<PAGE>
File No. 33-39702
811-6293
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 14
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26
SEPARATE ACCOUNT VA-K OF ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
(Exact Name of Registrant)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(Name of Depositor)
440 Lincoln Street
Worcester, MA 01653
(Address of Depositor's Principal Executive Offices)
(508) 855-1000
(Depositor's Telephone Number, including Area Code)
Abigail M. Armstrong Secretary and Counsel
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
-----
X on May 1, 1998 pursuant to paragraph (b) of Rule 485
-----
60 days after filing pursuant to paragraph (a)(1) of Rule 485
-----
on (date) pursuant to paragraph (a)(1) of Rule 485
-----
this post-effective amendment designates a new effective
----- date for a previously filed post-effective amendment
VARIABLE ANNUITY POLICIES
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940 ("the
1940 Act"), Registrant hereby declares that an indefinite amount of its
securities is being registered under the Securities Act of 1933 ("the 1933
Act"). The Rule 24f-2 Notice for the issuer's fiscal year ended December 31,
1997 was filed on or before March 30, 1998.
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
- ----------------- ---------------------
1. . . . . . . . . . Cover Page
2. . . . . . . . . . Special Terms
3. . . . . . . . . . Summary; Annual and Transaction Expenses
4. . . . . . . . . . Condensed Financial Information; Performance
Information
5. . . . . . . . . . Prospectus A: Description of the Company, the Separate
Account, the Trust, Variable Insurance Products Fund,
Variable Insurance Products Fund II, T. Rowe Price
International Series, Inc. and Delaware Group Premium
Fund, Inc. Prospectus B: Description of the Company, the
Variable Account, the Trust, Variable Insurance Products
Fund, Variable Insurance Products Fund II, T. Rowe Price
International Series, Inc. and Delaware Group Premium
Fund, Inc.
6. . . . . . . . . . Charges and Deductions
7. . . . . . . . . . Prospectus A: The Variable Annuity Policies
. . . . . . . . . . Prospectus B: Description of the Contract
8. . . . . . . . . . Prospectus A: The Variable Annuity Policies
. . . . . . . . . . Prospectus B: Electing the Form of Annuity and the Annuity
Date; Description of Variable Annuity Option; Annuity
Benefit Payments
9. . . . . . . . . . Death Benefit
10 . . . . . . . . . Prospectus A: Purchase Payments; Computation of Policy
Values and Annuity Payments
. . . . . . . . . . Prospectus B: Payments; Computation of Values;
Distribution
11 . . . . . . . . . Prospectus A: Surrender; Partial Redemption
Prospectus B: Surrender; Withdrawals; Charge for
Surrender and Withdrawal; Withdrawal Without Surrender
Charge; Texas Optional Retirement Program
12 . . . . . . . . . Federal Tax Considerations
13 . . . . . . . . . Legal Matters
14 . . . . . . . . . Statement of Additional Information - Table of Contents
<PAGE>
FORM N-4 ITEM NO. CAPTION IN THE STATEMENT OF ADDITIONAL INFORMATION
- ----------------- --------------------------------------------------
15 . . . . . . . . . Cover Page
16 . . . . . . . . . Table of Contents
17 . . . . . . . . . General Information and History
18 . . . . . . . . . Services
19 . . . . . . . . . Underwriters
20 . . . . . . . . . Underwriters
21 . . . . . . . . . Performance Information
22 . . . . . . . . . Annuity Payments
23 . . . . . . . . . Financial Statements
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
ALLMERICA ADVANTAGE VARIABLE ANNUITY
PROFILE THIS PROFILE IS A SUMMARY OF SOME OF THE MORE
MAY 1, 1998 IMPORTANT POINTS THAT YOU SHOULD KNOW AND CONSIDER
BEFORE PURCHASING THE ALLMERICA ADVANTAGE VARIABLE
ANNUITY CONTRACT. THE CONTRACT IS MORE FULLY
DESCRIBED LATER IN THIS PROSPECTUS. PLEASE READ
THE PROSPECTUS CAREFULLY
1. THE ALLMERICA ADVANTAGE VARIABLE ANNUITY CONTRACT
The Allmerica Advantage Variable Annuity contract is a contract between you and
Allmerica Financial Life Insurance and Annuity Company. It is designed to help
you accumulate assets for your retirement or other important financial goals on
a tax-deferred basis. The Allmerica Advantage Variable Annuity combines the
concept of professional money management with the attributes of an annuity
contract.
The Allmerica Advantage Variable Annuity offers a diverse selection of money
managers and investment options. You may allocate your payments among any of 18
investment portfolios, the Guarantee Period Accounts and the Fixed Account. This
range of investment choices enables you to allocate your money to meet your
particular investment needs.
Like all annuities, the contract has an ACCUMULATION PHASE and an ANNUITY PAYOUT
PHASE. During the ACCUMULATION PHASE you can make payments into the contract on
any frequency. Investment and interest gains accumulate tax deferred. You may
withdraw money from your contract during the ACCUMULATION PHASE. However, as
with other tax-deferred investments, you pay taxes on earnings and any untaxed
payments to the contract when you withdraw them. A federal tax penalty may apply
if you make a withdrawal prior to age 59 1/2.
During the ANNUITY PAYOUT PHASE you will receive regular payments from your
contract, provided you annuitize. Annuitization involves beginning a series of
payments from the capital that has built up in your contract. The amount of your
payments during the annuity payout phase will, in part, be determined by your
account's growth during the accumulation phase.
2. ANNUITY PAYMENTS
If you choose to annuitize your contract, you may select one of six annuity
options: (1) periodic payments for your lifetime; (2) periodic payments for your
lifetime, but for not less than 10 years; (3) periodic payments for your
lifetime with the guarantee that if payments to you are less than the
accumulated value, a refund of the remaining value will be paid: (4) periodic
payments for your lifetime and your survivor's lifetime; (5) periodic payments
for your lifetime and your survivor's lifetime with the payment to the survivor
being reduced to 2/3; and (6) periodic payments for a specified period of 1 to
30 years.
You also need to decide if you want your annuity payments on a variable basis
(i.e., subject to fluctuation based on investment performance), on a fixed basis
(with benefit payments guaranteed at a fixed amount), or on a combination
variable and fixed basis. Once payments begin, the annuity option cannot be
changed.
3. PURCHASING THIS CONTRACT
You can buy a contract through your financial representative, who can also help
you complete the proper forms. There is no fixed schedule for making payments
into this contract. Payments are not limited as to frequency, but there are
certain limitations as to amount. Currently, the initial payment must be at
least $600 ($1,000 in Washington). In all cases, each subsequent payment must be
at least $50. In addition, a minimum of $1,000 is always required to establish a
Guarantee Period Account.
P-1
<PAGE>
4. INVESTMENT OPTIONS
You have full investment control over the contract. You may allocate money to
the following funds:
<TABLE>
<S> <C>
Select International Equity Fund Fidelity VIP Growth Portfolio
DGPF International Equity Series Equity Index Fund
Fidelity VIP Overseas Portfolio Select Growth and Income Fund
T. Rowe Price International Stock Fidelity VIP Equity-Income
Portfolio Portfolio
Fidelity VIP II Asset Manager
Select Aggressive Growth Fund Portfolio
Select Capital Appreciation Fund Fidelity VIP High Income Portfolio
Select Value Opportunity Fund Investment Grade Income Fund
Select Growth Fund Government Bond Fund
Growth Fund Money Market Fund
</TABLE>
In most jurisdictions you may also allocate money to the Guarantee Period
Accounts and the Fixed Account. The Guarantee Period Accounts let you choose
from among seven different Guarantee Periods during which interest rates are
guaranteed. The Fixed Account guarantees principal and a minimum rate of
interest (never less than 3% compounded annually).
5. EXPENSES
Each year and upon surrender a $30.00 contract fee is deducted from your
contract. The contract fee is waived if the value of the contract is $50,000 or
more or if the contract is issued to and maintained by the Trustees of a 401(k)
plan. We also deduct insurance charges which amount to 1.45% annually of the
daily value of your contract value allocated to the variable investment options.
The insurance charges include a mortality and expense risk charge of 1.25% and
an administrative expense charge of 0.20%. There are also investment management
fees and other fund operating expenses that vary by fund.
If you decide to surrender your contract, make withdrawals or receive payments
under certain annuity options, we may impose a surrender charge between 1% and
8% of the payment withdrawn, based on when your payments were made. In states
where premium taxes are imposed, a premium tax charge will be deducted either
when withdrawals are made or annuity payments commence.
There is currently no charge for processing investment option transfers. We
reserve the right to assess a charge, not to exceed $25.00, for transfers after
your 12 free transfers.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" shows the total of the $30 contract
fee (which is represented as 0.05%), the 1.45% insurance charges and the
investment charges for each fund. The next two columns show you two examples of
the charges, in dollar amounts, you would pay under a contract. The examples
assume you invest $1,000 in a fund which earns 5% annually and that you withdraw
your money: (1) at the end of year 1, and (2) at the end of year 10. For year 1,
the Total Annual Charges are assessed as well as the surrender charges. For year
10, the
P-2
<PAGE>
example shows the aggregate of all the annual charges assessed for 10 years, but
there is no surrender charge. The premium tax is assumed to be 0% in both
examples.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL
EXPENSES AT
END OF
TOTAL ANNUAL TOTAL ANNUAL ----------------------
INSURANCE FUND TOTAL ANNUAL (1) (2)
FUND CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
- ----------------------------------------- ------------- -------------- ------------- --------- -----------
Select International Equity Fund......... 1.50% 1.12% 2.62% $100 $ 292
<S> <C> <C> <C> <C> <C>
DGPF International Equity Series......... 1.50% 0.90% 2.40% $98 $ 270
Fidelity VIP Overseas Portfolio.......... 1.50% 0.92% 2.42% $98 $ 272
T. Rowe Price International Stock
Portfolio.............................. 1.50% 1.05% 2.55% $99 $ 285
Select Aggressive Growth Fund............ 1.50% 0.98% 2.48% $99 $ 278
Select Capital Appreciation Fund......... 1.50% 1.10% 2.60% $100 $ 290
Select Value Opportunity Fund............ 1.50% 1.04% 2.54% $99 $ 284
Select Growth Fund....................... 1.50% 0.93% 2.43% $98 $ 273
Growth Fund.............................. 1.50% 0.52% 2.02% $94 $ 231
Fidelity VIP Growth Portfolio............ 1.50% 0.69% 2.19% $96 $ 249
Equity Index Fund........................ 1.50% 0.44% 1.94% $94 $ 223
Select Growth and Income Fund............ 1.50% 0.77% 2.27% $97 $ 257
Fidelity VIP Equity-Income Portfolio..... 1.50% 0.58% 2.08% $95 $ 238
Fidelity VIP II Asset Manager
Portfolio.............................. 1.50% 0.65% 2.15% $96 $ 245
Fidelity VIP High Income Portfolio....... 1.50% 0.71% 2.21% $96 $ 251
Investment Grade Income Fund............. 1.50% 0.54% 2.04% $95 $ 233
Government Bond Fund..................... 1.50% 0.67% 2.17% $96 $ 247
Money Market Fund........................ 1.50% 0.35% 1.85% $93 $ 214
</TABLE>
The charges reflect any applicable expense reimbursements or fee waivers. For
more information, see the Fee Table in the Prospectus for the Contract.
6. TAXES
You will not pay taxes until you withdraw money from your contract. During the
accumulation phase, earnings are withdrawn first and are taxed as ordinary
income. If you make a withdrawal prior to age 59 1/2, you may be subject to a
10% federal tax penalty on the earnings. Payments during the annuity payout
phase are considered partly a return of your investment and partly earnings. You
will be subject to income taxes on the earnings portion of each payment.
However, if your contract is funded with pre-tax or tax deductible dollars (such
as a pension or profit sharing plan contribution), then the entire payment will
be taxable.
7. WITHDRAWALS
You can withdraw money from your contract at any time during the accumulation
phase. Any payment invested for more than nine years can be withdrawn without a
surrender charge. For amounts invested nine years or less, you can withdraw,
without a charge, the GREATEST of: (1) 100% of cumulative earnings; (2) 10% of
the contract value per calendar year; or (3) if you are an Owner and also the
Annuitant, an amount based on your life expectancy. (Similarly, no surrender
charge will apply if an amount is withdrawn based on the Annuitant's life
expectancy and the Owner is a trust or other non-natural person.)
Where permitted by state law, the surrender charge is also waived if, after the
contract is issued, the owner (1) is diagnosed with a fatal illness, (2) becomes
disabled (before age 65) or (3) is confined in a medical care facility until the
later of one year from the issue date or 90 days.
P-3
<PAGE>
Any withdrawal from a Guarantee Period Account ("GPA") prior to the end of the
guarantee period will be subject to a market value adjustment which may increase
or decrease the value in the account. This adjustment will never impact your
original investment, nor will earnings in the GPA amount to less than an
effective annual rate of 3%.
8. PERFORMANCE
The value of your contract will vary up or down depending on the investment
performance of the funds you choose. The following chart illustrates past
returns for each fund since the inception date of the Sub-Account. The
performance figures reflect the contract fee, the insurance charges, the
investment charges and all other expenses of the fund. They do not reflect the
surrender charges which would reduce such performance if applied. Past
performance is not a guarantee of future results.
<TABLE>
<CAPTION>
CALENDAR YEAR
----------------------------------------------------------------------------
FUND 1997 1996 1995 1994 1993 1992
- ------------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Select International Equity Fund........... 3.11% 20.07% 17.82% N/A N/A N/A
DGPF International Equity Series........... 5.04 % 18.18 % 12.15 % 1.08 % N/A N/A
Fidelity VIP Overseas Portfolio............ 9.92 % 11.46 % 8.00 % 0.16 % 35.23 % 12.10 %
T. Rowe Price International Stock
Portfolio................................ 1.58 % 12.90 % 9.44 % N/A N/A N/A
Select Aggressive Growth Fund.............. 16.97 % 16.72 % 30.31 % -3.81 % 17.73 % N/A
Select Capital Appreciation Fund........... 12.60 % 7.11 % N/A N/A N/A N/A
Select Value Opportunity Fund.............. 23.03 % 26.57 % 15.83 % -7.96 % N/A N/A
Select Growth Fund......................... 32.11 % 20.14 % 22.71 % -3.01 % -0.43 % N/A
Growth Fund................................ 23.32 % 18.34 % 30.81 % -1.34 % 5.07 % 5.68 %
Fidelity VIP Growth Portfolio.............. 21.68 % 12.93 % 33.35 % -1.55 % 17.58 % 7.66 %
Equity Index Fund.......................... 30.49 % 20.42 % 34.15 % -0.50 % 7.89 % 5.58 %
Select Growth and Income Fund.............. 20.72 % 19.40 % 28.38 % -0.82 % 8.69 % N/A
Fidelity VIP Equity-Income Portfolio....... 26.24 % 12.51 % 33.08 % 5.43 % 16.42 % 15.20 %
Fidelity VIP II Asset Manager Portfolio.... 18.89 % 12.83 % 15.19 % N/A N/A N/A
Fidelity VIP High Income Portfolio......... 15.95 % 12.27 % 18.79 % -3.07 % 18.69 % 21.19 %
Investment Grade Income Fund............... 7.84 % 1.93 % 16.06 % -4.45 % 9.08 % 6.61 %
Government Bond Fund....................... 5.54 % 1.89 % 11.34 % -2.41 % 5.89 % 3.35 %
Money Market Fund.......................... 3.92 % 3.71 % 4.22 % 2.34 % 1.42 % 2.18 %
</TABLE>
9. DEATH BENEFIT
If the annuitant dies during the accumulation phase, we will pay the beneficiary
a death benefit. The death benefit is equal to the GREATEST of: (a) the
accumulated value increased for any positive market value adjustment; (b) gross
payments compounded daily at an annual rate of 5%, decreased proportionately to
reflect any prior withdrawals; or (c) the death benefit that would have been
payable on the most recent contract anniversary, increased for subsequent
payments and decreased proportionately for subsequent withdrawals.
This guaranteed death benefit works in the following way assuming no withdrawals
are made: On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments compounded at the annual rate of 5%. The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments compounded at the annual rate of 5% or (c) the
locked-in value of the death benefit at the first anniversary. The greatest of
(a), (b) or (c) will be locked in until the next Contract anniversary. This
calculation will then be repeated on each anniversary while the Contract remains
in force
P-4
<PAGE>
and prior to the Annuity Date. As noted above, the values of (b) and (c) will be
decreased proportionately if withdrawals are taken.
10. OTHER INFORMATION
FREE LOOK PERIOD: If you cancel your contract within 10 days after receiving it
(or whatever period is required by your state), you will receive a refund in
accordance with the terms of the contract's "Right to Examine" provision.
DOLLAR COST AVERAGING: You may elect to automatically transfer money on a
periodic basis from the Money Market Fund, Government Bond Fund or Fixed Account
to one or more of the other investment options.
AUTOMATIC ACCOUNT REBALANCING: You may elect to automatically have your
contract's accumulated value periodically reallocated ("rebalanced") among your
chosen investment options to maintain your designated percentage allocation mix.
NO PROBATE: In most cases, the death benefit is payable to the beneficiary you
select without having to go through probate.
11. INQUIRIES
If you need more information about Allmerica Advantage, you may contact us at
1-800-533-7881 or send correspondence to:
Allmerica Advantage
Allmerica Financial
P.O. Box 8632
Boston, Massachusetts 02266-8632
P-5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY, WORCESTER, MA
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
This Prospectus describes interests under flexible payment deferred combination
variable and fixed annuity contracts issued either on a group basis or as
individual contracts by Allmerica Financial Life Insurance and Annuity Company
("Company") to individuals and businesses in connection with retirement plans
which may or may not qualify for special federal income tax treatment. (For
information about the tax status when used with a particular type of plan, see
"FEDERAL TAX CONSIDERATIONS.") Participation in a group contract will be
accounted for by the issuance of a certificate describing the individual's
interest under the group contract. Participation in an individual contract will
be evidenced by the issuance of an individual contract. Certificates and
individual contracts are collectively referred to herein as the "Contract(s)."
The following is a summary of information about these Contracts. More detailed
information can be found under the referenced captions in this Prospectus.
Contract values may accumulate on a variable basis in the Contract's Variable
Account, known as Separate Account VA-K. The assets of the Variable Account are
divided into Sub-Accounts, each investing exclusively in a corresponding
investment portfolio of Allmerica Investment Trust ("Trust"), Variable Insurance
Products Fund ("Fidelity VIP"), Variable Insurance Products Fund II ("Fidelity
VIP II"), T. Rowe Price International Series, Inc. ("T. Rowe Price"), or
Delaware Group Premium Fund, Inc. ("DGPF"). The following Underlying Funds are
available under the Contract:
<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VIP
Select International Equity Fund Overseas Portfolio
Select Aggressive Growth Fund Equity-Income Portfolio
Select Capital Appreciation Fund Growth Portfolio
Select Value Opportunity Fund High Income Portfolio
Select Growth Fund FIDELITY VIP II
Growth Fund Asset Manager Portfolio
Equity Index Fund T. ROWE PRICE
Select Growth and Income Fund T. Rowe Price International Stock
Investment Grade Income Fund Portfolio
Government Bond Fund DGPF
Money Market Fund International Equity Series
</TABLE>
In most jurisdictions, values may also be allocated on a fixed basis to the
Fixed Account, which is part of the Company's General Account, and, during the
accumulation period, to one or more of the Guarantee Period Accounts. Amounts
allocated to the Fixed Account earn interest at a guaranteed rate for one year
from the date allocated. Amounts allocated to a Guarantee Period Account earn a
fixed rate of interest for the duration of the applicable Guarantee Period. The
interest earned in the Guarantee Period Account is guaranteed if held for the
entire Guarantee Period. If removed prior to the end of the Guarantee Period,
the value may be increased or decreased by a Market Value Adjustment. Assets
supporting allocations to the Guarantee Period Accounts in the accumulation
phase are held in the Company's Separate Account GPA.
Additional information is contained in a Statement of Additional Information
("SAI") dated May 1, 1998, filed with the Securities and Exchange Commission and
incorporated herein by reference. The Table of Contents of the SAI is on page 4
of this Prospectus. The SAI is available upon request and without charge through
Allmerica Investments, Inc., telephone 1-800-533-7881.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF THE
TRUST, FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE AND DGPF. THE FIDELITY VIP
HIGH INCOME PORTFOLIO INVESTS IN HIGHER YIELDING, HIGHER RISK, LOWER-RATED DEBT
SECURITIES (SEE "INVESTMENT OBJECTIVES AND POLICIES.") INVESTORS SHOULD RETAIN A
COPY OF THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
DATED MAY 1, 1998
<PAGE>
THE CONTRACTS ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY, AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE CONTRACTS ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT
UNION. THE CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS IN THE
CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS................................... 4
SPECIAL TERMS........................................................................... 5
SUMMARY................................................................................. 7
ANNUAL AND TRANSACTION EXPENSES......................................................... 12
CONDENSED FINANCIAL INFORMATION......................................................... 16
PERFORMANCE INFORMATION................................................................. 18
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, THE TRUST, FIDELITY VIP FUND, FIDELITY
VIP II FUND, T. ROWE PRICE AND DGPF.................................................... 22
INVESTMENT OBJECTIVES AND POLICIES...................................................... 24
INVESTMENT ADVISORY SERVICES............................................................ 25
DESCRIPTION OF THE CONTRACT............................................................. 29
A. Payments......................................................................... 29
B. Right to Revoke Individual Retirement Annuity.................................... 29
C. Right to Revoke All Other Contracts.............................................. 29
D. Transfer Privilege............................................................... 29
Automatic Transfers and Automatic Account Rebalancing Options................... 30
E. Surrender........................................................................ 30
F. Withdrawals...................................................................... 31
Systematic Withdrawals.......................................................... 31
Life Expectancy Distributions................................................... 32
G. Death Benefit.................................................................... 32
Death of the Annuitant Prior to the Annuity Date................................ 32
Death of an Owner Who is Not Also the Annuitant Prior to the Annuity Date....... 33
Payment of the Death Benefit Prior to the Annuity Date.......................... 33
Death of the Annuitant On or After the Annuity Date............................. 33
H. The Spouse of the Owner as Beneficiary........................................... 33
I. Assignment....................................................................... 33
J. Electing the Form of Annuity and the Annuity Date................................ 34
K. Description of Variable Annuity Payout Options................................... 34
L. Annuity Benefit Payments......................................................... 35
The Annuity Unit................................................................ 35
Determination of the First and Subsequent Annuity Benefit Payments.............. 36
M. NORRIS Decision................................................................... 36
N. Computation of Values............................................................ 37
The Accumulation Unit........................................................... 37
Net Investment Factor........................................................... 37
CHARGES AND DEDUCTIONS.................................................................. 38
A. Variable Account Deductions...................................................... 38
Mortality and Expense Risk Charge............................................... 38
Administrative Expense Charge................................................... 38
Other Charges................................................................... 38
B. Contract Fee..................................................................... 39
C. Premium Taxes.................................................................... 39
D. Contingent Deferred Sales Charge................................................. 39
Charge for Surrender and Withdrawal............................................. 40
Reduction or Elimination of Surrender Charge.................................... 40
Withdrawal Without Surrender Charge............................................. 41
Surrenders...................................................................... 42
Charge at the Time Annuity Benefit Payments Begin............................... 42
E. Transfer Charge.................................................................. 43
GUARANTEE PERIOD ACCOUNTS............................................................... 43
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
FEDERAL TAX CONSIDERATIONS.............................................................. 45
A. Qualified and Non-Qualified Contracts............................................ 45
B. Taxation of the Contracts in General............................................. 46
Withdrawals Prior to Annuitization.............................................. 46
Annuity Payouts After Annuitization............................................. 46
Penalty on Distribution......................................................... 46
Assignments or Transfers........................................................ 47
Non-Natural Owners.............................................................. 47
Deferred Compensation Plans of State and Local Government and Tax-Exempt
Organizations................................................................... 47
C. Tax Withholding.................................................................. 47
D. Provisions Applicable to Qualified Employer Plans................................ 47
Corporate and Self-Employed Pension and Profit Sharing Plans.................... 48
Individual Retirement Annuities................................................. 48
Tax-Sheltered Annuities......................................................... 48
Texas Optional Retirement Program............................................... 48
REPORTS................................................................................. 48
LOANS (QUALIFIED CONTRACTS ONLY)........................................................ 49
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS....................................... 49
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................................... 50
VOTING RIGHTS........................................................................... 50
DISTRIBUTION............................................................................ 50
SERVICES................................................................................ 51
LEGAL MATTERS........................................................................... 51
FURTHER INFORMATION..................................................................... 51
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT.................................. A-1
APPENDIX B -- SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT......................... B-1
APPENDIX C -- THE DEATH BENEFIT......................................................... C-1
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY......................................................... 2
TAXATION OF THE VARIABLE ACCOUNT AND THE COMPANY........................................ 3
SERVICES................................................................................ 3
UNDERWRITERS............................................................................ 4
ANNUITY BENEFIT PAYMENTS................................................................ 4
EXCHANGE OFFER.......................................................................... 6
PERFORMANCE INFORMATION................................................................. 8
FINANCIAL STATEMENTS.................................................................... F-1
</TABLE>
4
<PAGE>
SPECIAL TERMS
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Sub-Accounts and of the value of all accumulations in the Fixed Account and
Guarantee Period Accounts credited to the Contract on any date before the
Annuity Date.
ACCUMULATION UNIT: a measure of the Owner's interest in a Sub-Account before
annuity benefit payments begin.
ANNUITANT: the person designated in the Contract upon whose life annuity benefit
payments are to be made.
ANNUITY DATE: the date on which annuity benefit payments begin as specified
pursuant to the Contract.
ANNUITY UNIT: a measure of the value of the periodic annuity benefit payments
under the Contract.
FIXED ACCOUNT: the part of the Company's General Account that guarantees
principal and a fixed minimum interest rate and to which all or a portion of a
payment or transfer under this Contract may be allocated.
FIXED ANNUITY PAYOUT: an Annuity in the payout phase providing for annuity
benefit payments which remain fixed in amount throughout the annuity benefit
payment period selected.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account which corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period and is supported by assets in a
non-unitized separate account.
GUARANTEED INTEREST RATE: the annual effective rate of interest, after daily
compounding, credited to a Guarantee Period Account.
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.
OWNER: the person, persons or entity entitled to exercise the rights and
privileges under this Contract. Joint Owners are permitted if one of the two is
the Annuitant.
SUB-ACCOUNT: a subdivision of the Variable Account. Each Sub-Account available
under the Contract invests exclusively in the shares of a corresponding fund of
Allmerica Investment Trust ("Trust"); a corresponding portfolio of the Variable
Insurance Product Fund ("Fidelity VIP"), the Variable Insurance Products Fund II
("Fidelity VIP II") or the T. Rowe Price International Stock Portfolio of T.
Rowe Price International Series, Inc. ("T. Rowe Price"); or a corresponding
series of the Delaware Group Premium Fund, Inc. ("DGPF").
SURRENDER VALUE: the Accumulated Value of the Contract on full surrender after
application of any Contract fee, contingent deferred sales charge, and Market
Value Adjustment.
UNDERLYING FUNDS (OR FUNDS): 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 Select Value Opportunity
Fund of Allmerica Investment Trust; Fidelity VIP High Income Portfolio, Fidelity
VIP Equity-Income Portfolio, Fidelity VIP Growth Portfolio and Fidelity VIP
Overseas Portfolio of Variable
5
<PAGE>
Insurance Products Fund; the Fidelity VIP II Asset Manager Portfolio of Variable
Insurance Products Fund II; the T. Rowe Price International Stock Portfolio of
T. Rowe Price International Series, Inc.; and the International Equity Series of
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 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, as well as each day otherwise required.
VARIABLE ACCOUNT: Separate Account VA-K, one of the Company's separate accounts,
consisting of assets segregated from other assets of the Company. The investment
performance of the assets of the Variable Account is determined separately from
the other assets of the Company, and are not chargeable with liabilities arising
out of any other business which the Company may conduct.
VARIABLE ANNUITY PAYOUT: an Annuity in the payout phase providing for payments
varying in amount in accordance with the investment experience of certain Funds.
6
<PAGE>
SUMMARY
WHAT IS THE ALLMERICA ADVANTAGE VARIABLE ANNUITY?
The Allmerica Advantage variable annuity contract is an insurance contract
designed to help you, the Owner, accumulate assets for your retirement or other
important financial goals on a tax-deferred basis. The Contract combines the
concept of professional money management with the attributes of an annuity
contract. Features available through the Contract include:
- - A customized investment portfolio;
- - Experienced professional investment advisers;
- - Tax deferral on earnings;
- - Guarantees that can protect your beneficiaries during the accumulation phase;
- - Income that can be guaranteed for life;
- - Issue age up to your 90th birthday.
The Contract has two phases, an accumulation phase and, if you choose to
annuitize, an annuity payout phase. During the accumulation phase, your initial
payment and any additional payments you choose to make may be allocated among
the Sub-Accounts investing in the Underlying Funds, the Guarantee Period
Accounts and the Fixed Account. You select the investment options most
appropriate for your investment needs. As those needs change, you may also
change your allocation without incurring any tax consequences. The Contract's
Accumulated Value is based on the investment performance of the Funds and any
accumulations in the Guarantee Period and Fixed Accounts. No income taxes are
paid on any earnings under the Contract unless and until Accumulated Values are
withdrawn. In addition, during the accumulation phase, your beneficiaries
receive certain protections and guarantees in the event of the Annuitant's
death. See discussion below "WHAT HAPPENS UPON DEATH DURING THE ACCUMULATION
PHASE?"
WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?
During the annuity payout phase, the Annuitant can receive income based on
several annuity payout options. You choose the annuity payout option and the
date for annuity benefit payments to begin. You also decide whether you want
variable annuity benefit payments based on the investment performance of certain
Funds, fixed annuity benefit payments with payment amounts guaranteed by the
Company, or a combination of fixed and variable annuity benefit payments. Among
the payout options available during the annuity payout phase are:
- - periodic payments for your lifetime (assuming you are the Annuitant);
- - periodic payments for your life and the life of another person selected by
you;
- - periodic payments for your lifetime with guaranteed payments continuing to
your beneficiary for ten years in the event that you die before the end of ten
years;
- - periodic payments over a specified number of years (1 to 30); under this
option you may reserve the right to convert remaining payments to a lump-sum
payout by electing a commutable option.
7
<PAGE>
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you, (the "Owner") and us, Allmerica Financial Life
Insurance and Annuity Company (the "Company"). Each Contract has an Owner (or an
Owner and a Joint Owner, in which case one of the two also must be the
Annuitant), an Annuitant and one or more beneficiaries. As Owner, you make
payments, choose investment allocations and select the Annuitant and
beneficiary. The Annuitant is the individual to receive annuity benefit payments
under the Contract. The beneficiary is the person who receives any payment on
the death of the Owner or Annuitant.
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of your payments are flexible, subject only to a $600
minimum ($1,000 in Washington) for your initial payment and a $50 minimum for
any additional payments. (A lower initial payment amount is permitted for
certain qualified plans and where monthly payments are being forwarded directly
from a financial institution.) In addition, a minimum of $1,000 is always
required to establish a Guarantee Period Account.
WHAT ARE MY INVESTMENT CHOICES?
The Contract permits net payments to be allocated among the Sub-Accounts
investing in the Funds, the Guarantee Period Accounts, and the Fixed Account.
VARIABLE ACCOUNT. You have a choice of Sub-Accounts investing in the following
18 Underlying Funds:
<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VIP
Select International Equity Fund Overseas Portfolio
Select Aggressive Growth Fund Equity-Income Portfolio
Select Capital Appreciation Fund Growth Portfolio
Select Value Opportunity Fund High Income Portfolio
Select Growth Fund FIDELITY VIP II
Growth Fund Asset Manager Portfolio
Equity Index Fund T. ROWE PRICE
Select Growth and Income Fund T. Rowe Price International Stock
Investment Grade Income Fund Portfolio
Government Bond Fund DGPF
Money Market Fund International Equity Series
</TABLE>
For a more detailed description of the Underlying Funds, see "INVESTMENT
OBJECTIVES AND POLICIES."
GUARANTEE PERIOD ACCOUNTS. Assets supporting the guarantees under the Guarantee
Period Accounts are held in the Company's Separate Account GPA, a non-unitized
insulated separate account. Values and benefits calculated on the basis of
Guarantee Period Account allocations, however, are obligations of the Company's
General Account. Amounts allocated to a Guarantee Period Account earn a
Guaranteed Interest Rate declared by the Company. The level of the Guaranteed
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company may offer up to nine Guarantee Periods ranging from two to ten years
in duration. Once declared, the Guaranteed Interest Rate will not change during
the duration of the Guarantee Period. If amounts allocated to a Guarantee Period
Account are transferred, surrendered or applied to any annuity option at any
time other than the day following the last day of the applicable Guarantee
Period, a Market Value Adjustment will apply that may increase or decrease the
Account's value; however, this adjustment will never be applied against your
principal. In addition, earnings in the GPA after application of the Market
Value Adjustment will not be less than an effective annual rate of 3%. For more
information about
8
<PAGE>
the Guarantee Period Accounts and the Market Value Adjustment, see "GUARANTEE
PERIOD ACCOUNTS."
FIXED ACCOUNT. The Fixed Account is part of the General Account, which consists
of all the Company's assets other than those allocated to the Variable Account
and any other separate account. Allocations to the Fixed Account are guaranteed
as to principal and a minimum rate of interest. Additional excess interest may
be declared periodically at the Company's discretion. Furthermore, the initial
rate in effect on the date an amount is allocated to the Fixed Account will be
guaranteed for one year from that date. For more information about the Fixed
Account see APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
THE FIXED ACCOUNT AND/OR THE GUARANTEE PERIOD ACCOUNTS MAY NOT BE AVAILABLE IN
ALL STATES.
CAN I MAKE TRANSFERS AMONG THE ACCOUNTS?
Yes. Prior to the Annuity Date, you may transfer among the Sub-Accounts
investing in the Underlying Funds, the Guarantee Period Accounts, and the Fixed
Account. You will incur no current taxes on transfers while your money remains
in the Contract. See "C. Transfer Privilege." The first 12 transfers in a
Contract year are guaranteed to be free of a transfer charge. For each
subsequent transfer in a Contract year, the Company does not currently charge
but reserves the right to assess a processing charge guaranteed never to exceed
$25.
WHAT IF I NEED MY MONEY BEFORE THE ANNUITY PAYOUT PHASE BEGINS?
You may surrender the Contract or make withdrawals any time before the annuity
payout phase begins. Each year you can take without a surrender charge the
greatest of 100% of cumulative earnings, 10% of the Contract's Accumulated Value
or, if you are both an Owner and the Annuitant, an amount based on your life
expectancy. (Similarly, no surrender charge will apply if an amount is withdrawn
based on the Annuitant's life expectancy and the Owner is a trust or other
non-natural person.) A 10% tax penalty may apply on all amounts deemed to be
income if you are under age 59 1/2. Additional amounts may be withdrawn at any
time but may be subject to the surrender charge for payments that have not been
invested in the Contract for more than nine years. (A Market Value Adjustment
may apply to any withdrawal made from a Guarantee Period Account prior to the
expiration of the Guarantee Period.)
In addition, except where prohibited by state law, you may withdraw all or a
portion of your money without a surrender charge if, after the Contract is
issued, you are admitted to a medical care facility, become disabled or are
diagnosed with a fatal illness. For details and restrictions, see "Reduction or
Elimination of Surrender Charge."
WHAT HAPPENS UPON DEATH DURING THE ACCUMULATION PHASE?
If the Annuitant, Owner or Joint Owner should die before the Annuity Date, a
death benefit will be paid to the beneficiary. Upon the death of the Annuitant
(or an Owner who is also an Annuitant), the death benefit is equal to the
GREATEST of:
- - The Accumulated Value increased by any positive Market Value Adjustment;
- - Gross payments compounded daily at an annual rate of 5% starting on the date
each payment was applied, decreased proportionately to reflect withdrawals;
- - The death benefit that would have been payable on the most recent Contract
anniversary, increased for subsequent payments and decreased proportionately
for subsequent withdrawals.
9
<PAGE>
This guaranteed death benefit works in the following way assuming no withdrawals
are made. On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments compounded at the annual rate of 5%. The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments compounded at the annual rate of 5% or (c) the
locked-in value of the death benefit at the first anniversary. The greatest of
(a), (b) or (c) will be locked in until the next Contract anniversary. This
calculation will then be repeated on each anniversary while the Contract remains
in force and prior to the Annuity Date. As noted above, the values of (b) and
(c) will be decreased proportionately if withdrawals are taken.
At the death of an Owner who is not also the Annuitant during the accumulation
phase, the death benefit will equal the Accumulated Value of the Contract
increased by any positive Market Value Adjustment.
(If the Annuitant dies after the Annuity Date but before all guaranteed annuity
benefit payments have been made, the remaining payments will be paid to the
beneficiary at least as rapidly as under the annuity option in effect. See "G.
Death Benefit.")
WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
If the Accumulated Value is less than $50,000 on a Contract anniversary and at
surrender, the Company will deduct a $30 Contract fee from the Contract. The
Contract fee is waived for a Contract issued to and maintained by a trustee of a
401(k) plan.
Should you decide to surrender the Contract, make withdrawals, or receive
payments under certain annuity options, you may be subject to a contingent
deferred sales charge. If applicable, this charge will be between 1% and 8% of
payments withdrawn, based on when the payments were made.
Depending upon the state in which you live, a deduction for state and local
premium taxes, if any, may be made as described under "C. Premium Taxes."
The Company will deduct, on a daily basis, an annual mortality and expense risk
charge and administrative expense charge equal to 1.25% and 0.20%, respectively,
of the average daily net assets invested in each Portfolio. The Funds will incur
certain management fees and expenses described more fully in "Other Charges" and
in the Fund prospectuses accompanying this Prospectus.
For more information, see "CHARGES AND DEDUCTIONS."
CAN I EXAMINE THE CONTRACT?
Yes. The Contract will be delivered to you after your purchase. If you return
the Contract to the Company within ten days of receipt, the Contract will be
canceled. (There may be a longer period in certain states; see the "Right to
Examine" provision on the cover of the Contract.) If you cancel the Contract,
you will receive a refund of any amounts allocated to the Fixed and Guarantee
Period Accounts and the Accumulated Value of any amounts allocated to the
Sub-Accounts (plus any fees or charges that may have been deducted.) However, if
state law requires or if the Contract was issued as an Individual Retirement
Annuity ("IRA"), you will receive the greater of the amount described above or
your entire payment. See "B. Right to Revoke Individual Retirement Annuity" and
"C. Right to Revoke All Other Contracts."
10
<PAGE>
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
There are several changes you can make after receiving the Contract:
- - You may assign your ownership to someone else, except under certain qualified
plans.
- - You may change the beneficiary, unless you have designated a beneficiary
irrevocably.
- - You may change your allocation of payments.
- - You may make transfers of Contract value among your current investments
without any tax consequences.
- - You may cancel the Contract within ten days of delivery (or longer if required
by law).
11
<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The following tables show charges under the Contract, expenses of the
Sub-Accounts, and expenses of the Funds. In addition to the charges and expenses
described below, premium taxes are applicable in some states and deducted as
described under "C. Premium Taxes."
CONTRACT CHARGES:
<TABLE>
<CAPTION>
YEARS FROM
DATE OF PAYMENT CHARGE
--------------- ---------
<S> <C> <C>
CONTINGENT DEFERRED SALES CHARGE: 0-2 8%
This charge may be assessed upon surrender, withdrawal or annuitization under 3 7%
any commutable period certain option or a noncommutable period certain option 4 6%
of less than ten years. The charge is a percentage of payments applied to the 5 5%
amount surrendered (in excess of any amount that is free of surrender charge) 6 4%
within the indicated time period. 7 3%
8 2%
9 1%
More than 9 0%
TRANSFER CHARGE:
The Company currently makes no charge for processing transfers and guarantees None
that the first 12 transfers in a Contract year will not be subject to a
transfer charge. For each subsequent transfer, the Company reserves the right
to assess a charge, guaranteed never to exceed $25, to reimburse the Company
for the costs of processing the transfer.
CONTRACT FEE: $30
The fee is deducted annually and upon surrender prior to the Annuity Date when
Accumulated Value is less than $50,000. The fee is waived for Contracts issued
to and maintained by the trustee of a 401(k) plan.
SUB-ACCOUNT EXPENSES:
(on annual basis as percentage of average daily net assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.20%
---------
Total Asset Charge: 1.45%
</TABLE>
12
<PAGE>
UNDERLYING FUND EXPENSES:
In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Underlying Funds. The levels of fees and
expenses vary among the Underlying Funds. The following table shows the expenses
of the Underlying Funds for 1997. For more information concerning fees and
expenses, see the prospectuses of the Underlying Funds.
<TABLE>
<CAPTION>
MANAGEMENT FEE TOTAL FUND EXPENSES
(AFTER ANY VOLUNTARY OTHER FUND (AFTER ANY APPLICABLE
FUND WAIVER) EXPENSES LIMITATIONS)
- -------------------------------------------------------- --------------------- ----------------- ---------------------
<S> <C> <C> <C>
Select International Equity Fund........................ 0.92%* 0.20% 1.12%(1)(4)
DGPF International Equity Series........................ 0.75% 0.15% 0.90%(2)
Fidelity VIP Overseas Portfolio......................... 0.75% 0.17% 0.92%(3)
T. Rowe Price International Stock Portfolio............. 1.05% 0.00% 1.05%
Select Aggressive Growth Fund........................... 0.89%* 0.09% 0.98%(1)(4)
Select Capital Appreciation Fund........................ 0.95%* 0.15% 1.10%(1)
Select Value Opportunity Fund........................... 0.90%** 0.14% 1.04%(1)(4)
Select Growth Fund...................................... 0.85% 0.08% 0.93%(1)(4)
Growth Fund............................................. 0.46%* 0.06% 0.52%(1)
Fidelity VIP Growth Portfolio........................... 0.60% 0.09% 0.69%(3)
Equity Index Fund....................................... 0.31% 0.13% 0.44%(1)
Select Growth and Income Fund........................... 0.70%* 0.07% 0.77%(1)(4)
Fidelity VIP Equity-Income Portfolio.................... 0.50% 0.08% 0.58%(3)
Fidelity VIP II Asset Manager Portfolio................. 0.55% 0.10% 0.65%(3)
Fidelity VIP High Income Portfolio...................... 0.59% 0.12% 0.71%
Investment Grade Income Fund............................ 0.44%* 0.10% 0.54%(1)
Government Bond Fund.................................... 0.50% 0.17% 0.67%
Money Market Fund....................................... 0.27% 0.08% 0.35%(1)
</TABLE>
* Effective September 1, 1997, the management fee rates for these funds were
revised. The management fees ratios shown in the table above have been adjusted
to assume that the revised rates took effect on January 1, 1997.
** The Select Value Opportunity Fund was formerly known as the "Small-Mid Cap
Value Fund." Effective April 1, 1997, the management fee rate of the former
Small-Mid Cap Value Fund was revised. In addition, effective April 1, 1997 and
until further notice, the management fee for this fund has been voluntarily
limited to an annual rate of 0.90% of average daily net assets. The management
fee ratio shown above for the Select Value Opportunity Fund has been adjusted to
assume that the revised rate and the voluntary limitation took effect on January
1, 1997. Had the voluntary limitation of 0.90% not been effective on January 1,
1997 and had the management fee rate revision discussed above been effective on
January 1, 1997, the management fee ratio and the total fund expense ratio would
have been 0.95% and 1.09%, respectively. The management fee limitation may be
terminated at any time.
(1) Until further notice, Allmerica Financial Investment Management Services,
Inc. ("Manager") has declared a voluntary expense limitation of 1.50% of average
net assets for the Select International Equity Fund, 1.35% for the Select
Aggressive Growth Fund and Select Capital Appreciation Fund, 1.25% for the
Select Value Opportunity Fund, 1.20% for the Growth Fund and Select Growth Fund,
1.10% for the Select Growth and Income Fund, 1.00% for the Investment Grade
Income Fund, and Government Bond Fund, and 0.60% for the Money Market Fund and
Equity Index Fund. The total operating expenses of the trust were less than
their respective expense limitations throughout 1997. The declaration of a
voluntary expense limitation in any year does not bind the Manager to declare
future expense limitations with respect to these funds.
13
<PAGE>
(2) Effective July 1, 1997, Delaware International Advisers Ltd., the investment
adviser for the International Equity Series, has agreed to limit total annual
expenses of the fund to 0.95%. This limitation replaces a prior limitation of
0.80% that expired on June 30, 1997. The new limitation will be in effect
through October 31, 1998. The fee ratios shown above have been adjusted to
assume that the new voluntary limitation took effect on January 1, 1997. In
1997, the actual ratio of total expenses of the International Equity Series was
0.85% and the actual management fee was 0.70%.
(3) A portion of the brokerage commissions the Portfolio paid was used to reduce
Fund expenses. In addition, certain funds entered into arrangements with their
custodian and transfer agent whereby credits realized as a result of uninvested
cash balances were used to reduce custodian and transfer agent expenses.
Including these reductions, total operating expenses would have been 0.90% for
the Fidelity VIP Overseas Portfolio; 0.57% for the Fidelity VIP Equity-Income
Portfolio; 0.64% for the Fidelity VIP II Asset Manager Portfolio and 0.67% for
the Fidelity VIP Growth Portfolio.
(4) These Funds have entered into agreements with brokers whereby the brokers
rebate a portion of commissions. Had these amounts been treated as reductions of
expenses, the total operating expenses would have been 1.10% for Select
International Equity Fund, 0.91% for Select Growth Fund, 0.74% for Select Growth
and Income Fund, 0.93% for Select Aggressive Growth, 0.98% for Select Value
Opportunity Fund and 0.50% for the Growth Fund.
EXAMPLES. The following examples demonstrate the cumulative expenses which
would be paid by the Owner at 1-year, 3-year, 5-year and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-Account
and a 5% annual return on assets, as required by rules of the Securities and
Exchange Commission (the "SEC"). Because the expenses of the Underlying Funds
differ, separate examples are used to illustrate the expenses incurred by an
Owner on an investment in the various Sub-Accounts.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
(1) If, at the end of the applicable time period, you surrender the Contract or
annuitize* under a commutable variable period certain option or a non-commutable
period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
FUNDS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select International Equity Fund............................................. $100 $ 148 $ 187 $ 292
DGPF International Equity Series............................................. $98 $ 142 $ 176 $ 270
Fidelity VIP Overseas Portfolio.............................................. $98 $ 142 $ 177 $ 272
T. Rowe Price International Stock Portfolio.................................. $99 $ 146 $ 184 $ 285
Select Aggressive Growth Fund................................................ $99 $ 144 $ 180 $ 278
Select Capital Appreciation Fund............................................. $100 $ 148 $ 186 $ 290
Select Value Opportunity Fund................................................ $99 $ 146 $ 183 $ 284
Select Growth Fund........................................................... $98 $ 143 $ 178 $ 273
Growth Fund.................................................................. $94 $ 131 $ 157 $ 231
Fidelity VIP Growth Portfolio................................................ $96 $ 136 $ 166 $ 249
Equity Index Fund............................................................ $94 $ 129 $ 153 $ 223
Select Growth and Income Fund................................................ $97 $ 138 $ 170 $ 257
Fidelity Equity-Income Portfolio............................................. $95 $ 133 $ 160 $ 238
Fidelity VIP II Asset Manager Portfolio...................................... $96 $ 135 $ 164 $ 245
Fidelity VIP High Income Portfolio........................................... $96 $ 137 $ 167 $ 251
Investment Grade Income Fund................................................. $95 $ 132 $ 158 $ 233
Government Bond Fund......................................................... $96 $ 135 $ 166 $ 247
Money Market Fund............................................................ $93 $ 126 $ 150 $ 214
</TABLE>
14
<PAGE>
(2) If you annuitize* under a life option or any non-commutable period certain
option of ten years or more at the end of the applicable time period or if you
do NOT surrender or annuitize the Contract, you would pay the following expenses
on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Select International Equity Fund............................................. $ 26 $80 $137 $ 292
DGPF International Equity Series............................................. $ 24 $74 $126 $ 270
Fidelity VIP Overseas Portfolio.............................................. $ 24 $74 $127 $ 272
T. Rowe Price International Stock Portfolio.................................. $ 26 $78 $134 $ 285
Select Aggressive Growth Fund................................................ $ 25 $76 $130 $ 278
Select Capital Appreciation Fund............................................. $ 26 $80 $136 $ 290
Select Value Opportunity Fund................................................ $ 25 $78 $133 $ 284
Select Growth Fund........................................................... $ 24 $75 $128 $ 273
Growth Fund.................................................................. $ 20 $62 $107 $ 231
Fidelity VIP Growth Portfolio................................................ $ 22 $68 $116 $ 249
Equity Index Fund............................................................ $ 19 $60 $103 $ 223
Select Growth and Income Fund................................................ $ 23 $70 $120 $ 257
Fidelity Equity-Income Portfolio............................................. $ 21 $64 $110 $ 238
Fidelity VIP II Asset Manager Portfolio...................................... $ 22 $66 $114 $ 245
Fidelity VIP High Income Portfolio........................................... $ 22 $68 $117 $ 251
Investment Grade Income Fund................................................. $ 20 $63 $108 $ 233
Government Bond Fund......................................................... $ 22 $67 $115 $ 247
Money Market Fund............................................................ $ 19 $57 $99 $ 214
</TABLE>
Pursuant to requirements of the Investment Company Act of 1940 (the "1940 Act"),
the Contract fee has been reflected in the examples by a method intended to show
the "average" impact of the Contract fee on an investment in the Variable
Account. The total Contract fees collected under the Contracts by the Company
are divided by the total average net assets attributable to the Contracts. The
resulting percentage is 0.05% and the amount of the Contract fee is assumed to
be $0.50 in the examples. The Contract fee is deducted only when the accumulated
value is less than $50,000. Lower costs apply to Contracts issued and maintained
as part of a 401(k) plan.
* The Contract fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any Contract year under
an option including a life contingency or under any noncommutable period certain
option of ten years or more.
15
<PAGE>
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SEPARATE ACCOUNT VA-K
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUB-ACCOUNTS 1997 1996 1995 1994 1993 1992
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
SELECT INTERNATIONAL EQUITY FUND
Unit Value:
Beginning of Period........................... 1.355 1.127 0.956 1.000 N/A N/A
End of Period................................. 1.398 1.355 1.127 0.956 N/A N/A
Units Outstanding at End of Period
(in thousands)................................. 115,585 77,485 37,680 12,530 N/A N/A
DGPF INTERNATIONAL EQUITY SERIES
Unit Value:
Beginning of Period........................... 1.519 1.284 1.143 1.129 1.000 N/A
End of Period................................. 1.596 1.519 1.284 1.143 1.129 N/A
Units Outstanding at End of Period
(in thousands)................................. 62,134 44,416 34,692 26,924 6,681 N/A
FIDELITY VIP OVERSEAS PORTFOLIO
Unit Value:
Beginning of Period........................... 1.484 1.330 1.230 1.226 0.906 1.030
End of Period................................. 1.632 1.484 1.330 1.230 1.226 0.906
Units Outstanding at End of Period
(in thousands)................................. 56,689 63,050 65,256 59,774 25,395 6,728
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
Unit Value:
Beginning of Period........................... 1.203 1.064 1.000 N/A N/A N/A
End of Period................................. 1.222 1.203 1.064 N/A N/A N/A
Units Outstanding at End of Period
(in thousands)................................. 59,832 35,915 10,882 N/A N/A N/A
SELECT AGGRESSIVE GROWTH FUND
Unit Value:
Beginning of Period........................... 1.970 1.686 1.292 1.342 1.139 1.000
End of Period................................. 2.305 1.970 1.686 1.292 1.342 1.139
Units Outstanding at End of Period
(in thousands)................................. 106,790 89,974 70,349 54,288 26,158 2,019
SELECT CAPITAL APPRECIATION FUND
Unit Value:
Beginning of Period........................... 1.482 1.383 1.000 N/A N/A N/A
End of Period................................. 1.670 1.482 1.383 N/A N/A N/A
Units Outstanding at End of Period
(in thousands)................................. 70,932 52,927 16,096 N/A N/A N/A
SELECT VALUE OPPORTUNITY FUND
Unit Value:
Beginning of Period........................... 1.580 1.249 1.075 1.167 1.000 N/A
End of Period................................. 1.945 1.580 1.249 1.075 1.167 N/A
Units Outstanding at End of Period
(in thousands)................................. 85,126 60,145 43,433 33,049 9,902 N/A
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
SUB-ACCOUNTS 1997 1996 1995 1994 1993 1992
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELECT GROWTH FUND
Unit Value:
Beginning of Period........................... 1.514 1.259 1.024 1.055 1.058 1.000
End of Period................................. 2.001 1.514 1.259 1.024 1.055 1.058
Units Outstanding at End of Period
(in thousands)................................. 96,643 62,633 47,078 38,415 26,064 3,039
GROWTH FUND
Unit Value:
Beginning of Period........................... 1.894 1.599 1.221 1.236 1.175 1.111
End of Period................................. 2.336 1.894 1.599 1.221 1.236 1.175
Units Outstanding at End of Period
(in thousands)................................. 156,173 135,573 116,008 102,399 72,609 34,373
FIDELITY VIP GROWTH PORTFOLIO
Unit Value:
Beginning of Period........................... 2.143 1.895 1.419 1.440 1.224 1.135
End of Period................................. 2.608 2.143 1.895 1.419 1.440 1.224
Units Outstanding at End of Period
(in thousands)................................. 148,211 142,450 116,485 90,717 49,136 18,253
EQUITY INDEX FUND
Unit Value:
Beginning of Period........................... 1.977 1.640 1.221 1.266 1.135 1.074
End of Period................................. 2.581 1.977 1.640 1.221 1.226 1.135
Units Outstanding at End of Period
(in thousands)................................. 85,344 57,428 39,534 29,176 22,466 9,535
SELECT GROWTH AND INCOME FUND
Unit Value:
Beginning of Period........................... 1.638 1.370 1.066 1.074 0.987 1.000
End of Period................................. 1.978 1.638 1.370 1.066 1.074 0.987
Units Outstanding at End of Period
(in thousands)................................. 103,543 82,434 63,841 51,098 31,846 4,711
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Unit Value:
Beginning of Period........................... 2.236 1.185 1.490 1.412 1.211 1.051
End of Period................................. 2.824 2.236 1.185 1.490 1.412 1.211
Units Outstanding at End of Period
(in thousands)................................. 180,001 167,000 139,145 104,356 61,264 17,855
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Unit Value:
Beginning of Period........................... 1.273 1.127 0.977 1.000 N/A N/A
End of Period................................. 1.514 1.273 1.127 0.977 N/A N/A
Units Outstanding at End of Period
(in thousands)................................. 55,551 42,415 33,444 20,720 N/A N/A
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
SUB-ACCOUNTS 1997 1996 1995 1994 1993 1992
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FIDELITY VIP HIGH INCOME PORTFOLIO
Unit Value:
Beginning of Period........................... 1.958 1.743 1.465 1.510 1.270 1.047
End of Period................................. 2.272 1.958 1.743 1.465 1.510 1.270
Units Outstanding at End of Period
(in thousands)................................. 76,343 53,956 38,042 27,041 13,583 3,625
INVESTMENT GRADE INCOME FUND
Unit Value:
Beginning of Period........................... 1.418 1.390 1.073 1.250 1.145 1.073
End of Period................................. 1.530 1.418 1.390 1.196 1.250 1.145
Units Outstanding at End of Period
(in thousands)................................. 86,816 79,054 69,168 57,454 48,488 15,428
GOVERNMENT BOND FUND
Unit Value:
Beginning of Period........................... 1.311 1.285 1.152 1.179 1.112 1.075
End of Period................................. 1.384 1.311 1.285 1.152 1.179 1.112
Units Outstanding at End of Period
(in thousands)................................. 35,261 30,921 31,710 32,519 60,265 29,844
MONEY MARKET FUND
Unit Value:
Beginning of Period........................... 1.167 1.124 1.077 1.051 1.035 1.013
End of Period................................. 1.214 1.167 1.124 1.077 1.051 1.035
Units Outstanding at End of Period
(in thousands)................................. 91,676 92,354 69,311 37,668 30,815 30,778
</TABLE>
PERFORMANCE INFORMATION
The Contract was first offered to the public in 1996. The Company, however, may
advertise "total return" and "average annual total return" performance
information based on the periods that the Sub-Accounts have been in existence
and the periods that the Underlying Funds have been in existence. Performance
results for all periods shown below are calculated with all charges assumed to
be those applicable to the Sub-Accounts, the Underlying Funds, and, in Tables 1A
and 2A, assuming that the Contract is surrendered at the end of the applicable
period and, alternatively, in Tables 1B and 2B, assuming that it is not
surrendered at the end of the applicable period. Both the total return and yield
figures are based on historical earnings and are not intended to indicate future
performance.
The total return of a Sub-Account refers to the total of the income generated by
an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Variable Account charges, and expressed as a
percentage.
The average annual total return represents the average annual percentage change
in the value of an investment in the Sub-Account over a given period of time. It
represents averaged figures as opposed to the actual performance of a
Sub-Account, which will vary from year to year.
The yield of the Sub-Account investing in the Money Market Fund refers to the
income generated by an investment in the Sub-Account over a seven-day period
(which period will be specified in the advertisement). This income is then
"annualized" by assuming that the income generated in the specific week is
generated over a 52-week period. This annualized yield is shown as a percentage
of the investment. The "effective yield" calculation is similar but, when
annualized, the income earned by an investment in the Sub-Account is
18
<PAGE>
assumed to be reinvested. Thus the effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment.
The yield of a Sub-Account investing in a Fund other than the Money Market Fund
refers to the annualized income generated by an investment in the Sub-Account
over a specified 30-day or one-month period. The yield is calculated by assuming
that the income generated by the investment during that 30-day or one-month
period is generated each period over a 12-month period and is shown as a
percentage of the investment.
Quotations of average annual total return as shown in Table 1A are calculated in
the manner prescribed by the SEC and show the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year period or for a period covering the time the Sub-Account has been in
existence, if less than the prescribed periods. The calculation is adjusted to
reflect the deduction of the annual Sub-Account asset charge of 1.45%, the $30
annual Contract fee the Underlying Fund charges and the contingent deferred
sales charge which would be assessed if the investment were completely withdrawn
at the end of the specified period. Quotations of supplemental average total
returns, as shown in Table 1B, are calculated in exactly the same manner and for
the same periods of time except that it does not reflect the contingent deferred
sales charge but assumes that the Contract is not surrendered at the end of the
periods shown.
The performance shown in Tables 2A and 2B is calculated in exactly the same
manner as those in Tables 1A and 1B respectively; however, the period of time is
based on the Underlying Fund's lifetime, which may predate the Sub-Account's
inception date. These performance calculations are based on the assumption that
the Sub-Account corresponding to the applicable Underlying Fund was actually in
existence throughout the stated period and that the contractual charges and
expenses during that period were equal to those currently assessed under the
Contract.
For more detailed information about these performance calculations, including
actual formulas, see the SAI.
PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF A
HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE TIME PERIOD ON WHICH THE
CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF
THE INVESTMENT OBJECTIVES AND POLICIES AND RISK CHARACTERISTICS OF THE
UNDERLYING FUND IN WHICH THE 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.
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (1) the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman
Aggregate Bond Index or other unmanaged indices so that investors may compare
the Sub-Account results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(2) other groups of variable annuity 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, who rank such investment products on
overall performance or other criteria; or (3) the Consumer Price Index (a
measure for inflation) to assess the real rate of return from an investment in
the Sub-Account. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of the Company's relative financial
strength and operating performance in comparison to the norms of the life/health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues and
do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the Underlying
Funds.
19
<PAGE>
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR PERIODS ENDING
DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR SINCE
ENDED INCEPTION OF
NAME OF UNDERLYING FUND 12/31/97 5 YEARS SUB-ACCOUNT
- ---------------------------------------------------- ---------- ---------- ------------
Select International Equity Fund.................... -4.32% N/A 8.21%
<S> <C> <C> <C>
DGPF International Equity Series.................... -2.53% N/A 9.74%
Fidelity VIP Overseas Portfolio..................... 2.01% 11.80% 7.69%
T. Rowe Price International Stock Portfolio......... -5.74% N/A 5.41%
Select Aggressive Growth Fund....................... 8.97% 14.52% 16.66%
Select Capital Appreciation Fund.................... 4.60% N/A 19.20%
Select Value Opportunity Fund....................... 15.03% N/A 14.65%
Select Growth Fund.................................. 24.11% 12.92% 13.52%
Growth Fund......................................... 15.32% 14.09% 14.07%
Fidelity VIP Growth Portfolio....................... 13.68% 15.73% 16.10%
Equity Index Fund................................... 22.49% 17.28% 15.90%
Select Growth and Income Fund....................... 12.72% 14.29% 13.27%
Fidelity VIP Equity-Income Portfolio................ 18.24% 17.88% 17.58%
Fidelity VIP II Asset Manager Portfolio............. 10.89% N/A 10.68%
Fidelity VIP High Income Portfolio.................. 7.95% 11.63% 13.69%
Investment Grade Income Fund........................ 0.07% 5.12% 6.57%
Government Bond Fund................................ -2.07% 3.55% 4.85%
Money Market Fund................................... -3.57% 2.27% 2.65%
</TABLE>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR SINCE
ENDED INCEPTION OF
NAME OF UNDERLYING FUND 12/31/97 5 YEARS SUB-ACCOUNT
- ------------------------------------------------------ ---------- ---------- ------------
Select International Equity Fund...................... 3.11% N/A 9.51%
<S> <C> <C> <C>
DGPF International Equity Series...................... 5.04% N/A 10.49%
Fidelity VIP Overseas Portfolio....................... 9.92% 12.43% 8.00%
T. Rowe Price International Stock Portfolio........... 1.58% N/A 7.76%
Select Aggressive Growth Fund......................... 16.97% 15.09% 17.05%
Select Capital Appreciation Fund...................... 12.60% N/A 21.13%
Select Value Opportunity Fund......................... 23.03% N/A 15.29%
Select Growth Fund.................................... 32.11% 13.53% 13.95%
Growth Fund........................................... 23.32% 14.67% 14.30%
Fidelity VIP Growth Portfolio......................... 21.68% 16.28% 16.31%
Equity Index Fund..................................... 30.49% 17.80% 16.12%
Select Growth and Income Fund......................... 20.72% 14.86% 13.71%
Fidelity VIP Equity-Income Portfolio.................. 26.24% 18.39% 17.78%
Fidelity VIP II Asset Manager Portfolio............... 18.89% N/A 11.91%
Fidelity VIP High Income Portfolio.................... 15.95% 12.27% 13.93%
Investment Grade Income Fund.......................... 7.84% 5.92% 6.91%
Government Bond Fund.................................. 5.54% 4.41% 5.22%
Money Market Fund..................................... 3.92% 3.17% 3.06%
</TABLE>
20
<PAGE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR PERIODS ENDING
DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
10 YEARS OR
FOR YEAR SINCE
ENDED INCEPTION
NAME OF UNDERLYING FUND 12/31/97 5 YEARS IF LESS*
- -------------------------------------------------- ---------- ---------- --------------
Select International Equity Fund.................. -4.32% N/A 8.17%
<S> <C> <C> <C>
DGPF International Equity Series.................. -2.53% 9.29% 9.10%
Fidelity VIP Overseas Portfolio................... 2.01% 11.80% 7.98%
T. Rowe Price International Stock Portfolio....... -5.74% N/A 5.08%
Select Aggressive Growth Fund..................... 8.97% 14.52% 17.42%
Select Capital Appreciation Fund.................. 4.60% N/A 19.13%
Select Value Opportunity Fund..................... 15.03% N/A 14.54%
Select Growth Fund................................ 24.11% 12.92% 14.21%
Growth Fund....................................... 15.32% 14.09% 15.37%
Fidelity VIP Growth Portfolio..................... 13.68% 15.73% 15.44%
Equity Index Fund................................. 22.49% 17.28% 17.79%
Select Growth and Income Fund..................... 12.72% 14.29% 13.20%
Fidelity VIP Equity-Income Portfolio.............. 18.24% 17.88% 14.97%
Fidelity VIP II Asset Manager Portfolio........... 10.89% 10.63% 10.99%
Fidelity VIP High Income Portfolio................ 7.95% 11.63% 11.12%
Investment Grade Income Fund...................... 0.07% 5.12% 7.55%
Government Bond Fund.............................. -2.07% 3.55% 4.93%
Money Market Fund................................. -3.57% 2.27% 4.21%
</TABLE>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR
PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
10 YEARS OR
FOR YEAR SINCE
ENDED INCEPTION
NAME OF UNDERLYING FUND 12/31/97 5 YEARS IF LESS*
- --------------------------------------------------- ---------- ---------- --------------
Select International Equity Fund................... 3.11% N/A 9.47%
<S> <C> <C> <C>
DGPF International Equity Series................... 5.04% 9.98% 9.63%
Fidelity VIP Overseas Portfolio.................... 9.92% 12.43% 7.98%
T.Rowe Price International Stock Portfolio......... 1.58% N/A 6.45%
Select Aggressive Growth Fund...................... 16.97% 15.09% 17.78%
Select Capital Appreciation Fund................... 12.60% N/A 21.05%
Select Value Opportunity Fund...................... 23.03% N/A 15.18%
Select Growth Fund................................. 32.11% 13.53% 14.63%
Growth Fund........................................ 23.32% 14.67% 15.37%
Fidelity VIP Growth Portfolio...................... 21.68% 16.28% 15.44%
Equity Index Fund.................................. 30.49% 17.80% 17.89%
Select Growth and Income Fund...................... 20.72% 14.86% 13.63%
Fidelity VIP Equity-Income Portfolio............... 26.24% 18.39% 14.97%
Fidelity VIP II Asset Manager Portfolio............ 18.89% 11.29% 11.04%
Fidelity VIP High Income Portfolio................. 15.95% 12.27% 11.12%
Investment Grade Income Fund....................... 7.84% 5.92% 7.55%
Government Bond Fund............................... 5.54% 4.41% 5.29%
Money Market Fund.................................. 3.92% 3.17% 4.21%
</TABLE>
21
<PAGE>
* The inception dates of the Underlying Funds are: 4/29/85 for Growth Fund,
Investment Grade Income Fund and Money Market Fund; 9/28/90 for Equity Index
Fund; 8/26/91 for Government Bond Fund; 8/21/92 for Select Aggressive Growth
Fund, Select Growth Fund, and Select Growth and Income Fund; 4/30/93 for Select
Value Opportunity Fund; 5/02/94 for Select International Equity Fund; 4/28/95
for Select Capital Appreciation Fund; 10/09/86 for Fidelity VIP Equity-Income
Portfolio and Fidelity VIP Growth Portfolio; 9/19/85 for Fidelity VIP High
Income Portfolio; 1/28/87 for Fidelity VIP Overseas Portfolio; 9/06/89 for
Fidelity VIP II Asset Manager Portfolio; 10/29/92 for DGPF International Equity
Series; and 3/31/94 for the T. Rowe Price International Stock Portfolio.
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, THE TRUST,
FIDELITY VIP FUND, FIDELITY VIP II FUND, T. ROWE PRICE AND DGPF
THE COMPANY. The Company is a life insurance company organized under the laws
of Delaware in July, 1974. Its Principal Office is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, telephone 508-855-1000. The Company is
subject to the laws of the state of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1997, the
Company had over $9.4 billion in assets and over $26.6 billion of life insurance
in force.
Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirect wholly owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica"), which in turn is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company on October 16, 1995, and adopted its
present name. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1997, First Allmerica and its subsidiaries
(including the Company) had over $16.3 billion in combined assets and over $43.8
billion in life insurance in force.
The Company is a charter member of the Insurance Marketplace Standard
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE VARIABLE ACCOUNT. The Variable Account is a separate investment account of
the Company referred to as Separate Account VA-K. The assets used to fund the
variable portions of the Contracts are set aside in the Sub-Accounts of the
Variable Account, and are kept separate and apart from the general assets of the
Company. There are 18 Sub-Accounts available under the Contracts. 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. Under Delaware law, the assets
of the Variable Account may not be charged with any liabilities arising out of
any other business of the Company.
The Variable Account was authorized by vote of the Board of Directors of the
Company on November 1, 1990. The Variable Account meets the definition of a
"separate account" under federal securities law and is registered with the SEC
as a unit investment trust under the 1940 Act. Such registration does not
involve the supervision by the SEC of management or investment practices or
policies of the Variable Account or the Company.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Variable Account and the Sub-Accounts.
22
<PAGE>
ALLMERICA INVESTMENT TRUST. Allmerica Investment Trust ("Trust") is an
open-end, diversified management investment company registered with the SEC
under the 1940 Act. 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 the Company or other
affiliated insurance companies. Eleven investment portfolios of the Trust are
currently available under the Contract, 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 Select Value Opportunity Fund. 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 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 variable accounts.
Allmerica Financial Investment Management Services, Inc. serves as the
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 ("Fidelity
VIP") managed by Fidelity Management & Research Company ("FMR"), is an open-end,
diversified management investment company organized as a Massachusetts business
trust on November 13, 1981, and registered with the SEC under the 1940 Act. Four
of its investment portfolios are available under the Contract: Fidelity VIP High
Income Portfolio, Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth
Portfolio and Fidelity VIP Overseas Portfolio.
Various Fidelity companies perform certain activities required to operate
Fidelity VIP. FMR 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. FMR 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. As part of their
operating expenses, the Portfolios of Fidelity VIP pay an investment management
fee to FMR. See "Investment Advisory Services to Fidelity VIP and Fidelity VIP
II."
VARIABLE INSURANCE PRODUCTS FUND II. Variable Insurance Products Fund II
("Fidelity VIP II"), managed by FMR (see discussion above) is an open-end,
diversified management investment company organized as a Massachusetts business
trust on March 21, 1988, and registered with the SEC under the 1940 Act. One of
its investment portfolios is available under the Contract: Fidelity VIP II Asset
Manager Portfolio.
T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe 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 SEC under the 1940 Act. One of its
investment portfolios is available under the Contracts: the T. Rowe Price
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 SEC
under the 1940 Act. DGPF was established to provide a vehicle for the investment
of assets of various separate accounts supporting variable insurance contracts.
One investment portfolio ("Series") is available under the Contract, the
International Equity Series. The investment adviser for the International Equity
Series is Delaware International Advisers Ltd. ("Delaware International"). See
"Investment Advisory Services to DGPF."
23
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Underlying Funds is set forth
below. The Underlying Funds are listed by general investment risk
characteristics. 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.
SELECT INTERNATIONAL EQUITY FUND OF THE TRUST -- The Select International Equity
Fund of the Trust seeks maximum long-term total return (capital appreciation and
income) primarily by investing in common stocks of established non-U.S.
companies.
DGPF INTERNATIONAL EQUITY SERIES -- The International Equity Series of DGPF
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.
FIDELITY VIP OVERSEAS PORTFOLIO -- The Overseas Portfolio of Fidelity VIP 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.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO -- The T. Rowe Price International
Stock Portfolio seeks long-term growth of capital through investments primarily
in common stocks of established, non-U.S. companies.
SELECT AGGRESSIVE GROWTH FUND -- The Select Aggressive Growth Fund of the Trust
seeks above-average capital appreciation by investing primarily in common stocks
of companies which are believed to have significant potential for capital
appreciation.
SELECT CAPITAL APPRECIATION FUND -- The Select Capital Appreciation Fund of the
Trust 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 invests primarily in common stock
of industries and companies which are believed to be experiencing favorable
demand for their products and services, and which operate in a favorable
competitive environment and regulatory climate.
SELECT VALUE OPPORTUNITY FUND -- The Select Value Opportunity Fund of the Trust
seeks long-term growth by investing principally in a diversified portfolio of
common stocks of small and mid-size companies whose securities at the time of
purchase are considered by the Sub-Adviser to be undervalued.
SELECT GROWTH FUND -- The Select Growth Fund of the Trust seeks to achieve
long-term growth of capital by investing in a diversified portfolio consisting
primarily of common stocks selected on the basis of their long-term growth
potential.
GROWTH FUND -- The Growth Fund of the Trust 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.
FIDELITY VIP GROWTH PORTFOLIO -- The Growth Portfolio of Fidelity VIP 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 also may be found in other types of securities, including bonds and
preferred stocks.
24
<PAGE>
EQUITY INDEX FUND -- The Equity Index Fund of the Trust seeks to provide
investment results that correspond to the aggregate price and yield performance
of a representative selection of United States publicly traded common stocks.
The Equity Index Fund seeks to achieve its objective by attempting to replicate
the aggregate price and yield performance of the Standard & Poor's Composite
Index of 500 Stocks.
SELECT GROWTH AND INCOME FUND -- 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.
FIDELITY VIP EQUITY-INCOME PORTFOLIO -- The Equity-Income Portfolio of Fidelity
VIP seeks reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Portfolio also will 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 S&P 500.
FIDELITY VIP II ASSET MANAGER PORTFOLIO -- The Asset Manager Portfolio of
Fidelity VIP II seeks high total return with reduced risk over the long term by
allocating its assets among domestic and foreign stocks, bonds and short-term
money market instruments.
FIDELITY VIP HIGH INCOME PORTFOLIO -- The High Income Portfolio of Fidelity VIP
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 often
are considered to be speculative, and involve greater risk of default or price
changes than securities assigned a high quality rating. See the Fidelity VIP
prospectus.
INVESTMENT GRADE INCOME FUND -- The Investment Grade Income Fund of the Trust 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
capital appreciation) as is consistent with prudent investment management.
GOVERNMENT BOND FUND -- The Government Bond Fund of the Trust 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
related options, futures and repurchase agreements.
MONEY MARKET FUND -- The Money Market Fund of the Trust is invested in a
diversified portfolio of high-quality, short-term money market instruments with
the objective of obtaining maximum current income consistent with the
preservation of capital and liquidity.
CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR TO
THOSE OF OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE SUB-ACCOUNTS WHICH
BEST WILL MEET INDIVIDUAL NEEDS AND OBJECTIVES, CAREFULLY READ THE PROSPECTUSES
OF THE TRUST, FIDELITY VIP, FIDELITY 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 there is a material change in the investment policy of a Fund, the Owner will
be notified of the change. If the Owner has accumulated Value allocated to that
Fund, he or she may have the Accumulated Value reallocated without charge to
another Fund or to the Fixed Account, where available, on written request
received by the Company within sixty (60) days of the later of (1) the effective
date of such change in the investment policy, or (2) the receipt of the notice
of the Owner's right to transfer.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISORY SERVICES TO THE TRUST. The Trustees have overall
responsibility for the supervision of the affairs of the Trust. The Trustees
have entered into an agreement ("Management Agreement") with
25
<PAGE>
Allmerica Financial Investment Management Services, Inc. ("Manager") to handle
the day-to-day affairs of the Trust. The Manager, subject to review by the
Trustees, is responsible for the general management of the Funds of the Trust.
The Manager also performs 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 the Manager.
Other than the expenses specifically assumed by the Manager 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 ("1933 Act"), other fees
payable to the SEC, independent public accountant, legal and custodian fees,
association membership dues, taxes, interest, insurance premiums, brokerage
commissions, fees and expenses of the Trustees who are not affiliated with the
Manager, expenses for proxies, prospectuses, reports to shareholders, and other
expenses.
For providing its services under the Management Agreement, the Manager will
receive a fee, computed daily at an annual rate based on the average daily net
asset value of each Fund of the Trust as follows:
<TABLE>
<S> <C> <C>
Select International Equity Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Aggressive Growth Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Capital Appreciation Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Value Opportunity Fund First $100 million 1.00%
Next $150 million 0.85%
Next $250 million 0.80%
Next $250 million 0.75%
Over $750 million 0.70%
Select Growth Fund * 0.85%
Growth Fund First $250 million 0.60%
Next $250 million 0.40%
Over $500 million 0.35%
Equity Index Fund First $50 million 0.35%
Next $200 million 0.30%
Over $250 million 0.25%
Select Growth and Income Fund First $100 million 0.75%
Next $150 million 0.70%
Over $250 million 0.65%
Investment Grade Income Fund First $50 million 0.50%
Next $50 million 0.45%
Over $100 million 0.40%
Government Bond Fund * 0.50%
Money Market Fund First $50 million 0.35%
Next $200 million 0.25%
Over $250 million 0.20%
</TABLE>
* For the Government Bond Fund and the Select Growth Fund, the rate applicable
to the Manager does not vary according to the level of assets in the Fund.
26
<PAGE>
The Manager's fee, computed for each Fund, will be paid from the assets of such
Fund. Pursuant to the Management Agreement with the Trust, the Manager 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 of the Trust. 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. The Manager is solely responsible for the payment of all fees
for investment management services to the Sub-Advisers. Allmerica Asset
Management, Inc., the Sub-Adviser for the Equity Index Fund, the Investment
Grade Income Fund, the Government Bond Fund and the Money Market Fund, is an
indirect wholly owned subsidiary of AFC and an affiliate of the Company.
The prospectus of the Trust contains additional information concerning the
Funds, including information about additional expenses paid by the Funds, and
should be read in conjunction with this Prospectus.
INVESTMENT ADVISORY SERVICES TO FIDELITY VIP AND FIDELITY VIP II FUNDS -- For
managing investments and business affairs, each Portfolio pays a monthly fee to
FMR. The prospectuses of Fidelity VIP and VIP II contain additional information
concerning the Portfolios, including information about additional expenses paid
by the Portfolios, and should be read in conjunction with this Prospectus.
The Fidelity VIP High Income Portfolio pays a monthly fee to FMR 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 FMR. 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 Fidelity VIP 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 fee rates of the Fidelity VIP Equity-Income, Fidelity VIP Growth, Fidelity
VIP II Asset Manager and Fidelity VIP Overseas Portfolios each are made of two
components:
1. A group fee rate based on the monthly average net assets of all of the
mutual funds advised by FMR. 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 Fidelity VIP Equity-Income
Portfolio, 0.30% for the Fidelity VIP Growth Portfolio, 0.25% for the
Fidelity VIP II Asset Manager Portfolio and 0.45% for the Fidelity VIP
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 Fidelity VIP High Income Portfolio may have a fee as high as 0.82% of
its average net assets. The Fidelity VIP Equity-Income Portfolio may have a fee
as high as 0.72% of its average net assets. The Fidelity VIP Growth Portfolio
may have a fee as high as 0.82% of its average net assets. The Fidelity VIP II
Asset Manager Portfolio may have a fee as high as 0.77% of its average net
assets. The Fidelity VIP Overseas Portfolio may have a fee 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 FMR.
27
<PAGE>
INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE. The Investment Adviser for the
T. Rowe Price International Stock Portfolio is Rowe Price-Fleming International,
Inc. ("Price-Fleming"). Price-Fleming, founded in 1979 as a joint venture
between T. Rowe Price Associates, Inc. and Robert Fleming Holdings, Limited, is
one of America's largest international mutual fund asset managers with
approximately $25 billion under management in its offices in Baltimore, London,
Tokyo and Hong Kong. To cover investment management and operating expenses, the
T. Rowe Price 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.
DESCRIPTION OF THE CONTRACT
A. PAYMENTS.
The Company's underwriting requirements, which include receipt of the initial
payment and allocation instructions by the Company at its Principal Office, must
be met before a Contract can be issued. These requirements also may include the
proper completion of an application; however, where permitted, the Company may
issue a Contract without completion of an application and/or signature for
certain classes of annuity Contracts. Payments are to be made payable to the
Company. A net payment is equal to the payment received less the amount of any
applicable premium tax.
The initial net payment will be credited to the Contract as of the date that all
issue requirements are properly met. If all issue requirements are not complied
with within five business days of the Company's receipt of the initial payment,
the payment will be returned unless the Owner specifically consents to the
holding of the initial payment until completion of any outstanding issue
requirements. Subsequent payments will be credited as of the Valuation Date
received at the Principal Office.
Payments are not limited as to frequency and number, but there are certain
limitations as to amount. Currently, the initial payment must be at least $600
($1,000 in Washington). Under a salary deduction or monthly automatic payment
plan, the minimum initial payment is $50. In all cases, each subsequent payment
must be at least $50. Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Contract on the employee if the plan's average
annual contribution per eligible plan participant is at least $600. The minimum
allocation to a Guarantee Period Account is $1,000. If less than $1,000 is
allocated to a Guarantee Period Account, the Company reserves the right to apply
that amount to the Money Market Fund.
Generally, unless otherwise requested, all payments will be allocated among the
accounts in the same proportion that the initial net payment is allocated or, if
subsequently changed, according to the most recent allocation instructions. To
the extent permitted by state law, however, if the Contract is issued as an IRA
or is issued in Georgia, Idaho, Indiana, Michigan, Missouri, North Carolina,
Oklahoma, Oregon, South Carolina, Texas, Utah, Washington or West Virginia, any
portion of the initial net payment and additional net payments received during
the Contract's first 15 days measured from the issue date, allocated to any
Sub-Account and/or any Guarantee Period Account, will be held in the Money
Market Fund until the end of the 15-day period. Thereafter, these amounts will
be allocated as requested.
The Owner may change allocation instructions for new payments pursuant to a
written or telephone request. If telephone requests are elected by the Owner, a
properly completed authorization must be on file before telephone requests will
be honored. The policy of the Company and its agents and affiliates is that they
will not be responsible for losses resulting from acting upon telephone requests
reasonably believed to be genuine.
28
<PAGE>
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 an Owner identify themselves by name and identify the
Annuitant by name, date of birth and social security number. All transfer
instructions by telephone are tape recorded.
B. RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY.
An individual purchasing a Contract intended to qualify as an IRA may revoke the
Contract at any time within ten days after receipt of the Contract and receive a
refund. In order to revoke the Contract, the Owner must mail or deliver the
Contract to the agent through whom the Contract was purchased, to the Principal
Office at 440 Lincoln Street, Worcester, MA 01653, or to an authorized
representative. Mailing or delivery must occur within ten days after receipt of
the Contract for revocation to be effective.
Within seven days, the Company will provide a refund equal to the greater of (1)
gross payments, or (2) gross payments allocated to the Fixed Account and the
Guarantee Period Accounts plus the Accumulated Value of any amounts allocated to
the Variable Account plus any amounts deducted under the Contract or by the
Underlying Funds for taxes, charges or fees.
The liability of the Variable Account under this provision is limited to the
Owner's Accumulated Value in the Sub-Accounts on the date of cancellation. Any
additional amounts refunded to the Owner will be paid by the Company.
C. RIGHT TO REVOKE ALL OTHER CONTRACTS.
In Georgia, Idaho, Indiana, Michigan, Missouri, North Carolina, Oklahoma,
Oregon, South Carolina, Texas, Utah, Washington and West Virginia, an Owner may
revoke the Contract at any time within ten days (20 days in Idaho) after receipt
of the Contract, and receive a refund as described under "B. Right to Revoke
Individual Retirement Annuity," above.
