<PAGE>
Registration No. 33-14672
811-5183
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 18
VEL ACCOUNT OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
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(Exact Name of Registrant)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
440 Lincoln Street
Worcester MA 01653
(Address of Principal Executive Office)
Abigail M. Armstrong, Secretary and Counsel
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)
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X on April 30, 1996 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a) (1)
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on (date) pursuant to paragraph (a) (1)
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on (date) pursuant to paragraph (a) (2) of Rule 485
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FLEXIBLE PREMIUM VARIABLE LIFE
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940,
Registrant has registered an indefinite amount of its securities under the
Securities Act of 1933. The rule of 24f-2 Notice for the issuer's fiscal year
ended December 31, 1995 was filed on February 29, 1996.
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RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
ITEM NO. of
FORM N-8B-82 CAPTION IN PROSPECTUS
1 ................................... Cover Page
2 ................................... Cover Page
3 ................................... Not Applicable
4 ................................... Distribution
5 ................................... The Company, The VEL Account
6 ................................... The VEL Account
7 ................................... Not Applicable
8 .................................. Not Applicable
9 ................................... Legal Proceedings
10 .................................. Summary; Description of the Company, The
VEL Account, Allmerica Investment Trust,
Variable Insurance Products Fund,
Variable Insurance Products Fund II, T.
Rowe Price International Series, Inc.
and Delaware Group Premium Fund, Inc.;
The Policy; Policy Termination and
Reinstatement; Other Policy Provisions
11 .................................. Summary; Allmerica Investment Trust;
Variable Insurance Products Fund;
Variable Insurance Products Fund II; T.
Rowe Price International Series, Inc.;
Delaware Group Premium Fund, Inc.;
Investment Objectives and Policies
12 .................................. Summary; Allmerica Investment Trust;
Variable Insurance Products Fund;
Variable Insurance Products Fund II; T.
Rowe Price International Series, Inc.;
Delaware Group Premium Fund, Inc.
13 ................................. Summary; Allmerica Investment Trust;
Variable Insurance Products Fund;
Variable Insurance Products Fund II; T.
Rowe Price International Series, Inc.;
Delaware Group Premium Fund, Inc.;
Investment Advisory Services to the
Trust; Investment Advisory Services to
Variable Insurance Products Fund;
Investment Advisory Services to Variable
Insurance Fund II; Investment Advisory
Service to T. Rowe Price International
Series, Inc.; Investment Advisory
Services to Delaware Group Premium Fund,
Inc.; Charges and Deductions
14 .................................. Summary; Application for a Policy
15 .................................. Summary; Application for a Policy;
Premium Payments; Allocation of Net
Premiums
16 .................................. The VEL Account; Allmerica
Investment Trust; Variable Insurance
Products Fund; Variable Insurance
Products Fund II; T. Rowe Price
International Series, Inc.; Delaware
Group Premium Fund, Inc.; Premium
Payments; Allocation of Net Premiums
17 .................................. Summary; Surrender; Partial Withdrawal;
Charges and Deductions; Policy
Termination and Reinstatement
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18 .................................. The VEL Account; Allmerica
Investment Trust; Variable Insurance
Products Fund; Variable Insurance
Products Fund II; T. Rowe Price
International Series, Inc.; Delaware
Group Premium Fund, Inc.; Premium
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
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 .................................. Premium 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 VEL 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
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This prospectus describes individual flexible premium variable life insurance
policies ("Policies") offered by Allmerica Financial Life Insurance and Annuity
Company ("Company") to applicants Age 80 years old and under. Within limits,
you may choose the amount of initial premium desired and the initial Sum
Insured. You have the flexibility to vary the frequency and amount of premium
payments, subject to certain restrictions and conditions. You may withdraw a
portion of the Policy's surrender value, or the Policy may be fully surrendered
at any time, subject to certain limitations.
The Policies permit you to allocate net premiums among up to seven of nineteen
sub-accounts ("Sub-Accounts") of the VEL Account, a separate account of the
Company, and a fixed interest account ("General Account") of the Company
(together "Accounts"). Each Sub-Account invests its assets in a corresponding
investment portfolio of Allmerica Investment Trust ("Trust"), Variable Insurance
Products Fund ("VIP"), Variable Insurance Products Fund II ("VIP II"), T. Rowe
Price International Series, Inc. ("T. Rowe Price") or Delaware Group Premium
Fund, Inc. ("DGPF"). The Trust is managed by Allmerica Investment Management
Company, Inc. ("Allmerica Investment"). VIP and VIP II are managed by Fidelity
Management & Research Company ("Fidelity Management"). The International Stock
Portfolio of T. Rowe Price is managed by Rowe Price-Fleming International, Inc.
The International Equity Series, which is the only investment portfolio
available under the Policies, is managed by Delaware International Advisers Ltd.
("Delaware International").
In certain circumstances, a Policy may be considered a "modified endowment
contract." Under the Internal Revenue Code, any policy loan, partial withdrawal
or surrender from a modified endowment contract may be subject to tax and tax
penalties. See "FEDERAL TAX CONSIDERATIONS - Modified Endowment Contracts."
------------------------------
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.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF THE
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE
PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL SERIES, INC. AND DELAWARE GROUP
PREMIUM FUND, INC. THE HIGH INCOME PORTFOLIO OF VARIABLE INSURANCE PRODUCTS
FUND INVESTS IN HIGHER YIELDING, HIGHER RISK, LOWER RATED DEBT SECURITIES (SEE
"INVESTMENT OBJECTIVES AND POLICIES" IN THIS PROSPECTUS). INVESTORS SHOULD
RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE POLICIES ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND
ANNUITY COMPANY AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC., THE
POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK OR CREDIT UNION. THE POLICIES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), OR ANY OTHER
FEDERAL AGENCY. INVESTMENTS IN THE POLICIES ARE SUBJECT TO VARIOUS RISKS,
INCLUDING THE FLUCTUATION OF VALUE AND POSSIBLE LOSS OF PRINCIPAL.
Dated April 30, 1996
440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000
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(Continued from cover page)
The Trust, VIP, VIP II, T. Rowe Price and DGPF are open-end, diversified series
investment companies. Eleven different investment portfolios of the Trust are
available under the Policies: the Growth Fund, Investment Grade Income Fund,
Money Market Fund, Equity Index Fund, Government Bond Fund, Select
International Equity Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Growth Fund, Select Growth and Income Fund and Small
Cap Value Fund (the "Funds"). Five different investment portfolios of VIP are
available under the Policies: Money Market Portfolio, High Income Portfolio,
Equity-Income Portfolio, Growth Portfolio, and Overseas Portfolio
("Portfolios"). One investment portfolio of VIP II ("Portfolio") is available
under the Policies: the Asset Manager Portfolio. One investment portfolio of
T. Rowe Price ("Portfolio") is available under the Policies: the International
Stock Portfolio. One investment portfolio of DGPF ("Series") is available under
the Policies: the International Equity Series. Each Fund, Portfolio and Series
has its own investment objectives. The accompanying prospectuses of the Trust,
VIP, VIP II, T. Rowe Price and DGPF describe the investment objectives and
certain attendant risks of each Underlying Fund. The International Stock
Portfolio of T. Rowe Price is not available in all states.
There is no guaranteed minimum Policy value. The value of a Policy will vary up
or down to reflect the investment experience of the Sub-Accounts to which net
premium payments have been allocated 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 remain
in effect so long as the Policy value less any surrender charges and less any
outstanding debt is sufficient to pay certain monthly charges imposed in
connection with the Policy. The Policy value may decrease to the point where the
Policy will lapse and provide no further death benefit without additional
premium payments.
If the Policy is in effect at the death of the Insured, the Company will pay a
death benefit (the "Death Proceeds") to the beneficiary. Prior to the Final
Premium Payment Date, the Death Proceeds equal the Sum Insured, less any debt,
partial withdrawals, and any due and unpaid charges. You may choose either Sum
Insured Option 1 (the Sum Insured is fixed in amount) or Sum Insured Option 2
(the Sum Insured includes the Policy value in addition to a fixed insurance
amount). A Policyowner has the right to change the Sum Insured Option, subject
to certain conditions. A Guideline Minimum Sum Insured, equivalent to a
percentage of the Policy value, will apply if greater than the Sum Insured
otherwise payable under Option 1 or Option 2.
2
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TABLE OF CONTENTS
SPECIAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
DESCRIPTION OF THE COMPANY, THE VEL ACCOUNT, ALLMERICA INVESTMENT
TRUST, VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS
FUND II, T. ROWE PRICE INTERNATIONAL SERIES, INC. AND DELAWARE GROUP
PREMIUM FUND, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
. . . . . . . . . . . . . . . . . . . . 18
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . 18
INVESTMENT ADVISORY SERVICES TO THE TRUST. . . . . . . . . . . . . . . . 20
INVESTMENT ADVISORY SERVICES TO VIP AND VIP II . . . . . . . . . . . . . 23
INVESTMENT ADVISORY SERVICES TO T. Rowe Price. . . . . . . . . . . . . . 23
INVESTMENT ADVISORY SERVICES TO DGPF . . . . . . . . . . . . . . . . . . 24
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS. . . . . . . . . . . . 24
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
THE POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
APPLICATION FOR A POLICY . . . . . . . . . . . . . . . . . . . . . . . . 25
FREE LOOK PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
CONVERSION PRIVILEGES. . . . . . . . . . . . . . . . . . . . . . . . . . 26
PREMIUM PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ALLOCATION OF NET PREMIUMS . . . . . . . . . . . . . . . . . . . . . . . 27
TRANSFER PRIVILEGE . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
DEATH PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SUM INSURED OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
CHANGE IN SUM INSURED OPTION . . . . . . . . . . . . . . . . . . . . . . 30
CHANGE IN FACE AMOUNT. . . . . . . . . . . . . . . . . . . . . . . . . . 31
POLICY VALUE AND SURRENDER VALUE . . . . . . . . . . . . . . . . . . . . 31
BENEFIT AT MATURITY DATE . . . . . . . . . . . . . . . . . . . . . . . . 33
PAYMENT OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
OPTIONAL INSURANCE BENEFITS. . . . . . . . . . . . . . . . . . . . . . . 33
SURRENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
PARTIAL WITHDRAWAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
STATE PREMIUM TAX. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
MONTHLY DEDUCTION FROM POLICY VALUE. . . . . . . . . . . . . . . . . . . 34
CHARGES AGAINST ASSETS OF THE VEL ACCOUNT. . . . . . . . . . . . . . . . 35
SURRENDER CHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
CHARGES ON PARTIAL WITHDRAWAL. . . . . . . . . . . . . . . . . . . . . . 37
TRANSFER CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
CHARGE FOR INCREASE IN FACE AMOUNT . . . . . . . . . . . . . . . . . . . 38
OTHER ADMINISTRATIVE CHARGES . . . . . . . . . . . . . . . . . . . . . . 38
POLICY LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
POLICY TERMINATION AND REINSTATEMENT . . . . . . . . . . . . . . . . . . . . 39
3
<PAGE>
TABLE OF CONTENTS (CONTINUED)
OTHER POLICY PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY. . . . . . . . . . . . . . . 42
DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
FURTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
INDEPENDENT ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
FEDERAL TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 46
THE COMPANY AND THE VEL ACCOUNT. . . . . . . . . . . . . . . . . . . . . 46
TAXATION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . 46
MODIFIED ENDOWMENT CONTRACTS . . . . . . . . . . . . . . . . . . . . . . 47
MORE INFORMATION ABOUT THE GENERAL ACCOUNT . . . . . . . . . . . . . . . . . 47
THE POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND POLICY LOANS. . . . . . . 48
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX A - OPTIONAL BENEFITS . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX B - PAYMENT OPTIONS . . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX C - ILLUSTRATIONS OF SUM INSURED, POLICY VALUES AND
ACCUMULATED PREMIUMS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
APPENDIX D - CALCULATION OF MAXIMUM SURRENDER CHARGES. . . . . . . . . . . .
4
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SPECIAL TERMS
ACCUMULATION UNIT: A measure of your interest in a Sub-Account.
AGE: The Insured's age as of the nearest birthday measured from a Policy
anniversary.
BENEFICIARY: The person(s) designated by the owner of the Policy to receive the
insurance proceeds upon the death of the Insured.
COMPANY: Allmerica Financial Life Insurance and Annuity Company.
DATE OF ISSUE: The date set forth in the Policy used to determine the Monthly
Payment Date, Policy months, Policy years, and Policy anniversaries.
DEATH PROCEEDS: The amount calculated under the applicable Sum Insured Option
(Option 1 or Option 2), less Debt outstanding at the time of the Insured's
death, partial withdrawals, if any, partial withdrawal charges, and any due and
unpaid Monthly Deductions.
DEBT: All unpaid Policy loans plus interest due or accrued on such loans.
DELIVERY RECEIPT: An acknowledgment, signed by the Policyowner and returned to
the Company's Principal Office, that the Policyowner has received the Policy and
the Notice of Withdrawal Rights.
EVIDENCE OF INSURABILITY: Information, including medical information
satisfactory to the Company, that is used to determine the Insured's Premium
Class.
FACE AMOUNT: The amount of insurance coverage applied for. The Face Amount of
each Policy is set forth in the specification pages of the Policy.
GENERAL ACCOUNT: All the assets of the Company other than those held in a
Separate Account.
GUIDELINE ANNUAL PREMIUM: The annual amount of premium that would be payable
through the Maturity Date of a Policy for the specified Sum Insured, if premiums
were fixed by the Company as to both timing and amount, and monthly cost of
insurance charges were based on the 1980 Commissioners Standard Ordinary
Mortality Tables (Mortality Table B, Smoker or Non-Smoker, for unisex Policies),
net investment earnings at an annual effective rate of 5%, and fees and charges
as set forth in the Policy and any Policy riders.
GUIDELINE MINIMUM SUM INSURED: The minimum Sum Insured required to qualify the
Policy as "life insurance" under Federal tax laws. The Guideline Minimum Sum
Insured varies by Age. It is calculated by multiplying the Policy Value by a
percentage determined by the Insured's Age.
INSURANCE AMOUNT AT RISK: The Sum Insured less the Policy Value.
LOAN VALUE: The maximum amount that may be borrowed under the Policy.
MATURITY DATE: The Policy anniversary nearest the Insured's 95th birthday. The
Maturity Date is the latest date to which insurance may remain in force.
MINIMUM MONTHLY FACTOR: A monthly premium amount calculated by the Company and
specified in your Policy, which if paid, guarantees that your Policy will not
lapse prior to the thirteenth Monthly Deduction after the Date of Issue or the
effective date of an increase in the Face Amount. However, making payments at
least equal to the Minimum Monthly Factors will not prevent the Policy from
lapsing if (a) Debt exceeds Policy Value less surrender charges or (b) partial
withdrawals and partial withdrawal charges have reduced premium payments below
an amount equal to the Minimum Monthly Factor multiplied by the number of months
since the Date of Issue or the effective date of an increase.
MONTHLY DEDUCTION: Charges deducted monthly from the Policy Value of a Policy.
The charges include the monthly cost of insurance, the monthly cost of any
benefits provided by riders, and the monthly administrative charge.
MONTHLY PAYMENT DATE: The date on which the Monthly Deduction is deducted from
Policy Value.
5
<PAGE>
NET PREMIUM: An amount equal to the premium less a 2 1/2% premium tax charge.
POLICY CHANGE: Any change in the Face Amount, the addition or deletion of a
rider, or a change in the Sum Insured Option.
POLICY VALUE: The total amount available for investment under a Policy at any
time. It is equal to the sum of (a) the value of the Accumulation Units
credited to a Policy in the Sub-Accounts and (b) the accumulation in the General
Account credited to that Policy.
PREMIUM CLASS: The risk classification that the Company assigns the Insured
based on the information in the application and any other Evidence of
Insurability considered by the Company. The Insured's Premium Class will affect
the cost of insurance charge and the amount of premium required to keep the
Policy in force.
PRINCIPAL OFFICE: The Company's office, located at 440 Lincoln Street,
Worcester, Massachusetts 01653.
PRO RATA ALLOCATION: In certain circumstances, you may specify from which
Sub-Account certain deductions will be made or to which Sub-Account Policy Value
will be allocated. If you do not, the Company will allocate the deduction or
Policy Value among the General Account and the Sub-Accounts in the same
proportion that the Policy Value in the General Account and the Policy Value in
each Sub-Account bear to the total Policy Value on the date of deduction or
allocation.
SEPARATE ACCOUNT: A Separate Account consists of assets segregated from the
Company's other assets. The investment performance of the assets of each
Separate Account is determined separately from the other assets of the Company.
The assets of a Separate Account which are equal to the reserves and other
contract liabilities are not chargeable with liabilities arising out of any
other business which the Company may conduct.
SUB-ACCOUNT: A subdivision of the VEL Account. Each Sub-Account invests
exclusively in the shares of a corresponding Fund of the Allmerica Investment
Trust, a corresponding Portfolio of the Variable Insurance Products Fund or the
Variable Insurance Products Fund II, the International Stock Portfolio of T.
Rowe Price Price International Series, Inc. or the International Equity Series
of the Delaware Group Premium Fund, Inc.
SUM INSURED: The amount payable upon the death of the Insured prior to
deductions for Debt outstanding at the time of the Insured's death, partial
withdrawals and partial withdrawal charges, if any, and any due and unpaid
Monthly Deductions. The amount of the Sum Insured will depend on the Sum
Insured Option chosen, but will always be at least equal to the Face Amount.
SURRENDER VALUE: The amount payable upon a full surrender of the Policy. It is
the Policy Value, less any Debt, any surrender charges, and any first-year
administrative charges not yet deducted.
UNDERLYING FUNDS: The Funds of the Allmerica Investment Trust, the Portfolios of
the Variable Insurance Products Fund and Variable Insurance Products Fund II,
the Portfolio of T. Rowe Price Price International Series, Inc. and the Series
of the Delaware Group Premium Fund, Inc. available under the Policies.
UNDERLYING INVESTMENT COMPANIES: Allmerica Investment Trust, Variable Insurance
Products Fund, Variable Insurance Products Fund II, T. Rowe Price Price
International Series, Inc. and Delaware Group Premium Fund, Inc.
VALUATION DATE: A day on which the net asset value of the shares of any of the
Underlying Funds is determined and Accumulation Unit values of the Sub-Accounts
are determined. Valuation Dates currently occur on each day on which the New
York Stock Exchange is open for trading, and on such other days (other than a
day during which no payment, partial withdrawal, or surrender of a Policy is
received) when there is a sufficient degree of trading in an Underlying Fund's
securities such that the current net asset value of the Sub-Accounts may be
materially affected.
VALUATION PERIOD: The interval between two consecutive Valuation Dates.
VEL ACCOUNT: A Separate Account of the Company to which the Policyowner may make
Net Premium allocations.
WRITTEN REQUEST: A request by the Policyowner in writing, satisfactory to the
Company.
YOU OR YOUR: The Policyowner, as shown in the application or the latest change
filed with the Company.
SUMMARY
6
<PAGE>
THE POLICY - The flexible premium variable life Policy (the "Policy") issued by
the Company allows you, subject to certain limitations, to make premium payments
in any amount and frequency. As long as the Policy remains in force, it will
provide for: (a) life insurance coverage on the named Insured; (b) Policy
Value; (c) surrender rights and partial withdrawal rights; (d) loan privileges;
and (e) in some cases, additional insurance benefits available by rider for an
additional charge.
The Policies are life insurance contracts, with death benefits, Policy Value,
and other features traditionally associated with life insurance. The Policies
are "variable" because, unlike the fixed benefits of ordinary whole life
insurance, the Policy Value will, and under certain circumstances the Death
Proceeds may, increase or decrease depending on the investment experience of the
Sub-Accounts of the VEL Account. They are "flexible premium" policies, because,
unlike traditional insurance policies, there is no fixed schedule for premium
payments. Although you may establish a schedule of premium payments ("planned
premium payments"), failure to make the planned premium payments will not
necessarily cause a Policy to lapse nor will making the planned premium payments
guarantee that a Policy will remain in force to maturity. Thus, you may, but
are not required to, pay additional premiums.
The Policy will remain in force until the Surrender Value is insufficient to
cover the next Monthly Deduction and loan interest accrued, if any, and a grace
period of 62 days has expired without adequate payment being made by you.
During the first twelve Policy months after the Date of Issue or the effective
date of an increase in Face Amount, the Policy will not lapse if the total
premiums paid less partial withdrawals and withdrawal charges are equal to or
exceed the sum of the Minimum Monthly Factors for the number of months the
Policy, increase, or a Policy Change which causes a change in the Minimum
Monthly Factor has been in force. However, even during these periods making
payments at least equal to the Minimum Monthly Factors will not prevent the
Policy from lapsing if Debt equals or exceeds Policy Value less surrender
charges.
SURRENDER CHARGES - At any time that a Policy is in effect, a Policyowner may
elect to surrender the Policy and receive its Surrender Value. A surrender
charge is calculated upon issuance of the Policy and upon each increase in Face
Amount. The surrender charge is only imposed if less than 12 years have elapsed
from the Date of Issue or any increase in the Face Amount and you request a full
surrender or a decrease in Face Amount. If the Policy is surrendered, any $25
monthly administrative charges not yet deducted will be deducted at surrender.
The maximum surrender charge calculated upon issuance of the Policy is equal to
the sum of (a) plus (b) where (a) is a deferred administrative charge equal to
$4.50 per thousand dollars of the initial Face Amount and (b) is a deferred
sales charge equal to 30% of the Guideline Annual Premium times a factor which
is not greater than 1.0 and is as specified in "APPENDIX D - CALCULATION OF
MAXIMUM SURRENDER CHARGES." As the factors used in calculating the deferred
sales charge in (b) vary with the attained Age and Premium Class (smoker or
nonsmoker) of the Insured, the deferred sales charge may range between 10.25%
and 30% of the Guideline Annual Premium. The maximum surrender charge remains
level for the first 44 Policy months, reduces by 1% per month for the next 100
Policy months, and is zero thereafter. If you surrender the Policy before
making premium payments associated with the initial Face Amount which are at
least equal to the Guideline Annual Premium, the actual surrender charge imposed
may be less than the maximum. See "THE POLICY - Surrender" and "CHARGES AND
DEDUCTIONS - Surrender Charge."
A separate surrender charge will apply to and is calculated for each increase in
Face Amount. The maximum surrender charge for the increase is equal to the sum
of (a) plus (b) where (a) is equal to $4.50 per thousand dollars of increase,
and (b) is equal to 30% of the Guideline Annual Premium for the increase times a
factor of not greater than 1.0, as specified in "APPENDIX D - CALCULATION OF
MAXIMUM SURRENDER CHARGES." As is true for the initial Face Amount, (a) is a
deferred administrative charge and (b) is a deferred sales charge. This maximum
surrender charge remains level for the first 44 Policy months following the
increase, reduces by 1% per month for the next 100 Policy months, and is zero
thereafter. The actual surrender charge with respect to the increase may be
less than the maximum. See "THE POLICY - Surrender" and "CHARGES AND DEDUCTIONS
- - Surrender Charge."
In the event of a decrease in Face Amount, the surrender charge imposed is
proportional to the charge that would apply to a full surrender. See "THE
POLICY - Surrender" and "CHARGES AND DEDUCTIONS - Surrender Charge."
PREMIUM TAX CHARGE - A charge of 2.5% of each premium will be deducted from each
premium payment to compensate the Company for premium taxes imposed by various
states. See "CHARGES AND DEDUCTIONS - State Premium Tax."
MONTHLY DEDUCTIONS FROM POLICY VALUE - On the Date of Issue and each Monthly
Payment Date thereafter, certain charges will be deducted from the Policy Value.
The Monthly Deduction from Policy Value consists of a charge for cost of
insurance, a charge for the cost of any additional benefits provided by rider,
and a charge for administrative expenses. You may instruct the Company to
deduct the Monthly Deduction from one specific Sub-Account. If you do not, the
7
<PAGE>
Company will make a Pro Rata Allocation of the charge.
The monthly cost of insurance charge is determined by multiplying the Insurance
Amount at Risk (the Sum Insured minus the Policy Value) for each Policy month by
the applicable cost of insurance rate or rates. The Insurance Amount at Risk
will be affected by any decreases or increases in the Face Amount.
As noted above, certain additional insurance rider benefits are available under
the Policy for an additional monthly charge. See "APPENDIX A - Optional
Benefits."
The monthly administrative charge is described in "CHARGES AND DEDUCTIONS -
Monthly Deduction From Policy Value."
ADMINISTRATIVE CHARGES - Each of the charges listed below is designed to
reimburse the Company for actual administrative costs incurred. None of these
charges is designed to result in a profit to the Company.
DEFERRED ADMINISTRATIVE CHARGE - A component of the Surrender Charge is a charge
for administrative expenses. This deferred administrative charge is $4.50 per
thousand dollars of the initial Face Amount or of an increase in Face Amount.
The charge is designed to reimburse the Company for administrative costs
associated with product research and development, underwriting, policy
administration, decreasing the Face Amount, and surrendering a Policy. Because
the maximum Surrender Charge reduces by 1% per month after the 44th Policy month
after Date of Issue or the effective date of an increase in Face Amount, in
certain situations some or all of the deferred administrative charge may not be
assessed upon surrender of the Policy. See "THE POLICY - Surrender" and
"CHARGES AND DEDUCTIONS - Surrender Charge."
MONTHLY ADMINISTRATIVE CHARGES - A component of the Monthly Deduction from
Policy Value is a charge for administrative expense. The charge is $25 per
month for the first 12 Monthly Deductions and $5 per month thereafter. The
charges are designed to reimburse the Company for the costs associated with
issuing and administering the Policies, such as processing premium payments,
policy loans and loan repayments, change in Sum Insured Options, and death
claims. These charges also help cover the cost of providing annual statements
and responding to Policyholder inquiries. The first 12 charges in the first
year are higher than in subsequent years to reimburse the Company for costs
associated with the issuance of the Policy. If the Policy is surrendered in the
first policy year, the first year monthly administrative charges will be
deducted at surrender in addition to any surrender charge which may be
applicable. See "CHARGES AND DEDUCTIONS - Monthly Deduction From Policy Value."
TRANSACTION CHARGE ON PARTIAL WITHDRAWALS - A transaction charge, which is the
smaller of 2% of the amount withdrawn or $25, is assessed at the time of each
partial withdrawal to reimburse the Company for the cost of processing the
withdrawal. In addition to the transaction charge, a partial withdrawal charge
may also be made under certain circumstances. See "CHARGES AND DEDUCTIONS -
Charges On Partial Withdrawal."
CHARGE FOR INCREASE IN FACE AMOUNT - For each increase in Face Amount, a charge
of $50 will be deducted from Policy Value. This charge is designed to reimburse
the Company for underwriting and administrative costs associated with the
increase. See "THE POLICY - Change In Face Amount" and "CHARGES AND DEDUCTIONS
- - Charge For Increase In Face Amount."
TRANSFER CHARGE - The first six transfers of Policy Value in a Policy year will
be free of charge. Thereafter, with certain exceptions, a transfer charge of
$10 will be imposed for each transfer request to reimburse the Company for the
costs of processing the transfer. See "THE POLICY - Transfer Privilege" and
"CHARGES AND DEDUCTIONS - Transfer Charges."
OTHER ADMINISTRATIVE CHARGES - The Company reserves the right to impose a charge
for the administrative costs associated with changing the Net Premium allocation
instructions, for changing the allocation of any Monthly Deductions among the
various Sub-Accounts, or for a projection of values. See "CHARGES AND
DEDUCTIONS - Other Administrative Charges."
CHARGES AGAINST THE VEL ACCOUNT - A daily charge equivalent to an effective
annual rate of 0.90% of the average daily net asset value of each Sub-Account of
the VEL Account is imposed to compensate the Company for its assumption of
certain mortality and expense risks. See "CHARGES AND DEDUCTIONS - Charges
Against Assets Of The VEL Account."
CHARGES OF THE UNDERLYING INVESTMENT COMPANIES - In addition to the charges
described above, certain fees and expenses are deducted from the assets of the
Underlying Investment Companies. See "CHARGES AND
8
<PAGE>
DEDUCTIONS - Charges Against Assets Of The VEL Account." The levels of fees and
expenses vary among the Underlying Investment Companies.
POLICY VALUE AND SURRENDER VALUE - The Policy Value is the total amount
available for investment under a Policy at any time. It is the sum of the value
of all Accumulation Units in the Sub-Accounts of the VEL Account and all
accumulations in the General Account of the Company credited to the Policy. The
Policy Value reflects the amount and frequency of Net Premiums paid, charges and
deductions imposed under the Policy, interest credited to accumulations in the
General Accounts, investment performance of the Sub-Account(s) to which Policy
Value has been allocated, and partial withdrawals. The Policy Value may be
relevant to the computation of the Death Proceeds. You bear the entire
investment risk for amounts allocated to the VEL Account. The Company does not
guarantee a minimum Policy Value. See "SUMMARY - Minimum Monthly Factor."
The Surrender Value will be the Policy Value, less any Debt, surrender charges,
and any $25 monthly administrative charges not yet deducted at the time of
surrender. The Surrender Value is relevant, for example, to the continuation of
the Policy and in the computation of the amounts available upon partial
withdrawals, Policy loans or surrender.
DEATH PROCEEDS - The Policy provides for the payment of certain Death Proceeds
to the named Beneficiary upon the death of the Insured. The Death Proceeds will
be equal to the Sum Insured, reduced by any outstanding Debt, partial
withdrawals, partial withdrawal charges, and any Monthly Deductions due and not
yet deducted through the policy month in which the Insured dies. Two Sum
Insured Options are available. Under Option 1, the Sum Insured is the greater
of the Face Amount of the Policy or the Guideline Minimum Sum Insured. Under
Option 2, the Sum Insured is the greater of the Face Amount of the Policy plus
the Policy Value or the Guideline Minimum Sum Insured. The Guideline Minimum
Sum Insured is equivalent to a percentage (determined each month based on the
Insured's Age) of the Policy Value. See "THE POLICY - Death Proceeds."
The Death Proceeds under the Policy may be received in a lump sum or under one
of the Payment Options described in the Policy. See "APPENDIX B - Payment
Options."
FLEXIBILITY TO ADJUST SUM INSURED - Subject to certain limitations, you may
adjust the Sum Insured, and thus the Death Proceeds, at any time by increasing
or decreasing the Face Amount of the Policy. Any change in the Face Amount will
affect the monthly cost of insurance charges and the amount of the surrender
charge. If the Face Amount is decreased, a pro rata surrender charge may be
imposed. The Policy Value is reduced by the amount of the charge. See "THE
POLICY - Change In Face Amount.
"The minimum increase in Face Amount is $10,000, and any increase may also
require additional Evidence of Insurability satisfactory to the Company. The
increase is subject to a "free look period" and, during the first 24 months
after the increase, to a conversion privilege. See "THE POLICY - Free Look
Period, - Conversion Privileges."
ADDITIONAL INSURANCE BENEFITS - You have the flexibility to add additional
insurance benefits by rider. These include the Waiver of Premium Rider,
Accidental Death Benefit Rider, Guaranteed Insurability Rider, Other Insured
Rider, Children's Insurance Rider, Exchange Option Rider and Living Benefits
Rider. See "APPENDIX A - Optional Benefits."
The cost of these optional insurance benefits will be deducted from Policy Value
as part of the Monthly Deduction. See "CHARGES AND DEDUCTIONS - Monthly
Deduction From Policy Value."
POLICY ISSUANCE - If at the time of application you make a payment equal to at
least one Minimum Monthly Factor for the Policy as applied for, the Company will
provide conditional insurance, equal to the amount applied for but not to exceed
$500,000. If the application is approved, the Policy will be issued as of the
date the terms of the conditional insurance agreement are met. If you do not
wish to make any payment at the time of application, insurance coverage will not
be in force until delivery of the Policy and payment of sufficient premium
during the lifetime of the Insured.
If any premiums are paid prior to the issuance of the Policy, such premiums will
be held in the Company's General Account. If your application is approved and
the Policy is issued and accepted, the initial premiums held in the General
Account will be credited with interest at a specified rate beginning not later
than the date of receipt of the premiums at the Company's Principal Office.
Upon completion of issuance procedures, delivery of the Policy, and receipt of
any additional premiums, if less than $10,000 of initial Net Premiums have been
received by the Company, such Net Premiums will be allocated to the Sub-Accounts
according to your instructions. If initial Net Premiums equal or exceed
$10,000, or if the Policy provides for planned premium payments during the first
year equal to or exceeding $10,000 annually, $5,000 semi-annually, $2,500
quarterly or $1,000 monthly, the entire Net Premium plus any interest earned
will be allocated to the Sub-Accounts upon return to the Company of a Delivery
Receipt. See "THE POLICY - Application For A Policy."
9
<PAGE>
MINIMUM MONTHLY FACTOR - The Policy is guaranteed not to lapse prior to the
thirteenth Monthly Deduction after Date of Issue or the effective date of an
increase in the Face Amount, if you make premium payments, less partial
withdrawals and partial withdrawal charges, at least equal to the sum of the
Minimum Monthly Factors for the number of months the Policy increase, or Policy
Change which causes a change in the Minimum Monthly Factor, has been in force.
However, at all other times, payments of such premiums does not guarantee that
the Policy will remain in force. See "THE POLICY - Premium Payments."
Moreover, even during the 12 month periods, if Debt exceeds Policy Value less
surrender charges, then making payments at least equal to the Minimum Monthly
Factors will not prevent the Policy from lapsing. Policy Changes which cause a
change in the Minimum Monthly Factor are changes in Face Amount and the addition
or deletion of a rider.
ALLOCATION OF NET PREMIUMS - Net premiums are the premiums paid less the 2 1/2%
premium tax charge. Net premiums may be allocated to one or more Sub-Accounts
of the VEL Account, to the General Account, or to any combination of Accounts.
You bear the investment risk of Net Premiums allocated to the Sub-Accounts.
Allocations may be made to no more than seven Sub-Accounts at any one time. The
minimum allocation is 1% of Net Premium. All allocations must be in whole
numbers and must total 100%. See "THE POLICY - Allocation Of Net Premiums."
Premiums allocated to the Company's General Account will earn a fixed rate of
interest. Net premiums and minimum interest are guaranteed by the Company. For
more information, see "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
INVESTMENT OPTIONS - The Policies permit Net Premiums to be allocated either to
the Company's General Account or to the VEL Account. The VEL Account is
currently comprised of nineteen Sub-Accounts ("Sub-Accounts"). Each Sub-Account
invests exclusively in a corresponding Underlying Fund of the Allmerica
Investment Trust ("Trust") managed by Allmerica Investment, the Variable
Insurance Products Fund ("VIP") or Variable Insurance Products Fund II ("VIP
II") managed by Fidelity Management, T. Rowe Price Price International Series,
Inc. ("T. Rowe Price") managed by Rowe Price-Fleming International, Inc. with
respect to the International Stock Portfolio or the Delaware Group Premium Fund,
Inc. ("DGPF") managed by Delaware International with respect to the
International Equity Series. In some states, insurance regulations may restrict
the availability of particular Underlying Funds. The Policies permit 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."
