a Product, whether written or oral, and shall
assist the Insurance Company and FUS in resolving those complaints to the
satisfaction of such prospective purchaser, owner, FUS and the Insurance
Company. The Broker-Dealer shall cooperate fully with FUS and the Insurance
Company in connection with any governmental or other investigation or proceeding
relating to any complaint related to the Products by any prospective purchaser
or owner of the Products.
3.11 NOTICE OF CLAIMS. If any action or proceeding shall be
brought against the Broker-Dealer or any of its Registered Representatives or
affiliates relating to the Products, the
10
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
Broker-Dealer shall give written notice to FUS and the Insurance Company within
(3) business days after it receives notice of any such action or proceeding.
3.12 FIDELITY BOND. The Broker-Dealer represents and warrants
that all directors, officers and employees of the Broker-Dealer (including the
Registered Representative) who have access to funds of the Insurance Company
are, and will continue to be, covered by a blanket fidelity bond including
coverage for larceny, embezzlement and other defalcation, issued by a reputable
bonding company acceptable to the Insurance Company in an amount at least
equivalent to the minimal coverage required under the NASD Rules of Fair
Practice, and endorsed to extend coverage to variable life insurance and
variable annuity transactions. The Broker-Dealer acknowledges that the Insurance
Company may require evidence that such coverage is in force and the
Broker-Dealer shall promptly give notice to the Insurance Company of any notice
of cancellation or change of coverage. The Broker-Dealer hereby assigns any
proceeds received from the fidelity bond company to the Insurance Company to the
extent of the Insurance Company's loss due to activities covered by such bond.
If the payment to the Insurance Company under the fidelity bond is insufficient
to cover the Insurance Company's loss, the Broker-Dealer will promptly pay the
Insurance Company an amount equal to the balance of such loss on demand. The
Broker-Dealer indemnifies and holds harmless the Insurance Company from any
deficiency and from the cost of collection thereof. The Broker-Dealer agrees to
maintain the fidelity bond coverage described in this Section 3.12 at all times
while the Agreement remains in force.
11
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
4. REPRESENTATIONS AND WARRANTIES OF FUS.
(a) FUS is (i) a member in good standing of the NASD, (ii) duly
registered as a broker-dealer with the SEC under the 1934 Act, and registered in
each state or other jurisdiction in which FUS is required to be registered in
order to sell the Products and otherwise maintains in effect all Required
Registrations;
(b) FUS conducts its operations is in compliance, in all material
respects, with all applicable federal and state securities laws and regulations,
with all applicable state insurance laws, and the requirements of the NASD and
any applicable securities exchanges of which it is a member;
(c) FUS is a corporation duly organized and in good standing
under the law of its jurisdiction of organization and is qualified to do
business as a corporation in those states or jurisdictions where it is, or will
be, doing business pursuant to this Agreement; and
(d) this Agreement and the transactions contemplated hereby (i)
have been duly approved by all required corporate action on the part of FUS and
(ii) do not conflict with any law, regulation, court order or agreement to which
FUS is subject or FUS's properties are bound.
5. COVENANTS OF FUS. FUS covenants with the Broker-Dealer that:
12
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
5.1 PRODUCTS. The Products, when they are made available to the
Broker-Dealer for offer and sale, will be duly registered under applicable
federal and state securities laws.
5.2 INSURANCE COMPLIANCE. The Products, when they are made available
to the Broker-Dealer for offer and sale, will be in compliance with applicable
state insurance laws.
5.3 DISCLOSURE. With respect to the Product it purports to describe,
each Prospectus, provided to the Broker-Dealer by FUS or the Insurance Company:
(a) will be true, accurate and complete in all material respects;
(b) will not contain any false or misleading statements of
material fact or omit any material fact necessary to make statements contained
therein not misleading in light of the circumstances under which they are made;
and
(c) will fully and adequately disclose all material terms,
conditions, limitations and restrictions with respect to the Products.
5.4 REPRESENTATIONS AND WARRANTIES TRUE, ETC. At all times during the
term hereof, the representations and warranties of FUS contained in Section 4,
above, shall be true.
13
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
5.5 DOCUMENTS. FUS shall provide the Broker-Dealer with quantities of
Prospectuses reasonably sufficient for the Broker-Dealer to effectively market
the Products.
6. TERM AND TERMINATION OF AGREEMENT
6.1 TERM. Unless sooner terminated pursuant to this Section 6, this
Agreement shall terminate on the earlier to occur of the date of termination of
the Distribution Agreement and the __________ anniversary of the date hereof.
6.2 TERMINATION. This Agreement shall be subject to termination at any
time by the Broker-Dealer or by FUS, with or without cause, upon the giving of
at least thirty (30) days' written notice to such effect to the other party.
6.3 EFFECT OF TERMINATION.
(a) In the event this Agreement is terminated, (i) the
Broker-Dealer and the Registered Representatives shall immediately cease to have
the right to offer or sell any of the Products; (ii) the Broker-Dealer shall
return forthwith, upon the request of FUS or the Insurance Company, all written
materials related to the Products delivered to the Broker-Dealer or the
Registered Representatives by or on behalf of FUS or the Insurance Company on or
before the date of such termination; (ii) all compensation required to be paid
to Broker-Dealer shall be paid in accordance with the Schedule of Commissions
attached hereto; (iii) all amounts due from the Broker-Dealer to FUS shall be
immediately due and payable to FUS, notwithstanding any other terms of such
payments that may have been in effect during the term of this Agreement; and
(iv) the
14
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
Broker-Dealer shall carry out all residual obligations, if any, which arose
while this Agreement was in effect.
(b) In the event that this Agreement is terminated by FUS after a
breach by the Broker-Dealer of any of its representations and warranties or
covenants hereunder, then FUS may offset against any amounts owed to the
Broker-Dealer hereunder an amount equal to (i) the damages, losses and expenses
(including reasonable attorneys' fees) incurred by FUS as a result of such
breach and (ii) any amount that may be owed by the Broker-Dealer to FUS under
Section 9, below.
7. CONFIDENTIALITY
7.1 GENERALLY. Each party will hold the other party's Confidential
Information (as defined below) in confidence and will safeguard such
Confidential Information as provided herein. The party receiving Confidential
Information (a "Recipient") will not, directly or indirectly, report, publish,
distribute, disclose, or otherwise disseminate the Confidential Information, or
any portion thereof, to any individual or entity for any purpose, except as
necessary to perform such Party's duties hereunder, or as expressly authorized
in writing by the party providing the Confidential Information (the "Provider").
Disclosure of Confidential Information internally by the recipient thereof will
be limited to those of its officers, directors, employees and agents who are
required to have access to the Confidential Information to enable the party to
perform its duties hereunder. In order to safeguard Confidential Information,
the Recipient shall (a) inform each party
15
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
to whom it discloses Confidential Information of the confidential nature thereof
and of the requirements of this Agreement, (b) direct such recipients to comply
with the terms of this Agreement, and (c) exercise any other precautions
reasonably necessary to prevent any improper disclosure of such Confidential
Information.
7.2 DEFINITION. For purposes of the Agreement, "Confidential
Information" shall mean information: (a) regarding the Provider's or any
affiliate of the Provider's financial condition, information systems, business
operations, plans and strategies, products or services, customers or prospective
customers, and marketing and distribution plans, methods and techniques; (b)
that is marked confidential, "proprietary" or in like words, or that is
indicated in writing as being confidential prior to or promptly after disclosure
to the Recipient; and (c) any and all research and designs, ideas, concepts, and
technology embodied in the items described in clauses 7.2(a) or (b). Information
shall not be deemed to be Confidential Information hereunder if that information
(a) is or becomes generally available to the public other than as a result of
disclosure by the Recipient; (b) was available to, or already known by the
Recipient on a non-confidential basis prior to its receipt from the Provider;
(c) is developed by the Recipient independently of any information or data
acquired from the Provider; or (d) is disclosed pursuant to a court order or the
requirement of any federal or state regulatory, judicial, or government
authority.
7.3 REMEDIES. Each party acknowledges and agrees that monetary damages
would not be a sufficient or adequate remedy for a breach or anticipated breach
of this Section 7 and
16
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
that, in addition to any other legal or equitable remedies which may be
available, each party shall be entitled to specific performance and injunctive
relief, without the posting of a bond, for any breach or anticipated breach of
this Section.
7.4 SURVIVAL. The provisions of this Section 7 shall survive the
expiration or other termination of this Agreement.
8. MODIFICATION OF AGREEMENT
This Agreement may not be modified in any way unless by written agreement
signed by both of the parties, except for any amendment of the Schedule of
Products pursuant to the terms of Section 3.5 hereof or of the Schedule of
Commissions pursuant to the terms of Section 1.2 hereof, which Schedules shall
be deemed to be modified upon the giving by FUS to the Broker-Dealer of revised
versions thereof.
9. INDEMNIFICATION
9.1 GENERAL. The Broker-Dealer will indemnify FUS, each affiliate of
FUS (as defined in Rule 405 under the 1933 Act), the Insurance Company, each
affiliate of the Insurance Company (as defined in Rule 405 under the 1933 Act),
and each of their shareholders, officers, directors, employees, agents and
attorneys (each an "Indemnified Party") against, and hold each Indemnified Party
harmless from and in respect of, all losses, damages, costs, (expenses including
reasonable attorneys' fees) judgments, fines, penalties, settlements resulting
from claims, demands, actions, cases, proceedings, suits or investigations
conducted by, or pending before any
17
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
governmental agency or authority or any arbitration proceeding based on, arising
from, related to or otherwise attributable to (a) any breach of the
representations and warranties of the Broker-Dealer set forth in this Agreement
or (b) any nonfulfillment of any covenant or agreement on the part of the
Broker-Dealer under this Agreement.
9.2 CONDITIONS OF INDEMNIFICATION.
(a) All claims for indemnification under this Agreement shall be
asserted and resolved as provided in this Section 9.2. An Indemnified Party
claiming indemnification under this Agreement shall promptly (i) notify the
Broker-Dealer (in this Section 9, the "INDEMNIFYING PARTY") of any third-party
claim or claims asserted against the Indemnified Party (a "THIRD PARTY CLAIM")
that could give rise to a right of indemnification under this Agreement and (ii)
transmit to the Indemnifying Party a written notice ("Claim Notice") describing
in reasonable detail the nature of the Third Party Claim, a copy of all papers
served with respect to that claim (if any), and the basis for the Indemnified
Party's request for indemnification under this Agreement. The failure to
promptly deliver a Claim Notice shall not relieve the Indemnifying Party of its
obligations to the Indemnified Party with respect to the related Third Party
Claim, except to the extent that the resulting delay is materially prejudicial
to the defense of that claim. Within fifteen (15) days after receipt of any
Claim Notice (the "Election Period"), the
18
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
Indemnifying Party shall notify the Indemnified Party (i) whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
under this Section 9 with respect to that Third Party Claim and (ii) if the
Indemnifying Party does not dispute its potential liability to the
Indemnified Party with respect to that Third Party Claim, whether the
Indemnifying Party desires, at the sole cost and expense of the Indemnifying
Party, to defend the Indemnified Party against that Third Party Claim.
(b) If the Indemnifying Party does not dispute its potential
liability to the Indemnified Party and notifies the Indemnified Party within the
Election Period that the Indemnifying Party elects to assume the defense of the
Third Party Claim, then the Indemnifying Party shall have the right to defend,
at its sole cost and expense, that Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 9, and the Indemnified Party
will furnish the Indemnifying Party with all information in its possession with
respect to that Third Party Claim and otherwise cooperate with the Indemnifying
Party in the defense of that Third Party Claim; PROVIDED, HOWEVER, that the
Indemnifying Party shall not enter into any settlement with respect to any Third
Party Claim that purports to limit the activities of, or otherwise restrict in
any way, any Indemnified Party or any affiliate of any Indemnified Party without
the prior consent of that Indemnified Party (which consent may be withheld in
the sole discretion of that Indemnified Party). The Indemnified Party may
participate in, but not control, any defense or settlement of any Third Party
Claim controlled by the Indemnifying Party pursuant to this Section 9 and will
bear its own costs and expenses with respect
19
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
to that participation; PROVIDED, HOWEVER, that if the named parties to any such
action (including any impleaded parties) include both the Indemnifying Party and
the Indemnified Party, and the Indemnified Party has been advised by counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the Indemnifying Party, then the
Indemnified Party may employ separate counsel at the expense of the Indemnifying
Party, and, on its written notification of that employment, the Indemnifying
Party shall not have the right to assume or continue the defense of such action
on behalf of the Indemnified Party.
(c) If the Indemnifying Party (i) within the Election Period (A)
disputes its potential liability to the Indemnified Party under this Section 9,
(B) elects not to defend the Indemnified Party as described, above, or (C) fails
to notify the Indemnified Party that the Indemnifying Party elects to defend the
Indemnified Party as provided above, or (ii) elects to defend the Indemnified
Party as provided, above, but fails diligently and promptly to prosecute or
settle the Third Party Claim, then the Indemnified Party shall have the right to
defend, at the sole cost and expense of the Indemnifying Party (if the
Indemnified Party is entitled to indemnification hereunder), the Third Party
Claim by all appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control of such defense and proceedings.
Notwithstanding the foregoing, if the Indemnifying Party has delivered a written
notice to the Indemnified Party to the effect that the Indemnifying Party
disputes its potential liability to the Indemnified Party under this
20
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
Section 9 and if that dispute is resolved in favor of the Indemnifying Party,
the Indemnifying Party shall not be required to bear the costs and expenses of
the Indemnified Party's defense pursuant to this Section 9, or of the
Indemnifying Party's participation therein at the Indemnified Party's request,
and the Indemnified Party shall reimburse the Indemnifying Party in full for all
reasonable costs and expenses of such participation. The Indemnifying Party may
participate in, but not control, any defense or settlement controlled by the
Indemnified Party pursuant to this Section 9, and the Indemnifying Party shall
bear its own costs and expenses with respect to that participation.
(d) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to that claim to
the extent feasible (which estimate shall not be conclusive of the final amount
of that claim) and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying Party does not notify
the Indemnified Party within fifteen (15) days from its receipt of the Indemnity
Notice that the Indemnifying Party disputes the claim specified by the
Indemnified Party in the Indemnity Notice, that claim shall be deemed a
liability of the Indemnifying Party hereunder. If the Indemnifying Party has
timely disputed that claim, as provided above, that dispute shall be resolved by
proceedings in an appropriate court of competent jurisdiction if the parties do
21
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
not reach a settlement of that dispute within thirty (30) days after notice of
that dispute is given (the "INDEMNITY NOTICE PERIOD").
(e) Payments of all amounts owing by an Indemnifying Party
pursuant to this Section 9 relating to a Third Party Claim shall be made within
thirty (30) days after the latest of (i) the settlement of that Third Party
Claim, (ii) the expiration of the period for appeal of a final adjudication of
that Third Party Claim and (iii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement in respect of that Third Party Claim. Payments of all
amounts owing by an Indemnifying Party with respect to claims other than Third
Party Claims shall be made within thirty (30) days after the later of the
expiration of (i) the Indemnity Notice Period and (ii) the expiration of the
period for appeal of a final adjudication of the Indemnifying Party's liability
to the Indemnified Party under this Agreement.
9.3 SURVIVAL. The provisions of this Section 9 shall survive the
expiration or other termination of this Agreement.
10. REMEDIES CUMULATIVE; NON-WAIVER. The rights and remedies of the parties
contained in this Agreement are cumulative and are in addition to any and all
rights and remedies at law or in equity, which the parties hereto are entitled
to under applicable law. Failure of either party to insist upon strict
compliance with any of the conditions of this Agreement shall not be construed
as a waiver of any of the conditions, but the same shall remain in full force
and effect. No waiver of any
22
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
of the provisions of this Agreement shall be deemed, or shall constitute, a
waiver of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver.
11. MITIGATION OF LOSSES. In the event of any dispute between an owner of a
Product (a "Disputing Owner") and FUS, the Insurance Company, the Broker-Dealer,
a Registered Representative or any other party with respect to such Product, FUS
shall have the right, with prior written notice and consultation with the
Broker-Dealer and the Insurance Company, to take such action as FUS may deem
necessary to promptly effect a mitigation of damages or limitation of losses,
and without waiving or electing to relinquish any rights or remedies FUS may
have against the Broker-Dealer, FUS shall have the right to settle any such
dispute without the prior consent of the Broker-Dealer and without waiving or
electing to relinquish any rights or remedies FUS may have against the
Broker-Dealer.
12. GOVERNING LAW, ETC. This Agreement shall be governed by and construed
in accordance with the laws of _______, without regard to choice of law
provisions, and the venue for all actions or proceedings brought by either party
to this Agreement arising out of or relating to this Agreement shall be in the
state or federal courts, as the case may be, located in _______ County, _______
(collectively, the "Courts"). The Broker-Dealer hereby irrevocably waives any
objection which the Broker-Dealer now or hereafter may have to the laying of
venue of any action or proceeding arising out of or relating to this Agreement
brought in any of the Courts, and any objection on the ground that any such
action or proceeding in any of the Courts has been brought in
23
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
an inconvenient forum. In the event of any litigation between the parties
hereto with respect to this Agreement, the prevailing party therein shall be
entitled to receive from the other party all of such prevailing party's
expenses in connection with such litigation, including, but not limited, to
reasonable attorneys' fees.
13. NOTICES. Any notices or demands given in connection herewith shall be
in writing and deemed given when (i) personally delivered, (ii) sent by
facsimile transmission to a number provided in writing by the addressee and a
confirmation of the transmission is received by the sender or (iii) three (3)
days after being deposited for delivery with a recognized overnight courier,
such as FedEx, and addressed or sent, as the case may be, to the address or
facsimile number set forth below or to such other address or facsimile number as
such party may in writing designate:
(a) TO FUS:
Attention:
(b) TO THE BROKER-DEALER:
Attention:
14. ARBITRATION
14.1 Any disagreement, dispute, claim or controversy arising out of or
relating to this Agreement, performance hereunder or the breach hereof, or
otherwise arising between the Broker-Dealer and FUS, shall be subject to
mandatory arbitration under the auspices, rules and bylaws of the NASD, to the
full extent applicable and as may be amended from time to time.
24
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
14.2 Where the NASD Code of Arbitration Procedure is not applicable,
any dispute between the Broker-Dealer and FUS arising under or relating to this
Agreement shall be settled by compulsory arbitration before one arbitrator in
accordance with the Commercial Arbitration Rules then in force of the American
Arbitration Association. The arbitration shall take place in ______________,
unless the parties agree on another location. The arbitrator shall have no
authority to issue any decision or award for punitive damages or for treble or
any other type of multiple damages, consequential damages, or any compensatory
damages based on a claim of lost profits or similar claim. Each party shall bear
its own costs and expenses incurred by it in any such arbitration, except that
the parties shall bear the expenses of the arbitrator's services equally. The
provisions of this Section shall survive the expiration or other termination of
this Agreement.
25
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
15. ENTIRE AGREEMENT; CERTAIN TERMS. This Agreement, together with the
Schedules hereto, constitutes and contains the entire agreement of the parties
with respect to the matters addressed herein and supersedes any and all prior
negotiations, correspondence, understandings and agreements between the parties
respecting the subject matter hereof. No waiver of any rights under this
Agreement, nor any modification or amendment of this Agreement shall be
effective or enforceable unless in writing and signed by the party to be charged
therewith. When used in this Agreement, the terms "hereof," "herein" and
"hereunder" refer to this Agreement in its entirety, including the Schedules
attached to this Agreement, and not to any particular provisions of this
Agreement, unless otherwise indicated.
16. HEADINGS
The headings in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
17. COUNTERPARTS
This Agreement may be executed in two counterparts, each of which together
shall be deemed an original, but both of which together shall constitute one and
the same instrument.
18. SEVERABILITY. It is the intention of the parties hereto that any
provision of this Agreement found to be invalid or unenforceable be reformed
rather than eliminated. If any of the provisions of this Agreement, or any
part thereof, is hereinafter construed to be invalid or
26
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
unenforceable, the same shall not affect the remainder of such provision or the
other provisions of this Agreement, which shall be given full effect, without
regard to the invalid portions. In the event that the courts of any one or more
jurisdictions shall hold such provisions wholly or partially unenforceable by
reason of the scope thereof or otherwise, it is the intention of the parties
hereto that such determination not bar or in any way affect the parties' rights
provided for herein in the courts of any other jurisdictions as to breaches or
threatened breaches of such provisions in such other jurisdictions, the above
provisions as they relate to each jurisdiction being, for this purpose,
severable into diverse and independent covenants.
19. ASSIGNMENT Except as specifically set forth herein, the Broker-Dealer
may not assign any of its rights or obligations hereunder without the prior
written approval of FUS.
27
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first indicated above.
FUS
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
BROKER-DEALER
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Accepted and Agreed to
[Name of Insurance Company]
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
28
<PAGE>
ALLMERICA DRAFT
DECEMBER 15, 1999
29
<PAGE>
SCHEDULE OF PRODUCTS
to
First Union Securities
SELLING GROUP AGREEMENT
-----------------------
<TABLE>
<S><C>
- --------------------------------------------------------------------------------
Policy/Certificate
Product Description Form
- --------------------------------------------------------------------------------
Variable Universal Life
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE OF COMMISSIONS
to
First Union Securities
SELLING GROUP AGREEMENT
-----------------------
I. PURPOSE
This Schedule of Commissions ("Schedule") is adopted pursuant to
Section 1.2 of the Selling Group Agreement (the "Agreement") and
governs the determination and payment by FUS of commissions
("Compensation") to the Broker-Dealer in connection with premium
payments received under the products specified herein.
II. COVERED PRODUCTS
The only products covered by this Schedule ("Covered Products") are the
following variable universal life insurance policies:
Covered Product Policy Form
VUL
-------------
III. COMPENSATION
The Compensation to the Broker-Dealer under this Selling Group
Agreement shall be as outlined below:
VARIABLE UNIVERSAL LIFE
Target Premium %
Year 1:
Up to Target Premium 6.0% (maximum payout)
Excess Premium 6.0%
<PAGE>
Years 2-4:
Up to Target Premium 6.0%
Excess Premium 6.0%
Years 5-10:
Up to Target Premium 3.0%
Excess Premium 3.0%
Years 11+: 1.50%
The foregoing amounts shall be payable by FUS within five (5) business
days after FUS receives such amounts from the Insurance Company.
