<PAGE>
File Nos. 333-87099
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. 1
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 42
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)
Mary Eldridge, Secretary
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, 2000 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 CONTRACTS
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940
("1940 Act"), Registrant hereby declares that an indefinite amount of its
securities is being registered under the Securities Act of 1933 ("1933 Act").
No filing fee is submitted as a filing fee is not required for this type of
filing. The Rule 24f-2 Notice for the issuer's fiscal year ended December 31,
1999 was filed on or before March 30, 2000.
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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 of Fees and Expenses; Summary of the Contract
Features
4..................Condensed Financial Information; Performance Information
5..................Description of the Companies, the Variable Accounts, and the
Underlying Investment Companies
6..................Charges and Deductions
7..................Description of the Contract -- The Accumulation Phase
8..................Electing the Annuity Date; Description of Annuity Payout
Options; Variable Annuity Benefit Payments
9..................Death Benefit
10.................Payments; Computation of Values; Distribution
11.................Surrender and Withdrawals; Withdrawals After the Annuity Date
12.................Federal Tax Considerations
13.................Legal Matters
14.................Statement of Additional Information -- Table of Contents
FORM N-4 ITEM NO. CAPTION IN 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 Benefit Payments
23.................Financial Statements
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
WORCESTER, MASSACHUSETTS
This Prospectus provides important information about the Allmerica Accumulator
variable annuity contract issued by Allmerica Financial Life Insurance and
Annuity Company (in all jurisdictions except New York) and by First Allmerica
Financial Life Insurance Company (in New York). The contract is a flexible
payment deferred combination variable and fixed annuity offered on both a group
and individual basis. PLEASE READ THIS PROSPECTUS CAREFULLY BEFORE INVESTING AND
KEEP IT FOR FUTURE REFERENCE. ANNUITIES INVOLVE RISKS INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
The Variable Account, known as Separate Account VA-K, is subdivided into
Sub-Accounts. Each Sub-Account offered as an investment option under this
contract invests exclusively in shares of one of the following funds:
<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
AIT Money Market Fund (SERVICE CLASS 2)
Fidelity VIP III Growth & Income Portfolio
AIM VARIABLE INSURANCE FUNDS Fidelity VIP III Mid Cap Portfolio
AIM V.I. Blue Chip Fund FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC. (CLASS B) (CLASS 2)
Alliance Growth Portfolio Templeton Developing Markets Securities Fund
DEUTSCHE ASSET MANAGEMENT VIT FUNDS INVESCO VARIABLE INVESTMENT FUNDS, INC.
Deutsche VIT EAFE Equity Index Fund INVESCO VIF Dynamics Fund
Deutsche VIT Equity 500 Index Fund
Deutsche VIT Small Cap Index Fund JANUS ASPEN SERIES (SERVICE SHARES)
Janus Aspen Aggressive Growth Portfolio
DELAWARE GROUP PREMIUM FUND Janus Aspen Capital Appreciation Portfolio
(SERVICE CLASS) Janus Aspen International Growth Portfolio
DGPF Select Growth Series KEMPER VARIABLE SERIES
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (SERVICE Kemper Government Securities Portfolio
CLASS 2)
Fidelity VIP II Contrafund-Registered Trademark- Portfolio PIONEER VARIABLE CONTRACTS TRUST (CLASS II)
Pioneer Fund VCT Portfolio
</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 pays an
interest rate guaranteed for one year from the time a payment is received. The
Guarantee Period Accounts offer fixed rates of interest for specified periods
ranging from 2 to 10 years. A Market Value Adjustment is applied to payments
removed from a Guarantee Period Account before the end of the specified period.
The Market Value Adjustment may be positive or negative. Payments allocated to a
Guarantee Period Account are held in the Company's Separate Account GPA (except
in California where they are allocated to the General Account).
A Statement of Additional Information dated May 1, 2000 containing more
information about this annuity is on file with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. A copy may be
obtained free of charge by calling Allmerica Investments, Inc. at
1-800-533-7881. The Table of Contents of the Statement of Additional Information
is listed on page 3 of this Prospectus.
This Prospectus and the Statement of Additional Information can also be obtained
from the Securities and Exchange Commission's website (http://www.sec.gov).
THIS ANNUITY IS NOT A BANK DEPOSIT OR OBLIGATION; FEDERALLY INSURED; OR ENDORSED
BY ANY BANK OR GOVERNMENTAL AGENCY.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED THAT THE INFORMATION IN THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
DATED MAY 1, 2000
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SPECIAL TERMS............................................... 4
SUMMARY OF FEES AND EXPENSES................................ 6
SUMMARY OF CONTRACT FEATURES................................ 10
DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS, AND THE
UNDERLYING INVESTMENT COMPANIES............................ 14
INVESTMENT OBJECTIVES AND POLICIES.......................... 17
DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE....... 20
A. Payments............................................. 20
B. Computation of Values................................ 20
The Accumulation Unit............................... 21
Net Investment Factor............................... 21
C. Right to Cancel...................................... 21
D. Transfer Privilege................................... 22
Automatic Transfers (Dollar Cost Averaging)......... 22
Automatic Account Rebalancing....................... 23
E. Surrender and Withdrawals............................ 23
Systematic Withdrawals.............................. 24
Life Expectancy Distributions....................... 24
F. Death Benefit........................................ 25
Standard Death Benefit.............................. 25
Optional Enhanced Death Benefit Rider............... 25
Payment of the Death Benefit Prior to the Annuity
Date................................................ 26
G. The Spouse of the Owner as Beneficiary............... 26
H. Assignment........................................... 26
ANNUITIZATION -- THE PAYOUT PHASE........................... 28
A. Electing the Annuity Date............................ 28
B. Choosing the Annuity Payout Option................... 28
Fixed Annuity Payout Options........................ 29
Variable Annuity Payout Options..................... 29
C. Description of Annuity Payout Options................ 29
D. Variable Annuity Benefit Payments.................... 30
The Annuity Unit.................................... 30
Determination of the First Annuity Benefit
Payment............................................. 30
Determination of the Number of Annuity Units........ 31
Dollar Amount of Subsequent Variable Annuity Benefit
Payments............................................ 31
Payment of Annuity Benefit Payments................. 31
E. Transfers of Annuity Units........................... 31
F. Withdrawals after the Annuity Date................... 32
Withdrawals under Life Annuity Payout Options....... 32
Withdrawals under Life with Period Certain or Life
with Cash Back Annuity Payout Options............... 32
Withdrawals under Period Certain Annuity Payout
Options............................................. 33
Calculation of Proportionate Reduction.............. 33
Payment Withdrawals................................. 33
Present Value Withdrawals........................... 33
Calculation of Present Value........................ 34
Deferral of Withdrawals............................. 35
G. Reversal of Annuitization............................ 35
H. NORRIS Decision...................................... 35
CHARGES AND DEDUCTIONS...................................... 36
A. Variable Account Deductions.......................... 36
</TABLE>
2
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<TABLE>
<S> <C>
Mortality and Expense Risk Charge................... 36
Administrative Expense Charge....................... 36
Other Charges....................................... 36
B. Contract Fee......................................... 37
C. Optional Rider Charge................................ 37
D. Premium Taxes........................................ 37
E. Transfer Charge...................................... 38
GUARANTEE PERIOD ACCOUNTS................................... 39
FEDERAL TAX CONSIDERATIONS.................................. 41
A. General.............................................. 41
The Company......................................... 41
Diversification Requirements........................ 41
Investor Control.................................... 41
B. Qualified and Non-Qualified Contracts................ 42
C. Taxation of the Contract in General.................. 42
Withdrawals Prior to Annuitization.................. 42
Withdrawals After Annuitization..................... 42
Annuity Payouts After Annuitization................. 43
Penalty on Distribution............................. 43
Assignments or Transfers............................ 43
Nonnatural Owners................................... 43
Deferred Compensation Plans of State and Local
Government and Tax-Exempt Organizations............. 44
D. Tax Withholding...................................... 44
E. Individual Retirement Annuities...................... 44
STATEMENTS AND REPORTS...................................... 44
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS........... 44
CHANGES TO COMPLY WITH LAW AND AMENDMENTS................... 46
VOTING RIGHTS............................................... 46
DISTRIBUTION................................................ 46
LEGAL MATTERS............................................... 47
FURTHER INFORMATION......................................... 47
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT...... A-1
APPENDIX B -- PERFORMANCE INFORMATION....................... B-1
APPENDIX C -- THE MARKET VALUE ADJUSTMENT................... C-1
APPENDIX D -- EXAMPLES OF PRESENT VALUE WITHDRAWALS AND
PAYMENT WITHDRAWALS........................................ D-1
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY............................. 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT AND THE
COMPANY.................................................... 2
SERVICES.................................................... 3
UNDERWRITERS................................................ 3
ANNUITY BENEFIT PAYMENTS.................................... 4
PERFORMANCE INFORMATION..................................... 5
FINANCIAL STATEMENTS........................................ F-1
</TABLE>
3
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SPECIAL TERMS
ACCUMULATED VALUE: the total dollar amount of all values in the Sub-Accounts,
the Fixed Account and the Guarantee Period Accounts credited to the Contract on
any day before the Annuity Date.
ACCUMULATION UNIT: a measure used to calculate the value of a Sub-Account before
annuity benefit payments begin.
ANNUITANT: the person designated in the Contract whose life is used to determine
the duration of annuity benefit payments involving a life contingency. Joint
Annuitants are permitted and, unless otherwise indicated, any reference to
Annuitant shall include Joint Annuitants.
ANNUITY BENEFIT PAYMENT CHANGE FREQUENCY: the frequency (monthly, quarterly,
semi-annually or annually) that changes due to investment performance will be
reflected in the dollar value of an annuity benefit payment under a variable
annuity payout option.
ANNUITY DATE: the date specified in the Contract or a date elected later by the
Owner to begin annuity benefit payments. This date must be at least one year
after the Issue Date and may not be later than the Owner's (or youngest Joint
Owner's) 99th birthday.
ANNUITY UNIT: a measure used to calculate annuity benefit payments under a
variable payout option.
ANNUITY VALUE: the value of the amount applied under an annuity payout option.
COMPANY: unless otherwise specified, any reference to the "Company" shall refer
exclusively to either Allmerica Financial Life Insurance and Annuity Company or
First Allmerica Financial Life Insurance Company.
CONTRACT YEAR: a period of twelve consecutive months starting on the Contract's
issue date or on any anniversary of the Issue Date.
FIXED ACCOUNT: an investment option under the Contract that guarantees principal
and a fixed minimum interest rate and which is part of the Company's General
Account.
FIXED ANNUITY PAYOUT: an annuity payout option with annuity benefit payments
that are fixed in amount and guaranteed throughout the annuity benefit payment
period.
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 that corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period.
GUARANTEED INTEREST RATE: the annual effective rate of interest, after daily
compounding, credited to a Guarantee Period Account. Issue Date: the date the
Contract is issued and the date that is used to determine Contract days,
Contract months, Contract years and Contract anniversaries.
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 (YOU): the person, persons (Joint Owners) or entity entitled to exercise
the rights and privileges under this Contract. Unless otherwise indicated, any
reference to Owner shall include Joint Owners.
4
<PAGE>
SUB-ACCOUNT: a subdivision of the Variable Account investing exclusively in the
shares of a corresponding fund of Allmerica Investment Trust ("AIT"), AIM
Variable Insurance Funds ("AVIF"), Alliance Variable Products
Series Fund, Inc. ("Alliance"), Deutsche Asset Management VIT Funds ("Deutsche
VIT"), Delaware Group Premium Fund ("DGPF"), Fidelity Variable Insurance
Products Fund II ("Fidelity VIP II"), Fidelity Variable Insurance Products Fund
III ("Fidelity VIP III"), Franklin Templeton Variable Insurance Products Trust
("FT VIP"), INVESCO Variable Investment Funds, Inc. ("INVESCO VIF"), Janus Aspen
Series ("Janus Aspen"), Kemper Variable Series ("KVS"), and Pioneer Variable
Contracts Trust ("Pioneer VCT").
SURRENDER VALUE: the Accumulated Value of the Contract on full surrender after
application of any applicable Contract fee, rider charges and Market Value
Adjustment.
UNDERLYING FUND (OR FUNDS): an investment portfolio of AIT, AVIF, Alliance,
Deutsche VIT, DGPF, Fidelity VIP II, Fidelity VIP III, FT VIP, INVESCO VIF,
Janus Aspen, KVS or Pioneer VCT in which a Sub-Account invests.
VALUATION DATE: a day on which the unit values of the Sub-Accounts are
determined. Valuation Dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, withdrawal or surrender of a Contract was received)
when there is a sufficient degree of trading in an Underlying Fund's portfolio
securities such that the current unit value of the Sub-Accounts may be affected
materially.
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 the assets are not chargeable with
liabilities arising out of any other business which the Company may conduct.
VARIABLE ANNUITY PAYOUT: an annuity payout option providing for payments varying
in amount in accordance with the investment experience of the Underlying Funds.
5
<PAGE>
SUMMARY OF FEES AND EXPENSES
There are certain fees and expenses that you will incur directly or indirectly
under the Allmerica Accumulator Contract. The purpose of the following tables is
to help you understand these various charges. The tables show (1) charges under
the Contract, (2) annual expenses of the Sub-Accounts, and (3) annual expenses
of the Funds during the accumulation phase. In addition to the charges and
expenses described below, premium taxes are applicable in some states and are
deducted as described under "D. Premium Taxes" under CHARGES AND DEDUCTIONS.
<TABLE>
<CAPTION>
CHARGE
(1) CONTRACT CHARGES: ------
<S> <C>
None
TRANSFER CHARGE:
The Company currently does not charge for processing
transfers and guarantees 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 CONTRACT FEE: $35*
The fee is deducted annually and upon surrender prior to
the Annuity Date when Accumulated Value is less than
$75,000.
OPTIONAL RIDER CHARGE:
If the Enhanced Death Benefit Rider is elected, 1/12th of
the annual charge will be deducted pro rata on a monthly
basis at the end of each Contract month. The charge for
this Rider on an annual basis as a percentage of
Accumulated Value is:
5% Enhanced Death Benefit Rider With Annual Step-up: 0.25%
*The fee may be lower in some jurisdictions. See Contract
Specifications for specific charge.
(2) ANNUAL SUB-ACCOUNT EXPENSES:
(on an annual basis as a percentage of average daily net
assets)
Mortality and Expense Risk Charge: 0.65%
Administrative Expense Charge: 0.15%
------
Total Annual Expenses: 0.80%
</TABLE>
6
<PAGE>
(3) ANNUAL UNDERLYING FUND EXPENSES: Total expenses of the Underlying Funds are
not fixed or specified under the terms of the Contract and will vary from year
to year. The levels of fees and expenses also vary among the Underlying Funds.
The following table shows the expenses of the Underlying Funds as a percentage
of average daily net assets for the year ended December 31, 1999, as adjusted
for any material changes.
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT FEE OTHER EXPENSES EXPENSES
(AFTER ANY (AFTER ANY (AFTER ANY WAIVERS/
UNDERLYING FUND VOLUNTARY WAIVERS) 12B-1 FEES REIMBURSEMENTS) REIMBURSEMENTS)
- --------------- ------------------ ---------- --------------- --------------------
<S> <C> <C> <C> <C>
AIT Money Market Fund................... 0.24% -- 0.05% 0.29%(1)
AIM V.I. Blue Chip Fund................. 0.75% -- 0.55% 1.30%
Alliance Growth Portfolio (Class B)..... 0.75% 0.25% 0.12% 1.12%
Deutsche VIT EAFE Equity Index Fund..... 0.26% -- 0.39% 0.65%(2)
Deutsche VIT Equity 500 Index Fund...... 0.14% -- 0.16% 0.30%(2)
Deutsche VIT Small Cap Index Fund....... 0.13% -- 0.32% 0.45%(2)
DGPF Select Growth Series (Service
Class)................................. 0.74% 0.15% 0.06% 0.95%(3)
Fidelity VIP II Contrafund Portfolio
(Service Class 2)...................... 0.58% 0.25% 0.12% 0.95%(4)
Fidelity VIP III Growth & Income
Portfolio
(Service Class 2)...................... 0.48% 0.25% 0.13% 0.86%(4)
Fidelity VIP III Mid Cap Portfolio
(Service Class 2)...................... 0.57% 0.25% 0.43% 1.25%(4)
Templeton Developing Markets Securities
Fund (Class 2)......................... 1.25% 0.25%(5) 0.31% 1.81%(6)
INVESCO VIF Dynamics Fund............... 0.75% -- 1.53% 2.28%(7)
Janus Aspen Aggressive Growth Portfolio
(Service Shares)....................... 0.65% 0.25% 0.02% 0.92%(8)
Janus Aspen Capital Appreciation
Portfolio
(Service Shares)....................... 0.65% 0.25% 0.04% 0.94%(8)
Janus Aspen International Growth
Portfolio
(Service Shares)....................... 0.65% 0.25% 0.11% 1.01%(8)
Kemper Government Securities
Portfolio.............................. 0.55% -- 0.08% 0.63%
Pioneer Fund VCT Portfolio
(Class II)............................. 0.65% 0.25% 0.15% 1.05%(9)
</TABLE>
(1)Until further notice, Allmerica Financial Investment Management Services,
Inc. ("AFIMS") has declared a voluntary expense limitation of 0.60% for the
Money Market Fund. The total operating expenses were less than the expense
limitations throughout 1999.
The declaration of a voluntary management fee or expense limitation in any year
does not bind AFIMS to declare future expense limitations with respect to this
Fund. This limitation may be terminated at any time.
(2)These fees reflect an expense reimbursement arrangement whereby the adviser
has agreed to reimburse the funds an amount based on the weighted average
between the Management Fee and Other Expenses. Without such arrangement, the
Management Fee and Other Expenses for the Deutsche VIT EAFE Equity Index Fund,
Deutsche VIT Equity 500 Index Fund and Deutsche VIT Small Cap Index Fund would
have been 0.47% and 0.58%, 0.22% and 0.20%, 0.37% and 0.72%, respectively.
(3)Service Class inception is May 1, 2000. Fees and Expenses shown are based on
those for the Standard Class. Effective May 1, 2000 through October 31, 2000,
the investment advisor, Delaware Management Company, has voluntarily agreed to
waive its management fee and reimburse the Series for expenses to the extent
that total expenses will not exceed 0.85%, exclusive of the 12b-1fee. Total
expenses of the Select Growth Series before waiver and/or reimbursement would
have been 0.96%, inclusive of the 12b-1 fee.
7
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(4)The expenses for these funds are based on the estimated expenses for the
first year. FMR has agreed to a voluntary expense limitation of 1.25% of average
net assets for the Fidelity VIP III Mid Cap Portfolio. The voluntary expense
limitation will terminate on May 1, 2001.
(5)While the maximum amount payable under the fund's Class 2 rule 12b-1 plan is
0.35% per year of the fund's average daily net assets, the Board of Trustees of
Franklin Templeton Variable Insurance Products Trust has set the current rate at
0.25% per year.
(6)On 2/8/00, shareholders approved a merger and reorganization that combined
the fund with the Templeton Developing Markets Equity Fund, effective 5/1/00.
The shareholders of that fund had approved new management fees, which apply to
the combined fund effective 5/1/00. The table shows restated total expenses
based on the new fees and the assets of the fund as of 12/31/99, and not the
assets of the combined fund. However, if the table reflected both the new fees
and the combined assets, the fund's expenses after 5/1/00 would be estimated as:
Management Fees 1.25%, 12b-1 Fees 0.25%, Other Expenses 0.29%, and Total Fund
Expenses 1.79%.
(7)The actual Total Fund Expenses were lower because its custodian fees were
reduced under an expense offset arrangement. Certain expenses were absorbed
voluntarily by INVESCO Funds Group, Inc. ("INVESCO") to ensure that the expenses
did not exceed 1.15% of the Funds average net assets pursuant to an agreement
between the Fund and INVESCO. This commitment may be changed at any time
following consultation with the board of directors. After absorption, the Fund's
Other Expenses and Total Fund Expenses for the fiscal year ended December 31,
1999 were 0.54% and 1.29% respectively of the Fund's average net assets. The
expense information presented in the table has been restated to reflect a change
in the administrative services fee.
(8)Expenses are based on the estimated expenses that the new Service Shares of
each Portfolio expects to incur in its initial fiscal year. Expenses are shown
without the effect of expense offset arrangements.
(9)Class II shares of the Pioneer Fund VCT Portfolio commenced operations on
May 1, 2000, therefore, the expenses shown are estimated and annualized.
EXPENSE EXAMPLES: The following examples demonstrate the cumulative expenses
which an Owner would pay 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, a 5% annual return on assets, and the annual expenses remain the
same throughout the one, three, five and ten year periods. As required by
rules of the Securities and Exchange Commission ("SEC"), the Contract fee is
reflected in the examples by a method designed to show the average impact on an
investment in the Variable Account. The estimated total Contract fees collected
are divided by the estimated total average net assets attributable to the
Contracts. The resulting percentage is 0.04%, and the amount of the Contract fee
is assumed to be $0.40 in the examples. The Contract fee is only deducted when
the Accumulated Value is less than $75,000. 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.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
8
<PAGE>
(1) At the end of the applicable time period, you would have paid the following
expenses on a $1,000 investment, assuming a 5% annual return on assets, and no
Riders.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
AIT Money Market Fund...................................... $11 $36 $ 62 $137
AIM V.I. Blue Chip Fund.................................... $22 $67 $115 $247
Alliance Growth Portfolio.................................. $20 $61 $105 $228
Deutsche VIT EAFE Equity Index Fund........................ $15 $47 $ 81 $177
Deutsche VIT Equity 500 Index Fund......................... $12 $36 $ 62 $138
Deutsche VIT Small Cap Index Fund.......................... $13 $41 $ 70 $155
DGPF Select Growth Series.................................. $18 $56 $ 97 $210
Fidelity VIP II Contrafund Portfolio....................... $18 $56 $ 97 $210
Fidelity VIP III Growth & Income Portfolio................. $17 $53 $ 92 $200
Fidelity VIP III Mid Cap Portfolio......................... $21 $65 $112 $242
Templeton Developing Markets Securities Fund............... $27 $82 $140 $298
INVESCO VIF Dynamics Fund.................................. $31 $96 $163 $342
Janus Aspen Aggressive Growth Portfolio.................... $18 $55 $ 95 $207
Janus Aspen Capital Appreciation Portfolio................. $18 $56 $ 96 $209
Janus Aspen International Growth Portfolio................. $19 $58 $100 $216
Kemper Government Securities Portfolio..................... $15 $46 $ 80 $175
Pioneer Fund VCT Portfolio................................. $19 $59 $102 $221
</TABLE>
(2) At the end of the applicable time period, you would have paid the following
expenses on a $1,000 investment, assuming an annual 5% return on assets and
election at issue of the 5% Enhanced Death Benefit Rider With Annual Step-Up.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
AIT Money Market Fund...................................... $14 $ 44 $ 75 $165
AIM V.I. Blue Chip Fund.................................... $24 $ 74 $127 $272
Alliance Growth Portfolio.................................. $22 $ 69 $118 $254
Deutsche VIT EAFE Equity Index Fund........................ $18 $ 55 $ 94 $205
Deutsche VIT Equity 500 Index Fund......................... $14 $ 44 $ 76 $166
Deutsche VIT Small Cap Index Fund.......................... $16 $ 48 $ 84 $183
DGPF Select Growth Series.................................. $21 $ 64 $110 $236
Fidelity VIP II Contrafund Portfolio....................... $21 $ 64 $110 $236
Fidelity VIP III Growth & Income Portfolio................. $20 $ 61 $105 $227
Fidelity VIP III Mid Cap Portfolio......................... $24 $ 73 $125 $267
Templeton Developing Markets Securities Fund............... $29 $ 90 $153 $322
INVESCO VIF Dynamics Fund.................................. $34 $103 $175 $365
Janus Aspen Aggressive Growth Portfolio.................... $20 $ 63 $108 $233
Janus Aspen Capital Appreciation Portfolio................. $21 $ 64 $109 $235
Janus Aspen International Growth Portfolio................. $21 $ 66 $113 $243
Kemper Government Securities Portfolio..................... $17 $ 54 $ 93 $202
Pioneer Fund VCT Portfolio................................. $22 $ 67 $115 $247
</TABLE>
9
<PAGE>
SUMMARY OF CONTRACT FEATURES
WHAT IS THE ALLMERICA ACCUMULATOR VARIABLE ANNUITY?
The Allmerica Accumulator variable annuity contract ("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 may be
purchased up to age 90 of the oldest Owner or, if the Owner is not a natural
person, the oldest Annuitant. 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 family;
- withdrawals during the accumulation and annuitization phases;
- income that you can receive for life.
WHAT HAPPENS IN THE ACCUMULATION PHASE?
The Contract has two phases: an accumulation phase and, if you choose to
annuitize, an annuity payout phase (described below). During the accumulation
phase, you may allocate your initial payment and any additional payments to the
combination of portfolios of securities ("Underlying Funds") under your
Contract, to the Guarantee Period Accounts, and to the Fixed Account
(collectively "the investment options"). 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. Your Contract's
Accumulated Value is based on the investment performance of the Underlying Funds
and any accumulations in the Guarantee Period Accounts and the Fixed Account.
Generally, you do not pay taxes on any earnings under the Contract until you
withdraw money. In addition, during the accumulation phase, your beneficiaries
receive certain protections in the event of your death. See discussion below:
WHAT HAPPENS UPON MY DEATH DURING THE ACCUMULATION PHASE?
WHAT HAPPENS UPON MY DEATH DURING THE ACCUMULATION PHASE?
If you or a Joint Owner dies before the Annuity Date, a standard death benefit
will be paid to the beneficiary. (No death benefit is payable at the death of
any Annuitant except when the Owner is not a natural person.) An optional
Enhanced Death Benefit Rider is also available at issue for a separate monthly
charge. See "F. Death Benefit" under DESCRIPTION OF THE CONTRACT -- THE
ACCUMULATION PHASE.
WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?
During the annuity payout phase, you, or the payee you designate, can receive
income based on one of the numerous annuity payout options available under the
Contract. You choose:
- the annuity payout option;
- the date annuity benefit payments begin but no earlier than 1 year after
the Issue Date; and
- whether you want variable annuity benefit payments based on the investment
performance of the Underlying Funds, fixed-amount annuity benefit payments
with payment amounts guaranteed by the Company, or a combination of
fixed-amount and variable annuity benefit payments.
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You may also take withdrawals during the annuity payout phase. The type of
withdrawal and the number of withdrawals that may be made each calendar year
depend upon whether the Owner annuitizes under an annuity payout option with
payments based on the life of one or more Annuitants with no guaranteed payments
(a "Life" annuity payout option), under a life annuity payout option that in
part provides for a guaranteed number of payments (a "Life With Period Certain"
or "Life With Cash Back" annuity payout option), or an annuity payout option
based on a guaranteed number of payments (a "Period Certain" annuity payout
option). Under a Life annuity payout option, the Owner may make one Payment
Withdrawal each calendar year. Under a Life with Period Certain or Life with
Cash Back annuity payout option, the Owner may make one Payment Withdrawal and
one Present Value Withdrawal in each calendar year. Under a Period Certain
annuity payout option, the Owner may make multiple Present Value Withdrawals
each calendar year. For more information, see "F. Withdrawals after the Annuity
Date" under ANNUITIZATION -- THE PAYOUT PHASE. In addition, if you choose a
variable option, you may transfer among the available Sub-Accounts.
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you, (the "Owner"), and us, Allmerica Financial Life
Insurance and Annuity Company (for contracts issued in all jurisdictions except
New York) and First Allmerica Financial Life Insurance Company (in New York).
Each Contract has an Owner (or an Owner and a Joint Owner), an Annuitant (or an
Annuitant and a Joint Annuitant) and one or more beneficiaries. As Owner, you
may:
- make payments
- choose investment allocations
- choose annuity payout options
- receive annuity benefit payments (or designate someone else to receive
annuity benefit payments)
- select the Annuitant and beneficiary.
The Annuitant is the person whose life is used to determine the duration of
annuity benefit payments involving a life contingency. There must be at least
one Annuitant at all times. If an Annuitant dies and a replacement is not named,
the Owner will become the new Annuitant. The beneficiary is the person(s) or
entity entitled to the death benefit at the death of a sole Owner prior to the
Annuity Date. In the case of the death of a Joint Owner, the surviving Joint
Owner will receive the death benefit. Under certain circumstances, the
beneficiary may be entitled to annuity benefit payments upon the death of an
Owner on or after the Annuity Date.
HOW MUCH CAN I INVEST AND HOW OFTEN?
During the Accumulation Phase, you may make additional payments. Total payments
under the Contract can exceed $5,000,000 only with the Company's prior approval.
The number and frequency of your payments are flexible, subject only to a
$50,000 minimum for your initial payment and a $50 minimum for any additional
payments. A minimum of $1,000 is always required to establish a Guarantee Period
Account.
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WHAT ARE MY INVESTMENT CHOICES?
You may choose among Sub-Accounts investing in the Underlying Funds, the
Guarantee Period Accounts, and the Fixed Account. The Funds are:
<TABLE>
<S> <C>
ALLMERICA INVESTMENT TRUST FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
AIT Money Market Fund Fidelity VIP III Growth & Income Portfolio
AIM VARIABLE INSURANCE FUNDS Fidelity VIP III Mid Cap Portfolio
AIM V.I. Blue Chip Fund FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC. Templeton Developing Markets Securities Fund
Alliance Growth Portfolio INVESCO VARIABLE INVESTMENT FUNDS, INC.
DEUTSCHE ASSET MANAGEMENT VIT FUNDS INVESCO VIF Dynamics Fund
Deutsche VIT EAFE Equity Index Fund JANUS ASPEN SERIES
Deutsche VIT Equity 500 Index Fund Janus Aspen Aggressive Growth Portfolio
Deutsche VIT Small Cap Index Fund Janus Aspen Capital Appreciation Portfolio
DELAWARE GROUP PREMIUM FUND Janus Aspen International Growth Portfolio
DGPF Select Growth Series KEMPER VARIABLE SERIES
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II Kemper Government Securities Portfolio
Fidelity VIP II Contrafund-Registered Trademark- Portfolio PIONEER VARIABLE CONTRACTS TRUST
Pioneer Fund VCT Portfolio
</TABLE>
Each Underlying Fund operates pursuant to different investment objectives and
this range of investment options enables you to allocate your money among the
Underlying Funds to meet your particular investment needs.
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 (except in California, where assets are held in the
Company's General 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 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 the Guarantee Period Accounts and
the Market Value Adjustment, see GUARANTEE PERIOD ACCOUNTS.
THE GUARANTEE PERIOD ACCOUNTS ARE NOT AVAILABLE IN ALL STATES AND ARE NOT
OFFERED AFTER ANNUITIZATION.
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
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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. 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.
CAN I MAKE TRANSFERS AMONG THE SUB-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. On and after the Annuity Date, if you have elected a variable option,
you may transfer only among the Sub-Accounts. You will incur no current taxes on
transfers while your money remains in the Contract. See "D. Transfer Privilege"
under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE.
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.
If you authorize automatic periodic transfers (under an Asset Allocation Model
Reallocation program, Automatic Transfers program (Dollar Cost Averaging) or
Automatic Account Rebalancing program), the first automatic transfer or
rebalancing under a request counts as one transfer for purposes of the 12
transfers guaranteed to be free of a transfer charge in each Contract year. Each
subsequent automatic transfer or rebalancing under that request is without
charge and does not reduce the remaining number of transfers which may be made
free of charge in that Contract year.
WHAT IF I NEED MY MONEY BEFORE THE ANNUITY PAYOUT PHASE BEGINS?
Before the annuity payout phase begins, you may surrender your Contract or make
withdrawals at any time. A Market Value Adjustment will apply to withdrawals
from a Guarantee Period Account prior to the expiration of the Guarantee Period.
A 10% tax penalty may apply on all amounts deemed to be earnings if you are
under age 59 1/2.
CAN I EXAMINE THE CONTRACT?
Yes. Your 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
cancelled. There may be a longer period in certain jurisdictions; see the Right
to Examine provision on the cover of your Contract.
If you cancel the Contract, you will receive the Contract's Accumulated Value
adjusted for any Market Value Adjustment for amounts allocated to a Guarantee
Period Account plus any fees or charges that may have been deducted. However, if
required in your state or if the Contract was issued as an Individual Retirement
Annuity (IRA), you will generally receive a refund of your gross payment(s). In
certain jurisdictions this refund may be the greater of (1) your gross
payment(s) or (2) the Accumulated Value adjusted for any Market Value
Adjustment, plus any fees or charges previously deducted. See "C. Right to
Cancel" -- under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE.
CAN I MAKE FUTURE CHANGES UNDER MY CONTRACT?
You can make several changes after receiving your Contract:
- You may assign your ownership to someone else, except under qualified
plans.
- You may change the beneficiary, unless you have designated an irrevocable
beneficiary.
- You may change your allocation of payments.
- You may make transfers among the Sub-Accounts without any tax
consequences.
- You may cancel your Contract within ten days of delivery (or longer if
required by state law).
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DESCRIPTION OF THE COMPANIES, THE VARIABLE ACCOUNTS,
AND THE UNDERLYING INVESTMENT COMPANIES
THE COMPANIES. Allmerica Financial Life Insurance and Annuity Company
("Allmerica Financial") is a life insurance company organized under the laws of
Delaware in July 1974. Its Principal Office is located at 440 Lincoln Street,
Worcester, MA 01653, telephone 508-855-1000. Allmerica Financial 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, Allmerica
Financial is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1999,
Allmerica Financial had over $17 billion in assets and over $26 billion of life
insurance in force.
Effective October 1, 1995, Allmerica Financial changed its name from SMA Life
Assurance Company to Allmerica Financial Life Insurance and Annuity Company.
Allmerica Financial is a wholly owned subsidiary of First Allmerica Financial
Life Insurance Company ("First Allmerica") which, in turn, is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC").
First Allmerica Financial Life Insurance Company, organized under the laws of
Massachusetts in 1844, is among the five oldest life insurance companies in
America. As of December 31, 1999, First Allmerica and its subsidiaries had over
$25 billion in combined assets and over $43 billion of life insurance in force.
Effective October 16, 1995, First Allmerica converted from a mutual life
insurance company known as State Mutual Life Assurance Company of America to a
stock life insurance company and adopted its present name. First Allmerica is a
wholly owned subsidiary of AFC. First Allmerica's principal office ("Principal
Office") is located at 440 Lincoln Street, Worcester, MA 01653, telephone
508-855-1000.
First Allmerica is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
of Massachusetts. In addition, First Allmerica is subject to the insurance laws
and regulations of other states and jurisdictions in which it is licensed to
operate.
Both companies are charter members of the Insurance Marketplace Standards
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE VARIABLE ACCOUNTS. Each Company maintains a separate account called
Separate Account VA-K (the "Variable Account"). The Variable Account of
Allmerica Financial was authorized by vote of our Board of Directors on
November 1, 1990. The Variable Account of First Allmerica was authorized by vote
of our Board of Directors on August 20, 1991. Each Variable Account is
registered with the SEC as a unit investment trust under the 1940 Act. This
registration does not involve the supervision or management of investment
practices or policies of the Variable Accounts or the Company by the SEC.
The Variable Account is a separate investment account of the Company. 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. Each Sub-Account is administered and accounted
for as part of our general business, 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. Obligations under
the Contracts are our obligations. Under Delaware and Massachusetts law, the
assets of the Variable Account may not be charged with any liabilities arising
out of any other business of the Company.
We reserve the right, subject to compliance with applicable law, to change the
names of the Variable Account and the Sub-Accounts. We also offer other variable
annuity contracts investing in the Variable Account which are not discussed in
this Prospectus. In addition the Variable Account may invest in other underlying
funds which are not available to the Contracts described in this Prospectus.
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UNDERLYING INVESTMENT COMPANIES
ALLMERICA INVESTMENT TRUST. Allmerica Investment Trust ("AIT") is an open-end,
diversified management investment company registered with the SEC under the 1940
Act. One investment portfolio of AIT is currently available under the Contract,
issuing a series of shares: the AIT Money Market Fund. Shares of AIT are not
offered to the general public but solely to such variable accounts.
Allmerica Financial Investment Management Services, Inc. ("AFIMS") serves as the
investment adviser of AIT. The trustees have overall responsibility for the
supervision of the affairs of AIT. The Trustees have entered into a management
agreement ("Management Agreement") with AFIMS, a wholly owned subsidiary of
Allmerica Financial, to handle the day-to-day affairs of AIT. AFIMS, subject to
Trustee review, is responsible for the general management of the Funds. AFIMS
also performs certain administrative and management services for AIT, furnishes
to AIT all necessary office space, facilities and equipment and pays the
compensation, if any, of officers and Trustees who are affiliated with AFIMS.
AFIMS has entered into agreements with other investment advisers
("Sub-Advisers") under which each Sub-Adviser manages the investments of one or
more of the Funds of AIT. Under each Sub-Adviser agreement, the Sub-Adviser is
authorized to engage in portfolio transactions on behalf of the Fund, subject to
AFIMS and the Trustees instructions. AFIMS is solely responsible for the payment
of all fees for investment management services to the Sub-Advisers. The
Sub-Advisers, other than Allmerica Asset Management, Inc., are not affiliated
with the Company or AIT.
Other than expenses specifically assumed by AFIMS under the Management
Agreement, AIT bears all expenses incurred in its operation including fees and
expenses associated with the registration and qualification of AIT's shares
under the Securities Act of 1933, other fees payable to the SEC, independent
public accountant fees, legal and custodian fees, association membership dues,
taxes, interest, insurance premiums, brokerage commissions, fees and expenses of
the Trustees who are not affiliated with AFIMS, expenses for proxies,
prospectuses, reports to shareholders and other expenses.
AIM VARIABLE INSURANCE FUNDS. AIM Variable Insurance Funds ("AVIF"), an
open-end, series, management investment company, was organized as a Maryland
corporation on January 22, 1993, changed to a Delaware business trust on May 1,
2000, and is registered with the SEC under the 1940 Act. The investment advisor
for the AIM V.I. Blue Chip Fund is A I M Advisors, Inc. ("AIM"). AIM was
organized in 1976, and, together with its subsidiaries, manages or advises over
120 investment company portfolios encompassing a broad range of investment
objectives.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC. Alliance Variable Product
Series Fund, Inc. ("Alliance") is registered with the SEC as an open-end,
management investment company under the 1940 Act. One of its separate investment
portfolios is currently available under the Contract: the Alliance Growth
Portfolio. Alliance Capital Management, L.P. ("Alliance Capital"), serves as the
investment advisor to Alliance. Alliance Capital Management Corporation, the
sole general partner of Alliance Capital, is an indirect wholly owned subsidiary
of the Equitable Life Assurance Society of the United States, which is in turn a
wholly owned subsidiary of the Equitable Companies Incorporated, a holding
company which is controlled by AXA, a French insurance holding company.
DEUTSCHE ASSET MANAGEMENT VIT FUNDS. Deutsche Asset Management VIT Funds
("Deutsche VIT") is an open-end management investment company which is
registered under the 1940 Act, as amended, and was organized as a Massachusetts
business trust on January 19, 1996. Bankers Trust Company is the investment
advisor for Deutsche VIT EAFE Equity Index Fund, the Deutsche VIT Equity 500
Index Fund, and the Deutsche VIT Small Cap Index Fund which are available under
the contract.