The Trust, VIP, VIP II, T. Rowe Price and DGPF are open-end, diversified series
management investment companies. Eleven different Underlying Funds of the Trust
(each a "Fund") are available under the Policies: the Growth Fund, Investment
Grade Income Fund, Money Market Fund, Equity Index Fund, Government Bond Fund,
Select International Equity Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Growth Fund, Select Growth and Income Fund and Small
Cap Value Fund. Five different Underlying Funds of VIP (each a "Portfolio") are
available under the Policies: the Money Market Portfolio, High Income
Portfolio, Equity-Income Portfolio, Growth Portfolio and Overseas Portfolio.
One Underlying Fund of VIP II ("Portfolio") is available under the Policies:
the Asset Manager Portfolio. One Underlying Fund of T. Rowe Price ("Portfolio")
is available under the Policies: the International Stock Portfolio. One
Underlying Fund of DGPF ("Series") is available under the Policies: the
International Equity Series. Certain of the Underlying Funds may not be
available in all states.
Each of the Underlying Funds has its own investment objectives. However,
certain Underlying Funds have investment objectives similar to certain other
Underlying Funds.
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, THE VEL
ACCOUNT, ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND, VARIABLE
INSURANCE PRODUCTS FUND II, T. Rowe Price PRICE INTERNATIONAL SERIES, INC. AND
DELAWARE GROUP PREMIUM FUND, INC."
FREE LOOK PERIOD - The Policy provides for an initial Free Look Period. You may
cancel the Policy by mailing or delivering it to the Principal Office or to an
agent of the Company on or before the latest of (a) 45 days after the
application for the Policy is signed, (b) 10 days after you receive the Policy,
or (c) 10 days after the Company mails or personally delivers a Notice of
Withdrawal Rights to you. Upon returning the Policy you will receive a refund
equal to the sum of (1) the difference between the premium, including fees and
charges paid, and any amount allocated to the VEL Account, and (2) the value of
the amounts allocated to the VEL Account, and (3) any fees or charges imposed on
the amounts allocated
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to the VEL Account. The amount refunded in (1) above includes any premiums
allocated to the General Account. However, where required by state law, the
Company will refund the entire amount of premiums paid. A free look privilege
also applies after a requested increase in Face Amount. See "THE POLICY - Free
Look Period."
CONVERSION PRIVILEGES - During the first 24 Policy months after the Date of
Issue, subject to certain restrictions, you may convert this policy to a
flexible premium fixed adjustable life insurance policy by simultaneously
transferring all accumulated value in the Sub-Accounts to the General Account
and instructing the Company to allocate all future premiums to the General
Account. A similar conversion privilege is in effect for 24 Policy months after
the date of an increase in Face Amount. Where required by state law, and at
your request, the Company will issue a flexible premium adjustable life
insurance policy to you. The new policy will have the same Face Amount, Issue
Age, Date of Issue, and risk classifications as the original policy. See "THE
POLICY - Conversion Privileges."
PARTIAL WITHDRAWAL - After the first Policy year, you may make partial
withdrawals in a minimum amount of $500 from the Policy Value. Under Option 1,
the Face Amount is reduced by the amount of the partial withdrawal, and a
partial withdrawal will not be allowed if it would reduce the Face Amount below
$25,000.
A transaction charge which is described in "CHARGES AND DEDUCTIONS - Charges On
Partial Withdrawal," will be assessed to reimburse the Company for the cost of
processing each partial withdrawal. A partial withdrawal charge may also be
imposed upon a partial withdrawal. Generally, amounts withdrawn during each
Policy year in excess of 10% of the Policy Value ("excess withdrawal") are
subject to the partial withdrawal charge. The partial withdrawal charge is
equal to 5% of the excess withdrawal up to the surrender charge on the date of
withdrawal. If no surrender charge is applicable at the time of withdrawal, no
partial withdrawal charge will be deducted. The Policy's outstanding surrender
charge will be reduced by the amount of the partial withdrawal charge deducted.
See "THE POLICY - Partial Withdrawal" and "CHARGES AND DEDUCTIONS - Charges On
Partial Withdrawal."
LOAN PRIVILEGE - You may borrow against the Policy Value. The total amount you
may borrow is the Loan Value. Loan Value in the first Policy Year is 75% of an
amount equal to Policy Value less surrender charge, Monthly Deductions, and
interest on Debt to the end of the Policy year. Thereafter, Loan Value is 90%
of an amount equal to Policy Value less the surrender charge.
Policy loans will be allocated among the General Account and the Sub-Accounts in
accordance with your instructions. If no allocation is made by you, the Company
will make a Pro Rata Allocation among the Accounts. In either case, Policy
Value equal to the Policy loan will be transferred from the appropriate
Sub-Account(s) to the General Account, and will earn monthly interest at an
effective annual rate of at least 6%. Therefore, a Policy loan may have a
permanent impact on the Policy Value even though it is eventually repaid.
Although the loan amount is a part of the Policy Value, the Death Proceeds will
be reduced by the amount of outstanding Debt at the time of death.
Policy loans will bear interest at a fixed rate of 8% per year, due and payable
in arrears at the end of each Policy year. If interest is not paid when due, it
will be added to the loan balance. Policy loans may be repaid at any time. You
must notify the Company if a payment is a loan repayment; otherwise, it will be
considered a premium payment. Any partial or full repayment of Debt by you will
be allocated to the General Account or Sub-Accounts in accordance with your
instructions. If you do not specify an allocation, the Company will allocate
the loan repayment in accordance with your most recent premium allocation
instructions. See "POLICY LOANS."
POLICY LAPSE AND REINSTATEMENT - The failure to make premium payments will not
cause a Policy to lapse unless: (a) the Surrender Value is insufficient to
cover the next Monthly Deduction plus loan interest accrued, if any, or (b)
Debt exceeds Policy Value less surrender charges. A 62-day grace period applies
to each situation. Except for the situation described in (b) above, the Policy
will not lapse prior to the 13th Monthly Deduction following the Date of Issue
or the effective date of an increase in Face Amount, if you make premium
payments, less Debt, partial withdrawals and partial withdrawal charges, at
least equal to the sum of the Minimum Monthly Factors for the number of months
the Policy, increase, or Policy Change which causes a change in the Minimum
Monthly Factor, has been in force. Subject to certain conditions (including
Evidence of Insurability showing that the Insured is insurable according to the
Company's underwriting rules and the payment of sufficient premium and of any
unpaid first year administrative charges due and not yet deducted), a Policy may
be reinstated at any time within 3 years after the expiration of the grace
period and before the Maturity Date. See "POLICY TERMINATION AND
REINSTATEMENT."
TAX TREATMENT - Policy Value is generally subject to the same federal income tax
treatment as Policy Value under a conventional fixed benefit life insurance
policy. Under current tax law, to the extent there is no change in benefits,
you will be taxed on Policy Value withdrawn from the Policy only to the extent
that the amount withdrawn exceeds the total premiums paid. In such
circumstances, withdrawals in excess of premiums paid will be treated as
ordinary income. During
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<PAGE>
the first 15 Policy years, however, an "interest first" rule applies to any
distribution of cash that is required under Section 7702 of the Internal Revenue
Code because of a reduction in benefits under the Policy. Death Proceeds under
the Policy are excludable from the gross income of the Beneficiary. However, in
some circumstances the Death Proceeds or the Policy Value may be subject to
federal estate tax. See "FEDERAL TAX CONSIDERATIONS - Taxation Of The
Policies."
A policy offered by this Prospectus may be considered a "modified endowment
contract" if it fails a " 7 - pay" test. A policy fails to satisfy the 7 - pay
test if the cumulative premiums paid under the policy at any time during the
first seven Policy years exceeds the sum of the net level premiums that would
have been paid, had the policy provided for paid-up future benefits after the
payment of seven level premiums. If the policy is considered a modified
endowment contract, all distributions (including policy loans, partial
withdrawals, surrenders or assignments) will be taxed on an "income-first"
basis. With certain exceptions, an additional 10% penalty will be imposed on the
portion of any distribution that is includible in income. For more information,
see "FEDERAL TAX CONSIDERATIONS - Modified Endowment Contracts."
------------------------------------
The purpose of the Policy is to provide insurance protection for the Beneficiary
named therein. This Summary is intended to provide only a very brief overview
of the more significant aspects of the Policy. Further detail is provided in
this prospectus and in the Policy. 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 the Company and you.
PERFORMANCE INFORMATION
The Policies were first offered to the public in 1987. However, the Company may
advertise "Total Return" and "Average Annual Total Return" performance
information based on the periods that the Underlying Funds have been in
existence. The results for any period prior to the 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, the
Underlying Funds, and (in Table I) under a "representative" Policy that is
surrendered at the end of the applicable period. FOR MORE INFORMATION ON
CHARGES UNDER THE POLICIES, SEE CHARGES AND DEDUCTIONS.
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,
1995. "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.
TABLE I: SUB-ACCOUNT PERFORMANCE
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 (including
surrender 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 (approximately one
Guideline Annual Premium) 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.
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<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/95
------------------------------------------
Sub- Underlying One-Year Since Years Since
Account Fund Total Return 3 years 5 years Inception Inception*
- ------------------------------------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Growth -61.49% -12.36% 4.23% 9.84% 10.00
2 Investment Grade -74.12% -17.02% -2.77% 3.71% 10.00
3 Money Market -84.21% -21.53% -8.67% -0.12% 10.00
4 Equity Index -54.62% -9.81% -2.56% 5.48% 5.26
5 Government Bond -78.15% -19.06% N/A -8.14% 4.35
6 Select Aggressive Growth -61.92% -8.79% N/A -0.99% 3.36
7 Select Growth -68.43% -17.99% N/A -12.17% 3.36
8 Select Growth and Income -63.58% -11.48% N/A -10.32% 3.36
9 Small Cap Value -74.33% N/A N/A -20.32% 2.67
11 Select Int'l Equity -72.62% N/A N/A -48.92% 1.67
12 Select Capital Appreciation N/A N/A N/A -57.44% 0.67
101 VIP Money Market -84.19% -21.30% -8.54% 1.10% 10.00
102 VIP High Income -71.70% -12.04% 6.95% 6.09% 10.00
103 VIP Equity Income -59.55% -4.39% 9.50% 7.21% 9.23
104 VIP Growth -59.31% -6.87% 8.92% 8.79% 9.23
105 VIP Overseas -80.99% -9.12% -4.71% 0.60% 8.92
106 VIP II Asset Manager -74.86% -14.99% 0.36% 1.86% 6.32
150 T. Rowe Price Int'l Stock -79.73% N/A N/A -54.75% 1.58
207 DGPF Int'l Equity -77.59% N/A N/A -15.11% 3.17
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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.
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<PAGE>
TABLE II: SUB-ACCOUNT PERFORMANCE
EXCLUDING MONTHLY POLICY CHARGES AND SURRENDER 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, all Sub-Account charges, and premium tax and
expense charges. THE DATA DOES NOT REFLECT MONTHLY CHARGES UNDER THE POLICIES
OR SURRENDER CHARGES. It is assumed that an annual premium payment of $3,000
(approximately one Guideline Annual Premium) was made at the beginning of each
Policy year and that ALL premiums were allocated to EACH Sub-Account
individually.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Average Annual Total Return as of 12/31/95
------------------------------------------
Sub- Underlying One-Year Since Years Since
Account Fund Total Return 3 years 5 years Inception Inception*
- ------------------------------------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Growth 31.59% 11.34% 15.31% 14.32% 10.00
2 Investment Grade 16.77% 7.23% 8.89% 8.55% 10.00
3 Money Market 4.88% 3.30% 3.60% 5.00% 10.00
4 Equity Index 34.94% 13.62% 9.08% 15.86% 5.26
5 Government Bond 12.03% 5.44% N/A 6.74% 4.35
6 Select Aggressive Growth 31.08% 14.54% N/A 19.07% 3.36
7 Select Growth 23.46% 6.38% N/A 9.01% 3.36
8 Select Growth and Income 29.14% 12.13% N/A 10.65% 3.36
9 Small Cap Value 16.53% N/A N/A 9.14% 2.67
11 Select Int'l Equity 18.54% N/A N/A 8.02% 1.67
12 Select Capital Appreciation N/A N/A N/A 38.71% 0.67
101 VIP Money Market 4.91% 3.50% 3.71% 6.13% 10.00
102 VIP High Income 19.62% 11.63% 17.84% 10.78% 10.00
103 VIP Equity Income 33.86% 18.51% 20.22% 12.30% 9.23
104 VIP Growth 34.13% 16.27% 19.68% 13.79% 9.23
105 VIP Overseas 8.68% 14.24% 7.14% 6.34% 8.92
106 VIP II Asset Manager 15.90% 9.01% 11.74% 10.23% 6.32
150 T. Rowe Price Int'l Stock 10.17% N/A N/A 6.34% 1.58
207 DGPF Int'l Equity 12.69% N/A N/A 7.72% 3.17
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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.
- - - -
*The inception dates for the Underlying Funds are: 4/29/85 for Growth,
Investment Grade and Money Market; 9/28/90 for Equity Index; 8/26/91 for
Government Bond; 8/21/92 for Select Aggressive Growth, Select Growth, and
Select Growth and Income; 4/30/93 for Small Cap Value; 5/01/94 for Select
International Equity; 4/28/95 for Select Capital Appreciation on, 10/09/86
for VIP Equity-Income and VIP Growth; 9/19/85 for VIP High Income; 1/28/87
for VIP Overseas; 9/06/89 for VIP II Asset Manager; 10/29/92 for DGPF
International Equity; and 3/31/94 for the T. Rowe Price International Stock.
Performance information may be compared, in reports and promotional literature,
to: (i) the Standard & Poor's 500 Stock Index ("S & P 500"), Dow Jones
Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond Index or other
unmanaged indices so that investors may compare results with those of a group of
unmanaged securities widely regarded by investors as representative of the
securities markets in general; (ii) other groups of variable life separate
accounts or other investment products tracked by Lipper Analytical Services, a
widely used independent research firm which ranks mutual funds and other
investment products by overall performance, investment objectives, and assets,
or tracked by other services, companies, publications, or persons, such as
Morningstar, Inc., who rank such investment products on overall performance or
other criteria; or (iii) the Consumer Price Index (a measure for inflation) to
assess the real rate of return from an investment. Unmanaged indices may assume
the reinvestment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
The Company may provide information on various topics of interest to
Policyowners and prospective Policyowners in sales
14
<PAGE>
literature, periodic publications or other materials These topics may include
the relationship between sectors of the economy and the economy as a whole and
its effect on various securities markets, investment strategies and techniques
(such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer and account rebalancing), the advantages and
disadvantages of investing in tax-deferred and taxable investments, customer
profiles and hypothetical purchase and investment scenarios, financial
management and tax and retirement planning, and investment alternatives to
certificates of deposit and other financial instruments.
15
<PAGE>
DESCRIPTION OF THE COMPANY, THE VEL ACCOUNT, ALLMERICA INVESTMENT TRUST,
VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II
T. ROWE PRICE INTERNATIONAL SERIES, INC. AND
DELAWARE GROUP PREMIUM FUND, INC.
THE COMPANY - The Company is a life insurance company organized under the
laws of Delaware in July, 1974. Its Principal Office is located at 440
Lincoln Street, Worcester, Massachusetts 01653, Telephone 508-855-1000. The
Company is subject to the laws of the state of Delaware governing insurance
companies and to regulation by the Commissioner of Insurance of Delaware. In
addition, the Company is subject to the insurance laws and regulations of
other states and jurisdictions in which it is licensed to operate. The
Company is an indirect wholly-owned subsidiary of First Allmerica Financial
Life Insurance Company ("First Allmerica"), 440 Lincoln Street, Worcester,
Massachusetts. First Allmerica, organized under the laws of Massachusetts in
1844, is the fifth oldest life insurance company in America.
THE VEL ACCOUNT - The VEL Account was authorized by vote of the Board of
Directors of the Company on April 2, 1987. The VEL Account is registered with
the Securities and Exchange Commission ("Commission") as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). Such registration does
not involve the supervision of its management or investment practices or
policies of the VEL Account or the Company by the Commission.
The assets used to fund the variable portion of the Policies are set aside in
the VEL Account and are kept separate and apart from the general assets of the
Company. Under Delaware law, assets equal to the reserves and other liabilities
of the VEL Account may not be charged with any liabilities arising out of any
other business of the Company. The VEL Account currently has seventeen
Sub-Accounts. Each Sub-Account is administered and accounted for as part of the
general business of the Company, but the income, capital gains, or capital
losses of each Sub-Account are allocated to such Sub-Account, without regard to
other income, capital gains, or capital losses of the Company or the other
Sub-Accounts. Each Sub-Account invests exclusively in a corresponding
investment portfolio of the Allmerica Investment Trust, the Variable Insurance
Products Fund, the Variable Insurance Products Fund II, T. Rowe Price Price
International Series, Inc. or the Delaware Group Premium Fund, Inc. ("Underlying
Investment Companies").
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Sub-Accounts and VEL Account.
ALLMERICA INVESTMENT TRUST - Allmerica Investment Trust, formerly SMA Investment
Trust (the "Trust") is an open-end, diversified management investment company
registered with the Commission under the 1940 Act. Such registration does not
involve supervision by the Commission of the investments or investment policy of
the Trust or its separate investment Funds.
The Trust was established as a Massachusetts business trust on October 11, 1984,
for the purpose of providing a vehicle for the investment of assets of various
Separate Accounts established by First Allmerica, the Company, or other
affiliated insurance companies. Eleven investment portfolios of the Trust
("Funds") are available under the Policies, each issuing a series of shares:
the Growth Fund, Investment Grade Income Fund, Money Market Fund, Equity Index
Fund, Government Bond Fund, Select International Equity Fund, Select Aggressive
Growth Fund, Select Capital Appreciation Fund, Select Growth Fund, Select Growth
and Income Fund and Small Cap Value Fund. Certain of the Funds may not be
available in all states. The assets of each Fund are held separate from the
assets of the other Funds. Each Fund operates as a separate investment vehicle
and the income or losses of one Fund generally have no effect on the investment
performance of another Fund. Shares of the Trust are not offered to the general
public but solely to such Separate Accounts.
Allmerica Investment serves as investment adviser of the Trust and has entered
into sub-advisory agreements with other investment managers ("Sub-Advisers") who
manage the investments of the Funds. See "INVESTMENT ADVISORY SERVICES TO THE
TRUST."
VARIABLE INSURANCE PRODUCTS FUND - Variable Insurance Products Fund ("VIP"),
managed by Fidelity Management & Research Company ("Fidelity Management"), is an
open-end, diversified, management investment company organized as a
Massachusetts business trust on November 13, 1981 and registered with the
Commission under the 1940 Act. Five of its investment portfolios are available
under the Policies: Money Market Portfolio, High Income Portfolio, Equity-Income
Portfolio, Growth Portfolio and Overseas Portfolio.
Various Fidelity companies perform certain activities required to operate VIP.
Fidelity Management, a registered investment
16
<PAGE>
adviser under the Investment Advisers Act of 1940, is one of America's largest
investment management organizations and has its principal business address at 82
Devonshire Street, Boston MA. It is composed of a number of different
companies, which provide a variety of financial services and products. Fidelity
Management is the original Fidelity company, founded in 1946. It provides a
number of mutual funds and other clients with investment research and portfolio
management services. The Portfolios of VIP as part of their operating expenses
pay an investment management fee to Fidelity Management. See "INVESTMENT
ADVISORY SERVICES TO VIP AND VIP II."
VARIABLE INSURANCE PRODUCTS FUND II - Variable Insurance Products Fund II ("VIP
II"), managed by Fidelity Management (see discussion under "VARIABLE INSURANCE
PRODUCTS FUND"), is an open-end, diversified, management investment company
organized as a Massachusetts business trust on March 21, 1988 and registered
with the Commission under the 1940 Act. One of its investment portfolios is
available under the Policies: the Asset Manager Portfolio.
T. ROWE PRICE PRICE INTERNATIONAL SERIES, INC. - T. Rowe Price Price
International Series, Inc. ("T. Rowe Price"), managed by Rowe Price-Fleming
International, Inc. ("Price-Fleming") (See "INVESTMENT ADVISORY SERVICES TO T.
Rowe Price"), is an open-end, diversified, management investment company
organized as a Maryland corporation in 1994 and registered with the Commission
under the 1940 Act. One of its investment portfolios is available under the
Policies: the International Stock Portfolio.
DELAWARE GROUP PREMIUM FUND, INC. - Delaware Group Premium Fund, Inc. ("DGPF")
is an open-end, diversified management investment company registered with the
Commission under the 1940 Act. Such registration does not involve supervision
by the Commission of the investments or investment policy of DGPF or its
separate investment series.
DGPF was established to provide a vehicle for the investment of assets of
various separate accounts supporting variable insurance policies. One
investment portfolio ("Series") is available under the Policies, the
International Equity Series, which may not be available in all states.
The investment adviser for the International Equity Series is Delaware
International Advisers Ltd. ("Delaware International"). See "INVESTMENT
ADVISORY SERVICES TO DGPF."
INVESTMENT OBJECTIVES AND POLICIES - A summary of investment objectives of each
of the Underlying Funds is set forth below. MORE DETAILED INFORMATION REGARDING
THE INVESTMENT OBJECTIVES, RESTRICTIONS AND RISKS, EXPENSES PAID BY THE
UNDERLYING FUNDS AND OTHER RELEVANT INFORMATION REGARDING THE UNDERLYING
INVESTMENT COMPANIES MAY BE FOUND IN THEIR RESPECTIVE PROSPECTUSES, WHICH
ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. The
Statements of Additional Information of the Underlying Funds are available upon
request. There can be no assurance that the investment objectives of the
Underlying Funds can be achieved.
SUB-ACCOUNT 1 - invests solely in shares of the Growth Fund of the Trust. The
Growth Fund is invested in common stocks and securities convertible into common
stocks that are believed to represent significant underlying value in relation
to current market prices. The objective of the Growth Fund is to achieve
long-term growth of capital. Realization of current investment income, if any,
is incidental to this objective.
SUB-ACCOUNT 2 - invests solely in shares of the Investment Grade Income Fund of
the Trust. The Investment Grade Income Fund is invested in a diversified
portfolio of fixed income securities with the objective of seeking as high a
level of total return (including both income and realized and unrealized capital
gains) as is consistent with prudent investment management.
SUB-ACCOUNT 3 - invests solely in shares of the Money Market Fund of the Trust.
The Money Market Fund is invested in a diversified portfolio of high-quality,
short-term debt instruments with the objective of obtaining maximum current
income consistent with the preservation of capital and liquidity.
SUB-ACCOUNT 4 - invests solely in shares of the Equity Index Fund of the Trust.
The Equity Index Fund seeks to provide investment results that correspond
generally to the composite price and yield performance of United States publicly
traded common stocks. The Equity Index Fund seeks to achieve its objective by
attempting to replicate the composite price and yield performance of the
Standard & Poor's 500 Composite Stock Index.
SUB-ACCOUNT 5 - invests solely in the shares of the Government Bond Fund of the
Trust. The Government Bond Fund has the investment objectives of seeking high
income, preservation of capital and maintenance of liquidity, primarily through
investments in debt instruments issued or guaranteed by the U.S. Government or
its agencies or instrumentalities and in
17
<PAGE>
related options, futures and repurchase agreements.
SUB-ACCOUNT 6 - invests solely in shares of the Select Aggressive Growth Fund of
the Trust. The Select Aggressive Growth Fund seeks above-average capital
appreciation by investing primarily in common stocks of companies which are
believed to have significant potential for capital appreciation.
SUB-ACCOUNT 7 - invests solely in shares of the Select Growth Fund of the Trust.
The Select Growth Fund seeks to achieve growth of capital by investing in a
diversified portfolio consisting primarily of common stocks selected on the
basis of their long-term growth potential.
SUB-ACCOUNT 8 - invests solely in shares of the Select Growth and Income Fund of
the Trust. The Select Growth and Income Fund seeks a combination of long-term
growth of capital and current income. The Fund will invest primarily in
dividend-paying common stocks and securities convertible into common stocks.
SUB-ACCOUNT 9 - invests solely in the Small Cap Value Fund of the Trust. The
Small Cap Value Fund seeks long-term growth by investing principally in a
diversified portfolio of common stocks of smaller, faster-growing companies
considered to be attractively valued in the smaller company sector of the
market.
SUB-ACCOUNT 11 - invests solely in shares of the Select International Equity
Fund of the Trust. The Select International Equity Fund seeks maximum long-term
total return (capital appreciation and income) primarily by investing in common
stocks of established non-U.S. companies.
SUB-ACCOUNT 12- invests solely in shares of the Select Capital Appreciation Fund
of the Trust. The Select Capital Appreciation Fund seeks long-term growth of
capital in a manner consistent with the preservation of capital. Realization of
income is not a significant investment consideration and any income realized on
the Fund's investments will be incidental to its primary objective. The Fund
will invest primarily in common stock of industries and companies which are
experiencing favorable demand for their products and services, and which operate
in a favorable competitive environment and regulatory climate. The Sub-Adviser
for the Select Capital Appreciation Fund is Janus Capital Corporation.
SUB-ACCOUNT 101 - invests solely in shares of Money Market Portfolio of VIP,
which seeks to obtain as high a level of current income as is consistent with
preserving capital and providing liquidity. The Money Market Portfolio will
invest only in high-quality money market instruments.
SUB-ACCOUNT 102 - invests solely in shares of the High Income Portfolio of VIP.
The High Income Portfolio seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated fixed-income securities
(commonly referred to as "junk bonds"), while also considering growth of
capital. These securities are often considered to be speculative and involve
greater risk of default or price changes than securities assigned a high quality
rating. For more information about these lower-rated securities, see "Risks of
Lower-Rated Debt Securities" in the VIP prospectus.
SUB-ACCOUNT 103 - invests solely in shares of the Equity-Income Portfolio of
VIP. The Equity-Income Portfolio seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities, the
Portfolio will also consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield on the
securities comprising the Standard & Poor's 500 Composite Stock Price Index.
The Portfolio may invest in high yielding, lower-rated securities (commonly
referred to as "junk bonds") which are subject to greater risk than investments
in higher-rated securities. For a further discussion of lower-rated securities,
please see "Risks of Lower-Rated Debt Securities" in the VIP prospectus.
SUB-ACCOUNT 104 - invests solely in shares of the Growth Portfolio of VIP. The
Growth Portfolio seeks to achieve capital appreciation. The Portfolio normally
purchases common stocks, although its investments are not restricted to any one
type of security. Capital appreciation may also be found in other types of
securities, including bonds and preferred stocks.
SUB-ACCOUNT 105 - invests solely in shares of the Overseas Portfolio of VIP.
The Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities and provides a means for aggressive investors
to diversify their own portfolios by participating in companies and economies
outside of the United States.
SUB-ACCOUNT 106 - invests solely in shares of the Asset Manager Portfolio of VIP
II. The Asset Manager Portfolio seeks high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks, bonds
and short-term fixed-income instruments.
SUB-ACCOUNT 150 - invests solely in shares of the International Stock Portfolio
of T. Rowe Price. The International Stock
18
<PAGE>
Portfolio seeks long-term growth of capital through investments primarily in
common stocks of established, non-U.S. companies.
SUB-ACCOUNT 207 - invests solely in shares of the International Equity Series of
DGPF. The International Equity Series seeks long-term growth without undue risk
to principal by investing primarily in equity securities of foreign issuers
providing the potential for capital appreciation and income.
CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR TO
THOSE OF CERTAIN OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE SUB-ACCOUNTS
WHICH WILL BEST MEET YOUR NEEDS AND OBJECTIVES, CAREFULLY READ THE PROSPECTUSES
OF THE TRUST, VIP, VIP II, T. ROWE PRICE AND DGPF ALONG WITH THIS PROSPECTUS. IN
SOME STATES, INSURANCE REGULATIONS MAY RESTRICT THE AVAILABILITY OF PARTICULAR
SUB-ACCOUNTS.
If required in your state, in the event of a material change in the investment
policy of a Sub-Account or the Underlying Fund in which it invests, you will be
notified of the change. If you have Policy Value in that Sub-Account, the
Company will transfer it without charge on written request by you to another
Sub-Account or to the General Account. The Company must receive your written
request within sixty (60) days of the later of (1) the effective date of such
change in the investment policy or (2) the receipt of the notice of your right
to transfer. You may then change your premium and deduction allocation
percentages.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISORY SERVICES INVESTMENT ADVISORY SERVICES TO THE TRUST - The
overall responsibility for the supervision of the affairs of the Trust vests
in the Trustees. The Trustees have entered into a Management Agreement with
Allmerica Investment Management Company, Inc. ("Allmerica Investment"), an
indirect wholly-owned subsidiary of First Allmerica, to handle the day-to-day
affairs of the Trust. Allmerica Investment, subject to review by the
Trustees, is responsible for the general management of the Funds. Allmerica
Investment is also obligated to perform certain administrative and management
services for the Trust, furnishes to the Trust all necessary office space,
facilities, and equipment, and pays the compensation, if any, of officers and
Trustees who are affiliated with Allmerica Investment.
Other than the expenses specifically assumed by Allmerica Investment under the
Management Agreement, all expenses incurred in the operation of the Trust are
borne by it, including fees and expenses associated with the registration and
qualification of the Trust's shares under the Securities Act of 1933, other fees
payable to the Commission, independent public accountant, legal and custodian
fees, association membership dues, taxes, interest, insurance premiums,
brokerage commission, fees and expenses of the Trustees who are not affiliated
with Allmerica Investment, expenses for proxies, prospectuses, and reports to
shareholders, and other expenses.
Pursuant to the Management Agreement with the Trust, Allmerica Investment has
entered into agreements ("Sub-Adviser Agreements") with other investment
advisers ("Sub-Advisers") under which each Sub-Adviser manages the investments
of one or more of the Funds. Under the Sub-Adviser Agreement, the Sub-Adviser
is authorized to engage in portfolio transactions on behalf of the applicable
Fund, subject to such general or specific instructions as may be given by the
Trustees. The terms of a Sub-Adviser Agreement cannot be materially changed
without the approval of a majority in interest of the shareholders of the
affected Fund.
19
<PAGE>
For providing its services under the Management Agreement, Allmerica Investment
will receive a fee, computed daily at an annual rate based on the average daily
net asset value of each Fund as follows:
<TABLE>
<CAPTION>
Fund Net Asset Value Rate
---- --------------- ----
<S> <C> <C>
Growth First $50 million 0.60%
$50 - 250 million 0.50%
Over $250 million 0.35%
Investment Grade First $50 million 0.50%
Income $50 - 250 million 0.35%
Over $250 million 0.25%
Money Market First $50 million 0.35%
$50 - 250 million 0.25%
Over $250 million 0.20%
Equity Index First $50 million 0.35%
$50 - 250 million 0.30%
Over $250 million 0.25%
Government Bond * 0.50%
Select International * 1.00%
Equity
Select Aggressive * 1.00%
Growth
Select Capital Appreciation * 1.00%
Select Growth * 0.85%
Select Growth and * 0.75%
Income
Small Cap Value * 0.85%
</TABLE>
* For the Government Bond Fund, Select International Equity Fund, Select
Aggressive Growth Fund, Select Capital Appreciation Fund, Select Growth
Fund, Select Growth and Income Fund and Small Cap Value Fund, each rate
applicable to Allmerica Investment does not vary according to the level of
assets in the Fund.
Allmerica Investment's fee computed for each Fund will be paid from the assets
of such Fund. Allmerica Investment is solely responsible for the payment of all
fees for investment management services to the Sub-Advisers, who will receive
from Allmerica Investment a fee, computed daily at an annual rate based on the
average daily net asset value of each Fund as follows:
20
<PAGE>
<TABLE>
<CAPTION>
Sub-Adviser Fund Net Asset Value Rate
---- --------------- ----
<S> <C> <C> <C>
Miller, Anderson Growth * *
& Sherrerd
Allmerica Asset Management, Investment Grade Income ** 0.20%
Inc.
Allmerica Asset Management, Money Market ** 0.10%
Inc.
Allmerica Asset Management, Equity Index ** 0.10%
Inc.
Allmerica Asset Management, Government Bond ** 0.20%
Inc.
Bank of Ireland Asset Select Int'l Equity First $50 million 0.45%
Management Limited Next $50 million 0.40%
Over $100 million 0.30%
Nicholas-Applegate Capital Select Aggressive Growth ** 0.60%
Management
Janus Capital Corporation Select Capital Appreciation First $100 million 0.60%
Over $100 million 0.55%
United Asset Management Select Growth First $50 million 0.50%
Corporation $50 - 100 million 0.45%
$150 - 250 million 0.35%
$250 - 350 million 0.30%
Over $350 million 0.25%
John A. Levin & Co., Inc. Select Growth and Income First $100 million 0.40%
Next $200 million 0.25%
Over $300 million 0.30%
David L. Babson & Co. Small Cap Value ** 0.50%
</TABLE>
* Allmerica Investment will pay a fee to Miller, Anderson & Sherrerd based
on the aggregate assets of the Growth Fund and certain other accounts
ofAllmerica Financial and its affiliates (collectively, the "Affiliated
Accounts") which are managed by Miller, Anderson & Sherrerd, under the
following schedule:
<TABLE>
<CAPTION>
Aggregate Average Net Assets Rate
---------------------------- ----
<S> <C>
First $50 million 0.500%
$50 - 100 million 0.375%
$100 - 500 million 0.250%
$500 - 850 million 0.200%
Over $850 million 0.150%
</TABLE>
** For the Investment Grade Income Fund, Money Market Fund, Equity Index
Fund, Government Bond Fund, Select Aggressive Growth Fund and Small Cap
Value Fund, each rate applicable to the Sub-Advisers does not vary
according to the level of assets in the Fund.
Allmerica Asset Management, Inc. is an indirect wholly-owned subsidiary
of First Allmerica.
21
<PAGE>
The Prospectus of the Trust contains additional information concerning the
Funds, including information concerning additional expenses paid by the Funds,
and should be read in conjunction with this Prospectus.