IV. CHARGEBACK OF COMPENSATION
A. The termination of a Covered Product (1) within twelve (12) months
of its date of issue will result in a charge-back of one hundred
percent (100%) of the Compensation paid to the Broker-Dealer
respecting the sale of the Covered Product if the Covered Product
terminates for reasons other than death; (2) seventy-five percent
(75%) of the compensation paid to the Broker-Dealer if a Covered
Product terminates for reasons other than death during the second
twelve (12) months following issue; (3) fifty percent (50%) of the
Compensation paid to the Broker-Dealer if a Covered Product terminates
for reasons other than death during the third twelve (12) months
following issue; (4) twenty five percent (25%) of the Compensation
paid to the Broker-Dealer if a Covered Product terminates for reasons
other than death during the fourth twelve (12) months following issue;
and (5) nothing from the Broker-Dealer (i.e., no charge back) if the
Covered Product terminates thereafter. However, notwithstanding any
other provision of the Agreement, if termination of a Covered Product
at any time is due to the willful or negligent wrongful actions or
representations of the Broker-Dealer or any Representative, FUS
reserves the right to recover one hundred (100%) of the Compensation
paid to the Broker-Dealer respecting the sale of the Covered Product.
<PAGE>
In the event a Covered Product owner makes a withdrawal from or
partially surrenders a Covered Product within forty-eight (48) months
following its date of issue, the charge back rules described in the
preceding paragraph shall apply, except that the amount of the charge
back shall be pro-rated. Any such pro-rated charge back shall be
determined in accordance with the following formula:
Charge Back = Charge Back Percentage* x WITHDRAWAL AMOUNT
-----------------
Covered Product
Cash Value**
*100% year one; 75% year two; 50% year three; 25% year four
**determined as of the date of the withdrawal
B. Compensation charge-backs will be due within 60 days of
notification by FUS. Compensation will be charged back by credit
against Compensation to be paid in the future and/or by requiring cash
repayment to be made by the Broker-Dealer.
V. MODIFICATIONS AND TERMINATION
A. No Compensation shall be paid on Covered Products that are changed
from their original version, either under a policy provision or
otherwise, or on Covered Products that are issued using cash values of
Insurance Company policies, either under a policy provision or
otherwise.
B. Except as otherwise provided in the Agreement, termination of the
Agreement for any reason shall not impair the right of the
Broker-Dealer to receive Compensation accrued and payable on account
of premium received under Covered Products issued on applications
procured by the Broker-Dealer, or by Registered Representatives
operating under supervision of the Broker-Dealer, prior to the
termination of the Selling Group Agreement.
<PAGE>
VI. APPLICABILITY
This Schedule supersedes and replaces any and all previous Schedules
of Commissions and Allowances.
By signing this Schedule, the Broker-Dealer and FUS agree to comply with its
terms.
BROKER-DEALER
Name of Broker-Dealer:
----------------------------------------------------
By: Date:
--------------------------------------------------------- --------
Title:
---------------------------------------------------------------------
FUS
By: Date:
------------------------------------------------- -----------------
Title:
----------------------------------------------------------------------
<PAGE>
HERE IS YOUR
ALLMERICA VARIABLE LIFE
INSURANCE POLICY
FROM ALLMERICA FINANCIAL
LIFE INSURANCE AND ANNUITY
COMPANY
PLEASE READ IT CAREFULLY
THIS FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY IS A LEGAL CONTRACT between
you (the owner) and Allmerica Financial Life Insurance Company. We will pay your
beneficiary the net death benefit when the person you are insuring dies, while
this policy is in force.
YOU MAY CHANGE THE AMOUNT of insurance as well as the payments you make. You may
direct your payments into an account that has a guaranteed minimum interest
rate, and into sub-accounts of an account that has a rate of return that will
vary. These two accounts are called the Fixed and Variable Accounts.
THE VALUE OF THE VARIABLE ACCOUNT MAY INCREASE OR DECREASE ACCORDING TO ITS
INVESTMENT RESULTS. FOR MORE DETAILS, PLEASE SEE THE VARIABLE ACCOUNT POLICY
VALUE PROVISION ON PAGE [14].
THE VALUE IN THE FIXED ACCOUNT will accumulate interest at a rate set by us
which will not be less than 4% a year.
THE AMOUNT OF THE DEATH BENEFIT AND THE LENGTH OF TIME THIS POLICY WILL REMAIN
IN FORCE MAY BE VARIABLE OR FIXED AS DESCRIBED IN THE DEATH BENEFIT PROVISIONS
BEGINNING ON PAGE [18] AND THE PROVISIONS BEGINNING ON PAGE [11].
SUMMARY:
- - FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- - ADJUSTABLE SUM INSURED
- - DEATH PROCEEDS PAYABLE AT DEATH OF INSURED
- - FLEXIBLE PREMIUMS PAYABLE TO THE FINAL PAYMENT DATE
- - COVERAGE TO THE FINAL PAYMENT DATE AND AMOUNT OF POLICY VALUE NOT GUARANTEED
- - NONPARTICIPATING
YOUR RIGHT TO EXAMINE THIS
POLICY
You have the right to void this policy by returning it to our Home Office at 440
Lincoln Street, Worcester, MA 01653, or to one of our authorized representatives
within ten days after receiving it.
If you return the policy, it will be void from the date of its issue, and you
will receive a refund equal to the total of:
- - the difference between any payments made, including fees or other charges,
and the amounts allocated to the Variable Account, AND
- - the value of the amounts in the Variable Account on the date the returned
policy is received at our Principal Office, AND
- - any fees or other charges imposed on amounts in the Variable Account.
President
Secretary
Allmerica Financial Life Insurance and Annuity
Company
Home Office: Dover, Delaware
Principal Office: 440 Lincoln Street
Worcester, MA
01653
1
<PAGE>
TABLE OF CONTENTS
Cover Page.....................................................................1
Specifications Page............................................................3
Riders/Endorsements............................................................3
Monthly Policy Charges.........................................................4
Important Definitions..........................................................8
General Terms..................................................................9
Information About You and the Beneficiary.....................................10
What You Should Know About the Premiums.......................................11
Information About the Value of Your Policy....................................12
What You Should Know About the Variable Account...............................14
What You Should Know About the Fixed Account..................................15
What You Should Know About Transfers..........................................16
If You Want to Borrow from Your Policy........................................17
Details on Surrenders and Partial Withdrawals.................................17
What You Should Know About the Death Benefit..................................18
Payment of Benefits...........................................................20
ALPHABETICAL INDEX
Addition, Deletion or Substitution
of Investments................................................................14
Allocation of Payments........................................................12
Assignment....................................................................10
Basis of Value of Fixed Account...............................................16
Beneficiary...................................................................10
Death Benefit.................................................................18
Decrease in Face Amount.......................................................20
Entire Contract................................................................9
Fixed Account.................................................................15
Fixed Account Policy Value....................................................15
Foreclosure...................................................................17
Grace Period..................................................................11
Increase in Face Amount.......................................................19
Lapse.........................................................................11
Loans on Policy...............................................................17
Misstatement of Age or Sex.....................................................9
Monthly Policy Charge..........................................................8
Net Investment Factor.........................................................14
Owner.........................................................................10
Partial Withdrawals...........................................................17
Payment Options...............................................................20
Policy Value..................................................................12
Postponement of Payment.......................................................18
Preferred Loan Option.........................................................17
Premiums......................................................................11
Protection of Benefits.........................................................9
Reinstatement.................................................................12
Right to Contest Policy........................................................9
Right to Examine...............................................................1
Suicide Exclusion..............................................................9
Surrender.....................................................................17
Transfers.....................................................................16
Valuation Dates and Periods...................................................14
Variable Account..............................................................14
Variable Account Policy Value.................................................14
2
<PAGE>
WHO IS INSURED AND FOR
HOW MUCH?
POLICY OWNER'S NAME: John Doe
INSURED'S NAME: John Doe
INSURED'S AGE AT ISSUE: 35
UNDERWRITING CLASS: Preferred Male Non-Smoker
POLICY NUMBER: VM00000001
INITIAL FACE AMOUNT: $50,000
DATE OF ISSUE: 11/15/1999
MONTHLY PROCESSING DATE: On the 15th day of each month
YOUR FINAL PAYMENT DATE: 11/15/2063
THE DEATH BENEFIT OPTION
YOU HAVE CHOSEN: Option 1
ADDITIONAL INSURANCE BENEFITS
[ OTHER INSURED RIDER ]
YOUR MAXIMUM PAYMENT
GUIDELINE SINGLE PREMIUM: $16,460.30
GUIDELINE LEVEL PREMIUM: $1,406.92
3
<PAGE>
THE CHARGES YOU WILL PAY
MONTHLY POLICY CHARGE: See pages [5], [12] and [13].
TRANSFER CHARGE: You may make 12 transfers in any policy year free of charge.
After 12 transfers, you may be charged up to $25 to transfer funds from one
account to another, see page [16].
VARIABLE ACCOUNT MORTALITY AND EXPENSE RISK CHARGE: You will be assessed a
charge each month not to exceed: (1) 1/12 of [0.75%] of the Variable Account
policy value for the mortality and expense risks assumed by us during the first
[120] months this policy is in force; (2) 1/12 of [0.50%] of the Variable
Account policy value for the mortality and expense risks assumed by us during
the next [120] months this policy is in force; and (3) 1/12 of [0.30%] on an
annual basis thereafter.
MINIMUM MONTHLY PAYMENT: A monthly factor of $33.79, used to determine if your
policy will lapse within 48 months of the date of issue; see page [11].
PARTIAL WITHDRAWAL TRANSACTION CHARGES: If you withdraw part of your funds, we
will deduct a 2% withdrawal transaction charge (maximum $25) from the policy
value each time you make a partial withdrawal.
4
<PAGE>
YOUR MONTHLY POLICY CHARGES ARE GUARANTEED NEVER TO GO HIGHER
THAN THE FOLLOWING:
<TABLE>
<CAPTION>
INSURANCE RATE INSURANCE RATE
AGE RATE PER $1000 AGE RATE PER $1000
<S> <C> <C> <C>
35 0.055 70 2.941
36 0.059 71 3.313
37 0.067 72 3.631
38 0.073 73 4.058
39 0.078 74 4.541
40 0.191 75 5.063
41 0.206 76 5.622
42 0.221 77 6.214
43 0.239 78 6.833
44 0.256 79 7.496
45 0.277 80 8.230
46 0.300 81 9.054
47 0.324 82 9.997
48 0.350 83 11.073
49 0.379 84 12.267
50 0.410 85 13.556
51 0.447 86 14.918
52 0.490 87 16.344
53 0.538 88 17.808
54 0.593 89 19.333
55 0.654 90 20.942
56 0.723 91 22.668
57 0.795 92 24.577
58 0.873 93 26.764
59 0.962 94 29.637
60 1.061 95 33.931
61 1.171 96 41.279
62 1.296 97 56.040
63 1.439 98 83.333
64 1.602 99 83.333
65 1.781
66 1.975
67 2.186
68 2.412
69 2.660
</TABLE>
5
<PAGE>
MINIMUM DEATH BENEFIT - OPTIONS 1 AND 2
GUIDELINE MINIMUM SUM INSURED TEST TABLE
<TABLE>
<CAPTION>
AGE PERCENTAGE AGE PERCENTAGE
<S> <C> <C> <C>
Thru 40 250% 60 130%
41 243% 61 128%
42 236% 62 126%
43 229% 63 124%
44 222% 64 122%
45 215% 65 120%
46 209% 66 119%
47 203% 67 118%
48 197% 68 117%
49 191% 69 116%
50 185% 70 115%
51 178% 71 113%
52 171% 72 111%
53 164% 73 109%
54 157% 74 107%
55 150% 75 thru 90 105%
56 146% 91 104%
57 142% 92 103%
58 138% 93 102%
59 134% 94 101%
95 -100 100%
</TABLE>
6
<PAGE>
MINIMUM DEATH BENEFIT - OPTION 3
CASH VALUE ACCUMULATION TEST TABLE
<TABLE>
<CAPTION>
AGE PERCENTAGE AGE PERCENTAGE
<S> <C> <C> <C>
35 435.21% 70 151.05%
36 419.38% 71 147.81%
37 404.15% 72 144.77%
38 389.54% 73 141.87%
39 375.48% 74 139.14%
40 361.95% 75 136.59%
41 350.08% 76 134.20%
42 338.66% 77 131.97%
43 327.66% 78 129.86%
44 317.08% 79 127.87%
45 306.88% 80 125.98%
46 297.07% 81 124.19%
47 287.63% 82 122.49%
48 278.55% 83 120.90%
49 269.81% 84 119.43%
50 261.40% 85 118.06%
51 253.30% 86 116.81%
52 245.52% 87 115.64%
53 238.06% 88 114.55%
54 230.91% 89 113.52%
55 224.05% 90 112.52%
56 217.49% 91 111.54%
57 211.22% 92 110.54%
58 205.21% 93 109.51%
59 199.45% 94 108.40%
60 193.93% 95 107.20%
61 188.66% 96 105.91%
62 183.62% 97 104.58%
63 178.81% 98 103.37%
64 174.23% 99 102.44%
65 169.87%
66 165.73%
67 161.79%
68 158.04%
69 154.46%
</TABLE>
7
<PAGE>
IMPORTANT DEFINITIONS
AGE means how old the insured is on the birthday closest to the policy
anniversary.
ASSIGNEE is the person to whom you have transferred your ownership of this
policy.
COMPANY means Allmerica Financial Life Insurance and Annuity Company, also
referred to as we, our and us. Our telephone number is 1-800-366-1492.
DATE OF ISSUE is stated on page 3 of the policy. Policy months, years and
anniversaries are measured from this date.
EARNINGS means the amount by which the policy value exceeds the sum of the
payments made less all partial withdrawals and partial withdrawal transaction
charges. Earnings are calculated on each monthly processing date.
EVIDENCE OF INSURABILITY is the information, including medical information, that
we use to decide the underwriting class for the person insured.
FACE AMOUNT is the amount of insurance you elect to buy in the application or
enrollment form. The face amount is shown on page 3 of the policy. The death
benefit is based on the face amount; see the Net Death Benefit provisions
beginning on page [18].
FINAL PAYMENT date is the policy anniversary nearest the insured's 100th
birthday. No payments may be made by you after this date.
INSURANCE PROTECTION AMOUNT is the death benefit minus the policy value.
MONTHLY POLICY CHARGE is the amount of money we deduct from the policy value
each month to pay for the insurance; see pages [12] and [13] for more details.
MONTHLY PROCESSING DATE is the date on which the monthly policy charge is
deducted from the policy value. This date is shown on page 3 of the policy.
OUTSTANDING LOAN means all unpaid policy loans plus interest due or accrued on
such loans.
POLICY CHANGE means any change in the face amount, the underwriting class, the
addition or deletion of a rider, or a change in the death benefit option.
POLICY VALUE is the sum of your values in the Variable Account and the Fixed
Account.
PREMIUM means a payment you must make to keep the policy in force.
PRINCIPAL OFFICE means our office located 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 policy value in each sub-account of the Variable Account and the unloaned
policy value in the Fixed Account have to the total unloaned policy value.
RIDER is an optional benefit, which may be added to your policy for an
additional charge.
SPECIFICATION PAGES contain information specific to your policy, and are located
after the Table of Contents in your policy.
SUB-ACCOUNTS are subdivisions of the Variable Account investing exclusively in
the shares of one or more Funds, which you chose for your initial allocations.
UNDERWRITING CLASS means the insurance risk classification that we assign to the
insured based on the information in the application or enrollment form and any
other evidence of insurability we obtain. The insured's underwriting class
affects the monthly policy charge and the amount of the payments required to
keep the policy in force.
WRITTEN NOTICE OF CLAIM means written notification of the death of the insured
received in the Principal Office of the Company.
WRITTEN REQUEST is a request you make in writing in a form which is satisfactory
to us and which is filed at our Principal Office.
YOU OR YOUR means the owner of this policy as shown in the application or in the
latest change filed with us.
8
<PAGE>
GENERAL TERMS
OUR RIGHT TO CONTEST THE POLICY IS LIMITED: A contest is any action taken by us
to cancel your insurance or deny a claim based on untrue or incomplete answers
in your application. We cannot contest the initial face amount of the policy if
it has been in force for two years from the date it is issued, and the insured
is alive at the end of this two-year period.
If the face amount is increased or the underwriting class is changed at your
request, we cannot contest the increase or change after it has been in force for
two years from its effective date and the insured is alive.
ENTIRE CONTRACT: This policy, with a copy of the application, any endorsements
and riders attached to it, is the entire contract between you and us. The entire
contract also includes: a copy of any application to increase the face amount or
to change to a better underwriting class; any new specification 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 policy
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 policy or
extend the time for paying premiums. Only our President, a Vice President or
Secretary may change the provisions of this policy, and then only in writing.
NONPARTICIPATING: No insurance dividends will be paid on this policy.
ADJUSTMENT OF COST FACTORS: We determine the monthly policy charge and Fixed
Account interest rates which are used to calculate the policy value, subject to
the guarantees noted in this policy. Any changes in these charges and rates will
be made by underwriting class only, and will be based on changes in our future
expectations for such things as: our investment earnings, our expenses, life
expectancy rates, and how many policy owners keep their policies.
SUICIDE EXCLUSION: If the insured, while sane or insane, commits suicide within
two years of the date this policy is issued, 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. If the face amount is increased at
your request, and then the insured commits suicide within two years, while sane
or insane, we will not pay the increased amount. Instead the beneficiary will
receive the monthly policy charges paid for this increase, plus any net death
benefit otherwise payable.
MISSTATEMENT OF AGE OR SEX: If the insured's age or sex is not correctly stated,
we will adjust the net death benefit we will pay. The amount will be:
- - the policy value, plus
- - the insurance protection amount that would have been purchased by the last
monthly policy charge using the correct age and sex.
No adjustment will be made if:
- - the insured dies after the final payment date; or
- - the underwriting class is unisex and there has been a misstatement of sex.
PROTECTION OF BENEFITS: To the extent allowed by law, the benefits provided by
this policy cannot be reached by the beneficiary's creditors. No beneficiary may
assign, transfer, anticipate or encumber the policy 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.
- - death benefit;
- - policy values in each sub-account and in the Fixed Account;
- - the value of the policy if you surrender it;
- - payments made by you and monthly deductions by us since the last report; and
- - outstanding loan and any other information required by law.
9
<PAGE>
INFORMATION ABOUT YOU AND THE BENEFICIARY
OWNER: The insured is the owner of this policy unless another person (which
could include a trust, corporation, partnership, etc.) is named as owner in the
application. The owner may change the ownership of this policy without the
consent of any beneficiary. Whenever the face amount of insurance is increased,
the insured must agree.
ASSIGNMENT: You may change the ownership of this policy by sending us a written
request. An absolute assignment will transfer ownership of the policy from you
to another person called the assignee.
You may also assign this policy 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 you signed it.
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 policy 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 to it.
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 policy. Unless you have asked otherwise, this policy's
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. 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 policy
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 PROVISION: The beneficiary must be alive 10 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, which the beneficiary must live after the insured's
death, may be changed by your written request. You may also cancel this
provision by written request.
10
<PAGE>
WHAT YOU SHOULD KNOW ABOUT THE PREMIUMS
PREMIUMS: This policy will not be in force until the first premium is paid to
us. Additional payments may be made to us at any time before the final payment
date. We reserve the right to obtain evidence of insurability, which is
satisfactory to us as a condition to accepting any premium, which would increase
the death benefit by more than the amount of the payment. Payments must be sent
either to our Principal Office or to our authorized representative.
If you request it in writing, we will send you a signed receipt after payment.
The payment amount, which must be paid to keep the policy in force, is described
in the Grace Period and Policy Lapse provision.
MAXIMUM PAYMENT LIMITS: We may limit the amount you pay to us in any policy year
if your death benefit option is either 1 or 2; see page [19]. This limit will
not be less than the guideline level premium; however, the sum of all payments
made from the issue date, minus any partial withdrawals, may not be more than
the greater of:
- - the guideline single premium, or
- - the sum of the guideline level premiums to the date of payment.
The guideline premium amounts are shown on page 3 of the policy. These premium
limitations will not apply if they prevent you from paying us enough to keep the
policy in force.
Guideline premiums are determined according to rules in the federal tax law, and
will be adjusted as that law changes.
If the maximum payment limit applies to this policy, the excess payment will be
applied first to the outstanding loan and we will then return any balance to
you.
PREMIUM GRACE PERIOD AND POLICY LAPSE: We will send you a notice if your
payments are not enough to keep the policy in force. Your policy will continue
for 62 days, which is the grace period.
The first day of the grace period is called the date of default. We will send
the notice to your last known address, or to the person you name to receive this
notice, showing the due date and the amount of premium you must pay to keep the
policy in force.
The date when the grace period begins and the amount you must pay depends on how
long the policy has been in force and whether there have been any increases in
the face amount.
Beginning on the date this policy is issued or the effective date of any
increase in the face amount, whichever is later, and continuing for the next 47
monthly processing dates, the grace period will begin when both the following
conditions occur:
- - the policy value less any outstanding loan is less than the amount needed to
pay the next monthly deduction; and
- - the sum of the payments made minus any outstanding loan, partial withdrawals
and partial withdrawal transaction charges since the latest of the following
three dates:
- the date this policy is issued, or
- the effective date of any increase in the face amount, or
- the date of any policy change which changes the minimum monthly payment,
is less than the accumulated minimum monthly payments to date.
11
<PAGE>
Thereafter, the grace period will begin if the policy value less any outstanding
loan on a monthly processing date is less than the amount needed to pay the next
monthly deduction plus any outstanding loan interest.
The minimum monthly payment, which is shown on page 4 of the policy, will change
if the policy is changed; it will be listed in new specification pages provided
to you.
The death benefit during the grace period will be reduced by any overdue
charges. The policy will lapse if the amount shown in the notice remains unpaid
at the end of the grace period. The policy terminates on the date of lapse.
REINSTATEMENT: If this policy has lapsed or foreclosed for failure to pay loan
interest, and has not been surrendered, it may be restored (called "reinstated"
in this policy) within three years after the date of default or foreclosure. We
will reinstate the policy 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, and
- - a payment large enough to keep the policy in force for three months.
You may repay or reinstate any outstanding loan on the date of default or
foreclosure.
Your reinstatement premium will be allocated to the Fixed Account until we
approve your application, at which time we will transfer the reinstatement
premium, plus accrued interest, as you directed in your most recent payment
allocation request.
The policy value on the reinstatement date is:
- - the payment to reinstate the policy, including the interest earned from the
date we received your payment; plus
- - an amount equal to the policy value less any outstanding loan on the default
date; less
- - the monthly deduction due on the rein-statement date.
INFORMATION ABOUT THE VALUE OF YOUR POLICY
PAYMENT AND ALLOCATION OF NEW PAYMENTS: Each payment made to us will be added to
the policy value. The policy value consists of all the money in the Variable
Account and the Fixed Account.