DELAWARE GROUP PREMIUM FUND. Delaware Group Premium Fund ("DGPF"), previously a
Maryland Corporation organized on February 19, 1987 and reorganized as a
Delaware business trust on December 15,
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1999, is an open-end management investment company registered with the SEC under
the 1940 Act. Delaware Management Company, a series of Delaware Management
Business Trust ("Delaware Management") is the investment adviser for the DGPF
Select Growth Series. Delaware Management and its predecessors have been
managing the funds in the Delaware Investments family since 1938.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II. Fidelity Variable Insurance
Products Fund II ("Fidelity VIP II"), managed by FMR, is an open-end,
diversified management investment company registered with the SEC under the 1940
Act. One of its investment portfolios is available under the Contract: the
Fidelity VIP II Contrafund-Registered Trademark- Portfolio.
FMR is one of America's largest investment management organizations and has its
principal business address at 82 Devonshire Street, Boston, Massachusetts. It
provides a number of mutual funds and other clients with investment research and
portfolio management services.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III. Fidelity Variable Insurance
Products Fund III ("Fidelity VIP III"), managed by FMR (see discussion above) is
an open-end, diversified management investment company registered with the SEC
under the 1940 Act. Two of its investment portfolios are available under the
Contract: the Fidelity VIP III Growth & Income Portfolio and the Fidelity VIP
III Mid Cap Portfolio.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST. Franklin Templeton
Variable Insurance Products Trust ("FT VIP") and the funds' investment managers
and their affiliates manage over $224 billion in assets. In 1992, Franklin
joined forces with Templeton, a pioneer in international investing. The Mutual
Advisers organization became part of the Franklin Templeton organization four
years later. The investment adviser to Templeton Developing Markets Securities
Fund is Templeton Asset Management, LTD.
INVESCO VARIABLE INVESTMENT FUNDS, INC. INVESCO Variable Investment
Funds, Inc. ("INVESCO VIF") is an open-end, diversified, no-load management
investment company which was incorporated under the laws of Maryland on
August 19, 1993. The investment adviser to the INVESCO VIF Dynamics Fund is
INVESCO Funds Group, Inc.
JANUS ASPEN SERIES. Janus Aspen Series ("Janus Aspen") is an open-end,
management investment company registered with the SEC. It was organized as a
Delaware business trust on May 20, 1993. Janus Capital is the investment adviser
of Janus Aspen. Three of its investment portfolios are available under the
contract: the Janus Aspen Aggressive Growth Portfolio, Janus Aspen Capital
Appreciation Portfolio, and Janus Aspen International Growth Portfolio.
KEMPER VARIABLE SERIES. Kemper Variable Series ("KVS"), is a series-type mutual
fund registered with the SEC as an open-end, management investment company. The
Kemper Government Securities Portfolio is offered under the Contract. Scudder
Kemper Investments, Inc. serves as the investment adviser of KVS.
PIONEER VARIABLE CONTRACTS TRUST. Pioneer Variable Contracts Trust ("Pioneer
VCT") is an open-end, management investment company registered with the SEC
under the 1940 Act. Pioneer Investment Management, Inc. ("Pioneer") is the
investment adviser to the Pioneer Fund VCT Portfolio which is offered under the
Contract. Pioneer is a wholly owned subsidiary of The Pioneer Group, Inc.
("PGI"). PGI, established in 1928, is one of America's oldest investment
managers.
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INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Underlying Funds is set forth
below. MORE DETAILED INFORMATION REGARDING THE INVESTMENT OBJECTIVES,
RESTRICTIONS AND RISKS, EXPENSES PAID BY THE UNDERLYING FUNDS, AND OTHER
RELEVANT INFORMATION REGARDING THE UNDERLYING INVESTMENT COMPANIES MAY BE FOUND
IN THE PROSPECTUSES FOR THE UNDERLYING FUNDS WHICH ACCOMPANY THIS PROSPECTUS,
AND SHOULD BE READ CAREFULLY BEFORE INVESTING. The Statements of Additional
Information ("SAI") of the Underlying Funds are available upon request. There
can be no assurance that the investment objectives of the Underlying Funds can
be achieved or that the value of the Contract will equal or exceed the aggregate
amount of the purchase payments made under the Contract.
ALLMERICA INVESTMENT TRUST:
AIT MONEY MARKET FUND -- seeks to obtain maximum current income consistent with
the preservation of capital and liquidity.
AIM VARIABLE INSURANCE FUNDS:
AIM V.I. BLUE CHIP FUND -- seeks long-term growth of capital with a secondary
objective of current income. The Fund seeks to meet these objectives by
investing primarily in the common stocks of blue chip companies. The Fund may
invest in U.S. government securities, convertible securities, high quality debt
securities and foreign securities.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.:
ALLIANCE GROWTH PORTFOLIO (CLASS B) -- seeks to provide long-term growth of
capital. Current income is only an incidental consideration. The Portfolio
emphasizes investments in large and mid cap companies. The Portfolio also may
invest a portion of its assets in lower rated fixed-income securities,
convertible bonds, and foreign securities.
DEUTSCHE ASSET MANAGEMENT VIT FUNDS:
DEUTSCHE VIT EAFE EQUITY INDEX FUND -- seeks to match, as closely as possible,
before the deduction of expenses, the performance of the
EAFE-Registered Trademark- Index. The Fund will invest primarily in common
stocks of companies that compose the EAFE-Registered Trademark- Index, in
approximately the same weightings as the EAFE-Registered Trademark- Index. The
Fund may also use stock index futures and options.
DEUTSCHE VIT EQUITY 500 INDEX FUND -- seeks to match, as closely as possible,
before the deduction of expenses, the performance of the S&P 500 index, which
emphasizes stocks of large U.S. companies. The Fund will invest primarily in
common stocks of companies that comprise the S&P 500 Index, in approximately the
same weightings as the S&P Index. The Fund may also use stock index futures and
options.
DEUTSCHE VIT SMALL CAP INDEX FUND -- seeks to match, as closely as possible
(before the deduction of expenses) the performance of the Russell 2000 index,
which emphasizes stocks of small U.S. companies. The Fund will invest primarily
in common stocks of companies that compose the Russell 2000 Index, in
approximately the same weightings as the Russell Index. The Fund may also use
stock index futures and options.
DELAWARE GROUP PREMIUM FUND:
DGPF SELECT GROWTH SERIES (SERVICE CLASS) -- seeks to provide long-term capital
appreciation which the Fund attempts to achieve by investing primarily in equity
securities of companies which the investment manager believes have the potential
for high earnings growth.
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FIDELITY VARIABLE INSURANCE PRODUCTS FUND II:
FIDELITY VIP II CONTRAFUND-REGISTERED TRADEMARK- PORTFOLIO (SERVICE
CLASS 2) -- seeks long-term capital appreciation. The Portfolio invests
primarily in common stocks of domestic and foreign issuers whose value is not
fully recognized by the public. The Portfolio may invest in either growth stocks
or value stocks or both.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III:
FIDELITY VIP III GROWTH & INCOME PORTFOLIO (SERVICE CLASS 2) -- seeks high total
return through a combination of current income and capital appreciation. The
Portfolio invests a majority of its assets in common stocks of domestic and
foreign issuers with a focus on those that pay current dividends and show
potential for capital appreciation. The Portfolio may also invest in bonds,
including lower-quality debt securities, as well as stocks that are not
currently paying dividends, but offer prospects for future income or capital
appreciation.
FIDELITY VIP III MID CAP PORTFOLIO (SERVICE CLASS 2) -- seeks long-term growth
of capital. The Portfolio invests primarily in common stocks of domestic and
foreign issuers with medium market capitalizations. The Portfolio may invest in
either growth stocks or value stocks or both.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST:
TEMPLETON DEVELOPING MARKETS SECURITIES FUND (CLASS 2) -- seeks long-term
capital appreciation The Fund invests primarily in common stocks of companies
located in emerging market countries.
INVESCO VARIABLE INVESTMENT FUNDS, INC.:
INVESCO VIF DYNAMICS FUND -- seeks to buy securities that will increase in value
over the long term. The Fund invests in a variety of securities that present
opportunities for capital growth -- primarily common stocks of companies traded
on the U.S. securities exchanges, as well as over the counter. The Fund also may
invest in preferred stocks and debt instruments that are convertible into common
stocks, as well as in securities of foreign companies.
JANUS ASPEN SERIES:
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO (SERVICE SHARES) -- seeks long-term
growth of capital. The Portfolio invests primarily in common stocks of
medium-sized companies selected for their growth potential.
JANUS ASPEN CAPITAL APPRECIATION PORTFOLIO (SERVICE SHARES) -- seeks long-term
growth of capital. The Portfolio invests primarily in common stocks selected for
their growth potential. The Portfolio may invest in companies of any size, from
larger, well established companies to smaller, emerging growth companies.
JANUS ASPEN INTERNATIONAL GROWTH PORTFOLIO (SERVICE SHARES) -- seeks long-term
growth of capital. The Portfolio primarily in securities of issuers from at
least five different countries, excluding the United States. Although the
Portfolio intends to invest substantially all of its assets in issuers located
outside the United States, it may invest in U.S. issuers and it may at times
invest all of its assets in fewer than five countries, or even a single country.
KEMPER VARIABLE SERIES:
KEMPER GOVERNMENT SECURITIES PORTFOLIO -- seeks high current return consistent
with preservation of capital from a portfolio composed primarily of U.S.
Government securities.
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PIONEER VARIABLE CONTRACTS TRUST:
PIONEER FUND VCT PORTFOLIO (CLASS II) -- seeks to invest in a broad list of
carefully selected, reasonably priced securities for reasonable income and
growth. The Portfolio invests the major portion of its assets in equity
securities, primarily of U.S. issuers. Equity securities include common and
preferred stocks, interests in real estate investment trusts (REITS) and
convertible debt securities.
If there is a material change in the investment policy of a Sub-Account or the
Fund in which it invests, 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.
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DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE
A. PAYMENTS
The latest Issue Date is age 90 of the oldest Owner, or, if the Owner is not a
natural person, the oldest Annuitant. The Company will issue a Contract when its
underwriting requirements are met. These requirements include receipt of the
initial payment and allocation instructions by the Company at its Principal
Office and may include the proper completion of an application; however, where
permitted by law, the Company may issue a Contract without completion of an
application. If all issue requirements are not completed within five business
days of the Company's receipt of the initial payment, the payment will be
returned immediately unless the applicant authorizes the Company to retain it
pending completion of all issue requirements.
Payments may be made to the Contract at any time prior to the Annuity Date, or
prior to the death of an Owner, subject to certain minimums:
- Currently, the initial payment must be at least $50,000.
- Each subsequent payment must be at least $50.
- 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 of AIT.
Payments are to be made payable to the Company. The Company may reduce a payment
by any applicable premium tax before applying it to the Contract. The initial
net payment is credited to the Contract and allocated among the requested
investment options as of the date that all issue requirements are properly met.
The allocation instructions for the initial net payment will serve as the
allocation instructions for all future payments. You can change the allocations
instructions for future payments by notifying the Company.
You also have the option of specifying how a specific payment should be
allocated. This will not change the allocation instructions for any subsequent
payment.
For a discussion of future payments to an Automatic Transfer Program (Dollar
Cost Averaging), please see "Automatic Transfers (Dollar Cost Averaging)" below.
In order for the Owner to be able to initiate transactions over the telephone, 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 we
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. Such procedures may include, among other things, requiring some
form of personal identification prior to acting upon instructions received by
telephone. All telephone instructions are tape-recorded.
B. COMPUTATION OF VALUES
The Owner may allocate payments among the Sub-Accounts, Guarantee Period
Accounts, and the Fixed 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. See GUARANTEE
PERIOD ACCOUNTS and APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT.
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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 together the values of each Sub-Account, and
(3) adding the amount of the accumulations in the Fixed Account and
Guarantee Period Accounts, if any.
THE ACCUMULATION UNIT. 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 payment
allocated to the Sub-Account, divided by the dollar value of the applicable
Accumulation Unit as of the Valuation Date. 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 arbitrarily set at $1.00
on the first Valuation Date for each Sub-Account.
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 (which may be positive or
negative) 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 0.65% on an annual
basis of the daily value of the Sub-Account's assets; and
(4) is an administrative charge equal to 0.15% 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.
C. RIGHT TO CANCEL
An Owner may cancel the Contract at any time within ten days after receipt of
the Contract (or longer if required by law) and receive a refund. In order to
cancel the Contract, the Owner must mail or deliver it to the Company's
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 cancellation to be effective.
In most states, the Company will pay the Owner the Contract's Accumulated Value
adjusted for any Market Value Adjustment for amounts allocated to a Guarantee
Period Account, plus any amounts deducted for taxes, charges or fees. However,
if the Contract was purchased as an IRA or issued in a state that requires a
full refund of the initial payment(s), the Company will provide a refund equal
to your gross payment(s). In some states, the refund may equal the greater of
(a) your gross payment(s) or (b) the Accumulated Value adjusted for any Market
Value Adjustment, plus any amounts deducted for taxes, charges or fees. At the
time the
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Contract is issued, the Right to Examine provision on the cover of the Contract
will specifically indicate what the refund will be and the time period allowed
to exercise the right to cancel.
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.
D. TRANSFER PRIVILEGE
Prior to the Annuity Date, the Owner may transfer amounts among investment
options 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. Transfers from a Guarantee
Period Account prior to the expiration of the Guarantee Period will be subject
to a Market Value Adjustment.
Currently, the Company does not 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. The first automatic transfer or rebalancing under an
Automatic Transfers (Dollar Cost Averaging) program or Automatic Account
Rebalancing program counts as one transfer for purposes of the 12 transfers
guaranteed to be free of a transfer charge in each Contract year. Each
subsequent automatic transfer or rebalancing under that request is without
charge and does not reduce the remaining number of transfers which may be made
free of charge in that Contract year.
The Company also reserves the right to restrict transfer privileges when
exercised by a market timing firm or any other third party authorized to
initiate allocations, transfers or exchanges on behalf of multiple Contract
Owners. The Company may, among other things, not accept:
- the transfer or exchange instructions of any agent acting under a power of
attorney on behalf of more than one Owner, or
- the transfer or exchange instructions of individual Owners who have
executed pre-authorized transfer or exchange forms which are submitted by
market timing firms or other third parties on behalf of more than one
Owner at the same time.
AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING). You may elect automatic transfers
of a predetermined dollar amount on a periodic basis from the Fixed Account or
the Sub-Accounts investing in the Money Market Fund ("source accounts"). You may
elect automatic transfers to one or more Sub-Accounts, subject to the following:
- the predetermined dollar amount may not be less than $100;
- the periodic basis may be monthly, quarterly, semi-annually or annually;
- automatic transfers may not be made into the selected source account,
Fixed Account, or the Guarantee Period Accounts; and
- 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.
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Automatic transfers from a source account will continue until the earlier of:
- 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 a source account before its balance has
fallen to zero, those additional amounts will also be automatically transferred.
The original automatic transfer allocations will apply to all amounts in that
source account unless you provide new allocation instructions. New allocation
instructions will apply to the entire balance in the source account. If
additional amounts are allocated to a source account after its balance has
fallen to zero, automatic transfers will not begin again unless you specifically
instruct the Company to do so.
To the extent permitted by law, the Company reserves the right, from time to
time, to credit an enhanced interest rate to an initial and/or subsequent
payment made to the Fixed Account, which is then used as the source account from
which to process automatic transfers. For more information see APPENDIX A --
MORE INFORMATION ABOUT THE FIXED ACCOUNT.
AUTOMATIC ACCOUNT REBALANCING. The Owner may request automatic rebalancing of
Sub-Account allocations on a monthly, quarterly, semi-annual or annual basis in
accordance with his/her specified percentage allocations. As frequently as
elected by the Owner, the Company will review the percentage allocations in the
Underlying 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 (1) the Owner's request to
terminate or change the option is received by the Company or (2) the end date
designated by the Owner when the option was elected. If a subsequent payment is
allocated in a manner different from the percentage allocation mix in effect on
the date the payment is received, on the next scheduled rebalancing date the
payment will be reallocated in accordance with the existing mix.
Currently, Dollar Cost Averaging and Automatic Account Rebalancing may not be in
effect simultaneously. Either option may be elected at no additional charge when
the Contract is purchased or at a later date. 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.
E. SURRENDER AND WITHDRAWALS
Before the Annuity Date, an Owner may surrender the Contract for its Surrender
Value or withdraw a portion of its Accumulated Value. In the case of surrender,
the Owner must send the Contract and a signed written request for surrender,
satisfactory to the Company, to the Principal Office. The Surrender Value will
be calculated based on the Contract's Accumulated Value as of the Valuation
Date.
In the case of a withdrawal, the Owner must submit to the Principal Office a
signed, written request indicating the desired dollar amount and the investment
options from which such amount is to be withdrawn. A withdrawal from a
Sub-Account will result in cancellation of a number of units equivalent in value
to the amount withdrawn. Each withdrawal must be a minimum of $100. No
withdrawal will be permitted if the Accumulated Value remaining under the
Contract would be reduced to less than $10,000.
A Contract fee may apply when a Contract is surrendered. See 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.
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Any distribution is normally payable within seven days following the Company's
receipt of the surrender or withdrawal request. The Company reserves the right
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. The
Company reserves the right to defer surrenders and withdrawals of amounts in
each Sub-Account in any period during which:
- 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,
- the SEC has by order permitted such suspension, or
- 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.
For important tax consequences, which may result from surrender or withdrawals,
see FEDERAL TAX CONSIDERATIONS.
For information about withdrawals after the Annuity Date, see
ANNUITIZATION --THE PAYOUT PHASE, "F. Withdrawals after the Annuity Date."
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 periodic basis (monthly, bimonthly, quarterly, semi-annually
or annually). Systematic withdrawals from Guarantee Period Accounts are not
available. The Owner may request:
- the withdrawal of 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 withdrawal of 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 latest of 15 days after Issue Date,
the date the written request is received at the Principal Office, or on a date
specified by the Owner.
The minimum amount of each automatic withdrawal is $100. If a withdrawal would
cause the remaining Accumulated Value to be less than $10,000, systematic
withdrawals may be discontinued. Systematic withdrawals will cease automatically
on the Annuity Date. The Owner may change or terminate systematic withdrawals
only by written request to the Principal Office.
LIFE EXPECTANCY DISTRIBUTIONS. (For Qualified Contracts and Contracts issued
under Section 457 Deferred Compensation Plans only). Prior to the Annuity Date,
an Owner may elect to make a series of systematic withdrawals from the Contract
according to the Company's life expectancy distribution ("LED") option by
returning a properly signed LED request form to the Principal Office. Where the
Owner is a trust or other nonnatural person, the Owner may elect the LED option
based on the Annuitant's life expectancy.
If an Owner elects the Company's LED option, in each calendar year a fraction of
the Accumulated Value is withdrawn based on the Owner's life expectancy (or the
joint life expectancy of the Owner and a beneficiary.) The numerator of the
fraction is 1 (one). The denominator of the fraction will be either:
- the remaining life expectancy of the Owner (or Owner and beneficiary), as
determined annually by the Company; or
- the prior year's life expectancy, minus one.
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The resulting fraction, expressed as a percentage, is then applied to the
Accumulated Value at the beginning of the year to determine the amount to be
distributed during the year. The Owner may choose to have the applicable life
expectancy redetermined each year or use the prior year's life expectancy, minus
one. Under the Company's LED option, the amount withdrawn from the Contract
changes each year.
The Owner may elect periodic LED distributions on a monthly, bi-monthly,
quarterly, semi-annual, or annual basis. The Owner may terminate the LED option
at any time. The LED option will terminate automatically on the maximum Annuity
Date permitted under the Contract, at which time an annuity payout option must
be selected.
The LED option may not produce annual distributions that meet the definition of
"substantially equal periodic payments" as defined under Code Section 72(t). The
withdrawals may be treated by the Internal Revenue Service (IRS) as premature
distributions from the Contract and may be subject to a 10% federal tax penalty.
Owners seeking distributions over their life under this definition should
consult their tax advisor. For more information, see "C. Taxation of the
Contract in General" under FEDERAL TAX CONSIDERATIONS.
F. DEATH BENEFIT
A death benefit is payable if the Owner or the first of Joint Owners dies prior
to the Annuity Date. If the Owner is a natural person, no death benefit is
payable at the death of any Annuitant. If the Owner is not a natural person, a
death benefit will be paid upon the death of any Annuitant. A spousal
beneficiary may elect to continue the Contract rather than receive the death
benefit as provided in "G. The Spouse of the Owner as Beneficiary."
STANDARD DEATH BENEFIT. Unless an enhanced death benefit is elected at issue,
the standard death benefit will be paid. The standard death benefit is equal to
the greater of (a) the Contract's Accumulated Value on the Valuation Date that
the Company receives proof of death, increased by any positive Market Value
Adjustment or (b) gross payments prior to the date of death, proportionately
reduced to reflect withdrawals.
For each withdrawal under (b), the proportionate reduction is calculated by
multiplying the standard death benefit immediately prior to the withdrawal by
the following fraction:
Amount of the withdrawal
------------------------------------------------
Accumulated Value immediately prior to the withdrawal
OPTIONAL ENHANCED DEATH BENEFIT RIDER. When applying for the Contract, an Owner
may elect the optional 5% Enhanced Death Benefit With Annual Step-Up Rider. A
separate charge for this Rider is made against the Contract's Accumulated Value
on the last day of each Contract month for the coverage provided during that
month. The charge is made through a pro-rata reduction (based on relative
values) of Accumulation Units in the Sub-Accounts and dollar amounts in the
Fixed and Guarantee Period Accounts. For specific charges and more detail, see
"C. Optional Rider Charge" under CHARGES AND DEDUCTIONS.
The 5% Enhanced Death Benefit With Annual Step-Up Rider provides a death benefit
guarantee if death of an Owner (or an Annuitant if the Owner is not a natural
person) occurs before the Annuity Date. The calculation of the death benefit
depends upon whether death occurs before or after the 90th birthday:
I. Death BEFORE 90th Birthday. If an Owner (or an Annuitant if the Owner is a
not a natural person) dies before the Annuity Date and before his/her 90th
birthday, the death benefit is equal to the GREATEST of:
(a) the Accumulated Value on the Valuation Date that the Company received
proof of death, increased by any positive Market Value Adjustment;
(b) gross payments, accumulated daily at an effective annual yield of 5%
from the date each payment is applied until the date of death,
proportionately reduced to reflect withdrawals; and
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(c) the highest Accumulated Value on any Contract anniversary date prior to
the date of death, as determined after being increased for any positive
Market Value Adjustment and subsequent payments and proportionately
reduced for subsequent withdrawals.
II. Death ON OR AFTER 90th Birthday. If an Owner (or the Annuitant if the Owner
is not a natural person) dies before the Annuity Date but on or after his/her
90th birthday, the death benefit is equal to the GREATER of:
(a) the Accumulated Value on the Valuation Date that the Company receives proof
of death, increased by any positive Market Value Adjustment; or
(b) the death benefit, as calculated under Section I above, that would have been
payable on the Contract anniversary prior to the deceased's 90th birthday,
increased for subsequent payments and proportionately reduced for subsequent
withdrawals.
Proportionate reductions are calculated in the same manner as described above
under "Standard Death Benefit."
PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit
generally will be paid to the beneficiary in one sum upon receipt of due proof
of death at the Principal Office, unless the Owner has elected to apply the
proceeds to a life annuity not extending beyond the beneficiary's life
expectancy. 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 distributions over the life of the beneficiary or for a period
certain not extending beyond the beneficiary's life expectancy, with
annuity benefit payments beginning within 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 Money Market
Sub-Account. The excess, if any, of the death benefit over the Accumulated Value
also will be transferred to the Money Market Sub-Account. 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.
G. THE SPOUSE OF THE OWNER AS BENEFICIARY
If the sole beneficiary is the deceased Owner's spouse, he or she may, by
written request, continue the Contract in lieu of receiving payment of the death
benefit. The spouse will then become the Owner and Annuitant subject to the
following:
(1) any value in the Guarantee Period Accounts will be transferred to the
Money Market Sub-Account; and
(2) the excess, if any, of the death benefit over the Contract's Accumulated
Value also will be added to the Money Market Sub-Account.
The new Owner may also make additional payments. All other rights and benefits
provided in the Contract will continue, except that any subsequent spouse of the
new Owner, if named as beneficiary, will not be entitled to continue the
Contract when the new Owner dies.
H. ASSIGNMENT
The Contract, other than one sold in connection with certain qualified plans,
may be assigned by the Owner at any time prior to the Annuity Date and prior to
the death of an Owner (see FEDERAL TAX CONSIDERATIONS). The Company will not be
deemed to have knowledge of an assignment unless it is made in writing
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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.
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ANNUITIZATION -- THE PAYOUT PHASE
Subject to certain restrictions discussed below, at annuitization the Owner has
the right:
- to select the annuity payout option under which annuity benefit payments
are to be made;
- to determine whether those payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. If a variable
annuity payout option is selected, the Owner must choose an Annuity
Benefit Payment Change Frequency ("Change Frequency") and the date the
first Change Frequency will occur; and
- to select one of the available Assumed Investment Returns ("AIR") for a
variable option (see "D. Variable Annuity Benefit Payments" below for
details).
A. ELECTING THE ANNUITY DATE
Generally, annuity benefit payments under the Contract will begin on the Annuity
Date. The Annuity Date:
- may not be earlier than the first Contract Anniversary; and
- must occur on the first day of any month before the Owner's 99th birthday.
If the Owner does not select an Annuity Date, the Annuity Date will be the later
of (a) the Owner's age 85 or (b) one year after the Issue Date.
If there are Joint Owners, the age of the younger will determine the latest
possible Annuity Date. The Owner may elect to change the Annuity Date by sending
a request to the Principal Office at least one month before the earlier of the
new Annuity Date or the currently scheduled date.
If the Annuity Date occurs when the Owner is at an advanced age, it is possible
that the Contract will not be considered an annuity for federal tax purposes. In
addition, the Internal Revenue Code ("the Code") and/or the terms of qualified
plans may impose limitations on the age at which annuity benefit payments may
commence and the type of annuity payout option that may be elected. The Owner
should carefully review the Annuity Date and the annuity payout options with
his/her tax adviser. See FEDERAL TAX CONSIDERATIONS for further information.
B. CHOOSING THE ANNUITY PAYOUT OPTION
Regardless of how payments were allocated during the accumulation phase, the
Owner may choose a variable annuity payout option, a fixed annuity payout option
or a combination fixed and variable annuity payout option. Currently, all of the
variable annuity payout options described below are available and may be funded
through all of the variable Sub-Accounts. In addition, each of the variable
annuity payout options is also available on a fixed basis. The Company may offer
other annuity payout options.
The Owner may change the annuity payout option up to one month before the
Annuity Date. If the Owner fails to choose an annuity payout option, monthly
benefit payments will be made under a variable Life with Cash Back annuity
payout option.
The annuity payout option selected must result in an initial payment of at least
$100 (a lower amount may be required in certain jurisdictions.) The Company
reserves the right to increase this minimum amount. If the annuity payout option
selected does not produce an initial payment which meets this minimum, a single
payment may be made.
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FIXED ANNUITY PAYOUT OPTIONS. If the Owner selects a fixed annuity payout
option, each monthly annuity benefit payment will be equal to the first (unless
a withdrawal is made or as otherwise described under certain reduced survivor
annuity benefits.) Any portion of the Contract's Accumulated Value converted to
a fixed annuity will be held in the Company's General Account. The Contract
provides guaranteed fixed annuity option rates that determine the dollar amount
of the first payment under each form of fixed annuity for each $1,000 of applied
value. These rates are based on the Annuity 2000 Mortality Table and a 3% AIR.
The Company may offer 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 more specific information about fixed annuity payout options, see the
Contract.
VARIABLE ANNUITY PAYOUT OPTIONS. If the Owner selects a variable annuity payout
option, he/she will receive monthly payments equal to the value of the fixed
number of Annuity Units in the chosen Sub-Account(s). The first variable annuity
benefit payment will be based on the current annuity option rates made available
by the Company at the time the variable annuity payout option is selected.
Annuity option rates determine the dollar amount of the first payment for each
$1,000 of applied value. The annuity option rates are based on the Annuity 2000
Mortality Table and a 3% AIR.
Since the value of an Annuity Unit in a Sub-Account reflects the investment
performance of the Sub-Account, the amount of each monthly annuity benefit
payment will usually vary. However, under this Contract, if the Owner elects a
variable payout option, he or she must also select a monthly, quarterly,
semi-annual or annual Change Frequency. The Change Frequency is the frequency
that changes due to the Sub-Account's investment performance will be reflected
in the dollar value of a variable annuity benefit payment. As such, the Change
Frequency chosen will determine how frequently monthly variable annuity payments
will vary. For example, if a monthly Change Frequency is in effect, payments may
vary on a monthly basis. If a quarterly Change Frequency is selected, the amount
of each monthly payment may change every three months and will be level within
each three month cycle.
At the time the Change Frequency is elected, the Owner must also select the date
the first change is to occur. This date may not be later than the length of the
Change Frequency elected. For example, if a semi-annual Change Frequency is
elected, the date of the first change may not be later than six months after the
Annuity Date. If a quarterly Change Frequency is elected, the date of the first
change may not be later than three months after the Annuity Date.
C. DESCRIPTION OF ANNUITY PAYOUT OPTIONS
The Company currently provides the following annuity payout options:
LIFE ANNUITY PAYOUT OPTION
- SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life.
Payments cease with the last annuity benefit payment due prior to the
Annuitant's death.
- JOINT AND SURVIVOR ANNUITIES -- Monthly payments during the Annuitant's
and Joint Annuitant's joint lifetimes. Upon the first death, payments will
continue for the remaining lifetime of the survivor at a previously
elected level of 100%, two-thirds or one-half of the total number of
Annuity Units.
LIFE WITH PERIOD CERTAIN ANNUITY PAYOUT OPTION
- SINGLE LIFE ANNUITY -- Monthly payments guaranteed for a specified number
of years and continuing thereafter during the Annuitant's lifetime. If the
Annuitant dies before all guaranteed payments have been made, the
remaining payments continue to the Owner or the Beneficiary (whichever is
applicable).
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- JOINT AND SURVIVOR ANNUITIES -- Monthly payments guaranteed for a
specified number of years and continuing during the Annuitant's and Joint
Annuitant's joint lifetimes. Upon the first death, payments continue for
the survivor's remaining lifetime at the previously elected level of 100%,
two-thirds or one-half of the Annuity Units. If the surviving Annuitant
dies before all guaranteed payments have been made, the remaining payments
continue to the Owner or the Beneficiary (whichever is applicable).
LIFE WITH CASH BACK ANNUITY PAYOUT OPTION
- SINGLE LIFE ANNUITY -- Monthly payments during the Annuitant's life.
Thereafter, any excess of the originally applied Annuity Value, over the
total amount of annuity benefit payments made and withdrawals taken, will
be paid to the Owner or the Beneficiary (whichever is applicable).
- JOINT AND SURVIVOR ANNUITIES -- Monthly payments during the Annuitant's
and Joint Annuitant's joint lifetimes. At the first death, payments
continue for the survivor's remaining lifetime at the previously elected
level of 100%, two-thirds or one-half of the Annuity Units. Thereafter,
any excess of the original applied Annuity Value, over the total amount of
annuity benefit payments made and withdrawals taken, will be paid to the
Owner or the Beneficiary (whichever is applicable).
PERIOD CERTAIN ANNUITY PAYOUT OPTION
Monthly annuity benefit payments for a chosen number of years ranging from five
to thirty are paid. If the Annuitant dies before the end of the period,
remaining payments will continue. 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.
D. VARIABLE ANNUITY BENEFIT PAYMENTS
THE ANNUITY UNIT. On and after the Annuity Date, the Annuity Unit is a measure
of the value of the monthly annuity benefit payments under a variable annuity
option. The value of an Annuity Unit in each Sub-Account on its inception date
was set at $1.00. The value of an Annuity Unit of a Sub-Account on any Valuation
Date thereafter is equal to the value of the Annuity Unit on the immediately
preceding Valuation Date multiplied by the product of:
(1) a discount factor equivalent to the AIR and
(2) the Net Investment Factor of the Sub-Account funding the annuity benefit
payments for the applicable Valuation Period.
Annuity benefit payments will increase from one payment date to the next if the
annualized net rate of return during that period is greater than the AIR and
will decrease if the annualized net rate of return is less than the AIR. Where
permitted by law, the Owner may select an AIR of 3%, 5%, or 7%. A higher AIR
will result in a higher initial payment. However, subsequent payments will
increase more slowly during periods when actual investment performance exceeds
the AIR and will decrease more rapidly during periods when investment
performance is less than the AIR.
DETERMINATION OF THE FIRST ANNUITY BENEFIT PAYMENT. The amount of the first
periodic variable annuity benefit payment depends on the:
- annuity payout option chosen;
- length of the annuity payout option elected;
- age of the Annuitant;
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- gender of the Annuitant (if applicable, see "H. NORRIS Decision");
- value of the amount applied under the annuity payout option;
- applicable annuity option rates based on the Annuity 2000 Mortality Table;
and
- AIR selected.
The dollar amount of the first periodic annuity benefit payment 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, (or the amount of
the death benefit, if applicable) divided by $1,000, by
(2) the applicable amount of the first monthly payment per $1,000 of value.
DETERMINATION OF THE NUMBER OF ANNUITY UNITS. The dollar amount of the first
variable annuity benefit payment is then divided by the value of an Annuity Unit
of the selected Sub-Account(s) to determine the number of Annuity Units
represented by the first payment. The number of Annuity Units remains fixed
under all annuity payout options (except for the survivor annuity benefit
payment under the joint and two-thirds or joint and one-half option) unless the
Owner transfers among Sub-Accounts, makes a withdrawal, or units are split.
DOLLAR AMOUNT OF SUBSEQUENT VARIABLE ANNUITY BENEFIT PAYMENTS. 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. The dollar amount of each
periodic variable annuity benefit payment after the first will vary with
subsequent variations in the value of the Annuity Unit of the selected
Sub-Account(s).
For an illustration of the calculation of a variable annuity benefit payment
using a hypothetical example, see "Annuity Benefit Payments" in the SAI.
PAYMENT OF ANNUITY BENEFIT PAYMENTS. The Owner will receive the annuity benefit
payments unless he/ she requests in writing that payments be made to another
person, persons, or entity. If the Owner (or, if there are Joint Owners, the
surviving Joint Owner) dies on or after the Annuity Date, the beneficiary will
become the Owner of the Contract. Any remaining annuity benefit payments will
continue to the beneficiary in accordance with the terms of the annuity benefit
payment option selected. If there are Joint Owners on or after the Annuity Date,
upon the first Owner's death, any remaining annuity benefit payments will
continue to the surviving Joint Owner in accordance with the terms of the
annuity benefit payment option selected.
If an Annuitant dies on or after the Annuity Date but before all guaranteed
annuity benefit payments have been made, any remaining payments will continue to
be paid to the Owner or the payee the Owner has designated. Unless otherwise
indicated by the Owner, the present value of any remaining guaranteed annuity
benefit payments may be paid in a single sum to the Owner. For discussion of
present value calculation, see "Calculation of Present Value" below.
E. TRANSFERS OF ANNUITY UNITS
After the Annuity Date and prior to the death of the Annuitant, the Owner may
transfer among the available Sub-Accounts 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. A designated
number of Annuity Units equal to the dollar amount of the transfer requested
will be exchanged for an equivalent dollar amount of Annuity Units of another
Sub-Account. Transfer values will be based on the Annuity Value next computed
after receipt of the transfer request.
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Currently, the Company does not 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.
Automatic transfers (Dollar Cost Averaging) are available during the
annuitization phase subject to the same rules described in "D. Transfer
Privilege" except that the Fixed Account is not available as a source account.
F. WITHDRAWALS AFTER THE ANNUITY DATE
WITHDRAWALS AFTER THE ANNUITY DATE FROM QUALIFIED AND NON-QUALIFIED CONTRACTS
MAY HAVE ADVERSE TAX CONSEQUENCES. BEFORE MAKING A WITHDRAWAL, PLEASE CONSULT
YOUR TAX ADVISOR AND SEE FEDERAL TAX CONSIDERATIONS, "C. TAXATION OF THE
CONTRACT IN GENERAL," "WITHDRAWALS AFTER ANNUITIZATION."
After the Annuity Date and prior to the death of the Annuitant, the Owner may
take withdrawals from the Contract. The Owner must submit to the Principal
Office a signed, written request indicating the desired dollar amount of the
withdrawal. The minimum amount of a withdrawal is $1,000. If the amount
requested is greater than the maximum amount that may be withdrawn at that time,
the Company will allow the withdrawal only up to the maximum amount.
The type of withdrawal and the number of withdrawals that may be made each
calendar year depend upon whether the Owner annuitizes under an annuity payout
option with payments based on the life of one or more Annuitants with no
guaranteed payments (a "Life" annuity payout option), under a life annuity
payout option that in part provides for a guaranteed number of payments (a "Life
With Period Certain" or "Life With Cash Back" annuity payout option), or an
annuity payout option based on a guaranteed number of payments (a "Period
Certain" annuity payout option).
WITHDRAWALS UNDER LIFE ANNUITY PAYOUT OPTIONS
The Owner may make one Payment Withdrawal in each calendar year. A Payment
Withdrawal cannot exceed the previous monthly annuity benefit payment multiplied
by ten (10). The amount of each Payment Withdrawal represents a percentage of
the present value of the remaining annuity benefit payments.
WITHDRAWALS UNDER LIFE WITH PERIOD CERTAIN OR LIFE WITH CASH BACK ANNUITY PAYOUT
OPTIONS
The Owner may make one Payment Withdrawal in each calendar year. A Payment
Withdrawal cannot exceed the previous monthly annuity benefit payment multiplied
by ten (10). The amount of each Payment Withdrawal represents a percentage of
the present value of the remaining annuity benefit payments.
The Owner may make one Present Value Withdrawal in each calendar year, if there
are remaining GUARANTEED annuity benefit payments. The amount of each Present
Value Withdrawal represents a percentage of the present value of the remaining
guaranteed annuity benefit payments. Each year a Present Value Withdrawal is
taken, the Company records the percentage of the present value of the then
remaining guaranteed annuity benefit payments that was withdrawn. The total
percentage withdrawn over the life of the Contract cannot exceed 75%. This means
that each Present Value Withdrawal is limited by the remaining available
percentage. (For example, assume that in year three the Owner withdraws 15% of
the then current present value of the remaining guaranteed annuity benefit
payments. In year seven, the Owner withdraws 20% of the then current present
value of the remaining guaranteed annuity benefit payments. Through year seven
the total percentage withdrawn is 35%. After year seven, the Owner may make
Present Value Withdrawal(s) of up to 40% (75% - 35%) of the present value of any
remaining guaranteed annuity benefit payments).
Under a Life with Period Certain annuity payout option or Life with Cash Back
annuity payout option, if the Annuitant is still living after the guaranteed
annuity benefit payments have been made, the number of Annuity
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Units or dollar amount applied to future annuity benefit payments will be
restored as if no Present Value Withdrawal(s) had taken place. See "Calculation
of Proportionate Reduction -- Present Value Withdrawals," below.