INVESTMENT ADVISORY SERVICES TO VIP AND VIP II - For managing investments and
business affairs, each Portfolio pays a monthly fee to Fidelity Management. The
Prospectuses of VIP and VIP II contain additional information concerning the
Portfolios, including information concerning additional expenses paid by the
Portfolios, and should be read in conjunction with this Prospectus.
VIP AND VIP II PORTFOLIOS
The Money Market Portfolio's management fee is (a) the sum of a group fee rate
and an individual fund fee rate of 0.03%, and (b) the addition of an income
component of 6% of the Portfolio's gross income in excess of a 5% annual yield.
The result is multiplied by the Portfolio's average net assets. The group fee
rate, which is based on the average net assets of all of the mutual funds
advised by Fidelity Management, cannot rise above 0.37%, and it drops as total
assets under management increase. The income component cannot rise above 0.24%.
The High Income Portfolio pays a monthly fee to Fidelity Management at an annual
fee rate made up of the sum of two components:
1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by Fidelity Management. On an annual basis this
rate cannot rise above 0.37%, and drops as total assets in all these
funds rise.
2. An individual fund fee rate of 0.45% of the High Income Portfolio's
average net assets throughout the month. One-twelfth of the annual
management fee rate is applied to net assets averaged over the most
recent month, resulting in a dollar amount which is the management fee
for that month.
The Equity-Income, Growth, Asset Manager and Oversees Portfolios' fee rates are
each made of two components:
1. A group fee rate based on the monthly average net assets of all of the
mutual funds advised by Fidelity Management. On an annual basis, this
rate cannot rise above 0.52%, and drops as total assets in all these
mutual funds rise.
2. An individual Portfolio fee rate of 0.20% for the Equity-Income
Portfolio, 0.30% for the Growth Portfolio, 0.40% for the Asset Manager
Portfolio and 0.45% for the Overseas Portfolio.
One-twelfth of the sum of these two rates is applied to the respective
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month.
Thus, the High Income Portfolio may have a fee of as high as 0.82% of its
average net assets. The Equity-Income Portfolio may have a fee of as high as
0.72% of its average net assets. The Growth Portfolio may have a fee of as high
as 0.82% of its average net assets. The Asset Manager Portfolio may have a fee
of as high as 0.92% of its average net assets. The Overseas Portfolio may have
a fee of as high as 0.97% of its average net assets. The actual fee rate may be
less depending on the total assets in the funds advised by Fidelity Management.
INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE. The Investment Adviser for
the International Stock Portfolio is Rowe Price-Fleming International, Inc.
("Price-Fleming"). Price-Fleming, founded in 1979 as a joint venture between
T. Rowe Price Price Associates, Inc. and Robert Fleming Holdings, Limited, is
one of America's largest international mutual fund asset managers with
approximately $20 billion under management in its offices in Baltimore,
London, Tokyo and Hong Kong. To cover investment management and operating
expenses, the International Stock Portfolio pays Price-Fleming a single,
all-inclusive fee of 1.05% of its average daily net assets.
INVESTMENT ADVISORY SERVICES TO DGPF - Each Series of DGPF pays an investment
adviser an annual fee for managing the portfolios and making the investment
decisions for the Series. The investment adviser for the International Equity
Series is Delaware International Advisers Ltd. ("Delaware International"). The
annual fee paid by the International Equity Series to Delaware International is
equal to 0.75% of the average daily net assets of the Series.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS - The Company reserves the
right, subject to applicable law, to make additions to, deletions from, or
substitutions for the shares that are held in the Sub-Accounts or that the
Sub-Accounts may purchase. If the shares of any Underlying Fund are no longer
available for investment or if in the
22
<PAGE>
Company's judgment further investment in any Underlying Fund should become
inappropriate in view of the purposes of the VEL Account or the affected
Sub-Account, the Company may redeem the shares of that Underlying Fund and
substitute shares of another registered open-end management company. The
Company will not substitute any shares attributable to a Policy interest in a
Sub-Account without notice to the Policyowner and prior approval of the
Commission and state insurance authorities, to the extent required by the 1940
Act or other applicable law. The VEL Account may, to the extent permitted by
law, purchase other securities for other policies or permit a conversion between
policies upon request by a Policyowner.
The Company also reserves the right to establish additional Sub-Accounts of the
VEL Account, each of which would invest in shares corresponding to a new
Underlying Fund or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required Commission
approval, the Company may, in its sole discretion, establish new Sub-Accounts or
eliminate one or more Sub-Accounts if marketing needs, tax considerations or
investment conditions warrant. Any new Sub-Accounts may be made available to
existing Policyowners on a basis to be determined by the Company.
Shares of the Funds of the Trust are also issued to Separate Accounts of the
Company and its affiliates which issue variable annuity contracts ("mixed
funding"). Shares of the Portfolios of VIP and VIP II, the Portfolio of T.
Rowe Price and the Series of DGPF 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
Policyowners or variable annuity Policyowners. Although the Company and the
Underlying Investment Companies do not currently foresee any such disadvantages
to either variable life insurance Policyowners or variable annuity Policyowners,
the Company and the respective Trustees intend to monitor events in order to
identify any material conflicts between such Policyowners and to determine what
action, if any, should be taken in response thereto. If the Trustees were to
conclude that separate funds should be established for variable life and
variable annuity Separate Accounts, the Company will bear the attendant
expenses.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Policy to reflect the substitution or change
and will notify Policyowners of all such changes. If the Company deems it to be
in the best interest of Policyowners, and subject to any approvals that may be
required under applicable law, the VEL Account or any Sub-Account(s) may be
operated as a management company under the 1940 Act, may be deregistered under
the 1940 Act if registration is no longer required, or may be combined with
other Sub-Accounts or other Separate Accounts of the Company.
VOTING RIGHTS - To the extent required by law, the Company will vote Underlying
Fund shares held by each Sub-Account in accordance with instructions received
from Policyowners with Policy Value in such Sub-Account. If the 1940 Act or any
rules thereunder should be amended or if the present interpretation of the 1940
Act or such rules should change, and as a result the Company determines that it
is permitted to vote shares in its own right, whether or not such shares are
attributable to the Policies, the Company reserves the right to do so.
Each person having a voting interest will be provided with proxy materials of
the respective Underlying Fund together with an appropriate form with which to
give voting instructions to the Company. Shares held in each Sub-Account for
which no timely instructions are received will be voted in proportion to the
instructions received from all persons with an interest in such Sub-Account
furnishing instructions to the Company. The Company will also vote shares held
in the VEL Account that it owns and which are not attributable to Policies in
the same proportion.
The number of votes which a Policyowner has the right to instruct will be
determined by the Company as of the record date established for the Underlying
Fund. This number is determined by dividing each Policyowner's Policy Value in
the Sub-Account, if any, by the net asset value of one share in the
corresponding Underlying Fund in which the assets of the Sub-Account are
invested.
The Company may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as (1) to cause a change in the subclassification or investment
objective of one or more of the Underlying Funds or (2) to approve or disapprove
an investment advisory contract for the Underlying Funds. In addition, the
Company may disregard voting instructions in favor of any change in the
investment policies or in any investment adviser or principal underwriter
initiated by Policyowners or the Trustees. The Company's disapproval of any
such change must be reasonable and, in the case of a change in investment
policies or investment adviser, based on a good faith determination that such
change would be contrary to state law or otherwise is inappropriate in light of
the objectives and purposes of the Underlying Funds. In the event the Company
does disregard voting instructions, a summary of that action and the reasons for
that action will be included in the next periodic report to Policyowners.
THE POLICY
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<PAGE>
APPLICATION FOR A POLICY - Upon receipt at its Principal Office of a completed
application from a prospective Policyowner, 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 Policyowner before a determination of insurability can be made. A
Policy cannot be issued until this underwriting procedure has been completed.
The Company reserves the right to reject an application which does not meet the
Company's underwriting guidelines, but in underwriting insurance, the Company
shall comply with all applicable federal and state prohibitions concerning
unfair discrimination.
If at the time of application a prospective Policyowner makes a payment equal to
at least one Minimum Monthly Factor for the Policy as applied for, pending
underwriting approval, the Company will provide fixed conditional insurance
pursuant to a Conditional Insurance Agreement in the amount of insurance applied
for, up to a maximum of $500,000. This coverage will generally continue for a
maximum of 90 days from the date of the application or the completion of a
medical exam, should one be required. In no event will any insurance proceeds
be paid under the Conditional Insurance Agreement if death is by suicide.
If the application is approved, the Policy will be issued as of the date the
terms of the Conditional Insurance Agreement were met. If no Conditional
Insurance Agreement is in effect because the prospective Policyowner does not
wish to make any payment until the Policy is issued or has paid an initial
premium that is not sufficient to place the Policy in force, 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 YOU WITHOUT INTEREST.
If the Policy is issued to the Trustee of an employee benefit plan, the amounts
held in the Company's General Account will be allocated to the Sub-Accounts
according to the Policyowner's instructions, upon return of a Delivery Receipt
to the Principal Office. For all other Policyowners, if the initial net
premiums are less than $10,000, the amounts held in the Company's General
Account will be allocated to the Sub-Accounts (according to your instructions)
not later than three days after underwriting approval of the Policy. If the
amount allocated to the VEL Account exceeds $10,000 annually or if the Policy
provides for planned premium payments during the first year of $5,000
semi-annually or $2,500 quarterly or $1,000 monthly, the entire amount will
remain in the General Account until return of a Delivery Receipt to the
Principal Office. The entire amount will then be allocated to the Sub-Accounts
according to your instructions. Amounts remaining in the General Account will
continue to be credited interest from date of receipt of the premium at the
Principal Office.
FREE LOOK PERIOD - The Policy provides for an initial Free Look Period. You may
cancel the Policy by mailing or delivering the Policy to the Principal Office or
an agent of the Company on or before the latest of (a) 45 days after the
application for the Policy is signed, (b) 10 days after you receive the Policy,
or (c) 10 days after the Company mails or personally delivers a notice of
withdrawal rights to you. When you return the Policy, the Company will mail
within 7 days a refund equal to the sum of (1) the difference between the
premiums, including fees and charges paid, and any amounts allocated to the VEL
Account, and (2) the value of the amounts allocated to the VEL Account, and (3)
any fees or charges imposed on the amounts allocated to the VEL Account. The
amount refunded in (1) above includes any premiums allocated to the General
Account. Where required by state law, the refund will equal the premiums paid.
The refund of any premium paid by check, however, may be delayed until the check
has cleared your bank.
After an increase in Face Amount, the Company will mail or personally deliver a
notice of a "Free Look" with respect to the increase. You will have the right
to cancel the increase before the latest of (a) 45 days after the application
for the increase is signed, (b) 10 days after you receive the new specification
pages issued for the increase, or (c) 10 days after the Company mails or
delivers a notice of withdrawal rights to you. Upon cancelling the increase,
you will receive a credit to your Policy Value of charges which would not have
been deducted but for the increase. The amount to be credited will be refunded
if you so request. The Company will also waive any surrender charge calculated
for the increase.
CONVERSION PRIVILEGES - Once during the first 24 months after the Date of Issue
or after the effective date of an increase in Face Amount, while the Policy is
in force, you may convert your Policy without Evidence of Insurability to a
flexible premium adjustable life insurance Policy with fixed and guaranteed
minimum benefits. Assuming that there have been no increases in the initial
Face Amount, you can accomplish this within 24 months after the Date of Issue by
transferring, without charge, the Policy Value in the VEL Account to the General
Account and by simultaneously changing your premium allocation instructions to
allocate future premium payments to the General Account. Within 24 months after
the effective date of each increase, you can transfer, without charge, all or
part of the Policy Value in the VEL Account to
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<PAGE>
the General Account and simultaneously change your premium allocation
instructions to allocate all or part of future premium payments to the General
Account.
Where required by state law, and at your request, the Company will issue a
flexible premium adjustable life insurance policy to you. The new policy will
have the same face amount, issue ages, dates of issue, and risk classifications
as the original Policy.
PREMIUM PAYMENTS - Premium Payments are payable to the Company, and may be
mailed to the Principal Office or paid through an authorized agent of the
Company. All premium payments after the initial premium payment are credited to
the VEL Account or General Account as of date of receipt at the
Principal Office.
You may establish a schedule of planned premiums which will be billed by the
Company at regular intervals. Failure to pay planned premiums, however, will
not itself cause the Policy to lapse. You may also make unscheduled premium
payments at any time prior to the Maturity Date or skip planned premium payments
subject to the maximum and minimum premium limitations described below.
Therefore, unlike conventional insurance policies, a Policy does not obligate
you to pay premiums in accordance with a rigid and inflexible premium schedule.
You may also elect to pay premiums by means of a monthly automatic payment
("MAP") procedure. Under a MAP procedure, amounts will be deducted each month,
generally on the Monthly Payment Date, from your checking account and applied as
a premium under a Policy. The minimum payment permitted under MAP is $50.
Premiums are not limited as to frequency and number. However, no premium
payment may be less than $100 without the Company's consent. Moreover, premium
payments must be sufficient to provide a positive Surrender Value at the end of
each Policy month, or the Policy may lapse. See "POLICY TERMINATION AND
REINSTATEMENT." If, in the first 12 policy months following issue or an
increase in the Face Amount, you make premium payments, less partial withdrawals
and partial withdrawal charges, at least equal to the sum of the Minimum Monthly
Factors for the number of months the Policy, increase in Face Amount, or Policy
Change which causes a change in the Minimum Monthly Factor has been in force,
the Policy is guaranteed not to lapse during that period. EXCEPT FOR THE 12
POLICY MONTHS AFTER THE DATE OF ISSUE OR THE EFFECTIVE DATE OF AN INCREASE IN
FACE AMOUNT, MAKING MONTHLY PAYMENTS AT LEAST EQUAL TO THE MINIMUM MONTHLY
FACTORS DOES NOT GUARANTEE THAT THE POLICY WILL REMAIN IN FORCE.
In no event may the total of all premiums paid exceed the current maximum
premium limitations set forth in the Policy, which are required by Federal tax
laws. These maximum premium limitations will change whenever there is any
change in the Face Amount, the addition or deletion of a rider, or a change in
the Sum Insured Option. If a premium is paid which would result in total
premiums exceeding the current maximum premium limitations, the Company will
only accept that portion of the premiums which shall make total premiums equal
the maximum. Any part of the premiums in excess of that amount will be returned
and no further premiums will be accepted until allowed by the current maximum
premium limitation prescribed by Internal Revenue Service rules. However,
notwithstanding the current maximum premium limitations, the Company will accept
a premium which is needed in order to prevent a lapse of the Policy during a
policy year. See "POLICY TERMINATION AND REINSTATEMENT."
ALLOCATION OF NET PREMIUMS - The Net Premium equals the premium paid less the 2
1/2% premium tax charge. In the application for a Policy, you indicate the
initial allocation of Net Premiums among the General Account and the
Sub-Accounts of the VEL Account. You may allocate premiums to one or more
Sub-Accounts, but may not have Policy Value in more than seven Sub-Accounts at
any one time. The minimum amount which may be allocated to a Sub-Account is 1%
of Net Premium paid.
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 Net Premiums at any time pursuant to
written or telephone request. If allocation changes by telephone are elected by
the Policyowner, a properly completed authorization form must be on file before
telephone requests will be honored. The policy of the Company and its agents
and affiliates is that they will not be responsible for losses resulting from
acting upon telephone requests reasonably believed to be genuine. The Company
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine; otherwise, the Company may be liable for any losses due
to unauthorized or fraudulent instructions. The procedures the Company follows
for transactions initiated by telephone include requirements that callers on
behalf of a Policyowner identify themselves by name and identify the Policyowner
by name, date of birth and social security number. All transfer instructions by
telephone are tape recorded. An allocation change will be effective as of the
date of receipt of the notice at the Principal Office. No
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<PAGE>
charge is currently imposed for changing premium allocation instructions. The
Company reserves the right to impose such a charge in the future, but guarantees
that the charge will not exceed $25.
The Policy Value in the Sub-Accounts will vary with their investment experience;
you bear this investment risk. The investment performance may affect the Death
Proceeds as well. Policyowners should periodically review their allocations of
premiums and Policy Value in light of market conditions and overall financial
planning requirements.
TRANSFER PRIVILEGE - At any time prior to the Maturity Date and subject to the
Company's then current rules, you may at any time transfer the Policy Value
among the Sub-Accounts or between a Sub-Account and the General Account.
However, the Policy Value held in the General Account to secure a Policy loan
may not be transferred.
All requests for transfers must be made to the Principal Office. The amount
transferred will be based on the Policy Value in the Account(s) next computed
after receipt of the transfer order. The Company will make transfers pursuant
to written or telephone requests. As discussed in "THE POLICY - Allocation of
Net Premiums," a properly completed authorization form must be on file at the
Principal Office before telephone requests will by honored.
Transfers involving the general account are currently permitted only if:
(a) Does not exceed the lesser of $100,000 or 25% of the
(b) Accumulated value under the policy.
These rules are subject to change by the company.
You may have automatic transfers of at least $100 each made on a periodic basis
(a) from Sub-Account 3 or Sub-Account 5 (which invests in the Money Market Fund
and Government Bond Fund of the Trust, respectively) to one or more of the other
Sub-Accounts or (b) to automatically reallocate Policy value among the Sub-
Accounts. Automatic transfers may be made on a monthly, bimonthly, quarterly,
semiannual or annual schedule. Generally, all transfers will be processed on
the 15th of each scheduled month. However, if the 15th is not a business day or
is the Monthly Payment Date, the automatic transfer will be processed on the
next business day.
The transfer privilege is subject to the consent of the Company. The Company
reserves the right to impose limitations on transfers including, but not limited
to: (1) the minimum amount that may be transferred, (2) the minimum amount
that may remain in a Sub-Account following a transfer from that Sub-Account, (3)
the minimum period of time between transfers involving the General Account, and
(4) the maximum amount that may be transferred each time from the General
Account.
The first six transfers in a Policy year will be free of any charge. Thereafter,
a $10 transfer charge will be deducted from the amount transferred for each
transfer in that Policy year. The Company may increase or decrease this charge,
but it is guaranteed never to exceed $25. The first automatic transfer counts
as one transfer towards the six free transfers allowed in each Policy year; each
subsequent automatic transfer is without charge and does not reduce the
remaining number of transfers which may be made free of charge. Any transfers
made with respect to a conversion privilege, Policy loan or material change in
investment policy will not count towards the six free transfers.
DEATH PROCEEDS - As long as the Policy remains in force (see "POLICY TERMINATION
AND REINSTATEMENT"), the Company will, upon due proof of the Insured's death,
pay the Death Proceeds of the Policy to the named Beneficiary. The Company will
normally pay the Death Proceeds within seven days of receiving due proof of the
Insured's death, but the Company may delay payments under certain circumstances.
See "OTHER POLICY PROVISIONS - Postponement Of Payments." The Death Proceeds
may be received by the Beneficiary in cash or under one or more of the payment
options set forth in the Policy. See "APPENDIX B - PAYMENT OPTIONS."
The Death Proceeds are: (a) The Sum Insured provided under Option 1 or Option
2, whichever is elected and in effect on the date of death; plus (b) any
additional insurance on the Insured's life that is provided by rider; minus (c)
any outstanding Debt, any partial withdrawals and partial withdrawal charges,
and any Monthly Deductions due and unpaid through the Policy month in which the
Insured dies. The amount of Death Proceeds payable will be determined as of the
date of the Insured's death.
SUM INSURED OPTIONS - The Policy provides two Sum Insured Options: Option 1 and
Option 2, as described below. You designate the desired Sum Insured Option in
the application. You may change the option once per Policy year by
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<PAGE>
written request. There is no charge for a change in option.
Under Option 1, the Sum Insured is equal to the greater of the Face Amount of
insurance or the Guideline Minimum Sum Insured.
Under Option 2, the Sum Insured is equal to the greater of the Face Amount of
insurance plus the Policy Value or the Guideline Minimum Sum Insured.
GUIDELINE MINIMUM SUM INSURED - The Guideline Minimum Sum Insured is equal to a
percentage of the Policy Value as set forth in the table below. The Guideline
Minimum Sum Insured is determined in accordance with Internal Revenue Code
regulations to ensure that the Policy qualifies as a life insurance contract and
that the insurance proceeds will be excluded from the gross income of the
Beneficiary.
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<PAGE>
GUIDELINE MINIMUM SUM INSURED TABLE
<TABLE>
<CAPTION>
AGE OF
INSURED ON
DATE OF PERCENTAGE OF
DEATH POLICY VALUE
<S> <C>
40 and less . . . . . . . . . . . . 250%
45. . . . . . . . . . . . . . . . . 215%
50. . . . . . . . . . . . . . . . . 185%
55. . . . . . . . . . . . . . . . . 150%
60. . . . . . . . . . . . . . . . . 130%
65. . . . . . . . . . . . . . . . . 120%
70. . . . . . . . . . . . . . . . . 115%
75. . . . . . . . . . . . . . . . . 105%
80. . . . . . . . . . . . . . . . . 105%
85. . . . . . . . . . . . . . . . . 105%
90. . . . . . . . . . . . . . . . . 105%
95. . . . . . . . . . . . . . . . . 100%
</TABLE>
For the Ages not listed, the progression between the listed Ages is linear.
Under both Option 1 and Option 2 the Sum Insured provides insurance protection.
Under Option 1, the Sum Insured remains level unless the applicable percentage
of Policy Value under the Guideline Minimum Sum Insured exceeds the Face Amount,
in which case the Sum Insured will vary as the Policy Value varies. Under
Option 2, the Sum Insured varies as the Policy Value changes.
For any Face Amount, the amount of the Sum Insured and thus the Death Proceeds
will be greater under Option 2 than under Option 1, since the Policy Value is
added to the specified Face Amount and included in the Death Proceeds only under
Option 2. However, the cost of insurance included in the Monthly Deduction will
be greater, and thus the rate at which Policy Value will accumulate will be
slower, under Option 2 than under Option 1, (assuming the same specified Face
Amount and the same actual premiums paid). See "CHARGES AND DEDUCTIONS -
Monthly Deduction From Policy Value."
If you desire to have premium payments and investment performance reflected in
the amount of the Sum Insured, you should choose Option 2. If you desire
premium payments and investment performance reflected to the maximum extent in
the Policy Value, you should select Option 1.
ILLUSTRATION OF OPTION 1 - For purposes of this illustration, assume that the
Insured is under the Age of 40, and that there is no outstanding Debt.
Under Option 1, a Policy with a $50,000 Face Amount will generally have a Sum
Insured equal to $50,000. However, because the Sum Insured must be equal to or
greater than 250% of Policy Value, if at any time the Policy Value exceeds
$20,000, the Sum Insured will exceed the $50,000 Face Amount. In this example,
each additional dollar of Policy Value above $20,000 will increase the Sum
Insured by $2.50. For example, a Policy with a Policy Value of $35,000 will
have a Guideline Minimum Sum Insured of $87,500 ($35,000 x 2.50); Policy Value
of $40,000 will produce a Guideline Minimum Sum Insured of $100,000 ($40,000 x
2.50); and Policy Value of $50,000 will produce a Guideline Minimum Sum Insured
of $125,000 ($50,000 x 2.50).
Similarly, so long as Policy Value exceeds $20,000, each dollar taken out of
Policy Value will reduce the Sum Insured by $2.50. If, for example, the Policy
Value is reduced from $25,000 to $20,000 because of partial withdrawals, charges
or negative investment performance, the Sum Insured will be reduced from $62,500
to $50,000. If at any time, however, the Policy Value multiplied by the
applicable percentage is less than the Face Amount, the Sum Insured will equal
the Face Amount of the Policy.
The applicable percentage becomes lower as the Insured's Age increases. If the
Insured's Age in the above example were, for example, 50 (rather than between 0
and 40), the applicable percentage would be 185%. The Sum Insured would not
exceed the $50,000 Face Amount unless the Policy Value exceeded $27,027 (rather
than $20,000), and each dollar then added to or taken from Policy Value would
change the Sum Insured by $1.85.
ILLUSTRATION OF OPTION 2 - For purposes of this illustration, assume that the
Insured is under the Age of 40 and that there is
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<PAGE>
no outstanding Debt.
Under Option 2, a Policy with a Face Amount of $50,000 will generally produce a
Sum Insured of $50,000 plus Policy Value. For example, a Policy with Policy
Value of $5,000 will produce a Sum Insured of $55,000 ($50,000 + $5,000); Policy
Value of $10,000 will produce a Sum Insured of $60,000 ($50,000 + $10,000);
Policy Value of $25,000 will produce a Sum Insured of $75,000 ($50,000 +
$25,000). However, the Sum Insured must be at least 250% of the Policy Value.
Therefore, if the Policy Value is greater than $33,333, 250% of that amount will
be the Sum Insured, which will be greater than the Face Amount plus Policy
Value. In this example, each additional dollar of Policy Value above $33,333
will increase the Sum Insured by $2.50. For example, if the Policy Value is
$35,000, the Guideline Minimum Sum Insured will be $87,500 ($35,000 x 2.50);
Policy Value of $40,000 will produce a Guideline Minimum Sum Insured of $100,000
($40,000 x 2.50); and Policy Value of $50,000 will produce a Guideline Minimum
Sum Insured of $125,000 ($50,000 x 2.50).
Similarly, if Policy Value exceeds $33,333, each dollar taken out of Policy
Value will reduce the Sum Insured by $2.50. If, for example, the Policy Value
is reduced from $45,000 to $40,000 because of partial withdrawals, charges or
negative investment performance, the Sum Insured will be reduced from $112,500
to $100,000. If at any time, however, Policy Value multiplied by the applicable
percentage is less than the Face Amount plus Policy Value, then the Sum Insured
will be the current Face Amount plus Policy Value.
The applicable percentage becomes lower as the Insured's Age increases. If the
Insured's Age in the above example were 50, the Sum Insured must be at least
1.85 times the Policy Value. The amount of the Sum Insured would be the sum of
the Policy Value plus $50,000 unless the Policy Value exceeded $58,824 (rather
than $33,000). Each dollar added to or subtracted from the Policy would change
the Sum Insured by $1.85.
The Sum Insured under Option 2 will always be the greater of the Face Amount
plus Policy Value or the Policy Value multiplied by the applicable percentage.
CHANGE IN SUM INSURED OPTION - Generally, the Sum Insured Option in effect may
be changed once each Policy year by sending a written request for change to the
Principal Office. Changing Sum Insured Options will not require Evidence of
Insurability. The effective date of any such change will be the Monthly Payment
Date on or following the date of receipt of the request. No charges will be
imposed on changes in Sum Insured Options.
If the Sum Insured Option is changed from Option 2 to Option 1, the Face Amount
will be increased to equal the Sum Insured which would have been payable under
Option 2 on the effective date of the change (i.e. the Face Amount immediately
prior to the change plus the Policy Value on the date of the change). The
amount of the Sum Insured will not be altered at the time of the change.
However, the change in option will affect the determination of the Sum Insured
from that point on, since the Policy Value will no longer be added to the Face
Amount in determining the Sum Insured; the Sum Insured will equal the new Face
Amount (or, if higher, the Guideline Minimum Sum Insured). The cost of
insurance may be higher or lower than it otherwise would have been since any
increases or decreases in Policy Value will, respectively, reduce or increase
the Insurance Amount at Risk under Option 1. Assuming a positive net investment
return with respect to any amounts in the VEL Account, changing the Sum Insured
Option from Option 2 to Option 1 will reduce the Insurance Amount at Risk and
therefore the cost of insurance charge for all subsequent Monthly Deductions,
compared to what such charge would have been if no such change were made.
If the Sum Insured Option is changed from Option 1 to Option 2, the Face Amount
will be decreased to equal the Sum Insured less the Policy Value on the
effective date of the change. This change may not be made if it would result in
a Face Amount less than $25,000. A change from Option 1 to Option 2 will not
alter the amount of the Sum Insured at the time of the change, but will affect
the determination of the Sum Insured from that point on. Because the Policy
Value will be added to the new specified Face Amount, the Sum Insured will vary
with the Policy Value. Thus, under Option 2, the Insurance Amount at Risk will
always equal the Face Amount unless the Guideline Minimum Sum Insured is in
effect. The cost of insurance may also be higher or lower than it otherwise
would have been without the change in Sum Insured Option. See "CHARGES AND
DEDUCTIONS - Monthly Deduction From Policy Value."
A change in Sum Insured Option may result in total premiums paid exceeding the
then current maximum premium limitation determined by Internal Revenue Service
Rules. In such event, the Company will pay the excess to the Policyowner. See
"THE POLICY - Premium Payments."
CHANGE IN FACE AMOUNT - Subject to certain limitations, you may increase or
decrease the specified Face Amount of a Policy at any time by submitting a
written request to the Company. Any increase or decrease in the specified Face
Amount requested by you will become effective on the Monthly Payment Date on or
next following the date of receipt of the request at the Principal Office, or,
if Evidence of Insurability is required, the date of approval of the request.
29
<PAGE>
INCREASES - Along with the written request for an increase, you must submit
satisfactory Evidence of Insurability. The consent of the Insured is also
required whenever the Face Amount is increased. A request for 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. An increase must be accompanied by an
additional premium if the Surrender Value is less than $50 plus an amount
equal to the sum of two Minimum Monthly Factors. On the effective date of
each increase in Face Amount, a transaction charge of $50 will be deducted from
Policy Value for administrative costs. The effective date of the increase will
be the first Monthly Payment Date on or following the date all of the conditions
for the increase are met.
An increase in the Face Amount will generally affect the Insurance Amount at
Risk and may affect the portion of the Insurance Amount at Risk included in
various Premium Classes (if more than one Premium Class applies), both of which
may affect the monthly cost of insurance charges. A surrender charge will also
be calculated for the increase. See "CHARGES AND DEDUCTIONS - Monthly Deduction
From Policy Value, - Surrender Charge."
After increasing the Face Amount, you will have the right (1) during a Free Look
Period, to have the increase cancelled and the charges which would not have been
deducted but for the increase will be credited to the Policy and (2) during the
first 24 months following the increase, to transfer any or all Policy Value to
the General Account free of charge. See "THE POLICY - Free Look Period, -
Conversion Privileges." A refund of charges which would not have been deducted
but for the increase will be made at your request.
DECREASES - The minimum amount for a decrease in Face Amount is $10,000. The
Face Amount in force after any decrease may not be less than $50,000. If,
following a decrease in Face Amount, the Policy would not comply with the
maximum premium limitation applicable under the Internal Revenue Service Rules,
the decrease may be limited or Policy Value may be returned to the Policyowner
(at your election) to the extent necessary to meet the requirements. A return
of Policy Value may result in tax liability to you.
A decrease in the Face Amount will affect the total Insurance Amount at Risk and
the portion of the Insurance Amount at Risk covered by various Premium Classes,
both of which may affect a Policyowner's monthly cost of insurance charges. See
"CHARGES AND DEDUCTIONS - Monthly Deduction From Policy Value." For purposes of
determining the cost of insurance charge, any decrease in the Face Amount will
reduce the Face Amount in the following order: (a) the Face Amount provided by
the most recent increase; (b) the next most recent increases successively; and
(c) the initial Face Amount. This order will also be used to determine whether
a surrender charge will be deducted and in what amount. If you request a
decrease in the Face Amount, the amount of any surrender charge deducted will
reduce the current Policy Value. You may specify one Sub-Account from which the
surrender charge will be deducted. If no specification is provided, the Company
will make a Pro Rata Allocation. The current surrender charge will be reduced
by the amount deducted. See "CHARGES AND DEDUCTIONS - Surrender Charge."
POLICY VALUE AND SURRENDER VALUE - The Policy Value is the total amount
available for investment and is equal to the sum of the accumulation in the
General Account and the value of the Accumulation Units in the Sub-Accounts.
The Policy Value is used in determining the Surrender Value (the Policy Value
less any Debt, any $25 monthly administrative charges not yet deducted and any
surrender charge). See "THE POLICY - Surrender." There is no guaranteed
minimum Policy Value. Because Policy Value on any date depends upon a number of
variables, it cannot be predetermined.
Policy Value and Surrender Value will reflect frequency and amount of Net
Premiums paid, interest credited to accumulations in the General Account, the
investment performance of the chosen Sub-Accounts, any partial withdrawals, any
loans, any loan repayments, any loan interest paid or credited, and any charges
assessed in connection with the Policy.
CALCULATION OF POLICY VALUE - The Policy Value is determined first on the Date
of Issue and thereafter on each Valuation Date. On the Date of Issue, the
Policy Value will be the Net Premiums received, plus any interest earned during
the period when premiums are held in the General Account (before being
transferred to the VEL Account; see THE POLICY - Application For A Policy") less
any Monthly Deductions due. On each Valuation Date after the Date of Issue the
Policy Value will be:
(1) the aggregate of the values in each of the Sub-Accounts on the Valuation
Date, determined for each Sub-Account by multiplying the value of an
Accumulation Unit in that Sub-Account on that date by the number of such
Accumulations Units allocated to the Policy; plus
(2) the value in the General Account (including any amounts transferred to
the General Account with respect to a loan).
Thus, the Policy Value is determined by multiplying the number of Accumulation
Units in each Sub-Account by the value
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of the applicable Accumulation Units on the particular Valuation Date, adding
the products, and adding the amount of the accumulations in the General Account,
if any.
THE ACCUMULATION UNIT - Each Net Premium is allocated to the Sub-Account(s)
selected by you. Allocations to the Sub-Accounts are credited to the Policy in
the form of Accumulation Units. Accumulation Units are credited separately for
each Sub-Account.
The number of Accumulation Units of each Sub-Account credited to the Policy is
equal to the portion of the Net Premium allocated to the Sub-Account, divided by
the dollar value of the applicable Accumulation Unit as of the Valuation Date
the payment is received at the Company's Principal Office. The number of
Accumulation Units will remain fixed unless changed by a subsequent split of
Accumulation Unit value, transfer, partial withdrawal or surrender. In
addition, if the Company is deducting the Monthly Deduction or other charges
from a Sub-Account, each such deduction will result in cancellation of a number
of Accumulation Units equal in value to the amount deducted.
The dollar value of an Accumulation Unit of each Sub-Account varies from
Valuation Date to Valuation Date based on the investment experience of that
Sub-Account. That experience, in turn, will reflect the investment performance,
expenses and charges of the respective Underlying Fund. The value of an
Accumulation Unit was set at $1.00 on the first Valuation Date for each
Sub-Account. The dollar value of an Accumulation Unit on a given Valuation Date
is determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
NET INVESTMENT FACTOR - The net investment factor measures the investment
performance of a Sub-Account of the VEL Account during the Valuation Period just
ended. The net investment factor for each Sub-Account is equal to 1.0000 plus
the number arrived at by dividing (a) by (b) and subtracting (c) from the
result, where
(a) is the investment income of that 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;
(b) is the value of that Sub-Account's assets at the beginning of the
Valuation Period; and
(c) is a charge for each day in the Valuation Period equal to .90% on an
annual basis of the daily net asset value of that Sub-Account for
mortality and expense risks. This charge may be increased or
decreased by the Company, but may not exceed 1.275%.