ALLOCATION OF PAYMENTS: If you make a payment with your application or at any
time before the date of issue, we will hold the payment in the Fixed Account as
of the day we receive it at our Principal Office. When the policy has been
issued, we will transfer any funds from the Fixed Account (which were not
allocated by you to the Fixed Account) as you directed in your application or by
later request. All payments received thereafter will be allocated in accordance
with your most recent payment allocation request. All percentage allocations
must be in whole numbers, with the total allocation to all selected accounts
equaling 100%. A processing charge of up to $25 may be made for changing the
payment allocation.
MONTHLY DEDUCTION: the monthly deduction is the sum of the following charges:
- - the monthly policy charges;
- - the mortality and expense risk charge shown on page 4 of the policy;
- - any monthly rider charge(s).
Monthly deductions are made on the date of issue and on each monthly processing
date until the final payment date. Thereafter, the mortality and expense risk
charge will be deducted on the monthly processing date for the life of the
insured.
You may choose one or more sub-accounts from which the monthly deduction will be
made. If you do not make a choice, we will deduct the monthly deduction
pro-rata. In the event any charge is greater than the value of a sub-account to
which it relates on a monthly processing date, the unpaid balance will be
12
<PAGE>
totaled and allocated pro-rata among the other sub-accounts of the Variable
Account.
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.
The monthly policy charge equals the sum of the charges that apply to:
- - the initial face amount, plus
- - each increase in the face amount.
We will determine the monthly policy charge each month. Any changes in this
charge will be made by underwriting class. If you decrease the face amount of
the policy, we will adjust the monthly policy charge according to the Benefit
Change provision on page [19].
The monthly policy charge for the initial face amount will not be more than (1)
multiplied by (2) where:
- - (1) is the insurance rate shown for the insured's age in the Table on
page 5; and
- - (2) is the initial face amount divided by 1,000.
For the purposes of this calculation, if one of the level death benefit options
(see page [18]) is in effect, the initial face amount will be reduced by the
policy value, minus charges for rider benefits at the beginning of the month,
but not less than zero.
If you increase the face amount, the monthly policy charge will not be more than
(3) multiplied by (4) where:
- - (3) is the insurance rate applicable to the increased face amount for the
insured's age; and
- - (4) is the amount of the increase in the face amount divided by 1,000.
For purposes of this calculation, "age" means how old the insured is on the
birthday closest to the anniversary of the effective date of the increase. If
one of the level death benefit options is in effect and the policy value is
higher than the initial face amount, the excess policy value, minus charges for
rider benefits at the beginning of the month, will be used to reduce any
increases in the face amount in the order in which the increases were issued.
If the death benefit is the minimum death benefit required for the policy to
qualify as life insurance under the federal tax law (see page [20]), the monthly
policy charge for the portion of the death benefit, which exceeds the face
amount (i.e., initial face amount plus any increases), will not be higher than
(5) multiplied by (6) divided by 1,000 where:
- - (5) is the insurance rate applicable to the initial face amount; and
- - (6) is the death benefit less:
- the greater of the face amount or the policy value if either of the level
death benefit options is in effect, or
- the face amount plus the policy value, if the Death Benefit Option 2 (see
page [20]) is in effect.
INSURANCE RATES: The cost of insurance rate includes an expense factor and a
mortality factor. The expense factor covers a portion of our acquisition and
distribution costs, tax and administrative expenses. The mortality factor is
based on the insured's:
- - age,
- - sex (unless this policy is issued in a unisex class as indicated on page 3 of
the policy),
- - underwriting class, and
- - face amount.
The guaranteed rates will be no greater than the:
- - the Commissioners 1980 Standard Ordinary Mortality Table, Male, Female, or
Table B for unisex risks , and
- - appropriate increases in such tables for rated risks.
The insurance rates actually charged will usually be lower than, and never will
be higher than, the guaranteed rates. We will review the actual insurance rates
for this policy whenever we change these rates for new policies. In any event,
rates will be reviewed not more often than once each year, but not less than
once in a five-year period.
13
<PAGE>
WHAT YOU SHOULD KNOW ABOUT THE VARIABLE ACCOUNT
VARIABLE ACCOUNT: The value of your policy 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 policies which are supported by this account will not be charged with
liabilities that come from any other business we conduct.
This account, which we established to support variable life insurance policies,
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. You will find a list in your application of the
sub-accounts in which you first chose to invest.
VARIABLE ACCOUNT POLICY VALUE: Payments made, which are allocated to the
sub-accounts, will purchase 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 date value is trans-ferred 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, policy loan, partial
withdrawal, transaction charges, monthly deduction or surrender allocated to the
sub-account. Any transaction described in (2) will result in the cancellation of
a number of units, which are equal in value. On each valuation date we will
value the assets of each sub-account in which there has been activity. The
policy value in a sub-account at any time is equal to the number of units this
policy 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. This factor is equal to 1.00
plus the result from dividing (a) by (b) where:
- - (a) is the investment income of the sub-account for the valuation period,
plus capital gains, realized or unrealized, credited during the valuation
period; minus capital losses, realized or unrealized, charged during the
valuation period; adjusted for provisions made for taxes, if any; and
- - (b) is the value of that sub-account's assets at the beginning of the
valuation period
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 in which 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 SUBSTITUTION OF INVESTMENTS: We may not change the
investment policy of the Variable Account without the approval of the Insurance
Commissioner of Delaware. This approval process is on file with the Commissioner
of your state.
14
<PAGE>
We reserve the right, subject to compliance with applicable law to add to,
delete from, or substitute for the shares of a Fund that are held by the
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 eligible 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. However, this will not 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 if
holders request it.
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 policy by written notice to reflect the
substitution or change. If we think it is in the best interests of our policy
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 the
registration is no longer required. We may also combine it with other separate
accounts.
FEDERAL TAXES: If we must pay taxes on the Variable Account, we will charge you
for that tax. Although the account is not now taxable, we reserve the right to
make a charge for taxes if the account becomes taxable.
SPLITTING OF UNITS: We reserve the right to split the value of a unit, either to
increase or decrease the number of units. Any splitting of units will have no
material effect on policy benefits.
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 RATES: The interest rate credited to policy value in the
Fixed Account is set by us but is guaranteed never to be less than 4%. We will
review the non-guaranteed 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 day we receive your payment at our
Principal Office is guaranteed until the next policy anniversary unless you
borrow money from that policy 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 policy anniversary unless you borrow from that policy value.
- - the interest rate in effect on a policy anniversary is guaranteed for one
year for those policy values in the Fixed Account on the policy anniversary
so long as those values remain in the Fixed Account and are not borrowed.
FIXED ACCOUNT POLICY VALUE: On each monthly processing date, the policy value of
the Fixed Account is:
- - the policy 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 which are allocated
to the Fixed Account plus the interest accrued from the date the payments are
received by us, plus
- - Variable Account policy value transferred to the Fixed Account from any
sub-accounts
15
<PAGE>
since the preceding monthly processing date, increased by interest from the
date the policy value is transferred, minus
- - policy 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 and partial withdrawal
transaction charges since the last monthly processing date, interest
accrued on these withdrawals and charges from the withdrawal date to the
monthly processing date, minus
- - any transaction charges allocated to the Fixed Account for any changes in the
face amount since the last monthly processing date and interest accrued on
such charges to the monthly processing date, minus
- - the portion of the monthly deduction allocated to the policy value in the
Fixed Account.
During any policy month the Fixed Account policy value will be calculated on a
consistent basis.
BASIS OF VALUE OF THE FIXED ACCOUNT: We base the minimum surrender value in the
Fixed Account on mortality no greater than the Commissioners 1980 Standard
Ordinary Mortality Table, Male, Female or Table B for unisex risks (or
appropriate increases in such tables for rated risks) with interest at 4% each
year, compounded annually.
Actual policy values are based on interest and insurance 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 policy is delivered.
WHAT YOU SHOULD KNOW ABOUT TRANSFERS
You may transfer amounts between the Fixed Account and the sub-accounts or among
sub-accounts, on request.
You may transfer, without charge, all or part of the policy value in the
Variable Account to the Fixed Account once during the first 24 months after the
policy is issued, and once during the first 24 months after you have increased
the face amount 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 policy year, and to set other reasonable rules controlling transfers.
If a transfer would reduce the policy 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 12 transfers in a policy year, but a
transfer charge of up to $25 may be made on each additional transfer. Transfers
that result from a policy loan or repayment of a loan are not subject to these
rules.
16
<PAGE>
IF YOU WANT TO BORROW FROM YOUR POLICY
Your policy will be the security for the loan.
AMOUNT YOU MAY BORROW: The total amount you may borrow is the loan value. The
loan value is 90% of the policy value .
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 policy value in
each sub-account equal to the policy loan allocated to each sub-account to the
Fixed Account.
LOAN INTEREST: Interest is due on policy loans. Except as otherwise provided in
the Preferred Loan Option, the current rate of interest is [4.8%] and is
guaranteed not to exceed 6%. Interest accrues daily, and is payable at the end
of each policy 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 policy 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 pro rata 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 LOAN: You may repay the outstanding loan at any time
before this policy lapses. When you repay it, we will transfer the policy value
securing the loan that is in the Fixed Account to the various sub-accounts and
increase the value in them. You may tell us how to allocate repayments, but if
you do not, we will 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 from it to secure the
outstanding loan.
FORECLOSURE: If at any time your policy value less any outstanding loan is
insufficient to cover the monthly deduction, we will terminate the policy. 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 policy will terminate with no value. You may reinstate
this policy according to the Reinstatement provision on page [12].
PREFERRED LOAN OPTION: This option may be revoked by you at any time. While this
option is in effect, the current annual interest rate charged to that portion on
the policy loan that is secured by earnings will be 4%. This annual interest
rate is guaranteed not to exceed 4.5%.
DETAILS ON SURRENDER AND PARTIAL WITHDRAWALS
SURRENDER: You may cancel this policy and receive its surrender value as long as
the insured is living on the date we receive your written request in our
Principal Office. The policy 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 policy value minus any
outstanding loan.
PARTIAL WITHDRAWALS: Partial withdrawals are not allowed during the first policy
year. After the first policy year, you may withdraw up to 90% of the surrender
value on written request. Each partial withdrawal must be at least $500. We will
deduct a 2% partial withdrawal transaction charge (maximum $25) from the policy
value each time you make a partial withdrawal.
If you elected one of the Level Death Benefit Options, the face amount and
policy value will be reduced by the amount of the partial withdrawal, and the
policy value will be further reduced by the partial withdrawal transaction
charge. The face amount will be decreased in the following order:
- - first, the most recent increase,
- - second, the next most recent increases in succession, and
- - last, the initial face amount.
17
<PAGE>
If you elected the Death Benefit Option 2, the policy value will be reduced by
the amount of the partial withdrawal and the partial withdrawal transaction
charge.
We will not permit a partial withdrawal if it reduces the face amount to less
than $40,000.
If you do not allocate a partial withdrawal and the partial withdrawal
transaction charge among the Fixed Account and each sub-account, we will
allocate that amount pro rata.
POSTPONEMENT OF PAYMENT: We may postpone any transfer from the Variable Account
or payment of any amount payable on:
- - surrender,
- - partial withdrawal,
- - transfer,
- - policy loan, or
- - death of the insured.
The postponement will continue during any period when:
- - trading on the New York Stock Exchange (NYSE) is restricted as determined by
the SEC, or the NYSE is closed for days other than weekends and holidays, or
- - the SEC by order has permitted such suspension, or
- - the SEC has determined that such an emergency exists that disposal of
portfolio securities or valuation of assets is not reasonably practical.
We may also postpone any transfer from the Fixed Account or payment of any
portion of the amount payable on surrender, partial withdrawal or policy loan
from the Fixed Account for not more than six months from the day we receive your
written request and, if it is required, your policy. 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 pay premiums on our policies.
WHAT YOU SHOULD KNOW ABOUT THE DEATH BENEFIT
NET DEATH BENEFIT: If the insured dies on or before the final payment date, we
will pay the net death benefit. The amount of the net death benefit depends on
which death benefit option is in effect on the date of death (There are three
death benefit options, which are described later). We will deduct from the death
benefit any outstanding loan, and monthly deductions due and unpaid through the
policy month in which the insured dies, as well as any partial withdrawals and
partial withdrawal transaction charges.
If the insured dies after the final payment date, we shall pay the policy value
minus any outstanding loan as of the date we receive written notice of claim.
Except as otherwise provided, we will pay interest from the date the insured
dies to the date the net death benefit is paid. If you choose a lump sum
payment, the interest rate will be at least 3% a year, or the minimum rate set
by law, whichever is greater. If the Death Benefit Option 2 is in effect on the
date of the insured's death, we will begin calculating interest on the policy
value portion of the net death benefit on the date we receive written notice of
claim.
DEATH BENEFIT OPTIONS: You have three options for determining the amount of the
death benefit. The option you elected in your application is shown on page 3 of
the policy.
There are two level death benefit options: Death Benefit Option 1 and 3.
Under the level death benefit options, the death benefit is:
- - the face amount, or
- - the minimum death benefit, whichever is greater.
Under the Death Benefit Option 2, the death benefit is:
18
<PAGE>
- - the face amount plus the policy value on the date we receive written notice
of claim (we will refund monthly deductions from the policy value after the
insured's date of death), or
- - the minimum death benefit, whichever is greater.
REQUIRED MINIMUM AMOUNT OF DEATH BENEFIT: In order to qualify as "life
insurance" under the federal tax law, this policy must provide a minimum death
benefit. The minimum death benefit is obtained by multiplying the policy value
by a percentage shown in the applicable Minimum Death Benefit Table for the
insured's attained age and death benefit option. For the Death Benefit Options 1
and 2, the table used is the Guideline Minimum Sum Insured Table. This table is
determined according to the guideline minimum sum insured test set forth in the
Federal tax laws.
For the Death Benefit Option 3, the Cash Value Accumulation Table is used. This
table is calculated to conform to the Cash Value Accumulation test set forth in
the federal tax laws.
The minimum death benefit will be determined as of the date of death. The
minimum death benefit will be adjusted to conform to any changes in the tax law.
DEATH BENEFIT OPTION CHANGES: If you have selected Death Benefit Option 3, you
are not permitted by law to change your death benefit option. You may change
your death benefit option only if you have selected either Death Benefit
Options 1 or 2.
You may change the death benefit option by written request. Evidence of
insurability may be required for a death benefit option change. The change will
be made on the next monthly processing date after we approve your request.
You may not change your death benefit option more than once in any policy year
or if the change reduces the face amount to less than $50,000.
If you change from Death Benefit Option 1 to the Death Benefit Option 2, the
face amount under the Death Benefit Option 2 will be equal to the death benefit
under the Death Benefit Option 1, minus the policy value on the date of change.
If you change from the Death Benefit Option 2 to the Death Benefit Option 1, the
face amount will be equal to the death benefit under the Death Benefit Option 2
on the date of change.
BENEFIT CHANGE: You may increase or decrease the face amount of insurance if you
make a written request during the insured's lifetime.
You may not change the face amount if it does not meet the minimum death benefit
requirement set by federal tax law.
INCREASE: To increase the face amount:
- - you must complete our application and provide us with evidence of
insurability; and
- - the insured must be under our maximum issue age for new insurance; and
- - the insured must be approved by us according to our underwriting rules; and
- - you must pay the amount which is necessary to keep the policy in force for
three months if the policy value is less than this amount.
This increased face amount will become effective on the first monthly processing
date on or following the date that all the conditions are met. We will provide
you new specification pages, including a Supplemental Insurance Charge Table.
These pages will include the following information:
- - effective date of the increase,
- - amount of the increase,
- - underwriting class,
- - monthly policy charges for the increase,
- - new minimum monthly payment, and
- - new guideline premiums.
We reserve the right to set a limit on the minimum amount of an increase in the
face amount. No increase may be less than our minimum limit in effect on the
date we receive your request.
You may return the new specification pages to us within ten days after receiving
them. If you return these pages, we will consider the increase void from the
beginning. We will add the charges back to the policy value unless you request
otherwise.
19
<PAGE>
DECREASE: You may decrease the face amount of the policy at any time. It will be
effective on the first monthly processing date after we receive your written
request.
The face amount will be decreased or eliminated in the following order:
- - first, the most recent increase,
- - second, the next most recent increases in succession, and
- - last, the initial face amount.
We will provide you with new specification pages. These pages will include the
following information:
- - effective date of the decrease,
- - amount of the decrease and the face amount remaining in force,
- - new minimum monthly payment, if any, and
- - new guideline premiums.
You may not decrease the face amount to less than our minimum issue limit for
this type of policy. We reserve the right to establish a minimum limit on the
amount of any decrease.
PAYMENT OF BENEFITS
PAYMENT OPTIONS: Upon written request, the surrender value or all or part of the
net death benefit may be placed under one or more of the payment options offered
by us at the time the request is made. If you make no election, we will pay the
benefit in a lump sum. A certificate will be provided to the payee describing
the payment option selected.
If a payment option is selected, the beneficiary, when filing proof of claim,
may pay us any amount that otherwise would be deducted from the net death
benefit.
The amounts payable under these options are paid from the General Account. The
options are not based on the investment experience of the Variable Account.
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 Owner and Beneficiary provisions, you may change any option
selection before the net death benefit becomes payable. If you make no
selection, the beneficiary may select an option when the proceeds become
payable.
SUMMARY:
- - FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- - ADJUSTABLE SUM INSURED
- - DEATH PROCEEDS PAYABLE AT DEATH OF INSURED
- - FLEXIBLE PREMIUMS PAYABLE TO THE FINAL PAYMENT DATE
- - COVERAGE TO THE FINAL PAYMENT DATE AND AMOUNT OF POLICY VALUE NOT GUARANTEED
- - NONPARTICIPATING
20
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
WAIVER OF PAYMENT RIDER
This rider is a part of the policy to which it is attached if it is shown in the
specification pages of the policy. The insured under the policy is the insured
under this rider.
BENEFIT - While the insured is totally disabled, we will add to the policy value
the waiver of payment benefit. This benefit is the larger of:
- - the amount shown in the specifications page; or
- - the minimum monthly payment for the face amount covered by this rider
during a period when the minimum monthly payment applies; or
- - the monthly insurance charges applicable to the face amounts and other
riders covered by this rider.
The waiver of payment benefit is subject to:
- - our receipt of due proof of such total disability; and
- - evidence the total disability:
- began while this rider was in force; and
- began before the policy anniversary
nearest age 65; and
- has continued for at least 4 months; and
- - the other terms and conditions of this rider.
The benefit will begin with the policy month following the date total disability
begins or the policy anniversary nearest age 5, if later. The benefit will not
be provided for any period more than one year prior to the date we receive
written notice of claim. We will credit the policy value with any benefit which
applies to the time during which benefits are payable.
Each monthly benefit will be allocated in accordance with the payment allocation
in effect on the date each benefit is credited to the policy value.
If the insured's total disability occurs before the policy anniversary nearest
age 60, the benefit will end when total disability ends. If the total disability
occurs on or after the policy anniversary nearest age 60, the benefit will
continue during such total disability but not beyond the policy anniversary
nearest age 65 or two years, whichever is longer.
Benefits will cease on the next monthly processing date following the end of a
period of total disability.
DEFINITIONS OF TOTAL DISABILITY - Total disability means the insured is unable
to engage in an occupation as a result of disease or bodily injury. "Occupation"
means attendance at school if the insured is not old enough to legally end his
or her formal education. Otherwise "occupation" means:
- - during the first 60 months of disability, the occupation of the insured
when such disability began; and
- - thereafter, any occupation for which the insured is or becomes reasonably
fitted by training, education or experience.
Total loss of the following as a result of disease or bodily injury shall be
deemed total disability:
- - speech;
- - hearing in both ears; or
- - the sight of both eyes; or
- - the use of both hands; or
- - the use of both feet; or
- - the use of one hand and one foot.
RISKS NOT COVERED - No benefit will be provided if total disability results,
directly or indirectly, from:
- - an act of war, whether such war is declared or undeclared, and the insured
is a member of the armed forces of a country or combination of countries;
or
- - any bodily injury occurring or disease first manifesting itself prior to
the date of issue of this rider. However, no claim for total disability
commencing after two years from the date of issue will be denied on the
ground that the disease or impairment not excluded from coverage by name or
specific description existed prior to the date of issue of this rider.
NOTICE AND PROOF OF CLAIM - Written notice of claim must be sent to our
Principal Office:
- - during the lifetime of the insured; and
- - while the insured is totally disabled; and
- - not later than 12 months after this rider terminates.
FORM 1074-86 1
<PAGE>
Proof of claim must be sent to our Principal Office within 6 months of the
notice of claim. Failure to give notice and proof within the time required will
not void or reduce any claim if it can be shown that notice and proof were given
as soon as was reasonably possible.
Proof of continued total disability must be furnished at our request. Failure to
do so will end the benefit. Such proof will include an authorization to disclose
facts concerning the insured's health, and may include medical exams of the
insured conducted by physicians chosen by us. Such medical exams will be at our
expense. After total disability has continued for 24 months, proof will not be
required more than once a year, nor after the policy anniversary nearest age 65.
BENEFIT CHANGES - The benefit may be changed on written request. Any increase is
subject to:
- - evidence of insurability;
- - the insured must be under age 60 and insurable according to our
underwriting rules; and
- - payment to us of the amount needed to keep the policy in force if the
surrender value is less than all charges due on the policy.
No increases, when added to the existing benefit, shall exceed the following
limits:
MAXIMUM BENEFIT TABLE
<TABLE>
<CAPTION>
MONTHLY BENEFIT
ATTAINED PER $1,000
AGE FACE AMOUNT
<S> <C> <C>
0-19 $1.00
20-29 1.25
30-39 2.00
40-49 3.00
50-54 4.00
55 and above 5.50
</TABLE>
The waiver of premium benefit will be reduced if it exceeds the maximum benefit
after the face amount of the policy is reduced. The monthly benefit may not
exceed the amount shown in the Maximum Benefit Table.
The effective date of the changed benefit will be the first monthly processing
date on or after the date all conditions are met. The changed benefit will be
shown in a supplementary specifications page. The charges for an increased
benefit will be shown in a Supplemental Insurance Charge Table if the insured's
underwriting class changes.
INCONTESTABILITY - Except for failure to pay the monthly insurance charges, this
rider cannot be contested after the end of the following time periods:
- - the initial benefit cannot be contested after the rider has been in force
during the insured's lifetime and without the occurrence of the total
disability of the insured for two years from the date of issue; and
- - an increase in the benefit cannot be contested after the increased benefit
has been in force during the insured's lifetime and without the occurrence
of the total disability of the insured for two years from its effective
date.
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 maturity of the policy; or
- - the day before the policy anniversary nearest age 65, except as provided in
the Benefit provision; or
- - the end of the policy month following a request for termination.
RIDER CHARGE- Charges for this rider are paid as a part of the monthly insurance
charges due under the policy.