In all other states, an Owner may return the Contract at any time within ten
days (or the number of days required by state law if more than ten) after
receipt of the Contract. The Company will pay to the Owner an amount equal to
the sum of (1) the difference between the amount paid, including fees, and any
amount allocated to the Variable Account, and (2) the Accumulated Value of
amounts allocated to the Variable Account as of the date the request is
received. If the Contract was purchased as an IRA, the IRA revocation right
described above may be utilized in lieu of the special surrender right.
D. TRANSFER PRIVILEGE.
Prior to the Annuity Date, the Owner may transfer amounts among available
accounts at any time upon written or telephone request to the Company. As
discussed in "A. Payments," a properly completed authorization form must be on
file before telephone requests will be honored. Transfer values will be based on
the Accumulated Value next computed after receipt of the transfer request.
Transfers to a Guarantee Period Account must be at least $1,000. If the amount
to be transferred to a Guarantee Period Account is less than $1,000, the Company
may transfer that amount to the Money Market Fund.
Currently, the Company makes no charge for transfers. The first 12 transfers in
a Contract year are guaranteed to be free of any transfer charge. For each
subsequent transfer in a Contract year, the Company reserves the right to assess
a charge, guaranteed never to exceed $25, to reimburse it for the expense of
processing transfers.
29
<PAGE>
AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING) AND AUTOMATIC ACCOUNT REBALANCING
OPTIONS. The Owner may elect automatic transfers of a predetermined dollar
amount, not less than $100, on a periodic basis (monthly, bi-monthly, quarterly,
semi-annually or annually) from the Money Market Fund, the Government Bond Fund
or the Fixed Account (the "source account") to one or more Underlying Funds.
Automatic transfers may not be made into the Fixed Account, the Guarantee Period
Accounts or, if applicable, the Fund being used as the source account. If an
automatic transfer would reduce the balance in the source account to less than
$100, the entire balance will be transferred proportionately to the chosen
Funds. Automatic transfers will continue until the amount in the source account
on a transfer date is zero or the Owner's request to terminate the option is
received by the Company. If additional amounts are allocated to the source
account after its balance has fallen to zero, this option will not restart
automatically, and the Owner must provide a new request to the Company.
The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, quarterly, semi-annual or annual basis in accordance with percentage
allocations specified by the Owner. As frequently as specified by the Owner, the
Company will review the percentage allocations in the Funds and, if necessary,
transfer amounts to ensure conformity with the designated percentage allocation
mix. If the amount necessary to re-establish the mix on any scheduled date is
less than $100, no transfer will be made. Automatic Account Rebalancing will
continue until the Owner's request to terminate or change the option is received
by the Company. As such, subsequent payments allocated in a manner different
from the percentage allocation mix in effect on the date the payment is received
will be allocated in accordance with the existing mix on the next scheduled date
unless the Owner's timely request to change the allocation mix is received by
the Company.
The Company reserves the right to limit the number of Funds that may be utilized
for automatic transfers and rebalancing, and to discontinue either option upon
advance written notice. Currently, Dollar Cost Averaging and Automatic Account
Rebalancing may not be in effect simultaneously. Either option may be elected
when the Contract is purchased or at a later date.
E. SURRENDER.
At any time prior to the Annuity Date, the Owner may surrender the Contract and
receive an amount equal to the Surrender Value. The Owner must return the
Contract and a signed, written request for surrender, satisfactory to the
Company, to the Principal Office. The amount payable to the Owner upon surrender
will be based on the Contract's Accumulated Value as of the Valuation Date on
which the request and the Contract are received at the Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted when
a Contract is surrendered if payments have been credited to the Contract during
the last nine full Contract years. See "CHARGES AND DEDUCTIONS." The Contract
fee will be deducted upon surrender of the Contract.
After the Annuity Date, only a Contract under which a commutable period certain
option has been elected may be surrendered. The Surrender Amount is the commuted
value of any unpaid installments, computed on the basis of the assumed interest
rate incorporated in such annuity benefit payments. No contingent deferred sales
charge is imposed after the Annuity Date.
Any amount surrendered normally is payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and withdrawals of amounts in each Sub-Account in any period
during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has, by order, permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of a separate account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and withdrawals of
amounts allocated to the Company's Fixed Account and Guarantee Period Accounts
for a period not to exceed six months.
30
<PAGE>
The surrender rights of Owners who are participants under Section 403(b) plans
or who are participants in the Texas Optional Retirement Program ("Texas ORP")
are restricted; see "Tax-Sheltered Annuities" and "Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
F. WITHDRAWALS.
At any time prior to the Annuity Date, the Owner may withdraw a portion of the
Accumulated Value of his or her Contract, subject to the limits stated below.
The Owner must submit a signed, written request for withdrawal, satisfactory to
the Company, to the Principal Office. The written request must indicate the
dollar amount the Owner wishes to receive and the accounts from which such
amount is to be withdrawn. The amount withdrawn equals the amount requested by
the Owner plus any applicable contingent deferred sales charge, as described
under "CHARGES AND DEDUCTIONS." In addition, amounts withdrawn from a Guarantee
Period Account prior to the end of the applicable Guarantee Period will be
subject to a Market Value Adjustment, as described under "GUARANTEE PERIOD
ACCOUNTS."
Where allocations have been made to more than one account, a percentage of the
withdrawal may be allocated to each such account. A withdrawal from a
Sub-Account will result in cancellation of a number of units equivalent in value
to the amount withdrawn, computed as of the Valuation Date that the request is
received at the Principal Office.
Each withdrawal must be in a minimum amount of $100. No withdrawal will be
permitted if the Accumulated Value remaining under the Contract would be reduced
to less than $1,000. Withdrawals will be paid in accordance with the time
limitations described under "E. Surrender."
For important restrictions on withdrawals which are applicable to Owners who are
participants under Section 403(b) plans or under the Texas ORP, see
"Tax-Sheltered Annuities" and "Texas Optional Retirement Program."
For important tax consequences which may result from withdrawals, see "FEDERAL
TAX CONSIDERATIONS."
SYSTEMATIC WITHDRAWALS. The Owner may elect an automatic schedule of
withdrawals (systematic withdrawals) from amounts in the Sub-Accounts and/or the
Fixed Account on a monthly, bi-monthly, quarterly, semi-annual or annual basis.
Systematic withdrawals from Guarantee Period Accounts are not available. The
minimum amount of each automatic withdrawal is $100, and will be subject to any
applicable withdrawal charges. If elected at the time of purchase, the Owner
must designate in writing the specific dollar amount of each withdrawal and the
percentage of this amount which should be taken from each designated Sub-Account
and/or the Fixed Account. Systematic withdrawals then will begin on the date
indicated on the application. If elected after the issue date, the Owner may
elect, by written request, a specific dollar amount and the percentage of this
amount to be taken from each designated Sub-Account and/or the Fixed Account, or
the Owner may elect to withdraw a specific percentage of the Accumulated Value
calculated as of the withdrawal dates, and may designate the percentage of this
amount which should be taken from each account. The first withdrawal will take
place on the date the written request is received at the Principal Office or, if
later, on a date specified by the Owner.
If a withdrawal would cause the remaining Accumulated Value to be less than
$1,000, systematic withdrawals will be discontinued. Systematic withdrawals will
cease automatically on the Annuity Date. The Owner may change or terminate
systematic withdrawals by written request only to the Principal Office.
31
<PAGE>
LIFE EXPECTANCY DISTRIBUTIONS. Prior to the Annuity Date an Owner who also is
the Annuitant may elect to make a series of systematic withdrawals from the
Contract according to a life expectancy distribution ("LED") option by returning
a properly signed LED request form to the Principal Office. The LED option
permits the Owner to make systematic withdrawals from the Contract over his or
her lifetime. The amount withdrawn from the Contract changes each year, because
life expectancy changes each year that a person lives. For example, actuarial
tables indicate that a person age 70 has a life expectancy of 16 years, but a
person who attains age 86 has a life expectancy of another 6.5 years.
If an Owner elects the LED option, in each calendar year a fraction of the
Accumulated Value is withdrawn based on the Owner's then life expectancy. The
numerator of the fraction is 1 (one), and the denominator of the fraction is the
remaining life expectancy of the Owner, as determined annually by the Company.
The resulting fraction, expressed as a percentage, is applied to the Accumulated
Value at the beginning of the year to determine the amount to be distributed
during the year. The Owner may elect monthly, bi-monthly, quarterly,
semi-annual, or annual distributions, and may terminate the LED option at any
time. The Owner also may elect to receive distributions under an LED option
which is determined on the joint life expectancy of the Owner and a beneficiary.
The Company also may offer other systematic withdrawal options.
Where the Owner is a trust or other non-natural person, the Owner may elect the
LED option based on the Annuitant's life expectancy.
If an Owner makes withdrawals under the LED option prior to age 59 1/2, the
withdrawals may be treated by the Internal Revenue Service ("IRS") as premature
distributions from the Contract. The payments then would be taxed on an "income
first" basis and be subject to a 10% federal tax penalty. For more information,
see "FEDERAL TAX CONSIDERATIONS" and "B. Taxation of the Contracts in General."
G. DEATH BENEFIT.
In the event that the Annuitant, Owner or Joint Owner, if applicable, dies while
the Contract is in force, the Company will pay the beneficiary a death benefit,
except where the Contract is continued as provided in "H. The Spouse of the
Owner as Beneficiary." The amount of the death benefit and the time requirements
for receipt of payment may vary depending upon whether the Annuitant or an Owner
dies first, and whether death occurs prior to or after the Annuity Date.
DEATH OF THE ANNUITANT PRIOR TO THE ANNUITY DATE. At the death of the Annuitant
(including an Owner who is also the Annuitant), the benefit is equal to the
greatest of (a) the Accumulated Value under the Contract increased by any
positive Market Value Adjustment; (b) gross payments compounded daily at an
annual rate of 5% starting on the date each payment is applied, decreased
proportionately to reflect withdrawals (for each withdrawal, the proportionate
reduction is calculated as the death benefit under this option immediately prior
to the withdrawal multiplied by the withdrawal amount and divided by the
Accumulated Value immediately prior to the withdrawal); or (c) the death benefit
that would have been payable on the most recent contract anniversary, increased
for subsequent payments and decreased proportionately for subsequent
withdrawals.
This guaranteed death benefit works in the following way assuming no withdrawals
are made: On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments compounded at the annual rate of 5%. The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments compounded at the annual rate of 5% or (c) the
locked-in value of the death benefit at the first anniversary. The greatest of
(a), (b) or (c) will be locked in until the next Contract anniversary. This
calculation will then be repeated on each anniversary while the Contract remains
in force and prior to the Annuity Date. As noted above, the values of (b) and
(c) will be decreased proportionately if withdrawals are taken. See APPENDIX C,
"THE DEATH BENEFIT" for specific examples of death benefit calculations.
32
<PAGE>
DEATH OF AN OWNER WHO IS NOT ALSO THE ANNUITANT PRIOR TO THE ANNUITY DATE. If
an Owner who is not also the Annuitant dies before the Annuity Date, the death
benefit will be the Accumulated Value increased by any positive Market Value
Adjustment. The death benefit never will be reduced by a negative Market Value
Adjustment.
PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit
generally will be paid to the beneficiary in one sum within seven business days
of the receipt of due proof of death at the Principal Office unless the Owner
has specified a death benefit annuity option. Instead of payment in one sum, the
beneficiary may, by written request, elect to:
(1) defer distribution of the death benefit for a period no more than five
years from the date of death; or
(2) receive a life annuity or an annuity for a period certain not extending
beyond the beneficiary's life expectancy, with annuity benefit payments
beginning one year from the date of death.
If distribution of the death benefit is deferred under (1) or (2), any value in
the Guarantee Period Accounts will be transferred to the Sub-Account investing
in the Money Market Fund. The excess, if any, of the death benefit over the
Accumulated Value also will be added to the Money Market Fund. The beneficiary
may, by written request, effect transfers and withdrawals during the deferral
period and prior to annuitization under (2), but may not make additional
payments. The death benefit will reflect any earnings or losses experienced
during the deferral period. If there are multiple beneficiaries, the consent of
all is required.
With respect to the death benefit, the Accumulated Value under the Contract will
be based on the unit values next computed after due proof of the death has been
received.
DEATH OF THE ANNUITANT ON OR AFTER THE ANNUITY DATE. If the Annuitant's death
occurs on or after the Annuity Date but before completion of all guaranteed
annuity benefit payments, any unpaid amounts or installments will be paid to the
beneficiary. The Company must pay out the remaining payments at least as rapidly
as under the payment option in effect on the date of the Annuitant's death.
H. THE SPOUSE OF THE OWNER AS BENEFICIARY.
The Owner's spouse, if named as the sole beneficiary, may by written request
continue the Contract in lieu of receiving the amount payable upon death of the
Owner. Upon such election, the spouse will become the Owner and Annuitant
subject to the following: (1) any value in the Guarantee Period Accounts will be
transferred to the Money Market Fund; (2) the excess, if any, of the death
benefit over the Contract's Accumulated Value also will be added to the Money
Market Fund. This value never will be subject to a surrender charge when
withdrawn. Additional payments may be made; however, a surrender charge will
apply to these amounts if they have not been invested in the Contract for more
than nine years. All other rights and benefits provided in the Contract will
continue, except that any subsequent spouse of such new Owner will not be
entitled to continue the Contract upon such new Owner's death.
I. ASSIGNMENT.
The Contract, other than those sold in connection with certain qualified plans,
may be assigned by the Owner at any time prior to the Annuity Date and while the
Annuitant is alive. The Company will not be deemed to have knowledge of an
assignment unless it is made in writing and filed at the Principal Office. The
Company will not assume responsibility for determining the validity of any
assignment. If an assignment of the Contract is in effect on the Annuity Date,
the Company reserves the right to pay to the assignee, in one sum, that portion
of the Surrender Value of the Contract to which the assignee appears to be
entitled. The Company will pay the balance, if any, in one sum to the Owner in
full settlement of all liability under the Contract. The interest of the Owner
and of any beneficiary will be subject to any assignment.
33
<PAGE>
For important tax liability which may result from assignments, see "FEDERAL TAX
CONSIDERATIONS."
J. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE.
The Annuity Date is selected by the Owner. To the extent permitted in your
state, the Annuity Date may be the first day of any month (1) before the
Annuitant's 85th birthday, if the Annuitant's age on the issue date of the
Contract is 75 or under, or (2) within ten years from the issue date of the
Contract and before the Annuitant's 90th birthday, if the Annuitant's age on the
issue date is between 76 and 90. The Owner may elect to change the Annuity Date
by sending a request to the Principal Office at least one month before the
Annuity date. The new Annuity Date must be the first day of any month occurring
before the Annuitant's 90th birthday, and must be within the life expectancy of
the Annuitant. The Company shall determine such life expectancy at the time a
change in Annuity Date is requested. The Internal Revenue Code (the "Code") and
the terms of qualified plans impose limitations on the age at which annuity
benefit payments may commence and the type of annuity option selected. See
"FEDERAL TAX CONSIDERATIONS" for further information.
Subject to certain restrictions described below, the Owner has the right (1) to
select the annuity option under which annuity benefit payments are to be made,
and (2) to determine whether payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. Annuity benefit
payments are determined according to the annuity tables in the Contract, by the
annuity option selected, and by the investment performance of the accounts
selected.
To the extent a fixed annuity payout is selected, Accumulated Value will be
transferred to the Fixed Account of the Company, and the annuity benefit
payments will be fixed in amount. See APPENDIX A, "MORE INFORMATION ABOUT THE
FIXED ACCOUNT."
Under a variable annuity payout, a payment equal to the value of the fixed
number of Annuity Units in the Sub-Accounts is made monthly, quarterly,
semi-annually or annually. Since the value of an Annuity Unit in a Sub-Account
will reflect the investment performance of the Sub-Account, the amount of each
annuity benefit payment will vary.
The annuity option selected must produce an initial payment of at least $50 (a
lower amount may be required in some states). The Company reserves the right to
increase this minimum amount. If the annuity options selected does not produce
an initial payment which meet this minimum, a single payment may be made. Once
the Company begins making annuity benefit payments, the Annuitant cannot make
withdrawals or surrender the annuity benefit, except where the Annuitant has
elected a commutable period certain option. Beneficiaries entitled to receive
remaining payments under either a commutable or non-commutable "period certain"
option may elect instead to receive a lump sum settlement. See "K. Description
of Variable Annuity Options."
If the Owner does not elect otherwise, a variable life annuity with periodic
payments for ten years guaranteed will be purchased. Changes in either the
Annuity Date or annuity option can be made up to one month prior to the Annuity
Date.
K. DESCRIPTION OF VARIABLE ANNUITY PAYOUT OPTIONS.
The Company provides the variable annuity payout options described below.
Currently, variable annuity options may be funded through the Sub-Accounts
investing in the Select Growth and Income Fund, the Equity Index Fund, the
Growth Fund and the Money Market Fund.
The Company also provides these same options funded through the Fixed Account
(fixed annuity payout). Regardless of how payments were allocated during the
accumulation period, any of the variable payout options or the fixed payout
options may be selected, or any of the variable options may be selected in
combination with any of the fixed options. Other annuity options may be offered
by the Company. IRS regulations may not permit certain of the available annuity
options when used in connection with certain qualified Contracts.
34
<PAGE>
VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR TEN YEARS. This variable
annuity is payable periodically during the lifetime of the payee with the
guarantee that if the payee should die before all payments have been made, the
remaining annuity benefit payments will continue to the beneficiary.
VARIABLE LIFE ANNUITY PAYABLE PERIODICALLY DURING LIFETIME OF THE ANNUITANT
ONLY. It would be possible under this option for the Annuitant to receive only
one annuity benefit payment if the Annuitant dies prior to the due date of the
second annuity benefit payment, two annuity benefit payments if the Annuitant
dies before the due date of the third annuity benefit payment, and so on.
Payments will continue, however, during the lifetime of the Annuitant, no matter
how long he or she lives.
UNIT REFUND VARIABLE LIFE ANNUITY. This is an annuity payable periodically
during the lifetime of the payee with the guarantee that if (1) exceeds (2),
then periodic variable annuity benefit payments will continue to the beneficiary
until the number of such payments equals the number determined in (1).
Where: (1) is the dollar amount of the Accumulated Value divided by the
dollar amount of the first payment, and
(2) is the number of payments paid prior to the death of the payee.
JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is payable
jointly to two payees during their joint lifetime, and then continues thereafter
during the lifetime of the survivor. The amount of each payment to the survivor
is based on the same number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be either the person
designated as the Annuitant or the beneficiary in the Contract. There is no
minimum number of payments under this option.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is
payable jointly to two payees during their joint lifetime, and then continues
thereafter during the lifetime of the survivor. The amount of each periodic
payment to the survivor, however, is based upon two-thirds of the number of
Annuity Units which applied during the joint lifetime of the two payees. One of
the payees must be the person designated as the Annuitant in the Contract or the
beneficiary. There is no minimum number of payments under this option.
PERIOD CERTAIN VARIABLE ANNUITY. This variable annuity has periodic payments
for a stipulated number of years ranging from one to 30, and may be commutable
or non-commutable. A commutable option provides the Annuitant with the right to
request a lump sum payment of any remaining balance after annuity payments have
commenced. Under a non-commutable period certain option, the Annuitant may not
request a lump sum payment. See "ANNUITY BENEFIT PAYMENT" in the SAI.
It should be noted that the period certain option does not involve a life
contingency. In the computation of the payments under this option, the charge
for annuity rate guarantees, which includes a factor for mortality risks, is
made. Although not contractually required to do so, the Company currently
follows a practice of permitting persons receiving payments under a period
certain option to elect to convert to a variable annuity involving a life
contingency. The Company may discontinue or change this practice at any time,
but not with respect to election of the option made prior to the date of any
change in this practice.
L. ANNUITY BENEFIT PAYMENTS.
THE ANNUITY UNIT. On and after the Annuity Date, the Annuity Unit is a measure
of the value of the Annuitant's monthly annuity benefit payments under a
variable annuity option. The value of an Annuity Unit in each Sub-Account
initially was set at $1.00. The value of an Annuity Unit under a Sub-Account on
any Valuation Date thereafter is equal to the value of such unit on the
immediately preceding Valuation Date, multiplied by the product of (1) the net
investment factor of the Sub-Account for the current Valuation Period, and (2) a
factor to adjust benefits to neutralize the assumed interest rate. The assumed
interest rate, discussed below, is incorporated in the variable annuity options
offered in the Contract.
35
<PAGE>
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY BENEFIT PAYMENTS. The first
periodic annuity benefit payment is based upon the Accumulated Value as of a
date not more than four weeks preceding the date that the first annuity benefit
payment is due. Variable annuity benefit payments are due on the first of a
month, which is the date the payment is to be received by the Annuitant, and
currently are based on unit values as of the 15th day of the preceding month.
The Contract provides annuity rates which determine the dollar amount of the
first periodic payment under each form of annuity for each $1,000 of applied
value. For life contingency options and non-commutable period certain options of
ten or more years, the annuity value is the Accumulated Value less any premium
taxes and adjusted for any Market Value Adjustment. For commutable period
certain options or any period certain option less than ten years, the value is
the Surrender Value less any premium tax. For a death benefit annuity, the
annuity value will be the amount of the death benefit. The annuity rates in the
Contract are based on a modification of the 1983(a) Individual Mortality Table
on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "M. NORRIS Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3.5% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity benefit payments will
increase over periods when the actual net investment result of the Sub-Accounts
funding the annuity exceeds the equivalent of the assumed interest rate for the
period. Variable annuity benefit payments will decrease over periods when the
actual net investment result of the respective Sub-Account is less than the
equivalent of the assumed interest rate for the period.
The dollar amount of the first periodic annuity benefit payment under life
annuity options and non-commutable period certain options of ten years or more
is determined by multiplying (1) the Accumulated Value applied under that option
(after application of any Market Value Adjustment and less premium tax, if any)
divided by $1,000, by (2) the applicable amount of the first monthly payment per
$1,000 of value. For commutable period certain options and any period certain
option of less than ten years, the Surrender Value less premium taxes, if any,
is used rather than the Accumulated Value. The dollar amount of the first
variable annuity benefit payment is then divided by the value of an Annuity Unit
of the selected Sub-Accounts to determine the number of Annuity Units
represented by the first payment. This number of Annuity Units remains fixed
under all annuity options except the joint and two-thirds survivor annuity
option. For each subsequent payment, the dollar amount of the variable annuity
benefit payment is determined by multiplying this fixed number of Annuity Units
by the value of an Annuity Unit on the applicable Valuation Date. After the
first benefit payment, the dollar amount of each periodic variable annuity
benefit payment will vary with subsequent variations in the value of the Annuity
Unit of the selected Sub-Accounts. The dollar amount of each fixed amount
annuity benefit payment is fixed and will not change, except under the joint and
two-thirds survivor annuity option.
From time to time, the Company may offer Owners both fixed and variable annuity
rates more favorable than those contained in the Contract. Any such rates will
be applied uniformly to all Owners of the same class.
For an illustration of a variable annuity benefit payment calculation using a
hypothetical example, see "ANNUITY BENEFIT PAYMENTS" in the SAI.
M. NORRIS DECISION
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a Contract issued in connection with an employer-sponsored benefit plan
affected by the
36
<PAGE>
NORRIS decision will be based on the greater of (1) the Company's unisex
non-guaranteed current annuity option rates, or (2) the guaranteed unisex rates
described in such Contract, regardless of whether the Annuitant is male or
female.
N. COMPUTATION OF VALUES.
THE ACCUMULATION UNIT. Each net payment is allocated to the accounts selected
by the Owner. Allocations to the Sub-Accounts are credited to the Contract in
the form of Accumulation Units. Accumulation Units are credited separately for
each Sub-Account. The number of Accumulation Units of each Sub-Account credited
to the Contract is equal to the portion of the net payment allocated to the
Sub-Account, divided by the dollar value of the applicable Accumulation Unit as
of the Valuation Date the payment is received at the Principal Office. The
number of Accumulation Units resulting from each payment will remain fixed
unless changed by a subsequent split of Accumulation Unit value, a transfer, a
withdrawal or surrender. The dollar value of an Accumulation Unit of each
Sub-Account varies from Valuation Date to Valuation Date based on the investment
experience of that Sub-Account, and will reflect the investment performance,
expenses and charges of its Underlying Funds. The value of an Accumulation Unit
was set at $1.00 on the first Valuation Date for each Sub-Account.
Allocations to the Guarantee Period Accounts and the Fixed Account are not
converted into Accumulation Units, but are credited interest at a rate
periodically set by the Company.
The Accumulated Value under the Contract is determined by (1) multiplying the
number of Accumulation Units in each Sub-Account by the value of an Accumulation
Unit of that Sub-Account on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the Fixed Account and Guarantee Period
Accounts, if any.
NET INVESTMENT FACTOR. The Net Investment Factor is an index that measures the
investment performance of a Sub-Account from one Valuation Period to the next.
This factor is equal to 1.000000 plus the result from dividing (1) by (2) and
subtracting (3) and (4) where:
(1) is the investment income of a Sub-Account for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;
(2) is the value of that Sub-Account's assets at the beginning of the
Valuation Period;
(3) is a charge for mortality and expense risks equal to 1.25% on an annual
basis of the daily value of the Sub-Account's assets; and
(4) is an administrative charge equal to 0.20% on an annual basis of the
daily value of the Sub-Account's assets.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of an Accumulation Unit calculation using a hypothetical
example see the SAI.
37
<PAGE>
CHARGES AND DEDUCTIONS
Deductions under the Contract and charges against the assets of the Sub-Accounts
are described below. Other deductions and expenses paid out of the assets of the
Underlying Funds are described in the prospectuses and SAIs of the Trust,
Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF.
A. VARIABLE ACCOUNT DEDUCTIONS.
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a daily charge equal to an
annual rate of 1.25% of the value of each Sub-Account's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Contract. The charge is imposed during both the accumulation
phase and the annuity phase. The mortality risk arises from the Company's
guarantee that it will make annuity benefit payments in accordance with annuity
rate provisions established at the time the Contract is issued for the life of
the Annuitant (or in accordance with the annuity option selected), no matter how
long the Annuitant (or other payee) lives and no matter how long all Annuitants
as a class live. Therefore, the mortality charge is deducted during the annuity
phase on all Contracts, including those that do not involve a life contingency,
even though the Company does not bear direct mortality risk with respect to
variable annuity settlement options that do not involve life contingencies. The
expense risk arises from the Company's guarantee that the charges it makes will
not exceed the limits described in the Contract and in this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be 0.80% for mortality risk and
0.45% for expense risk.
ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account with a
daily charge equal to an annual rate of 0.20% of the average daily net assets of
the Sub-Account. The charge is imposed during both the accumulation phase and
the annuity phase. The daily administrative expense charge is assessed to help
defray administrative expenses actually incurred in the administration of the
Sub-Account, without profits. There is no direct relationship, however, between
the amount of administrative expenses imposed on a given Contract and the amount
of expenses actually attributable to that Contract.
Deductions for the Contract fee (see B. below) and for the administrative
expense charge are designed to reimburse the Company for the cost of
administration and related expenses and are not expected to be a source of
profit. The administrative functions and expense assumed by the Company in
connection with the Variable Account and the Contract include, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and supplies, expenses of preparing and printing
registration statements, expense of preparing and typesetting prospectuses and
the cost of printing prospectuses not allocable to sales expense, filing and
other fees.
OTHER CHARGES. Because the Sub-Accounts purchase shares of the Underlying
Funds, the value of the net assets of the Sub-Accounts will reflect the
investment advisory fee and other expenses incurred by the Underlying Funds. The
prospectus and SAI for the Fund contains additional information concerning
expenses of the Underlying Funds.
38
<PAGE>
B. CONTRACT FEE.
A $30 Contract fee currently is deducted on the Contract anniversary date and
upon full surrender of the Contract if the Accumulated Value on any of these
dates is less than $50,000. The Contract fee is waived for Contracts issued to
and maintained by the trustee of a 401(k) plan. Where Contract value has been
allocated to more than one account, a percentage of the total Contract fee will
be deducted from the value in each account. The portion of the charge deducted
from each account will be equal to the percentage which the value in that
account bears to the Accumulated Value under the Contract. The deduction of the
Contract fee from a Sub-Account will result in cancellation of a number of
Accumulation Units equal in value to the percentage of the charge deducted from
that account.
Where permitted by law, the Contract fee also may be waived for Contracts where,
on the date of issue, either the Owner or the Annuitant is within the class of
"eligible persons" as defined under the "Reduction and Elimination of Surrender
Charge" provision below.
C. PREMIUM TAXES.
Some states and municipalities impose a premium tax on variable annuity
contracts. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
1. if the premium tax was paid by the Company when payments were received,
the premium tax charge is deducted on a pro-rata basis when withdrawals
are made, upon surrender of the Contract, or when annuity benefit
payments begin (the Company reserves the right instead to deduct the
premium tax charge for these Contracts at the time the payments are
received); or
2. the premium tax charge is deducted when annuity benefit payments begin.
In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law.
If no amount for premium tax was deducted at the time the payment was received,
but subsequently tax is determined to be due prior to the Annuity Date, the
Company reserves the right to deduct the premium tax from the Contract value at
the time such determination is made.
D. CONTINGENT DEFERRED SALES CHARGE.
No charge for sales expense is deducted from payments at the time the payments
are made. A contingent deferred sales charge, however, is deducted from the
Accumulated Value in the case of surrender and/or a withdrawal or at the time
annuity benefit payments begin, within certain time limits described below.
For purposes of determining the contingent deferred sales charge, the
Accumulated Value is divided into three categories: (1) New Payments --payments
received by the Company during the nine years preceding the date of the
surrender; (2) Old Payments -- accumulated payments not defined as New Payments;
and (3) the amount available under the Withdrawal Without Surrender Charge
provision. See "Withdrawal Without Surrender Charge" below. For purposes of
determining the amount of any contingent deferred sales charge, surrenders will
be deemed to be taken first from amounts available as a Withdrawal Without
Surrender Charge, if any, then from Old Payments, and then from New Payments.
Amounts available as a Withdrawal Without Surrender Charge, followed by Old
Payments, may be withdrawn from the Contract at any time without the imposition
of a contingent deferred sales charge. If a withdrawal is attributable all or in
part to New Payments, a contingent deferred sales charge may apply.
39
<PAGE>
CHARGES FOR SURRENDER AND WITHDRAWAL. If the Contract is surrendered, or if New
Payments are withdrawn while the Contract is in force and before the Annuity
Date, a contingent deferred sales charge may be imposed. The amount of the
charge will depend upon the number of years that the New Payments, if any, to
which the withdrawal is attributed have remained credited under the Contract.
For the purpose of calculating surrender charges for New Payments, all amounts
withdrawn are assumed to be deducted first from the earliest New Payment and
then from the next earliest New Payment and so on, until all New Payments have
been exhausted pursuant to the first-in-first-out ("FIFO") method of accounting.
(See "FEDERAL TAX CONSIDERATIONS" for a discussion of how withdrawals are
treated for income tax purposes.)
The contingent deferred sales charges are as follows:
<TABLE>
<CAPTION>
YEARS FROM CHARGE AS PERCENTAGE OF
DATE OF PAYMENT NEW PAYMENTS WITHDRAWN
- ---------------- -------------------------
<S> <C>
less than 2 8%
3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
Thereafter 0%
</TABLE>
The amount withdrawn equals the amount requested by the Owner plus the
contingent deferred sales charge, if any. The charge is applied as a percentage
of the New Payments withdrawn, but in no event will the total contingent
deferred sales charge exceed a maximum limit of 8.0% of total gross New
Payments. Such total charge equals the aggregate of all applicable contingent
deferred sales charges for surrender, withdrawals and annuitization.
REDUCTION OR ELIMINATION OF SURRENDER CHARGE. Where permitted by state law, the
Company will waive the contingent deferred sales charge in the event that an
Owner (or the Annuitant, if the Owner is not an individual) is: (1) admitted to
a medical care facility after the issue date of the Contract and remains
confined there until the later of one year after the issue date or 90
consecutive days; (2) first diagnosed by a licensed physician as having a fatal
illness after the issue date of the Contract; or (3) physically disabled after
the issue date of the Contract and before attaining age 65. The Company may
require proof of such disability and continuing disability, including written
confirmation of receipt and approval of any claim for Social Security Disability
Benefits and reserves the right to obtain an examination by a licensed physician
of its choice and at its expense.
For purposes of the above provision, "medical care facility" means any
state-licensed facility or, in a state that does not require licensing, a
facility that is operating pursuant to state law, providing medically necessary
inpatient care which is prescribed by a licensed "physician" in writing and
based on physical limitations which prohibit daily living in a non-institutional
setting; "fatal illness" means a condition diagnosed by a licensed physician
which is expected to result in death within two years of the diagnosis; and
"physician" means a person other than the Owner, Annuitant or a member of one of
their families who is state licensed to give medical care or treatment and is
acting within the scope of that license.
Where contingent deferred sales charges have been waived under any one of three
situations discussed above, no additional payments under the Contract will be
accepted unless required by state law.
40
<PAGE>
In addition, from time to time the Company may allow a reduction in or
elimination of the contingent deferred sales charges, the period during which
the charges apply, or both, and/or credit additional amounts on Contracts, when
Contracts are sold to individuals or groups of individuals in a manner that
reduces sales expenses. The Company will consider factors such as the following:
(1) the size and type of group or class, and the persistency expected from that
group or class; (2) the total amount of payments to be received, and the manner
in which payments are remitted; (3) the purpose for which the Contracts are
being purchased, and whether that purpose makes it likely that costs and
expenses will be reduced; (4) other transactions where sales expenses are likely
to be reduced; or (5) the level of commissions paid to registered
representatives, selling broker-dealers or certain financial institutions with
respect to Contracts within the same group or class (for example, broker-dealers
who offer the Contract in connection with financial planning services offered on
a fee-for-service basis). The Company also may reduce or waive the contingent
deferred sales charge, and/or credit additional amounts on contracts, where
either the Owner or the Annuitant on the date of issue is within the following
classes of individuals ("eligible persons"): (1) any employee of the Company
located at its home office or at off-site locations if such employees are on the
Company's home office payroll; (2) any director of the Company; (3) any retiree
who elected to retire on his/her retirement date; (4) the immediate family
members of those persons identified in (1) through (3) above residing in the
same household; and (5) any beneficiary who receives a death benefit under a
deceased employees or retiree's progress sharing plan. For purposes of the above
class of individuals, "the Company" includes affiliates and subsidiaries;
"immediate family members" means children, siblings, parents and grandparents;
"retirement date" means an employee's early, normal or late retirement date as
defined in the Company's pension plan or any successor plan, and "progress
sharing" means the First Allmerica Financial Life Insurance Company Employee's
Matched Savings Plan or any successor plan.
Finally, if permitted under state law, contingent deferred sales charges will be
waived under a Section 403(b) Contract where the amount withdrawn is being
contributed to a life insurance policy issued by the Company as part of the
individual's Section 403(b) plan.
Any reduction or elimination in the amount or duration of the contingent
deferred sales charge will not discriminate unfairly among purchasers of the
Contract. The Company will not make any changes to this charge where prohibited
by law.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the contingent
deferred sales charge is modified to effect certain exchanges of existing
annuity contracts issued by the Company for the Contract. See "EXCHANGE OFFER"
in the SAI.
WITHDRAWAL WITHOUT SURRENDER CHARGE. In each calendar year, the Company will
waive the contingent deferred sales charge, if any, on an amount ("Withdrawal
Without Surrender Charge") equal to the greatest of (1), (2) or (3):
<TABLE>
<S> <C>
Where (1) 100% of Cumulative Earnings (calculated as the Accumulated Value as of
is: the Valuation Date the Company receives the withdrawal request, or the
following day, reduced by total gross payments not previously withdrawn);
Where (2) 10% of the Accumulated Value as of the Valuation Date the Company
is: receives the withdrawal request, or the following day, reduced by the
total amount of any prior withdrawals made in the same calendar year to
which no contingent deferred sales charge was applied; and
Where (3) The amount calculated under the Company's life expectancy distribution
is: option (see Life Expectancy Distributions) whether or not the withdrawal
was part of such distribution (applies only if Annuitant is also an
Owner).
</TABLE>
41
<PAGE>
For example, an 81-year-old Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Withdrawal Without
Surrender Charge of $1,530 which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED of 10.2% of Accumulated Value ($1,530).
The Withdrawal Without Surrender Charge first will be deducted from Cumulative
Earnings. If the Withdrawal Without Surrender Charge exceeds Cumulative
Earnings, the excess amount will be deemed withdrawn from payments not
previously withdrawn on a last-in first-out ("LIFO") basis. If more than one
withdrawal is made during the year, on each subsequent withdrawal the Company
will waive the contingent deferred sales charge, if any, until the entire
Withdrawal Without Surrender Charge has been withdrawn. Amounts withdrawn from a
Guarantee Period Account prior to the end of the applicable Guarantee Period
will be subject to a Market Value Adjustment.
SURRENDERS. In the case of a complete surrender, the amount received by the
Owner is equal to the entire Accumulated Value under the Contract, net of the
applicable contingent deferred sales charge on New Payments, the Contract fee
and any applicable tax withholding, and adjusted for any applicable Market Value
Adjustment. Subject to the same rules applicable to withdrawals, the Company
will not assess a contingent deferred sales charge on an amount equal to the
Withdrawal Without Surrender Charge Amount, described above.
Where an Owner who is trustee under a pension plan surrenders, in whole or in
part, a Contract on a terminating employee, the trustee will be permitted to
reallocate all or a part of the Accumulated Value under the Contract to other
contracts issued by the Company and owned by the trustee, with no deduction for
any otherwise applicable contingent deferred sales charge. Any such reallocation
will be at the unit values for the Sub-Accounts as of the Valuation Date on
which a written, signed request is received at the Principal Office.
For further information on surrender and withdrawal, including minimum limits on
amount withdrawn and amount remaining under the Contract in the case of
withdrawal, and important tax considerations, see "E. Surrender" and "F.
Withdrawals" under "DESCRIPTION OF THE CONTRACT," and see "FEDERAL TAX
CONSIDERATIONS"
CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If any commutable period
certain option or a non-commutable period certain option for less than ten years
is chosen, a contingent deferred sales charge will be deducted from the
Accumulated Value of the Contract if the Annuity Date occurs at any time when
the surrender charge would still apply had the Contract been surrendered on the
Annuity Date.
No contingent deferred sales charge is imposed at the time of annuitization in
any Contract year under an option involving a life contingency or for any
non-commutable period certain option for ten years or more. A Market Value
Adjustment, however, may apply. See "GUARANTEE PERIOD ACCOUNTS." If the Owner of
a fixed annuity contract issued by the Company wishes to elect a variable
annuity option, the Company may permit such Owner to exchange, at the time of
annuitization, the fixed contract for a Contract offered in this Prospectus. The
proceeds of the fixed contract, minus any contingent deferred sales charge
applicable under the fixed contract if a period certain option is chosen, will
be applied towards the variable annuity option desired by the Owner. The number
of Annuity Units under the option will be calculated using the Annuity Unit
values as of the 15th of the month preceding the Annuity Date.
42
<PAGE>
E. TRANSFER CHARGE.
The Company currently makes no charge for processing transfers. The Company
guarantees that the first 12 transfers in a Contract year will be free of
transfer charge, but reserves the right to assess a charge, guaranteed never to
exceed $25, for each subsequent transfer in a Contract year. For more
information, see "D. Transfer Privilege."
GUARANTEE PERIOD ACCOUNTS
Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Company's Fixed Account are
not registered as an investment company under the provisions of the Securities
Act of 1933 (the "1933 Act") or the 1940 Act. Accordingly, the staff of the SEC
has not reviewed the disclosures in this Prospectus relating to the Guarantee
Period Accounts or the Fixed Account. Nevertheless, disclosures regarding the
Guarantee Period Accounts and the Fixed Account of the Contract or any fixed
benefits offered under these accounts may be subject to the provisions of the
1933 Act relating to the accuracy and completeness of statements made in the
Prospectus.
INVESTMENT OPTIONS. In most jurisdictions, Guarantee Periods ranging from two
through ten years may be available. Each Guarantee Period established for the
Owner is accounted for separately in a non-unitized segregated account. Each
Guarantee Period Account provides for the accumulation of interest at a
Guaranteed Interest Rate. The Guaranteed Interest Rate on amounts allocated or
transferred to a Guarantee Period Account is determined from time to time by the
Company in accordance with market conditions. Once an interest rate is in effect
for a Guarantee Period Account, however, the Company may not change it during
the duration of the Guarantee Period. In no event will the Guaranteed Interest
Rate be less than 3%.
To the extent permitted by law, the Company reserves the right at any time to
offer Guarantee Periods with durations that differ from those which were
available when a Contract initially was issued and to stop accepting new
allocations, transfers or renewals to a particular Guarantee Period.
Owners may allocate net payments or make transfers from any of the Sub-Accounts,
the Fixed Account or an existing Guarantee Period Account to establish a new
Guarantee Period Account at any time prior to the Annuity Date. Transfers from a
Guarantee Period Account, on any date other than on the day following the
expiration of that Guarantee Period, will be subject to a Market Value
Adjustment. The Company establishes a separate investment account each time the
Owner allocates or transfers amounts to a Guarantee Period except that amounts
allocated to the same Guarantee Period on the same day will be treated as one
Guarantee Period Account. The minimum that may be allocated to establish a
Guarantee Period Account is $1,000. If less than $1,000 is allocated, the
Company reserves the right to apply that amount to the Money Market Fund. The
Owner may allocate amounts to any of the Guarantee Periods available.
At least 45 days, but not more than 75 days, prior to the end of a Guarantee
Period, the Company will notify the Owner in writing of the expiration of that
Guarantee Period. At the end of a Guarantee Period the Owner may transfer
amounts to the Sub-Accounts, the Fixed Account or establish a new Guarantee
Period Account of any duration then offered by the Company without a Market
Value Adjustment. If reallocation instructions are not received at the Principal
Office before the end of a Guarantee Period, the account value automatically
will be applied to a new Guarantee Period Account with the same duration unless
(1) less than $1,000 would remain in the Guarantee Period Account on the
expiration date, or (2) the Guarantee Period would extend beyond the Annuity
Date or is no longer available. In such cases, the Guarantee Period Account
value will be transferred to the Money Market Fund. Where amounts have been
renewed automatically in a new Guarantee Period, it is the Company's current
practice to give the Owner an additional 30 days to transfer out of the
Guarantee Period Account without application of a Market Value Adjustment. This
practice may be discontinued or changed at the Company's discretion.
43
<PAGE>
MARKET VALUE ADJUSTMENT. No Market Value Adjustment will be applied to
transfers, withdrawals, or a surrender from a Guarantee Period Account on the
expiration of its Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See "G. Death Benefit." All
other transfers, withdrawals, or a surrender prior to the end of a Guarantee
Period will be subject to a Market Value Adjustment, which may increase or
decrease the account value. Amounts applied under an annuity option are treated
as withdrawals when calculating the Market Value Adjustment. The Market Value
Adjustment will be determined by multiplying the amount taken from each
Guarantee Period Account before deduction of any Surrender Charge by the market
value factor. The market value factor for each Guarantee Period Account is equal
to:
[(1+i)/(1+j)](n/365) - 1
where: i is the Guaranteed Interest Rate expressed as a decimal (for
example 3% = 0.03) being credited to the current Guarantee
Period;
j is the new Guaranteed Interest Rate, expressed as a decimal,
for a Guarantee Period with a duration equal to the number of
years remaining in the current Guarantee Period, rounded to the
next higher number of whole years. If that rate is not available,
the Company will use a suitable rate or index allowed by the
Department of Insurance; and
n is the number of days remaining from the Effective Valuation
Date to the end of the current Guarantee Period.
Based on the application of this formula, the value of a Guarantee Period
Account will increase after the Market Value Adjustment is applied if the then
current market rates are lower than the rate being credited to the Guarantee
Period Account. Similarly, the value of a Guarantee Period Account will decrease
after the Market Value Adjustment is applied if the then current market rates
are higher than the rate being credited to the Guarantee Period Account. The
Market Value Adjustment is limited, however, so that even if the account value
is decreased after application of a Market Value Adjustment, it will equal or
exceed the Owner's principal plus 3% earnings per year less applicable Contract
fees. Conversely, if the then current market rates are lower and the account
value is increased after the Market Value Adjustment is applied, the increase in
value is also affected by the minimum guaranteed rate of 3% such that the amount
that will be added to the Guarantee Period Account is limited to the difference
between the amount earned and the 3% minimum guaranteed earnings. For examples
of how the Market Value Adjustment works, see APPENDIX B.
WITHDRAWALS. Prior to the Annuity Date, the Owner may make withdrawals of
amounts held in the Guarantee Period Accounts. Withdrawals from these accounts
will be made in the same manner and be subject to the same rules as set forth
under "E. Surrender" and "F. Withdrawals." In addition, the following provisions
also apply to withdrawals from a Guarantee Period Account: (1) a Market Value
Adjustment will apply to all withdrawals, including Withdrawals Without
Surrender Charge, unless made at the end of the Guarantee Period; and (2) the
Company reserves the right to defer payments of amounts withdrawn from a
Guarantee Period Account for up to six months from the date it receives the
withdrawal request. If deferred for 30 days or more, the Company will pay
interest on the amount deferred at a rate of at least 3%.
In the event that a Market Value Adjustment applies to a withdrawal of a portion
of the value of a Guarantee Period Account, it will be calculated on the amount
requested and deducted or added to the amount remaining in the Guarantee Period
Account. If the entire amount in a Guarantee Period Account is requested, the
adjustment will be made to the amount payable. If a contingent deferred sales
charge applies to the withdrawal, it will be calculated as set forth under "D.
Contingent Deferred Sales Charge" after application of the Market Value
Adjustment.
44
<PAGE>
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of the Contract, on withdrawals
or surrenders, on annuity benefit payments, and on the economic benefit to the
Owner, Annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the IRS. In
addition, this discussion does not address state or local tax consequences that
may be associated with the Contract.
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS, AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER ALWAYS SHOULD BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income, assets, or
existence of the Contract, the Variable Account or the Sub-Accounts may have
upon its tax. The Variable Account presently is not subject to tax, but the
Company reserves the right to assess a charge for taxes should the Variable
Account at any time become subject to tax. Any charge for taxes will be assessed
on a fair and equitable basis in order to preserve equity among classes of
Owners and with respect to each separate account as though that separate account
were a separate taxable entity.
The Variable Account is considered a part of and taxed with the operations of
the Company. The Company is taxed as a life insurance company under Subchapter L
of the Code. The Company files a consolidated tax return with its affiliates.
The IRS has issued regulations relating to the diversification requirements for
variable annuity and variable life insurance contracts under Section 817(h) of
the Code. The regulations provide that the investments of a segregated asset
account underlying a variable annuity contract are adequately diversified if no
more than 55% of the value of its assets is represented by any one investment,
no more than 70% by any two investments, no more than 80% by any three
investments, and no more than 90% by any four investments. If the investments
are not adequately diversified, the income on the Contract, for any taxable year
of the Owner, would be treated as ordinary income received or accrued by the
Owner. It is anticipated that the Funds of the Trust, the Portfolios of Fidelity
VIP and VIP II, the Portfolio of T. Rowe Price and the Series of DGPF will
comply with the current diversification requirements. In the event that future
IRS regulations and/or rulings would require Contract modifications in order to
remain in compliance with the diversification standards, the Company will make
reasonable efforts to comply, and it reserves the right to make such changes as
it deems appropriate for that purpose.
A. QUALIFIED AND NON-QUALIFIED CONTRACTS.
From a federal tax viewpoint there are two types of variable annuity contracts:
"qualified" contracts and "non-qualified" contracts. A qualified contract is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, or 408 of the Code, while a non-qualified
contract is one that is not purchased in connection with one of the indicated
retirement plans. The tax treatment for certain withdrawals or surrenders will
vary, depending on whether they are made from a qualified contract or a non-
qualified contract. For more information on the tax provisions applicable to
qualified contracts, see Section D below.
45
<PAGE>
B. TAXATION OF THE CONTRACTS IN GENERAL.
The Company believes that the Contract described in this Prospectus will, with
certain exceptions (see "Non-Natural Owner" below), be considered an annuity
contract under Section 72 of the Code. This section governs the taxation of
annuities. The following discussion concerns annuities subject to Section 72.
WITHDRAWALS PRIOR TO ANNUITIZATION. With certain exceptions, any increase in
the Contract's Accumulated Value is not taxable to the Owner until it is
withdrawn from the Contract. If the Contract is surrendered or amounts are
withdrawn prior to the Annuity Date, any withdrawal of investment gain in value
over the cost basis of the Contract will be taxed as ordinary income. Under the
current provisions of the Code, amounts received under an annuity contract prior
to annuitization (including payments made upon the death of the annuitant or
owner), generally are first attributable to any investment gains credited to the
contract over the taxpayer's "investment in the contract." Such amounts will be
treated as gross income subject to federal income taxation. "Investment in the
contract" is the total of all payments to the contract which were not excluded
from the Owner's gross income less any amounts previously withdrawn which were
not included in income. Section 72(e)(11)(A)(ii) requires that all non-qualified
deferred annuity contracts issued by the same insurance company to the same
owner during a single calendar year be treated as one contract in determining
taxable distributions.
ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments are
commenced under the Contract, generally a portion of each payment may be
excluded from gross income. The excludable portion generally is determined by a
formula that establishes the ratio that the investment in the Contract bears to
the expected return under the Contract. The portion of the payment in excess of
this excludable amount is taxable as ordinary income. Once all the investment in
the Contract is recovered, the entire payment is taxable. If the Annuitant dies
before the investment in the Contract is recovered, a deduction for the
difference is allowed on the Annuitant's final tax return.
PENALTY ON DISTRIBUTION. A 10% penalty tax may be imposed on the withdrawal of
investment gains if the withdrawal is made prior to age 59 1/2 The penalty tax
will not be imposed on withdrawals taken on or after age 59 1/2, or if the
withdrawal follows the death of the Owner (or, if the Owner is not an
individual, the death of the primary Annuitant, as defined in the Code) or, in
the case of the Owner's "total disability" (as defined in the Code).
Furthermore, under Section 72 of the Code, this penalty tax will not be imposed,
irrespective of age, if the amount received is one of a series of "substantially
equal" periodic payments made at least annually for the life or life expectancy
of the payee. This requirement is met when the Owner elects to have
distributions made over the Owner's life expectancy, or over the joint life
expectancy of the Owner and beneficiary. The requirement that the amount be paid
out as one of a series of "substantially equal" periodic payments is met when
the number of units withdrawn to make each distribution is substantially the
same. Any modification, other than by reason of death or disability, of
distributions which are part of a series of substantially equal periodic
payments that occurs before the Owner's age 59 1/2 or five years, will subject
the Owner to the 10% penalty tax on the prior distributions. In addition to the
exceptions above, the penalty tax will not apply to withdrawals from a qualified
Contract made to an employee who has terminated employment after reaching age
55.
In a Private Letter Ruling, the IRS took the position that where distributions
from a variable annuity contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy (such as
under the Contract's LED option), and the option could be changed or terminated
at any time, the distributions failed to qualify as part of a "series of
substantially equal payments" within the meaning of Section 72 of the Code. The
distributions, therefore, were subject to the 10% federal penalty tax. This
Private Letter Ruling may be applicable to an Owner who receives distributions
under the LED option prior to age 59 1/2. Subsequent Private Letter Rulings,
however, have treated LED-type withdrawal programs as effectively avoiding the
10% penalty tax. The position of the IRS on this issue is unclear.
46
<PAGE>
ASSIGNMENTS OR TRANSFERS. If the Owner transfers (assigns) the Contract to
another individual as a gift prior to the Annuity Date, the Code provides that
the Owner will incur taxable income at the time of the transfer. An exception is
provided for certain transfers between spouses. The amount of taxable income
upon such taxable transfer is equal to any investment gain in value over the
Owner's cost basis at the time of the transfer. The transfer also is subject to
federal gift tax provisions. Where the Owner and Annuitant are different
persons, the change of ownership of the Contract to the Annuitant on the Annuity
Date, as required under the Contract, is a gift and will be taxable to the Owner
as such; however, the Owner will not incur taxable income. Instead, the
Annuitant will incur taxable income upon receipt of annuity benefit payments as
discussed above.
NON-NATURAL OWNERS. As a general rule, deferred annuity contracts owned by
"non-natural persons" (e.g., a corporation) are not treated as annuity contracts
for federal tax purposes, and the investment income attributable to
contributions made after February 28, 1986 is taxed as ordinary income that is
received or accrued by the owner during the taxable year. This rule does not
apply to annuity contracts purchased with a single payment when the annuity date
is no later than a year from the issue date or to deferred annuities owned by
qualified employer plans, estates, employers with respect to a terminated
pension plan, and entities other than employers, such as a trust, holding an
annuity as an agent for a natural person. This exception, however, will not
apply in cases of any employer who is the owner of an annuity contract under a
non-qualified deferred compensation plan.
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. Under Section 457 of the Code, deferred compensation plans
established by governmental and certain other tax-exempt employers for their
employees may invest in annuity contracts. Contributions and investment earnings
are not taxable to employees until distributed; however, with respect to
payments made after February 28, 1986, a Contract owned by a state or local
government or a tax-exempt organization will not be treated as an annuity under
Section 72 as well. In addition, plan assets are treated as property of the
employer, and are subject to the claims of the employer's general creditors.
C. TAX WITHHOLDING.
The Code requires withholding with respect to payments or distributions from
non-qualified contracts and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified contracts. In addition, the Code requires reporting to the IRS
of the amount of income received with respect to payment or distributions from
annuities.
The tax treatment of certain withdrawals or surrenders of the non-qualified
Contracts offered by this Prospectus will vary according to whether the amount
withdrawn or surrendered is allocable to an investment in the Contract made
before or after certain dates.
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS.
The tax rules applicable to qualified retirement plans, as defined by the Code,
are complex and vary according to the type of plan. Benefits under a qualified
plan may be subject to that plan's terms and conditions irrespective of the
terms and conditions of any annuity contract used to fund such benefits. As
such, the following is simply a general description of various types of
qualified plans that may use the Contract. Before purchasing any annuity
contract for use in funding a qualified plan, more specific information should
be obtained.
Qualified Contracts may include special provisions (endorsements) changing or
restricting rights and benefits otherwise available to Owners of non-qualified
Contracts. Individuals purchasing a qualified Contract should carefully review
any such changes or limitations which may include restrictions to ownership,
transferability, assignability, contributions, and distributions.
47
<PAGE>
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT SHARING
PLANS. Sections 401(a), 401(k) and 403(a) of the Code permit business employers
and certain associations to establish various types of tax-favored retirement
plans for employees. The Self-Employed Individuals' Tax Retirement Act of 1962,
as amended, permits self-employed individuals to establish similar plans for
themselves and their employees. Employers intending to use qualified Contracts
in connection with such plans should seek competent advice as to the suitability
of the Contracts to their specific needs and as to applicable Code limitations
and tax consequences.
The Company can provide prototype plans for certain pension or profit sharing
plans for review by the plan's legal counsel. For information, ask your
financial representative.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity ("IRA"). Note: This term covers all IRAs permitted
under Section 408(b) of the Code, including Roth IRAs. IRAs are subject to
limits on the amounts that may be contributed, the persons who may be eligible,
and on the time when distributions may commence. In addition, certain
distributions from other types of retirement plans may be "rolled over," on a
tax-deferred basis, to an IRA. Purchasers of an IRA Contract will be provided
with supplementary information as may be required by the IRS or other
appropriate agency, and will have the right to revoke the Contract as described
in this Prospectus. See "B. Right to Revoke Individual Retirement Annuity."
Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) or SIMPLE IRA plans for their employees using
IRAs. Employer contributions that may be made to such plans are larger than the
amounts that may be contributed to regular IRAs and may be deductible to the
employer.
TAX-SHELTERED ANNUITIES ("TSAS"). Under the provisions of Section 403(b) of the
Code, payments made to contracts purchased for employees under annuity plans
adopted by public school systems and certain organizations which are tax-exempt
under Section 501(c)(3) of the Code are excludable from the gross income of such
employees to the extent that total annual payments do not exceed the maximum
contribution permitted under the Code. Purchasers of TSA contracts should seek
competent advice as to eligibility, limitations on permissible payments and
other tax consequences associated with the contracts.
Withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) made to a TSA contract after December
31, 1988, may not begin before the employee attains age 59 1/2, separates from
service, dies or becomes disabled. In the case of hardship, an Owner may
withdraw amounts contributed by salary reduction, but not the earnings on such
amounts. Even though a distribution may be permitted under these rules (e.g.,
for hardship or after separation from service), it may be subject to a 10%
penalty tax as a premature distribution, in addition to income tax.
TEXAS OPTIONAL RETIREMENT PROGRAM. Distributions under a TSA contract issued to
participants in the Texas Optional Retirement Program may not be received except
in the case of the participant's death, retirement or termination of employment
in the Texas public institutions of higher education. These additional
restrictions are imposed under the Texas Government Code and a prior opinion of
the Texas Attorney General.
REPORTS
An Owner is sent a report semi-annually which states certain financial
information about the Underlying Funds. The Company also will furnish an annual
report to the Owner containing a statement of his or her account, including
Accumulation Unit values and other information as required by applicable law,
rules and regulations.
48
<PAGE>
LOANS (QUALIFIED CONTRACTS ONLY)
Loans are available to Owners of TSA Contracts (i.e., contracts issued under
Section 403(b) of the Code) and to Contracts issued to plans qualified under
Sections 401(a) and 401(k) of the Code. Loans are subject to provisions of the
Code and to applicable qualified retirement plan rules. Tax advisors and plan
fiduciaries should be consulted prior to exercising loan privileges.
Loaned amounts will be withdrawn first from Sub-Account and Fixed Account values
on a pro-rata basis until exhausted. Thereafter, any additional amounts will be
withdrawn from the Guarantee Period Accounts (pro rata by duration and LIFO
within each duration), subject to any applicable Market Value Adjustments. The
maximum loan amount will be determined under the Company's maximum loan formula.
The minimum loan amount is $1,000. Loans will be secured by a security interest
in the Contract and the amount borrowed will be transferred to a loan asset
account within the Company's General Account, where it will accrue interest at a
specified rate below the then-current loan rate. Generally, loans must be repaid
within five years or less, and repayments must be made quarterly and in
substantially equal amounts. Repayments will be allocated pro rata in accordance
with the most recent payment allocation, except that any allocations to a
Guarantee Period Account will be allocated instead to the Money Market Fund.
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 Funds no longer are available for investment or if, in the Company's
judgment, further investment in any Underlying Fund should become inappropriate
in view of the purposes of the Variable Account or the affected Sub-Account, the
Company may withdraw 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 the Contract interest in a Sub-Account without notice
to the Owner and prior approval of the SEC and state insurance authorities, to
the extent required by the 1940 Act or other applicable law. The Variable
Account may, to the extent permitted by law, purchase other securities for other
contracts or permit a conversion between contracts upon request by an Owner.
The Company also reserves the right to establish additional sub-accounts of the
Variable Account, each of which would invest in shares corresponding to a new
underlying fund or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required SEC approval,
the Company may, in its sole discretion, establish new sub-accounts or eliminate
one or more Sub-Accounts if marketing needs, tax considerations or investment
conditions warrant. Any new sub-accounts may be made available to existing
Owners on a basis to be determined by the Company.
Shares of the Underlying Funds also are issued to separate accounts of the
Company and its affiliates which issue variable life contracts ("mixed
funding"). Shares of the Funds also are 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 owners or
variable annuity owners. Although neither the Company nor any of the underlying
investment companies currently foresee any such disadvantages to either variable
life owners or variable annuity owners, the Company and the respective trustees
intend to monitor events in order to identify any material conflicts between
such owners, and to determine what action, if any, should be taken in response
thereto. If the trustees were to conclude that separate funds should be
established for variable life and variable annuity separate accounts, the
Company will bear the attendant expenses.
If any of these substitutions or changes is made, the Company may endorse the
Contracts to reflect the substitution or change, and will notify Owners of all
such changes. If the Company deems it to be in the best interest of Owners, and
subject to any approvals that may be required under applicable law, the Variable
Account or any Sub-Accounts may be operated as a management company under the
1940 Act, may be
49
<PAGE>
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.
The Company reserves the right, subject to compliance with applicable law, to:
(1) transfer assets from the Variable Account or any of its Sub-Accounts to
another of the Company's separate accounts or sub-accounts having assets of the
same class; (2) to operate the Variable Account or any Sub-Account as a
management investment company under the 1940 Act or in any other form permitted
by law; (3) to deregister the Variable Account under the 1940 Act in accordance
with the requirements of the 1940 Act; (4) to substitute the shares of any other
registered investment company for the Underlying Fund shares held by a
Sub-Account, in the event that Underlying Fund shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Fund shares is inappropriate in view of the purpose of the
Sub-Account; (5) to change the methodology for determining the net investment
factor; and (6) to change the names of the Variable Account or of the
Sub-Accounts. In no event will the changes described above be made without
notice to Owners in accordance with the 1940 Act.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves the right, without the consent of Owners, to suspend sales
of the Contract as presently offered, and to make any change to provisions of
the Contract to comply with, or give Owners the benefit of, any federal or state
statute, rule or regulation, including but not limited to requirements for
annuity contracts and retirement plans under the Code and pertinent regulations
or any state statute or regulation.
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Sub-Account in
accordance with instructions received from Owners and, after the Annuity Date,
from the Annuitants. Each person having a voting interest in a Sub-Account will
be provided with proxy materials of the Underlying Fund, together with a form
with which to give voting instructions to the Company. Shares for which no
timely instructions are received will be voted in proportion to the instructions
which are received. The Company also will vote shares in a Sub-Account that it
owns and which are not attributable to Contract in the same proportion. If the
1940 Act or any rules thereunder should be amended or if the present
interpretation of the 1940 Act or such rules should change, and as a result the
Company determines that it is permitted to vote shares in its own right, whether
or not such shares are attributable to the Contract, the Company reserves the
right to do so.
The number of votes which an Owner or Annuitant may cast will be determined by
the Company as of the record date established by the Underlying Fund. During the
accumulation period, the number of Underlying Fund shares attributable to each
Owner will be determined by dividing the dollar value of the Accumulation Units
of the Sub-Account credited to the Contract by the net asset value of one
Underlying Fund share. During the annuity period, the number of Underlying Fund
shares attributable to each Annuitant will be determined by dividing the reserve
held in each Sub-Account for the Annuitant's Variable Annuity by the net asset
value of one Underlying Fund share. Ordinarily, the Annuitant's voting interest
in the Underlying Fund will decrease as the reserve for the Variable Annuity is
depleted.
DISTRIBUTION
The Contracts offered by this Prospectus may be purchased from representatives
of Allmerica Investments, Inc., a registered broker-dealer under the Securities
and Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. ("NASD"). Allmerica Investments, Inc., 440 Lincoln Street,
Worcester, MA 01653, is also the principal underwriter and distributor and is an
indirect wholly owned subsidiary of First Allmerica. The Contract also may be
purchased from certain independent broker-dealers which are NASD members.
50
<PAGE>
The Company pays commissions, not to exceed 5.0% of payments, to registered
representatives of Allmerica Investments, Inc. Alternative commission schedules
are available with lower initial commission amounts based on payments, plus
ongoing annual compensation of up to 1% of Contract value. Managers who
supervise the agents will receive overriding commissions ranging up to no more
than 2% of payments.
The Company intends to recoup commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges and profits from
the Company's General Account. Commissions paid on the Contract, including
additional incentives or payments, do not result in any additional charge to
Owners or to the Variable Account. Any contingent deferred sales charges
assessed on the Contract 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. Owners may direct
any inquiries to their financial representative or to Annuity Client Services,
Allmerica Financial Life Insurance and Annuity Company, 440 Lincoln Street,
Worcester, MA 01653, telephone 1-800-533-7881.
SERVICES
The Company receives fees from the investment advisers or other service
providers of certain Underlying Funds in return for providing certain services
to Owners. Currently, the Company receives service fees with respect to the
Fidelity VIP Overseas Portfolio, Fidelity VIP Equity-Income Portfolio, Fidelity
VIP Growth Portfolio, Fidelity VIP High Income Portfolio, and Fidelity VIP II
Asset Manager Portfolio, at an annual rate of 0.10% of the aggregate net asset
value, respectively, of the shares of such Underlying Funds held by the Variable
Account. With respect to the T. Rowe Price International Stock Portfolio, the
Company receives service fees at an annual rate of 0.15% per annum of the
aggregate net asset value of shares held by the Variable Account. The Company
may in the future render services for which it will receive compensation from
the investment advisers or other service providers of other Underlying Funds.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party.
FURTHER INFORMATION
A Registration Statement under the 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted in this Prospectus pursuant to the rules and
regulations of the SEC. The omitted information may be obtained from the SEC's
principal office in Washington, D.C., upon payment of the SEC's prescribed fees.
51
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account are not generally subject to regulation under the
provisions of the Securities Act of 1933 or the Investment Company Act of 1940.
Disclosures regarding the fixed portion of the annuity contract and the Fixed
Account may be subject to the provisions of the Securities Act of 1933
concerning the accuracy and completeness of statements made in the Prospectus.
The disclosures in this APPENDIX A have not been reviewed by the Securities and
Exchange Commission.
The Fixed Account is part of the Company's General Account which is made up of
all of the general assets of the Company other than those allocated to separate
accounts. Allocations to the Fixed Account become part of the assets of the
Company and are used to support insurance and annuity obligations. A portion or
all of net payments may be allocated to accumulate at a fixed rate of interest
in the Fixed Account. Such net amounts are guaranteed by the Company as to
principal and a minimum rate of interest. Under the Contracts, the minimum
interest which may be credited on amounts allocated to the Fixed Account is 3%
compounded annually. Additional "Excess Interest" may or may not be credited at
the sole discretion of the Company.
If a Contract is surrendered, or if an amount in excess of the Withdrawal
Without Surrender Charge is withdrawn while the Contract is in force and before
the Annuity Date, a contingent deferred sales charge is imposed if such event
occurs before the payments attributable to the surrender or withdrawal have been
credited to the Contract for at least nine full Contract years.
In Massachusetts, payments and transfers to the Fixed Account are subject to the
following restrictions:
If a Contract is issued prior to the Annuitant's 60th birthday, allocations
to the Fixed Account will be permitted until the Annuitant's 61st birthday.
On and after the Annuitant's 61st birthday, no additional Fixed Account
allocations will be accepted. If the Contract is issued on or after the
Annuitant's 60th birthday up through and including the Annuitant's 81st
birthday, Fixed Account allocations will be permitted during the first
Contract year. On and after the first Contract anniversary, no additional
allocations to the Fixed Account will be permitted. If the Contract is
issued after the Annuitant's 81st birthday, no payments to the Fixed Account
will be permitted at any time.
If an allocation designated as a Fixed Account allocation is received at the
Principal Office during a period when the Fixed Account is not available due
to the limitations outlined above, the monies will be allocated to the Money
Market Fund.
The Fixed Account is not available to Owners who purchase the Contract in the
state of Oregon.
A-1
<PAGE>
APPENDIX B
SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: SURRENDER CHARGES
FULL SURRENDER -- Assume a payment of $50,000 is made on the issue date and no
additional payments are made. Assume there are no withdrawals and that the
Withdrawal Without Surrender Charge Amount is equal to the greater of 10% of the
current Accumulated Value or the accumulated earnings in the Contract. The table
below presents examples of the surrender charge resulting from a full surrender,
based on Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE CHARGE AMOUNT PERCENTAGE CHARGE
- ------------- -------------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C>
1 $ 54,000.00 $ 5,400.00 8% $ 3,888.00
2 58,320.00 8,320.00 8% 4,000.00
3 62,985.60 12,985.60 7% 3,500.00
4 68,024.45 18,024.45 6% 3,000.00
5 73,466.40 23,466.40 5% 2,500.00
6 79,343.72 29,343.72 4% 2,000.00
7 85,691.21 35,691.21 3% 1,500.00
8 92,546.51 42,546.51 2% 1,000.00
9 99,950.23 49,950.23 1% 500.00
10 107,946.25 57,946.25 0% 0.00
</TABLE>
WITHDRAWALS -- Assume a payment of $50,000 is made on the issue date and no
additional payments are made. Assume that the Withdrawal Without Surrender
Charge Amount is equal to the greater of 10% of the current Accumulated Value or
the accumulated earnings in the Contract and there are withdrawals as detailed
below. The table below presents examples of the surrender charge resulting from
withdrawals, based on Hypothetical Accumulated Value.
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE WITHDRAWALS CHARGE AMOUNT PERCENTAGE CHARGE
- ------------- ------------ ------------ ----------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
1.......... $ 54,000.00 $0.00 5,400.00 8% $ 0.00
2.......... 58,320.00 0.00 8,320.00 8% 0.00
3.......... 62,985.60 0.00 12,985.60 7% 0.00
4.......... 68,024.45 30,000.00 18,024.45 6% 718.53
5.......... 41,066.40 10,000.00 4,106.68 5% 294.67
6.......... 33,551.72 5,000.00 3,355.17 4% 65.79
7.......... 30,835.85 10,000.00 3,083.59 3% 207.49
8.......... 22,502.72 15,000.00 2,250.27 2% 254.99
9.......... 8,102.94 0.00 810.29 1% 0.00
10......... 8,751.17 0.00 1,248.45 0% 0.00
</TABLE>
B-1
<PAGE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)](n/365) - 1
The following examples assume:
1. The payment was allocated to a ten-year Guarantee Period Account with a
Guaranteed Interest Rate of 8%.
2. The date of surrender is seven years (2,555 days) from the expiration date.
3. The value of the Guarantee Period Account is equal to $62,985.60 at the end
of three years.
4. No transfers of withdrawals affecting this Guarantee Period Account have
been made.
5. Surrender charges, if any, are calculated in the same manner as shown in the
examples in Part 1.
NEGATIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 10.00% or 0.10
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.10)] to the power of 2555/365 - 1
= (.98182) to the power of 7 - 1
= -.12054
The market value = the market value factor multiplied by the withdrawal
adjustment
= -.12054 X $62,985.60
= -$7,592.11
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (UNCAPPED)
Assume that on the date of surrender, the current rate (j) is 7.00% or 0.07
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.07)] to the power of 2555/365 - 1
= (1.0093) to the power of 7 - 1
= .06694
The market value = the market value factor multiplied by the withdrawal
adjustment
= .06694 X $62,985.60
= $4,216.26
</TABLE>
B-2
<PAGE>
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.11)] to the power of 2555/365 - 1
= (.97297) to the power of 7 - 1
= -.17454
The market value = Minimum of the market value factor multiplied by the
adjustment withdrawal or the negative of the excess interest earned
over 3%
= Minimum (-.17454 X $62,985.60 or -$8,349.25)
= Minimum (-$10,993.51 or -$8,349.25)
= -$8,349.25
</TABLE>
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
<TABLE>
<S> <C> <C>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.06)] to the power of 2555/365 - 1
= (1.01887) to the power of 7 - 1
= .13981
The market value = Minimum of the market value factor multiplied by the
adjustment withdrawal or the excess interest earned over 3%
= Minimum of .13981 X $62,985.60 or $8,349.25)
= Minimum of $8,806.02 or $8,349.25)
= $8,349.25
</TABLE>
B-3
<PAGE>
APPENDIX C
THE DEATH BENEFIT
PART 1: DEATH OF THE ANNUITANT
DEATH BENEFIT ASSUMING NO WITHDRAWALS
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no withdrawals and that the Death Benefit Effective
Annual Yield is equal to 5%. The table below presents examples of the Death
Benefit based on the Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE DEATH DEATH DEATH DEATH
YEAR VALUE ADJUSTMENT BENEFIT (1A) BENEFIT (B) BENEFIT (C) BENEFIT
- --------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 53,000.00 $ 52,500.00 $ 50,000.00 $53,000.00
2 53,530.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 58,883.00 0.00 58,883.00 57,881.25 55,125.00 58,883.00
4 52,994.70 500.00 53,494.70 60,775.31 58,883.00 60,775.31
5 58,294.17 0.00 58,294.17 63,814.08 60,775.31 63,814.08
6 64,123.59 500.00 64,623.59 67,004.78 63,814.08 67,004.78
7 70,535.95 0.00 70,535.95 70,355.02 67,004.78 70,535.95
8 77,589.54 500.00 78,089.54 73,872.77 70,535.95 78,089.54
9 85,348.49 0.00 85,348.49 77,566.41 78,089.54 85,348.49
10 93,883.34 0.00 93,883.34 81,444.73 85,348.49 93,883.34
</TABLE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment. Death Benefit (b) is the gross payments accumulated daily at
the Death Benefit Effective Annual Yield reduced proportionately to reflect
withdrawals. Death Benefit (c) is the death benefit that would have payable on
the most recent Contract anniversary, increased for subsequent payments, and
decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c).
DEATH BENEFIT ASSUMING WITHDRAWALS
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are withdrawals as detailed in the table below and that
the Death Benefit Effective Annual Yield is equal to 5%. The table below
presents examples of the Death Benefit based on the Hypothetical Accumulated
Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
ACCUMULATED MARKET VALUE DEATH DEATH DEATH DEATH
YEAR VALUE WITHDRAWALS ADJUSTMENT BENEFIT (1A) BENEFIT (B) BENEFIT (C) BENEFIT
--- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 0.00 $ 53,000.00 $ 52,500.00 $ 50,000.00 $53,000.00
2 53,530.00 0.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 3,883.00 50,000.00 0.00 3,883.00 4,171.13 3,972.50 4,171.13
4 3,494.70 0.00 500.00 3,994.70 4,379.68 4,171.13 4,379.68
5 3,844.17 0.00 0.00 3,844.17 4,598.67 4,379.68 4,598.67
6 4,228.59 0.00 500.00 4,728.59 4,828.60 4,598.67 4,828.60
7 4,651.45 0.00 0.00 4,651.45 5,070.03 4,828.60 5,070.03
8 5,116.59 0.00 500.00 5,616.59 5,323.53 5,070.03 5,616.59
9 5,628.25 0.00 0.00 5,628.25 5,589.71 5,616.59 5,628.25
10 691.07 5,000.00 0.00 691.07 712.70 683.44 712.70
</TABLE>
C-1
<PAGE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment. Death Benefit (b) is the gross payments accumulated daily at
the Death Benefit Effective Annual Yield reduced proportionately to reflect
withdrawals. Death Benefit (c) is the death benefit that would have been payable
on the most recent Contract anniversary, increased for subsequent payments, and
decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c).
PART 2: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no withdrawals. The table below presents examples of
the Death Benefit based on the Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
ACCUMULATED MARKET VALUE DEATH
YEAR VALUE ADJUSTMENT BENEFIT
--- ------------ ------------ ------------
<S> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $53,000.00
2 53,530.00 500.00 54,030.00
3 58,883.00 0.00 58,883.00
4 52,994.70 500.00 53,494.70
5 58,294.17 0.00 58,294.17
6 64,123.59 500.00 64,623.59
7 70,535.95 0.00 70,535.95
8 77,589.54 500.00 78,089.54
9 85,348.49 0.00 85,348.49
10 93,883.34 0.00 93,883.34
</TABLE>
The Hypothetical Death Benefit is the Accumulated Value increased by any
positive Market Value Adjustment.
C-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
INDIVIDUAL VARIABLE ANNUITY POLICIES FUNDED THROUGH SUBACCOUNTS OF
SEPARATE ACCOUNT VA-K INVESTING IN SHARES OF
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND,
VARIABLE INSURANCE PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL SERIES, INC.
AND DELAWARE GROUP PREMIUM FUND, INC.
This Prospectus describes individual variable annuity policies (the "Policies")
offered by Allmerica Financial Life Insurance and Annuity Company ("Company") to
individuals and businesses in connection with retirement plans which may or may
not qualify for special federal income tax treatment. (For information about the
tax status when used with a particular type of plan, see "FEDERAL TAX
CONSIDERATIONS.") The following is a summary of information about these
Policies. More detailed information can be found under the referenced captions
in this Prospectus.
Policy values may accumulate on a variable basis in the Policy's Separate
Account VA-K. The assets of Separate Account VA-K are divided into Sub-Accounts,
each investing exclusively in a corresponding investment portfolio of Allmerica
Investment Trust ("Trust"), Variable Insurance Products Fund ("Fidelity VIP"),
Variable Insurance Products Fund II ("Fidelity VIP II"), T. Rowe Price
International Series, Inc. (T. Rowe Price), or Delaware Group Premium Fund, Inc.
("DGPF").
This Prospectus generally describes only the variable accumulation and variable
annuity aspects of the Policies, except where fixed values or fixed annuity
benefit payments are specifically mentioned. Certain additional information
about the Policies is contained in a Statement of Additional Information
("SAI"), dated May 1, 1998, as may be amended from time to time, which has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference. The Table of Contents for the SAI is listed on page 4 of this
Prospectus. The SAI is available upon request and without charge. To obtain the
Statement of Additional Information, fill out and return the attached request
card or contact Annuity Client Services, Allmerica Financial Life Insurance and
Annuity Company, telephone 1-800-533-7881.
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 FIDELITY VIP HIGH INCOME PORTFOLIO INVESTS IN HIGHER
YIELDING, HIGHER RISK, LOWER-RATED DEBT SECURITIES (SEE "INVESTMENT OBJECTIVES
AND POLICIES"). INVESTORS SHOULD RETAIN A COPY OF THIS PROSPECTUS FOR FUTURE
REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
DATED MAY 1, 1998
440 LINCOLN STREET, WORCESTER, MASSACHUSETTS
<PAGE>
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.
Correspondence may be mailed to:
ExecAnnuity Plus
Allmerica Financial
P.O. Box 8632
Boston, Massachusetts 02266-8632
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS........................................................................... 5
SUMMARY................................................................................. 7
ANNUAL AND TRANSACTION EXPENSES......................................................... 10
CONDENSED FINANCIAL INFORMATION......................................................... 14
PERFORMANCE INFORMATION................................................................. 16
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, THE TRUST, FIDELITY
VIP FUND, FIDELITY VIP II FUND, T. ROWE PRICE AND DGPF................................. 20
INVESTMENT OBJECTIVES AND POLICIES...................................................... 22
INVESTMENT ADVISORY SERVICES............................................................ 24
WHAT IS AN ANNUITY?..................................................................... 26
CHARGES AND DEDUCTIONS.................................................................. 26
A. Contingent Deferred Sales Charge................................................. 26
B. Premium Taxes.................................................................... 29
C. Policy Fee....................................................................... 30
D. Annual Charges Against Separate Account Assets................................... 30
THE VARIABLE ANNUITY POLICIES........................................................... 31
A. Purchase Payments................................................................ 31
B. Right to Revoke Individual Retirement Annuity.................................... 32
C. Right to Revoke All Other Policies............................................... 32
D. Transfer Privilege............................................................... 33
E. Surrenders....................................................................... 34
F. Partial Redemption............................................................... 34
G. Death Benefit.................................................................... 35
H. The Spouse of the Owner as Beneficiary........................................... 36
I. Assignment....................................................................... 36
J. Electing the Form of Annuity and Annuity Date.................................... 36
K. Description of Variable Annuity Payout Options................................... 37
L. NORRIS Decision.................................................................. 38
M. Computation of Policy Values and Annuity Benefit Payments......................... 39
FEDERAL TAX CONSIDERATIONS.............................................................. 40
A. Qualified and Non-Qualified Policies............................................. 41
B. Taxation of the Policies in General.............................................. 41
Withdrawals Prior to Annuitization.............................................. 41
Annuity Payouts After Annuitization............................................. 42
Penalty on Distribution......................................................... 42
Assignments or Transfers........................................................ 42
Non-Natural Owners.............................................................. 42
Deferred Compensation Plans of State and Local Governments and Tax-Exempt
Organizations................................................................... 43
C. Tax Withholding.................................................................. 43
D. Provisions Applicable to Qualified Employer Plans................................ 43
Corporate and Self-Employed Pension and Profit Sharing Plans.................... 43
Individual Retirement Annuities................................................. 43
Tax-Sheltered Annuities......................................................... 44
Texas Optional Retirement Program............................................... 44
LOANS (QUALIFIED POLICIES ONLY)......................................................... 44
REPORTS................................................................................. 44
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS....................................... 44
VOTING RIGHTS........................................................................... 45
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................................... 46
SERVICES................................................................................ 46
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
LEGAL MATTERS........................................................................... 46
FURTHER INFORMATION..................................................................... 00
APPENDIX A -- MORE INFORMATION ABOUT THE GENERAL ACCOUNT................................ A-1
APPENDIX B -- INFORMATION APPLICABLE ONLY TO POLICY 3018-91
(AND STATE VARIATIONS)................................................................. B-1
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY......................................................... 2
TAXATION OF THE CONTRACT, THE SEPARATE ACCOUNT AND THE COMPANY.......................... 3
SERVICES................................................................................ 3
UNDERWRITERS............................................................................ 4
ANNUITY BENEFIT PAYMENTS................................................................ 4
EXCHANGE OFFER.......................................................................... 6
PERFORMANCE INFORMATION................................................................. 8
FINANCIAL STATEMENTS.................................................................... F-1
</TABLE>
4
<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Subaccounts and of the value of all accumulations in the General Account then
credited to the Policy, on any date before the date annuity payments are to
begin.
ACCUMULATION UNIT: a measure of the Policy Owner's interest in a Subaccount
before annuity payments begin.
ANNUITANT: the person designated in the Policy to whom the Annuity is to be
paid.
ANNUITY DATE: the date on which annuity payments begin.
ANNUITY UNIT: a measure of the value of the periodic annuity payments under the
Policy.
FIXED ANNUITY PAYOUT: an Annuity payout option providing for payments which
remain fixed in amount throughout the annuity payment period.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
Separate Account.
SEPARATE ACCOUNT: Separate Account VA-K of the Company. Separate Account VA-K
consists of assets segregated from other assets of the Company. The investment
performance of the assets of the Separate Account is determined separately from
the other assets of the Company. The assets of the Separate Account are not
chargeable with liabilities arising out of any other business which the Company
may conduct.
SUB-ACCOUNT: a subdivision of Separate Account VA-K. Each Sub-Account available
under the Policy invests exclusively in the shares of a corresponding fund of
Allmerica Investment Trust ("Trust"); a corresponding portfolio of the Variable
Insurance Product Fund ("Fidelity VIP"), the Variable Insurance Products Fund II
("Fidelity VIP II) or the International Stock Portfolio of T. Rowe Price
International Series, Inc. ("T. Rowe Price"); or a corresponding series of the
Delaware Group Premium Fund, Inc. ("DGPF").
SURRENDER VALUE: the Accumulated Value of the Policy minus any Policy fee and
contingent deferred sales charge applicable upon surrender.
UNDERLYING FUNDS (OR FUNDS): 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 Select Value Opportunity
Fund of Allmerica Investment Trust; Fidelity VIP High Income Portfolio, Fidelity
VIP Equity-Income Portfolio, Fidelity VIP Growth Portfolio and Fidelity VIP
Overseas Portfolio of Variable Insurance Products Fund; the Fidelity VIP II
Asset Manager Portfolio of Variable Insurance Products Fund II; the T. Rowe
Price International Stock Portfolio of T. Rowe Price International Series, Inc.;
and the International Equity Series of Delaware Group Premium Fund, Inc.