The net investment factor may be greater or less than one. Therefore, the value
of an Accumulation Unit may increase or decrease. You bear the investment risk.
Allocations to the General Account are not converted into Accumulation Units,
but are credited interest at a rate periodically set by the Company. See "MORE
INFORMATION ABOUT THE GENERAL ACCOUNT."
BENEFIT AT MATURITY DATE - If the Insured is living, the Company will pay to you
the Policy Value on the Maturity Date, reduced by any outstanding Debt. See
"THE POLICY - Policy Value And Surrender Value." A Policyowner may elect to
have amounts payable on the Maturity Date paid in a single lump sum or under a
payment option. The Maturity Date of a Policy is the Policy anniversary nearest
the Insured's 95th birthday.
PAYMENT OPTIONS - During the Insured's lifetime, you may arrange for the Death
Proceeds to be paid in a single sum or under one or more of the available
payment options. The payment options currently available are described in
Appendix B, "PAYMENT OPTIONS." These choices are also available at the Maturity
Date and if the Policy is surrendered. The Company may make more payment
options available in the future. If no election is made, the Company will pay
the Death Proceeds in a single sum. When the Death Proceeds are payable in a
single sum, the Beneficiary may, within one year of the Insured's death, select
one or more of the payment options, if no payments have yet been made.
OPTIONAL INSURANCE BENEFITS - Subject to certain requirements, one or more of
the optional insurance benefits described in "APPENDIX A - OPTIONAL BENEFITS"
may be added to a Policy by rider. The cost of any optional insurance benefits
will be deducted as part of the Monthly Deduction. See "CHARGES AND DEDUCTIONS
- - Monthly Deduction From Policy Value."
SURRENDER - At any time prior to the Maturity Date, you may surrender the Policy
and receive its Surrender Value. The Surrender Value is the Policy Value, less
Debt, applicable surrender charges and any $25 monthly administrative charges
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not yet deducted. The Surrender Value will be calculated as of the Valuation
Date on which a written request for surrender and the Policy are received at the
Principal Office. A surrender charge will be deducted when a Policy is
surrendered prior to the Maturity Date if less than twelve full Policy years
have elapsed from the Date of Issue of the Policy or from the effective date of
any increase in Face Amount. See "CHARGES AND DEDUCTIONS - Surrender Charge."
The proceeds on surrender may be paid in a single lump sum or under one of the
payment options described in "APPENDIX B - PAYMENT OPTIONS." The Company will
normally pay the Surrender Value within seven days following the Company's
receipt of the surrender request, but the Company may delay payment under the
circumstances described in "OTHER POLICY PROVISIONS - Postponement Of Payments."
For important tax consequences which may result from surrender see "FEDERAL TAX
CONSIDERATIONS."
PARTIAL WITHDRAWAL - Any time after the first Policy year and prior to the
Maturity date, you may withdraw a portion of the Surrender Value of your Policy,
subject to the limits stated below, upon written request filed at the Principal
Office. The written request must indicate the dollar amount you wish to receive
and the Accounts from which such amount is to be withdrawn. You may allocate
the amount withdrawn among the Sub-Accounts and the General Account. If you do
not provide allocation instructions the Company will make a Pro Rata Allocation.
Each partial withdrawal must be in a minimum amount of $500. Under Option 1,
the Face Amount is reduced by the amount of the partial withdrawal, and a
partial withdrawal will not be allowed if it would reduce the Face Amount below
$25,000.
A partial withdrawal from a Sub-Account will result in the cancellation of the
number of Accumulation Units equivalent in value to the amount withdrawn. The
amount withdrawn equals the amount requested by you plus the transaction charge
and any applicable partial withdrawal charge as described under "CHARGES AND
DEDUCTIONS - Charges On Partial Withdrawal." The Company will normally pay the
amount of the partial withdrawal within seven days following the Company's
receipt of the partial withdrawal request, but the Company may delay payment
under certain circumstances described in "OTHER POLICY PROVISIONS - Postponement
Of Payments."
For important tax consequences which may result from partial withdrawals, see
"FEDERAL TAX CONSIDERATIONS."
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate the Company
for providing the insurance benefits set forth in the Policy and any additional
benefits added by rider, administering the Policy, incurring distribution
expenses, and assuming certain risks in connection with the Policies. Each of
the charges identified as an administrative charge is intended to reimburse the
Company for actual administrative costs incurred, and is not intended to result
in a profit to the Company.
STATE PREMIUM TAX - A deduction of 2 1/2% for state premium taxes is made from
each premium payment. The premium payment less the premium tax charge equals
the Net Premium. While the premium tax is deducted from each premium payment,
some jurisdictions may not impose premium taxes. Premium taxes vary from state
to state, ranging from zero to 4.0%, and the 2 1/2% rate attributable to
premiums for state premium taxes approximates the average expenses to the
Company associated with the premium taxes. The 2 1/2% charge may be higher or
lower than the actual premium tax imposed by the applicable jurisdiction.
However, the Company does not expect to make a profit from this charge.
MONTHLY DEDUCTION FROM POLICY VALUE - A Monthly Deduction from Policy Value will
be made to cover a charge for the cost of insurance, a charge for any optional
insurance benefits added by rider and a monthly administrative charge. The cost
of insurance charge and the monthly administrative charges are discussed below.
The Monthly Deduction on or following the effective date of a requested increase
in the Face Amount will also include a $50 administrative charge for the
increase. See "THE POLICY - Change In Face Amount."
The Monthly Deduction will be deducted as of each Monthly Payment Date
commencing with the Date of Issue of the Policy. It will be allocated to one
Sub-Account according to your instructions, or, if no allocation is specified,
the Company will make a Pro Rata Allocation. If the Sub-Account you specify
does not have sufficient funds to cover the Monthly Deduction, the Company will
deduct the charge for that month as if no specification were made. However, if
on subsequent Monthly Payment Dates there is sufficient Policy Value in the
Sub-Account you specified, the Monthly Deduction will be deducted from that
Sub-Account.
COST OF INSURANCE - This charge is designed to compensate the Company for the
Anticipated cost of providing Death Proceeds to Beneficiaries of those Insureds
who die prior to the Maturity Date. The cost of insurance is determined on a
monthly basis, and is determined separately for the initial Face Amount and for
each subsequent increase in Face Amount.
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Because the cost of insurance depends upon a number of variables, it can vary
from month to month.
CALCULATION OF THE CHARGE - If you select Sum Insured Option 2, the monthly cost
of insurance charge for the initial Face Amount will equal the applicable cost
of insurance rate multiplied by the initial Face Amount. If you select Sum
Insured Option 1, however, the applicable cost of insurance rate will be
multiplied by the initial Face Amount less the Policy Value (minus charges for
rider benefits) at the beginning of the policy month. Thus, the cost of
insurance charge may be greater for owners who have selected Sum Insured Option
2 than for those who have selected Sum Insured Option 1, assuming the same Face
Amount in each case and assuming that the Guideline Minimum Sum Insured is not
in effect. In other words, since the Sum Insured under Option 1 remains
constant while the Sum Insured under Option 2 varies with the Policy Value, any
Policy Value increases will reduce the insurance charge under Option 1 but not
under Option 2.
If you select Sum Insured Option 2, the monthly insurance charge for each
increase in Face Amount (other than an increase caused by a change in Sum
Insured Option) will be equal to the cost of insurance rate applicable to that
increase multiplied by the increase in Face Amount. If you select Sum Insured
Option 1, the applicable cost of insurance rate will be multiplied by the
increase in the Face Amount reduced by any Policy Value (minus rider charges) in
excess of the initial Face Amount at the beginning of the policy month.
If the Guideline Minimum Sum Insured is in effect under either Option, a monthly
cost of insurance charge will also be calculated for that portion of the Sum
Insured which exceeds the current Face Amount. This charge will be calculated
by multiplying the cost of insurance rate applicable to the initial Face Amount
times the Guideline Minimum Sum Insured (Policy Value times the applicable
percentage) less the greater of the Face Amount or the Policy Value if you
selected Sum Insured Option 1, or less the Face Amount plus the Policy Value if
you selected Sum Insured Option 2. When the Guideline Minimum Sum Insured is in
effect, the cost of insurance charge for the initial Face Amount and for any
increases will be calculated as set forth in the preceding two paragraphs.
The monthly cost of insurance charge will also be adjusted for any decreases in
Face Amount. See "THE POLICY - Change In Face Amount: Decreases."
COST OF INSURANCE RATES - Cost of insurance rates are based on male, female, or
a blended unisex rate table, Age and Premium Class of the Insured at the Date of
Issue, the effective date of an increase or date of rider, as applicable, the
amount of premiums paid less debt, any partial withdrawals and withdrawal
charges, and risk classification. For those Policies issued in certain states
or in certain cases on a unisex basis, sex-distinct rates do not apply. The
cost of insurance rates are determined at the beginning of each Policy year for
the initial Face Amount. The cost of insurance rates for an increase in Face
Amount or rider are determined annually on the anniversary of the effective date
of each increase or rider. The cost of insurance rates generally increase as
the Insured's Age increases. The actual monthly cost of insurance rates will be
based on the Company's expectations as to future mortality experience. They
will not, however, be greater than the guaranteed cost of insurance rates set
forth in the Policy. These guaranteed rates are based on the 1980 Commissioners
Standard Ordinary Mortality Tables (Mortality Table B, Smoker or Non-Smoker, 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 and for
smokers and non-smokers. Any change in the cost of insurance rates will apply
to all persons of the same insuring Age, sex and Premium Class whose Policies
have been in force for the same length of time.
The premium class of an Insured will affect the cost of insurance rates. The
Company currently places Insureds into preferred premium classes, standard
premium classes and substandard premium classes. In an otherwise identical
Contract, an Insured in the preferred premium class will have a lower cost of
insurance than an Insured in a standard premium class who, in turn, will have a
lower cost of insurance than an Insured in a substandard premium class with a
higher mortality risk. The premium classes are also divided into two
categories: smokers and nonsmokers. Nonsmoking Insureds will generally incur
lower cost of insurance rates than Insureds who are classified as smokers but
who are otherwise in the same premium class. Any Insured with an Age at
issuance under 18 will be classified initially as regular or substandard. The
Insured then will be classified as a smoker at Age 18 unless the Insured
provides satisfactory evidence that the Insured is a nonsmoker. The Company
will provide notice to you of the opportunity for the Insured to be classified
as a nonsmoker when the Insured reaches Age 18.
The cost of insurance rate is determined separately for the initial Face Amount
and for the amount of any increase in Face Amount. For each increase in Face
Amount you request, at a time when the Insured is in a less favorable Premium
Class than previously, a correspondingly higher cost of insurance rate will
apply only to that portion of the Insurance Amount at Risk for the increase.
For the initial Face Amount and any prior increases, the Company will use the
Premium Class previously applicable. On the other hand, if the Insured's
Premium Class improves on an increase, the lower cost of insurance rate
generally will apply to the entire Insurance Amount at Risk.
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MONTHLY ADMINISTRATIVE CHARGES - A flat monthly administrative charge of $25 per
month will be deducted from Policy Value as part of the first twelve Monthly
Deductions. This charge will be used to compensate the Company for expenses
incurred in the administration of the Policy and will compensate the Company for
first year underwriting and other start-up expenses incurred in connection with
the Policy. These expenses include the cost of processing applications,
conducting medical examinations, determining insurability and the Insured's
Premium Class, and establishing Policy records. If the Policy is surrendered,
any $25 monthly administrative charges not yet deducted will be deducted in
addition to applicable surrender charges. After the first 12 Monthly
Deductions, a monthly administrative charge of $5 per month will be deducted
from Policy Value to cover expenses associated with administering the Policy.
The Company does not expect to derive a profit from these charges.
CHARGES AGAINST ASSETS OF THE VEL ACCOUNT - The Company currently makes a charge
on an annual basis of 0.90% of the daily net asset value in each Sub-Account.
This charge is for the mortality risk and expense risk which the Company assumes
in relation to the variable portion of the Policies. The total charges may be
increased or decreased by the Board of Directors of the Company once each year,
subject to compliance with applicable state and federal requirements, but may
not exceed 1.275% on an annual basis.
Any mortality and expense risk charge above 0.90% is currently considered above
the range of industry practice. To increase the charge above the range of
industry practice, the Company must file a request with the Securities and
Exchange Commission ("SEC") for an exemption from certain SEC rules, in which it
would be necessary to demonstrate that the proposed charge is reasonable in
relation to the risks assumed under the Policy. Even with such a demonstration,
there is no assurance that the SEC would issue an exemption order.
The mortality risk assumed by the Company is that Insureds may live for a
shorter time than anticipated, and that the Company will therefore pay an
aggregate amount of Death Proceeds greater than anticipated. The expense risk
assumed is that the expenses incurred in issuing and administering the Policies
will exceed the amounts realized from the administrative charges provided in the
Policies. If the charge for mortality and expense risks is not sufficient to
cover actual mortality experience and expenses, the Company will absorb the
losses. If costs are less than the amounts provided, the difference will be a
profit to the Company. To the extent this charge results in a current profit to
the Company, such profit will be available for use by the Company for, among
other things, the payment of distribution, sales and other expenses. Since
mortality and expense risks involve future contingencies which are not subject
to precise determination in advance, it is not feasible to identify specifically
the portion of the charge which is applicable to each.
In addition, because the Sub-Accounts purchase shares of the Underlying
Investment Companies, the value of the Accumulation Units of the Sub-Accounts
will reflect the investment advisory fee and other expenses incurred by the
Underlying Investment Companies. The Prospectuses and Statements of Additional
information of the Trust, VIP, VIP II, T. Rowe Price and DGPF contain additional
information concerning such fees and expenses.
No charges are currently made against the Sub-Accounts for federal or state
income taxes. Should the Company determine that taxes will be imposed, the
Company may make deductions from the Sub-Account to pay such taxes. See
"FEDERAL TAX CONSIDERATIONS." The imposition of such taxes would result in a
reduction of the Policy Value in the Sub-Accounts.
SURRENDER CHARGE - The Policy provides for a contingent surrender charge. A
separate surrender charge, described in more detail below, is calculated upon
the issuance of the Policy and for each increase in the Face Amount. The
surrender charge is comprised of a contingent deferred administrative charge and
a contingent deferred sales charge. The contingent deferred administrative
charge compensates the Company for expenses incurred in administering the
Policy. The contingent deferred sales charge compensates the Company for
expenses relating to the distribution of the Policy, including Agent's
commissions, advertising and the printing of the Prospectus and sales
literature.
A Surrender Charge may be deducted if you request a full surrender of the Policy
or a decrease in Face Amount if less than 12 years have elapsed from the Date of
Issue or from the effective date of any increase in the Face Amount. The
maximum Surrender Charge calculated upon issuance of the Policy is equal to the
sum of (a) plus (b) where (a) is a deferred administrative charge equal to $4.50
per thousand dollars of the initial Face Amount and (b) is a deferred sales
expense charge equal to 30% of the Guideline Annual Premium times a factor of
not greater than 1.0, as specified in "APPENDIX D - CALCULATION OF MAXIMUM
SURRENDER CHARGES." As the factors used in calculating the deferred sales
charge in (b) vary with the attained Age and Premium Class (smoker versus
nonsmoker) of the Insured, the deferred sales charge may range between 10.25%
and 30% of the Guideline Annual Premium. The maximum Surrender Charge continues
in a level amount for 44 Policy months, reduces by 1% per month for the next 100
policy months, and is zero thereafter. This reduction in the maximum Surrender
Charge will reduce the deferred sales charge and the deferred administrative
charge proportionately. Any $25 monthly administrative charge not yet deducted
will also be deducted at surrender.
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If you surrender the Policy before making premium payments with respect to the
initial Face Amount which are at least equal to the Guideline Annual Premium,
the actual Surrender Charge imposed may be less than the maximum. The actual
Surrender Charge imposed will be the lesser of either the maximum Surrender
Charge or the sum of $4.50 per thousand dollars of initial Face Amount plus 30%
of premiums paid. Thus, if the amount of the Surrender Charge is less than the
maximum, such amount is comprised of the entire deferred administrative charge
plus 30% of premiums paid. See "APPENDIX D - CALCULATION OF MAXIMUM SURRENDER
CHARGES."
A separate Surrender Charge will apply to and is calculated for each increase in
Face Amount. The surrender charge for the increase is in addition to that for
the initial Face Amount. The maximum Surrender Charge for the increase is equal
to the sum of (a) plus (b), where (a) is equal to $4.50 per thousand dollars of
increase, and (b) is equal to 30% of the Guideline Annual Premium for the
increase times a factor of not greater than 1.0 as specified in "APPENDIX D -
CALCULATION OF MAXIMUM SURRENDER CHARGES." As is true for the initial Face
Amount, (a) is a deferred administrative charge and (b) is a deferred sales
charge. The actual Surrender Charge with respect to the increase may be less
than the maximum. The actual Surrender Charge is the lesser of either the
maximum Surrender Charge or the sum of (a) $4.50 per thousand dollars of
increase in Face Amount plus (b) 30% of the Policy Value on the date of increase
associated with the increase in Face Amount, plus (c) 30% of premiums paid which
are associated with the increase in Face Amount.
Additional premium payments may not be required to fund a requested increase in
Face Amount. Therefore, a special rule, which is based on relative Guideline
Annual Premium payments, applies to allocate a portion of existing Policy Value
to the increase and to allocate subsequent premium payments between the initial
Policy and the increase. For example, suppose the Guideline Annual Premium is
equal to $1,500 before an increase and is equal to $2,000 as a result of the
increase. The Policy Value on the effective date of the increase would be
allocated 75% ($1,500/$2,000) to the initial Face Amount and 25% to the
increase. All future premiums would also be allocated 75% to the initial Face
Amount and 25% to the increase. Thus, existing Policy Value associated with the
increase will equal the portion of Policy Value allocated to the increase on the
effective date of the increase, before any deductions are made. Premiums
associated with the increase will equal the portion of the premium payments
actually made on or after the effective date of the increase which are allocated
to the increase.
See "APPENDIX D - CALCULATION OF MAXIMUM SURRENDER CHARGES," for examples
illustrating the calculation of the maximum surrender charge for the initial
Face Amount and for any increases, as well as for the surrender charge based on
actual premiums paid or associated with any increases.
A surrender charge may be deducted on a decrease in the Face Amount. In the
event of a decrease, the surrender charge deducted is a fraction of the charge
that would apply to a full surrender of the Policy. The fraction will be
determined by dividing the amount of the decrease by the current Face Amount and
multiplying the result by the surrender charge. If more than one surrender
charge is in effect (i.e., pursuant to one or more increases in the Face Amount
of a Policy), the surrender charge will be applied in the following order (1)
the most recent increase followed by (2) the next most recent increases
successively, and (3) the initial Face Amount. Where a decrease causes a
partial reduction in an increase or in the initial Face Amount, a proportionate
share of the surrender charge for that increase or for the initial Face Amount
will be deducted.
CHARGES ON PARTIAL WITHDRAWAL - After the first policy year, partial withdrawals
of Surrender Value may be made. The minimum withdrawal is $500. Under Option
1, the Face Amount is reduced by the amount of the partial withdrawal, and a
partial withdrawal will not be allowed if it would reduce the Face Amount below
$25,000.
A transaction charge which is the smaller of 2% of the amount withdrawn or $25
will be assessed on each partial withdrawal to reimburse the Company for the
cost of processing the withdrawal. The Company does not expect to make a profit
on this charge.
A partial withdrawal charge may also be deducted from Policy Value. For each
partial withdrawal you may withdraw an amount equal to 10% of the Policy Value
on the date the written withdrawal request is received by the Company less the
total of any prior withdrawals in that Policy year which were not subject to the
Partial Withdrawal charge, without incurring a partial withdrawal charge. Any
partial withdrawal in excess of this amount ("excess withdrawal") will be
subject to the partial withdrawal charge. The partial withdrawal charge is
equal to 5 per cent of the excess withdrawal up to the amount of the surrender
charge(s) on the date of withdrawal. There will be no partial withdrawal charge
if there is no surrender charge on the date of withdrawal (i.e. 12 years have
passed from the date of Issue and from the effective date of any increase in the
Face Amount).
This right is not cumulative from Policy year to Policy year. For example, if
only 8% of Policy Value were withdrawn in Policy year two, the amount you could
withdraw in subsequent Policy years would not be increased by the amount you did
not withdraw in the second Policy year.
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The Policy's outstanding Surrender Charge will be reduced by the amount of the
partial withdrawal charge deducted, by proportionately reducing the deferred
sales charge component and the deferred administrative charge component. The
partial withdrawal charge deducted will decrease existing surrender charges in
the following order:
. first, the Surrender Charge for the most recent increase in Face Amount;
. second, the Surrender Charge for the next most recent increase
successively;
. last, the surrender charge for the initial Face Amount.
See "APPENDIX D - CALCULATION OF MAXIMUM SURRENDER CHARGES" for an example
illustrating the calculation of the charges on partial withdrawal and their
impact on the surrender charge(s).
TRANSFER CHARGES - The first six transfers in a Policy year will be free of
charge. Thereafter, a transfer charge of $10 will be imposed for each transfer
request to reimburse the Company for the administrative costs incurred in
processing the transfer request. The Company reserves the right to increase the
charge, but it will never exceed $25. The Company also reserves the right to
change the number of free transfers allowed in a Policy Year. See "THE POLICY -
Transfer Privilege."
You may have automatic transfers of at least $100 a month made on a periodic
basis (a) from Sub-Account 3 or Sub-Account 5 (which invests in the Money Market
Fund and Government Bond Fund of the Trust, respectively) to one or more of the
other Sub-Accounts or (b) to reallocate Policy Value among the Sub-Accounts. The
first automatic transfer counts as one transfer towards the six free transfers
allowed in each policy year. Each subsequent automatic transfer is without
charge and does not reduce the remaining number of transfers which may be made
without charge.
If you utilize the Conversion Privilege, Loan Privilege or reallocate Policy
Value within 20 days of the Date of Issue of the Policy, any resulting transfer
of Policy Value from the Sub-Accounts to the General Account will be free of
charge, and in addition to the six free transfers in a Policy year. See "THE
POLICY - Conversion Privileges" and "POLICY LOANS."
CHARGE FOR INCREASE IN FACE AMOUNT - For each increase in Face Amount you
request, a transaction charge of $50 will be deducted from Policy Value to
reimburse the Company for administrative costs associated with the increase.
This charge is guaranteed not to increase and the Company does not expect to
make a profit on this charge.
OTHER ADMINISTRATIVE CHARGES - The Company reserves the right to impose a charge
for the administrative costs incurred for changing the Net Premium allocation
instructions, for changing the allocation of any Monthly Deductions among the
various Sub-Accounts, or for a projection of values. No such charges are
currently imposed and any such charge is guaranteed not to exceed $25.
POLICY LOANS
Loans may be obtained by request to the Company on the sole security of this
Policy. The total amount which may be borrowed is the Loan Value. In the first
Policy year, the Loan Value is 75% of Policy Value reduced by applicable
surrender charges as well as Monthly Deductions and interest on Debt to the end
of the Policy year. The Loan Value in the second Policy year and thereafter is
90% of an amount equal to Policy Value reduced by applicable surrender charges.
There is no minimum limit on the amount of the loan. The loan amount will
normally be paid within seven days after the Company receives the loan request
at its Principal Office, but the Company may delay payments under certain
circumstances. See "OTHER POLICY PROVISIONS - Postponement Of Payments."
A Policy loan may be allocated among the General Account and one or more
Sub-Accounts. If you do not make an allocation, the Company will make a Pro
Rata Allocation based on the amounts in the Accounts on the date the Company
receives the loan request. Policy Value in each Sub-Account equal to the Policy
loan allocated to such Sub-Account will be transferred to the General Account,
and the number of Accumulation Units equal to the Policy Value so transferred
will be cancelled. This will reduce the Policy Value in these Sub-Accounts.
These transactions are not treated as transfers for purposes of the transfer
charge.
As long as the Policy is in force, Policy Value in the General Account equal to
the loan amount will be credited with interest at an effective annual yield of
at least 6.00% per year. NO ADDITIONAL INTEREST WILL BE CREDITED TO SUCH POLICY
VALUE.
LOAN INTEREST CHARGED - Interest accrues daily and is payable in arrears at the
annual rate of 8%. Interest is due
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and payable at the end of each Policy year or on a pro rata basis for such
shorter period as the loan may exist. Interest not paid when due will be added
to the loan amount and bear interest at the same rate. After the due and unpaid
interest is added to loan amount, if the new loan amount exceeds the Policy
Value in the General Account, the Company will transfer Policy Value equal to
that excess loan amount from the Policy Value in each Sub-Account to the General
Account as security for the excess loan amount. 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 Value in all Sub-Accounts.
REPAYMENT OF DEBT - Loans may be repaid at any time prior to the lapse of the
Policy. Upon repayment of Debt, the portion of the Policy Value that is in the
General Account securing the Debt repaid will be allocated to the various
Accounts and increase the Policy Value in such accounts in accordance with your
instructions. If you do not make a repayment allocation, the Company will
allocate Policy Value in accordance with your most recent premium allocation
instructions; provided, however, that loan repayments allocated to the VEL
Account cannot exceed Policy Value previously transferred from the VEL Account
to secure the Debt.
If Debt exceeds the Policy Value less the surrender charge, the Policy will
terminate. A notice of such pending termination will be mailed 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."
EFFECT OF POLICY LOANS - Although Policy loans may be repaid at any time before
the Maturity Date, Policy loans will permanently affect the Policy Value and
Surrender Value, and may permanently affect the Death Proceeds. The effect
could be favorable or unfavorable, depending upon whether the investment
performance of the Sub-Account(s) is less than or greater than the interest
credited to the Policy Value in the General Account attributable to the loan.
Moreover, outstanding Policy loans and the accrued interest will be deducted
from the proceeds payable upon the death of the Insured, surrender, or the
maturity of the Policy.
POLICY TERMINATION AND REINSTATEMENT
TERMINATION - The failure to make premium payments will not cause the Policy to
lapse unless: (a) the Surrender Value is insufficient to cover the next Monthly
Deduction plus loan interest accrued; or (b) Debt exceeds the Policy Value less
surrender charges. 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 make sufficient payments to prevent termination. On the date of
default, the Company will send a notice to you and to any assignee of record.
The notice will state the amount of premium due and the date on which it is due.
Failure to make a sufficient payment within the grace period will result in
termination of the Policy. 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 and any other overdue charge
will be deducted from the Death Proceeds.
Except for the situation described in (b) above, if during the first 12 months
after the Date of Issue or the effective date of an increase in Face Amount, you
make premium payments, less Debt, partial withdrawals and partial withdrawal
charges, at least equal to the sum of the Minimum Monthly Factors for the number
of months the Policy, increase, or Policy Change which causes a change in the
Minimum Monthly Factor, has been in force, the Policy is guaranteed not to lapse
during that period. A Policy Change which causes a change in the Minimum
Monthly Factor is a change in the Face Amount or the addition or deletion of a
rider. Except for the first 12 months after the Date of Issue or the effective
date of an increase, payments equal to the Minimum Monthly Factor do not
guarantee that the Policy will remain in force.
REINSTATEMENT - If the Policy has not been surrendered and the Insured is alive,
the terminated Policy may be reinstated anytime within 3 years after the date of
default and before the Maturity Date. The reinstatement will be effective on
the Monthly Payment Date following the date you submit the following to the
Company: (1) a written application for reinstatement; (2) Evidence of
Insurability showing that the Insured is insurable according to the Company's
underwriting rules; and (3) a premium that, after the deduction of the premium
tax charges, is large enough to cover the minimum amount payable, as described
below.
MINIMUM AMOUNT PAYABLE - If reinstatement is requested less than twelve months
either after the Date of Issue of the Policy or the effective date of an
increase in the Face Amount, you must pay the lesser of the amount shown in A or
B:
Under A, the minimum amount payable is the sum of the Minimum Monthly Factor for
the three-month period beginning on the date of reinstatement.
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Under B, the minimum amount payable is the sum of
. the amount by which the surrender charge as of the date of reinstatement
exceeds the Policy Value on the date of default; plus
. Monthly Deductions for the three-month period beginning on the date of
reinstatement.
If reinstatement is requested twelve months or more after the Date of Issue of
the policy or an increase in the Face Amount, you must pay the amount shown in B
above.
SURRENDER CHARGE - The Surrender Charge on the date of reinstatement is the
Surrender Charge which would have been in effect had the Policy remained in
force from the Date of Issue. The Policy Value less Debt on the date of default
will be restored to the Policy to the extent it does not exceed the Surrender
Charge on the date of reinstatement. Any Policy Value less Debt as of the date
of default which exceeds the surrender charge on the date of reinstatement will
not be restored.
POLICY VALUE ON REINSTATEMENT - The Policy Value on the date of reinstatement
is:
. the Net Premium paid to reinstate the Policy increased by interest from
the date the payment was received at the Company's Principal Office;
. plus an amount equal to the Policy Value less Debt on the date of default
to the extent it does not exceed the surrender charge on the date of
reinstatement;
. minus the Monthly Deduction due on the date of reinstatement.
You may not reinstate any Debt outstanding on the date of default or
foreclosure.
OTHER POLICY PROVISIONS
The following Policy provisions may vary in certain states in order to comply
with requirements of the insurance laws, regulations, and insurance regulatory
agencies in those states.
POLICYOWNER - The Policyowner is the Insured unless another Policyowner has been
named in the application for the Policy. The Policyowner is generally entitled
to exercise all rights under a Policy while the Insured is alive, subject to the
consent of any irrevocable Beneficiary (the consent of a revocable Beneficiary
is not required). The consent of the Insured is required whenever the Face
Amount of insurance is increased.
BENEFICIARY - The Beneficiary is the person or persons to whom the insurance
proceeds are payable upon the Insured's death. Unless otherwise stated in the
Policy, the Beneficiary has no rights in the Policy before the death of the
Insured. While the Insured is alive, you may change any Beneficiary unless you
have declared a Beneficiary to be irrevocable. If no Beneficiary is alive when
the Insured dies, the owner (or the owner's estate) will be the Beneficiary. If
more than one Beneficiary is alive when the Insured dies, they will be paid 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.
INCONTESTABILITY - The Company will not contest the validity of a Policy after
it has been in force during the Insured's lifetime for two years from the Date
of Issue. The Company will not contest the validity of any rider or any
increase in the Face Amount after such rider or increase has been in force
during the Insured's lifetime for two years from its effective date.
SUICIDE - The Death Proceeds will not be paid if the Insured commits suicide,
while sane or insane, within two years from the Date of Issue. Instead, the
Company will pay the Beneficiary an amount equal to all premiums paid for the
Policy, without interest, less any outstanding Debt and less any partial
withdrawals. If the Insured commits suicide, while sane or insane, generally
within two years from the effective date of any increase in the Sum Insured, the
Company's liability with respect to such increase will be limited to a refund of
the cost thereof. The Beneficiary will receive the administrative charges and
insurance charges paid for such increase.
AGE AND SEX - If the Insured's Age or sex as stated in the application for a
Policy is not correct, benefits under a Policy will be adjusted to reflect the
correct Age and sex. The adjusted benefit will be that which the most recent
cost of insurance
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charge would have purchased for the correct Age and sex. In no event will the
Sum Insured be reduced to less than the Guideline Minimum Sum Insured. In the
case of a Policy issued on a unisex basis, this provision as it relates to
misstatement of sex does not apply.
ASSIGNMENT - The owner may assign a Policy as collateral or make an absolute
assignment of the Policy. All rights under the Policy will be transferred to
the extent of the assignee's interest. The Company is not bound by an
assignment or release thereof, unless it is in writing and is recorded at the
Company's Principal Office. When recorded, the assignment will take effect as
of the date the written request was signed. Any rights created by the
assignment will be subject to any payments made or actions taken by the Company
before the assignment is recorded. The Company is not responsible for
determining the validity of any assignment or release.
POSTPONEMENT OF PAYMENTS - Payments of any amount due from the VEL Account upon
surrender, partial withdrawals, death of the Insured, or the Maturity Date, as
well as payments of a Policy loan and transfers may be postponed whenever: (i)
the New York Stock Exchange is closed other than customary weekend and holiday
closings, or trading on the New York Stock Exchange is restricted as determined
by the SEC or (ii) an emergency exists, as determined by the SEC, as a result of
which disposal of securities is not reasonably practicable or it is not
reasonably practicable to determine the value of the VEL Account's net assets.
Payments under the Policy of any amounts derived from the premiums paid by check
may be delayed until such time as the check has cleared your bank.
The Company also reserves the right to defer payment of any amount due from the
General Account upon surrender, partial withdrawal, death of the Insured, or the
Maturity Date, as well as payments of policy loans and transfers from the
General Account, for a period not to exceed six months.
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DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
<TABLE>
Name and Position Principal Occupation(s) During Past Five Years
- ----------------------------------- ------------------------------------
<S> <C>
Bruce C. Anderson Director of First Allmerica since 1996; Vice President, First
Director and Vice President Allmerica
Abigail M. Armstrong Secretary of First Allmerica since 1996; Counsel, First
Secretary and Counsel Allmerica
Mark R. Colborn Vice President and Controller, First Allmerica
Vice President and Controller
Kruno Huitzingh Director of First Allmerica since 1996; Vice President & Chief
Director, Vice President and Information Officer, First Allmerica since 1993; Executive Vice
Chief Information Officer President, Chicago Board Options Exchange, 1985 to 1993
John F. Kelly Director of First Allmerica since 1996; Senior Vice President
Director and General Counsel, First Allmerica
James R. McAuliffe Director of First Allmerica since 1996; President and CEO,
Director Citizens Insurance Company of America since 1995; Vice
President and Chief Investment Officer, First Allmerica,
1986 to 1994
John F. O'Brien Director, Chairman of the Board, President and Chief
Director and Chairman of the Board Executive Officer or First Allmerica
Edward J. Parry, III Vice President and Treasurer, First Allmerica
Vice President and Treasurer since 1993; Assistant. Vice President to 1992 to 1993; Manager,
Price Waterhouse, 1987 to 1992
Richard M. Reilly Director of First Allmerica since 1996; Vice President, First
Director and Vice President Allmerica; Director and President, Allmerica Investments, Inc.;
Director and President Allmerica Investment Management Company,
Inc. since 1992
Larry C. Renfro Director of First Allmerica since 1996; Vice President,
Director First Allmerica
Theodore J. Rupley Director of First Allmerica since 1996; Director, President,
Director and CEO, The Hanover Insurance Company since 1992; President,
Fountain Powerboats, 1992; President; Metropolitan Property &
Casualty Company, 1986-1992
Philip J. Soule Director of First Allmerica since 1996; Vice President,
Director First Allmerica
Eric Simonsen Director of First Allmerica since 1996; Vice President and
Director, Vice President and Chief Chief Financial Officer, First Allmerica
Financial Officer
Diane E. Wood Director of First Allmerica since 1996; Vice President, First
Director and Vice President Allmerica
</TABLE>
DISTRIBUTION
Allmerica Investments, Inc., an indirect subsidiary of First Allmerica acts as
the principal underwriter of the Policies pursuant to a Sales and Administrative
Services Agreement with the Company and the VEL Account. Allmerica Investments,
Inc. is registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities Dealers.