The monthly charge is the waiver charge shown in the Insurance Charge Table
multiplied by the greater of:
- - the monthly insurance charges applicable to the face amount and other
riders covered by this rider; or
- - one-half of the waiver of payment benefit shown in specifications page.
FORM 1074-86 2
<PAGE>
Signed for the Company at Dover, Delaware
Secretary President
FORM 1074-86 3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
OTHER INSURED TERM INSURANCE RIDER
This rider is a part of the policy to which it is attached if it is shown in the
specifications pages of the policy. The insured under the policy is the insured
under this rider. "Other insured" is each person other than the insured who is
insured under this rider.
BENEFIT
BENEFIT - We will provide the term insurance on the life OF each "other insured"
for whom an "other insured" specifications page is issued. We will pay the term
insurance benefit upon receipt of due proof that an "other insured" died prior
to his or her term insurance expiry date while this rider is in force. Unless
otherwise requested, the term insurance benefit will be paid to you.
An Other Insured Specifications Page shows for each "other insured":
- - the name and age;
- - the term insurance benefit;
- - the effective date oF the term insurance; and
- - the term expiry date.
BENEFIT CHANGE PROVISIONS
CHANGE PROVISIONS - You may change the amount of term insurance with respect to
each "other insured" if such request is made:
- - during the lifetime of the "other insured"; and
- - on written request while this policy is in force.
INCREASE - To increase the amount of term insurance, you and the "other insured"
must complete the application and provide us with the following:
- - evidence of insurability;
- - the "other insured" must be under age 81; and
- - the "other insured" must be approved by us according to our underwriting
rules;
- - you must pay us a $50 transaction charge, plus the amount needed to keep
the policy in force if the surrender value is less than this amount.
The increased amount of term insurance will become effective on the first
monthly processing date on, or following, the date all the conditions are met. A
supplemental Other Insured specifications page will be issued.
This page will include the following information:
- - the name of the "other insured";
- - the effective date of the increased term insurance;
- - the amount of the increase in the term insurance, and
- - minimum monthly payment guideline premiums and charges.
No increase may be less than our minimum limit in effect on the date of the
request.
DECREASE - You may decrease the amount of term insurance on an "other insured"
at any time. It will be effective on the monthly processing date after we
receive your written request. Such term insurance will be decreased or
eliminated in the following order:
- - first, the most recent increase;
- - second, the next most recent increases successively; and
- - last, the original amount of term insurance.
A supplemental Other Insured Specifications Page issued will include the
following information:
- - the name of the "other insured";
- - the effective date of the decrease; and
- - the amount of the decrease and the benefit remaining in force.
Term insurance on an "other insured" may not be reduced to less than our minimum
issue limit.
We reserve the right to establish a minimum limit for the amount of any
decrease.
FORM 1088-95 1
<PAGE>
CONVERSION
CONVERSION - You may convert the insurance on the life of an "other insured" if
such request is made:
- - prior to the "other insured's" age 71;
- - while the "other insured" is alive; and
- - while this rider is in force.
Evidence of insurability will not be required.
NEW POLICY DESCRIPTION - The new policy will be a flexible premium variable life
insurance policy. The new policy will be issued:
- - on the life of the "other insured" only;
- - for the same underwriting clasS which applies to the "other insured" under
this rider; and
- - at the "other insured's" age and for the insurance rates in use on the date
oF issue oF the new policy.
The date of issue of the new policy will be the monthly processing date
following the date conversion is requested and the first premium is paid. Term
insurance for the "other insured" ends when coverage under the new policy
begins.
The net death benefit may not be less than our minimum issue limit. The net
death benefit may not exceed the term insurance benefit in effect on the date
conversion is requested.
Riders will be available on the new policy subject to evidence of insurability
and our consent. The time periods of the suicide and incontestability provisions
of the new policy will expire on the same date as such provisions in this rider
would have expired. The new policy will be subject to any assignments
outstanding against this rider.
GENERAL
OWNER - You are the owner of this rider. However, if you are the insured and at
the time of your death there is no contingent owner named, each "other insured"
will become the owner of the term insurance on his or her life.
CONVERSION FOLLOWING INSURED'S DEATH - If the insured dies while the policy and
rider are in force, the owner may convert any "other insured" insurance within
90 days after the insured's death.
Conversion is subject to the conversion provisions. Term insurance will continue
on the life of each covered "other insured" during the conversion period. This
term insurance will begin on the date of the insured's death and will end on the
first to occur of:
- - the expiration of the conversion period; or
- - the date of issue of the conversion policy.
OUR RIGHT TO CONTEST THE RIDER IS LIMITED - We cannot contest the initial term
insurance benefit if this rider has been in force for two years from the date it
is issued, and the "other insured" is alive at the end of this two-year period.
If the term insurance benefit is increased or the underwriting class is changed
at your request, we cannot contest the increase or change after it has been in
force for two years from its effective date and the "other insured" is alive.
SUICIDE EXCLUSION - If an "other insured", while sane or insane, commits suicide
within two years of the date this rider is issued, we will not pay a death
benefit. The beneficiary will receive only the total amount of payments made to
us for this rider. If the term insurance benefit is increased at your request,
and then an "other insured" commits suicide within two years, while sane or
insane, we will not pay the increased amount. Instead the beneficiary will
receive the charges paid for this increase, plus any net death benefit otherwise
payable.
MISSTATEMENT OF AGE - If the age of an "other insured" is not correctly stated,
we will adjust the amount we will pay under this rider the amount will be the
term insurance benefit that would have been purchased by the last monthly charge
for this rider using the correct age.
CHARGES - Charges for this rider are paid as a part of the monthly insurance
charge due under the policy.
FORM 1088-95 2
<PAGE>
The maximum charges for each "other insured" are shown in each "Other lnsured's"
Specifications Page or pages. There may be no more than five "other insured's"
under this rider.
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 maturity of the policy; or
- - the monthly processing date following a request for termination.
Term insurance for each "other insured" will terminate on that "other insured's"
term expiry date.
GENERAL - The specifications pages (page 3 or 3.1 of the policy) will show the
date of issue of this rider.
Except as otherwise provided, all conditions and provisions of the policy apply
to this rider.
Signed for the Company at Dover, Delaware
Secretary President
FORM 1088-95 3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
GUARANTEED DEATH BENEFIT RIDER
This rider is a part of the policy to which it is attached if it is listed in
the specifications page. The rider is issued in consideration of the payment of
the amount shown in the specifications page.
While this rider is in effect, the policy will not lapse if the following tests
are met:
1. Within 48 months following the date this policy is issued and the effective
date of issue of any increase in the face amount, the sum of your payments
less any outstanding loans, partial withdrawals and partial withdrawal
transaction charges is greater than the minimum monthly payment multiplied
by the number of months which have elapsed since that date; and
2. On each policy anniversary, (a) must exceed (b) where, since the date this
policy was issued:
a) is the sum of your payments less any partial withdrawals, partial
withdrawal transaction charges and any outstanding loan which is
classified as a preferred loan; and
b) is the sum of the minimum guaranteed death benefit payments. The
minimum guaranteed death benefit payment amount is shown on the
specifications page or on a new specifications page in the event of a
policy change. The minimum guaranteed death benefit payment will be
prorated in any year in which there is a policy change.
If the policy value is less than the monthly deduction, the entire policy value
will be applied to this charge.
If this rider is in effect on the final payment date, a death benefit will be
provided while this rider remains in force. The death benefit will be the face
amount as of the final payment date or the policy value as of the date due proof
of death is received by the Company, whichever is greater. Monthly insurance
charges will not be deducted after the final payment date if the policy
qualifies for the Guaranteed Death Benefit.
The Guaranteed Death Benefit will end and may not be reinstated on the first to
occur of the- following:
1. Foreclosure of an outstanding loan; or
2. The date on which the sum of your payments does not meet or exceed the
applicable Guaranteed Death Benefit test; or
3. Any policy change that results in a negative guideline level premium; or
4. The effective date of a change from the Death Benefit Option 2 to Option 1
if such change occurs within 5 policy years of the final payment date; or
5. A request for a preferred loan is made after the final payment date.
It is possible that the policy value will not be sufficient to keep the policy
in force on the first monthly processing date following the date this rider
terminates. The net amount payable to keep the policy in force will never exceed
three monthly deductions.
FORM 1099-97 1
<PAGE>
Signed for the Company at Dover, Delaware
Secretary President
FORM 1099-97 2
<PAGE>
FORM
EVERGREEN VARIABLE ANNUITY TRUST
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this ____ day of __________, 1999 between
EVERGREEN VARIABLE ANNUITY TRUST, an open-end management investment company
organized as a Delaware business trust (the "Trust"),
and________________________, a life insurance company organized under the laws
of the State of __________ (the "Company"), on its own behalf and on behalf of
each segregated asset account of the Company set forth on Schedule A, as may be
amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and the offer and sale of its shares are registered under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has obtained an order from the Securities and Exchange
Commission ("Commission") granting Participating Insurance Companies and their
separate account(s) exemptions from the provisions of Section(s) 9(a), 13(a),
15(a) and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Trust to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and nonaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Trust Exemptive Order"); and
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies and/or variable annuity contracts
identified by the form number(s) listed on Schedule A, as may be amended from
time to time (the "Contracts"); and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
1
<PAGE>
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company on the date shown for that Account on Schedule A, to set aside and
invest assets attributable to the Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios at net
asset value on behalf of each Account to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I
Sale of Trust Shares
1.1. The Trust shall make shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. Shares of a particular
Portfolio of the Trust shall be ordered in such quantities and at such times as
determined by the Company to be necessary to meet the requirements of the
Contracts. The trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person or suspend or terminate the offering of shares of
any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, necessary and in the best interest of the shareholders of such
Portfolio.
1.2. The Trust will redeem any full or fractional shares of any Portfolio
when requested by the Company on behalf of an Account at the net asset value
next computed after receipt by the Trust (or its agent) of the request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Trust. The Trust shall make payment for such shares in the
manner established from time to time by the Trust, but in no event shall payment
be delayed for a greater period than is permitted by the 1940 Act.
1.3. For the purposes of Sections 1.1. and 1.2., the Trust hereby
appoints the Company as its agent for the limited purpose of receiving and
accepting purchase and redemption orders resulting from investment in and
payments under the Contracts. Receipt by the Company shall constitute receipt by
the Trust provided that: (a) such orders are received by the Company in good
order prior to the close of the regular trading session of the New York Stock
Exchange, and (b) the Trust receives notice of such orders by 9:30 a.m., New
York time, on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value.
1.4. Purchase orders that are transmitted to the Trust in accordance with
Section 1.3. shall be paid for on the same Business Day that the Trust receives
notice of the order. Payments shall be made in federal funds transmitted by
wire.
2
<PAGE>
1.5. The Trust shall furnish prompt notice to the Company of any income
dividends or capital gain distributions payable on shares of any Portfolio. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of
that Portfolio. The Trust shall notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.6. The Trust shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7:00 p.m., New
York time.
1.7. The Trust agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified pension
and retirement plans to the extent permitted by the Shared Trust Exemptive
Order. No shares of any Portfolio will be sold directly to the general public.
The Company agrees that the Trust shares will be used only for the purposes of
funding the Contracts and Accounts listed in Schedule A, as amended from time to
time.
1.8. The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.12. and
Article IV of this Agreement.
ARTICLE II
Obligations of the Parties
2.1. The Trust shall bear the costs of registering and qualifying the
Trust's shares, and of preparing and filing the Trust's prospectus, registration
statement, Trust sponsored proxy materials (or similar materials such as voting
instruction solicitation materials), reports to shareholders, and all statements
and notices required by federal or state law. The Trust shall pay all taxes on
the issuance and/or transfer of the Trust's shares.
2.2. The Trust shall bear the printing costs (or duplicating costs with
respect to the statement of additional information) associated with distributing
the Trust's current prospectus, statement of additional information, annual
report, semi-annual report, Trust sponsored proxy material or other shareholder
communications, including any amendments or supplements to any of the foregoing,
to the extent required to be provided by the Trust to its then-current
shareholders. The Trust shall also bear the mailing costs associated with
distributing Trust sponsored proxy material. The Trust shall not bear any costs
of preparing, printing, recording, taping or disseminating sales literature or
other promotional materials or the costs of printing and mailing prospective
Contract owners copies of the Trust's prospectus, statement of additional
information, periodic reports or other printed materials.
3
<PAGE>
2.3. The Trust shall provide the Company (at the Company's expense) with
as many copies of the Trust's current prospectus as the Company may reasonably
request for distribution to prospective purchasers of Contracts. If requested by
the Company in lieu thereof, the Trust shall provide such documentation
(including a final copy of the current prospectus as set in type at the Trust's
expense) and other assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the prospectus for the Trust is
amended) to have the prospectus for the Contracts and the Trust's prospectus
printed together in one document (at the Company's expense).
2.4. The Company will bear the costs of registering and qualifying the
Accounts for sale, printing (or duplicating costs with respect to the statement
of additional information) and mailing costs associated with the delivery of the
Accounts' current prospectuses and statements of additional information, private
placement memoranda, annual and semi-annual reports, Contracts, Contract
applications, sales literature or other promotional material, Account sponsored
proxy materials and voting solicitation instructions.
2.5. The Company will bear the responsibility and correlative expense for
administrative and support services for Contract owners. The Trust recognizes
the Company as the sole shareholder of shares of the Trust issued under this
Agreement.
2.6. The Company agrees and acknowledges that one of the Trust's
advisers, Evergreen Asset Management Corp. ("Evergreen Asset"), is the sole
owner of the name and mark "Evergreen" and that all use of any designation
comprised in whole or in part of Evergreen (an "Evergreen Mark") under this
Agreement shall inure to the benefit of Evergreen Asset. Except as provided in
Section 2.6., the Company shall not use any Evergreen Mark on its own behalf or
on behalf of the Accounts or Contracts in any registration statement,
advertisement, sales literature or other materials relating to the Accounts or
Contracts without the prior written consent of Evergreen Asset. Upon termination
of this Agreement for any reason, the Company shall cease all use of any
Evergreen Mark(s) as soon as reasonably practicable.
2.7. The Company shall furnish, or cause to be furnished, to the Trust or
its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or its investment advisers are named prior to the
filing of such document with the Commission. The Company shall also furnish, or
shall cause to be furnished, to the Trust or its designee, each piece of sales
literature or other promotional material including private placement memoranda,
in which the Trust or its investment advisers are named, at least fifteen
Business Days prior to its use. No such material shall be used if the Trust or
its designee reasonably objects to such use within fifteen Business Days after
receipt of such material.
2.8. The Company will provide to the Trust at least one complete copy of
each report, solicitation for voting instructions, application for exemption,
request for no-action relief, and any amendment to any of the above (or any
amendment to the registration statement, prospectus, statement of additional
information, piece of sales literature or other promotional material)
4
<PAGE>
that relates to the Contracts or the Account, contemporaneously with the filing
of the document with the Commission, the NASD, or other regulatory authorities.
2.9. For purposes of this Article II, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements,
newspapers, magazines, or other periodicals, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media, sales literature (i.e., any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters,
shareholder newsletters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
statements of additional information, shareholder reports and proxy materials.
2.10. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust or
its investment advisers in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
annual and semi-annual reports of the Trust, Trust-sponsored proxy statements,
or in sales literature or other promotional material approved by the Trust or
its designee, except as required by legal process or regulatory authorities or
with the written permission of the Trust or its designee.
2.11. The Trust shall furnish or cause to be furnished, to the Company or
its designee, a copy of each Trust prospectus or statement of additional
information in which the Company or the Accounts are named prior to the filing
of such document with the Commission. The Trust shall furnish, or shall cause to
be furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or the Accounts are named, at
least fifteen Business Days prior to its use. No such material shall be used if
the Company or its designee reasonably objects to such use within fifteen
Business Days after receipt of such material.
2.12. The Trust shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from the registration statement, prospectus
or private placement memorandum for the Contracts (as such registration
statement, prospectus or private placement memorandum may be amended or
supplemented from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials, except
as required by legal process or regulatory authorities or with the written
permission of the Company.
2.13. At the request of either party to this Agreement, the other party
will make available to the requesting party's independent auditors and/or
representatives of the appropriate
5
<PAGE>
regulatory agencies, all records, data and access to operating procedures that
may be reasonably requested.
2.14. So long as, and to the extent that the Commission interprets the
1940 Act to require pass-through voting privileges for variable contract owners,
the Company will provide pass-through voting privileges to owners of policies
whose cash values are invested, through the Accounts, in shares of the Trust and
shall distribute all proxy material furnished by the Trust. The Trust shall
require all Participating Insurance Companies to calculate voting privileges in
the same manner and the Company shall be responsible for assuring that the
Accounts calculated voting privileges in the manner established by the Trust.
With respect to each Account, the Company will vote shares of the Trust held by
the Account and for which no timely voting instructions from policy owners are
received as well as shares it owns that are held by that Account, in the same
proportion as those shares for which voting instructions are received. The
Company and its agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Trust shares held by Contract owners without the
prior written consent of the Trust, which consent may be withheld in the Trust's
sole discretion.
ARTICLE III
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of ____________
and that it has legally and validly established each Account as a segregated
asset account under such law on the dates set forth in Schedule A.
3.2. The Company represents and warrants that it has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
3.3. The Company represents and warrants that the Contracts are, or will
be, registered under the 1933 Act to the extent required by the 1933 Act prior
to any issuance or sale of the Contracts, the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and state
law, and the sale of the Contracts will comply in all material respects with
state insurance suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.5. The Trust represents and warrants that the Trust shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and that
the Trust is registered under the 1940 Act prior to any issuance or sale of such
shares. The Trust shall amend its registration statement under the 1933 Act and
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify its shares for sale
in
6
<PAGE>
accordance with the laws of the various states only if and to the extent deemed
advisable by the Trust.
3.6. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
rules and regulations thereunder. In the event of a breach of this Section 3.6
by the Trust, it will take all reasonable steps to: (1) immediately notify the
Company of such breach, and (2) adequately diversify the Trust so as to achieve
compliance within the grace period afforded by Section 1.817-5(b) of the rules
and regulations under the Code.
3.7. The Company represents that the Contracts are currently treated as
annuity or life insurance contracts under applicable provisions of the Code and
warrants and agrees that it will make every effort to maintain such treatment
and that it will notify the Trust immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
ARTICLE IV
Potential Conflicts
4.1. The parties acknowledge that the Trust's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. A material irreconcilable conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory or other authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Trustees shall promptly inform the Company
if they determine that a material irreconcilable conflict exists and the
implications thereof. The Trustees shall have sole authority to determine
whether a material irreconcilable conflict exists and their determination shall
be binding upon the Company.
4.2. The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Trust Exemptive
Order and this Article IV by providing the Trustees with all information
reasonably necessary for them to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions.
7
<PAGE>
4.3. If it is determined by a majority of the Trustees, or a majority of
the disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the material
irreconcilable conflict, which steps could include: (a) withdrawing the assets
allocable to some or all of the Accounts from the Trust or any Portfolio and
reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any appropriate
group (i.e., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account and obtaining any
necessary approvals or orders of the Commission in connection therewith.
4.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5. If any material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six (6) months after the Trust gives written
notice that it has determined that such decision has created a material
irreconcilable conflict; provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6. For purposes of Sections 4.3. through 4.5. of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict. The Company
shall not be required by Section 4.3 to establish a new funding medium for the
Contracts if any offer to do so has been declined by vote of a majority of
Contract owners materially adversely affected by the material irreconcilable
conflict. In the event that the Trustees determine that any proposed action does
not adequately remedy any material irreconcilable conflict, then the Company
will withdraw the Account's investment
8
<PAGE>
in the Trust and terminate this Agreement within six (6) months after the Trust
gives written notice of the foregoing determination; provided, however, that
such withdrawal and termination shall be limited to the extent required by any
such material irreconcilable conflict, as determined by a majority of the
disinterested Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Trust
Exemptive Order and this Article IV. Said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed and/or shared
funding (as defined in the Shared Trust Exemptive Order) on terms and conditions
materially different from those contained in the Shared Trust Exemptive Order,
then the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V
Indemnification
5.1. The Company agrees to indemnify and hold harmless the Trust and each
of its Trustees, officers, employees and agents, and each person, if any, who
controls the Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 5.1.)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or expenses (including
the reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which the Indemnified Parties
may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses are related to the sale, acquisition, or
redemption of the Trust's shares or the Contracts and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in a registration statement,
prospectus or private placement memorandum for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the Company relating
to the Contracts or Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents"), or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and was accurately derived from written information
furnished to the Company by or on behalf of the Trust for use in Company
Documents or otherwise for use in connection with the sale of the Contracts or
Trust shares; or
9
<PAGE>
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately derived
from Trust Documents as defined in Section 5.2.(a)) or wrongful conduct of the
Company or persons under its control, with respect to the sale, distribution or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust Documents as defined in
Section 5.2.(a) or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Trust by or on
behalf of the Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation, warranty or agreement made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Company; or
(f) arise out of or result from negligence or wrongful conduct in
the Company's administration of the Accounts or the Contracts.
5.2. The Trust agrees to indemnify and hold harmless the Company and each
of its directors, officers, employees and agents and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 5.2.)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Trust) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law or otherwise, insofar
as such Losses are related to the sale, acquisition, or redemption of the
Trust's shares or the Contracts and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement or
prospectus for the Trust (or any amendment or supplement thereto),
(collectively, "Trust Documents"), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided, that this indemnity shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was made in
reliance upon and was accurately derived from written information furnished to
the Trust by or on behalf of the Company for use in Trust Documents or otherwise
for use in connection with the sale of the Contracts or Trust shares; or
10
<PAGE>
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately derived
from Company Documents) or wrongful conduct of the Trust or persons under its
control, with respect to the sale, distribution or acquisition of the Contracts
or Trust shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Company Documents or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon and accurately derived form
written information furnished to the Company by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Trust to
provide the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation, warranty or agreement made by the Trust in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Trust.
5.3. Neither the Company nor the Trust shall be liable under the
indemnification provisions of Section 5.1. or 5.2., as applicable, with respect
to any Losses incurred or assessed against an indemnified party that arise from
such indemnified party's willful misfeasance, bad faith or gross negligence in
the performance of such indemnified party's duties or by reason of such
indemnified party's reckless disregard of obligations or duties under this
Agreement.
5.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions of Section 5.1. or 5.2., as applicable, with respect
to any claim made against an indemnified party unless such indemnified party
shall have notified the other party in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim which shall have been served upon or otherwise received by
such indemnified party (or after such indemnified party shall have received
notice of service upon or other notification to any designated agent), but
failure to notify the party against whom indemnification is sought of any such
claim shall not relieve that party from any liability which it may have to the
indemnified party in the absence of Sections 5.1. and 5.2. except to the extent
that the indemnifying party has been prejudiced by such failure to give notice.