UNDERLYING INVESTMENT COMPANIES: Allmerica Investment Trust, Variable Insurance
Products Fund, Variable Insurance Products Fund II, T. Rowe 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 Unit values of the Subaccounts 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
5
<PAGE>
which no payment, partial withdrawal, or surrender of a Policy was received)
when there is a sufficient degree of trading in an Underlying Fund's portfolio
securities such that the current net asset value of the Subaccounts may be
materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
VARIABLE ANNUITY PAYOUT: an Annuity payout option providing for payments varying
in amount in accordance with the investment experience of the Growth Fund, Money
Market Fund, Equity Index Fund or Select Growth and Income Fund of Allmerica
Investment Trust.
6
<PAGE>
SUMMARY
INVESTMENT OPTIONS
The Policies permit net purchase payments to be allocated among the Sub-Accounts
available under the Policies, which are subdivisions of Separate Account VA-K
("Separate Account"), a separate account of the Company, and a fixed account
("General Account") of the Company (together "accounts"). The Separate Account
is registered as a unit investment trust under the Investment Company Act of
1940, as amended, (the "1940 Act") but such registration does not involve the
supervision of the management or investment practices or policies of the
Separate Account by the Securities and Exchange Commission ("SEC"). For
information about the Separate Account and the Company, see "DESCRIPTION OF THE
COMPANY, THE SEPARATE ACCOUNT, THE TRUST, FIDELITY VIP FUND, FIDELITY VIP II
FUND, T. ROWE PRICE AND DGPF." For more information about the General Account
see APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Each Sub-Account available under the Policies invests its assets without sales
charge in a corresponding investment series of the Allmerica Investment Trust
(the "Trust"), Variable Insurance Products Fund ("Fidelity VIP"), Variable
Insurance Products Fund II ("Fidelity VIP II"), T. Rowe Price International
Series, Inc. ("T. Rowe Price") or Delaware Group Premium Fund, Inc. ("DGPF").
The Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF are open-end,
diversified series investment companies. Eleven different funds 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 Select Value Opportunity
Value Fund (formerly Small-Mid Cap Value Fund) of Allmerica Investment Trust.
Four of the portfolios of VIP are available under the Policies: the Fidelity
High Income Portfolio, Fidelity Equity-Income Portfolio, Fidelity Growth
Portfolio and Fidelity Overseas Portfolio. One of the portfolios of Fidelity VIP
II is available under the Policies: the Fidelity Asset Manager Portfolio. One of
the portfolios of T. Rowe Price is available under the Policies: the T. Rowe
Price International Stock Portfolio. One of the series of DGPF is available
under the Policies: the International Equity Series. Each of the Funds,
Portfolios and Series available under the Policies (together, the "Underlying
Funds") operates pursuant to different investment objectives, discussed below.
INVESTMENT IN THE SUB-ACCOUNT
The value of each Sub-Account will vary daily depending on the performance of
the investments made by the respective Underlying Funds.
There can be no assurance that the investment objectives of the Underlying Funds
can be achieved or that the value of a Policy will equal or exceed the aggregate
amount of the purchase payments made under the Policy. For more information
about the investments of the Underlying Funds, see "DESCRIPTION OF THE COMPANY,
THE SEPARATE ACCOUNT, THE TRUST, FIDELITY VIP, FIDELITY VIP II, T. ROWE PRICE
AND DGPF." The accompanying prospectuses of the Trust, Fidelity VIP, Fidelity
VIP II, T. Rowe Price and DGPF describe the investment objectives and risks of
each of the Underlying Funds.
Dividends or capital gains distributions received from an Underlying Fund are
reinvested in additional shares of that Underlying Fund, which are retained as
assets of the Sub-Account.
TRANSFERS BETWEEN ACCOUNTS
Prior to the Annuity Date, the Policies permit amounts to be transferred among
the Sub-Accounts and between the Sub-Accounts and the General Account subject to
certain limitations described under "Transfer Privilege."
7
<PAGE>
ANNUITY PAYMENTS
The owner of a Policy ("Owner") may select variable annuity benefit payments
based on one or more of certain Sub-Accounts, fixed annuity payouts, or a
combination of fixed and variable payments. Fixed annuity payouts are guaranteed
by the Company.
See "THE VARIABLE ANNUITY POLICIES" for information about annuity benefit
payment options, selecting the Annuity Date, and how annuity payments are
calculated.
REVOCATION RIGHTS
The Policy Owner may revoke the Policy at any time between the date of the
application and the date 10 days after receipt of the Policy. For more
information about revocation rights, see "RIGHT TO REVOKE OR SURRENDER."
PAYMENT MINIMUMS AND MAXIMUMS
Under the Policies, purchase payments are not limited as to frequency and
number, but no payments may be submitted within one month of the Annuity Date.
Generally, the initial purchase payment must be at least $600 and subsequent
payments must be at least $50. Under a monthly automatic payment plan or a
payroll deduction plan, each purchase payment must be at least $50. However, in
cases where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Policy on the employee, if the plan's average
annual contribution per eligible plan participant is at least $600.
The Company reserves the right to set maximum limits on the aggregate purchase
payments made under the Policy. In addition, the Internal Revenue Code (the
"Code") imposes maximum limits on contributions under qualified annuity plans.
CHARGES AND DEDUCTIONS
For a complete discussion of charges, see "CHARGES AND DEDUCTIONS."
A. CONTINGENT DEFERRED SALES CHARGE
No sales charge is deducted from purchase payments at the time the payments are
made. However, depending on the length of time that the payments to which the
withdrawal is attributed have remained credited under the Policy a contingent
deferred sales charge of up to 8% may be assessed for a surrender, partial
redemption, or election of any commutable period certain option or a
noncommutable period certain option for less than 10 years.
B. ANNUAL POLICY FEE
A Policy Fee equal to the lesser of $30 or 3% of Accumulated Value will be
deducted from the Accumulated Value on a policy anniversary or upon full
surrender when the Accumulated Value is $50,000 or less. The Policy Fee is
waived for policies issued to and maintained by the trustee of a 401(k) plan.
C. PREMIUM TAXES
A deduction for state and local premium taxes, if any, may be made as described
under "Premium Taxes."
D. SEPARATE ACCOUNT ASSET CHARGES
A daily charge, equivalent to 1.25% per annum, is made on the value of each
Sub-Account at each Valuation Date. The charge is retained for the mortality and
expense risks the Company assumes. In addition, to cover administrative
expenses, the Company deducts a daily charge of 0.20% per annum of the value of
the average net assets in the Sub-Accounts.
8
<PAGE>
E. TRANSFER CHARGE
The Company currently makes no charge for transfers. The Company guarantees that
the first twelve transfers in a Policy year will be free of charge. For each
subsequent transfer, the Company reserves the right to assess a charge,
guaranteed never to exceed $25, to reimburse the Company for the costs of
processing the transfer. If the Policy Owner has elected automatic transfers,
the first automatic transfer will count as one transfer towards the twelve which
are guaranteed to be free of charge.
F. CHARGES OF THE UNDERLYING FUND
In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Underlying Funds. These charges vary among the
Underlying Funds.
SURRENDER OR PARTIAL REDEMPTION. At any time before the Annuity Date, the Owner
has the right either to surrender the Policy in full and receive its current
value, minus the Policy Fee and any applicable contingent deferred sales charge,
or to redeem a portion of the Policy's value subject to certain limits and any
applicable contingent deferred sales charge. There may be tax consequences for
surrender or redemptions. For further information, see "Surrender" and "Partial
Redemption," "Contingent Deferred Sales Charge," and "FEDERAL TAX
CONSIDERATIONS."
DEATH BENEFIT. If the Annuitant or Owner should die before the Annuity Date, a
death benefit will be paid to the beneficiary. Upon death of the Annuitant, the
death benefit is equal to the greatest of (a) the Accumulated Value under the
Policy, or (b) the sum of the gross payment(s) made under the Policy reduced
proportionally to reflect the amount of all partial redemptions, or (c) the
death benefit that would have been payable on the most recent fifth year Policy
Anniversary, increased for subsequent purchase payments and reduced
proportionally to reflect withdrawals after that date. Upon death of the Owner,
the death benefit will equal the Accumulated Value of the Policy next determined
following receipt of due proof of death at the Principal Office. See "Death
Benefit."
SALES OF POLICIES. The Policies are sold by agents of the Company who are
registered representatives of Allmerica Investments, Inc., a broker-dealer
affiliate of the Company. The Policies also may be purchased from certain other
broker-dealers which are members of the National Association of Securities
Dealers, Inc., and whose representatives are authorized by applicable law to
sell variable a annuity policies. See "Sales Expense."
9
<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The following tables show the various costs and expenses that an Owner will bear
directly or indirectly under the Policies. The tables reflect charges under the
Policies, expenses of the Sub-Accounts, and expenses of the Underlying Funds. In
addition to the charges and expenses described below, premium taxes may be
applicable in some states.
<TABLE>
<CAPTION>
POLICY YEAR
AFTER
DATE OF
PURCHASE
POLICY OWNER TRANSACTION EXPENSES PAYMENT CHARGE
- ------------------------------------------------------------------------------ --------------- ---------
<S> <C> <C>
CONTINGENT DEFERRED SALES CHARGE: 0-2 8%
This charge may be assessed upon surrender, withdrawal or annuitization under 3 7%
any commutable period certain option or a noncommutable period certain option 4 6%
of less than ten years. The charge is a percentage of payments applied to the 5 5%
amount surrendered (in excess of any amount that is free of surrender charge) 6 4%
within the indicated time period. 7 3%
8 2%
9 1%
More than 9 0%
TRANSFER CHARGE:
The Company currently makes no charge for processing transfers and guarantees None
that the first 12 transfers in a Contract year will not be subject to a
transfer charge. For each subsequent transfer, the Company reserves the right
to assess a charge, guaranteed never to exceed $25, to reimburse the Company
for the costs of processing the transfer.
ANNUAL POLICY FEE:
An annual Policy fee equal to the lesser of $30 or 3% is deducted annually and $30
upon surrender prior to the Annuity Date when Accumulated Value is $50,000 or
less. The fee is waived for Contracts issued to and maintained by the trustee
of a 401(k) plan.
<CAPTION>
SUB-ACCOUNT EXPENSES:
- ------------------------------------------------------------------------------
<S> <C> <C>
(on annual basis as percentage of average daily net assets)
Mortality and Expense Risk Charge: 1.25%
Administrative Expense Charge: 0.20%
---------
Total Asset Charge: 1.45%
</TABLE>
UNDERLYING FUND EXPENSES: In addition to the charges described above, certain
fees and expenses are deducted from the assets of the Underlying Funds. The
levels of fees and expenses vary among the Underlying
10
<PAGE>
Funds. The following table shows the expenses of the Underlying Funds for 1997.
For more information concerning fees and expenses, see the prospectuses of the
Underlying Funds.
<TABLE>
<CAPTION>
MANAGEMENT FEE TOTAL FUND EXPENSES
(AFTER ANY VOLUNTARY OTHER FUND (AFTER ANY APPLICABLE
FUND WAIVER) EXPENSES LIMITATIONS)
- ----------------------------------------------------------- --------------------- ------------- -----------------------
<S> <C> <C> <C>
Select International Equity Fund........................... 0.92%* 0.20% 1.12%(1)(4)
DGPF International Equity Series........................... 0.75% 0.15% 0.90%(2)
Fidelity VIP Overseas Portfolio............................ 0.75% 0.17% 0.92%(3)
T. Rowe Price International Stock Portfolio................ 1.05% 0.00% 1.05%
Select Aggressive Growth Fund.............................. 0.89%* 0.09% 0.98%(1)(4)
Select Capital Appreciation Fund........................... 0.95%* 0.15% 1.10%(1)
Select Value Opportunity Fund.............................. 0.90%** 0.14% 1.04%(1)(4)
Select Growth Fund......................................... 0.85% 0.08% 0.93%(1)(4)
Growth Fund................................................ 0.46%* 0.06% 0.52%(1)
Fidelity VIP Growth Portfolio.............................. 0.60% 0.09% 0.69%(3)
Equity Index Fund.......................................... 0.31% 0.13% 0.44%(1)
Select Growth and Income Fund.............................. 0.70%* 0.07% 0.77%(1)(4)
Fidelity VIP Equity-Income Portfolio....................... 0.50% 0.08% 0.58%(3)
Fidelity VIP II Asset Manager Portfolio.................... 0.55% 0.10% 0.65%(3)
Fidelity VIP High Income Portfolio......................... 0.59% 0.12% 0.71%
Investment Grade Income Fund............................... 0.44%* 0.10% 0.54%(1)
Government Bond Fund....................................... 0.50% 0.17% 0.67%
Money Market Fund.......................................... 0.27% 0.08% 0.35%(1)
</TABLE>
* Effective September 1, 1997, the management fee rates for these funds were
revised. The management fees ratios shown in the table above have been adjusted
to assume that the revised rates took effect on January 1, 1997.
** The Select Value Opportunity Fund was formerly known as the "Small- Mid Cap
Value Fund." Effective April 1, 1997, the management fee rate of the former
Small-Mid Cap Value Fund was revised. In addition, effective April 1, 1997 and
until further notice, the management fee for this fund has been voluntarily
limited to an annual rate of 0.90% of average daily net assets. The management
fee ratio shown above for the Select Value Opportunity Fund has been adjusted to
assume that the revised rate and the voluntary limitation took effect on January
1, 1997. Had the voluntary limitation of 0.90% not been effective on January 1,
1997 and had the management fee rate revision discussed above been effective on
January 1, 1997, the management fee ratio and the total fund expense ratio would
have been 0.95% and 1.09%, respectively. The management fee limitation may be
terminated at any time.
(1) Until further notice, Allmerica Financial Investment Management Services,
Inc. ("Manager") has declared a voluntary expense limitation of 1.50% of average
net assets for the Select International Equity Fund, 1.35% for the Select
Aggressive Growth Fund and Select Capital Appreciation Fund, 1.25% for the
Select Value Opportunity Fund, 1.20% for the Growth Fund and Select Growth Fund,
1.10% for the Select Growth and Income Fund, 1.00% for the Investment Grade
Income Fund, and Government Bond Fund, and 0.60% for the Money Market Fund and
Equity Index Fund. The total operating expenses of the trust were less than
their respective expense limitations throughout 1997. The declaration of a
voluntary expense limitation in any year does not bind the Manager to declare
future expense limitations with respect to these funds.
(2) Effective July 1, 1997, Delaware International Advisers Ltd., the investment
adviser for the International Equity Series, has agreed to limit total annual
expenses of the fund to 0.95%. This limitation replaces a prior limitation of
0.80% that expired on June 30, 1997. The new limitation will be in effect
through October 31, 1998. The fee ratios shown above have been adjusted to
assume that the new voluntary limitation took effect on January 1, 1997. In
1997, the actual ratio of total expenses of the International Equity Series was
0.85% and the actual management fee was 0.70%.
11
<PAGE>
(3) A portion of the brokerage commissions the Portfolio paid was used to reduce
Fund expenses. In addition, certain funds entered into arrangements with their
custodian and transfer agent whereby credits realized as a result of uninvested
cash balances were used to reduce custodian and transfer agent expenses.
Including these reductions, total operating expenses would have been 0.90% for
the Fidelity VIP Overseas Portfolio; 0.57% for the Fidelity VIP Equity-Income
Portfolio; 0.64% for the Fidelity VIP II Asset Manager Portfolio and 0.67% for
the Fidelity VIP Growth Portfolio.
(4) These Funds have entered into agreements with brokers whereby the brokers
rebate a portion of commissions. Had these amounts been treated as reductions of
expenses, the total operating expenses would have been 1.10% for Select
International Equity Fund, 0.91% for Select Growth Fund, 0.74% for Select Growth
and Income Fund, 0.93% for Select Aggressive Growth, 0.98% for Select Value
Opportunity Fund and 0.50% for the Growth Fund.
EXAMPLES. The following examples demonstrate the cumulative expenses which
would be paid by the Owner at 1-year, 3-year, 5-year and 10-year intervals under
certain contingencies. Each example assumes a $1,000 investment in a Sub-Account
and a 5% annual return on assets, as required by rules of the Securities and
Exchange Commission (the "SEC"). Because the expenses of the Underlying Funds
differ, separate examples are used to illustrate the expenses incurred by an
Owner on an investment in the various Sub-Accounts.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
(1) If, at the end of the applicable period, you surrender the Contract or
annuitize* under a commutable variable period certain option or a non-commutable
period certain option of less than ten years, you would pay the following
expenses on a $1,000 investment, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
FUNDS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select International Equity Fund............................................. $ 100 $ 148 $ 187 $ 292
DGPF International Equity Series............................................. $ 98 $ 142 $ 176 $ 270
Fidelity VIP Overseas Portfolio.............................................. $ 98 $ 142 $ 177 $ 272
T. Rowe Price International Stock Portfolio.................................. $ 99 $ 146 $ 184 $ 285
Select Aggressive Growth Fund................................................ $ 99 $ 144 $ 180 $ 278
Select Capital Appreciation Fund............................................. $ 100 $ 148 $ 186 $ 290
Select Value Opportunity Fund................................................ $ 99 $ 146 $ 183 $ 284
Select Growth Fund........................................................... $ 98 $ 143 $ 178 $ 273
Growth Fund.................................................................. $ 94 $ 131 $ 157 $ 231
Fidelity VIP Growth Portfolio................................................ $ 96 $ 136 $ 166 $ 249
Equity Index Fund............................................................ $ 94 $ 129 $ 153 $ 223
Select Growth and Income Fund................................................ $ 97 $ 138 $ 170 $ 257
Fidelity Equity-Income Portfolio............................................. $ 95 $ 133 $ 160 $ 238
Fidelity VIP II Asset Manager Portfolio...................................... $ 96 $ 135 $ 164 $ 245
Fidelity VIP High Income Portfolio........................................... $ 96 $ 137 $ 167 $ 251
Investment Grade Income Fund................................................. $ 95 $ 132 $ 158 $ 233
Government Bond Fund......................................................... $ 96 $ 135 $ 166 $ 247
Money Market Fund............................................................ $ 93 $ 126 $ 150 $ 214
</TABLE>
12
<PAGE>
(2) If you annuitize* under a life option or any non-commutable period certain
option of ten years or more at the end of the applicable time period or if you
do NOT surrender or annuitize the Contract, you would pay the following expenses
on a $1,000 investment, assuming 5% annual return on assets:
<TABLE>
<CAPTION>
FUNDS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Select International Equity Fund............................................. $26 $80 $137 $292
DGPF International Equity Series............................................. $24 $74 $126 $270
Fidelity VIP Overseas Portfolio.............................................. $24 $74 $127 $272
T. Rowe Price International Stock Portfolio.................................. $26 $78 $134 $285
Select Aggressive Growth Fund................................................ $25 $76 $130 $278
Select Capital Appreciation Fund............................................. $26 $80 $136 $290
Select Value Opportunity Fund................................................ $25 $78 $133 $284
Select Growth Fund........................................................... $24 $75 $128 $273
Growth Fund.................................................................. $20 $62 $107 $231
Fidelity VIP Growth Portfolio................................................ $22 $68 $116 $249
Equity Index Fund............................................................ $19 $60 $103 $223
Select Growth and Income Fund................................................ $23 $70 $120 $257
Fidelity Equity-Income Portfolio............................................. $21 $64 $110 $238
Fidelity VIP II Asset Manager Portfolio...................................... $22 $66 $114 $245
Fidelity VIP High Income Portfolio........................................... $22 $68 $117 $251
Investment Grade Income Fund................................................. $20 $63 $108 $233
Government Bond Fund......................................................... $22 $67 $115 $247
Money Market Fund............................................................ $19 $57 $99 $214
</TABLE>
Pursuant to requirements of the Investment Company Act of 1940 (the "1940 Act"),
the Policy fee has been reflected in the examples by a method intended to show
the "average" impact of the Policy fee on an investment in the Separate Account.
The total Policy fees collected under the Policies by the Company are divided by
the total average net assets attributable to the Policies. The resulting
percentage is 0.05%, and the amount of the Contract fee is assumed to be $0.50
in the examples. The Contract fee is deducted only when the accumulated value is
$50,000 or less. Lower costs apply to Contracts issued and maintained as part of
a 401(k) plan.
* The Policy fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any Policy year under
an option including a life contingency or under any noncommutable period certain
option of ten years or more.
13
<PAGE>
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SEPARATE ACCOUNT VA-K
<TABLE>
<CAPTION>
SUB-ACCOUNTS 1997 1996 1995 1994 1993 1992
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELECT INTERNATIONAL EQUITY FUND
Unit Value:
Beginning of Period........................... 1.355 1.127 0.956 1.000 N/A N/A
End of Period................................. 1.398 1.355 1.127 0.956 N/A N/A
Units Outstanding at End of Period
(in thousands)................................. 115,585 77,485 37,680 12,530 N/A N/A
DGPF INTERNATIONAL EQUITY SERIES
Unit Value:
Beginning of Period........................... 1.519 1.284 1.143 1.129 1.000 N/A
End of Period................................. 1.596 1.519 1.284 1.143 1.129 N/A
Units Outstanding at End of Period
(in thousands)................................. 62,134 44,416 34,692 26,924 6,681 N/A
FIDELITY VIP OVERSEAS PORTFOLIO
Unit Value:
Beginning of Period........................... 1.484 1.330 1.230 1.226 0.906 1.030
End of Period................................. 1.632 1.484 1.330 1.230 1.226 0.906
Units Outstanding at End of Period
(in thousands)................................. 56,689 63,050 65,256 59,774 25,395 6,728
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
Unit Value:
Beginning of Period........................... 1.203 1.064 1.000 N/A N/A N/A
End of Period................................. 1.222 1.203 1.064 N/A N/A N/A
Units Outstanding at End of Period
(in thousands)................................. 59,832 35,915 10,882 N/A N/A N/A
SELECT AGGRESSIVE GROWTH FUND
Unit Value:
Beginning of Period........................... 1.970 1.686 1.292 1.342 1.139 1.000
End of Period................................. 2.305 1.970 1.686 1.292 1.342 1.139
Units Outstanding at End of Period
(in thousands)................................. 106,790 89,974 70,349 54,288 26,158 2,019
SELECT CAPITAL APPRECIATION FUND
Unit Value:
Beginning of Period........................... 1.482 1.383 1.000 N/A N/A N/A
End of Period................................. 1.670 1.482 1.383 N/A N/A N/A
Units Outstanding at End of Period
(in thousands)................................. 70,932 52,927 16,096 N/A N/A N/A
SELECT VALUE OPPORTUNITY FUND
Unit Value:
Beginning of Period........................... 1.580 1.249 1.075 1.167 1.000 N/A
End of Period................................. 1.945 1.580 1.249 1.075 1.167 N/A
Units Outstanding at End of Period
(in thousands)................................. 85,126 60,145 43,433 33,049 9,902 N/A
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNTS 1997 1996 1995 1994 1993 1992
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELECT GROWTH FUND
Unit Value:
Beginning of Period........................... 1.514 1.259 1.024 1.055 1.058 1.000
End of Period................................. 2.001 1.514 1.259 1.024 1.055 1.058
Units Outstanding at End of Period
(in thousands)................................. 96,643 62,633 47,078 38,415 26,064 3,039
GROWTH FUND
Unit Value:
Beginning of Period........................... 1.894 1.599 1.221 1.236 1.175 1.111
End of Period................................. 2.336 1.894 1.599 1.221 1.236 1.175
Units Outstanding at End of Period
(in thousands)................................. 156,173 135,573 116,008 102,399 72,609 34,373
FIDELITY VIP GROWTH PORTFOLIO
Unit Value:
Beginning of Period........................... 2.143 1.895 1.419 1.440 1.224 1.135
End of Period................................. 2.608 2.143 1.895 1.419 1.440 1.224
Units Outstanding at End of Period
(in thousands)................................. 148,211 142,450 116,485 90,717 49,136 18,253
EQUITY INDEX FUND
Unit Value:
Beginning of Period........................... 1.977 1.640 1.221 1.266 1.135 1.074
End of Period................................. 2.581 1.977 1.640 1.221 1.226 1.135
Units Outstanding at End of Period
(in thousands)................................. 85,344 57,428 39,534 29,176 22,466 9,535
SELECT GROWTH AND INCOME FUND
Unit Value:
Beginning of Period........................... 1.638 1.370 1.066 1.074 0.987 1.000
End of Period................................. 1.978 1.638 1.370 1.066 1.074 0.987
Units Outstanding at End of Period
(in thousands)................................. 103,543 82,434 63,841 51,098 31,846 4,711
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Unit Value:
Beginning of Period........................... 2.236 1.185 1.490 1.412 1.211 1.051
End of Period................................. 2.824 2.236 1.185 1.490 1.412 1.211
Units Outstanding at End of Period
(in thousands)................................. 180,001 167,000 139,145 104,356 61,264 17,855
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Unit Value:
Beginning of Period........................... 1.273 1.127 0.977 1.000 N/A N/A
End of Period................................. 1.514 1.273 1.127 0.977 N/A N/A
Units Outstanding at End of Period
(in thousands)................................. 55,551 42,415 33,444 20,720 N/A N/A
FIDELITY VIP HIGH INCOME PORTFOLIO
Unit Value:
Beginning of Period........................... 1.958 1.743 1.465 1.510 1.270 1.047
End of Period................................. 2.272 1.958 1.743 1.465 1.510 1.270
Units Outstanding at End of Period
(in thousands)................................. 76,343 53,956 38,042 27,041 13,583 3,625
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SUB-ACCOUNTS 1997 1996 1995 1994 1993 1992
- ------------------------------------------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT GRADE INCOME FUND
Unit Value:
Beginning of Period........................... 1.418 1.390 1.073 1.250 1.145 1.073
End of Period................................. 1.530 1.418 1.390 1.196 1.250 1.145
Units Outstanding at End of Period
(in thousands)................................. 86,816 79,054 69,168 57,454 48,488 15,428
GOVERNMENT BOND FUND
Unit Value:
Beginning of Period........................... 1.311 1.285 1.152 1.179 1.112 1.075
End of Period................................. 1.384 1.311 1.285 1.152 1.179 1.112
Units Outstanding at End of Period
(in thousands)................................. 35,261 30,921 31,710 32,519 60,265 29,844
MONEY MARKET FUND
Unit Value:
Beginning of Period........................... 1.167 1.124 1.077 1.051 1.035 1.013
End of Period................................. 1.214 1.167 1.124 1.077 1.051 1.035
Units Outstanding at End of Period
(in thousands)................................. 91,676 92,354 69,311 37,668 30,815 30,778
</TABLE>
PERFORMANCE INFORMATION
The Contract was first offered to the public in 1993. The Company, however, may
advertise "total return" and "average annual total return" performance
information based on the periods that the Sub-Accounts have been in existence
and the periods that the Underlying Funds have been in existence. Performance
results for all periods shown below are calculated with all charges assumed to
be those applicable to the Sub-Accounts, the Underlying Funds, and, in Tables 1A
and 2A, assuming that the Contract is surrendered at the end of the applicable
period and, alternatively, in Tables 1B and 2B, assuming that it is not
surrendered at the end of the applicable period. Both the total return and yield
figures are based on historical earnings and are not intended to indicate future
performance.
The total return of a Sub-Account refers to the total of the income generated by
an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Variable Account charges, and expressed as a
percentage.
The average annual total return represents the average annual percentage change
in the value of an investment in the Sub-Account over a given period of time. It
represents averaged figures as opposed to the actual performance of a
Sub-Account, which will vary from year to year.
The yield of the Sub-Account investing in the Money Market Fund refers to the
income generated by an investment in the Sub-Account over a seven-day period
(which period will be specified in the advertisement). This income is then
"annualized" by assuming that the income generated in the specific week is
generated over a 52-week period. This annualized yield is shown as a percentage
of the investment. The "effective yield" calculation is similar but, when
annualized, the income earned by an investment in the Sub-Account is assumed to
be reinvested. Thus the effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
The yield of a Sub-Account investing in a Fund other than the Money Market Fund
refers to the annualized income generated by an investment in the Sub-Account
over a specified 30-day or one-month period. The yield is calculated by assuming
that the income generated by the investment during that 30-day or one-month
period is generated each period over a 12-month period and is shown as a
percentage of the investment.
16
<PAGE>
Quotations of average annual total return as shown in Table 1A are calculated in
the manner prescribed by the SEC and show the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year period or for a period covering the time the Sub-Account has been in
existence, if less than the prescribed periods. The calculation is adjusted to
reflect the deduction of the annual Sub-Account asset charge of 1.45%, the $30
annual Contract fee the Underlying Fund charges and the contingent deferred
sales charge which would be assessed if the investment were completely withdrawn
at the end of the specified period. Quotations of supplemental average total
returns, as shown in Table 1B, are calculated in exactly the same manner and for
the same periods of time except that it does not reflect the contingent deferred
sales charge but assumes that the Contract is not surrendered at the end of the
periods shown.
The performance shown in Tables 2A and 2B is calculated in exactly the same
manner as those in Tables 1A and 1B respectively; however, the period of time is
based on the Underlying Fund's lifetime, which may predate the Sub-Account's
inception date. These performance calculations are based on the assumption that
the Sub-Account corresponding to the applicable Underlying Fund was actually in
existence throughout the stated period and that the contractual charges and
expenses during that period were equal to those currently assessed under the
Contract.
For more detailed information about these performance calculations, including
actual formulas, see the SAI.
PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF A
HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE TIME PERIOD ON WHICH THE
CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF
THE INVESTMENT OBJECTIVES AND POLICIES AND RISK CHARACTERISTICS OF THE
UNDERLYING FUND IN WHICH THE 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.
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (1) the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman
Aggregate Bond Index or other unmanaged indices so that investors may compare
the Sub-Account results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(2) other groups of variable annuity 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, who rank such investment products on
overall performance or other criteria; or (3) the Consumer Price Index (a
measure for inflation) to assess the real rate of return from an investment in
the Sub-Account. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of the Company's relative financial
strength and operating performance in comparison to the norms of the life/health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues and
do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the Underlying
Funds.
17
<PAGE>
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR PERIODS ENDING
DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR SINCE
ENDED INCEPTION OF
NAME OF UNDERLYING FUND 12/31/97 5 YEARS SUB-ACCOUNT
- ------------------------------------------------------------- ---------- ---------- ------------
Select International Equity Fund............................. -4.32% N/A 8.21 %
<S> <C> <C> <C>
DGPF International Equity Series............................. -2.53 % N/A 9.74 %
Fidelity VIP Overseas Portfolio.............................. 2.01 % 11.80 % 7.69 %
T. Rowe Price International Stock Portfolio.................. -5.74 % N/A 5.41 %
Select Aggressive Growth Fund................................ 8.97 % 14.52 % 16.66 %
Select Capital Appreciation Fund............................. 4.60 % N/A 19.20 %
Select Value Opportunity Fund................................ 15.03 % N/A 14.65 %
Select Growth Fund........................................... 24.11 % 12.92 % 13.52 %
Growth Fund.................................................. 15.32 % 14.09 % 14.07 %
Fidelity VIP Growth Portfolio................................ 13.68 % 15.73 % 16.10 %
Equity Index Fund............................................ 22.49 % 17.28 % 15.90 %
Select Growth and Income Fund................................ 12.72 % 14.29 % 13.27 %
Fidelity VIP Equity-Income Portfolio......................... 18.24 % 17.88 % 17.58 %
Fidelity VIP II Asset Manager Portfolio...................... 10.89 % N/A 10.68 %
Fidelity VIP High Income Portfolio........................... 7.95 % 11.63 % 13.69 %
Investment Grade Income Fund................................. 0.07 % 5.12 % 6.57 %
Government Bond Fund......................................... -2.07 % 3.55 % 4.85 %
Money Market Fund............................................ -3.57 % 2.27 % 2.65 %
</TABLE>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR SINCE
ENDED INCEPTION OF
NAME OF UNDERLYING FUND 12/31/97 5 YEARS SUB-ACCOUNT
- ------------------------------------------------------------- ---------- ---------- ------------
Select International Equity Fund............................. 3.11% N/A 9.51 %
<S> <C> <C> <C>
DGPF International Equity Series............................. 5.04 % N/A 10.49 %
Fidelity VIP Overseas Portfolio.............................. 9.92 % 12.43 % 8.00 %
T.Rowe Price International Stock Portfolio................... 1.58 % N/A 7.76 %
Select Aggressive Growth Fund................................ 16.97 % 15.09 % 17.05 %
Select Capital Appreciation Fund............................. 12.60 % N/A 21.13 %
Select Value Opportunity Fund................................ 23.03 % N/A 15.29 %
Select Growth Fund........................................... 32.11 % 13.53 % 13.95 %
Growth Fund.................................................. 23.32 % 14.67 % 14.30 %
Fidelity VIP Growth Portfolio................................ 21.68 % 16.28 % 16.31 %
Equity Index Fund............................................ 30.49 % 17.80 % 16.12 %
Select Growth and Income Fund................................ 20.72 % 14.86 % 13.71 %
Fidelity VIP Equity-Income Portfolio......................... 26.24 % 18.39 % 17.78 %
Fidelity VIP II Asset Manager Portfolio...................... 18.89 % N/A 11.91 %
Fidelity VIP High Income Portfolio........................... 15.95 % 12.27 % 13.93 %
Investment Grade Income Fund................................. 7.84 % 5.92 % 6.91 %
Government Bond Fund......................................... 5.54 % 4.41 % 5.22 %
Money Market Fund............................................ 3.92 % 3.17 % 3.06 %
</TABLE>
18
<PAGE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
10 YEARS
FOR YEAR OR SINCE
ENDED INCEPTION IF
NAME OF UNDERLYING FUND 12/31/97 5 YEARS LESS*
- ------------------------------------------------------------- ---------- ---------- ------------
Select International Equity Fund............................. -4.32% N/A 8.17 %
<S> <C> <C> <C>
DGPF International Equity Series............................. -2.53 % 9.29 % 9.10 %
Fidelity VIP Overseas Portfolio.............................. 2.01 % 11.80 % 7.98 %
T. Rowe Price International Stock Portfolio.................. -5.74 % N/A 5.08 %
Select Aggressive Growth Fund................................ 8.97 % 14.52 % 17.42 %
Select Capital Appreciation Fund............................. 4.60 % N/A 19.13 %
Select Value Opportunity Fund................................ 15.03 % N/A 14.54 %
Select Growth Fund........................................... 24.11 % 12.92 % 14.21 %
Growth Fund.................................................. 15.32 % 14.09 % 15.37 %
Fidelity VIP Growth Portfolio................................ 13.68 % 15.73 % 15.44 %
Equity Index Fund............................................ 22.49 % 17.28 % 17.79 %
Select Growth and Income Fund................................ 12.72 % 14.29 % 13.20 %
Fidelity VIP Equity-Income Portfolio......................... 18.24 % 17.88 % 14.97 %
Fidelity VIP II Asset Manager Portfolio...................... 10.89 % 10.63 % 10.99 %
Fidelity VIP High Income Portfolio........................... 7.95 % 11.63 % 11.12 %
Investment Grade Income Fund................................. 0.07 % 5.12 % 7.55 %
Government Bond Fund......................................... -2.07 % 3.55 % 4.93 %
Money Market Fund............................................ -3.57 % 2.27 % 4.21 %
</TABLE>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR PERIODS ENDING
DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
10 YEARS
FOR YEAR OR SINCE
ENDED INCEPTION IF
NAME OF UNDERLYING FUND 12/31/97 5 YEARS LESS*
- ------------------------------------------------------------- ---------- ---------- ------------
Select International Equity Fund............................. 3.11% N/A 9.47 %
<S> <C> <C> <C>
DGPF International Equity Series............................. 5.04 % 9.98 % 9.63 %
Fidelity VIP Overseas Portfolio.............................. 9.92 % 12.43 % 7.98 %
T.Rowe Price International Stock Portfolio................... 1.58 % N/A 6.45 %
Select Aggressive Growth Fund................................ 16.97 % 15.09 % 17.78 %
Select Capital Appreciation Fund............................. 12.60 % N/A 21.05 %
Select Value Opportunity Fund................................ 23.03 % N/A 15.18 %
Select Growth Fund........................................... 32.11 % 13.53 % 14.63 %
Growth Fund.................................................. 23.32 % 14.67 % 15.37 %
Fidelity VIP Growth Portfolio................................ 21.68 % 16.28 % 15.44 %
Equity Index Fund............................................ 30.49 % 17.80 % 17.89 %
Select Growth and Income Fund................................ 20.72 % 14.86 % 13.63 %
Fidelity VIP Equity-Income Portfolio......................... 26.24 % 18.39 % 14.97 %
Fidelity VIP II Asset Manager Portfolio...................... 18.89 % 11.29 % 11.04 %
Fidelity VIP High Income Portfolio........................... 15.95 % 12.27 % 11.12 %
Investment Grade Income Fund................................. 7.84 % 5.92 % 7.55 %
Government Bond Fund......................................... 5.54 % 4.41 % 5.29 %
Money Market Fund............................................ 3.92 % 3.17 % 4.21 %
</TABLE>
19
<PAGE>
* The inception dates of the Underlying Funds are: 4/29/85 for Growth Fund,
Investment Grade Income Fund and Money Market Fund; 9/28/90 for Equity Index
Fund; 8/26/91 for Government Bond Fund; 8/21/92 for Select Aggressive Growth
Fund, Select Growth Fund and Select Growth and Income Fund; 4/30/93 for Select
Value Opportunity Fund; 5/02/94 for Select International Equity Fund; 4/28/95
for Select Capital Appreciation Fund; 10/09/86 for Fidelity VIP Equity-Income
Portfolio and Fidelity VIP Growth Portfolio; 9/19/85 for Fidelity VIP High
Income Portfolio; 1/28/87 for Fidelity VIP Overseas Portfolio; 9/06/89 for
Fidelity VIP II Asset Manager Portfolio; 10/29/92 for DGPF International Equity
Series; 3/31/94 for the T. Rowe Price International Stock Portfolio.
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, THE TRUST,
FIDELITY VIP FUND, FIDELITY VIP II FUND, T. ROWE PRICE AND DGPF
THE COMPANY. The Company is a life insurance company organized under the laws
of Delaware in July, 1974. Its Principal Office is located at 440 Lincoln
Street, Worcester, Massachusetts 01653, telephone 508-855-1000. The Company is
subject to the laws of the state of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1997, the
Company had over $9.4 billion in assets and over $26.6 billion of life insurance
in force.
Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirect wholly owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica"), which in turn is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company on October 16, 1995, and adopted its
present name. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1997, First Allmerica and its subsidiaries
(including the Company) had over $16.3 billion in combined assets and over $43.8
billion in life insurance in force.
The Company is a charter member of the Insurance Marketplace Standard
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE SEPARATE ACCOUNT. The Separate Account is a separate investment account of
the Company referred to as Separate Account VA-K. The assets used to fund the
variable portions of the Policy are set aside in the Sub-Accounts of the
Separate Account, and are kept separate and apart from the general assets of the
Company. There are 18 Sub-Accounts available under the Policy. 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. Under Delaware law, the assets of the
Separate Account may not be charged with any liabilities arising out of any
other business of the Company.
The Separate Account was authorized by vote of the Board of Directors of the
Company on November 1, 1990. The Variable Account meets the definition of a
"separate account" under federal securities law and is registered with the SEC
as a unit investment trust under the 1940 Act. Such registration does not
involve the supervision by the SEC of management or investment practices or
policies of the Variable Account or the Company.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Variable Account and the Sub-Accounts.
20
<PAGE>
ALLMERICA INVESTMENT TRUST. Allmerica Investment Trust ("Trust") is an
open-end, diversified management investment company registered with the SEC
under the 1940 Act. 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 the Company or other
affiliated insurance companies. Eleven investment portfolios of the Trust are
currently available under the Contract, 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 Select Value Opportunity Fund. 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 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 variable accounts.
Allmerica Financial Investment Management Services, Inc. serves as the
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 ("Fidelity
VIP") managed by Fidelity Management & Research Company ("FMR"), is an open-end,
diversified management investment company organized as a Massachusetts business
trust on November 13, 1981, and registered with the SEC under the 1940 Act. Four
of its investment portfolios are available under the Contract: Fidelity VIP High
Income Portfolio, Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth
Portfolio and Fidelity VIP Overseas Portfolio.
Various Fidelity companies perform certain activities required to operate
Fidelity VIP. FMR 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. FMR 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. As part of their
operating expenses, the Portfolios of Fidelity VIP pay an investment management
fee to FMR. See "Investment Advisory Services to Fidelity VIP and Fidelity VIP
II."
VARIABLE INSURANCE PRODUCTS FUND II. Variable Insurance Products Fund II
("Fidelity VIP II"), managed by FMR (see discussion above) is an open-end,
diversified management investment company organized as a Massachusetts business
trust on March 21, 1988, and registered with the SEC under the 1940 Act. One of
its investment portfolios is available under the Contract: Fidelity VIP II Asset
Manager Portfolio.
T. ROWE PRICE INTERNATIONAL SERIES, INC. T. Rowe 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 SEC under the 1940 Act. One of its
investment portfolios is available under the Contracts: the T. Rowe Price
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 SEC
under the 1940 Act. DGPF was established to provide a vehicle for the investment
of assets of various separate accounts supporting variable insurance contracts.
One investment portfolio ("Series") is available under the Contract, the
International Equity Series. 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. The Underlying Funds are listed by general investment risk
characteristics. MORE DETAILED INFORMATION REGARDING THE
21
<PAGE>
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.
SELECT INTERNATIONAL EQUITY FUND OF THE TRUST -- The Select International Equity
Fund of the Trust seeks maximum long-term total return (capital appreciation and
income) primarily by investing in common stocks of established non-U.S.
companies.
DGPF INTERNATIONAL EQUITY SERIES -- The International Equity Series of DGPF
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.
FIDELITY VIP OVERSEAS PORTFOLIO -- The Overseas Portfolio of Fidelity VIP 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.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO -- The T. Rowe Price International
Stock Portfolio seeks long-term growth of capital through investments primarily
in common stocks of established, non-U.S. companies.
SELECT AGGRESSIVE GROWTH FUND -- The Select Aggressive Growth Fund of the Trust
seeks above-average capital appreciation by investing primarily in common stocks
of companies which are believed to have significant potential for capital
appreciation.
SELECT CAPITAL APPRECIATION FUND -- The Select Capital Appreciation Fund of the
Trust 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 invests primarily in common stock
of industries and companies which are believed to be experiencing favorable
demand for their products and services, and which operate in a favorable
competitive environment and regulatory climate.
SELECT VALUE OPPORTUNITY FUND -- The Select Value Opportunity Fund of the Trust
seeks long-term growth by investing principally in a diversified portfolio of
common stocks of small and mid-size companies whose securities at the time of
purchase are considered by the Sub-Adviser to be undervalued.
SELECT GROWTH FUND -- The Select Growth Fund of the Trust seeks to achieve
long-term growth of capital by investing in a diversified portfolio consisting
primarily of common stocks selected on the basis of their long-term growth
potential.
GROWTH FUND -- The Growth Fund of the Trust 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.
FIDELITY VIP GROWTH PORTFOLIO -- The Growth Portfolio of Fidelity VIP 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 also may be found in other types of securities, including bonds and
preferred stocks.
EQUITY INDEX FUND -- The Equity Index Fund of the Trust seeks to provide
investment results that correspond to the aggregate price and yield performance
of a representative selection of United States publicly
22
<PAGE>
traded common stocks. The Equity Index Fund seeks to achieve its objective by
attempting to replicate the aggregate price and yield performance of the
Standard & Poor's Composite Index of 500 Stocks.
SELECT GROWTH AND INCOME FUND -- 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.
FIDELITY VIP EQUITY-INCOME PORTFOLIO -- The Equity-Income Portfolio of Fidelity
VIP seeks reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Portfolio also will 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 S&P 500.
FIDELITY VIP II ASSET MANAGER PORTFOLIO -- The Asset Manager Portfolio of
Fidelity VIP II seeks high total return with reduced risk over the long term by
allocating its assets among domestic and foreign stocks, bonds and short-term
money market instruments.
FIDELITY VIP HIGH INCOME PORTFOLIO -- The High Income Portfolio of Fidelity VIP
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 often
are considered to be speculative, and involve greater risk of default or price
changes than securities assigned a high quality rating. See the Fidelity VIP
prospectus.
INVESTMENT GRADE INCOME FUND -- The Investment Grade Income Fund of the Trust 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
capital appreciation) as is consistent with prudent investment management.
GOVERNMENT BOND FUND -- The Government Bond Fund of the Trust 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
related options, futures and repurchase agreements.
MONEY MARKET FUND -- The Money Market Fund of the Trust is invested in a
diversified portfolio of high-quality, short-term money market instruments with
the objective of obtaining maximum current income consistent with the
preservation of capital and liquidity.
CERTAIN UNDERLYING FUNDS HAVE INVESTMENT OBJECTIVES AND/OR POLICIES SIMILAR TO
THOSE OF OTHER UNDERLYING FUNDS. THEREFORE, TO CHOOSE THE SUB-ACCOUNTS WHICH
BEST WILL MEET INDIVIDUAL NEEDS AND OBJECTIVES, CAREFULLY READ THE PROSPECTUSES
OF THE TRUST, FIDELITY VIP, FIDELITY 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 there is a material change in the investment policy of a Fund, the Owner will
be notified of the change. If the Owner has accumulated Value allocated to that
Fund, he or she may have the Accumulated Value reallocated without charge to
another Fund or to the Fixed Account, where available, on written request
received by the Company within sixty (60) days of the later of (1) the effective
date of such change in the investment policy, or (2) the receipt of the notice
of the Owner's right to transfer.
23
<PAGE>
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISORY SERVICES TO THE TRUST. The Trustees have overall
responsibility for the supervision of the affairs of the Trust. The Trustees
have entered into an agreement (" Management Agreement") with Allmerica
Financial Investment Management Services, Inc. ("Manager") to handle the
day-to-day affairs of the Trust. The Manager, subject to review by the Trustees,
is responsible for the general management of the Funds of the Trust. The Manager
also performs 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
the Manager.
Other than the expenses specifically assumed by the Manager 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 ("1933 Act"), other fees
payable to the SEC, independent public accountant, legal and custodian fees,
association membership dues, taxes, interest, insurance premiums, brokerage
commissions, fees and expenses of the Trustees who are not affiliated with the
Manager, expenses for proxies, prospectuses, reports to shareholders, and other
expenses.
For providing its services under the Management Agreement, the Manager will
receive a fee, computed daily at an annual rate based on the average daily net
asset value of each Fund of the Trust as follows:
<TABLE>
<S> <C> <C>
Select International Equity Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Aggressive Growth Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Capital Appreciation Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Value Opportunity Fund First $100 million 1.00%
Next $150 million 0.85%
Next $250 million 0.80%
Next $250 million 0.75%
Over $750 million 0.70%
Select Growth Fund * 0.85%
Growth Fund First $250 million 0.60%
Next $250 million 0.40%
Over $500 million 0.35%
Equity Index Fund First $50 million 0.35%
Next $200 million 0.30%
Over $250 million 0.25%
Select Growth and Income Fund First $100 million 0.75%
Next $150 million 0.70%
Over $250 million 0.65%
Investment Grade Income Fund First $50 million 0.50%
Next $50 million 0.45%
Over $100 million 0.40%
Government Bond Fund * 0.50%
Money Market Fund First $50 million 0.35%
Next $200 million 0.25%
Over $250 million 0.20%
</TABLE>
* For the Government Bond Fund and the Select Growth Fund, the rate applicable
to the Manager does not vary according to the level of assets in the Fund.
24
<PAGE>
The Manager's fee, computed for each Fund, will be paid from the assets of such
Fund. Pursuant to the Management Agreement with the Trust, the Manager 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 of the Trust. 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. The Manager is solely responsible for the payment of all fees
for investment management services to the Sub-Advisers. Allmerica Asset
Management, Inc., the Sub-Adviser for the Equity Index Fund, the Investment
Grade Income Fund, the Government Bond Fund and the Money Market Fund, is an
indirect wholly owned subsidiary of AFC and an affiliate of the Company.
The prospectus of the Trust contains additional information concerning the
Funds, including information about additional expenses paid by the Funds, and
should be read in conjunction with this Prospectus.
INVESTMENT ADVISORY SERVICES TO FIDELITY VIP AND FIDELITY VIP II FUNDS -- For
managing investments and business affairs, each Portfolio pays a monthly fee to
FMR. The prospectuses of Fidelity VIP and VIP II contain additional information
concerning the Portfolios, including information about additional expenses paid
by the Portfolios, and should be read in conjunction with this Prospectus.
The Fidelity VIP High Income Portfolio pays a monthly fee to FMR 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 FMR. 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 Fidelity VIP 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 fee rates of the Fidelity VIP Equity-Income, Fidelity VIP Growth, Fidelity
VIP II Asset Manager and Fidelity VIP Overseas Portfolios each are made of two
components:
1. A group fee rate based on the monthly average net assets of all of the
mutual funds advised by FMR. 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 Fidelity VIP Equity-Income
Portfolio, 0.30% for the Fidelity VIP Growth Portfolio, 0.25% for the
Fidelity VIP II Asset Manager Portfolio and 0.45% for the Fidelity VIP
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 Fidelity VIP High Income Portfolio may have a fee as high as 0.82% of
its average net assets. The Fidelity VIP Equity-Income Portfolio may have a fee
as high as 0.72% of its average net assets. The Fidelity VIP Growth Portfolio
may have a fee as high as 0.82% of its average net assets. The Fidelity VIP II
Asset Manager Portfolio may have a fee as high as 0.77% of its average net
assets. The Fidelity VIP Overseas Portfolio may have a fee 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 FMR.
INVESTMENT ADVISORY SERVICES TO T. ROWE PRICE. The Investment Adviser for the
T. Rowe Price International Stock Portfolio is Rowe Price-Fleming International,
Inc. ("Price-Fleming"). Price-Fleming, founded in 1979 as a joint venture
between T. Rowe Price Associates, Inc. and Robert Fleming Holdings, Limited, is
25
<PAGE>
one of America's largest international mutual fund asset managers with
approximately $30 billion under management in its offices in Baltimore, London,
Tokyo, Hong Kong, Singapore and Buenos Aires. To cover investment management and
operating expenses, the T. Rowe Price 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.
WHAT IS AN ANNUITY?
In general, an annuity is a policy designed to provide a retirement income in
the form of monthly payments for the lifetime of the purchaser or an individual
chosen by the purchaser. The retirement income payments are called "annuity
benefit payments" and the individual receiving the payments is called the
"Annuitant." Annuity benefit payments may begin immediately after a lump sum
purchase is made or may begin after an investment period during which the amount
necessary to provide the desired amount of retirement income is accumulated.
Under an annuity policy, the insurance company assumes a mortality risk and an
expense risk. The mortality risk arises from the insurance company's guarantee
that annuity payments will continue for the life of the Annuitant, regardless of
how long the Annuitant lives or how long all Annuitants as a group live. The
expense risk arises from the insurance company's guarantee that charges will not
be increased beyond the limits specified in the policy, regardless of actual
costs of operations.
The Policy Owner's purchase payments, less any applicable deductions, are
invested by the insurance company. After retirement, annuity payments are paid
to the Annuitant for life or for such other period chosen by the Policy Owner.
In the case of a "fixed" payout annuity, the value of these annuity payments is
guaranteed by the insurance company, which assumes the risk of making the
investments to enable it to make the guaranteed payments. For more information
about fixed payout annuities see APPENDIX A. "MORE INFORMATION ABOUT THE GENERAL
ACCOUNT." With a variable annuity payout, the value of the Policy and the
annuity payments are not guaranteed but will vary depending on the investment
performance of a portfolio of securities. Any investment gains or losses are
reflected in the value of the Policy and in the annuity benefit payments. If the
portfolio increases in value, the value of the Policy increases. If the
portfolio decreases in value, the value of the Policy decreases.
CHARGES AND DEDUCTIONS
Deductions under the Policy and charges against the assets of the Sub-Accounts
are described below. Other deductions and expenses paid out of the assets of the
Underlying Funds are described in the Prospectus and Statement of Additional
Information of the Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF.
A. CONTINGENT DEFERRED SALES CHARGE
No charge for sales expense is deducted from purchase payments at the time the
payments are made. However, a contingent deferred sales charge is deducted from
the Accumulated Value of the Policy in the case of surrender and/or partial
redemption of the Policy or at the time annuity payments begin, within certain
time limits described below.
For purposes of determining the contingent deferred sales charge, the Policy
Value is divided into three categories: (1) New Payments which are purchase
payments received by the Company during the nine years preceding the date of the
surrender; (2) Old Payments which are purchase payments not defined as New
Payments; and (3) Earnings which are the amount of Policy Value in excess of all
purchase payments that have
26
<PAGE>
not been previously surrendered. For purposes of determining the amount of any
contingent deferred sales charge, surrenders will be deemed to be taken first
from Old Payments, then from New Payments. Old Payments may be withdrawn from
the Policy at any time without the imposition of a contingent deferred sales
charge. If a withdrawal is attributable all or in part to New Payments, a
contingent deferred sales charge may apply.
Where permitted by state law, no contingent deferred sales charge is imposed,
and no commissions are paid, on Policies issued after December 31, 1992, where
the Policy Owner and Annuitant as of the date of application are both within the
following class of individuals:
All employees of the Company located at the Company's home office (or at
off-site locations if such employees are on the Company's home office payroll);
all directors of the Company; all retired employees; all spouses and immediate
family members of such employees, directors and retirees, who reside in the same
household; and beneficiaries who receive a death benefit under a deceased
employee's or retiree's progress sharing plan.
For purposes of the above class of individuals, "the Company" includes its
affiliates and subsidiaries; "immediate family members" means children,
siblings, parents and grandparents; "retirement date" means an employee's early,
normal or late retirement date, as defined in the First Allmerica's Companies
Pension Plan or any successor plan; and "progress sharing plan" means the First
Allmerica Financial Life Insurance Company Incentive and Profit Sharing Plan or
any successor plan.
CHARGES FOR SURRENDER AND PARTIAL REDEMPTION. If a Policy is surrendered, or if
New Payments are redeemed, while the Policy is in force and before the Annuity
Date, a contingent deferred sales charge may be imposed. The amount of the
charge will depend upon the number of years that the New Payments, if any, to
which the withdrawal is attributed have remained credited under the Policy.
Amounts withdrawn are deducted first from Old Payments. Then, for the purpose of
calculating surrender charges for New Payments, all amounts withdrawn are
assumed to be deducted first from the earliest New Payment and then from the
next earliest New Payment and so on, until all New Payments have been exhausted
pursuant to the first-in-first-out ("FIFO") method of accounting. (See "FEDERAL
TAX CONSIDERATIONS" for a discussion of how withdrawals are treated for income
tax purposes.)
The Contingent Deferred Sales Charges are as follows:
<TABLE>
<CAPTION>
YEARS FROM DATE OF CHARGE AS PERCENTAGE OF
PAYMENT TO DATE OF NEW PAYMENTS
WITHDRAWAL WITHDRAWN
- ------------------ -----------------------
<S> <C>
0-2 8%
3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
more than 9 0%
</TABLE>
The amount redeemed equals the amount requested by the Policy Owner plus the
charge, if any. The charge is applied as a percentage of the New Payments
redeemed, but in no event will the total contingent deferred sales charge exceed
a maximum limit of 8% of total gross New Payments. Such total charge equals the
aggregate of all applicable contingent deferred sales charges for surrender,
partial redemptions, and annuitization.
27
<PAGE>
FREE WITHDRAWAL AMOUNTS. In each calendar year, the Company will waive the
contingent deferred sales charge, if any, on an amount ("Free Withdrawal
Amount") equal to the greatest of (1), (2) or (3):
Where (1) is: The Accumulated Value as of the Valuation Date coincident with
or next following the date of receipt of the request for
withdrawal, reduced by total gross payments not previously
redeemed ("Cumulative Earnings");
Where (2) is: 10% of the Accumulated Value as of the Valuation Date
coincident with or next following the date of receipt of the
request for withdrawal, reduced by the total amount of any
prior partial redemptions made in the same calendar year to
which no contingent deferred sales charge was applied;
Where (3) is: The amount calculated under the Company's life expectancy
distribution (see "Life Expectancy Distributions," below),
whether or not the withdrawal was part of such distribution
(applies only if the Owner and Annuitant are the same
individual).
For example, an 81-year-old Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Free Withdrawal
Amount of $1,530, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED of 10.2% of Accumulated Value ($1,530).
The Free Withdrawal Amount will be deducted first from Cumulative Earnings. If
the Free Withdrawal Amount exceeds Cumulative Earnings, the excess amount will
be deemed withdrawn from payments not previously redeemed on a last-in-first-out
("LIFO") basis. If more than one partial withdrawal is made during the year, on
each subsequent withdrawal the Company will waive the contingent deferred sales
load, if any, until the entire Free Withdrawal Amount has been redeemed.
LIFE EXPECTANCY DISTRIBUTIONS. An Owner who is also the Annuitant may elect to
make a series of systematic withdrawals from the Policy according to a life
expectancy distribution ("LED"), by returning a properly signed LED request form
to the Principal Office. The LED permits the Owner to make systematic
withdrawals from the Policy over his or her lifetime. The amount withdrawn from
the Policy changes each year, because life expectancy changes each year that a
person lives. For example, actuarial tables indicate that a person age 70 has a
life expectancy of 16 years, but a person who attains age 86 has a life
expectancy of another 6.5 years.
If an Owner elects the LED option, in each Policy year a fraction of the
Accumulated Value is withdrawn from the Policy based on the Owner's then life
expectancy. The numerator of the fraction is 1 (one), and the denominator of the
fraction is the remaining life expectancy of the Owner, as determined annually
by the Company. The resulting fraction, expressed as a percentage, is applied to
the Accumulated Value of the Policy at the beginning of the year to determine
the amount to be distributed during the year. The Owner may elect monthly,
bi-monthly, quarterly, semi-annual, or annual distributions, and may terminate
the LED at any time. The Owner also may elect to receive distributions under a
LED which is determined on the joint life expectancy of the Owner and a
beneficiary. The Company also may offer other systematic withdrawal options.
If an Owner makes withdrawals under the LED option prior to age 59 , the
withdrawals may be treated by the IRS as premature distributions from the
Policy. The payments would then be taxed on an "income first" basis, and be
subject to a 10% federal tax penalty. For more information, see "FEDERAL TAX
CONSIDERATIONS," "B. Taxation of the Policies in General."
28
<PAGE>
SURRENDERS. In the case of a complete surrender, the amount received by the
Owner is equal to the entire Accumulated Value under the Policy, net of the
applicable contingent deferred sales charge on New Payments, the Policy fee, and
any tax withholding, if applicable. Subject to the same rules that are
applicable to partial redemptions, the Company will not assess a contingent
deferred sales charge on a Free Withdrawal Amount. Because Old Payments count in
the calculation of the Free Withdrawal Amount, if Old Payments equal or exceed
the Free Withdrawal Amount, the Company may assess the full applicable
contingent deferred sales charge on New Payments.
Where an Owner who is trustee under a pension plan surrenders, in whole or in
part, a Policy on a terminating employee, the trustee will be permitted to
reallocate all or a part of the total Accumulated Value under the Policy to
other policies issued by the Company and owned by the trustee, with no deduction
for any otherwise applicable contingent deferred sales charge. Any such
reallocation will be at the unit values for the Sub-Accounts as of the valuation
date on which a written, signed request is received at the Principal Office.
For further information on surrender and partial redemption, including minimum
limits on amount redeemed and amount remaining under the Policy in the case of
partial redemption, and important tax considerations, see "C. Surrender" and "D.
Partial Redemption" under "THE VARIABLE ANNUITY POLICIES," and see "FEDERAL TAX
CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If a period certain option
is chosen (Option V or the comparable fixed annuity option), a contingent
deferred sales charge will be deducted from the Accumulated Value of the Policy
if the Annuity Date occurs at any time during the surrender charge period. Such
charge is the same as that which would apply had the policy been surrendered on
the Annuity Date.
No contingent deferred sales charge is imposed at the time of annuitization in
any policy year under an option involving a life contingency (Options I, II,
III, IV-A, IV-B or the comparable fixed annuity options) or involving a
non-commutable period certain of a duration of ten years or more.
SALES EXPENSE. The Company pays sales commissions, not to exceed 6% of purchase
payments, to entities which sell the Policies. To the extent permitted by NASD
rules, expense reimbursement allowances and additional payments for other
services not directly related to the sale of the Policies, including the
recruitment and training of personnel, production of promotional literature, and
similar services may also be made.
The Company intends to recoup the commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges, described above,
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. There
is no additional charge to Owners or to the Separate Account. Any contingent
deferred sales charges assessed on a Policy will be retained by the Company.
Alternative commission schedules are available with lower initial commission
amounts based on purchase payments, plus ongoing annual compensation of up to 1%
of policy value.
B. PREMIUM TAXES
Some states and municipalities impose a premium tax on variable annuity
policies. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by the Company when purchase payments were
received, to the extent permitted in the Policy the premium tax charge is
deducted on a pro-rata basis when partial withdrawals are made, upon
surrender of the Policy, or when annuity benefit payments begin (the Company
reserves
29
<PAGE>
the right instead to deduct the premium tax charge for these Policies at the
time the purchase payments are received); or
(2) the premium tax charge is deducted when annuity benefit payments begin.
If no amount for premium tax was deducted at the time the purchase payment was
received, but subsequently tax is determined to be due prior to the Annuity
Date, the Company reserves the right to deduct the premium tax from the Policy
value at the time such determination is made.
C. POLICY FEE
A $30 Policy fee currently is deducted on the Policy anniversary date and upon
full surrender of the Policy when the Accumulated Value is $50,000 or less. The
Policy fee is not deducted after annuitization. The Policy fee currently is
waived for Policies issued to a trustee of a 401(k) plan, but the Company
reserves the right to impose the Policy fee on such Policies.
Where Policy value has been allocated to more than one account (General Account
and/or one or more of the Sub-Accounts), a percentage of the total Policy fee
will be deducted from the Policy value in each account. The portion of the
charge deducted from each account will be equal to the percentage which the
Policy value in that account represents of the total Accumulated Value under the
Policy. The deduction of the Policy fee will result in cancellation of a number
of Accumulation Units equal in value to the percentage of the charge deducted
from that account.
D. ANNUAL CHARGES AGAINST SEPARATE ACCOUNT ASSETS
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a daily charge equal to an
annual rate of 1.25% on an annual basis of the daily value of each Sub-Account's
assets to cover the mortality and expense risk which the Company assumes in
relation to the variable portion of the Policies. The charge is imposed during
both the accumulation period and the annuity period. The mortality risk arises
from the Company's guarantee that it will make annuity payments in accordance
with annuity rate provisions established at the time the Policy is issued for
the life of the Annuitant (or in accordance with the annuity option selected),
no matter how long the Annuitant (or other payee) lives and no matter how long
all Annuitants as a class live. Therefore, the mortality charge is deducted
during the annuity phase on all Policies, including those that do not involve a
life contingency, even though the Company does not bear direct mortality risk
with respect to variable annuity settlement options that do not involve life
contingencies. The expense risk arises from the Company's guarantee that the
charges it makes will not exceed the limits described in the Policies and in
this Prospectus.
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be .80% for mortality risk and .45%
for expense risk.
ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account with a
daily charge at an annual rate of 0.20% of the average daily net assets of the
Sub-Account. The charge is imposed during both the accumulation period and the
annuity period. The daily Administrative Expense Charge is assessed to help
defray administrative expenses actually incurred in the administration of the
Sub-Account, without profits. However, there is no direct relationship between
the amount of administrative expenses imposed on a given policy and the amount
of expenses actually attributable to that policy.
30
<PAGE>
Deductions for the Policy Fee (described under C. Policy Fee) and for the
Administrative Expense Charge are designed to reimburse the Company for the cost
of administration and related expenses and are not expected to be a source of
profit. The administrative functions and expense assumed by the Company in
connection with the Separate Account and the Policies include, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and supplies, expenses of preparing and printing
registration statements, expense of preparing and typesetting prospectuses and
the cost of printing prospectuses not allocable to sales expense, filing and
other fees.
TRANSFER CHARGE. The Company currently makes no charge for transfers. The
Company guarantees that the first twelve transfers in a Policy Year will be free
of charge. For each subsequent transfer, the Company reserves the right to
assess a charge, guaranteed never to exceed $25, to reimburse the Company for
the costs of processing the transfer. If the Policy Owner has elected automatic
transfers, the first automatic transfer will count as one transfer which are
guaranteed to be free of charge.
If the Policy Owner has elected automatic transfers, the first automatic
transfer will count as one transfer towards the twelve transfers which are
guaranteed to be free of charge. of the other Sub-Accounts or (b) in order to
reallocate Policy Value among the Sub-Accounts. The first automatic transfer
counts as one transfer towards the six transfers which are guaranteed to be free
in each Policy Year. For more information, see "The Policy Transfer Privilege."
Other Charges. Because the Sub-Accounts purchase shares of the Underlying Funds,
the value of the net assets of the Sub-Accounts will reflect the investment
advisory fee and other expenses incurred by the Underlying Funds. The Prospectus
and Statement of Additional Information of the Trust, Fidelity VIP, Fidelity VIP
II, T. Rowe Price and DGPF contain additional information concerning expenses of
the Underlying Funds.
THE VARIABLE ANNUITY POLICIES
The Policies are designed for use in connection with several types of retirement
plans as well as for sale to individuals. Participants under such plans, as well
as Policy Owners, Annuitants, and beneficiaries, are cautioned that the rights
of any person to any benefits under such Policies may be subject to the terms
and conditions of the plans themselves, regardless of the terms and conditions
of the Policies.
The Policies offered by the Prospectus may be purchased from representatives of
Allmerica Investments, Inc., a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. ("NASD"). Allmerica Investments, Inc., 440 Lincoln Street,
Worcester, Massachusetts, 01653, is wholly-owned by the Company. The Policies
also may be purchased from certain independent broker-dealers which are NASD
members.
Policy Owners may direct any inquiries to Annuity Client Services, Allmerica
Financial Life Insurance and Annuity Company, 440 Lincoln Street, Worcester,
Massachusetts 01653, telephone 1-800-533-7881.
A. PURCHASE PAYMENTS
Purchase payments are payable to the Company. The initial payment will be
credited to the Policy as of the date that the properly completed application
which accompanies the payment is received by the Company at its principal
office. If an application is incomplete, or does not specify how payments are to
be allocated among the Accounts, the initial purchase payment will be returned
within five business days. After a policy is issued, Accumulation Units will be
credited to the Policy at the unit value computed as of the Valuation Date that
a purchase payment is received at the Company's principal office.
31
<PAGE>
Purchase payments are not limited as to frequency and number, but there are
certain limitations as to amount. Generally, the initial payment must be at
least $600. Under a salary deduction or a monthly automatic payment plan, the
minimum initial payment is $50. In all cases, each subsequent payment must be at
least $50. Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Policy on the employee, if the plan's average
annual contribution per eligible plan participant is at least $600. Total
payments may not exceed the maximum limit specified in the Policy. If the
payments are divided among two or more accounts, a net amount of at least $10 of
each payment must be allocated to each account.
Generally, unless otherwise requested, all payments will be allocated among the
accounts in the same proportion that the initial net payment is allocated or, if
subsequently changed, according to the most recent allocation instructions. To
the extent permitted by state law, however, if the Policy is issued as an IRA or
is issued in Georgia, Indiana, Michigan, Missouri, North Carolina, Oklahoma,
South Carolina, Texas, Utah, Washington or West Virginia, any portion of the
initial net payment and additional net payments received during the Contract's
first 15 days measured from the issue date, allocated to any Sub-Account will be
held in the Money Market Fund of the Trust until the end of the 15-day period.
Thereafter, these amounts will be allocated as requested will be allocated among
the Sub-Accounts according to the Policy Owner's instructions when the Policy is
issued. The Policy Owner may change allocation instructions for new payments
pursuant to written or telephone request. If telephone requests are elected by
the Policy Owner, 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 Policy Owner identify themselves by name and identify the Annuitant
by name, date of birth and social security number. All transfer instructions by
telephone are tape recorded.
B. RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY
An individual purchasing a Policy intended to qualify as an IRA may revoke the
Policy at any time within ten days after receipt of the Policy and receive a
refund. In order to revoke the Policy, the Owner must mail or deliver the Policy
to the agent through whom the Policy was purchased, to the Principal Office at
440 Lincoln Street, Worcester, MA 01653, or to an authorized representative.
Mailing or delivery must occur within ten days after receipt of the Policy for
revocation to be effective.
Within seven days, the Company will provide a refund equal to the greater of (1)
gross payments, or (2) the Accumulated Value plus any amounts deducted under the
Policy or by the Underlying Funds for taxes, charges or fees.
The liability of the Variable Account under this provision is limited to the
Owner's Accumulated Value in the Sub-Accounts on the date of cancellation. Any
additional amounts refunded to the Owner will be paid by the Company.
C. RIGHT TO REVOKE ALL OTHER POLICIES
In Georgia, Idaho, Indiana, Michigan, Missouri, North Carolina, Oklahoma,
Oregon, South Carolina, Texas, Utah, Washington and West Virginia, an Owner may
revoke the Policy at any time within ten days (20 days in Idaho) after receipt
of the Policy, and receive a refund as described under "B. Right to Revoke
Individual Retirement Annuity," above.
In all other states, an Owner may return the Policy at any time within ten days
(or the number of days required by state law if more than ten) after receipt of
the Policy. The Company will pay to the Owner an amount equal to the sum of (1)
the difference between the amount paid, including fees, and any amount allocated
to the
32
<PAGE>
Variable Account, and (2) the Accumulated Value of amounts allocated to the
Variable Account as of the date the request is received. If the Policy was
purchased as an IRA, the IRA revocation right described above may be utilized in
lieu of the special surrender right.
D. TRANSFER PRIVILEGE
At any time prior to the Annuity Date, subject to the Company's then current
rules, an Owner may have amounts transferred among the Sub-Accounts or between a
Sub-Account and the General Account, where available. Transfer values will be
effected at the Accumulation Value next computed after receipt of the transfer
order. The Company will make transfers pursuant to written request or, if a
properly completed authorization is on file, pursuant to a telephone request.
Currently, the Company makes no charge for transfers. The first 12 transfers in
a Policy year are guaranteed to be free of any transfer charge. For each
subsequent transfer in a Policy year, the Company reserves the right to assess a
charge, guaranteed not to exceed $25, to reimburse it for the expense of
processing transfers.
Except for transfers made under the automatic transfer option (Dollar Cost
Averaging) and for transfers made under policies issued to residents of Texas,
no transfers from the General Account are permitted except during the 30-day
period beginning on each policy anniversary. During this 30-day "window" period,
any amount (up to 100%) of the policy value may be transferred. In Texas,
transfers from the Fixed Account are also permitted if there has been at least a
ninety day period since the last transfer from the General Account and the
amount of the transfer does not exceed the lesser of $100,000 or 25% of the
Accumulated Value.
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 Owner may elect automatic transfers of a pre-determined dollar amount
(Dollar Cost Averaging), not less than $100, on a periodic basis (monthly,
bi-monthly, quarterly, semi-annually or annually) from the Sub-Account investing
in the Money Market Fund or the Government Bond Fund (the "source account") to
one or more of the Sub-Accounts. Automatic transfers may not be made into the
General Account or, if applicable, the Sub-Account being used as the source
account. If an automatic transfer would reduce the balance in the source account
to less than $100, the entire balance will be transferred proportionately to the
chosen Sub-Accounts. Automatic transfers will continue until the amount in the
source account on a transfer date is zero or the Owner's request to terminate
the option is received by the Company. If additional amounts are allocated to
the source account after its balance has fallen to zero, this option will not
restart automatically and the Owner must provide a new request to the Company.
The General Account may be used as the source account from which automatic
transfers can be made provided that (1) the amount of each monthly transfer
cannot exceed 10% of the value in the General Account as of the date of the
first transfer; (2) the amount of each bi-monthly transfer cannot exceed 20% of
the value of the General Account as of the date of the first transfer and (3)
each quarterly transfer cannot exceed 25% of the value in the General Account as
of the date of the first transfer.
The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, quarterly, semi-annual or annual basis in accordance with percentage
allocations specified by the Owner. As frequently as requested by the Owner, the
Company will review the percentage allocations in the Sub-Accounts and, if
necessary, transfer amounts to ensure conformity with the designated percentage
allocation mix. If the amount necessary to re-establish the mix on any scheduled
date is less than $100, no transfer will be made. Automatic Account Rebalancing
will continue until the Owner's request to terminate or change the option is
received by the Company. As such, subsequent payments allocated in a manner
different from the percentage allocation mix in effect on the date the payment
is received will be allocated in accordance with the existing mix on the
33
<PAGE>
next scheduled date unless the Owner's timely request to change the allocation
mix is received by the Company.
The Company reserves the right to limit the number of Sub-Accounts that may be
utilized for automatic transfers and rebalancing, and to discontinue either
option upon advance written notice. The first automatic transfer and all
subsequent transfers of that request in the same Policy year count as one
transfer towards the 12 transfers which are guaranteed to be free of a transfer
charge each Policy year. Currently, automatic transfers and automatic
rebalancing may not be in effect simultaneously.
E. SURRENDER
At any time prior to the Annuity Date, an Owner may surrender the Policy and
receive its Accumulated Value, less applicable charges ("Surrender Amount"). The
Owner must return the Policy and a signed, written request for surrender,
satisfactory to the Company to the Principal Office. The amount payable to the
Owner upon surrender will be based on the Accumulated Value of the Policy as of
the Valuation Date on which the request and the Policy are received at the
Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted when
a Policy is surrendered if payments have been credited to the Policy during the
last nine full Policy years. See "CHARGES AND DEDUCTIONS." The Policy fee will
be deducted upon surrender of the Policy.
After the Annuity Date, only Policies under which a commutable period certain
option (as specified in Annuity Option V) is elected may be surrendered. The
Surrender Amount is the commuted value of any unpaid installments, computed on
the basis of the assumed interest rate incorporated in such annuity benefit
payments. No contingent deferred sales charge is imposed after the Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and partial redemptions of amounts in each Sub-Account during
any period which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of each Separate Account is not reasonably
practicable.
The right is reserved by the Company to defer surrenders and partial redemptions
of amounts allocated to the Company's General Account for a period not to exceed
six months.
The surrender rights of Owners who are participants under Section 403(b) plans
or who are participants in the Texas Optional Retirement Program ("Texas ORP")
are restricted; see "Tax-Sheltered Annuities" and "Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
F. PARTIAL REDEMPTION
At any time prior to the Annuity Date, an Owner may redeem a portion of the
Accumulated Value of his or her Policy, subject to the limits stated below. The
Owner must file a signed, written request for redemption, satisfactory to the
Company, at the Principal Office. The written request must indicate the dollar
amount the Owner wishes to receive and the account from which such amount is to
be redeemed. The amount redeemed equals the amount requested by the Owner plus
any applicable contingent deferred sales charge, as described under "CHARGES AND
DEDUCTIONS."
Where allocations have been made to more than one account, a percentage of the
partial redemption may be allocated to each such account. A partial redemption
from a Sub-Account will result in cancellation of a
34
<PAGE>
number of units equivalent in value to the amount redeemed, computed as of the
Valuation Date that the request is received at the Principal Office.
Each partial redemption must be in a minimum amount of $100. No partial
redemption will be permitted if the Accumulated Value remaining under the Policy
would be reduced to less than $1,000. Partial redemptions will be paid in
accordance with the time limitations described under "E. Surrender."
After the Annuity Date, only Policies under which a period certain option has
been elected may be partially redeemed. A partial redemption after the Annuity
Date will result in cancellation of a number of Annuity Units equivalent in
value to the amount redeemed.
For important restrictions on withdrawals which are applicable to Owners who are
participants under Section 403(b) plans or under the Texas ORP, see
"Tax-Sheltered Annuities" and "Texas Optional Retirement Program."
For important tax consequences which may result from partial redemptions, see
"FEDERAL TAX CONSIDERATIONS."
G. DEATH BENEFIT
If the Annuitant dies (or an Owner predeceases the Annuitant) prior to the
Annuity Date while the Policy is in force, a death benefit will be paid to the
beneficiary, except where the Policy continues as provided in "H. The Spouse of
the Owner as Beneficiary." Upon death of the Annuitant (including an Owner who
is also the Annuitant), the death benefit is equal to the greatest of (1) the
Accumulated Value under the Policy next determined following receipt of due
proof of death at the Principal Office, or (2) the total amount of gross
payments made under the Policy reduced proportionally to reflect the amount of
all prior partial withdrawals, or (3) the death benefit that would have been
payable on the most recent fifth year Policy anniversary, increased for
subsequent purchase payments and reduced proportionally to reflect withdrawals
after that date. A partial withdrawal will reduce the gross payments available
as a death benefit under (2) in the same proportion that the Accumulated Value
was reduced on the date of withdrawal. For each withdrawal, the reduction is
calculated by multiplying the total amount of gross payments by a fraction, the
numerator of which is the amount of the partial withdrawal and the denominator
of which is the Accumulated Value immediately prior to the withdrawal. For
example, if gross payments total $8,000 and a $3,000 withdrawal is made when the
Accumulated Value is $12,000, the proportional reduction of gross payments
available as a death benefit is calculated as follows: The Accumulated Value is
reduced by 1/4 (3,000 divided by 12,000); therefore, the gross amount available
as a death benefit under (2) also will be reduced by 1/4 (8,000 times 1/4 equals
$2,000), so that the $8,000 gross payments are reduced to $6,000. Payments made
after a withdrawal will increase the death benefit available under (2) by the
amount of the payment.
A partial withdrawal after the most recent fifth year Policy anniversary will
decrease the death benefit available under (3) in the same proportion that the
Accumulated Value was reduced on the date of the withdrawal. For example, if the
death benefit that would have been payable on the most recent fifth year Policy
anniversary is $12,000 and partial withdrawals totaling $5,000 are made
thereafter when the Accumulated Value is $15,000, the proportional reduction of
death benefit available under (3) is calculated as follows: The Accumulated
Value is reduced by 1/3 (5,000 divided by 15,000); therefore, the death benefit
that would have been payable on the most recent fifth year Policy anniversary
will also be reduced by 1/3 (12,000 times 1/3 or $4,000), so that the death
benefit available under (3) will be $8,000 ($12,000 minus $4,000). Payments made
after the most recent fifth year Policy anniversary will increase the death
benefit available under (3) by the amount of the payment. Upon death of an Owner
who is not the Annuitant, the death benefit is equal to the Accumulated Value of
the Policy next determined following receipt of due proof of death received at
the Principal Office.
The death benefit generally will be paid to the beneficiary in one sum. The
beneficiary may, however, by written request, elect one of the following
options:
35
<PAGE>
(1) The payment of the one sum may be delayed for a period not to exceed five
years from the date of death.
(2) The death benefit may be paid in installments. Payments must begin within
one year from the date of death and are payable over a period certain not
extended beyond the life expectancy of the beneficiary.
(3) All or a portion of the death benefit may be used to provide a life annuity
for the beneficiary. Benefits must begin within one year from the date of
death and are payable over a period not extended beyond the life expectancy
of the beneficiary. Any annuity benefits will be provided in accordance with
the annuity options of the Policy.
If there is more than one beneficiary, the death benefit will be paid to such
beneficiaries in one sum unless the Company consents to pay an annuity option
chosen by the beneficiaries.
With respect to any death benefit, the Accumulated Value under the Policy shall
be based on the unit values next computed after due proof of death has been
received at the Principal Office. If the beneficiary elects to receive the death
benefit in one sum, the death benefit will be paid within seven business days.
If the beneficiary (other than a spousal beneficiary of an IRA, See "H. The
Spouse of the Owner as Beneficiary," below) has not elected an annuity option
within one year from the date notice of death is received by the Company, the
Company will pay the death benefit in one sum. The death benefit will reflect
any earnings or losses experienced during the period and any withdrawals.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed monthly annuity benefit payments, any unpaid
amounts or installments will be paid to the beneficiary. The Company must pay
the remaining payments at least as rapidly as under the payment option in effect
on the date of the Annuitant's death. If there is more than one beneficiary, the
commuted value of the payments, computed on the basis of the assumed interest
rate incorporated in the annuity option table on which such payments are based,
shall be paid to the beneficiaries in one sum.
H. THE SPOUSE OF THE OWNER AS BENEFICIARY
If the Owner's spouse is named as beneficiary ("spousal beneficiary") and if the
Owner dies (and predeceases the Annuitant if such Owner is not the Annuitant)
prior to the Annuity Date while the Policy is in force, at the written request
of the spousal beneficiary the death benefit will not be paid and the spousal
beneficiary will become the new Owner (and, if the deceased Owner was also the
Annuitant, the new Annuitant). All other rights and benefits provided in the
Policy will continue, except that any subsequent spouse of such new Owner will
not be entitled to continue the Policy upon such new Owner's death.
I. ASSIGNMENT
The Policy may be assigned by the Owner at any time prior to the Annuity Date
and while the Annuitant is alive. Policies sold in connection with IRA plans and
certain other qualified plans, however, are not assignable. For more information
about these plans, see "FEDERAL TAX CONSIDERATIONS."
The Company will not be deemed to have knowledge of an assignment unless it is
made in writing and filed at the Principal Office. The Company will not assume
responsibility for determining the validity of any assignment. If an assignment
of the Policy is in effect on the Annuity Date, the Company reserves the right
to pay to the assignee, in one sum, that portion of the Surrender Value of the
Policy to which the assignee appears to be entitled. The Company will pay the
balance, if any, in one sum to the Owner in full settlement of all liability
under the Policy. The interest of the Owner and of any beneficiary will be
subject to any assignment.
J. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE
Subject to certain restrictions described below, the Owner has the right (1) to
select the annuity option under which annuity benefit payments are to be made,
and (2) to determine whether payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. Annuity benefit
payments are
36
<PAGE>
determined according to the annuity tables in the Policy, by the annuity option
selected, and by the investment performance of the Accounts selected.
To the extent a fixed annuity is selected, Accumulated Value will be transferred
to the General Account of the Company, and the annuity benefit payments will be
fixed in amount. See APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number of
Annuity Units in the Sub-Accounts is made each month. Since the value of an
Annuity Unit in a Sub-Account will reflect the investment performance of the
Sub-Account, the amount of each monthly payment will vary.
The annuity option selected must produce an initial payment of at least $50. If
a combination of fixed and variable payments is selected, the initial payment on
each basis must be at least $50. The Company reserves the right to increase
these minimum amounts. If the annuity option selected does not produce initial
payments which meet these minimums, the Company will pay the Accumulated Value
in one sum. Once the Company begins making annuity payments, the Annuitant
cannot make partial redemptions or surrender the annuity benefit, except in the
case where a commutable period certain option (Option V or a comparable fixed
option) has been chosen. Beneficiaries entitled to receive remaining payments
for a "period certain" may elect to instead receive a lump sum settlement.