The Policies are sold by agents of the Company who are registered
representatives of Allmerica Investments, Inc.
The Company pays to registered representatives who sell the Policy commissions
based on a commission schedule. After issue of the Policy or an increase in
Face Amount, commissions generally will equal 50 percent of the first year
premiums up to a basic premium amount established by the Company. Thereafter,
commissions will generally equal 4 percent of any
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additional premiums. Certain registered representatives, including registered
representatives enrolled in the Company's training program for new agents, may
receive additional first year and renewal commissions and training
reimbursements. General Agents of the Company and certain registered
representatives may also be eligible to receive expense reimbursements based on
the amount of earned commissions. General Agents may also receive overriding
commissions, which will not exceed 11 percent of first year or 14 percent of
renewal premiums.
The Company intends to recoup the commission and other sales expense through a
combination of the deferred sales charge component of the anticipated surrender
and partial withdrawal charges, and the investment earnings on amounts allocated
to accumulate on a fixed basis in excess of the interest credited on fixed
accumulations by the Company. The is no additional charge to the Policy Owners
or to the Separate Account. Any surrender charge assessed on a Policy will be
retained by the Company except for amounts it may pay to Allmerica Investments,
Inc. for services it performs and expenses it may incur as principal underwriter
and general distributor.
REPORTS
The Company will maintain the records relating to the VEL Account. You will be
promptly sent statements of significant transactions such as premium payments
(other than payments made pursuant to the MAP procedure), changes in specified
Face Amount, change in Sum Insured Option, transfers among Sub-Accounts and the
General Account, partial withdrawals, increases in loan amount by you, loan
repayments, lapse, termination for any reason, and reinstatement. An annual
statement will also be sent to you within 30 days after a Policy Anniversary.
The annual statement 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 Proceeds, Policy Value, Surrender Value, amounts in the Sub-Accounts and
General Account, and any Policy loan(s).
In addition, you will be sent periodic reports containing financial statements
and other information for the VEL Account and the Underlying Investment
Companies as required by the Investment Company Act of 1940.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the VEL Account is a party, or
to which the assets of the VEL Account are subject. The Company is not involved
in any litigation that is of material importance in relation to its total assets
or that relates to the VEL Account.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the Securities and Exchange Commission. Certain
portions of the Registration Statement and amendments have been omitted from
this Prospectus pursuant to the rules and regulations of the Securities and
Exchange Commission. Statements contained in this Prospectus concerning the
Policy and other legal documents are summaries. The complete documents and
omitted information may be obtained from the Securities and Exchange
Commission's principal office in Washington, D.C., upon payment of the
Securities and Exchange Commission's prescribed fees.
INDEPENDENT ACCOUNTANTS
The financial statements of the Company as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995 and of the
VEL Account as of December 31, 1995 and for the periods indicated, included in
this Prospectus constituting part of the Registration Statement, have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Policies.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Policy, on loans,
withdrawals, or surrenders, on death benefit payments, and on the economic
benefit to you or the Beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of the present
federal income tax laws as they are currently interpreted. From time to time
legislation is proposed which, if passed, could significantly, adversely and
possibly retroactively affect the taxation of
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<PAGE>
the Policies. No representation is made regarding the likelihood of
continuation of current federal income tax laws or of current interpretations by
the Internal Revenue Service (IRS). Moreover, no attempt has been made to
consider any applicable state or other tax laws.
It should be recognized that the following summary of federal income tax aspects
of amounts received under the Policies is not exhaustive, does not purport to
cover all situations and is not intended as tax advice. Specifically, the
discussion below does not address certain tax provisions that may be applicable
if the Policyowner is a corporation or the Trustee of an employee benefit plan.
A qualified tax adviser should always be consulted with regard to the
application of law to individual circumstances.
THE COMPANY AND THE VEL ACCOUNT - The Company is taxed as a life insurance
company under Subchapter L of the Internal Revenue Code of 1986 (the "Code") and
files a consolidated tax return with its parent and affiliates. The Company
does not expect to incur any income tax upon the earnings or realized capital
gains attributable to the VEL Account. Based on these expectations, no charge
is made for federal income taxes which may be attributable to the VEL Account.
The Company will review periodically the question of a charge to the VEL Account
for federal income taxes. Such a charge may be made in future years for any
federal income taxes incurred by the Company. This might become necessary if
the tax treatment of the Company is ultimately determined to be other than what
the Company believes it to be, if there are changes made in the federal income
tax treatment of variable life insurance at the Company level, or if there is a
change in the Company's tax status. Any such charge would be designed to cover
the federal income taxes attributable to the investment results of the VEL
Account.
Under current laws the Company may also incur state and local taxes (in addition
to premium taxes) in several states. At present these taxes are not
significant. If there is a material change in applicable state or local tax
laws, charges may be made for such taxes paid, or reserves for such taxes,
attributable to the VEL Account.
TAXATION OF THE POLICIES - The Company believes that the Policies described in
this Prospectus will be considered life insurance contracts under Section 7702
of the Code, which generally provides for the taxation of life insurance
policies and places limitations on the relationship of the Policy Value to the
Insurance Amount at Risk. As a result, the Death Proceeds payable are
excludable from the gross income of the Beneficiary. Moreover, any increase in
the Policy Value of the Policy is not taxable until received by the Policyowner
or the Policyowner's designee. But see "MODIFIED ENDOWMENT CONTRACTS."
The Code also requires that the investment of each Sub-Account be adequately
diversified in accordance with Treasury regulations in order to be treated as a
life insurance policy for tax purposes. Although the Company does not have
control over the investments of the Underlying Funds, the Company believes that
the Underlying Funds currently meet the Treasury's diversification requirements,
and the Company will monitor continued compliance with these requirements. In
connection with the issuance of previous regulations relating to diversification
requirements, the Treasury Department announced that such regulations do not
provide guidance concerning the extent to which Policyowners may direct their
investments to particular divisions of a Separate Account. Regulations in this
regard may be issued in the future. It is possible that if and when regulations
are issued, the Policies may need to be modified to comply with such
regulations. For these reasons, the Policies or the Company's administrative
rules may be modified as necessary to prevent a Policyowner from being
considered the owner of the assets of the VEL Account.
The Company believes that loans received under a Policy will be treated as
indebtedness of the Policyowner for federal tax purposes, and under current law
will not constitute income to the Policyowner so long as the Policy remains in
force. But see "MODIFIED ENDOWMENT CONTRACTS." Deducting interest on policy
loans is, however, subject to the restrictions of Section 264 of the Code.
After 1990 consumer interest paid on Policy loans under a Policy owned by an
individual will not be tax deductible, as the tax deduction for consumer
interest will be phased out beginning in 1987. In addition, no tax deduction
will be allowed for any interest on any loan under one or more life insurance
policies (purchased after June 20, 1986) owned by a taxpayer covering the life
of any individual who is an officer or employee of or is financially interested
in, any business carried on by that taxpayer, to the extent the aggregate amount
of such loans exceeds $50,000.
Depending upon the circumstances, a surrender, partial withdrawal, change in the
Sum Insured Option, change in the Face Amount, lapse with policy loan
outstanding, or assignment of the Policy may have tax consequences. In
particular, under specified conditions, a distribution under the Policy during
the first fifteen years from Date of Issue that reduces future benefits under
the Policy will be taxed to the Policyowner as ordinary income to the extent of
any investment earnings in the Policy. 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, Policyowner, or
Beneficiary.
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<PAGE>
MODIFIED ENDOWMENT CONTRACTS - The Technical and Miscellaneous Revenue Act of
1988 ("Act") adversely affects the tax treatment of distributions under
so-called "modified endowment contracts." Under the Act, any life insurance
policy, including a Policy offered by this Prospectus, that fails to satisfy a
"7-pay" test is considered a modified endowment contract. A Policy fails to
satisfy the 7-pay test if the cumulative premiums paid under the Policy at any
time during the first seven policy years exceeds the sum of the net level
premiums that would have been paid, had the Policy provided for paid-up future
benefits after the payment of seven level premiums.
If a Policy is considered a modified endowment contract, all distributions under
the Policy will be taxed on an "income first" basis. Most distributions
received by a Policyowner directly or indirectly (including loans, withdrawals,
partial surrenders, or the assignment or pledge of any portion of the value of
the Policy) will be includible in gross income to the extent that the cash
Surrender Value of the Policy exceeds the Policyowner's investment in the
contract. Any additional amounts will be treated as a return of capital to the
extent of the Policyowner's basis in the Policy. With certain exceptions, an
additional 10% tax will be imposed on the portion of any distribution that is
includible in income. All modified endowment contracts issued by the same
insurance company to the same policyowner during any 12-month period will be
treated as a single modified endowment contract in determining taxable
distributions.
Currently each Policy is reviewed when premiums are received to determine if it
satisfies the 7-pay test. If the Policy does not satisfy the 7-pay test, the
Company will notify the Policyowner of the option of requesting a refund of the
excess premium. 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.
MORE INFORMATION ABOUT THE GENERAL ACCOUNT
As discussed earlier, you may allocate Net Premiums and transfer Policy Value to
the General Account. Because of exemption and exclusionary provisions in the
securities law, any amount in the General Account is not generally subject to
regulation under the provisions of the Securities Act of 1933 or the Investment
Company Act of 1940. Accordingly, the disclosures in this Section have not been
reviewed by the Securities and Exchange Commission. Disclosures regarding the
fixed portion of the Policy and the General Account may, however, be subject to
certain generally applicable provisions of the Federal securities laws
concerning the accuracy and completeness of statements made in prospectuses.
GENERAL DESCRIPTION - The General Account of the Company is made up of all of
the general assets of the Company other than those allocated to any Separate
Account. Allocations to the General Account become part of the assets of the
Company and are used to support insurance and annuity obligations. Subject to
applicable law, the Company has sole discretion over the investment of assets of
the General Account.
A portion or all of Net Premiums may be allocated or transferred to accumulate
at a fixed rate of interest in the General Account. Such net amounts are
guaranteed by the Company as to principal and a minimum rate of interest. The
allocation or transfer of funds to the General Account does not entitle you to
share in the investment experience of the General Account.
GENERAL ACCOUNT VALUE - The Company bears the full investment risk for amounts
allocated to the General Account and guarantees that interest credited to each
Policyowner's Policy Value in the General Account will not be less than an
annual rate of 4% ("Guaranteed Minimum Rate").
The Company may, AT ITS SOLE DISCRETION, credit a higher rate of interest
("excess interest"), although it is not obligated to credit interest in excess
of 4% per year, and might not do so. However, the excess interest rate, if any,
in effect on the date a premium is received at the Principal Office is
guaranteed on that premium for one year, unless the Policy Value associated with
the premium becomes security for a Policy loan. AFTER SUCH INITIAL ONE YEAR
GUARANTEE OF INTEREST ON NET PREMIUM, ANY INTEREST CREDITED ON THE POLICY'S
ACCUMULATED VALUE IN THE GENERAL ACCOUNT IN EXCESS OF THE GUARANTEED MINIMUM
RATE PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF THE COMPANY. THE
POLICYOWNER ASSUMES THE RISK THAT INTEREST CREDITED MAY NOT EXCEED THE
GUARANTEED MINIMUM RATE.
Even if excess interest is credited to accumulated value in the General Account,
no excess interest will be credited to that portion of the Policy Value which is
equal to Debt. However, such Policy Value will be credited interest at an
effective annual yield of at least 6%.
The Company guarantees that, on each Monthly Payment Date, the Policy Value in
the General Account will be the amount of the Net Premiums allocated or Policy
Value transferred to the General Account, plus interest at an annual rate of 4%
per year, plus any excess interest which the Company credits, less the sum of
all Policy charges allocable to the General Account
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<PAGE>
and any amounts deducted from the General Accountin connection with loans,
partial withdrawals, surrenders or transfers.
THE POLICY - This Prospectus describes a flexible premium variable life
insurance policy and is generally intended to serve as a disclosure document
only for the aspects of the Policy relating to the VEL Account. For complete
details regarding the General Account, see the Policy itself.
TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND POLICY LOANS - If a Policy is
surrendered or if a partial withdrawal is made, a Surrender Charge or partial
withdrawal charge, as applicable, is imposed if such event occurs before the
Policy, or an increase in Face Amount, has been in force for 12 policy years.
In the event of a decrease in Face Amount, the Surrender Charge deducted is a
fraction of the charge that would apply to a full surrender of the Policy.
Partial withdrawals are made on a last-in/first-out basis from Policy Value
allocated to the General Account.
The first six transfers in a policy year are free of charge. Thereafter, a $10
transfer charge will be deducted for each transfer in that Policy year. The
transfer privilege is subject to the consent of the Company and to the Company's
then current rules.
Policy loans may also be made from the Policy Value in the General Account.
Transfers, surrenders, partial withdrawals, Death Proceeds and Policy loans
payable from the General Account may be delayed up to six months. However, if
payment is delayed for 30 days (10 days in New York) or more, the Company will
pay interest at least equal to an effective annual yield of 3 1/2% per year for
the period of deferment. Amounts from the General Account used to pay premiums
on policies with the Company will not be delayed.
FINANCIAL STATEMENTS
Financial Statements for the VEL Account and the Company are included in this
Prospectus beginning immediately after this section.
The financial statements of the Company which are included in this Prospectus
should be considered only as bearing on the ability of the Company to meet its
obligations under the Policy. They should not be considered as bearing on the
investment performance of the assets held in the VEL Account.
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APPENDIX A - OPTIONAL BENEFITS
This Appendix is intended to provide only a very brief overview of additional
insurance benefits available by rider. For more information, contact your
agent.
The following supplemental benefits are available for issue under the Policies
for an additional charge.
WAIVER OF PREMIUM RIDER
This rider provides that during periods of total disability continuing
more than four months the Company will add to the Policy Value each
month an amount selected by you or the amount needed to pay the Policy
charges, whichever is greater. This value will be used to keep the
Policy in force. This benefit is subject to the Company's maximum
issue benefits. Its cost will change yearly.
GUARANTEED INSURABILITY RIDER
This rider guarantees that insurance may be added at various option
dates without Evidence of Insurability. This benefit may be exercised
on the option dates even if the Insured is disabled.
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.
CHILDREN'S INSURANCE RIDER
This rider provides coverage for eligible minor children. It also
covers future children, including adopted children and step children.
ACCIDENTAL DEATH BENEFIT RIDER
This rider pays an additional benefit for death resulting from a
covered accident prior to the Policy anniversary nearest the Insured's
age 70.
EXCHANGE OPTION RIDER
This rider allows you to use the Policy to insure a different person,
subject to Company guidelines.
LIVING BENEFITS RIDER
This rider permits part of the proceeds of the Policy to be available
before death if the Insured becomes terminally ill or is permanently
confined to a nursing home.
APPENDIX B - PAYMENT OPTIONS
PAYMENT OPTIONS - Upon written request, the Surrender Value or all or part of
the Death Proceeds may be placed under one or more of the payment options below
or any other option offered by the Company. If you do not make an election, the
Company will pay the benefits in a single sum. A certificate will be provided
to the payee describing the payment option selected.
If a payment option is selected, the Beneficiary may pay to the Company any
amount that would otherwise be deducted from the Sum Insured.
The amounts payable under a payment option for each $1,000 value applied will be
the greater of:
(a) the rate per $1,000 of value applied based on the Company's
non-guaranteed current payment option rates for the Policies; or
(b) the rate in the Policy for the applicable payment option.
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The following payment options are currently available. The amounts payable
under these options are paid from the General Account. None are based on the
investment experience of the Variable Account.
Option A: PAYMENTS FOR A SPECIFIED NUMBER OF YEARS. The Company will make
equal payments for any selected number of years (not greater than
thirty). Payments may be made annually, semi-annually, quarterly
or monthly.
Option B: LIFETIME MONTHLY PAYMENTS. Payments are based on the payee's age
on the date the first payment will be made. One of three
variations may be chosen. Depending upon this choice, payments
will end:
(1) upon the death of the payee, with no further payments due (Life
Annuity), or
(2) upon the death of the payee, but not before the sum of the
payments made first equals or exceeds the amount applied under
this option (Life Annuity with Installment Refund),
(3) upon the death of the payee, but not before a selected period (5,
10 or 20 years) has elapsed (Life Annuity with Period Certain).
Option C: INTEREST PAYMENTS. The Company will pay interest at a rate
determined by the Company each year but which will not be less
than 3 1/2%. Payments may be made annually, semi-annually,
quarterly or monthly.
Payments will end when the amount left with the Company has been
withdrawn. However, payments will not continue after the death of
the payee. Any unpaid balance plus accrued interest will be paid
in a lump sum.
Option D: PAYMENTS FOR A SPECIFIED AMOUNT. Payments will be made until the
unpaid balance is exhausted. Interest will be credited to the
unpaid balance. The rate of interest will be determined by the
Company each year but will not be less than 3 1/2%. Payments
may be made annually, semi-annually, quarterly or monthly. The
payment level selected must provide for the payment each year of
at least 8% of the amount applied.
Option E: LIFETIME MONTHLY PAYMENTS FOR TWO PAYEES. One of three variations
may be chosen. After the death of one payee, payments will
continue to the survivor:
(1) in the same amount as the original amount;
(2) in an amount equal to 2/3 of the original amount; or
(3) in an amount equal to 1/2 of the original amount.
Payments are based on the payees' ages on the date the first payment
is due. Payments will end upon the death of the surviving payee.
SELECTION OF PAYMENT OPTIONS - The amount applied under any one option for any
one payee must be at least $5,000. The periodic payment for any one payee must
be at least $50.
Subject to your and/or the Beneficiary's provision any option selection may be
changed before the Death Proceeds becomes payable. If you make no selection,
the Beneficiary may select an option when the Death Proceeds becomes payable.
If the amount of monthly income payments under Option B(3) for the attained age
of the payee are the same for different periods certain, the Company will deem
an election to have been made for the longest period certain which could have
been elected for such age and amount.
You may give the Beneficiary the right to change from Option C or D to any other
option at any time. If the payee selects Option C or D when this policy becomes
a claim, the right may be reserved to change to any other option. The payee who
elects to change options must be a payee under the option selected.
ADDITIONAL DEPOSITS - An additional deposit may be made to any proceeds when
they are applied under Option B or E. A charge not to exceed 3% will be made.
The Company may limit the amount of this deposit.
RIGHTS AND LIMITATIONS - A payee does not have the right to assign any amount
payable under any option. A payee does not have the right to commute any amount
payable under Option B or E. A payee will have the right to commute any amount
payable under Option A only if the right is reserved in the written request
selecting the option. If the right to commute is exercised, the commuted values
will be computed at the interest rates used to calculate the benefits. The
amount left under Option C, and any unpaid balance under Option D, may be
withdrawn by the payee only as set forth in the written
46
<PAGE>
request selecting the option.
A corporation or fiduciary payee may select only option A, C or D. Such
selection will be subject to the consent of the Company.
PAYMENT DATES - The first payment under any option, except Option C, will be due
on the date this policy matures by death or otherwise, unless another date is
designated. Payments under Option C begin at the end of the first payment
period.
The last payment under any option will be made as stated in the description of
that option. However, should a payee under Option B or E die prior to the due
date of the second monthly payment, the amount applied less the first monthly
payment will be paid in a lump sum or under any option other than Option E. A
lump sum payment will be made to the surviving payee under Option E or the
succeeding payee under Option B.
APPENDIX C - ILLUSTRATIONS OF SUM INSURED, POLICY VALUES
AND ACCUMULATED PREMIUMS
The following tables illustrate the way in which a Policy's Sum Insured and
Policy Value could vary over an extended period of time they assume that all
premiums are allocated to and remain in the VEL Account for the entire period
shown and 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 rates of 0%, 6%,
and 12%.
The tables illustrate a Policy issued to a male, Age 30, under a standard
Premium Class and qualifying for the non-smoker discount and the Policy issued
to a male, Age 45, under a standard Premium Class and qualifying for the
non-smoker discount.
The tables illustrate the guaranteed cost of insurance rates; and the current
cost of insurance rates as presently in effect.
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 would also be different depending on the allocation of a
Policy's total Policy Value among the Sub-Accounts of the VEL 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.
The amounts shown for the Death Proceeds and Policy Values take into account
the deduction from premium for the premium tax charge, the Monthly Deduction
from Policy Value, and the daily charge against the VEL Account for mortality
and expense risks equivalent to an effective annual rate of 0.90% of the
average daily value of the assets in the VEL Account attributable to the
Policies. The amounts shown in the tables also take into account the
Underlying Investment Company 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 Investment Company. The actual fees and expenses of each
Underlying Investment Company vary, and in 1995 ranged from an annual rate of
0.36% to an annual rate of 1.35% 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. Under its Management Agreement with the Trust, Allmerica
Investments has declared a voluntary expense limitation of 1.50% of average
net average assets for the Select International Equity Fund, 1.20% for the
Growth Fund, 1.00% for the Investment Grade Income Fund, 0.60% for the Money
Market Fund, 0.60% for the Equity Index Fund, 1.00% for the Government Bond
Fund, 1.35% for the Select Aggressive Growth Fund and Select Capital
Appreciation Fund, 1.20% for the Select Growth Fund, 1.10% for the Select
Growth and Income Fund, and 1.25% for the Small Cap Value Fund. Without the
effect of the expense limitation, in 1995 the total operating expenses of the
Select Capital Appreciation Fund would have been 1.42% of average net assets
of average net assets. Fidelity Management has voluntarily agreed to
temporarily limit the total operating expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) of the Equity-Income,
Growth and Overseas Portfolios to an annual rate of 1.50%, and of the High
Income Portfolio to an annual rate of 1.00%, and of the Asset Manager
Portfolio to an annual rate of 1.25%, of each Portfolio's average net assets.
Delaware International has agreed voluntarily to waive its management fees
and reimburse the International Equity Series to limit certain expenses to
8/10 of 1% of the average daily net assets. Except as noted, in 1995 the
expenses of the Underlying Funds did not exceed the expense limitations.
47
<PAGE>
Taking into account the 0.90% charge to the VEL Account and the assumed 0.85%
charge for Underlying Investment Company advisory fees and operating expenses,
the gross annual rates of investment return of 0%, 6% and 12% correspond to net
annual rates of -1.75%, 4.25% and 10.25%, respectively.
The hypothetical returns shown in the table do not reflect any charges for
income taxes against the VEL Account since no charges are currently made.
However, if in the future such charges are made, in order to produce illustrated
death benefits and cash values, the gross annual investment rate of return would
have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges.
The second column of the tables show the amount which would accumulate if an
amount equal to the Guideline Annual Premium were invested to earn interest,
(after taxes) at 5% compounded annually.
The tables illustrate the Policy Values that would result based upon the
assumptions 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 6 have been made in any Policy year
(so that no transaction or transfer charges have been incurred).
Upon request, the Company will provide a comparable illustration based upon the
proposed Insured's Age, sex, and underwriting classification, and the requested
Face Amount, Sum Insured Option, and riders.
TO CHOOSE THE SUB-ACCOUNTS WHICH WILL BEST MEET YOUR NEEDS AND OBJECTIVES,
CAREFULLY READ THE PROSPECTUSES OF THE TRUST, VIP, VIP II, T. ROWE PRICE AND
DGPF ALONG WITH THIS PROSPECTUS.
92
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARI-EXCEPTIONAL LIFE POLICY
Male Non-Smoker Age 30
Specified Face Amount = $75,000
Sum Insured Option 2
<TABLE>
<CAPTION>
CURRENT COST OF INSURANCE CHARGES
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
Paid Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Policy At 5% Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 174 937 75,937 243 1,006 76,006 312 1,074 76,074
2 3,014 1,330 2,093 77,093 1,534 2,297 77,297 1,747 2,510 77,510
3 4,634 2,464 3,226 78,226 2,879 3,641 78,641 3,327 4,090 79,090
4 6,336 3,604 4,336 79,336 4,306 5,038 80,038 5,096 5,828 80,828
5 8,123 4,782 5,422 80,422 5,850 6,491 81,491 7,099 7,740 82,740
6 9,999 5,934 6,484 81,484 7,449 7,998 82,998 9,292 9,841 84,841
7 11,969 7,063 7,520 82,520 9,107 9,564 84,564 11,693 12,151 87,151
8 14,037 8,164 8,531 83,531 10,822 11,188 86,188 14,323 14,689 89,689
9 16,209 9,240 9,514 84,514 12,597 12,871 87,871 17,204 17,478 92,478
10 18,490 10,287 10,470 85,470 14,433 14,616 89,616 20,359 20,542 95,542
11 20,884 11,307 11,398 86,398 16,331 16,423 91,423 23,816 23,908 98,908
12 23,398 12,297 12,297 87,297 18,293 18,293 93,293 27,604 27,604 102,604
13 26,038 13,166 13,166 88,166 20,228 20,228 95,228 31,665 31,665 106,665
14 28,810 14,005 14,005 89,005 22,230 22,230 97,230 36,126 36,126 111,126
15 31,720 14,813 14,813 89,813 24,300 24,300 99,300 41,028 41,028 116,028
16 34,777 15,588 15,588 90,588 26,439 26,439 101,439 46,412 46,412 121,412
17 37,985 16,330 16,330 91,330 28,649 28,649 103,649 52,326 52,326 127,326
18 41,355 17,037 17,037 92,037 30,930 30,930 105,930 58,823 58,823 133,823
19 44,892 17,708 17,708 92,708 33,284 33,284 108,284 65,962 65,962 140,962
20 48,607 18,342 18,342 93,342 35,711 35,711 110,711 73,805 73,805 148,805
Age 60 97,665 22,170 22,170 97,170 64,098 64,098 139,098 210,403 210,403 285,403
Age 65 132,771 21,672 21,672 96,672 80,793 80,793 155,793 345,185 345,185 421,126
Age 70 177,576 18,618 18,618 93,618 98,352 98,352 173,352 560,687 560,687 650,397
Age 75 234,759 11,963 11,963 86,963 115,531 115,531 190,531 906,193 906,193 981,193
</TABLE>
(1) Assumes a $1,400 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid 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 VALUE OF UNITS, CASH VALUE, AND DEATH BENEFIT FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN
AVERAGES 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 CASH VALUE TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS
BE MADE THAT THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
49
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARI-EXCEPTIONAL LIFE POLICY
Male Non-Smoker Age 30
Specified Face Amount = $75,000
Sum Insured Option 2
<TABLE>
<CAPTION>
GUARANTEED COST OF INSURANCE CHARGES
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
Paid Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Policy At 5% Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 174 937 75,937 243 1,006 76,006 312 1,074 76,074
2 3,014 1,330 2,093 77,093 1,534 2,297 77,297 1,747 2,510 77,510
3 4,634 2,464 3,226 78,226 2,879 3,641 78,641 3,327 4,090 79,090
4 6,336 3,604 4,336 79,336 4,306 5,038 80,038 5,096 5,828 80,828
5 8,123 4,782 5,422 80,422 5,850 6,491 81,491 7,099 7,740 82,740
6 9,999 5,934 6,484 81,484 7,449 7,998 82,998 9,292 9,841 84,841
7 11,969 7,063 7,520 82,520 9,107 9,564 84,564 11,693 12,151 87,151
8 14,037 8,164 8,531 83,531 10,822 11,188 86,188 14,323 14,689 89,689
9 16,209 9,240 9,514 84,514 12,597 12,871 87,871 17,204 17,478 92,478
10 18,490 10,287 10,470 85,470 14,433 14,616 89,616 20,359 20,542 95,542
11 20,884 11,307 11,398 86,398 16,331 16,423 91,423 23,816 23,908 98,908
12 23,398 12,297 12,297 87,297 18,293 18,293 93,293 27,604 27,604 102,604
13 26,038 13,166 13,166 88,166 20,228 20,228 95,228 31,665 31,665 106,665
14 28,810 14,005 14,005 89,005 22,230 22,230 97,230 36,126 36,126 111,126
15 31,720 14,813 14,813 89,813 24,300 24,300 99,300 41,028 41,028 116,028
16 34,777 15,588 15,588 90,588 26,439 26,439 101,439 46,412 46,412 121,412
17 37,985 16,330 16,330 91,330 28,649 28,649 103,649 52,326 52,326 127,326
18 41,355 17,037 17,037 92,037 30,930 30,930 105,930 58,823 58,823 133,823
19 44,892 17,708 17,708 92,708 33,284 33,284 108,284 65,962 65,962 140,962
20 48,607 18,342 18,342 93,342 35,711 35,711 110,711 73,805 73,805 148,805
Age 60 97,665 21,807 21,807 96,807 63,665 63,665 138,665 209,882 209,882 284,882
Age 65 132,771 20,478 20,478 95,478 79,280 79,280 154,280 343,223 343,223 418,733
Age 70 177,576 15,421 15,421 90,421 94,084 94,084 169,084 554,655 554,655 643,400
Age 75 234,759 4,335 4,335 79,335 104,900 104,900 179,900 890,014 890,014 965,014
</TABLE>
(1) Assumes a $1,400 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid 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 VALUE OF UNITS, CASH VALUE, AND DEATH BENEFIT FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN
AVERAGES 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 CASH 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.
50
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARI-EXCEPTIONAL LIFE POLICY
Male Non-Smoker Age 45
Specified Face Amount = $250,000
Sum Insured Option 1
<TABLE>
<CAPTION>
CURRENT COST OF INSURANCE CHARGES
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
Paid Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Policy At 5% Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 792 2,935 250,000 1,002 3,145 250,000 1,213 3,356 250,000
2 9,040 3,859 6,001 250,000 4,472 6,614 250,000 5,111 7,254 250,000
3 13,903 6,815 8,957 250,000 8,032 10,174 250,000 9,352 11,495 250,000
4 19,008 9,744 11,801 250,000 11,769 13,826 250,000 14,057 16,113 250,000
5 24,368 12,727 14,527 250,000 15,768 17,567 250,000 19,343 21,143 250,000
6 29,996 15,593 17,136 250,000 19,860 21,403 250,000 25,087 26,629 250,000
7 35,906 18,343 19,629 250,000 24,051 25,337 250,000 31,338 32,624 250,000
8 42,112 20,969 21,998 250,000 28,337 29,365 250,000 38,145 39,174 250,000
9 48,627 23,464 24,235 250,000 32,715 33,487 250,000 45,564 46,336 250,000
10 55,469 25,816 26,330 250,000 37,180 37,694 250,000 53,654 54,169 250,000
11 62,652 28,019 28,277 250,000 41,730 41,987 250,000 62,489 62,746 250,000
12 70,195 30,050 30,050 250,000 46,347 46,347 250,000 72,137 72,137 250,000
13 78,114 31,648 31,648 250,000 50,779 50,779 250,000 82,438 82,438 250,000
14 86,430 33,081 33,081 250,000 55,297 55,297 250,000 93,773 93,773 250,000
15 95,161 34,335 34,335 250,000 59,898 59,898 250,000 106,263 106,263 250,000
16 104,330 35,396 35,396 250,000 64,579 64,579 250,000 120,049 120,049 250,000
17 113,956 36,252 36,252 250,000 69,336 69,336 250,000 135,294 135,294 250,000
18 124,064 36,879 36,879 250,000 74,163 74,163 250,000 152,183 152,183 250,000
19 134,677 37,253 37,253 250,000 79,049 79,049 250,000 170,935 170,935 250,000
20 145,820 37,346 37,346 250,000 83,987 83,987 250,000 191,807 191,807 250,000
Age 60 95,161 34,335 34,335 250,000 59,898 59,898 250,000 106,263 106,263 250,000
Age 65 142,820 37,346 37,346 250,000 83,987 83,987 250,000 191,807 191,807 250,000
Age 70 210,477 32,896 32,896 250,000 109,554 109,554 250,000 333,734 333,734 387,132
Age 75 292,995 16,689 16,689 250,000 136,794 136,794 250,000 561,896 561,896 601,229
</TABLE>
(1) Assumes a $4,200 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid 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 VALUE OF UNITS, CASH VALUE, AND DEATH BENEFIT FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN
AVERAGES 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 CASH 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.
51
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
VARI-EXCEPTIONAL LIFE POLICY
Male Non-Smoker Age 45
Specified Face Amount = $250,000
Sum Insured Option 1
GUARANTEED COST OF INSURANCE CHARGES
<TABLE>
<CAPTION>
GUARANTEED COST OF INSURANCE CHARGES
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
Paid Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest
Policy At 5% Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 772 2,914 250,000 981 3,124 250,000 1,192 3,334 250,000
2 9,040 3,817 5,960 250,000 4,427 6,570 250,000 5,064 7,207 250,000
3 13,903 6,751 8,893 250,000 7,961 10,104 250,000 9,276 11,419 250,000
4 19,008 9,656 11,713 250,000 11,670 13,727 250,000 13,946 16,003 250,000
5 24,368 12,614 14,413 250,000 15,637 17,437 250,000 19,193 20,993 250,000
6 29,996 15,450 16,993 250,000 19,692 21,234 250,000 24,889 26,431 250,000
7 35,906 18,153 19,439 250,000 23,825 25,111 250,000 31,069 32,355 250,000
8 42,112 20,710 21,739 250,000 28,029 29,058 250,000 37,776 38,805 250,000
9 48,627 23,113 23,884 250,000 32,297 33,069 250,000 45,062 45,833 250,000
10 55,469 25,343 25,858 250,000 36,618 37,132 250,000 52,978 53,492 250,000
11 62,652 27,392 27,649 250,000 40,984 41,241 250,000 61,592 61,849 250,000
12 70,195 29,245 29,245 250,000 45,386 45,386 250,000 70,977 70,977 250,000
13 78,114 30,638 30,638 250,000 49,567 49,567 250,000 80,970 80,970 250,000
14 86,430 31,817 31,817 250,000 53,777 53,777 250,000 91,931 91,931 250,000
15 95,161 32,760 32,760 250,000 58,002 58,002 250,000 103,974 103,974 250,000
16 104,330 33,444 33,444 250,000 62,230 62,230 250,000 117,232 117,232 250,000
17 113,956 33,843 33,843 250,000 66,444 66,444 250,000 131,862 131,862 250,000
18 124,064 33 920 33,920 250,000 70,622 70,622 250,000 148,046 148,046 250,000
19 134,677 33,629 33,629 250,000 74,734 74,734 250,000 166,001 166,001 250,000
20 145,820 32,922 32,922 250,000 78,752 78,752 250,000 185,990 185,990 250,000
Age 60 95,161 32,760 32,760 250,000 58,002 58,002 250,000 103,974 103,974 250,000
Age 65 142,820 32,922 32,922 250,000 78,752 78,752 250,000 185,990 185,990 250,000
Age 70 210,477 21,383 21,383 250,000 96,595 96,595 250,000 322,407 322,407 373,992
Age 75 292,995 0 0 0 106,325 106,325 250,000 539,916 539,916 577,711
</TABLE>
(1) Assumes a $4,200 premium is paid at the beginning of each Policy Year.