5.5. In case any such action is brought against the indemnified parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the indemnified
party of an election to assume such defense, the indemnified party shall bear
the fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the indemnified party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
11
<PAGE>
ARTICLE VI
Termination
6.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by six (6) months advance
written notice delivered to the other party; or
(b) termination by the Company by written notice to the Trust with
respect to any Portfolio based upon the Company's determination that shares of
such Portfolio are not reasonably available to meet the requirements of the
Contracts or not consistent with the Company's obligations to Contract owners;
provided, however, that such a termination shall apply only to the Portfolio not
reasonably available and the Trust shall have ninety (90) days from the initial
notification by the Company of the deficiency to correct such deficiency. If not
cured within ninety (90) days, prompt written notice of the election to
terminate for such cause shall again be furnished by the Company to the Trust;
or
(c) termination by the Company by written notice to the Trust with
respect to any Portfolio in the event such Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Trust with
respect to any Portfolio in the event that the Trust ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or any independent
or resulting failure under Section 817 of the Code, or under any successor or
similar provision of either, or if the Company reasonably believes that the
Trust may fail to so qualify; or
(e) termination by the Trust by written notice to the Company if the
Trust shall determine, in its sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a material adverse change
in its business, operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity and that material
adverse change or material adverse publicity will have a material adverse impact
upon the business and operations of the Company or the Trust; but no such
termination shall be effective under this subsection (e) until the Company has
been afforded a reasonable opportunity to respond to a statement by the Trust
concerning the reason for notice of termination hereunder; or
(f) termination by the Company by written notice to the Trust if the
Company shall determine, in its sole judgment exercised in good faith, that
either the Trust or an investment adviser to the Trust has suffered a material
adverse change in its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material adverse publicity
and that material adverse change or material adverse publicity will have a
material
12
<PAGE>
adverse impact upon the business and operations of the Trust; but no such
termination shall be effective under this subsection (f) until the Trust has
been afforded a reasonable opportunity to respond to a statement by the Company
concerning the reason for notice of termination hereunder; or
(g) termination by the Trust in the event that formal administrative
proceedings are instituted against the Company by the NASD, the Commission, an
insurance commissioner or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of the Trust's shares; provided,
however, that the Trust determines in its sole judgement exercised in good
faith, that any such administrative proceedings will have a material adverse
effect upon the ability of the Company to perform its obligations under this
Agreement; or
(h) termination by the Company in the event that formal administrative
proceedings are instituted against the Trust by the NASD, the Commission, any
state securities or insurance department or any other regulatory body regarding
the Trust's duties under this Agreement, provided, however, that the Company
determines in its sole judgement exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the ability
of the Trust to perform its obligations under this Agreement.
6.2. Notwithstanding any termination of this Agreement, the Trust shall,
at the option of the Company, continue to make available additional shares of
the Trust (or any Portfolio) pursuant to the terms and conditions of this
Agreement for all Contracts in effect on the effective date of termination of
this Agreement, provided that the Company continues to pay the costs set forth
in Article II.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.12. shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
IF TO THE TRUST:
Evergreen Funds
200 Berkeley Street
Boston, Massachusetts 02116-9000
Attention: Legal Department
13
<PAGE>
IF TO THE COMPANY:
ARTICLE VIII
Miscellaneous
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
8.5. The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising directly or indirectly under this Agreement, of
any and every nature whatsoever, shall be satisfied solely out of the assets of
the Trust and that no Trustee, officer, agent or holder of shares of beneficial
interest of the Trust shall be personally liable for any such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission, the NASD
and state insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8. The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
14
<PAGE>
8.9. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, provided that no party may
assign this Agreement without the prior written consent of the other party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative as
of the date and year first above written.
___________ INSURANCE COMPANY EVERGREEN VARIABLE ANNUITY TRUST
By:_______________________ By:_______________________
Name: Name:
Title: Title:
24748
15
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS, CONTRACTS AND ASSOCIATED PORTFOLIOS
Name of Separate Accounts and Date
Established by Board of Directors
- ---------------------------------
CONTRACTS FUNDED BY SEPARATE ACCOUNT AND FORM NUMBER
DESIGNATED PORTFOLIOS
24748
16
<PAGE>
DRAFT 12/08/99
TABLE OF CONTENTS
SECTION PAGE NO.
Additional Definitions .......................................................2
Distribution Activities - Authority ..........................................3
Distribution Activities - Appointment ........................................4
Distribution Activities - Duties .............................................4
Limitations on Authority .....................................................5
Sales Agreements .............................................................6
Forms, Applications, and Licensing............................................7
Marketing Materials ..........................................................8
Payment of Expenses ..........................................................9
The Distributor's Compensation ..............................................11
Representations and Warranties ..............................................13
Indemnification .............................................................14
Records .....................................................................19
Investigations and Proceedings ..............................................19
Term and Termination ........................................................19
Rights Upon Termination .....................................................21
Independent Contractor ......................................................22
Notices .....................................................................22
Arbitration .................................................................23
Confidentiality .............................................................23
Severability ................................................................24
Choice of Law ...............................................................24
No Waiver ...................................................................25
Agreement Non-Assignable ....................................................25
Schedules ...................................................................25
Headings ....................................................................25
Entire Agreement ............................................................25
<PAGE>
DISTRIBUTION AGREEMENT
AGREEMENT made as of the day of 1999, by and between
Allmerica Financial Life Insurance and Annuity Company, a Delaware insurance
company ("AFLIAC"), First Allmerica Financial Life Insurance Company, a
Massachusetts insurance company ("FAFLIC" and, together with AFLIAC,
collectively, the "Insurance Companies"), Allmerica Investments, Inc., a
Massachusetts corporation (the "Underwriter") and First Union Securities, Inc.,
a Delaware corporation (the "Distributor"), on its own behalf and on behalf of
the individuals and entities listed on Schedule 1 to this Agreement (the
"Distributor Agency Affiliates"), as such Schedule may be amended from time to
time in accordance with this Agreement.
RECITALS:
WHEREAS, the Insurance Companies propose to issue certain variable annuity
contracts and variable life insurance policies; and
WHEREAS, certain of the variable annuity contracts and variable life insurance
policies to be issued by the Insurance Companies (the "Private Placements") may
be offered and sold in reliance upon exemptions from the registration
requirements of the Securities Act of 1933 (the "1933 Act") and the Investment
Company Act of 1940 (the "1940 Act"), while certain other variable annuity
contracts and variable life insurance policies to be issued by the Insurance
Companies may be offered and sold pursuant to Registration Statements (the
"Registered Products") and their related Prospectuses filed with and declared
effective by the Securities and Exchange Commission (the "Commission") under the
provisions of the 1933 Act and the 1940 Act (collectively, the "Private
Placements" and the "Registered Products" are referred to as the "Variable
Products") (Variable Products are identified in Schedule 2 to this Agreement, as
such Schedule may be amended from time to time); and
WHEREAS, the Distributor is registered as a broker-dealer with the Commission
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD") that engages in the distribution of variable annuity contracts and
variable life insurance products; and
WHEREAS, the Insurance Companies and the Underwriter desire to retain the
Distributor to distribute the Variable Products through registered
broker-dealers ("Broker-Dealers") and their registered representatives
("Representatives"); and
WHEREAS, the Distributor desires to be retained by the Insurance Companies and
the Underwriter to distribute the Variable Products on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises contained herein, the
parties hereto agree as follows:
1
<PAGE>
1. ADDITIONAL DEFINITIONS
(a) AFFILIATE -- With respect to a person, any other person
controlling, controlled by, or under common control with, such
person.
(b) APPLICATIONS -- The forms used by a prospective purchaser to
apply for a variable life insurance policy or a variable
annuity contract.
(c) CONTRACTS -- The variable annuity contracts set forth in
Schedule 2 to this Agreement, as such Schedule may be amended
from time to time in accordance with this Agreement.
(d) FUNDS -- The funds set forth in Schedule 4 to this Agreement,
as such Schedule may be amended from time to time in
accordance with this Agreement, through which benefits
provided by the Variable Products are to be funded.
(e) FUND PROSPECTUS -- At any time while this Agreement is in
effect, the prospectus and statement of additional information
for each Fund most recently filed with the Commission pursuant
to Rule 497 under the 1933 Act.
(f) FUND REGISTRATION STATEMENT -- At any time while this
Agreement is in effect, the currently effective registration
statement filed with the Commission under the 1933 Act, or
currently effective post-effective amendment thereto, for
shares of each Fund.
(g) POLICIES -- The variable life insurance policies set forth in
Schedule 2 to this Agreement, as such Schedule may be amended
from time to time in accordance with this Agreement.
(h) PORTFOLIOS -- The underlying Fund portfolios, set forth in
Schedule 4 to this Agreement, as such Schedule may be amended
from time to time in accordance with this Agreement.
(i) PREMIUM -- A payment made under a Policy by an applicant or
purchaser.
(j) PRIVATE PLACEMENT GUIDELINES -- The guidelines set forth in
Schedule 3 to this Agreement, as such Schedule may be amended
from time to time in accordance with this Agreement.
(k) PRIVATE PLACEMENT MEMORANDUM -- The document through which the
Insurance Companies offer Private Placements. (For purposes of
Section 12 of this Agreement, however, the term "any Private
Placement Memorandum" means any document which is or at any
time was a Private Placement Memorandum within the meaning of
this Section 1(k)).
2
<PAGE>
(l) PRIVATE PLACEMENTS -- Contracts and Policies being offered and
sold in reliance upon exemptions from the registration
requirements of the 1933 Act and the 1940 Act for non-public
offerings.
(m) PROSPECTUS -- The prospectus, if any, included within a
Registration Statement or, if more recent, the prospectus
filed pursuant to Rule 497 under the 1933 Act. (For purposes
of Section 12 of this Agreement, however, the term "any
Prospectus" means any document which is or at any time was a
Prospectus within the meaning of this Section 1(m)).
(n) PURCHASE PAYMENT -- A payment made under a Contract by an
applicant or purchaser.
(o) REGISTRATION STATEMENT -- At any time while this Agreement is
in effect, each currently effective registration statement, or
currently effective post-effective amendment thereto, relating
to the Contracts or Policies, including financial statements
included in, and all exhibits to, that registration statement
or post-effective amendment. (For purposes of Section 12 of
this Agreement, however, the term "Registration Statement"
means any document which is or at any time was a Registration
Statement within the meaning of this Section 1(o)).
(p) REGULATIONS -- The rules and regulations promulgated by the
Commission under the 1933 Act, the 1934 Act and the 1940 Act
as in effect at the time this Agreement is executed or
thereafter promulgated.
(q) VARIABLE ACCOUNTS -- Separate accounts established pursuant to
Delaware state insurance law (in the case of AFLIAC) or
Massachusetts state insurance law (in the case of FAFLIC)
supporting the Variable Products specified in Schedule 2 as in
effect at the time this Agreement is executed, or as such
Schedule may be amended from time to time in accordance with
this Agreement.
2. DISTRIBUTION ACTIVITIES -- AUTHORITY
(a) The Insurance Companies and the Underwriter authorize the
Distributor, and the Distributor accepts the authority, to act
as a distributor of the Variable Products, subject to any
applicable requirements of the 1933 Act and the 1940 Act.
The Insurance Companies hereby authorize the Distributor to
recommend to the Insurance Companies persons that may be
authorized to engage in solicitation activities with respect
to the Variable Products, including the recruitment and
appointment of Broker-Dealers and Representatives who, in
turn, may be authorized to engage in solicitation activities
involving the solicitation of Applications, Premiums and
Purchase Payments directly from prospective purchasers.
3
<PAGE>
The Insurance Companies shall have the right to reject any
such recommendation, but shall not do so unreasonably, and
shall notify the Distributor of any such rejection.
(b) The Distributor shall enter into separate written "Sales
Agreements" with Broker-Dealers for distribution of the
Variable Products. These Sales Agreements will be in a form
mutually agreeable to the parties to this Agreement. The
standard form of Sales Agreement to be used on the effective
date of this Agreement is set forth in Schedule 5 to this
Agreement.
(c) Nothing in this Agreement precludes additional mutually
agreeable distribution and compensation arrangements among the
parties to this Agreement, including ones that may have
compensation arrangements that reward the Insurance Companies
for identifying and recruiting new Broker-Dealers to sell the
Variable Products, for identifying potential purchasers of the
Variable Products, or for providing superior support under
this Agreement.
3. DISTRIBUTION ACTIVITIES -- APPOINTMENT
(a) Where required by applicable state insurance law, the
Insurance Companies hereby appoint the Distributor as their
agent under that state insurance law to represent the
Insurance Companies in the distribution activities
contemplated by this Agreement. The Insurance Companies and
the Underwriter hereby authorize the Distributor under
applicable securities laws to engage in the activities
contemplated by this Agreement relating to the distribution of
the Variable Products.
(b) In states where the Distributor is not licensed as an
insurance agent and applicable state insurance law requires
that the Distributor be so licensed, the Insurance Companies
hereby appoint each Distributor Agency Affiliate listed on
Schedule 1 to this Agreement (as that Schedule may be amended
from time to time by the Distributor when required by
applicable state insurance law to reflect changes in the
licensing status of the Distributor or the Distributor Agency
Affiliates) as their agent under applicable state insurance
laws to represent the Insurance Companies in the distribution
activities contemplated by this Agreement.
4. DISTRIBUTION ACTIVITIES -- DUTIES
(a) The Distributor shall use its best efforts to market the
Variable Products through Broker-Dealers and Representatives
in accordance with the terms and conditions of this Agreement,
subject to applicable material market and regulatory
conditions.
4
<PAGE>
In addition, the Distributor (both on its own behalf and on
behalf of the Distributor Agency Affiliates) undertakes to use
its best efforts to recruit Broker-Dealers in accordance with
Section 3 of this Agreement, consistent with market conditions
and in compliance with its responsibilities under the federal
securities laws and NASD rules and regulations.
(b) The Distributor shall assist and provide information to
Broker-Dealers and their Representatives in connection with
the sale and servicing of Variable Products.
(c) Under no circumstances shall the Insurance Companies or the
Underwriter be responsible under this Agreement for any
failure by Broker-Dealers or their Representatives to comply
with applicable law.
(d) Under no circumstances shall the Distributor be responsible
under this Agreement for any failure by Broker-Dealers or
their Representatives to comply with applicable law.
Notwithstanding the foregoing, the Distributor agrees to
indemnify the Insurance Companies and the Underwriter for any
such failure to comply with applicable law, as provided in
Section 12(a)(1)(viii) of this Agreement.
(e) Under no circumstances shall the Distributor be responsible
under this Agreement for any failure by the Insurance
Companies or the Underwriter to comply with applicable law.
(f) Under no circumstances shall the Insurance Companies or the
Underwriter be responsible under this Agreement for any
failure by the Distributor to comply with applicable law.
5. LIMITATIONS ON AUTHORITY
(a) The Distributor shall not have the authority, and shall not
grant authority to Broker-Dealers or their Representatives, on
behalf of the Insurance Companies:
(1) to make, alter or discharge any Variable Product or
other contract entered into pursuant to a Variable
Product;
(2) to waive any Variable Product forfeiture provision;
5
<PAGE>
(3) to extend the time of paying any Purchase Payments,
or Premiums due under the Variable Products; and
(4) to receive any monies, Purchase Payments or
Premiums (except for the sole purpose of forwarding
monies, Purchase Payments or Premiums to the
appropriate Insurance Company).
(b) The Distributor shall not expend, nor contract for the
expenditure of, funds of the Insurance Companies.
(c) The Distributor shall not possess or exercise any authority on
behalf of the Insurance Companies other than that expressly
conferred on the Distributor by this Agreement.
6. SALES AGREEMENTS
(a) The Distributor shall not enter into any Sales Agreement with
a Broker-Dealer relating to the distribution of any Variable
Product, unless that Sales Agreement (i) is substantially
identical to the form of Sales Agreement mutually agreed to by
the parties to this Agreement (the standard form of Sales
Agreement in use on the effective date of this Agreement is
set forth in Schedule 5 hereto) or (ii) is approved by the
appropriate Insurance Company, provided that the approval of
the Insurance Company shall be deemed to have been given if no
written objection to the Sales Agreement has been delivered by
the Insurance Company to the Distributor within five (5)
business days after being provided by facsimile or express
courier with a copy of the proposed Sales Agreement.
(b) The Distributor shall provide to the appropriate Insurance
Company a copy of each Sales Agreement entered into by the
Distributor and a Broker-Dealer within five (5) business days
following execution thereof.
(c) The Insurance Companies agree to appoint Representatives of
Broker-Dealers as life insurance agents of the Insurance
Companies to the extent that such Representatives satisfy the
licensing and qualification requirements of applicable state
insurance laws, as well as the Insurance Companies' own
standards applicable to life insurance agents. The Insurance
Companies reserve the right, which right shall not be
exercised unreasonably, to refuse to appoint any
Representative as their life insurance agent. The Companies
reserve the right to terminate immediately the appointment of
any Representative as its life insurance agent if such
Representative fails to maintain his or her registration,
license or qualifications under federal and state securities
laws, as well as applicable state insurance laws, is subject
to disciplinary action by any governmental authority or
self-regulatory organization, fails to meet minimum sales
requirements established from time to time by the Insurance
Companies, or fails, in the reasonable view of the Insurance
Companies, to satisfy appropriate industry
6
<PAGE>
standards. The Insurance Companies shall promptly notify the
Distributor and the Broker-Dealer with which the
Representative is affiliated of their intent to terminate a
Representative and the reasons for such termination.
(d) AFLIAC and FAFLIC, as appropriate, will pay the initial and
renewal fees for agent appointments by the respective company
of the Distributor, duly licensed Distributor Agency
Affiliates and Broker-Dealers and their Representatives;
PROVIDED, HOWEVER, that the Insurance Companies reserve the
right to refuse to pay renewal fees for Representatives not
meeting such minimal sales requirements as may be established
from time to time by the Insurance Companies.
7. FORMS, APPLICATIONS, AND LICENSING
(a) The Insurance Companies, or their agent, shall forward to the
Distributor, Applications, other administrative forms, and any
amendments or supplements to the foregoing, necessary to carry
out the Distributor's distribution authority and
responsibilities with respect to the Variable Products.
(b) The Insurance Companies shall obtain all requisite regulatory
approvals of the Variable Products and shall comply with all
applicable laws, rules, regulations and orders of any
governmental authority relating to the issuance or sale of the
Variable Products.
(c) All Premiums and Purchase Payments paid by check or money
order that are collected by the Distributor or any
Broker-Dealer or Representative shall be remitted promptly,
and in any event not later than two business days, in full,
together with Applications, forms, and any other required
documentation, to the appropriate Insurance Company. Checks or
money orders in payment of Premiums and Purchase Payments
shall be drawn to the order of AFLIAC or FAFLIC, as
appropriate. If any Premium or Purchase Payment is held at any
time by the Distributor, Broker-Dealers, Representatives,
agents, or any affiliates, the Distributor, the
Broker-Dealers, the Representatives, the agents or the
affiliates shall hold that Premium or Purchase Payment in a
fiduciary capacity. All Premiums and Purchase Payments whether
by check, money order or wire, shall be the property of the
appropriate Insurance Company.
(d) The Distributor acknowledges that the Insurance Companies
shall have the unconditional right to reject, in whole or in
part, any Application. The Insurance Companies shall return
any monies received by them or from an applicant or purchaser
whose Application has been rejected. The Insurance Companies
shall notify the Distributor in writing one business day prior
to taking any action to return any such monies, which notice
shall identify, if applicable, the Representative who
submitted the rejected Application.
7
<PAGE>
(e) If a purchaser rescinds a Variable Product or exercises its
"free look right" under a Variable Product, any refund of
Premiums or Purchase Payments due as provided in that Variable
Product, shall be made by the issuing Insurance Company to the
purchaser. The Insurance Companies shall notify the
Distributor in writing one business day prior to taking any
action to refund any such Premiums or Purchase Payments, which
notice shall identify, if applicable the Broker-Dealer or the
Representative through which the Variable Product had been
purchased.
If a purchaser rescinds a Variable Product or exercises its
"free look" under a Variable Product, the Distributor will pay
to AFLIAC or FAFLIC, whichever is the issuing Insurance
Company, within five (5) business days of a written request
for repayment, the amount of any commission or other
compensation the Distributor or a Distributor Agency affiliate
received on the Premiums or Purchase Payments returned.
(f) The Distributor agrees to maintain all registrations,
licenses, and qualifications under federal and state
securities laws that are applicable to its activities and
those of its registered representatives in connection with the
performance of this Agreement. The Distributor also agrees to
maintain all registrations, licenses, and qualifications under
state insurance laws that are applicable to the activities of
the Distributor, the Distributor Agency Affiliates and their
agents and registered representatives in performing this
Agreement.
(g) The Distributor agrees to notify the Insurance Companies
within three (3) business days of obtaining actual knowledge
of any changes in the registrations, licenses, or
qualifications of the Distributor, the Distributor Agency
Affiliates, or the agents or registered representatives of the
Distributor or Distributor Agency Affiliates that would
adversely affect its performance of this Agreement.
(h) The Insurance Companies agree to obtain and maintain all
registrations, licenses, qualifications and approvals under
federal securities laws and state blue sky and insurance laws
in connection with qualifying the Variable Products for sale.
(i) The Insurance Companies agree to notify the Distributor within
three (3) business days of obtaining actual knowledge of any
changes in the registrations, licenses, qualifications, or
approvals of the Variable Products that would adversely affect
the offering of the Variable Products.
8. MARKETING MATERIALS
Except as otherwise agreed to by the Insurance Companies and the
Distributor, the Distributor shall be responsible for the design, the
cost of the design work and the printing costs of all promotional,
sales and advertising material relating to the Variable Products.
8
<PAGE>
Prior to use with any member of the public, the Distributor shall
provide to the Insurance Companies copies of all promotional, sales and
advertising material developed by the Distributor for the Insurance
Companies' review and written approval. Upon receipt of such material
from the Distributor, the Insurance Companies shall be given a
reasonable amount of time to complete their review. The Insurance
Companies will respond on a prompt and timely basis in approving any
such material. Failure to respond shall not relieve the Distributor of
the obligation to obtain the prior written approval of the Insurance
Companies.
The Insurance Companies shall be responsible for filing, as required,
all promotional, sales or advertising material related to the Variable
Products with the NASD and any federal and state securities,
governmental or regulatory agencies. The Insurance Companies shall also
be responsible for filing, as required, such material with any state
insurance department.