The Annuity Date is selected by the Owner. To the extent permitted in your
state, the Annuity Date may be the first day of any month (1) before the
Annuitant's 85th birthday, if the Annuitant's age at the date of issue of the
Policy is 75 or under, or (2) within ten years from the date of issue of the
Policy and before the Annuitant's 90th birthday, if the Annuitant's age at the
date of issue is between 76 and 90. The Owner may elect to change the Annuity
Date by sending a request to the Principal Office at least one month before the
Annuity Date. The new Annuity Date must be the first day of any month occurring
before the Annuitant's 90th birthday. The new Annuity Date must be within the
life expectancy of the Annuitant. The Company shall determine such life
expectancy at the time a change in Annuity Date is requested. The Code and the
terms of qualified plans impose limitations on the age at which annuity benefit
payments may commence and the type of annuity option selected. See "FEDERAL TAX
CONSIDERATIONS" for further information.
If the Owner does not elect otherwise, annuity benefit payments will be made in
accordance with Option I, a variable life annuity with 120 monthly payments
guaranteed. Changes in either the Annuity Date or annuity option can be made up
to one month prior to the Annuity Date.
K. DESCRIPTION OF VARIABLE ANNUITY PAYOUT OPTIONS
The Company currently provides the variable annuity payout options described
below. Currently, variable annuity payout options may be funded through the
Sub-Accounts investing in the Select Growth and Income Fund, the Equity Index
Fund, the Growth Fund and the Money Market Fund.
The Company also provides fixed annuity payout options which are comparable to
the variable annuity options. Regardless of how payments were allocated during
the accumulation period, any one of the variable annuity payout options or the
fixed-payout options may be selected, or any one of the variable annuity options
may be selected in combination with any one of the fixed-amount annuity options.
Other annuity options may be offered by the Company.
OPTION I -- VARIABLE LIFE ANNUITY WITH 120 MONTHLY PAYMENTS GUARANTEED. A
variable annuity payable monthly during the lifetime of the payee with the
guarantee that if the payee should die before 120 monthly payments have been
paid, the monthly annuity benefit payments will continue to the beneficiary
until a total of 120 monthly payments have been paid.
OPTION II -- VARIABLE LIFE ANNUITY. A variable annuity payable monthly only
during the lifetime of the Annuitant. It would be possible under this option for
the Annuitant to receive only one annuity benefit
37
<PAGE>
payment if the Annuitant dies prior to the due date of the second annuity
benefit payment, two annuity benefit payments if the Annuitant dies before the
due date of the third annuity benefit payment, and so on. Payments will
continue, however, during the lifetime of the Annuitant, no matter how long he
or she lives.
OPTION III -- UNIT REFUND VARIABLE LIFE ANNUITY. A variable annuity payable
monthly during the lifetime of the payee with the guarantee that if (1) exceeds
(2), then monthly variable annuity benefit payments will continue to the
beneficiary until the number of such payments equals the number determined in
(1).
Where: (1) is the dollar amount of the Accumulated Value divided by the dollar
amount of the first monthly payment (which determines the greatest
number of payments payable to the beneficiary), and
(2) is the number of monthly payments paid prior to the death of the
payee.
OPTION IV-A -- JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. A monthly variable
annuity payable jointly to two payees during their joint lifetime, and then
continuing during the lifetime of the survivor. The amount of each payment to
the survivor is based on the same number of Annuity Units which applied during
the joint lifetime of the two payees. One of the payees must be either the
person designated as the Annuitant in the Policy or the beneficiary. There is no
minimum number of payments under this option. See Option IV-B, below.
OPTION IV-B -- JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY. A monthly
variable annuity payable jointly to two payees during their joint lifetime, and
then continuing thereafter during the lifetime of the survivor. The amount of
each monthly payment to the survivor, however, is based upon two-thirds of the
number of Annuity Units which applied during the joint lifetime of the two
payees. One of the payees must be the person designated as the Annuitant in the
Policy or the beneficiary. There is no minimum number of payments under this
option. See Option IV-A, above.
OPTION V -- PERIOD CERTAIN VARIABLE ANNUITY. A monthly variable annuity payable
for a stipulated number of years ranging from one to 30 years. This option may
be commutable, that is, the payee reserves the right to receive a lump sum in
place of installments, or it becomes non-commutable. The payee must reserve this
right at the time benefits begin.
It should be noted that Option V does not involve a life contingency. In the
computation of the payments under this option, the charge for annuity rate
guarantees, which includes a factor for mortality risks, is made. Although not
contractually required to do so, the Company currently follows a practice of
permitting persons receiving payments under Option V to elect to convert to a
variable annuity involving a life contingency. The Company may discontinue or
change this practice at any time, but not with respect to Owners who have
elected Option V prior to the date of any change in this practice. See "FEDERAL
TAX CONSIDERATIONS" for a discussion of the possible adverse tax consequences of
selecting Option V.
L. NORRIS DECISION
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a policy issued in connection with an employer-sponsored benefit plan
affected by the Norris decision will be based on the greater of (1) the
Company's unisex Non-Guaranteed Current Annuity Option Rates, or (2) the
guaranteed male rates described in such Policy, regardless of whether the
Annuitant is male or female.
38
<PAGE>
Although the Company believes that the Supreme Court ruling does not affect
Policies funding IRA plans that are not employer-sponsored, the Company will
apply certain aspects of the ruling to annuity benefits under such Policies,
except in those states in which it is prohibited. Such benefits will be based on
(1) the greater of the guaranteed unisex annuity rates described in the
Policies, or (2) the Company's sex-distinct Non-Guaranteed Current Annuity
Option Rates.
M. COMPUTATION OF POLICY VALUES AND ANNUITY BENEFIT PAYMENTS
THE ACCUMULATION UNIT. Each net purchase payment is allocated to the accounts
selected by the Owner. 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 purchase
payment allocated to the Sub-Account, divided by the dollar value of the
applicable Accumulation Unit as of the Valuation Date the payment is received at
the Principal Office. The number of Accumulation Units resulting from each
payment will remain fixed unless changed by a subsequent split of Accumulation
Unit value, a transfer, a partial redemption, or surrender. The dollar value of
an Accumulation Unit of each Sub-Account varies from Valuation Date to Valuation
Date based on the investment experience of that Sub-Account and will reflect the
investment performance, expenses and charges of its Underlying Fund. The value
of an Accumulation Unit was set at $1.00 on the first Valuation Date for each
Sub-Account.
Allocations to the General Account are not converted into Accumulation Units,
but are credited interest at a rate periodically set by the Company. See
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
The Accumulated Value under the Policy is determined by (1) multiplying the
number of Accumulation Units in each Sub-Account by the value of an Accumulation
Unit of that Sub-Account on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the General Account, if any.
ADJUSTED GROSS INVESTMENT RATE. At each Valuation Date an adjusted gross
investment rate for each Sub-Account for the Valuation Period then ended is
determined from the investment performance of that Sub-Account. Such rate is (1)
the investment income of that Sub-Account for the Valuation Period, plus capital
gains and minus capital losses of that Sub-Account for the Valuation Period,
whether realized or unrealized, adjusted for provisions made for taxes, if any,
divided by (2) the amount of that Sub-Account's assets at the beginning of the
Valuation Period. The adjusted gross investment rate may be either positive or
negative.
NET INVESTMENT RATE AND NET INVESTMENT FACTOR. The net investment rate for a
Sub-Account's variable accumulations for any Valuation Period is equal to the
adjusted gross investment rate of the Sub-Account for such Valuation Period
decreased by the equivalent for such period of a charge equal to 1.40% per
annum. This charge cannot be increased.
The net investment factor is 1.000000 plus the applicable net investment rate.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of Accumulation Unit calculation using a hypothetical
example see "ANNUITY BENEFIT PAYMENTS" in the SAI.
THE ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a measure
of the value of the Annuitant's monthly annuity benefit payments under a
variable annuity option. The value of an Annuity Unit in each Sub-Account
initially was set at $1.00. The value of an Annuity Unit under a Sub-Account on
any Valuation Date thereafter is equal to the value of such unit on the
immediately preceding Valuation Date, multiplied by the product of (1) the net
investment factor of the Sub-Account for the current Valuation Period,
39
<PAGE>
and (2) a factor to adjust benefits to neutralize the assumed interest rate. The
assumed interest rate, discussed below, is incorporated in the variable annuity
options offered in the Policy.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY BENEFIT PAYMENTS. The first
monthly annuity benefit payment is based upon the Accumulated Value as of a date
not more than four weeks preceding the date the first annuity benefit payment is
due. Variable annuity benefit payments are due on the first of a month which is
the date the payment is to be received by the Annuitant, and currently are based
on unit values as of the 15th day of the preceding month.
The Policy provides annuity rates which determine the dollar amount of the first
monthly payment under each form of annuity for each $1,000 of applied value
(Accumulated Value applied under a specific annuity option to provide annuity
income payments, minus any applicable premium tax). The annuity rates in the
Policy are based on a modification of the 1983(a) Individual Mortality Table on
rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "J. NORRIS Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3.5% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity benefit payments will
increase over periods when the actual net investment result of the Sub-Accounts
funding the annuity exceeds the equivalent of the assumed interest rate for the
period. Variable Annuity Benefit Payments will decrease over periods when the
actual net investment result of the respective Sub-Account is less than the
equivalent of the assumed interest rate for the period.
The dollar amount of the first monthly annuity benefit payment under a life
contingency or a non-commutable period certain option of at least a ten-year
option is determined by multiplying (1) the Accumulated Value applied under that
option (after deduction for premium tax, if any) divided by $1,000, by (2) the
applicable amount of the first monthly payment per $1,000 of value. For any
commutable period certain options and for non-commutable period certain options
the Surrender Value less any premium tax is applied. The dollar amount of the
first monthly variable annuity benefit payment is then divided by the value of
an Annuity Unit of the selected Sub-Accounts to determine the number of Annuity
Units represented by the first payment. This number of Annuity Units remains
fixed under all annuity options except the joint and two-thirds survivor annuity
option. In each subsequent month, the dollar amount of the variable annuity
benefit payment is determined by multiplying this fixed number of Annuity Units
by the value of an Annuity Unit on the applicable Valuation Date.
After the first payment, the dollar amount of each monthly variable annuity
payment will vary with subsequent variations in the value of the Annuity Unit of
the selected Sub-Accounts. The dollar amount of each fixed amount monthly
annuity benefit payment is fixed and will not change, except under the joint and
two-thirds survivor annuity option.
The Company may from time to time offer its Owners both fixed and variable
annuity rates more favorable than those contained in the Policy. Any such rates
will be applied uniformly to all Owners of the same class. For an illustration
of a variable annuity benefit payment calculation using a hypothetical example,
see "ANNUITY BENEFIT PAYMENTS" in the SAI.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Policy, on withdrawals or
surrenders, on annuity benefit payments, and on the economic benefit to the
owner, annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the IRS. In
40
<PAGE>
addition, this discussion does not address state or local tax consequences that
may be associated with this Policy.
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY POLICIES IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS, AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER ALWAYS SHOULD BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income, assets, or
existence of the Policy, the Separate Account or the Sub-Accounts may have upon
its tax. The Variable Account presently is not subject to tax, but the Company
reserves the right to assess a charge for taxes should the Variable Account at
any time become subject to tax. Any charge for taxes will be assessed on a fair
and equitable basis in order to preserve equity among classes of Owners and with
respect to each separate account as though that separate account were a separate
taxable entity.
The Separate Account is considered a part of and taxed with the operations of
the Company. The Company is taxed as a life insurance company under Subchapter L
of the Code. The Company files a consolidated tax return with its affiliates.
The IRS has issued regulations relating to the diversification requirements for
variable annuity and variable life insurance policies under Section 817(h) of
the Code. The regulations provide that the investments of a segregated asset
account underlying a variable annuity policy are diversified adequately if no
more than 55% of the value of its assets is represented by any one investment,
no more than 70% by any two investments, no more than 80% by any three
investments, and no more than 90% by any four investments. If the investments
are not adequately diversified, the income on a policy, for any taxable year of
the owner, would be treated as ordinary income received or accrued by the owner.
It is anticipated that the Series of DGPF will comply with the current
diversification requirements. In the event that future IRS regulations and/or
rulings would require Policy modifications in order to remain in compliance with
the diversification standards, the Company will make reasonable efforts to
comply, and it reserves the right to make such changes as it deems appropriate
for that purpose.
A. QUALIFIED AND NON-QUALIFIED POLICIES
From a federal tax viewpoint there are two types of variable annuity policies:
"qualified" policies and "non-qualified" policies. A qualified policy is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, or 408 of the Code, while a non-qualified
policy is one that is not purchased in connection with one of the indicated
retirement plans. The tax treatment for certain withdrawals or surrenders will
vary, depending on whether they are made from a qualified policy or a
non-qualified policy. For more information on the tax provisions applicable to
qualified policies, see Section D below.
B. TAXATION OF THE POLICIES IN GENERAL
The Company believes that the Policy described in this Prospectus will, with
certain exceptions (see "Non-Natural Owners" below), be considered an annuity
policy under Section 72 of the Code. This section governs the taxation of
annuities. The following discussion concerns annuities subject to Section 72.
WITHDRAWALS PRIOR TO ANNUITIZATION. With certain exceptions, any increase in
the Policy's Accumulated Value is not taxable to the Owner until it is withdrawn
from the Policy. If the Policy is surrendered or amounts are withdrawn prior to
the annuity date, any withdrawal of investment gain in value over the cost basis
of the Policy will be taxed as ordinary income. Under the current provisions of
the Code, amounts received under an annuity policy prior to annuitization
(including payments made upon the death of the annuitant or owner), generally
are first attributable to any investment gains credited to the policy over the
taxpayer's "investment in the policy." Such amounts will be treated as gross
income subject to federal income taxation. "Investment in the Policy" is the
total of all payments to the Policy which were not excluded from the Owner's
gross income
41
<PAGE>
less any amounts previously withdrawn which were not included in income. Section
72(e)(11)(A)(ii) requires that all non-qualified deferred annuity policies
issued by the same insurance company to the same owner during a single calendar
year be treated as one policy in determining taxable distributions.
ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments are
commenced under the Policy, generally a portion of each payment may be excluded
from gross income. The excludable portion generally is determined by a formula
that establishes the ratio that the cost basis of the Policy bears to the
expected return under the Policy. The portion of the payment in excess of this
excludable amount is taxable as ordinary income. Once all cost basis in the
Policy is recovered, the entire payment is taxable. If the annuitant dies before
the cost basis is recovered, a deduction for the difference is allowed on the
annuitant's final tax return.
PENALTY ON DISTRIBUTION. A 10% penalty tax may be imposed on the withdrawal of
investment gains if the withdrawal is made prior to age 59 1/2. The penalty tax
will not be imposed on withdrawals taken on or after age 59 1/2, or if the
withdrawal follows the death of the Owner (or, if the Owner is not an
individual, the death of the primary Annuitant, as defined in the Code) or, in
the case of the Owner's "total disability" (as defined in the Code).
Furthermore, under Section 72 of the Code, this penalty tax will not be imposed,
irrespective of age, if the amount received is one of a series of "substantially
equal" periodic payments made at least annually for the life or life expectancy
of the payee. This requirement is met when the Owner elects to have
distributions made over the Owner's life expectancy, or over the joint life
expectancy of the Owner and beneficiary. The requirement that the amount be paid
out as one of a series of "substantially equal" periodic payments is met when
the number of units withdrawn to make each distribution is substantially the
same. Any modification, other than by reason of death or disability, of
distributions which are part of a series of substantially equal periodic
payments that occurs before the Owner's age 59 1/2 or five years, will subject
the Owner to the 10% penalty tax on the prior distributions.
In a Private Letter Ruling, the IRS took the position that where distributions
from a variable annuity policy were determined by amortizing the accumulated
value of the policy over the taxpayer's remaining life expectancy (such as under
the Policy's LED option), and the option could be changed or terminated at any
time, the distributions failed to qualify as part of a "series of substantially
equal payments" within the meaning of Section 72 of the Code. The distributions,
therefore, were subject to the 10% federal penalty tax. This Private Letter
Ruling may be applicable to an Owner who receives distributions under the LED
option prior to age 59 1/2. Subsequent Private Letter Rulings, however, have
treated LED-type withdrawal programs as effectively avoiding the 10% penalty
tax. The position of the IRS on this issue is unclear.
ASSIGNMENTS OR TRANSFERS. If the Owner transfers (assigns) the Policy to
another individual as a gift prior to the Annuity Date, the Code provides that
the Owner will incur taxable income at the time of the transfer. An exception is
provided for certain transfers between spouses. The amount of taxable income
upon such taxable transfer is equal to any investment gain in value over the
Owner's cost basis at the time of the transfer. The transfer also is subject to
federal gift tax provisions. Where the Owner and Annuitant are different
persons, the change of ownership of the Policy to the Annuitant on the Annuity
Date, as required under the Policy, is a gift and will be taxable to the Owner
as such; however, the Owner will not incur taxable income. Instead, the
Annuitant will incur taxable income upon receipt of annuity benefit payments as
discussed above.
NON-NATURAL OWNERS. As a general rule, deferred annuity policies owned by
"non-natural persons" (e.g., a corporation) are not treated as annuity policies
for federal tax purposes, and the investment income attributable to
contributions made after February 28, 1986 is taxed as ordinary income that is
received or accrued by the owner during the taxable year. This rule does not
apply to annuity policies purchased with a single payment when the annuity date
is no later than a year from the issue date or to deferred annuities owned by
qualified employer plans, estates, employers with respect to a terminated
pension plan, and entities other than employers, such as a trust, holding an
annuity as an agent for a natural person. This exception, however, will not
apply in cases of any employer who is the owner of an annuity policy under a
non-qualified deferred compensation plan.
42
<PAGE>
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. Under Section 457 of the Code, deferred compensation plans
established by governmental and certain other tax-exempt employers for their
employees may invest in annuity policies. Contributions and investment earnings
are not taxable to employees until distributed. With respect to payments made
after February 28, 1986, however, a policy owned by a state or local government
or a tax-exempt organization will not be treated as an annuity under Section 72.
In addition, plan assets are treated as property of the employer, and are
subject to the claims of the employer's general creditors.
C. TAX WITHHOLDING
The Code requires withholding with respect to payments or distributions from
non-qualified policies and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified policies. In addition, the Code requires reporting to the IRS of
the amount of income received with respect to payment or distributions from
annuities.
The tax treatment of certain withdrawals or surrenders of the non-qualified
Policies offered by this Prospectus will vary according to whether or not the
amount withdrawn or surrendered is allocable to an investment in the Policy made
before or after certain dates.
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS
The tax rules applicable to qualified retirement plans, as defined by the Code,
are complex and vary according to the type of plan. Benefits under a qualified
plan may be subject to that plan's terms and conditions irrespective of the
terms and conditions of any annuity policy used to fund such benefits. As such,
the following is simply a general description of various types of qualified
plans that may use the Policy. Before purchasing any annuity policy for use in
funding a qualified plan, more specific information should be obtained.
A qualified Policy may include special provisions (endorsements) changing or
restricting rights and benefits otherwise available to an Owner of a
non-qualified Contract. Individuals purchasing a qualified Policy should review
carefully any such changes or limitations which may include restrictions to
ownership, transferability, assignability, contributions, and distributions.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT SHARING
PLANS. Sections 401(a), 401(k) and 403(a) of the Code permit business employers
and certain associations to establish various types of tax-favored retirement
plans for employees. The Self-Employed Individuals' Tax Retirement Act of 1962,
as amended, permits self-employed individuals to establish similar plans for
themselves and their employees. Employers intending to use qualified Policies in
connection with such plans should seek competent advice as to the suitability of
the Policy to their specific needs and as to applicable Code limitations and tax
consequences.
The Company can provide prototype plans for certain pension or profit sharing
plans for review by the plan's legal counsel. For information, ask your
financial representative.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity ("IRA"). IRAs are subject to limits on the amounts
that may be contributed, the persons who may be eligible, and on the time when
distributions may commence. In addition, certain distributions from other types
of retirement plans may be "rolled over," on a tax-deferred basis, to an IRA.
Purchasers of an IRA Policy will be provided with supplementary information as
may be required by the IRS or other appropriate agency, and will have the right
to revoke the Policy as described in this Prospectus. See "Right to Revoke All
Other Policies."
Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) or Simple IRA plans for their employees using
the employees IRAs. Employer contributions that may be made
43
<PAGE>
to such plans are larger than the amounts that may be contributed to regular
IRAs and may be deductible to the employer.
TAX-SHELTERED ANNUITIES ("TSAS"). Under the provisions of Section 403(b) of the
Code, payments made to annuity Policies purchased for employees under annuity
plans adopted by public school systems and certain organizations which are tax
exempt under Section 501(c)(3) of the Code are excludable from the gross income
of such employees to the extent that total annual payments do not exceed the
maximum contribution permitted under the Code. Purchasers of TSA policies should
seek competent advice as to eligibility, limitations on permissible payments and
other tax consequences associated with the policies.
Withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) made to a TSA policy after December
31, 1988, may not begin before the employee attains age 59, separates from
service, dies or becomes disabled. In the case of hardship, an Owner may
withdraw amounts contributed by salary reduction, but not the earnings on such
amounts. Even though a distribution may be permitted under these rules (e.g.,
for hardship or after separation from service), it may be subject to a 10%
penalty tax as a premature distribution, in addition to income tax.
TEXAS OPTIONAL RETIREMENT PROGRAM. Distributions under a TSA policy issued to
participants in the Texas Optional Retirement Program may not be received except
in the case of the participant's death, retirement or termination of employment
in the Texas public institutions of higher education. These additional
restrictions are imposed under the Texas Government Code and a prior opinion of
the Texas Attorney General.
LOANS (QUALIFIED POLICIES ONLY)
Loans will be permitted only for TSAs and Policies issued to a plan qualified
under Section 401(a) and 401(k) of the Code. Loans are made from the Policy's
value on a pro-rata basis from all accounts. The maximum loan amount is the
amount determined under the Company's maximum loan formula for qualified plans.
The minimum loan amount is $1,000. Loans will be secured by a security interest
in the Policy. Loans are subject to applicable retirement legislation and their
taxation is determined under the federal income tax laws. The amount borrowed
will be transferred to a fixed, minimum guarantee loan assets account in the
Company's General Account, where it will accrue interest at a specified rate
below the then current loan interest rate. Generally, loans must be repaid
within five years and must be made at least quarterly in substantially equal
amounts. When repayments are received, they will be allocated pro-rata in
accordance with the Owner's most recent allocation instructions.
The amount of the death benefit, the amount payable on a full surrender and the
amount applied to provide an annuity on the Annuity Date will be reduced to
reflect any outstanding loan balance (plus accrued interest thereon). Partial
withdrawals may be restricted by the maximum loan limitation.
REPORTS
An Owner is sent a report semi-annually which states certain financial
information about the Underlying Funds. The Company will also furnish an annual
report to the Owner containing a statement of his or her account, including unit
values and other information required by applicable law, rules and regulations.
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 Company's
judgment further investment in any Underlying Fund should become inappropriate
in view of the purposes of the Separate 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
44
<PAGE>
shares attributable to a Policy interest in a Sub-Account without notice to the
Owner and prior approval of the SEC and state insurance authorities, to the
extent required by the 1940 Act or other applicable law. The Separate Account
may, to the extent permitted by law, purchase other securities for other
policies or permit a conversion between policies upon request by an Owner.
The Company also reserves the right to establish additional Sub-Accounts of the
Separate 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 SEC approval,
the Company may, in its sole discretion, establish new Sub-Accounts or eliminate
one or more Sub-Accounts if marketing needs, tax considerations or investment
conditions warrant. Any new Sub-Accounts may be made available to existing
Owners on a basis to be determined by the Company.
Shares of the Underlying Funds are sold to separate accounts of unaffiliated
insurance companies ("shared funding") which issue variable annuity and variable
life policies ("mixed funding"). It is conceivable that in the future such
shared funding or mixed funding may be disadvantageous for variable life
insurance owners or variable annuity owners. Although neither the Company nor
any of the underlying investment companies currently foresees any such
disadvantages to either variable life insurance owners or variable annuity
owners, the Company and the respective trustees intend to monitor events in
order to identify any material conflicts and to determine what action, if any,
should be taken in response thereto.
If any of these substitutions or changes is made, the Company may, by
appropriate endorsement, change the Policy to reflect the substitution or change
and will notify Owners of all such changes. If the Company deems it to be in the
best interest of Owners, and subject to any approvals that may be required under
applicable law, the Separate Account or any Sub-Accounts 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.
The Company reserves the right, subject to compliance with applicable law, to
(1) transfer assets from Separate Account VA-K or Sub-Account to another of the
Company's separate accounts or sub-accounts having assets of the same class, (2)
to operate the Separate Account or any Sub-Account as a management investment
company under the 1940 Act or in any other form permitted by law, (3) to
deregister the Separate Account under the 1940 Act in accordance with the
requirements of the 1940 Act, and (4) to substitute the shares of any other
registered investment company for the Underlying Fund shares held by a
Sub-Account, in the event that Underlying Fund shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Fund shares is inappropriate in view of the purpose of the Sub-
Account. In no event will the changes described above be made without notice to
Owners in accordance with the 1940 Act. The Company reserves the right, subject
to compliance with applicable law, to change the names of the Separate Account
or of the Sub-Accounts.
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Sub-Account in
accordance with instructions received from Owners and, after the Annuity Date,
from the Annuitants. Each person having a voting interest in a Sub-Account will
be provided with proxy materials of the Underlying Funds, together with a form
with which to give voting instructions to the Company. Shares for which no
timely instructions are received will be voted in proportion to the instructions
which are received. The Company also will vote shares in a Sub-Account that it
owns and which are not attributable to the Policies in the same proportion. If
the 1940 Act or any rules thereunder should be amended, or if the present
interpretation of the 1940 Act or such rules should change and, as a result the
Company determines that it is permitted to vote shares in its own right, whether
or not such shares are attributable to the Policies, the Company reserves the
right to do so.
The number of votes which an Owner or Annuitant may cast will be determined by
the Company as of the record date established by the Underlying Funds.
45
<PAGE>
During the accumulation period, the number of Underlying Fund shares
attributable to each Owner will be determined by dividing the dollar value of
the Accumulation Units of the Sub-Account credited to the Policy by the net
asset value of one Underlying Fund share.
During the annuity period, the number of Underlying Fund shares attributable to
each Annuitant will be determined by dividing the reserve held in each
Sub-Account for the Annuitant's variable annuity by the net asset value of one
Underlying Fund share. Ordinarily, the Annuitant's voting interest in the
Underlying Fund will decrease as the reserve for the variable annuity is
depleted.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves the right, without the consent of Owners, to suspend sales
of the Policies as presently offered and to make any change to provisions of the
Policy to comply with, or give Owners the benefit of, any federal or state
statute, rule or regulation. Including but not limited to requirements for
annuity contracts and retirement plans under the Code and pertinent regulations
or any state statute or regulation.
SERVICES
The Company receives fees from the investment advisers or other service
providers of certain Underlying Funds in return for providing certain services
to Owners. Currently, the Company receives service fees with respect to the
Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth Portfolio, and
Fidelity VIP High Income Portfolio, at an annual rate of 0.10% of the aggregate
net asset value, respectively, of the shares of such Underlying Funds held by
the Separate Account. With respect to the T. Rowe Price International Stock
Portfolio, the Company receives service fees at an annual rate of 0.15% per
annum of the aggregate net asset value of shares held by the Separate Account.
The Company may in the future render services for which it will receive
compensation from the investment advisers or other service providers of other
Underlying Funds.
LEGAL MATTERS
There are no legal proceedings pending to which the Separate Account is a party.
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the SEC. Certain portions of the Registration
Statement and amendments have been omitted from this Prospectus pursuant to the
rules and regulations of the SEC. The omitted information may be obtained from
the SEC's principal office in Washington, DC, upon payment of the SEC's
prescribed fees.
46
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE GENERAL ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the General Account are not generally subject to regulation under
the provisions of the 1933 Act or the 1940 Act. Disclosures regarding the fixed
portion of the annuity policy and the General Account may be subject to the
provisions of the 1933 Act concerning the accuracy and completeness of
statements made in the Prospectus. The disclosures in this APPENDIX A have not
been reviewed by the SEC.
The 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. A portion or all of net purchase
payments may be allocated 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. Under the Policies, the minimum interest which
may be credited on amounts allocated to the General Account is 3% compounded
annually. Additional "Excess Interest" may or may not be credited at the sole
discretion of the Company.
If a Policy is surrendered, or if an Excess Amount is redeemed, while the Policy
is in force and before the Annuity Date, a contingent deferred sales charge is
imposed if such event occurs before the payments attributable to the surrender
or withdrawal have been credited to the Policy less than nine full policy years.
A-1
<PAGE>
APPENDIX B
INFORMATION APPLICABLE ONLY TO
POLICY NO. A3018-91 (AND STATE VARIATIONS THEREOF)
If your Policy is issued on Form No. A3018-91, or a state variation thereof
("original Policy"), your original Policy is substantially similar to the Policy
described in this Prospectus ("new Policy"), except as follows:
1. The minimum interest rate credited to amounts allocated to the General
Account respecting the new Policy is 3% compounded annually. For the original
Policy, the minimum interest rate guarantees are 5% for the first five Policy
years, 4% for the next five Policy years, and 3.5% thereafter.
2. The guaranteed death benefit under the new Policy is reduced
proportionately to reflect partial withdrawals (in the same proportion that the
Accumulated Value was reduced by the withdrawals). Under the original Policy,
partial withdrawals are subtracted from the guaranteed death benefit.
Additionally, the stepped-up death benefit applies to the most recent fifth year
Policy anniversary for the new Policy and applies to the most recent seventh
year Policy anniversary for the original Policy.
3. Under the new Policy, the Free Withdrawal Amount is the greater of (1)
cumulative earnings (Accumulated Value as of the most recent Valuation Date
reduced by total gross payments not previously redeemed), (2) 10% of the
Accumulated Value as of the most recent Valuation Date, reduced by the total
amount of any prior partial redemptions made in the same calendar year to which
no contingent deferred sales charge was applied, or (3) the life expectancy
distribution, if applicable. The Free Withdrawal Amount for the new Policy is
first deducted from cumulative earnings, and any excess will be deemed withdrawn
on a LIFO basis.
Under the original Policy, the Free Withdrawal Amount is the greater of (1) 10%
of the Accumulated Value as of December 31 of the previous calendar year, or (2)
the life expectancy distribution, if applicable. The Free Withdrawal Amount for
the original Policy is deducted first from Old Payments, then from the earliest
New Payments and so on until all New Payments have been exhausted pursuant to
the first-in-first-out ("FIFO") method of accounting (LIFO or last-in-first-out
method in New Jersey).
B-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION
OF
INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS FUNDED THROUGH
SUB-ACCOUNTS OF
SEPARATE ACCOUNT VA-K
INVESTING IN SHARES OF ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE
PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II,
T. ROWE PRICE INTERNATIONAL SERIES, INC., AND
DELAWARE GROUP PREMIUM FUND, INC.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS FOR THE ABOVE SUB-ACCOUNTS OF SEPARATE
ACCOUNT VA-K DATED MAY 1, 1998 ("THE PROSPECTUS"). THE PROSPECTUS MAY BE
OBTAINED FROM ANNUITY CLIENT SERVICES, ALLMERICA FINANCIAL LIFE INSURANCE AND
ANNUITY COMPANY, 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653, TELEPHONE
1-800-533-7881.
DATED MAY 1, 1998
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT
AND THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY BENEFIT PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . 4
EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
GENERAL INFORMATION AND HISTORY
Separate Account VA-K (the "Variable Account") is a separate investment account
of Allmerica Financial Life Insurance and Annuity Company (the "Company")
established by vote of its Board of Directors on November 1, 1990. The Company
is a life insurance company organized under the laws of Delaware in July 1974.
Its principal office (the "Principal Office") is located at 440 Lincoln Street,
Worcester, Massachusetts 01653, telephone (508) 855-1000. The Company is
subject to the laws of the State of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1997, the
Company had over $9.4 billion in assets and over $26.6 billion of life insurance
in force.
Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirectly wholly owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica") which, in turn, is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company, and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company and adopted its present name on
October 16, 1995. First Allmerica is the fifth oldest life insurance company
in America. As of December 31, 1997, First Allmerica and its subsidiaries
(including the Company) had over $16.3 billion in combined assets and over $43.8
billion in life insurance in force.
Currently, 18 Sub-Accounts of the Variable Account are available under the
Allmerica Advantage contract (the "Contract") and ExecAnnuity Plus contracts
(Forms A3018-91 and A3021-93), two predecessor contracts no longer being sold.
Each Sub-Account invests in a corresponding investment portfolio of Allmerica
2
<PAGE>
Investment Trust ("Trust"), Variable Insurance Products Fund ("Fidelity VIP"),
Variable Insurance Products Fund II ("Fidelity VIP II"), T. Rowe Price
International Series, Inc. ("T. Rowe Price"), or Delaware Group Premium Fund,
Inc. ("DGPF"). The Trust is managed by Allmerica Financial Investment
Management Services, Inc. Fidelity VIP and Fidelity VIP II are managed by
Fidelity Management and Research Company ("FMR"). The T. Rowe Price
International Stock Portfolio of T. Rowe Price is managed by Rowe Price-Fleming
International, Inc. ("Price-Fleming"). The International Equity Series of DGPF
is managed by Delaware International Advisers Ltd. ("International Advisers").
The Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF are open-end,
diversified management investment companies. Eleven different funds of the
Trust are available under the Contract: the Growth Fund, Investment Grade Income
Fund, Money Market Fund, Equity Index Fund, Government Bond Fund, Select
International Growth Fund, Select Aggressive Growth Fund, Select Capital
Appreciation Fund, Select Growth Fund, Select Growth and Income Fund and Select
Value Opportunity Fund. Certain of these Funds may not be available in all
states. Four portfolios of Fidelity VIP are available under the Contract: the
Fidelity VIP High Income Portfolio, Fidelity VIP Equity-Income Portfolio,
Fidelity VIP Growth Portfolio, and Fidelity VIP Overseas Portfolio. One
portfolio of Fidelity VIP II is available under the Contract: the Fidelity VIP
II Asset Manager Portfolio. One portfolio of T. Rowe Price is available under
the Contract: the T. Rowe Price International Stock Portfolio. The
International Equity Series is the only Series of DGPF available under the
Contract. Each Fund, Portfolio and Series available under the Contract
(together, the "Underlying Funds") has its own investment objectives and certain
attendant risks.
TAXATION OF THE CONTRACT, THE VARIABLE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
contracts, other than for state and local premium taxes and similar assessments
when applicable. The Company reserves the right to impose a charge for any
other taxes that may become payable in the future in connection with the
contracts or the Variable Account.
The Variable Account is considered to be a part of and taxed with the operations
of the Company. The Company is taxed as a life insurance company under
subchapter L of the Internal Revenue Code (the "Code"), and files a consolidated
tax return with its parent and affiliated companies.
The Company reserves the right to make a charge for any effect which the income,
assets or existence of the Contract or the Variable Account may have upon its
tax. Such charge for taxes, if any, will be assessed on a fair and equitable
basis in order to preserve equity among classes of Contract Owners ("Owners").
The Variable Account presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Variable Account. Underlying Fund shares owned by the Sub-Accounts are held on
an open account basis. A Sub-Account's ownership of Underlying Fund shares is
reflected on the records of the Underlying Fund and is not represented by any
transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1997 and
1996 and for each of the two years in the period ended December 31, 1997, and
the financial statements of the Separate Account VA-K Allmerica Advantage
Variable Annuity and ExecAnnuity Plus Variable Annuity of the Company as of
December 31, 1997 and for the periods indicated, included in this Statement
of Additional Information constituting part of this Registration Statement,
have been so included in reliance on the reports of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
3
<PAGE>
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 Contract.
UNDERWRITERS
Allmerica Investments, Inc. ("Allmerica Investments"), a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. ("NASD"), serves as principal
underwriter and general distributor for the Contract pursuant to a contract with
Allmerica Investments, the Company and the Variable Account. Allmerica
Investments distributes the Contract on a best-efforts basis. Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653, was
organized in 1969 as a wholly owned subsidiary of First Allmerica, and presently
is indirectly wholly owned by First Allmerica.
The Contract offered by this Prospectus is offered continuously, and may be
purchased from NASD registered representatives of Allmerica Investments and from
certain independent broker-dealers which are NASD members and whose
representatives are authorized by applicable law to sell variable annuity
contracts.
Commissions are paid by the Company to its licensed insurance agents on sales of
the Contract. The Company intends to recoup the commission and other sales
expense through a combination of anticipated surrender, withdrawal and/or
annuitization charges, profits from the Company's general account, including the
investment earnings on amounts allocated to accumulate on a fixed basis in
excess of the interest credited on fixed accumulations by the Company, and the
profit, if any, from the mortality and expense risk charge.
All persons selling the Contract are required to be licensed by their respective
state insurance authorities for the sale of variable annuity policies.
Registered representatives of Allmerica Investments receive commissions equal to
5% (4% on contracts originally issued as part of a 401(k) plan) of purchase
payments. Independent broker-dealers receive commissions of 5%, of which a
portion is paid to their registered representatives.
The aggregate amounts of commissions paid to representatives of Allmerica
Investments, Inc. with respect to sales of the contracts were $34,693,060.08 in
1997, $32,978,859.65 in 1996 and $24,033,700.75 in 1995.
Commissions are paid by the Company, and do not result in any charge to Owners
or to the Variable Account in addition to the charges described under "CHARGES
AND DEDUCTIONS" in the Prospectus.
ANNUITY BENEFIT PAYMENTS
The method by which the Accumulated Value under the Contract is determined is
described in detail under "Computation of Values" in the Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the assets of a Sub-Account at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit Value at the end of the current Valuation Period would be
calculated as follows:
<TABLE>
<S> <C>
(1) Accumulation Unit Value -- Previous Valuation Period. . . . . . $1.135000
(2) Value of Assets -- Beginning of Valuation Period. . . . . . . .$5,000,000
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
(3) Excess of Investment Income and Net Gains Over Capital Losses . . .$1,675
(4) Adjusted Gross Investment Rate for the Valuation Period (3)
divided by (2). . . . . . . . . . . . . . . . . . . . . . . . . .0.000335
(5) Annual Charge (one-day equivalent of 1.45% per annum) . . . . . .0.000040
(6) Net Investment Rate (4) - (5) . . . . . . . . . . . . . . . . . .0.000295
(7) Net Investment Factor 1.000000 + (6). . . . . . . . . . . . . . .1.000295
(8) Accumulation Unit Value -- Current Period (1) x (7) . . . . . . $1.135335
</TABLE>
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
Accumulation Unit Value at the end of the Valuation Period would have been
$1.134574. The method for determining the amount of annuity benefit payments
is described in detail under "Determination of the First and Subsequent Annuity
Benefit Payments" in the Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY BENEFIT PAYMENT CALCULATION USING HYPOTHETICAL
EXAMPLE. The determination of the Annuity Unit value and the variable annuity
benefit payment may be illustrated by the following hypothetical example: Assume
an Annuitant has 40,000 Accumulation Units in a Variable Account, and that the
value of an Accumulation Unit on the Valuation Date used to determine the amount
of the first variable annuity benefit payment is $1.120000. Therefore, the
Accumulation Value of the Contract is $44,800 (40,000 x $1.120000). Assume also
that the Owner elects an option for which the first monthly payment is $6.57 per
$1,000 of Accumulated Value applied. Assuming no premium tax or contingent
deferred sales charge, the first monthly payment would be 44.800 multiplied by
$6.57, or $294.34.
Next, assume that the Annuity Unit value for the assumed rate of 3.5% per annum
for the Valuation Date as of which the first payment was calculated was
$1.100000. Annuity Unit values will not be the same as Accumulation Unit Values
because the former reflect the 3.5% assumed interest rate used in the annuity
rate calculations. When the Annuity Unit value of $1.100000 is divided into the
first monthly payment the number of Annuity Units represented by that payment is
determined to be 267.5818. The value of this same number of Annuity Units will
be paid in each subsequent month under most options. Assume further that the
net investment factor for the Valuation Period applicable to the next annuity
benefit payment is 1.000190. Multiplying this factor by .999906 (the one-day
adjustment factor for the assumed interest rate of 3.5% per annum) produces a
factor of 1.000096. This then is multiplied by the Annuity Unit value on the
immediately preceding Valuation Date (assumed here to be $1.105000). The result
is an Annuity Unit value of $1.105106 for the current monthly payment. The
current monthly payment then is determined by multiplying the number of Annuity
Units by the current Annuity Unit value, or 267.5818 times $1.105106, which
produces a current monthly payment of $295.71.
METHOD FOR DETERMINING COMMUTED VALUE ON VARIABLE ANNUITY PERIOD CERTAIN OPTIONS
AND ILLUSTRATION USING HYPOTHETICAL EXAMPLE. The Contract offers both
commutable and non-commutable period certain annuity options. A commutable
option gives the Annuitant the right to exchange any remaining payments for a
lump sum payment based on the commuted value. The Commuted Value is the present
value of remaining payments calculated at 3.5% interest. The determination of
the Commuted Value may be illustrated by the following hypothetical example.
Assume a commutable period certain option is elected. The number of Annuity
Units upon which each payment is based would be calculated using the Surrender
Value less any premium tax rather than the Accumulated Value. Assume this
results in 250.0000 Annuity Units. Assume the Commuted Value is requested with
60 monthly payments remaining and a current Annuity Unit Value of $1.200000.
Based on
5
<PAGE>
these assumptions, the dollar amount of remaining payments would be $300 a
month for 60 months. The present value at 3.5% of all remaining payments
would be $16,560.72.
EXCHANGE OFFER
A. VARIABLE ANNUITY CONTRACT EXCHANGE OFFER
The Company will permit Owners of certain variable annuity contracts, described
below, to exchange their contracts at net asset value for the variable annuity
contracts described in the Prospectus, which is issued on Form No. A3025-96 or a
state variation thereof ("new Contract"). The Company reserves the right to
suspend this exchange offer at any time.
This offer applies to the exchange of the Company's Elective Payment Variable
Annuity contracts issued on Forms A3012-79 and A3013-79 ("Elective Payment
Exchanged Contract," all such contracts having numbers with a "JQ" or "JN"
prefix), and Single Payment Variable Annuity contracts issued on Forms A3014-79
and A3015-79 ("Single Payment Exchanged Contract," all such contracts having
numbers with a "KQ" or "KN" prefix). These contracts are referred to
collectively as the "Exchanged Contract." To effect an exchange, the Company
should receive (1) a completed application for the new Contract, (2) the
contract being exchanged, and (3) a signed Letter of Awareness.
CONTINGENT DEFERRED SALES CHARGE COMPUTATION. No surrender charge otherwise
applicable to the Exchanged Contract will be assessed as a result of the
exchange. Instead, the contingent deferred sales charge under the new Contract
will be computed as if the payments that had been made to the Exchanged Contract
were made to the new Contract as of the date of issue of the Exchanged Contract.
Any additional payments to the new Contract after the exchange will be subject
to the contingent deferred sales charge computation outlined in the new Contract
and the Prospectus; i.e., the charge will be computed based on the number of
years that the additional payment (or portion of that payment) that is being
withdrawn has been credited to the new Contract.
SUMMARY OF DIFFERENCES BETWEEN EXCHANGED CONTRACT AND THE NEW CONTRACT. The new
Contract and the Exchanged Contract differ substantially as summarized below.
There may be additional differences important to a person considering an
exchange, and the Prospectuses for the new Contract and the Exchanged Contract
should be reviewed carefully before the exchange request is submitted to the
Company.
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under
the new Contract, as described in the Prospectus, imposes higher charge
percentages against the excess amount redeemed than the Exchanged Contract and,
in the case of a Single Payment Exchanged Contract, applies the charge for a
greater number of years. In addition, if an Elective Payment Exchanged Contract
was issued more than nine years before the date of an exchange under this offer,
additional payments to the Exchanged Contract would not be subject to a
surrender charge. New payments to the new Contract may be subject to a charge
if withdrawn prior to the surrender charge period described in the Prospectus.
CONTRACT FEE. Under the new Contract, the Company deducts a $30 fee on each
Contract anniversary and at surrender if the Accumulated Value is less than
$50,000. This fee is waived if the new Contract is part of a 401(k) plan. No
Contract fees are charged on the Single Payment Exchanged Contract. A $9
semi-annual fee is charged on the Elective Payment Exchanged Contract if the
Accumulated Value is $10,000 or less.
VARIABLE ACCOUNT ADMINISTRATIVE EXPENSE CHARGE. Under the new Contract, the
Company assesses each Sub-Account a daily administrative expense charge at an
annual rate of 0.20% of the average daily net assets of the Sub-Account. No
administrative expense charge based on a percentage of Sub-Account assets is
imposed under the Exchanged Contract.
TRANSFER CHARGE. No charge for transfers is imposed under the Exchanged
Contract. Currently, no transfer
6
<PAGE>
charge is imposed under the new Contract; however, the Company reserves the
right to assess a charge not to exceed $25 for each transfer after the
twelfth in any Contract year.
DEATH BENEFIT. The Exchanged Contract offer a death benefit that is guaranteed
to be the greater of a Contract's Accumulated Value or gross payments made (less
withdrawals). At the time an exchange is processed, the Accumulated Value of
the Exchanged Contract becomes the "payment" for the new Contract. Therefore,
prior purchase payments made under the Exchanged Contract (if higher than the
Exchanged Contract's Accumulated Value) no longer are a basis for determining
the death benefit under the new Contract. Consequently, whether the initial
minimum death benefit under the new Contract is greater than, equal to, or less
than, the death benefit of the Exchanged Contract depends on whether the
Accumulated Value transferred to the new Contract is greater than, equal to, or
less than, the gross payments under the Exchanged Contract. In addition, under
the Exchanged Contract, the amount of any prior withdrawals is subtracted from
the value of the death benefit. Under the new Contract, where there is a
reduction in the death benefit amount due to a prior withdrawal, the value of
the death benefit is reduced in the same proportion that the new Contract's
Accumulated Value was reduced on the date of the withdrawal.
ANNUITY TABLES. The Exchanged Contract contains higher guaranteed annuity
rates.
INVESTMENTS. Accumulated Values and payments under the new Contract may be
allocated to significantly more investment options than are available under the
Exchanged Contract.
B. FIXED ANNUITY EXCHANGE OFFER
This exchange offer also applies to all fixed annuity contracts issued by the
Company's subsidiary, AFLIAC. A fixed annuity contract to which this exchange
offer applies may be exchanged at net asset value for the Contract described in
this Prospectus, subject to the same provisions for effecting the exchange and
for applying the new Contract's contingent deferred sales charge as described
above for variable annuity contracts. This Prospectus should be read carefully
before making such exchange. Unlike a fixed annuity, the new Contract's value
is not guaranteed, and will vary depending on the investment performance of the
Underlying Funds to which it is allocated. The new Contract has a different
charge structure than a fixed annuity contract, which includes not only a
contingent deferred sales charge that may vary from that of the class of
contracts to which the exchanged fixed contract belongs, but also Contract fees,
mortality and expense risk charges (for the Company's assumption of certain
mortality and expense risks), administrative expense charges, transfer charges
(for transfers permitted among Sub-Accounts and the Fixed Account), and expenses
incurred by the Underlying Funds. Additionally, the interest rates offered
under the Fixed Account of the new Contract and the Annuity Tables for
determining minimum annuity benefit payments may be different from those offered
under the exchanged fixed contract.
C. EXERCISE OF "FREE-LOOK PROVISION" AFTER ANY EXCHANGE
Persons who, under the terms of this exchange offer, exchange their contract for
the new Contract and subsequently revoke the new Contract within the time
permitted, as described in the sections of this Prospectus captioned "Right to
Revoke Individual Retirement Annuity" and "Right to Revoke All Other Contracts,"
will have their exchanged contract automatically reinstated as of the date of
revocation. The refunded amount will be applied as the new current Accumulated
Value under the reinstated contract, which may be more or less than it would
have been had no exchange and reinstatement occurred. The refunded amount will
be allocated initially among the Fixed Account and Sub-Accounts of the
reinstated contract in the same proportion that the value in the Fixed Account
and the value in each Sub-Account bore to the transferred Accumulated Value on
the date of the exchange of the contract for the new Contract. For purposes of
calculating any contingent deferred sales charge under the reinstated contract,
the reinstated contract will be deemed to have been issued and to have received
past purchase payments as if there had been no exchange.
7
<PAGE>
PERFORMANCE INFORMATION
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to certain indices described in the Prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other material information on various
topics of interest to Owners and prospective Owners. These topics may include
the relationship between sectors of the economy and the economy as a whole and
its effect on various securities markets, investment strategies and techniques
(such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer and account rebalancing), the advantages and
disadvantages of investing in tax-deferred and taxable investments, customer
profiles and hypothetical purchase and investment scenarios, financial
management and tax and retirement planning, and investment alternatives to
certificates of deposit and other financial instruments, including comparisons
between the Contract and the characteristics of and market for such financial
instruments. Total return data and supplemental total return information may be
advertised based on the period of time that an Underlying Fund and an underlying
Sub-Account have been in existence, even if longer than the period of time that
the Contract has been offered. The results for any period prior to a Contract
being offered will be calculated as if the Contract had been offered during that
period of time, with all charges assumed to be those applicable to the Contract.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment in a
Sub-Account and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specified period, reduced
by the Sub-Account's asset charge and any applicable contingent deferred sales
charge which would be assessed upon complete withdrawal of the investment.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission (the "SEC"). The quotations are
computed by finding the average annual compounded rates of return over the
specified periods that would equate the initial amount invested to the ending
redeemable values, according to the following formula:
(n)
P(1 + T) = ERV
Where: P = a hypothetical initial payment to the Variable Account
of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000 payment at
the end of the specified period
The calculation of Total Return includes the annual charges against the assets
of the Sub-Account. This charge is 1.45% on an annual basis. The calculation
of ending redeemable value assumes (1) the Contract was issued at the beginning
of the period, and (2) a complete surrender of the Contract at the end of the
period. The deduction of the contingent deferred sales charge, if any,
applicable at the end of the period is included in the calculation, according to
the following schedule:
<TABLE>
<CAPTION>
YEARS FROM DATE CHARGE AS PERCENTAGE OF
OF PAYMENT TO DATE OF NEW PURCHASE PAYMENTS
WITHDRAWAL WITHDRAWN*
---------- ----------
<S> <C>
0-2 8%
3 7%
8
<PAGE>
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
Thereafter 0%
</TABLE>
* Subject to the maximum limit described in the Prospectus.
No contingent deferred sales charge is deducted upon expiration of the periods
specified above. In each calendar year, a certain amount (withdrawal without
surrender charge amount, as described in the Prospectus) is not subject to the
contingent deferred sales charge.
The calculations of Total Return include the deduction of the $30 annual
Contract fee.
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return Information in this section refers to the total of
the income generated by an investment in a Sub-Account and of the changes of
value of the principal invested (due to realized and unrealized capital gains or
losses) for a specified period reduced by the Sub-Account's asset charges. It
is assumed, however, that the investment is NOT withdrawn at the end of each
period.
The quotations of Supplemental Total Return are computed by finding the average
annual compounded rates of return over the specified periods that would equate
the initial amount invested to the ending values, according to the following
formula:
(n)
P(1 + T) = EV
Where: P = a hypothetical initial payment to the Variable Account
of $1,000
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at the end of
the specified period
The calculation of Supplemental Total Return reflects the 1.45% annual charge
against the assets of the Sub-Accounts. The ending value assumes that the
Contract is NOT surrendered at the end of the specified period, and therefore
there is no adjustment for the contingent deferred sales charge that would be
applicable if the Contract was surrendered at the end of the period.
The calculations of Supplemental Total Return include the deduction of the $30
annual Contract fee.
YIELD AND EFFECTIVE YIELD - THE MONEY MARKET SUB-ACCOUNT
Set forth below is yield and effective yield information for the Money Market
Sub-Account for the seven-day period ended December 31, 1997:
Yield 5.05%
Effective Yield 5.17%
9
<PAGE>
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the SEC. Under those methods, the yield quotation is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit of the Sub-Account at the beginning of the period, subtracting
a charge reflecting the annual 1.45% deduction for mortality and expense risk
and the administrative charge, dividing the difference by the value of the
account at the beginning of the same period to obtain the base period return,
and then multiplying the return for a seven-day base period by (365/7), with the
resulting yield carried to the nearest hundredth of one percent.
The Money Market Sub-Account computes effective yield by compounding the
unannualized base period return by using the formula:
(365/7)
Effective Yield = [ (base period return + 1) ] - 1
The calculations of yield and effective yield reflect the $30 annual Contract
fee.
FINANCIAL STATEMENTS
Financial Statements are included for Allmerica Financial Life Insurance and
Annuity Company and for its Separate Account VA-K.
10
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Allmerica Financial Life Insurance and Annuity Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholder's equity, and of cash
flows present fairly, in all material respects, the financial position of
Allmerica Financial Life Insurance and Annuity Company at December 31, 1997 and
1996, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
February 3, 1998
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
----------------------------------------------- --------- ---------
<S> <C> <C>
REVENUES
Premiums..................................... $ 22.8 $ 32.7
Universal life and investment product
policy fees.............................. 212.2 176.2
Net investment income...................... 164.2 171.7
Net realized investment gains (losses)..... 2.9 (3.6 )
Other income............................... 1.4 0.9
--------- ---------
Total revenues......................... 403.5 377.9
--------- ---------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 187.8 192.6
Policy acquisition expenses................ 2.8 49.9
Loss from cession of disability income
business................................. 53.9 --
Other operating expenses................... 101.3 86.6
--------- ---------
Total benefits, losses and expenses.... 345.8 329.1
--------- ---------
Income before federal income taxes............. 57.7 48.8
--------- ---------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 13.9 26.9
Deferred................................... 7.1 (9.8 )
--------- ---------
Total federal income tax expense....... 21.0 17.1
--------- ---------
Net income..................................... $ 36.7 $ 31.7
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
-------------------------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,340.5 and $1,660.2)............................ $1,402.5 $1,698.0
Equity securities at fair value (cost of $34.4 and
$33.0)............................................ 54.0 41.5
Mortgage loans...................................... 228.2 221.6
Real estate......................................... 12.0 26.1
Policy loans........................................ 140.1 131.7
Other long term investments......................... 20.3 7.9
---------- ----------
Total investments............................... 1,857.1 2,126.8
---------- ----------
Cash and cash equivalents............................. 31.1 18.8
Accrued investment income............................. 34.2 37.7
Deferred policy acquisition costs..................... 765.3 632.7
Reinsurance receivables on paid and unpaid losses,
benefits and unearned premiums...................... 251.1 81.5
Other assets.......................................... 10.7 8.2
Separate account assets............................... 7,567.3 4,524.0
---------- ----------
Total assets.................................... $10,516.8 $7,429.7
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $2,097.3 $2,171.3
Outstanding claims, losses and loss adjustment
expenses.......................................... 18.5 16.1
Unearned premiums................................... 1.8 2.7
Contractholder deposit funds and other policy
liabilities....................................... 32.5 32.8
---------- ----------
Total policy liabilities and accruals........... 2,150.1 2,222.9
---------- ----------
Expenses and taxes payable............................ 77.6 77.3
Reinsurance premiums payable.......................... 4.9 --
Deferred federal income taxes......................... 75.9 60.2
Separate account liabilities.......................... 7,567.3 4,523.6
---------- ----------
Total liabilities............................... 9,875.8 6,884.0
---------- ----------
Commitments and contingencies (Note 13)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares
authorized, 2,521 and 2,518 shares issued and
outstanding......................................... 2.5 2.5
Additional paid in capital............................ 386.9 346.3
Unrealized appreciation on investments, net........... 38.5 20.5
Retained earnings..................................... 213.1 176.4
---------- ----------
Total shareholder's equity...................... 641.0 545.7
---------- ----------
Total liabilities and shareholder's equity...... $10,516.8 $7,429.7
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
----------------------------------------------- --------- ---------
<S> <C> <C>
COMMON STOCK
Balance at beginning of period............. $ 2.5 $ 2.5
Issued during year......................... -- --
--------- ---------
Balance at end of period................... 2.5 2.5
--------- ---------
ADDITIONAL PAID IN CAPITAL
Balance at beginning of period............. 346.3 324.3
Contribution from Parent................... 40.6 22.0
--------- ---------
Balance at end of period................... 386.9 346.3
--------- ---------
RETAINED EARNINGS
Balance at beginning of period............. 176.4 144.7
Net income................................. 36.7 31.7
--------- ---------
Balance at end of period................... 213.1 176.4
--------- ---------
NET UNREALIZED APPRECIATION ON INVESTMENTS
Balance at beginning of period............. 20.5 23.8
Net appreciation (depreciation) on
available for sale securities............ 27.0 (5.1 )
(Provision) benefit for deferred federal
income taxes............................. (9.0 ) 1.8
--------- ---------
Balance at end of period................... 38.5 20.5
--------- ---------
Total shareholder's equity............. $641.0 $545.7
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
-------------------------------------------- ---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 36.7 $ 31.7
Adjustments to reconcile net income to
net cash used in operating activities:
Net realized gains.................. (2.9 ) 3.6
Net amortization and depreciation... -- 3.5
Loss from cession of disability
income business................... 53.9 --
Deferred federal income taxes....... 7.1 (9.8 )
Payment related to cession of
disability income business........ (207.0 ) --
Change in deferred acquisition
costs............................. (181.3 ) (66.8 )
Change in premiums and notes
receivable, net of reinsurance
payable........................... 3.9 (0.2 )
Change in accrued investment
income............................ 3.5 1.2
Change in policy liabilities and
accruals, net..................... (72.4 ) (39.9 )
Change in reinsurance receivable.... 22.1 (1.5 )
Change in expenses and taxes
payable........................... 0.2 32.3
Separate account activity, net...... 0.4 10.5
Other, net.......................... (7.5 ) (0.2 )
---------- ----------
Net used in operating
activities.................... (343.3 ) (35.6 )
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................ 909.7 809.4
Proceeds from disposals of equity
securities............................ 2.4 1.5
Proceeds from disposals of other
investments........................... 23.7 17.4
Proceeds from mortgages matured or
collected............................. 62.9 34.0
Purchase of available-for-sale fixed
maturities............................ (579.7 ) (795.8 )
Purchase of equity securities........... (3.2 ) (13.2 )
Purchase of other investments........... (79.4 ) (36.2 )
Other investing activities, net......... -- (2.0 )
---------- ----------
Net cash provided by investing
activities........................ 336.4 15.1
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and
capital paid in....................... 19.2 22.0
---------- ----------
Net cash provided by financing
activities........................ 19.2 22.0
---------- ----------
Net change in cash and cash equivalents..... 12.3 1.5
Cash and cash equivalents, beginning of
period..................................... 18.8 17.3
---------- ----------
Cash and cash equivalents, end of period.... $ 31.1 $ 18.8
---------- ----------
---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ -- $ 3.4
Income taxes paid....................... $ 5.4 $ 16.5
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC" or the
"Company") is organized as a stock life insurance company, and is a wholly-owned
subsidiary of SMA Financial Corporation ("SMAFCO"), which is wholly owned by
First Allmerica Financial Life Insurance Company ("FAFLIC"). FAFLIC is a
wholly-owned subsidiary of Allmerica Financial Corporation ("AFC").
The consolidated financial statements of AFLIAC include the accounts of Somerset
Square, Inc., a wholly-owned non-insurance company and its results of operations
for the month of December, 1997. Somerset Square, Inc. was transferred from
SMAFCO effective November 30, 1997. (See Significant Transactions.)
The Statutory stockholder's equity of the Company is being maintained at a
minimum level of 5% of general account assets by FAFLIC in accordance with a
policy established by vote of FAFLIC's Board of Directors.
The preparation of financial statements in conformity with generally accepted
accounting principles requires 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 the 1996 financial statements in order to conform to the 1997
presentation.
B. VALUATION OF INVESTMENTS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 115 ("Statement No. 115"), "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES", the Company is required to classify its investments into one
of three categories: held-to-maturity, available-for-sale or trading. The
Company determines the appropriate classification of debt securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by 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 establishing reserves, management considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. As a result of this decision real estate held by the
Company and real estate joint ventures were written down to the estimated fair
value less cost to sell. Depreciation is not recorded on these assets while they
are held for disposal.
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other-than-temporary impairment of the value of a specific
investment
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
or a group of investments is determined, a realized investment loss is recorded.
Changes in the valuation allowance for mortgage loans and real estate are
included in realized investment gains or losses.
C. FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including debt, investments such as
fixed maturities, mortgage loans and equity securities, and investment and loan
commitments. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuation. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
D. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
E. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Acquisition costs related to universal life products, variable annuities and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits from investment yields, mortality, surrender charges and
expense margins over the expected life of the contracts. This amortization is
reviewed annually and adjusted retrospectively when the Company revises its
estimate of current or future gross profits to be realized from this group of
products, including realized and unrealized gains and losses from investments.
Acquisition costs related to fixed annuities and other life insurance products
are deferred and amortized, generally in proportion to the ratio of annual
revenue to the estimated total revenues over the contract periods based upon the
same assumptions used in estimating the liability for future policy benefits.
Deferred acquisition costs for each product are reviewed to determine if they
are recoverable from future income, including investment income. If such costs
are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, management believes it is more likely than not that all of these costs
will be realized. The amount of deferred policy acquisition costs considered
realizable, however, could be reduced in the near term if the estimates of gross
profits or total revenues discussed above are reduced. The amount of
amortization of deferred policy acquisition costs could be revised in the near
term if any of the estimates discussed above are revised.
F. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of certain pension, variable annuity
and variable life insurance contractholders. Assets consist principally of
bonds, common stocks, mutual funds, and short-term obligations at market value.
The investment income, gains, and losses of these accounts generally accrue to
the contractholders and, therefore, are not included in the Company's net
income. Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholder's equity or net investment income.
G. POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity products.
Such liabilities are established in amounts adequate to meet the estimated
future obligations of policies in force. The liabilities associated with
traditional life insurance products are computed using the net level premium
method for individual life and annuity policies, and are based upon estimates as
to future investment yield, mortality and withdrawals that include provisions
for adverse deviation. Future policy benefits for individual life insurance and
annuity policies are computed using interest rates ranging from 2 1/2% to 6% for
life insurance and 2% to 9 1/2% for
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
annuities. Mortality, morbidity and withdrawal assumptions for all policies are
based on the Company's own experience and industry standards. Liabilities for
universal life include deposits received from customers and investment earnings
on their fund balances, less administrative charges. Universal life fund
balances are also assessed mortality and surrender charges. Individual health
benefit liabilities for active lives are estimated using the net level premium
method, and assumptions as to future morbidity, withdrawals and interest which
provide a margin for adverse deviation. Benefit liabilities for disabled lives
are estimated using the present value of benefits method and experience
assumptions as to claim terminations, expenses and interest.
Liabilities for outstanding claims, losses and loss adjustment expenses are
estimates of payments to be made for reported claims and estimates of claims
incurred but not reported. These liabilities are determined using case basis
evaluations and statistical analyses and represent estimates of the ultimate
cost of all claims incurred but not paid. These estimates are continually
reviewed and adjusted as necessary; such adjustments are reflected in current
operations.
Premiums for individual accident and health insurance are reported as earned on
a pro-rata basis over the contract period.
The unexpired portion of these premiums is recorded as unearned premiums.
Contractholder deposit funds and other policy liabilities include
investment-related products and consist of deposits received from customers and
investment earnings on their fund balances.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, 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.
H. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life and health insurance and individual annuity
products, excluding universal life and investment-related products, are
considered revenue when due. Individual accident and health insurance premiums
are recognized as revenue over the related contract periods. Benefits, losses
and related expenses are matched with premiums, resulting in their recognition
over the lives of the contracts. This matching is accomplished through the
provision for future benefits, estimated and unpaid losses and amortization of
deferred policy acquisition costs. Revenues for investment-related products
consist of net investment income and contract charges assessed against the fund
values. Related benefit expenses primarily consist of net investment income
credited to the fund values after deduction for investment and risk charges.
Revenues for universal life and group variable universal life products consist
of net investment income, and mortality, administration and surrender charges
assessed against the fund values. Related benefit expenses include universal
life benefits in excess of fund values and net investment income credited to
universal life fund values. Certain policy charges that represent compensation
for services to be provided in future periods are deferred and amortized over
the period benefited using the same assumptions used to amortize capitalized
acquisition costs.
I. FEDERAL INCOME TAXES
AFC, its life insurance subsidiaries, FAFLIC and AFLIAC, and its non-life
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 insurance company taxable
operating losses that can be applied to offset life insurance company taxable
income. Allmerica P&C and its subsidiaries will be included in the AFC
consolidated return as part of the
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
non-life insurance company subgroup for the period July 17, 1997 through
December 31, 1997. For the period January 1, 1997 through July 16, 1997,
Allmerica P&C and its subsidiaries will file a separate consolidated United
States Federal income tax return.
The Board of Directors has delegated to AFC management, the development and
maintenance of appropriate Federal Income Tax allocation policies and
procedures, which are subject to written agreement between the companies. The
Federal income tax for all subsidiaries in the consolidated return of AFC is
calculated on a separate return basis. Any current tax liability is paid to AFC.
Tax benefits resulting from taxable operating losses or credits of AFC's
subsidiaries are not reimbursed to the subsidiary until such losses or credits
can be utilized by the subsidiary on a separate return basis.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes, and for
other temporary taxable and deductible differences as defined by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). These differences result primarily from loss reserves, policy acquisition
expenses, and unrealized appreciation/depreciation on investments.
J. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. This statement establishes standards for
the way that public enterprises report information about operating segments in
annual financial statements and requires that selected information about those
operating segments be reported in interim financial statements. This statement
supersedes Statement No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS
ENTERPRISE. Statement No. 131 requires that all public enterprises report
financial and descriptive information about their reportable operating segments.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. This statement is effective for fiscal years beginning
after December 15, 1997. The Company anticipates no impact from the adoption of
Statement No. 131.
In June 1997, the FASB also issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME, which established standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. All items that are required to be recognized under
accounting standards as components of comprehensive income are to be reported in
a financial statement that is displayed with the same prominence as other
financial statements. This statement stipulates that comprehensive income
reflect the change in equity of an enterprise during a period from transactions
and other events and circumstances from non-owner sources. This statement is
effective for fiscal years beginning after December 15, 1997. The Company
anticipates that the adoption of Statement No. 130 will result primarily in
reporting the changes in unrealized gains and losses on investments in debt and
equity securities in comprehensive income.
2. SIGNIFICANT TRANSACTIONS
On April 14, 1997, the Company entered into an agreement in principle to
transfer the Company's individual disability income under a 100% coinsurance
agreement to Metropolitan Life Insurance Company. The coinsurance agreement
became effective October 1, 1997. The transaction has resulted in the
recognition of a $53.9 million pre-tax loss in the first quarter of 1997.
During the 4th quarter of 1997, SMAFCO contributed $40.6 million of additional
paid in capital to the Company. The nature of the contribution was $19.2 million
in cash and $21.4 million in other assets including Somerset Square, Inc.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Effective January 1, 1998, the Company entered into an agreement with
Reinsurance Group of America, Inc. to reinsure the mortality risk on the
universal life and variable universal life blocks of business. Management
believes that this agreement will not have a material effect on the results of
operations or financial position of the Company.
3. INVESTMENTS
A. SUMMARY OF INVESTMENTS
The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with the provisions of SFAS No. 115.
The amortized cost and fair value of available-for-sale fixed maturities and
equity securities were as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- ---------- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 6.3 $ .5 $-- $ 6.8
States and political subdivisions....... 2.8 .2 -- 3.0
Foreign governments..................... 50.1 2.0 -- 52.1
Corporate fixed maturities.............. 1,147.5 58.7 3.3 1,202.9
Mortgage-backed securities.............. 133.8 5.2 1.3 137.7
---------- -------- --------- --------
Total fixed maturities
available-for-sale..................... $1,340.5 $66.6 $ 4.6 $1,402.5
---------- -------- --------- --------
Equity securities....................... $ 34.4 $19.9 $ 0.3 $ 54.0
---------- -------- --------- --------
---------- -------- --------- --------
1996
--------------------------------------------
U.S. Treasury securities and U.S.
government and agency securities....... $ 15.7 $ 0.5 $ 0.2 $ 16.0
States and political subdivisions....... 8.9 1.6 -- 10.5
Foreign governments..................... 53.2 2.9 -- 56.1
Corporate fixed maturities.............. 1,437.2 38.6 6.1 1,469.7
Mortgage-backed securities.............. 145.2 2.2 1.7 145.7
---------- -------- --------- --------
Total fixed maturities
available-for-sale..................... $1,660.2 $45.8 $ 8.0 $1,698.0
---------- -------- --------- --------
Equity securities....................... $ 33.0 $10.2 $ 1.7 $ 41.5
---------- -------- --------- --------
---------- -------- --------- --------
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
In connection with AFLIAC's voluntary withdrawal of its license in New York,
AFLIAC agreed with the New York Department of Insurance to maintain, through a
custodial account in New York, a security deposit, the market value of which
will at all times equal 102% of all outstanding liabilities of AFLIAC for New
York policyholders, claimants and creditors. At December 31, 1997, the amortized
cost and market value of these assets on deposit were $276.8 million and $291.7
million, respectively. At December 31, 1996, the amortized cost and market value
of these assets on deposit were $284.9 million and $292.2 million, respectively.
In addition, fixed maturities, excluding those securities on deposit in New
York, with an amortized cost of $4.2 million were on deposit with various state
and governmental authorities at December 31, 1997 and 1996.
There were no contractual fixed maturity investment commitments at December 31,
1997 and 1996, respectively.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and fair value by maturity periods for fixed maturities are
shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties, or the Company may have the right to put or sell the
obligations back to the issuers. Mortgage backed securities are included in the
category representing their ultimate maturity.
<TABLE>
<CAPTION>
1997
--------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------------------------------------------------------ --------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 63.0 $ 63.5
Due after one year through five years....................... 328.8 343.9
Due after five years through ten years...................... 649.5 679.9
Due after ten years......................................... 299.2 315.2
--------- ---------
Total....................................................... $1,340.5 $1,402.5
--------- ---------
--------- ---------
</TABLE>
The proceeds from voluntary sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
PROCEEDS
FROM
FOR THE YEARS ENDED DECEMBER 31, VOLUNTARY GROSS GROSS
(IN MILLIONS) SALES GAINS LOSSES
- ------------------------------------------------------------ ---------- ------ ------
<S> <C> <C> <C>
1997
Fixed maturities............................................ $702.9 $ 11.4 $ 5.0
Equity securities........................................... $ 1.3 $ 0.5 $ --
1996
Fixed maturities............................................ $496.6 $ 4.3 $ 8.3
Equity securities........................................... $ 1.5 $ 0.4 $ 0.1
</TABLE>
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
EQUITY
FOR THE YEAR ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- ------
<S> <C> <C> <C>
1997
Net appreciation, beginning of year......................... $ 12.7 $ 7.8 $ 20.5
Net appreciation on available-for-sale securities........... 24.3 12.5 36.8
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (9.8) -- (9.8)
Provision for deferred federal income taxes................. (5.1) (3.9) (9.0)
---------- ----- ------
9.4 8.6 18.0
---------- ----- ------
Net appreciation, end of year............................... $ 22.1 $ 16.4 $ 38.5
---------- ----- ------
---------- ----- ------
</TABLE>
(1) Includes net appreciation on other investments of $11.1 million in 1997, and
$2.2 million in 1996.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- ------
<S> <C> <C> <C>
Net appreciation, beginning of year......................... $ 20.4 $ 3.4 $ 23.8
Net (depreciation) appreciation on available-for-sale
securities................................................. (20.8) 6.7 (14.1)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 9.0 -- 9.0
Benefit (provision) for deferred federal income taxes....... 4.1 (2.3) 1.8
---------- ----- ------
(7.7) 4.4 (3.3)
---------- ----- ------
Net appreciation, end of year............................... $ 12.7 $ 7.8 $ 20.5
---------- ----- ------
---------- ----- ------
</TABLE>
(1) Includes net appreciation on other investments of $11.1 million in 1997, and
$2.2 million in 1996.
B. MORTGAGE LOANS AND REAL ESTATE
AFLIAC's mortgage loans and real estate are diversified by property type and
location. Real estate investments have been obtained primarily through
foreclosure. Mortgage loans are collateralized by the related properties and
generally are no more than 75% of the property's value at the time the original
loan is made.
The carrying values of mortgage loans and real estate investments net of
applicable reserves were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Mortgage loans.............................................. $228.2 $221.6
Real estate:
Held for sale............................................. 12.0 26.1
Held for production of income............................. -- --
---------- ------
Total real estate....................................... $ 12.0 $ 26.1
---------- ------
Total mortgage loans and real estate........................ $240.2 $247.7
---------- ------
---------- ------
</TABLE>
Reserves for mortgage loans were $9.4 million and $9.5 million at December 31,
1997 and 1996, respectively.
During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. As a result, real estate assets with a carrying
amount of $15.7 million were written down to the estimated fair value less cost
to sell of $12.0 million, and a net realized investment loss of $3.7 million was
recognized. Depreciation is not recorded on these assets while they are held for
disposal.
There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1997. During 1996, non-cash investing
activities included real estate acquired through foreclosure of mortgage loans,
which had a fair value of $0.9 million.
At December 31, 1997, contractual commitments to extend credit under commercial
mortgage loan agreements amounted to approximately $18.7 million. These
commitments generally expire within one year.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Property type:
Office building........................................... $101.7 $ 86.1
Residential............................................... 19.3 39.0
Retail.................................................... 42.2 55.9
Industrial/warehouse...................................... 61.9 52.6
Other..................................................... 24.5 25.3
Valuation allowances...................................... (9.4) (11.2)
---------- ------
Total....................................................... $240.2 $247.7
---------- ------
---------- ------
Geographic region:
South Atlantic............................................ $ 68.7 $ 72.9
Pacific................................................... 56.6 37.0
East North Central........................................ 61.4 58.3
Middle Atlantic........................................... 29.8 35.0
West South Central........................................ 6.9 5.7
New England............................................... 12.4 21.9
Other..................................................... 13.8 28.1
Valuation allowances...................................... (9.4) (11.2)
---------- ------
Total....................................................... $240.2 $247.7
---------- ------
---------- ------
</TABLE>
At December 31, 1997, scheduled mortgage loan maturities were as follows: 1998
- -- $52.0 million; 1999 -- $17.1 million; 2000 -- $46.3 million; 2001 -- $7.0
million; 2002 -- $11.7 million; and $94.1 million thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties and loans may be
refinanced. During 1997, the Company did not refinance any mortgage loans based
on terms which differed from those granted to new borrowers.
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the balance sheet and changes thereto
are shown below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 ADDITIONS DEDUCTIONS DECEMBER 31
- ------------------------------------------------------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1997
Mortgage loans.............................................. $ 9.5 $ 1.1 $ 1.2 $ 9.4
Real estate................................................. 1.7 3.7 5.4 --
----- --- --- -----
Total................................................... $ 11.2 $ 4.8 $ 6.6 $ 9.4
----- --- --- -----
----- --- --- -----
1996
Mortgage loans.............................................. $ 12.5 $ 4.5 $ 7.5 $ 9.5
Real estate................................................. 2.1 -- 0.4 1.7
----- --- --- -----
Total................................................... $ 14.6 $ 4.5 $ 7.9 $ 11.2
----- --- --- -----
----- --- --- -----
</TABLE>
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deductions of $5.4 million to the investment valuation allowance related to real
estate in 1997 primarily reflect writedowns to the estimated fair value less
cost to sell pursuant to the aforementioned 1997 plan of disposal.
The carrying value of impaired loans was $20.6 million and $21.5 million, with
related reserves of $7.1 million and $7.3 million as of December 31, 1997 and
1996, respectively. All impaired loans were reserved as of December 31, 1997 and
1996.
The average carrying value of impaired loans was $19.8 million and $26.3
million, with related interest income while such loans were impaired of $2.2
million and $3.4 million as of December 31, 1997 and 1996, respectively.
D. OTHER
At December 31, 1997, AFLIAC had no concentration of investments in a single
investee exceeding 10% of shareholder's equity.
4. INVESTMENT INCOME AND GAINS AND LOSSES
A. NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Fixed maturities............................................ $130.0 $137.2
Mortgage loans.............................................. 20.4 22.0
Equity securities........................................... 1.3 0.7
Policy loans................................................ 10.8 10.2
Real estate................................................. 3.9 6.2
Other long-term investments................................. 1.0 0.8
Short-term investments...................................... 1.4 1.4
---------- ------
Gross investment income..................................... 168.8 178.5
Less investment expenses.................................... (4.6) (6.8)
---------- ------
Net investment income....................................... $164.2 $171.7
---------- ------
---------- ------
</TABLE>
At December 31, 1997, mortgage loans on non-accrual status were $2.8 million,
which were all restructured loans. There were no fixed maturities on non-accrual
status at December 31, 1997. The effect of non-accruals, compared with amounts
that would have been recognized in accordance with the original terms of the
investment, had no impact in 1997, and reduced net income by $0.1 million in
1996.
The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $21.1 million and $25.4 million at December 31, 1997 and 1996,
respectively. Interest income on restructured mortgage loans that would have
been recorded in accordance with the original terms of such loans amounted to
$1.9 million and $3.6 million in 1997 and 1996, respectively. Actual interest
income on these loans included in net investment income aggregated $2.1 million
and $2.2 million in 1997 and 1996, respectively.
There were no fixed maturities or mortgage loans which were non-income producing
for the twelve months ended December 31, 1997.
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
B. REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Fixed maturities............................................ $ 3.0 $ (3.3)
Mortgage loans.............................................. (1.1) (3.2)
Equity securities........................................... 0.5 0.3
Real estate................................................. (1.5) 2.5
Other....................................................... 2.0 0.1
---------- ------
Net realized investment losses.............................. $ 2.9 $ (3.6)
---------- ------
---------- ------
</TABLE>
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
SFAS 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 realized upon immediate liquidation. In cases where
market prices are not available, estimates of fair value are based on discounted
cash flow analyses which utilize current interest rates for similar financial
instruments which have comparable terms and credit quality.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair value.
FIXED MATURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.
EQUITY SECURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans are
limited to the lesser of the present value of the cash flows or book value.
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
REINSURANCE RECEIVABLES
The carrying amount of the reinsurance receivable for outstanding claims, losses
and loss adjustment expenses reported in the balance sheet approximates fair
value.
POLICY LOANS
The carrying amount reported in the balance sheet approximates fair value since
policy loans have no defined maturity dates and are inseparable from the
insurance contracts.
INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under investment type contracts are
estimated based on current surrender values.
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 31.1 $ 31.1 $ 18.8 $ 18.8
Fixed maturities.......................................... 1,402.5 1,402.5 1,698.0 1,698.0
Equity securities......................................... 54.0 54.0 41.5 41.5
Mortgage loans............................................ 228.2 239.8 221.6 229.3
Policy loans.............................................. 140.1 140.1 131.7 131.7
Reinsurance receivables................................... 251.1 251.1 72.5 72.5
--------- --------- --------- ---------
$2,107.0 $2,118.6 $2,184.1 $2,191.8
--------- --------- --------- ---------
--------- --------- --------- ---------
FINANCIAL LIABILITIES
Individual annuity contracts.............................. 876.0 850.6 910.2 885.9
Supplemental contracts without life contingencies......... 15.3 15.3 15.9 15.9
Other individual contract deposit funds................... 0.3 0.3 0.3 0.3
--------- --------- --------- ---------
$ 891.6 $ 866.2 $ 926.4 $ 902.1
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
6. DEBT
In 1997 the Company incurred no debt. During 1996, the Company utilized
repurchase agreements to finance certain investments.
Interest expense was $3.4 million in 1996, relating to the repurchase
agreements, and is recorded in other operating expenses.
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of SFAS No. 109. A summary of the federal income tax expense
(benefit) in the statement of income is shown below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- ------
<S> <C> <C>
Federal income tax expense (benefit)
Current................................................... $ 13.9 $ 26.9
Deferred.................................................. 7.1 (9.8)
----- -----
Total....................................................... $ 21.0 $ 17.1
----- -----
----- -----
</TABLE>
The provision for federal income taxes does not materially differ from the
amount of federal income tax determined by applying the appropriate U.S.
statutory income tax rate to income before federal income taxes. The deferred
tax (assets) liabilities are comprised of the following at December 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Deferred tax (assets) liabilitie
Loss reserves............................................. $(175.8) $(137.0)
Deferred acquisition costs................................ 226.4 186.9
Investments, net.......................................... 27.0 14.2
Bad debt reserve.......................................... (2.0) (1.1)
Other, net................................................ 0.3 (2.8)
---------- -------------
Deferred tax liability, net............................... $ 75.9 $ 60.2
---------- -------------
---------- -------------
</TABLE>
Gross deferred income tax liabilities totaled $253.7 million and $201.1 million
at December 31, 1997 and 1996. Gross deferred income tax assets totaled $177.8
million and $140.9 at December 31, 1997 and 1996.
Management believes, based on the Company's recent earnings history and its
future expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, management considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary.
The Company's federal income tax returns are routinely audited by the IRS, and
provisions are routinely made in the financial statements in anticipation of the
results of these audits. The IRS has examined the life-nonlife consolidated
group's federal income tax returns through 1991. The Company is currently
considering its response to certain adjustments proposed by the IRS with respect
to the life-nonlife consolidated group's federal income tax returns for 1989,
1990, and 1991. In management's opinion, adequate tax liabilities have been
established for all years. However, the amount of these tax liabilities could be
revised in the near term if estimates of the Company's ultimate liability are
revised.
8. RELATED PARTY TRANSACTIONS
The Company has no employees of its own, but has agreements under which FAFLIC
provides management, space and other services, including accounting, electronic
data processing, human resources, legal and other staff functions. Charges for
these services are based on full cost including all direct and indirect overhead
costs, and amounted to $124.1 million and $112.4 million in 1997 and 1996. The
net amounts payable to FAFLIC and affiliates for accrued expenses and various
other liabilities and receivables were $15.0 million and $13.3 million at
December 31, 1997 and 1996.
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. DIVIDEND RESTRICTIONS
Delaware has enacted laws governing the payment of dividends to stockholders by
insurers. These laws affect the dividend paying ability of the Company.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding December 31
or (ii) the individual company's statutory net gain from operations for the
preceding calendar year (if such insurer is a 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, 1998, AFLIAC could pay dividends of $33.9 million to FAFLIC
without prior approval.
10. REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Reinsurance transactions are accounted for in
accordance with the provisions of SFAS No. 113.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policy. Reinsurance contracts
do not relieve the Company from its obligations to policyholders. Failure of
reinsurers to honor their obligations could result in losses to the Company;
consequently, allowances are established for amounts deemed uncollectible. The
Company determines the appropriate amount of reinsurance based on evaluation of
the risks accepted and analyses prepared by consultants and reinsurers and on
market conditions (including the availability and pricing of reinsurance). The
Company also believes that the terms of its reinsurance contracts are consistent
with industry practice in that they contain standard terms with respect to lines
of business covered, limit and retention, arbitration and occurrence. Based on
its review of its reinsurers' financial statements and reputations in the
reinsurance marketplace, the Company believes that its reinsurers are
financially sound.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Insurance premiums:
Direct.................................................... $ 48.8 $ 53.3
Assumed................................................... 2.6 3.1
Ceded..................................................... (28.6) (23.7)
---------- ------
Net premiums................................................ $ 22.8 $ 32.7
---------- ------
---------- ------
Insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
Direct.................................................... $226.0 $206.4
Assumed................................................... 4.2 4.5
Ceded..................................................... (42.4) (18.3)
---------- ------
Net policy benefits, claims, losses and loss adjustment
expenses................................................... $187.8 $192.6
---------- ------
---------- ------
</TABLE>
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. DEFERRED POLICY ACQUISITION EXPENSES
The following reflects the changes to the deferred policy acquisition asset:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Balance at beginning of year................................ $632.7 $555.7
Acquisition expenses deferred............................. 184.1 116.6
Amortized to expense during the year...................... (53.0) (49.9)
Adjustment to equity during the year...................... (10.2) 10.3
Adjustment for cession of disability income insurance..... (38.6) --
Adjustment for revision of universal life and variable
universal life insurance mortality assumptions.......... 50.3 --
---------- ------
Balance at end of year...................................... $765.3 $632.7
---------- ------
---------- ------
</TABLE>
On October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.3 million recapitalization of deferred policy acquisition costs.
12. LIABILITIES FOR INDIVIDUAL ACCIDENT AND HEALTH BENEFITS
The Company regularly updates its estimates of liabilities for future policy
benefits and outstanding claims, losses and loss adjustment expenses as new
information becomes available and further events occur which may impact the
resolution of unsettled claims. Changes in prior estimates are reflected in
results of operations in the year such changes are determined to be needed and
recorded.
The liability for future policy benefits and outstanding claims, losses and loss
adjustment expenses related to the Company's accident and health business was
$219.9 million and $226.2 million at December 31, 1997 and 1996. Accident and
health claim liabilities have been re-estimated for all prior years and were
increased by $-0- million in 1997 and $3.2 million in 1996. Due to the
reinsurance agreement whereby the Company has ceded substantially all of its
accident and health business to the Metropolitan, management believes that no
material adverse development of losses will occur. However, the amount of the
liabilities could be revised in the near term if the estimates are revised.
13. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company is not able to reasonably estimate the potential
effect on it of any such future assessments or voluntary payments.
LITIGATION
In July 1997, a lawsuit was instituted in Louisiana against Allmerica Financial
Corp. and certain of its subsidiaries by individual plaintiffs alleging fraud,
unfair or deceptive acts, breach of contract, misrepresentation and related
claims in the sale of life insurance policies. In October 1997, plaintiffs
voluntarily dismissed the Louisiana suit and refiled the action in Federal
District Court in Worcester, Massachusetts. The plaintiffs
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
seek to be certified as a class. The case is in the early stages of discovery
and the Company is evaluating the claims. Although the Company believes it has
meritorious defenses to plaintiffs' claims, there can be no assurance that the
claims will be resolved on a basis which is satisfactory to the Company.
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. However, liabilities
related to these proceedings could be established in the near term if estimates
of the ultimate resolution of these proceedings are revised.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Although the Company does not
believe that there is a material contingency associated with the Year 2000
project, there can be no assurance that exposure for material contingencies will
not arise.
14. STATUTORY FINANCIAL INFORMATION
The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles for
stock life insurance companies primarily because policy acquisition costs are
expensed when incurred, investment reserves are based on different assumptions,
life insurance reserves are based on different assumptions and income tax
expense reflects only taxes paid or currently payable. Statutory net income and
surplus are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Statutory net income........................................ $ 31.5 $ 5.4
Statutory Surplus........................................... $307.1 $234.0
---------- ------
---------- ------
</TABLE>
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Allmerica Financial Life Insurance and Annuity
Company and Policyowners of the Separate Account VA-K Allmerica Advantage
Variable Annuity and ExecAnnuity Plus Variable Annuity 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
(Growth, Investment Grade Income, Money Market, Equity Index, Government
Bond, Select Aggressive Growth, Select Growth, Select Growth and Income,
Select Value Opportunity, Select International Equity, Select Capital
Appreciation, DGPF International Equity, Fidelity VIP High Income, Fidelity
VIP Equity-Income, Fidelity VIP Growth, Fidelity VIP Overseas, Fidelity VIP
II Asset Manager and T. Rowe Price International Stock) constituting the
Separate Account VA-K Allmerica Advantage Variable Annuity and ExecAnnuity
Plus Variable Annuity of Allmerica Financial Life Insurance and Annuity
Company at December 31, 1997, the results of each of their operations for the
year then ended and the changes in each of their net assets for each of the
two years in the period then ended, 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 at December 31, 1997 by correspondence with the
Funds, provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 25, 1998
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SELECT
INVESTMENT GOVERNMENT AGGRESSIVE
GROWTH GRADE INCOME MONEY MARKET EQUITY INDEX BOND GROWTH
------------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 7):
Investments in shares of Allmerica
Investment Trust.......................... $ 364,892,237 $132,854,516 $111,271,359 $220,282,341 $48,791,658 $246,192,443
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............ -- -- -- -- -- --
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- -- -- -- --
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor)... -- -- -- -- 87 --
------------- ------------ ------------ ------------ ----------- ------------
Total assets.............................. 364,892,237 132,854,516 111,271,359 220,282,341 48,791,745 246,192,443
LIABILITIES:
Payable to Allmerica Financial Life
Insurance
and Annuity Company (Sponsor)............. 15,554 19,238 6,612 76,495 -- 203
------------- ------------ ------------ ------------ ----------- ------------
Net assets................................ $ 364,876,683 $132,835,278 $111,264,747 $220,205,846 $48,791,745 $246,192,240
------------- ------------ ------------ ------------ ----------- ------------
------------- ------------ ------------ ------------ ----------- ------------
Net asset distribution by category:
Qualified variable annuity policies....... $ 252,244,829 $87,687,569 $75,150,249 $148,307,880 $31,575,627 $172,544,053
Non-qualified variable annuity policies... 112,631,854 45,147,709 36,114,498 71,897,966 17,216,118 73,648,187
------------- ------------ ------------ ------------ ----------- ------------
$ 364,876,683 $132,835,278 $111,264,747 $220,205,846 $48,791,745 $246,192,240
------------- ------------ ------------ ------------ ----------- ------------
------------- ------------ ------------ ------------ ----------- ------------
Qualified units outstanding, December 31,
1997...................................... 107,960,491 57,300,639 61,915,705 57,458,976 22,818,914 74,843,694
Net asset value per qualified unit,
December 31, 1997......................... $ 2.336455 $ 1.530307 $ 1.213751 $ 2.581109 $ 1.383748 $ 2.305392
Non-qualified units outstanding,
December 31, 1997......................... 48,206,301 29,502,387 29,754,454 27,855,456 12,441,658 31,946,058
Net asset value per non-qualified unit,
December 31, 1997......................... $ 2.336455 $ 1.530307 $ 1.213751 $ 2.581109 $ 1.383748 $ 2.305392
<CAPTION>
SELECT
GROWTH SELECT VALUE
SELECT GROWTH AND INCOME OPPORTUNITY*
------------- ------------ ------------
<S> <C> <C> <C>
ASSETS (NOTES 3 AND 7):
Investments in shares of Allmerica
Investment Trust.......................... $189,343,878 $204,820,423 $165,587,431
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............ -- -- --
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- --
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor)... 906 -- 697
------------- ------------ ------------
Total assets.............................. 189,344,784 204,820,423 165,588,128
LIABILITIES:
Payable to Allmerica Financial Life
Insurance
and Annuity Company (Sponsor)............. -- 368 --
------------- ------------ ------------
Net assets................................ $189,344,784 $204,820,055 $165,588,128
------------- ------------ ------------
------------- ------------ ------------
Net asset distribution by category:
Qualified variable annuity policies....... $133,150,608 $137,150,046 $116,011,445
Non-qualified variable annuity policies... 56,194,176 67,670,009 49,576,683
------------- ------------ ------------
$189,344,784 $204,820,055 $165,588,128
------------- ------------ ------------
------------- ------------ ------------
Qualified units outstanding, December 31,
1997...................................... 66,554,639 69,333,602 59,639,517
Net asset value per qualified unit,
December 31, 1997......................... $ 2.000621 $ 1.978118 $ 1.945211
Non-qualified units outstanding,
December 31, 1997......................... 28,088,366 34,209,288 25,486,532
Net asset value per non-qualified unit,
December 31, 1997......................... $ 2.000621 $ 1.978118 $ 1.945211
</TABLE>
* Name changed. See Note 1.
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SELECT SELECT DGPF FIDELITY
INTERNATIONAL CAPITAL INTERNATIONAL FIDELITY VIP FIDELITY VIP VIP
EQUITY APPRECIATION EQUITY HIGH INCOME EQUITY-INCOME GROWTH
------------ ------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 7):
Investments in shares of Allmerica
Investment Trust.......................... $161,578,167 $118,456,056 $ -- $ -- $ -- $ --
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............ -- -- -- 173,438,927 508,303,104 386,550,435
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- -- -- -- --
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- 99,158,480 -- -- --
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor)... 669 -- 326 939 815 --
------------ ------------- ------------ ------------ ------------ -----------
Total assets.............................. 161,578,836 118,456,056 99,158,806 173,439,866 508,303,919 386,550,435
LIABILITIES:
Payable to Allmerica Financial Life
Insurance
and Annuity Company (Sponsor)............. -- 49 -- -- -- 611
------------ ------------- ------------ ------------ ------------ -----------
Net assets................................ $161,578,836 $118,456,007 $99,158,806 $173,439,866 $508,303,919 $386,549,824
------------ ------------- ------------ ------------ ------------ -----------
------------ ------------- ------------ ------------ ------------ -----------
Net asset distribution by category:
Qualified variable annuity policies....... $113,131,942 $ 81,603,305 $68,523,855 $115,348,710 $339,207,546 $268,492,057
Non-qualified variable annuity policies... 48,446,894 36,852,702 30,634,951 58,091,156 169,096,373 118,057,767
------------ ------------- ------------ ------------ ------------ -----------
$161,578,836 $118,456,007 $99,158,806 $173,439,866 $508,303,919 $386,549,824
------------ ------------- ------------ ------------ ------------ -----------
------------ ------------- ------------ ------------ ------------ -----------
Qualified units outstanding, December 31,
1997...................................... 80,929,288 48,864,108 42,937,867 50,773,545 120,120,793 102,945,303
Net asset value per qualified unit,
December 31, 1997......................... $1.397911 $ 1.670005 $ 1.595884 $ 2.271827 $ 2.823887 $ 2.608104
Non-qualified units outstanding,
December 31, 1997......................... 34,656,636 22,067,421 19,196,227 25,570,237 59,880,715 45,265,744
Net asset value per non-qualified unit,
December 31, 1997......................... $1.397911 $ 1.670005 $ 1.595884 $ 2.271827 $ 2.823887 $ 2.608104
<CAPTION>
T. ROWE
FIDELITY VIP PRICE
FIDELITY VIP II INTERNATIONAL
OVERSEAS ASSET MANAGER STOCK
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS (NOTES 3 AND 7):
Investments in shares of Allmerica
Investment Trust.......................... $ -- $ -- $ --
Investments in shares of Fidelity Variable
Insurance Products Funds (VIP)............ 92,543,794 84,082,338 --
Investment in shares of T. Rowe Price
International Series, Inc................. -- -- 73,135,858
Investment in shares of Delaware Group
Premium Fund, Inc......................... -- -- --
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor)... -- 135 249
------------ ------------- ------------
Total assets.............................. 92,543,794 84,082,473 73,136,107
LIABILITIES:
Payable to Allmerica Financial Life
Insurance
and Annuity Company (Sponsor)............. 554 -- --
------------ ------------- ------------
Net assets................................ $92,543,240 $ 84,082,473 $73,136,107
------------ ------------- ------------
------------ ------------- ------------
Net asset distribution by category:
Qualified variable annuity policies....... $66,040,831 $ 55,454,996 $51,326,825
Non-qualified variable annuity policies... 26,502,409 28,627,477 21,809,282
------------ ------------- ------------
$92,543,240 $ 84,082,473 $73,136,107
------------ ------------- ------------
------------ ------------- ------------
Qualified units outstanding, December 31,
1997...................................... 40,454,545 36,637,887 41,990,457
Net asset value per qualified unit,
December 31, 1997......................... $ 1.632470 $ 1.513597 $ 1.222345
Non-qualified units outstanding,
December 31, 1997......................... 16,234,546 18,913,539 17,842,165
Net asset value per non-qualified unit,
December 31, 1997......................... $ 1.632470 $ 1.513597 $ 1.222345
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INVESTMENT GOVERNMENT
GROWTH GRADE INCOME MONEY MARKET EQUITY INDEX BOND
---------- ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $4,677,303 $ 7,765,722 $ 5,864,394 $2,257,717 $2,535,091
---------- ------------- ------------- ------------ -----------
EXPENSES (NOTE 4):
Mortality and expense risk fees........................ 3,908,676 1,459,800 1,353,573 2,067,797 524,714
Administrative expense fees............................ 636,296 237,642 220,349 336,618 85,419
---------- ------------- ------------- ------------ -----------
Total expenses....................................... 4,544,972 1,697,442 1,573,922 2,404,415 610,133
---------- ------------- ------------- ------------ -----------
Net investment income (loss)........................... 132,331 6,068,280 4,290,472 (146,698) 1,924,958
---------- ------------- ------------- ------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain distributions from portfolio sponsors.... 58,607,134 -- -- 5,924,374 --
Net realized gain (loss) from sales of investments..... 731,664 (44,567) -- 891,735 (121,227)
---------- ------------- ------------- ------------ -----------
Net realized gain (loss)............................. 59,338,798 (44,567) -- 6,816,109 (121,227)
Net unrealized gain (loss)............................. 3,870,618 3,131,133 -- 35,286,956 550,499
---------- ------------- ------------- ------------ -----------
Net realized and unrealized gain..................... 63,209,416 3,086,566 -- 42,103,065 429,272
---------- ------------- ------------- ------------ -----------
Net increase in net assets from operations........... $63,341,747 $ 9,154,846 $ 4,290,472 $41,956,367 $2,354,230
---------- ------------- ------------- ------------ -----------
---------- ------------- ------------- ------------ -----------
<CAPTION>
SELECT SELECT GROWTH SELECT VALUE
AGGRESSIVE GROWTH SELECT GROWTH AND INCOME OPPORTUNITY*
----------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $ -- $ 546,016 $ 2,261,128 $ 908,127
----------------- ------------- ------------- ------------
EXPENSES (NOTE 4):
Mortality and expense risk fees........................ 2,622,781 1,741,645 2,108,661 1,575,698
Administrative expense fees............................ 426,964 283,523 343,271 256,508
----------------- ------------- ------------- ------------
Total expenses....................................... 3,049,745 2,025,168 2,451,932 1,832,206
----------------- ------------- ------------- ------------
Net investment income (loss)........................... (3,049,745) (1,479,152) (190,804) (924,079)
----------------- ------------- ------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain distributions from portfolio sponsors.... 19,360,712 9,673,224 17,526,962 21,872,379
Net realized gain (loss) from sales of investments..... 2,017,143 313,313 324,268 124,769
----------------- ------------- ------------- ------------
Net realized gain (loss)............................. 21,377,855 9,986,537 17,851,230 21,997,148
Net unrealized gain (loss)............................. 15,604,997 29,255,432 13,743,540 5,647,860
----------------- ------------- ------------- ------------
Net realized and unrealized gain..................... 36,982,852 39,241,969 31,594,770 27,645,008
----------------- ------------- ------------- ------------
Net increase in net assets from operations........... $33,933,107 $37,762,817 $31,403,966 $26,720,929
----------------- ------------- ------------- ------------
----------------- ------------- ------------- ------------
</TABLE>
* Name changed. See Note 1.
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SELECT SELECT DGPF
INTERNATIONAL CAPITAL INTERNATIONAL FIDELITY VIP FIDELITY VIP
EQUITY APPRECIATION EQUITY HIGH INCOME EQUITY-INCOME
------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $3,685,822 $ -- $2,511,425 $7,884,412 $ 6,423,548
------------ ------------- ------------ ------------ -------------
EXPENSES (NOTE 4):
Mortality and expense risk fees........................ 1,703,767 1,185,389 1,067,089 1,720,161 5,445,301
Administrative expense fees............................ 277,358 192,970 173,712 280,026 886,444
------------ ------------- ------------ ------------ -------------
Total expenses....................................... 1,981,125 1,378,359 1,240,801 2,000,187 6,331,745
------------ ------------- ------------ ------------ -------------
Net investment income (loss)........................... 1,704,697 (1,378,359) 1,270,624 5,884,225 91,803
------------ ------------- ------------ ------------ -------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain distributions from portfolio sponsors.... 5,123,796 -- -- 974,478 32,296,170
Net realized gain (loss) from sales of investments..... 355,498 166,549 363,002 203,134 2,786,309
------------ ------------- ------------ ------------ -------------
Net realized gain (loss)............................. 5,479,294 166,549 363,002 1,177,612 35,082,479
Net unrealized gain (loss)............................. (4,095,030) 14,907,829 1,321,628 13,667,456 66,391,863
------------ ------------- ------------ ------------ -------------
Net realized and unrealized gain..................... 1,384,264 15,074,378 1,684,630 14,845,068 101,474,342
------------ ------------- ------------ ------------ -------------
Net increase in net assets from operations........... $3,088,961 $13,696,019 $2,955,254 $20,729,293 $101,566,145
------------ ------------- ------------ ------------ -------------
------------ ------------- ------------ ------------ -------------
<CAPTION>
FIDELITY FIDELITY FIDELITY VIP T. ROWE PRICE
VIP VIP II INTERNATIONAL
GROWTH OVERSEAS ASSET MANAGER STOCK
----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $2,066,887 $1,593,893 $ 1,921,322 $ 672,911
----------- ----------- ------------- -----------------
EXPENSES (NOTE 4):
Mortality and expense risk fees........................ 4,299,523 1,150,997 840,972 750,999
Administrative expense fees........................... 699,922 187,372 136,902 122,256
----------- ----------- ------------- -----------------
Total expenses...................................... 4,999,445 1,338,369 977,874 873,255
----------- ----------- ------------- -----------------
Net investment income (loss).......................... (2,932,558) 255,524 943,448 (200,344)
----------- ----------- ------------- -----------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain distributions from portfolio sponsors.... 9,251,781 6,327,269 4,819,590 953,290
Net realized gain (loss) from sales of investments..... 3,287,677 2,767,486 227,627 161,070
----------- ----------- ------------- -----------------
Net realized gain (loss)............................. 12,539,458 9,094,755 5,047,217 1,114,360
Net unrealized gain (loss)............................. 57,841,299 (571,995) 5,671,077 (909,997)
----------- ----------- ------------- -----------------
Net realized and unrealized gain..................... 70,380,757 8,522,760 10,718,294 204,363
----------- ----------- ------------- -----------------
Net increase in net assets from operations........... $67,448,199 $8,778,284 $11,661,742 $ 4,019
----------- ----------- ------------- -----------------
----------- ----------- ------------- -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH INVESTMENT GRADE INCOME MONEY MARKET
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------------------- -------------------------- -------------
1997 1996 1997 1996 1997
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)................ $ 132,331 $ 1,381,722 $ 6,068,280 $ 5,306,899 $ 4,290,472
Net realized gain (loss).................... 59,338,798 23,369,767 (44,567) (88,512) --
Net unrealized gain (loss).................. 3,870,618 12,762,050 3,131,133 (2,794,631) --
------------ ------------ ------------ ------------ -------------
Net increase in net assets from
operations................................ 63,341,747 37,513,539 9,154,846 2,423,756 4,290,472
------------ ------------ ------------ ------------ -------------
FROM CAPITAL TRANSACTIONS (NOTE 5):
Net purchase payments....................... 23,594,450 20,595,265 8,429,192 10,951,302 333,708,420
Withdrawals................................. (14,324,472) (5,864,428) (7,610,810) (4,384,636) (10,554,703)
Annuity benefits............................ (1,922,040) (1,709,262) (604,277) (392,318) (909,248)
Other transfers from (to) the General
Account of
Allmerica Financial Life Insurance and
Annuity
Company (Sponsor)......................... 37,338,509 20,841,421 11,305,227 7,432,318 (323,094,909)
Net increase in investment by Allmerica
Financial Life Insurance and Annuity
Company
(Sponsor)................................. -- -- -- -- --
------------ ------------ ------------ ------------ -------------
Net increase (decrease) in net assets from
capital
transactions.............................. 44,686,447 33,862,996 11,519,332 13,606,666 (850,440)
------------ ------------ ------------ ------------ -------------
Net increase (decrease) in net assets....... 108,028,194 71,376,535 20,674,178 16,030,422 3,440,032
NET ASSETS:
Beginning of year............................. 256,848,489 185,471,954 112,161,100 96,130,678 107,824,715
------------ ------------ ------------ ------------ -------------
End of year................................... $364,876,683 $256,848,489 $132,835,278 $112,161,100 $ 111,264,747
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
<CAPTION>
EQUITY INDEX GOVERNMENT BOND
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- ------------------------
1996 1997 1996 1997 1996
------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)................ $ 3,443,519 $ (146,698) $ 290,018 $ 1,924,958 $ 1,853,995
Net realized gain (loss).................... -- 6,816,109 1,939,795 (121,227) (274,955)
Net unrealized gain (loss).................. -- 35,286,956 14,215,583 550,499 (865,212)
------------- ------------ ------------ ----------- -----------
Net increase in net assets from
operations................................ 3,443,519 41,956,367 16,445,396 2,354,230 713,828
------------- ------------ ------------ ----------- -----------
FROM CAPITAL TRANSACTIONS (NOTE 5):
Net purchase payments....................... 298,492,423 20,271,093 11,191,450 5,942,847 9,020,225
Withdrawals................................. (7,512,308) (6,948,755) (3,074,583) (3,481,815) (2,255,180)
Annuity benefits............................ (541,611) (1,317,585) (867,246) (178,244) (104,686)
Other transfers from (to) the General
Account of
Allmerica Financial Life Insurance and
Annuity
Company (Sponsor)......................... (263,988,724) 52,601,314 25,096,134 3,633,378 (7,590,353)
Net increase in investment by Allmerica
Financial Life Insurance and Annuity
Company
(Sponsor)................................. -- -- -- -- --
------------- ------------ ------------ ----------- -----------
Net increase (decrease) in net assets from
capital
transactions.............................. 26,449,780 64,606,067 32,345,755 5,916,166 (929,994)
------------- ------------ ------------ ----------- -----------
Net increase (decrease) in net assets....... 29,893,299 106,562,434 48,791,151 8,270,396 (216,166)
NET ASSETS:
Beginning of year............................. 77,931,416 113,643,412 64,852,261 40,521,349 40,737,515
------------- ------------ ------------ ----------- -----------
End of year................................... $ 107,824,715 $220,205,846 $113,643,412 $48,791,745 $40,521,349
------------- ------------ ------------ ----------- -----------
------------- ------------ ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT SELECT
AGGRESSIVE GROWTH SELECT GROWTH GROWTH AND INCOME
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------------------- ------------------------- --------------------------
1997 1996 1997 1996 1997 1996
------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)................ $ (3,049,745) $ (2,182,143) $ (1,479,152) $ (792,784) $ (190,804) $ (9,079)
Net realized gain (loss).................... 21,377,855 13,993,435 9,986,537 14,639,329 17,851,230 10,331,597
Net unrealized gain (loss).................. 15,604,997 10,323,357 29,255,432 (501,535) 13,743,540 9,192,493
------------ ------------ ------------ ----------- ------------ ------------
Net increase in net assets from
operations................................ 33,933,107 22,134,649 37,762,817 13,345,010 31,403,966 19,515,011
------------ ------------ ------------ ----------- ------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 5):
Net purchase payments....................... 20,169,980 17,468,556 16,019,651 7,656,410 14,721,001 10,198,883
Withdrawals................................. (10,807,027) (5,302,000) (5,353,128) (2,662,329) (7,632,571) (3,912,344)
Annuity benefits............................ (526,406) (466,539) (391,982) (418,227) (1,069,129) (688,916)
Other transfers from (to) the General
Account of
Allmerica Financial Life Insurance and
Annuity
Company (Sponsor)......................... 26,161,602 24,807,278 46,491,418 17,636,282 32,273,577 22,522,204
Net decrease in investment by Allmerica
Financial Life Insurance and Annuity
Company
(Sponsor)................................. -- -- -- -- -- --
------------ ------------ ------------ ----------- ------------ ------------
Net increase (decrease) in net assets from
capital
transactions.............................. 34,998,149 36,507,295 56,765,959 22,212,136 38,292,878 28,119,827
------------ ------------ ------------ ----------- ------------ ------------
Net increase (decrease) in net assets....... 68,931,256 58,641,944 94,528,776 35,557,146 69,696,844 47,634,838
NET ASSETS:
Beginning of year............................. 177,260,984 118,619,040 94,816,008 59,258,862 135,123,211 87,488,373
------------ ------------ ------------ ----------- ------------ ------------
End of year................................... $246,192,240 $177,260,984 $189,344,784 $94,816,008 $204,820,055 $135,123,211
------------ ------------ ------------ ----------- ------------ ------------
------------ ------------ ------------ ----------- ------------ ------------
<CAPTION>
SELECT VALUE SELECT INTERNATIONAL
OPPORTUNITY* EQUITY
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------- --------------------------
1997 1996 1997 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)................ $ (924,079) $ (393,611) $ 1,704,697 $ 909,211
Net realized gain (loss).................... 21,997,148 4,448,700 5,479,294 463,471
Net unrealized gain (loss).................. 5,647,860 12,648,113 (4,095,030) 13,004,420
------------ ----------- ------------ ------------
Net increase in net assets from
operations................................ 26,720,929 16,703,202 3,088,961 14,377,102
------------ ----------- ------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 5):
Net purchase payments....................... 12,525,397 8,104,038 15,822,978 12,226,159
Withdrawals................................. (4,937,439) (2,121,840) (5,740,190) (1,901,008)
Annuity benefits............................ (390,911) (169,850) (349,685) (133,263)
Other transfers from (to) the General
Account of
Allmerica Financial Life Insurance and
Annuity
Company (Sponsor)......................... 36,613,703 18,357,727 43,756,116 37,949,246
Net decrease in investment by Allmerica
Financial Life Insurance and Annuity
Company
(Sponsor)................................. -- -- -- (131)
------------ ----------- ------------ ------------
Net increase (decrease) in net assets from
capital
transactions.............................. 43,810,750 24,170,075 53,489,219 48,141,003
------------ ----------- ------------ ------------
Net increase (decrease) in net assets....... 70,531,679 40,873,277 56,578,180 62,518,105
NET ASSETS:
Beginning of year............................. 95,056,449 54,183,172 105,000,656 42,482,551
------------ ----------- ------------ ------------
End of year................................... $165,588,128 $95,056,449 $161,578,836 $105,000,656
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
* Name changed. See Note 1.
The accompanying notes are an integral part of these financial statements.
SA-6
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT CAPITAL DGPF
APPRECIATION INTERNATIONAL EQUITY
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------- ------------------------
1997 1996 1997 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)........................ $ (1,378,359) $ (743,017) $ 1,270,624 $ 636,878
Net realized gain (loss)............................ 166,549 225,604 363,002 585,451
Net unrealized gain (loss).......................... 14,907,829 1,595,519 1,321,628 7,982,226
------------ ----------- ----------- -----------
Net increase in net assets from operations.......... 13,696,019 1,078,106 2,955,254 9,204,555
------------ ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS (NOTE 5):
Net purchase payments............................... 10,932,867 11,984,495 7,830,705 4,666,445
Withdrawals......................................... (4,048,564) (1,217,813) (3,857,969) (1,845,502)
Annuity benefits.................................... (326,931) (174,201) (207,583) (187,152)
Other transfers from (to) the General Account of
Allmerica Financial Life Insurance and Annuity
Company (Sponsor)................................. 19,739,828 44,538,912 24,989,335 11,077,558
Net decrease in investment by Allmerica
Financial Life Insurance and Annuity Company
(Sponsor)......................................... -- (293) -- --
------------ ----------- ----------- -----------
Net increase (decrease) in net assets from capital
transactions...................................... 26,297,200 55,131,100 28,754,488 13,711,349
------------ ----------- ----------- -----------
Net increase (decrease) in net assets............... 39,993,219 56,209,206 31,709,742 22,915,904
NET ASSETS:
Beginning of year..................................... 78,462,788 22,253,582 67,449,064 44,533,160
------------ ----------- ----------- -----------
End of year........................................... $118,456,007 $78,462,788 $99,158,806 $67,449,064
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
<CAPTION>
FIDELITY VIP FIDELITY VIP
HIGH INCOME EQUITY-INCOME
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)........................ $ 5,884,225 $ 3,985,334 $ 91,803 $ (4,344,215)
Net realized gain (loss)............................ 1,177,612 1,085,274 35,082,479 13,852,448
Net unrealized gain (loss).......................... 13,667,456 4,747,081 66,391,863 30,117,679
------------ ------------ ------------ ------------
Net increase in net assets from operations.......... 20,729,293 9,817,689 101,566,145 39,625,912
------------ ------------ ------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 5):
Net purchase payments............................... 15,736,449 12,564,879 31,711,858 34,071,530
Withdrawals......................................... (6,766,607) (3,616,342) (23,477,780) (11,517,852)
Annuity benefits.................................... (424,758) (445,261) (1,600,308) (1,409,576)
Other transfers from (to) the General Account of
Allmerica Financial Life Insurance and Annuity
Company (Sponsor)................................. 38,477,098 21,073,787 26,699,991 36,401,824
Net decrease in investment by Allmerica
Financial Life Insurance and Annuity Company
(Sponsor)......................................... -- -- -- --
------------ ------------ ------------ ------------
Net increase (decrease) in net assets from capital
transactions...................................... 47,022,182 29,577,063 33,333,761 57,545,926
------------ ------------ ------------ ------------
Net increase (decrease) in net assets............... 67,751,475 39,394,752 134,899,906 97,171,838
NET ASSETS:
Beginning of year..................................... 105,688,391 66,293,639 373,404,013 276,232,175
------------ ------------ ------------ ------------
End of year........................................... $173,439,866 $105,688,391 $508,303,919 $373,404,013
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-7
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND EXECANNUITY PLUS
VARIABLE ANNUITY
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
GROWTH OVERSEAS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- ------------------------
1997 1996 1997 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)........................ $ (2,932,558) $ (3,320,687) $ 255,524 $ (337,700)
Net realized gain (loss)............................ 12,539,458 16,727,809 9,094,755 2,895,294
Net unrealized gain (loss).......................... 57,841,299 18,654,327 (571,995) 7,589,072
------------ ------------ ----------- -----------
Net increase in net assets from operations.......... 67,448,199 32,061,449 8,778,284 10,146,666
------------ ------------ ----------- -----------
FROM CAPITAL TRANSACTIONS (NOTE 5):
Net purchase payments............................... 25,916,377 29,657,949 5,580,597 7,035,437
Withdrawals......................................... (18,451,418) (9,812,911) (5,698,045) (3,677,313)
Annuity benefits.................................... (971,009) (961,460) (310,083) (338,356)
Other transfers from (to) the General Account of
Allmerica Financial Life Insurance and Annuity
Company (Sponsor)................................. 7,409,358 33,492,890 (9,398,042) (6,387,483)
Net decrease in investment by Allmerica
Financial Life Insurance and Annuity Company
(Sponsor)......................................... -- -- -- --
------------ ------------ ----------- -----------
Net increase (decrease) in net assets from capital
transactions...................................... 13,903,308 52,376,468 (9,825,573) (3,367,715)
------------ ------------ ----------- -----------
Net increase (decrease) in net assets............... 81,351,507 84,437,917 (1,047,289) 6,778,951
NET ASSETS:
Beginning of year..................................... 305,198,317 220,760,400 93,590,529 86,811,578
------------ ------------ ----------- -----------
End of year........................................... $386,549,824 $305,198,317 $92,543,240 $93,590,529
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
<CAPTION>
FIDELITY VIP II T. ROWE PRICE
ASSET MANAGER INTERNATIONAL STOCK
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)........................ $ 943,448 $ 717,456 $ (200,344) $ 33,062
Net realized gain (loss)............................ 5,047,217 1,336,161 1,114,360 247,485
Net unrealized gain (loss).......................... 5,671,077 3,552,611 (909,997) 2,935,111
----------- ----------- ----------- -----------
Net increase in net assets from operations.......... 11,661,742 5,606,228 4,019 3,215,658
----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS (NOTE 5):
Net purchase payments............................... 6,136,311 4,827,217 7,087,778 4,861,610
Withdrawals......................................... (3,519,671) (1,588,737) (2,318,926) (654,412)
Annuity benefits.................................... (111,937) (159,528) (302,518) (128,344)
Other transfers from (to) the General Account of
Allmerica Financial Life Insurance and Annuity
Company (Sponsor)................................. 15,941,043 7,610,207 25,468,427 24,322,230
Net decrease in investment by Allmerica
Financial Life Insurance and Annuity Company
(Sponsor)......................................... -- -- -- (233)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets from capital
transactions...................................... 18,445,746 10,689,159 29,934,761 28,400,851
----------- ----------- ----------- -----------
Net increase (decrease) in net assets............... 30,107,488 16,295,387 29,938,780 31,616,509
NET ASSETS:
Beginning of year..................................... 53,974,985 37,679,598 43,197,327 11,580,818
----------- ----------- ----------- -----------
End of year........................................... $84,082,473 $53,974,985 $73,136,107 $43,197,327
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-8
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND
EXECANNUITY PLUS VARIABLE ANNUITY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Separate Account VA-K, which funds the Allmerica Advantage and ExecAnnuity
Plus variable annuity contracts (the Allmerica Advantage and ExecAnnuity Plus
contracts) in addition to other contracts (the Delaware contracts), is a
separate investment account of Allmerica Financial Life Insurance and Annuity
Company (the Company), established on November 1, 1990 for the purpose of
separating from the general assets of the Company those assets used to fund
certain variable annuity contracts issued by the Company. The Company is a
wholly-owned subsidiary of First Allmerica Financial Life Insurance Company
(First Allmerica). First Allmerica is a wholly-owned subsidiary of Allmerica
Financial Corporation (AFC). Under applicable insurance law, the assets and
liabilities of Separate Account VA-K are clearly identified and distinguished
from the other assets and liabilities of the Company. Separate Account VA-K
cannot be charged with liabilities arising out of any other business of the
Company.
Separate Account VA-K is registered as a unit investment trust under the
Investment Company Act of 1940, as amended (the 1940 Act). Separate Account VA-K
currently offers eighteen Sub-Accounts under the Advantage and ExecAnnuity Plus
variable annuity contracts. 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; or of the Variable Insurance Products Fund
(Fidelity VIP) or the Variable Insurance Products Fund II (Fidelity VIP II)
managed by Fidelity Management & Research Company (FMR); or of the T. Rowe Price
International Series, Inc. (T. Rowe Price) managed by Rowe Price-Fleming
International, Inc., or of the Delaware Group Premium Fund, Inc. (DGPF) managed
by Delaware International Advisers, Ltd. The Trust, Fidelity VIP, Fidelity VIP
II, T. Rowe Price, and DGPF (the Funds) are open-end, diversified management
investment companies registered under the 1940 Act.
Separate Account VA-K funds two types of variable annuity contracts,
"qualified" contracts and "non-qualified" contracts. A qualified contract is one
that is purchased in connection with a retirement plan which meets the
requirements of Section 401, 403, or 408 of the Internal Revenue Code, while a
non-qualified contract is one that is not purchased in connection with one of
the indicated retirement plans. The tax treatment for certain withdrawals or
surrenders will vary according to whether they are made from a qualified
contract or a non-qualified contract.
Effective April 1, 1997, the investment portfolio of the Trust, which was
formerly known as Small Cap Value, changed its name to Small-Mid Cap Value Fund.
At the Meeting of Shareholders of the Small Cap Value Fund, held on March 18,
1997, shareholders approved the name change and the revisions in the investment
objective of the Fund from investing primarily in small cap value stocks to
investing primarily in small and mid-cap value stocks. Effective January 9,
1998, this portfolio changed its name to Select Value Opportunity Fund.
Certain prior year balances have been reclassified to conform with current
year presentation.
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, Fidelity VIP, Fidelity VIP
II, T. Rowe Price, or DGPF. Net realized gains and losses on securities sold are
determined using the average cost method. Dividends and capital gain
distributions are recorded on the ex-dividend date
SA-9
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND
EXECANNUITY PLUS VARIABLE ANNUITY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and are reinvested in additional shares of the respective investment portfolio
of the Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price, 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 Separate Account VA-K. Therefore, no provision
for income taxes has been charged against Separate Account VA-K.
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, DGPF, Fidelity VIP, Fidelity VIP II,
and T. Rowe Price at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
---------------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
INVESTMENT PORTFOLIO SHARES COST PER SHARE
- ----------------------------------------------------- ------------ ------------ ---------
<S> <C> <C> <C>
ALLMERICA INVESTMENT TRUST:
Growth............................................. 151,031,555 $333,286,637 $ 2.416
Investment Grade Income............................ 119,473,486 131,223,079 1.112
Money Market....................................... 111,271,359 111,271,359 1.000
Equity Index....................................... 80,015,380 159,808,012 2.753
Government Bond.................................... 46,601,393 49,143,026 1.047
Select Aggressive Growth........................... 110,648,289 193,143,806 2.225
Select Growth...................................... 104,552,114 150,420,608 1.811
Select Growth and Income........................... 131,971,922 168,851,013 1.552
Select Value Opportunity*.......................... 101,837,288 142,676,547 1.626
Select International Equity........................ 120,490,803 149,195,066 1.341
Select Capital Appreciation........................ 69,803,215 99,857,257 1.697
DELAWARE GROUP PREMIUM FUND, INC.:
DGPF International Equity.......................... 6,389,077 85,366,313 15.520
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:
High Income........................................ 12,771,644 149,976,126 13.580
Equity-Income...................................... 20,935,054 354,639,347 24.280
Growth............................................. 10,419,149 256,346,050 37.100
Overseas........................................... 4,819,989 76,077,667 19.200
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:
Asset Manager...................................... 4,668,647 70,898,269 18.010
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
International Stock................................ 5,740,648 70,710,544 12.740
</TABLE>
* Name changed. See Note 1.
SA-10
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND
EXECANNUITY PLUS VARIABLE ANNUITY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum to each Sub-Account based on
the average daily net assets of such Sub-Account at each valuation date for
mortality and expense risks. The Company also charges each Sub-Account .20% per
annum based on the average daily net assets of each Sub-Account for
administrative expenses. These charges are deducted from the daily value of each
Sub-Account and are paid to the Company on a daily basis.
For contracts issued on Form A3018-91 and A3021-93 (ExecAnnuity Plus 91 and
ExecAnnuity Plus 93), a contract fee is deducted on the contract anniversary
date and upon full surrender of the contract when the accumulated value is
$50,000 or less. The fee is the lesser of $30 or 3% of the accumulated value on
the anniversary or full surrender date. For contracts issued on Form A3025-96
(Allmerica Advantage), a contract fee of $30 is deducted on the contract
anniversary date and upon full surrender when the accumulated value is less than
$50,000. The fee is currently waived for all contracts (ExecAnnuity Plus and
Advantage) issued to and maintained by the trustee of a 401(k) plan. For the
years ended December 31, 1997 and 1996, fees deducted from accumulated value in
Separate Account VA-K amounted to $1,202,087 and $948,112, respectively. These
amounts are included on the statements of changes in net asset with other
transfers to the General Account.
Allmerica Investments, Inc. (Allmerica Investments), a wholly-owned
subsidiary of First Allmerica, is principal underwriter and general distributor
of Separate Account VA-K, and does not receive any compensation for sales of the
contracts. Commissions are paid to registered representatives of Allmerica
Investments by the Company. As the current series of contracts 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, 1997 and 1996, the Company received
$3,189,265 and $1,850,380, respectively, for contingent deferred sales charges
applicable to Separate Account VA-K.
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS
Transactions from contractowners and sponsor were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
-------------------------------- --------------------------------
UNITS AMOUNT UNITS AMOUNT
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Growth
Issuance of Units......................... 43,130,029 $ 91,345,943 37,874,673 $ 67,936,404
Redemption of Units....................... (22,583,348) (46,659,496) (18,262,119) (34,073,408)
-------------- ---------------- -------------- ----------------
Net increase............................ 20,546,681 $ 44,686,447 19,612,554 $ 33,862,996
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Investment Grade Income
Issuance of Units......................... 28,304,457 $ 40,432,162 25,730,455 $ 36,242,689
Redemption of Units....................... (20,579,115) (28,912,830) (15,821,186) (22,636,023)
-------------- ---------------- -------------- ----------------
Net increase............................ 7,725,342 $ 11,519,332 9,909,269 $ 13,606,666
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Money Market
Issuance of Units......................... 390,077,704 $ 446,824,506 350,202,366 $ 402,733,717
Redemption of Units....................... (390,768,219) (447,674,946) (327,153,184) (376,283,937)
-------------- ---------------- -------------- ----------------
Net increase (decrease)................. (690,515) $ (850,440) 23,049,182 $ 26,449,780
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
</TABLE>
SA-11
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND
EXECANNUITY PLUS VARIABLE ANNUITY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
-------------------------------- --------------------------------
UNITS AMOUNT UNITS AMOUNT
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Equity Index
Issuance of Units......................... 44,575,824 $ 99,696,713 24,872,139 $ 46,502,660
Redemption of Units....................... (16,734,613) (35,090,646) (6,933,313) (14,156,905)
-------------- ---------------- -------------- ----------------
Net increase............................ 27,841,211 $ 64,606,067 17,938,826 $ 32,345,755
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Government Bond
Issuance of Units......................... 18,588,389 $ 24,289,010 18,890,805 $ 24,443,790
Redemption of Units....................... (14,247,517) (18,372,844) (19,681,101) (25,373,784)
-------------- ---------------- -------------- ----------------
Net increase (decrease)................. 4,340,872 $ 5,916,166 (790,296) $ (929,994)
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Select Aggressive Growth
Issuance of Units......................... 39,273,921 $ 83,733,189 35,763,170 $ 68,639,135
Redemption of Units....................... (22,457,833) (48,735,040) (16,138,007) (32,131,840)
-------------- ---------------- -------------- ----------------
Net increase............................ 16,816,088 $ 34,998,149 19,625,163 $ 36,507,295
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Select Growth
Issuance of Units......................... 48,217,022 $ 84,427,107 27,922,379 $ 40,585,154
Redemption of Units....................... (16,210,356) (27,661,148) (12,364,447) (18,373,018)
-------------- ---------------- -------------- ----------------
Net increase............................ 32,006,666 $ 56,765,959 15,557,932 $ 22,212,136
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Select Growth and Income
Issuance of Units......................... 35,766,602 $ 63,156,211 30,744,252 $ 47,965,411
Redemption of Units....................... (14,723,868) (24,863,333) (12,085,117) (19,845,584)
-------------- ---------------- -------------- ----------------
Net increase............................ 21,042,734 $ 38,292,878 18,659,135 $ 28,119,827
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Select Value Opportunity*
Issuance of Units......................... 37,678,681 $ 65,123,255 25,449,281 $ 37,695,132
Redemption of Units....................... (12,696,975) (21,312,505) (8,737,786) (13,525,057)
-------------- ---------------- -------------- ----------------
Net increase............................ 24,981,706 $ 43,810,750 16,711,495 $ 24,170,075
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Select International Equity
Issuance of Units......................... 57,085,507 $ 78,522,937 49,870,637 $ 61,358,213
Redemption of Units....................... (18,985,695) (25,033,718) (10,064,967) (13,217,210)
-------------- ---------------- -------------- ----------------
Net increase............................ 38,099,812 $ 53,489,219 39,805,670 $ 48,141,003
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Select Capital Appreciation
Issuance of Units......................... 35,616,682 $ 51,985,258 42,762,596 $ 64,669,269
Redemption of Units....................... (17,612,505) (25,688,058) (5,931,868) (9,538,169)
-------------- ---------------- -------------- ----------------
Net increase............................ 18,004,177 $ 26,297,200 36,830,728 $ 55,131,100
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
* Name changed. See Note 1.
</TABLE>
SA-12
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND
EXECANNUITY PLUS VARIABLE ANNUITY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
-------------------------------- --------------------------------
UNITS AMOUNT UNITS AMOUNT
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
DGPF International Equity Series
Issuance of Units......................... 28,045,942 $ 44,814,323 16,626,938 $ 24,352,808
Redemption of Units....................... (10,328,017) (16,059,835) (6,903,129) (10,641,459)
-------------- ---------------- -------------- ----------------
Net increase............................ 17,717,925 $ 28,754,488 9,723,809 $ 13,711,349
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Fidelity VIP High Income
Issuance of Units......................... 34,859,555 $ 72,871,648 22,860,033 $ 43,304,569
Redemption of Units....................... (12,480,024) (25,849,466) (6,937,900) (13,727,506)
-------------- ---------------- -------------- ----------------
Net increase............................ 22,379,531 $ 47,022,182 15,922,133 $ 29,577,063
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Fidelity VIP Equity-Income
Issuance of Units......................... 43,116,999 $ 110,157,686 45,899,476 $ 105,655,085
Redemption of Units....................... (30,112,367) (76,823,925) (18,047,315) (48,109,159)
-------------- ---------------- -------------- ----------------
Net increase............................ 13,004,632 $ 33,333,761 27,852,161 $ 57,545,926
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Fidelity VIP Growth
Issuance of Units......................... 31,617,632 $ 75,684,507 43,350,053 $ 91,090,978
Redemption of Units....................... (25,854,345) (61,781,199) (17,387,359) (38,714,510)
-------------- ---------------- -------------- ----------------
Net increase............................ 5,763,287 $ 13,903,308 25,962,694 $ 52,376,468
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Fidelity VIP Overseas
Issuance of Units......................... 13,825,037 $ 22,465,826 17,161,950 $ 25,255,249
Redemption of Units....................... (20,184,580) (32,291,399) (19,369,675) (28,622,964)
-------------- ---------------- -------------- ----------------
Net decrease............................ (6,359,543) $ (9,825,573) (2,207,725) $ (3,367,715)
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
Fidelity VIP II Asset Manager
Issuance of Units......................... 22,356,154 $ 30,447,764 16,905,477 $ 21,049,783
Redemption of Units....................... (9,219,052) (12,002,018) (7,934,989) (10,360,624)
-------------- ---------------- -------------- ----------------
Net increase............................ 13,137,102 $ 18,445,746 8,970,488 $ 10,689,159
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
T. Rowe Price International Stock
Issuance of Units......................... 34,218,462 $ 42,222,755 29,613,486 $ 33,245,151
Redemption of Units....................... (10,301,277) (12,287,994) (4,579,976) (4,844,300)
-------------- ---------------- -------------- ----------------
Net increase............................ 23,917,185 $ 29,934,761 25,033,510 $ 28,400,851
-------------- ---------------- -------------- ----------------
-------------- ---------------- -------------- ----------------
</TABLE>
NOTE 6 -- DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code, a
variable annuity contract, other than a contract issued in connection with
certain types of employee benefit plans, will not be treated as an annuity
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
SA-13
<PAGE>
SEPARATE ACCOUNT VA-K ALLMERICA ADVANTAGE VARIABLE ANNUITY AND
EXECANNUITY PLUS VARIABLE ANNUITY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- DIVERSIFICATION REQUIREMENTS (CONTINUED)
"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 The Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. The Company believes that Separate Account VA-K satisfies the current
requirements of the regulations, and it intends that Separate Account VA-K will
continue to meet such requirements.
NOTE 7 -- PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the Trust, DGPF, Fidelity VIP,
Fidelity VIP II, and T. Rowe Price shares by Separate Account VA-K during the
year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
- ---------------------------------------------------------------- ------------ ------------
<S> <C> <C>
ALLMERICA INVESTMENT TRUST:
Growth........................................................ $107,470,159 $ 3,939,411
Investment Grade Income....................................... 24,725,630 7,085,159
Money Market.................................................. 99,963,305 96,509,176
Equity Index.................................................. 73,998,397 3,449,160
Government Bond............................................... 14,831,703 6,991,777
Select Aggressive Growth...................................... 59,383,729 8,074,830
Select Growth................................................. 67,234,814 2,271,079
Select Growth and Income...................................... 57,202,827 1,465,258
Select Value Opportunity*..................................... 65,327,668 569,790
Select International Equity................................... 63,146,468 2,829,021
Select Capital Appreciation................................... 27,678,805 2,758,980
DELAWARE GROUP PREMIUM FUND, INC.:
International Equity.......................................... 32,131,456 2,106,694
FIDELITY VARIABLE INSURANCE PRODUCTS FUND:
High Income................................................... 56,206,863 2,329,283
Equity-Income................................................. 77,382,284 11,668,685
Growth........................................................ 31,866,505 11,647,844
Overseas...................................................... 13,055,335 16,299,595
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:
Asset Manager................................................. 26,012,627 1,804,692
T. ROWE PRICE INTERNATIONAL SERIES, INC.:
International Stock........................................... 32,184,083 1,496,301
------------ ------------
Totals...................................................... $929,802,658 $183,296,735
------------ ------------
------------ ------------
</TABLE>
* Name changed. See Note 1.
SA-14
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
Financial Statements Included in Part A
None
Financial Statements Included in Part B
Financial Statements for Allmerica Financial Life Insurance and
Annuity Company and Financial Statements for Separate Account VA-K
of Allmerica Financial Life Insurance and Annuity Company
Financial Statements Included in Part C
None
(b) EXHIBITS
EXHIBIT 1 Vote of Board of Directors Authorizing Establishment of
Registrant dated November 1, 1990 is filed herewith.
EXHIBIT 2 Not Applicable. Pursuant to Rule 26a-2, the Insurance
Company may hold the assets of the Registrant NOT
pursuant to a trust indenture or other such instrument.
EXHIBIT 3 (a) Underwriting and Administrative Service Agreement
is filed herewith.
(b) Sales Agreements are filed herewith.
(c) General Agent's Agreement is filed herewith.
(d) Career Agent Agreement with Commission Schedule is
filed herewith.
(e) Registered Representative's Agreement is filed
herewith.
EXHIBIT 4 Policy Form A is filed herewith. Specimen Policy
Form B was previously filed on April 30, 1996 in
Post-Effective Amendment No. 11 and is incorporated
by reference herein.
EXHIBIT 5 Specimen Application Form A is filed herewith. Specimen
Application Form B was previously filed on April 30,
1996 in Post-Effective Amendment No. 11 and is
incorporated by reference herein.
EXHIBIT 6 The Depositor's Articles of Incorporation and Bylaws,
as amended to reflect its name change, were previously
filed on September 28, 1995 in Post-Effective Amendment
No. 9 and are incorporated by reference herein.
EXHIBIT 7 Not Applicable.
<PAGE>
EXHIBIT 8 (a) Fidelity Service Agreement was previously filed on
April 30, 1996 in Post-Effective Amendment No. 11
and is incorporated by reference herein.
(b) An Amendment to the Fidelity Service Agreement,
effective as of January 1, 1997, was previously
filed on April 2, 1997 in Post-Effective Amendment
No. 12 and is incorporated by reference herein.
(c) Fidelity Service Contract, effective as of January
1, 1997, was previously filed on April 2, 1997 in
Post-Effective Amendment No. 12 and is
incorporated by reference herein.
(d) T. Rowe Price Service Agreement is filed herewith.
(e) BFDS Agreements for lockbox and mailroom services
are filed herewith.
EXHIBIT 9 Opinion of Counsel is filed herewith.
EXHIBIT 10 Consent of Independent Accountants is filed herewith.
EXHIBIT 11 None.
EXHIBIT 12 None.
EXHIBIT 13 Not Applicable.
EXHIBIT 14 Not Applicable.
EXHIBIT 15 (a) Participation Agreement with Allmerica Investment
Trust is filed herewith.
(b) Participation Agreement, as amended, with Variable
Insurance Products Fund is filed herewith.
(c) Participation Agreement, as amended, with Variable
Insurance Products Fund II is filed herewith.
(d) Participation Agreement with Delaware Group
Premium Fund, Inc. and Amendment is filed
herewith.
(e) Participation Agreement with T. Rowe Price
International Series, Inc. is filed herewith.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The principal business address of all the following Directors and Officers
is:
440 Lincoln Street
Worcester, Massachusetts 01653
<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
NAME AND POSITION PRINCIPAL OCCUPATION(S) DURING
WITH COMPANY PAST FIVE YEARS
----------------- ------------------------------
<S> <C>
Bruce C. Anderson Director of First Allmerica since 1996; Vice
Director President, First Allmerica since 1984
Abigail M. Armstrong Secretary of First Allmerica since 1996; Counsel,
Secretary and Counsel First Allmerica since 1991
Robert E. Bruce Director and Chief Information Officer of First
Director and Chief Information Officer Allmerica since 1997; Vice President of First
Allmerica since 1995; Corporate Manager, Digital
Equipment Corporation 1979 to 1995
John P. Kavanaugh Director and Chief Investment Officer of First
Director, Vice President and Allmerica since 1996; Vice President, First
Chief Investment Officer Allmerica since 1991
John F. Kelly Director of First Allmerica since 1996; Senior Vice
Director, Vice President and President, First Allmerica since 1986; General
General Counsel Counsel, First Allmerica since 1981; Assistant
Secretary, First Allmerica since 1991
J. Barry May Director of First Allmerica since 1996; Director and
Director President, The Hanover Insurance Company since
1996; Vice President, The Hanover Insurance
Company, 1993 to 1996; General Manager, The
Hanover Insurance Company 1989 to 1993
James R. McAuliffe Director of First Allmerica since 1996; Director of
Director Citizens Insurance Company of America since
1992, President since 1994, and CEO since 1996;
Vice President, First Allmerica 1982 to 1994;
Chief Investment Officer, First Allmerica 1986 to
1994
John F. O'Brien Director, Chairman of the Board, President and
Director, Chairman of the Board, Chief Executive Officer, First Allmerica since 1989
President and Chief Executive Officer
Edward J. Parry, III Director and Chief Financial Officer of First
Director, Vice President, Allmerica since 1996; Vice President and
Chief Financial Officer and Treasurer Treasurer, First Allmerica since 1993; Assistant
Vice President 1992 to 1993
Richard M. Reilly Director of First Allmerica since 1996; Vice
Director and Vice President President, First Allmerica since 1990; Director,
Allmerica Investments, Inc. since 1990; Director
and President, Allmerica Financial Investment
Management Services, Inc. since 1990
Eric A. Simonsen Director of First Allmerica since 1996; Vice
Director and Vice President President, First Allmerica since 1990; Chief
Financial Officer, First Allmerica 1990 to 1996
Phillip E. Soule Director of First Allmerica since 1996; Vice
Director and Vice President President, First Allmerica since 1987
</TABLE>
ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
See attached organization chart.
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
<TABLE>
<CAPTION>
NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
<S> <C> <C>
AAM Equity Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
AFC Capital Trust I 440 Lincoln Street Statutory Business Trust
Worcester MA 01653
Allmerica Asset Management Limited 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Asset Management, Inc. 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Benefits, Inc. 440 Lincoln Street Non-insurance medical services
Worcester MA 01653
Allmerica Equity Index Pool 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
Allmerica Financial Alliance 100 North Parkway Multi-line property and casualty
Insurance Company Worcester MA 01605 insurance
Allmerica Financial Benefit 100 North Parkway Multi-line property and casualty
Insurance Company Worcester MA 01605 insurance
Allmerica Financial Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Allmerica Financial Insurance 440 Lincoln Street Insurance Broker
Brokers, Inc. Worcester MA 01653
Allmerica Financial Life Insurance 440 Lincoln Street Life insurance, accident and health
and Annuity Company (formerly known Worcester MA 01653 insurance, annuities, variable
as SMA Life Assurance Company) annuities and variable life insurance
Allmerica Financial Services 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester MA 01653
Allmerica Funding Corp. 440 Lincoln Street Special purpose funding vehicle for
Worcester MA 01653 commercial paper
Allmerica Funds 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica, Inc. 440 Lincoln Street Common employer for Allmerica
Worcester MA 01653 Financial Corporation entities
Allmerica Institutional Services, 440 Lincoln Street Accounting, marketing and shareholder
Inc. (formerly known as 440 Worcester MA 01653 services for investment companies
Financial Group of Worcester, Inc.)
Allmerica Investment Management 440 Lincoln Street Investment advisory services
Company, Inc. Worcester MA 01653
<PAGE>
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-dealer
Worcester MA 01653
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Plus Insurance Agency, Inc. 440 Lincoln Street Insurance Agency
Worcester MA 01653
Allmerica Property & Casualty 440 Lincoln Street Holding Company
Companies, Inc. Worcester MA 01653
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Services Corporation 440 Lincoln Street Internal administrative services
Worcester MA 01653 provider to Allmerica Financial
Corporation entities
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national trust company
Worcester MA 01653
AMGRO, Inc. 100 North Parkway Premium financing
Worcester MA 01605
APC Funding Corp. 440 Lincoln Street Special purpose funding vehicle for
Worcester MA 01653 commercial paper
Beltsville Drive Limited Partnership 440 Lincoln Street Real estate partnership
Worcester MA 01653
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company of America 645 West Grand River Multi-line property and casualty
Howell MI 48843 insurance
Citizens Insurance Company of 333 Pierce Road Multi-line property and casualty
Illinois Itasca IL 60143 insurance
Citizens Insurance Company of the 3950 Priority Way Multi-line property and casualty
Midwest South Drive, Suite 200 insurance
Indianapolis IN 46280
Citizens Insurance Company of Ohio 8101 N. High Street Multi-line property and casualty
P.O. Box 342250 insurance
Columbus OH 43234
Citizens Management, Inc. 645 West Grand River Services management company
Howell MI 48843
First Allmerica Financial Life 440 Lincoln Street Life, pension, annuity, accident
Insurance Company (formerly State Worcester MA 01653 and health insurance company
Mutual Life Assurance Company of
America)
<PAGE>
First Sterling Limited 440 Lincoln Street Holding Company
Worcester MA 01653
First Sterling Reinsurance Company 440 Lincoln Street Reinsurance Company
Limited Worcester MA 01653
Greendale Special Placements Fund 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
The Hanover American Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
The Hanover Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
Hanover Texas Insurance Management 801 East Campbell Road Attorney-in-fact for Hanover Lloyd's
Company, Inc. Richardson TX 75081 Insurance Company
Hanover Lloyd's Insurance Company 801 East Campbell Road Multi-line property and casualty
Richardson TX 75081 insurance
Linder Skokie Real Estate Corporation 440 Lincoln Street Real estate holding company
Worcester MA 01653
Lloyds Credit Corporation 440 Lincoln Street Premium financing service franchises
Worcester MA 01653
Logan Wells Water Company, Inc. 603 Heron Drive Water Company serving land development
Bridgeport NJ 08014 investment
Massachusetts Bay Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Somerset Square, Inc. 440 Lincoln Street Real estate holding company
Worcester MA 01653
Sterling Risk Management Services, 440 Lincoln Street Risk management services
Inc. Worcester MA 01653
</TABLE>
ITEM 27. NUMBER OF CONTRACT HOLDERS
As of February 27, 1998, there were 83,800 Contract holders of qualified
Contracts and 22,954 Contract holders of non-qualified Contracts.
ITEM 28. INDEMNIFICATION
Article VIII of the Bylaws of Allmerica Financial Life Insurance and
Annuity Company (the Depositor) states: 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,
<PAGE>
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.
ITEM 29. PRINCIPAL UNDERWRITERS
Allmerica Investments, Inc. also acts as principal underwriter for the
following:
- VEL Account, VEL II Account, Inheiritage Account, Separate
Accounts VA-A, VA-B, VA-C, VA-G, VA-H, VA-K, Allmerica Select
Separate Account II, Group VEL Account, Separate Account KG,
Separate Account KGC, Fulcrum Separate Account, Fulcrum Variable
Life Separate Account, Allmerica Select Separate Account of
Allmerica Financial Life Insurance and Annuity Company
- Inheiritage Account, VEL II Account, Separate Account I, Separate
Account VA-K, Separate Account VA-P, Group VEL Account,
Separate Account KG, Separate Account KGC, Fulcrum Separate
Account, Fulcrum Variable Life Separate Account, and Allmerica
Select Separate Account of First Allmerica Financial Life
Insurance Company.
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
NAME POSITION OR OFFICE WITH UNDERWRITER
---- -----------------------------------
Abigail M. Armstrong Secretary and Counsel
Emil J. Aberizk, Jr. Vice President
Edward T. Berger Vice President and Chief Compliance Officer
Richard F. Betzler, Jr. Vice President
Philip J. Coffey Vice President
Thomas P. Cunningham Vice President, Chief Financial Officer and
Controller
John F. Kelly Director
William F. Monroe, Jr. Vice President
David J. Mueller Vice President
John F. O'Brien Director
<PAGE>
Stephen Parker President, Director and Chief Executive
Officer
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Mark G. Steinberg Senior Vice President
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Each account, book or other document required to be maintained by Section
31(a) of the 1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained by
the Company at 440 Lincoln Street, Worcester, Massachusetts.
ITEM 31. MANAGEMENT SERVICES
The Company provides daily unit value calculations and related services for
the Company's separate accounts.
ITEM 32. UNDERTAKINGS
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to
file with the Securities and Exchange Commission ("SEC") such
supplementary and periodic information, documents, and reports as may
be prescribed by any rule or regulation of the SEC heretofore or
hereafter duly adopted pursuant to authority conferred in that
section.
(b) The Registrant hereby undertakes to include in the prospectus a
postcard that the applicant can remove to send for a Statement of
Additional Information.
(c) The Registrant hereby undertakes to deliver a Statement of
Additional Information promptly upon written or oral request,
according to the requirements of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act
may be permitted to Directors, Officers and Controlling Persons of
Registrant under any registration statement, underwriting agreement or
otherwise, Registrant has been advised that, in the opinion of the
SEC, such indemnification is against public policy as expressed in
the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a Director,
Officer or Controlling Person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
Director, Officer or Controlling Person in connection with the
securities being registered, Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed
in the 1933 Act and will be governed by the final adjudication
of such issue.
<PAGE>
(e) The Company hereby represents that the aggregate fees and charges
under the Policies are reasonable in relation to the services
rendered, expenses expected to be incurred, and risks assumed by the
Company.
ITEM 33. REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(b)
PLANS AND UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Registrant, a separate account of Allmerica Financial Life Insurance and
Annuity Company ("Company"), states that it is (a) relying on Rule 6c-7
under the 1940 Act with respect to withdrawal restrictions under the Texas
Optional Retirement Program ("Program") and (b) relying on the "no-action"
letter (Ref. No. IP-6-88) issued on November 28, 1988 to the American
Council of Life Insurance, in applying the withdrawal restrictions
of Internal Revenue Code Section 403(b)(11).
Registrant has taken the following steps in reliance on the letter:
1. Appropriate disclosures regarding the withdrawal restrictions imposed
by the Program and by Section 403(b)(11) have been included in the
prospectus of each registration statement used in connection with
the offer of the Company's variable contracts.
2. Appropriate disclosures regarding the withdrawal restrictions imposed
by the Program and by Section 403(b)(11) have been included in sales
literature used in connection with the offer of the Company's variable
contracts.
3. Sales Representatives who solicit participants to purchase the
variable contracts have been instructed to specifically bring the
withdrawal restrictions imposed by the Program and by
Section 403(b)(11) to the attention of potential participants.
4. A signed statement acknowledging the participant's understanding of
(I) the restrictions on withdrawal imposed by the Program and by
Section 403(b)(11) and (ii) the investment alternatives available
under the employer's arrangement will be obtained from each
participant who purchases a variable annuity contract prior to or at
the time of purchase.
Registrant hereby represents that it will not act to deny or limit a
transfer request except to the extent that a Service-Ruling or
written opinion of counsel, specifically addressing the fact pattern
involved and taking into account the terms of the applicable employer
plan, determines that denial or limitation is necessary for the
variable annuity contracts to meet the requirements of the Program or
of Section 403(b). Any transfer request not so denied or limited will be
effected as expeditiously as possible.
<PAGE>
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 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 on the 15th day of April, 1998.
SEPARATE ACCOUNT VA-K OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /S/Abigail M. Armstrong
---------------------------------
Abigail M. Armstrong, 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.
Signatures Title Date
- ---------- ----- ----
/s/ John F. O'brien Director and Chairman of April 15, 1998
- ---------------------------- the Board
John F. O'Brien
/s/ Bruce C. Anderson Director
- ----------------------------
Bruce C. Anderson
/S/ ROBERT E. BRUCE Director and Chief
- ---------------------------- Information Officer
Robert E. Bruce
/s/ John P. Kavanaugh Director, Vice President and
- ---------------------------- Chief Investment Officer
John P. Kavanaugh
/s/ John F. Kelly Director, Vice President and
- ---------------------------- General Counsel
John F. Kelly
/s/ J. Barry May Director
- ----------------------------
J. Barry May
/s/ James R. Mcauliffe Director
- ----------------------------
James R. McAuliffe
/s/ Edward J. Parry III Director, Vice President, Chief
- ---------------------------- Financial Officer and Treasurer
Edward J. Parry III
/s/ Richard M. Reilly Director, President and
- ---------------------------- Chief Executive Officer
Richard M. Reilly
/s/ Eric A. Simonsen Director and Vice President
- ----------------------------
Eric A. Simonsen
/s/ Phillip E. Soule Director
- ----------------------------
Phillip E. Soule
<PAGE>
EXHIBIT TABLE
Exhibit 1 Vote of Board of Directors
Exhibit 3(a) Underwriting and Administrative Services Agreement
Exhibit 3(b) Sales Agreements
Exhibit 3(c) General Agent's Agreement
Exhibit 3(d) Career Agent Agreement with Commission Schedule
Exhibit 3(e) Registered Representative's Agreement
Exhibit 4 Policy Form A
Exhibit 5 Application Form A
Exhibit 8(d) T. Rowe Price Service Agreement
Exhibit 8(e) BFDS Agreements
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
Exhibit 15(a) Participation Agreement with Allmerica Investment Trust
Exhibit 15(b) Participation Agreement, as amended, with Variable Insurance
Products Fund
Exhibit 15(c) Participation Agreement, as amended, with Variable Insurance
Products Fund II
Exhibit 15(d) Participation Agreement with Delaware Group Premium Fund,
Inc. and Amendment
Exhibit 15(e) Participation Agreement with T. Rowe Price Series
International, Inc.
<PAGE>
Worcester, Massachusetts November 1, 1990
In accordance with Article IV, Section 6 of the Bylaws of SMA Life Assurance
Company, the following were consented to by all the members of the Board of
Directors of the Company:
VOTED: That the Company establish a separate account ("the Separate Account")
pursuant to the provisions of Article Third (b) and (c) of its
Certificate of Incorporation and as authorized by Section 2932 of the
Delaware Insurance Code; and
That the Separate Account shall be established for the purpose of
providing for the issuance by the Company of such variable annuity
contracts or other contracts ('Contracts") as may be designated from
time-to-time and shall constitute a separate account into which are
allocated amounts paid to or held by the Company under such Contracts;
and
That the fundamental investment policy of the Separate Account shall be
to invest or reinvest its assets in securities issued by investment
companies registered under the Investment Company Act of 1940, as
amended; and
That eight investment divisions be and hereby are established within
the Separate Account to which net payments under the Contracts may be
allocated in accordance with instructions received from
Contractholders, and that the President be and hereby is authorized to
increase or decrease the number of investment divisions in the Separate
Account as he deems necessary or appropriate from time-to-time; and
That each such investment division shall invest only in the shares of a
single investment company or a single mutual fund portfolio of an
investment company organized as a series fund pursuant to the
Investment Company Act of 1940; and
That each investment division may be comprised of two sub-divisions,
one to hold the amounts contributed under Contracts issued to
retirement plans qualifying for favorable tax treatment under the
provisions of the Internal Revenue Code, as amended, and the other to
hold amounts contributed under contracts not issued to such qualified
plans; and
That the income, gains and losses, whether or not realized, from assets
allocated to the Separate Account shall, in accordance with the
Contracts, be credited to or charged against the Separate Account
without regard to other income, gains or losses of the Company; and
1
<PAGE>
That the income, gains and losses, whether or not realized, from assets
allocated to each investment division of the Separate Account shall, in
accordance with the Contracts, be credited to or charged against such
investment division of the Separate Account without regard to other
income, gains or losses of any other investment division of the
Separate Account; and
That the appropriate officers of the Company be and they hereby are
authorized to deposit such amounts in the Separate Account or in each
investment division thereof as may be necessary or appropriate to
facilitate the commencement of the Separate Account operations; and
That the appropriate officers of the Company be and they hereby are
authorized to transfer funds from time-to-time between the Company's
general account and the Separate Account as deemed necessary or
appropriate and consistent with the terms of the Contracts; and
That the appropriate officers of the Company be and they hereby are
authorized to change the name or designation of the Separate Account to
such other name or designation as they may deem necessary or
appropriate; and
That the appropriate officers of the Company, with such assistance from
the Company's auditors, legal counsel and independent consultants, or
others as they may require, be, and they hereby are, authorized and
directed to take all action necessary to: (a) register the Separate
Account as a unit investment trust under the Investment Company Act of
1940, as amended; (b) register the Contracts in such amounts, which may
be an indefinite amount, as the appropriate officers of the Company
shall from time-to-time deem appropriate under the Securities Act of
1933; and (c) take all other actions which are necessary in connection
with the offering of said Contracts for sale and the operation of the
Separate Account in order to comply with the Investment Company Act of
1940, the Securities Exchange Act of 1934, the Securities Act of 1933,
and other applicable federal laws, including the filing of any
amendments to registration statements, any undertakings, and any
applications for exemptions from the Investment Company Act of 1940 or
other applicable federal laws as the appropriate officers of the
Company shall deem necessary or appropriate; and
That the President, any Vice President, and Secretary and Counsel, and
each of them with full power to act without the others, hereby are
severally authorized and empowered to prepare, execute and cause to be
filed with the Securities and Exchange Commission on behalf of the
Separate Account, and by the Company as sponsor and depositor, a Form
of Notification of Registration Statement under the Securities Act of
1933 registering the Contracts, and any and all amendments to the
foregoing on behalf of the Separate Account and the Company and on
behalf of and as attorneys for the principal executive officer and/or
the principal financial officer and/or the principal accounting officer
and/or any other officer of the Company; and
2
<PAGE>
That the Secretary and Counsel is hereby appointed as agent for service
under any such registration statement and is duly authorized to receive
communications and notices from the Securities and Exchange Commission
with respect thereto and to exercise the powers given to such agent in
the rules and regulations of the Securities and Exchange Commission
under the Securities Act of 1933, the Securities Exchange Act of 1934,
or the Investment Company Act of 1940; and
That the appropriate officers of the Company be and they hereby are
authorized on behalf of the Separate Account and on behalf of the
Company to take any and all action that they may deem necessary or
advisable in order to sell the Contracts, including any registrations,
filings and qualifications of the Company, its officers, agents and
employees, and the Contracts under the insurance and security laws of
any other states of the United States of America or other
jurisdictions, and in connection therewith to prepare, execute, deliver
and file all such applications, reports, covenants, resolutions,
applications for exemptions, consents to service of process and other
papers and instruments as may be required under such laws, and to take
any and all further action which said officers or counsel of the
Company may deem necessary or desirable (including entering into
whatever agreements and contracts may be necessary) in order to
maintain such registrations or qualifications for as long as said
officers or counsel deem it to be in the best interests of the Separate
Account and the Company; and
That the President, any Vice President, and the Secretary and Counsel
of the Company be and hereby are authorized in the names and on behalf
of the Separate Account and the Company to execute and file irrevocable
written consents on the part of the Separate Account and of the Company
to be used in such states wherein such consents to service of process
may be requisite under the insurance or security laws therein, in
connection with said registration or qualification of Contracts, and to
appoint the appropriate state official, or such other person as may be
allowed by said insurance or securities laws, agent of the Separate
Account and of the Company for the purpose of receiving and accepting
process; and
That the President of the Company be and hereby is authorized to
establish procedures under which the Company will institute procedures
for providing voting rights for owners of such Contracts with respect
to securities owned by the Separate Account; and
That the President of the Company is hereby authorized to execute such
agreement or agreements as deemed necessary and appropriate (i) with
SMA Equities, Inc., or other qualified entity under which SMA Equities,
Inc., or other such entity, will be appointed principal underwriter and
distributor for the Contracts, (ii) with one or more qualified banks or
other qualified entities to provide administrative and/or custodial
services in connection with the establishment and maintenance of the
Separate Account and the design, issuance and administration of the
Contracts; and
3
<PAGE>
That, since it is expected that the Separate Account will invest in the
securities issued by one or more investment companies, the appropriate
officers of the Company are hereby authorized to execute whatever
agreement or agreements as may be necessary or appropriate to enable
such investments to be made; and
That the appropriate officers of the Company, and each of them, are
hereby authorized to execute and deliver all such documents and papers
and to do or cause to be done all such acts and things as they may deem
necessary or desirable to carry out the foregoing votes and the intent
and purposes thereof.
* * *
/s/ Sheila B. St. Hilaire
-------------------------
Sheila B. St. Hilaire
Secretary
4
<PAGE>
UNDERWRITING AND
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made this 26th day of November, 1997 between and among Allmerica
Financial Life Insurance and Annuity Company, a Delaware corporation (the
"Company"), each of its separate investment accounts (the "Accounts") which is a
registered investment company under the Investment Company Act of 1940 (the
"1940 Act"), as may be established by the Company from time-to-time, and
Allmerica Investments, Inc., a Massachusetts corporation (the "Distributor").
WITNESSETH:
WHEREAS, the Company and the respective Accounts issue certain variable annuity
contracts or variable insurance policies (the "contracts") which may be deemed
to be securities under the Securities Act of 1933 (the "1933 Act"), and the laws
of some states;
WHEREAS, the Distributor, an affiliate of the Company, is registered as a
broker-dealer with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934 (the "1934 Act") and is a member of the National
Association of Securities Dealers, Inc. ("NASD");
WHEREAS, the parties desire to have the Distributor act as principal underwriter
for the Accounts set forth in Exhibit A, as may be amended from time-to-time by
mutual consent of the parties, and to assume full responsibility for the
securities activities of all "persons associated" (as that term is defined in
Section 3(a)(18) of the 1934 Act) with the Distributor and engaged directly or
indirectly in the variable contract operation (the "associated persons");
WHEREAS, the parties desire to have the Company perform certain administrative
services in connection with the sale and servicing of the contracts.
NOW, THEREFORE, in consideration of the covenants and mutual promises of the
parties made to each other, it is hereby covenanted and agreed as follows:
1. The Distributor will act as the exclusive principal underwriter for the
Accounts and as such will assume full responsibility for the securities
activities of all the associated persons in connection with the sale of the
contracts. The Distributor will train the associated persons, use its best
efforts to prepare them to complete satisfactorily the applicable NASD and
state examinations so that they may be qualified, register the associated
persons as its registered representatives before they engage in the sale of
the contracts, and supervise and control them in the performance of such
activities. Notwithstanding anything in this Agreement to the contrary,
the Distributor may enter into sales agreements with independent
broker-dealers for the sale of the contracts. All such sales agreements
entered into by the Distributor with independent broker-dealers shall
provide that each independent broker-dealer will assume full responsibility
for continued compliance by itself and its associated persons with the NASD
Rules of Fair Practice and Federal and state securities laws.
2. The Distributor will assume full responsibility for the continued
compliance by itself and its associated persons with the NASD Rules of Fair
Practice and Federal and state securities laws, to the extent applicable in
connection with the sale of the contracts. The Distributor, directly or
through the Company as its agent, will make timely filings with the SEC,
NASD, and any other securities regulatory authorities of all reports and
any sales literature relating to the Accounts required by law to be filed
by the Distributor.
3. The Company will prepare and submit to the Accounts (a) all registration
statements and prospectuses (including amendments) and all reports required
by law to be filed by the Accounts with Federal and state securities
regulatory authorities, and (b) all notices, proxies, proxy statements, and
periodic reports that are to be transmitted to persons having voting rights
with respect to the Accounts.
- 1 -
<PAGE>
4. The Company will, except as otherwise provided in this Agreement, bear the
cost of all services and expenses, including legal services and expenses,
filing fees, and other fees incurred in connection with (a) registering and
qualifying the Accounts and the contracts, and (b) preparing, printing, and
distributing all registration statements and prospectuses (including
amendments), contracts, notices, periodic reports, proxy solicitation
material, sales literature, and advertising filed or distributed in
connection with the sale of the contracts.
All cost associated with the variable contract compliance function
including, but not limited to, fees and expenses associated with qualifying
and licensing associated persons with Federal and state regulatory
authorities and the NASD and with performing compliance-related
administrative services, shall be allocated to the Company. To the extent
that the Distributor incurs out-of-pocket expenses in connection with the
variable contracts compliance function, the Company shall reimburse the
Distributor for such expenses. To the extent that such costs are in
connection with services provided by employees of the Company, they shall
be charged to the Company. The determination and allocation of all such
costs shall be pursuant to the Cost Distribution Policy as stated in the
Consolidated Service Agreement (effective January 1, 1993) among the
Allmerica Financial group of affiliated companies, as may be amended from
time.
5. All purchase payments made under the contracts will be forwarded by or on
behalf of Contract Owners directly to the Company and shall become the
exclusive property of the Company. The Company agrees to pay on behalf of
Distributor all sales commissions and any other remuneration due in
connection with the sale of the contracts by associated persons of the
Distributor and any independent broker-dealers having a sales agreement
with the Distributor. The Distributor or the Company as agent for the
Distributor shall pay all other remuneration due any other person for
activities relating to the sale of the contracts. The Company shall
reimburse the Distributor fully and completely for all amounts paid by the
Distributor to any person pursuant to this Section.
6. The Company will, as the Distributor's agent, (a) maintain and preserve in
accordance with Rules 17a-3 and 17a-4 under the 1934 Act all books and
records required to be maintained by the Distributor in connection with the
offer and sale of the contracts being offered for sale pursuant to this
Agreement, which books and records shall remain the property of the
Distributor, and shall at all times be subject to inspection by the SEC in
accordance with Section 17(a) of the 1934 Act, and all other regulatory
bodies having jurisdiction, and (b) send a written confirmation for each
such transaction reflecting the facts of the transaction and showing that
it is being sent on behalf of the Distributor acting in the capacity of
agent for the Accounts, in conformance with the requirements of Rule 10b-10
of the 1934 Act.
7. Each party hereto shall advise the others promptly of (a) any action of the
SEC or any authorities of any state or territory of which it has knowledge,
affecting registration or qualification of the Accounts or the contracts,
or the right to offer the contracts for sale, and (b) the happening of any
event which makes untrue any statement, or which requires the making of any
change in the registration statement or prospectus in order to make the
statements therein not misleading.
8. The Company agrees to be responsible to the Accounts for all sales and
administrative expenses incurred in connection with the administration of
the contracts and the Accounts other than applicable taxes arising from
income and capital gains of the Accounts and any other taxes arising from
the existence and operation of the Accounts.
9. As compensation for services performed and expenses incurred under this
Agreement, the Company will receive the charges and deductions as provided
in each outstanding series of the Company's contracts. Distributor will
receive the compensation provided for in Section 4, and may receive such
additional compensation, if any, as may be agreed upon by the parties from
time-to-time.
- 2 -
<PAGE>
10. Each party hereto agrees to furnish any other state insurance commissioner
or regulatory authority with jurisdiction over the contracts with any
information or reports in connection with services provided under this
Agreement which may be requested in order to ascertain whether the variable
insurance product operations of the Company are being conducted in a manner
consistent with applicable statutes, rules and regulations.
11. This Agreement shall upon execution become effective as of the date first
above written, and
(a) Unless otherwise terminated, this Agreement shall continue in effect
from year-to-year;
(b) This Agreement may be terminated by any party at any time upon giving
60 days' written notice to the other parties hereto; and
(c) This Agreement shall automatically terminate in the event of its
assignment.
12. The initial Accounts covered by this Agreement are set forth in Appendix A.
This Agreement, including Appendix A, may be amended at any time by mutual
consent of the parties.
13. This Agreement shall be governed by and construed in accordance with the
laws of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
By: /s/ David J. Mueller
-------------------------------------
Title: Vice President
ALLMERICA INVESTMENTS, INC.
By: /s/ Thomas P. Cunningham
-------------------------------------
Title: Vice President
- 3 -
<PAGE>
Appendix A
SEPARATE ACCOUNTS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
AS OF SEPTEMBER 1, 1997
VEL Account
VEL II Account
Inheiritage Account
Allmerica Select Separate Account II
Group VEL Account
Fulcrum Variable Life Separate Account
Separate Account VA-K
Separate Account VA-P
Allmerica Select Separate Account
Separate Account KG
Separate Account KGC
Fulcrum Separate Account
- 4 -
<PAGE>
SALES
AGREEMENT ALLMERICA INVESTMENTS, INC.
440 Lincoln Street
Worcester, Massachusetts 01653
- ------------------------------------------------------------------------------
Agreement, effective as of _________________, 19___, by and between Allmerica
Investments, Inc., a Massachusetts corporation (herein "Allmerica") and
_________________________________________________________________, a
________________________ corporation (herein "Broker-Dealer").
Allmerica, subject to the terms and conditions set forth in this Agreement,
authorizes and appoints Broker-Dealer to solicit applications for the sale of
Contracts. Broker-Dealer accepts this appointment and agrees to the terms
and conditions set forth below.
DEFINITIONS
INSURANCE COMPANIES - All Contracts will be issued by First Allmerica
Financial Life Insurance Company (herein "First Allmerica") or by Allmerica
Financial Life Insurance and Annuity Company (herein "Allmerica Financial
Life"), a subsidiary of First Allmerica. The Principal Office of First
Allmerica and Allmerica Financial Life (herein collectively referred to as
"the Insurance Companies") is located at 440 Lincoln Street, Worcester,
Massachusetts 01653.
CONTRACTS - The variable annuity and variable life insurance contracts of the
Insurance Companies listed on the attached Commission Schedule(s), for which
Allmerica Investments, Inc., an affiliate of First Allmerica, has been
appointed the exclusive distributor and principal underwriter.
REGISTERED REPRESENTATIVES - Individuals affiliated with Broker-Dealer who
are licensed as life insurance agents in those jurisdictions in which
applications for the sale of Contracts are to be solicited and who are also
duly registered with the National Association of Securities Dealers, Inc.