WITHDRAWALS UNDER PERIOD CERTAIN ANNUITY PAYOUT OPTIONS
The Owner may make multiple Present Value Withdrawals in each calendar year, up
to 100% of the present value of the guaranteed annuity benefit payments.
Withdrawal of 100% of the present value of the guaranteed annuity benefit
payments will result in termination of the Contract.
The amount of each Payment Withdrawal or Present Value Withdrawal represents a
portion of the present value of the remaining annuity benefit payments or
remaining guaranteed annuity benefit payments, respectively, and proportionately
reduces the number of Annuity Units (under a variable annuity payout option) or
dollar amount (under a fixed annuity payout option) applied to future annuity
benefit payments. Because each variable annuity benefit payment is determined by
multiplying the number of Annuity Units by the value of an Annuity Unit, the
reduction in the number of Annuity Units will result in lower future variable
annuity benefit payments. See "Calculation of Proportionate Reduction," below.
The present value is calculated with a discount rate that will include an
additional charge if a withdrawal is taken within 5 years of the Issue Date. See
"Calculation of Present Value," below.
CALCULATION OF PROPORTIONATE REDUCTION. Each Payment Withdrawal proportionately
reduces the number of Annuity Units applied to each future variable annuity
benefit payment or the dollar amount applied to each future fixed annuity
benefit payment. Each Present Value Withdrawal proportionately reduces the
number of Annuity Units applied to each future GUARANTEED variable annuity
benefit payment or the dollar amount applied to each future GUARANTEED fixed
annuity benefit payment. Because each variable annuity benefit payment is
determined by multiplying the number of Annuity Units by the value of an Annuity
Unit, the reduction in the number of Annuity Units will result in lower future
variable annuity benefit payments.
PAYMENT WITHDRAWALS. Payment Withdrawals are available under Life, Life with
Period Certain, or Life with Cash Back annuity payout options. The Owner may
make one Payment Withdrawal in each calendar year.
Under a variable annuity payout option, the proportionate reduction in Annuity
Units is calculated by multiplying the number of Annuity Units in each future
variable annuity benefit payment (determined immediately prior to the
withdrawal) by the following fraction:
Amount of the variable withdrawal
----------------------------------------------
Present value of all remaining variable annuity
benefit payments immediately prior to the withdrawal
Because each variable annuity benefit payment is determined by multiplying the
number of Annuity Units by the value of an Annuity Unit, the reduction in the
number of Annuity Units will result in lower future variable annuity benefit
payments.
Under a fixed annuity payout option, the proportionate reduction is calculated
by multiplying the dollar amount of each future fixed annuity benefit payment by
a similar fraction, which is based on the amount of the fixed withdrawal and
present value of remaining fixed annuity benefit payments.
If a withdrawal is taken within 5 years of the Issue Date, the discount rate
used to calculate the present value will include an additional charge. See
"Calculation of Present Value," below.
PRESENT VALUE WITHDRAWALS. Present Value Withdrawals are available under Life
with Period Certain or Life with Cash Back annuity payout options (the Owner may
make one Present Value Withdrawal in each
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calendar year, if there are remaining guaranteed annuity benefit payments) and
under Period Certain annuity payout options (the Owner may make multiple Present
Value Withdrawals in each calendar year).
Under a variable annuity payout option, the proportionate reduction in Annuity
Units is calculated by multiplying the number of Annuity Units in each future
variable guaranteed annuity benefit payment (determined immediately prior to the
withdrawal) by the following fraction:
Amount of the variable withdrawal
----------------------------------------------
Present value of all remaining variable annuity
benefit payments immediately prior to the withdrawal
Under a fixed annuity payout option, the proportionate reduction is calculated
by multiplying the dollar amount of each future fixed annuity benefit payment by
a similar fraction, which is based on the amount of the fixed withdrawal and
present value of remaining guaranteed fixed annuity benefit payments.
Because each variable annuity benefit payment is determined by multiplying the
number of Annuity Units by the value of an Annuity Unit, the reduction in the
number of Annuity Units will result in lower variable annuity benefit payments
with respect to the guaranteed payments. Under a fixed annuity payout option,
the proportionate reduction will result in lower fixed annuity benefit payments
with respect to the guaranteed payments. However, under a Life with Period
Certain annuity payout option or Life with Cash Back annuity payout option, if
the Annuitant is still living after the guaranteed number of annuity benefit
payments has been made, the number of Annuity Units or dollar amount of future
annuity benefit payments will be restored as if no Present Value Withdrawal(s)
had taken place.
If a withdrawal is taken within 5 years of the Issue Date, the discount rate
used to calculate the present value will include an additional charge. See
"Calculation of Present Value," below.
CALCULATION OF PRESENT VALUE. When a withdrawal is taken, the present value of
future annuity benefit payments is calculated based on an assumed mortality
table and a discount rate. The mortality table that is used will be equal to the
mortality table used at the time of annuitization to determine the annuity
benefit payments (currently the Annuity 2000 Mortality Table with male, female,
or unisex rates, as appropriate). The discount rate is the AIR (for a variable
annuity payout option) or the interest rate (for a fixed annuity payout option)
that was used at the time of annuitization to determine the annuity benefit
payments.
For each Payment Withdrawal, the number of years of annuity benefit payments
being valued depends upon the life expectancy of the Annuitant at the time of
the withdrawal. The life expectancy will be determined by a mortality table that
will be equal to the mortality table used at the time of annuitization to
determine the annuity benefit payments (currently the Annuity 2000 Mortality
Table).
Carefully consider the following before making a withdrawal (especially if you
are making the withdrawal under a Life with Period Certain or Life with Cash
Back annuity payout option):
- For a Payment Withdrawal, the present value calculation (including any
applicable adjustments) affects the proportionate reduction of the
remaining number of Annuity Units (under a variable annuity payout option)
or dollar amount (under a fixed annuity payout option), applied to each
future annuity benefit payment, as explained in "Calculation of
Proportionate Reduction -- Payment Withdrawals," above. There will be a
proportionate reduction in the number of Annuity Units or the dollar
amount applied to each future annuity benefit payment. This will result in
lower future annuity benefit payments, all other things being equal.
- For a Present Value Withdrawal, the discount factor is used in determining
the maximum amount that can be withdrawn under the present value
calculation. In addition, there will be a proportionate reduction in the
number of Annuity Units or the dollar amount applied to each future
guaranteed
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annuity benefit payment. This will result in lower future annuity benefit
payments with respect to the guaranteed payments, all other things being
equal. See "Calculation of Proportionate Reduction -- Present Value
Withdrawals," above.
For examples comparing a Payment Withdrawal and a Present Value Withdrawal, see
APPENDIX D -- EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS.
DEFERRAL OF WITHDRAWALS. A withdrawal is normally payable within seven days
following the Company's receipt of the withdrawal request. However, the Company
reserves the right to defer withdrawals of amounts in each Sub-Account in any
period during which:
- 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;
- the SEC has by order permitted such suspension; or
- 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 Company reserves the right to defer withdrawals of amounts allocated to the
Company's General Account for a period not to exceed six months.
G. REVERSAL OF ANNUITIZATION
The Owner may reverse the decision to annuitize by written request to the
Company within 90 days of the Annuity Date. Upon receipt of such request, the
Company will return the Contract to the Accumulation Phase, subject to the
following:
(1) The value applied under a fixed annuity payout option at the time of
annuitization will be treated as if it had been invested in the Fixed
Account of the Contract on that same date.
(2) The Sub-Account allocations that were in effect at the time of
annuitization will first be used for calculating the reversal. Any
transfers between variable Sub-Accounts during the Annuity Payout phase
will then be treated as transfers during the Accumulation Phase (As a
result, the Contract's Accumulated Value after the reversal will reflect
the same Sub-Account allocations that were in effect immediately prior to
the reversal).
(3) Any annuity benefit payments paid and any withdrawals taken during the
Annuity Payout phase will be treated as a withdrawal of the Surrender
Value in the Accumulation Phase, as of the date of the payment or
withdrawal. There may be adverse tax consequences resulting from these
withdrawals. See FEDERAL TAX CONSIDERATIONS, "C. Taxation of the Contract
in General."
If the Company learns of the Owner's decision to reverse annuitization after the
maximum Annuity Date permitted under the Contract, the Company will contact the
Owner. The Owner must then immediately select an annuity payout option (either
the original annuity payout option or a different annuity payout option). If the
Owner does not select an annuity payout option, payments will begin under a
variable Life with Cash Back annuity payout option.
H. 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 NORRIS decision will be based on unisex rates.
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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 Underlying
Funds.
A. VARIABLE ACCOUNT DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE. The Company assesses a charge against the
assets of each Sub-Account to compensate for certain mortality and expense risks
it has assumed. The mortality and expense risk charge is assessed daily at an
annual rate of 0.65% of each Sub-Account's assets. The charge is imposed during
both the accumulation phase and the annuity payout 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
payout option selected), no matter how long the Annuitant lives and no matter
how long all Annuitants as a class live. The mortality charge is deducted during
the annuity payout 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.
This charge may not be increased. Since mortality and expense risks involve
future contingencies that 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.
ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account with a
daily Administrative Expense Charge at an annual rate of 0.15% of the average
daily net assets of the Sub-Account. The charge is imposed during both the
accumulation phase and the annuity payout phase and may not be increased. The
daily Administrative Expense Charge is assessed to help defray administrative
expenses actually incurred in the administration of the Sub-Account. 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 (described below under "B. Contract 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 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
prospectuses and SAIs of the Underlying Funds contain additional information
concerning expenses of the Underlying Funds.
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B. CONTRACT FEE
A $35 Contract fee (a lower fee may apply in some states) currently is deducted
during the accumulation phase, on the Contract anniversary date and upon full
surrender of the Contract if the Accumulated Value on any of these dates is less
than $75,000.
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 portion of
the charge deducted from that Sub-Account.
Where permitted by law, the Contract fee also may be waived for Contracts where,
on the Issue Date, either the Owner or the Annuitant is within the following
class of individuals: employees and registered representatives of any
broker-dealer which has entered into a sales agreement with the Company to sell
the Contract; employees of the Company, its affiliates and subsidiaries;
officers, directors, trustees and employees of any of the Underlying Funds;
investment managers or sub-advisers of the Underlying Funds; and the spouses of
and immediate family members residing in the same household with such eligible
persons. "Immediate family members" means children, siblings, parents and
grandparents.
C. OPTIONAL RIDER CHARGE
Subject to state availability, the Company offers a rider that is available only
if elected by the Owner at issue. A separate monthly charge is made for the
Rider through a pro-rata reduction of the Accumulated Value of the Sub-Accounts,
the Fixed Account and the Guarantee Period Accounts. The pro-rata reduction is
based on the relative value that the Accumulation Units of the Sub-Accounts, the
dollar amounts in the Fixed Account and the dollar amounts in the Guarantee
Period Accounts bear to the total Accumulated Value.
The applicable charge for the Rider is assessed on the Accumulated Value on the
last day of each Contract month multiplied by 1/12th of the following annual
percentage rate:
<TABLE>
<S> <C>
5% Enhanced Death Benefit With Annual Step-Up............... 0.25%
</TABLE>
For a description of the Rider, see "Optional Enhanced Death Benefit Rider"
under "F. Death Benefit," DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION PHASE,
above.
D. 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 a Contract at the time 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.
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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.
E. TRANSFER CHARGE
The Company currently does not assess a charge for processing transfers. The
Company guarantees that the first 12 transfers in a Contract year will be free
of a transfer charge, but reserves the right to assess a charge, guaranteed
never to exceed $25, for each subsequent transfer in a Contract year to
reimburse it for the expense of processing transfers. For more information, see
"D. Transfer Privilege" under DESCRIPTION OF THE CONTRACT -- THE ACCUMULATION
PHASE and "E. Transfers of Annuity Units" under ANNUITIZATION -- THE PAYOUT
PHASE.
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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 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 this 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 except in
California where it is accounted for in the Company's General 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 its Guarantee Period. In no event will the Guaranteed Interest
Rate be less than 3%. The Guarantee Period Accounts are not available in New
York, Oregon, Maryland, and Pennsylvania.
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 Sub-Account.
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 at the
then current rate unless (1) less than $1,000 would remain in the Guarantee
Period Account on the expiration date, or (2) unless 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 Sub-Account investing
in the Money Market Sub-Account. Where amounts have been renewed automatically
in a new Guarantee Period, the Company will give the Owner an additional 30 days
to transfer out of the Guarantee Period Account without application of a Market
Value Adjustment.
MARKET VALUE ADJUSTMENT. No Market Value Adjustment will be applied to
transfers, withdrawals, or 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 "F. 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 value. Amounts
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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 by the market
value factor. The market value factor for each Guarantee Period Account is equal
to:
[(1+i)/(1+j)]to the power of 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%. 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 C -- THE MARKET VALUE
ADJUSTMENT.
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 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 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.
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FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a 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.
A. GENERAL
THE COMPANY. 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 was 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.
DIVERSIFICATION REQUIREMENTS. The IRS has issued regulations under Section
817(h) of the Code relating to the diversification requirements for variable
annuity and variable life insurance contracts. The regulations prescribed by the
Treasury Department 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. Under this section of the Code, if
the investments are not adequately diversified, the Contract will not be treated
as an annuity contract, and therefore 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 Underlying Portfolios 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.
INVESTOR CONTROL. In order for a variable annuity contract to qualify for tax
deferral, the Company, and not the variable contract owner, must be considered
to be the owner for tax purposes of the assets in the segregated asset account
underlying the variable annuity contract. In certain circumstances, however,
variable annuity contract owners may now be considered the owners of these
assets for federal income tax purposes. Specifically, the IRS has stated in
published rulings that a variable annuity contract owner may be considered the
owner of segregated account assets if the contract owner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection with
the issuance of regulations concerning investment diversification, that those
regulations do not provide guidance governing the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor (i.e., the contract owner), rather than the insurance company, to be
treated as the owner of the assets in the account. This announcement also states
that guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their
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investments to particular sub-accounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued. The Company therefore additionally reserves the right to modify the
Contract as necessary in order to attempt to prevent a contract owner from being
considered the owner of a pro rata share of the assets of the segregated asset
account underlying the variable annuity contracts.
B. 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 408 and 408A 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 "E. Individual Retirement Annuities" below.
C. TAXATION OF THE CONTRACT IN GENERAL
The Company believes that the Contract described in this Prospectus will, with
certain exceptions (see "Nonnatural Owner" below), be considered an annuity
contract under Section 72 of the Code. Please note, however, if the Owner
chooses an Annuity Date beyond the Owner's 85th birthday, it is possible that
the Contract may not be considered an annuity for tax purposes, and therefore,
the Owner will be taxed on the annual increase in Accumulated Value. The Owner
should consult tax and financial advisors for more information. 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. 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.
WITHDRAWALS AFTER ANNUITIZATION. A withdrawal from a qualified or non-qualified
Contract may create significant adverse tax consequences. It is possible that
the Internal Revenue Service may take the view that when withdrawals (other than
annuity payments) are taken during the annuity payout phase of the Contract, all
amounts received by the taxpayer may be taxable at ordinary income rates as
amounts "not received as an annuity." In addition, such amounts may be taxable
to the recipient without regard to the Owner's investment in the Contract or any
investment gain that might be present in the current Annuity Value.
For example, assume that a Contract owner with a Contract Value of $100,000 of
which $90,000 is comprised of investment in the Contract and $10,000 is
investment gain, makes a withdrawal of $20,000 during the annuity payout phase.
Under this view, the Contract owner would pay income taxes on the entire $20,000
amount in that tax year. For some taxpayers, such as those under age 59 1/2,
additional tax penalties may also apply.
OWNERS OF QUALIFIED AND NON-QUALIFIED CONTRACTS SHOULD CONSIDER CAREFULLY THE
TAX IMPLICATIONS OF ANY WITHDRAWAL REQUESTS AND THEIR NEED FOR CONTRACT FUNDS
PRIOR TO THE EXERCISE OF THE WITHDRAWAL RIGHT. CONTRACT OWNERS SHOULD ALSO
CONTACT THEIR TAX ADVISER PRIOR TO MAKING WITHDRAWALS.
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ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments begin 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 cost basis is recovered, a deduction for the difference is allowed on the
Owner'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); or
- 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.
The requirement of "substantially equal" periodic payments 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 is also 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 later of 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 contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy, 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 any LED-type option prior to age 591/2
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 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.
NONNATURAL OWNERS. As a general rule, deferred annuity contracts owned by
"nonnatural 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.
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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.
D. 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.
E. INDIVIDUAL RETIREMENT ANNUITIES
Federal income taxation of assets held inside an individual retirement annuity
and of earnings on those assets is deferred until distribution of plan benefits
begin. As such, it is not necessary to purchase a variable annuity contract
solely to obtain its tax deferral feature. However, other features offered under
this Contract and described in this Prospectus -- such as the minimum guaranteed
death benefit, the guaranteed fixed annuity rates and the wide variety of
investment options -- may make this Contract a suitable investment for your
individual retirement annuity.
Sections 408 and 408A 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 Sections 408 and 408A
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 cancel the Contract as described in this Prospectus. See "C. Right to
Cancel."
Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) 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.
STATEMENTS AND REPORTS
An Owner is sent a report semi-annually which provides certain financial
information about the Underlying Funds. At least annually, but possibly as
frequently as quarterly, the Company will furnish a statement to the Owner
containing information about his or her Contract, including Accumulation Unit
Values and other information as required by applicable law, rules and
regulations. The Company will also send a confirmation statement to Owners each
time a transaction is made affecting the Contract Value. (Certain transactions
made under recurring payment plans may in the future be confirmed quarterly
rather than by immediate confirmations.) The Owner should review the information
in all statements carefully. All errors or corrections must be reported to the
Company immediately to assure proper crediting to the Contract. The Company will
assume that all transactions are accurately reported on confirmation statements
and quarterly/annual statements unless the Owner notifies the Principal Office
in writing within 30 days after receipt of the statement.
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
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any Underlying Fund 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 a 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 variable accounts of the
Company and its affiliates which issue variable life contracts ("mixed
funding"). Shares of the Underlying 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 the Company and the Underlying Funds
do not currently foresee 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
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.
The Company reserves the right, subject to compliance with applicable law, to:
(1) transfer assets from the Variable Account or Sub-Account to another of
the Company's variable 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 Fund shares held by a Sub-Account, in the event that Fund shares are
unavailable for investment, or if the Company determines that further
investment in such Fund shares is inappropriate in view of the purpose of
the Sub-Account,
(5) to change the methodology for determining the net investment factor,
(6) to change the names of the Variable Account or of the Sub-Accounts. In
no event will the changes described be made without notice to Owners in
accordance with the 1940 Act, and
(7) to combine with other Sub-Accounts or other Separate Accounts of the
Company.
If any of these substitutions or changes are made, the Company may endorse the
Contract to reflect the substitution or change, and will notify Owners of all
such changes. In no event will the changes described above be made without
notice to Owners in accordance with the 1940 Act.
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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 (or any laws, regulations or rules of any
jurisdiction in which the Company is doing business), including but not limited
to requirements for annuity contracts and retirement plans under the Code and
pertinent regulations or any state statute or regulation. Any such changes will
apply uniformly to all Contracts that are affected. Owners will be given written
notice of such changes.
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Sub-Account in
accordance with instructions received from Owners. 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 that are received. The Company also will vote
shares in a Sub-Account that it owns and which are not attributable to Contracts
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 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 Owner will be determined by dividing the reserve held in
each Sub-Account for the Owner's Variable Annuity by the net asset value of one
Underlying Fund share. Ordinarily, the Owner'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
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 that are NASD members.
The Company does not pay commissions to representatives of Allmerica
Investments, Inc. or to independent broker-dealers who sell the Contract.
However, a representative of Allmerica Investments, Inc. or an independent
broker-dealer may assess an advisory fee as compensation for his or her
services. To the extent permitted by NASD rules, promotional incentives or
payments may be provided to such broker-dealers based on sales volumes, the
assumption of wholesaling functions, or other sales-related criteria. Additional
payments may be made for other services not directly related to the sale of the
Contract, including the recruitment and training of personnel, production of
promotional literature, and similar services.
The Company intends to recoup the cost of promotional and other sales expenses
through profits from the Company's General Account, which may include amounts
derived from mortality and risk charges.
Owners may direct any inquiries to their financial representative or to
Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653, telephone
1-800-533-7881.
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LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party,
or to which the assets of the Variable Account are subject. The Company and the
Principal Underwriter are not involved in any litigation that is of material
importance in relation to its total assets or that relates to the Separate
Account.
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.
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APPENDIX A
MORE INFORMATION ABOUT THE FIXED ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the Fixed Account generally are not subject to regulation under the
provisions of the 1933 Act or the 1940 Act. Disclosures regarding the fixed
portion of the annuity Contract and the Fixed Account may be subject to the
provisions of the 1933 Act concerning the accuracy and completeness of
statements made in this Prospectus. The disclosures in this APPENDIX A have not
been reviewed by the SEC.
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 a
separate account. 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 Contract, 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.
STATE RESTRICTIONS. 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 a 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
a Contract is issued after the Annuitant's 81st birthday, no
payments to the Fixed Account will be permitted at any time.
In Oregon, no payments to the Fixed Account will be permitted if a Contract is
issued after the Annuitant's 81st birthday. 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 Sub-Account.
ENHANCED AUTOMATIC TRANSFER (DOLLAR COST AVERAGING) PROGRAMS. To the extent
permitted by law, the Company reserves the right to offer Enhanced Automatic
Transfer Program(s) from time to time. If you elect to participate, the Company
will credit an enhanced interest rate to payments made to the Enhanced Automatic
Transfer Program. Eligible payments:
- must be new payments to the Contract, including the initial payment,
- must be allocated to the Fixed Account, which will be the source account,
- must be automatically transferred out of the Fixed Account to one or more
Sub-Accounts over a specified time period and
- will receive the enhanced rate while they remain in the Fixed Account.
You may be able to establish more than one Enhanced Automatic Transfer Program.
Payments made to the Contract during the same month will be part of the same
Enhanced Automatic Transfer Program if the length of the time period is the same
and the enhanced rate is the same. The allocation for all of the amounts in the
same program will be in accordance with the instructions for the most recent
payment to this program. The monthly transfer will be made on the date
designated for the initial payment to this program. The amount allocated will be
determined by dividing the amount in the program by the number of remaining
months. For example, for a six-month program, the first automatic transfer will
be 1/6th of the balance; the second automatic transfer will be 1/5th of the
balance, and so on.
Payments to different Enhanced Automatic Transfer Programs will be handled in
accordance with the instructions for each particular program.
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APPENDIX B
PERFORMANCE INFORMATION
This Contract was first offered to the public in 2000. However, in order to help
people understand how investment performance can affect money invested in the
Sub-Accounts, the Company may advertise "total return" and "average annual total
return" performance information based on (1) the periods that the Sub-Accounts
have been in existence and (2) the periods that the Underlying Funds have been
in existence. Performance results in the Table 1 reflect the applicable
deductions for the Contract fee, Sub-Account charges and Underlying Fund charges
under this Contract and also assume that the Contract is surrendered at the end
of the applicable period. Performance results in Table 2 do not include the
Contract fee and assume that the Contract is not surrendered at the end of the
applicable period. Neither set of tables include optional Rider charges. 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.
Quotations of average annual total return as shown in the Table 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 0.80%, the
effect of the $35 annual Contract fee, and the Underlying Fund charges which
would be assessed if the investment were completely withdrawn at the end of the
specified period. The calculation is not adjusted to reflect the deduction of
any optional Rider charges. Quotations of supplemental average total returns, as
shown in Table 2, are calculated in exactly the same manner and for the same
periods of time except that it does not reflect the Contract fee and assumes
that the Contract is not surrendered at the end of the periods shown.
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
B-1
<PAGE>
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; or
(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. In
addition, relevant broad-based indices and performance from independent
sources may be used to illustrate the performance of certain Contract
features.
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.
B-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
TABLE 1
AVERAGE ANNUAL TOTAL RETURNS OF SUB--ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND*
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR
UNDERLYING FUND ENDED 10 YEARS OR SINCE
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS INCEPTION IF LESS
- ---------------------------------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
AIT Money Market Fund................. 4/29/85 4.33% 4.60% 4.34%
AIM V.I. Blue Chip Fund............... 12/29/99 N/A N/A N/A
Alliance Growth Portfolio............. N/A N/A N/A N/A
Deutsche VIT EAFE Equity Index Fund... 8/22/97 26.67% N/A 15.88%
Deutsche VIT Equity 500 Index Fund.... 10/1/97 19.49% N/A 21.25%
Deutsche VIT Small Cap Index Fund..... 8/25/97 19.26% N/A 8.30%
DGPF Select Growth Series............. 5/3/99 N/A N/A 41.74%
Fidelity VIP II Contrafund Portfolio... 1/3/95 23.25% N/A 26.70%
Fidelity VIP III Growth & Income
Portfolio............................ 12/31/96 8.28% N/A 21.14%
Fidelity VIP III Mid Cap Portfolio.... 12/28/98 47.83% N/A 50.65%
Templeton Developing Markets Securities
Fund................................. 3/4/96 52.18% N/A -4.65%
INVESCO VIF Dynamics Fund............. 8/25/97 54.35% N/A 30.62%
Janice Aspen Aggressive Growth
Portfolio............................ 9/13/93 123.58% 35.13% 33.19%
Janice Aspen Capital Appreciation
Portfolio............................ 5/1/97 65.65% N/A 55.75%
Janus Aspen International Growth
Portfolio............................ 5/2/94 80.80% 32.17% 27.07%
Kemper Government Securities
Portfolio............................ 9/3/87 -0.13% 6.59% 6.24%
Pioneer Fund VCT Portfolio............ 10/31/97 14.96% N/A 20.71%
</TABLE>
TABLE 2
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND*
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR
UNDERLYING FUND ENDED 10 YEARS OR SINCE
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS INCEPTION IF LESS
- ---------------------------------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
AIT Money Market Fund................. 4/29/85 4.35% 4.61% 4.36%
AIM V.I. Blue Chip Fund............... 12/29/99 N/A N/A N/A
Alliance Growth Portfolio............. N/A N/A N/A N/A
Deutsche VIT EAFE Equity Index Fund... 8/22/97 26.69% N/A 15.91%
Deutsche VIT Equity 500 Index Fund.... 10/1/97 19.51% N/A 21.27%
Deutsche VIT Small Cap Index Fund..... 8/25/97 19.28% N/A 8.33%
DGPF Select Growth Series............. 5/3/99 N/A N/A 41.76%
Fidelity VIP II Contrafund Portfolio... 1/3/95 23.26% N/A 26.71%
Fidelity VIP III Growth & Income
Portfolio............................ 12/31/96 8.29% N/A 21.16%
Fidelity VIP III Mid Cap Portfolio.... 12/28/98 47.85% N/A 50.70%
Templeton Developing Markets Securities
Fund................................. 3/4/96 52.22% N/A -4.63%
INVESCO VIF Dynamics Fund............. 8/25/97 54.36% N/A 30.64%
Janice Aspen Aggressive Growth
Portfolio............................ 9/13/93 123.59% 35.14% 33.21%
Janice Aspen Capital Appreciation
Portfolio............................ 5/1/97 65.66% N/A 55.77%
Janus Aspen International Growth
Portfolio............................ 5/2/94 80.81% 32.19% 27.09%
Kemper Government Securities
Portfolio............................ 9/3/87 -0.12% 6.60% 6.26%
Pioneer Fund VCT Portfolio............ 10/31/97 14.98% N/A 20.74%
</TABLE>
*While this Contract utilizes an existing Separate Account, the Sub-Accounts are
new so there are no historical figures available.
B-3
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
TABLE 1
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND*
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR
UNDERLYING FUND ENDED 10 YEARS OR SINCE
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS INCEPTION IF LESS
- ---------------------------------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
AIT Money Market Fund................. 4/29/85 4.33% 4.60% 4.35%
AIM V.I. Blue Chip Fund............... 12/29/99 N/A N/A N/A
Alliance Growth Portfolio............. N/A N/A N/A N/A
Deutsche VIT EAFE Equity Index Fund... 8/22/97 26.68% N/A 15.89%
Deutsche VIT Equity 500 Index Fund.... 10/1/97 19.49% N/A 21.25%
Deutsche VIT Small Cap Index Fund..... 8/25/97 19.27% N/A 8.31%
DGPF Select Growth Series............. 5/3/99 N/A N/A 41.74%
Fidelity VIP II Contrafund Portfolio... 1/3/95 23.25% N/A 26.70%
Fidelity VIP III Growth & Income
Portfolio............................ 12/31/96 8.28% N/A 21.15%
Fidelity VIP III Mid Cap Portfolio.... 12/28/98 47.83% N/A 50.66%
Templeton Developing Markets Securities
Fund................................. 3/4/96 52.19% N/A -4.65%
INVESCO VIF Dynamics Fund............. 8/25/97 54.35% N/A 30.62%
Janice Aspen Aggressive Growth
Portfolio............................ 9/13/93 123.58% 35.13% 33.19%
Janice Aspen Capital Appreciation
Portfolio............................ 5/1/97 65.65% N/A 55.75%
Janus Aspen International Growth
Portfolio............................ 5/2/94 80.80% 32.17% 27.07%
Kemper Government Securities
Portfolio............................ 9/3/87 -0.13% 6.59% 6.25%
Pioneer Fund VCT Portfolio............ 10/31/97 14.97% N/A 20.71%
</TABLE>
TABLE 2
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1999
SINCE INCEPTION OF UNDERLYING FUND*
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
FOR YEAR
UNDERLYING FUND ENDED 10 YEARS OR SINCE
SUB-ACCOUNT INVESTING IN UNDERLYING FUND INCEPTION DATE 12/31/99 5 YEARS INCEPTION IF LESS
- ---------------------------------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
AIT Money Market Fund................. 4/29/85 4.35% 4.61% 4.36%
AIM V.I. Blue Chip Fund............... 12/29/99 N/A N/A N/A
Alliance Growth Portfolio............. N/A N/A N/A N/A
Deutsche VIT EAFE Equity Index Fund... 8/22/97 26.69% N/A 15.91%
Deutsche VIT Equity 500 Index Fund.... 10/1/97 19.51% N/A 21.27%
Deutsche VIT Small Cap Index Fund..... 8/25/97 19.28% N/A 8.33%
DGPF Select Growth Series............. 5/3/99 N/A N/A 41.76%
Fidelity VIP II Contrafund Portfolio... 1/3/95 23.26% N/A 26.71%
Fidelity VIP III Growth & Income
Portfolio............................ 12/31/96 8.29% N/A 21.16%
Fidelity VIP III Mid Cap Portfolio.... 12/28/98 47.85% N/A 50.70%
Templeton Developing Markets Securities
Fund................................. 3/4/96 52.22% N/A -4.63%
INVESCO VIF Dynamics Fund............. 8/25/97 54.36% N/A 30.64%
Janice Aspen Aggressive Growth
Portfolio............................ 9/13/93 123.59% 35.14% 33.21%
Janice Aspen Capital Appreciation
Portfolio............................ 5/1/97 65.66% N/A 55.77%
Janus Aspen International Growth
Portfolio............................ 5/2/94 80.81% 32.19% 27.09%
Kemper Government Securities
Portfolio............................ 9/3/87 -0.12% 6.60% 6.26%
Pioneer Fund VCT Portfolio............ 10/31/97 14.98% N/A 20.74%
</TABLE>
*While this Contract utilizes an existing Separate Account, the Sub-Accounts are
new so there are no historical figures available.
B-4
<PAGE>
APPENDIX C
THE MARKET VALUE ADJUSTMENT
MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)] to the power of n/365 - 1
A payment of $50,000 is made on the Issue Date and no additional payments are
made. 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 or 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>
<C> <C> <S>
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 adjustment = the market value factor multiplied by the withdrawal
= -.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>
<C> <C> <S>
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
= (1.00935) to the power of 7 - 1
= .06728
The market value adjustment = the market value factor multiplied by the withdrawal
= .06728 X $62,985.60
= $4,237.90
</TABLE>
*Uncapped is a straight application of the Market Value Adjustment formula when
the value produced is less than the cap.
C-1
<PAGE>
NEGATIVE MARKET VALUE ADJUSTMENT (CAPPED)*
Assume that on the date of surrender, the current rate (j) is 11.00% or 0.11
<TABLE>
<C> <C> <S>
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 adjustment = Minimum of the market value factor multiplied by the
withdrawal or the negative of the excess interest earned
over 3%
= Minimum (-.17454 X $62,985.60 or -$8,349.25)
= Minimum (-$10,992.38 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 5.00% or 0.05
<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)] to the power of n/365 - 1
= [(1+.08)/(1+.05)] to the power of 2555/365 - 1
= (1.02857) to the power of 7 - 1
= .21798
The market value adjustment = Minimum of the market value factor multiplied by the
withdrawal or the excess interest earned over 3%
= Minimum of (.21798 X $62,985.60 or $8,349.25)
= Minimum of ($13,729.78 or $8,349.25)
= $8,349.25
</TABLE>
*Capped takes into account the excess interest part of the Market Value
Adjustment formula when the value produced is greater than the cap.
C-2
<PAGE>
APPENDIX D
EXAMPLES OF PRESENT VALUE WITHDRAWALS AND PAYMENT WITHDRAWALS
Assume in the examples below that a 65-year-old male annuitizes his contract
exactly two years after the Issue Date. The annuitization amount is $250,000.
Further assume that he selects a variable Life with Period Certain annuity
payout option of Single Life with Payments Guaranteed for 10 Years, an Assumed
Investment Return ("AIR") of 3%, and an annual Change Frequency. Assume that the
Annuity Value purchases 1,370 Annuity Units and the first monthly annuity
benefit payment is equal to $1,370. The following examples assume a net return
of 8% (gross return of 9.4%).
PRESENT VALUE WITHDRAWALS
EXAMPLE 1. Assume that the Owner has taken no previous withdrawals and would
like to take the maximum Present Value Withdrawal available at the beginning of
the tenth contract year (eighth year of the Annuity Payout phase).
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment prior to withdrawal = $1,909.09
Rate used in Present Value Determination = 3% (3% AIR)
Present Value of Future Guaranteed Annuity Benefit Payments = $65,849.08
Maximum Present Value Withdrawal Amount = $49,386.81 ($65,849.08 X 75%)
Annuity Units after withdrawal = 342.50 (1,370 X (1 -
(49,386.81/65,849.08)))
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment after withdrawal = $477.27
Because this is a Present Value Withdrawal, the number of Annuity Units will
increase to 1,370 after the end of the 10-year period during which the Company
guaranteed to make payments.
PAYMENT WITHDRAWALS
EXAMPLE 2. Assume that the Owner has taken no previous withdrawals and would
like to take the maximum Payment Withdrawal of 10 monthly annuity benefit
payments at the beginning of the tenth contract year (eighth year of the Annuity
Payout phase).
Last Monthly Annuity Benefit Payment = $1,820.71
Withdrawal Amount = $18,207.10 (10 X 1,820.71)
Annuity Units prior to withdrawal = 1,370
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment prior to withdrawal = $1,909.09
Rate used in Present Value Determination = 3% (3% AIR)
Present Value of Future Annuity Benefit Payments = $268,826.18
Annuity Units after withdrawal = 1,272.71 (1,370 X (1 -
(18,207.10/268,826.18)))
Annuity Unit Value on the date of withdrawal = 1.39350
Monthly Annuity Benefit Payment after withdrawal = $1,779.80
Because this is a Payment Withdrawal, the number of Annuity Units will not
increase after the end of the 10-year period during which the Company guaranteed
to make payments.
D-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION
OF
FLEXIBLE PAYMENT DEFERRED VARIABLE AND FIXED ANNUITY CONTRACTS
FUNDED THROUGH
SUB-ACCOUNTS OF
SEPARATE ACCOUNT VA-K
INVESTING IN SHARES OF THE UNDERLYING FUNDS
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE ALLMERICA ACCUMULATOR PROSPECTUS FOR SEPARATE ACCOUNT
VA-K DATED MAY 1, 2000 ("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, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY ............................................2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT
AND THE COMPANY........................................................2
SERVICES....................................................................3
UNDERWRITERS................................................................3
ANNUITY BENEFIT PAYMENTS....................................................4
PERFORMANCE INFORMATION ....................................................5
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") authorized 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, 1999, the Company had over $17 billion in assets and over $26
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 a wholly owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica") which, in turn, is a wholly owned
subsidiary of Allmerica Financial Corporation ("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 among the five oldest life
insurance companies in America. As of December 31, 1999, First Allmerica and
its subsidiaries (including the Company) had over $25 billion in combined
assets and over $43 billion in life insurance in force.
Currently, 17 Sub-Accounts of the Variable Account are available under the
Allmerica Accumulator contract (the "Contract"). Each Sub-Account invests in
a corresponding investment portfolio of Allmerica Investment Trust ("AIT"),
AIM Variable Insurance Funds ("AVIF"), Alliance Variable Products Series
Fund, Inc. ("Alliance"), Deutsche Asset Management VIT Funds ("Deutsche
VIT"), Delaware Group Premium Fund ("DGPF"), Fidelity Variable Insurance
Products Fund II ("Fidelity VIP II"), Fidelity Variable Insurance Products
Fund III ("Fidelity VIP III"), Franklin Templeton Variable Insurance Products
Trust ("FT VIP"), INVESCO Variable Investment Funds, Inc. ("INVESCO VIF"),
Janus Aspen Series ("Janus Aspen"), Kemper Variable Series ("KVS"), and
Pioneer Variable Contracts Trust ("Pioneer VCT").
AIT, AVIF, Alliance, Deutsche VIT, DGPF, Fidelity VIP II, Fidelity VIP III,
FT VIP, INVESCO VIF, Janus Aspen, KVS and Pioneer VCT, are open-end,
diversified management investment companies. One fund of AIT is available
under the Contract: the Money Market Fund. One fund of AVIF is available
under the Contract: the AIM V.I. Blue Chip Fund. One portfolio of Alliance is
available under the Contract: the Alliance Growth Portfolio. Three Deutsche
VIT funds are available under the Contract: the Deutsche VIT EAFE Equity
Index Fund, Deutsche VIT Equity 500 Index Fund and Deutsche VIT Small Cap
Index Fund. One series of DGPF is available under the Contract: the DGPF
Select Growth Series. One portfolio of Fidelity VIP II is available under the
Contract: the Fidelity VIP II
2
<PAGE>
Contrafund Portfolio. Two Fidelity VIP III portfolios are available under the
Contract: the Fidelity VIP III Growth & Income Portfolio and Fidelity VIP III
Mid Cap Portfolio. One FT VIP fund is available under the Contract: the
Templeton Developing Markets Securities Fund. One fund of INVESCO VIF is
available under the Contract: the INVESCO VIF Dynamics Fund. Three Janus
Aspen portfolios are available under the Contract: the Janus Aspen Aggressive
Growth Portfolio, Janus Aspen Capital Appreciation Portfolio and Janus Aspen
International Growth Portfolio. One KVS portfolio is available under the
Contract: the Kemper Government Securities Portfolio. One Pioneer VCT
portfolio is available under the Contract: the Pioneer Fund VCT Portfolio.