9. PAYMENT OF EXPENSES
(a) The Distributor will pay the following expenses related to its
distribution and other services contemplated by this
Agreement:
(i) all commissions and other compensation payable to
Broker-Dealers and their Representatives, related to
the sale and servicing of the Variable Products, as
provided in the Sales Agreement between the
Distributor and the Broker-Dealer;
(ii) the compensation, if any, of the Distributor's
employees, agents and registered representatives;
(iii) expenses associated with the licensing and
appointment, if any, and training of the
Distributor's employees, agents and representatives
involved in the distribution activities contemplated
by this Agreement;
(iv) expenses for design, development and printing of (1)
marketing kits and Variable Product Prospectus covers
in a design which is agreed upon by the Insurance
Companies and the Distributor, which meet regulatory
requirements as determined by the Insurance
Companies, and which are provided to the Insurance
Companies in a camera-ready format, and (2)
promotional and advertising materials;
(v) to the extent not paid by a Fund, the cost and
expenses for design, development and printing of the
Fund Prospectuses and semi-annual and annual reports;
(vi) the cost and expenses of printing Variable Product
Prospectuses, which Prospectuses will each contain a
copy of each Fund Prospectus;
9
<PAGE>
(vii) the cost and expense for design, development and
printing of Policy and Contract semi-annual and
annual reports;
(viii) the cost and expense of the mailing of any
promotional and advertising material and marketing
kits in connection with the distribution of the
Policies and Contracts;
(ix) fulfillment of marketing materials and forms (not
including Applications and other insurance forms) to
Broker-Dealers;
(x) any additions, inserts, or packaging enhancements to
the Insurance Companies' basic "Welcome Package";
(xi) expenses associated with telecommunications with the
Insurance Companies at the sites of the Distributor
or the Distributor Agency Affiliates, including site
installations and purchases, leases or rentals of
modems, terminals and other hardware, and lease line
telephone charges; and
(xii) any other expenses incurred by the Distributor or the
Distributor Agency Affiliates for the purpose of
carrying out the obligations of the Distributor
hereunder.
(b) The Insurance Companies will pay all expenses in connection
with:
(i) the preparation and filing with appropriate
governmental or regulatory agencies of the
Registration Statements and each preliminary
Prospectus and definitive Prospectus;
(ii) the preparation and issuance of the Policies and
Contracts, including the Companies' basic "Welcome
Package" (any additions, inserts, or packaging
enhancements to the Companies' "Welcome Package" shall
be at the expense of the Distributor, as set forth in
Section 9(a)(x) above);
(iii) any authorization, registration, qualification or
approval of the Policies and Contracts required under
the securities, blue-sky laws or insurance laws of
any state;
(iv) registration fees for the Policies and Contracts
payable to the Commission, the NASD or any other
governmental or regulatory agency;
(v) the mailing of Prospectuses and any supplements
thereto, as required by federal securities laws, and
periodic reports relating to the Variable Accounts to
Policy and Contract owners;
10
<PAGE>
(vi) the preparation and printing of administrative forms
utilized in connection with the distribution of the
Policies and Contracts, including but not limited to
the form of Application;
(vii) the preparation of Policies and Contract owner lists
for the purposes of proxy solicitations;
(viii) compensation payable to the Distributor, as provided
in Section 10 hereof; and
(ix) any other expenses related to the distribution of
Policies and contracts except those set forth in
Section 9(a) and except as provided in Section 9(c).
(c) The Insurance Companies alone shall be responsible for and
bear the cost of administration of the Contracts following
their issuance, including all Policy and Contract owner
service and communication activities, but the Distributor
shall be responsible for answering inquiries from
Broker-Dealers or Representatives regarding the investment
performance of the Policies and Contracts, as permitted by
applicable law.
(d) The Insurance Companies, as agent for the Underwriter, will
confirm to each applicant for and owner of a Policy or
Contract in accordance with Rule 10b-10 under the 1934 Act
their acceptance of Premiums and Purchase Payments and such
other transactions as are required by Rule 10b-10 or
administrative interpretations thereunder and in accordance
with Release 8389 under the 1934 Act.
10. THE DISTRIBUTOR'S COMPENSATION
(a) In consideration for the services rendered by the Distributor
pursuant to this Agreement, the Insurance Companies shall pay
the Distributor the compensation set forth in Schedule 6 to
this Agreement. Schedule 6 and/ or Schedule 2 may be modified
at any time, and from time to time, by adding or deleting
Policies or Contracts and changing the compensation payable
for those Policies and Contracts, provided that any such
modifications are mutually agreed upon by both the Insurance
Companies and the Distributor, in writing, and signed by both
parties. Modifications to the Variable Products listed in
Schedule 2 and the compensation described in Schedule 6 may be
requested by the Insurance Companies in the event that pricing
objectives are not achieved due to adverse experience or the
failure to meet the Insurance Companies' sales forecasts, and
the Distributor's consent shall not be unreasonably withheld.
Any such modification shall apply only to Policies and
Contracts applied for after the effective date of each such
modification.
11
<PAGE>
(b) In the event a Variable Product terminates within twelve (12)
months of the date of issue, the Insurance Companies reserve
the right to recover: (1) one hundred percent (100%) of the
compensation paid to the Distributor respecting the sale of
the Variable Product if that Variable Product terminates for
reasons other than death during the first twelve (12) months
following issue; (2) seventy five percent (75%) of the
compensation paid to the Distributor if a Variable Product
terminates for reasons other than death during the second
twelve (12) months following issue; (3) fifty percent (50%) of
the compensation paid to the Distributor if a Variable Product
terminates for reasons other than death during the third
twelve (12) months following issue; (4) twenty five percent
(25%) of the compensation paid to the Distributor if a
Variable Product terminates for reasons other than death
during the fourth twelve (12) months following issue; and (5)
nothing from the Distributor (i.e., no charge back) if the
Variable Product terminates thereafter. However,
notwithstanding any other provision of this Agreement, if
termination of a Variable Product at any time is due to the
willful or negligent wrongful actions or representations of
the Distributor, a Broker-Dealer or any Representative, the
Insurance Companies reserve the right to recover one hundred
percent (100%) of the compensation paid to the Distributor
respecting the sale of the Variable Product.
In the event a Variable Product owner makes a withdrawal from
or partially surrenders a Variable Product within forty-eight
(48) months following its date of issue, the charge back rules
described in the first paragraph of this Section 10(b) shall
apply, except that the amount of the charge back shall be
pro-rated. Any such pro-rated charge back shall be determined
in accordance with the following formula:
Charge Back = Charge Back Percentage* x Withdrawal Amount
-----------------
Variable Product
Cash Value**
*100% year one; 75% year two; 50% year three; 25% year four
** determined as of the date of the withdrawal
With respect to any other Variable Product terminations or
withdrawals, the Insurance Companies shall have no right to
recover any portion of the compensation paid to the
Distributor. In no event shall the Insurance Companies have
the right to recover any portion of any compensation received
by the Distributor as a basis point charge against investment
values under the Policies and Contracts. The Insurance
Companies shall have the right to set off any amounts owed by
the Distributor under this Section 10(b) against any amounts
owed by the Insurance Companies to the Distributor.
12
<PAGE>
11. REPRESENTATIONS AND WARRANTIES
(a) BY THE DISTRIBUTOR
The Distributor represents and warrants to, and covenants
with, the Insurance Companies as follows:
(1) The Distributor has taken all actions necessary
including without limitation, those necessary under
its articles of incorporation, by-laws and applicable
state corporate law, to authorize the execution,
delivery and performance of this Agreement and all
transactions contemplated hereunder.
(2) Prior to the sale of any Variable Product hereunder,
the Distributor will be, and shall thereafter remain
during the term of this Agreement, registered as a
broker-dealer under the 1934 Act, a member in good
standing of the NASD, and duly registered under
applicable state securities laws.
(3) Prior to the sale of any Variable Product hereunder,
the Distributor will be, and shall thereafter remain
during the term of this Agreement, in compliance with
the eligibility requirements for certain affiliated
persons and underwriters found in Section 9(a) of the
1940 Act.
(4) Prior to the sale of any Variable Product hereunder,
the Distributor and each Distributor Agency Affiliate
and their employees, agents and registered
representatives will have all necessary state
insurance licenses and other regulatory approvals to
perform the services required by this Agreement and
the Distributor will notify the Insurance Companies
and the Underwriter within three business days of
obtaining actual knowledge of any change in the
status of such licenses or regulatory approvals.
(5) While this Agreement remains in force and at any time
following termination of this Agreement for any
reason, the Distributor and the Distributor Agency
Affiliates agree that they will not take any action
designed or calculated to result in the transfer,
exchange or replacement of any Policy or Contract.
(b) BY THE INSURANCE COMPANIES AND THE UNDERWRITER
The Insurance Companies and the Underwriter represent and
warrant to, and covenant with, the Distributor, as follows:
13
<PAGE>
(1) All necessary regulatory approvals and licenses from
any state or federal governmental body having
jurisdiction over the Insurance Companies, the
Underwriter or the Variable Products have been
obtained, and the Insurance Companies will notify the
Distributor within one business day of obtaining
actual knowledge of any change in the status of any
approvals or licenses related to the marketing, sale
or distribution of the Variable Products.
(2) The Insurance Companies and the Underwriter have
taken all actions necessary including, without
limitation, those necessary under their articles of
incorporation, bylaws and applicable state corporate
law, to authorize the execution, delivery and
performance of this Agreement and all transactions
contemplated hereunder.
(3) The Insurance Companies and the Underwriter are and
shall remain during the term of this Agreement in
compliance with the eligibility requirements for
certain affiliated persons and underwriters found in
Section 9(a) of the 1940 Act.
12. INDEMNIFICATION
(a) BY THE DISTRIBUTOR
(1) The Distributor agrees to indemnify and hold harmless
the Insurance Companies, each Affiliate of the
Insurance Companies and the Underwriter and each of
their directors, officers, employees or agents and
each person, if any, who controls the Insurance
Companies or the Underwriter within the meaning of
the federal securities laws (collectively, the
"Indemnified Parties" for purposes of this Section 12
(a)) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement
with the written consent of the Distributor) or
litigation (including legal and other expenses) to
which the Indemnified Parties may become subject
under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect
thereof) or settlements are related to the offer or
sale of the Variable Products or the operation of the
Variable Accounts and:
(i) arise out of, or are based upon,
violation(s) by the Distributor of federal
or state securities law(s) or regulation(s),
applicable banking law(s) or regulation(s),
insurance law(s) or regulation(s) or any
rule or requirement of the NASD; or
14
<PAGE>
(ii) arise out of, or are based upon, any
tortious conduct (including oral or written
misrepresentation), or any unlawful sales
practices concerning the Variable Products
by the Distributor; or
(iii) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a
material fact or omission or alleged
omission to state a material fact required
to be stated therein or necessary to make
the statements therein not misleading, in
light of the circumstances in which they
were made, contained in any advertising,
sales literature, or other promotional
material designed, developed, and produced
by the Distributor and used by it in the
distribution of the Variable Products;
PROVIDED THAT the Distributor shall not be
liable in any such case to the extent that
such losses, claims, damages, liabilities or
expenses arises out of, or are based upon,
an untrue statement or alleged untrue
statement or omission or alleged omission
made in reliance upon information furnished
in writing to the Distributor by the
Insurance Companies or the Underwriter
specifically for use in the preparation of
any such promotional material; or
(iv) arise out of, or are based upon, claims by
Broker-Dealers, Representatives or
employees, agents or registered
representatives of the Distributor for
commissions or other compensation or
remuneration of any type; or
(v) arise as a result of any failure on the part
of the Distributor, a Broker-Dealer or a
Representative to submit Premiums, Purchase
Payments, or Applications to the Insurance
Companies, or to submit the correct amount
of a Premium or Purchase Payment, on a
timely basis and in accordance with this
Agreement, subject to applicable law; or
(vi) arise as a result of any failure on the part
of the Distributor, a Broker-Dealer or a
Representative to deliver the Variable
Products to purchasers thereof on a timely
basis; PROVIDED THAT the Distributor shall
not be liable in any such case to the extent
that such losses, claims, damages,
liabilities or expenses arise as a result of
any failure on the part of the issuing
Insurance Company to perform its obligations
under this Agreement on a timely basis; or
(vii) arise as a result of a material breach by
the Distributor of any provisions of this
Agreement; or
15
<PAGE>
(viii) arise as a result of actions of a
Broker-Dealer or its Representatives;
as limited by and in accordance with the provisions
of Sections 12(a)(2) and 12 (a)(3) hereof.
(2) The Distributor shall not be liable under this
indemnification provision with respect to any losses,
claims, damages, liabilities or litigation ("Losses"
for purposes of this Section 12 (a)(2)) incurred or
assessed against an Indemnified Party that may arise
from any Indemnified Party's willful misfeasance or
bad faith. The Distributor's liability for Losses in
the event of its breach of this Agreement shall be
limited to that portion of Losses caused by its
breach, and the Distributor shall not be liable for
that portion of Losses caused by breach of this
Agreement by an Indemnified Party or from any act or
omission by an Indemnified Party.
(3) The Distributor shall not be liable under this
indemnification provision with respect to any claim
made against an Indemnified Party unless that
Indemnified Party shall have notified the Distributor
in writing within a reasonable time after the summons
or other first legal process giving information of
the nature of the claim shall have been served upon
that Indemnified Party (or after the Indemnified
Party shall have received notice of such service on
any designated agent). Notwithstanding the foregoing,
the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Distributor
of its obligations hereunder except to the extent
that the Distributor has been prejudiced by such
failure to give notice. In addition, any failure by
the Indemnified Party to notify the Distributor of
any such claim shall not relieve the Distributor from
any liability which it may have to the Indemnified
Party against whom the action is brought otherwise
than on account of this indemnification provision. In
case any such action is brought against the
Indemnified Parties, the Distributor shall be
entitled to participate, at its own expense, in the
defense of the action. The Distributor also shall be
entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action;
PROVIDED, HOWEVER, that if the Indemnified Party
shall have reasonably concluded that there may be
defenses available to it which are different from or
additional to those available to the Distributor, the
Distributor shall not have the right to assume said
defense, but shall pay the costs and expenses thereof
(except that in no event shall the Distributor be
liable for the fees and expenses of more than one
counsel for Indemnified Parties in connection with
any one action or separate but similar or related
actions in the same jurisdiction arising out of the
same general allegations or circumstances). After
notice from the Distributor to the Indemnified Party
of the Distributor's election to assume the defense
16
<PAGE>
thereof, and in the absence of such a reasonable
conclusion that there may be different or additional
defenses available to the Indemnified Party, the
Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the
Distributor will not be liable to that party under
this Agreement for any legal or other expenses
subsequently incurred by the party independently in
connection with the defense thereof other than
reasonable costs of investigation.
(4) The Indemnified Parties will notify the Distributor
within a reasonable time, not to exceed five (5)
business days, of the receipt of service of process
in any litigation or proceedings against them in
connection with the offer or sale of the Variable
Products or the operation of the Variable Accounts.
(b) BY THE INSURANCE COMPANIES AND THE UNDERWRITER
(1) The Insurance Companies and the Underwriter agree,
jointly and severally, to indemnify and hold harmless
the Distributor and each director, officer, employee
or agent of the Distributor, and each person, if any,
who controls the Distributor within the meaning of
the federal securities laws (collectively, the
"Indemnified Parties" for purposes of this Section
12(b)) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement
with the written consent of the Insurance Companies
and the Underwriter) or litigation (including legal
and other expenses) to which the Indemnified Parties
may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements are related to the
offer or sale of the Variable Products or the
operation of the Variable Accounts and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of a
material fact or omission or alleged
omission to state a material fact required
to be stated therein or necessary to make
the statements therein not misleading, in
light of the circumstances in which they
were made, contained in any: (A)
Registration Statement or Prospectus; (B)
blue-sky application or other document
executed by the Insurance Companies
specifically for the purpose of exempting
the Private Placements from, or qualifying
any or all of the Registered Products for
sale under, the securities laws of any
jurisdiction; or (C) information furnished
in writing to the Distributor specifically
for the purpose of being included in any
advertising, sales literature, or other
promotional material to be used in
connection with the distribution of the
Variable Products; PROVIDED THAT neither the
Insurance Companies nor the Underwriter
shall be
17
<PAGE>
liable in any such case to the extent that
such losses, claims, damages, liabilities or
expenses arise out of, or are based upon, an
untrue statement or alleged untrue statement
or omission or alleged omission made in
reliance upon information furnished in
writing to the Insurance Companies by the
Distributor specifically for use in the
preparation of any such document,
application, or promotional material; or
(ii) result because of the provisions of any
Variable Product or because of any material
breach by the Insurance Companies or the
Underwriter of any provision of this
Agreement or of any Variable Product or
which result from any wrongful activities of
the Insurance Companies' or the
Underwriter's officers, directors, employees
or agents or their wrongful failure to take
any action in connection with the sale,
processing or administration of the Variable
Products including, without limitation,
obtaining auditors' reports, computing
accurate separate account and/or underlying
fund performance data, preparation and
timely filing and delivery, as required, of
annual and semiannual reports and reports on
Form NSAR and the timely payment of all
state and federal registration fees; as
limited by and in accordance with the
provisions of Sections 12 (b)(1) and 12
(b)(2) hereof.
(2) Neither the Insurance Companies nor the Underwriter
shall be liable under this indemnification provision
with respect to any losses, claims, damages,
liabilities or litigation ("Losses" for purposes of
this Section 12 (b)(2)) incurred or assessed against
an Indemnified Party that may arise from any
Indemnified Party's willful misfeasance or bad faith.
The Insurance Companies' and the Underwriter's
liability for Losses in the event of its (or their)
breach of this Agreement shall be limited to that
portion of Losses caused by its (or their) breach,
and that party shall not be liable for that portion
of Losses caused by breach of this Agreement by an
Indemnified Party or from any act or omission by an
Indemnified Party.
(3) The Insurance Companies and the Underwriter shall not
be liable under this indemnification provision with
respect to any claim made against an Indemnified
Party unless the Indemnified Party shall have
notified the Insurance Companies and the Underwriter
in writing within a reasonable time after receiving
the summons or other first legal process giving
information of the nature of the claim against the
Indemnified Party (a "Claim"). Notwithstanding the
foregoing, the failure of any Indemnified Party to
give notice as provided herein shall not relieve the
Insurance Companies or the Underwriter of their
obligations hereunder except to the extent that they
have been prejudiced by the failure of the
18
<PAGE>
Indemnified Party to give notice. In addition, any
failure by the Indemnified Party to notify the
Insurance Companies or the Underwriter of any Claim
shall not relieve the Insurance Companies or the
Underwriter from any liability which they may have to
the Indemnified Party against whom the action is
brought otherwise than on account of this
indemnification provision. In case any Claim is
brought against the Indemnified Parties, the
Insurance Companies and the Underwriter shall be
entitled to participate, at their own expense, in the
defense of the Claim. The Insurance Companies and the
Underwriter also shall be entitled to assume the
defense thereof, with counsel satisfactory to the
party named in the Claim. After notice to the
Indemnified Party of the Insurance Companies' and the
Underwriter's election to assume a defense to a
Claim, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it,
and neither the Insurance Companies nor the
Underwriter will be liable to the Indemnified Party
under this Agreement for any legal or other expenses
subsequently incurred by the Indemnified Party
independently in connection with the defense of a
Claim other than the reasonable costs of
investigation.
13. RECORDS
The parties to this Agreement shall maintain such accounts, books and
records and other documents as are required to be maintained under
applicable laws and regulations and shall preserve such accounts, books
and records, and other documents for the periods prescribed by such
laws and regulations. Each party shall have the right to inspect and
audit the accounts, books and records and other documents of the other
party that pertain to the Variable Products during normal business
hours upon reasonable written notice to the other party. Any party
requesting such an audit shall bear the expense of the audit, including
the reasonable costs (other than overhead costs or costs for time spent
on audit-related matters by officers, directors, or employees of the
other party) borne by the other party in connection with the audit.
14. INVESTIGATIONS AND PROCEEDINGS
The parties to this Agreement shall notify each other promptly of any
insurance or securities regulatory investigation, administrative or
judicial proceeding, or material complaint arising in connection with
the offer or the sale of the Variable Products. The parties shall
cooperate fully in the resolution of any insurance or securities
investigation, administrative or judicial proceeding, or material
complaint.
15. TERM AND TERMINATION
(a) TERM -- This Agreement shall be effective from the date hereof
through December 31, 2002, which term shall automatically be
extended for a period of
19
<PAGE>
three (3) years unless this Agreement is sooner terminated in
accordance with the termination provisions in Section 15(b) of
this Agreement.
(b) TERMINATION -- No party hereto may terminate this Agreement
except as expressly provided in this Section 15(b).
(1) The Insurance Companies and the Underwriter (as one
party) or the Distributor may terminate this
Agreement effective at the close of business on
December 31, 2002 upon written notice delivered to
the other party not less than 30 nor more than 60
days prior to such date, which notice shall specify
that it is being given pursuant to this Section
15(b)(1).
(2) A party (the "Terminating Party") may terminate this
Agreement for cause if:
(i) another party (the "Breaching Party")
materially breaches this Agreement,
(ii) the Terminating Party has delivered to the
Breaching Party a notice specifying the
nature of the breach and that this notice is
being given pursuant to this Section
15(b)(2), and
(iii) the Breaching Party has not cured the breach
within 30 days after the delivery of the
notice.
(3) A Terminating Party may terminate this Agreement
immediately for cause:
(i) in the event of the voluntary institution by
the Distributor of bankruptcy proceedings or
the voluntary institution by an Insurance
Company of insolvency or rehabilitation
proceedings under any state insurance laws
or regulations (each an "Insolvent Party"),
or
(ii) in the event of a formal order or written
finding by a court of competent jurisdiction
that the Insolvent Party is bankrupt or
insolvent, there is a degradation of the
Insolvent Party's reputation that would
materially impair the ability of the
Insolvent Party to carry out its obligations
under this Agreement, or
(iii) if the Commission institutes a formal cease
and desist order or proceeding prohibiting
the offer of the sale of the Variable
Products or the operation of a Variable
Account, or a governmental or regulatory
authority of a state or other jurisdiction
institutes a formal order or proceeding
prohibiting the offer or the sale of the
20
<PAGE>
Variable Products or the operation of a
Variable Account; PROVIDED, that this
Agreement will be terminated only with
respect to the particular state or
jurisdiction issuing such order or
proceeding, or
(iv) if the Commission, the NASD, or any other
government authority or self-regulatory
organization revokes or suspends the
registration or license of the Distributor,
or the Distributor's ability to do business
is so materially impaired, in the reasonable
view of the Insurance Companies or the
Underwriter, that it could not perform its
obligations under this Agreement, or
(v) if a state insurance commissioner suspends
or revokes an Insurance Company's ability to
do business or the Insurance Company's
ability to do business is so materially
impaired, in the reasonable view of the
Distributor, that it could not perform its
obligations under this Agreement.
(c) SOLICITATION AFTER TERMINATION -- After termination of this
Agreement for any reason, the Distributor and the Distributor
Agency Affiliates agree that they will not take any action
designed or calculated to result in the transfer, exchange or
replacement of any Policy or Contract.