(herein "NASD") in compliance with the '34 Act.
'33 ACT - The Securities Act of 1933, as amended.
'34 ACT - The Securities Exchange Act of 1934, as amended.
RELATIONSHIP OF PARTIES
SECTION 1. Nothing in this Agreement will be construed to create the
relationship of employer and employee between Allmerica or either Insurance
Company and any Broker-Dealer or Registered Representative. Broker-Dealer
and each Registered Representative will be free to exercise their independent
judgment as to the time, place and manner of solicitation and servicing of
business underwritten by the Insurance Companies. However, neither
Broker-Dealer nor any Registered Representative shall have authority to act
on behalf of Allmerica or the Insurance
1
<PAGE>
Companies in a manner which does not conform to applicable statutes,
ordinances, or governmental regulations or to reasonable rules adopted from
time to time by Allmerica or the Insurance Companies.
LIMITATIONS OF AUTHORITY
SECTION 2. Neither Broker-Dealer nor any Registered Representative will have
authority to accept risks of any kind; to make, alter or discharge Contracts;
to waive forfeitures or exclusions; to alter or amend any papers received
from either Insurance Company; to deliver any life insurance Contract or any
document, agreement or endorsement changing the amount of insurance coverage
if Broker-Dealer or the soliciting Registered Representative knows or has
reason to believe that the insured is uninsurable; or to accept any payment
unless the payment meets the minimum payment requirement for the Contract
established by the Insurance Company.
LICENSING AND REGISTRATION
SECTION 3. Broker-Dealer is hereby authorized to recommend Registered
Representatives for appointment by the Insurance Companies and only
individuals so recommended by Broker-Dealer shall become Registered
Representatives hereunder. Allmerica shall arrange for the Insurance
Companies to apply for life insurance agent appointments in the appropriate
jurisdictions for such recommended Registered Representatives of
Broker-Dealer.
Notwithstanding the foregoing, the Insurance Companies and Allmerica reserve
the right to refuse to appoint any proposed Registered Representative and/or
to terminate any Registered Representative or firm who has been appointed by
the Insurance Companies.
AGREEMENTS BY BROKER-DEALER
SECTION 4. Broker-Dealer agrees that at all times when performing its duties
under this Agreement it shall be duly registered as a securities
broker-dealer under the '34 Act, be a member in good standing of the NASD,
and be duly licensed or registered as a securities broker-dealer in each
jurisdiction where such licensing or registration is required in connection
with the sale of the Contracts or the supervision of Registered
Representatives who solicit applications for the Contracts.
Broker-Dealer agrees that at all times when performing its duties under this
Agreement it shall be duly licensed to sell Contracts in each jurisdiction in
which Broker-Dealer intends to perform hereunder.
Broker-Dealer shall be responsible for carrying out its sales and
administrative obligations under this Agreement in continued compliance with
the NASD Rules of Fair Practice, federal and state securities laws and
regulations, and state insurance laws and regulations. Broker-Dealer agrees
to offer the Contracts for sale through its Registered Representatives and to
offer such Contracts only in accordance with the prospectus. Broker-Dealer
and Registered Representative(s) are not authorized to give any information
or make any representations concerning such Contracts other than
2
<PAGE>
those contained in the prospectus or in such sales literature or advertising
as may be authorized by Allmerica.
Broker-Dealer agrees that it shall take reasonable steps to ensure that no
person shall offer or sell Contracts on its behalf until such person is
appropriately licensed, registered or otherwise qualified to offer and sell
such Contracts under the state and federal securities laws and the insurance
laws of each jurisdiction in which such person intends to solicit.
Broker-Dealer agrees to train, supervise and be solely responsible for the
conduct of its Registered Representatives in the solicitation and sale of the
Contracts and for the supervision as to their strict compliance with
Allmerica's rules and procedures, the NASD rules of Fair Practice, and
applicable rules and regulations of any other governmental or other agency
that has jurisdiction over the offering for sale of the Contracts.
Broker-Dealer shall take reasonable steps to ensure that its Registered
Representatives shall not make recommendations to an applicant to purchase a
Contract in the absence of reasonable grounds to believe that the purchase of
such Contract is suitable for such applicant. Such determination will be
based upon, but will not be limited to, information furnished to a Registered
Representative after reasonable inquiry of such applicant concerning the
applicant's insurance and investment objectives, financial situation and
needs.
Broker-Dealer shall take reasonable steps to ensure that Registered
Representatives of Broker-Dealer shall conduct their business with respect to
the Contracts at all times in compliance with all applicable federal and
state laws and regulations and shall be subject to a standard of conduct
including, but not limited to, the following:
(a) A Registered Representative shall not solicit or participate in the sale
of the Contracts in any jurisdiction until such Registered Representative
is trained and licensed.
(b) A Registered Representative shall not solicit applications for the sale of
the Contracts without delivering the then currently effective prospectus
for such Contracts and any then applicable amendments or supplements
thereto, including the current prospectus(es) for any fund(s) in which
Contract separate account(s) invest.
(c) A Registered Representative shall have no authority to advertise for or
on behalf of the Insurance Companies or Allmerica without express written
authorization from Allmerica.
3
<PAGE>
AGREEMENTS BY ALLMERICA
SECTION 5. Allmerica agrees that at all times while this Agreement remains
in force that it shall be a registered Broker-Dealer under the '34 Act and be
a member in good standing of the NASD.
During the term of this Agreement, Allmerica will provide Broker-Dealer,
without charge, with as many copies of the prospectus(es) for the Contracts
(and any amendments, or supplements thereto), the current prospectus(es) for
any underlying fund(s) and applications for the Contracts as Broker-Dealer
may reasonably request. Upon termination of the Agreement, any prospectuses,
applications, and other materials and supplies furnished by Allmerica to
Broker-Dealer shall be promptly returned to Allmerica by Broker-Dealer.
Allmerica agrees to promptly notify Broker-Dealer of newly declared effective
prospectus(es) for the Contracts and any amendments or supplements thereto.
Allmerica agrees to keep Broker-Dealer informed of all jurisdictions in which
the Insurance Companies are licensed to sell the Contracts and in which the
Contracts may be offered for sale.
SUBMISSION OF APPLICATIONS; DELIVERY OF CONTRACTS; REJECTED BUSINESS
SECTION 6. Broker-Dealer will submit, or cause to be submitted, directly to
the Principal Office of the Insurance Companies all Contract applications
solicited by Registered Representatives of the Broker-Dealer. Broker-Dealer
will deliver, or cause to be delivered, within 10 days of its receipt by
Broker-Dealer all Contracts issued on applications submitted by Broker-Dealer
or its Registered Representatives and will ensure that any Contract
endorsement, amendment or other agreement is properly executed by the
Contract owner at the time of Contract delivery. Broker-Dealer will promptly
return, or cause to be returned, to the Insurance Companies any Contract
which is declined by the applicant or which cannot be delivered within the
time permitted by the Insurance Company's rules.
ILLUSTRATIONS AND PROPOSALS
SECTION 7. Neither Broker-Dealer nor any Registered Representative of
Broker-Dealer will furnish any prospective Contract owner with an
illustration of the financial or other aspects of a Contract or a proposal
for a Contract unless the same has been either furnished by the Insurance
Companies or prepared from computer software or other material furnished or
approved by the Insurance Companies. Any illustration or proposal will
conform to standards of completeness and accuracy established by the
Insurance Companies. If the proposal or illustration was not furnished by
the Insurance Companies, Broker-Dealer will retain in its records for
availability to the Insurance Companies a copy thereof or the means to
duplicate the same. Any computer software or materials furnished by either
Insurance Company will be and remain its property.
4
<PAGE>
ACCOUNTING FOR FUNDS COLLECTED
SECTION 8. In accordance with the rules of the Insurance Companies,
Broker-Dealer will account for and remit immediately to the Principal Office
of the Insurance Companies all funds received or collected by Broker-Dealer
or by Registered Representatives of Broker-Dealer for or on behalf of either
Insurance Company without deduction for any commissions, or other claim
Broker-Dealer or the Registered Representative may have against either
Insurance Company or Allmerica and will make such reports and file such
substantiating documents and records as the Insurance Companies may
reasonably require.
INDEMNIFICATION
SECTION 9. Broker-Dealer shall indemnify and hold Allmerica and the
Insurance Companies and their officers, directors and employees harmless from
any liability arising from any act or omission of Broker-Dealer or of any
affiliate of Broker-Dealer, or any officer, director, employee of
Broker-Dealer or of its Registered Representatives, including but not limited
to, any fines, penalties, attorney's fees, costs of settlement, damages or
financial loss. Broker-Dealer expressly authorizes Allmerica and the
Insurance Companies, without precluding them from exercising any other remedy
they may have, to charge against all compensation due or to become due to
Broker-Dealer under this Agreement, any monies paid on any liability incurred
by Allmerica or the Insurance Companies by reason of any such act or omission
of Broker-Dealer, or any affiliate of Broker-Dealer, or of any officer,
director, employee of Broker-Dealer or of its Registered Representatives.
Allmerica shall indemnify and hold Broker-Dealer, its affiliates and their
officers, directors and employees harmless from any liability arising from
any act or omission of Allmerica, the Insurance Companies or any affiliate of
Allmerica or any of the Insurance Companies (collectively the "Allmerica
Companies"), or any officer, director or employee of the Allmerica Companies,
including but not limited to, any fines, penalties, reasonable attorney's
fees, costs of settlement damages or financial loss.
The indemnifications provided by this Section shall survive termination of this
Agreement.
If a Contract is not delivered to the Contract owner within 10 days of its
receipt by the Broker-Dealer and if after delivery the owner returns the
Contract to the Insurance Company and receives a full refund of all payments
made, in any situation where the failure to deliver in a timely manner was due
to the inaction or negligence of the Broker-Dealer or a Registered
Representative of Broker-Dealer, the difference between the payments refunded
and the cash value of the Contract on the date the Contract is received by the
Insurance Company at its Principal Office shall be reimbursed to the Insurance
Company by the Broker-Dealer in any case where the cash value is less than the
payments refunded. Any such reimbursement shall be paid by the Broker-Dealer to
the affected Insurance Company within 30 days of Broker-Dealer's receipt of a
written request for payment.
5
<PAGE>
If Broker-Dealer utilizes delivery receipts as part of its Contract delivery
rules and procedures, the date of execution of the delivery receipt by the
Contract owner shall be deemed to be the date of Contract delivery for
purposes of this Agreement.
COMMISSION REFUNDS
SECTION 10. If a Contract owner rescinds a Contract or exercises the
Contract's Right to Examine privilege (i.e., free-look), then Broker-Dealer
will repay the appropriate Insurance Company the amount of any commissions
received on the payments returned within 10 days of Broker-Dealer's receipt
of a written request for repayment.
BASIS OF COMPENSATION
SECTION 11. While this Agreement remains in force, the Insurance Companies
agree to pay Broker-Dealer commissions in accordance with the Commission
Schedule(s) attached hereto and incorporated herein, from which amounts
Broker-Dealer agrees to pay its Registered Representatives. Commission
payments will be made to Broker-Dealer for each Contract issued pursuant to
an application solicited by duly appointed Registered Representatives of
Broker-Dealer.
TIME OF PAYMENT OF COMMISSIONS
SECTION 12. A payment will not be considered made until it has been received
by the Insurance Company at its Principal Office. On payments made,
commissions will be paid at regular intervals in accordance with the rules of
the Insurance Companies.
TERMINATION
SECTION 13. This Agreement shall automatically terminate immediately and
without notice upon Broker-Dealer's or Allmerica's ceasing to comply with any
of the terms and conditions of this Agreement or upon the dissolution,
bankruptcy or insolvency of Broker-Dealer or Allmerica.
Whether or not there is a breach of this Agreement, Broker-Dealer or
Allmerica may terminate this Agreement by giving ten (10) days' written
notice to the other party at any time during the first year hereof, and by
giving thirty (30) days' written notice after the expiration of the first
year hereof.
Upon termination of this Agreement all authorizations, rights and obligations
shall cease except the obligation to pay commissions due on payments received
prior to termination for Contracts in effect on the date of termination, or
for Contracts to be issued pursuant to applications received by the Insurance
Companies prior to termination. Except as provided in the preceding
sentence, no further commissions shall be paid after termination of this
Agreement.
RIGHT TO SET-OFF
SECTION 14. Allmerica and the Insurance Companies will have a lien on any
commissions payable under this Agreement, whether or not such payments are
now due or hereafter become due, and may apply any such monies to the
satisfaction of indebtedness to Allmerica or to either Insurance Company to
the extent permitted by law.
6
<PAGE>
NON-WAIVER OF BREACH
SECTION 15. Waiver of any breach of any provision of this Agreement will not
be construed as a waiver of the provision or of the right of Allmerica or
Broker-Dealer to enforce said provision thereafter.
ASSIGNABILITY
SECTION 16. This Agreement is not transferable. Without the written consent
of Allmerica and the Insurance Companies, no rights or interest in or to
commissions will be subject to assignment, and any attempted assignment, sale
or transfer of any commissions without such written consents will be void and
of no effect hereunder.
RESERVATION OF RIGHT TO CHANGE
SECTION 17. Allmerica reserves the right at any time, and from time to time,
to change prospectively the terms and conditions of this Agreement, including
but not limited to, the rates of commissions. Any change will become
effective on the date specified in a notice or, if later, 30 days after the
notice is given to Broker-Dealer. However, the requirement to give advance
notice shall not apply if the change becomes necessary or expedient by reason
of legislation or the requirements of any governmental body and, in the
opinion of Allmerica, it is not reasonably possible to meet the 30 day
requirement. Changes will not be retroactive and will apply only to life
insurance coverage solicited or annuity payments made on or after the
effective date of the change.
COMPLAINTS AND INVESTIGATIONS
SECTION 18. Broker-Dealer and Allmerica agree to cooperate fully in any
customer complaint, insurance or securities regulatory proceeding or judicial
proceeding with respect to Broker-Dealer, Allmerica, the Insurance Companies,
their affiliates or their Registered Representatives to the extent that such
customer complaint or proceeding is in connection with Contracts marketed
under this Agreement. To the extent required, Allmerica will arrange for the
Insurance Companies to cooperate in any such complaint or proceeding.
Without limiting the foregoing:
(a) Broker-Dealer will be notified promptly by Allmerica or the Insurance
Companies of any written customer complaint or notice of any regulatory
proceeding or judicial proceeding of which they become aware including
Broker-Dealer or any Registered Representative of Broker-Dealer which may
be related to the issuance of any Contract marketed under this Agreement.
Broker-Dealer will promptly notify Allmerica of any written customer
complaint, or notice of any regulatory proceeding or judicial proceeding
received by Broker-Dealer, with respect to Broker-Dealer or any of its
Registered Representatives in connection with any Contract marketed under
this Agreement or any activity in connection with any such Contract(s).
(b) In the case of a customer complaint specified above, Broker-Dealer,
Allmerica and the Insurance Companies will cooperate in investigating
such complaint and any proposed response to such complaint will be sent
to the other party of this Agreement for approval not less than five
business days prior to its being sent to the customer or regulatory
authority, except that if a more prompt
7
<PAGE>
response is required, the proposed response shall be communicated by
telephone or facsimile transmission.
CONFIDENTIALITY
SECTION 19. Allmerica agrees that the names and addresses of all customers
and prospective customers of Broker-Dealer and of any company or person
affiliated with Broker-Dealer, and the names and addresses of any Registered
Representatives of Broker-Dealer which may come to the attention of Allmerica
exclusively as a result of its relationship with Broker-Dealer or any
affiliated company and not from any independent source, are confidential and
shall not be used by Allmerica, the Insurance Companies, or any company or
person affiliated with Allmerica or the Insurance Companies, nor divulged to
any party for any purpose whatsoever, except as may be necessary in
connection with the administration and marketing of the Contracts sold by or
through Broker-Dealer, including responses to specified requests to the
Insurance Companies for service by Contract owners or efforts to prevent the
replacement of such Contracts or to encourage the exercise of options under
the terms of the Contracts. In no event shall the names and addresses of
such customers, prospective customers and Registered Representatives be
furnished by Allmerica to any other company or person, including but not
limited to, any of their managers, registered representatives, or brokers who
are not Registered Representatives of Broker-Dealer, any company affiliated
with Allmerica or any manager, agency, or broker of such company, or any
securities broker-dealer or any insurance agent affiliated with such
broker-dealer. The intent of this section is that Allmerica, the Insurance
Companies or companies or persons affiliated with them shall not utilize, or
permit to be utilized, their knowledge of Broker-Dealer or of any affiliated
companies which is derived exclusively as a result of the relationships
created through the sale of the Contracts.
Notwithstanding the foregoing provisions of this Section 19, nothing herein
shall prohibit Allmerica, the Insurance Companies or any company or person
affiliated with Allmerica or the Insurance Companies from (i) seeking
business relationships and entering into separate sales agreements with
Registered Representatives of Broker-Dealer if the names of said Registered
Representatives were obtained from independent sources and not exclusively as
a result of Allmerica's relationship with Broker-Dealer; (ii) from entering
into separate sales agreements with Registered Representatives of
Broker-Dealer upon the request and at the initiation of said Registered
Representatives; or (iii) divulging the names and addresses of any such
customers, prospective customers, Registered Representatives, or other
companies or persons described in the preceding paragraph in connection with
any customer complaint or insurance or securities regulatory proceeding
described in Section 18. PROVIDED, HOWEVER, that Allmerica shall not enter
into separate sales agreements with Registered Representatives of
Broker-Dealer while such Registered Representatives are affiliated with
Broker-Dealer.
8
<PAGE>
BONDING
SECTION 20. Broker-Dealer represents that it shall maintain bonding in the
form, type, and amount required under the NASD Rules of Fair Practice.
NOTICE
SECTION 21. Whenever this Agreement requires a notice to be given, the
requirement will be considered to have been met, in the case of notice to the
Insurance Companies or to Allmerica, if delivered or mailed postage prepaid
to the address specified on page 1 of this Agreement and, in the case of
notice to Broker-Dealer, if delivered or mailed postage prepaid to the
intended recipient's principal place of business.
CAPTIONS
SECTION 22. Captions are used for informational purposes only and no caption
shall be construed to affect the substance of any provision of this Agreement.
EFFECTIVENESS; ENTIRE CONTRACT; PRIOR AGREEMENTS
SECTION 23. This Agreement contains the entire contract between the parties.
Upon execution it will replace all previous agreements between Broker-Dealer
and Allmerica and the Insurance Companies, or any of them, relating to the
solicitation of Contracts. It is hereby understood and agreed that any other
agreement or representation, commitment, promise or statement of any nature,
whether oral or written, relating to or purporting to relate to the
relationship of the parties is hereby rendered null and void.
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate to
take effect on its effective date.
*For: _________________________________ For: Allmerica Investments, Inc.
Name of Broker-Dealer
By:__________________________________ By:________________________________
Name:________________________________ Name:______________________________
Title:_______________________________ Title:_____________________________
Date:________________________________ Date:______________________________
9
<PAGE>
SALES
AGREEMENT ALLMERICA INVESTMENTS, INC.
440 Lincoln Street
Worcester, Massachusetts 01653
- ------------------------------------------------------------------------------
Agreement, effective as of _________________, 19___, by and between Allmerica
Investments, Inc., a Massachusetts corporation (herein "Allmerica"), ________
__________________________________________________________________________, a
_____________________________ corporation (herein the "Broker-Dealer") and the
affiliates of Broker-Dealer listed on Exhibit "A" attached hereto, each
affiliate being referred to herein as a "General Agent".
Allmerica, subject to the terms and conditions set forth in this Agreement,
authorizes and appoints each General Agent to solicit applications for the
sale of Contracts. Each General Agent accepts this appointment and each
General Agent and the Broker-Dealer agree to the terms and conditions set
forth below.
DEFINITIONS
INSURANCE COMPANIES - All Contracts will be issued by First Allmerica
Financial Life Insurance Company (herein "First Allmerica") or by Allmerica
Financial Life Insurance and Annuity Company (herein "Allmerica Financial
Life"), a subsidiary of First Allmerica. The Principal Office of First
Allmerica and Allmerica Financial Life (herein collectively referred to as
"the Insurance Companies") is located at 440 Lincoln Street, Worcester,
Massachusetts 01653.
CONTRACTS - The variable annuity and variable life insurance contracts of the
Insurance Companies listed on the attached Commission Schedule(s), for which
Allmerica Investments, Inc., an affiliate of First Allmerica, has been
appointed the exclusive distributor and principal underwriter.
REGISTERED REPRESENTATIVES - Individuals affiliated with each General Agent
and the Broker-Dealer who are licensed as life insurance agents in those
jurisdictions in which applications for the sale of Contracts are to be
solicited and who are also duly registered with the National Association of
Securities Dealers, Inc. (herein "NASD") in compliance with the '34 Act.
'33 ACT - The Securities Act of 1933, as amended.
'34 ACT - The Securities Exchange Act of 1934, as amended.
RELATIONSHIP OF PARTIES
SECTION 1. Nothing in this Agreement will be construed to create the
relationship of employer and employee between Allmerica or either Insurance
Company and any General Agent, the Broker-Dealer or any Registered
Representative. General Agents and Registered Representatives will be free
to exercise their independent judgment as to the time, place and manner of
solicitation and servicing of business underwritten by the Insurance
Companies. However, General Agents, the Broker-Dealer and Registered
Representatives shall have no authority to act on behalf of Allmerica or the
1
<PAGE>
Insurance Companies in a manner which does not conform to applicable
statutes, ordinances, or governmental regulations or to reasonable rules
adopted from time to time by Allmerica or the Insurance Companies.
LIMITATIONS ON AUTHORITY
SECTION 2. General Agents, the Broker-Dealer and Registered Representatives
will have no authority to accept risks of any kind; to make, alter or
discharge Contracts; to waive forfeitures or exclusions; to alter or amend
any papers received from either Insurance Company; to deliver any life
insurance Contract or any document, agreement or endorsement changing the
amount of insurance coverage if the General Agent, the Broker-Dealer or the
soliciting Registered Representative know or have reason to believe that the
insured is uninsurable; or to accept any payment unless the payment meets the
minimum payment requirement for the Contract established by the Insurance
Company.
LICENSING AND REGISTRATION
SECTION 3. Each General Agent is hereby authorized to recommend Registered
Representatives for appointment by the Insurance Companies and only
individuals so recommended by a General Agent shall become Registered
Representatives hereunder. Allmerica shall arrange for the Insurance
Companies to apply for life insurance agent appointments in the appropriate
jurisdictions for such recommended Registered Representatives. Until
Contracts of First Allmerica are offered for sale, applications for
appointments shall only be made on behalf of Allmerica Financial Life.
Notwithstanding the foregoing, the Insurance Companies and Allmerica reserve
the right to refuse to appoint any proposed Registered Representative and/or
to terminate any Registered Representative who has been appointed by the
Insurance Companies.
AGREEMENTS BY GENERAL AGENT AND BROKER-DEALER
SECTION 4. The Broker-Dealer agrees that at all times when performing its
duties under this Agreement it shall be duly registered as a securities
broker-dealer under the '34 Act, be a member in good standing of the NASD,
and be duly licensed or registered as a securities broker-dealer in each
jurisdiction where such licensing or registration is required in connection
with the sale of the Contracts or the supervision of Registered
Representatives who solicit applications for the Contracts.
Each General Agent agrees that at all times when performing its duties under
this Agreement it shall be duly licensed to sell Contracts in each
jurisdiction in which General Agent intends to perform hereunder.
Each General Agent and the Broker-Dealer shall be responsible for carrying
out their sales and administrative obligations under this Agreement in
continued compliance with the NASD Rules of Fair Practice, federal and state
securities laws and regulations, and state insurance laws and regulations.
Each General Agent and the Broker-Dealer agree to offer the Contracts for
sale through their Registered Representatives and to offer such Contracts
only in accordance with the prospectus. General Agents, the Broker-Dealer
and Registered Representatives are not authorized to give any information or
make any representations concerning such Contracts other
2
<PAGE>
than those contained in the prospectus or in such sales literature or
advertising as may be authorized by Allmerica.
Each General Agent and the Broker-Dealer agree that they shall be fully
responsible for ensuring that no person shall offer or sell Contracts on
their behalf until such person is appropriately licensed, registered or
otherwise qualified to offer and sell such Contracts under the state and
federal securities laws and the insurance laws of each jurisdiction in which
such person intends to solicit.
Each General Agent and the Broker-Dealer agree to train, supervise and be
solely responsible for the conduct of their Registered Representatives in the
solicitation and sale of the Contracts and for the supervision as to their
strict compliance with Allmerica's rules and procedures, the NASD rules of
Fair Practice, and applicable rules and regulations of any other governmental
or other agency that has jurisdiction over the offering for sale of the
Contracts.
Each General Agent and the Broker-Dealer shall take reasonable steps to
ensure that their Registered Representatives shall not make recommendations
to an applicant to purchase a Contract in the absence of reasonable grounds
to believe that the purchase of such Contract is suitable for such applicant.
Such determination will be based upon, but will not be limited to,
information furnished to a Registered Representative after reasonable inquiry
of such applicant concerning the applicant's insurance and investment
objectives, financial situation and needs.
Each General Agent and the Broker-Dealer agree that Registered
Representatives shall conduct their business with respect to the Contracts at
all times in compliance with all applicable federal and state laws and
regulations and shall be subject to a standard of conduct including, but not
limited to, the following:
(a) A Registered Representative shall not solicit or participate in the sale
of the Contracts in any jurisdiction until such Registered Representative
is trained and licensed.
(b) A Registered Representative shall not solicit for the sale of Contracts
without delivering the then currently effective prospectus for such
Contracts and any then applicable amendments or supplements thereto,
including the current prospectus(es) for any fund(s) in which Contract
separate account(s) invest.
(c) A Registered Representative shall have no authority to advertise for or
on behalf of the Insurance Companies or Allmerica without express written
authorization from Allmerica.
AGREEMENTS BY ALLMERICA
SECTION 5. Allmerica agrees that at all times while this Agreement remains
in force that it shall be a registered broker-dealer under the '34 Act and be
a member in good standing of the NASD.
3
<PAGE>
During the term of this Agreement, Allmerica will provide to, or cause to be
provided to, each General Agent and the Broker-Dealer, without charge, as
many copies of the prospectus(es) for the Contracts (and any amendments, or
supplements thereto), the current prospectus(es) for any underlying fund(s)
and applications for the Contracts as each General Agent and the
Broker-Dealer may reasonably request. Upon termination of the Agreement, any
prospectuses, applications, and other materials and supplies furnished by
Allmerica to General Agents and the Broker-Dealer shall be promptly returned
to Allmerica.
Allmerica agrees to promptly notify each General Agent and the Broker-Dealer
of newly declared effective prospectus(es) for the Contracts and any
amendments or supplements thereto.
Allmerica agrees to keep each General Agent and the Broker-Dealer informed of
all jurisdictions in which the Insurance Companies are licensed to sell the
Contracts and in which the Contracts may be offered for sale.
SUBMISSION OF APPLICATIONS; DELIVERY OF CONTRACTS; REJECTED BUSINESS
SECTION 6. Each General Agent or the Broker-Dealer will submit, or cause to
be submitted, directly to the Principal Office of the Insurance Companies all
Contract applications solicited by their Registered Representatives. Each
General Agent or the Broker-Dealer will deliver, or cause to be delivered,
within 10 days of the date of issue all Contracts issued on applications
submitted by the General Agent, the Broker-Dealer or their Registered
Representatives. Each General Agent or the Broker-Dealer will promptly
return, or cause to be returned, to the Insurance Companies any Contract
which is declined by the applicant or which cannot be delivered within the
time permitted by the Insurance Company's rules.
ILLUSTRATIONS AND PROPOSALS
SECTION 7. General Agents, the Broker-Dealer and Registered Representatives
will not furnish any prospective Contract owner with an illustration of the
financial or other aspects of a Contract or a proposal for a Contract unless
the same has been either furnished by the Insurance Companies or prepared
from computer software or other material furnished or approved by the
Insurance Companies. Any illustration or proposal will conform to standards
of completeness and accuracy established by the Insurance Companies. If the
proposal or illustration was not furnished by the Insurance Companies, each
General Agent or the Broker-Dealer will retain in its records for
availability to the Insurance Companies a copy thereof or the means to
duplicate the same. Any computer software or materials furnished by either
Insurance Company will be and remain its property.
ACCOUNTING FOR FUNDS COLLECTED
SECTION 8. In accordance with the rules of the Insurance Companies, each
General Agent and the Broker-Dealer will account for and remit immediately to
the Principal Office of the Insurance Companies all funds received or
collected for or on behalf of either Insurance Company without deduction for
any commissions, or other claim the General Agent, the Broker-Dealer or any
Registered Representative may have against either Insurance Company or
Allmerica and will make such reports and file such
4
<PAGE>
substantiating documents and records as the Insurance Companies may
reasonably require.
INDEMNIFICATION
SECTION 9. Each General Agent and the Broker-Dealer, jointly and severally,
shall indemnify and hold Allmerica and the Insurance Companies and their
officers, directors and employees harmless from any liability arising from
any act or omission of the General Agent, the Broker-Dealer or of any
affiliate of the Broker-Dealer, or any officer, director, employee of the
General Agent or the Broker-Dealer or of their Registered Representatives,
including but not limited to, any fines, penalties, attorney's fees, costs of
settlement, damages or financial loss. Each General Agent and the
Broker-Dealer expressly authorize Allmerica and the Insurance Companies,
without precluding them from exercising any other remedy they may have, to
charge against all compensation due or to become due to the General Agent or
the Broker-Dealer under this Agreement, any monies paid on any liability
incurred by Allmerica or the Insurance Companies by reason of any such act or
omission of any General Agent, the Broker-Dealer, any affiliate of the
Broker-Dealer, or of any officer, director, employee of a General Agent or
the Broker-Dealer or of their Registered Representatives.
Allmerica shall indemnify and hold each General Agent and the Broker-Dealer
and their officers, directors, employees and registered representatives
harmless from any liability arising from any act or omission of Allmerica,
the Insurance Companies or any affiliate of Allmerica or any of the Insurance
Companies (collectively the "Allmerica Companies"), or any officer, director
or employee of the Allmerica Companies, including but not limited to, any
fines, penalties, reasonable attorney's fees, costs of settlement, damages or
financial loss.
The indemnifications provided by this Section shall survive termination of
this Agreement.
If a Contract is not delivered to the Contract owner within 10 days of the
date of issue of the Contract and if after delivery the owner returns the
Contract to the Insurance Company and receives a full refund of all payments
made, in any situation where the failure to deliver in a timely manner was
due to the inaction or negligence of a General Agent, the Broker-Dealer or a
Registered Representative, the difference between the payments refunded and
the cash value of the Contract on the date the Contract is received by the
Insurance Company at its Principal Office shall be reimbursed to the
Insurance Company by the offending General Agent or the Broker-Dealer in any
case where the cash value is less than the payments refunded. Any such
reimbursement shall be paid to the affected Insurance Company within 30 days
of receipt of a written request for payment.
COMMISSION REFUNDS
SECTION 10. If a Contract owner rescinds a Contract or exercises a right to
surrender a Contract for return of all payments made, the soliciting General
Agent or the Broker-Dealer will repay the appropriate Insurance Company the
amount of any
5
<PAGE>
commissions received on the payments returned within 10 days of receipt of a
written request for repayment.
BASIS OF COMPENSATION
SECTION 11. While this Agreement remains in force, the Insurance Companies
agree to pay each General Agent commissions in accordance with the Commission
Schedule(s) attached hereto and incorporated herein, from which amounts the
General Agent agrees to pay its Registered Representatives. Commission
payments will be made for each Contract issued pursuant to an application
solicited by duly appointed Registered Representatives.
TIME OF PAYMENT OF COMMISSIONS
SECTION 12. A payment will not be considered made until it has been received
by the Insurance Company at its Principal Office. On payments made,
commissions will be paid at regular intervals in accordance with the rules of
the Insurance Companies.
TERMINATION
SECTION 13. This Agreement shall automatically terminate immediately and
without notice upon any General Agent's or the Broker-Dealer's ceasing to
comply with any of the terms and conditions of this Agreement or upon the
dissolution, bankruptcy or insolvency of a General Agent or the Broker-Dealer.
Whether or not there is a breach of this Agreement, the Broker-Dealer or
Allmerica may terminate this Agreement by giving ten (10) days' written
notice to the other party at any time during the first year hereof, and by
giving thirty (30) days' written notice after the expiration of the first
year hereof.
Upon termination of this Agreement all authorizations, rights and obligations
shall cease except the obligation to pay commissions due on payments received
prior to termination for Contracts in effect on the date of termination, or
for Contracts to be issued pursuant to applications received by the Insurance
Companies prior to termination. Except as provided in the preceding
sentence, no further commissions shall be paid after termination of this
Agreement.
RIGHT OF SET-OFF
SECTION 14. Allmerica and the Insurance Companies will have a lien on any
commissions payable under this Agreement, whether or not such payments are
now due or hereafter become due, and may apply any such monies to the
satisfaction of indebtedness to Allmerica or to either Insurance Company to
the extent permitted by law.
NON-WAIVER OF BREACH
SECTION 15. Waiver of any breach of any provision of this Agreement will not
be construed as a waiver of the provision or of the right of Allmerica to
enforce said provision thereafter.
ASSIGNABILITY
SECTION 16. This Agreement is not transferable. Without the written consent
of Allmerica and the Insurance Companies, no rights or interest in or to
commissions will be subject to assignment, and any attempted assignment, sale
or transfer of any commissions without such written consents will immediately
make this Agreement
6
<PAGE>
void and be a release to Allmerica and to the Insurance Companies in full of
any and all of their obligations hereunder.
RESERVATION OF RIGHT TO CHANGE
SECTION 17. Allmerica reserves the right at any time, and from time to time,
to change prospectively the terms and conditions of this Agreement, including
but not limited to, the rates of commissions. Any change will become
effective on the date specified in a notice or, if later, 10 days after the
notice is given to each General Agent and the Broker-Dealer. However, the
requirement to give advance notice shall not apply if the change becomes
necessary or expedient by reason of legislation or the requirements of any
governmental body and, in the opinion of Allmerica, it is not reasonably
possible to meet the 10 day requirement. Changes will not be retroactive and
will apply only to life insurance coverage solicited or annuity payments made
on or after the effective date of the change.
COMPLAINTS AND INVESTIGATIONS
SECTION 18. Each General Agent, the Broker-Dealer and Allmerica agree to
cooperate fully in any customer complaint, insurance or securities regulatory
proceeding or judicial proceeding with respect to the General Agent, the
Broker-Dealer, Allmerica, the Insurance Companies, their affiliates or their
Registered Representatives to the extent that such customer complaint or
proceeding is in connection with Contracts marketed under this Agreement. To
the extent required, Allmerica will arrange for the Insurance Companies to
cooperate in any such complaint or proceeding. Without limiting the
foregoing:
(a) General Agents and the Broker-Dealer will be notified promptly by
Allmerica or the Insurance Companies of any written customer complaint or
notice of any regulatory proceeding or judicial proceeding of which they
become aware including the General Agent, the Broker-Dealer or any
Registered Representative which may be related to the issuance of any
Contract marketed under this Agreement. Each General Agent or the
Broker-Dealer will promptly notify Allmerica of any written customer
complaint or notice of any regulatory proceeding or judicial proceeding
received by the General Agent or the Broker-Dealer including the General
Agent, the Broker-Dealer or any of their Registered Representatives which
may be related to the issuance of any Contract marketed under this
Agreement or any activity in connection with any such Contract(s).
(b) In the case of a customer complaint, each General Agent, the
Broker-Dealer, Allmerica and the Insurance Companies will cooperate in
investigating such complaint and any proposed response to such complaint
will be sent to the other parties to this Agreement for approval not less
than five business days prior to its being sent to the customer or
regulatory authority, except that if a more prompt response is required,
the proposed response shall be communicated by telephone or facsimile
transmission.
7
<PAGE>
CONFIDENTIALITY
SECTION 19. Allmerica agrees that the names and addresses of all customers
and prospective customers of each General Agent and the Broker-Dealer and of
any company or person affiliated with a General Agent or the Broker-Dealer,
and the names and addresses of any Registered Representatives of the
Broker-Dealer which may come to the attention of Allmerica exclusively as a
result of its relationship with a General Agent and the Broker-Dealer or any
affiliated company and not from any independent source, are confidential and
shall not be used by Allmerica, the Insurance Companies, or any company or
person affiliated with Allmerica or the Insurance Companies, nor divulged to
any party for any purpose whatsoever, except as may be necessary in
connection with the administration and marketing of the Contracts sold by or
through General Agents, including responses to specified requests to the
Insurance Companies for service by Contract owners or efforts to prevent the
replacement of such Contracts or to encourage the exercise of options under
the terms of the Contracts. In no event shall the names and addresses of
such customers, prospective customers and Registered Representatives be
furnished by Allmerica to any other company or person, including but not
limited to, any of their managers, registered representatives, or brokers who
are not Registered Representatives of the Broker-Dealer, any company
affiliated with Allmerica or any manager, agency, or broker of such company,
or any securities broker-dealer or any insurance agent affiliated with such
broker-dealer. The intent of this section is that Allmerica, the Insurance
Companies or companies or persons affiliated with them shall not utilize, or
permit to be utilized, their knowledge of each General Agent, the
Broker-Dealer or of any affiliated companies which is derived exclusively as
a result of the relationships created through the sale of the Contracts.
Notwithstanding the foregoing provisions of this Section 19, nothing herein
shall prohibit Allmerica, the Insurance Companies or any company or person
affiliated with Allmerica or the Insurance Companies from (i) seeking
business relationships and entering into separate sales agreements with
Registered Representatives of the Broker-Dealer if the names of said
Registered Representatives were obtained from independent sources and not
exclusively as a result of Allmerica's relationship with a General Agent and
the Broker-Dealer; (ii) from entering into separate sales agreements with
Registered Representatives of the Broker-Dealer upon the request and at the
initiation of said Registered Representatives; or (iii) divulging the names
and addresses of any such customers, prospective customers, Registered
Representatives, or other companies or persons described in the preceding
paragraph in connection with any customer complaint or insurance or
securities regulatory proceeding described in Section 18.
BONDING
SECTION 20. Each General Agent and the Broker-Dealer agree to furnish such
bond or bonds as Allmerica may require. Upon failure or inability of a
General Agent or the Broker-Dealer to obtain or renew any such bonds, this
Agreement shall terminate at Allmerica's discretion upon notice by Allmerica.
8
<PAGE>
NOTICE
SECTION 21. Whenever this Agreement requires a notice to be given, the
requirement will be considered to have been met, in the case of notice to the
Insurance Companies or to Allmerica, if delivered or mailed postage prepaid
to the address specified on page 1 of this Agreement and, in the case of
notice to a General Agent or the Broker-Dealer, if delivered or mailed
postage prepaid to the intended recipient's principal place of business.
CAPTIONS
SECTION 22. Captions are used for informational purposes only and no caption
shall be construed to affect the substance of any provision of this Agreement.
EFFECTIVENESS; ENTIRE CONTRACT; PRIOR AGREEMENTS
SECTION 23. This Agreement contains the entire contract between the parties.
Upon execution it will replace all previous agreements between each General
Agent or the Broker-Dealer and Allmerica and the Insurance Companies, or any
of them, relating to the solicitation of Contracts. It is hereby understood
and agreed that any other agreement or representation, commitment, promise or
statement of any nature, whether oral or written, relating to or purporting
to relate to the relationship of the parties is hereby rendered null and
void.
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate to
take effect on its effective date.
*For: _________________________________ For: Allmerica Investments, Inc.
Name of General Agent
By:__________________________________ By:________________________________
Name:________________________________ Name:______________________________
Title:_______________________________ Title:_____________________________
Date:________________________________ Date:______________________________
For: __________________________________
Name of Broker-Dealer
By:__________________________________
Name:________________________________
Title:_______________________________
Date:________________________________
* A separate signature line is required for each General Agent affiliate of the
Broker-Dealer.
9
<PAGE>
ALLMERICA ALLMERICA 440 Lincoln Street GENERAL AGENT'S
FINANCIAL INVESTMENTS, INC. Worcester, MA 01653 AGREEMENT
- --------------------------------------------------------------------------------
Allmerica Investments, Inc. ("Company") hereby appoints
__________________________________________________
("General Agent") as local supervisor for the purpose of training and
supervising all associated persons and registered representatives of Company
assigned to _________________________________________________________
("Agency") engaged in the solicitation, sale or service of variable life
insurance and variable annuity contracts offered by Allmerica Financial Life
Insurance and Annuity Company and/or First Allmerica Financial Life Insurance
Company, mutual funds, limited partnerships and general securities (collectively
"Investment Products and Services") offered and/or distributed by Company. This
appointment is effective as of the date accepted by General Agent and
acknowledged by Company.
1. SUPERVISION: General Agent agrees to supervise all registered
representatives assigned to Agency, both those operating from Agency and
those operating from detached locations, consistent with the standards of
conduct outlined in Company's Business Conduct Guide, Company's Statement
of Compliance for the Office of Supervisory Jurisdiction and Branch
Offices, the Program for Allmerica Financial Life/Allmerica Investments
Office Examinations, and the procedures and requirements outlined in other
Company manuals, memoranda and other publications, as may be amended from
time to time.
General Agent agrees to be responsible for Investment Products and Services
activity conducted through Agency by monitoring Investment Products and
Services activity in order to ensure that the business is processed in
accordance with regulatory and Company standards and to notify Company of
any irregularities and/or deficiencies.
General Agent agrees to be responsible for the maintenance and periodic
review of the books and records of Agency, as required by Company.
On at least an annual basis, General Agent agrees to conduct and/or
participate, in coordination with Company's compliance personnel, an agency
compliance meeting which all registered representatives assigned to Agency
shall attend. If for any reason a registered representative does not
attend agency compliance meeting, General Agent will schedule a personal
interview, on at least an annual basis, for the purpose of reviewing
activity of registered representative with respect to Investment Products
and Services and to discuss the compliance topics reviewed at agency
compliance meeting.
General Agent agrees to acquire and/or comply with all of the applicable
laws, rules and regulations (General Securities Principal Registration) of
the Securities and Exchange Commission (SEC), National Association of
Securities Dealers, Inc. (NASD) and all other federal and state laws and
regulations.
General Agent agrees to maintain all NASD registrations required to
supervise the solicitation and sale of Investment Products and Services
offered through Agency. General Agent will maintain all state securities
licenses and state insurance licenses as may be required to offer and
solicit Investment Products and Services.
2. LIMITATIONS OF AUTHORITY: General Agent has no authority to accept any
risk on Company's behalf, to issue, make, alter or discharge any contract,
to extend the time of payments, to waive or extend any contract obligation
or condition, or to alter or amend any communication sent by Company
without express authority in writing from an officer of Company.
3. ASSIGNABILITY: No assignment, sale or transfer of this Agreement or any
of the rights, claims or interests under it may be made by General Agent
without the prior written consent of Company. An assignment, sale or
transfer by General Agent without written consent of Company will
immediately make this Agreement void and shall be a release in full to
Company of any and all of its obligations under this Agreement.
4. AGENCY STAFFING: General Agent agrees to recruit, train and supervise
registered representatives to solicit Investment Products and Services
offered through Company. General Agent agrees to develop a sales force of
sufficient size and quality to adequately penetrate the market with
Investment Products and Services of Company.
<PAGE>
5. BUSINESS AUTHORIZED: General Agent agrees to act for Company in the
solicitation of orders only for those Investment Products and Services for
which Company has executed sales agreements. General Agent shall monitor
his/her registered representatives on a continuing basis to prevent the
offering or the selling of Investment Products and Services not offered by
Company and to prevent registered representatives of Company from
exercising discretionary authority on behalf of any of their clients.
6. SUBMISSION OF APPLICATIONS/ACCOUNTING FOR FUNDS COLLECTED: General Agent
agrees to establish and maintain at Agency procedures, as outlined in
Company manuals, concerning the collection, recording and transmittal of
all applications and/or payments collected on behalf of Company, any
issuer, or any sponsor.
General Agent agrees to be responsible to Company for monies collected by
registered representatives and for any securities, certificates, payments,
receipts and other Company papers in the possession of registered
representatives and employees of Agency.
Purchase checks for Investment Products and Services are to be client
personal checks, cashier's checks or money orders made payable to either
the Company, appropriate issuer, sponsor or other designated agent.
Purchase checks may not be made payable to registered representative,
General Agent or any personal or Agency Accounts.
7. REVIEW OF INVESTMENT PRODUCT BUSINESS: General Agent agrees, in accordance
with Company procedures, to conduct periodic reviews of Investment Product
and Services business of each registered representative. Such review of
Investment Product and Services business shall include, but not be limited
to, reviews for adequate NASD registrations and state securities and/or
insurance licensing of registered representative, prompt transmittal of
applications, checks and other pertinent items to Agency and subsequently
to Home Office, the correct use of applications and proper mode of payment
and the suitability of Investment Products and Service based on client's
financial profile and objectives.
8. BOOKS AND RECORDS: General Agent agrees to maintain a regular and
accurate record of all Investment Products and Services transactions of
Agency, including any journal, account books, records, papers, customer
account files or any other material, as required by Company. General Agent
agrees, at such times that Company may request, to make detailed report to
Company, on forms furnished for that purpose, showing an accurate
accounting of all monies and other items received for, or on behalf of
Company.
General Agent agrees that all records, files and papers are, and remain,
property of Company and will at all times be freely exhibited for the
purpose of examinations and inspection by duly authorized personnel of
Company.
Upon termination, all records revert to Company and should be turned over
to a Company representative.
9. DISTRIBUTION AND USE OF ADVERTISING MATERIAL, CORRESPONDENCE: General
Agent agrees not to directly or indirectly recommend or distribute any
advertising and/or sales literature to registered representatives
(including but not limited to prospectuses, illustrations, circulars, form
letters or postal cards, business cards, stationary, booklets, schedules,
broadcasting and other sales material of any kind) concerning Company
and/or the offering of Investment Products and Services until the material
has been approved in writing by a registered principal in the Company's
Compliance Department.
General Agent also agrees to obtain from his/her registered
representatives, at the time of development, copies of all correspondence
pertaining to the solicitations and/or sale of any Investment Products and
Services or to any other aspect of their Investment Products and Services
business, and to forward the correspondence to Home Office to allow for the
review and endorsement of correspondence in writing, on an official record
of Company, by a registered principal in the Company's Compliance
Department. General Agent shall periodically inspect Registered
Representatives' materials, sales literature and correspondence to ensure
compliance with Company requirements.
10. COMPENSATION: General Agent, subject to the provisions of this Agreement,
will be allowed expense reimbursement or allowances and overriding
commissions on payments collected on all Investment Product sales solicited
by Registered Representatives assigned to General Agent and effected
through Agency at rates established and published by Company, as may be
amended from time to time.
<PAGE>
11. COMMISSIONS: Company will pay commissions to General Agent, after
concession payments are made to Company by an issuer or sponsor, in
connection with sales of Investment Products and Services effected through
General Agent's personal solicitation. Such commissions will be paid on
the same basis and terms as specified in Company's Registered
Representative Agreement, which is incorporated herein by reference and as
may be amended from time to time.
12. TERMINATION WITHOUT CAUSE: General Agent and Company may terminate this
Agreement at any time without cause.
13. RELATIONSHIP OF PARTIES: Nothing contained in this Agreement is to be
construed to create the relationship of employer and employee between
Company and General Agent. General Agent, however, is to always comply
with all of the applicable laws, rules and regulations of the SEC, NASD,
federal and state authorities as well as Company's rules, regulations and
procedures concerning methods of conducting Investment Products and
Services business, as may be amended from time to time.
14. EFFECTIVENESS OF CONTRACT: This Agreement between General Agent and
Company is not binding until Agreement has been duly executed by both
parties. This Agreement supersedes all previous agreements, whether oral
or written. This Agreement shall not cancel or affect any right, claim or
interest General Agent may have concerning commissions now due or hereafter
to become due under preceding agreements between General Agent and Company.
Neither shall Agreement cancel, terminate or affect in any way any lien,
right or interest which Company may have, or may hereafter acquire, with
respect to commissions or equities to General Agent under any other
agreement with Company, any provision of any such agreement which, by its
terms or by implications, continues beyond termination of such agreement.
IN WITNESS THEREOF, this Agreement has been executed by the undersigned on the
dates indicated below.
Allmerica Investments, Inc.
By: By:
---------------------------------- ----------------------------------
General Agent Signature Home Office Principal
Date: Date:
-------------------------------- --------------------------------
<PAGE>
ALLMERICA FINANCIAL LIFE 440 Lincoln Street
INSURANCE AND ANNUITY COMPANY Worcester, MA 01653 CAREER AGENT AGREEMENT
- --------------------------------------------------------------------------------
Allmerica Financial Life Insurance and Annuity Company (the "Company") does
hereby appoint_____________________________ of _________________________________
("Career Agent") its Agent to solicit applications for insurance and annuities
and to submit such applications through the office of
__________________________________________ ("General Agent"), this appointment
to be effective on _____________________________.
Career Agent accepts this appointment, subject to the terms and provisions set
forth in this Agreement.
WITNESSETH:
Career Agent will solicit applications for coverages offered by the Company and
for which he/she is duly licensed. Career Agent is authorized to collect and
pay over to General Agent premiums on coverages solicited by him/her. Career
Agent shall not delegate any authority granted under this Agreement and shall
not appoint any solicitors or subagents to act on his/her behalf.
TERRITORY AND CLASSES OF BUSINESS
Territory SECTION 1. The district within which Career Agent may
solicit insurance and annuity applications for the Company
is the district assigned to General Agent.
Permissible SECTION 2. Career Agent agrees that in the sale and service
Activity of insurance and annuities he/she will act only on behalf of
the Company and such of its affiliates as he/she is
authorized to represent; and he/she will not engage in any
other activity for remuneration or profit which requires
his/her personal services without first obtaining the
consent of the Company. If the Company makes arrangements
with another business entity to make any of its products
available to Career Agents, this will constitute consent to
Career Agent to enter into an arrangement with such entity
to sell and service such products on its behalf. If, with
the consent of the Company, Career Agent engages in any
personal service activities for remuneration or profit,
he/she will, upon request of the Company, disclose the
amount of time expended and the amount of income derived
from such other activities.
STATUS, DUTIES AND AUTHORITY
Relationship SECTION 3. Nothing in this Agreement will be construed to
of Parties create the relationship of employer and employee between the
Company and Career Agent. Within the scope of his/her
authority, Career Agent will be free to exercise his/her
independent judgment as to the time, place and manner of
solicitation and servicing of business underwritten by the
Company. However, he/she will have no authority to act in a
manner which does not conform to applicable statutes,
ordinances or governmental regulations pertaining to the
conduct of the business or to reasonable rules adopted, from
time to time, by the Company.
-1-
<PAGE>
Limitations SECTION 4. Career Agent will have no authority to accept
on Authority risks of any kind; to make, alter or discharge contracts of
insurance or annuities; to waive forfeitures or exclusions;
to fix any premium for hazardous or substandard risks; to
alter or amend any papers received by him/her from the
Company; to deliver any policy of insurance or any document,
agreement or endorsement changing the amount of insurance
coverage if Career Agent knows or has reason to believe that
the insured is uninsurable; to collect any premium after the
expiration of the policy grace period except in connection
with a policy reinstatement; to accept payment of any
premium unless the premium meets the minimum premium
requirement for the policy established by the Company; or to
contract any debt rendering or purporting to render the
Company liable therefor, without express authority in
writing from an authorized officer of the Company.
Implied SECTION 5. Career Agent will have no power or authority
Authority other than as expressly provided in this Agreement and no
other power or authority shall be implied from the grant or
denial of power specifically mentioned in this Agreement.
Duty of SECTION 6. Career Agent agrees that he/she will not
Compliance; intentionally violate any applicable state or Federal law,
Negative ruling or regulation pertaining to the insurance business or
Obligations any rule or regulation of the Company. Career Agent will
not knowingly engage in any activity which is detrimental to
the best interests of the Company or any of its affiliates.
Neither while this Career Agent Agreement is in force nor
for a period of two years following the termination of this
Agreement will Career Agent directly or indirectly interfere
with the relationship of the Company or any of its
affiliates with any agent or broker.
Policy While this Agreement remains in force, Career Agent agrees
Termination that he/she will not, directly or indirectly, replace or
and Replacement induce or attempt to induce any policyholder to terminate or
replace any policy issued by the Company or any of its
affiliates except when permitted by the rules of the issuing
insurer. For a period of two years following termination of
this Agreement, Career Agent agrees that he/she will not,
directly or indirectly, replace or induce or attempt to
induce any policyholder serviced through the office of the
General Agent to terminate or replace any policy issued by
the Company or any of its affiliates.
SOLICITATION OF INSURANCE AND ANNUITIES
Submission of SECTION 7. Career Agent will submit through General Agent
Applications; all Company policy applications solicited by him/her,
Delivery of whether or not it appears the proposed insured is an
Policies; acceptable risk under the rules of the Company. Career
Rejected Agent will deliver, or cause to be delivered, in accordance
Business with the rules of the Company all policies issued on
applications submitted by him/her and will return to General
Agent any policy which is declined by the applicant or which
cannot be delivered within the time permitted by the
Company's rules. If an application is declined by the
Company or is accepted at a rate higher than standard which
is not acceptable to the applicant, with the Company's
permission Career Agent may place the coverage with another
insurance company.
-2-
<PAGE>
Limitation on SECTION 8. Career Agent will not solicit any insurance or
Solicitation annuities in any jurisdiction in which he/she is not
licensed nor will he/she solicit by mail or otherwise any
insurance or annuities outside the district assigned to
General Agent without first receiving consent of the Company
and ascertaining that he/she is properly licensed to solicit
such insurance or annuities.
Advertising SECTION 9. The Company, through General Agent, will make
Material, Rate available to Career Agent a supply of canvassing and
Books, Forms, advertising materials, stationery, books, records and forms
etc. necessary or suitable to properly solicit insurance and
annuities. Career Agent will not print, publish or
distribute any advertisement, circular, statement or
document relating to the business of the Company or any of
its affiliates or use any title or language descriptive of
his/her status without the prior approval of the Company.
Policyowner Solely to assist Career Agent in rendering service to
Service Aids policyowners, Career Agent may use whatever aids, such as
data cards, computer printouts, etc. as may be available.
All such aids, whether furnished by the Company or otherwise
- including any copies thereof - shall be the property of
the Company.
Illustrations Career Agent will not furnish any prospective insured or
and Proposals policyowner an illustration of the financial or other
aspects of a policy or a proposal for a policy of the
Company unless the same has been either furnished by the
Company or prepared from computer software or other material
furnished or approved by the Company. Any illustration or
proposal delivered by Career Agent will conform to standards
of completeness and accuracy established by the Company. If
the proposal or illustration was not furnished by the
Company, Career Agent will retain in his/her records for
availability to the Company a copy thereof or the means to
duplicate the same. Any computer software or materials
furnished by the Company will be and remain its property.
Return of Upon termination of this Agreement, Career Agent will return
Materials, etc. to the Company all manuals, computer software, policyholder
data cards, policyholder files, stationery and business
cards and other material which, by the terms of this Section
or otherwise, is the property of the Company.
Accounting for SECTION 10. In accordance with the rules of the Company,
Funds Collected Career Agent will account for and remit immediately through
General Agent all funds received or collected by him/her for
or on behalf of the Company without deduction for any
commissions, fees, or other claim he/she may have against
the Company and will make such reports and file such
substantiating documents and records as the Company or
General Agent may require.
Liability for SECTION 11. If the Company pays Career Agent commissions or
Refund of fees in advance of receipt of the premium on which the
Commissions payment is based, the amount by which the payment to Career
and Fees Agent exceeds, at any time, the amount attributable to the
premiums paid will constitute a personal debt of Career
Agent payable on demand. If the Company returns premiums on
a policy for any reason whatsoever (other than as a part of
claim settlement) or rescinds or cancels a policy for any
reason whatsoever or if a policyholder exercises a right to
surrender
-3-
<PAGE>
the policy for return of all premiums paid, Career Agent
will pay on demand the amount of any commissions received on
the premiums returned.
Notwithstanding the foregoing, after this Agreement has been
in force for 10 complete years and prior to the date the
Agreement is terminated for cause, unearned commissions paid
in advance on policies the premiums for which are being paid
under the Company's Monthly Automatic Premium (MAP) Plan or
other annualized commission arrangement that are repayable
because of a lapse or surrender of the policy may only be
recovered by set-off from first year and renewal commissions
and fees otherwise payable by the Company or its affiliates
to Career Agents.
COMPENSATION
Basis of SECTION 12. Career Agent's compensation will be a
Compensation combination of commissions and fees payable on premiums for
individual and group life, health and annuity policies
placed with the Company. The amount of commissions and fees
payable for individual insurance and annuity policies will
be determined by the further provisions of this Agreement
and the published rules of the Company. The amount of
commissions and fees payable on group life and health
insurance and group annuity policies solicited by Career
Agent will be specified in separate agreements related
solely to that class of business.
Commissions payable on premiums on a policy resulting from
conversion, exchange, replacement or the exercise of an
option to purchase additional insurance will be determined
by Company rules in effect at the time of the conversion,
exchange, replacement or exercise of the option.
Published Rules The Company may, by published rule, limit the amount of
Affecting premium on which commissions or fees are payable and limit,
Compensation defer, or exclude commissions or fees because of the nature
of the transaction, discretionary nature of the premium or
other circumstances.
Payor All compensation due Career Agent under this Agreement will
be paid by First Allmerica Financial Life Insurance Company
(First Allmerica), an affiliate of the Company, as the
common paymaster.
Time of Payment SECTION 13. A premium will not be considered paid until it
of Commissions has been received by the Company at its Principal Office.
On premiums paid or allocated prior to the 15th day of the
month, commissions and fees will be paid on the last
business day of the month. On premiums paid or allocated
subsequent to the 15th day of the month, commissions and
fees will be paid on the 15th day of the following month, or
on the last business day preceding such pay date, if such
pay date is not a business day.
-4-
<PAGE>
TERMINATION AND ITS EFFECT ON COMMISSIONS AND FEES
Termination SECTION 14. This Agreement may be terminated for cause and
for Cause without notice if Career Agent:
(a) misappropriates any funds belonging to or received on
behalf of the Company or any of its affiliates; or
(b) withholds any funds or other property belonging to the
Company or any of its affiliates after the same should
have been reported and transmitted to the Company or
its affiliate or after a demand has been made for the
same; or
(c) commits any willful or dishonest act which injures the
Company or any of its affiliates; or
(d) commits any intentional act which violates any
applicable Fair Trade Practices Act and thereby injures
the Company or any of its affiliates; or
(e) intentionally performs any act prohibited by law or
intentionally omits any act required by law with the
result that the Company or any of its affiliates is
subject to disciplinary action; or
(f) willfully violates any of the provisions of this
Agreement.
Forfeiture of SECTION 15. No commissions or fees will be paid following
Commissions termination of this Agreement, if it is terminated for
and Fees cause, nor will commissions or fees continue to be paid
after termination of this Agreement if Career Agent breaches
any of its terms or conditions by the commission of an act
prohibited by its terms.
Termination SECTION 16. Notwithstanding the foregoing, and whether or
Without Cause not there is a breach of this Agreement, either party may
terminate this Agreement during its first year by giving 10
days' notice in writing to the other party of the intention
to do so and thereafter by giving 30 days' notice in writing
to the other party of the intention to do so.
Effect of Certain SECTION 17. If this Agreement terminates without breach of
Terminations any of its provisions by Career Agent:
(a) by reason of the death of Career Agent; or
(b) by reason of the permanent Total Disability of Career
Agent; or
(c) by reason of retirement of Career Agent under the
Career Agents' Retirement Plan established and
maintained by the Company; or
(d) by reason of employment of Career Agent by the Company
or any of its affiliates in some capacity other than as
a Career Agent;
-5-
<PAGE>
commissions will continue to be paid to Career Agent only as
provided in the Exhibits attached hereto.
After termination of this Agreement by reason of the
permanent Total Disability of Career Agent, if Career Agent
recovers from said disability, this Agreement may be
reinstated. If Career Agent recovers from disability and
this Agreement is not reinstated, commissions will be
payable on premiums paid thereafter only if they would have
been payable if Section 18 had applied on termination.
Effect of Other SECTION 18. If this Agreement terminates without breach of
Terminations any of its provisions by Career Agent for any reason other
Without Cause than asset forth in Section 17, commissions will continue to
be paid to Career Agent only as provided in the Exhibits
attached hereto.
GENERAL PROVISIONS
Right of SECTION 19. The Company, for its own benefit, for the
Set-Off benefit of its affiliates and for the benefit of the General
Agent, will have a lien on any commissions and fees payable
under this Agreement, whether or not the commissions are now
due or hereafter become due, and may apply any such monies
to the satisfaction of indebtedness to any of said persons
to the extent permitted by law.
Non-waiver SECTION 20. Waiver of any breach of any provision of this
of Breach Agreement will not be construed as a waiver of the provision
or of the right of the Company to enforce said provision
thereafter.
Assignability SECTION 21. This Agreement is not transferable. Without
the consent of the Company, no rights or interest in or to
commissions or fees will be subject to assignment, other
than a collateral assignment of commissions and fees, and
any attempted absolute assignment, sale or transfer of this
Agreement or of any commissions or fees without the written
consent of the Company will immediately make this Agreement
void and be a release to the Company in full of any and all
of its obligations hereunder.
Errors and SECTION 22. Career Agent agrees to maintain errors and
Omissions omissions insurance coverage meeting the Company's minimum
Coverage coverage requirements and to furnish the Company proof of
such coverage upon request. If any lawsuit is brought
against the Company as a result of any alleged action, error
or omission of Career Agent and if (1) Career Agent has
maintained errors and omissions coverage which complies with
the Company's minimum requirements, and (2) the alleged
action, error or omission of Career Agent was not committed
intentionally or with dishonest, fraudulent or criminal
intent, Career Agent agrees to reimburse the Company and its
affiliates for all costs of the lawsuit, including
attorney's fees, and all damages resulting therefrom up to
the Company's Career Agent liability limit. The minimum
coverage requirements and Career Agent liability limit will
be set forth in a bulletin or announcement published by the
Company and are subject to change at any time. Distribution
of the bulletin or announcement in the usual manner will
constitute notice to Career Agent. If any lawsuit is
brought against the Company as a result of any alleged
Career Agent action, error or omission and if Career Agent
(1) did not maintain at least the
-6-
<PAGE>
required minimum errors and omissions coverage, or (2) did
maintain such coverage but Career Agent's action, error or
omission was committed intentionally or with dishonest,
fraudulent or criminal intent, Career Agent agrees to
reimburse the Company and its affiliates for all costs of
the lawsuit, including attorney's fees, and all damages
resulting therefrom unless the court determines the suit to
be groundless and without merit.
Reservation of SECTION 23. The Company reserves the right at any time to
Right to Change change the terms and conditions of this Agreement,
including but not limited to, the rates of commissions and
fees, or to discontinue the payment of any commissions and
fees described in the Exhibits attached hereto.
Effective Date SECTION 24. Any change will become effective on the date
of Change specified in a notice or, if later, 30 days after the notice
is given to Career Agent. However, the requirement to give
advance notice shall not apply if the change becomes
necessary or expedient by reason of legislation or the
requirements of any governmental body and, in the opinion of
the Company, it is not reasonably possible to meet the 30
day requirement. Changes will not be retroactive and will
apply only to units of coverage solicited on or after the
effective date of the change. Notice of any change may be
given by a Company bulletin or announcement and distribution
of the bulletin or announcement in the usual manner will
constitute notice to Career Agent.
Arbitration SECTION 25. By his/her execution of this Agreement, Career
Agent agrees to settle any dispute, claim or controversy
arising between Career Agent and the Company by arbitration
pursuant to the then current rules of the American
Arbitration Association. Judgment upon any award rendered
in the arbitration may be entered in any court of competent
jurisdiction.
All applicable disputes shall be referred to three
arbitrators, one to be chosen by each party, and the third
by the two so chosen. If either party refuses or neglects
to appoint an arbitrator within thirty days after the
receipt of written notice from the other party requesting it
to do so, the requesting party may nominate two arbitrators
who shall choose the third. In the event the two
arbitrators do not agree on the selection of the third
arbitrator within thirty days after both arbitrators have
been named, then the third arbitrator shall be selected
pursuant to the then current rules of the American
Arbitration Association. The decision of the majority of
the arbitrators shall be final and binding upon all parties.
The expenses of the arbitrators and of the arbitration shall
be equally divided between all parties. Arbitration is the
sole remedy for disputes arising under this Career Agent
Agreement.
General Agent SECTION 26. General Agent means the General Agent
identified on the face page or any other General Agent in
charge from time to time of a general agency office to which
Career Agent is assigned.
Definitions SECTION 27. As used in this Agreement, including the
Exhibits attached hereto:
"Replacement" means a transaction in which a new life or
disability insurance policy or a new annuity contract is to
be purchased, and by reason of the transaction, all or a
portion of
-7-
<PAGE>
any existing life or disability insurance policy or any
existing annuity contract has been or is to be lapsed,
forfeited, reduced in face amount, surrendered, assigned to
the replacing insurer, placed on a reduced paid-up basis or
under another nonforfeiture provision or terminated, or
subjected to borrowing or withdrawals, whether in a single
sum or under a schedule of borrowing or withdrawals over a
period of time.
"Total Disability" means the inability of the Career Agent,
because of injury or sickness, to perform the duties of any
occupation for which he/she is reasonably fitted by
training, education or experience. During the first 24
months of total disability, Career Agent will be considered
to have met the foregoing requirement if he/she is unable to
perform the duties of his/her regular occupation and is not
performing the duties of any other occupation. Total
disability will be considered permanent after it has existed
6 months and thereafter while it continues.
"Flexible premium policy" means an individual insurance or
annuity policy under which the policyowner may unilaterally
vary the amount and timing of premium payments.
"Unit of Coverage" means all benefits of a policy which have
the same date of issue, except as modified by Company
published rules. Usually all the benefits specified in the
policy Schedule of Benefits and in each Supplementary
Schedule of Benefits constitute a unit of coverage.
"Policy Year," as to each unit of coverage, means a period
of 1 year commencing on its date of issue and each
anniversary thereof.
"Monthaversary," as to each unit of coverage, means its date
of issue and the corresponding day of each month thereafter.
"Basic premium," for each unit of coverage, means the sum of
the basic or target premiums for each benefit in the unit,
as determined from the Company's Rate Manual.
"Excess premium" means premium paid in any policy year in
excess of basic or target premium.
"Agreement" means this entire agreement, including all
Exhibits and commission and fee schedules attached thereto.
Other Exhibits issued hereafter will become a part of this
Agreement on their effective date.
Notice SECTION 28. Whenever this Agreement requires a notice to be
given, the requirement will be considered to have been met,
in the case of notice to the Company, if delivered or mailed
postage prepaid to General Agent at the agency office or to
a Vice President in the Company's Allmerica Financial
Services Operation and, in the case of notice to Career
Agent, if left at the usual place for him/her to pick up
mail within the agency office, or by mailing postage
prepaid, to Career Agent's last home address known to the
Company or to such other address as may be designated by
Career Agent.
-8-
<PAGE>
Captions SECTION 29. Captions are used for informational purposes
only and no caption shall be construed to affect the
substance of any provision of this Agreement.
Effectiveness; SECTION 30. This Agreement contains the entire contract
Entire Contract; between the parties. Upon execution it will replace all
Prior Agreements previous agreements between Career Agent and the Company
relating to the solicitation of insurance and annuity
policies except as the previous agreement relates to the
payment of commissions and fees on policies solicited prior
to the effective date of this Agreement. For purposes of
determining vestings on termination, the date of the
earliest prior Career Agent Agreement executed by Career
Agent during his current period of continuous service with
the Company and First Allmerica will be considered the date
of this Agreement. It is hereby understood and agreed that
any other agreement or representation, commitment, promise
or statement of any nature, whether oral or written,
relating to or purporting to relate to the relationship of
the parties is hereby rendered null and void.
IT IS UNDERSTOOD THAT THIS IS AN "AT WILL" RELATIONSHIP WHICH MAY BE TERMINATED
BY EITHER PARTY WITHOUT CAUSE OR REASON AS PROVIDED FOR IN SECTION 16.
IN WITNESS WHEREOF, the parties have executed this Agreement in triplicate to
take effect on its effective date.
Allmerica Financial Life Insurance and Annuity Company
By:
--------------------------------------------------
Vice President
--------------------------------------------------
Career Agent
Approved:
--------------------------------------------------
General Agent
-9-
<PAGE>
COMMISSION SCHEDULE FOR VARIABLE ANNUITY POLICIES:
Writing Agent 5% of all initial and subsequent payment amounts
General Agent 2.0% of all initial and subsequent payment amounts
Middle Management Overrides will be paid to fully-licensed and NASD
registered Middle Management in an amount of 10% of
commissions earned on policies written by career
agents in their first two contract years or trainee
agents in their first five contract years.
<PAGE>
Registered
[LOGO] ALLMERICA Allmerica 440 Lincoln Street Representative's
FINANCIAL(R) Investments, Inc. Worcester, MA 01653 Agreement
- --------------------------------------------------------------------------------
Allmerica Investments, Inc. ("Company") hereby appoints ________________________
("Registered Representative") for the purpose of selling and servicing variable
contracts offered by Allmerica Financial Life Insurance and Annuity Company,
mutual funds, limited partnerships and other investment products and services
(collectively "Investment Products and Services") offered and distributed by
Company. Registered Representative will submit Investment Products and Services
business through the office of _________________________________________________
("General Agent") or successor at ______________________________________________
("Agency") or successor. This appointment is effective as of the date accepted
by Registered Representative and acknowledged by General Agent.
1. DUTY OF COMPLIANCE/SUPERVISION: Registered Representative is assigned to
the above named Agency and General Agent for the purposes of training,
supervision and recordkeeping. Registered Representative agrees to comply
with all of the applicable laws, rules and regulations of the Securities
and Exchange Commission (SEC), National Association of Securities Dealers,
Inc. (NASD) and all other applicable federal and state insurance and
securities laws and regulations.
Registered Representative agrees to comply with all procedures and
requirements outlined in Company manuals, memoranda and other publications
as may be amended from time-to-time.
Registered Representative agrees to abide by Company's Compliance Program
including his/her mandatory attendance, on at least an annual basis, at
Agency's Compliance Meeting(s) and/or Interview(s). Failure to attend
Compliance Meeting and/or Interview is grounds for immediate termination
for cause.
2. LIMITATIONS OF AUTHORITY: Registered Representative may not delegate any
authority granted under this Agreement and shall not appoint any
solicitors or subagents to act on his/her behalf. Registered
Representative may not sign and/or submit any customer applications or
orders on behalf of any individual who is not fully qualified as a
Registered Representative of Company.
Registered Representative will only offer for sale those Investment
Products and Services for which he/she is properly NASD registered,
securities-licensed through Company and, if required by state law, state
insurance-licensed through Allmerica Financial Life Insurance and Annuity
Company, and for which Company has fully executed sales agreements with
the sponsor or issuer. To participate in the sale of Investment Products
and Services for which no agreement has been executed is to "sell-away"
from Company and is grounds for immediate termination of this Agreement
upon written notice to Registered Representative.
Registered Representative will maintain his/her NASD registration solely
through Company and will provide full disclosure to Company of his/her
background. Registered Representative agrees to notify Company immediately
of any matter requiring disclosure on the NASD Form U-4, Uniform
Application for Securities Industry Registration, including but not
limited to any income generating business activity, other than personal,
passive investment, which is outside the scope of Registered
Representative's Agreement with Company.
Customer accounts or applications may only be accepted on behalf of
Company based on approval by a Home Office principal. Registered
Representative has no authority to accept any risk on Company's behalf, to
incur any indebtedness or liability on behalf of Company and understands
and agrees to Company's prohibition against assuming discretionary
authority over client investments.
3. ASSIGNABILITY: No assignment, sale or transfer of this Agreement or any of
the rights, claims or interests under it may be made by Registered
Representative without the prior written consent of Company. Such
assignment, sale or transfer by Registered Representative without written
consent of Company will immediately make this Agreement void, and will be
a release in full to Company of any and all of its obligations hereunder.
4. SUBMISSION OF APPLICATIONS/ACCOUNTING FOR FUNDS COLLECTED: All
applications and/or payments collected by Registered Representative on
behalf of Company or any issuer or sponsor are to be delivered immediately
to Registered Representative's Agency no later than noon of the business
day following receipt by Registered Representative.
Investment Product and Services purchase checks are to be client personal
checks, cashier's checks or money orders made payable to either the
Company, appropriate issuer, sponsor or other designated agent. Such
checks may not be made payable to Registered Representative, General Agent
or any personal or Agency account.
5. SUITABILITY/RESPONSIBILITY TO EXPLAIN INVESTMENT PRODUCTS: Registered
Representative agrees to make Investment Product and Services
recommendations to clients only after obtaining sufficient information
regarding a client's financial background, goals and objectives so as to
make a reasonable determination that the proposed Investment Product
and/or Service is suitable based on such background, goals and
objectives. Registered Representative agrees to fully explain the risks,
terms and conditions of the purchase of an Investment Product or Service
and that he/she will not make untrue statements, interpretations,
misrepresentations nor omit or evade material facts concerning such
Investment Product or Service.
6. DISTRIBUTION AND USE OF ADVERTISING MATERIAL, CORRESPONDENCE: Registered
Representative agrees not to directly or indirectly use or distribute
any advertising or sales literature material (including but not limited
to prospectuses, illustrations, circulars, form letters or postal cards,
business cards, stationery, booklets, schedules, broadcasting and other
sales material of any kind) concerning Company and/or the offering of
Investment Products and Services of any kind until the material has been
approved by Company in writing.
Registered Representative also agrees to provide to General Agent copies
of all correspondence pertaining to the solicitation of execution of any
Investment Products and Services transaction, and to any other aspect of
his/her Investment Products and Services business in order to allow for
the review and endorsement of the correspondence in writing, on an
official internal record of Company by a registered principal located at
Home Office.
SMAE-050NS (11/95)
<PAGE>
7. RECORDKEEPING: Registered Representative agrees, in accordance with
Company guidelines and requirements, to cooperate in the maintenance of
complete customer account files and other records at the assigned Agency
which pertain to the conduct of Investment Products and Services business
through Company. Customer account files of Registered Representative are
to be considered the property of Company and are not to be taken from the
immediate Agency premises for any purpose.
8. COMMISSIONS: Commissions for the sale of Investment Products and Services
offered or effected by Registered Representative will be paid after
compensation for those sales is paid to Company. Commissions for
Investment Products and Services will be paid at the rates established and
published by Company.
Commissions may be changed by Company at any time without advance notice.
However, this policy shall not be applied retroactively to divest any
Registered Representative of specific commission amounts already due
him/her.
Registered Representative agrees not to share commissions with
non-qualified representatives or with clients.
Under certain circumstances, i.e., termination of agents subject to
variable contract commission vesting, retirement or death, Registered
Representative or his/her estate may be entitled to receive continuing
commissions from Company for transactions conducted prior to the cessation
of his/her service with Company. Continuing commissions will be paid based
on vesting schedules established and published by Company, as may be
amended from time-to-time.
If Company or any issuer or sponsor returns or waives payments on any
application or order, commissions will not be due or payable on the
payments. Registered Representative shall repay to Company on demand any
commissions already received by Registered Representative with respect to
such returned or waived payments.
Where cancellation of any Investment Products and Services order results
in expense or loss to Company, Registered Representative is liable for
reimbursement to Company of the expense or loss including but not limited
to any sales charge levied by an issuer and any decline in the price of an
Investment Product, as of the time of cancellation.
In the event Registered Representative becomes party to a Career Builder
Supplemental Agreement (Supplemental Agreement) with First Allmerica
Financial Life Insurance Company ("First Allmerica"), and its affiliate,
Allmerica Financial Life Insurance and Annuity Company, commissions
payable under this Registered Representative's Agreement will be credited
to the Reserve Account described in such Supplemental Agreement during the
period such Supplemental Agreement is in effect and will be paid to
Registered Representative only as provided therein.
Company reserves the right to pay commissions to the Registered
Representative for Investment Products and Services sold or performed by
utilizing one check issued by Allmerica Financial or one of its
wholly-owned subsidiaries. Such check may also contain compensation for
traditional life, health and disability policies as well as other products
and services sold by Registered Representatives through Allmerica
Financial.
9. RIGHT OF OFF-SET: Company, for its own benefit and/or the benefit of its
affiliates, will have a lien on any commissions and other compensation
payable under this Agreement, and may deduct any monies owed Company or
affiliates from such commissions or other compensation to the extent
permitted by law.
10. TERMINATION FOR CAUSE: If Registered Representative withholds or
misappropriates monies, securities, certificates, payments, receipts,
"sells-away," commits any willful or dishonest act which, in the sole
discretion of Company, is detrimental to Company, or fails to comply with
any of the conditions, duties or obligations of this Agreement, this
Agreement will immediately terminate without notice.
11. TERMINATIONS WITHOUT CAUSE: Registered Representative or company may
terminate this Agreement without cause during the first twelve (12) months
following the date this Agreement is executed by providing ten (10) days'
notice in writing to the other party of the intention to terminate. After
the first twelve (12) months, Registered Representative or Company may
terminate this Agreement without cause upon thirty (30) days' notice in
writing of the intention to terminate.
In the event Registered Representative terminates his/her Career Agent
Agreement with First Allmerica Financial Life Insurance Company, this
Agreement will be terminated upon written notice as described herein.
12. RELATIONSHIP OF PARTIES: Nothing contained in this Agreement is to be
construed to create the relationship of employer and employee between
Company and Registered Representative or between Company's General Agent
and Registered Representative. Registered Representative shall exercise
his/her own judgment concerning the individual(s) to whom he/she will
solicit Investment Products and Services as well as the time, place and
manner of the solicitations. Registered Representative, however, shall
comply with all applicable laws, rules and regulations of the SEC, NASD,
federal and state authorities as well as Company's rules, regulations
and procedures concerning the conduct of Investment Products and
Services business, as may be amended from time-to-time.
13. EFFECTIVENESS OF CONTRACT: This Agreement constitutes the entire contract
between Registered Representative and Company.
Registered Representative accepts the appointment, subject to all of the
conditions and provisions set forth in this Agreement. This Agreement
supersedes all previous agreements, whether oral or written between the
parties, and no modification, except to attached Compensation Schedules
(if any), will be valid unless made in writing and signed by both parties.
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned on the
____________________________________ day of
_________________________ ,19 _______. Allmerica Investments, Inc.
By__________________________
__________________________________ ____________________________
Registered Representative General Agent
<PAGE>
DEFINITIONS
1. "Accumulation Unit" means a measure of the value of a Sub-Account before
annuity payments begin.
2. "Annuity Date" means the date on which annuity payments are to commence. If
the Owner has not elected an alternative Annuity Date, such payments will begin
on the Annuity Date specified on page 3.
3. "Annuity Unit" means a measure of the value of annuity payments under a
Variable Annuity Option of the policy.
4. "Company" means Allmerica Financial Life Insurance and Annuity Company.
5. "Fund" means any registered investment company or any portfolio series of
such a company.
6. "General Account" means all assets of the Company which are not allocated to
the Separate Account.
7. "Owner" means the person or persons who may exercise the rights and
privileges under this policy. No more than two owners are permitted. In the case
of joint owners, one must be the annuitant.
8. "Policy Year" means a period of one year computed from the Date of Issue, or
from an anniversary of the Date of Issue.
9. "Principal Office" means the Company's office located at 440 Lincoln Street,
Worcester, Massachusetts, 01653 (1-800-533-7881).
10. "Separate Account" means the Company's separate investment account known as
Separate Account VA-K. The investment performance of the assets of the Separate
Account is determined separately from the other assets of the Company.
11. "Sub-Account" means each subdivision of Separate Account VA-K. The assets of
each Sub-Account are invested exclusively in shares of a corresponding Fund.
12. "Surrender Value" means the Accumulated Value of the policy (described on
page 7) less any applicable surrender charges (as specified on page 10), and
policy fee (as specified on page 8).
13. "Valuation Date" means the time as of which the values of all units of
variable annuity policies are determined. Valuation Dates occur at the close of
business on each day on which the New York Stock Exchange is open for trading.
14. "Valuation Period" means the interval between two consecutive Valuation
Dates.
15. "Written Request" or "Written Notice" means a request or notice in writing
satisfactory to the Company and filed at its Principal Office.
Form A3021-93 (5)
<PAGE>
OWNERSHIP AND BENEFICIARY
1. Owner During the lifetime of the Annuitant and prior to the Annuity Date, the
Owner will be as shown in the application unless changed in accordance with the
terms of this policy. On and after the Annuity Date, the Annuitant will be the
Owner except where the Owner immediately prior to the Annuity Date is an entity
other than a natural person. In that case, ownership will remain the same on and
after the Annuity Date.
Prior to the Annuity Date the Owner may vote at meetings of policyowners as
provided in the Voting Rights provision. The Owner may exercise all other rights
and options granted in this policy or by the Company, subject to the consent of
any irrevocable beneficiary. The consent of the Annuitant, if the Annuitant is
not the Owner, or any revocable Beneficiary is not required for the excercise of
any ownership rights. Where the policy is owned jointly, the consent of both
Owners is required in order to exercise any ownership rights.
2. Assignment The Owner may be changed at any time prior to the Annuity Date and
while the Annuitant is alive. Only the Owner may assign this policy. An absolute
assignment will transfer ownership to the assignee. The policy may also be
collaterally assigned as security. The limitations on ownership rights while the
collateral assignment is in force are set forth in the assignment. An assignment
will take place only when the Company has received Written Notice and recorded
the change at the Principal Office. The Company will not be deemed to know of
any assignment of this policy until it has received Written Notice. When
recorded, the assignment will take effect as of the date the Written Notice was
signed. Any rights created by the change will be subject to any payment made or
action taken by the Company before the change was recorded.
The Company will not be responsible for the validity of any assignment or the
extent of any assignee's interest. On the Annuity Date the Company may pay to
the assignee that portion of the Surrender Value of this policy which is due.
Such payment will be made in one sum. Any remaining Surrender Value will be paid
in one sum to the Owner. Such payment will discharge all liability under this
policy. The interests of the Annuitant and the Beneficiary will be subject to
any assignment.
3. Beneficiary The Beneficiary is as named in the application unless changed in
accord with the terms of this policy. All death benefits provided by this policy
will be divided equally among the surviving Beneficiaries, unless the Owner
directs otherwise.
Unless the Owner directs otherwise, the interest of a Beneficiary who dies
before the Annuitant will pass to any surviving Beneficiaries in proportion to
their share in the proceeds. If there is no surviving Beneficiary, the deceased
Beneficiary's interest will pass to the Owner.
The Owner may declare the choice of any Beneficiary to be revocable or
irrevocable. A revocable Beneficiary may be changed at a later time. An
irrevocable Beneficiary must consent in writing to any change. Unless otherwise
specifically indicated, the Beneficiary will be considered to be revocable.