Each Fund 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, 1999 and
1998 and for each of the three years in the period ended December 31, 1999,
and the financial statements of Separate Account VA-K of the Company as of
December 31, 1999 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 PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under
the 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
3
<PAGE>
and whose representatives are authorized by applicable law to sell variable
annuity contracts. No commissions will be paid for sales of Contract
A3030-99. However, a representative of Allmerica Investments or an
independent broker-dealer may assess an advisory fee as compensation for his
or her services.
All persons selling the Contract are required to be licensed by their
respective state insurance authorities for the sale of variable annuity
policies. To the extent permitted by NASD rules, promotional incentives or
payments also may be provided to such entities based on sales volumes, the
assumption of wholesaling functions or other sales-related criteria.
Additional payments may be made for other services not directly related to
the sale of the Contract, including the recruitment and training of
personnel, production of promotional literature and similar services.
The aggregate amounts of commissions paid to Allmerica Investments for sales
of all contracts funded by Separate Account VA-K (including contracts not
described in the Prospectus) for the years 1997, 1998 and 1999 were
$34,693,060, $36,853,601 and $38,326,089.
No commissions were retained by Allmerica Investments for sales of all
contracts funded by Separate Account VA-K (including contracts not described
in the Prospectus) for the years 1997, 1998 and 1999.
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
(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 0.80% per annum).............0.000022
(6) Net Investment Rate (4) - (5).....................................0.000313
(7) Net Investment Factor 1.000000 + (6)..............................1.000313
(8) Accumulation Unit Value -- Current Period (1) x (7).............$ 1.135355
</TABLE>
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains of $1,675, the
Accumulation Unit Value at the end of the Valuation Period would have been
$1.135405.
4
<PAGE>
The method for determining the amount of annuity benefit payments is
described in detail under "Variable 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 Owner 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 Accumulated 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, the first monthly payment would be $44.80
($44,800 divided by 1,000) multiplied by $6.57, or $294.34.
Next, assume that the Annuity Unit Value for the assumed investment return of
3.0% 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 3.0% assumed
investment return 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 .999919 (the one-day
adjustment factor for the assumed investment return of 3.0% per annum)
produces a factor of 1.000109. 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 $1.105121 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 $1.105121, which produces a current monthly payment of $295.71.
PERFORMANCE INFORMATION
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to certain indices described in the Prospectus under
"APPENDIX B-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/or 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.
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
5
<PAGE>
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 0.80% 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 calculations of Total Return include the deduction of the $35 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, 1999:
Yield 4.70%
Effective Yield 4.81%
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, 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 $35 annual Contract
fee.
FINANCIAL STATEMENTS
Financial Statements are included for Allmerica Financial Life Insurance and
Annuity Company and for its Separate Account VA-K.
6
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Allmerica Financial Life Insurance and Annuity Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, shareholder's equity
and cash flows present fairly, in all material respects, the financial position
of Allmerica Financial Life Insurance and Annuity Company (the "Company") at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 1, 2000
<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) 1999 1998 1997
------------- ---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums................................... $ 0.5 $ 0.5 $ 22.8
Universal life and investment product
policy fees.............................. 328.1 267.4 212.2
Net investment income...................... 150.2 151.3 164.2
Net realized investment (losses) gains..... (8.7) 20.0 2.9
Other income............................... 36.9 0.6 1.4
------ ------ ------
Total revenues......................... 507.0 439.8 403.5
------ ------ ------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims and losses......... 173.6 153.9 187.8
Policy acquisition expenses................ 49.8 64.6 2.8
Sales practice litigation.................. -- 21.0 --
Loss from cession of disability income
business................................. -- -- 53.9
Other operating expenses................... 151.3 104.1 101.3
------ ------ ------
Total benefits, losses and expenses.... 374.7 343.6 345.8
------ ------ ------
Income before federal income taxes............. 132.3 96.2 57.7
------ ------ ------
FEDERAL INCOME TAX EXPENSE
Current.................................... 15.5 22.1 13.9
Deferred................................... 30.5 11.8 7.1
------ ------ ------
Total federal income tax expense....... 46.0 33.9 21.0
------ ------ ------
Net income..................................... $ 86.3 $ 62.3 $ 36.7
====== ====== ======
</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, EXCEPT PER SHARE DATA) 1999 1998
------------------------------------ --------- ---------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,354.2 and $1,284.6)............................ $ 1,324.6 $ 1,330.4
Equity securities at fair value (cost of $25.2 and
$27.4)............................................ 32.6 31.8
Mortgage loans...................................... 223.7 230.0
Policy loans........................................ 166.8 151.5
Real estate and other long-term investments......... 25.1 23.6
--------- ---------
Total investments............................... 1,772.8 1,767.3
--------- ---------
Cash and cash equivalents............................. 132.9 217.9
Accrued investment income............................. 36.0 33.5
Deferred policy acquisition costs..................... 1,156.4 950.5
Reinsurance receivable on paid and unpaid losses,
benefits and unearned premiums...................... 287.2 308.0
Other assets.......................................... 64.8 46.9
Separate account assets............................... 14,527.9 11,020.4
--------- ---------
Total assets.................................... $17,978.0 $14,344.5
========= =========
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,274.7 $ 2,284.8
Outstanding claims and losses....................... 13.7 17.9
Unearned premiums................................... 2.6 2.7
Contractholder deposit funds and other policy
liabilities....................................... 44.3 38.1
--------- ---------
Total policy liabilities and accruals........... 2,335.3 2,343.5
--------- ---------
Expenses and taxes payable............................ 216.8 146.2
Reinsurance premiums payable.......................... 17.9 45.7
Deferred federal income taxes......................... 94.8 78.8
Separate account liabilities.......................... 14,527.9 11,020.4
--------- ---------
Total liabilities............................... 17,192.7 13,634.6
--------- ---------
Contingencies (Note 12)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares
authorized, 2,526 and 2,524 shares, issued and
outstanding......................................... 2.5 2.5
Additional paid-in capital............................ 423.7 407.9
Accumulated other comprehensive (loss) income......... (2.6) 24.1
Retained earnings..................................... 361.7 275.4
--------- ---------
Total shareholder's equity...................... 785.3 709.9
--------- ---------
Total liabilities and shareholder's equity...... $17,978.0 $14,344.5
========= =========
</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) 1999 1998 1997
------------- ------- ------- -------
<S> <C> <C> <C>
COMMON STOCK................................... $ 2.5 $ 2.5 $ 2.5
------ ------ ------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period............. 407.9 386.9 346.3
Issuance of common stock................... 15.8 21.0 40.6
------ ------ ------
Balance at end of period................... 423.7 407.9 386.9
------ ------ ------
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Net unrealized (depreciation) appreciation
on investments:
Balance at beginning of period............. 24.1 38.5 20.5
(Depreciation) appreciation during the
period:
Net (depreciation) appreciation on
available-for-sale securities........ (41.1) (23.4) 27.0
Benefit (provision) for deferred
federal income taxes................. 14.4 9.0 (9.0)
------ ------ ------
(26.7) (14.4) 18.0
------ ------ ------
Balance at end of period................... (2.6) 24.1 38.5
------ ------ ------
RETAINED EARNINGS
Balance at beginning of period............. 275.4 213.1 176.4
Net income................................. 86.3 62.3 36.7
------ ------ ------
Balance at end of period................... 361.7 275.4 213.1
------ ------ ------
Total shareholder's equity............. $785.3 $709.9 $641.0
====== ====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------ ------ ------
<S> <C> <C> <C>
Net income.................................. $ 86.3 $ 62.3 $36.7
Other comprehensive (loss) income:
Net (depreciation) appreciation on
available-for-sale securities......... (41.1) (23.4) 27.0
Benefit (provision) for deferred federal
income taxes.......................... 14.4 9.0 (9.0)
------ ------ -----
Other comprehensive (loss) income... (26.7) (14.4) 18.0
------ ------ -----
Comprehensive income.................... $ 59.6 $ 47.9 $54.7
====== ====== =====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
------------- ------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 86.3 $ 62.3 $ 36.7
Adjustments to reconcile net income to
net cash used in operating activities:
Net realized losses/(gains)......... 8.7 (20.0) (2.9)
Net amortization and depreciation... (2.3) (7.1) --
Sales practice litigation expense... -- 21.0 --
Loss from cession of disability
income business................... -- -- 53.9
Deferred federal income taxes....... 30.5 11.8 7.1
Payment related to cession of
disability income business........ -- -- (207.0)
Change in deferred acquisition
costs............................. (169.7) (177.8) (181.3)
Change in reinsurance premiums
payable........................... (31.5) 40.8 3.9
Change in accrued investment
income............................ (2.5) 0.7 3.5
Change in policy liabilities and
accruals, net..................... (8.4) 193.1 (72.4)
Change in reinsurance receivable.... 20.7 (56.9) 22.1
Change in expenses and taxes
payable........................... 64.1 55.4 0.2
Other, net.......................... (14.8) (28.5) (7.1)
------- ------- -------
Net cash (used in) provided by
operating activities.......... (18.9) 94.8 (343.3)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................ 330.9 187.0 909.7
Proceeds from disposals of equity
securities............................ 30.9 53.3 2.4
Proceeds from disposals of other
investments........................... 0.8 22.7 23.7
Proceeds from mortgages matured or
collected............................. 30.5 60.1 62.9
Purchase of available-for-sale fixed
maturities............................ (415.5) (136.0) (579.7)
Purchase of equity securities........... (20.2) (30.6) (3.2)
Purchase of other investments........... (44.1) (22.7) (9.0)
Purchase of mortgages................... -- (58.9) (70.4)
Other investing activities, net......... 2.0 (3.9) --
------- ------- -------
Net cash (used in) provided by
investing activities.............. (84.7) 71.0 336.4
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Contribution from subsidiaries.......... 14.6 -- --
Proceeds from issuance of stock and
capital paid in....................... 4.0 21.0 19.2
------- ------- -------
Net cash provided by financing
activities........................ 18.6 21.0 19.2
------- ------- -------
Net change in cash and cash equivalents..... (85.0) 186.8 12.3
Cash and cash equivalents, beginning of
period..................................... 217.9 31.1 18.8
------- ------- -------
Cash and cash equivalents, end of period.... $ 132.9 $ 217.9 $ 31.1
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ -- $ -- $ --
Income taxes paid....................... $ 4.4 $ 36.2 $ 5.4
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC" or the
"Company") is organized as a stock life insurance company, and is a wholly-owned
subsidiary of First Allmerica Financial Life Insurance Company ("FAFLIC") which
is a wholly-owned subsidiary of Allmerica Financial Corporation ("AFC"). As
noted below, the consolidated accounts of AFLIAC include the accounts of certain
wholly-owned non-insurance subsidiaries (principally brokerage and investment
advisory subsidiaries).
Prior to July 1, 1999, AFLIAC was a wholly-owned subsidiary of SMA Financial
Corporation ("SMAFCO"), which was a wholly-owned subsidiary of FAFLIC. Effective
July 1, 1999 and in connection with AFC's restructuring activities, SMAFCO was
renamed Allmerica Asset Management , Inc. ("AAM") and contributed it's ownership
of AFLIAC to FAFLIC. AAM also contributed Allmerica Investments, Inc., Allmerica
Investment Management Company, Inc., Allmerica Financial Investment Management
Services, Inc., and Allmerica Financial Services Insurance Agency, Inc., to
AFLIAC in exchange for one share of AFLIAC common stock. The equity of these
four companies on July 1, 1999 was $11.8 million. For the six months ended
December 31, 1999, the subsidiaries of AFLIAC had total revenue of $35.5 million
and total benefits, losses and expenses of $24.4 million. All significant
intercompany accounts and transactions have been eliminated.
In addition, effective November 1, 1999, the Company's consolidated financial
statements include five wholly-owned insurance agencies. These agencies are
Allmerica Investments Insurance Agency Inc. of Alabama, Allmerica Investments
Insurance Agency of Florida Inc., Allmerica Investment Insurance Agency Inc. of
Georgia, Allmerica Investment Insurance Agency Inc. of Kentucky, and Allmerica
Investments Insurance Agency Inc. of Mississippi.
The consolidated financial statements of AFLIAC include the accounts of Somerset
Square, Inc., a wholly-owned non-insurance company, which was transferred from
SMAFCO effective November 30, 1997 and dissolved as a subsidiary effective
November 30, 1998. Its results of operations are included for eleven months of
1998 and for the month of December, 1997.
The statutory stockholder's equity of the Company is being maintained at a
minimum level of 5% of general account assets by FAFLIC in accordance with a
policy established by vote of FAFLIC's Board of Directors.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
B. VALUATION OF INVESTMENTS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 115 ("Statement No. 115"), "Accounting for Certain Investments in Debt and
Equity Securities," the Company is required to classify its investments into one
of three categories: held-to-maturity, available-for-sale or trading. The
Company determines the appropriate classification of debt securities at the time
of purchase and re-evaluates such designation as of each balance sheet date.
F-6
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Debt securities and marketable equity securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of shareholder's equity. The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by the Company to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which the Company believes may not be collectible in
full. In establishing reserves, the Company considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
During 1997, the Company adopted a plan to dispose of all real estate assets. As
of December 31, 1999, there was one property remaining in the Company's real
estate portfolio, which is being actively marketed. This asset is carried at the
estimated fair value less costs of disposal. Depreciation is not recorded on
this asset while it is 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 or a group of investments is determined, a realized investment loss
is recorded. Changes in the valuation allowance for mortgage loans are included
in realized investment gains or losses.
C. FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including debt, investments such as
fixed maturities, mortgage loans and equity securities and investment and loan
commitments. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuation. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
D. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
E. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Acquisition costs related to universal life products, variable annuities and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits from investment yields, mortality, surrender charges and
expense margins over the expected life of the contracts. This amortization is
reviewed annually and adjusted retrospectively when the Company revises its
estimate of current or future gross profits to be realized from this group of
products, including realized and unrealized gains and losses from investments.
Acquisition costs related to fixed annuities and other life insurance products
are deferred and amortized, generally in proportion to the ratio of annual
revenue to the
F-7
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
estimated total revenues over the contract periods based upon the same
assumptions used in estimating the liability for future policy benefits.
Deferred acquisition costs for each product are reviewed to determine if they
are recoverable from future income, including investment income. If such costs
are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, the Company believes it is more likely than not that all of these costs
will be realized. The amount of deferred policy acquisition costs considered
realizable, however, could be reduced in the near term if the estimates of gross
profits or total revenues discussed above are reduced. The amount of
amortization of deferred policy acquisition costs could be revised in the near
term if any of the estimates discussed above are revised.
F. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of variable annuity and variable
life insurance contractholders. Assets consist principally of bonds, common
stocks, mutual funds, and short-term obligations at market value. The investment
income, gains and losses of these accounts generally accrue to the
contractholders and, therefore, are not included in the Company's net income.
Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholder's equity or net investment income.
G. POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, disability income and annuity
products. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. The liabilities associated
with traditional life insurance products are computed using the net level
premium method for individual life and annuity policies, and are based upon
estimates as to future investment yield, mortality and withdrawals that include
provisions for adverse deviation. Future policy benefits for individual life
insurance and annuity policies are computed using interest rates ranging from
3.0% to 6.0% for life insurance and 3 1/2% to 9 1/2% for annuities. Mortality,
morbidity and withdrawal assumptions for all policies are based on the Company's
own experience and industry standards. Liabilities for universal life, variable
universal life and variable annuities 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.
Liabilities for variable annuities include a reserve for benefit claims in
excess of a guaranteed minimum fund value.
Individual disability income benefit liabilities for active lives are estimated
using the net level premium method, and assumptions as to future morbidity 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 and losses are estimates of payments to be
made for reported claims and estimates of claims incurred but not reported for
individual life and disability income policies. These estimates are continually
reviewed and adjusted as necessary; such adjustments are reflected in current
operations.
Contractholder deposit funds and other policy liabilities include
investment-related products and consist of deposits received from customers and
investment earnings on their fund balances.
F-8
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, the Company
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
H. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life insurance and individual and group annuity
products, excluding universal life and investment-related products, are
considered revenue when due. Individual disability income insurance premiums are
recognized as revenue over the related contract periods. The unexpired portion
of these premiums is recorded as unearned premiums. Benefits, losses and related
expenses are matched with premiums, resulting in their recognition over the
lives of the contracts. This matching is accomplished through the provision for
future benefits, estimated and unpaid losses and amortization of deferred policy
acquisition costs. Revenues for investment-related products consist of net
investment income and contract charges assessed against the fund values. Related
benefit expenses include annuity benefit claims in excess of a guaranteed
minimum fund value, and net investment income credited to the fund values after
deduction for investment and risk charges. Revenues for universal life and group
variable universal life products consist of net investment income, with
mortality, administration and surrender charges assessed against the fund
values. Related benefit expenses include universal life benefit claims in excess
of fund values and net investment income credited to universal life fund values.
Certain policy charges that represent compensation for services to be provided
in future periods are deferred and amortized over the period benefited using the
same assumptions used to amortize capitalized acquisition costs.
I. FEDERAL INCOME TAXES
AFC and its domestic subsidiaries (including certain non-insurance operations)
file a consolidated United States federal income tax return. Entities included
within the consolidated group are segregated into either a life insurance or
non-life insurance company subgroup. The consolidation of these subgroups is
subject to certain statutory restrictions on the percentage of eligible non-life
tax losses that can be applied to offset life insurance company taxable income.
The Board of Directors has delegated to AFC management, the development and
maintenance of appropriate federal income tax allocation policies and
procedures, which are subject to written agreement between the companies. The
Federal income tax for all subsidiaries in the consolidated return of AFC is
calculated on a separate return basis. Any current tax liability is paid to AFC.
Tax benefits resulting from taxable operating losses or credits of AFC's
subsidiaries are not reimbursed to the subsidiary until such losses or credits
can be utilized by the subsidiary on a separate return basis.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes, and for
other temporary taxable and deductible differences as defined by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement No. 109"). These differences result primarily from policy reserves,
policy acquisition expenses, and unrealized appreciation or depreciation on
investments.
J. OTHER INCOME AND OTHER OPERATING EXPENSES
Other income and other operating expenses for the year ended December 31, 1999
include investment management and brokerage income and sub-advisory expenses
arising from the activities of the non-insurance subsidiaries that were
transferred to AFLIAC during 1999, as more fully described in Note 1A.
F-9
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), which establishes
accounting and reporting standards for derivative instruments. Statement No. 133
requires that an entity recognize all derivatives as either assets or
liabilities at fair value in the statement of financial position, and
establishes special accounting for the following three types of hedges; fair
value hedges, cash flow hedges, and hedges of foreign currency exposures of net
investments in foreign operations. This statement is effective for fiscal
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY (an indirect wholly-owned
subsidiary of Allmerica Financial Corporation) years beginning after June 15,
2000. The Company is currently assessing the impact of adoption of Statement No.
133.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SoP 98-1"). SoP 98-1 requires that
certain costs incurred in developing internal-use computer software be
capitalized and provides guidance for determining whether computer software is
to be considered for internal use. This statement is effective for fiscal years
beginning after December 15, 1998. In the second quarter of 1998, the Company
adopted SoP 98-1 effective January 1, 1998, resulting in an increase in pre-tax
income of $9.8 million through December 31, 1998. The adoption of SOP 98-1 did
not have a material effect on the results of operations or financial position
for the three months ended March 31, 1998.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments" ("SoP 97-3"). SoP 97-3 provides
guidance when a liability should be recognized for guaranty fund and other
assessments and how to measure the liability. This statement allows for the
discounting of the liability if the amount and timing of the cash payments are
fixed and determinable. In addition, it provides criteria for when an asset may
be recognized for a portion or all of the assessment liability or paid
assessment that can be recovered through premium tax offsets or policy
surcharges. This statement is effective for fiscal years beginning after
December 15, 1998. The adoption of this statement had no effect on the results
of operations or financial position of the Company.
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("Statement No. 131"). This statement
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that
selected information about those operating segments be reported in interim
financial statements. This statement supersedes Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". Statement No. 131 requires
that all public enterprises report financial and descriptive information about
their reportable operating segments. Operating segments are defined as
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. This statement
is effective for fiscal years beginning after December 15, 1997. AFLIAC consists
of one segment, Allmerica Financial Services, which underwrites and distributes
variable annuities and variable universal life insurance via retail channels.
In June 1997, the FASB also issued Statement No. 130, "Reporting Comprehensive
Income" ("Statement No. 130"). Statement No. 130 establishes 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
F-10
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
other events and circumstances from non-owner sources. This statement is
effective for fiscal years beginning after December 15, 1997. The Company
adopted Statement No. 130 for the first quarter of 1998, which resulted
primarily in reporting unrealized gains and losses on investments in debt and
equity securities in comprehensive income.
L. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. SIGNIFICANT TRANSACTIONS
During 1999, AFLIAC's parent contributed $11.8 million of additional paid-in
capital to the Company in the form of four subsidiaries as disclosed in Note 1A
above. These subsidiaries consisted of assets of $22.0 million, of which $14.6
million was cash and cash equivalents, and liabilities of $10.2 million. During
1999, 1998 and 1997, SMAFCO contributed $4.0 million, $21.0 million, and $40.6
million respectively, of additional paid-in capital to the Company. The nature
of the 1997 contribution was $19.2 million in cash and $21.4 million in other
assets including Somerset Square, Inc.
Effective January 1, 1998, the Company entered into an agreement with a highly
rated reinsurer to reinsure the mortality risk on the universal life and
variable universal life blocks of business. The agreement did not have a
material effect on the results of operations or financial position of the
Company.
On April 14, 1997, the Company entered into an agreement in principle to cede
substantially all of the Company's individual disability income line of business
under a 100% coinsurance agreement with a highly rated reinsurer. The
coinsurance agreement became effective October 1, 1997. The transaction has
resulted in the recognition of a $53.9 million pre-tax loss in the first quarter
of 1997.
3. INVESTMENTS
A. SUMMARY OF INVESTMENTS
The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with the provisions of Statement No. 115.
The amortized cost and fair value of available-for-sale fixed maturities and
equity securities were as follows:
<TABLE>
<CAPTION>
1999
-------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 5.2 $ 0.2 $-- $ 5.4
States and political subdivisions....... 12.4 0.1 -- 12.5
Foreign governments..................... 38.6 0.9 0.6 38.9
Corporate fixed maturities.............. 1,180.0 10.3 38.9 1,151.4
Mortgage-backed securities.............. 118.0 1.1 2.7 116.4
-------- ----- ----- --------
Total fixed maturities.................. $1,354.2 $12.6 $42.2 $1,324.6
======== ===== ===== ========
Equity securities....................... $ 25.2 $ 7.4 $-- $ 32.6
======== ===== ===== ========
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
F-11
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1998
-------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ------------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 5.8 $ 0.8 $-- $ 6.6
States and political subdivisions....... 2.7 0.2 -- 2.9
Foreign governments..................... 48.8 1.6 1.5 48.9
Corporate fixed maturities.............. 1,096.0 58.0 17.7 1,136.3
Mortgage-backed securities.............. 131.3 5.8 1.4 135.7
-------- ----- ----- --------
Total fixed maturities.................. $1,284.6 $66.4 $20.6 $1,330.4
======== ===== ===== ========
Equity securities....................... $ 27.4 $ 8.9 $ 4.5 $ 31.8
======== ===== ===== ========
</TABLE>
(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, 1999, the amortized
cost and market value of these assets on deposit in New York were
$196.4 million and $193.0 million, respectively. At December 31, 1998, the
amortized cost and market value of assets on deposit were $268.5 million and
$284.1 million, respectively. In addition, fixed maturities, excluding those
securities on deposit in New York, with an amortized cost of $4.1 million and
$4.2 million were on deposit with various state and governmental authorities at
December 31, 1999 and 1998, respectively.
There were no contractual fixed maturity investment commitments at December 31,
1999.
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>
1999
-------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------- --------- --------
<S> <C> <C>
Due in one year or less..................................... $ 54.5 $ 54.8
Due after one year through five years....................... 349.1 347.2
Due after five years through ten years...................... 652.9 637.1
Due after ten years......................................... 297.7 285.5
-------- --------
Total....................................................... $1,354.2 $1,324.6
======== ========
</TABLE>
F-12
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
EQUITY
FOR THE YEARS ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------- ---------- ------------- ------
<S> <C> <C> <C>
1999
Net appreciation, beginning of year......................... $ 16.2 $ 7.9 $ 24.1
------ ------ ------
Net depreciation on available-for-sale securities........... (75.3) (0.2) (75.5)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 34.4 -- 34.4
Benefit from deferred federal income taxes.................. 14.3 0.1 14.4
------ ------ ------
(26.6) (0.1) (26.7)
------ ------ ------
Net (depreciation) appreciation, end of year................ $(10.4) $ 7.8 $ (2.6)
====== ====== ======
1998
Net appreciation, beginning of year......................... $ 22.1 $ 16.4 $ 38.5
------ ------ ------
Net depreciation on available-for-sale securities........... (16.2) (14.3) (30.5)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 7.1 -- 7.1
Benefit from deferred federal income taxes.................. 3.2 5.8 9.0
------ ------ ------
(5.9) (8.5) (14.4)
------ ------ ------
Net appreciation, end of year............................... $ 16.2 $ 7.9 $ 24.1
====== ====== ======
1997
Net appreciation, beginning of year......................... $ 12.7 $ 7.8 $ 20.5
------ ------ ------
Net appreciation on available-for-sale securities........... 24.3 12.5 36.8
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (9.8) -- (9.8)
Provision for deferred federal income taxes................. (5.1) (3.9) (9.0)
------ ------ ------
9.4 8.6 18.0
------ ------ ------
Net appreciation, end of year............................... $ 22.1 $ 16.4 $ 38.5
====== ====== ======
</TABLE>
(1) Includes net (depreciation) appreciation on other investments of $(3.1)
million, $0.9 million, and $1.3 million in 1999, 1998, and 1997,
respectively.
B. MORTGAGE LOANS AND REAL ESTATE
AFLIAC's mortgage loans are diversified by property type and location. The real
estate investment was obtained by an affiliate 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 the real estate investment net of
applicable reserves were $234.6 million and $244.5 million at December 31, 1999
and 1998, respectively. Reserves for mortgage loans were $2.4 million and
$3.3 million at December 31, 1999 and 1998, respectively.
F-13
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1997, the Company committed to a plan to dispose of all real estate
assets. At December 31, 1999, there was one property remaining in the Company's
real estate portfolio which is being actively marketed. Depreciation is not
recorded on this asset while it is held for disposal.
There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1999, 1998 and 1997.
There were no material contractual commitments to extend credit under commercial
mortgage loan agreements at December 31, 1999.
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- ------ ------
<S> <C> <C>
Property type:
Office building........................................... $136.1 $129.2
Residential............................................... 18.5 18.9
Retail.................................................... 28.3 37.4
Industrial/warehouse...................................... 51.1 59.2
Other..................................................... 3.0 3.1
Valuation allowances...................................... (2.4) (3.3)
------ ------
Total....................................................... $234.6 $244.5
====== ======
Geographic region:
South Atlantic............................................ $ 60.7 $ 55.5
Pacific................................................... 76.2 80.0
East North Central........................................ 35.9 41.4
Middle Atlantic........................................... 20.1 22.5
New England............................................... 29.9 26.9
West South Central........................................ 1.9 6.7
Other..................................................... 12.3 14.8
Valuation allowances...................................... (2.4) (3.3)
------ ------
Total....................................................... $234.6 $244.5
====== ======
</TABLE>
At December 31, 1999, scheduled mortgage loan maturities were as follows:
2000 -- $40.8 million; 2001 -- $6.3 million; 2002 -- $11.2 million; 2003 --
$0.5 million; 2004 -- $23.7 million; and $141.2 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 1999, the Company did not refinance any mortgage loans
based on terms which differed from those granted to new borrowers.
F-14
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets and
changes thereto are shown below.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 PROVISIONS WRITE-OFFS DECEMBER 31
- ------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
1999
Mortgage loans.............................................. $ 3.3 $(0.8) $0.1 $2.4
===== ===== ==== ====
1998
Mortgage loans.............................................. $ 9.4 $(4.5) $1.6 $3.3
===== ===== ==== ====
1997
Mortgage loans.............................................. $ 9.5 $ 1.1 $1.2 $9.4
Real estate................................................. 1.7 3.7 5.4 --
----- ----- ---- ----
Total................................................... $11.2 $ 4.8 $6.6 $9.4
===== ===== ==== ====
</TABLE>
Provisions on mortgages during 1999 and 1998 reflect the release of redundant
specific reserves. Write-offs of $5.4 million to the investment valuation
allowance related to real estate in 1997 primarily reflect write downs to the
estimated fair value less costs to sell pursuant to the aforementioned 1997 plan
of disposal.
The carrying value of impaired loans was $11.4 million and $15.3 million, with
related reserves of $0.7 million and $1.5 million as of December 31, 1999 and
1998, respectively. All impaired loans were reserved for as of December 31, 1999
and 1998.
The average carrying value of impaired loans was $14.3 million, $17.0 million
and $19.8 million, with related interest income while such loans were impaired
of $1.5 million, $2.0 million and $2.2 million as of December 31, 1999, 1998 and
1997, respectively.
D. OTHER
At December 31, 1999 and 1998, AFLIAC had no concentration of investments in a
single investee exceeding 10% of shareholder's equity.
4. INVESTMENT INCOME AND GAINS AND LOSSES
A. NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................................ $107.2 $107.7 $130.0
Mortgage loans.............................................. 19.0 25.5 20.4
Equity securities........................................... 0.4 0.3 1.3
Policy loans................................................ 12.4 11.7 10.8
Real estate and other long-term investments................. 4.0 4.8 4.9
Short-term investments...................................... 9.5 4.2 1.4
------ ------ ------
Gross investment income................................. 152.5 154.2 168.8
Less investment expenses.................................... (2.3) (2.9) (4.6)
------ ------ ------
Net investment income................................... $150.2 $151.3 $164.2
====== ====== ======
</TABLE>
F-15
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1999, the Company had fixed maturities with a carrying value of
$0.8 million on non-accrual status. There were no mortgage loans on non-accrual
status at December 31, 1999. There were no mortgage loans or fixed maturities on
non-accrual status at December 31, 1998. The effect of non-accruals, compared
with amounts that would have been recognized in accordance with the original
terms of the investments, was a reduction in net income of $1.2 million in 1999,
and had no impact in 1998 and 1997.
The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $12.2 million, $12.6 million and $21.1 million at December 31,
1999, 1998 and 1997, respectively. Interest income on restructured mortgage
loans that would have been recorded in accordance with the original terms of
such loans amounted to $0.9 million, $1.4 million and $1.9 million in 1999,
1998, and 1997, respectively. Actual interest income on these loans included in
net investment income aggregated $1.1 million, $1.8 million and $2.1 million in
1999, 1998 and 1997, respectively.
There were no fixed maturities or mortgage loans which were non-income producing
for the year ended December 31, 1999.
Included in other long-term investments is income from limited partnerships of
$0.9 million and $0.7 million in 1999 and 1998, respectively. There was no
income from limited partnerships included in other long-term investments in
1997.
B. NET REALIZED INVESTMENT GAINS AND LOSSES
Realized (losses) gains on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ----- -----
<S> <C> <C> <C>
Fixed maturities............................................ $(18.8) $(6.1) $ 3.0
Mortgage loans.............................................. 0.8 8.0 (1.1)
Equity securities........................................... 8.5 15.7 0.5
Real estate and other....................................... 0.8 2.4 0.5
------ ----- -----
Net realized investment (losses) gains...................... $ (8.7) $20.0 $ 2.9
====== ===== =====
</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>
1999
Fixed maturities............................................ $162.3 $ 2.7 $4.3
Equity securities........................................... $ 30.4 $10.1 $1.6
1998
Fixed maturities............................................ $ 60.0 $ 2.0 $2.0
Equity securities........................................... $ 52.6 $17.5 $0.9
1997
Fixed maturities............................................ $702.9 $11.4 $5.0
Equity securities........................................... $ 1.3 $ 0.5 $--
</TABLE>
F-16
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. OTHER COMPREHENSIVE INCOME RECONCILIATION
The following table provides a reconciliation of gross unrealized (losses) gains
to the net balance shown in the consolidated statements of comprehensive income:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ------ -----
<S> <C> <C> <C>
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during period (net
of taxes of $(18.0) million, $(5.6) million and
$10.2 million in 1999, 1998 and 1997, respectively)........ $(33.4) $ (8.2) $20.3
Less: reclassification adjustment for (losses) gains
included in net income (net of taxes of $(3.6) million,
$3.4 million and $1.2 million in 1999, 1998 and 1997,
respectively).............................................. (6.7) 6.2 2.3
------ ------ -----
Other comprehensive (loss) income........................... $(26.7) $(14.4) $18.0
====== ====== =====
</TABLE>
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Statement 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.
F-17
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
FIXED ANNUITY AND OTHER CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under individual fixed annuity
contracts are estimated based on current surrender values, supplemental
contracts without life contingencies reflect current fund balances, and other
individual contract funds represent the present value of future policy benefits.
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 132.9 $ 132.9 $ 217.9 $ 217.9
Fixed maturities.......................................... 1,324.6 1,324.6 1,330.4 1,330.4
Equity securities......................................... 32.6 32.6 31.8 31.8
Mortgage loans............................................ 223.7 222.8 230.0 241.9
Policy loans.............................................. 166.8 166.8 151.5 151.5
-------- -------- -------- --------
$1,880.6 $1,879.7 $1,961.6 $1,973.5
======== ======== ======== ========
FINANCIAL LIABILITIES
Individual fixed annuity contracts........................ $1,048.0 $1,014.9 $1,069.4 $1,034.6
Supplemental contracts without life contingencies......... 25.0 25.0 21.0 21.0
Other individual contract deposit funds................... 19.3 19.3 17.0 17.0
-------- -------- -------- --------
$1,092.3 $1,059.2 $1,107.4 $1,072.6
======== ======== ======== ========
</TABLE>
F-18
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of Statement No. 109. A summary of the federal income tax expense in
the consolidated statement of income is shown below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ----- ----- -----
<S> <C> <C> <C>
Federal income tax expense
Current................................................... $15.5 $22.1 $13.9
Deferred.................................................. 30.5 11.8 7.1
----- ----- -----
Total....................................................... $46.0 $33.9 $21.0
===== ===== =====
</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 income tax (asset) liability represents the tax effects of
temporary differences:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1999 1998
- ------------- ------- -------
<S> <C> <C>
Deferred tax (assets) liabilities
Policy reserves........................................... $(233.7) $(205.1)
Deferred acquisition costs................................ 339.7 278.8
Investments, net.......................................... (4.0) 12.5
Litigation reserves....................................... (4.3) (7.4)
Bad debt reserve.......................................... -- (0.4)
Other, net................................................ (2.9) 0.4
------- -------
Deferred tax liability, net................................. $ 94.8 $ 78.8
======= =======
</TABLE>
Gross deferred income tax liabilities totaled $360.4 million and $291.7 million
at December 31, 1999 and 1998, respectively. Gross deferred income tax assets
totaled $265.6 million and $212.9 million at December 31, 1999 and 1998,
respectively.
The Company believes, based on its recent earnings history and its future
expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, the Company considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary.
The Company's federal income tax returns are routinely audited by the Internal
Revenue Service ("IRS"), and provisions are routinely made in the financial
statements in anticipation of the results of these audits. The IRS has examined
the FAFLIC/AFLIAC consolidated group's federal income tax returns through 1994.
The Company has appealed certain adjustments proposed by the IRS with respect
federal income tax returns for 1992, 1993, and 1994 for the FAFLIC/AFLIAC
consolidated group. Also, certain adjustments proposed by the IRS with respect
to FAFLIC/AFLIAC's federal income tax returns for 1982 and 1983 remain
unresolved. If upheld, these adjustments would result in additional payments;
however, the Company will vigorously defend its position with respect to these
adjustments. In the Company's opinion, adequate tax liabilities have
F-19
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
been established for all years. However, the amount of these tax liabilities
could be revised in the near term if estimates of the Company's ultimate
liability are revised.
7. RELATED PARTY TRANSACTIONS
The Company has no employees of its own, but has agreements under which FAFLIC
provides management, space and other services, including accounting, electronic
data processing, human resources, legal and other staff functions. Charges for
these services are based on full cost including all direct and indirect overhead
costs, and amounted to $173.9 million, $145.4 million and $124.1 million in
1999, 1998 and 1997 respectively. The net amounts payable to FAFLIC and
affiliates for accrued expenses and various other liabilities and receivables
were $48.6 million and $16.4 million at December 31, 1999 and 1998,
respectively.
8. DIVIDEND RESTRICTIONS
Delaware has enacted laws governing the payment of dividends to stockholders by
insurers. These laws affect the dividend paying ability of the Company.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding December 31
or (ii) the individual company's statutory net gain from operations for the
preceding calendar year (if such insurer is a life company) or its net income
(not including realized capital gains) for the preceding calendar year (if such
insurer is not a life company). Any dividends to be paid by an insurer, whether
or not in excess of the aforementioned threshold, from a source other than
statutory earned surplus would also require the prior approval of the Delaware
Commissioner of Insurance.
No dividends were declared by the Company during 1999, 1998 or 1997. During
2000, AFLIAC could pay dividends of $34.3 million to FAFLIC without prior
approval.
9. REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Reinsurance transactions are accounted for in
accordance with the provisions of Statement No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts" ("Statement
No. 113").
The Company reinsures 100% of its traditional individual life and certain blocks
of its universal life business, substantially all of its disability income
business, and effective January 1, 1998, the mortality risk on the variable
universal life and remaining universal life blocks of business in-force at
December 31, 1997.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policy. Reinsurance contracts
do not relieve the Company from its obligations to policyholders. Failure of
reinsurers to honor their obligations could result in losses to the Company;
consequently, allowances are established for amounts deemed uncollectible. The
Company determines the appropriate amount of reinsurance based on evaluation of
the risks accepted and analyses prepared by consultants and reinsurers and on
market conditions (including the availability and pricing of reinsurance). The
Company also believes that the terms of its reinsurance contracts are consistent
with industry practice in that they contain
F-20
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
standard terms with respect to lines of business covered, limit and retention,
arbitration and occurrence. Based on its review of its reinsurers' financial
statements and reputations in the reinsurance marketplace, the Company believes
that its reinsurers are financially sound.
Amounts recoverable from reinsurers at December 31, 1999 and 1998 for the
disability income business were $241.5 million and $230.8 million, respectively,
traditional life were $9.7 million and $11.4 million, respectively, and
universal and variable universal life were $36.0 million and $65.8 million,
respectively.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ------ ------
<S> <C> <C> <C>
Insurance premiums:
Direct.................................................... $ 41.3 $ 45.5 $ 48.8
Assumed................................................... -- -- 2.6
Ceded..................................................... (40.8) (45.0) (28.6)
------ ------ ------
Net premiums................................................ $ 0.5 $ 0.5 $ 22.8
====== ====== ======
Insurance and other individual policy benefits, claims and
losses:
Direct.................................................... $210.6 $204.0 $226.0
Assumed................................................... -- -- 4.2
Ceded..................................................... (37.0) (50.1) (42.4)
------ ------ ------
Net policy benefits, claims and losses...................... $173.6 $153.9 $187.8
====== ====== ======
</TABLE>
10. DEFERRED POLICY ACQUISITION COSTS
The following reflects the changes to the deferred policy acquisition cost
asset:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1999 1998 1997
- ------------- -------- ------ ------
<S> <C> <C> <C>
Balance at beginning of year................................ $ 950.5 $765.3 $632.7
Acquisition expenses deferred............................. 219.5 242.4 184.2
Amortized to expense during the year...................... (49.8) (64.6) (53.1)
Adjustment to equity during the year...................... 36.2 7.4 (10.2)
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...................................... $1,156.4 $950.5 $765.3
======== ====== ======
</TABLE>
On October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.3 million recapitalization of deferred policy acquisition costs.