Values will be different if premiums are paid 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 VALUE OF UNITS, CASH VALUE, AND DEATH BENEFIT FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN
AVERAGES 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 CASH 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.
52
<PAGE>
APPENDIX D - CALCULATION OF MAXIMUM SURRENDER CHARGES
A separate Surrender Charge is calculated upon issuance of the Policy and upon
each increase in Face Amount. The maximum Surrender Charge calculated upon
issuance of the Policy is equal to $4.50 per thousand dollars of the initial
Face Amount plus 30% of the Guideline Annual Premium times a factor of not
greater than 1.0, as indicated on pages 99 and 100. The maximum Surrender
Charge for an increase in Face Amount is $4.50 per thousand dollars of increase,
plus 30% of the Guideline Annual Premium for the increase times as factor of not
greater than 1.0, as indicated on pages 99 and 100. The calculation may be
summarized in the following formula:
Maximum Surrender Charge = (4.5 X Face amount) +
-----------
1000
(0.3 X Guideline Annual Premium X Factor)
The maximum surrender charge remains level for the first 44 policy months,
reduces by 1% per month for the next 100 policy months, and is zero thereafter.
The actual surrender charge imposed may be less than the maximum. The actual
surrender charge imposed will be the lesser of either the maximum surrender
charge or the sum of $4.50 per thousand dollars of Face Amount plus 30% of
premiums paid which are associated with the initial Face Amount or increase, as
applicable.
The Factors used in calculating the maximum Surrender Charges vary with the
issue Age and Premium Class as indicated in the table below.
FACTORS USED IN CALCULATION OF MAXIMUM SURRENDER CHARGES
NONSMOKER FACTORS
<TABLE>
<CAPTION>
AGE FACTOR AGE FACTOR AGE FACTOR
<S> <C> <C> <C> <C> <C>
18 1.0000 39 0.8600 60 0.6500
19 1.0000 40 0.8500 61 0.6400
20 1.0000 41 0.8400 62 0.6300
21 1.0000 42 0.8300 63 0.6200
22 1.0000 43 0.8200 64 0.6100
23 1.0000 44 0.8100 65 0.6000
24 1.0000 45 0.8000 66 0.5900
25 1.0000 46 0.7900 67 0.5800
26 0.9900 47 0.7800 68 0.5700
27 0.9800 48 0.7700 69 0.5600
28 0.9700 49 0.7600 70 0.5500
29 0.9600 50 0.7500 71 0.5400
30 0.9500 51 0.7400 72 0.5300
31 0.9400 52 0.7300 73 0.5200
32 0.9300 53 0.7200 74 0.5100
33 0.9200 54 0.7100 75 0.5000
34 0.9100 55 0.7000 76 0.4900
35 0.9000 56 0.6900 77 0.4800
36 0.8900 57 0.6800 78 0.4700
37 0.8800 58 0.6700 79 0.4600
38 0.8700 59 0.6600 80 0.4500
</TABLE>
97
<PAGE>
SMOKER FACTORS
<TABLE>
<CAPTION>
AGE FACTOR AGE FACTOR AGE FACTOR
<S> <C> <C> <C> <C> <C>
0 0.8000 27 0.7833 54 0.5583
1 0.8000 28 0.7750 55 0.5500
2 0.8000 29 0.7667 56 0.5417
3 0.8000 30 0.7583 57 0.5333
4 0.8000 31 0.7500 58 0.5250
5 0.8000 32 0.7417 59 0.5167
6 0.8000 33 0.7333 60 0.5083
7 0.8000 34 0.7250 61 0.5000
8 0.8000 35 0.7167 62 0.4917
9 0.8000 36 0.7083 63 0.4833
10 0.8000 37 0.7000 64 0.4750
11 0.8000 38 0.6917 65 0.4667
12 0.8000 39 0.6833 66 0.4583
13 0.8000 40 0.6750 67 0.4500
14 0.8000 41 0.6667 68 0.4417
15 0.8000 42 0.6583 69 0.4333
16 0.8000 43 0.6500 70 0.4250
17 0.8000 44 0.6417 71 0.4167
18 0.8000 45 0.6333 72 0.4083
19 0.8000 46 0.6250 73 0.4000
20 0.8000 47 0.6167 74 0.3917
21 0.8000 48 0.6083 75 0.3833
22 0.8000 49 0.6000 76 0.3750
23 0.8000 50 0.5917 77 0.3667
24 0.8000 51 0.5833 78 0.3583
25 0.8000 52 0.5750 79 0.3500
26 0.7917 53 0.5667 80 0.3417
</TABLE>
EXAMPLES
For the purposes of these examples, assume that a male, Age 45, non-smoker
purchases a $100,000 policy. In this example the Guideline Annual Premium
equals $1,740.95, and the factor is 0.8000. His maximum surrender charge at
issue is calculated as follows:
(1) Deferred Administrative Charge $450.00
($4.50/$1,000 of Face Amount)
(2) Deferred Sales Charge $417.83
(30% of Guideline Annual Premium X Factor
from page 94)
--------
Maximum Surrender Charge $867.83
The actual surrender charge is the smaller of the maximum surrender charge and
the following sum:
(1) Deferred Administrative Charge $450.00
($4.50/$1,000 of Face Amount)
(2) Deferred Sales Charge Varies
(30% of Premiums Paid associated
with the initial face amount)
--------
Sum of (1) and (2)
54
<PAGE>
The maximum surrender charge is $867.83. All premiums are associated with the
initial face amount unless the face amount is increased.
EXAMPLE 1:
Assume the Policyowner surrenders the Policy in the 10th policy month, having
paid total premiums of $1,000. The actual surrender charge would be $750. If,
instead of $1,000, he had paid total premiums of $1,392.76 or greater, the
actual surrender charge would be $867.83.
EXAMPLE 2:
Assume the Policyowner surrenders the Policy in the 54th month, having paid
total premiums of $1,000. After the 44th policy month, the maximum surrender
charge decreases by 1% per month ($8.6783 per month in this example). In this
example the maximum surrender charge would be $781.05. The actual surrender
charge would be $750. If instead of $1,000, he had paid total premiums of
$1,103.50 or greater, the actual surrender charge would be $781.05.
EXAMPLE 3:
This example illustrates the calculation of the surrender charge for an
increase. A separate surrender charge is calculated when the face amount of the
Policy is increased. Assume our sample policyowner increases his face amount to
$250,000 on the 24th monthly payment date at Age 47. In this example the
Guideline Annual Premium for the increase is $2,781.62 and the factor is .7800.
The maximum surrender charge for the increase is $1,325.90 as calculated below:
(1) Deferred Administrative Charge $675.00
($4.50/$1,000 of Face Amount)
(2) Deferred Sales Charge $650.90
(30% of Guideline Annual Premium
for the increase X Factor)
-------
Maximum Surrender Charge $1,325.90
The actual surrender charge for the increase is the smaller of the maximum
surrender charge for the increase and the following sum:
(1) Deferred Administrative Charge $675.00
(2) Deferred Sales Charge Varies
(30% of the Policy value, on the effective date
of the increase, associated with the increase)
(3) (30% of Premiums paid associated Varies
the increase)
-------
Sum of (1), (2), and (3)
To calculate the actual surrender charges, premium and accumulated value must
be allocated between the initial face amount and the increase. This is done as
follows:
A. Premium is allocated to the initial face amount if it is received before an
application for an increase.
B. Premium is associated with the base policy and the increase in proportion
to their respective Guideline Annual Premiums if the premium is received
after an application for an increase. In this example, 38.5% of premium
($1,740.95/$4,522.57) is allocated to the initial face amount and 61.5% of
premium ($2,781.62/$4,522.57) is allocated to the increase.
55
<PAGE>
C. The policy value on the effective date of an increase is also allocated
between the initial face amount and the increase in proportion to their
Guideline Annual Premiums. In this example 61.5% ($2,781.62/$4,522.57) of
the Policy value will be allocated to the increase.
Continuing the example, assume that the policyowner has paid $1,000 of premium
before the $2,000 after the effective date of the increase. Also, assume that
the Policy Value of the policy on the effective date of the increase is $900.
The following values result when the policy is surrendered in the 54th policy
month.
A. Related to the Initial Face Amount
1. The maximum surrender charge began to decrease in the 44th policy
month and now equals $781.05.
2. The actual surrender charge is the lesser of $781.05 and the following
sum.
(1) Deferred Administrative Charge $450.00
(2) 30% of premium paid before the increase $300.00
(3) 11.55% (.30 X .385) of premium
paid after the increase $231.00
-------
$981.00
The actual surrender charge for the initial face amount is thus $781.05
A. Related to the Increase in Face Amount
1. The maximum surrender charge is $1,325.90, decreasing by 1% per month
beginning in the 68th policy month (44 months after the effective date
of the increase).
2. The actual surrender charge is the lesser of $1,325.90 and the
following sum.
(1) Deferred Administrative Charge $675.00
(2) 18.45% (.30 x .615) of the $900 Policy value
on the effective date of the increase $166.05
(3) 18.45% of the $2,000.00 of premium
paid after the increase $369.00
-------
$1,210.05
The surrender charge for the increase in face amount is $1,210.05. The total
surrender charge on the Policy is the sum of the surrender charge for the
initial face amount plus the surrender charge for the increase. The total
surrender charge is therefore $1,991.10 (the sum of $781.05 + $1,210.05).
EXAMPLE 4:
This example illustrates the calculation of the charges on partial withdrawal
and their impact on the surrender charge(s). In addition to the facts in
Example 3, assume that a $1,000 partial withdrawal is made in the 36th Policy
month. Assume that the Policy value on the date of the partial withdrawal
request was $1,500. The partial withdrawal charge is $42.50 (10% of Policy
value, $150 in this example, may be withdrawn at no charge other than the
transaction charge. The balance of $850 is assessed a charge of 5%.) A
transaction charge of $20 (equal to the lesser of $25 or 2% of the amount
withdrawn) would also be assessed.
The maximum and actual surrender charges for the increase are reduced by the
partial withdrawal charge of $42.50 (but not the transaction charge of $20).
When the policyowner surrenders the policy in the 54th policy month, the maximum
surrender charge for the increase is $1,283.40 (the difference of $1,325.90 -
$42.50) and the actual surrender charge for the increase is $1,167.55 (the
difference of $1,210.05 - $42.50).
56
<PAGE>
The total surrender charge on the Policy is $1,948.60 (the sum of $781.05 +
$1,167.55).
57
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
(formerly SMA Life Assurance Company)
STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
December 31, 1995
Statutory Financial Statements
Report of Independent Accountants . . . . . . . . . . . . . . . . . 1
Statement of Assets, Liabilities, Surplus and Other Funds . . . . . 3
Statement of Operations and Changes in Capital and Surplus. . . . . 4
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Statutory Financial Statements . . . . . . . . . . . . . . 6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company)
We have audited the accompanying statutory basis statement of assets,
liabilities, surplus and other funds of Allmerica Financial Life Insurance and
Annuity Company as of December 31, 1995 and 1994, and the related statutory
basis statements of operations and changes in capital and surplus, and of cash
flows for each of the three years ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, which practices
differ from generally accepted accounting principles. The effects on the
financial statements of the variances between the statutory basis of accounting
and generally accepted accounting principles, although not reasonably
determinable, are presumed to be material.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Allmerica Financial Life Insurance and Annuity Company as of December 31,
1995 and 1994, or the results of its operations or its cash flows for each of
the three years ended December 31, 1995.
<PAGE>
To the Board of Directors and Stockholder of
Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company)
Page 2
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities, surplus and other funds of
Allmerica Financial Life Insurance and Annuity Company as of December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years ended December 31, 1995, on the basis of accounting described in
Note 1.
As discussed in Note 1 to the financial statements, the Company's parent, State
Mutual Life Assurance Company of America, converted from a Massachusetts mutual
life insurance company to a Massachusetts stock life insurance company on
October 16, 1995. In connection with this transaction, the Company changed its
name to Allmerica Financial Life Insurance and Annuity Company and its parent
became a wholly-owned subsidiary of Allmerica Financial Corporation.
/s/Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Boston, MA
February 5, 1996
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF ASSETS, LIABILITIES, SURPLUS AND
OTHER FUNDS
as of December 31,
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash $ 7,791 $ 7,248
Investments:
Bonds 1,659,575 1,595,275
Stocks 18,132 12,283
Mortgage loans 239,522 295,532
Policy loans 122,696 116,600
Real estate 40,967 51,288
Short term investments 3,500 45,239
Other invested assets 40,196 27,443
----------- -----------
Total cash and investments 2,132,379 2,150,908
Premiums deferred and uncollected (1,231) 5,452
Investment income due and accrued 38,413 39,442
Other assets 6,060 10,569
Assets held in separate accounts 2,978,409 1,869,695
----------- -----------
$ 5,154,030 $ 4,076,066
----------- -----------
----------- -----------
LIABILITIES, SURPLUS AND OTHER FUNDS
Liabilities:
Policy liabilities:
Life reserves $ 856,239 $ 890,880
Annuity and other fund reserves 865,216 928,325
Accident and health reserves 167,246 121,580
Claims payable 11,047 11,720
----------- -----------
Total policy liabilities 1,899,748 1,952,505
Expenses and taxes payable 20,824 17,484
Other liabilities 27,499 36,466
Asset valuation reserve 31,556 20,786
Obligations related to separate account business 2,967,547 1,859,502
----------- -----------
Total liabilities 4,947,174 3,886,743
----------- -----------
Surplus and Other Funds:
Common stock, $1,000 par value
Authorized - 10,000 shares
Issued and outstanding - 2,517 shares 2,517 2,517
Paid-in surplus 199,307 199,307
Unassigned surplus (deficit) 4,282 (13,621)
Special contingency reserves 750 1,120
----------- -----------
Total surplus and other funds 206,856 189,323
----------- -----------
$ 5,154,030 $ 4,076,066
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF OPERATIONS AND
CHANGES IN CAPITAL AND SURPLUS
for the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
REVENUE 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Premiums and other considerations:
Life $ 156,864 $ 195,633 $ 189,285
Annuities 729,222 707,172 660,143
Accident and health 31,790 31,927 35,718
Reinsurance commissions and reserve adjustments 20,198 4,195 2,309
---------- ---------- ----------
Total premiums and other considerations 938,074 938,927 887,455
Net investment income 167,470 170,430 177,612
Realized capital losses, net of tax (2,295) (17,172) (7,225)
Other revenue 37,466 26,065 19,055
---------- ---------- ----------
Total revenue 1,140,715 1,118,250 1,076,897
---------- ---------- ----------
POLICY BENEFITS AND OPERATING EXPENSES
Policy benefits:
Claims, surrenders and other benefits 391,254 331,418 275,290
Increase (decrease) in policy reserves (22,669) 40,113 15,292
---------- ---------- ----------
Total policy benefits 368,585 371,531 290,582
Operating and selling expenses 150,215 164,175 160,928
Taxes, except capital gains tax 26,536 22,846 19,066
Net transfers to separate accounts 556,856 553,295 586,539
---------- ---------- ----------
Total policy benefits and operating expenses 1,102,192 1,111,847 1,057,115
---------- ---------- ----------
NET INCOME 38,523 6,403 19,782
CAPITAL AND SURPLUS, BEGINNING OF YEAR 189,323 182,216 171,941
Unrealized capital gains (losses) on investments 8,279 12,170 (9,052)
Transfer from (to) asset valuation reserve (10,770) (9,822) 1,974
Other adjustments (18,499) (1,644) (2,429)
---------- ---------- ----------
CAPITAL AND SURPLUS, END OF YEAR $ 206,856 $ 189,323 $ 182,216
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
STATEMENT OF CASH FLOWS
for the year ended December 31,
(In thousands)
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Premiums, deposits and other income $ 964,129 $ 962,147 $ 902,725
Allowances and reserve adjustments on
reinsurance ceded 20,693 3,279 22,185
Net investment income 170,949 173,294 182,843
Net increase in policy loans (6,096) (7,585) (7,812)
Benefits to policyholders and beneficiaries (393,472) (330,900) (298,612)
Operating and selling expenses and taxes (153,504) (193,796) (171,533)
Net transfers to separate accounts (608,480) (600,760) (634,021)
Federal income tax (excluding tax on capital gains) (6,771) (19,603) (4828)
Other sources (applications) (13,642) 19,868 7,757
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (26,194) 5,944 (1,296)
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Sales and maturities of long term investments:
Bonds 572,640 478,512 386,414
Stocks 481 63 64
Real estate and other invested assets 13,008 3,008 11,094
Repayment of mortgage principal 55,202 65,334 79,844
Capital gains tax (400) (968) (3,296)
Acquisition of long term investments:
Bonds (640,339) (508,603) (466,086)
Stocks (44) - -
Real estate and other invested assets (11,929) (24,544) (2,392)
Mortgage loans (415) (364) (2,266)
Other investing activities (3,206) 18,934 (27,254)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (15,002) 31,372 (23,878)
---------- ---------- ----------
Net change in cash and short term investments (41,196) 37,316 (25,174)
CASH AND SHORT TERM INVESTMENTS
Beginning of the year 52,487 15,171 40,345
---------- ---------- ----------
End of the year $ 11,291 $ 52,487 $ 15,171
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTES TO STATUTORY FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION - Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Financial" or the "Company", formerly SMA Life
Assurance Company) is a wholly owned subsidiary of SMA Financial Corp., which is
wholly owned by First Allmerica Financial Life Insurance Company ("First
Allmerica", formerly, State Mutual Life Assurance Company of America), a stock
life insurance company. On October 16, 1995, First Allmerica converted from a
mutual life insurance company to a stock life insurance company. Concurrent
with this transaction, First Allmerica became a wholly owned subsidiary of
Allmerica Financial Corporation ("AFC").
The stockholder's equity of the Company is being maintained at a minimum level
of 5% of general account assets by First Allmerica in accordance with a policy
established by vote of First Allmerica's Board of Directors.
The Company's financial statements have been prepared on the basis of accounting
practices prescribed or permitted by the Insurance Department of the State of
Delaware and in conformity with practices prescribed by the National Association
of Insurance Commissioners (NAIC), which while common in the industry, vary in
some respects from generally accepted accounting principles. Significant
differences include:
- Bonds considered to be "available-for-sale" or "trading" are not
carried at fair value and changes in fair value are not recognized
through surplus or the statement of operations, respectively;
- The Asset Valuation Reserve, represents a reserve against possible
losses on investments and is recorded as a liability through a charge
to surplus. The Interest Maintenance Reserve is designed to include
deferred realized gains and losses (net of applicable federal income
taxes) due to interest rate changes and is also recorded as a
liability, however, the deferred net realized investment gains and
losses are amortized into future income generally over the original
period to maturity of the assets sold. These liabilities are not
required under generally accepted accounting principles;
- Total premiums, deposits and benefits on certain investment-type
contracts are reflected in the statement of operations, instead of
using the deposit method of accounting;
- Policy acquisition costs, such as commissions, premium taxes and other
items, are not deferred and amortized in relation to the revenue/gross
profit streams from the related contracts;
- Benefit reserves are determined using statutorily prescribed interest,
morbidity and mortality assumptions instead of using more realistic
expense, interest, morbidity, mortality and voluntary withdrawal
assumptions with provision made for adverse deviation;
- Amounts recoverable from reinsurers for unpaid losses are not recorded
as assets, but as offsets against the respective liabilities;
- Deferred federal income taxes are not provided for temporary
differences between amounts reported in the financial statements and
those included in the tax returns;
- Certain adjustments related to prior years are recorded as direct
charges or credits to surplus;
- Certain assets, designated as "non-admitted" assets (principally
agents' balances), are not recorded as assets, but are charged to
surplus; and,
- Costs related to other postretirement benefits are recognized only for
employees that are fully vested.
6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The preparation of financial statements in accordance with practices prescribed
or permitted by the Insurance Department of the State of Delaware and in
conformity with practices prescribed by the NAIC requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.
VALUATION OF INVESTMENTS - Investments in bonds are carried principally at
amortized cost, in accordance with NAIC guidelines. Preferred stocks are
carried generally at cost and common stocks are carried at market value. Policy
loans are carried principally at unpaid principal balances.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts. Mortgage loans are reduced for losses expected by
management to be realized on transfers of mortgage loans to real estate (upon
foreclosure), on the disposition or settlement of mortgage loans and on mortgage
loans which management believes may not be collectible in full. In determining
the amount of the loss, management considers, among other things, the estimated
fair value of the underlying collateral. Investment real estate and real estate
acquired through foreclosure are carried at the lower of depreciated cost or
market value. Depreciation is generally calculated using the straight-line
method.
An asset valuation reserve (AVR) for bonds, mortgage loans, stocks, real estate,
and other invested assets is maintained by appropriations from surplus in
accordance with a formula specified by the NAIC and is classified as a
liability.
FINANCIAL INSTRUMENTS - In the normal course of business, the Company enters
into transactions involving various types of financial instruments including
investments such as bonds, stocks and mortgage loans and investment and loan
commitments. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuations. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
RECOGNITION OF PREMIUM INCOME AND ACQUISITION COSTS - In general, premiums are
recognized as revenue over the premium paying period of the policies;
commissions and other costs of acquiring the policies are charged to operations
when incurred.
SEPARATE ACCOUNTS - Separate account assets and liabilities represent segregated
funds administered and invested by the Company for the benefit of certain
variable annuity and variable life contract holders. Assets consist principally
of bonds, common stocks, mutual funds, and short term obligations at market
value. The investment income, gains, and losses of these accounts generally
accrue to the contract holders and therefore, are not included in the Company's
net income. Appreciation and depreciation of the Company's interest in the
separate accounts, including undistributed net investment income, is reflected
in capital and surplus.
INSURANCE RESERVES AND ANNUITY AND OTHER FUND RESERVES - Reserves for life
insurance, annuities, and accident and health insurance are established in
amounts adequate to meet the estimated future obligations of policies in
force. These liabilities are computed based upon mortality, morbidity and
interest rate assumptions applicable to these coverages, including provision
for adverse deviation. Reserves are computed using interest rates ranging
from 3% to 6% for individual life insurance policies, 3% to 5 1/2% for
accident and health policies and 3 1/2% to 9 1/2% for annuity contracts.
Mortality, morbidity and withdrawal assumptions for all policies are based on
the Company's own experience and industry standards. The assumptions vary by
plan, age at issue, year of issue and duration. Claims reserves are computed
based on historical experience modified for expected trends in frequency and
severity. Withdrawal characteristics of annuity and other fund reserves vary
by contract. At December 31, 1995 and 1994, approximately 84% and 77%,
respectively, of the contracts (included in both the general account and
separate accounts of the Company) were not subject to discretionary
withdrawal or were subject to withdrawal at book value less surrender charge.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, management
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
FEDERAL INCOME TAXES - AFC, its life insurance subsidiaries, First Allmerica and
Allmerica Financial and its non-insurance domestic subsidiaries file a
life-nonlife consolidated United States federal income tax return. Entities
included within the consolidated group are segregated into either a life
insurance or non-life insurance company subgroup. The consolidation of these
subgroups is subject to certain statutory restrictions on the percentage of
eligible non-life taxable operating losses that can be applied to offset life
company taxable income. Allmerica P&C and its subsidiaries file a separate
United States Federal income tax return.
The federal income tax allocation policies and procedures are subject to written
agreement between the companies. The federal income tax for all subsidiaries in
the consolidated return of AFC is calculated on a separate return basis. Any
current tax liability is paid to AFC. Tax benefits resulting from taxable
operating losses or credits of AFC's subsidiaries are not reimbursed to the
subsidiary until such losses or credits can be utilized by the subsidiary on a
separate return basis.
CAPITAL GAINS AND LOSSES - Realized capital gains and losses, net of applicable
capital gains tax or benefit, exclusive of those transferred to the interest
maintenance reserve ("IMR"), are included in the statement of operations.
Unrealized capital gains and losses are reflected as direct credits or charges
to capital and surplus. The IMR, which is included in other liabilities,
establishes a reserve for realized gains and losses, net of tax, resulting from
changes in interest rates on short and long term fixed income investments. Net
realized gains and losses charged to the IMR are amortized into net investment
income over the remaining life of the investment sold. The Company uses the
seriatim method of amortization for interest related gains and losses arising
from the sale of mortgages, and uses the group method to amortize interest
related gains and losses arising from all other fixed income investments.
NOTE 2 - INVESTMENTS
BONDS - The carrying value and fair value of investments in bonds are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
<S> <C> <C> <C> <C>
Federal government bonds $ 67,039 $ 3,063 $ - $ 70,102
State, local and government agency bonds 13,607 2,290 23 15,874
Foreign government bonds 12,121 772 249 12,644
Corporate securities 1,471,422 55,836 6,275 1,520,983
Mortgage-backed securities 95,385 951 - 96,336
---------- ---------- ---------- ----------
Total $1,659,574 $ 62,912 $ 6,457 $1,715,939
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
December 31, 1995
Gross Gross
Carrying Unrealized Unrealized Fair
(In thousands) Value Appreciation Depreciation Value
----- ------------ ------------ -----
Federal government bonds $ 17,651 $ 8 $ 762 $ 16,897
State, local and government agency bonds 1,110 54 - 1,164
Foreign government bonds 31,863 83 3,735 28,211
Corporate securities 1,462,871 8,145 56,011 1,415,005
Mortgage-backed securities 81,780 268 1,737 80,311
---------- ---------- ---------- ----------
Total $1,595,275 $ 8,558 $ 62,245 $1,541,588
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The carrying value and fair value by contractual maturity at December 31, 1995,
are shown below. Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties or the Company may have the right to put or
sell the obligation back to the issuer. Mortgage-backed securities are
classified based on expected maturities.
<TABLE>
<CAPTION>
Carrying Fair
(In thousands) Value Value
----- -----
<S> <C> <C>
Due in one year or less $ 250,578 $ 258,436
Due after one year through five years 736,003 763,179
Due after five years through ten years 538,897 558,445
Due after ten years 134,097 135,880
---------- ----------
Total $1,659,575 $1,715,940
---------- ----------
---------- ----------
</TABLE>
MORTGAGE LOANS AND REAL ESTATE - Mortgage loans and real estate investments, are
diversified by property type and location. Real estate investments have been
obtained primarily through foreclosure. Mortgage loans are collateralized by
the related properties and are generally no more than 75% of the property value
at the time the original loan is made. At December 31, 1995 and 1994, mortgage
loan and real estate investments were distributed by the following types and
geographic regions:
<TABLE>
<CAPTION>
(In thousands)
Property Type 1995 1994
- ------------- ---- ----
<S> <C> <C>
Office buildings $ 127,149 $ 140,292
Residential 59,934 57,061
Retail 29,578 72,787
Industrial/Warehouse 38,192 39,424
Other 25,636 37,256
----------- -----------
Total $ 280,489 $ 346,820
----------- -----------
----------- -----------
Geographic Region 1995 1994
- ----------------- ---- ----
South Atlantic $ 86,410 $ 92,934
East North Central 55,991 72,704
Middle Atlantic 38,666 48,688
Pacific 32,803 39,892
West North Central 21,486 27,377
Mountain 9,939 12,211
New England 24,886 26,613
East South Central 5,487 6,224
West South Central 4,821 20,177
---------- ----------
Total $ 280,489 $ 346,820
---------- ----------
---------- ----------
</TABLE>
Reserves for mortgage loans and real estate reflected in the above amounts were
$18.9 million and $21.0 million at December 31, 1995 and 1994, respectively.
9
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NET INVESTMENT INCOME - The components of net investment income for the year
ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Bonds $ 122,318 $ 123,495 $ 126,729
Stocks 1,653 1,799 953
Mortgage loans 26,356 31,945 40,823
Real estate 9,139 8,425 9,493
Policy loans 9,486 8,797 8,215
Other investments 3,951 1,651 674
Short term investments 2,252 1,378 840
---------- ---------- ----------
175,155 177,490 187,727
Less investment expenses 9,703 9,138 11,026
---------- ---------- ----------
Net investment income, before IMR amortization 165,452 168,352 176,701
IMR amortization 2,018 2,078 911
---------- ---------- ----------
Net investment income $ 167,470 $ 170,430 $ 177,612
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
REALIZED CAPITAL GAINS AND LOSSES - Realized capital gains (losses) on
investments for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Bonds $ 727 $ 645 $ 10,133
Stocks (263) (62) 16
Mortgage loans (1,083) (17,142) (83)
Real estate (1,892) 605 (2,044)
--------- --------- ---------
(2,511) (15,954) 8,022
Less income tax 400 968 3,296
--------- --------- ---------
Net realized capital gains (losses) before transfer to IMR (2,911) (16,922) 4,726
Net realized capital gains transferred to IMR 616 (250) (11,951)
--------- --------- ---------
Net realized capital gains (losses) $ (2,295) $(17,172) $ (7,225)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Proceeds from voluntary sales of investments in bonds during 1995, 1994 and 1993
were $22.4 million, $17.9 million, and $13.2 million, respectively. Gross gains
of $4.3 million, $3.0 million, and $4.5 million and gross losses of $5.2
million, $4.6 million, and $ .5 million, respectively, were realized on those
sales.
NOTE 3 - FAIR VALUE DISCLOSURES OF FINANCIAL INFORMATION
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure of fair value information
about certain financial instruments (insurance contracts, real estate, goodwill
and taxes are excluded) for which it is practicable to estimate such values,
whether or not these instruments are included in the balance sheet. The fair
values presented for certain financial instruments are estimates which, in many
cases, may differ significantly from the amounts which could be recognized upon
immediate liquidation. In cases where market prices are not available,
estimates of fair value are based on discounted cash flow analyses which utilize
current interest rates for similar financial instruments which have comparable
terms and credit quality.
10
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
FINANCIAL ASSETS:
CASH AND SHORT TERM INVESTMENTS - The carrying amounts reported in the statement
of assets, liabilities, surplus and other funds approximate fair value.
BONDS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models using
discounted cash flow analyses.
STOCKS - Fair values are based on quoted market prices, if available. If a
quoted market price is not available, fair values are estimated using
independent pricing sources or internally developed pricing models.
MORTGAGE LOANS - Fair values are estimated by discounting the future contractual
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings. The fair value of below investment grade
mortgage loans is limited to the lesser of the present value of the cash flows
or book value.
POLICY LOANS - The carrying amount reported in the statement of assets,
liabilities, surplus and other funds approximates fair value since policy loans
have no defined maturity dates and are inseparable from the insurance contracts.
FINANCIAL LIABILITIES:
ANNUITY AND OTHER FUND RESERVES (WITHOUT MORTALITY/MORBIDITY FEATURES) - Fair
values for the Company's liabilities under individual annuity contracts are
estimated based on current surrender values.
The estimated fair values of the financial instruments as of December 31 were as
follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 7,791 $ 7,791 $ 7,248 $ 7,248
Short term investments 3,500 3,500 45,239 45,239
Bonds 1,659,575 1,715,940 1,595,275 1,541,588
Stocks 18,132 18,414 12,283 12,590
Mortgage loans 239,522 250,196 295,532 291,704
Policy loans 122,696 122,696 116,600 116,600
Financial Liabilities:
Individual annuity contracts 803,099 797,024 869,230 862,662
Supplemental contracts without life
contingencies 16,796 16,796 16,673 16,673
Other contract deposit funds 632 632 1,105 1,105
</TABLE>
11
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTE 4 - FEDERAL INCOME TAXES
The federal income tax provisions for 1995, 1994 and 1993 were $17.4 million,
$13.1 million and $8.6 million, respectively, which include taxes applicable to
realized capital gains of $.4 million, $1.0 million and $3.3 million.
The effective federal income tax rates were 27%, 67% and 30% in 1995, 1994 and
1993, respectively. The differences between the federal statutory rate and the
Company's effective tax rates are primarily related to decreases in taxable
income for the write-offs of mortgage loans; and increases in taxable income for
differences in policyholder liabilities for federal income tax purposes and
financial reporting purposes and the deferral of policy acquisition costs for
federal tax purposes.
The consolidated federal income tax returns are routinely audited by the
Internal Revenue Service (IRS) and provisions are routinely made in the
financial statements in anticipation of the results of these audits. The IRS
has completed its examination of all of the consolidated federal income tax
returns through 1988. In management's opinion, adequate tax liabilities have
been established for all years. However, the amount of these liabilities could
be revised in the near term if estimates of the Company's ultimate liability are
revised.
NOTE 5 - REINSURANCE
The Company participates in reinsurance to reduce overall risks, including
exposure to large losses and to permit recovery of a portion of direct losses.
Reinsurance contracts do not relieve the Company from its obligation to its
policyholders. Reinsurance financial data for the years ended December 31, is
as follows:
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Reinsurance premiums assumed $ 3,442 $ 3,788 $ 4,190
Reinsurance premiums ceded
42,914 17,430 14,798
Deduction from insurance
liability including
reinsurance recoverable on
unpaid claims 82,227 46,734 42,805
</TABLE>
Individual life premiums ceded to First Allmerica aggregated $6.8 million, $7.8
million and $9.0 million in 1995, 1994 and 1993, respectively. The Company has
also entered into various reinsurance agreements with First Allmerica under
which certain insurance risks related to individual accident and health
business, premium income and related expenses are assumed by the Company from
First Allmerica. Premiums assumed pursuant to these agreements aggregated $3.4
million, $3.8 million and $4.2 million in 1995, 1994 and 1993, respectively .
During the year Allmerica Financial entered into a coinsurance agreement to
reinsure substantially all of its yearly renewable term life insurance.
Premiums ceded and reinsurance credits taken under this agreement amounted to
$25.4 million and $20.7 million, respectively. At December 31, 1995, the
deduction from insurance liability, including reinsurance recoverable on unpaid
claims under this agreement was $12.7 million.