4. Change of Beneficiary The Owner may change any Beneficiary, except an
irrevocable one, any time while this policy is in force. Such change may be made
only by Written Request, and will be subject to the rights of any assignee of
record. When the Company receives the Request, the change will take place as of
the date it was signed, even if the Annuitant is not living on the date the
Company receives the Request. Any rights created by the change will be subject
to any payment made or action taken by the Company before the change was
recorded.
5. Protection of Proceeds To the extent allowed by law, the proceeds of this
policy and any payments made under it will be exempt from attachment by the
claims of creditors of the payee. Neither the Annuitant nor the Beneficiary can
assign, transfer, commute, anticipate or encumber the proceeds or payments
unless given that right by the Owner.
Form A3021-93 (6)
<PAGE>
ELECTIVE PAYMENTS
1. Elective Payments Prior to the Annuity Date and while this policy is in
force, the Owner may make additional payments under this policy. Each additional
payment must be at least $50.
The sum of payments made to this policy may not exceed $1,000,000. Upon Written
Request, the $1,000,000 maximum may be increased to an amount acceptable to the
Company under its then current rules.
2. Net Payments Each Net Payment is equal to the gross elective payment less the
amount of any premium tax, if applicable, which must be paid by the Company as a
result of the payment being credited to the policy.
3. Net Payment Allocations Net Payments will be allocated on a percentage basis
among the General Account and/or the Sub-Accounts as specified by the Owner in
the policy application. If a Net Payment is to be allocated between two or more
accounts, not less than $10 may be allocated to any account. If the percentage
allocation elected by the Owner would result in an allocation of less than $10
to any one of such accounts, the Company reserves the right to apply such amount
to one of the other accounts in accordance with Company rules and procedures.
The Owner may change the allocation of future Net Payments at any time on
Written Request.
POLICY VALUES
1. Accumulation Unit Values The dollar value of an Accumulation Unit under a
Sub-Account as of any Valuation Date is determined by multiplying the dollar
value of an Accumulation Unit as of the immediately preceding Valuation Date by
the Net Investment Factor for the Valuation Period at the end of which the
Accumulation Unit value is being determined.
Accumulation Units are credited to the policy for benefits funded by a
Sub-Account. The number of Accumulation Units so credited is equal to the
specified portion of the Net Payment divided by the dollar value of an
applicable Accumulation Unit as of the Valuation Date such payment is applied.
On any date prior to the Annuity Date the Accumulated Value of this policy is
the sum of the value of all Accumulation Units then credited to the Separate
Account plus the value of any General Account accumulations.
2. Annuity Unit Values The value of an Annuity Unit under a Sub-Account on any
Valuation Date is equal to the value of such Unit on the immediately preceding
Valuation Date multiplied by the product of:
(a) a discount factor equivalent to an assumed rate of interest of 3 1/2% per
annum; and
(b) the Net Investment Factor of the Sub-Account funding such Variable Annuity
payments for the applicable Valuation Period.
The dollar value of an Annuity Unit as of any date other than a Valuation Date
shall be equal to its value as of the immediately preceding Valuation Date.
The dollar amount of each monthly variable annuity payment shall be equal to the
number of Annuity Units multiplied by the applicable value of the Annuity Unit,
except that under Annuity Option IV-B, monthly annuity payments payable to the
surviving payee shall be based upon 2/3rds of the number of Annuity Units which
applied during the joint lifetime of the two payees.
Form A3021-93 (7)
<PAGE>
POLICY VALUES (Continued from page 7)
3. Adjusted Gross Investment Rate The Adjusted Gross Investment Rate of a
Sub-Account for any Valuation Period is equal to:
(a) (i) the investment income of such Sub-Account for the Valuation Period,
plus capital gains and minus capital losses of such Sub-Account for the
Valuation Period, whether realized or unrealized; minus
(ii) an amount for capital gains taxes and any other taxes based on income
of, assets in, or the existence of such Sub-Account, whichever may be
applicable; divided by
(b) the amount of such Sub-Account's assets at the beginning of the
Valuation Period.
The Adjusted Gross Investment Rate may be positive or negative.
4. Net Investment Rate and Net Investment Factor The Net Investment Rate of a
Sub-Account for any Valuation Period shall be equal to the Adjusted Gross
Investment Rate for such Valuation Period decreased by (a) a factor equivalent
to .0125 per annum for mortality and expense risks and (b) a factor equivalent
to .0020 per annum for administrative charges associated with each sub-account.
Such factors may be decreased by the Board of Directors of the Company. In no
event shall they exceed the maximum stated in the Guarantees provision. The Net
Investment Factor is 1.000000 pIus the Net Investment Rate.
5. Policy Value of the General Account Allocations to the General Account are
not converted into Accumulation Units but are credited interest at a rate
periodically set by the Company. For one year from the date a payment allocated
to the General Account is received at the Company's Principal Office, the rate
of interest credited to that payment will be the Initial Rate in effect on such
date. Thereafter, the rate of interest for that payment will be the greater of:
(a) the Company's Current Interest Rate or
(b) an interest rate of 3% compounded annually thereafter.
The policy value of the General Account will be at least equal to the minimum
required by the law in the state in which this policy is delivered.
6. Policy Fee The Company will deduct a policy fee on each policy anniversary
prior to the Annuity Date and on the date the policy is surrendered if the
policy's Accumulated Value on the the anniversary or surrender date, as
applicable, is less than $50,000. The amount of the fee will be the lesser of
$30 or 3% of the policy's Accumulated Value on the applicable date. No policy
fee will be deducted for policies issued to and maintained by the Trustee of a
401(k) plan. The Company reserves the right to impose a fee up to the lesser of
$30 or 3% of the policy's Accumulated Value on such 401(k) policies.
Where the policy value has been allocated to more than one account, the policy
fee will be deducted from the accumulated value of each account in the same
proportion as such value bears to the total policy value.
TRANSFERS BEFORE ANNUITY DATE
Prior to the Annuity Date, the Owner may transfer amounts between the General
Account and the Sub-Accounts or among the Sub-Accounts subject to the consent of
the Company. Transfers will be made pursuant to a Written Request made to the
Company's Principal Office. Subject to the restrictions described herein, all
transfers shall be made on the Valuation Date coincident with or next following
the date the Written Request is received.
The minimum and maximum amounts that may be transferred shall be determined by
the Company according to its then current rules. In addition, the Company
reserves the right to limit the number of transfers which may be made in each
policy year and to establish other reasonable rules restricting transfers.
If a transfer would reduce the policy value of the account from which the
transfer is to be made to less than the current minimum balance required by the
Company for such account, the Company reserves the right to include such
remaining value in the amount transferred.
There will be no charge for the first six transfers per policy year. A transfer
charge of up to $25 may be imposed on each additonal transfer and deducted from
the amount that is transferred.
Form A3021-93 (8)
<PAGE>
GUARANTEES
The Company makes the following guarantees for this policy:
(a) The factors deducted from the Adjusted Gross Investment Rate of a
Sub-Account to obtain its Net Investment Rate will not exceed the equivalent
of (a) .0125 per annum for mortality and expense risks and (b) .0020 per
annum for administrative charges.
(b) The Policy Fee and Surrender Charge will not exceed the amount specified in
this policy.
(c) The interest rate in effect on the date a payment to the General Account is
received at the Principal Office is guaranteed for one year.
(d) The dollar amount of variable annuity payments will not be affected by
variations in actual mortality experience from the mortality assumptions
used in determining the first annuity payment.
The Company assumes the risk that actual mortality experience and expenses may
exceed the maximum charges made to cover such mortality and expenses. If actual
mortality experience and expenses exceed the amounts provided for such costs,
the Company will absorb the resultant losses. If actual mortality experience and
expenses are less than the amounts provided for such costs, the difference will
be a profit to the Company.
SURRENDER - PARTIAL REDEMPTIONS
1. Surrender Privilege The Owner may, by Written Request, surrender this policy
for its Surrender Value prior to the Annuity Date. The Surrender Value will be
based on the Accumulated Value as of the Valuation Date coincident with or next
following the date the Company receives the Written Request at its Principal
Office.
The Surrender Value for amounts allocated to a Separate Account shall be paid
within 7 days (plus any period of extension under applicable laws, rules and
regulations governing the redemption of variable annuities) from the date of
receipt of such Written Request.
The Surrender Value for amounts allocated to the General Account shall normally
be paid within 7 days from the date of receipt of such Written Request; however,
the Company may defer payment for up to 6 months from the date when the Written
Request is received. If payment of amounts allocated to the General Account is
deferred for 30 days or more, the amount payable will draw interest at a rate of
not less than 3% per year. When surrendered, this policy terminates. The Company
will then have no further liability under this policy.
2. Partial Redemption Privilege The Owner may, by Written Request, redeem a part
of the Accumulated Value of this policy, subject to the terms of this provision.
This privilege may be exercised before the Annuity Date and before the
Annuitant's death.
The amount of each Partial Redemption must be at least $200. No partial
Redemption will be permitted if less than $1,000 would remain credited to the
policy after payment of the amount requested to be redeemed and deduction of any
applicable charge.
The Written Request must indicate the dollar amount to be paid and should
specify the account(s) from which value(s) is/are to be redeemed. If a Partial
Redemption is requested, the dollar amount of the request will be paid to the
Owner. In Addition, the amount of any applicable Redemption Charge will be
deducted from the Accumulated Value on a last-in, first-out basis. The time
limits of the Surrender Privilege provision will apply to Partial Redemptions.
3. Free Withdrawal In each calendar year, Partial Redemptions not in excess of
the greater of (a) or (b) may be withdrawn free of any Redemption Charge:
(a) Cumulative earnings - calculated as the Accumulated Value as of the
Valuation Date coincident with or next following the date of receipt of the
Written Request reduced by total gross payments not previously redeemed;
(b) ten percent of the Accumulated Value as of the Valuation Date coincident
with or next following the date of receipt of the Written Request reduced by
the total amount of any prior Partial Redemptions made in the same calendar
year to which no Redemption Charge was applied.
Regardless of whether the Free Withdrawal Amount is based upon (a) or (b) above,
it will first be deducted from cumulative earnings. To the extent that the Free
Withdrawal Amount exceeds cumulative earnings, the excess amount will be deemed
withdrawn from payments not previously redeemed on a last-in, first-out basis.
Form A3021-93 (9)
<PAGE>
SURRENDER - PARTIAL REDEMPTIONS (continued from page 9)
Any amounts redeemed in excess of the Free Withdrawal Amount will be subject to
a Redemption Charge as described below.
4. Life Expectancy Distribution Benefit In each Calendar Year, the amount of the
life expectancy distributions (LED) available under the Company's then current
life expectancy distribution rules that exceeds the Free Withdrawal Amount may
also be withdrawn without charge. LED is available only if the Owner and
Annuitant are the same individual.
5. Surrender and Redemption Charge If the Owner surrenders the policy or takes a
Partial Redemption before the Annuity Date and while the Policy is in force, a
withdrawal charge may be imposed.
First, to determine the amount of any withdrawal charge, the Company will
determine any amounts available to be redeemed without charge for the current
calendar year in accordance with the Free Withdrawal privilege. Such amounts in
excess of cumulative earnings will be deemed to be taken first from payments
which have not been cancelled due to prior partial redemptions on a last-in,
first-out basis.
Second, the Company will withdraw any amounts available to be redeemed without
charge under the LED benefit provision.
Third, the Company will make withdrawals from the remaining payments which have
not been cancelled due to partial redemptions on a first-in, first-out basis.
Fourth, the Company will compute any applicable charges in accordance with the
following table of surrender charges until the total amount withdrawn equals the
amount of the partial withdrawal plus the withdrawal charge or until all
remaining payments have been exhausted:
<TABLE>
<CAPTION>
Policy Years Measured From Charge As A
Date of Premium Payment Percentage Of the
To Date of Withdrawal Payments Withdrawn
----------------------------- ---------------------
<S> <C> <C>
10 Years or more No Charge
9 1%
8 2%
7 3%
6 4%
5 5%
4 6%
3 7%
1-2 8%
</TABLE>
The withdrawal charge will then be deducted from the Accumulated Value on a
last-in first-out basis.
DEATH BENEFITS
1. Prior to Annuitization If the Annuitant dies while the Policy is in force
prior to the Annuity Date and prior to the death of an Owner, if the Owner and
Annuitant are different individuals, the Company upon receipt at its Principal
Office of due proof of the Annuitant's death will pay the Death Benefit to the
Beneficiary. The Death Benefit payable will equal the greatest of:
(a) The Accumulated Value of this policy as of the Valuation Date coincident
with or next following the date of receipt of due proof of the Annuitant's
death;
(b) The sum of the gross payments made under this policy reduced to reflect all
partial withdrawals. A partial withdrawal will reduce the gross payments
available as a Death Benefit in the same proportion that it reduced the
Policy's Accumulated Value on the date of the withdrawal. For each
withdrawal, the reduction is calculated by multiplying the total amount of
gross payments by a fraction, the numerator of which is the amount of the
partial withdrawal and the denominator of which is the Accumulated Value
immediately prior to the withdrawal. (Example: Gross payments total $8,000.
A $3,000 withdrawal is made when the Accumulated Value is $12,000. The
Accumulated Value is reduced by 1/4, from $12,000 to $9,000, therefore the
gross amount available as a Death Benefit under (b) will also be reduced by
1/4 (8,000 X 3,000/12,000 = 2,000 8,000-2,000 = 6,000.) Payments made after
a withdrawal will increase the Death Benefit under (b) by the amount of the
payment; or
(c) The Death Benefit that would have been payable on the most recent fifth
policy anniversary increased for subsequent purchase payments and reduced
for subsequent partial withdrawals in the same proportion that the Policy's
Accumulated Value was reduced on the date of the withdrawal.
Form A3021-93 (10)
<PAGE>
DEATH BENEFITS (continued from page 10)
If an Owner who is not also the Annuitant predeceases the Annuitant prior to the
Annuity Date while this contract is in force, the Company will pay a Death
Benefit equal to the Accumulated Value of the contract as of the Valuation Date
coincident with or next following the date on which due proof of the Owner's
death is received.
The Death Benefit is ordinarily payable to the Beneficiary in one sum. Payment
will be made within 7 days of the date on which due proof of death is received
at the Company's Principal Office. In lieu of immediate payment, the Beneficiary
may by Written Request:
(a) elect to defer the lump sum for a period not to exceed 5 years from the date
of the death; or
(b) elect to receive the Death Benefit in the form of a life annuity or an
annuity for a period certain not extending beyond the Beneficiary's life
expectancy. Annuity benefits must begin within one year from the date of the
death and will be provided in accord with the Annuity Options of this
policy.
If the deceased Annuitant is also an Owner and the sole Beneficiary is his or
her spouse, the Beneficiary may upon Written Request, elect to continue the
policy in force and become the new Owner and Annuitant. All other rights and
benefits under this policy will continue except that any subsequent spouse of
the new Owner, if named as Beneficiary, will not be entitled to continue the
policy in force pursuant to this provision.
The death of the first of any joint Owner prior to the Annuity Date is deemed
the death of the Owner and will cause the Death Benefit to be paid in accordance
with the options set forth above.
2. After Annuitization If the Annuitant dies on or after the Annuity Date but
before the completion of all guaranteed annuity payments, any remaining payments
will be paid to the Beneficiary at least as rapidly as under the payment option
in effect on the date of the Annuitant's death. If there is more than one
Beneficiary, payment will be made in one sum. This sum will be the commuted
value of any unpaid payments certain commuted as of the Valuation Date
coincident with or next following receipt by the Company at its Principal Office
of due proof of death. Such commuted value will be computed on the basis of the
interest rate used in the determination of the annuity benefit.
Form A3021-93 (11)
<PAGE>
ANNUITY OPTIONS
1. Annuity Benefit The Owner may choose the form of benefit to be paid to the
Annuitant. The benefit will be limited to the Annuity Options set forth below,
and any other option offered by the Company for this class of policies.
If the Owner does not choose an option, Option I will apply.
This policy will be endorsed on the Annuity Date. The endorsement will set forth
the benefits payable to the Annuitant.
2. Funding of Annuity Options Variable Annuity Options may be funded through the
Growth Fund, the Money Market Fund, and/or the Equity Index Fund unless
otherwise changed by endorsement. All Fixed Annuity Options are funded through
the General Account.
3. Death Benefit Annuity The Owner may direct that all or part of any Death
Benefit payable before the Annuity Date be paid to the Beneficiary under one or
more of the Annuity Options provided in this policy.
If the Annuitant dies before the Annuity Date and before the Owner has chosen an
Annuity Option, the Beneficiary may choose an option.
A corporate or fiduciary Beneficiary may choose only Option V or X.
4. Proof of Age and Survival of Payee Proof of the payee's date of birth is a
condition precedent to payment of any annuity benefits under this policy. The
proof must be satisfactory to the Company, and must be received at its Principal
Office.
The Company may require evidence that a payee is living. Such evidence must be
satisfactory to the Company and may be required before any annuity payment is
made under this policy.
5. Minimum Payments Every Annuity Option must be paid on a monthly basis. The
initial monthly payment must be at least $50. If the chosen option produces an
initial monthly payment of less than $50, the Surrender Value or Death Benefit
will be paid in one sum. A single payment of the Surrender Value will be made to
the Owner. A single payment of the Death Benefit will be made to the
Beneficiary.
The Company reserves the right to increase the minimum payment to not more than
$500, subject to applicable state regulations.
The Annuity Value may be divided and applied to provide both a variable and
fixed annuity benefit, except that the amount so applied to each form of benefit
must produce an initial monthly payment of at least $50.
6. Payment Period Annuity payments to any payee shall cease with the last
payment due prior to the date of death of such payee (or surviving payee in the
case of joint payees) or with the later completion of all guaranteed payments,
as the case may be.
7. Number of Variable Annuity Units The number of Variable Annuity Units
determining the annuity benefits payable hereunder shall be equal to the dollar
amount of the first monthly benefit divided by the value of the Variable Annuity
Unit as of the Valuation Date used to calculate the dollar amount of the first
payment. Once payments have begun, the number of Variable Annuity Units will
remain fixed unless a split has been made as herein provided.
8. Annuity Value The Annuity Value to be applied under an Annuity Option will be
the amount described below; less any premium taxes payable by the Company as a
result of the Annuity Option selection:
(a) If Option V or X is chosen at any time--the Surrender Value.
(b) If Option I, II, III, IV-A, IV-B, VI, VII, VIII, IX-A, IX-B or any other
Option offered by the Company involving a life contingency is chosen -- the
Accumulated Value.
(c) If a Death Benefit Annuity is payable at any time--the amount of the Death
Benefit.
The amount applied under a Variable Annuity Option will be based on the
Accumulation Unit value on a Valuation Date not more than four weeks (uniformly
applied) preceding the Annuity Date.
Form A3021-93 (12)
<PAGE>
DESCRIPTION OF ANNUITY OPTIONS
1. Monthly Payments The amount of the first payment under Options I through III
and VI through VIII will be determined on the basis of:
(a) the age nearest birthday of the payee on the Annuity Date;
(b) the Annuity Value applied under the Option.
The amount of the first monthly payment under Options IV-A, IV-B, IX-A and IX-B
will be determined on the basis of:
(a) the Adjusted Ages of the payees on the Annuity Date;
(b) the Annuity Value applied under the Option.
The amount of the first payment under Options V and X will be based on the
number of years certain selected and the Annuity Value applied.
The amount of each subsequent payment under Options I, II, III, IV-A, IV-B and V
will vary in accordance with the value of the Variable Annuity Units. The amount
of each subsequent payment under Options VI through VIII, IX-A, IX-B, and X will
be in the same amount as the first payment; except that under Option IX-B, after
the death of the first payee, the amount of each payment to the surviving payee
shall be 2/3rds of the amount of the first payment.
All Annuity Options are based on an interest rate of 3 1/2% per annum.
2. Rates The first payment under an Annuity Option for each $1,000 of Annuity
Value applied will be the greater of:
(a) the rate per $1,000 of Annuity Value applied specified in the Company's
published Non-Guaranteed Current Annuity Option rates applicable to this
class of policies; or
(b) the rate set forth in this policy for the applicable Annuity Option.
3. Brief Description of Options
OPTIONS I AND VI--VARIABLE OR FIXED LIFE
ANNUITY WITH 120 MONTHLY PAYMENTS
GUARANTEED
Monthly payments during the life of the payee. If the payee dies before 120
payments have been made, the monthly payments will continue to the Beneficiary
until a total of 120 payments have been made.
OPTIONS II AND VII--VARIABLE OR FIXED LIFE ANNUITY
Monthly payments during the life of the payee.
OPTIONS III AND VIII--UNIT REFUND VARIABLE OR FIXED LIFE ANNUITY
Monthly payments during the life of the payee. If the payee dies, the monthly
payments will be continued to the Beneficiary if (a) exceeds (b) below.
(a) the dollar amount of the Annuity Value applied under this option, divided
by the first monthly payment.
(b) the number of monthly payments made under this option before the death of
the payee.
If (a) exceeds (b), the monthly payments will continue until the total number of
payments equals the number determined in (a).
Form A3021-93 (13)
<PAGE>
DESCRIPTION OF ANNUITY OPTIONS (continued from page 13)
OPTIONS IV-A AND IX-A--JOINT AND SURVIVOR
VARIABLE OR FIXED LIFE ANNUITY
Monthly payments jointly to two payees during their joint lives. One of the
payees must be the Annuitant. If this option is chosen after the Annuitant dies,
one of the payees must be the Beneficiary. The payments will continue during the
life of the survivor. The monthly payment to the survivor will be the same
amount which was paid during the joint lives of the two payees.
OPTIONS IV-B AND IX-B--JOINT AND TWO-
THIRDS SURVIVOR VARIABLE OR FIXED LIFE
ANNUITY
Monthly payments jointly to two payees during their joint lives. One of the
payees must be the Annuitant. If this option is chosen after the Annuitant dies,
one of the payees must be the Beneficiary. The payments will continue during the
life of the survivor. The monthly payment to the survivor will be 2/3rds of the
amount which was paid during the joint lives of the two payees.
OPTIONS V AND X--VARIABLE OR FIXED ANNUITY CERTAIN
Monthly payments for a number of years. The number of years selected may be from
1 to 30.
Form A3021-93 (14)
<PAGE>
<TABLE>
<CAPTION>
=============================Annuity Option Tables==============================
Showing Amount of First Monthly Annuity Benefit Payment
For Each $1,000 of Annuity Value Applied
- --------------------------------------------------------------------------------
Age OPTION I-Variable OPTION II-Variable OPTION III-Variable
Nearest OPTION VI-Fixed OPTION VII-Fixed OPTION VIII-Fixed
Birthday
- --------------------------------------------------------------------------------
Life Annuity Unit Refund
with 120 Monthly Life Life
Payments Guaranteed Annuity Annuity
--------------------------------------------------------------------
<S> <C> <C> <C>
50 4.17 4.19 4.10
51 4.23 4.25 4.15
52 4.29 4.32 4.20
53 4.35 4.38 4.26
54 4.42 4.46 4.32
55 4.49 4.53 4.38
56 4.56 4.61 4.45
57 4.64 4.69 4.52
58 4.72 4.78 4.59
59 4.81 4.88 4.67
60 4.90 4.98 4.75
61 5.00 5.09 4.83
62 5.10 5.20 4.92
63 5.21 5.32 5.02
64 5.33 5.46 5.12
65 5.44 5.60 5.22
66 5.57 5.74 5.33
67 5.70 5.90 5.45
68 5.84 6.07 5.57
69 5.98 6.26 5.70
70 6.13 6.45 5.84
71 6.29 6.66 5.98
72 6.45 6.89 6.14
73 6.62 7.13 6.30
74 6.79 7.39 6.47
75 6.97 7.68 6.65
</TABLE>
Form A3021-93 (15) (Continued on page 16)
<PAGE>
<TABLE>
<CAPTION>
=======================Annuity Option Tables (Continued)========================
- --------------------------------------------------------------------------------
Option IV-A-Variable
Option IX-A-Fixed
Joint and Survivor
Life Annuity
Older Age
- --------------------------------------------------------------------------------
50 55 60 65 70 75 80
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Y 50 3.70 3.77 3.82 3.86 3.89 3.91 3.93
0
U 55 3.92 4.01 4.08 4.14 4.17 4.20
N
G 60 4.22 4.34 4.43 4.50 4.54
E
R 65 4.61 4.77 4.90 4.98
70 5.16 5.38 5.54
A
G 75 5.92 6.23
E
80 7.00
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Option IV-B-Variable
Option IX-B-Fixed
Joint and Two Thirds Survivor
Life Annuity
Older Age
- --------------------------------------------------------------------------------
50 55 60 65 70 75 80
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Y 50 4.03 4.16 4.31 4.47 4.65 4.83 5.02
0
U 55 4.33 4.50 4.69 4.89 5.10 5.32
N
G 60 4.72 4.95 5.19 5.44 5.69
E
R 65 5.25 5.55 5.87 6.18
70 5.99 6.39 6.79
A
G 75 7.03 7.57
E
80 8.50
- --------------------------------------------------------------------------------
</TABLE>
Form A3021-93 (16) (Continued on page 17)
<PAGE>
========================Annuity Option Tables (Continued)=======================
<TABLE>
<CAPTION>
----------------------------------------------
OPTION V-Variable
OPTION X-Fixed
----------------------------------------------
Annuity Certain
Number of for a specified
Years Certain Number of Years
----------------------------------------------
<S> <C> <C>
1 84.65
2 43.05
3 29.19
4 22.27
5 18.12
6 15.35
7 13.38
8 11.90
9 10.75
10 9.83
11 9.09
12 8.46
13 7.94
14 7.49
15 7.10
16 6.76
17 6.47
18 6.20
19 5.97
20 5.75
21 5.56
22 5.39
23 5.24
24 5.09
25 4.96
26 4.84
27 4.73
28 4.63
29 4.53
30 4.45
----------------------------------------------
</TABLE>
Form A3021-93 (17)
<PAGE>
GENERAL PROVISIONS
1. Entire Contract The entire contract consists of this policy and the written
application, a copy of which is attached at issue. All statements made in the
application shall be deemed representations and not warranties. The Company will
not use any statement to void this policy or defend a claim under it unless that
statement is in the application.
2. Misstatement of Age If a payee's age is misstated, the Company will adjust
all benefits under this policy to those that the Annuity Value applied would
have purchased at the correct age. Any under-payments already made by the
Company will be made up immediately. Any overpayments made by the Company will
be charged against the benefits due after the adjustment.
3. Modifications Agents are not authorized to modify this contract. Agents may
not extend the time or modify the conditions for making payments.
4. Incontestability Except for non-payment of the Initial Elective Payment, this
policy cannot be contested after it has been in force for two years from the
Date of Issue.
5. Change of Annuity Date Unless an earlier date is designated on the
application, the Annuity Date will be the later of:
(a) the first day of the calendar month before the Annuitant's 85th birthday; or
(b) the tenth contract anniversary (not to exceed the first day of the calendar
month before the Annuitant's 90th birthday.)
The Owner may elect an alternative Annuity Date by Written Request at any time
after the policy has been issued. Such request must be received at the Company's
Principal Office at least one month before the new Annuity Date. The alternative
Annuity Date may be the first of any month prior to the Annuitants 90th birthday
and must be within the life expectancy of the Annuitant. The Company shall
determine such expectancy at the time a change in the Annuity Date is requested.
6. Annual Report The Company will furnish an annual report to the Owner
containing a statement of the number and value of the Accumulation Units
credited to the Sub-accounts, the policy value of the General Account, and any
other information required by applicable law, rules and regulations.
7. Addition, Deletion, or Substitution of Investments The Company reserves the
right, subject to compliance with applicable law, to make additions to,
deletions from, or substitutions for the shares of a Fund that are held by the
Sub-Accounts or that the Sub-Accounts may purchase. The Company reserves the
right to eliminate the shares of any Fund if the shares of a Fund are no longer
available for investment or if, in the Company's judgment, further investment in
any eligible Fund should become inappropriate in view of the purposes of the
Sub-Accounts.
The Company will not substitute shares attributable to any interest in a
Sub-Account without notice to the Owner and any prior approval of the Securities
and Exchange Commission required by the Investment Company Act of 1940. This
shall not prevent the Separate Account from purchasing other securities for
other series or classes of policies, or from permitting a conversion between
series or classes of policies or contracts on the basis of requests made by
owners.
Form A3021-93 (18)
<PAGE>
GENERAL PROVISIONS (continued from page 18)
The Company reserves the right to establish additional Sub-Accounts and to make
such Sub-Accounts available to any class or series of policies as the Company
deems appropriate. Each new Sub-Account would invest in a new investment company
or in shares of another open-end investment company. Subject to obtaining any
required approvals or any consents required by applicable law, the Company also
reserves the right to eliminate or combine existing Sub-Accounts and to transfer
the assets of one or more Sub-Accounts to any other Sub-Accounts.
In the event of any substitution or change, the Company may, by appropriate
endorsement, make such changes in this and other policies as may be necessary or
appropriate to reflect the substitution or change. If the Company considers it
to be in the best interests of policyholders, the Separate Account or any
Sub-Account(s) may be operated as a management company under the Investment
Company Act of 1940, or it may be deregistered under that Act in the event
registration is no longer required, or it may be combined with other separate
accounts of the Company.
8. Change of Name Subject to compliance with applicable law, the Company
reserves the right to change the names of the Separate Account or the
Sub-Accounts.
9. Federal Tax Considerations The Company intends to make a charge for any
effect which the income, assets or existence of the Separate Account may have
upon its tax. The Separate Account presently is not subject to tax, but the
Company reserves the right to assess a charge for taxes if the Separate Account
at any time becomes subject to tax.
10. Splitting of Units The Company reserves the right to split the value of an
Accumulation Unit, an Annuity Unit, or both, if such action is deemed to be in
the best interest of the Owners, the Annuitants and the Company. In effecting
any such split of unit value, strict equity will be preserved and such split
will have no material effect upon the benefits, provisions or investment return
of this policy or upon the Owner, the Annuitant, any Beneficiary, or the
Company. A split may be effected either to increase or decrease the number of
units.
11. Insulation of Separate Account The investment performance of assets of the
Separate Account is determined separately from the other assets of the Company.
The assets of the Separate Account are not chargeable with liabilities arising
out of any other business which the Company may conduct.
Form A3021-93 (19)
<PAGE>
NOTICE - VOTING RIGHTS
An Owner is entitled to vote at meetings of policyowners of those Sub-Accounts
to which payments are currently allocated under this policy; provided, however,
that after the Annuity Date only the Annuitant shall have the right to vote at
such meetings.
Prior to the Annuity Date, the number of votes which an Owner may cast at a
meeting of Sub-Account Owners shall be determined by dividing the dollar value
of the Accumulation Units of the Sub-Account by the net asset value of one Fund
share.
After the Annuity Date, an Annuitant under a variable annuity option may cast
the number of votes equal to:
(i) the amount of the reserve held in each Sub-Account to meet the annuity
obligations related to such Annuitant under the policy; divided by
(ii) the value of an applicable Accumulation Unit as of the record date for the
meeting.
Proper written notice of such meetings, as required by law, shall be given to
each Owner or Annuitant.
Owners and Annuitants entitled to vote, and the number of votes which each may
cast, shall be determined as of a record date within 90 days of the date of the
meeting. To be entitled to vote, a policyowner must be an Owner on both the
record date as of which the number of votes is determined and the date of the
meeting. In determining the number of votes a person may cast, fractional votes
shall be disregarded.
Elective Payment Variable Annuity Policy. Annuity Benefit payable to Annuitant
commencing at Annuity Date. Death Benefit payable at death of Annuitant prior to
Annuity Date. Non-Participating.
Form A3021-93 (20)
<PAGE>
Allmerica
Financial Life 440 Lincoln Street Variable Annuity Application
Insurance and Worcester, MA 01653
Annuity Company Print clearly in black ink.
- --------------------------------------------------------------------------------
1. ANNUITANT
- --------------------------------------------------------------------------------
First Middle Last
___________________________________________________________________________
Street Address Apt.
___________________________________________________________________________
City State Zip
___________________________________________________________________________
Daytime Telephone Sex Date of Birth
(___) ___________ |_| Male |_| Female _____________
S.S. #
- --------------------------------------------------------------------------------
2. OWNER (Complete Only if Different from Annuitant or if Joint Owners)
- --------------------------------------------------------------------------------
First Middle Last Date of Birth
___________________________________________________________________________
First Middle Last Date of Birth
___________________________________________________________________________
Street Address Apt.
___________________________________________________________________________
City State Zip
___________________________________________________________________________
S.S. #/ Tax ID #
- --------------------------------------------------------------------------------
3. BENEFICIARY
- --------------------------------------------------------------------------------
Primary |_| 10 Day Common Disaster Clause
___________________________________________________________________________
Contingent
- --------------------------------------------------------------------------------
4. TYPE OF PLAN
- --------------------------------------------------------------------------------
|_| 401(a) Pens/Prof. Sh. |_| 457 Def. Comp.
|_| 401(k) Prof. Sh. |_| Non-Qual. Def. Comp.
|_| 403(b) TSA |_| Non-Qualified
|_| 408(b) IRA |_| Other
|_| 408(k) SEP-IRA ____________________________________
- --------------------------------------------------------------------------------
5. INITIAL PAYMENT
- --------------------------------------------------------------------------------
Initial Payment Amount $ __________________________________________________
If IRA or SEP-IRA application, the applicant has received
Disclosure Buyer's Guide and this payment is a (check one)
|_| Rollover |_| Trustee to Trustee Transfer
|_| Regular or SEP-IRA Payment for Tax Year __________________________
- --------------------------------------------------------------------------------
6. ANNUITY COMMENCEMENT DATE
- --------------------------------------------------------------------------------
First of Month After Age |_| 65 |_| 70
First of (Month) _______________ (Year) _______________
- --------------------------------------------------------------------------------
7. PRINCIPAL OFFICE AMENDMENTS
- --------------------------------------------------------------------------------
(Not applicable in West Virginia or Pennsylvania)
- --------------------------------------------------------------------------------
8. REPLACEMENT
- --------------------------------------------------------------------------------
Will the proposed policy replace or change any existing
annuity or insurance policy? |_| No |_| Yes
(If yes, list company name and policy number)
________________________________________________________________________________
________________________________________________________________________________
- --------------------------------------------------------------------------------
9. ALLOCATION OF PAYMENTS
- --------------------------------------------------------------------------------
_______% Allmerica Select International Equity
_______% Delaware International Equity Series
_______% Fidelity Overseas Portfolio
_______% Allmerica Select Aggresive Growth
_______% Allmerica Small Cap Value
_______% Allmerica Select Growth
_______% Allmerica Growth
_______% Fidelity Growth Portfolio
_______% Allmerica Equity Index
_______% Allmerica Select Growth and Income
_______% Fidelity Equity Income Portfolio
_______% Fidelity Asset Manager Portfolio
_______% Fidelity High Income Portfolio
_______% Allmerica Investment Grade Income
_______% Allmerica Government Bond
_______% Allmerica Money Market
_______% Fixed Interest - General Account
(Not available in OR/WA)
_______% __________________________________________________________________
_______% __________________________________________________________________
1 0 0 % Total (Whole percentages. Must total 100%.)
Note: If the policy applied for provides for a full refund of the initial
payment under its "Right to Examine" provision, that portion of each payment not
allocated to the General account will be allocated solely to the Money Market
account during its first 15 days. Reallocation will then be made as specified.
- --------------------------------------------------------------------------------
10. SIGNATURES
- --------------------------------------------------------------------------------
It is understood, and agreed that: (1) the above information is true and
complete to the best of my knowledge; (2) this application, a copy of
which will be attached to the policy when issued, will become a part of
the policy issued; (3) no agent is authorized to modify the terms of the
prospectus, this application or any policy. I acknowledge receipt of a
current prospectus describing the policy I am applying for. I understand
that annuity payments and other values, when based on the investment
experience of a separate account, are variable and not guaranteed as to
fixed dollar amount.
____________________________ ____________________________ ____________
Signature of Owner Signed at (City and State) Date
____________________________ ___________________________________________
Signature of Owner Signature of Registered Representative
License # ________________ (For Florida Purposes Only)
SML-1286 (4/94) Rev 9/95
<PAGE>
- --------------------------------------------------------------------------------
11. OPTIONAL TELEPHONE TRANSFERS
- --------------------------------------------------------------------------------
|_| I hereby authorize and direct SMA Life Assurance
Company to accept telephone instructions from any
person who can furnish proper identification to effect
transfers and future payment allocation changes. I agree
to hold harmless and indemnify SMA Life Assurance
Company and its affiliates and any mutual fund(s)
managed by an affiliate and their collective directors,
officers, employees and agents against any claim arising
from such action.
Signature of Owner_________________________________________________________
- --------------------------------------------------------------------------------
12. SYSTEMATIC TRANSFERS
- --------------------------------------------------------------------------------
|_| I wish to effect Automatic Periodic Transfers.
|_| I wish to effect Constant Ratio Transfers.
Systematic Transfer Application must be attached.
- --------------------------------------------------------------------------------
13. MONTHLY AUTOMATIC PAYMENTS (MAP)
- --------------------------------------------------------------------------------
|_| I wish to authorize monthly deductions from my checking account for
application to this policy.
MAP authorization and voided check must be attached.
- --------------------------------------------------------------------------------
14. OPTIONAL PAYMENT REMINDER
- --------------------------------------------------------------------------------
|_| I wish to receive periodic reminders that I can include with future
remittances.
Payment Reminder request must be attached.
- --------------------------------------------------------------------------------
15. REMARKS
- --------------------------------------------------------------------------------
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
THE FOLLOWING SECTIONS MUST BE COMPLETED BY THE REGISTERED REPRESENTATIVE
- --------------------------------------------------------------------------------
16. REPLACEMENT
- --------------------------------------------------------------------------------
a) Have you reviewed the Annuity and Life Insurance
Replacement Regulation of the state in which this
business was written and do you understand the
definition of Replacement as set forth therein?
|_| Yes |_| No
b) To the best of your knowledge, will the annuity policy
being applied for replace life insurance or annuity
contracts in this or any other company? If yes, list
policies in Section 8.
|_| Yes |_| No
- --------------------------------------------------------------------------------
17. SUITABILITY INFORMATION
- --------------------------------------------------------------------------------
NASD rules require that a reasonable effort be made to obtain the
following information. All items relate to the owner unless issued to a
Plan Trustee in which case the items relate to the annuitant.
Name of Employer U.S. Citizen Tax Bracket
___________________________________ |_| Yes |_| No ____________%
Address of Employer (No. & Street)
__________________________________
City State Zip Occupation Source of Funds
__________________________________ _____________ __________________
Gross Annual Income $_______ Savings $_______ Financial Objective
|_| Retirement |_| Other______________
Is the owner an associated "person" of another Broker/Dealer?
|_| Yes |_| No
________________________________________________________
(PRINCIPAL OFFICE USE ONLY)
Signature of Registered Representative/Principal
________________________________________________________
- --------------------------------------------------------------------------------
I decline to furnish answers to those questions left blank in Section 17 above.
Signed at (City and State) Date
- --------------------------------------------------------------------------------
Full Signature of Owner OR Annuitant, if the Owner is a Plan Trustee
- --------------------------------------------------------------------------------
I certify that (1) no written sales materials other than those approved by the
Principal Office were used, and (2) I have reasonable grounds to believe the
purchase of the policy applied for is suitable for the owner.
Date Signature of Registered Representative % TR Print Full Name Code Agency
- --------------------------------------------------------------------------------
Date Signature of Registered Representative % TR Print Full Name Code Agency
- --------------------------------------------------------------------------------
Date Signature of Registered Representative % TR Print Full Name Code Agency
- --------------------------------------------------------------------------------
Date Signature of Registered Representative % TR Print Full Name Code Agency
- --------------------------------------------------------------------------------
<PAGE>
LETTER AGREEMENT
June 4, 1997
Allmerica Financial Life Insurance and Annuity Company
First Allmerica Financial Life Insurance Company
Ladies and Gentlemen:
Effective as of October 1, 1996, this letter sets forth the agreement
("Agreement") between Allmerica Financial Life Insurance and Annuity Company
(formerly known as SMA Life Assurance Company) ("Company A") and First Allmerica
Financial Life Insurance Company (formerly known as State Mutual Life Assurance
Company of America) ("Company B") (each a "Company" and collectively "you,"
"your" or the "Companies"), on the one hand, and Rowe Price-Fleming
International, Inc. ("RPFI") (referred to as "we," or "RPFI") on the other ,
concerning certain administrative services to be provided by each of you, with
respect to the T. Rowe Price International Series, Inc. (the "Fund").
1. THE FUND. The Fund is a Maryland Corporation registered with the
Securities and Exchange Commission (the "SEC") under the Investment Company
Act of 1940, as amended (the "Act") as an open-end diversified management
investment company. The Fund serves as a funding vehicle for variable
annuity contracts and variable life insurance contracts and, as such,
sells its shares to insurance companies and their separate accounts. With
respect to various provisions of the Act, the SEC requires that owners of
variable annuity contracts and variable life insurance contracts be
provided with materials and rights afforded to shareholders of a
publicly-available SEC-registered mutual fund.
2. THE COMPANIES. Company A is a Delaware life insurance company, and Company
B is a Massachusetts life insurance company. Each Company issues
variable annuity contracts (the "Contracts") supported by one or more
separate accounts (individually a "Separate Account" and collectively the
"Separate Accounts") which are registered with the SEC as unit investment
trusts, or which are properly exempt from registration. Each of the
Companies has entered into a participation agreement with the Fund
(individually a "Participation Agreement" and collectively the
"Participation Agreements") pursuant to which each Company purchases shares
of the T. Rowe Price International Stock Portfolio of the Fund for the
Separate Accounts supporting the Company's Contracts.
<PAGE>
Allmerica Financial Life Insurance and Annuity Company
First Allmerica Financial Life Insurance Company
June 4, 1997
Page 2
3. RPFI. RPFI serves as the investment adviser to the T. Rowe Price
International Series, Inc. RPFI supervises and assists in the overall
management of the Fund's affairs under an investment management agreement
with the Fund (the "Management Agreement"), subject to the overall
authority of the Fund's Board of Directors in accordance with Maryland law.
Under the Management Agreement, RPFI is compensated for providing
investment advisory and certain administrative services (either directly or
through affiliates).
4. ADMINISTRATIVE SERVICES. You have agreed to assist us, as we may request
from time to time, with the provision of administrative services to the
Fund, as they may relate to the investment in a Fund by the Separate
Accounts. It is anticipated that such services may include (but shall not
be limited to): the mailing of Fund reports, notices, proxies and proxy
statements and other informational materials to holder of the Contracts
supported by the Separate Accounts; the maintenance of separate records for
each holder of the Contracts reflecting shares purchased and redeemed and
share balances; the preparation of various reports for submission to Fund
directors; the provision of advice and recommendations concerning the
operation of the series of the Funds as funding vehicles for the Contracts;
the provision of shareholder support services with respect to the Separate
Account portfolios serving as funding vehicles for the Contracts; telephone
support for holders of Contracts with respect to inquiries about the Fund;
and the provision of other administrative services as shall be mutually
agreed upon from time to time.
5. PAYMENT FOR ADMINISTRATIVE SERVICES. In consideration of the
administrative services to be provided by each of the Companies, we
shall make payments to each of the Companies on a quarterly basis
("Payments") from our assets, including our bona fide profits as investment
adviser to the Fund, an amount equal to 15 basis points (0.15%) per annum
of the average aggregate net asset value of shares of the Fund held by
the Separate Accounts under the Participation Agreements, PROVIDED,
HOWEVER, that such payments shall only be payable with respect to the Fund
for each calendar quarter during which the aggregate dollar value of shares
of the Fund purchased pursuant to a Participation Agreement by the
insurance companies in the aggregate exceeds $50,000,000. Subject to the
terms of paragraph 6 hereof, RPFI shall be responsible for payments due
pursuant to this Paragraph 5 with respect to the purchase of shares of the
Fund managed by RPFI. For purposes of computing the payment to each
Company contemplated under this Paragraph 5, the average aggregate net
asset value of shares of the Fund held by the Separate Accounts over a
quarterly period shall be computed by totaling each Separate Account's
aggregate investment (share net asset value multiplied by total number of
shares held by the Separate Account) on each business day during the
calendar quarter, and dividing by the total number of business days during
such quarter. The Payments contemplated by this Paragraph 5 shall be
calculated by RPFI at the end of each calendar quarter and will be paid to
each Company within 30 business days thereafter.
<PAGE>
Allmerica Financial Life Insurance and Annuity Company
First Allmerica Financial Life Insurance Company
June 4, 1997
Page 3
6. UNIFIED PAYMENT PROCEDURE. You have agreed that in order to simplify the
procedure by which Payments required to be made by RPFI pursuant to
Paragraph 5 hereof are made to the Companies, the obligations of RPFI to
make such Payments to each Company can be fulfilled by the remittance of a
single, unified Payment (the "Unified Payment"). The Unified Payment shall
be made by RPFI to Company A, accompanied by a written statement setting
forth the respective amounts due to each of the Companies. Company A in
turn, agrees that it will remit Company B's portion of each Unified Payment
to Company B as soon as practicable after Company A's receipt of such
Unified Payment, unless a different arrangement is agreed to between
Company A and Company B. Company B agrees that the obligation of RPFI to
make payments to it pursuant to paragraph 5 hereof shall be satisfied upon
receipt of the applicable Unified Payment by Company A.
7. NATURE OF PAYMENTS. The parties to this Agreement recognize and agree that
RPFI's payments to the Companies relate to administrative services only and
do not constitute payment in any manner for investment advisory services or
for costs of distribution of the Contracts or of Fund shares; and further,
that these payments are not otherwise related to investment advisory or
distribution services or expenses, or administrative services which RPFI is
required to provide to owners of the Contracts pursuant to the terms
thereof. You represent that you may legally receive the payments
contemplated by the Agreement.
8. TERM. This Agreement shall remain in full force and effect for an initial
term of two years, and shall automatically renew for successive one-year
periods unless any party informs each of the other parties upon 60-days
written notice of its intent not to continue this Agreement. This
Agreement and all obligations hereunder shall terminate automatically with
respect to a Company and its relationship with a Fund upon the redemption
of the Company's and its Separate Accounts investment in the Fund, or upon
termination of the Company's Participation Agreement with the Fund.
9. AMENDMENT. This Agreement may be amended only upon mutual agreement
of all of the parties hereto in writing.
10. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which shall together
constitute one and the same instrument.
<PAGE>
Allmerica Financial Life Insurance and Annuity Company
First Allmerica Financial Life Insurance Company
June 4, 1997
Page 4
If this Agreement is consistent with your understanding of the matters we
discussed concerning your administrative services, kindly sign below and return
a signed copy to us.
Very truly yours,
ROWE PRICE-FLEMING
INTERNATIONAL, INC.
By: /s/ Nancy M. Morris
------------------------------------------
Name: Nancy M. Morris
----------------------------------------
Title: Vice President
----------------------------------------
Acknowledged and Agreed to:
ALL MERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
------------------------------
Name: Richard M. Reilly
------------------------------
Title: President
------------------------------
FIRST ALLMERICA FINANCIAL LIFE
INSURANCE COMPANY
By: /s/ Richard M. Reilly
------------------------------
Name: Richard M. Reilly
------------------------------
Title: Vice President
------------------------------
<PAGE>
AGREEMENT FOR LOCKBOX SERVICES
This Agreement is entered into as of July 1, 1997, by and between Boston
Financial Data Services Inc. ("BFDS") and First Allmerica Financial Life
Insurance Company, its subsidiaries and affiliates ("Customer") for the
lockbox services provided in the Exhibit(s) attached hereto and hereby made a
part of this Agreement.
WHEREFORE the parties hereto in consideration of the mutual covenants
contained herein and intending to be legally bound, agree as follows:
A. SERVICES:
Upon Customer's authorization of the postmaster in Boston to permit employees
of BFDS to access the P.O. Box specified and subject to the terms and
conditions of this Agreement, BFDS hereby agrees to provide Customer with the
services described in the Exhibit(s) attached hereto.
B. INVOICES:
As compensation for services hereunder, Customer shall pay BFDS mutually
agreed upon fees and expenses as specified in Exhibit _A_. These fees will
remain in effect for a period of three years with an allowable increase in
year two and three no greater than the calculated Northeast CPI for the
previous period. In addition, BFDS will charge such account for all
reasonable out-of-pocket expenses, such as courier fees, incurred by BFDS in
connection with any rent paid by BFDS for the P.O. Box. Payment on all
invoices submitted by BFDS shall be due net thirty (30) days from receipt of
invoice.
C. TERMINATION:
This Agreement may be terminated by either party with material cause at any
time by 30 days prior written notice to the other, and without cause at any
time by 90 days prior written notice to the other. Either party may
terminate this Agreement at any time on notice to the other in the event of
dissolution or insolvency or the commencement of any proceedings under any
bankruptcy or insolvency law by or against the other.
D. LIABILITY AND INDEMNIFICATION:
Notwithstanding anything to the contrary contained herein, neither party, in
performing its duties under this Agreement, shall be liable to the other
except for gross negligence or willful misconduct. Neither party shall be
liable for special or consequential damages. BFDS shall maintain fidelity
bonding of at least $1,000,000.00 for claims arising from fraudulent or
dishonest acts on the part of any BFDS employee, which shall be underwritten
by reputable insurer(s) licensed to do business in the Commonwealth of
Massachusetts and having an A. M. Best rating of "A" or better. Within ten
(10) days from Customer's request therefor, BFDS shall provide to Customer
either (a) copies of all relevant insurance policies, or (b) Certificates of
Insurance reasonably specifying the policies required hereunder.
E. FORCE MAJEURE:
Neither party shall be responsible for delays or failure in performance
resulting from causes beyond its control, including, without limitation, acts
of God, riots, acts of war, governmental regulations, fire, communication
line failures, power failures, earthquakes, or other disasters.
F. NO ADVERTISEMENT:
BFDS shall not (a) make any mention of this Agreement in any advertisement or
promotional material; or (b) issue or release any publicity statement or
release concerning this Agreement or the services provided, or to be
provided,
<PAGE>
hereunder, without the written consent of Customer being first obtained.
G. SOLICITATION:
BFDS shall not solicit any of Customer's employees while said employees are
employed by Customer, and for one (1) year following the date that Customer's
employee has terminated employment with Customer, unless otherwise expressly
agreed in writing by Customer.
H. CONFIDENTIALITY:
As used herein, the term "confidential information" shall mean non-public
information that either party designates as confidential, or which, under the
circumstances, ought to be treated as confidential. Confidential information
may be in any tangible form, including without limitation written or printed
text or documents, audio or video tapes, CD's or disks and computer disks or
tapes, whether in machine readable or user readable form. Confidential
information shall include without limitation information relating directly or
indirectly to the marketing or promotion of either party's products, released
or unreleased software or other programs, trade secrets, business policies
and/or practices, and any information received by or about third parties,
including claimants, that either party is obligated to treat as confidential.
Customer and BFDS hereby acknowledge and agree that, in providing sufficient
information or access to BFDS to allow BFDS to perform in accordance with
this Agreement, or otherwise allowing BFDS to perform as required hereunder,
Customer and/or its agents, servants, customers or employees may disclose to
BFDS, or BFDS may otherwise obtain, certain information that is confidential
and/or proprietary to Customer and/or its agents, servants, employees,
customers or the dependents thereof. Customer and BFDS hereby also
acknowledge and agree that, in providing sufficient information or access to
Customer to allow Customer to perform in accordance with this Agreement, or
otherwise allowing Customer to perform as required hereunder, BFDS and/or its
agents, servants, customers or employees may disclose to Customer, or
Customer may otherwise obtain, certain information that is confidential
and/or proprietary to BFDS and/or its agents, servants, employees, customers
or the dependents thereof. Accordingly, the parties hereby agree to keep
such information confidential and prevent its unauthorized disclosure. Each
party shall: (a) not make any copies of the other's (and/or its agents'
servants' or employees', or customers') confidential information without
first obtaining the written consent of such other and/or the appropriate
individual(s) therefor; (b) not utilize any confidential information of the
other (and/or any confidential information of its agents, servants,
employees, or customers) except in the furtherance of the obligations and
responsibilities specified hereunder, and for no other purpose(s) whatsoever;
and (c) return any such confidential information in its possession to the
other immediately upon (i) the other's demand therefor, (ii) the
accomplishment of the purpose for which such confidential information is or
was held or obtained, or (iii) the expiration or other termination of this
Agreement. In the event of any breach or threatened breach by either party
(or any of either party's agents, servants, vendors, principles, owners,
affiliated persons or employees) of the covenants, agreements and/or
conditions contained in this section, the other party and/or the appropriate
agents, servants, employees, claimants, or customers shall be entitled to an
injunction prohibiting such breach in addition to any other legal and/or
equitable remedies available to them and/or the appropriate individual(s) in
connection with such breach. The parties acknowledge that any confidential
information disclosed to it is valuable, proprietary and unique and that any
disclosure thereof in breach of this Agreement shall result in irreparable
harm. The agreements, covenants and conditions contained in this section
shall survive the expiration or any earlier termination of this Agreement.
I. ASSIGNMENT:
II.
Notwithstanding the foregoing, Customer may, without the consent of BFDS,
assign or transfer this Agreement to any present or future affiliate or
<PAGE>
subsidiary of First Allmerica Financial Life Insurance Company. BFDS agrees
to release Customer from all obligations under this Agreement in the event
that such obligations are assumed under the preceding sentence by a
corporation or entity whose financial responsibility is equivalent to or
greater than that of Customer. As used herein, the term "Customer" shall
include First Allmerica Financial Life Insurance Company and all of its
present or future affiliates or subsidiaries, including without limitation
all corporate successors of any of the foregoing that may result from merger,
consolidation, reorganization, demutualization or conversion. As used
herein, the term "affiliate" shall include any entity controlling, controlled
by or under common control with, First Allmerica Financial Life Insurance
Company, or which following a merger, consolidation, demutualization or
reorganization involving First Allmerica Financial Life Insurance Company is
controlled by an entity that controlled First Allmerica Financial Life
Insurance Company or that First Allmerica Financial Life Insurance Company
controlled or that was under common control with First Allmerica Financial
Life Insurance Company, in each case, prior to such merger, consolidation,
demutualization or reorganization. BFDS may not, without the consent of
Customer, assign or transfer this Agreement to any present or future
affiliate or subsidiary of Boston Financial Data Services, Inc.
J. NOTICE:
Any notice under this Agreement shall be deemed to have been given if sent by
mail, postage prepaid, to the following addresses: if to Customer - First
Allmerica Financial Life Insurance Company, 440 Lincoln Street, Worcester, MA
01653, Attn: Manager, Cash Management, N479; or such other address as
Customer may designate by written notice to BFDS; if to BFDS - Boston
Financial Data Service, Inc., 2 Heritage Drive, No. Quincy, MA 02171,
Attention: Cash Management Services, 1st Floor.
K. SEVERABILITY:
Each and every covenant, provision, term and clause contained in this
Agreement is severable from the others, and each such covenant, provision,
term and clause shall be valid and effective notwithstanding the invalidity
or unenforceability of any other such covenant, provision, term or clause.
L. ENTIRE AGREEMENT:
This Agreement constitutes the entire Agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter hereof,
whether written or oral, and may not be changed or otherwise terminated,
orally or otherwise, except as expressly provided herein or by an instrument
in writing signed by a duly authorized representative of Customer and BFDS.
M. GOVERNING LAW:
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
The Exhibits attached hereto are hereby made a part of this Agreement.
Additional Exhibits may be added to this Agreement if set forth in a writing
signed by a duly authorized representative of both parties. If any terms are
inconsistent between this Agreement and any Exhibits attached hereto, the
terms of this Agreement shall prevail.
IN WITNESS WHEREOF, the parties hereto by their duly authorized
representatives have executed this Agreement effective as of the date first
written above.
BOSTON FINANCIAL DATA SERVICES, INC.
BY: /s/ STEPHEN HILL
<PAGE>
EXHIBIT A
(ALLMERICA FINANCIAL FEE PROPOSAL BOSTON FINANCIAL DATA SERVICES MAY 1997)
(REV. 7-14-97)
<PAGE>
Allmerica Financial
440 Lincoln Street
Worcester, MA 01653
Re: Retail Lockbox Agreement (Page 1 of 3)
Boston Financial Data Services Inc, ("BFDS") is pleased to establish a
lockbox service for your organization. The lockbox will be operated in
conjunction with Post Office Box No (the "P.O. Box") (See Attached) Boston,
MA, our unique zip code of 02266, and your deposit account(s) at Bank of
Boston entitled (the "Account").
We understand that you have authorized the postmaster in Boston to
permit employees of BFDS to access the P.O. Box. Subject to the terms of
this Agreement, BFDS hereby agrees to provide the following services:
1. BFDS will collect all mail received at the P.O. Box at
various times each day.
2. All checks removed by BFDS from the P.O. Box will be deposited
into the Account as instructed within the client's operating
procedures.
3. BFDS shall not have any responsibilities to read any letter
or other communication received in the P.O. Box, although
checks received with any letter or other communication will
be deposited in the Account. Likewise, any post-dated check
which BFDS determines will be received by the drawee bank by
the date of such check will be deposited in the Account.
BFDS is authorized to endorse checks deposited in the Account
with the endorsement "absence of endorsement guaranteed" or
other similar endorsements and you agree to indemnify BFDS
against any loss, cost or expense resulting from such
endorsement.
4. All processing, depositing and collection of checks shall be
subject to the established procedures followed from time to
time by BFDS in connection with any regular deposit received
by BFDS.
5. Checks returned unpaid because of insufficient funds will be
automatically forwarded for collection a second time; if
unpaid after the second presentation, such checks, together
with advice of debit, will be sent to you.
6. As compensation for services hereunder, you shall pay BFDS mutually
agreed upon fees and expenses.
These fees are to be applied to your account and will remain in effect
for a period of three years with an allowable increase in year two and
three no greater than the calculated Northeast CPI for the previous
period. In addition, BFDS will charge the Account for all out-of-pocket
expenses, such as courier fees, incurred by BFDS in connection with any
rent paid by BFDS for the P.O. Box.
7. This Agreement may be terminated by either party at any time by 90- days
prior written notice to the other, provided that BFDS may terminate this
Agreement at any time on notice to you in the event of your dissolution
or
<PAGE>
insolvency or the commencement of any proceedings under any bankruptcy or
insolvency law or by or against you.
8. BFDS, in performing its duties under this Agreement, shall not be liable
to you except for gross negligence or willful misconduct. BFDS shall
not be responsible for delays or failure in performance resulting from
causes beyond its control including, without limitation, acts of God,
strikes, lockouts, riots, acts of war, governmental regulations, fire,
communication line failures, power failures, earthquakes or other
disasters. BFDS shall also not be liable for special or consequential
damages.
9. Any notice under this Agreement shall be deemed to have been given if
sent by mail, postage prepaid, to the following addresses: If to you,
the address set forth on page one hereof, or to such other address as
you may designate by written notice to BFDS; if to BFDS, Boston
Financial Data Service, Inc., 2 Heritage Drive, No. Quincy, MA 02171,
Attention: Cash Management Services, 1st Floor.
10. This Agreement constitutes the entire Agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof, whether written or oral.
11. BFDS hereby agrees that all records which it maintains on behalf of
Allmerica are property of Allmerica, and further agrees to surrender
promptly to Allmerica such records upon Allmerica's request. However,
BFDS has the right to make copies of such records, in its discretion.
To the extent that any records maintained on behalf of Allmerica are
subject to section 31a-1 under the Investment Company Act of 1940 ("1940
Act"), BFDS agrees to preserve such records for the periods prescribed
by rule 31a-2 under the 1940 Act.
12. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
SEC, the NASD, and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in conjunction
with any investigation or inquiry relating to the services to be
provided by BFDS. Notwithstanding the generality of the foregoing, each
party hereto further agrees to furnish the Insurance Commissioner of any
state with any information or reports in connection with services
provided under this Agreement which such Commissioner may reasonably
request in order to ascertain whether the variable contracts operations
of Allmerica are being conducted in a manner consistent with the state's
regulations concerning variable contracts and any other applicable law
or regulation.
13. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
BOSTON FINANCIAL DATA SERVICES INC.
BY: /s/ Stephen Hill
TITLE: Vice President
DATE: 11/4/97
ALLMERICA FINANCIAL
BY: /s/ Edward A. Ostrout
TITLE: Assistant Treasurer
DATE: 11/5/97
<PAGE>
Service Level Agreement
Boston Financial Data Services
First Allmerica Financial Life Insurance Company
and
Allmerica Financial Life Insurance and Annuity Company
THIS AGREEMENT is entered into as of this _____ day of January, 1998 by and
among First Allmerica Financial Life Company and Allmerica Financial Life
Insurance and Annuity Company (collectively, "Allmerica") and Boston Financial
Data Services, Inc., ("BFDS").
WHEREAS, Allmerica and BFDS have entered into a Retail Lockbox Agreement and
Allmerica wishes to obtain from BFDS additional mailroom services in connection
with said Retail Lockbox Agreement,
NOW, THEREFORE, in consideration of their mutual promises, Allmerica and BFDS
hereby agree as follows:
1. SERVICES
BFDS hereby agrees to provide Customer with Services ("Services")
according to the specifications ("Service Levels") described in the
following Exhibits(s), which are attached hereto and made a part of this
Agreement:
1. Exhibit B "Boston Financial Data Services--Operations Support Services--
Service
Level Agreement--Allmerica Financial"
2. Exhibit C "Allmerica Financial--Notes for BFDS on Allmerica's intended
Procedures"
Additional Exhibits may be added to this Agreement if set forth in a writing
signed by duly authorized representatives of both parties. If any terms are
inconsistent between this Agreement and any exhibits attached hereto, the
terms of this Agreement shall prevail.
Material failure to provide the Services and Service Levels set forth in the
Exhibits shall be considered a Default for the purposes of section 4.
TERMINATION.
2. COMPENSATION
As compensation for services hereunder, Customer shall pay BFDS mutually
agreed upon fees and expenses as specified in Exhibit A.
<PAGE>
3. LIMITATION OF LIABILITY
Notwithstanding anything to the contrary contained herein, neither party, in
performing its duties under this Agreement, shall be liable to the other
except for gross negligence or willful misconduct. Neither party shall be
liable for special or consequential damages. BFDS shall maintain fidelity
bonding of at least $1,000,000 for claims arising from fraudulent or
dishonest acts on the part of any BFDS employee, which shall be underwritten
by reputable insurers(s) licensed to do business in the Commonwealth of
Massachusetts and having an A.M. Best rating of "A" or better. Within ten
(10) days from Customer's request therefor, BFDS shall provide to Customer
either (a) copies of all relevant insurance Policies, or (b) Certificates of
Insurance reasonably specifying the policies required hereunder.
Neither party shall not responsible for delays or failure in performance
resulting from causes beyond its control including, without limitation,
acts, of God, strikes, lockouts, rots, acts of war, governmental
regulations, fire, communication line failures, power failures, earthquakes
or other disasters.
4. TERMINATION
This Agreement may be terminated: (a) by either party at any time by 90 days
prior written notice to the other; (b) at any time by mutual written consent
of the parties; or (c) by either party immediately, upon notice to the other
party that the other party is in Default. The occurrence of any one or more
of the following events shall constitute a Default under the Agreement by
the party to whom the event relates:
(a) Any failure or refusal by a party to substantially perform or satisfy
any material term or condition of the Agreement, if such failure or
refusal continues for more than 30 days after the earlier of (i) notice
thereof to such defaulting party by the other party, or (ii) actual
knowledge by the failing party that it is failing to perform or satisfy a
material term or condition of the Agreement.
(b) The voluntary or involuntary bankruptcy or insolvency of a party, the
voluntary or involuntary dissolution or liquidation of a party, the
admission in writing by a party of its inability to pay its debts as
they mature, or the assignment by a party for the benefit of creditors.
- 2 -
<PAGE>
5. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at
such other address as such party may from time to time specify in writing to
the other party.
If to the Fund:
Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, MA 02171
If to Allmerica:
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester, MA 01653
Attention: William Hayward, Vice President
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
Attention: William Hayward, Vice President
6. RECORDS
BFDS hereby agrees that all records which it maintains on behalf of
Allmerica are the property of Allmerica, and further agrees to surrender
promptly to Allmerica such records upon Allmerica's request. However, BFDS
has the right to make copies of such records, in its discretion. To the
extent that any records maintained on behalf of Allmerica are subject to
section 312a-1 under the Investment Company Act of 1940 ("1940 Act") BFDS
agrees to preserve such records for the periods prescribed by Rule 31a-2
under the 1940 Act.
7. COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
8. SEVERABILITY
Each and every covenant, profession, term and clause contained in this
Agreement is severable from the others, and each such covenant, provision,
term and clause shall be valid and effective notwithstanding the invalidity
or unenforceability of any other such covenant, provision, term, or clause.
If any provision of the Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
- 3 -
<PAGE>
9. ASSIGNMENT
Customer may, without the consent of BFDS, assign or transfer this Agreement
to any present or future affiliate or subsidiary of First Allmerica
Financial Life Insurance Company. As used herein, the term "affiliate"
shall include any entity controlling, controlled by or under common control
with, First Allmerica Financial Life Insurance Company. BFDS may not,
without the consent of Customer, assign or transfer this Agreement to any
present or future affiliate or subsidiary of BFDS. This Agreement or any of
the rights and obligations hereunder may not be assigned by any party
without the prior written consent of all parties hereto.
10. REGULATORY AUTHORITIES
Each party hereto shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD,
and state insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Insurance Commissioner of any state with any
information or reports in connection with services provided under this
Agreement which such Commissioner may request in order to ascertain whether
the insurance operations of the Company are being conducted in a manner
consistent with applicable laws and regulations.
11. CAPTIONS
The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12. CONTROLLING LAW
This Agreement shall be governed by and its provisions shall be construed in
accordance with the laws of the Commonwealth of Massachusetts.
- 4 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ William Hayward
-----------------------------------------------------
Title: Vice President & Managing Director
-----------------------------------------------------
Date: 2/6/98
-----------------------------------------------------
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
By: /s/ William Hayward
-----------------------------------------------------
Title: Vice President & Managing Director
-----------------------------------------------------
Date: 2/6/98
-----------------------------------------------------
BOSTON FINANCIAL DATA SERVICES, INC.
By: /s/ John E. Ciardi
-----------------------------------------------------
Title: Vice President - Operations Support Services
-----------------------------------------------------
Date: 2/4/98
-----------------------------------------------------
- 5 -
<PAGE>
April 15, 1998
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
RE: SEPARATE ACCOUNT VA-K (EXECANNUITY PLUS / ALLMERICA ADVANTAGE)
OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FILE #'S: 33-39702 AND 811-6293
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 Separate Account VA-K
on Form N-4 under the Securities Act of 1933 and the Investment Company Act of
1940, with respect to the Company's qualified and non-qualified variable annuity
contracts.
I am of the following opinion:
1. Separate Account VA-K 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 Separate Account VA-K are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The individual variable annuity contracts, when issued in accordance with
the Prospectus contained in the Post-Effective Amendment to the
Registration Statement and upon compliance with applicable local law, will
be legal and binding obligations of the Company in accordance with their
terms and when sold will be legally issued, fully paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to this
Post-Effective Amendment to the Registration Statement on Form N-4 under the
Securities Act of 1933.
Very truly yours,
/s/ Sylvia Kemp-Orino
Sylvia Kemp-Orino
Assistant Vice President and Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 14 to the Registration
Statement of the Separate Account VA-K of Allmerica Financial Life Insurance
and Annuity Company on Form N-4 of our report dated February 3, 1998,
relating to the financial statements of Allmerica Financial Life Insurance
and Annuity Company, and our report dated March 25, 1998, relating to the
financial statements of the Separate Account VA-K Allmerica Advantage
Variable Annuity and ExecAnnuity Plus Variable Annuity of Allmerica Financial
Life Insurance and Annuity Company, both of which appear in such Statement of
Additional Information. We also consent to the reference to us under the
heading "Experts" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
April 23, 1998
<PAGE>
PARTICIPATION AGREEMENT
AMONG
ALLMERICA INVESTMENT TRUST
ALLMERICA INVESTMENT MANAGEMENT COMPANY, INC.
AND
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
DATED AS OF
FEBRUARY 25, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I Purchase of Fund Shares 4
ARTICLE II Representations and Warranties 5
ARTICLE III Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 6
ARTICLE IV Sales Material and Information 8
ARTICLE V Fees and Expenses 9
ARTICLE VI Diversification 9
ARTICLE VII Potential Conflicts 10
ARTICLE VIII Indemnification 11
ARTICLE IX Applicable Law 15
ARTICLE X Termination 15
ARTICLE XI Notices 17
ARTICLE XII Miscellaneous 17
SCHEDULE A Separate Accounts and Variable Products A-1
SCHEDULE B Portfolios of Allmerica Investment Trust B-1
SCHEDULE C Proxy Voting Procedures C-1
2
<PAGE>
THIS AGREEMENT, made and entered into as of the 25th day of February, 1998 by
and among: ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(hereinafter the "Company"), a Delaware corporation, on its own behalf and on
behalf of each separate account of the Company set forth on Schedule A
hereto, as may be amended from time to time (each such account hereinafter
referred to as the "Account"); ALLMERICA INVESTMENT TRUST, an unincorporated
Massachusetts business trust (hereinafter the "Fund"), and ALLMERICA
INVESTMENT MANAGEMENT COMPANY, INC. (hereinafter the "Adviser"), a
Massachusetts corporation
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as (i) the investment vehicle for
separate accounts established by insurance companies for individual and group
life insurance policies and annuity contracts with variable accumulation
and/or pay-out provisions (hereinafter referred to individually and/or
collectively as "Variable Products") and (ii) the investment vehicle for
certain qualified pension and retirement plans (hereinafter "Qualified
Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an
investment vehicle under their Variable Products enter into participation
agreements with the Fund and the Adviser (the "Participating Insurance
Companies");
WHEREAS, shares of the Fund are divided into several series of shares,
each representing the interest in a particular managed portfolio of
securities and other assets (each such series hereinafter referred to as a
"Portfolio"), any one or more of which may be made available under this
Agreement, as may be amended from time to time by mutual agreement of the
parties hereto; and
WHEREAS, the Fund has applied for an order from the Securities and
Exchange Commission, granting Participating Insurance Companies and Variable
Insurance Product separate accounts exemptions from the provisions of
Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940,
as amended (hereinafter the "1940 Act"), and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Fund to be sold to and held by separate accounts of both affiliated and
unaffiliated life insurance companies and Qualified Plans (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws and manages each of the certain portfolios of the Fund and
retains Sub-Advisers for the daily investment and reinvestment of the assets
of each portfolio; and
WHEREAS, Allmerica Investments, Inc. (the "Distributor") is registered
as a broker/dealer under the Securities Exchange Act of 1934, as amended
(hereinafter the "1934 Act"), is a member in good standing of the National
Association of Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, the Company has registered or will register certain Variable
Products under the 1933 Act; and
3
<PAGE>
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, to set aside and invest assets attributable to the
aforesaid Variable Products, and the Company has registered or will register
each Account as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase, on behalf of each Account,
shares in the Portfolios set forth in Schedule B attached to this Agreement,
to fund certain of the aforesaid Variable Insurance Products and the Fund is
authorized to sell such shares to each such Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the parties
hereto agree as follows:
ARTICLE I. PURCHASE OF FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company
shares of the Fund and shall execute orders placed for each Account on a
daily basis at the net asset value next computed after receipt by the Fund or
its designee of such order. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee of an order prior to the close of
regular trading on the New York Stock Exchange ("NYSE") shall constitute
receipt by the Fund; provided that the Fund receives notice of such order by
10:00 a.m. Eastern time on the next following Business Day. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading
and on which the Fund calculates its net asset value pursuant to the rules of
the Securities and Exchange Commission.
1.2. The Fund, so long as this Agreement is in effect, agrees to make
its shares available indefinitely for purchase at the applicable net asset
value per share by the Company and its Accounts on those days on which the
Fund calculates its net asset value pursuant to rules of the Securities and
Exchange Commission and the Fund shall use reasonable efforts to calculate
such net asset value on each day which the New York Stock Exchange is open
for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to permit the Fund to sell shares
of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.3. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts and to certain
Qualified Plans. No shares of any Portfolio will be sold to the general
public.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of the request for redemption. For purposes of
this Section 1.4, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee of
a request prior to the close of regular trading on the NYSE shall constitute
receipt by the Fund, provided that the Fund receives notice of such request
for redemption on the next following Business Day.
4
<PAGE>
1.5. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus.
1.6. The Company shall pay for Fund shares no later than the next
Business Day after an order to purchase Fund shares is made in accordance
with the provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for
each Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio.
The Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Eastern time) and shall use its best efforts to make such net asset
value per share available by 7:00 p.m. Eastern time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Variable Products are
or will be registered under the 1933 Act; that the Variable Products will be
issued and sold in compliance in all material respects with all applicable
federal and state laws, and that the sale of the Variable Products shall
comply in all material respects with state insurance suitability
requirements. The Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law,
that it has legally and validly established each Account as a segregated
asset account under Section 2932 of the Delaware Insurance Code, and that it
has registered or, prior to any issuance or sale of the Variable Products,
will register each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for
the Variable Products.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the Commonwealth of
Massachusetts and all applicable federal and state securities laws, and that
the Fund is and shall make every effort to remain registered under the 1940
Act. The Fund shall amend the registration statement for its shares under the
1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares. The Fund shall register and qualify
the shares for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by the Fund.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"), and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision)
5
<PAGE>
and that it will notify the Company promptly upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so
qualify in the future.
2.4. The Company represents that the Variable Products are currently
treated as life insurance policies or annuity contracts under applicable
provisions of the Code, that it will make every effort to maintain such
treatment, and that it will notify the Fund immediately upon having a
reasonable basis for believing that the Variable Products have ceased to be
so treated or that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have its board of Trustees, a majority of whom are not
interested persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states.
2.7. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.8. The Adviser represents and warrants that it is and shall remain
duly registered in all material respects under all applicable federal and
state securities laws and that it will perform its obligations for the Fund
in compliance in all material respects with the laws of its state of domicile
and any applicable state and federal securities laws.
2.9. The Fund represents and warrants that its Trustees, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule
17g-(1) of the 1940 Act or related provisions as may be promulgated from time
to time. The aforesaid blanket fidelity bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
dealing with the money and/or securities of the Fund are covered by a blanket
fidelity bond or similar coverage, in an amount not less $5 million. The
aforesaid, which includes coverage for larceny and embezzlement, shall be
issued by a reputable bonding company. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Distributor promptly in writing in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS;
VOTING
3.1. The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus and statement of additional
information as the Company may reasonably request. If requested by the
Company, in lieu of providing printed copies, the Fund shall provide
camera-ready film or computer diskettes containing the Fund's prospectus and
statement of additional
6
<PAGE>
information, and such other assistance as is reasonably necessary in order
for the Company once each year (or more frequently if the prospectus and/or
statement of additional information for the Fund is amended during the year)
to have the prospectus for the Variable Products and the Fund's prospectus
printed together in one document, and to have the statement of additional
information for the Fund and the statement of additional information for the
Variable Products printed together in one document. Alternatively, the
Company may print the Fund's prospectus and/or its statement of additional
information in combination with other fund companies' prospectuses and
statements of additional information.
3.2. Except as provided in this Section 3.2., all expenses of printing
and distributing Fund prospectuses and statements of additional information
shall be the expense of the Company. For any prospectuses and statements of
additional information provided by the Company to the existing owners of
Variable Products who currently own shares of one or more of the Fund's
Portfolios, in order to update disclosure as required by the 1933 Act and/or
the 1940 Act, the cost of printing shall be borne by the Fund. If the
Company chooses to receive camera-ready film or computer diskettes in lieu of
receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of x and y where x is the
number of such prospectuses distributed to owners of the Variable Products
who currently own shares of one or more of the Fund's Portfolios, and y is
the Fund's per unit cost of typesetting and printing the Fund's prospectus.
The same procedures shall be followed with respect to the Fund's statement of
additional information. The Company agrees to provide the Fund or its
designee with such information as may be reasonably requested by the Fund to
assure that the Fund's expenses do not include the cost of printing any
prospectuses or statements of additional information other than those
actually distributed to existing owners of the Variable Products.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Company or such other person as the Fund may designate, as
agreed upon by the parties.
3.4. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications
(except for prospectuses and statements of additional information, which are
covered in section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distribution to contract owners. The Fund or its
designee shall bear the cost of printing, duplicating, and mailing of these
documents to current contract owners, and the Company shall bear the cost for
such documents used for purposes other than distribution to current contract
owners.
3.5. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contract owners;
(ii) vote the Fund shares in accordance with instructions received
from contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Portfolio for
which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. The Fund and the Company shall follow the procedures, and
shall have the corresponding
7
<PAGE>
responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible
for ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set
forth on Schedule C, which standards will also be provided to the other
Participating Insurance Companies, if any.
3.6. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, including Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the
Commission may promulgate with respect thereto.
3.7. The Fund shall use reasonable efforts to provide Fund prospectuses,
reports to shareholders, proxy materials and other Fund communications (or
camera-ready equivalents) to the Company sufficiently in advance of the
Company's mailing dates to enable the Company to complete, at reasonable
cost, the printing, assembling and/or distribution of the communications in
accordance with applicable laws and regulations.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or the Adviser(s) is named, at least fifteen
Business Days prior to its use. No such material shall be used if the Fund
or its designee reasonably objects to such use within fifteen Business Days
after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Variable Products other than the information
or representations contained in the registration statement or prospectus for
the Fund shares, as such registration statement and prospectus may be amended
or supplemented from time to time, or in reports or proxy statements for the
Fund, or in sales literature or other promotional material approved by the
Fund or its designee, except with the permission of the Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its separate
account(s) is named at least fifteen Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to
such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Adviser shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Variable Products, other than the information or
representations contained in a registration statement or prospectus for the
Variable Products, as such registration statement and prospectus may be
amended or supplemented from time to time, or in published reports for each
Account which are in the public domain or approved by the Company for
distribution to contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission
of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature
8
<PAGE>
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Fund or its shares, which are relevant to the Company or the Variable
Products.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
investment in the Fund under the Variable Products.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media), sales literature (I.E., any written communication distributed or made
generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees,
and registration statements, prospectuses, statements of additional
information, shareholder reports, and proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund shall pay no fee or other compensation to the Company
under this Agreement, except that if the Fund or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses,
then the Distributor may make payments to the Company or to the distributor
for the Variable Products if and in amounts agreed to by the Distributor in
writing.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund, other than expenses assumed by the
Adviser under the Management Agreement between the Fund and the Adviser or by
another party. The Fund shall see to it that all its shares are registered
and authorized for issuance in accordance with applicable federal law and, if
and to the extent deemed advisable by the Fund, in accordance with applicable
state laws prior to their sale. The Fund shall bear the expenses for the
cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials
and reports, setting the prospectus in type, setting in type and printing the
proxy materials and reports to shareholders (including the costs of printing
a prospectus that constitutes an annual report), the preparation of all
statements and notices required by any federal or state law, and all taxes on
the issuance or transfer of the Fund's shares.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Variable Products
in such a manner as to ensure that the Variable Products will be treated as
variable contracts under the Code and the regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund will at all times
comply with Section 817(h) of the Code and Treasury Regulation 1.817-5,
relating to the diversification requirements for variable annuity, endowment,
or life insurance contracts and any amendments or other modifications to such
Section or Regulations. In the event of a breach of this Article VI by the
Fund, it will take all reasonable steps (a) to notify Company of such breach
and (b) to adequately diversify the Fund so as to achieve compliance within
the grace period afforded by Regulation 1.817-5.
9
<PAGE>
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by Variable Insurance Product owners;
or (f) a decision by a Participating Insurance Company to disregard the
voting instructions of contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and
the implications thereof.
7.2. Each of the Company and the Adviser will report any potential or
existing conflicts of which it is aware to the Board. Each of the Company
and the Adviser will assist the Board in carrying out its responsibilities
under SEC rules and regulations. The Adviser, and the participating
insurance companies and participating qualified plans will at least annually
submit to the Board such reports, materials, or data as the Board may
reasonably request so that the Board may fully carry out the obligations
imposed upon by the conditions contained in the Shared Funding Exemptive
Order, and said reports, materials, and data will be submitted more
frequently if deemed appropriate by the Board.
7.3. If it is determined by a majority of the Board, or a majority of
its members who are not "interested persons" of the Fund, the Adviser or the
Company as that term is defined in the 1940 Act (hereinafter "disinterested
members"), that a material irreconcilable conflict exists, the Company and
other Participating Insurance Companies shall, at their expense and to the
extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected contract owners and, as appropriate,
segregating the assets of any appropriate group (I.E., annuity contract
owners, life insurance policy owners, or variable contract owners of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; and (2) establishing a new registered management investment
company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account (at the Company's expense); provided, however that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the
10
<PAGE>
Company will withdraw the affected Account's investment in the Fund and
terminate this Agreement with respect to such Account within six months after
the Board informs the Company in writing that it has determined that such
decision has created an irreconcilable material conflict; provided, however,
that such withdrawal and termination shall be limited to the extent required
by the foregoing material irreconcilable conflict as determined by a majority
of the disinterested members of the Board. Until the end of the foregoing
six month period, the Distributor and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares
of the Fund.
7.6. For purposes of Sections 7.3 through 7.5 of this Agreement, a
majority of the disinterested members of the Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund be required to establish a new funding medium
for the Variable Products. The Company shall not be required by Section 7.3
to establish a new funding medium for the Variable Products if an offer to do
so has been declined by vote of a majority of contract owners materially
adversely affected by the irreconcilable material conflict.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding, or if the Fund obtains a Shared Exemptive Order which
requires provisions that are materially different from the provisions of this
Agreement, then (a) the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, or to the terms of
the Shared Exemptive Order, to the extent applicable; and (b) Sections 3.4,
3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a) The Company agrees to indemnify and hold harmless the Fund and
the Adviser, each of their respective officers, employees, and Trustees or
Directors, and each person, if any, who controls the Fund or the Adviser
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Variable Products and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus for the Variable
Products or contained in the Variable Products or sales
literature for the Variable Products (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on
behalf of the Fund for use in the registration statement or
prospectus for the Variable Products or in the Variable
Products or sales literature (or any amendment or
11
<PAGE>
supplement) or otherwise for use in connection with the sale of the
Variable Products or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or sales
literature of the Fund not supplied by the Company, or persons
under its control and other than statements or representations
authorized by the Fund or an Adviser) or unlawful conduct of
the Company or persons under its control, with respect to the
sale or distribution of the Variable Products or Fund shares;
or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature of the
Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, if such a statement or
omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c)
hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or duties under
this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company
of any such claim shall not relieve the Company from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such action.
The Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company to such party of the Company's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
12
<PAGE>
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Variable Products or the
operation of the Fund.