11. LIABILITIES FOR INDIVIDUAL DISABILITY INCOME BENEFITS
The Company regularly updates its estimates of liabilities for future policy
benefits and outstanding claims and losses as new information becomes available
and further events occur which may impact the resolution of
F-21
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
unsettled claims. Changes in prior estimates are recorded in results of
operations in the year such changes are determined to be needed.
The liability for future policy benefits and outstanding claims and losses
related to the Company's disability income business was $240.7 million and
$233.3 million at December 31, 1999 and 1998. Due to the reinsurance agreement
whereby the Company has ceded substantially all of its disability income
business to a highly rated reinsurer, the Company believes that no material
adverse development of losses will occur. However, the amount of the liabilities
could be revised in the near term if the estimates used in determining the
liability are revised.
12. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company is not able to reasonably estimate the potential
effect on it of any such future assessments or voluntary payments.
LITIGATION
In July 1997, a lawsuit on behalf of a putative class was instituted in
Louisiana against AFC and certain of its subsidiaries including AFLIAC, by
individual plaintiffs alleging fraud, unfair or deceptive acts, breach of
contract, misrepresentation, and related claims in the sale of life insurance
policies. In October 1997, plaintiffs voluntarily dismissed the Louisiana suit
and filed a substantially similar action in Federal District Court in Worcester,
Massachusetts. In early November 1998, AFC and the plaintiffs entered into a
settlement agreement. The court granted preliminary approval of the settlement
on December 4, 1998. On May 19, 1999, the Court issued an order certifying the
class for settlement purposes and granting final approval of the settlement
agreement. AFLIAC recognized a $21.0 million pre-tax expense during the third
quarter of 1998 related to this litigation. Although the Company believes that
this expense reflects appropriate recognition of its obligation under the
settlement, this estimate assumes the availability of insurance coverage for
certain claims, and the estimate may be revised based on the amount of
reimbursement actually tendered by AFC's insurance carriers, and based on
changes in the Company's estimate of the ultimate cost of the benefits to be
provided to members of the class.
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the Company's opinion, based on the advice of
legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's consolidated 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 resulted from computer programs being written using two
digits rather than four to define the applicable year. 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.
F-22
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Although the Company does not believe that there is a material contingency
associated with the Year 2000 issue, there can be no assurance that exposure for
material contingencies will not arise.
13. STATUTORY FINANCIAL INFORMATION
The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles
primarily because policy acquisition costs are expensed when incurred,
investment reserves are based on different assumptions, life insurance reserves
are based on different assumptions and income tax expense reflects only taxes
paid or currently payable. In 1999, 49 out of 50 states have adopted the
National Association of Insurance Commissioners proposed Codification, which
provides for uniform statutory accounting principles. These principles are
effective January 1, 2001. The Company is currently assessing the impact that
the adoption of Codification will have on its statutory results of operations
and financial position. Statutory net income and surplus are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ------------- ------ ------ ------
<S> <C> <C> <C>
Statutory net income........................................ $ 5.0 $ (8.2) $ 31.5
Statutory shareholder's surplus............................. $342.7 $312.2 $309.7
</TABLE>
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Allmerica Financial Life Insurance and Annuity
Company and the Contractowners of the Separate Account VA-K 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
constituting the Separate Account VA-K of Allmerica Financial Life Insurance and
Annuity Company at December 31, 1999, 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 accounting principles
generally accepted in the United States. These financial statements are the
responsibility of Allmerica Financial Life Insurance and Annuity Company; 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 auditing standards generally accepted in the United States, 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 securities at December 31, 1999 by correspondence with the Funds, provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
April 3, 2000
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
INVESTMENT
GROWTH GRADE INCOME MONEY MARKET
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust. . . . . . . . . . . . . . $ 588,408,994 $ 169,732,101 $ 269,093,323
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. . . . . . . . . . . . . . - - -
------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 588,408,994 169,732,101 269,093,323
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . . . . . . . . . . . 615,471 1,467 38,105
------------- -------------- --------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 587,793,523 $ 169,730,634 $ 269,055,218
============= ============== ==============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . . . . . . . . . $ 587,793,523 $ 169,730,634 $ 269,055,218
============= ============== ==============
Units outstanding, December 31, 1999 . . . . . . . . . . . . . . . . . . . . . 167,814,475 106,780,323 205,622,363
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . . . . $ 3.502639 $ 1.589531 $ 1.308492
<CAPTION>
SELECT
GOVERNMENT AGGRESSIVE
EQUITY INDEX BOND GROWTH
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust . . . . . . . . . . . . . $ 510,648,067 $ 75,019,142 $ 423,464,970
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. . . . . . . . . . . . . . - - -
------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 510,648,067 75,019,142 423,464,970
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . . . . . . . . . . . 603,151 827 2,368
------------- -------------- --------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 510,044,916 $ 75,018,315 $ 423,462,602
============= ============== ==============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . . . . . . . . . $ 510,044,916 $ 75,018,315 $ 423,462,602
============= ============== ==============
Units outstanding, December 31, 1999 . . . . . . . . . . . . . . . . . . . . . 131,643,587 51,710,700 123,336,801
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . . . . $ 3.874438 $ 1.450731 $ 3.433384
<CAPTION>
SELECT
GROWTH AND SELECT VALUE
SELECT GROWTH INCOME OPPORTUNITY
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust . . . . . . . . . . . . . $ 467,897,356 $ 351,326,204 $ 195,384,598
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. . . . . . . . . . . . . . - - -
------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467,897,356 351,326,204 195,384,598
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . . . . . . . . . . . 2,183 445,147 3,946
------------- -------------- --------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 467,895,173 $ 350,881,057 $ 195,380,652
============= ============== ==============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . . . . . . . . . $ 467,895,173 $ 350,881,057 $ 195,380,652
============= ============== ==============
Units outstanding, December 31, 1999 . . . . . . . . . . . . . . . . . . . . . 136,938,944 132,427,536 103,456,199
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . . . . $ 3.416816 $ 2.649608 $ 1.888535
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SELECT DGPF
INTERNATIONAL SELECT CAPITAL INTERNATIONAL
EQUITY APPRECIATION EQUITY
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust . . . . . . . . . . . . . $ 270,745,196 $ 187,912,111 $ -
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. . . . . . . . . . . . . . - - 125,520,913
------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,745,196 187,912,111 125,520,913
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . . . . . . . . . . . 1,303 523 1,185
------------- -------------- --------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 270,743,893 $ 187,911,588 $ 125,519,728
============= ============== ==============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . . . . . . . . . $ 270,743,893 $ 187,911,588 $ 125,519,728
============= ============== ==============
Units outstanding, December 31, 1999 . . . . . . . . . . . . . . . . . . . . 129,946,299 81,133,076 63,396,332
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . . . . $ 2.083506 $ 2.316091 $ 1.979921
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP
HIGH INCOME EQUITY-INCOME GROWTH
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust . . . . . . . . . . . . . $ - $ - $ -
Investments in shares of Fidelity Variable Insurance Products Funds (VIP). . . 222,647,220 613,369,225 778,451,280
Investment in shares of T. Rowe Price International Series, Inc. . . . . . . . - - -
Investment in shares of Delaware Group Premium Fund . . . . . . . . . . . . . - - -
------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222,647,220 613,369,225 778,451,280
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . . . . . . . . . . . 530 10,571 11,539
------------- -------------- --------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 222,646,690 $ 613,358,654 $ 778,439,741
============= ============== ==============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . . . . . . . . . $ 222,646,690 $ 613,358,654 $ 778,439,741
============= ============== ==============
Units outstanding, December 31, 1999 . . . . . . . . . . . . . . . . . . . . . 97,498,284 188,373,684 160,261,887
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . . . . $ 2.283596 $ 3.256074 $ 4.857298
<CAPTION>
FIDELITY T. ROWE PRICE
FIDELITY VIP VIP II INTERNATIONAL
OVERSEAS ASSET MANAGER STOCK
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of Allmerica Investment Trust . . . . . . . . . . . . . $ - $ - $ -
Investments in shares of Fidelity Variable Insurance Products Funds (VIP). . . 150,015,159 148,205,042 -
Investment in shares of T. Rowe Price International Series, Inc. . . . . . . - - 124,782,121
Investment in shares of Delaware Group Premium Fund. . . . . . . . . . . . . . - - -
------------- -------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,015,159 148,205,042 124,782,121
LIABILITIES:
Payable to Allmerica Financial Life Insurance and
Annuity Company (Sponsor). . . . . . . . . . . . . . . . . . . . . . . . . . 5,147 293 366
------------- -------------- --------------
Net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 150,010,012 $ 148,204,749 $ 124,781,755
============= ============== ==============
Net asset distribution by category:
Variable annuity contracts . . . . . . . . . . . . . . . . . . . . . . . . . $ 150,010,012 $ 148,204,749 $ 124,781,755
============= ============== ==============
Units outstanding, December 31, 1999 . . . . . . . . . . . . . . . . . . . . . 58,820,789 78,861,006 68,032,173
Net asset value per unit, December 31, 1999 . . . . . . . . . . . . . . . . . $ 2.550289 $ 1.879316 $ 1.834158
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INVESTMENT
GROWTH GRADE INCOME MONEY MARKET
-------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,215,021 $ 11,215,239 $ 11,186,884
EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . . . . . . . . 6,322,001 2,224,044 2,754,778
Administrative expense fees. . . . . . . . . . . . . . . . . . . . . . . 1,029,163 362,053 448,452
-------------- ---------------- ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,351,164 2,586,097 3,203,230
-------------- ---------------- ---------------
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . (4,136,143) 8,629,142 7,983,654
-------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors . . . . . . . . . . 46,156,698 144,883 -
Net realized gain (loss) from sales of investments . . . . . . . . . . . 6,450,537 (539,927) -
-------------- ---------------- ---------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 52,607,235 (395,044) -
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 76,594,230 (12,501,948) -
-------------- ---------------- ---------------
Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . 129,201,465 (12,896,992) -
-------------- ---------------- ---------------
Net increase (decrease) in net assets from operations . . . . . . . . $ 125,065,322 $ (4,267,850) $ 7,983,654
============== ================ ===============
<CAPTION>
SELECT
AGGRESSIVE
EQUITY INDEX GOVERNMENT BOND GROWTH
-------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,046,190 $ 4,781,846 $ -
EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . . . . . . . . 5,350,928 1,050,246 4,221,340
Administrative expense fees. . . . . . . . . . . . . . . . . . . . . . . 871,082 170,971 687,195
-------------- ---------------- ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,222,010 1,221,217 4,908,535
-------------- ---------------- ---------------
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . (2,175,820) 3,560,629 (4,908,535)
-------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors. . . . . . . . . . . 648,530 - -
Net realized gain (loss) from sales of investments . . . . . . . . . . . 6,768,876 (566,090) 10,735,234
-------------- ---------------- ---------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 7,417,406 (566,090) 10,735,234
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 69,889,480 (3,996,251) 107,103,552
-------------- ---------------- ---------------
Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . 77,306,886 (4,562,341) 117,838,786
-------------- ---------------- ---------------
Net increase (decrease) in net assets from operations . . . . . . . . $ 75,131,066 $ (1,001,712) $ 112,930,251
============== ================ ===============
<CAPTION>
SELECT
GROWTH AND SELECT VALUE
SELECT GROWTH INCOME OPPORTUNITY
-------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 194,192 $ 3,378,939 $ 1,098
EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . . . . . . . . 4,684,369 3,787,227 2,404,751
Administrative expense fees. . . . . . . . . . . . . . . . . . . . . . . 762,572 616,526 391,471
-------------- ---------------- ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,446,941 4,403,753 2,796,222
-------------- ---------------- ---------------
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . (5,252,749) (1,024,814) (2,795,124)
-------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors. . . . . . . . . . . 12,340,626 22,388,235 10,966,273
Net realized gain (loss) from sales of investments . . . . . . . . . . . 4,723,235 2,540,986 1,818,904
-------------- ---------------- ---------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 17,063,861 24,929,221 12,785,177
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 88,659,011 23,354,193 (21,271,499)
-------------- ---------------- ---------------
Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . 105,722,872 48,283,414 (8,486,322)
-------------- ---------------- ---------------
Net increase (decrease) in net assets from operations . . . . . . . . $ 100,470,123 $ 47,258,600 $ (11,281,446)
============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SELECT DGPF
INTERNATIONAL SELECT CAPITAL INTERNATIONAL
EQUITY APPRECIATION EQUITY
-------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ - $ 2,575,294
EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . . . . . . . . 2,820,506 1,951,545 1,502,291
Administrative expense fees. . . . . . . . . . . . . . . . . . . . . . . 459,153 317,693 244,559
-------------- ---------------- ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,279,659 2,269,238 1,746,850
-------------- ---------------- ---------------
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . (3,279,659) (2,269,238) 828,444
-------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors. . . . . . . . . . . - 236,069 188,083
Net realized gain (loss) from sales of investments . . . . . . . . . . . 3,471,561 2,476,490 3,268,843
-------------- ---------------- ---------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 3,471,561 2,712,559 3,456,926
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 61,875,342 35,111,252 11,844,338
-------------- ---------------- ---------------
Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . 65,346,903 37,823,811 15,301,264
-------------- ---------------- ---------------
Net increase (decrease) in net assets from operations . . . . . . . . $ 62,067,244 $ 35,554,573 $ 16,129,708
============== ================ ===============
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP
HIGH INCOME EQUITY-INCOME GROWTH
-------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,278,607 $ 8,724,904 $ 957,346
EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . . . . . . . . 2,748,973 7,627,328 7,834,599
Administrative expense fees. . . . . . . . . . . . . . . . . . . . . . . 447,507 1,241,659 1,275,399
-------------- ---------------- ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,196,480 8,868,987 9,109,998
-------------- ---------------- ---------------
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . 16,082,127 (144,083) (8,152,652)
-------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors . . . . . . . . . . 720,696 19,286,629 60,193,116
Net realized gain (loss) from sales of investments . . . . . . . . . . . (940,790) 10,491,497 10,853,416
-------------- ---------------- ---------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . (220,094) 29,778,126 71,046,532
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . (2,152,485) (1,182,641) 136,395,117
-------------- ---------------- ---------------
Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . (2,372,579) 28,595,485 207,441,649
-------------- ---------------- ---------------
Net increase (decrease) in net assets from operations . . . . . . . . $ 13,709,548 $ 28,451,402 $ 199,288,997
============== ================ ===============
<CAPTION>
T. ROWE PRICE
FIDELITY VIP FIDELITY VIP II INTERNATIONAL
OVERSEAS ASSET MANAGER STOCK
-------------- ---------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,651,575 $ 3,989,011 $ 450,610
EXPENSES:
Mortality and expense risk fees . . . . . . . . . . . . . . . . . . . . 1,448,508 1,641,096 1,270,009
Administrative expense fees. . . . . . . . . . . . . . . . . . . . . . . 235,803 267,156 206,746
-------------- ---------------- ---------------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,684,311 1,908,252 1,476,755
-------------- ---------------- ---------------
Net investment income (loss) . . . . . . . . . . . . . . . . . . . . . (32,736) 2,080,759 (1,026,145)
-------------- ---------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors . . . . . . . . . . 2,663,830 5,052,747 1,416,204
Net realized gain (loss) from sales of investments . . . . . . . . . . . 2,688,416 734,454 1,950,488
-------------- ---------------- ---------------
Net realized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 5,352,246 5,787,201 3,366,692
Net unrealized gain (loss) . . . . . . . . . . . . . . . . . . . . . . . 36,901,156 4,342,270 27,606,832
-------------- ---------------- ---------------
Net realized and unrealized gain (loss) . . . . . . . . . . . . . . . 42,253,402 10,129,471 30,973,524
-------------- ---------------- ---------------
Net increase (decrease) in net assets from operations . . . . . . . . $ 42,220,666 $ 12,210,230 $ 29,947,379
============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INVESTMENT
GROWTH GRADE INCOME
-------------------------------- -------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (4,136,143) $ (1,452,248) $ 8,629,142 $ 6,945,206
Net realized gain (loss). . . . . . . . . . . . . . . . . . 52,607,235 5,783,402 (395,044) 309,825
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 76,594,230 61,966,017 (12,501,948) 2,193,617
-------------- -------------- -------------- -------------
Net increase (decrease) in net assets from operations . . . 125,065,322 66,297,171 (4,267,850) 9,448,648
-------------- -------------- -------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 24,016,712 23,152,380 9,701,880 10,363,995
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (36,550,023) (22,500,816) (13,783,618) (9,709,421)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (3,298,297) (2,796,974) (1,023,087) (929,739)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (158,010) (147,854) (41,373) (42,918)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 23,663,744 20,863,894 14,591,086 22,142,688
Other transfers from (to) the General Account . . . . . . . 1,857,336 3,452,255 (1,721,300) 2,166,365
-------------- -------------- -------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . 9,531,462 22,022,885 7,723,588 23,990,970
-------------- -------------- -------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . 134,596,784 88,320,056 3,455,738 33,439,618
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 453,196,739 364,876,683 166,274,896 132,835,278
-------------- -------------- -------------- -------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 587,793,523 $ 453,196,739 $ 169,730,634 $ 166,274,896
============== ============== ============== =============
<CAPTION>
MONEY MARKET EQUITY INDEX
------------------------------- ------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ 7,983,654 $ 5,079,118 $ (2,175,820) $ (693,387)
Net realized gain (loss). . . . . . . . . . . . . . . . . . - - 7,417,406 11,505,568
Net unrealized gain (loss). . . . . . . . . . . . . . . . . - - 69,889,480 55,881,208
-------------- -------------- ------------- --------------
Net increase (decrease) in net assets from operations . . . 7,983,654 5,079,118 75,131,066 66,693,389
-------------- -------------- ------------- --------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 438,987,405 388,698,585 32,887,575 25,436,203
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (34,391,134) (15,069,288) (29,625,579) (13,594,962)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (1,483,815) (1,010,367) (2,868,514) (2,098,286)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (32,718) (24,514) (119,189) (84,863)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . (330,361,387) (364,921,954) 77,092,509 47,344,643
Other transfers from (to) the General Account . . . . . . . 25,859,621 38,477,265 6,152,084 7,492,994
-------------- -------------- ------------- --------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . 98,577,972 46,149,727 83,518,886 64,495,729
-------------- -------------- ------------- --------------
Net increase (decrease) in net assets . . . . . . . . . . . 106,561,626 51,228,845 158,649,952 131,189,118
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 162,493,592 111,264,747 351,394,964 220,205,846
-------------- -------------- ------------- --------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 269,055,218 $162,493,592 $510,044,916 $351,394,964
============== ============== ============= ==============
<CAPTION>
GOVERNMENT BOND
-----------------------------
YEAR ENDED DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ 3,560,629 $ 2,493,711
Net realized gain (loss). . . . . . . . . . . . . . . . . . (566,090) 79,202
Net unrealized gain (loss). . . . . . . . . . . . . . . . . (3,996,251) 920,202
------------- -------------
Net increase (decrease) in net assets from operations . . . (1,001,712) 3,493,115
------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 8,933,342 9,387,842
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (7,188,109) (4,327,463)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (468,436) (646,947)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (14,843) (14,294)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 4,441,216 13,782,410
Other transfers from (to) the General Account . . . . . . . (1,546,231) 1,396,680
------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . 4,156,939 19,578,228
------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . 3,155,227 23,071,343
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 71,863,088 48,791,745
------------- -------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,018,315 $ 71,863,088
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT
AGGRESSIVE GROWTH SELECT GROWTH
------------------------------ --------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (4,908,535) $ (3,991,300) $ (5,252,749) $ (3,349,010)
Net realized gain (loss). . . . . . . . . . . . . . . . . . 10,735,234 1,315,125 17,063,861 3,910,913
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 107,103,552 28,554,242 88,659,011 73,132,113
------------- ------------- -------------- -------------
Net increase (decrease) in net assets from operations . . . 112,930,251 25,878,067 100,470,123 73,694,016
------------- ------------- -------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 18,504,192 21,281,666 24,842,639 22,206,826
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (25,549,834) (15,897,301) (26,571,683) (10,783,834)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (1,081,675) (842,853) (1,371,717) (896,543)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (127,147) (115,070) (111,678) (77,520)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 1,573,493 35,552,684 42,559,914 43,402,629
Other transfers from (to) the General Account . . . . . . . 1,244,022 3,919,867 4,876,229 6,310,988
------------- ------------- -------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . (5,436,949) 43,898,993 44,223,704 60,162,546
------------- ------------- -------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . 107,493,302 69,777,060 144,693,827 133,856,562
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 315,969,300 246,192,240 323,201,346 189,344,784
------------- ------------- -------------- -------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 423,462,602 $ 315,969,300 $ 467,895,173 $ 323,201,346
============= ============= ============== =============
<CAPTION>
SELECT SELECT VALUE
GROWTH AND INCOME OPPORTUNITY
----------------------------- -------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (1,024,814) $ (438,542) $ (2,795,124) $ (955,786)
Net realized gain (loss). . . . . . . . . . . . . . . . . . 24,929,221 1,952,332 12,785,177 1,076,083
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 23,354,193 30,548,177 (21,271,499) 5,479,539
------------- -------------- ------------- --------------
Net increase (decrease) in net assets from operations . . . 47,258,600 32,061,967 (11,281,446) 5,599,836
------------- -------------- ------------- --------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 17,142,639 15,264,363 9,033,922 12,662,724
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (21,533,465) (11,976,840) (14,328,750) (8,295,446)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (2,866,072) (2,094,743) (630,503) (575,288)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (74,816) (65,775) (59,148) (59,441)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 35,114,290 26,940,573 10,800,586 22,459,345
Other transfers from (to) the General Account . . . . . . . 5,443,707 5,446,574 1,268,839 3,197,294
------------- -------------- ------------- --------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . 33,226,283 33,514,152 6,084,946 29,389,188
------------- -------------- ------------- --------------
Net increase (decrease) in net assets . . . . . . . . . . . 80,484,883 65,576,119 (5,196,500) 34,989,024
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 270,396,174 204,820,055 200,577,152 165,588,128
------------- -------------- ------------- --------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 350,881,057 $ 270,396,174 $ 195,380,652 $ 200,577,152
============= ============== ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-6
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SELECT INTERNATIONAL SELECT CAPITAL
EQUITY APPRECIATION
------------------------------ ------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (3,279,659) $ (61,946) $ (2,269,238) $ (1,821,358)
Net realized gain (loss). . . . . . . . . . . . . . . . . . 3,471,561 463,309 2,712,559 23,638,698
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 61,875,342 24,779,920 35,111,252 (5,203,690)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations . . . 62,067,244 25,181,283 35,554,573 16,613,650
------------- ------------- ------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 11,344,784 13,306,352 8,595,028 9,353,854
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (14,712,183) (7,314,601) (11,932,699) (5,713,842)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (759,130) (685,709) (595,054) (419,195)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (69,281) (64,103) (50,131) (46,233)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 2,775,341 14,347,051 4,910,062 9,998,422
Other transfers from (to) the General Account . . . . . . . 1,417,921 2,330,088 1,368,660 1,818,486
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . (2,548) 21,919,078 2,295,866 14,991,492
------------- ------------- ------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . 62,064,696 47,100,361 37,850,439 31,605,142
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 208,679,197 161,578,836 150,061,149 118,456,007
------------- ------------- ------------- -------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 270,743,893 $ 208,679,197 $ 187,911,588 $ 150,061,149
============= ============= ============= =============
<CAPTION>
DGPF FIDELITY VIP
INTERNATIONAL EQUITY HIGH INCOME
----------------------------- ------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ 828,444 $ 2,232,442 $ 16,082,127 $ 9,750,617
Net realized gain (loss). . . . . . . . . . . . . . . . . . 3,456,926 524,782 (220,094) 7,946,249
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 11,844,338 6,030,154 (2,152,485) (29,941,145)
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations . . . 16,129,708 8,787,378 13,709,548 (12,244,279)
------------- ------------- ------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 4,614,436 6,454,592 11,140,024 16,334,143
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (8,759,974) (5,616,866 (17,342,745) (10,795,966)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (477,836) (369,791 (1,180,063) (1,097,609)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (34,245) (34,104 (59,343) (58,071)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . (3,009,304) 8,564,109 7,983,019 38,988,866
Other transfers from (to) the General Account . . . . . . . (1,443,372) 1,556,191 (1,197,799) 5,027,099
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . (9,110,295) 10,554,131 (656,907) 48,398,462
------------- ------------- ------------- --------------
Net increase (decrease) in net assets . . . . . . . . . . . 7,019,413 19,341,509 13,052,641 36,154,183
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 118,500,315 99,158,806 209,594,049 173,439,866
------------- ------------- ------------- --------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 125,519,728 $ 118,500,315 $ 222,646,690 $ 209,594,049
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-7
<PAGE>
SEPARATE ACCOUNT VA-K
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP
EQUITY-INCOME GROWTH
----------------------------- -------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (144,083) $ (744,651) $ (8,152,652) $ (4,433,739)
Net realized gain (loss). . . . . . . . . . . . . . . . . . 29,778,126 30,422,305 71,046,532 58,013,994
Net unrealized gain (loss). . . . . . . . . . . . . . . . . (1,182,641) 21,541,366 136,395,117 92,401,524
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations . . . 28,451,402 51,219,020 199,288,997 145,981,779
------------- ------------- ------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 27,773,097 31,978,182 33,765,170 24,189,477
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (46,417,375) (31,513,789) (51,125,474) (27,468,965)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (2,971,372) (2,356,266) (2,589,245) (2,039,146)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (199,771) (203,860) (215,967) (191,465)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 21,098,544 24,052,204 63,466,803 5,764,814
Other transfers from (to) the General Account . . . . . . . 1,492,354 2,652,365 1,482,283 1,580,856
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . 775,477 24,608,836 44,783,570 1,835,571
------------- ------------- ------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . 29,226,879 75,827,856 244,072,567 147,817,350
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 584,131,775 508,303,919 534,367,174 386,549,824
------------- ------------- ------------- -------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 613,358,654 $ 584,131,775 $ 778,439,741 $ 534,367,174
============= ============= ============= =============
<CAPTION>
FIDELITY VIP FIDELITY VIP II
OVERSEAS ASSET MANAGER
----------------------------- -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998 1999 1998
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (32,736) $ 351,217 $ 2,080,759 $ 1,273,208
Net realized gain (loss). . . . . . . . . . . . . . . . . . 5,352,246 6,217,656 5,787,201 8,311,168
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 36,901,156 3,731,753 4,342,270 3,240,712
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from operations . . . 42,220,666 10,300,626 12,210,230 12,825,088
------------- ------------- ------------- -------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 5,861,684 6,122,888 7,716,542 8,512,565
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (9,499,501) (6,424,320) (10,097,109) (5,321,586)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (321,424) (413,395) (461,585) (653,162)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (45,992) (46,447) (30,076) (23,772)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . 4,693,132 4,525,206 18,710,626 18,036,934
Other transfers from (to) the General Account . . . . . . . (40,730) 534,379 504,270 2,193,311
------------- ------------- ------------- -------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . 647,169 4,298,311 16,342,668 22,744,290
------------- ------------- ------------- -------------
Net increase (decrease) in net assets . . . . . . . . . . . 42,867,835 14,598,937 28,552,898 35,569,378
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 107,142,177 92,543,240 119,651,851 84,082,473
------------- ------------- ------------- -------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 150,010,012 $ 107,142,177 $ 148,204,749 $ 119,651,851
============= ============= ============= =============
<CAPTION>
T. ROWE PRICE
INTERNATIONAL STOCK
------------------------------
YEAR ENDED DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss). . . . . . . . . . . . . . . . $ (1,026,145) $ (128,622)
Net realized gain (loss). . . . . . . . . . . . . . . . . . 3,366,692 624,973
Net unrealized gain (loss). . . . . . . . . . . . . . . . . 27,606,832 10,425,832
------------- ------------
Net increase (decrease) in net assets from operations. . . 29,947,379 10,922,183
------------- ------------
FROM CONTRACT TRANSACTIONS:
Net purchase payments . . . . . . . . . . . . . . . . . . . 4,736,022 5,708,803
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . (6,622,362) (3,090,733)
Contract benefits . . . . . . . . . . . . . . . . . . . . . (437,587) (234,511)
Contract charges. . . . . . . . . . . . . . . . . . . . . . (24,690) (21,793)
Transfers between sub-accounts (including fixed
account), net. . . . . . . . . . . . . . . . . . . . . . . (134,325) 7,450,376
Other transfers from (to) the General Account . . . . . . . 1,879,994 1,566,892
------------- ------------
Net increase (decrease) in net assets from contract
transactions . . . . . . . . . . . . . . . . . . . . . . . (602,948) 11,379,034
------------- ------------
Net increase (decrease) in net assets . . . . . . . . . . . 29,344,431 22,301,217
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 95,437,324 73,136,107
------------- ------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 124,781,755 $ 95,437,324
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-8
<PAGE>
SEPARATE ACCOUNT VA-K
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Separate Account VA-K, which funds the Allmerica Advantage, ExecAnnuity Plus
and Allmerica Immediate Advantage variable annuity contracts, in addition to
other contracts (the Delaware Medallion variable annuity 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 Allmerica Advantage and
ExecAnnuity Plus variable annuity contracts and twenty Sub-Accounts under the
Allmerica Immediate Advantage Variable Annuity contracts. Each Sub-Account
invests exclusively in a corresponding investment portfolio of the Allmerica
Investment Trust (the Trust) managed by Allmerica Financial Investment
Management Services, Inc. (AFIMS), a wholly-owned subsidiary of the Company; 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 Delaware Group Premium Fund (DGPF) managed by Delaware
International Advisers Ltd.; or of the T. Rowe Price International Series, Inc.
(T. Rowe Price) managed by Rowe Price-Fleming International, Inc. The Trust,
Fidelity VIP, Fidelity VIP II, DGPF, and T. Rowe Price (the Funds) are open-end,
management investment companies registered under the 1940 Act.
Effective May 1, 2000, AIT Investment Grade Income Fund will be renamed
Select Investment Grade Income Fund and AIT Growth Fund will be renamed Core
Equity Fund.
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 Funds. 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 and are
reinvested in additional shares of the respective investment portfolio of the
Funds at net asset value.
FEDERAL INCOME TAXES - The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code (the 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.
SA-9
<PAGE>
SEPARATE ACCOUNT VA-K
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Funds at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
------------------------------------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
INVESTMENT PORTFOLIO SHARES COST PER SHARE
-------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Growth. . . . . . . . . . . . . . . . . . . . . 177,713,378 $ 418,243,148 $ 3.311
Investment Grade Income . . . . . . . . . . . . 161,495,814 178,408,995 1.051
Money Market. . . . . . . . . . . . . . . . . . 269,093,323 269,093,323 1.000
Equity Index. . . . . . . . . . . . . . . . . . 125,775,386 324,403,051 4.060
Government Bond . . . . . . . . . . . . . . . . 74,202,910 78,446,559 1.011
Select Aggressive Growth. . . . . . . . . . . . 124,146,869 234,758,538 3.411
Select Growth . . . . . . . . . . . . . . . . . 153,459,284 267,182,963 3.049
Select Growth and Income. . . . . . . . . . . . 181,751,787 261,454,424 1.933
Select Value Opportunity. . . . . . . . . . . . 128,457,987 188,265,674 1.521
Select International Equity . . . . . . . . . . 133,306,350 171,706,833 2.031
Select Capital Appreciation . . . . . . . . . . 91,530,497 139,405,749 2.053
DGPF International Equity . . . . . . . . . . . 6,737,569 93,854,254 18.630
Fidelity VIP High Income. . . . . . . . . . . . 19,685,873 231,278,049 11.310
Fidelity VIP Equity-Income. . . . . . . . . . . 23,857,224 439,346,743 25.710
Fidelity VIP Growth . . . . . . . . . . . . . . 14,171,696 419,450,253 54.930
Fidelity VIP Overseas . . . . . . . . . . . . . 5,467,025 92,916,124 27.440
Fidelity VIP II Asset Manager . . . . . . . . . 7,938,138 127,437,991 18.670
T. Rowe Price International Stock . . . . . . . 6,553,683 84,324,143 19.040
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum to Allmerica Advantage,
ExecAnnuity Plus and to Allmerica Immediate Advantage based on the average daily
net assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account of Allmerica Advantage,
ExecAnnuity Plus and Allmerica Immediate Advantage 0.20% 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 A3018-94 (ExecAnnuity Plus), a contract fee is
deducted on the contract anniversary 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 contract 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 and upon full surrender when the
accumulated value is less than $50,000. The fee is currently waived for all
contracts (ExecAnnuity Plus and Allmerica Advantage) issued to and maintained by
the trustee of a 401(k) plan.
Allmerica Investments, Inc. (Allmerica Investments), a wholly-owned
subsidiary of the Company, 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. Allmerica Advantage and ExecAnnuity Plus contracts
have a contingent deferred sales charge and no deduction is made for sales
charges at the time of the sale.
SA-10
<PAGE>
SEPARATE ACCOUNT VA-K
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS
Transactions from contractowners and sponsor were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
--------------------------------------- --------------------------------------
UNITS AMOUNT UNITS AMOUNT
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Growth
Issuance of Units . . . . . . . . . . . . . 31,322,880 $ 118,251,467 35,414,157 $ 88,002,941
Redemption of Units . . . . . . . . . . . . (28,422,600) (108,720,005) (26,666,754) (65,980,056)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 2,900,280 $ 9,531,462 8,747,403 $ 22,022,885
================== ================== ================== =================
Investment Grade Income
Issuance of Units . . . . . . . . . . . . . 38,928,138 $ 62,414,120 40,947,469 $ 67,361,561
Redemption of Units . . . . . . . . . . . . (34,236,306) (54,690,532) (25,662,004) (43,370,591)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 4,691,832 $ 7,723,588 15,285,465 $ 23,990,970
================== ================== ================== =================
Money Market
Issuance of Units . . . . . . . . . . . . . 584,789,664 $ 725,476,037 480,585,830 $ 576,517,573
Redemption of Units . . . . . . . . . . . . (507,897,119) (626,898,065) (443,526,171) (530,367,846)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 76,892,545 $ 98,577,972 37,059,659 $ 46,149,727
================== ================== ================== =================
Equity Index
Issuance of Units . . . . . . . . . . . . . 55,764,065 $ 194,646,213 43,689,479 $ 125,016,046
Redemption of Units . . . . . . . . . . . . (31,745,632) (111,127,327) (21,378,757) (60,520,317)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 24,018,433 $ 83,518,886 22,310,722 $ 64,495,729
================== ================== ================== =================
Government Bond
Issuance of Units . . . . . . . . . . . . . 39,868,338 $ 57,035,078 36,235,069 $ 51,588,649
Redemption of Units . . . . . . . . . . . . (37,088,130) (52,878,139) (22,565,149) (32,010,421)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 2,780,208 $ 4,156,939 13,669,920 $ 19,578,228
================== ================== ================== =================
Select Aggressive Growth
Issuance of Units . . . . . . . . . . . . . 36,883,059 $ 100,664,989 41,209,415 $ 96,835,317
Redemption of Units . . . . . . . . . . . . (39,304,433) (106,101,938) (22,240,992) (52,936,324)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . (2,421,374) $ (5,436,949) 18,968,423 $ 43,898,993
================== ================== ================== =================
Select Growth
Issuance of Units . . . . . . . . . . . . . 49,096,616 $ 139,643,547 50,148,994 $ 113,239,811
Redemption of Units . . . . . . . . . . . . (33,162,768) (95,419,843) (23,786,903) (53,077,265)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 15,933,848 $ 44,223,704 26,362,091 $ 60,162,546
================== ================== ================== =================
Select Growth and Income
Issuance of Units . . . . . . . . . . . . . 41,070,387 $ 101,335,880 37,081,023 $ 77,642,713
Redemption of Units . . . . . . . . . . . . (27,750,086) (68,109,597) (21,516,678) (44,128,561)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 13,320,301 $ 33,226,283 15,564,345 $ 33,514,152
================== ================== ================== =================
Select Value Opportunity
Issuance of Units . . . . . . . . . . . . . 37,813,556 $ 70,885,921 32,164,349 $ 63,580,221
Redemption of Units . . . . . . . . . . . . (34,107,084) (64,800,975) (17,540,671) (34,191,033)
------------------ ------------------ ------------------ -----------------
Net increase (decrease) . . . . . . . . . 3,706,472 $ 6,084,946 14,623,678 $ 29,389,188
================== ================== ================== =================
SA-11
<PAGE>
SEPARATE ACCOUNT VA-K
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
--------------------------------------- --------------------------------------
UNITS AMOUNT UNITS AMOUNT
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Select International Equity
Issuance of Units . . . . . . . . . . . . . 34,451,914 $ 59,813,091 37,484,996 $ 56,306,351
Redemption of Units . . . . . . . . . . . . (34,516,516) (59,815,639) (23,060,019) (34,387,273)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . (64,602) $ (2,548) 14,424,977 $ 21,919,078
================== ================== ================== ==============
Select Capital Appreciation
Issuance of Units . . . . . . . . . . . . . 26,842,924 $ 53,598,764 25,808,681 $ 42,819,894
Redemption of Units . . . . . . . . . . . . (25,758,043) (51,302,898) (16,692,015) (27,828,402)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . 1,084,881 $ 2,295,866 9,116,666 $ 14,991,492
================== ================== ================== ==============
DGPF International Equity
Issuance of Units . . . . . . . . . . . . . 15,808,205 $ 28,915,615 19,548,692 $ 32,754,499
Redemption of Units . . . . . . . . . . . . (20,690,476) (38,025,910) (13,404,183) (22,200,368)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . (4,882,271) $ (9,110,295) 6,144,509 $ 10,554,131
================== ================== ================== ==============
Fidelity VIP High Income
Issuance of Units . . . . . . . . . . . . . 29,297,659 $ 65,617,874 41,047,554 $ 91,158,751
Redemption of Units . . . . . . . . . . . . (29,628,016) (66,274,781) (19,562,695) (42,760,289)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . (330,357) $ (656,907) 21,484,859 $ 48,398,462
================== ================== ================== ==============
Fidelity VIP Equity-Income
Issuance of Units . . . . . . . . . . . . . 39,554,082 $ 130,745,589 40,370,670 $ 120,358,364
Redemption of Units . . . . . . . . . . . . (39,169,623) (129,970,112) (32,382,953) (95,749,528)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . 384,459 $ 775,477 7,987,717 $ 24,608,836
================== ================== ================== ==============
Fidelity VIP Growth
Issuance of Units . . . . . . . . . . . . . 47,966,342 $ 194,692,684 27,217,433 $ 81,585,030
Redemption of Units . . . . . . . . . . . . (36,713,176) (149,909,114) (26,419,759) (79,749,459)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . 11,253,166 $ 44,783,570 797,674 $ 1,835,571
================== ================== ================== ==============
Fidelity VIP Overseas
Issuance of Units . . . . . . . . . . . . . 15,850,862 $ 33,264,942 14,517,190 $ 25,690,826
Redemption of Units . . . . . . . . . . . . (16,082,430) (32,617,773) (12,153,924) (21,392,515)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . (231,568) $ 647,169 2,363,266 $ 4,298,311
================== ================== ================== ==============
Fidelity VIP II Asset Manager
Issuance of Units . . . . . . . . . . . . . 30,018,403 $ 53,424,410 27,248,291 $ 42,989,274
Redemption of Units . . . . . . . . . . . . (20,861,754) (37,081,742) (13,095,360) (20,244,984)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . 9,156,649 $ 16,342,668 14,152,931 $ 22,744,290
================== ================== ================== ==============
T. Rowe Price International Stock
Issuance of Units . . . . . . . . . . . . . 21,856,983 $ 32,448,759 22,433,345 $ 29,223,947
Redemption of Units . . . . . . . . . . . . (22,191,417) (33,051,707) (13,899,360) (17,844,913)
------------------ ------------------ ------------------ --------------
Net increase (decrease) . . . . . . . . . (334,434) $ (602,948) 8,533,985 $ 11,379,034
================== ================== ================== ==============
</TABLE>
SA-12
<PAGE>
SEPARATE ACCOUNT VA-K
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the 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 "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 shares of the Funds by Separate
Account VA-K during the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
-------------------- --------------- ---------------
<S> <C> <C>
Growth . . . . . . . . . . . . . . . . . . . . $ 77,621,443 $ 25,587,130
Investment Grade Income . . . . . . . . . . . 34,258,333 17,739,647
Money Market . . . . . . . . . . . . . . . . . 221,634,343 115,122,901
Equity Index . . . . . . . . . . . . . . . . . 102,791,841 20,280,449
Government Bond . . . . . . . . . . . . . . . 28,987,471 21,269,182
Select Aggressive Growth . . . . . . . . . . . 25,686,132 36,030,908
Select Growth. . . . . . . . . . . . . . . . . 64,316,389 13,004,936
Select Growth and Income . . . . . . . . . . . 64,611,446 9,608,131
Select Value Opportunity . . . . . . . . . . . 31,858,315 17,600,136
Select International Equity. . . . . . . . . . 11,678,795 14,961,612
Select Capital Appreciation. . . . . . . . . . 17,377,030 17,114,816
DGPF International Equity. . . . . . . . . . . 8,273,670 16,367,324
Fidelity VIP High Income . . . . . . . . . . . 34,768,712 18,622,522
Fidelity VIP Equity-Income . . . . . . . . . . 55,051,097 35,127,319
Fidelity VIP Growth. . . . . . . . . . . . . . 125,744,797 28,914,368
Fidelity VIP Overseas. . . . . . . . . . . . . 14,934,875 11,653,977
Fidelity VIP II Asset Manager. . . . . . . . . 31,231,512 7,755,748
T. Rowe Price International Stock. . . . . . . 10,245,120 10,458,723
--------------- ---------------
Totals . . . . . . . . . . . . . . . . . . . $ 961,071,321 $ 437,219,829
=============== ===============
</TABLE>
NOTE 8 - PLAN OF SUBSTITUTION FOR PORTFOLIO OF THE TRUST
An application has been filed with the Securities and Exchange Commission
(SEC) seeking an order approving the substitution of shares of the Select
Investment Grade Income Fund (SIGIF) for all of the shares of the Select Income
Fund (SIF). To the extent required by law, approvals of such substitution will
also be obtained from the state insurance regulators in certain jurisdictions.