(d) SURVIVAL -- The provisions of Sections 11, 12, 16, 19 and 20
(Representations and Warranties, Indemnification, Rights Upon
Termination, Arbitration, and Confidentiality, respectively)
shall survive the termination of this Agreement.
16. RIGHTS UPON TERMINATION
(a) In no event will any further compensation be paid to the
Distributor should the Insurance Companies or the Underwriter
terminate this Agreement for cause pursuant to Section
15(b)(2) or Section 15(b)(3).
(b) As of the date of termination, the Insurance Companies shall
have the right to set off against any monies they owe the
Distributor any amounts owed by the Distributor to an
Insurance Company. In the event that the amounts owed by the
Distributor exceed the amounts owed by the Insurance
Companies, the difference shall become immediately due and
payable by the Distributor.
(c) In the event that either party does not pay within 45 days
after resolution of the net amount payable, then the net
amount owed will accrue interest, compounded daily, at the
fluctuating prime interest rate charged by The Chase Manhattan
Bank, N.A., plus two percent (2%).
21
<PAGE>
(d) If the Insurance Companies and the Underwriter terminate this
Agreement pursuant to Section 15(b)(1), the Insurance
Companies shall continue to:
(1) pay the Distributor the compensation set forth in
Schedule 6 to this Agreement; and
(2) offer all of the Variable Products then identified on
Schedule 2 to this Agreement for a period of one (1)
year from the date of termination of this Agreement,
during which period of time (i) the Insurance
Companies shall employ at least the same level of
effort in offering and supporting the Variable
Products as they did before the termination of this
Agreement and (ii) the terms of this Agreement shall
remain in full force and effect as though the
Agreement had not been terminated. The parties
further agree that such compensation shall only be
based on the Variable Products that have not lapsed
or been surrendered, due to 1035 exchanges or other
means, whether such lapse or surrender occurred
before or after the termination date.
(e) If the Distributor terminates this Agreement pursuant to
Section 15(b)(1), the Insurance Companies shall continue to
pay the Distributor the compensation set forth in Schedule 6
to this Agreement. The parties further agree that such
compensation shall only be based on the Variable Products that
have not lapsed or been surrendered, due to 1035 exchanges or
other means, whether such lapse or surrender occurred before
or after the termination date.
17. INDEPENDENT CONTRACTOR
The Distributor shall act as an independent contractor in the
performance of its duties and obligations under this Agreement and
nothing herein contained shall constitute the Distributor,
Broker-Dealers, Representatives or employees or officers of the
Distributor or Broker-Dealers as employees of AFLIAC, FAFLIC or the
Underwriter in connection with the distribution of the Variable
Products.
18. NOTICES
Any notice required or permitted under this Agreement shall be
delivered personally or sent by facsimile or by registered or certified
mail, return receipt requested, with all postage prepaid:
(a) TO THE DISTRIBUTOR:
First Union Securities, Inc.
Attention:
Fax:
22
<PAGE>
(b) TO THE INSURANCE COMPANIES:
First Allmerica Financial Life Insurance Company
Attention:
Fax:
(c) TO ALLMERICA INVESTMENTS, INC.:
Attention:
Fax:
A party may change its address or fax number for the delivery of
notices by delivering a written notice to the other party at its last
specified address. All notices shall be effective upon delivery;
PROVIDED that any notice sent by facsimile shall be deemed ineffective
unless a copy of the notice is also delivered personally or sent by
express courier or mail for delivery on the same or next business day.
19. ARBITRATION
Any dispute between the Distributor and an Insurance Company or between
the Distributor and the Underwriter arising under or relating to this
Agreement shall be settled by compulsory arbitration before a single
arbitrator experienced in the insurance industry in accordance with the
Commercial Arbitration Rules then in force of the American Arbitration
Association. The arbitration shall take place in Charlotte, North
Carolina unless some other location is mutually agreed upon by the
parties in dispute. Each party shall bear its own costs and expenses in
any such arbitration, except that the expenses of the arbitrators'
services shall be divided equally between the Distributor and the other
party to the dispute (either one or both of the Insurance Companies
and/or the Underwriter).
20. CONFIDENTIALITY
(a) GENERALLY. Each party will hold the other party's Confidential
Information (as defined below) in confidence and will
safeguard it as provided herein. The party receiving
Confidential Information will not, directly or indirectly,
report, publish, distribute, disclose, or otherwise
disseminate the Confidential Information, or any portion
thereof, to any third party including its Affiliates, and will
not use the Confidential Information, or any portion thereof,
for the benefit of itself or any third party including its
Affiliates or for any purpose, except only as necessary to
perform its duties and exercise its rights hereunder, or as
expressly authorized in writing by the party who owns such
Confidential
23
<PAGE>
Information. Disclosure of Confidential Information internally
by a recipient will be limited to those of its and its
Affiliates' officers, directors, employees, and agents on ab
"need to know" basis who must have access to the Confidential
Information to enable such party to perform its duties and
exercise its rights hereunder. In order to safeguard the
Confidential Information, each party shall (i) inform each
recipient of the Confidential Information of the confidential
nature thereof and of the requirements of this Agreement, (ii)
direct such recipients to comply with the terms of this
Agreement, and (iii) exercise any other precautions necessary
to prevent any improper use or disclosure of Confidential
Information.
(b) DEFINITION. "Confidential Information" shall mean: (i)
information regarding a party's or such party's Affiliates',
financial condition, information systems, business operations,
plans and strategies, products or services, customers and
prospective customers, and marketing and distribution plans,
methods and techniques; (ii) information that is marked
"confidential", "proprietary" or in like words, or that is
summarized in writing as being confidential prior to or
promptly after disclosure to the other party; (iii) any and
all related research; and (iv) any and all designs, ideas,
concepts, and technology embodied therein. Confidential
Information of the Distributor or its Affiliates that is to be
kept confidential by the Insurance Companies shall also
include: (v) any information regarding the pricing strategies
of each Broker-Dealer; (vi) specific marketing and training
materials of each Broker-Dealer; and (vii) any information of
the Distributor or its Affiliates in any form whatsoever that
is covered by a patent issued by the United States Patent and
Trademark Office.
Information is not considered confidential or proprietary if
such information: (1) is or becomes generally available to the
public other than as a result of disclosure by the recipient;
(2) was available to or already known by the recipient on a
non-confidential basis prior to its receipt from the party
claiming confidentiality; (3) is developed by the recipient
independently of any information or data acquired from the
party claiming confidentiality; or (4) is, or is required to
be, disclosed pursuant to a court order or the requirement of
any federal or state regulatory, judicial, or government
authority.
(c) REMEDIES. Each party acknowledges and agrees that monetary
damages would not be a sufficient or adequate remedy for a
breach or anticipated breach of this Section and that, in
addition to any other legal or equitable remedies which may be
available, each party shall be entitled to specific
performance and injunctive relief for any breach or
anticipated breach of this Section.
(d) SURVIVAL. The provisions of this Section shall survive the
expiration or other termination of this Agreement.
21. SEVERABILITY
24
<PAGE>
If any provision of this Agreement is held to be unenforceable or
invalid, that provision shall be severed from this Agreement and the
remainder of this Agreement shall remain in full force and effect.
22. CHOICE OF LAW
This Agreement and any disputes, actions or other proceedings arising
under or relating to it shall be governed by law of the State of North
Carolina without regard to its principles of conflicts of law.
23. NO WAIVER
No failure or delay on the part of any party hereto in exercising any
power or right under this Agreement shall operate as a waiver thereof,
nor shall any single or partial exercise of such power or right
preclude any other or further exercise thereof or the exercise of any
other power or right. No waiver by any party of any provision of this
Agreement, nor of any breach or default, shall be effective unless in
writing and signed by the party against whom such waiver is to be
enforced.
24. AGREEMENT NON-ASSIGNABLE
Any assignment of this Agreement in whole or in part by a party without
the prior written consent of the other parties thereto shall be void
and shall vest no rights in the assignee.
25. SCHEDULES
The Schedules to this Agreement are a part of this Agreement as if set
forth in full herein. With the exception of Schedule 6, all other
schedules attached to this agreement may be revised by the Insurance
Companies and the Underwriter, subject to review by the Distributor.
26. HEADINGS
The headings herein are for the purpose of convenience only and have no
legal force, meaning or effect.
27. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements (other than on matters related to
confidentiality), understandings, negotiations and discussions, whether
oral or written, of the parties and there are no warranties,
representations and/or agreements between the parties in conjunction
with the subject matter hereof except as set forth in this Agreement.
This Agreement, including any Schedule hereto, may be
25
<PAGE>
amended or modified only by written instrument, executed by duly
authorized officers of the parties.
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be executed
as of the date first above written.
FIRST UNION SECURITIES, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Date:
------------------------
ALLMERICA FINANCIAL LIFE INSURANCE AND
ANNUITY COMPANY
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Date:
------------------------
FIRST ALLMERICA FINANCIAL LIFE INSURANCE
COMPANY
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Date:
------------------------
ALLMERICA INVESTMENTS, INC.
26
<PAGE>
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Date:
------------------------
SCHEDULE 1
DISTRIBUTOR AGENCY AFFILIATES
[TO BE ADDED]
27
<PAGE>
SCHEDULE 2
VARIABLE PRODUCTS
<TABLE>
<CAPTION>
<S> <C> <C>
Product Policy/Certificate Description
Number
</TABLE>
VARIABLE ANNUITY SURROGATE
<PAGE>
SCHEDULE 3
PRIVATE PLACEMENT GUIDELINES
The Insurance Companies rely on exemptions under the 1933 Act and the 1940 Act
in the issuance of certain of their variable annuity contracts and variable life
insurance policies. Reliance on these exemptions generally depends upon the
number and identity of the purchasers, the number of securities offered, the
size of the offering, the manner of the offering, and whether the securities are
being purchased only for investment purposes (and not for the purpose of
distributing or reselling them).
SECTION 3(c)(7)
Section 3(c)(7) exempts from the registration requirements of the 1940 Act
certain companies owned exclusively by an unlimited number of "qualified
purchasers", as defined in amended Section 2(a)(51) of the 1940 Act. Section
2(a)(51) establishes asset tests for four categories of "qualified purchasers":
(1) a natural person who owns at least $5 million in investments; (2) a family
investment vehicle that owns at least $5 million in investments; (3) a trust
whose trustees and settlers are qualified persons, provided that the trust was
not formed for the purpose of investing in the Section 3(c)(7) company; and (4)
any other person who owns and invests on a discretionary basis, for itself or
other qualified purchasers, at least $25 million in "investments."
In order to preserve their right to rely on Section 3(c)(7) of the 1940 Act, the
Insurance Companies require, and the Distributor shall require, through any
Sales Agreements entered into pursuant to Section 2(b) of this Agreement that
each Broker-Dealer require each prospective purchaser to represent and warrant
(in response to a questionnaire) that it owns sufficient "investment securities"
(as defined in Rule 2a 51-1 under the 1940 Act) to meet the financial
requirements and otherwise meet the requirements of the appropriate definition
of "qualified purchaser" in Section 2(a)(51) of the 1940 Act.
In addition, if the Private Placement will be used by a corporation to assist it
in funding its obligation to employees under a non-funded deferred compensation
plan, the Insurance Companies therefore, will impose certain additional
conditions on the purchase and will request additional information from the
purchaser in order to insure compliance with Section 3(c)(7). These additional
requirements also are designed to insure that the employer is and remains the
sole beneficial owner of the Private Placement for purposes of the 1940 Act.
SECTION 3(c)(1)
Certain of the Variable Accounts for the Private Placements are not registered
under the 1940 Act in reliance on Section 3(c)(1) of the 1940 Act. Section
3(c)(1) exempts from the registration requirements of the 1940 Act certain
companies who are issuers whose outstanding securities (other than short-term
paper) are beneficially owned by not more than one hundred persons and which are
not making and do not presently propose to make a public offering of their
securities.
29
<PAGE>
In order to preserve their right to rely on Section 3(c)(1) of the 1940 Act, the
Insurance Companies require, and the Distributor shall require, through any
Sales Agreements entered into pursuant to Section 2(b) of this Agreement that
each Broker-Dealer require its Representatives to comply with the requirements
of a non-public offering and monitor the number of prospective purchasers to
whom offers of sales have been made.
REGULATION D - RULE 501
With respect to the Private Placements, each prospective purchaser must also be
qualified as an "accredited investor" or otherwise be a "suitable investor,"
prior to offering the Private Placements to that prospective purchaser. An
"accredited investor" is: (a) a natural person, (i) whose individual net worth,
or joint net worth with the person's spouse, at the time of purchase exceeds
$1,000,000; or (ii) who has had individual income in excess of $200,000 in each
of the two (2) most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and who reasonably expects an income
in excess of such amounts in the current year; (b) a bank or savings and loan
association, whether acting in an individual or fiduciary capacity; (c) a
registered broker or dealer; (d) an insurance company; (e) a registered
investment company; (f) a Small Business Investment Company; (g) any plan
established by a state or municipal agency or government for the benefit of its
employees, with total assets in excess of $5,000,000; (h) certain employee
benefit plans (within the meaning of ERISA) with total assets in excess of
$5,000,000; (i) a private business development company; (j) a charitable
organization, corporation, business trust, any trust whose purchase is directed
by a person with knowledge and experience in financial and business matters, or
partnerships, not formed to acquire the securities offered, with total assets in
excess of $5,000,000; or (k) an entity in which all of the equity owners are
accredited investors.
Because resales of securities acquired in a private offering generally are
prohibited (with the exception of offerings pursuant to Rule 144A of the 1933
Act, which expressly permits resales to certain institutional investors),
Representatives must ensure that each prospective purchaser understands the
long-term nature of the Private Placement investment, does not intend to resell
the investment and is financially able to retain the securities purchased.
2
<PAGE>
SCHEDULE 4
AVAILABLE FUNDS AND FUND
PORTFOLIOS
[TO BE ADDED]
<PAGE>
SCHEDULE 5
STANDARD FORM OF SALES AGREEMENT
[The draft "Selling Group Agreement" funished by First Union Securities, Inc. is
currently being reviewed by Allmerica Financial's Legal Department. Once the
form has been agreed to, it will be set forth on this Schedule 5]
<PAGE>
SCHEDULE 6
COMPENSATION SCHEDULE
NOTE: This Scheudle has not yet been reviewed or approved by Allmerica's Actuary
Variable Annuity Surrogate -
SIMPLIFIED ISSUE CASES
<TABLE>
<CAPTION>
Year % of Premium
<S> <C>
1-4 8.5%
5-10 4%
11+ 2%; plus
</TABLE>
100% of the Revenue Sharing paid by Investment Managers in excess of 15 basis
points annually. Revenue Sharing means the fees received by Insurance Company
from the Investment Managers under the respective participation agreements as
reimbursement for administrative services performed by the Insurance Company.
This amount will be calculated after each calendar year based on the aggregate
amounts received from all Investment Managers using the average assets in the
separate accounts underlying the product; plus 0.35% of all premiums written
above $100 million dollars.
FULLY UNDERWRITTEN CASES
<TABLE>
<CAPTION>
Year % of Premium
<S> <C>
1-5 8.5%
5-11 4%
11+ 2%; plus
</TABLE>
100% of the Revenue Sharing paid by Investment Managers in excess of 15 basis
points annually. Revenue Sharing means the fees received by Insurance Company
from the Investment Managers under the respective participation agreements as
reimbursement for administrative services performed by the Insurance Company.
This amount will be calculated after each calendar year based on the aggregate
amounts received from all Investment Managers using the average assets in the
separate accounts underlying the product; plus 0.35% of all premiums written
above $100 million dollars.
For any Variable Product, the Insurance Company may elect from time to time to
make advances of compensation to Distributor. Any such advance shall be deemed a
loan, payable upon demand, and secured by a first lien (security interest) upon
compensation payable by Insurance Company to Distributor, without the necessity
of execution of any further document, and Insurance Company shall be entitled to
set off any amounts owed to it by Distributor against any amounts owed to the
Distributor by the Insurance Company.
<PAGE>
SCHEDULE 5
AVAILABLE FUNDS AND FUND
PORTFOLIOS
[TO BE ADDED]
<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
Director and Chief Information Officer 7/1/99
- -------------------------- ------
Robert E. Bruce
/s/ John P. Kavanaugh Director, Vice President and 7/1/99
- -------------------------- Chief Investment Officer ------
John P. Kavanaugh
/s/ John F. Kelly Director, Vice President and 7/1/99
- -------------------------- General Counsel ------
John F. Kelly
/s/ J. Barry May Director 7/1/99
- -------------------------- ------
J. Barry May
Director 7/1/99
- -------------------------- ------
James R. McAuliffe
/s/ Edward J. Parry, III Director, Vice President, Chief Financial 7/1/99
- -------------------------- Officer and Treasurer ------
Edward J. Parry, III
/s/ Richard M. Reilly Director, President and 7/1/99
- -------------------------- Chief Executive Officer ------
Richard M. Reilly
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>
<TABLE>
<S> <C> <C>
ALLMERICA FINANCIAL LIFE 440 LINCOLN STREET LIFE INSURANCE APPLICATION - SIMPLIFIED UNDERWRITING INSURANCE
AND ANNUITY COMPANY WORCESTER, MA 01653 FORM NO. XXXX-99
- -----------------------------------------------------------------------------------------------------------------------------------
APPLICATION FOR SIMPLIFIED UNDERWRITING
- -----------------------------------------------------------------------------------------------------------------------------------
PROPOSED INSURED: Sex: ____ Male ____ Female
Name: Date of Birth:
Address: State:
S.S. No.
Drivers License No.
OWNER: (THE OWNER WILL BE THE INSURED UNLESS SPECIFIED HERE) State:
Name: S.S. No.
Address:
Tax I.D. No.
BENEFICIARY:
Primary Beneficiary Relationship to Insured:
Contingent Beneficiary Relationship to Insured:
INSURANCE:
Amount Applied for: $_______________
Coverage Option: ___ Option 1 Level -- Coverage remains constant
___ Option 2 Adjustable -- Insurance coverage changes with the value of policy
___ Option 3 Level -- Cash Value Accumulation Test
___Yes ___No Will the proposed policy replace any existing annuity or life insurance contract?
Telephone Access: ____ Accept ____ Decline
- -----------------------------------------------------------------------------------------------------------------------------------
GIVE DETAILS TO ALL YES ANSWERS IN REMARKS. INCLUDE ALL DATES AND DIAGNOSIS.
- -----------------------------------------------------------------------------------------------------------------------------------
1. Has the proposed insured within the last two years or does the proposed
insured in the future intend to:
__ Yes __ No (a) fly as a pilot, student or crew member in any type of aircraft?
__ Yes __ No (b) engage in underwater diving, parachuting, hang gliding, auto, boat or motor cycle
racing?
__ Yes __ No (c) travel or reside outside of the United States?
2. Has the proposed insured ever had or been advised to receive treatment for:
__ Yes __ No (a) heart trouble, high blood pressure, diabetes, cancer, tumor,
epilepsy, asthma, emphysema or any disorder of the blood vessels?
__ Yes __ No (b) disease or disorder of the stomach, intestine, liver, lungs, kidneys, brain, prostate
or reproductive organs?
__ Yes __ No (c) alcohol or drug abuse or any mental or nervous condition?
3. __ Yes __ No Has the proposed insured ever tested positive on an Acquired Immune Deficiency Syndrome
(AIDS) Related test?
REMARKS:
Amount paid with this application: $______________
Future payments of $_______________ Paid: ___ Annually ___ Semi-Annually ___ Quarterly ___ Monthly
...................................................................................................................................
ALLOCATION* OF INITIAL PAYMENT: DOLLAR COST AVERAGING: YES___ NO____
Source Account:
To: Frequency:
Fund 1 ___________% ___________%
Fund 2 ___________% ___________%
Fund 3 ___________% ___________%
Fund 4 ___________% ___________%
Fund 5 ___________% ___________%
Fund 6 ___________% ___________%
Fund 7 ___________% ___________%
Fund 8 ___________% ___________%
Fund 9 ___________% ___________%
Fund 10 ___________% ___________%
Fund 11 ___________% ___________%
Fund 12 ___________% ___________%
Fund 13 ___________% ___________%
Fund 14 ___________% ___________%
Fund 15 ___________% ___________%
Fund 16 ___________% ___________%
Fund 17 ___________% ___________%
Fund 18 ___________% ___________%
Fund 19 ___________% ___________%
Fund 20 ___________% ___________%
Fund 21 ___________% ___________%
Fund 22 ___________% ___________%
Fund 23 ___________% ___________%
Fund 24 ___________% ___________%
Fund 25 ___________% ___________%
Fund 26 ___________% ___________%
Fund 27 ___________% ___________%
AUTOMATIC ACCOUNT REBALANCING: ___ YES ___ NO If Yes: ___ Monthly ___ Quarterly ___ Semi-Annually ___ Annually
* Future payments will be allocated in accordance with the allocation of the
initial payment unless otherwise specified. Deductions of all charges will
be made pro rata according to the value of each account and the Fixed
Account.
White - Allmerica Yellow - FUIG Pink - Agent Blue -- Customer
</TABLE>
<PAGE>
ACKNOWLEDGMENTS AND SIGNATURES
NOTICE TO ARKANSAS/NEW JERSEY/OHIO RESIDENTS ONLY: "Any person who includes
any false or misleading information on an application for an insurance
policy/certificate is subject to criminal and civil penalties."
NOTICE TO COLORADO/KENTUCKY/MAINE/NEW MEXICO/PENNSYLVANIA RESIDENTS ONLY:
"Any person should knowingly and with intent to defraud any insurance company
or other person files an application for insurance or conceals for the
purpose of misleading, information concerning any fact material thereto
commits a fraudulent insurance act, which is a crime and subjects such person
to criminal and civil penalties."
NOTICE TO FLORIDA RESIDENTS ONLY: "Any person who knowingly and with intent
to injure, defraud, or deceive any insurer files a statement of claim or an
application containing false, incomplete, or misleading information is guilty
of a felony of the third degree."
I acknowledge receipt of current Prospectus describing the __________ policy
I am applying for, and the underlying Funds. Unless I did not accept the
Telephone Access privilege, 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 the withdrawal of funds from my account cannot be transacted
by telephone or fax instructions.
I UNDERSTAND THAT ANY DEATH BENEFITS IN EXCESS OF THE FACE AMOUNT AND ANY
POLICY VALUE OF THE [FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE 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 PREMIUM PAYMENTS.