NOTE 6 - ACCIDENT AND HEALTH POLICY AND CLAIM LIABILITIES
The Company regularly updates its estimates of policy and claims liabilities as
new information becomes available and further events occur which may impact the
resolution of unsettled claims for its accident and health line of business.
Changes in prior estimates are generally reflected in results of operations in
the year such changes are determined to be needed and recorded.
The policy and claims liabilities related to the Company's accident and health
business were $169.7 million and $123.5 million at December 31, 1995 and 1994,
respectively. Accident and health policy and claims liabilities have been
re-estimated for all prior years and were increased by $42.5 million, $10.9
million and $13.2 million, in 1995, 1994 and 1993, respectively, including $21.9
million and $2.8 million recorded as an adjustment to surplus in 1995 and 1993,
respectively. The unfavorable development is primarily due to reserve
strengthening and adverse experience in the Company's individual accident and
health line of business.
12
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(a wholly owned subsidiary of First Allmerica Financial Life Insurance Company)
NOTE 7 - DIVIDEND RESTRICTIONS
Delaware has enacted laws governing the payment of dividends to stockholders by
insurers. These laws affect the dividend paying ability of the Company.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its statutory policyholder surplus as of the preceding
December 31 or (ii) the individual company's statutory net gain from operations
for the preceding calendar year (if such insurer is a life company) or its net
income (not including realized capital gains) for the preceding calendar year
(if such insurer is not a life company). Any dividends to be paid by an
insurer, whether or not in excess of the aforementioned threshold, from a source
other than statutory earned surplus would also require the prior approval of the
Delaware Commissioner of Insurance. At January 1, 1996, the Company could pay
dividends of $4.3 million to First Allmerica, without prior approval.
NOTE 8 - OTHER RELATED PARTY TRANSACTIONS
First Allmerica provides management, operating personnel and facilities on a
cost reimbursement basis to the Company. Expenses for services received from
First Allmerica were $ 85.8 million, $102.5 million and $98.9 million in 1995,
1994 and 1993, respectively. The net amounts payable to First Allmerica and
affiliates for accrued expenses and various other liabilities and receivables
were $12.6 million and $8.3 million at December 31, 1995 and 1994, respectively.
NOTE 9 - FUNDS ON DEPOSIT
In March 1994, the Company voluntarily withdrew from being licensed in New York.
In connection with the withdrawal First Allmerica, which is licensed in New
York, became qualified to sell the products previously sold by Allmerica
Financial in New York. The Company agreed with the New York Department of
Insurance to maintain, through a custodial account in New York, a security
deposit, the market value of which will at all times equal 102% of all
outstanding general account liabilities of the Company for New York
policyholders, claimants and creditors. As of December 31, 1995, the carrying
value and fair value of the assets or deposit was $295.0 million and $303.6
million, respectively, which is in excess of the required amount.
Additional securities with a carrying value of $4.2 million and $3.9 million
were on deposit with various other state and governmental authorities as of
December 31, 1995 and 1994, respectively.
NOTE 10 - LITIGATION
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the opinion of management, based on the
advice of legal counsel, the ultimate resolution of these proceedings will not
have a material effect on the Company's financial statements.
13
<PAGE>
VEL ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
INVESTMENT
GROWTH GRADE INCOME MONEY MARKET EQUITY INDEX
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
1 2 3 4
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica
Investment Trust . . . . . . . . . . . . . . . . $ 35,491,036 $ 9,887,532 $ 6,152,803 $ 22,018,306
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor). . . . . -- 20,456 -- 2,093
------------ ----------- ----------- ------------
Total assets . . . . . . . . . . . . . . . . . 35,491,036 9,907,988 6,152,803 22,020,399
LIABILITIES:
Payable to Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . . 34,320 -- 15,379 --
------------ ----------- ----------- ------------
Net assets . . . . . . . . . . . . . . . . . . $ 35,456,716 $ 9,907,988 $ 6,137,424 $ 22,020,399
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Net asset distribution by category:
Variable life policies . . . . . . . . . . . . . $ 35,456,716 $ 9,907,988 $ 6,137,424 $ 11,167,565
Value of investment by Allmerica Financial
Life Insurance and Annuity Company (Sponsor) . -- -- -- 10,852,834
------------ ----------- ----------- ------------
$ 35,456,716 $ 9,907,988 $ 6,137,424 $ 22,020,399
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Units outstanding, December 31, 1995 . . . . . . . 11,110,145 5,013,545 4,166,830 10,317,464
Net asset value per unit, December 31, 1995. . . . $ 3.191382 $ 1.976244 $ 1.472924 $ 2.134284
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
GOVERNMENT SELECT SELECT SELECT
BOND AGGRESSIVE GROWTH GROWTH GROWTH & INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
5 6 7 8
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica
Investment Trust . . . . . . . . . . . . . . . . $ 2,053,074 $ 14,397,222 $ 6,224,208 $ 6,495,624
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor). . . . . 3,330 -- -- --
------------ ------------ ------------ ------------
Total assets . . . . . . . . . . . . . . . . . 2,056,404 14,397,222 6,224,208 6,495,624
LIABILITIES:
Payable to Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . . -- 16,212 2,127 3,875
------------ ------------ ------------ ------------
Net assets . . . . . . . . . . . . . . . . . . $ 2,056,404 $ 14,381,010 $ 6,222,081 $ 6,491,749
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net asset distribution by category:
Variable life policies . . . . . . . . . . . . . $ 2,056,404 $ 14,381,010 $ 6,222,081 $ 6,491,749
Value of investment by Allmerica Financial
Life Insurance and Annuity Company (Sponsor) . -- -- -- --
------------ ------------ ------------ ------------
$ 2,056,404 $ 14,381,010 $ 6,222,081 $ 6,491,749
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Units outstanding, December 31, 1995 . . . . . . . 1,609,309 8,367,050 4,871,950 4,632,975
Net asset value per unit, December 31, 1995. . . . $ 1.277817 $ 1.718767 $ 1.277123 $ 1.401205
<CAPTION>
- ----------------------------------------------------------------------------------------------
SMALL CAP SELECT
VALUE INTERNATIONAL EQUITY
SUB-ACCOUNT SUB-ACCOUNT
9 11
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in shares of Allmerica
Investment Trust . . . . . . . . . . . . . . . . $ 3,711,692 $ 2,141,148
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor). . . . . 385 7,449
------------ ------------
Total assets . . . . . . . . . . . . . . . . . 3,712,077 2,148,597
LIABILITIES:
Payable to Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . . -- --
------------ ------------
Net assets . . . . . . . . . . . . . . . . . . $ 3,712,077 $ 2,148,597
------------ ------------
------------ ------------
Net asset distribution by category:
Variable life policies . . . . . . . . . . . . . $ 3,712,077 $ 2,148,484
Value of investment by Allmerica Financial
Life Insurance and Annuity Company (Sponsor) . -- 113
------------ ------------
$ 3,712,077 $ 2,148,597
------------ ------------
------------ ------------
Units outstanding, December 31, 1995 . . . . . . . 2,965,953 1,888,933
Net asset value per unit, December 31, 1995. . . . $ 1.251563 $ 1.137405
</TABLE>
82
<PAGE>
VEL ACCOUNT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
SELECT VIPF VIPF VIPF
CAPITAL APPRECIATION MONEY MARKET HIGH INCOME EQUITY INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
12 101 102 103
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment
Trust. . . . . . . . . . . . . . . . . . . . . . $ 1,285,175 -- -- --
Investment in shares of Fidelity Variable
Insurance Products Fund. . . . . . . . . . . . . -- $ 2,713,021 $ 9,269,478 $51,706,730
Investment in shares of T. Rowe Price
International Series, Inc. . . . . . . . . . . . -- -- -- --
Investment in shares of Delaware Group Premium
Fund, Inc. . . . . . . . . . . . . . . . . . . . -- -- -- --
Accrued investment income. . . . . . . . . . . . . -- 12,965 -- --
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor). . . . . 1,994 -- -- --
----------- ------------ ----------- -----------
Total assets . . . . . . . . . . . . . . . . . 1,287,169 2,725,986 9,269,478 51,706,730
LIABILITIES:
Payable to Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . . -- 10,295 2,023 45,768
----------- ------------ ----------- -----------
Net assets . . . . . . . . . . . . . . . . . . $ 1,287,169 $ 2,715,691 $ 9,267,455 $51,660,962
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Net asset distribution by category:
Variable life policies . . . . . . . . . . . . . $ 1,286,893 $ 2,715,691 $ 9,267,455 $51,660,962
Value of investment by
Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . 276 -- -- --
----------- ------------ ----------- -----------
$ 1,287,169 $ 2,715,691 $ 9,267,455 $51,660,962
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Units outstanding, December 31, 1995 . . . . . . . 927,805 1,821,076 3,957,334 16,161,717
Net asset value per unit, December 31, 1995. . . . $ 1.387327 $ 1.491256 $ 2.341843 $ 3.196502
<CAPTION>
- --------------------------------------------------------------------------------------------------------
VIPF VIPF VIPF II
GROWTH OVERSEAS ASSET MANAGER
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
104 105 106
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment
Trust. . . . . . . . . . . . . . . . . . . . . . -- -- --
Investment in shares of Fidelity Variable
Insurance Products Fund. . . . . . . . . . . . . $ 52,466,391 $ 18,297,551 $ 1,254,648
Investment in shares of T. Rowe Price
International Series, Inc. . . . . . . . . . . . -- -- --
Investment in shares of Delaware Group Premium
Fund, Inc. . . . . . . . . . . . . . . . . . . . -- -- --
Accrued investment income. . . . . . . . . . . . . -- -- --
Receivable from Allmerica Financial Life -- -- --
Insurance and Annuity Company (Sponsor). . . . . ------------ ------------ ------------
Total assets . . . . . . . . . . . . . . . . . 52,466,391 18,297,551 1,254,648
LIABILITIES:
Payable to Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . . 57,057 25,088 1,404
Net assets . . . . . . . . . . . . . . . . . . $ 52,409,334 $ 18,272,463 $ 1,253,244
------------ ------------ ------------
------------ ------------ ------------
Net asset distribution by category:
Variable life policies . . . . . . . . . . . . . $ 52,409,334 $ 18,272,463 $ 1,253,130
Value of investment by
Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . -- -- 114
------------ ------------ ------------
$ 52,409,334 $ 18,272,463 $ 1,253,244
------------ ------------ ------------
------------ ------------ ------------
Units outstanding, December 31, 1995 . . . . . . . 14,778,999 9,360,696 1,093,072
Net asset value per unit, December 31, 1995. . . . $ 3.546203 $ 1.952041 $ 1.146534
<CAPTION>
- ---------------------------------------------------------------------------------------------------
T. ROWE DGPF
INTERNATIONAL STOCK INTERNATIONAL EQUITY
SUB-ACCOUNT SUB-ACCOUNT
150 207
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in shares of Allmerica Investment
Trust. . . . . . . . . . . . . . . . . . . . . . -- --
Investment in shares of Fidelity Variable
Insurance Products Fund. . . . . . . . . . . . . -- --
Investment in shares of T. Rowe Price
International Series, Inc. . . . . . . . . . . . $ 529,995 --
Investment in shares of Delaware Group Premium
Fund, Inc. . . . . . . . . . . . . . . . . . . . -- $ 3,562,181
Accrued investment income. . . . . . . . . . . . . -- --
Receivable from Allmerica Financial Life -- --
Insurance and Annuity Company (Sponsor). . . . . ------------ ------------
Total assets . . . . . . . . . . . . . . . . . 529,995 3,562,181
LIABILITIES:
Payable to Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . . 436 7,148
Net assets . . . . . . . . . . . . . . . . . . $ 529,559 $ 3,555,033
------------ ------------
------------ ------------
Net asset distribution by category:
Variable life policies . . . . . . . . . . . . . $ 529,559 $ 3,555,033
Value of investment by
Allmerica Financial Life Insurance
and Annuity Company (Sponsor). . . . . . . . . -- --
------------ ------------
$ 529,559 $ 3,555,033
------------ ------------
------------ ------------
Units outstanding, December 31, 1995 . . . . . . . 502,768 2,719,640
Net asset value per unit, December 31, 1995. . . . $ 1.053287 $ 1.307170
</TABLE>
The accompanying notes are an integral part of these financial statements.
83
<PAGE>
VEL ACCOUNT
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
GROWTH
SUB-ACCOUNT 1
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 3,398,296 $ 1,692,992 $ 2,541,777
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 276,867 222,505 186,505
----------- ----------- -----------
Net investment income. . . . . . . . . . . . . . . . . . 3,121,429 1,470,487 2,355,272
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . . . 114,997 43,236 62,748
Net unrealized gain (loss) . . . . . . . . . . . . . . . 5,074,547 (1,707,945) (1,155,289)
----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . . . . . 5,189,544 (1,664,709) (1,092,541)
----------- ----------- -----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . $ 8,310,973 $ (194,222) $ 1,262,731
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
INVESTMENT GRADE INCOME
SUB-ACCOUNT 2
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 598,145 $ 503,268 $ 462,325
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 80,882 72,076 54,091
----------- ----------- -----------
Net investment income. . . . . . . . . . . . . . . . . . 517,263 431,192 408,234
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . . . (8,055) (44,126) 24,379
Net unrealized gain (loss) . . . . . . . . . . . . . . . 867,289 (710,225) 63,392
----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . . . . . 859,234 (754,351) 87,771
----------- ----------- -----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . $ 1,376,497 $ (323,159) $ 496,005
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
MONEY MARKET
SUB-ACCOUNT 3
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 340,880 $ 235,657 $ 240,882
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 54,030 55,533 73,668
----------- ----------- -----------
Net investment income. . . . . . . . . . . . . . . . . . 286,850 180,124 167,214
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . . . -- -- --
Net unrealized gain (loss) . . . . . . . . . . . . . . . -- -- --
----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . . . . . -- -- --
----------- ----------- -----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . $ 286,850 $ 180,124 $ 167,214
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
84
<PAGE>
VEL ACCOUNT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
EQUITY INDEX
SUB-ACCOUNT 4
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 1,616,618 $ 529,861 $ 351,244
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 168,665 135,800 121,238
----------- ----------- -----------
Net investment income (loss) . . . . . . . . . . . . . . 1,447,953 394,061 230,006
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . . . 98,943 139,128 91,635
Net unrealized gain (loss) . . . . . . . . . . . . . . . 3,975,325 (506,142) 769,721
----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . . . . . 4,074,268 (367,014) 861,356
----------- ----------- -----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . $ 5,522,221 $ 27,047 $ 1,091,362
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
GOVERNMENT BOND
SUB-ACCOUNT 5
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 122,508 $ 183,079 $ 176,133
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 18,980 29,934 24,703
---------- ---------- ----------
Net investment income (loss) . . . . . . . . . . . . . . 103,528 153,145 151,430
---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . . . (27,790) (127,304) 21,728
Net unrealized gain (loss) . . . . . . . . . . . . . . . 162,592 (98,119) (46,648)
---------- ---------- ----------
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . . . . . . 134,802 (225,423) (24,920)
---------- ---------- ----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . . $ 238,330 $ (72,278) $ 126,510
---------- ---------- ----------
---------- ---------- ----------
- -------------------------------------------------------------------------------------------------------------
SELECT AGGRESSIVE GROWTH
SUB-ACCOUNT 6
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . -- -- $ 2,603
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . $ 107,755 $ 68,536 30,400
---------- ---------- ----------
Net investment income (loss) . . . . . . . . . . . . . . (107,755) (68,536) (27,797)
---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . . . 110,726 16,672 17,854
Net unrealized gain (loss) . . . . . . . . . . . . . . . 3,205,669 (222,557) 526,828
---------- ---------- ----------
Net realized and unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . . . . . . 3,316,395 (205,885) 544,682
---------- ---------- ----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . . $3,208,640 $ (274,421) $ 516,885
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
85
<PAGE>
VEL ACCOUNT
STATEMENTS OF OPERATIONS, CONTINUED
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SELECT GROWTH
SUB-ACCOUNT 7
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 909 $ 13,907 $ 3,164
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 50,997 36,095 21,156
----------- ----------- -----------
Net investment income (loss) . . . . . . . . . . . . . . (50,088) (22,188) (17,992)
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . . . 67,387 15,084 6,496
Net unrealized gain (loss) . . . . . . . . . . . . . . . 1,114,016 (87,571) 129,285
----------- ----------- -----------
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . 1,181,403 (72,487) 135,781
----------- ----------- -----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . $ 1,131,315 $ (94,675) $ 117,789
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SELECT GROWTH AND INCOME
SUB-ACCOUNT 8
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 332,182 $ 209,665 $ 55,456
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 48,963 37,644 18,449
----------- ----------- -----------
Net investment income (loss) . . . . . . . . . . . . . . 283,219 172,021 37,007
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . . . 68,712 10,373 13,845
Net unrealized gain (loss) . . . . . . . . . . . . . . . 1,034,046 (196,007) 130,713
----------- ----------- -----------
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . 1,102,758 (185,634) 144,558
----------- ----------- -----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . $ 1,385,977 $ (13,613) $ 181,565
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
SMALL CAP VALUE
SUB-ACCOUNT 9
FOR THE YEAR ENDED DECEMBER 31, FOR THE PERIOD
1995 1994 7/14/93* TO 12/31/93
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 123,752 $ 11,138 $ 6,884
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 28,223 15,883 1,303
----------- ----------- -----------
Net investment income (loss) . . . . . . . . . . . . . . 95,529 (4,745) 5,581
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . . . 35,178 (1,911) 439
Net unrealized gain (loss) . . . . . . . . . . . . . . . 350,342 (138,299) 76,068
----------- ----------- -----------
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . 385,520 (140,210) 76,507
----------- ----------- -----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . $ 481,049 $ (144,955) $ 82,088
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
86
<PAGE>
VEL ACCOUNT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SELECT INTERNATIONAL EQUITY SELECT CAPITAL APPRECIATION
SUB-ACCOUNT 11 SUB-ACCOUNT 12
FOR THE YEAR ENDED FOR THE PERIOD FOR THE PERIOD
12/31/95 5/4/94* TO 12/31/94 4/28/95* TO 12/31/95
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 28,461 $ 1,381 $ 24,495
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 11,453 1,484 3,057
---------- ---------- ----------
Net investment income (loss) . . . . . . . . . . . . . . 17,008 (103) 21,438
---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . . . 3,984 (142) 1,577
Net unrealized gain (loss) . . . . . . . . . . . . . . . 187,492 (20,162) 106,054
---------- ---------- ----------
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . 191,476 (20,304) 107,631
---------- ---------- ----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . $ 208,484 $ (20,407) $ 129,069
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
- ----------------------------------------------------------------------------------------------------
VIPF MONEY MARKET
SUB-ACCOUNT 101
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 156,906 $ 113,645 $ 82,206
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 24,582 24,557 23,168
---------- ---------- ----------
Net investment income (loss) . . . . . . . . . . . . . . 132,324 89,088 59,038
---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . . . -- -- --
Net unrealized gain (loss) . . . . . . . . . . . . . . . -- -- --
---------- ---------- ----------
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . -- -- --
---------- ---------- ----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . $ 132,324 $ 89,088 $ 59,038
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
VIPF HIGH INCOME
SUB-ACCOUNT 102
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 527,909 $ 595,097 $ 308,170
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 75,188 62,457 43,221
---------- ---------- ----------
Net investment income (loss) . . . . . . . . . . . . . . 452,721 532,640 264,949
---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) . . . . . . . . . . . . . . . . 65,770 54,603 85,471
Net unrealized gain (loss) . . . . . . . . . . . . . . . 936,558 (764,492) 497,807
---------- ---------- ----------
Net realized and unrealized gain (loss)
on investments . . . . . . . . . . . . . . . . . . . . 1,002,328 (709,889) 583,278
---------- ---------- ----------
Net increase (decrease) in net assets from
operations . . . . . . . . . . . . . . . . . . . . . . $1,455,049 $ (177,249) $ 848,227
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
87
<PAGE>
VEL ACCOUNT
STATEMENTS OF OPERATIONS, Continued
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
VIPF EQUITY INCOME
SUB-ACCOUNT 103
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . $ 2,886,679 $ 2,322,480 $ 663,826
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . 395,590 296,761 221,537
------------- ------------- -------------
Net investment income (loss) . . . . . . . . . . . 2,491,089 2,025,719 442,289
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain . . . . . . . . . . . . . . . . 359,460 142,856 96,966
Net unrealized gain (loss) . . . . . . . . . . . . 9,834,460 (231,521) 3,183,292
------------- ------------- -------------
Net realized and unrealized gain (loss) on investments 10,193,920 (88,665) 3,280,258
------------- ------------- -------------
Net increase (decrease) in net assets from operations $ 12,685,009 $ 1,937,054 $ 3,722,547
------------- ------------- -------------
------------- ------------- -------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
VIPF GROWTH
SUB-ACCOUNT 104
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . $ 210,037 $ 2,037,179 $ 502,841
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . 424,764 311,684 245,956
------------ ------------ ------------
Net investment income (loss) . . . . . . . . . . . . . (214,727) 1,725,495 256,885
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain . . . . . . . . . . . . . . . . . . 789,394 205,961 189,576
Net unrealized gain (loss) . . . . . . . . . . . . . . 12,592,041 (2,127,245) 4,117,186
------------ ------------ ------------
Net realized and unrealized gain (loss) on investments . 13,381,435 (1,921,284) 4,306,762
------------ ------------ ------------
Net increase (decrease) in net assets from operations . $ 13,166,708 $ (195,789) $ 4,563,647
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
VIPF OVERSEAS
SUB-ACCOUNT 105
FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . $ 129,738 $ 69,245 $ 151,147
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . 159,261 141,965 81,146
------------ ------------ ------------
Net investment income (loss) . . . . . . . . . . . . . (29,523) (72,720) 70,001
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain . . . . . . . . . . . . . . . . . . 304,440 168,454 32,570
Net unrealized gain (loss) . . . . . . . . . . . . . . 1,219,736 (120,715) 2,529,324
------------ ------------ ------------
Net realized and unrealized gain (loss) on investments . 1,524,176 47,739 2,561,894
------------ ------------ ------------
Net increase (decrease) in net assets from operations . $ 1,494,653 $ (24,981) $ 2,631,895
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
88
<PAGE>
VEL ACCOUNT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VIPF II ASSET MANAGER T. ROWE INTERNATIONAL STOCK
SUB-ACCOUNT 106 SUB-ACCOUNT 150
FOR THE YEAR ENDED FOR THE PERIOD FOR THE PERIOD
12/31/95 5/4/94* TO 12/31/94 6/23/95* TO 12/31/95
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . $ 21,513 $ 421 --
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . 10,599 2,688 $ 1,301
------------ ------------ ------------
Net investment income (loss) . . . . . . . . . . . . . 10,914 (2,267) (1,301)
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain(loss). . . . . . . . . . . . . . . . 13,540 124 (98)
Net unrealized gain (loss) . . . . . . . . . . . . . . 154,558 (21,891) 15,909
------------ ------------ ------------
Net realized and unrealized gain (loss) on investments 168,098 (21,767) 15,811
------------ ------------ ------------
Net increase (decrease) in net assets from operations. $ 179,012 $ (24,034) $ 14,510
------------ ------------ ------------
------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------
DGPF INTERNATIONAL EQUITY
SUB-ACCOUNT 207
FOR THE YEAR ENDED DECEMBER 31, FOR THE PERIOD
1995 1994 7/15/93* TO 12/31/93
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . $ 75,738 $ 7,466 --
EXPENSES:
Mortality and expense risk fees. . . . . . . . . . . . . 28,475 16,641 $ 663
------------ ------------ ------------
Net investment income (loss) . . . . . . . . . . . . . . 47,263 (9,175) (663)
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain(loss). . . . . . . . . . . . . . . . . 18,892 11,520 914
Net unrealized gain (loss) . . . . . . . . . . . . . . . 320,817 (15,611) 66,886
------------ ------------ ------------
Net realized and unrealized gain (loss) on investments . 339,709 (4,091) 67,800
------------ ------------ ------------
Net increase (decrease) in net assets from operations . $ 386,972 $ (13,266) $ 67,137
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
89
<PAGE>
VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
GROWTH INVESTMENT GRADE INCOME
SUB-ACCOUNT 1 SUB-ACCOUNT 2
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1993 1995 1994 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income . . . . . . $ 3,121,429 $ 1,470,487 $ 2,355,272 $ 517,263 $ 431,192 $ 408,234
Net realized gain (loss)
from security transactions. . . . 114,997 43,236 62,748 (8,055) (44,126) 24,379
Net unrealized gain (loss) on
investments . . . . . . . . . . . 5,074,547 (1,707,945) (1,155,289) 867,289 (710,225) 63,392
----------- ----------- ----------- ---------- ----------- ----------
Net increase (decrease) in
net assets from operations. . . . 8,310,973 (194,222) 1,262,731 1,376,497 (323,159) 496,005
----------- ----------- ----------- ---------- ----------- ----------
FROM CAPITAL TRANSACTIONS:
Net premiums . . . . . . . . . . . 5,348,444 6,198,543 7,695,003 1,777,991 2,301,855 2,795,176
Terminations . . . . . . . . . . . (962,528) (746,445) (522,595) (315,011) (276,756) (178,939)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . (2,848,977) (4,055,993) (846,590) (974,910) (1,566,287) 535,441
----------- ----------- ----------- ---------- ----------- ----------
Net increase (decrease) in net
assets from capital transactions. 1,536,939 1,396,105 6,325,818 488,070 458,812 3,151,678
----------- ----------- ----------- ---------- ----------- ----------
Net increase (decrease) in net
assets. . . . . . . . . . . . . . 9,847,912 1,201,883 7,588,549 1,864,567 135,653 3,647,683
NET ASSETS
Beginning of year . . . . . . . . . 25,608,804 24,406,921 16,818,372 8,043,421 7,907,768 4,260,085
----------- ----------- ----------- ---------- ----------- ----------
End of year . . . . . . . . . . . . $35,456,716 $25,608,804 $24,406,921 $9,907,988 $ 8,043,421 $7,907,768
----------- ----------- ----------- ---------- ----------- ----------
----------- ----------- ----------- ---------- ----------- ----------
VEL ACCOUNT
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET EQUITY INDEX
SUB-ACCOUNT 3 SUB-ACCOUNT 4
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1993 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income . . . . . . $ 286,850 $ 180,124 $ 167,214 $ 1,447,953 $ 394,061 $ 230,006
Net realized gain (loss)
from security transactions. . . . - - - 98,943 139,128 91,635
Net unrealized gain (loss) on
investments . . . . . . . . . . . - - - 3,975,325 (506,142) 769,721
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets from operations. . . . 286,850 180,124 167,214 5,522,221 27,047 1,091,362
----------- ----------- ----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Net premiums . . . . . . . . . . . 3,733,510 4,928,805 8,074,333 1,721,701 1,921,153 2,378,594
Terminations . . . . . . . . . . . (337,981) (154,224) (197,852) (251,519) (220,185) (115,525)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor). . . . (3,371,022) (5,809,702) (9,901,914) (319,428) (1,226,276) (122,197)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets from capital transactions. 24,507 (1,034,591) (2,025,433) 1,150,754 474,692 2,140,872
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets. . . . . . . . . . . . . . 311,357 (854,467) (1,858,219) 6,672,975 501,739 3,232,234
NET ASSETS
Beginning of year . . . . . . . . . 5,826,067 6,680,534 8,538,753 15,347,424 14,845,685 11,613,451
----------- ----------- ----------- ----------- ----------- -----------
End of year . . . . . . . . . . . . $ 6,137,424 $ 5,826,067 $ 6,680,534 $22,020,399 $15,347,424 $14,845,685
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
- ------------------------------------------------------------------------------------
GOVERNMENT BOND
SUB-ACCOUNT 5
YEAR ENDED DECEMBER 31,
1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income . . . . . . $ 103,528 $ 153,145 $ 151,430
Net realized gain (loss)
from security transactions. . . . (27,790) (127,304) 21,728
Net unrealized gain (loss) on
investments . . . . . . . . . . . 162,592 (98,119) (46,648)
----------- ----------- -----------
Net increase (decrease) in
net assets from operations. . . . 238,330 (72,278) 126,510
----------- ----------- -----------
Net premiums . . . . . . . . . . . 1,087,763 2,156,088 3,637,440
Terminations . . . . . . . . . . . (224,574) (39,422) (19,683)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . (1,337,123) (3,997,857) (463,785)
----------- ----------- -----------
Net increase (decrease) in net
assets from capital transactions. (473,934) (1,881,191) 3,153,972
----------- ----------- -----------
Net increase (decrease) in net
assets . . . . . . . . . . . . . (235,604) (1,953,469) 3,280,482
NET ASSETS
Beginning of year . . . . . . . . . 2,292,008 4,245,477 964,995
----------- ----------- -----------
End of year . . . . . . . . . . . . 2,056,404 $ 2,292,008 $ 4,245,477
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
90
<PAGE>
VEL ACCOUNT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SELECT AGGRESSIVE GROWTH SELECT GROWTH
SUB-ACCOUNT 6 SUB-ACCOUNT 7
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1993 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . $ (107,755) $ (68,536) $ (27,797) $ (50,088) $ (22,188) $ (17,992)
Net realized gain (loss)
from security transactions. . . . 110,726 16,672 17,854 67,387 15,084 6,496
Net unrealized gain (loss) on
investments . . . . . . . . . . . 3,205,669 (222,557) 526,828 1,114,016 (87,571) 129,285
----------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
net assets from operations . . . 3,208,640 (274,421) 516,885 1,131,315 (94,675) 117,789
----------- ---------- ---------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS:
Net premiums . . . . . . . . . . . 2,791,210 3,158,118 2,536,127 1,207,487 1,506,265 1,840,520
Terminations . . . . . . . . . . . (332,835) (217,838) (53,410) (185,136) (67,997) (22,271)
Other transfers from (to)
the General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . (703,235) 967,628 1,888,397 (535,607) (517,387) 1,396,582
Net increase in net assets from
investment by Allmerica
Financial Life Insurance and
Annuity Company (Sponsor). . . . - - - - - -
----------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets from
capital transactions . . . . . . 1,755,140 3,907,908 4,371,114 486,744 920,881 3,214,831
----------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets . . . . 4,963,780 3,633,487 4,887,999 1,618,059 826,206 3,332,620
NET ASSETS:
Beginning of year. . . . . . . . . 9,417,230 5,783,743 895,744 4,604,022 3,777,816 445,196
----------- ----------- ---------- ---------- ---------- ----------
End of year . . . . . . . . . . . $14,381,010 $9,417,230 $5,783,743 $6,222,081 $4,604,022 $3,777,816
----------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SELECT
GROWTH AND INCOME SMALL CAP VALUE
SUB-ACCOUNT 8 SUB-ACCOUNT 9
YEAR ENDED DECEMBER 31, YEAR ENDED PERIOD FROM
1995 1994 1993 12/31/95 12/31/94 7/14/93* TO 12/31/93
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . $ 283,219 $ 172,021 $ 37,007 $ 95,529 $ (4,745) $ 5,581
Net realized gain (loss)
from security transactions. . . . 68,712 10,373 13,845 35,178 (1,911) 439
Net unrealized gain (loss) on
investments . . . . . . . . . . . 1,034,046 (196,007) 130,713 350,342 (138,299) 76,068
---------- ---------- ---------- ---------- ---------- --------
Net increase (decrease) in
net assets from operations . . . 1,385,977 (13,613) 181,565 481,049 (144,955) 82,088
---------- ---------- ---------- ---------- ---------- --------
FROM CAPITAL TRANSACTIONS:
Net premiums . . . . . . . . . . . 1,173,049 1,435,394 1,725,282 728,709 768,133 261,242
Terminations . . . . . . . . . . . (161,150) (102,727) (11,156) (66,720) (15,056) (1,584)
Other transfers from (to)
the General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . (567,886) (56,409) 1,048,809 38,711 977,932 602,528
Net increase in net assets from
investment by Allmerica
Financial Life Insurance and
Annuity Company (Sponsor). . . . - - - - - -
---------- ---------- ---------- ---------- ---------- --------
Net increase in net assets from
capital transactions . . . . . . 444,013 1,276,258 2,762,935 700,700 1,731,009 862,186
---------- ---------- ---------- ---------- ---------- --------
Net increase in net assets . . . . 1,829,990 1,262,645 2,944,500 1,181,749 1,586,054 944,274
NET ASSETS:
Beginning of period . . . . . . . 4,661,759 3,399,114 454,614 2,530,328 944,274 -
---------- ---------- ---------- ---------- ---------- --------
End of period . . . . . . . . . . $6,491,749 $4,661,759 $3,399,114 $3,712,077 $2,530,328 $944,274
---------- ---------- ---------- ---------- ---------- --------
---------- ---------- ---------- ---------- ---------- --------
<CAPTION>
- --------------------------------------------------------------------------------------
SELECT
INTERNATIONAL EQUITY
SUB-ACCOUNT 11
YEAR ENDED PERIOD FROM
12/31/95 5/4/94* TO 12/31/94
- -------------------------------------------------------------------------------------
<S>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . $ 17,008 $ (103)
Net realized gain (loss)
from security transactions. . . . 3,984 (142)
Net unrealized gain (loss) on
investments . . . . . . . . . . . 187,492 (20,162)
--------- --------
Net increase (decrease) in
net assets from operations . . . 208,484 (20,407)
--------- --------
FROM CAPITAL TRANSACTIONS:
Net premiums . . . . . . . . . . . 370,401 179,090
Terminations . . . . . . . . . . . (16,371) (6,006)
Other transfers from (to)
the General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . 942,142 491,164
Net increase in net assets from
investment by Allmerica
Financial Life Insurance and
Annuity Company (Sponsor). . . . - 100
---------- --------
Net increase in net assets from
capital transactions . . . . . . 1,296,172 664,348
---------- --------
Net increase in net assets . . . . 1,504,656 643,941
NET ASSETS:
Beginning of period . . . . . . . 643,941 -
---------- --------
End of period . . . . . . . . . . $2,148,597 $643,941
---------- --------
---------- --------
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
91
<PAGE>
VEL ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS, Continued
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
SELECT CAPITAL APPRECIATION VIPF MONEY MARKET
SUB-ACCOUNT 12 SUB-ACCOUNT 101
PERIOD FROM YEAR ENDED DECEMBER 31,
4/28/95 TO 12/31/95 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . $ 21,438 $ 132,324 $ 89,088 $ 59,038
Net realized gain
from security transactions . . . 1,577 -- -- --
Net unrealized gain (loss)
on investments. . . . . . . . . . 106,054 -- -- --
---------- ---------- ----------- -----------
Net increase (decrease) in net
assets from operations . . . . . 129,069 132,324 89,088 59,038
---------- ---------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Net premiums . . . . . . . . . . . 139,022 810,746 1,070,685 1,251,523
Terminations . . . . . . . . . . . (2,350) (122,754) (89,552) (84,920)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . 1,021,228 (670,796) (1,127,373) (1,145,805)
Net increase in net assets from
investment by Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . 200 -- -- --
---------- ---------- ----------- -----------
Net increase (decrease) in net
assets from capital
transactions. . . . . . . . . . . 1,158,100 17,196 (146,240) 20,798
---------- ---------- ----------- -----------
Net increase (decrease) in net
assets . . . . . . . . . . . . . 1,287,169 149,520 (57,152) 79,836
NET ASSETS:
Beginning of period . . . . . . - 2,566,171 2,623,324 2,543,488
---------- ---------- ----------- -----------
End of period . . . . . . . . . $1,287,169 $2,715,691 $ 2,566,172 $ 2,623,324
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
<CAPTION>
- -------------------------------------------------------------------------------------
VIPF HIGH INCOME
SUB-ACCOUNT 102
YEAR ENDED DECEMBER 31,
1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . $ 452,721 $ 532,640 $ 264,949
Net realized gain
from security transactions . . . 65,770 54,603 85,471
Net unrealized gain (loss)
on investments. . . . . . . . . . 936,558 (764,492) 497,807
---------- ---------- ----------
Net increase (decrease) in net
assets from operations . . . . . 1,455,049 (177,249) 848,227
---------- ---------- ----------
FROM CAPITAL TRANSACTIONS:
Net premiums . . . . . . . . . . . 1,606,889 1,750,959 1,641,975
Terminations . . . . . . . . . . . (460,673) (265,758) (196,630)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . (525,638) (398,451) 404,368
Net increase in net assets from
investment by Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . -- -- --
---------- ---------- ----------
Net increase (decrease) in net
assets from capital
transactions. . . . . . . . . . . 620,578 1,086,750 1,849,713
---------- ---------- ----------
Net increase (decrease) in net
assets . . . . . . . . . . . . . 2,075,627 909,501 2,697,940
NET ASSETS:
Beginning of year. . . . . . . . 7,191,828 6,282,327 3,584,387
---------- ---------- ----------
End of year. . . . . . . . . . . $9,267,455 $7,191,828 $6,282,327
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
VIPF EQUITY INCOME VIPF GROWTH
SUB-ACCOUNT 103 SUB-ACCOUNT 104
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1994 1993 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) . . . $ 2,491,089 $ 2,025,719 $ 442,289 $ (214,727) $ 1,725,495 $ 256,885
Net realized gain
from security transactions . . . 359,460 142,856 96,966 789,394 205,961 189,576
Net unrealized gain (loss)
on investments. . . . . . . . . . 9,834,460 (231,521) 3,183,292 12,592,041 (2,127,245) 4,117,186
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets from operations . . . . . 12,685,009 1,937,054 3,722,547 13,166,708 (195,789) 4,563,647
----------- ----------- ----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Net premiums . . . . . . . . . . . 6,706,020 7,271,670 7,274,768 7,347,859 8,139,087 8,163,457
Terminations . . . . . . . . . . . (1,591,639) (1,104,770) (999,349) (2,006,847) (1,203,773) (956,029)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . (2,204,684) (1,533,560) (177,231) (3,680,153) (2,222,672) (623,455)
Net increase in net assets from
investment by Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets from capital
transactions. . . . . . . . . . . 2,909,697 4,633,340 6,098,188 1,660,859 4,712,642 6,583,973
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets . . . . . . . . . . . . . 15,594,706 6,570,394 9,820,735 14,827,567 4,516,853 11,147,620
NET ASSETS:
Beginning of year. . . . . . . . 36,066,256 29,495,862 19,675,127 37,581,767 33,064,914 21,917,294
----------- ----------- ----------- ----------- ----------- -----------
End of year. . . . . . . . . . . $51,660,962 $36,066,256 $29,495,862 $52,409,334 $37,581,767 $33,064,914
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
92
<PAGE>
VEL ACCOUNT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
VIPF
OVERSEAS
SUB-ACCOUNT 105
YEAR ENDED DECEMBER 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) . . . . . . . . $ (29,523) $ (72,720) $ 70,001
Net realized gain (loss)
from security transactions. . . . . . . . . 304,440 168,454 32,570
Net unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . 1,219,736 (120,715) 2,529,324
----------- ----------- ----------
Net increase (decrease) in net assets
from operations . . . . . . . . . . . . . . 1,494,653 (24,981) 2,631,895
----------- ----------- ----------
FROM CAPITAL TRANSACTIONS:
Net premiums . . . . . . . . . . . . . . . . 3,368,247 3,985,517 3,072,742
Terminations . . . . . . . . . . . . . . . . (687,516) (488,309) (356,734)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . . . . . . (2,809,853) 719,983 1,032,634
Net increase in net assets from investment
by Allmerica Financial Life Insurance
and Annuity Company (Sponsor) . . . . . . . -- -- --
----------- ----------- ----------
Net increase (decrease) in net assets
from capital transactions . . . . . . . . . (129,122) 4,217,191 3,748,642
----------- ----------- ----------
Net increase (decrease) in net assets 1,365,531 4,192,210 6,380,537
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . 16,906,932 12,714,722 6,334,185
----------- ----------- ----------
End of year. . . . . . . . . . . . . . . . . $18,272,463 $16,906,932 $12,714,722
----------- ----------- ----------
----------- ----------- ----------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
VIPF II
ASSET MANAGER
SUB ACCOUNT 106
YEAR ENDED DECEMBER 31, PERIOD FROM
1995 5/6/94* TO 12/31/94
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) . . . . . . . . $ 10,914 $ (2,267)
Net realized gain (loss)
from security transactions. . . . . . . . . 13,540 124
Net unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . 154,558 (21,891)
---------- --------
Net increase (decrease) in net assets
from operations . . . . . . . . . . . . . . 179,012 (24,034)
---------- --------
FROM CAPITAL TRANSACTIONS:
Net premiums . . . . . . . . . . . . . . . . 258,611 224,497
Terminations . . . . . . . . . . . . . . . . (19,023) (1,887)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . . . . . . (47,087) 683,055
Net increase in net assets from investment
by Allmerica Financial Life Insurance
and Annuity Company (Sponsor) . . . . . . . -- 100
---------- --------
Net increase (decrease) in net assets
from capital transactions . . . . . . . . . 192,501 905,765
---------- --------
Net increase (decrease) in net assets
NET ASSETS:
Beginning of period . . . . . . . . . . . . 371,513 881,731
End of period . . . . . . . . . . . . . . . 881,731 --
---------- --------
$1,253,244 $881,731
---------- --------
---------- --------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
T. ROWE DGPF
INTERNATIONAL STOCK INTERNATIONAL EQUITY
SUB-ACCOUNT 150 SUB-ACCOUNT 207
PERIOD FROM YEAR ENDED DECEMBER 31, PERIOD FROM
6/23/95* to 12/31/95 1995 1994 7/15/93* to 12/31/93
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) . . . . . . . . $ (1,301) $ 47,263 $ (9,175) $ (663)
Net realized gain (loss)
from security transactions. . . . . . . . . (98) 18,892 11,520 914
Net unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . 15,909 320,817 (15,611) 66,886
-------- ---------- ---------- --------
Net increase (decrease) in net assets
from operations . . . . . . . . . . . . . . 14,510 386,972 (13,266) 67,137
-------- ---------- ---------- --------
FROM CAPITAL TRANSACTIONS:
Net premiums . . . . . . . . . . . . . . . . 42,650 788,037 727,371 269,798
Terminations . . . . . . . . . . . . . . . . (453) (60,216) (36,179) (542)
Other transfers from (to) the
General Account of Allmerica
Financial Life Insurance and
Annuity Company (Sponsor) . . . . . . . . . 472,852 (205,595) 1,016,545 614,971
Net increase in net assets from investment
by Allmerica Financial Life Insurance
and Annuity Company (Sponsor) . . . . . . . -- -- -- --
-------- ---------- ---------- --------
Net increase (decrease) in net assets
from capital transactions . . . . . . . . . 515,049 522,226 1,707,737 884,227
-------- ---------- ---------- --------
Net increase (decrease) in net assets 529,559 909,198 1,694,471 951,364
NET ASSETS:
Beginning of period . . . . . . . . . . . . - 2,645,835 951,364 --
End of period . . . . . . . . . . . . . . .