The effect of the substitution will be to replace SIF shares with SIGIF shares.
The substitution is planned to be effective on or about July 1, 2000.
SA-13
<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
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 was previously filed on
April 24, 1998 in Post-Effective Amendment No. 14 of
Registration Statement No. 33-39702/811-6293, and is
incorporated by reference herein.
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 Services Agreement was
previously filed on April 24, 1998 in Post-Effective
Amendment No. 14 of Registration Statement No.
33-39702/811-6293, and is incorporated by reference
herein.
(b) Sales Agreements were previously filed on April 24,
1998 in Post-Effective Amendment No. 14 of
Registration Statement No. 33-39702/811-6293, and are
incorporated by reference herein.
(c) General Agent's Agreement was previously filed on
April 24, 1998 in Post-Effective Amendment No. 14 of
Registration Statement No. 33-39702/811-6293, and is
incorporated by reference herein.
(d) Career Agent Agreement with Commission Schedule was
previously filed on April 24, 1998 in Post-Effective
Amendment No. 14 of Registration Statement No.
33-39702/811-6293, and is incorporated by reference
herein.
(e) Registered Representative's Agreement was previously
filed on April 24, 1998 in Post-Effective Amendment
No. 14 of Registration Statement No.
33-39702/811-6293, and is incorporated by reference
herein.
EXHIBIT 4 (a) Contract Form A3030-99 was previously filed on
December 20, 1999 in Pre-Effective Amendment No. 1 of
Registration Statement No. 333-87099/811-6293 and is
incorporated by reference herein.
<PAGE>
(b) Specification Pages Form A8030-99 was previously filed
on December 20, 1999 in Pre-Effective Amendment No. 1
of Registration Statement No. 333-87099/811-6293 and
is incorporated by reference herein.
(c) Enhanced Death Benefit Rider with 5% Accumulation and
Ratchet (Form 3263-99) was previously filed on
September 14, 1999 in Registrant's initial
Registration Statement No. 333-87099/811-6293 and is
incorporated by reference herein.
EXHIBIT 5 Application Form 11214 was previously filed on December
20, 1999 in Pre-Effective Amendment No. 1 of Registration
Statement No. 333-87099/811-6293 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 of
Registration Statement No. 33-39702/811-6293, and are
incorporated by reference herein.
EXHIBIT 7 Not Applicable.
EXHIBIT 8 (a) Fidelity Service Agreement was previously filed on
April 30, 1996 in Post-Effective Amendment No. 11 of
Registration Statement 33-39702/811-6293, 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 of
Registration Statement No. 33-39702/811-6293, 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 of Registration
Statement No. 33-39702/811-6293, and is incorporated
by reference herein.
(d) BFDS Agreements for lockbox and mailroom services were
previously filed on April 24, 1998 in Post-Effective
Amendment No. 14 of Registration Statement No.
33-39702/811-6293, and are incorporated by reference
herein.
(e) Directors' Power of Attorney is 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 Schedule for Computation of Performance Quotations was
previously filed on December 20, 1999 in Pre-Effective
Amendment No. 1 of Registration Statement No.
333-87099/811-6293 and is incorporated by reference
herein.
EXHIBIT 14 Not Applicable.
<PAGE>
EXHIBIT 15 (a) Participation Agreement with Allmerica Investment
Trust dated March 22, 2000 was previously filed in
April, 2000 in Post-Effective Amendment No. 17 of
Registration Statement No. 33-39702/811-6293, and is
incorporated by reference herein.
(b) Form of Amendment to AIM Participation Agreement was
previously filed in April 2000 in Post-Effective
Amendment No. 19 of Registration Statement No.
33-44830/811-6293 and is incorporated by reference
herein. Participation Agreement with AIM Variable
Insurance Funds, Inc. was previously filed on August
27, 1998 in Post-Effective Amendment No. 3 in
Registration Statement No. 333-11377/811-7799, and is
incorporated by reference herein.
(c) Form of Participation Agreement with Alliance is filed
herewith.
(d) Participation Agreement with Bankers Trust is filed
herewith.
(e) Form of Amendment to Delaware Participation Agreement
was previously filed in April 2000 in Post-Effective
Amendment No. 19 of Registration Statement No.
33-44830/811-6293 and is incorporated by reference
herein. Participation Agreement with Delaware Group
Premium Fund and Amendment was previously filed on
April 24, 1998 in Registration Statement No.
33-39702/811-6293, Post-Effective Amendment No. 14,
and is incorporated by reference herein.
(f) Amendment to Variable Insurance Products Fund II
Participation Agreement dated March 29, 2000 and
Amendment dated November 13, 1998 were previously
filed in April 2000 in Post-Effective Amendment No. 17
of Registration Statement No. 33-39702/811-6293, and
are incorporated by reference herein. Participation
Agreement, as amended, with Variable Insurance
Products Fund II was previously filed on April 24,
1998 in Registration Statement No. 33-39702/811-6293,
Post-Effective Amendment No. 14, and is incorporated
by reference herein.
(g) Participation Agreement with Variable Insurance
Products Fund III is filed herewith.
(h) Form of Participation Agreement with Franklin
Templeton was previously filed in April 2000 in
Post-Effective Amendment No. 19 of Registration
Statement No. 33-44830/811-6293 and is incorporated
by reference herein.
(i) Participation Agreement with INVESCO is filed
herewith.
(j) Participation Agreement with Janus is filed herewith.
(k) Amendment to Kemper Participation Agreement was
previously filed in April 2000 in Post-Effective
Amendment No. 7 of Registration Statement No.
333-09965/811-7767 and is incorporated by reference
herein. Participation Agreement with Kemper was
previously filed on November 6, 1996 in Pre-Effective
Amendment No. 1 in Registration Statement No.
333-00965/811-7767, and is incorporated by
reference herein.
(l) Form of Amendment to Pioneer Participation Agreement
was previously filed in April 2000 in Post-Effective
Amendment No. 14 of Registration Statement No.
33-85916/811-8848, and is incorporated by reference
herein. Participation Agreement with Pioneer was
previously filed on April 24, 1998 in Post-Effective
Amendment No. 9 of Registration Statement No.
33-85916/811-8848, and is incorporated by reference
herein.
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 WITH COMPANY PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
<S> <C>
Bruce C. Anderson Director (since 1996), Vice President (since 1984) and Assistant
Director Secretary (since 1992) of First Allmerica
Warren E. Barnes Vice President (since 1996) and Corporate Controller (since 1998) of First
Vice President and Allmerica
Corporate Controller
Mark R. Colborn Director (since 2000) and Vice President (since 1992) of First Allmerica.
Director and Vice President
Mary Eldridge Secretary (since 1999) of First Allmerica; Secretary (since 1999) of
Secretary Allmerica Investments, Inc.; and Secretary (since 1999) of Allmerica
Financial Investment Management Services, Inc.
J. Kendall Huber Director, Vice President and General Counsel of First Allmerica (since
Director, Vice President and 2000); Vice President (1999) of Promos Hotel Corporation; Vice President &
General Counsel Deputy General Counsel (1998-1999) of Legg Mason, Inc.; Vice President and
Deputy General Counsel (1995-1998) of USF&G Corporation.
John P. Kavanaugh Director and Chief Investment Officer (since 1996) and Vice President
Director, Vice President and (since 1991) of First Allmerica; Vice President (since 1998) of Allmerica
Chief Investment Officer Financial Investment Management Services, Inc.; and President (since 1995)
and Director (since 1996) of Allmerica Asset Management, Inc.
J. Barry May Director (since 1996) of First Allmerica; Director and President (since
Director 1996) of The Hanover Insurance Company; and Vice President (1993 to 1996)
of The Hanover Insurance Company
James R. McAuliffe Director (since 1996) of First Allmerica; Director (since
Director 1992), President (since 1994) and Chief Executive Officer (since
1996) of Citizens Insurance Company of America
Mark C. McGivney Vice President (since 1997) and Treasurer (since 2000) of First Allmerica;
Vice President and Treasurer Associate, Investment Banking (1996 -1997) of Merrill Lynch & Co.;
Associate, Investment Banking (1995) of Salomon Brothers, Inc.; Treasurer
(since 2000) of Allmerica Investments, Inc., Allmerica Asset Management,
Inc. and Allmerica Financial Investment Management Services, Inc.
John F. O'Brien Director, President and Chief Executive Officer (since 1989) of First
Director and Chairman Allmerica.
of the Board
Edward J. Parry, III Director and Chief Financial Officer (since 1996), Vice President (since
Director, Vice President 1993), and Treasurer (1993-2000) of First Allmerica.
Chief Financial Officer
Richard M. Reilly Director (since 1996) and Vice President (since 1990) of First Allmerica;
Director, President and President (since 1995) of Allmerica Financial Life Insurance and Annuity
Chief Executive Officer Company; Director (since 1990) of Allmerica Investments, Inc.; and Director
and President (since 1998) of Allmerica Financial
Investment Management Services, Inc.
Robert P. Restrepo, Jr. Director and Vice President (since 1998) of First Allmerica; Director
Director (since 1998) of The Hanover Insurance Company; Chief Executive Officer
(1996 to 1998) of Travelers Property & Casualty; Senior Vice President
(1993 to 1996) of Aetna Life & Casualty Company
Eric A. Simonsen Director (since 1996) and Vice President (since 1990) of First Allmerica;
Director and Vice President Director (since 1991) of Allmerica Investments, Inc.; and Director (since
1991) of Allmerica Financial Investment Management Services, Inc.
</TABLE>
<PAGE>
ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
<TABLE>
<S><C>
Allmerica Financial Corporation
Delaware
| | | | | | | |
________________________________________________________________________________________________________________________________
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Financial Allmerica, Allmerica First Allmerica AFC Capital Allmerica First Sterling
Asset Profiles, Inc. Inc. Funding Financial Life Trust I Services Limited
Management, Inc. Corp. Insurance Corporation
Company
Massachusetts California Massachusetts Massachusetts Massachusetts Delaware Massachusetts Bermuda
| | |
| ___________________________________________________________ ________________
| | | | |
| 100% 99.2% 100% 100%
| Advantage Allmerica Allmerica First Sterling
| Insurance Trust Financial Life Reinsurance
| Network, Inc. Company, N.A. Insurance and Company
| Annuity Company Limited
|
| Delaware Federally Chartered Delaware Bermuda
| |
|_________________________________________________________________________________________________________________________
| | | | | | | | | |
| 100% 100% 100% 100% 100% 100% 100% 100% 100%
| Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica Allmerica
| Investments, Investment Financial Financial Investments Investments Investments Investments Investments
| Inc. Management Investment Services Insurance Insurance Insurance Insurance Insurance
| Company, Inc. Management Insurance Agency Inc. Agency of Agency Inc. Agency Inc. Agency Inc.
| Services, Inc. Agency, Inc. of Alabama Florida Inc. of Georgia of Kentucky of Mississippi
|
|Massachusetts Massachusetts Massachusetts Massachusetts Alabama Florida Georgia Kentucky Mississippi
|
________________________________________________________________
| | | |
100% 100% 100% 100%
Allmerica Sterling Risk Allmerica Allmerica
Property Management Benefits, Inc. Asset
& Casualty Services, Inc. Management,
Companies, Inc. Limited
Delaware Delaware Florida Bermuda
|
________________________________________________
| | |
100% 100% 100%
The Hanover Allmerica Citizens
Insurance Financial Insurance
Company Insurance Company
Brokers, Inc. of Illinois
New Hampshire Massachusetts Illinois
|
________________________________________________________________________________________________________________________________
| | | | | | | |
100% 100% 100% 100% 100% 100% 100% 100%
Allmerica Allmerica The Hanover Hanover Texas Citizens Massachusetts Allmerica AMGRO
Financial Plus American Insurance Corporation Bay Insurance Financial Inc.
Benefit Insurance Insurance Management Company Alliance
Insurance Agency, Inc. Company Company, Inc. Insurance
Company Company
Pennsylvania Massachusetts New Hampshire Texas Delaware New Hampshire New Hampshire Massachusetts
| |
________________________________________________ ________________
| | | |
100% 100% 100% 100%
Citizens Citizens Citizens Lloyds Credit
Insurance Insurance Insurance Corporation
Company Company Company
of Ohio of America of the
Midwest
Ohio Michigan Indiana Massachusetts
|
_________________
|
100%
Citizens
Management
Inc.
Michigan
- ----------------- ----------------- -----------------
Allmerica Greendale AAM
Equity Special Equity Fund
Index Pool Placements
Fund
Massachusetts Massachusetts Massachusetts
- -------- Grantor Trusts established for the benefit of First Allmerica,
Allmerica Financial Life, Hanover and Citizens
--------------- ----------------
Allmerica Allmerica
Investment Trust Securities
Trust
Massachusetts Massachusetts
- -------- Affiliated Management Investment Companies
...............
Hanover Lloyd's
Insurance
Company
Texas
- -------- Affiliated Lloyd's plan company, controlled by Underwriters
for the benefit of The Hanover Insurance Company
----------------- -----------------
AAM Growth AAM High Yield
& Income Fund, L.L.C.
Fund L.P.
Delaware Massachusetts
________ L.P. or L.L.C. established for the benefit of First Allmerica,
Allmerica Financial Life, Hanover and Citizens
</TABLE>
<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
AAM Growth & Income Fund, L.P. 440 Lincoln Street Limited Partnership
Worcester MA 01653
Advantage Insurance Network, Inc. 440 Lincoln Street Insurance Agency
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 Insurance 100 North Parkway Multi-line property and casualty
Company Worcester MA 01605 insurance
Allmerica Financial Benefit Insurance Company 100 North Parkway Multi-line property and casualty
Worcester MA 01605 insurance
Allmerica Financial Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Allmerica Financial Insurance Brokers, 440 Lincoln Street Insurance Broker
Inc. Worcester MA 01653
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Allmerica Financial Life Insurance and 440 Lincoln Street Life insurance, accident and health
Annuity Company (formerly known as Worcester MA 01653 insurance, annuities, variable
SMA Life Assurance Company) annuities and variable life
insurance
Allmerica Financial Services Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Funding Corp. 440 Lincoln Street Special purpose funding vehicle for
Worcester MA 01653 commercial paper
Allmerica, Inc. 440 Lincoln Street Common employer for Allmerica
Worcester MA 01653 Financial Corporation entities
Allmerica Financial Investment Management 440 Lincoln Street Investment advisory services
Services, Inc. Worcester MA 01653
(formerly known as Allmerica Institutional
Services, Inc. and 440 Financial Group of
Worcester, Inc.)
Allmerica Investment Management Company, Inc. 440 Lincoln Street Investment advisory services
Worcester MA 01653
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-dealer
Worcester MA 01653
Allmerica Investments Insurance Agency Inc. 200 Southbridge Parkway Insurance Agency
of Alabama Suite 400
Birmingham, AL 35209
Allmerica Investments Insurance Agency of 14211 Commerce Way Insurance Agency
Florida, Inc. Miami Lakes, FL 33016
Allmerica Investment Insurance Agency Inc. 1455 Lincoln Parkway Insurance Agency
of Georgia Suite 300
Atlanta, GA 30346
Allmerica Investment Insurance Agency Inc. Barkley Bldg-Suite 105 Insurance Agency
of Kentucky 12700 Shelbyville Road
Louisiana, KY 40423
Allmerica Investments Insurance Agency Inc. 631 Lakeland East Drive Insurance Agency
of Mississippi Flowood, MS 39208
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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
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 Illinois 333 Pierce Road Multi-line property and casualty
Itasca IL 60143 insurance
Citizens Insurance Company of the Midwest 3950 Priority Way South Multi-line property and casualty
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
Financial Profiles 5421 Avenida Encinas Computer software company
Carlsbad, CA 92008
First Allmerica Financial Life Insurance 440 Lincoln Street Life, pension, annuity, accident and
Company (formerly State Mutual Life Worcester MA 01653 health insurance company
Assurance Company of America)
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 Company, 801 East Campbell Road Attorney-in-fact for Hanover Lloyd's
Inc. Richardson TX 75081 Insurance Company
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Hanover Lloyd's Insurance Company 801 East Campbell Road Multi-line property and casualty
Richardson TX 75081 insurance
Lloyds Credit Corporation 440 Lincoln Street Premium financing service franchises
Worcester MA 01653
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
Sterling Risk Management Services, Inc. 440 Lincoln Street Risk management services
Worcester MA 01653
</TABLE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 29, 2000, there were 78,562 Contract holders of qualified
Contracts and 24,094 Contract holders of non-qualified Contracts.
ITEM 28. INDEMNIFICATION
Article VIII of the Bylaws of the Depositor state: Each Director and each
Officer of the Corporation, whether or not in office, (and his executors or
administrators), shall be indemnified or reimbursed by the Corporation against
all expenses actually and necessarily incurred by him in the defense or
reasonable settlement of any action, suit, or proceeding in which he is made a
party by reason of his being or having been a Director or Officer of the
Corporation, including any sums paid in settlement or to discharge judgement,
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
(a) Allmerica Investments, Inc. also acts as principal underwriter for
the following:
X VEL Account, VEL II Account, VEL Account III, Select Account III,
Inheiritage Account, Separate Account IMO, Separate Account SPL-D,
Separate Accounts VA-A, VA-B, VA-C, VA-G, VA-H, VA-K, VA-P,
Allmerica Select Separate Account II, Group VEL Account, Separate
Account KG, Separate Account KGC, Fulcrum Separate Account, Fulcrum
Variable Life Separate Account, and Allmerica Select Separate
Account of Allmerica Financial Life Insurance and Annuity Company
X Inheiritage Account, VEL II Account, Separate Account I, Separate
Account VA-K, Separate Account VA-P, Allmerica Select Separate
Account II, Group VEL Account, Separate Account KG, Separate
Account KGC, Fulcrum 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
<PAGE>
<TABLE>
<CAPTION>
NAME POSITION OR OFFICE WITH UNDERWRITER
<S> <C>
Margaret L. Abbott Vice President
Emil J. Aberizk, Jr Vice President
Edward T. Berger Vice President and Chief Compliance Officer
Michael J. Brodeur Vice President Operations
Mark R. Colborn Vice President
Claudia J. Eckels Vice President
Mary M. Eldridge Secretary/Clerk
Philip L. Heffernan Vice President
J. Kendall Huber Director
Mark C. McGivney Treasurer
William F. Monroe, Jr. President, Director and Chief Executive Officer
David J. Mueller Vice President, Chief Financial Officer, Financial Operations
Principal and Controller
Stephen Parker Vice President and Director
Richard M. Reilly Director and Chairman of the Board
Eric A. Simonsen Director
Mark G. Steinberg Senior Vice President
</TABLE>
(c) As indicated in Part B (Statement of Additional Information) in
response to Item 20(c), the aggregate amount of commissions retained
by Allmerica Investments, Inc., the principal underwriter of the
Contracts, was $38,326,089 for sales of variable contracts funded by
the Registrant in 1999. No other commissions or compensation was
received by the principal underwriter, directly or indirectly, from
the Registrant during the Registrant's last fiscal year.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Each account, book or other document required to be maintained by Section
31(a) of the Investment Company Act of 1940 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.
<PAGE>
ITEM 32. UNDERTAKINGS
(a) The Registrant hereby undertakes to file a post-effective amendment
to this registration statement as frequently as is necessary to
ensure that the audited financial statements in the registration
statement are never more than 16 months old for so long as payments
under the variable annuity contracts may be accepted.
(b) The Registrant hereby undertakes 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 and any financial statements 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
Securities and Exchange Commission, 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.
(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
<PAGE>
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 of the
requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Worcester, and Commonwealth of Massachusetts, on the 3rd day of April,
2000.
SEPARATE ACCOUNT VA-K OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Mary Eldridge
-------------------------
Mary Eldridge, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Warren E. Barnes Vice President and Corporate Controller April 3, 2000
- ------------------------------------
Warren E. Barnes
EDWARD J. PARRY III* Director, Vice President and Chief Financial Officer
RICHARD M. REILLY* Director, President and Chief Executive Officer
JOHN F. O'BRIEN* Director and Chairman of the Board
BRUCE C. ANDERSON* Director
MARK R. COLBORN* Director and Vice President
JOHN P. KAVANAUGH* Director, Vice President and Chief Investment Officer
J. KENDALL HUBER* Director, Vice President and General Counsel
J. BARRY MAY* Director
JAMES R. MCAULIFFE* Director
ROBERT P. RESTREPO, JR.* Director
ERIC A. SIMONSEN* Director and Vice President
</TABLE>
*Sheila B. St. Hilaire, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named Directors and Officers of the
Registrant pursuant to the Power of Attorney dated April 2, 2000 duly executed
by such persons.
/s/ Sheila B. St. Hilaire
- -------------------------------------------
Sheila B. St. Hilaire, Attorney-in-Fact
333-87099
<PAGE>
EXHIBIT TABLE
Exhibit 8(e) Directors' Power of Attorney
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
Exhibit 15(c) Form of Alliance Participation Agreement
Exhibit 15(d) Bankers Trust Participation Agreement
Exhibit 15(g) Variable Insurance Products Fund III Participation
Agreement
Exhibit 15(i) INVESCO Participation Agreement
Exhibit 15(j) Janus Participation Agreement
<PAGE>
POWER OF ATTORNEY
We, the undersigned, hereby severally constitute and appoint Richard M. Reilly,
J. Kendall Huber, Joseph W. MacDougall, Jr., and Sheila B. St. Hilaire, and each
of them singly, our true and lawful attorneys, with full power to them and each
of them, to sign for us, and in our names and in any and all capacities, any and
all Registration Statements and all amendments thereto, including post-effective
amendments, with respect to the Separate Accounts supporting variable life and
variable annuity contracts issued by Allmerica Financial Life Insurance and
Annuity Company, and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and with any other regulatory agency or state authority that may so require,
granting unto said attorneys and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys or any of them may lawfully do or cause to be done by virtue hereof.
Witness our hands on the date set forth below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ John F. O'Brien Director and Chairman of the Board 4/2/2000
- --------------------------- --------
John F. O'Brien
/s/ Bruce C. Anderson Director 4/2/2000
- --------------------------- --------
Bruce C. Anderson
/s/ Mark R. Colborn Director and Vice President 4/2/2000
- --------------------------- --------
Mark R.Colborn
/s/ John P. Kavanaugh Director, Vice President and 4/2/2000
- --------------------------- Chief Investment Officer --------
John P. Kavanaugh
/s/ J. Kendall Huber Director, Vice President and 4/2/2000
- --------------------------- General Counsel --------
J. Kendall Huber
/s/ J. Barry May Director 4/2/2000
- --------------------------- --------
J. Barry May
/s/ James R. McAuliffe Director 4/2/2000
- --------------------------- --------
James R. McAuliffe
/s/ Edward J. Parry, III Director, Vice President, and Chief Financial 4/2/2000
- --------------------------- Officer --------
Edward J. Parry, III
/s/ Richard M. Reilly Director, President and 4/2/2000
- --------------------------- Chief Executive Officer --------
Richard M. Reilly
/s/ Robert P. Restrepo, Jr. Director 4/2/2000
- --------------------------- --------
Robert P. Restrepo, Jr.
/s/ Eric A. Simonsen Director and Vice President 4/2/2000
- --------------------------- --------
Eric A. Simonsen
</TABLE>
<PAGE>
April 14, 2000
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
RE: SEPARATE ACCOUNT VA-K
OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FILE NOS. 333-87099 AND 811-6293
Gentlemen:
In my capacity as Assistant Vice President and Counsel of Allmerica Financial
Life Insurance and Annuity Company (the "Company"), I have participated in
the preparation of this Post-Effective Amendment to the Registration
Statement for Separate Account VA-K on Form N-4 under the Securities Act of
1933 and amendment under 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 out of any other business the Company may conduct.
3. The 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 for Separate Account
VA-K on Form N-4 filed under the Securities Act of 1933 and amendment under
the Investment Company Act of 1940.
Very truly yours,
/s/ John C. Donlon, Jr.
John C. Donlon, Jr.
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. 1 to the Registration
Statement of Separate Account VA-K of Allmerica Financial Life Insurance and
Annuity Company on Form N-4 of our report dated February 1, 2000, relating to
the financial statements of Allmerica Financial Life Insurance and Annuity
Company, and our report dated April 3, 2000, relating to the financial
statements of Separate Account VA-K 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/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 18, 2000
<PAGE>
PARTICIPATION AGREEMENT
AMONG
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY,
ALLMERICA INVESTMENTS, INC.
ALLIANCE CAPITAL MANAGEMENT L.P.
AND
ALLIANCE FUND DISTRIBUTORS, INC.
DATED AS OF
MAY 1, 2000
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the first day of May, 2000
("Agreement"), by and among Allmerica Financial Life Insurance and Annuity
Company, a Delaware life insurance company ("Insurer") (on behalf of itself and
its "Separate Account," defined below); Allmerica Investments, Inc., a
Massachusetts corporation ("Contracts Distributor"), the principal underwriter
with respect to the Contracts referred to below; Alliance Capital Management
L.P., a Delaware limited partnership ("Adviser"), the investment adviser of the
Fund referred to below; and Alliance Fund Distributors, Inc., a Delaware
corporation ("Distributor"), the Fund's principal underwriter (collectively, the
"Parties"),
WITNESSETH THAT:
WHEREAS Insurer, the Distributor, and Alliance Variable Products Series
Fund, Inc. (the "Fund") desire that Class B shares of the Fund's Alliance Growth
Portfolio, Alliance Premier Growth Portfolio, Alliance Growth and Income
Portfolio, and Alliance Technology Portfolio (the "Portfolios"; reference herein
to the "Fund" includes reference to each Portfolio to the extent the context
requires) be made available by Distributor to serve as underlying investment
media for those combination fixed and variable annuity contracts of Insurer
known as ________________ that are the subject of Insurer's Form N-4
registration statement filed with the Securities and Exchange Commission (the
"SEC"), File No. __________________ (the "Contracts"), to be offered through
Contracts Distributor and other registered broker-dealer firms as agreed to by
Insurer and Contracts Distributor; and
WHEREAS the Contracts provide for the allocation of net amounts received by
Insurer to separate series (the "Divisions"; reference herein to the "Separate
Account" includes reference to
1
<PAGE>
each Division to the extent the context requires) of the Separate Account for
investment in Class B shares of corresponding Portfolios of the Fund that are
made available through the Separate Account to act as underlying investment
media,
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Fund and Distributor will make Class B shares of the
Portfolios available to Insurer for this purpose at net asset value and with no
sales charges, all subject to the following provisions:
SECTION 1. ADDITIONAL PORTFOLIOS
The Fund has and may, from time to time, add additional Portfolios, which
will become subject to this Agreement, if, upon the written consent of each of
the Parties hereto, they are made available as investment media for the
Contracts.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
The Adviser or its designated agent will provide closing net asset value,
dividend and capital gain information for each Portfolio to Insurer at the close
of trading on each day (a "Business Day") on which (a) the New York Stock
Exchange is open for regular trading, (b) the Fund calculates the Portfolio's
net asset value and (c) Insurer is open for business. The Fund or its designated
agent will use its best efforts to provide this information by 6:00 p.m.,
Eastern time. Insurer will use these data to calculate unit values, which in
turn will be used to process transactions that receive that same Business Day's
Separate Account Division's unit values. Such Separate Account processing will
be done the same evening, and corresponding orders with
2
<PAGE>
respect to Fund shares will be placed the morning of the following Business Day.
Insurer will use its best efforts to place such orders with the Fund by
10:00 a.m., Eastern time.
2.2 TIMELY PAYMENTS.
Insurer will transmit orders for purchases and redemptions of Fund shares
to Distributor, and will wire payment for net purchases to a custodial account
designated by the Fund on the day the order for Fund shares is placed, to the
extent practicable. Payment for net redemptions will be wired by the Fund to an
account designated by Insurer on the same day as the order is placed, to the
extent practicable, and in any event be made within six calendar days after the
date the order is placed in order to enable Insurer to pay redemption proceeds
within the time specified in Section 22(e) of the Investment Company Act of
1940, as amended (the "1940 Act").
2.3 REDEMPTION IN KIND.
The Fund reserves the right to pay any portion of a redemption in kind of
portfolio securities, if the Fund's board of directors (the "Board of
Directors") determines that it would be detrimental to the best interests of
shareholders to make a redemption wholly in cash.
2.4 APPLICABLE PRICE.
The Parties agree that Portfolio share purchase and redemption orders
resulting from Contract owner purchase payments, surrenders, partial
withdrawals, routine withdrawals of charges, or other transactions under
Contracts will be executed at the net asset values as determined as of the close
of regular trading on the New York Stock Exchange on the Business Day that
Insurer receives such orders and processes such transactions, which, Insurer
agrees shall occur not earlier than the Business Day prior to Distributor's
receipt of the corresponding orders for purchases and redemptions of Portfolio
shares. For the purposes of this section, Insurer shall be deemed to be the
3
<PAGE>
agent of the Fund for receipt of such orders from holders or applicants of
contracts, and receipt by Insurer shall constitute receipt by the Fund. All
other purchases and redemptions of Portfolio shares by Insurer, will be effected
at the net asset values next computed after receipt by Distributor of the order
therefor, and such orders will be irrevocable. Insurer hereby elects to reinvest
all dividends and capital gains distributions in additional shares of the
corresponding Portfolio at the record-date net asset values until Insurer
otherwise notifies the Fund in writing, it being agreed by the Parties that the
record date and the payment date with respect to any dividend or distribution
will be the same Business Day.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear all
expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
The Fund will bear the cost of its registering as a management investment
company under the 1940 Act and registering its shares under the Securities Act
of 1933, as amended (the "1933 Act"), and keeping such registrations current and
effective; including, without limitation, the preparation of and filing with the
SEC of Forms N-SAR and Rule 24f-2 Notices respecting the Fund and its shares and
payment of all applicable registration or filing fees with respect to any of the
foregoing. Insurer will bear the cost of registering the Separate Account as a
unit investment trust under the 1940 Act and registering units of interest under
the Contracts under the 1933 Act and keeping such registrations current and
effective; including, without limitation, the preparation and filing with the
SEC of Forms
4
<PAGE>
N-SAR and Rule 24f-2 Notices respecting the Separate Account and its units of
interest and payment of all applicable registration or filing fees with respect
to any of the foregoing.
3.3 OTHER (NON-SALES-RELATED) EXPENSES.
The Fund will bear the costs of preparing, filing with the SEC and setting
for printing the Fund's prospectus, statement of additional information and any
amendments or supplements thereto (collectively, the "Fund Prospectus"),
periodic reports to shareholders, Fund proxy material and other shareholder
communications and any related requests for voting instructions from
Participants (as defined below). Insurer will bear the costs of preparing,
filing with the SEC and setting for printing, the Separate Account's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "Separate Account Prospectus"), any periodic reports to
owners, annuitants or participants under the Contracts (collectively,
"Participants"), and other Participant communications. The Fund and Insurer each
will bear the costs of printing in quantity and delivering to existing
Participants the documents as to which it bears the cost of preparation as set
forth above in this Section 3.3, it being understood that reasonable cost
allocations will be made in cases where any such Fund and Insurer documents are
printed or mailed on a combined or coordinated basis. If REQUESTED by Insurer,
the Fund will provide annual Prospectus text to Insurer on diskette for printing
and binding with the Separate Account Prospectus.
3.4 OTHER SALES-RELATED EXPENSES.
Expenses of distributing the Portfolio's shares and the Contracts will be
paid by Contracts Distributor and other parties, as they shall determine by
separate agreement.
5
<PAGE>
3.5 PARTIES TO COOPERATE.
The Adviser, Insurer, Contracts Distributor, and Distributor each agrees to
cooperate with the others, as applicable, in arranging to print, mail and/or
deliver combined or coordinated prospectuses or other materials of the Fund and
Separate Account.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) The Adviser will use its best efforts to qualify and to maintain
qualification of each Portfolio as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and
the Adviser or Distributor will notify Insurer immediately upon having a
reasonable basis for believing that a Portfolio has ceased to so qualify or that
it might not so qualify in the future.
(b) Insurer represents that it believes, in good faith, that the
Contracts will be treated as [annuity] contracts under applicable provisions of
the Code and that it will make every effort to maintain such treatment. Insurer
will notify the Fund and Distributor immediately upon having a reasonable basis
for believing that any of the Contracts have ceased to be so treated or that
they might not be so treated in the future.
(c) The Fund will use its best efforts to comply and to maintain each
Portfolio's compliance with the diversification requirements set forth in
Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the
Code, and the Fund, Adviser or Distributor will notify Insurer immediately upon
having a reasonable basis for believing that a Portfolio has ceased to so comply
or that a Portfolio might not so comply in the future.
6
<PAGE>
(d) Insurer represents that it believes, in good faith, that the Separate
Account is a "segregated asset account" and that interests in the Separate
Account are offered exclusively through the purchase of or transfer into a
"variable contract," within the meaning of such terms under Section 817(h) of
the Code and the regulations thereunder. Insurer will make every effort to
continue to meet such definitional requirements, and it will notify the Fund and
Distributor immediately upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be met in the future.
(e) The Adviser will manage the Fund as a RIC in compliance with
Subchapter M of the Code and will use its best efforts to comply with
Section 817(h) of the Code and regulations thereunder. The Fund has adopted and
will maintain procedures for ensuring that the Fund is managed in compliance
with Subchapter M and Section 817(h) and regulations thereunder.
(f) Should the Distributor or Adviser become aware of a failure of Fund,
or any of its Portfolios, to comply with Subchapter M of the Code or
Section 817(h) of the Code and regulations thereunder, they represent and agree
that they will immediately notify Insurer of such in writing.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) The Adviser will use its best efforts to cause the Fund to comply
with any applicable state insurance laws or regulations, to the extent
specifically requested in writing by Insurer. If it cannot comply, it will so
notify Insurer in writing.
(b) Insurer represents and warrants that (i) it is an insurance company
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its
7
<PAGE>
obligations under this Agreement, (ii) it has legally and validly established
and maintains the Separate Account as a segregated asset account under Delaware
law, and (iii) the Contracts comply in all material respects with all other
applicable federal and state laws and regulations.
(c) Insurer and Contracts Distributor represent and warrant that
Contracts Distributor is a business corporation duly organized, validly
existing, and in good standing under the laws of the State of Massachusetts and
has full corporate power, authority and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
(d) Distributor represents and warrants that it is a business corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and has full corporate power, authority and legal right to
execute, deliver, and perform its duties and comply with its obligations under
this Agreement.
(e) Distributor represents and warrants that the Fund is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Maryland and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
(f) Adviser represents and warrants that it is a limited partnership,
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
8
<PAGE>
4.3 SECURITIES LAWS.
(a) Insurer represents and warrants that (i) interests in the Separate
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act and the Contracts will be duly authorized for
issuance and sold in compliance with Delaware law, (ii) the Separate Account is
and will remain registered under the 1940 Act to the extent required by the 1940
Act, (iii) the Separate Account does and will comply in all material respects
with the requirements of the 1940 Act and the rules thereunder, (iv) the
Separate Account's 1933 Act registration statement relating to the Contracts,
together with any amendments thereto, will, at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder, and (v)
the Separate Account Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(b) The Adviser and Distributor represent and warrant that (i) Fund
shares sold pursuant to this Agreement will be registered under the 1933 Act to
the extent required by the 1933 Act and duly authorized for issuance and sold in
compliance with Maryland law, (ii) the Fund is and will remain registered under
the 1940 Act to the extent required by the 1940 Act, (iii) the Fund will amend
the registration statement for its shares under the 1933 Act and itself under
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares, (iv) the Fund does and will comply in all material
respects with the requirements of the 1940 Act and the rules thereunder, (v) the
Fund's 1933 Act registration statement, together with any amendments thereto,
will at all times comply in all material respects with the requirements of the
1933 Act and rules thereunder, and (vi) the Fund Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
9
<PAGE>
(c) The Fund will register and qualify its shares for sale in accordance
with the laws of any state or other jurisdiction only if and to the extent
reasonably deemed advisable by the Fund, Insurer or any other life insurance
company utilizing the Fund.