It is agreed that: (1) The application consists of this application form, the
medical questionnaire and the supplemental application to apply for insurance
on family members, as 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 premium is paid during the lifetime of the proposed insured(s) and
then only if proposed insured(s) has (have) not consulted or been treated by
any physician or practitioner of any healing art nor had any tested listed in
the application since its completion; but, if the premium is paid prior to
the delivery of the policy and a temporary life insurance agreement is
delivered by the representative, insurance will be effective subject to the
terms of the temporary life insurance agreement; and (4) No registered
representative or broker is authorized to amend, alter or modify the terms of
this agreement.
<TABLE>
<S> <C>
Signed at Date:
------------------------------------------ -------------------
- ---------------------------------------------------
Signature of Proposed Insured
- ---------------------------------------------------
Owner (if other than Proposed Insured)
...................................................................................................................................
(NOT A PART OF THE APPLICATION) REPORT BY AGENCY OFFICE
Agency Code # Agent Code # Indicate City/County Code: Plan Code:
To the best of your knowledge is a replacement involved? YES NO
As a 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 and approved by the Company were used.
-------------------------------------------------------------
Signature of Registered Representative
</TABLE>
<PAGE>
December 3, 1999
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
RE: SEPARATE ACCOUNT FUVUL 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 the on Form S-6
under the Securities Act of 1933 with respect to the Company's individual
flexible premium variable life insurance policies.
I am of the following opinion:
1. The Separate Account FUVUL 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 FUVUL equal to the reserves and
other Policy liabilities of the Policies which are supported by the
Separate Account FUVUL Account are not chargeable with liabilities
arising out of any other business the Company may conduct.
3. The individual flexible premium variable life insurance policies, when
issued in accordance with the Prospectus contained in this 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 FUVUL on Form S-6 filed under
the Securities Act of 1933 and amendment under the Investment Company Act of
1940.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Assistant Vice President and Counsel
<PAGE>
December 3, 1999
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
RE: SEPARATE ACCOUNT FUVUL 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 this Initial Registration
Statement on Form S-6 of its flexible premium variable life insurance
policies ("Policies") allocated to the Separate Account FUVUL 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 this Initial 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 30 or a person age 45 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 hereby consent to the use of this opinion as an exhibit to the Initial
Registration Statement.
Sincerely,
/s/ William H. Mawdsley
William H. Mawdsley, FSA, MAAA
Vice President and Actuary
<PAGE>
Description of Issuance, Transfer and Redemption Procedures for Policies
Offered by the Separate Account FUVUL
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 FUVUL ("Variable 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. There are currently
4 Sub-Accounts within the Variable Account. Procedures apply equally to each
subaccount and for purposes of this description are defined in terms of the
Variable Account, except where a discussion of both the Variable Account and the
individual Sub-Accounts is necessary. Each Sub-Account invests in shares of a
corresponding investment division of the Evergreen Variable Annuity Trust
("Trust"), which is a "series" type of mutual fund registered under the 1940
Act. The investment experience of a Sub-Account of the Variable Account depends
on the market performance of its corresponding investment division of the Trust.
Although flexible premium variable life insurance policies funded through the
Variable Account may also provide for fixed benefits supported by the Company's
General Account, this description assumes that premiums are allocated
exclusively to the Variable Account and that all transactions involve only the
Sub-Accounts of the Variable 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 Policy provisions and administrative procedures that
might be deemed to constitute, either directly or indirectly, a "purchase"
transaction. Because of the insurance nature of the policies, 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 Policy provisions, such as
reinstatement and loan repayment, do not result in the issuance of a Policy
but require certain payments by the Policy Owner and involve a transfer of
assets supporting Policy reserve into the Variable Account.
a. INSURANCE CHARGES AND UNDERWRITING STANDARDS
Premium payments are not limited as to frequency and number, but there
are limitations as to amount. No premium payment may be less than $50
without the Company's consent, and the total of all premiums paid can
never exceed the then current maximum premiums determined by Internal
Revenue Service rules. If at any time a premium is paid which would
result in total premiums exceeding the current maximum premium
limitations, the Company will return the amount in excess of such
maximums to the Policy Owner.
The Policy will remain in force so long as the Policy value less any
outstanding debt is sufficient to pay certain monthly charges imposed
in connection with the Policy. Monthly policy charges for the policies
will not be the same for all Policy Owners. The insurance principle of
pooling and distribution of mortality risks is based upon the
assumption that each Policy Owner pays a cost of insurance charge
commensurate with the Insured's mortality risk, which is actuarially
determined based upon factors such as age, health and occupation. 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 Policy
Owners because different cost of insurance rates will apply. While not
all Policy Owners will be subject to the same cost of insurance rate,
there will be a single "rate" for all Policy Owners in a given
actuarial category. The Policies will be offered and sold pursuant to
the Company's underwriting standards and in accordance with state
1
<PAGE>
insurance laws. Such laws prohibit unfair discrimination among
Insureds, but recognize that premiums 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 Policy.
b. APPLICATION AND INITIAL PREMIUM PROCESSING
Upon receipt of a completed application from a prospective Policy
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 Policy Owner before a determination
can be made. A Policy cannot be issued until this underwriting
procedure has been completed. However, under certain conditions,
the Policy may be issued on the basis of simplified underwriting.
If at the time of Application a prospective Policy Owner makes a
payment equal to at least one monthly deduction for the Policy as
applied for, the Company will provide fixed temporary insurance in
the amount of insurance applied for, up to a maximum of $500,000,
pending underwriting approval. This coverage will continue for a
maximum of 90 days from the date of the application or enrollment
form or, if required, the completed medical exam. If the
application is approved, the Policy will be issued as of the date
the terms of the temporary insurance agreement were met. If the
prospective Policy Owner does not wish to make any payment until
the Policy is issued, upon delivery of the Policy the Company will
require payment of sufficient premium to place the insurance
in-force.
Pending completion of insurance underwriting and Policy issuance
procedures, the initial premium will be held in the Company's
General Account. If the application is approved and the Policy is
issued and accepted, the initial premium held in the General
Account will be credited with interest not later than the date of
receipt of the premium at the Company's Principal Office. If a
Policy is not issued, the premiums will be returned to the
Applicant without interest.
If the application or enrollment form is approved and the Policy
is issued and accepted, upon issuance and acceptance of the Policy
the Company generally allocates Policy Value according to the
Policy Owner's instructions. However, if the Policy provides for a
full refund of payments under its "Right to Examine Policy"
provision as required in certain states and described below under
Section II(g), the Company will initially allocate sub-account
investments to the Money Market Fund. The allocation to the Money
Market Fund will be for four days after the expiration of the
"Right to Examine" provision of the Policy. Generally, this will
be for 14 days from issuance and acceptance of the Policy (based
on a 10 day "Right to Examine" period)
These processing procedures are designed to provide insurance,
starting with the date of the application, to the proposed Policy
Owner in connection with payment of the initial premium and will
not dilute any benefit it payable to any existing Policy Owner.
Although a Policy cannot be issued until the underwriting process
has been completed, the proposed Policy Owner will receive
immediate insurance coverage, if he has paid an initial premium
and proves to be insurable.
The Company will require that the Policy be delivered within a
specific delivery period to protect itself against anti-selection
by the prospective Policy Owner resulting from a deterioration of
the health of the proposed Insured. Generally, the period will not
exceed the shorter of 30 days from the date the Policy is issued
and 75 days from the date of Part 2 of the Application.
2
<PAGE>
c. PREMIUM ALLOCATION
Premiums are credited to the Policy as of the date the premium
payments are received by the Company, with the possible exception
of the first premium. The Policy Owner may allocate premiums among
the Company's General Account and up to fifteen Sub-Accounts of
the Variable Account. The Policy Owner may change the allocation
of premiums 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 Policy
Owner may transfer amounts among all of the Sub-Accounts and the
General Account, subject to certain restrictions, but at no time
may have allocations in more than twenty Subaccounts.
d. REPAYMENT OF LOAN
A loan made under this Policy 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 Variable Account to the General Account an
amount of that Sub-Account's Policy value equal to the loan amount
allocated to the Sub-Account. Since the Company will credit such
assets with current annual interest at 4.00%, which is below the
interest rate charged on the loan (currently 4.8%, and guaranteed
not to exceed 6.0%), the Company will retain the difference
between these rates in order to cover certain expenses and
contingencies. Upon repayment of debt, the Company will reduce the
Policy value in the general account attributable to the loan and
transfer assets supporting corresponding reserves to the
Sub-Accounts according to either Policy Owner's instruction or, if
none, the premium payment allocation percentages then in effect.
Loan repayments allocated to the Variable Account cannot exceed
Policy Value previously transferred from the Variable Account to
secure the debt.
A preferred loan option is automatically available, unless the
Policy Owner requests otherwise. The preferred loan option is
available on that part of an outstanding loan that is attributable
to policy earnings. The term "policy earnings" means that portion
of the Policy Value that exceeds the sum of the payments made less
all partial withdrawals and partial withdrawal transaction
charges. The guaranteed annual interest rate credited to the
policy value securing a preferred loan is 4.0%. The interest rate
charged on a preferred loan is currently 4.0% (guaranteed not to
exceed 4.5%).
e. POLICY REINSTATEMENT
If the surrender value is insufficient to cover the next monthly
deduction plus loan interest accrued, or if Policy debt exceeds
the Policy value, the Company will notify the Policy Owner and any
assignee of record. The Policy 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 Policy without any Policy 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 Policy month in which the
Insured dies will be deducted from the death proceeds.
If the Policy has not been surrendered and the Insured is alive,
the terminated Policy 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
3
<PAGE>
Company; and (3) a premium that is large enough to cover the
minimum amount payable, as described below.
If reinstatement is requested the Policy Owner must pay the
monthly deduction for the three-month period beginning on he date
of reinstatement. The Policy Value on the date of reinstatement
is:
- The payment made to reinstate the Policy and interest
earned from the date the payment was received at our
Principal Office PLUS
- The Policy Value less any outstanding loan on the date
of default MINUS
- The Monthly Deductions due on the date of reinstatement
f. CORRECTION OF MISSTATEMENT OF AGE
If the Company discovers that the age of the Insured has been
misstated, the death benefit and any rider benefits will be those
which would be purchased by the most recent deduction for the cost
of insurance and the cost of rider benefits at the correct age.
g. CONTESTABILITY
A Policy is contestable for two years, measured from the issue
date, for material misrepresentations made in the initial
application for the Policy. Policy 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
Policy unless it is contained in an application.
h. REDUCTION IN COST OF INSURANCE RATE CLASSIFICATION
By administrative practice, the Company will reduce the cost of
insurance rate classification for an outstanding Policy if new
evidence of insurability demonstrates that the Policy Owner
qualifies for a lower classification. After the reduced rating is
determined, the Policy Owner will pay a lower monthly cost of
insurance charge each month. If new evidence of insurability
provided in connection with an increase in Face Amount
demonstrates that the Policy Owner is in a higher risk
classification, the higher cost of insurance rate will apply only
to the increase in Face Amount.
II. "REDEMPTION PROCEDURE": SURRENDER AND RELATED TRANSACTIONS
The policies provide for the payment of monies to a Policy Owner or
beneficiary upon presentation of a Policy. Generally, except for the
payments of death proceeds and the imposition of monthly deduction
charges, the payee will receive a pro rata or proportionate share of
the Variable 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
Policy is presented, including, for example, the cash surrender value
or death benefit. There are also certain Policy provisions (e.g.,
partial withdrawals or the loan privilege) under which the Policy will
not be presented to the Company but which will affect the Policy
Owner's benefits and may involve a transfer of the assets supporting
the Policy reserve out of the Variable Account. Any combined
transactions on the same day, which counteract the effect of each
other, will be allowed. The Company will assume the Policy 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
4
<PAGE>
for a decrease in Face Amount which lowers the Face Amount below the
stated minimum) the Company will reject the whole transaction and not
just the portion which causes the disallowance. The Policy Owner will
be informed of the rejection and will have an opportunity to give new
instructions.
a. SURRENDER FOR CASH VALUES
The Company will pay the net cash surrender value within seven
days after receipt, at its Principal Office, of the Policy and a
signed request for surrender. 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 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.
The Policy value (equal to the value of all accumulations in the
Variable Account) may increase or decrease from day to day
depending on the investment experience of the Variable Account.
Calculation of the Policy value for any given day will reflect the
actual premiums paid, expenses charged and deductions taken. The
Company will also make monthly deductions from a Policy to cover
the cost of insurance (including optional benefits provided by
rider), administration expenses, tax expenses, and distribution
costs. Other possible deductions from the Policy (which will occur
on a Policy-specific basis) include a charge for partial
withdrawals, a charge for increases in Face Amount and a charge
for certain transfers.
The Company will make the payment of net cash surrender value out
of its General Account and, at the same time, transfer assets from
the Variable Account to the General Account in an amount equal to
the Policy reserves in the Variable Account. If the Policy is
surrendered in the first Policy year, any unpaid first year
monthly administrative charges will be deducted at surrender.
b. CHARGES ON PARTIAL WITHDRAWAL
For each partial withdrawal, The Company deducts a transaction fee
of 2.0% of the amount withdrawn, not to exceed $25. This fee is
intended to reimburse us for the cost of processing the
withdrawal.
c. DEATH BENEFIT
The Company will normally pay a death benefit to the beneficiary
within seven days after receipt, at its Principal Office, of the
Policy, due proof of death of the Insured, and all other
requirements necessary to make payment.
The death proceeds payable will depend on the option in effect at
the time of death. Federal tax law requires a Guideline Minimum
Death Benefit in relation to Policy Value for a Contract to
qualify as life insurance. Under current Federal tax law, either
the Guideline Premium Test or the Cash Value Accumulation Test can
be used to determine if the Contract complies with the definition
of "life insurance" under the Code. At the time of application,
the Policy Owner may elect either of the tests. If the Policy
Owner elects the Guideline Premium Test, the Policy Owner will
have the choice of electing the Death Benefit Option 1 or the
Death Benefit Option 2. If the Policy Owner elect the Cash Value
Accumulation Test, the Death Benefit Option 3 will apply.
5
<PAGE>
GUIDELINE PREMIUM TEST AND CASH VALUE ACCUMULATION TEST - There
are two main differences between the Guideline Premium Test and
the Cash Value Accumulation Test. First, the Guideline Premium
Test limits the amount of premium that may be paid into a
Contract, while no such limits apply under the Cash Value
Accumulation Test. Second, the factors that determine the
Guideline Minimum Death Benefit relative to the Policy Value are
different.
The Guideline Premium Test limits the amount of premiums payable
under a Contract to a certain amount for an Insured of a
particular age and sex. Under the Guideline Premium Test, the
Policy Owner may choose between the Death Benefit Option 1 or the
Death Benefit Option 2. After issuance of the Contract, the Policy
Owner may change the selection from the Death Benefit Option 1 to
the Death Benefit Option 2, or vice versa.
The Cash Value Accumulation Test requires that the Death Benefit
must be sufficient so that the cash Surrender Value does not at
any time exceed the net single premium required to fund the future
benefits under the Contract. Under the Cash Value Accumulation
Test, required increases in the Guideline Minimum Death Benefit
(due to growth in Policy Value) will generally be greater than
under the Guideline Premium Test. If the Policy Owner chooses the
Cash Value Accumulation Test, ONLY the Death Benefit Option 3 is
available.
Under the Death Benefit Option 1, the death benefit is the greater
of either the Face Amount of insurance or the Guideline Minimum
Sum Insured. Under the Death Benefit Option 2, the death benefit
is the greater of either (a) the Face Amount of insurance PLUS
Policy value or (b) the guideline minimum sum Insured. The
guideline minimum sum Insured is calculated by multiplying the
applicable percentage from the following table for the Insured
person's age (nearest birthday) at the beginning of the Policy
year of determination to the-policy value.
<TABLE>
<CAPTION>
GUIDELINE MINIMUM DEATH BENEFIT FACTORS
------------------------------------------------------
Percentage of
Attained Age Policy Value
------------ ------------
------------------------------------------------------
<S> <C>
40 and under 250%
------------------------------------------------------
41 243%
------------------------------------------------------
42 236%
------------------------------------------------------
43 229%
------------------------------------------------------
44 222%
------------------------------------------------------
45 215%
------------------------------------------------------
46 209%
------------------------------------------------------
47 203%
------------------------------------------------------
48 197%
------------------------------------------------------
49 191%
------------------------------------------------------
50 185%
------------------------------------------------------
51 178%
------------------------------------------------------
52 171%
------------------------------------------------------
53 164%
------------------------------------------------------
54 157%
------------------------------------------------------
55 150%
------------------------------------------------------
56 146%
------------------------------------------------------
57 142%
------------------------------------------------------
58 138%
------------------------------------------------------
59 134%
------------------------------------------------------
6
<PAGE>
<CAPTION>
<S> <C>
------------------------------------------------------
60 130%
------------------------------------------------------
61 128%
------------------------------------------------------
62 126%
------------------------------------------------------
63 124%
------------------------------------------------------
64 122%
------------------------------------------------------
65 120%
------------------------------------------------------
66 119%
------------------------------------------------------
67 118%
------------------------------------------------------
68 117%
------------------------------------------------------
69 116%
------------------------------------------------------
70 115%
------------------------------------------------------
71 113%
------------------------------------------------------
72 111%
------------------------------------------------------
73 109%
------------------------------------------------------
74 107%
------------------------------------------------------
75 -90 105%
------------------------------------------------------
91 104%
------------------------------------------------------
92 103%
------------------------------------------------------
93 102%
------------------------------------------------------
94 101%
------------------------------------------------------
95 and above 100%
------------------------------------------------------
</TABLE>
Death Benefit Option 3 (Cash Value Accumulation Test). Under
Option 3, the Death Benefit will equal the greater of (1) the Face
Amount or (2) the Policy Value multiplied by the applicable
factor, as set forth in the Policy. The applicable factor depends
upon the Underwriting Class, sex (unisex if required by law), and
then-attained age of the Insured. The factors decrease slightly
from year to year as the attained age of the Insured increases.
The Company will make payment of the death proceeds out of its
general account, and will transfer assets from the Variable
Account to the general account in an amount equal to the reserve
in the Variable Account attributable to the Policy. 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.
d. DEFAULT AND OPTIONS ON LAPSE
The duration of insurance coverage depends upon the Policy value
being sufficient to cover the monthly deductions plus loan
interest accrued. If the Policy value at the beginning of a month
is less than the deductions for that month plus loan interest
accrued, a grace period of 62 days will begin. Written notice will
be sent to the Policy Owner and any assignee on the Company's
records stating that such a grace period has begun and giving the
amount of premium payment necessary to prevent termination.
If sufficient payment is not received during the grace period, the
Policy 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.
e. POLICY LOAN
7
<PAGE>
The policies provide that Policy Owner may take a loan of up 90%
of an amount equal to Policy value. The Policy value for this
purpose will be that next computed after receipt, at the Principal
Office, of a loan request. Payment of the loan amount will be made
to the Policy Owner within seven days after such receipt.
The amount of any outstanding loan plus accrued interest is called
"debt". When a loan is made, the portion of the assets in the
Variable Account (which is a portion of the surrender value and
which also constitutes a portion of the reserves for the death
benefit) equal to the debt created thereby is transferred by the
Company from the Variable Account to the general account.
Allocation of the loan among Sub-Accounts will be according to the
Policy Owner's request. If this allocation is not specified or not
possible, the loan will be allocated based on the proportion the
Policy value in the General Account, less debt, and the Policy
value in each Sub-Account bears to the total Policy value, less
debt. Policy value in each Sub-Account equal to the Policy loan
allocated to such Subaccount will be transferred to the General
Account, and the number of Accumulation Units equal to the Policy
value so transferred will be canceled. Because of the transfer, a
portion of the Policy is not variable during the loan period and,
therefore, the death benefit and the surrender value are
permanently affected by any debt, whether or not repaid in whole
or in part. The Company credits the Policy value in the General
Account attributable to the loan with a rate of return equal to an
effective annual yield of 4.00%.
Loan Interest is payable in arrears at the current annual rate of
4.80% (4.00% for preferred loans). This rate may change, but is
guaranteed not to exceed 6.00% (4.50% for preferred loans).
Interest is payable at the end of each Policy year or on a pro
rata basis for such shorter period as the loan may exist. Loan
interest is due on each Policy anniversary. If not paid when due,
it is added to the loan principal and bears interest at the same
rate of interest. If the resulting loan principal exceeds the
Policy value in the General Account, the Company will transfer
Policy value equal to the excess debt from the Policy value in
each Sub-Account to the General Account; as security for the
excess debt. The Company will allocate the amount transferred
among the Sub-Accounts in the same proportion that the Policy
value in each Sub-Account bears to the total Policy values in all
Sub-Accounts.
Failure to repay a loan will not necessarily terminate the Policy.
If the Policy Value is not sufficient to cover the monthly
deductions for the cost of insurance and administrative expenses,
the Policy will go into a 62 day grace period as described above.
f. TRANSFERS AMONG SUBACCOUNTS
Amounts may be transferred, upon request, at any time from any
Sub-Account of the Variable Account to one or more other
Sub-Accounts. Transfers from a Sub-Account of the Variable Account
will take effect as of the receipt of a written request at the
Principal Office. The first twelve transfers are free of charge;
however, the Company will make an administrative charge of $10
(guaranteed not to exceed $25) for additional transfers in a
Policy year. Transfers resulting from Policy loans, the exercise
of conversion rights, automatic transfers, and reallocation of
Policy value within 20 days of issue, will not be subject to a
transfer charge, and will not be counted for purposes of the
limitation on the number of 'free' transfers allowed in each
Policy year. Automatic transfers do not reduce the remaining
number of transfers which may be made without charge.
Transfer charges, if any, are allocated by Policy Owner request to
one Sub-Account. If an allocation is not specified or not possible
the allocations will be based on the proportion that the values in
each of the Sub-Accounts of the Variable Account bears to the
total unloaded Policy value.
8
<PAGE>
g. RIGHT OF WITHDRAWAL PROCEDURES
The Policy Owner has the right to examine and cancel the Policy by
returning it to the Company Along with a written request for
cancellation to the Company or one of its representatives on or
before the 10 days after receipt of the Policy (or longer when
state law so requires).
If the Policy provides for a full refund under its "Right to
Examine Policy" provision as required in a particular state, the
refund will be the greater of the entire payment or the Policy
value plus deductions for taxes, charges or fees. If the Policy
does not provide for a full refund, the refund will be the amounts
allocated to the fixed account, the policy value in the Variable
Account, and all fees, charges and taxes which have been imposed
A free look privilege also applies after a requested increase in
Face Amount. After an increase, the Company will mail or deliver
notice of the "Free Look" with respect to the increase. The Policy
Owner will have the right to cancel the increase within 10 days,
and receive a credit for charges that would not have been deducted
but for the increase. Such charges with respect to the increase
will be added to Policy value, unless the Policy Owner requests a
refund of such charges.
* * *
12/15/99
9
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Initial Registration Statement of Separate Account FUVUL 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
December 17, 1999