$529,559 $3,555,033 $2,645,835 $951,364
-------- ---------- ---------- --------
-------- ---------- ---------- --------
</TABLE>
* Date of initial investment.
The accompanying notes are an integral part of these financial statements.
93
<PAGE>
VEL ACCOUNT
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1995
NOTE 1 - ORGANIZATION
The VEL Account (VEL) is a separate investment account of Allmerica Financial
Life Insurance and Annuity Company (formerly named SMA life Assurance Company)
(the Company), established for the purpose of separating from the general assets
of the Company those assets used to fund the variable portion of flexible
premium variable life policies issued by the Company. Effective October 16,
1995, concurrent with the demutualization, State Mutual Life Assurance Company
of America changed their name to First Allmerica Life Insurance Company (First
Allmerica). The Company is a wholly-owned subsidiary of First Allmerica. Under
applicable insurance law, the assets and liabilities of VEL are clearly
identified and distinguished from the other assets and liabilities of the
Company. VEL cannot be charged with liabilities arising out of any other
business of the Company.
VEL is registered as a unit investment trust under the Investment Company Act
of 1940, as amended (the 1940 Act). VEL currently offers nineteen Sub-Accounts.
Each Sub-Account invests exclusively in a corresponding investment portfolio of
the Allmerica Investment Trust (the Trust) managed by Allmerica Investment
Management Company, Inc., a wholly-owned subsidiary of First Allmerica, of the
Variable Insurance Products Fund (VIPF) or of the Variable Insurance Products
Fund II (VIPF II) managed by Fidelity Management & Research Company (Fidelity
Management), or of the T. Rowe Price International Series, Inc. (T. Rowe)
managed by Price-Fleming or of the Delaware Group Premium Fund, Inc. (DGPF)
managed by Delaware International Advisors, Ltd. The Trust, VIPF, VIPFII, T.
Rowe and DGPF (the Funds) are open-end, diversified series management investment
companies registered under the 1940 Act.
As of December 31, 1995, the Company was record owner of approximately 49% of
VEL Sub-Account 4.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Investments - Security transactions are recorded on the trade date.
Investments held by the Sub- Accounts are stated at the net asset value per
share of the respective investment portfolio of the Trust, VIPF, VIPFII, T.
Rowe, or DGPF. Net realized gains and losses on securities sold are determined
on the average cost method. Dividends and capital gain distributions are
recorded on the ex-dividend date and are reinvested in additional shares of the
respective investment portfolio of the Trust, VIPF, VIPFII, T. Rowe, or DGPF at
net asset value.
Federal Income Taxes - The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code and files a consolidated federal
income tax return with First Allmerica. The Company anticipates
no tax liability resulting from the operations of VEL. Therefore, no provision
for income taxes has been charged against VEL.
NOTE 3 - INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Trust, VIPF, VIPFII, T. Rowe, and DGPF at
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PORTFOLIO INFORMATION
SUB- INVESTMENT NUMBER OF AGGREGATE NET ASSET
ACCOUNT PORTFOLIO SHARES COST VALUE PER SHARE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allmerica Investment Trust:
1 Growth 16,310,219 $ 31,160,598 $ 2.176
2 Investment Grade Income 8,851,864 9,611,899 1.117
3 Money Market 6,152,803 6,152,803 1.000
4 Equity Index 12,051,618 15,485,993 1.827
5 Government Bond 1,933,214 2,045,381 1.062
6 Select Aggressive Growth 7,790,705 10,841,295 1.848
7 Select Growth 4,546,536 5,062,916 1.369
8 Select Growth and Income 5,122,732 5,524,546 1.268
9 Small Cap Value 2,998,135 3,423,581 1.238
11 Select International Equity 1,884,814 1,973,819 1.136
12 Select Capital Appreciation 938,769 1,179,121 1.369
Fidelity Variable Insurance Products Fund:
101 Money Market 2,713,021 2,713,021 1.000
102 High Income 769,251 8,034,448 12.050
103 Equity Income 2,683,276 36,112,073 19.270
104 Growth 1,796,794 33,302,360 29.200
105 Overseas 1,073,170 15,163,843 17.050
Fidelity Variable Insurance Products Fund II:
106 Asset Manager 79,458 1,121,981 15.790
150 T. Rowe Price International Series, Inc.:
International Stock 47,069 514,086 11.260
Delaware Group Premium Fund:
207 International Equity 271,715 3,190,089 13.110
</TABLE>
94
<PAGE>
VEL ACCOUNT
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1995, CONTINUED
NOTE 4 - RELATED PARTY TRANSACTIONS
On the date of issue and each monthly payment date thereafter, a monthly
charge is deducted from the policy value to compensate the Company for the
cost of insurance, which varies by policy, the cost of any additional
benefits provided by rider, and administrative charges of $25 per month for
the first policy year and $5 per month thereafter. The policy owner may
instruct the Company to deduct this monthly charge from a specific
Sub-Account, but if not so specified, it will be deducted on a pro-rata basis
of allocation which is the same proportion that the policy value in the
General Account of the Company and in each Sub-Account bear to the total
policy value. For the years ended December 31, 1995, 1994, and 1993, these
monthly deductions from Sub-Account policy values amounted to $16,115,041,
$16,039,234 and $14,456,177, respectively. The Company makes a charge of .90%
per annum based on the average daily net assets of each Sub-Account at each
valuation date for mortality and expense risks. This charge is deducted in
the daily computation of unit values but paid to the Company on a monthly
basis. The total annual charge may be increased or decreased by the Board of
Directors of the Company once each year, subject to compliance with
applicable state and federal requirements, but the total charge may not
exceed 1.275% per annum.
Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned
subsidiary of First Allmerica, is principal underwriter and general distributor
of VEL, and does not receive any compensation for sales of VEL policies.
Commissions are paid to registered representatives of Allmerica Investments by
the Company. As the current series of policies have a contingent deferred sales
charge, no deduction is made for sales charges at the time of the sale. For the
years ended December 31, 1995, 1994, and 1993, the Company received $1,391,628,
$1,084,922 and $832,533, respectively, for contingent deferred sales charges
applicable to VEL.
NOTE 5 - DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a
variable life insurance contract, other than a contract issued in connection
with certain types of employee benefit plans, will not be treated as a variable
life insurance contract for federal income tax purposes for any period for which
the investments of the segregated asset account on which the contract is based
are not adequately diversified. The Code provides that the "adequately
diversified" requirement may be met if the underlying investments satisfy either
a statutory safe harbor test or diversification requirements set forth in
regulations issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that VEL satisfies the current requirements of
the regulations, and it intends that VEL will continue to meet such
requirements.
NOTE 6 - PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the Trust, VIPF, VIPF II, T.
Rowe, and DGPF shares by VEL during the year ended December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
SUB-
ACCOUNT INVESTMENT PORTFOLIO PURCHASES SALES
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allmerica Investment Trust:
1 Growth . . . . . . . . . . . . . . . . . . . . . . $ 5,896,939 $ 1,207,370
2 Investment Grade Income. . . . . . . . . . . . . . 1,685,476 708,247
3 Money Market . . . . . . . . . . . . . . . . . . . 4,655,994 4,300,065
4 Equity Index . . . . . . . . . . . . . . . . . . . 2,989,186 393,864
5 Government Bond. . . . . . . . . . . . . . . . . . 800,420 1,176,027
6 Select Aggressive Growth . . . . . . . . . . . . . 2,241,336 575,313
7 Select Growth. . . . . . . . . . . . . . . . . . . 881,195 443,822
8 Select Growth and Income . . . . . . . . . . . . . 1,453,625 723,051
9 Small Cap Value. . . . . . . . . . . . . . . . . . 1,279,126 484,088
11 Select International Equity. . . . . . . . . . . . 1,432,992 119,388
12 Select Capital Appreciation. . . . . . . . . . . . 1,200,904 23,361
Fidelity Variable Insurance Products Fund:
101 Money Market . . . . . . . . . . . . . . . . . . . 1,334,130 1,177,464
102 High Income. . . . . . . . . . . . . . . . . . . . 1,871,225 802,435
103 Equity Income. . . . . . . . . . . . . . . . . . . 6,973,151 1,546,652
104 Growth . . . . . . . . . . . . . . . . . . . . . . 3,879,575 2,387,222
105 Overseas . . . . . . . . . . . . . . . . . . . . . 2,128,725 2,256,791
Fidelity Variable Insurance Products Fund II:
106 Asset Manager. . . . . . . . . . . . . . . . . . . 576,942 372,514
150 T. Rowe Price International Series, Inc.:
International Stock. . . . . . . . . . . . . . . . 522,988 8,804
Delaware Group Premium Fund:
207 International Equity . . . . . . . . . . . . . . . 979,768 399,934
------------- -------------
Totals . . . . . . . . . . . . . . . . . . . . . . $ 42,783,697 $ 19,106,412
------------- -------------
------------- -------------
</TABLE>
95
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Allmerica Financial Life Insurance
and Annuity Company and Policyowners of
VEL Account of Allmerica Financial Life Insurance
and Annuity Company
In our opinion, the accompanying statements of assets and liabilities and
the related statements of operations and of changes in net assets present
fairly, in all material respects, the financial position of each of the Sub-
Accounts (1, 2, 3, 4, 5, 6, 7, 8, 9, 11, 12, 101, 102, 103, 104, 105, 106, 150,
207) constituting the VEL Account of Allmerica Financial Life Insurance and
Annuity Company at December 31, 1995, and the results of their operations and
the changes in each of their net assets for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of Allmerica Financial Life Insurance and Annuity Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
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, which included
confirmation of investments owned at December 31, 1995 by correspondence with
the Funds, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 23, 1996
96
<PAGE>
Part II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
RULE 484 UNDERTAKING
Article VIII of Registrant's Bylaws provides: Each Director and each Officer of
the Corporation, whether or not in office, (and his executors or
administrators), shall be indemnified or reimbursed by the Corporation against
all expenses actually and necessarily incurred by him in the defense or
reasonable settlement of any action, suit, or proceeding in which he is made a
party by reason of his being or having been a Director or Officer of the
Corporation, including any sums paid in settlement or to discharge judgment,
except in relation to matters as to which he shall be finally adjudged in such
action, suit, or proceeding to be liable for negligence or misconduct in the
performance of his duties as such Director or Officer; and the foregoing right
of indemnification or reimbursement shall not affect any other rights to which
he may be entitled under the Articles of Incorporation, any statute, bylaw,
agreement, vote of stockholders, or otherwise.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
RULE 6E-3(T) REPRESENTATIONS, DESCRIPTIONS AND UNDERTAKINGS
Registrant makes the following representations pursuant to the requirements of
Rule 6e-3(T) under the Investment Company Act of 1940:
A. Risk Charge
Pursuant to Rule 6e-3(T)(b)(13)(iii)(F)(1), Registrant represents that Rule 6e-
3(T)(b)(13)(iii)(F) has been relied upon in deducting charges for mortality
expense and risks assumed by Allmerica Financial Life Insurance and Annuity
Company (the "Company").
Pursuant to Rule 6e-3(T)(b)(13)(iii)(F)(2), Registrant represents that the
mortality and expense risk charge is within the range of industry practice for
comparable flexible premium variable life insurance contracts. The methodology
used to support this representation is based upon an analysis of the mortality
and expense risk charges adopted under other flexible premium variable life
insurance contracts. Registrant undertakes to keep and make available to the
Commission on request the documents used to support the foregoing
representation.
<PAGE>
B. Distribution Costs
Pursuant to Rule 6e-3(T)(b)(13)(iii)(F)(4)(ii)(A), Registrant represents that
the Company has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the Registrant will benefit the Registrant
and contractholders and will keep and make available to the Commission on
request a memorandum setting forth the basis for this representation. Pursuant
to Section 6e-3(T)(b)(13)(iii)(F)(4)(ii)(B)(2), Registrant also represents that
it will invest only in management investment companies which have undertaken to
have a board of directors, a majority of whom are not interested persons of the
company, formulate and approve any plan under Rule 12b-1 under the Investment
Company Act of 1940 to finance distribution expenses.
UNDERTAKINGS CONCERNING MORTALITY AND EXPENSE RISK CHARGE
The flexible premium variable life policies offered by this registration
statement provide for a mortality and expense risk charge of 0.90%, on an annual
basis, of the daily net asset value of each Sub-Account of the VEL Account. The
Company acknowledges that any mortality and expense risk charge above 0.90% is
currently considered above the range of industry practice. If the Company
proposes to increase the charges above the range of industry practice, the
Company hereby undertakes to file an exemption request with the Securities and
Exchange Commission ("Commission") in which it would demonstrate that the
proposed charge is reasonable in relation to the risks assumed under the Policy.
This undertaking is given subject to the applicability of future federal
legislation or Commission rules or regulation which might permit an increase in
the mortality and expense risk charge beyond the range of industry practice,
without submitting an exemption application and/or making the demonstration
described above. In such case, in lieu of the undertaking described above, the
Company hereby undertakes to comply with the provisions of such legislation,
rules, or regulations in implementing any increase in the mortality and expense
risk charge.
CONTENTS OF THE REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of ____ pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484 under the Securities Act of 1933.
Representatives, descriptions and undertaking pursuant to Rule 6e-3(T)(b)(13)
(iii)(F) under the Investment Company Act of 1940 (the "1940 Act").
The signatures.
<PAGE>
Written consents of the following persons:
1. Price Waterhouse
2. Opinion of Counsel
3. Actuarial Consent
4. Consent of newly named Directors.
The following exhibits:
1. Exhibit 1
(Exhibits required by paragraph A of the instructions to Form N-8B-2)
(1) Resolutions of the Board of Directors of the Company
establishing the VEL Account were previously filed on June
3, 1987, and are incorporated herein by reference.
(2) Not Applicable.
(3) (a) Sales and Administrative Services Agreement between the
Company and Allmerica Investments, Inc. (formerly SMA
Equities, Inc.) was previously filed on June 3, 1987,
and is incorporated herein by reference.
(b) Registered Representative Agreement and Resident
Sponsor Agreement of SMA Equities, Inc. were previously
filed on June 3, 1987, and are incorporated herein by
reference.
(4) Not Applicable.
(5) Forms of Generic Policy and Policy riders were previously
filed on June 3, 1987, and are incorporated herein by
reference.
(6) Amended Article of Incorporation and Bylaws were filed on October
1, 1995 and are incorporated herein by reference.
(7) Not Applicable.
(8) (a) Form of Participation Agreement with Variable Insurance
Products Fund and Variable Insurance Products Fund II
was previously filed on June 3, 1987, and is
incorporated herein by reference.
(b) Participation Agreement with Allmerica Investment Trust
(formerly SMA Investment Trust) was previously filed on
June 3, 1987, and is incorporated herein by reference.
(c) Form of Participation Agreement with Delaware Group Premium
Fund, Inc. was previously filed on June 3, 1987 and
is incorporated herein by reference.
(d) Form of Participation Agreement with T. Rowe Price
International Series, Inc. Was previously filed on May 1,
1995 and is incorporated herein by reference.
(e) Services Agreement - Fidelity Management, et al.
(9) Not Applicable.
(10) Form of Application was previously filed by the Registrant, in
its Registration Statement, and is incorporated herein by
reference.
<PAGE>
33-14672, on June 3, 1987, and is incorporated herein by
reference.
2. Form of Policy and Policy riders are included in Exhibit 1 above.
3. Opinion of Counsel.
4. Not Applicable.
5. Not Applicable.
6. Actuarial Consent
7. Procedures Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) under
the 1940 Act which includes conversion procedures pursuant to
Rule 6e-3(T)(b)(13)(v)(B) was previously filed on September 1,
1987, and is incorporated herein by reference.
8. Consent of Independent Accountants.
9. AUV Calculation Services Agreement with The Shareholder Services Group
dated March 31, 1995, was previously filed on October 1, 1995, and is
incorporated herein by reference.
10. Consent of newly named directors
21. Financial Data Schedules
<PAGE>
EXHIBIT TABLE
Exhibit 1(8)(f) - Fidelity Services Agreement
Exhibit 3 - Opinion of Counsel
Exhibit 6 - Actuarial Consent
Exhibit 8 - Consent of Independent Accountants
Exhibit 10 - Consent of newly named Directors
Exhibit 27 - Financial Data Schedules
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Worcester, and Commonwealth of Massachusetts in the
26th. day of April, 1996.
Allmerica Financial Life Insurance and
Annuity Company
VEL Account
(Registrant)
By: /S/ JOSEPH W. MACDOUGALL, JR.
-----------------------------
Joseph W. MacDougall, Jr.
Vice President, Associate General
Counsel and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
/S/ RICHARD M. REILLY Director, President and APRIL 26,1996
- --------------------- Chief Executive Officer
Richard M. Reilly
/S/ JOHN F. O'BRIEN Director and Chairman of APRIL 26,1996
- ------------------- the Board
John F. O'Brien
/S/ ERIC A. SIMONSEN Director, Vice President and APRIL 26,1996
- -------------------- Chief Financial Officer
Eric A. Simonsen
/S/ MARK R. COLBORN Vice President and Controller APRIL 26, 1996
- -------------------
Mark R. Colborn
/S/ RICHARD J. BAKER Director and Vice President APRIL 26,1996
- --------------------
Richard J. Baker
/S/ JOHN F. KELLY Director APRIL 26,1996
- -----------------
John F. Kelly
<PAGE>
SERVICE AGREEMENT
This Agreement is entered into and effective as of the 1st day of November,
1995, by and between FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY
("FIIOC") and ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
("Company").
WHEREAS, FIIOC provides transfer agency and other services to Fidelity's
Variable Insurance Products Fund and Variable Insurance Products Fund II
(collectively "Funds"); and
WHEREAS, the services provided by FIIOC on behalf of the Funds include
responding to inquiries about the Funds, including the provision of information
about the Funds' investment objectives, investment policies, portfolio holdings,
etc.; and
WHEREAS, Company holds shares of the Funds in order to fund certain
variable annuity contracts, group annuity contracts, and/or variable life
insurance policies, the beneficial interests in which are held by individuals,
plan trustees, or others who look to Company to provide information about the
Funds similar to the information provided by FIIOC; and
WHEREAS, the Company and one or both of the Funds have entered into one or
more Participation Agreements, under which the Company agrees not to provide
information about the Funds except for information provided by the Funds or
their designees; and
WHEREAS, FIIOC and Company desire that Company be able to respond to
inquiries about the Funds from individual variable annuity owners, participants
in group annuity contracts issued by the Company, and owners and participants
under variable life insurance policies issued by the Company, and prospective
customers for any of the above; and
WHEREAS, FIIOC and Company recognize that Company's efforts in responding
to customer inquiries will reduce the burden that such inquiries would place
on FIIOC should such inquiries be directed to FIIOC.
NOW, THEREFORE, the parties do agree as follows:
1. INFORMATION TO BE PROVIDED TO COMPANY. FIIOC agrees to provide to
Company, on a periodic basis, directly or through a designee, information about
the Funds' investment objectives, investment policies, portfolio holdings,
performance, etc. The content and format of such information shall be as FIIOC,
in its sole discretion, shall choose. FIIOC may change the format and/or
content of such informational reports, and the frequency with which such
information is provided. For purposes of Section 4.2 of each of the Company's
Participation Agreement(s) with the Funds, FIIOC represents that it is the
designee of the Funds, and Company may therefore use the information provided by
FIIOC without seeking additional permission from the Funds.
2. USE OF INFORMATION BY COMPANY. Company may use the information
provided by FIIOC in communications to individuals, plan trustees, or others who
have legal title or beneficial interest in the annuity or life insurance
products issued by Company, and to prospective purchasers of such products or
beneficial interests thereunder. If such information is contained as part of
larger pieces of sales literature, advertising, etc., such pieces shall be
furnished for review to the Funds in accordance with the terms of the Company's
Participation Agreements with the Funds. Nothing herein shall give the Company
the right to expand upon, reformat or otherwise alter the information provided
by FIIOC. Company acknowledges that the information provided it by FIIOC may
need to be supplemented with additional qualifying information, regulatory
disclaimers, or other information before it may be conveyed to persons outside
the Company.
1
<PAGE>
3. COMPENSATION TO COMPANY. In recognition of the fact that Company will
respond to inquiries that otherwise would be handled by FIIOC, FIIOC agrees to
pay Company a quarterly fee computed as follows:
At the close of each calendar quarter, FIIOC will determine the Average
Daily Assets held in the Funds by the Company. Average Daily Assets shall be
the sum of the daily assets for each calendar day in the quarter divided by the
number of calendar days in the quarter. The Average Daily Assets shall be
multiplied by 0.0002 (2 basis points) and that sum shall be divided by four.
The resulting number shall be the quarterly fee for that quarter, which shall be
paid to Company during the following month.
Should the Participation Agreement(s) between Company and the Fund(s) be
terminated effective before the last day of a quarter, Company shall be entitled
to a fee for that portion of the quarter during which the Participation
Agreement was still in effect, unless such termination is due to misconduct on
the part of the Company. For such a stub quarter, Average Daily Assets shall be
the sum of the daily assets for each calendar day in the quarter through and
including the date of termination of the Participation Agreement(s), divided by
the number of calendar days in that quarter for which the Participation
Agreement was in effect. Such Average Daily Assets shall be multiplied by
0.0002 (2 basis points) and that number shall be multiplied by the number of
days in such quarter that the Participation Agreement was in effect, then
divided by three hundred sixty-five. The resulting number shall be the
quarterly fee for the stub quarter, which shall be paid to Company during the
following month.
4. TERMINATION. This Agreement may be terminated by Company at any time
upon written notice to FIIOC. FIIOC may terminate this Agreement at any time
upon ninety (90) days' written notice to Company. FIIOC may terminate this
Agreement immediately upon written notice to Company (1) if required by any
applicable law or regulation (2) if so required by action of the Fund(s) Board
of Trustees, or (3) if Company engages in any material breach of this Agreement.
This Agreement shall terminate immediately and automatically upon the
termination of Company's Participation Agreement(s) with the Funds, and in such
event no notice need be given hereunder.
5. INDEMNIFICATION. Company agrees to indemnify and hold harmless FIIOC
for any misuse by Company, its affiliates, its agents, its brokers, and any
persons controlling Company, under common control with Company, or controlled by
Company, of the information provided by FIIOC under this Agreement.
6. APPLICABLE LAW. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
7. ASSIGNMENT. This Agreement may not be assigned, except that it shall
be assigned automatically to any successor to FIIOC as the Funds' transfer
agent, and any such successor shall be bound by the terms of this Agreement.
IN WITNESS WHEREOF, the parties have set their hands as of the date first
written above.
FIDELITY INVESTMENTS INSTITUTIONAL OPERATIONS COMPANY
By: /s/ Virginia Meany
-------------------------------
Virginia Meany
Senior Vice President
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
------------------------------
Name: Richard M. Reilly
------------------------------
Title: President
------------------------------
2
<PAGE>
April 21, 1996
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
Gentlemen:
In my capacity as Counsel of Allmerica Financial Life Insurance and Annuity
Company (the "Company"), I have participated in the preparation of the Post-
Effective Amendment to the Registration Statement for the VEL Account 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 VEL Account is a separate account of the Company validly existing
pursuant to the Delaware Insurance Code and the regulations issued
thereunder.
2. The assets held in the VEL Account equal to the reserves and other policy
liabilities of the Policies which are supported by the VEL 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 the Registration
Statements and upon compliance with applicable local law, will be legal and
binding obligations of the Company in accordance with their terms and when
sold will be legally issued, fully paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Post-
Effective Amendment to the Registration Statement of the VEL Account on Form S-6
filed under the Securities Act of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Counsel
<PAGE>
April 22, 1996
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
Gentlemen:
This opinion is furnished in connection with the filing by Allmerica Financial
Life Insurance and Annuity Company of a Post-Effective Amendment to the
Registration Statement on Form S-6 of its flexible premium variable life
insurance policies ("Policies") allocated to the VEL Account under the
Securities Act of 1933. The prospectus included in the Registration Statement
describes the Policies. I am familiar with and have provided actuarial advice
concerning the preparation of the Post-Effective Amendment to the Registration
Statement, including exhibits.
In my professional opinion, the illustration of death benefits and cash values
included in Appendix C of the prospectus, based on the assumptions stated in the
illustrations, are consistent with the provisions of the 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 hereby consent to the use of this opinion as an exhibit to the Post-Effective
Amendment to the Registration Statement.
Sincerely,
/s/ William H. Mawdsley
William H. Mawdsley, FSA, MAAA
Vice President and Actuary
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 18 to the Registration Statement on Form S-6 of
our report dated February 5, 1996, relating to the financial statements of
Allmerica Financial Life Insurance and Annuity Company and our report dated
February 23, 1996, relating to the financial statements of the VEL Account of
Allmerica Financial Life Insurance and Annuity Company, both of which appear
in such Prospectus. We also consent to the reference to us under the heading
"Independent Accountants" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
April 25, 1996
<PAGE>
Allmerica Financial Life Insurance and Annuity Company
Consent of Newly Elected Director
Having been duly elected as a Director of Allmerica Financial Life Insurance
and Annuity Company ("Company"), effective April 30, 1996, each of the
undersigned hereby consents to being named as a Director of the Company in
such post-effective amendments to Registration Statements for the Company's
variable annuity and variable life contracts as will be filed with the
Securities and Exchange Commission on or before April 30, 1996, with an
effective date on or after April 30, 1996, pursuant to the requirements of the
Securities Act of 1933 and the Investment Company Act of 1940.
Signed this 25th day of April, 1996
/s/ Bruce C. Anderson /s/ Theodore J. Rupley
- ----------------------------------- ------------------------------------
Bruce C. Anderson Theodore J. Rupley
/s/ Kruno Huitzingh /s/ Phillip E. Soule
- ----------------------------------- ------------------------------------
Kruno Huitzingh Phillip E. Soule
/s/ Larry C. Renfro /s/ Diane E. Wood
- ----------------------------------- ------------------------------------
Larry C. Renfro Diane E. Wood
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> SMAVE001
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 31160598
<INVESTMENTS-AT-VALUE> 35491036
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 35491036
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34320
<TOTAL-LIABILITIES> 34320
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 11110145
<SHARES-COMMON-PRIOR> 10561399
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4330438
<NET-ASSETS> 35456716
<DIVIDEND-INCOME> 3398296
<INTEREST-INCOME> 0
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