(d) Distributor and Contracts Distributor each represents and warrants
that it is registered as a broker-dealer with the SEC under the Securities
Exchange Act of 1934, as amended, and is a member in good standing of the
National Association of Securities Dealers Inc. (the "NASD").
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) Distributor or the Fund shall immediately notify Insurer of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Fund's registration statement
under the 1933 Act or the Fund Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or Fund Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of the Fund's shares, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of Fund shares in any
state or jurisdiction, including, without limitation, any circumstances in which
(x) the Fund's shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law or (y) such law
precludes the use of such shares as an underlying investment medium of the
Contracts issued or to be issued by Insurer. Distributor and the Fund will make
every reasonable effort to prevent the issuance of any such stop order, cease
and desist order or similar order and, if any such order is issued, to obtain
the lifting thereof at the earliest possible time.
(b) Insurer and Contracts Distributor shall immediately notify the Fund
of (i) the issuance by any court or regulatory body of any stop order, cease and
desist order or similar order with respect to the Separate Account's
registration statement under the 1933 Act relating to the Contracts or the
10
<PAGE>
Separate Account Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or Separate Account Prospectus, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of the Separate Account interests pursuant to the
Contracts, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. Insurer and Contracts Distributor will make every reasonable effort
to prevent the issuance of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
4.5 INSURER TO PROVIDE DOCUMENTS.
Upon request, Insurer will provide the Fund and the Distributor one
complete copy of SEC registration statements, Separate Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and amendments to
any of the above, that relate to the Separate Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6 FUND TO PROVIDE DOCUMENTS.
Upon request, the Fund will provide to Insurer one complete copy of SEC
registration statements, Fund Prospectuses, reports, any preliminary and final
proxy material, 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 SEC or other
regulatory authorities.
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SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The Fund has obtained an order exempting it from certain provisions of the
1940 Act and rules thereunder so that the Fund is available for investment by
certain other entities, including, without limitation, separate accounts funding
variable life insurance policies and separate accounts of insurance companies
unaffiliated with Insurer ("Mixed and Shared Funding Order"). The Parties
recognize that the SEC has imposed terms and conditions for such orders that are
substantially identical to many of the provisions of this Section 5.
5.2 DISINTERESTED DIRECTORS.
The Fund agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of Adviser or Distributor within the meaning of Section 2(a)(19) of the
1940 Act.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
The Fund agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
participants in all separate accounts of life insurance companies utilizing the
Fund, including the Separate Account. Insurer agrees to inform the Board of
Directors of the Fund of the existence of or any potential for any such material
irreconcilable conflict of which it is aware. The concept of a "material
irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder,
but the Parties recognize that such a conflict may arise for a variety of
reasons, including, without limitation:
(a) an action by any state insurance or other regulatory authority;
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(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 participants or by participants of
different life insurance companies utilizing the Fund; or
(f) a decision by a life insurance company utilizing the Fund to
disregard the voting instructions of participants.
Insurer will assist the Board of Directors in carrying out its
responsibilities by providing the Board of Directors with all information
reasonably necessary for the Board of Directors to consider any issue raised,
including information as to a decision by Insurer to disregard voting
instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, Insurer and the other life insurance
companies utilizing the Fund will, at their own expense and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Directors), take
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whatever steps are necessary to remedy or eliminate the material irreconcilable
conflict, which steps may include, but are not limited to:
(i) 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 another Portfolio of the
Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected participants and, as
appropriate, segregating the assets of any particular group (e.g.,
annuity contract owners or participants, life insurance contract
owners or all contract owners and participants of one or more life
insurance companies utilizing the Fund) that votes in favor of such
segregation, or offering to the affected contract owners or
participants the option of making such a change; and
(ii) establishing a new registered investment company of the type defined
as a "Management Company" in Section 4(3) of the 1940 Act or a new
separate account that is operated as a Management Company.
(b) If the material irreconcilable conflict arises because of Insurer's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, Insurer may be
required, at the Fund's election, to withdraw the Separate Account's investment
in the Fund. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal must take place within six months after the Fund
gives notice to Insurer that this provision is being implemented, and until such
withdrawal Distributor and the Fund shall continue to accept and implement
orders by Insurer for the purchase and redemption of shares of the Fund.
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(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to Insurer conflicts with the
majority of other state regulators, then Insurer will withdraw the Separate
Account's investment in the Fund within six months after the Fund's Board of
Directors informs Insurer that it has determined that such decision has created
a material irreconcilable conflict, and until such withdrawal Distributor and
Fund shall continue to accept and implement orders by Insurer for the purchase
and redemption of shares of the Fund.
(d) Insurer agrees that any remedial action taken by it in resolving any
material irreconcilable conflict will be carried out at its expense and with a
view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will the Fund or Distributor be
required to establish a new funding medium for any Contracts. Insurer will not
be required by the terms hereof to establish a new funding medium for any
Contracts if an offer to do so has been declined by vote of a majority of
Participants materially adversely affected by the material irreconcilable
conflict.
5.5 NOTICE TO INSURER.
The Fund will promptly make known in writing to Insurer the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
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5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
Insurer and the Fund will at least annually submit to the Board of
Directors of the Fund such reports, materials or data as the Board of Directors
may reasonably request so that the Board of Directors may fully carry out the
obligations imposed upon it by the provisions hereof, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Directors. All reports received by the Board of Directors of
potential or existing conflicts, and all Board of Directors actions with regard
to determining the existence of a conflict, notifying life insurance companies
utilizing the Fund of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
Board of Directors or other appropriate records, and such minutes or other
records will be made available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which the Fund is serving an investment medium for
variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2
are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to
mixed and shared funding, the Parties agree that they will comply with the terms
and conditions thereof and that the terms of this Section 5 shall be deemed
modified if and only to the extent required in order also to comply with the
terms and conditions of such exemptive relief that is afforded by any of said
rules that are applicable.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Portfolio:
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(a) at the option of Insurer or Distributor upon at least six months
advance written notice to the other Parties, or
(b) at the option of the Fund upon (i) at least sixty days advance
written notice to the other parties, and (ii) approval by (x) a majority of the
disinterested Directors upon a finding that a continuation of this Contract is
contrary to the best interests of the Fund, or (y) a majority vote of the shares
of the affected Portfolio in the corresponding Division of the Separate Account
(pursuant to the procedures set forth in Section 11 of this Agreement for voting
Trust shares in accordance with Participant instructions).
(c) at the option of the Fund upon institution of formal proceedings
against Insurer or Contracts Distributor by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding Insurer's obligations
under this Agreement or related to the sale of the Contracts, the operation of
the Separate Account, or the purchase of the Fund shares, if, in each case, the
Fund reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on the Portfolio to be terminated; or
(d) at the option of Insurer upon institution of formal proceedings
against the Fund, Adviser, or Distributor by the NASD, the SEC, or any state
insurance regulator or any other regulatory body regarding the Fund's, Adviser's
or Distributor's obligations under this Agreement or related to the operation or
management of the Fund or the purchase of Fund shares, if, in each case, Insurer
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on Insurer, Contracts Distributor or the Division
corresponding to the Portfolio to be terminated; or
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(e) at the option of any Party in the event that (i) the Portfolio's
shares are not registered and, in all material respects, issued and sold in
accordance with any applicable state and federal law or (ii) such law precludes
the use of such shares as an underlying investment medium of the Contracts
issued or to be issued by Insurer; or
(f) upon termination of the corresponding Division's investment in the
Portfolio pursuant to Section 5 hereof; or
(g) at the option of Insurer if the Portfolio ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions; or
(h) at the option of Insurer if the Portfolio fails to comply with
Section 817(h) of the Code or with successor or similar provisions; or
(i) at the option of Insurer if Insurer reasonably believes that any
change in a Fund's investment adviser or investment practices will materially
increase the risks incurred by Insurer.
6.2 FUNDS TO REMAIN AVAILABLE.
Except (i) as necessary to implement Participant-initiated transactions,
(ii) as required by state insurance laws or regulations, (iii) as required
pursuant to Section 5 of this Agreement, or (iv) with respect to any Portfolio
as to which this Agreement has terminated, Insurer shall not (x) redeem Fund
shares attributable to the Contracts, or (y) prevent Participants from
allocating payments to or transferring amounts from a Portfolio that was
otherwise available under the Contracts, until, in either case, 60 calendar days
after Insurer shall have notified the Fund or Distributor of its intention to do
so.
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6.3 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of this
Agreement.
6.4 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
Notwithstanding any termination of this Agreement, the Distributor shall
continue, at the option of the Insurer, to make available shares of the
Portfolios pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement (the
"Existing Contracts"), except as otherwise provided under Section 5 of this
Agreement. Specifically, and without limitation, the Distributor shall, at the
option of the Insurer, facilitate the sale and purchase of shares of the
Portfolios as necessary in order to process premium payments, surrenders and
other withdrawals, and transfers or reallocations of values under Existing
Contracts.
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The other Parties hereto agree to cooperate with and give reasonable
assistance to Insurer in taking all necessary and appropriate steps for the
purpose of ensuring that the Separate Account owns no shares of a Portfolio
after the Final Termination Date with respect thereto.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
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SECTION 9. CLASS B DISTRIBUTION PAYMENTS
From time to time during the term of this Agreement the Distributor may
make payments to the Contracts Distributor pursuant to a distribution plan
adopted by the Fund with respect to the Class B shares of the Portfolios
pursuant to Rule 12b-1 under the 1940 Act (the "Rule 12b-1 Plan) in
consideration of the Contracts Distributor's furnishing distribution services
relating to the Class B shares of the Portfolios and providing administrative,
accounting and other services, including personal service and/or the maintenance
of Participant accounts, with respect to such shares. The Distributor has no
obligation to make any such payments, and the Contracts Distributor waives any
such payment, until the Distributor receives monies therefor from the Fund. Any
such payments made pursuant to this Section 9 shall be subject to the following
terms and conditions:
(a) Any such payments shall be in such amounts as the Distributor may from
time to time advise the Contracts Distributor in writing but in any event not in
excess of the amounts permitted by the Rule 12b-1 Plan. Such payments may
include a service fee in the amount of .25 of 1% per annum of the average daily
net assets of the Fund attributable to the Class B shares of a Portfolio held by
clients of the Contracts Distributor. Any such service fee shall be paid solely
for personal service and/or the maintenance of Participant accounts.
(b) The provisions of this Section 9 relate to a plan adopted by the Fund
pursuant to Rule 12b-1. In accordance with Rule 12b-1, any person authorized to
direct the disposition of monies paid or payable by the Fund pursuant to this
Section 9 shall provide the Fund's Board of Directors, and the Directors shall
review, at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
(c) The provisions of this Section 9 shall remain in effect for not more
than a year and thereafter for successive annual periods only so long as such
continuance is specifically approved
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at least annually in conformity with Rule 12b-1 and the 1940 Act. The provisions
of this Section 9 shall automatically terminate in the event of the assignment
(as defined by the 1940 Act) of this Agreement, in the event the Rule 12b-1 Plan
terminates or is not continued or in the event this Agreement terminates or
ceases to remain in effect. In addition, the provisions of this Section 9 may be
terminated at any time, without penalty, by either the Distributor or the
Contracts Distributor with respect to any Portfolio on not more than 60 days'
nor less than 30 days' written notice delivered or mailed by registered mail,
postage prepaid, to the other party.
SECTION 10. NOTICES
Notices and communications required or permitted by Section 2 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
If to Insurer
Allmerica Financial Life Insurance and
Annuity Company
440 Lincoln Street
Worcester, MA 01653
Attn: Richard M. Reilly, President
If to Contracts Distributor
Allmerica Investments, Inc.
440 Lincoln Street
Worcester, MA 01653
Attn: William F. Monroe, Jr., President
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If to Distributor
Alliance Fund Distributors, Inc.
1345 Avenue of the Americas
New York NY 10105
Attn.: Edmund P. Bergan
FAX: (212) 969-2290
If to Advisor or the Fund
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York NY 10105
Attn: Edmund P. Bergan
FAX: (212) 969-2290
SECTION 11. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3 hereof,
Insurer will distribute all proxy material furnished by the Fund to Participants
and will vote Fund shares in accordance with instructions received from
Participants. Insurer will vote Fund shares that are (a) not attributable to
Participants or (b) attributable to Participants, but for which no instructions
have been received, in the same proportion as Fund shares for which said
instructions have been received from Participants. Insurer agrees that it will
disregard Participant voting instructions only to the extent it would be
permitted to do so pursuant to Rule 6e-3 (T)(b)(15)(iii) under the 1940 Act if
the Contracts were variable life insurance policies subject to that rule. Other
participating life insurance companies utilizing the Fund will be responsible
for calculating voting privileges in a manner consistent with that of Insurer,
as prescribed by this Section 11.
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SECTION 12. FOREIGN TAX CREDITS
The Adviser agrees to consult in advance with Insurer concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to the Fund's shareholders.
SECTION 13. INDEMNIFICATION
13.1 INDEMNIFICATION OF FUND, DISTRIBUTOR AND ADVISER BY INSURER.
(a) Except to the extent provided in Sections 13.1(b) and 13.1(c), below,
Insurer agrees to indemnify and hold harmless the Fund, Distributor and Adviser,
each of their directors and officers, and each person, if any, who controls the
Fund, Distributor or Adviser within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 13. 1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Insurer) or actions in respect thereof
(including, to the extent reasonable, 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
actions are related to the sale, acquisition, or holding of the Fund's shares
and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Separate Account's
1933 Act registration statement, the Separate Account Prospectus, the
Contracts or, to the extent prepared by Insurer or Contracts
Distributor, sales literature or advertising 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
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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 Insurer or
Contracts Distributor by or on behalf of the Fund, Distributor or
Adviser for use in the Separate Account's 1933 Act registration
statement, the Separate Account Prospectus, the Contracts, or sales
literature or advertising (or any amendment or supplement to any of
the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained
in the Fund's 1933 Act registration statement, Fund Prospectus, sales
literature or advertising of the Fund, or any amendment or supplement
to any of the foregoing, not supplied for use therein by or on behalf
of Insurer or Contracts Distributor) or the negligent, illegal or
fraudulent conduct of Insurer or Contracts Distributor or persons
under their control (including, without limitation, their employees
and "Associated Persons," as that term is defined in paragraph (m) of
Article I of the NASD's By-Laws), in connection with the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or
advertising of the Fund, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
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statements therein not misleading if such a statement or omission was
made in reliance upon and in conformity with information furnished to
the Fund, Adviser or Distributor by or on behalf of Insurer or
Contracts Distributor for use in the Fund's 1933 Act registration
statement, Fund Prospectus, sales literature or advertising of the
Fund, or any amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by Insurer or Contracts Distributor
to perform the obligations, provide the services and furnish the
materials required of them under the terms of this Agreement.
(b) Insurer shall not be liable under this Section 13.1 with respect to
any losses, claims, damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance by that Indemnified Party of its duties or
by reason of that Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to Distributor or to the Fund.
(c) Insurer shall not be liable under this Section 13.1 with respect to
any action against an Indemnified Party unless the Fund, Distributor or Adviser
shall have notified Insurer in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action 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 Insurer of any such action shall not relieve
Insurer from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 13. 1. In
case any such action is brought against an Indemnified Party, Insurer shall be
entitled to participate, at its own expense, in the defense of such action.
Insurer also shall be entitled to assume the defense thereof,
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<PAGE>
with counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably withheld. After notice from Insurer to such
Indemnified Party of Insurer's election to assume the defense thereof, the
Indemnified Party will cooperate fully with Insurer and shall bear the fees and
expenses of any additional counsel retained by it, and Insurer will not be
liable to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
13.2 INDEMNIFICATION OF INSURER AND CONTRACTS DISTRIBUTOR BY ADVISER.
(a) Except to the extent provided in Sections 13.2(d) and 13.2(e), below,
Adviser agrees to indemnify and hold harmless Insurer and Contracts Distributor,
each of their directors and officers, and each person, if any, who controls
Insurer or Contracts Distributor within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this Section 13.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Adviser) or actions in respect thereof
(including, to the extent reasonable, 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 actions are
related to the sale, acquisition, or holding of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or
advertising of the Fund or, to the extent not prepared by Insurer or
Contracts Distributor, sales literature or advertising for the
Contracts (or any amendment or supplement to any of the foregoing),
or arise out of or are based
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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
Distributor, Adviser or the Fund by or on behalf of Insurer or
Contracts Distributor for use in the Fund's 1933 Act registration
statement, Fund Prospectus, or in sales literature or advertising (or
any amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained
in the Separate Account's 1933 Act registration statement, Separate
Account Prospectus, sales literature or advertising for the
Contracts, or any amendment or supplement to any of the foregoing,
not supplied for use therein by or on behalf of Distributor, Adviser,
or the Fund) or the negligent, illegal or fraudulent conduct of the
Fund, Distributor, Adviser or persons under their control (including,
without limitation, their employees and Associated Persons), in
connection with the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Separate Account's
1933 Act registration statement, Separate Account Prospectus, sales
literature or advertising covering the Contracts, or any amendment or
supplement to any of the foregoing, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
if such statement or omission was made
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in reliance upon and in conformity with information furnished to
Insurer or Contracts Distributor by or on behalf of the Fund,
Distributor or Adviser for use in the Separate Account's 1933 Act
registration statement, Separate Account Prospectus, sales literature
or advertising covering the Contracts, or any amendment or supplement
to any of the foregoing; or
(iv) arise as a result of any failure by the Fund, Adviser or Distributor
to perform the obligations, provide the services and furnish the
materials required of them under the terms of this Agreement;
(b) Except to the extent provided in Sections 13.2(d) and 13.2(e) hereof,
Adviser agrees to indemnify and hold harmless the Indemnified Parties from and
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement thereof with, except as set forth in Section 13.2(c) below, the
written consent of Adviser) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses) to which the Indemnified Parties
may become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Portfolio
to operate as a regulated investment company in compliance with (i) Subchapter M
of the Code and regulations thereunder and (ii) Section 817(h) of the Code and
regulations thereunder (except to the extent that such failure is caused by
Insurer), including, without limitation, any income taxes and related penalties,
rescission charges, liability under state law to Contract owners or Participants
asserting liability against Insurer or Contracts Distributor pursuant to the
Contracts, the costs of any ruling and closing agreement or other settlement
with the Internal Revenue Service, and the cost of any substitution by Insurer
of shares of another investment company or portfolio for those of any
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<PAGE>
adversely affected Portfolio as a funding medium for the Separate Account that
Insurer deems necessary or appropriate as a result of the noncompliance.
(c) The written consent of Adviser referred to in Section 13.2(b) above
shall not be required with respect to amounts paid in connection with any ruling
and closing agreement or other settlement with the Internal Revenue Service.
(d) Adviser shall not be liable under this Section 13.2 with respect to
any losses, claims; damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance by that Indemnified Party of its duties or
by reason of such Indemnified Party's reckless disregard of its obligations and
duties under this Agreement or to Insurer, Contracts Distributor or the Separate
Account.
(e) Adviser shall not be liable under this Section 13.2 with respect to
any action against an Indemnified Party unless Insurer or Contracts Distributor
shall have notified Adviser in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action 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 Adviser of any such action shall not relieve
Adviser from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this Section 13.2. In
case any such action is brought against an Indemnified Party, Adviser will be
entitled to participate, at its own expense, in the defense of such action.
Adviser also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the Internal Revenue Service),
with counsel approved by the Indemnified Party named in the action, which
approval shall not be unreasonably
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withheld. After notice from Adviser to such Indemnified Party of Adviser's
election to assume the defense thereof, the Indemnified Party will cooperate
fully with Adviser and shall bear the fees and expenses of any additional
counsel retained by it, and Adviser will not be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
13.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Section 13.1(c) or 13.2(e) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with New York law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
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SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. RESTRICTIONS ON SALES OF FUND SHARES
Insurer agrees that the Fund will be permitted (subject to the other terms
of this Agreement) to make its shares available to separate accounts of other
life insurance companies.
SECTION 18. HEADINGS
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
By:
Name:
Title:
ALLMERICA INVESTMENTS, INC.
By:
Name:
Title:
ALLIANCE CAPITAL MANAGEMENT LP
By: Alliance Capital Management
Corporation, its General
Partner
By:
Name:
Title:
ALLIANCE FUND DISTRIBUTORS, INC.
By:
Name:
Title:
32
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FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 7th day of March, 2000 by and among BT
Insurance Funds Trust ("TRUST"), a Massachusetts business trust, Bankers
Trust Company ("ADVISER"), a New York banking corporation, and ALLMERICA
FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY ("LIFE COMPANY"), a life
insurance company organized under the laws of the State of Delaware.
WHEREAS, TRUST is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "`40 Act"),
as an open-end, diversified management investment company; and
WHEREAS, TRUST is comprised of several series funds (each a
"Portfolio"), with those Portfolios currently available being listed on
Appendix A hereto; and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable
Contracts") offered by life insurance companies through separate accounts
("Separate Accounts") of such life insurance companies ("Participating
Insurance Companies"); and
WHEREAS, TRUST may also offer its shares to certain qualified pension
and retirement plans ("Qualified Plans"); and
WHEREAS, TRUST has received an order from the SEC, granting
Participating Insurance Companies and their separate accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the `40 Act, and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Portfolios of the TRUST to be sold to and held by
Variable Contract Separate Accounts of both affiliated and unaffiliated
Participating Insurance Companies and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more
Separate Accounts to offer Variable Contracts and is desirous of having TRUST
as one of the underlying funding vehicles for such Variable Contracts; and
WHEREAS, ADVISER is a "bank" as defined in the Investment Advisers Act
of 1940, as amended (the "Advisers Act") and as such is excluded from the
definition of "Investment Adviser" and is not required to register as an
investment adviser pursuant to the Advisers Act; and
WHEREAS, ADVISER serves as the TRUST's investment adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of TRUST to fund the
aforementioned Variable Contracts and TRUST is authorized to sell such shares
to LIFE COMPANY at such shares' net asset value;
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NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST, and ADVISER agree as follows:
Article I. SALE OF TRUST SHARES
1.1 TRUST agrees to make available to the Separate Accounts of LIFE
COMPANY shares of the selected Portfolios as listed on Appendix B for
investment of purchase payments of Variable Contracts allocated to the
designated Separate Accounts as provided in TRUST's Registration Statement.
1.2 TRUST agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of TRUST which LIFE COMPANY orders, executing such orders on a
daily basis at the net asset value next computed after receipt by TRUST or
its designee of the order for the shares of TRUST. For purposes of this
Section 1.2, LIFE COMPANY shall be the designee of TRUST for receipt of such
orders from the designated Separate Account and receipt by such designee
shall constitute receipt by TRUST; provided that LIFE COMPANY receives the
order by 4:00 p.m. New York time and TRUST receives notice from LIFE COMPANY
by telephone or facsimile (or by such other means as TRUST and LIFE COMPANY
may agree in writing) of such order by 10:00 a.m. New York time on the next
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which TRUST calculates its net asset
value pursuant to the rules of the SEC.
1.3 TRUST agrees to redeem on LIFE COMPANY's request, any full or
fractional shares of TRUST held by LIFE COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by TRUST or
its designee of the request for redemption, in accordance with the provisions
of this Agreement and TRUST's Registration Statement. (In the event of a
conflict between the provisions of this Agreement and the Trust's
Registration Statement, the provisions of the Registration Statement shall
govern.) For purposes of this Section 1.3, LIFE COMPANY shall be the designee
of TRUST for receipt of requests for redemption from the designated Separate
Account and receipt by such designee shall constitute receipt by TRUST;
provided that LIFE COMPANY receives the request for redemption by 4:00 p.m.
New York time and TRUST receives notice from LIFE COMPANY by telephone or
facsimile (or by such other means as TRUST and LIFE COMPANY may agree in
writing) of such request for redemption by 10:00 a.m. New York time on the
next Business Day.
1.4 TRUST shall furnish, on or before each ex-dividend date, notice to
LIFE COMPANY of any income dividends or capital gain distributions payable on
the shares of any Portfolio of TRUST. LIFE COMPANY hereby elects to receive
all such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. TRUST shall notify
LIFE COMPANY or its designee of the number of shares so issued as payment of
such dividends and distributions.
1.5 TRUST shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use
its best efforts to make such net asset value available by 6:30 p.m. New York
time. If TRUST provides LIFE COMPANY with materially incorrect share net
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asset value information through no fault of LIFE COMPANY, LIFE COMPANY on
behalf of the Separate Accounts, shall be entitled to an adjustment to the
number of shares purchased or redeemed to reflect the correct share net asset
value. Any material error in the calculation of net asset value per share,
dividend or capital gain information shall be reported promptly upon
discovery to LIFE COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit
values for the day. Using these unit values, LIFE COMPANY shall process each
such Business Day's Separate Account transactions based on requests and
premiums received by it by the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m. New York time) to determine the net
dollar amount of TRUST shares which shall be purchased or redeemed at that
day's closing net asset value per share. The net purchase or redemption
orders so determined shall be transmitted to TRUST by LIFE COMPANY by 10:00
a.m. New York Time on the Business Day next following LIFE COMPANY's receipt
of such requests and premiums in accordance with the terms of Sections 1.2
and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of TRUST shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to TRUST or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall use its best
efforts to wire the redemption proceeds to LIFE COMPANY by the next Business
Day, unless doing so would require TRUST to dispose of Portfolio securities
or otherwise incur additional costs. In any event, proceeds shall be wired to
LIFE COMPANY within the time period permitted by the '40 Act or the rules,
orders or regulations thereunder, and TRUST shall notify the person
designated in writing by LIFE COMPANY as the recipient for such notice of
such delay by 3:00 p.m. New York Time on the same Business Day that LIFE
COMPANY transmits the redemption order to TRUST. If LIFE COMPANY's order
requests the application of redemption proceeds from the redemption of shares
to the purchase of shares of another Fund advised by ADVISER, TRUST shall so
apply such proceeds on the same Business Day that LIFE COMPANY transmits such
order to TRUST.
1.8 TRUST agrees that all shares of the Portfolios of TRUST will be sold
only to Participating Insurance Companies which have agreed to participate in
TRUST to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h)(4) of the Internal Revenue
Code of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of
the TRUST's Portfolios will not be sold directly to the general public.
1.9 TRUST may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of or liquidate any Portfolio
of TRUST if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Board of Trustees of
the TRUST (the "Board"), acting in good faith and in light of its duties
under federal and any applicable state laws, deemed necessary, desirable or
appropriate and in the best interests of the shareholders of such Portfolios.
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1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to LIFE COMPANY or the Separate Accounts.
Shares ordered from Portfolio will be recorded in appropriate book entry titles
for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of Delaware and that it has
legally and validly established each Separate Account as a segregated asset
account under such laws, and that Allmerica Investments, Inc., the principal
underwriter for the Variable Contracts, is registered as a broker-dealer under
the Securities Exchange Act of 1934 (the "'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or, prior
to any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the `40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will
be registered under the Securities Act of 1933 (the "`33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts, and that the Variable Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
(including all applicable blue sky laws) and further that the sale of the
Variable Contracts shall comply in all material respects with applicable state
insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify TRUST immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 TRUST represents and warrants that the Fund shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal laws, and TRUST shall be registered under
the `40 Act prior to and at the time of any issuance or sale of such shares.
TRUST, subject to Section 1.9 above, shall amend its registration statement
under the `33 Act and the `40 Act from time to time as required in order to
effect the continuous offering of its shares. TRUST shall register and qualify
its shares for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by TRUST.
2.6 TRUST represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply and will
immediately take all reasonable steps to adequately diversify the Portfolio to
achieve compliance.
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<PAGE>
2.7 TRUST represents and warrants that each Portfolio invested in by the
Separate Account will be treated as a "regulated investment company" under
Subchapter M of the Code, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8 ADVISER represents and warrants that it shall perform its obligations
hereunder in compliance in all material respects with any applicable state and
federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 TRUST shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of TRUST.
TRUST shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 TRUST or its designee shall provide LIFE COMPANY, free of charge, with
as many copies of the current prospectus (or prospectuses), statements of
additional information, annual and semi-annual reports and proxy statements for
the shares of the Portfolios as LIFE COMPANY may reasonably request for
distribution to existing Variable Contract owners whose Variable Contracts are
funded by such shares. The TRUST or its designee shall bear the cost of printing
and duplicating such documents for existing Variable Contract owners. TRUST or
its designee shall provide LIFE COMPANY, at LIFE COMPANY's expense, with as many
copies of the current prospectus (or prospectuses) for the shares as LIFE
COMPANY may reasonably request for distribution to prospective purchasers of
Variable Contracts. LIFE COMPANY or its designee shall bear the cost of
printing, duplicating and mailing of such documents to prospective purchasers of
Variable Contracts. If requested by LIFE COMPANY, TRUST or its designee shall
provide such documentation (including a "camera ready" copy of the current
prospectus (or prospectuses) as set in type or, at the request of LIFE COMPANY,
as a diskette in the form sent to the financial printer) and other assistance as
is reasonably necessary in order for the parties hereto once a year (or more
frequently if the prospectus (or prospectuses) for the shares is supplemented or
amended) to have the prospectus for the Variable Contracts and the prospectus
(or prospectuses) for the TRUST shares printed together in one document. The
expenses of such printing will be apportioned between LIFE COMPANY and TRUST in
proportion to the number of pages of the Variable Contract and TRUST prospectus,
taking account of other relevant factors affecting the expense of printing, such
as covers, columns, graphs and charts; TRUST shall bear the cost of printing the
TRUST prospectus portion of such document for distribution only to owners of
existing Variable Contracts funded by the TRUST shares and LIFE COMPANY shall
bear the expense of printing the portion of such documents relating to the
Separate Account; provided, however, LIFE COMPANY shall bear all printing
expenses of such combined documents where used for distribution to prospective
purchasers or to owners of existing Variable Contracts not funded by the shares.
In the event that LIFE COMPANY requests that TRUST or its designee provide
TRUST's prospectus in a "camera ready" or diskette format, TRUST shall be
responsible for providing the prospectus (or prospectuses) in the format in
which it is accustomed to formatting prospectuses and shall bear
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the expense of providing the prospectus (or prospectuses) in such format
(e.g. typesetting expenses), and LIFE COMPANY shall bear the expense of
adjusting or changing the format to conform with any of its prospectuses.
TRUST shall bear the cost of printing, duplicating and mailing of proxy
statements to existing Variable Contract owners.
3.3 TRUST will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide TRUST with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account promptly after the filing of each
such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to TRUST and
ADVISER, each piece of sales literature or other promotional material in which
TRUST or ADVISER is named, at least fifteen (15) Business Days prior to its
intended use. No such material will be used if TRUST or ADVISER objects to its
use in writing within ten (10) Business Days after receipt of such material.
4.2 TRUST and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature or other promotional material in which
LIFE COMPANY or its Separate Accounts are named, at least fifteen (15) Business
Days prior to its intended use. No such material will be used if LIFE COMPANY
objects to its use in writing within ten (10) Business Days after receipt of
such material.
4.3 TRUST and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY,
the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other
than the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by LIFE COMPANY or its designee, except with the written permission of
LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of TRUST or concerning TRUST
other than the information or representations contained in a registration
statement or prospectus for TRUST, as such registration statement and prospectus
may be amended or supplemented from time to time, or in sales literature or
other promotional material approved by TRUST or its designee, except with the
written permission of TRUST.
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4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
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 (such as 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 National Association of Securities Dealers, Inc. ("NASD")
rules, the `40 Act, the '33 Act or rules thereunder.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that TRUST has received an order from the SEC
granting relief from various provisions of the '40 Act and the rules thereunder
to the extent necessary to permit TRUST shares to be sold to and held by
Variable Contract separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and Qualified Plans. The Exemptive Order
requires TRUST and each Participating Insurance Company to comply with
conditions and undertakings substantially as provided in this Section 5. The
TRUST will not enter into a participation agreement with any other Participating
Insurance Company unless it imposes the same conditions and undertakings as are
imposed on LIFE COMPANY hereby.
5.2 The Board will monitor TRUST for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners of all
separate accounts and with participants of Qualified Plans investing in TRUST.
An irreconcilable material conflict may arise for a variety of reasons, which
may include: (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 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 TRUST are being managed; (e) a difference in voting instructions
given by Variable Contract owners; (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Variable Contract owners and (g)
if applicable, a decision by a Qualified Plan to disregard the voting
instructions of plan participants.
5.3 LIFE COMPANY will report any potential or existing conflicts of
which it becomes aware to the Board. LIFE COMPANY will be responsible for
assisting the Board in carrying out its duties in this regard by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. The responsibility includes, but is not limited to, an
obligation by the LIFE COMPANY to inform the Board whenever it has determined
to disregard Variable Contract owner voting instructions. These
responsibilities of LIFE COMPANY will be carried out with a view only to the
interests of the Variable Contract owners.
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5.4 If a majority of the Board or majority of its disinterested Trustees,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested Trustees), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from TRUST or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another Portfolio of TRUST, or
another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Variable Contract
owners and as appropriate, segregating the assets of any appropriate group
(i.e., variable annuity or variable life insurance Contract owners of one or
more Participating Insurance Companies) that votes in favor of such segregation,
or offering to the affected Variable Contract owners the option of making such a
change; and (c) establishing a new registered management investment company (or
series thereof) or managed separate account. If a material irreconcilable
conflict arises because of LIFE COMPANY's decision to disregard Variable
Contract owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, LIFE COMPANY may be required, at the
election of TRUST, to withdraw the Separate Account's investment in TRUST, and
no charge or penalty will be imposed as a result of such withdrawal. The
responsibility to take such remedial action shall be carried out with a view
only to the interests of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
TRUST or ADVISER (or any other investment adviser of TRUST) be required to
establish a new funding medium for any Variable Contract. Further, LIFE COMPANY
shall not be required by this Section 5.4 to establish a new funding medium for
any Variable Contracts if any offer to do so has been declined by a vote of a
majority of Variable Contract owners materially and adversely affected by the
irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the `40 Act
as requiring pass-through voting privileges for Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will vote shares of the Portfolio
held in its Separate Accounts in a manner consistent with voting instructions
timely received from its Variable Contract owners. LIFE COMPANY will be
responsible for assuring that each of its Separate Accounts that participates in
TRUST calculates voting privileges in a manner consistent with other
Participating Insurance Companies. LIFE
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COMPANY will vote shares for which it has not received timely voting
instructions, as well as shares it owns, in the same proportion as its votes
those shares for which it has received voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if Rule
6e-3 is adopted, to provide exemptive relief from any provision of the `40 Act
or the rules thereunder with respect to mixed and shared funding on terms and
conditions materially different from any exemptions granted in the Exemptive
Order, then TRUST, and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-2 and Rule
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are
applicable.
Article VII. INDEMNIFICATION
7.1 INDEMNIFICATION BY LIFE COMPANY. LIFE COMPANY agrees to indemnify
and hold harmless TRUST, ADVISER and each of their Trustees, directors,
principals, officers, employees and agents and each person, if any, who controls
TRUST or ADVISER within the meaning of Section 15 of the `33 Act (collectively,
the "Indemnified Parties") against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
LIFE COMPANY, which consent shall not be unreasonably withheld) or litigation or
threatened 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 TRUST's shares or the Variable Contracts and:
(a) 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 Contracts or contained in the
Variable 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 in writing to
LIFE COMPANY by or on behalf of TRUST for use in the registration statement
or prospectus for the Variable Contracts or in the Variable Contracts or
sales literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or TRUST shares; or
(b) arise out of or result from (i) statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of TRUST not supplied by LIFE
COMPANY, or persons under its control) or (ii) wrongful conduct of LIFE
COMPANY or persons under its control, with respect to the sale or
distribution of the Variable Contracts or TRUST shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature of TRUST or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein
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a material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity
with information furnished in writing to TRUST by or on behalf of LIFE
COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to provide
substantially the services and furnish the materials under the terms of
this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in this Agreement or
arise out of or result from any other material breach of this Agreement by
LIFE COMPANY.
7.2 LIFE 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 to the extent
that such losses, claims, damages, liabilities or litigation are attributable
to 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.
7.3 LIFE 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 LIFE 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 LIFE COMPANY
of any such claim shall not relieve LIFE 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, LIFE COMPANY shall be
entitled to participate at its own expense in the defense of such action.
LIFE COMPANY also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from LIFE
COMPANY to such party of LIFE 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 LIFE 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.
7.4 INDEMNIFICATION BY TRUST AND ADVISER. TRUST and ADVISER jointly
and severally agree to indemnify and hold harmless LIFE COMPANY and each of
its directors, officers, employees, and agents and each person, if any, who
controls LIFE COMPANY within the meaning of Section 15 of the `33 Act
(collectively, the "Indemnified Parties") against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of TRUST and ADVISER which consent shall not be unreasonably
withheld) or litigation or threatened 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 TRUST's shares or the
Variable Contracts and:
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(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of TRUST (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 in writing to ADVISER or TRUST by or on behalf of
LIFE COMPANY for use in the registration statement or prospectus for TRUST
or in sales literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Variable Contracts or TRUST shares;
or
(b) arise out of or result from (i) statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Variable Contracts not
supplied by ADVISER or TRUST or persons under its control) or (ii) gross
negligence or wrongful conduct or willful misfeasance of TRUST or ADVISER,
or persons under their respective control, with respect to the sale or
distribution of the Variable Contracts or TRUST shares; or
(c) 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 Variable 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
statements therein not misleading, if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity
with information furnished in writing to LIFE COMPANY for inclusion therein
by or on behalf of TRUST; or
(d) arise as a result of (i) a failure by TRUST or ADVISER to provide
substantially the services and furnish the materials under the terms of
this Agreement; or (ii) a failure by a Portfolio(s) invested in by the
Separate Account to comply with the diversification requirements of Section
817(h) of the Code; or (iii) a failure by a Portfolio(s) invested in by the
Separate Account to qualify as a "regulated investment company" under
Subchapter M of the Code; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by TRUST or ADVISER in this Agreement
or arise out of or result from any other material breach of this Agreement
by TRUST or ADVISER.