8.2. INDEMNIFICATION BY THE ADVISER
8.2(a). The Adviser agrees, with respect to each Portfolio that it
manages, to indemnify and hold harmless the Company, each of its directors,
officers, and employees, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Adviser) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of shares of the Portfolio that it manages or the
Variable Products and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Fund (or any
amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Fund by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Products or Portfolio
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Variable Products not supplied by the Fund or persons under its
control and other than statements or representations authorized by
the Company) or unlawful conduct of the Fund, Adviser(s) or
Distributor or persons under their control, with respect to the
sale or distribution of the Variable Products or Portfolio shares;
or
(iii) arise out of or as a result of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature covering
the Variable Products, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Adviser; as limited by and in accordance
with the provisions of Sections 8.2(b) and 8.2(c) hereof.
13
<PAGE>
8.2(b). The Adviser shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties
under this Agreement.
8.2(c). The Adviser shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Adviser in writing within a reasonable time after the summons
or other first legal process giving information of the nature of
the claim shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the Adviser
of any such claim shall not relieve the Adviser from any liability
which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Adviser will be entitled to participate,
at its own expense, in the defense thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from
the Adviser to such party of the Adviser's election to assume the
defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser
will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently
in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company agrees promptly to notify the Adviser of
the commencement of any litigation or proceedings against it or any
of its officers or directors in connection with the issuance or
sale of the Variable Products or the operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person, if
any, who controls the Company within the meaning of Section 15 of
the 1933 Act (hereinafter collectively, the "Indemnified Parties"
and individually, "Indemnified Party," for purposes of this Section
8.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of
the Fund) or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof), litigation or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any
member thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement; or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund, as limited and in accordance with the
provisions of Sections 8.3(b) and 8.3(a);
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as may arise from such Indemnified Party's gross
negligence, bad faith, or willful misconduct the performance of
14
<PAGE>
such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Fund in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service
on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it
may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be
entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Fund to
such party of the Fund's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of
investigation.
8.3(d). The Company agrees promptly to notify the Fund of the
commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this
Agreement, the issuance or sale of the Variable Products, with
respect to the operation of either Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to,
the Shared Funding Exemptive Order) and the terms hereof shall be interpreted
and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
10.1(a) termination by any party for any reason by at least sixty (60)
days advance written notice delivered to the other parties; or
10.1(b) termination by the Company by written notice to the Fund and
the Adviser with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to
meet the requirements of the Variable Products; or
10.1(c) termination by the Company by written notice to the Fund and
the Adviser with respect to any Portfolio in the event any of the Portfolio's
shares are not registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such shares as the
underlying investment media of the Variable Products issued or to be issued
by the Company; or
15
<PAGE>
10.1(d) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio ceases to
qualify as a Regulated Investment Company under Subchapter M of the Code or
under any successor or similar provision, or if the Company reasonably believes
that the Fund may fail to so qualify; or
10.1(e) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio fails to
meet the diversification requirements specified in Article VI hereof; or
10.1(f) termination by the Fund by written notice to the Company if the
Fund shall determine, in its sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a material adverse change
in its business, operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity, or
10.1(g) termination by the Company by written notice to the Fund and the
Adviser, if the Company shall determine, in its sole judgment exercised in good
faith, that either the Fund or the Adviser has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse publicity; or
10.2. Notwithstanding any termination of this Agreement, the Fund shall,
at the option of the Company, continue to make available additional shares of
the Fund pursuant to the terms and conditions of this Agreement, for all
Variable Products in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Variable Products").
Specifically, without limitation, the owners of the Existing Variable Products
shall be permitted to direct reallocation of investments in the Portfolios of
the Fund, redemption of investments in the Portfolios of the Fund and/or
investment in the Portfolios of the Fund upon the making of additional purchase
payments under the Existing Variable Products. The parties agree that this
Section 10.2 shall not apply to any termination under Article VII and the effect
of such Article VII termination shall be governed by Article VII of this
Agreement.
10.3. The provisions of Article VIII Indemnification shall survive any
termination of this Agreement pursuant to this Article X Termination.
10.4. The Company shall not redeem Fund shares attributable to the
Variable Products (as distinct from Fund shares attributable to the Company's
assets held in the Account) except (i) as necessary to implement contract owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the Securities and Exchange Commission pursuant to
Section 26(b) of the 1940 Act. Upon request, the Company will promptly furnish
to the Fund the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund) to the effect that any redemption pursuant
to clause (ii) above is a Legally Required Redemption. Furthermore, except in
cases where permitted under the terms of the Variable Products, the Company
shall not prevent contract owners from allocating payments to a Portfolio that
was otherwise available under the Variable Products without first giving the
Fund 90 days prior written notice of its intention to do so.
16
<PAGE>
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when hand delivered or sent by
registered or certified mail to the other party at the address of such party set
forth below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Allmerica Investment Trust
440 Lincoln Street
Worcester, MA 01653
Attention: George M. Boyd, Esq.
If to Adviser:
Allmerica Investment Management Company, Inc.
440 Lincoln Street
Worcester, MA 01653
Attention: Abigail M. Armstrong, Esq.
If to the Company:
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, Massachusetts 01653
Attention: Richard M. Reilly, President
ARTICLE XII. MISCELLANEOUS
12.1. A copy of the Fund's Agreement and Declaration of Trust, as may be
amended from time to time, is on file with the Secretary of the Commonwealth of
Massachusetts. Notice is hereby given that this instrument is executed by the
Fund's Trustees as Trustees and not individually, and the Fund's obligations
under this Agreement are not binding upon any of the Trustees or Shareholders of
the Fund, but are binding only upon the assets and property of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Variable Products and all information reasonably identified
as confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
17
<PAGE>
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company controlled by or
under common control with the Adviser, if such assignee is duly licensed and
registered to perform the obligations of the Adviser under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified above.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Joseph W. MacDougall, Jr.
--------------------------------------
NAME: Joseph W. MacDougall, Jr.
TITLE: Vice President
ALLMERICA INVESTMENT TRUST
By: /s/ Thomas P. Cunningham
--------------------------------------
NAME: Thomas P. Cunningham
TITLE: Vice President & Treasurer
ALLMERICA INVESTMENT MANAGEMENT COMPANY, INC.
By: /s/ Richard F. Betzler, Jr.
--------------------------------------
NAME: Richard F. Betzler, Jr.
TITLE: Vice President
18
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND VARIABLE PRODUCTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
VARIABLE LIFE PRODUCTS
SEPARATE ACCOUNT PRODUCT NAME 1933 ACT # 1940 ACT #
- ---------------- ------------ ---------- ----------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
VEL VEL ('87) 33-14672 811-5183
VEL VEL ('91) 33-90320 811-5183
VEL II VEL ('93) 33-57792 811-7466
VEL VEL (Plus) 33-42687 811-5183
Inheiritage Inheiritage 33-70948 811-8120
Select Inheiritage
Allmerica Select Separate Account II Select Life 33-83604 811-8746
Group VEL Group VEL 33-82658 811-08704
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
VARIABLE ANNUITY PRODUCTS
SEPARATE ACCOUNT PRODUCT NAME 1933 ACT # 1940 ACT #
- ---------------- ------------ ---------- ----------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
VA-K ExecAnnuity Plus 91 33-39702 811-6293
ExecAnnuity Plus 93
Allmerica Advantage
Allmerica Select Separate Account Allmerica Select Resource I 33-47216 811-6632
Allmerica Select Resource II
Separate Accounts VA-A, VA-B, VA-C, Variable Annuities (discontinued)
VA-G, VA-H
- --------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
SCHEDULE B
PORTFOLIOS OF
ALLMERICA INVESTMENT TRUST
Select Emerging Markets Fund
Select International Equity Fund
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Strategic Growth Fund
Select Growth Fund
Growth Fund
Equity Index Fund
Select Growth and Income Fund
Select Income Fund
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
B-1
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
- - The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Variable Products and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
- - Promptly after the Record Date, the Company will perform a "tape run," or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
- - Note: The number of proxy statements is determined by the activities
described above. The Company will use its best efforts to call in the
number of Customers to the Fund, as soon as possible, but no later than
two weeks after the Record Date.
- - The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting instruction
solicitation material. The Fund will provide the last Annual Report to the
Company pursuant to the terms of Section 3.43 of the Agreement to which
this Schedule relates.
- - The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
- name (legal name as found on account registration)
address
- fund or account number
- coding to state number of units
- individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
C-1
<PAGE>
- - During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
- Voting Instruction Card(s)
- One proxy notice and statement (one document)
- return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
- "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
- cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
- - The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
- - Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but NOT including,) the
meeting, counting backwards.
- - Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
- - Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
- - If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
- - There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
C-2
<PAGE>
- - The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of SHARES.) The Fund must review
and approve tabulation format.
- - Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
- - A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
- - The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
- - All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
C-3
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
SMA LIFE ASSURANCE COMPANY
THIS AGREEMENT, made and entered into this 1st day of May, 1991 by
and among SMA LIFE ASSURANCE COMPANY, (hereinafter the "Company"), a Delaware
corporation, on its own behalf and on behalf of each segregated asset account
of the Company set forth on Schedule A hereto as may be amended from time to
time (each such account hereinafter referred to as the "Account"), and the
VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and
FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated October 15, 1985 (File No. 812-6102), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
-1-
<PAGE>
WHEREAS, Fidelity Management & Research Company (the "Adviser") is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain
variable life and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors
of the Company, on the date shown for such Account on Schedule A hereto, to set
aside and invest assets attributable to one or more variable life and annuity
contracts; and
WHEREAS, the Company has registered or will register each Account as
a unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, (hereinafter the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 9:30 a.m. Boston time on
the next following Business Day. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which the Fund calculates its
net asset value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to
-2-
<PAGE>
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Sections 2.5 and 2.12 of
Article II of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable life and variable annuity contracts with the form
number(s) which are listed on Schedule B attached hereto and incorporated herein
by this reference, as such Schedule B may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Fund, in such other Funds advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an investment
company other than the Fund if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Portfolios of the Fund;
or (b) the Company gives the Fund and the Underwriter 45 days written notice of
its intention to make such other investment company available as a funding
vehicle for the Contracts; or (c) such other investment company was available as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their signing this
Agreement; or (d) the Fund or Underwriter consents to the use of such other
investment company.
-3-
<PAGE>
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or any
Account. Shares ordered from the Fund will be recorded in an appropriate title
for each Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7 p.m. Boston
time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 2932 of the Delaware Insurance Code and has
registered or, prior to any issuance or sale of the Contracts, will register
each Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Delaware and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares
-4-
<PAGE>
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its shares. The Fund shall register and
qualify the shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4. The Company represents that the Contracts are currently treated
as endowment, annuity or life insurance contracts, under applicable provisions
of the Code and that it will make every effort to maintain such treatment and
that it will notify the Fund and the Underwriter immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-l under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule 12b-l Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-l, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-l to finance distribution
expenses.
2.6. The Fund makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Delaware and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Delaware to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Delaware and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
-5-
<PAGE>
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Delaware and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(l) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund, in an amount not less than the minimal coverage as required currently
by entities subject to the requirements of Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid Bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.12. The Company represents and warrants that it will not purchase
Fund shares with Account assets derived from the sale of Contracts to deferred
compensation plans with respect to service for state and local governments which
qualify under Section 457 of the federal Internal Revenue Code, as may be
amended. The Company may purchase Fund shares with Account assets derived from
any sale of a Contract to any other type of tax-advantaged employee benefit
plan; provided however that such plan has no more than 500 employees who are
eligible to participate at the time of the first such purchase hereunder by the
Company of Fund shares derived from the sale of such Contract.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company (at the Company's
expense) with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
-6-
<PAGE>
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter (or in the
Fund's discretion, the Prospectus shall state that such Statement is available
from the Fund), and the Underwriter (or the Fund), at its expense, shall print
and provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, reports to stockholders and other communications to
stockholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract Owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received:
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule C
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee object to such use within fifteen Business
Days after receipt of such material.
-7-
<PAGE>
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee object to such use
within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the Securities and Exchange Commission.
4.7. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
-8-
<PAGE>
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund. Currently,
no such payments are contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and
distributing the Fund's prospectus to owners of Contracts issued by the Company
and of distributing the Fund's proxy materials and reports to such Contract
owners.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation ss.1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations.
-9-
<PAGE>
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority
of its disinterested trustees, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
-10-
<PAGE>
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
-11-
<PAGE>
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the Act or the rules promulgated thereunder with respect to mixed
or shared funding (as defined in the Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use
in the Registration Statement or prospectus for the Contracts
or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
-12-
<PAGE>
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature of the Fund not supplied by the Company, or persons
under its control) or wrongful conduct of the Company or
persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on
behalf of the Company: or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c)
hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed
against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party
shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving
information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Company shall be entitled to
-13-
<PAGE>
participate, at its own expense, in the defense of such
action. The Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named
in the action. After notice from the Company to such party of
the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party
independently in connection with the defense thereof other
than reasonable costs of investigation.
8.l(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings
against them in connection with the issuance or sale of the
Fund Shares or the Contracts or the operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement or prospectus or sales literature of
the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to the Underwriter or Fund by or on behalf of the
Company for use in the Registration Statement or prospectus
for the Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares: or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
-14-
<PAGE>
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct
of the Fund, Adviser or Underwriter or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter; as limited by and
in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is
applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to
-15-
<PAGE>
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Underwriter to such party of the Underwriter's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Underwriter
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
-16-
<PAGE>
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year advance written
notice to the other parties; or
-17-
<PAGE>
(b) at the option of the Company to the extent that shares of
Portfolios are not reasonably available to meet the
requirements of the Contracts as determined by the Company,
provided however, that such termination shall apply only to
the Portfolio(s) not reasonably available. Prompt notice of
the election to terminate for such cause shall be furnished by
the Company; or
(c) at the option of the Fund in the event that formal
administrative proceedings are instituted against the Company
by the NASD, the Securities and Exchange Commission, the
Insurance Commissioner or any other regulatory body regarding
the Company's duties under this Agreement or related to the
sale of the Contracts, with respect to the operation of any
Account, or the purchase of the Fund shares, provided,
however, that the Fund determines in its sole judgment
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the Company to perform its obligations under this
Agreement; or
(d) at the option of the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the Securities and Exchange
Commission, or any state securities or insurance department or
any other regulatory body, provided, however, that the Company
determines in its sole judgment exercised in good faith, that
any such administrative proceedings will have a material
adverse effect upon the ability of the Fund or Underwriter to
perform its obligations under this Agreement; or
(e) with respect to any Account, upon requisite vote of the
Contract owners having an interest in such Account (or any
subaccount) to substitute the shares of another investment
company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those
Portfolio shares had been selected to serve as the underlying
investment media. The Company will give 30 days' prior written
notice to the Fund of the date of any proposed vote to replace
the Fund's shares; or
(f) at the option of the Company, in the event any of the
Fund's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes
the use of such shares as the underlying investment media of
the Contracts issued or to be issued by the Company; or
(g) at the option of the Company, if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M
of the Code or under any successor or similar provision, or if
the Company reasonably believes that the Fund may fail to so
qualify; or
-18-
<PAGE>
(h) at the option of the Company, if the Fund fails to meet
the diversification requirements specified in Article VI
hereof; or
(i) at the option of either the Fund or the Underwriter, if
(1) the Fund or the Underwriter, respectively, shall
determine, in their sole judgment reasonably exercised in good
faith, that the Company has suffered a material adverse change
in its business or financial condition or is the subject of
material adverse publicity and such material adverse change or
material adverse publicity will have a material adverse impact
upon the business and operations of either the Fund or the
Underwriter, (2) the Fund or the Underwriter shall notify the
Company in writing of such determination and its intent to
terminate this Agreement, and (3) after considering the
actions taken by the Company and any other changes in
circumstances since the giving of such notice, such
determination of the Fund or the Underwriter shall continue to
apply on the sixtieth (60th) day following the giving of such
notice, which sixtieth day shall be the effective date of
termination; or
(j) at the option of the Company, if (1) the Company shall
determine, in its sole judgment reasonably exercised in good
faith, that either the Fund or the Underwriter has suffered a
material adverse change in its business or financial condition
or is the subject of material adverse publicity and such
material adverse change or material adverse publicity will
have a material adverse impact upon the business and
operations of the Company, (2) the Company shall notify the
Fund and the Underwriter in writing of such determination and
its intent to terminate the Agreement, and (3) after
considering the actions taken by the Fund and/or the
Underwriter and any other changes in circumstances since the
giving of such notice, such determination shall continue to
apply on the sixtieth (60th) day following the giving of such
notice, which sixtieth day shall be the effective date of
termination; or
(k) at the option of either the Fund or the Underwriter, if
the Company gives the Fund and the Underwriter the written
notice specified in Section 1.6(b) hereof and at the time such
notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1(k)
shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. It is understood and agreed that the right of any party hereto
to terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
-19-
<PAGE>
10.3. Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to terminate
which notice shall set forth the basis for such termination. Furthermore,
(a) In the event that any termination is based upon the
provisions of Article VII, or the provision of Section 10.1(a),
10.1(i), 10.1(j) or 10.1(k) of this Agreement, such prior written
notice shall be given in advance of the effective date of
termination as required by such provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such
prior written notice shall be given at least ninety (90) days
before the effective date of termination.
10.4. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.4 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.5. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in either Account) except (i) as necessary to implement Contract Owner initiated
transactions, or (ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application (hereinafter referred
to as a "Legally Required Redemption"). Upon request, the Company will promptly
furnish to the Fund and the Underwriter the opinion of counsel for the Company
(which counsel shall be reasonably satisfactory to the Fund and the Underwriter)
to the effect that any redemption pursuant to clause (ii) above is a Legally
Required Redemption. Furthermore, except in cases where permitted under the
terms of the Contracts, the Company shall not prevent Contract Owners from
allocating payments to a Portfolio that was otherwise available under the
Contracts without first giving the Fund or the Underwriter 90 days notice of its
intention to do so.
-20-
<PAGE>
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
SMA Life Assurance
440 Lincoln Street
Worcester, Massachusetts 01605
Attention: Sheila B. St. Hilaire
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
-21-
<PAGE>
12.5 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby. Notwithstanding the generality of the
foregoing, each party hereto further agrees to furnish the California Insurance
Commissioner with any information or reports in connection with services
provided under this Agreement which such Commissioner may request in order to
ascertain whether the variable life insurance operations of the Company are
being conducted in a manner consistent with the California Variable Life
Insurance Regulations and any other applicable law or regulations.
12.7 The Fund and Underwriter agree that to the extent any advisory
or other fees received by the Fund, the Underwriter or the Adviser are
determined to be unlawful in legal or administrative proceedings under the 1973
NAIC model variable life insurance regulation in the states of California,
Colorado, Maryland or Michigan, the Underwriter shall indemnify and reimburse
the Company for any out of pocket expenses and actual damages the Company has
incurred as a result of any such proceeding; provided however that the
provisions of Section 8.2(b) of this and 8.2(c) shall apply to such
indemnification and reimbursement obligation. Such indemnification and
reimbursement obligation shall be in addition to any other indemnification and
reimbursement obligations of the Fund and/or the Underwriter under this
Agreement.
12.8. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
-22-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
Company:
SMA LIFE ASSURANCE COMPANY
By its authorized officer,
SEAL By: /s/ Bradford K. Gallagher
--------------------------------------
Title: President
--------------------------------------
Date: 7/11/91
--------------------------------------
Fund:
VARIABLE INSURANCE PRODUCTS FUND
By its authorized officer,
SEAL By: /s/ J. Gary Burkhead
--------------------------------------
Title: Senior Vice President
--------------------------------------
Date:
--------------------------------------
Underwriter:
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
SEAL By: /s/ [Illegible] B. Kincaid
--------------------------------------
Title: President
--------------------------------------
Date: 9/5/91
--------------------------------------
-23-
<PAGE>
Schedule A
----------
Accounts
--------
Name of Account Date of Resolution of Company's Board
which Established the Account
Separate Account VA-K November 1, 1990
-24-
<PAGE>
Schedule B
----------
Contracts
---------
1. Contract Form A3018-91
---------------
-25-
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call
in the number of Customers to Fidelity, as soon as possible, but no
later than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide at least one copy of the last Annual
Report to the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal
Department of the Underwriter or its affiliate ("Fidelity Legal") must
approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found on
the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
-26-
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as
quickly as possible and that their vote is important. One copy
will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has
not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
-27-
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be not received for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity Legal
must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate
the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provided a standard from for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
-28-
<PAGE>
AMENDMENT NO. 1
Amendment to the Participation Agreement among SMA Life Assurance Company
(the "Company"), Variable Insurance Products Fund (the "Fund") and Fidelity
Distributors Corporation (the "Underwriter") dated May 1, 1991 (the Agreement").
WHEREAS, each of the parties is desirous of expanding the ability of
Company to participate in the qualified markets, the Company, the Underwriter
and the Fund hereby agree to amend the Agreement by deleting from Section 1.4
the reference to Section 2.12 and by deleting Section 2.12 in its entirety.
In witness whereof, each of the parties has caused this Amendment to be
executed in its name and on its behalf by its duly authorized representative as
of November 1, 1991.
SMA LIFE ASSURANCE COMPANY FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Bradford K. Gallagher By: /s/ Roger T. Servison
------------------------- -------------------------
Name: Bradford K. Gallagher Name: Roger T. Servison
------------------------- -------------------------
Title: President, SMA Life Assurance Co. Title: President
------------------------- -------------------------
VARIABLE INSURANCE PRODUCTS FUND
By: /s/ J. Gary Burkhead
-------------------------
Name: J. Gary Burkhead
-------------------------
Title: Senior V.P.
-------------------------
<PAGE>
Amendment to Schedules A and B to the Participation Agreement
among
Variable Insurance Products Fund
Fidelity Distributors Corporation
and
Allmerica Financial Life Insurance and Annuity Company
WHEREAS, Allmerica Financial Life Insurance and Annuity Company (the "Company";
formerly SMA Life Assurance Company), Variable Insurance Products Fund, and
Fidelity Distributors Corporation have previously entered into a Participation
Agreement dated May 1, 1991 ("Participation Agreement"); and
WHEREAS, the Participation Agreement provides for the amendment of Schedules A
and B thereto by mutual written consent, the parties from time-to-time have so
amended Schedules A and B, and the parties now wish to consolidate said prior
amendments to Schedules A and B into a single document and to update Schedules A
and B;
NOW, THEREFORE, the parties do hereby agree:
1. To amend and update Schedule A and Schedule B to the Participation Agreement
by adopting the attached Schedule A/B, dated July 15, 1997, and by substituting
the attached Schedule A/B for any and all prior amendments to Schedule A and to
Schedule B, as may have been adopted from time-to-time.
In witness whereof, each of the parties has caused this agreement to be executed
in its name and on its behalf by its duly authorized representative as of the
date specified below.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
-------------------------
Name: Richard M. Reilly
-------------------------
Title: President
-------------------------
Date: July 16, 1997
-------------------------
VARIABLE INSURANCE PRODUCTS FUND II FIDELITY DISTRIBUTORS CORPORATION
By: /s/ By: /s/
------------------------- -------------------------
Name: Name:
------------------------- -------------------------
Title: Title:
------------------------- -------------------------
Date: Date:
------------------------- -------------------------
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Schedule A/B to Participation Agreement dated May 1, 1991
(Dated 7/15/97)
Separate Account* Product Name Registration
- ----------------- ------------ ------------
VEL (Variable Life) VEL '87 33-14672
Policy Form 1018-87 811-5183
VEL '91 33-90320
Policy Form 1018-91 811-5183
VEL PLUS 33-42687
Policy Forms 1023-91; 811-5183
1023-93
VEL II VEL '93 33-57792
(Variable Life) Policy Form 1018-93 811-7466
Inheiritage Inheiritage 33-70948
(Variable Life) Policy Form 1026-94 811-8120
Allmerica Select Select Life 33-83604
Separate Account II Policy Form 1027-95 811-8746
(Variable Life)
Group VEL Group VEL 33-82658
(Variable Life) Policy Form 1029-94 811-8704
VA-K ExecAnnuity 33-39702
(Annuity) ExecAnnuity Plus 811-6293
Advantage
Policy Forms 3018-91;
3021-93;3025-96; 8025-96
Allmerica Select Select Resource I 33-47216
(Annuity) Select Resource II 811-6632
Policy Forms A3020-92;
A3020-95; 3025-96;
8025-96
*The Separate Accounts were authorized by vote of the Board of Directors on the
following dates: VEL - April 2, 1987; VEL II - January 21, 1993; Inheiritage -
September 15, 1993; Allmerica Select Separate Account II - October 12, 1993;
Group VEL - November 22, 1993; VA-K - November 1, 1990; Allmerica Select - March
5, 1992.
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
SMA LIFE ASSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of March,
1994 by and among SMA LIFE ASSURANCE COMPANY, (hereinafter the "Company"), a
Delaware corporation, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each such account hereinafter referred to as the "Account"), and
the VARIABLE INSURANCE PRODUCTS FUND II, an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts (hereinafter the
"Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a
Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
1
<PAGE>
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain
variable life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
the Company, on the date shown for such Account on Schedule A hereto, to set
aside and invest assets attributable to the aforesaid variable annuity
contracts; and
WHEREAS, the Company has registered or will register each Account as
a unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 9:30 a.m. Boston time on
the next following Business Day. "Business Day" shall mean any day on which the
New York Stock Exchange is open for trading and on which the Fund calculates its
net asset value pursuant to the rules of the Securities and Exchange Commission.
2
<PAGE>
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available under the variable annuity contracts with the form number(s) which are
listed on Schedule A attached hereto and incorporated herein by this reference,
as such Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund; or (b) the Company
gives the Fund and the Underwriter 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Company so
informs the Fund and Underwriter prior to their signing this Agreement (a list
of such funds appearing on Schedule C to this Agreement); or (d) the Fund or
Underwriter consents to the use of such other investment company.
3
<PAGE>
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7 p.m. Boston
time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 2932 of the Delaware Insurance Code and has
registered or, prior to any issuance or sale of the Contracts, will register
each Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the Commonwealth of
Massachusetts and all applicable federal and state securities laws and that the
Fund is and shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund
4
<PAGE>
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4. The Company represents that the Contracts are currently treated
as life insurance or annuity contracts, under applicable provisions of the Code
and that it will make every effort to maintain such treatment and that it will
notify the Fund and the Underwriter immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-l under the 1940 Act or
otherwise, although it may make such payments in the future. The Fund has
adopted a "no fee" or "defensive" Rule 12b-l Plan under which it makes no
payments for distribution expenses. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-l, the Fund undertakes to have a
board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-l to finance distribution
expenses.
2.6. The Fund makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Delaware and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Delaware to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Delaware and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and
5
<PAGE>
that the Adviser shall perform its obligations for the Fund in compliance in all
material respects with the laws of the State of Delaware and any applicable
state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less $5
million. The aforesaid includes coverage for larceny and embezzlement is issued
by a reputable bonding company. The Company agrees to make all reasonable
efforts to see that this bond or another bond containing these provisions is
always in effect, and agrees to notify the Fund and the Underwriter in the event
that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company (at the Company's
expense) with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter (or in the
Fund's discretion, the Prospectus shall state that such Statement is available
from the Fund), and the Underwriter (or the Fund), at its expense, shall print
and provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
6
<PAGE>
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section l6(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
7
<PAGE>
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation
to the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-l to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund. Currently,
no such payments are contemplated.
8
<PAGE>
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report) and, the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and
distributing the Fund's prospectus to owners of Contracts issued by the Company
and of distributing the Fund's proxy materials and reports to such Contract
owners.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance with the grace period
afforded by Regulation 817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
9
<PAGE>
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority
of its disinterested trustees, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately
10
<PAGE>
remedies any irreconcilable material conflict, but in no event will the Fund be
required to establish a new funding medium for the Contracts. The Company shall
not be required by Section 7.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
Contract owners materially adversely affected by the irreconcilable material
conflict. In the event that the Board determines that any proposed action does
not adequately remedy any irreconcilable material conflict, then the Company
will withdraw the Account's investment in the Fund and terminate this Agreement
within six (6) months after the Board informs the Company in writing of the
foregoing determination, provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or contained
in the Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this agreement
to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
11
<PAGE>
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund for
use in the Registration Statement or prospectus for the Contracts or
in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained
in the Registration Statement, prospectus or sales literature of the
Fund not supplied by the Company, or persons under its control) or
wrongful conduct of the Company or persons under its control, with
respect to the sale or distribution of the Contracts or Fund Shares;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to the Fund
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company, as limited by and in accordance with the
provisions of Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Company of any such
claim shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any
12
<PAGE>
such action is brought against the Indemnified Parties, the Company
shall be entitled to participate, at its own expense, in the defense
of such action. The Company also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it,
and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against
them in connection with the issuance or sale of the Fund Shares or
the Contracts or the operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the Registration Statement or prospectus or sales
literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made
in reliance upon and in conformity with information
furnished to the Underwriter or Fund by or on behalf of
the Company for use in the Registration Statement or
prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Registration Statement,
prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund,
13
<PAGE>
Adviser or Underwriter or persons under their control,
with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading, if such statement or omission was made
in reliance upon information furnished to the Company by
or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms
of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter
in this Agreement or arise out of or result from any
other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
14
<PAGE>
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms
of this Agreement (including a failure to comply with
the diversification requirements specified in Article VI
of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory
15
<PAGE>
to the party named in the action. After notice from the Fund to such party of
the Fund's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Fund will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by 180 (six months)
days advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event any
of the Portfolio's shares are not registered, issued or sold
in accordance with applicable state and/or federal law or such
law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event
that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under
16
<PAGE>
any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Portfolio in the event
that such Portfolio fails to meet the diversification
requirements specified in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or
the Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in
its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material
adverse publicity; or
(g) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material
adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice
to the Company, if the Company gives the Fund and the
Underwriter the written notice specified in Section 1.6(b)
hereof and at the time such notice was given there was no
notice of termination outstanding under any other provision of
this Agreement; provided, however any termination under this
Section 10.1(h) shall be effective forty five (45) days after
the notice specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts,
17
<PAGE>
the Company shall not prevent Contract Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
SMA Life Assurance Company
440 Lincoln Street
Worcester, MA 01653
Attention: Rod Vessels
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
18
<PAGE>
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP")), as
soon as practical and in any event within 90 days after
the end of each fiscal year;
(b) the Company's quarterly statements (statutory and GAAP),
as soon as practical and in any event within 45 days
after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or
policyholders, as soon as practical after the delivery
thereof to stockholders;
19
<PAGE>
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state
insurance regulator, as soon as practical after the
filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or
special audit made by them of the books of the Company,
as soon as practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
SMA LIFE ASSURANCE COMPANY
By its authorized officer,
By: /s/ Richard M. Reilly
-----------------------------
Title: Vice President
--------------------------
Date: 3/14/94
---------------------------
VARIABLE INSURANCE PRODUCTS FUND II
By its authorized officer,
By: /s/ J. Gary Burkhead
-----------------------------
Title: Senior Vice President
--------------------------
Date: 3/18/94
---------------------------
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By: /s/ [Illegible]
-----------------------------
Title: President
--------------------------
Date: 3/22/94
---------------------------
20
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and
Date Established by Board of Directors
Inheiritage Account, August 20, 1991
VEL II - August 20, 1991
VA-K - August 20, 1991
Contracts Funded
By Separate Account
Variable Inheiritage Form Number 1026.1-94
VEL '94 - Form Number 1018.1-94
Exec-Annuity Plus - Form Number A3018.44-94
21
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than
two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide at least one copy of the last Annual
Report to the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
22
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed
to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to vote as
quickly as possible and that their vote is important. One copy
will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
23
<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be not received for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity Legal
must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate
the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
24
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Allmerica Investment Trust
Delaware Group Premium Fund, Inc.
25
<PAGE>
Amendment to Schedule A to Participation Agreement
among
Variable Insurance Products Fund II
Fidelity Distributors Corporation
and
Allmerica Financial Life Insurance and Annuity Company
Whereas, Allmerica Financial Life Insurance and Annuity Company (the "Company";
formerly SMA Life Assurance Company), Variable Insurance Products Fund II, and
Fidelity Distributors Corporation have previously entered into a Participation
Agreement dated March 1, 1994 ("Participation Agreement"); and
Whereas, the Participation Agreement provides for the amendment of Schedule A
thereto by mutual written consent, the parties from time-to-time have so amended
Schedule A, and the parties now wish to consolidate said prior amendments to
Schedule A into a single document and to update Schedule A;
Now, therefore, the parties do hereby agree:
1. To amend and update Schedule A to the Participation Agreement by adopting the
attached Schedule A, dated July 15, 1997, and by substituting the attached
Schedule A for and any all prior amendments to Schedule A, as may have been
adopted from time-to-time.
In witness whereof, each of the parties has caused this agreement to be executed
in its name and on its behalf by its duly authorized representative as of the
date specified below.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
-------------------------------
Name: Richard M. Reilly
-----------------------------
Title: President
----------------------------
Date: July 16, 1997
------------------------------
VARIABLE INSURANCE PRODUCTS FUND II FIDELITY DISTRIBUTORS CORPORATION
By: /s/ By: /s/
------------------------------ ------------------------------
Name: Name:
--------------------------- ---------------------------
Title: Title:
--------------------------- ---------------------------
Date: Date
--------------------------- ---------------------------
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
Schedule A, as amended, to Participation Agreement Dated March 1, 1994
(Dated 7/15/97)
Separate Account* Product Name Registration
- ----------------- ------------ ------------
VEL VEL '87 33-14672
(Variable Life) Policy Form 1018-87 811-5183
VEL '91 33-90320
Policy Form 1018-91 811-5183
VEL PLUS 33-42687
Policy Forms 1023-91; 811-5183
1023-93
VEL II VEL '93 33-57792
(Variable Life) Policy Form 1018-93 811-7466
Inheiritage Inheiritage 33-70948
(Variable Life) Policy Form 1026-94 811-8120
Group VEL Group VEL 33-82658
(Variable Life) Policy Form 1029-94 811-8704
VA-K ExecAnnuity 33-39702
(Annuity) ExecAnnuity Plus 811-6293
Advantage
Policy Forms 3018-91;
3021-93;3025-96; 8025-96
*The Separate Accounts were authorized by vote of the Board of Directors on the
following dates: VEL - April 2, 1987; VEL II - January 21, 1993; Inheiritage -
September 15, 1993; Group VEL - November 22, 1993; VA-K - November 1, 1990.
<PAGE>
PARTICIPATION AGREEMENT
Among
DELAWARE GROUP PREMIUM FUND, INC.
And
SMA LIFE ASSURANCE COMPANY
And
DELAWARE DISTRIBUTORS, INC.
THIS AGREEMENT, made and entered into this 23 day of December, 1991
by and among DELAWARE GROUP PREMIUM FUND, INC., a corporation organized under
the laws of Maryland (the "Fund"), SMA LIFE ASSURANCE COMPANY, a Delaware
corporation (the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement as in effect at the
time this Agreement is executed and such other separate accounts that may be
added to Schedule 1 from time to time in accordance with the provisions of
Article XI of this Agreement (each such account referred to as the "Account"),
and DELAWARE DISTRIBUTORS, INC., a Delaware corporation (the "Distributor").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred
<PAGE>
to as "Product owners") to be offered by insurance companies which have entered
into participation agreements with the Fund ("Participating Insurance
Companies"); and
WHEREAS, the common stock of the Fund (the "Fund shares") consists
of separate series ("Series") issuing separate classes of shares ("Series
shares"), each such class representing an interest in a particular managed
portfolio of securities and other assets; and
WHEREAS, the Fund filed with the Securities and Exchange Commission
(the "SEC") and the SEC has declared effective a registration statement
(referred to herein as the "Fund Registration Statement" and the prospectus
contained therein, or filed pursuant to Rule 497 under the 1933 Act, referred to
herein as the "Fund Prospectus") on Form N-1A to register itself as an open-end
management investment company (File No. 811-5162) under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the Fund shares (File No.
33-14363) under the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed or will file a registration statement
with the SEC to register under the 1933 Act certain variable annuity contracts
described in Schedule 2 to this Agreement as in effect at the time this
Agreement is executed and such other variable annuity contracts and variable
life insurance policies which may be added to Schedule 2 from time to time in
accordance with Article XI of this Agreement
- 2 -
<PAGE>
(such policies and contracts shall be referred to herein collectively as the
"contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
WHEREAS, the Account, a validly existing separate account, duly
authorized by resolution of the Board of Directors of the Company on the date
set forth on Schedule 1, sets aside and invests assets attributable to the
Contracts; and
WHEREAS, the Company has registered or will have registered the
Account with the SEC as a unit investment trust under the 1940 Act before any
Contracts are issued by the Account; and
WHEREAS, the Distributor is registered as a broker-dealer with the
SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
is a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"); and
WHEREAS, the Distributor and the Fund have entered into an agreement
(the "Fund Distribution Agreement") pursuant to which the Distributor will
distribute Fund shares; and
WHEREAS, Delaware Management Company, Inc. (the "Investment
Manager") is registered as an investment adviser
- 3 -
<PAGE>
under the 1940 Act and any applicable state securities laws and serves as an
investment manager to the Fund pursuant to an agreement; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase Series shares on behalf of the
Account to fund the Contracts and the Distributor is authorized to sell such
Series shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Distributor agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Distributor agrees to sell to the Company those Series
shares which the Company orders on behalf of the Account, executing such orders
on a daily basis in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make the shares of its Series available for
purchase by the Company on behalf of the Account at the then applicable net
asset value per share on Business Days as defined in Section 1.4 of this
Agreement, and the Fund shall use reasonable efforts to calculate such net asset
value on each such Business Day. Notwithstanding any other provision in this
Agreement to the contrary, the Board of Directors of the Fund (the "Fund Board")
may suspend or terminate the offering of Fund shares of any Series, if such
action is required by law or by
- 4 -
<PAGE>
regulatory authorities having jurisdiction or if, in the sole discretion of the
Fund Board acting in good faith and in light of its fiduciary duties under
Federal and any applicable state laws, suspension or termination is necessary
and in the best interests of the shareholders of any Series (it being understood
that "shareholders" for this purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any full
or fractional shares of the Fund held by the Account or the Company, executing
such requests at the net asset value on a daily basis in accordance with Section
1.4 of this Agreement, the applicable provisions of the 1940 Act and the then
currently effective Fund Prospectus. Notwithstanding the foregoing, the Fund may
delay redemption of Fund shares of any Series to the extent permitted by the
1940 Act, any rules, regulations or orders thereunder, or the then currently
effective Fund Prospectus.
1.4.
(a) For purposes of Sections 1.1, 1.2 and 1.3, the Company
shall be the agent of the Fund for the limited purpose of receiving redemption
and purchase requests from the Account (but not from the general account of the
Company), and receipt on any Business Day by the Company as such limited agent
of the Fund prior to the time prescribed in the current Fund Prospectus (which
as of the date of execution of this Agreement is 4 p.m.) shall constitute
receipt by the Fund on that same Business Day, provided that the Fund receives
notice of such
- 5 -
<PAGE>
redemption or purchase request by 11:00 a.m. Eastern Time on the next following
Business Day. For purposes of this Agreement, "Business Day" shall mean any day
on which the New York Stock exchange is open for trading or as otherwise
provided in the Fund's then currently effective Fund Prospectus.
(b) The Company shall pay for shares of each Series on the
same day that it places an order with the Fund to purchase those Series shares.
Payment for Series shares will be made by the Account or the Company in Federal
Funds transmitted to the Fund by wire to be received by 11:00 a.m. on the day
the Fund is properly notified of the purchase order for Series shares (unless
sufficient proceeds are available from redemption of shares of other Series). If
Federal Funds are not received on time, such funds will be invested, and Series
shares purchased thereby will be issued, as soon as practicable.
(c) Payment for Series shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the Company by wire on the
day the Fund is notified of the redemption order of Series shares (unless
redemption proceeds are applied to the purchase of shares of other Series),
except that the Fund reserves the right to delay payment of redemption proceeds,
but in no event may such payment be delayed longer than the period permitted
under Section 22(e) of the 1940 Act. Neither the Fund nor the Distributor shall
bear any responsibility whatsoever for the proper disbursement or
- 6 -
<PAGE>
crediting of redemption proceeds; the Company alone shall be responsible for
such action.
1.5. Issuance and transfer of Fund shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable
to the Company of any income dividends or capital gain distributions payable on
any Series shares. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any Series shares in the form of additional shares of that Series. The Company
reserves the right, on its behalf and on behalf of the Account, to revoke this
election and to receive all such dividends in cash. The Fund shall notify the
Company of the number of Series shares so issued as payment of such dividends
and distributions.
1.7. The Fund shall use its best efforts to make the net asset value
per share for each Series available to the Company by 7 p.m. Eastern Time each
Business Day, and in any event, as soon as reasonably practicable after the net
asset value per share for such Series is calculated, and shall calculate such
net asset value in accordance with the then currently effective Fund Prospectus.
Neither the Fund, any Series, the Distributor, nor the Investment Manager nor
any of
- 7 -
<PAGE>
their affiliates shall be liable for any information provided to the Company
pursuant to this Agreement which information is based on incorrect information
supplied by the Company to the Fund, the Distributor or the Investment Manager.
1.8. While this Agreement is in effect, the Company agrees that all
amounts available for investment under the Contracts (other than those listed on
Schedule 3) shall be invested only in the Fund and/or allocated to the Company's
general account, provided that such amounts may also be invested in an
investment company other than the Fund if: (a) such other investment company is
advised by the Fund's investment adviser; (b) the Fund and/or the Distributor,
in their sole discretion, consents to the use of such other investment company;
(c) there is a substitution of the Fund made in accordance with Section 10.1(e)
of this Agreement; or (d) this Agreement is terminated pursuant to Article X of
this Agreement. The Company also agrees that it will not take any action to
operate the Account as a management investment company under the 1940 Act
without the Fund's and Distributor's prior written consent.
1.9. The Fund and the Distributor agree that Fund shares will be
sold only to Participating Insurance Companies and their separate accounts. The
Fund and the Distributor will not sell Fund shares to any insurance company or
separate account unless an agreement complying with Article VII of this
Agreement is in effect to govern such sales. No Fund shares of any Series will
be sold to the general public.
- 8 -
<PAGE>
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts (i) that the Contracts
be offered and sold in compliance in all material respects with all applicable
Federal and state laws and (ii) that at the time it is issued each Contract is a
suitable purchase for the applicant therefor under applicable state insurance
laws. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that it has
legally and validly authorized the Account as a separate account under Title 18,
Section 2932 of the Delaware Insurance Code, and has registered or, prior to the
issuance of any Contracts, will register the Account as a unit investment trust
in accordance with the provisions of the 1940 Act to serve as a separate account
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund is
and shall remain registered under the 1940 Act for so long as the Fund shares
are sold. The
- 9 -
<PAGE>
Fund further represents and warrants that it is a corporation duly organized and
in good standing under the laws of Maryland.
2.3. The Fund represents that it currently qualifies and will make
every effort to continue to qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
to maintain such qualification (under Subchapter M or any successor or similar
provision), and that it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
2.4. The Fund represents that it will comply with Section 817(h) of
the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at
the time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code. The
Company shall make every effort to maintain such treatment and shall notify the
Fund and the Distributor immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.6. The Fund represents that the Fund's investment policies, fees
and expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Delaware, to the extent required to
perform this Agreement and with any investment restrictions set forth on
Schedule 4, as
- 10 -
<PAGE>
amended from time to time by the Company in accordance with Section 6.6. The
Fund, however, makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) otherwise complies with the insurance laws or regulations of any
state. The Company alone shall be responsible for informing the Fund of any
investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Distributor represents and warrants that the Distributor is
duly registered as a broker-dealer under the 1934 Act, a member in good standing
with the NASD, and duly registered as a broker-dealer under applicable state
securities laws; its operations are in compliance with applicable law, and it
will distribute the Fund shares according to applicable law.
2.8. The Distributor, on behalf of the Investment Manager,
represents and warrants that the Investment Manager is registered as an
investment adviser under the Investment Advisers Act of 1940 and is in
compliance with applicable federal and state securities laws.
2.9. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-l under the 1940 Act.
-11-
<PAGE>
ARTICLE III. Prospectuses and Proxy Statements; Sales Material and Other
Information
3.1. The Distributor shall provide the Company (at its expense) with
as many copies of the current Fund Prospectus as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide the
Fund Prospectus (including a final copy of the new prospectus as set in type at
the Distributor's expense) and other assistance as is reasonably necessary in
order for the Company to have a new Contracts Prospectus printed together with
the Fund Prospectus in one document (the cost of such printing to be shared
equally by the Company and the Distributor).
3.2. The Fund Prospectus shall state that the Statement of
Additional Information for the Fund is available from the Distributor (or, in
the Fund's discretion, the Fund Prospectus shall state that such Statement is
available from the Fund), and the Distributor (or the Fund) shall provide such
Statement free of charge to the Company and to any outstanding or prospective
Contract owner who requests such Statement.
3.3. The Fund (at its cost) shall provide the Company with copies of
its proxy material, shareholder reports and other communications to the Company.
3.4. The Company shall not, without the prior written consent of the
Distributor (unless otherwise required by applicable law), solicit, induce or
encourage Contract owners to (a) change the Fund's investment adviser or
contract with any
- 12 -
<PAGE>
sub-investment adviser, or (b) change, modify, substitute, add or delete the
Fund or other investment media.
3.5. The Company shall furnish each piece of sales literature or
other promotional material in which the Fund or the Investment Manager or the
Distributor is named to the Fund or the Distributor prior to its use. No such
material shall be used, except with the prior written permission of the Fund or
the Distributor. The Fund and the Distributor agree to respond to any request
for approval on a prompt and timely basis. Failure to respond shall not relieve
the Company of the obligation to obtain the prior written permission of the Fund
or the Distributor.
3.6. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund or by the Distributor, except with the prior written permission of the
Fund or the Distributor. The Fund and the Distributor agree to respond to any
request for permission on a prompt and timely basis. Failure to respond shall
not relieve the Company of the obligation to obtain the prior written permission
of the Fund or the Distributor.
- 13 -
<PAGE>
3.7. The Fund and the Distributor shall not give any information or
make any representations on behalf of the Company or concerning the Company, the
Account or the Contracts other than the information or representations contained
in the Contracts Registration Statement or Contracts Prospectus, as such
Registration Statement and Prospectus may be amended or supplemented from time
to time, or in published reports of the Account which are in the public domain
or approved in writing by the Company for distribution to Contract owners, or in
sales literature or other promotional material approved in writing by the
Company, except with the prior written permission of the Company. The Company
agrees to respond to any request for permission on a prompt and timely basis.
Failure to respond shall not relieve the Fund or the Distributor of the
obligation to obtain the prior written permission of the Company.
3.8. The Fund will provide to the Company at least one complete copy
of all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, promptly after the filing of such
document with the SEC or other regulatory authorities.
3.9. The Company will provide to the Fund at least one complete
copy of all Contracts Registration Statements, Contracts
- 14 -
<PAGE>
Prospectuses, Statements of Additional Information, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
or supplements to any of the above, that relate to the Contracts or those
Sub-Accounts of the Account to which Contract purchase payments and value are
allocable, promptly after the filing of such document with the SEC or other
regulatory authorities.
3.10. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of additional
information, reports, proxy statements, solicitations for voting instructions,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, to the extent that the other party reasonably needs such information for
purposes of preparing a report or other filing to be filed with or submitted to
a regulatory agency. If a party requests any such information before it has been
filed, the other party will provide the requested information if then available
and in the version then available at the time of such request.
3.11. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape dis-
- 15 -
<PAGE>
play, signs or billboards, motion pictures or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, Statements of Additional Information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
Subject to applicable law, the Company shall:
(a) solicit voting instructions from Contract owners;
(b) vote Fund shares of each Series attributable to Contract
owners in accordance with instructions or proxies timely
received from such Contract owners;
(c) vote Fund shares of each Series attributable to Contract
owners for which no instructions have been received in
the same proportion as Fund shares of such Series for
which instructions have been timely received; and
(d) vote Fund shares of each Series held by the Company on
its own behalf or on behalf of the Account that are not
attributable to Contract owners in the same proportion
as Fund shares of such Series for which instructions
have been timely received.
- 16 -
<PAGE>
The Company shall be responsible for assuring that voting privileges for the
Account are calculated in a manner consistent with the provisions set forth
above and with other Participating Insurance Companies.
ARTICLE V. Fees and Expenses
5.1. The Fund and Distributor shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Series
adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then the Distributor may make payments to the
Company in amounts agreed to by the Company and the Distributor in writing.
Currently, no such payments are contemplated. The Fund currently does not intend
to make any payments to finance distribution expenses pursuant to Rule 12b-l
under the 1940 Act or in contravention of such rule, although it may make
payments pursuant to Rule 12b-1 in the future.
5.2. All expenses incident to performance by the Fund under this
Agreement (including expenses expressly assumed by the Fund pursuant to this
Agreement) shall be paid by the Fund to the extent permitted by law. Except as
may otherwise be provided in Sections 1.4 and 3.1 of this Agreement (or Article
VII, as it may be amended), the Company shall not bear any of the expenses for
the cost of registration and qualification of the Fund shares under Federal and
any state securities law, preparation and filing of the Fund Prospectus and Fund
Registration Statement,
- 17 -
<PAGE>
Fund proxy materials and reports, setting the Prospectus in type, setting in
type and printing and distributing the Fund proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes an
annual report), the preparation of all statements and notices required by any
Federal or state securities law, all taxes on the issuance or transfer of Fund
shares, and any expenses permitted to be paid or assumed by the Fund pursuant to
a plan, if any, under Rule 12b-1 under the 1940 Act.
ARTICLE VI. Compliance Undertakings
6.1. The Fund undertakes to comply with Subchapter M and Section
817(h) of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statement
under the 1933 Act and the Account's Registration Statement under the 1940 Act
from time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the
1933 Act and the 1940 Act from time to time as required in order to effect for
so long as Fund shares are sold the continuous offering of Fund shares as
described in the
- 18 -
<PAGE>
then currently effective Fund Prospectus. The Fund shall register and qualify
Fund shares for sale to the extent required by applicable securities laws of the
various states.
6.4. The Company shall be responsible for assuring that any
prospectus offering a Contract that is a life insurance contract where it is
reasonably probable that such Contract would be a "modified endowment contract,"
as that term is defined in Section 7702A of the Code, will identify such
Contract as a modified endowment contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
6.6. The Company shall amend Schedule 4 when appropriate in order to
inform the Fund of any applicable investment restrictions with which the Fund
must comply.
ARTICLE VII. Potential Conflicts
The parties to this Agreement acknowledge that the Fund intends to
file an application with the SEC to request an order granting relief from
various provisions of the 1940 Act and the rules thereunder to the extent
necessary to permit Fund shares to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
Participating Insurance Companies. The parties to this Agreement
- 19 -
<PAGE>
agree that any conditions or undertakings that may be imposed on the Company,
the Fund and/or the Distributor by virtue of such order shall be incorporated
herein by this reference, as of the date such order is granted, as though set
forth herein in full, and such parties agree to comply with such conditions and
undertakings to the extent applicable to each such party. The Fund and the
Distributor will not enter into a participation agreement with any other
Participating Insurance Company unless it imposes the same conditions and
undertakings incorporated by reference herein on the parties to such agreement.
ARTICLE VIII. Indemnification
8.1. Indemnification by the Company
The Company agrees to indemnify and hold harmless the Fund, the
Distributor and each person who controls or is associated with the Fund or the
Distributor within the meaning of such terms under the federal securities laws
and any officer, trustee, director, employee or agent of the foregoing, against
any and all losses, claims, damages or liabilities, joint or several (including
any investigative, legal and other expenses reasonably incurred in connection
with, and any amounts paid in settlement of, any action, suit or proceeding or
any claim asserted), to which they or any of them may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any
- 20 -
<PAGE>
material fact contained in the Contracts Registration
Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts
themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which
they were made; provided that this obligation to indemnify
shall not apply if such statement or omission or such alleged
statement or alleged omission was made in reliance upon and in
conformity with information furnished in writing to the
Company by the Fund or the Distributor (or a person authorized
in writing to do so on behalf of the Fund or the Distributor)
for use in the Contracts Registration Statement, Contracts
Prospectus or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in
the Fund Registration Statement, Fund Prospectus or sales
literature or other promotional material of the Fund not
supplied by the Company or persons under its control) or
wrongful conduct of the Company or persons under its control
with respect to the sale or distribution of the Contracts or
Fund shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other
promotional material of the Fund or any amendment thereof or
supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on
behalf of the Company; or
(d) arise as a result of any failure by the Company to provide the
services and furnish the materials or
- 21 -
<PAGE>
to make any payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to
transmit a request for redemption or purchase of Fund shares
on a timely basis in accordance with the procedures set forth
in Article I.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. Indemnification by the Distributor
The Distributor agrees to indemnify and hold harmless the Company
and each person who controls or is associated with the Company within the
meaning of such terms under the federal securities laws and any officer,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
- 22 -
<PAGE>
supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or
omission or alleged statement or alleged omission was made in
reliance upon and in conformity with information furnished in
writing by the Company to the Fund or the Distributor for use
in the Fund Registration Statement, Fund Prospectus (or any
amendment or supplement thereto) or sales literature for the
Fund or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact by the Distributor or the
Fund (other than statements or representations contained in
the Fund Registration Statement, Fund Prospectus or sales
literature or other promotional material of the Fund not
supplied by the Distributor or the Fund or persons under their
control) or wrongful conduct of the Distributor or persons
under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Contract's Registration
Statement, Contracts Prospectus or sales literature or other
promotional material for the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such
statement or omission was made in reliance upon information
furnished in writing by the Distributor or the Fund to the
Company (or a person authorized in writing to do so on behalf
of the Fund or the Distributor); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
- 23 -
<PAGE>
requirements specified in Article VI of this Agreement); or
(e) arise out of any material breach by the Distributor or the
Fund of this Agreement.
This indemnification will be in addition to any liability which the Distributor
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. Indemnification Procedures
After receipt by a party entitled to indemnification ("indemnified
party") under this Article VIII of notice of the commencement of any action, if
a claim in respect thereof is to be made by the indemnified party against any
person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that the omission to so notify the indemnifying party will not relieve
it from any liability under this Article VIII, except to the extent that the
omission results in a failure of actual notice to the indemnifying party and
such indemnifying party is damaged solely as a result of the failure to give
such notice. The indemnifying party, upon the request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
- 24 -
<PAGE>
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article VIII.
The indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of
- 25 -
<PAGE>
the state of Delaware, without giving effect to the principles of conflicts of
laws.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant, and the terms hereof shall be limited, interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon six months advance written
notice to the other parties, such termination to be effective no earlier than
one year following the date on which the first Contract is issued to the public;
or
(b) at the option of the Company if shares of any Series are
not reasonably available to meet the requirements of the Contracts as determined
by the Company. Prompt notice of the election to terminate for such cause shall
be furnished by the Company, said termination to be effective ten days after
receipt of notice unless the Fund makes available a sufficient number of Fund
shares to meet the requirements of the Contracts within said ten-day period; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance commission
of any state or any other regulatory body
- 26 -
<PAGE>
regarding the Company's duties under this Agreement or related to the sale of
the Contracts, the operation of the Account, the administration of the Contracts
or the purchase of Fund shares, or an expected or anticipated ruling, judgment
or outcome which would, in the Fund's reasonable judgment, materially impair the
Company's ability to meet and perform the Company's obligations and duties
hereunder; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund by the NASD, the SEC, or any state securities or
insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the affected Series and the written approval of the Distributor
(unless otherwise required by applicable law), to substitute the shares of
another investment company for the corresponding Series shares of the Fund in
accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the
Contracts are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
(g) by either the Company or the Fund upon a determination by
a majority of the Fund Board, or a majority of disinterested Fund Board members,
that an irreconcilable material conflict exists among the interests of (i) all
Product owners or (ii) the interests of the Participating Insurance Companies
investing in the Fund; or
- 27 -
<PAGE>
(h) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or under any
successor or similar provision, or if the Company reasonably believes based on
an opinion of counsel satisfactory to the Fund that the Fund may fail to so
qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code and any
regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts may fail to so
qualify; or
(k) at the option of either the Fund or the Distributor if the
Fund or the Distributor, respectively, shall determine, in their sole judgment
exercised in good faith, that either (1) the Company shall have suffered a
material adverse change in its business or financial condition or (2) the
Company shall have been the subject of material adverse publicity which is
likely to have a material adverse impact upon the business and operations of
either the Fund or the Distributor; or
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that the Fund or the
Distributor shall have been the subject of material adverse publicity which is
likely to have a material
- 28 -
<PAGE>
adverse impact upon the business and operations of the Company; or
(m) upon the assignment of this Agreement (including, without
limitation, any transfer of the Contracts or the Account to another insurance
company pursuant to an assumption reinsurance agreement) unless the
non-assigning party consents thereto or unless this Agreement is assigned to an
affiliate of the Distributor.
10.2. Notice Requirement. Except as otherwise provided in Section
10.1, no termination of this Agreement shall be effective unless and until the
party terminating this Agreement gives prior written notice to all other parties
to this Agreement of its intent to terminate which notice shall set forth the
basis for such termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of this
Agreement, such prior written notice shall be given in advance of the effective
date of termination as required by such provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such prior written
notice shall be given at least ninety (90) days before the effective date of
termination.
(c) in the event that any termination is based upon the
provisions of Section 10.1(e) of this Agreement, such prior written notice shall
be given at least sixty (60) days
- 29 -
<PAGE>
before the date of any proposed vote to replace the Fund's shares.
10.3. Except as necessary to implement Contract owner initiated
transactions, or as required by state insurance laws or regulations, the Company
shall not redeem Fund shares attributable to the Contracts (as opposed to Fund
shares attributable to the Company's assets held in the Account).
10.4. Effect of Termination
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund and the Distributor may, at the
option of the Fund, continue to make available additional Fund shares for so
long after the termination of this Agreement as the Fund desires pursuant to the
terms and conditions of this Agreement as provided in paragraph (b) below, for
all Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if the Fund or Distributor so elects to make additional Fund shares
available, the owners of the Existing Contracts or the Company, whichever shall
have legal authority to do so, shall be permitted to reallocate investments in
the Fund, redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing Contracts.
(b) In the event of a termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund and the Distributor shall promptly
notify the Company whether the
- 30 -
<PAGE>
Distributor and the Fund will continue to make Fund shares available after such
termination. If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect except for
Section 10.1(a) and thereafter either the Fund or the Company may terminate the
Agreement, as so continued pursuant to this Section 10.4, upon prior written
notice to the other party, such notice to be for a period that is reasonable
under the circumstances but, if given by the Fund, need not be for more than six
months.
(c) The parties agree that this Section 10.4 shall not apply
to any termination made pursuant to Article VII or any conditions or
undertakings incorporated by reference in Article VII, and the effect of such
Article VII termination shall be governed by the provisions set forth or
incorporated by reference therein.
ARTICLE XI. Applicability to New Accounts and New Contacts
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts
and to add new classes of variable annuity contracts and variable life insurance
policies to be issued by the Company through a Separate Account investing in the
Fund. The provisions of this Agreement shall be equally applicable to each such
class of contracts or policies, unless the context otherwise requires.
- 31 -
<PAGE>
ARTICLE XII. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Delaware Group Premium Fund, Inc.
Ten Penn Center Plaza
Philadelphia, PA 19103
Attn: Daniel J. O'Brien
If to the Company:
Charles W. Grover II
Vice President, Individual Insurance Marketing
SMA Life Assurance Company
440 Lincoln Street
Worcester, MA 01605
If to the Distributor:
Mr. Michael P. Drennan
Vice President
Delaware Distributors, Inc.
Ten Penn Center Plaza
Philadelphia, PA 19103
ARTICLE XIII. Miscellaneous
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
- 32 -
<PAGE>
13.3. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
- 33 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
SMA LIFE ASSURANCE COMPANY
(Company)
Date: 12/23/, 1991 By: /s/ Charles W. Grover, II
-----------------------------
Name: Charles W. Grover, II
Title: Vice President, Ind. Ins.
Marketing
DELAWARE GROUP PREMIUM FUND, INC.
(Fund)
Date: 12/23, 1991 By: /s/ Michael P. Drennan
-----------------------------
Name: Michael P. Drennan
Title: Vice President
DELAWARE DISTRIBUTORS, INC.
(Distributor)
Date: 12/23, 1991 By: /s/ Michael P. Drennan
-----------------------------
Name: Michael P. Drennan
Title: Vice President
<PAGE>
Schedule 1
Separate Accounts of SMA Life Assurance Company
Investing in the Fund
As of December 23, 1991
Name of Account Date Established
- --------------- ----------------
Separate Account VA-K
of SMA Life Assurance Company November 1, 1990
<PAGE>
Schedule 2
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of December 23, 1991
Individual Variable Annuity Policies
funded by sub-accounts of Separate Account VA-K
and investing in shares of
Delaware Group Premium Fund, Inc.
<PAGE>
Schedule 3
Variable Contracts
Excluded from Section 1.8
As of December 23, 1991
Individual Variable Annuity Policies Marketed
under the name "ExecAnnuity Plus"
<PAGE>
Schedule 4
Investment Restrictions
Applicable to the Fund
As of December 23, 1991
None
<PAGE>
FIRST AMENDMENT TO
PARTICIPATION AGREEMENT
THIS FIRST AMENDMENT (the "Amendment Agreement") to the Participation
Agreement dated December 23, 1991 (the "Participation Agreement") by and among
DELAWARE GROUP PREMIUM FUND, INC. (the "FUND"), SMA LIFE ASSURANCE COMPANY
("SMA"), on its own behalf and on behalf of each separate account of SMA, and
DELAWARE DISTRIBUTORS, INC. (the "DISTRIBUTOR") is made as of the first day of
April, 1994 by and among the FUND, the DISTRIBUTOR, SMA, on its own behalf and
on behalf of each separate account of SMA named in Schedule 1 to this Amendment
Agreement as in effect as of the time this Amendment Agreement is executed and
such other separate accounts of SMA that may be added to Schedule 1 from time to
time in accordance with the provisions of Article XI of the Participation
Agreement (each such account referred to as the "SMA Account"), and STATE MUTUAL
LIFE ASSURANCE COMPANY OF AMERICA ("STATE MUTUAL"), on its own behalf and on
behalf of each separate account of STATE MUTUAL named in Schedule 1 to this
Amendment Agreement as in effect as of the time this Amendment Agreement is
executed and such other separate accounts of STATE MUTUAL that may be added to
Schedule 1 from time to time in accordance with the provisions of Article XI of
the Participation Agreement (each such account referred to as the "STATE MUTUAL
Account").
WHEREAS, the FUND, SMA, and the DISTRIBUTOR previously entered into the
Participation Agreement; and
<PAGE>
WHEREAS, the FUND, SMA, and the DISTRIBUTOR wish to add STATE MUTUAL as a
party to the Participation Agreement to enable STATE MUTUAL to purchase shares
of common stock issued by the various series of the FUND on behalf of the STATE
MUTUAL Account;
NOW THEREFORE, for consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, the FUND, the
DISTRIBUTOR, SMA, and STATE MUTUAL agree as follows:
1. Effective as of the date hereof, STATE MUTUAL shall be a party to the
Participation Agreement and shall independently be entitled to the same rights
and subject to the same obligations, covenants, conditions, undertakings and
liabilities under the Participation Agreement as SMA.
2. Effective as of the date hereof, STATE MUTUAL hereby makes, on its own
behalf and in respect of the STATE MUTUAL Account and Contracts (as defined in
the Participation Agreement) issued by STATE MUTUAL and not on behalf of SMA nor
in respect of the SMA Account or Contracts issued by SMA, the representations
and warranties set forth in Sections 2.1 and 2.5 of the Participation Agreement.
3. Effective as of the date hereof, all references in the Participation
Agreement to "the Company" shall hereafter be references to "SMA and/or STATE
MUTUAL, as the case may be."
2
<PAGE>
4. Effective as of the date hereof, the term "the Account" in the
Participation Agreement shall hereafter be read to include the SMA Account
and/or the STATE MUTUAL Account, as the case may be.
5. Effective as of the date hereof, except as otherwise set forth herein,
the term "Contracts" in the Participation Agreement shall hereafter be read to
include Contracts issued by SMA and/or Contracts issued by STATE MUTUAL, as the
case may be.
6. Schedules 1, 2, and 3 to the Participation Agreement are hereby amended
and restated in their entirety as set forth on Schedules 1, 2, and 3,
respectively, to this Amendment Agreement.
7. All references in the Participation Agreement to the "Investment
Manager" shall hereafter be references to Delaware Management Company, Inc. or
Delaware International Advisers Ltd., as appropriate.
8. With respect to the termination provisions set forth in Article X of
the Participation Agreement, (i) any notice provided by or option exercised by
SMA shall be operative solely with respect to SMA, and (ii) any notice provided
by or option exercised by STATE MUTUAL shall be operative solely with respect to
STATE MUTUAL.
9. All notices to be provided to any party to the Participation Agreement,
as amended, shall be sent in accordance with Article XII of the Participation
Agreement at the address of such party set forth below or at such other address
as such party may from time to time specify in writing to the other parties:
3
<PAGE>
If to the FUND:
Delaware Group Premium Fund, Inc.
1818 Market Street
Philadelphia, PA 19103
Attn: Daniel J. O'Brien
If to SMA:
Lila M. Weihs
Director, Annuity Products
SMA Life Assurance Company
440 Lincoln Street
Worcester, MA 01653
If to the DISTRIBUTOR:
Delaware Distributors, Inc.
1818 Market Street
Philadelphia, PA 19103
Attn: Michael P. Drennan, Vice President
If to STATE MUTUAL:
Lila M. Weihs
Director, Annuity Products
State Mutual Life Assurance Company of the America
440 Lincoln Street
Worcester, MA 01653
10. All other provisions of the Participation Agreement not amended by
this Amendment Agreement shall remain in full force and effect as set forth in
the Participation Agreement.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
Agreement to be executed in its name and on its behalf by its duly authorized
officer as of the date first set forth above.
STATE MUTUAL LIFE ASSURANCE SMA LIFE ASSURANCE COMPANY
COMPANY OF AMERICA
By: /s/ Richard M. Reilly By: /s/ Richard M. Reilly
--------------------------- ---------------------------
Name: Richard M. Reilly Name: Richard M. Reilly
Title: Vice President Title: Vice President
DELAWARE GROUP PREMIUM DELAWARE DISTRIBUTORS, INC.
FUND, INC.
By: /s/ By: /s/
--------------------------- ---------------------------
Name: Name:
Title: Title:
5
<PAGE>
SCHEDULE 1
Separate Accounts of SMA Life Assurance Company
and State Mutual Life Assurance Company of America
Investing in the Fund
As of April 1, 1994
Name of Account Date Established
- --------------- ----------------
Separate Account VA-K November 1, 1990
of SMA Life Assurance Company
Separate Account VEL June 3, 1987
of SMA Life Assurance Company
Separate Account VEL II January 21, 1993
of SMA Life Assurance Company
Separate Account Inheiritage* September 15, 1993
of SMA Life Assurance Company
Separate Account VA-K of August 20, 1991
State Mutual Life Assurance
Company of America
Separate Account VEL-II August 20, 1991
of State Mutual Life Assurance
Company of America
Separate Account Inheiritage* August 20, 1991
of State Mutual Life Assurance
Company of America
* Regulatory approvals are pending for the Inheiritage products.
<PAGE>
SCHEDULE 2
(continued)
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of April 1, 1994
State Mutual Life Assurance Company of America
Individual Delaware Medallion Variable Annuity Contracts funded by sub-accounts
of Separate Account VA-K and investing in shares of Delaware Group Premium Fund,
Inc.
Individual ExecAnnuity Plus Variable Annuity Contracts funded by sub-accounts of
Separate Account VA-K and investing in shares of the International Equity Series
of Delaware Group Premium Fund, Inc.
Individual VEL II Variable Life Insurance Policies funded by sub-accounts of
Separate Account VEL II and investing in shares of the International Equity.
Series of Delaware Group Premium Fund, Inc.
Individual Inheiritage* Variable Life Insurance Policies funded by sub-accounts
of Separate Account Inheiritage and investing in shares of the International
Equity Series of Delaware Group Premium Fund, Inc.
* Regulatory approvals are currently pending for the Inheiritage product.
<PAGE>
SCHEDULE 3
Variable Contracts
Excluded from Section 1.8
As of April 1, 1994
SMA Life Assurance Company
Individual Variable Annuity Policies Marketed under the name "ExecAnnuity Plus"
Individual Variable Life Insurance Policies Marketed under the name "VEL"
Individual Variable Life Insurance Policies Marketed under the name "VEL Plus"
Individual Variable Life Insurance Policies Marketed under the name "VEL II"
Individual Variable Life Insurance Policies to be Marketed under the name
"Inheiritage" *
State Mutual Life Assurance Company of America
Individual Variable Annuity Policies Marketed under the name "ExecAnnuity Plus"
Individual Variable Life Insurance Policies Marketed under the name "VEL II"
Individual Variable Life Insurance Policies to be Marketed under the name
"Inheiritage"*
*Regulatory approvals are currently pending for the Inheiritage product.
<PAGE>
PARTICIPATION AGREEMENT
Among
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.
and
SMA LIFE ASSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 1st day of May, 1995 by
and among SMA LIFE ASSURANCE COMPANY (hereinafter, the "Company"), a Delaware
insurance company, on its own behalf and on behalf of each segregated asset
account of the Company set forth on Schedule A hereto as may be amended from
time to time (each account hereinafter referred to as the "Account"), and the T.
ROWE PRICE INTERNATIONAL SERIES, INC., a corporation organized under the laws of
Maryland (hereinafter referred to as the "Fund") and T. ROWE PRICE INVESTMENT
SERVICES, INC. (hereinafter the "Underwriter"), a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has filed an application to obtain an order from the
Securities and Exchange Commission ("SEC") granting Participating Insurance
Companies and variable annuity and variable life insurance separate accounts
exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the
Investment Company Act of 1940, as amended, (hereinafter the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T) (b)(15) thereunder, if and to the extent necessary
to permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
<PAGE>
- 2 -
WHEREAS, Rowe Price-Fleming International, Inc. (hereinafter referred to
as the "Adviser") is duly registered as an investment adviser under the federal
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the SEC, and the Fund shall use reasonable efforts to calculate such
net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Directors of the Fund
(hereinafter the "Board") may refuse to sell shares of any Designated Portfolio
to any person, or suspend or terminate the offering of shares of any Designated
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction, or is, in the sole discretion of the Board acting in good faith
and in light of their fiduciary duties under federal and any applicable state
laws, necessary in the best interests of the shareholders of such Designated
Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Designated
<PAGE>
- 3 -
Portfolios will be sold to the general public. The Fund and the Underwriter will
not sell Fund shares to any insurance company or separate account unless an
agreement containing provisions substantially the same as Articles I and VII of
this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and the
Fund receives notice of such order by 9:30 a.m. Baltimore time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares on the next Business Day after
receipt of an order to purchase Fund shares. Payment shall be in federal funds
transmitted by wire by 3:00 p.m. Baltimore time. If payment in Federal Funds for
any purchase is not received or is received by the Fund after 3:00 p.m.
Baltimore time on such Business Day, the Company shall promptly, upon the Fund's
request, reimburse the Fund for any charges, costs, fees, interest or other
expenses incurred by the Fund in connection with any advances to, or borrowings
or overdrafts by, the Fund, or any similar expenses incurred by the Fund, as a
result of portfolio transactions effected by the Fund based upon such purchase
request. For purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of
the federal funds so wired, such funds shall cease to be the responsibility of
the Company and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Designated Portfolios' shares. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on Designated Portfolio shares in additional shares of that
Portfolio. The Company reserves the right to revoke this election and to receive
all such income dividends and capital gain distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions. The Fund shall use its best efforts to furnish
advance notice of the day such dividends and distributions are expected to be
paid.
<PAGE>
- 4 -
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Baltimore time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Baltimore time.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies, provided,
however, that (a) such other investment company, or series thereof, has
investment objectives or policies that are substantially different from the
investment objectives and policies of the Fund; or (b) the Company gives the
Fund and the Underwriter 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment company was available as a funding vehicle for the
Contracts prior to the date of this Agreement and the Company so informs the
Fund and Underwriter prior to their signing this Agreement; or (d) the Fund or
Underwriter consents to the use of such other investment company, such consent
not to be unreasonably withheld.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Delaware insurance laws and has registered or, prior to any issuance or sale of
the Contracts, will register the Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Delaware and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have a
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the State of Delaware to the extent required to perform this Agreement.
<PAGE>
- 5 -
2.5 The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Delaware and any applicable state
and federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Delaware and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities
employed or controlled by the Company dealing with the money and/or securities
of the Fund are covered by a blanket fidelity bond or similar coverage for the
benefit of the Fund, in an amount not less than $5 million. The aforesaid bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
agrees to notify the Fund and the Underwriter in the event that such coverage no
longer applies.
ARTICLE III. Prospectuses, Statements of Additional Information, and Proxy
Statements; Voting
3.1 The Underwriter shall provide the Company with as many copies of the
Fund's current prospectus as the Company may reasonably request. If requested by
the Company in lieu thereof, the Fund shall provide such documentation
(including a final copy of the new prospectus as set in type at the Fund's
expense) and other assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the prospectus for the Fund is
amended) to have the prospectus for the Contracts and the Fund's prospectus
printed together in one document.
The Underwriter shall bear the expense of printing copies of its
current prospectus that will be distributed to existing Contract owners and the
Company shall bear the expense of printing copies of the Fund's prospectus that
are used in connection with offering the Contracts issued by the Company.
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
<PAGE>
- 6 -
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners. The Underwriter, at the Company's expense,
shall provide the Company with copies of the Fund's annual and semi-annual
reports to shareholders in such quantity as the Company shall reasonably request
for use in connection with offering the Variable Contracts issued by the
Company. If requested by the Company in lieu thereof, the Underwriter shall
provide such documentation (which may include a final copy of the Fund's annual
and semi-annual reports as set in type or in camera-ready copy) and other
assistance as is reasonably necessary in order for the Company (at the Company's
expense) to print such shareholder communications for distribution to Contract
owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Designated
Portfolio for which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops or uses and in which the Fund (or a Portfolio thereof)
or the Adviser or the Underwriter is named, at least fifteen calendar days prior
to its use. No such material shall be used if the Fund or its designee
reasonably object to such use within fifteen calendar days after receipt of such
material. The Fund or its designee reserves the right to reasonably object to
the continued use of such material, and no such material shall be used if the
Fund or its designee so object.
<PAGE>
- 7 -
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
fifteen calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within fifteen calendar days after
receipt of such material. The Company reserves the right to reasonably object to
the continued use of such material and no such material shall be used if the
Company so objects.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, contemporaneously with the filing of such
document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, contemporaneously with the
filing of such document(s) with the SEC or other regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
<PAGE>
- 8 -
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except as otherwise provided herein. The Fund shall
see to it that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Fund, in accordance with applicable state laws prior to their
sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing (in accordance with
Section 3.1) and distributing the Fund's prospectus to owners of Contracts
issued by the Company and of distributing the Fund's proxy materials and reports
to such Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest its assets in such a manner as to ensure that the
Contracts will be treated as annuity or life insurance contracts, whichever is
appropriate, under the Internal Revenue Code of 1986, as amended (the "Code")
and the regulations issued thereunder (or any successor provisions). Without
limiting the scope of the foregoing, the Fund will comply with Section 817(h) of
the Code and Treasury Regulation ss.1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
the Fund so as to achieve compliance within the grace period afforded by
Regulation 817.5.
6.2 The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make every
effort to maintain such treatment, and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees
<PAGE>
- 9 -
that any prospectus offering a contract that is a "modified endowment contract"
as that term is defined in Section 7702A of the Code (or any successor or
similar provision), shall identify such contract as a modified endowment
contract.
ARTICLE VII. Potential Conflicts. The following provisions apply effective upon
(a) the issuance of the Shared Funding Exemptive Order, and (b) investment in
the Fund by a separate account of a Participating Insurance Company supporting
variable life insurance contracts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
<PAGE>
- 10 -
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the company for the purchase (and redemption) of
shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7 If and to the extent the Shared Funding Order contains terms and
conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of
this Agreement, then the Fund and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with the Shared
Funding Exemptive Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5
of the Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in the Shared
Funding Exemptive Order or any amendment thereto. If and to the extent that Rule
6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Shared Funding
Exemptive Order) on terms and conditions materially different from those
contained in the Shared Funding Exemptive Order, then (a) the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5,
3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation
<PAGE>
- 11 -
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement, prospectus, or statement of
additional information for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on
behalf of the Fund for use in the Registration Statement,
prospectus or statement of additional information for the
Contracts or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the
Fund not supplied by the Company or persons under its control)
or wrongful conduct of the Company or persons under its
authorization or control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment
thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would
<PAGE>
- 12 -
otherwise be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of its
obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the Registration Statement or prospectus or SAI or
sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Underwriter or Fund by
or on behalf of the
<PAGE>
- 13 -
Company for use in the Registration Statement or
prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Registration Statement,
prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund or Underwriter
or persons under their control, with respect to the sale
or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus or sales literature covering the
Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading, if such statement or omission was made
in reliance upon information furnished to the Company by
or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms
of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification and other qualification
requirements specified in Article VI of this Agreement);
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter
in this Agreement or arise out of or result from any
other material breach of this Agreement by the
Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
<PAGE>
- 14 -
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the Contracts
or the operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms
of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification and other qualification
requirements specified in Article VI of this Agreement);
or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
<PAGE>
- 15 -
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the expense thereof, with counsel satisfactory to the party named in the
action and to settle the claim at its own expense; provided, however, that no
such settlement shall, without the Indemnified Parties' written consent, include
any factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceeding against it or any
of its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to some
or all Designated Portfolios, by six (6) months' advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio based
upon the Company's determination that shares of the Fund are
not reasonably available to meet the requirements of the
Contracts; provided that such termination shall apply only to
the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and
the Underwriter in the event any of the Designated Portfolio's
shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the
use of such shares as the underlying
<PAGE>
- 16 -
investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Fund or Underwriter in the event that
formal administrative proceedings are instituted against the
Company by the NASD, the SEC, the Insurance Commissioner or
like official of any state or any other regulatory body
regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the operation of any Account, or
the purchase of the Fund shares, provided, however, that the
Fund or Underwriter determines in its sole judgment exercised
in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of the Company
to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, provided,
however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the
ability of the Fund or Underwriter to perform its obligations
under this Agreement; or
(f) termination by the Company by written notice to the Fund and
the Underwriter with respect to any Designated Portfolio in
the event that such Designated Portfolio ceases to qualify as
a Regulated Investment Company under Subchapter M or fails to
comply with the Section 817(h) diversification requirements
specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify
or comply; or
(g) termination by the Fund or Underwriter by written notice to
the Company in the event that the Contracts fail to meet the
qualifications specified in Article VI hereof; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or
the Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company has
suffered a material adverse change in its business,
operations, financial condition, or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(i) termination by the Company by written notice to the Fund and
the Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that the Fund or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material
adverse publicity; or
(j) termination by the Fund or the Underwriter by written notice
to the Company, if the Company gives the Fund and the
Underwriter the written notice specified in Section 1.11
hereof and at the time such notice was given
<PAGE>
- 17 -
there was no notice of termination outstanding under any other
provision of this Agreement; provided, however, any
termination under this Section 10.1(j) shall be effective
forty-five days after the notice specified in Section 1.11 was
given.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be permitted
to reallocate investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
T. Rowe Price International Series, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
SMA Life Assurance Company
440 Lincoln Street
Worcester, Massachusetts 01653
Attention: Eric S. Levy
<PAGE>
- 18 -
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Terrie Westren
Copy to: Henry H. Hopkins, Esq.
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
such Fund, and in the case of a series company, the respective Designated
Portfolio listed on Schedule A hereto as though such Designated Portfolio had
separately contracted with the Company and the Underwriter for the enforcement
of any claims against the Fund. The parties agree that neither the Board,
officers, agents or shareholders assume any personal liability or responsibility
for obligations entered into by or on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Delaware Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Delaware variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
<PAGE>
- 19 -
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
COMPANY: SMA LIFE ASSURANCE COMPANY
By its authorized officer
By: /s Ruben P. Moreno
------------------------------------
Title: VP Finance
---------------------------------
Date: 5/2/95
----------------------------------
FUND: T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer
By: /s/ [Illegible]
------------------------------------
Title: Vice President
---------------------------------
Date: April 26, 1995
----------------------------------
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By: /s/ [Illegible]
------------------------------------
Title: Vice President
---------------------------------
Date: April 26, 1995
----------------------------------
<PAGE>
SCHEDULE A
Pending issuance of the Shared Funding Order, the Underwriter shall not
sell to the Company, and the Fund shall not make available for purchase to the
Company, shares of the Designated Portfolio for variable life insurance
Contracts supported wholly or partially by the Accounts.
<TABLE>
<CAPTION>
Name of Separate Account and Contracts Funded by
Date Established by Board of Directors Separate Account Designated Portfolios
-------------------------------------- ---------------- ---------------------
<S> <C> <C>
Separate Account VA-K of SMA Life Assurance ExecAnnuity Plus T. Rowe Price International Series, Inc.
Company, November 1, 1990 33-39702 o T. Rowe Price International
811-6293 Stock Portfolio
Allmerica Select Separate Account of SMA Life Allmerica Select T. Rowe Price international Series, Inc.
Assurance Company, March 5, 1992 33-47216 o T. Rowe Price International Stock
811-6632 Portfolio
VEL Account of SMA Life Assurance Company, April VEL '87 T. Rowe Price international Series, Inc.
27, 1987 33-14672 o T. Rowe Price International
811-5183 Stock Portfolio
VEL Account of SMA Life Assurance Company, April VEL '91 T. Rowe Price international Series, Inc.
27, 1987 33-90320 o T. Rowe Price International
811-5183 Stock Portfolio
VEL Account of SMA Life Assurance Company, April VEL Plus T. Rowe Price international Series, Inc.
27, 1987 33-42687 o T. Rowe Price International
811-5183 Stock Portfolio
VEL II Account of SMA Life Assurance Company, VEL '93 T. Rowe Price international Series, Inc.
January 21, 1993 33-57792 o T. Rowe Price International
811-7466 Stock Portfolio
Inheiritage Account of SMA Life Assurance Company, Variable Inheiritage T. Rowe Price international Series, Inc.
September 15, 1993 33-70948 o T. Rowe Price International
811-8120 Stock Portfolio
Group VEL Account of SMA Life Assurance Company, Group VEL T. Rowe Price international Series, Inc.
November 22, 1993 33-82658 o T. Rowe Price International
811- Stock Portfolio
Allmerica Select Separate Account II of SMA Life Select VEL T. Rowe Price international Series, Inc.
Assurance Company, October 12, 1993 33-83604 o T. Rowe Price International Stock
811- Portfolio
</TABLE>