7.5 Neither TRUST nor ADVISER shall be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party to
the extent that such losses, claims, damages, liabilities or litigation are
attributable to such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the
Page 11 of 19
<PAGE>
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
7.6 Neither TRUST nor ADVISER shall be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified TRUST and
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 TRUST and ADVISER of any such claim shall not relieve TRUST and
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, TRUST and ADVISER shall be entitled to participate at their own
expense in the defense thereof. TRUST and ADVISER also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from TRUST and ADVISER to such party of TRUST's or
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
TRUST and 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.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and
shall continue in force until terminated in accordance with the provisions
herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY or TRUST at any time from the date
hereof upon 180 days' notice, unless a shorter time is agreed to by the
parties;
(b) At the option of LIFE COMPANY, if TRUST shares are not reasonably
available to meet the requirements of the Variable Contracts as determined
by LIFE COMPANY. Prompt notice of election to terminate shall be furnished
by LIFE COMPANY, said termination to be effective ten days after receipt
of notice unless TRUST makes available a sufficient number of shares to
reasonably meet the requirements of the Variable Contracts within said
ten-day period;
(c) At the option of LIFE COMPANY, upon the institution of formal
proceedings against TRUST or ADVISER by the SEC, the NASD, or any other
regulatory body, the expected or anticipated ruling, judgment or outcome of
which would, in LIFE COMPANY's reasonable judgment, materially impair
TRUST's or ADVISER's ability to meet and perform TRUST's or ADVISER's
obligations and duties hereunder. Prompt notice of election to terminate
shall be furnished by LIFE COMPANY with said termination to be effective
upon receipt of notice;
Page 12 of 19
<PAGE>
(d) At the option of TRUST, upon the institution of formal proceedings
against LIFE COMPANY and/or its broker-dealer affiliates by the SEC, the
NASD, or any other regulatory body, the expected or anticipated ruling,
judgment or outcome of which would, in TRUST's reasonable judgment,
materially impair LIFE COMPANY's ability to meet and perform its
obligations and duties hereunder. Prompt notice of election to terminate
shall be furnished by TRUST with said termination to be effective upon
receipt of notice;
(e) In the event TRUST's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law precludes the
use of such shares as the underlying investment medium of Variable
Contracts issued or to be issued by LIFE COMPANY. Termination shall be
effective upon such occurrence without notice;
(f) At the option of TRUST if the Variable Contracts cease to qualify
as annuity contracts or life insurance contracts, as applicable, under the
Code, or if TRUST reasonably believes that the Variable Contracts may fail
to so qualify. Termination shall be effective upon receipt of notice by
LIFE COMPANY;
(g) At the option of LIFE COMPANY, upon TRUST's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of LIFE COMPANY within ten days after written notice of such
breach is delivered to TRUST;
(h) At the option of TRUST, upon LIFE COMPANY's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of TRUST within ten days after written notice of such breach
is delivered to LIFE COMPANY;
(i) At the option of TRUST, if the Variable Contracts are not
registered, issued or sold in accordance with applicable federal and/or
state law. Termination shall be effective immediately upon such occurrence
without notice;
In the event this Agreement is assigned without the prior written
consent of LIFE COMPANY, TRUST, and ADVISER, termination shall be effective
immediately upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to
Section 8.2 hereof, TRUST shall, at the option of LIFE COMPANY, continue to
make available additional TRUST shares, as provided below, pursuant to the
terms and conditions of this Agreement, for all Variable 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 or LIFE COMPANY, whichever shall have legal authority
to do so, shall be permitted to reallocate investments in TRUST, redeem
investments in TRUST and/or invest in TRUST upon the payment of additional
purchase payments under the Existing Contracts. In the event of a termination
of this Agreement pursuant to Section 8.2 hereof, LIFE COMPANY, within ten
Page 13 of 19
<PAGE>
(10) days of the date of the notice of termination, shall notify TRUST and
ADVISER whether LIFE COMPANY elects for TRUST to continue to make TRUST
shares available after such termination. If TRUST shares continue to be made
available after such termination, the provisions of this Agreement shall
remain in effect. In no event shall the election to continue by LIFE COMPANY
be effective for more than nine (9) months after the date of termination.
8.4 Except as necessary to implement Variable Contract owner
initiated transactions, or as required by state insurance laws or
regulations, LIFE COMPANY shall not redeem the shares attributable to the
Variable Contracts (as opposed to the shares attributable to LIFE COMPANY's
assets held in the Separate Accounts), and LIFE COMPANY shall not prevent
Variable Contract owners from allocating payments to a Portfolio that was
otherwise available under the Variable Contracts until thirty (30) days after
the LIFE COMPANY shall have notified TRUST of its intention to do so.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail
return receipt requested 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 TRUST:
BT Insurance Funds Trust
c/o First Data Investor Services Group, Inc.
101 Federal Street
Boston, MA 02110
Attn: Elizabeth Russell, Legal Dep't
AND
c/o BT Alex. Brown
One South Street, Mail Stop 1-18-6
Baltimore, MD 21202
Attn: Mutual Fund Services
Page 14 of 19
<PAGE>
If to ADVISER:
Bankers Trust Company
130 Liberty Street, Mail Stop 2355
New York, NY 10006
Attn.: Mutual Fund Marketing
If to LIFE COMPANY:
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
Attn: Richard M. Reilly, President
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 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.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 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.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC granting exemptive
relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Trustees or officers of TRUST or
any Portfolio shall be personally liable hereunder. No Portfolio shall be liable
for the liabilities of any other Portfolio. All persons dealing with TRUST or a
Portfolio must look solely to the property of TRUST or that Portfolio,
respectively, for enforcement of any claims against TRUST or that Portfolio. It
is also understood that each of the Portfolios shall be deemed to be entering
into a separate Agreement with LIFE COMPANY so that it is as if each of the
Portfolios had signed a separate Agreement with LIFE COMPANY and that a single
document is being signed simply to facilitate the execution and administration
of the Agreement.
Page 15 of 19
<PAGE>
10.6 Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officer or officers of
TRUST shall give notice that TRUST's Agreement and Declaration of Trust is on
file with the Secretary of the Commonwealth of Massachusetts, and shall
recite that the same was executed or made by or behalf of TRUST by the
Trustees as Trustees and not individually, and that the obligations of such
instrument are not binding upon any of the Trustees or the shareholders of
any Portfolio individually but are binding only upon the assets and property
of TRUST, and may contain such further recital as he or she or they may deem
appropriate, but the omission thereof shall not operate to bind any officer
of TRUST or shareholder of shares of any Portfolio individually.
10.7 Each party 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.
10.8 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.
10.9 If the Agreement terminates, the parties agree that Article 7
and Sections 10.5, 10.6 and 10.7 shall remain in effect after termination.
10.10 No provision of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
TRUST, ADVISER and the LIFE COMPANY.
10.11 No failure or delay by a party in exercising any right or
remedy under this Agreement will operate as a waiver thereof and no single or
partial exercise of rights shall preclude a further or subsequent exercise.
The rights and remedies provided in this Agreement are cumulative and not
exclusive of any rights or remedies provided by law.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
BT INSURANCE FUNDS TRUST
By: /s/ Elizabeth Russell
--------------------------------
Name: Elizabeth Russell
Title: Secretary
BANKERS TRUST COMPANY
By: /s/ Lawrence Lafer
--------------------------------
Name: Lawrence Lafer
Title: Director
ALLMERICA FINANCIAL LIFE INSURANCE AND
ANNUITY COMPANY
By: /s/ Richard M. Reilly
--------------------------------
Name: Richard M. Reilly
Title: President
Page 17 of 19
<PAGE>
APPENDIX A
to Participation Agreement
by and among BT Insurance Funds Trust, Bankers Trust Company, and
Allmerica Financial Life Insurance and Annuity Company
LIST OF PORTFOLIOS:
BT Insurance Funds Trust - Small Cap Index Fund; BT Insurance Funds Trust -
EAFE Equity Index Fund; and BT Insurance Funds Trust - Equity 500 Index Fund;
and such other Portfolios as may become available, and as may be agreed upon
by LIFE COMPANY, TRUST and ADVISER, from time to time.
Page 18 of 19
<PAGE>
APPENDIX B
to Participation Agreement
by and among BT Insurance Funds Trust, Bankers Trust Company, and
Allmerica Financial Life Insurance and Annuity Company
LIST OF VARIABLE SEPARATE ACCOUNTS:
All Variable Separate Accounts as LIFE COMPANY may elect, and notify TRUST and
ADVISER, from time to time.
Page 19 of 19
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THIS AGREEMENT, made and entered into as of the 22nd day of
February 1999 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 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 III, 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 representing the interest in a particular managed
portfolio of securities and other assets, 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 (each such series hereinafter referred to as a
"Portfolio"); 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
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<PAGE>
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
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
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<PAGE>
constitute receipt by the Fund; provided that the Fund receives notice of
such order by 9:00 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 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 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. 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
3
<PAGE>
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.
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 (normally by 6:30
p.m. Boston time) 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
4
<PAGE>
and validly established each Account prior to any issuance or sale thereof as
a segregated asset account under Section 2932 of the Delaware 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 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 or annuity contracts or life insurance policies, 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. (a) With respect to Initial Class shares, the Fund
currently does not intend to make any payments to finance distribution expenses
pursuant to Rule 12b-1 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-1 Plan under which it makes no payments for distribution expenses. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
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-1
to finance distribution expenses.
(b) With respect to Service Class shares, the Fund has
adopted a Rule 12b-1 Plan under which it makes payments to finance distribution
expenses. The Fund represents and warrants that it has a board of trustees, a
majority of whom are not interested persons of the Fund, which has formulated
and approved the Fund's Rule 12b-1 Plan to finance distribution expenses of the
Fund and that any changes to the Fund's Rule 12b-1 Plan will be approved by a
similarly constituted board of trustees.
5
<PAGE>
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 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, and that said bond is issued by a reputable bonding company, includes
coverage for larceny and embezzlement, and is in an amount not less than $5
million. 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.
6
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1. The Underwriter 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 thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional 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 Contracts 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 Contracts 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. Except as provided in the following three
sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually 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 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 A and B where A is the number
of such prospectuses distributed to owners of the Contracts, and B 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 Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. 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 distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
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<PAGE>
(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 a particular separate account in the
same proportion as Fund shares of such portfolio for
which instructions have been received in that
separate account,
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 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 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.
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<PAGE>
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.
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, 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.
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<PAGE>
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.
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,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the
Fund's prospectus, proxy materials and reports to owners of Contracts issued by
the Company.
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 within the grace
period afforded by Regulation 1.817-5.
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<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.
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)
11
<PAGE>
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.
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.
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<PAGE>
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
(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
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<PAGE>
(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 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.
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<PAGE>
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,
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
15
<PAGE>
(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.
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.
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<PAGE>
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.
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<PAGE>
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 continue in full force and effect
until the first to occur of:
(a) termination by any party for any reason by sixty (60) 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
18
<PAGE>
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
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
19
<PAGE>
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") 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.
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:
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
Attention: Richard M. Reilly, President
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
20
<PAGE>
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.
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
21
<PAGE>
the Underwriter under this Agreement. The Company shall promptly notify the
Fund and the Underwriter of any change in control of the Company.
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"), if any), 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, if any), 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;
(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.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
------------------------------
Name: Richard M. Reilly
Title: President
22
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND III
By: /s/ Robert C. Pozen
-----------------------------
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Kevin J. Kelly
-----------------------------
Kevin J. Kelly
Vice President
23
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
<TABLE>
<S> <C> <C>
Name of Separate Account Policy Form Numbers of Contracts Fidelity Fund (Class)
And Date Established by Board by Separate Account
Of Directors
Group VEL Separate Account Policy Form # 1029-94 Balanced Portfolio
(Variable Life) 11/13/96 (Initial Class)
</TABLE>
24
<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 no longer needs to be sent to each Customer by
the Company either before or together with the Customers' receipt of a
proxy statement. Underwriter will provide the last Annual Report to the
Company pursuant to the terms of Section 3.3 of the Agreement to which
this Schedule relates.
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)
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<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
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.
26
<PAGE>
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.
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.
27
<PAGE>
SCHEDULE C
Other investment companies currently available under the Contracts:
Allmerica Investment Trust
Delaware Group Premium Fund, Inc.
T. Rowe Price International Series, Inc.
Mutual Fund Variable Annuity Trust
INVESCO Variable Investment Funds
28
<PAGE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 21st day of March, 2000 (the
"Agreement") by and among Allmerica Financial Life Insurance and Annuity
Company, organized under the laws of the State of Delaware (the "Company"), on
behalf of itself and each separate account of the Company named in Schedule A to
this Agreement, as may be amended from time to time (each account referred to as
the "Account" and collectively as the "Accounts"); INVESCO Variable Investment
Funds, Inc., an open-end management investment company organized under the laws
of the State of Maryland (the "Fund"); INVESCO Funds Group, Inc., a corporation
organized under the laws of the State of Delaware and investment adviser to the
Fund (the "Adviser"); and INVESCO Distributors, Inc., a corporation organized
under the laws of the State of Delaware and principal underwriter/distributor of
the Fund.
WHEREAS, the Fund engages 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 contracts and
variable annuity contracts to be offered by insurance companies which have
entered into participation agreements substantially similar to this Agreement
(the "Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several series of
shares, each representing the interest in a particular managed portfolio of
securities and other assets (the "Portfolios"); and
WHEREAS, the Company, as depositor, has established the Accounts to serve as
investment vehicles for certain variable annuity contracts and variable life
insurance policies and funding agreements offered by the Company set forth on
Schedule A (the "Contracts"); and
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolutions of the Board of Directors of the Company
under the insurance laws of the State of Connecticut, to set aside and invest
assets attributable to the Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the Portfolios named in Schedule B, as
such schedule may be amended from time to time (the "Designated Portfolios") on
behalf of the Accounts to fund the Contracts;
1
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and the Distributor agree as follows:
ARTICLE I - SALE OF FUND SHARES
1.1 The Fund agrees to sell to the Company those shares of the Designated
Portfolios which each Account orders, executing such orders on a daily
basis at the net asset value (and with no sales charges) next computed
after receipt and acceptance by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the
Company will be the designee of the Fund for receipt of such orders
from each Account and receipt by such designee will constitute receipt
by the Fund; provided that the Fund receives notice of such order by
11:00 a.m. Eastern Time on the next following business day. "Business
Day" will 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 (the
"Commission"). The Fund may net the notice of redemptions it receives
from the Company under Section 1.3 of this Agreement against the notice
of purchases it receives from the Company under this Section 1.1.
1.2 The Company will pay for Fund shares on the next Business Day after an
order to purchase Fund shares is made in accordance with Section 1.1.
Payment will be made in federal funds transmitted by wire. Upon receipt
by the Fund of the payment, such funds shall cease to be the
responsibility of the Company and shall become the responsibility of
the Fund.
1.3 The Fund agrees to redeem for cash, upon 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 and acceptance by the Fund or its agent of the request
for redemption. For purposes of this Section 1.3, the Company will be
the designee of the Fund for receipt of requests for redemption from
each Account and receipt by such designee will constitute receipt by
the Fund; provided the Fund receives notice of such requests for
redemption by 11:00 a.m. Eastern Time on the next following Business
Day. Payment will be made in federal funds transmitted by wire to the
Company's account as designated by the Company in writing from time to
time, on the same Business Day the Fund receives notice of the
redemption order from the Company. After consulting with the Company,
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 Investment Company Act of 1940
(the "1940 Act"). The Fund will not bear any responsibility whatsoever
for
2
<PAGE>
the proper disbursement or crediting of redemption proceeds; the
Company alone will be responsible for such action. If notification of
redemption is received after 11:00 Eastern Time, payment for redeemed
shares will be made on the next following Business Day. The Fund may
net the notice of purchases it receives from the Company under Section
1.1 of this Agreement against the notice of redemptions it receives
from the Company under this Section 1.3.
1.4 The Fund agrees to make shares of the Designated Portfolios available
continuously for purchase at the applicable net asset value per share
by Participating Insurance Companies and their separate accounts on
those days on which the Fund calculates its Designated Portfolio net
asset value pursuant to rules of the Commission; provided, however,
that the Board of Directors of the Fund (the "Fund 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 Fund Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, necessary
in the best interests of the shareholders of such Portfolio.
1.5 The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are
permitted under applicable provisions of the Internal Revenue Code of
1986, as amended, (the "Code"), and regulations promulgated thereunder,
the sale to which will not impair the tax treatment currently afforded
the Contracts. No shares of any Portfolio will be sold directly to the
general public.
1.6 The Fund 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, and VI of this Agreement are in effect to
govern such sales.
1.7 The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in
accordance with the provisions of such prospectus.
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 to any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate sub-account of
each Account.
1.9 The Fund will furnish same day notice (by facsimile) to the Company of
the declaration of any income, dividends or capital gain distributions
payable on each Designated Portfolio's shares. The Company hereby
elects to receive all such dividends and distributions as are payable
on the Portfolio shares in the form of additional shares of that
Portfolio at the ex-dividend date net asset values. The Company
reserves the right to revoke this election and to receive all such
dividends and distributions
3
<PAGE>
in cash. The Fund will notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.10 The Fund will make the net asset value per share for each Designated
Portfolio available to the Company via electronic means on a daily
basis as soon as reasonably practical after the net asset value per
share is calculated (normally by 6:00 p.m. Eastern Time) and will use
its best efforts to make such net asset value per share available by
7:00 p.m., Eastern Time, each business day. If the Fund provides the
Company materially incorrect net asset value per share information (as
determined under SEC guidelines), the Company shall be entitled to an
adjustment to the number of shares purchased or redeemed to reflect the
correct net asset value per share. Any material error in the
calculation or reporting of net asset value per share, dividend or
capital gain information shall be reported to the Company upon
discovery by the Fund.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will be
registered under the Securities Act of 1933 (the "1933 Act"), or are
exempt from registration thereunder, and that the Contracts will be
issued and sold in compliance with all applicable federal and state
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 established each Account as a
segregated asset account under the Delaware Insurance Code and that
each Account is or will be registered as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts, or is exempt from registration
thereunder, and that it will maintain such registration for so long as
any Contracts are outstanding, as applicable. The Company will amend
the registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account 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 will register and qualify the Contracts for sale in accordance
with the securities laws of the various states only if and to the
extent deemed necessary by the Company.
2.2 The Company represents that the Contracts are currently and at the time
of issuance will be treated as annuity contracts and/or life insurance
policies (as applicable) 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 Adviser 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.
4
<PAGE>
2.3 The Company represents and warrants that it will not purchase shares of
the Designated Portfolio(s) with assets derived from tax-qualified
retirement plans except, indirectly, through Contracts purchased in
connection with such plans.
2.4 The Fund represents and warrants that shares of the Designated
Portfolio(s) sold pursuant to this Agreement will be registered under
the 1933 Act and duly authorized for issuance in accordance with
applicable law and that the Fund is and will remain registered as an
open-end management investment company under the 1940 Act for as long
as such shares of the Designated Portfolio(s) are sold. The Fund will
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 will register and qualify
the shares of the Designated Portfolio(s) for sale in accordance with
the laws of the various states only if and to the extent deemed
advisable by the Fund.
2.5 The Fund represents that it will use its best efforts to comply with
any applicable state insurance laws or regulations as they may apply to
the investment objectives, policies and restrictions of the Portfolios,
as they may apply to the Fund, to the extent specifically requested in
writing by the Company. If the Fund cannot comply with such state
insurance laws or regulations, it will so notify the Company in
writing. The Fund makes no other 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 any state. The Company represents that it will use its
best efforts to notify the Fund of any restrictions imposed by state
insurance laws that may become applicable to the Fund as a result of
the Accounts' investments therein. The Fund and the Adviser agree that
they will furnish the information required by state insurance laws to
assist the Company in obtaining the authority needed to issue the
Contracts in various states.
2.6 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it reserves the right to make such payments in the
future. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have the directors of
its Fund Board, a majority of whom are not "interested" persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.7 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 applicable provisions of the 1940
Act.
2.8 The Fund represents and warrants that all of its directors, officers,
employees, investment advisers, and other individuals/entities having
access to the funds and/or securities of the Fund are and continue
5
<PAGE>
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 includes coverage for larceny and embezzlement and is
issued by a reputable bonding company.
2.9 The Adviser represents and warrants that it is duly registered as an
investment adviser under the Investment Advisers Act of 1940, as
amended, and will remain duly registered under all applicable federal
and state securities laws and that it will perform its obligations for
the Fund in accordance in all material respects with the laws of the
State of Delaware and any applicable state and federal securities laws.
2.10 The Distributor represents and warrants that it is registered as a
broker-dealer under the Securities and Exchange Act of 1934, as amended
(the "1934 Act") and will remain duly registered under all applicable
federal and state securities laws, and is a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD") and
serves as principal underwriter/distributor of the Funds and that it
will perform its obligations for the Fund in accordance in all material
respects with the laws of the State of Delaware and any applicable
state and federal securities laws.
2.11 The Fund, the Adviser and the Distributor represents and warrants to
the Company that each has a Year 2000 compliance program in existence
and that each reasonably intends to be Year 2000 compliant so as to be
able perform all of the services and/or obligations contemplated by or
under this Agreement without interruption. The Fund, the Adviser, and
the Distributor shall immediately notify the Company if it determines
that it will be unable perform all of the services and/or obligations
contemplated by or under this Agreement in a manner that is Year 2000
compliant.
ARTICLE III - FUND COMPLIANCE
3.1 The Fund and the Adviser acknowledge that any failure (whether
intentional or in good faith or otherwise) to comply with the
requirements of Subchapter M of the Code or the diversification
requirements of Section 817(h) of the Code may result in the Contracts
not being treated as variable contracts for federal income tax
purposes, which would have adverse tax consequences for Contract owners
and could also adversely affect the Company's corporate tax liability.
The Fund and the Adviser further acknowledge that any such failure may
result in costs and expenses being incurred by the Company in obtaining
whatever regulatory authorizations are required to substitute shares of
another investment company for those of the failed Fund or as well as
fees and expenses of legal
6
<PAGE>
counsel and other advisors to the Company and any federal income taxes,
interest or tax penalties incurred by the Company in connection with
any such failure.
3.2 The Fund represents and warrants that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Code, and that
it will 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.
3.3 The Fund represents that it 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; including, but not limited to, that the Fund will at all
times comply with Section 817(h) of the Code and Treasury Regulation
1.817-5, as amended from time to time, relating to the diversification
requirements for variable annuity, endowment, or life insurance
contracts, and with Section 817(d) of the Code, relating to the
definition of a variable contract, and any amendments or other
modifications to such Section or Regulation. The Fund will notify the
Company immediately upon having a reasonable basis for believing that
the Fund or a Portfolio thereunder has ceased to comply with the
diversification requirements or that the Fund or Portfolio might not
comply with the diversification requirements in the future. In the
event of a breach of this representation by the Fund, it will take all
reasonable steps to adequately diversify the Fund so as to achieve
compliance within the grace period afforded by Treasury Regulation
1.817-5.
3.4 The Adviser agrees to provide the Company with a certificate or
statement indicating compliance by each Portfolio of the Fund with
Section 817(h) of the Code, such certificate or statement to be sent to
the Company no later than thirty (30) days following the end of each
calendar quarter.
ARTICLE IV - PROSPECTUS AND PROXY STATEMENTS/VOTING
4.1 The Fund will provide the Company with as many copies of the current
Fund prospectus and any supplements thereto for the Designated
Portfolio(s) as the Company may reasonably request for distribution, at
the Fund's expense, to Contract owners at the time of Contract
fulfillment and confirmation. To the extent that the Designated
Portfolio(s) are one or more of several Portfolios of the Fund, the
Fund shall bear the cost of providing the Company only with disclosure
related to the Designated Portfolio(s). The Fund will provide, at the
Fund's expense, as many copies of said prospectus as necessary for
distribution, at the Fund's expense, to existing Contract owners. The
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Fund will provide the copies of said prospectus to the Company or to
its mailing agent. The Company will distribute the prospectus to
existing Contract owners and will bill the Fund for the reasonable
cost of such distribution. If requested by the Company, in lieu
thereof, the Fund will provide such documentation, including a final
copy of a current prospectus set in type at the Fund's expense, and
other assistance as is reasonably necessary in order for the Company
at least annually (or more frequently if the Fund prospectus is
amended more frequently) to have the new prospectus for the
Contracts and the Fund's new prospectus printed together, in which
case the Fund agrees to pay its proportionate share of reasonable
expenses directly related to the required disclosure of information
concerning the Fund. The Fund will, upon request, provide the Company
with a copy of the Fund's prospectus through electronic means to
facilitate the Company's efforts to provide Fund prospectuses via
electronic delivery, in which case the Fund agrees to pay its
proportionate share of reasonable expenses related to the required
disclosure of information concerning the Fund.
4.2 The Fund's prospectus will state that the Statement of Additional
Information (the "SAI") for the Fund is available from the Company. The
Fund will provide the Company, at the Fund's expense, with as many
copies of the SAI and any supplements thereto as the Company may
reasonably request for distribution, at the Fund's expense, to
prospective Contract owners and applicants. To the extent that the
Designated Portfolio(s) are one or more of several Portfolios of the
Fund, the Fund shall bear the cost of providing the Company only with
disclosure related to the Designated Portfolio(s). The Fund will
provide, at the Fund's expense, as many copies of said SAI as necessary
for distribution, at the Fund's expense, to any existing Contract owner
who requests such statement or whenever state or federal law requires
that such statement be provided. The Fund will provide the copies of
said SAI to the Company or to its mailing agent. The Company will
distribute the SAI as requested or required and will bill the Fund for
the reasonable cost of such distribution.
4.3 The Fund, at its expense, will provide the Company or its mailing agent
with copies of its proxy material, if any, reports to
shareholders/Contract owners and other permissible communications to
shareholders/Contract owners in such quantity as the Company will
reasonably require. The Company will distribute this proxy material,
reports and other communications to existing Contract owners and will
bill the Fund for the reasonable cost of such distribution.
4.4 If and to the extent required by law, the Company will:
(a) solicit voting instructions from Contract owners;
(b) vote the shares of the Designated Portfolios held in the
Account in accordance with instructions received from Contract
owners; and
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(c) vote shares of the Designated Portfolios held in the Account
for which no timely instructions have been received, in the
same proportion as shares of such Designated Portfolio for
which instructions have been received from the Company's
Contract owners,
so long as and to the extent that the 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 Company will be responsible for assuring that the
Accounts participating in the Fund calculates voting privileges in a
manner consistent with all legal requirements, including the Proxy
Voting Procedures set forth in Schedule C and the Mixed and Shared
Funding Exemptive Order, as described in Section 7.1.
4.5 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular, the Fund either will provide
for annual meetings (except insofar as the Commission may interpret
Section 16 of the 1940 Act not to require such meetings) or, as the
Fund currently intends, to comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c)
of the 1940 Act) as well as with Sections 16(a) and, if and when
applicable, 16(b). Further, the Fund will act in accordance with the
Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of directors and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE V - SALES MATERIAL AND INFORMATION
5.1 The Company will furnish, or will cause to be furnished, to the Fund or
the Adviser, each piece of sales literature or other promotional
material in which the Fund or the Adviser is named, at least ten (10)
Business Days prior to its use. No such material will be used if the
Fund or the Adviser reasonably objects to such use within five (5)
Business Days after receipt of such material.
5.2 The Company will 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, prospectus or
SAI for Fund shares, as such registration statement, prospectus and SAI
may be amended or supplemented from time to time, or in reports or
proxy statements for the Fund, or in published reports for the Fund
which are in the public domain or approved by the Fund or the Adviser
for distribution, or in sales literature or other material provided by
the Fund or by the Adviser, except with permission of the
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Fund or the Adviser. The Fund and the Adviser agree to respond to any
request for approval on a prompt and timely basis.
5.3 The Fund or the Adviser will furnish, or will cause to be furnished, to
the Company or its designee, each piece of sales literature or other
promotional material in which the Company or its separate account is
named, at least ten (10) Business Days prior to its use. No such
material will be used if the Company reasonably objects to such use
within five (5) Business Days after receipt of such material.
5.4 The Fund and the Adviser will not give any information or make any
representations or statements 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, prospectus or
SAI for the Contracts, as such registration statement, prospectus and
SAI may be amended or supplemented from time to time, or in published
reports for each Account or the Contracts which are in the public
domain or approved by the Company for distribution to Contract owners,
or in sales literature or other material provided by the Company,
except with permission of the Company. The Company agrees to respond to
any request for approval on a prompt and timely basis.
5.5 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, within a
reasonable time after filing of each such document with the Commission
or the NASD.
5.6 The Company will provide to the Fund at least one complete copy of all
definitive prospectuses, definitive SAI, 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 each such document with
the Commission or the NASD (Except that with respect to post-effective
amendments to such prospectuses and SAIs and sales literature and
promotional material, only those prospectuses and SAIs and sales
literature and promotional material that relate to or refer to the Fund
will be provided.) In addition, the Company will provide to the Fund at
least one complete copy of (i) a registration statement that relates to
the Contracts or each Account, containing representative and relevant
disclosure concerning the Fund; and (ii) any post-effective amendments
to any registration statements relating to the Contracts or such
Account that refer to or relate to the Fund.
5.7 For purposes of this Article V, 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
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or billboards, motion pictures, or other public media, (I.E., on-line
networks such as the Internet or other electronic messages)), 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, registration statements, prospectuses, SAIs,
shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under the NASD rules, the
1933 Act or the 1940 Act.
5.8 The Investment Company, the Adviser and the Distributor hereby consent
to the Insurance Company's use of the names of the INVESCO, AMVESCAP
and INVESCO Funds Group, Inc. as well as the names of the Designated
Funds set forth in Schedule B of this Agreement, in connection with
marketing the Contracts, subject to the terms of Sections 5.1 of this
Agreement. Insurance Company acknowledges and agrees that Adviser and
Distributor and/or their affiliates own all right, title and interest
in an to the name INVESCO and the INVESCO open circle design, and
covenants not, at any time, to challenge the rights of Adviser and
Distributor and/or their affiliates to such name or design, or the
validity or distinctiveness thereof. The Investment Company, the
Adviser and the Distributor hereby consent to the use of any trademark,
trade name, service mark or logo used by the Investment Company, the
Adviser and the Distributor, subject to the Investment Company's, the
Adviser's and/or the Distributor's approval of such use and in
accordance with reasonable requirements of the Investment Company, the
Adviser or the Distributor. Such consent will terminate with the
termination of this Agreement. Adviser or Distributor may withdraw this
consent as to any particular use of any such name or identifying marks
at any time (i) upon Adviser's or Distributor's reasonable
determination that such use would have a material adverse effect on the
reputation or marketing efforts of Adviser, Distributor or such Funds
or (ii) if no investment company, or series or class of shares of any
investment company advised by Adviser or distributed by Distributor
continues to be offered through variable insurance contracts issued by
Insurance Company; provided however, that Adviser or Distributor may,
in the individual discretion of either, continue to use materials
prepared or printed prior to the withdrawal of such authorization. The
Insurance Company agrees and acknowledges that all use of any
designation comprised in whole or in part of the name, trademark, trade
name, service mark and logo under this Agreement shall inure to the
benefit of the Investment Company, Adviser and/or the Distributor.
5.9 The Fund, the Adviser, the Distributor and the Company agree to adopt
and implement procedures reasonably designed to ensure that information
concerning the Company, the Fund, the Adviser or the
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Distributor, respectively, and their respective affiliated companies,
that is intended for use only by brokers or agents selling the
Contracts is properly marked as "Not For Use With The Public" and that
such information is only so used.
ARTICLES VI - FEES, COSTS AND EXPENSES
6.1 The Fund will pay no fee or other compensation to the Company under
this Agreement, except as provided below: (a) if the Fund or any
Designated Portfolio adopts and implements a plan pursuant to Rule
12b-1 under the 1940 Act to finance distribution expenses, then,
subject to obtaining any required exemptive orders or other regulatory
approvals, the Fund may make payments to the Company or to the
underwriter for the Contracts if and in such amounts agreed to by the
Fund in writing; (b) the Fund may pay fees to the Company for
administrative services provided to Contract owners that are not
primarily intended to result in the sale of shares of the Designated
Portfolio or of underlying Contracts.
6.2 All expenses incident to performance by the Fund of this Agreement will
be paid by the Fund to the extent permitted by law. All shares of the
Designated Portfolios will be duly authorized for issuance and
registered in accordance with applicable federal law and, to the extent
deemed advisable by the Fund, in accordance with applicable state law,
prior to sale. The Fund will bear the expenses for the cost of
registration and qualification of the Fund's shares, including without
limitation, the preparation of and filing with the SEC of Forms N-SAR
and Rule 24f-2 Notices and payment of all applicable registration or
filing fees with respect to shares of the Fund; preparation and filing
of the Fund's prospectus, SAI and registration statement, proxy
materials and reports; typesetting the Fund's prospectus; typesetting
and printing proxy materials and reports to Contract owners (including
the costs of printing a Fund 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; 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; and
other costs associated with preparation of prospectuses and SAIs for
the Designated Portfolios in electronic or typeset format, as well as
any distribution expenses as set forth in Article III of this
Agreement.
ARTICLE VII - MIXED & SHARED FUNDING RELIEF
7.1 The Fund represents and warrants that it has received an order from the
Commission granting Participating Insurance Companies and variable
annuity separate accounts and variable life insurance
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separate accounts relief from the provisions of Sections 9(a), 13(a),
15(a), and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity separate accounts
and variable life insurance separate accounts of both affiliated and
unaffiliated Participating Insurance Companies and qualified pension
and retirement plans outside of the separate account context (the
"Mixed and Shared Funding Exemptive Order"). The parties to this
Agreement agree that the conditions or undertakings specified in the
Mixed and Shared Funding Exemptive Order and that may be imposed on the
Company, the Fund and/or the Adviser by virtue of the receipt of such
order by the Commission, will be incorporated herein by reference, and
such parties agree to comply with such conditions and undertakings to
the extent applicable to each such party.
7.2 The Fund Board will monitor the Fund for the existence of any
irreconcilable material conflict among 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, but not limited to: (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 Participating
Insurance Companies or by variable annuity and variable life insurance
Contract owners; or (f) a decision by an insurer to disregard the
voting instructions of Contract owners. The Fund Board will promptly
inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof. A majority of the Fund
Board will consist of persons who are not "interested" persons of the
Fund.
7.3 The Company will report any potential or existing conflicts of which it
is aware to the Fund Board. The Company agrees to assist the Fund Board
in carrying out its responsibilities, as delineated in the Mixed and
Shared Funding Exemptive Order, by providing the Fund Board with all
information reasonably necessary for the Fund Board to consider any
issues raised. This includes, but is not limited to, an obligation by
the Company to inform the Fund Board whenever Contract owner voting
instructions are to be disregarded. The Fund Board will record in its
minutes, or other appropriate records, all reports received by it and
all action with regard to a conflict.
7.4 If it is determined by a majority of the Fund Board, or a majority of
its disinterested directors, that an irreconcilable material conflict
exists, the Company and other Participating Insurance Companies will,
at their expense and to the extent reasonably practicable (as
determined by a majority of the
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disinterested directors), take whatever steps are necessary to remedy
or eliminate the irreconcilable material conflict, up to and including:
(a) withdrawing the assets allocable to some or all of the 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 submitted to a vote of all affected Contract
owners and, as appropriate, segregating the assets of any appropriate
group (I.E., variable annuity Contract owners or variable life
insurance Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the
affected Contract owners the option of making such a change; and (b)
establishing a new registered management investment company or managed
separate account.
7.5 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions, and such
disregard of voting instructions could conflict with the majority of
Contract owner voting instructions, and the Company's judgment
represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the
affected sub-account of the Account's investment in the Fund and
terminate this Agreement with respect to such sub-account; provided,
however, that such withdrawal and termination will be limited to the
extent required by the foregoing irreconcilable material conflict as
determined by a majority of the disinterested directors of the Fund
Board. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal and termination must take place within
six (6) months after the Fund gives written notice to the Company that
this provision is being implemented. Until the end of such six-month
period the Adviser and Fund will, to the extent permitted by law and
any exemptive relief previously granted to the Fund, continue to accept
and implement orders by the Company for the purchase (and redemption)
of shares of the Fund.
7.6 If an irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with
the majority of other state insurance regulators, then the Company will
withdraw the affected sub-account of the Account's investment in the
Fund and terminate this Agreement with respect to such sub-account;
provided, however, that such withdrawal and termination will be limited
to the extent required by the foregoing irreconcilable material
conflict as determined by a majority of the disinterested directors of
the Fund Board. No charge or penalty will be imposed as a result of
such withdrawal. Any such withdrawal and termination must take place
within six (6) months after the Fund gives written notice to the
Company that this provision is being implemented. Until the end of such
six-month period the Advisor and Fund will, to the extent
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permitted by law and any exemptive relief previously granted to the
Fund, continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.7 For purposes of Sections 7.4 through 7.7 of this Agreement, a majority
of the disinterested members of the Fund Board will determine whether
any proposed action adequately remedies any irreconcilable material
conflict, but in no event, other than as specified in Section 7.4, will
the Fund be required to establish a new funding medium for the
Contracts. The Company will not be required by Section 7.4 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 affected by the
irreconcilable material conflict.
7.7 The Company will at least annually submit to the Fund Board such
reports, materials or data as the Fund Board may reasonably request so
that the Fund Board may fully carry out the duties imposed upon it as
delineated in the Mixed and Shared Funding Exemptive Order, and said
reports, materials and data will be submitted more frequently if deemed
appropriate by the Fund Board.
7.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules promulgated thereunder with respect to mixed
or shared funding (as defined in the Mixed and Shared Funding Exemptive
Order) on terms and conditions materially different from those
contained in the Mixed and Shared Funding Exemptive Order, then: (a)
the Fund and/or the Participating Insurance Companies, as appropriate,
will 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 4.4, 4.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement will 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
(a) The Company agrees to indemnify and hold harmless the Fund,
the Adviser, the Distributor, and each person, if any, who
controls or is associated with the Fund, the Adviser, or the
Distributor within the meaning of such terms under the federal
securities laws and any director, trustee, officer, employee
or agent of the foregoing (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all
losses, claims, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the
Company) or actions in respect thereof (including reasonable
legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at common
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law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or
settlements:
(1) 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 SAI for the Contracts or contained in the
Contracts or sales literature or other promotional
material 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 or necessary to make such statements not
misleading in light of the circumstances in which
they were made; provided that this agreement to
indemnify will not apply as to any Indemnified Party
if such statement or omission of 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, the Adviser, or
the Distributor for use in the registration
statement, prospectus or SAI 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
(2) arise out of or as a result of statements or
representations by or on behalf of the Company (other
than statements or representations contained in the
Fund registration statement, prospectus, SAI or sales
literature or other promotional material of the Fund,
or any amendment or supplement to the foregoing, 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
(3) arise out of untrue statement or alleged untrue
statement of a material fact contained in the Fund
registration statement, prospectus, SAI or sales
literature or other promotional material of the Fund
(or amendment or supplement) or the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make
such statements not misleading in light of the
circumstances in which they were made, 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 persons under its
control; or
(4) 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
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(5) arise out of 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 by the Company of this
Agreement;
except to the extent provided in Sections 8.1(b) and 8.4
hereof. This indemnification will be in addition to any
liability that the Company otherwise may have.
(b) No party will be entitled to indemnification under Section
8.1(a) if such loss, claim, damage, liability or action is due
to the willful misfeasance, bad faith, or gross negligence in
the performance of such party's duties under this Agreement,
or by reason of such party's reckless disregard of its
obligations or duties under this Agreement.
(c) The Indemnified Parties promptly will notify the Company of
the commencement of any litigation, proceedings, complaints or
actions by regulatory authorities 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 ADVISER & DISTRIBUTOR
(a) The Adviser and Distributor agree to indemnify and hold
harmless the Company and each person, if any, who controls or
is associated with the Company within the meaning of such
terms under the federal securities laws and any director,
officer, employee or agent of the foregoing (collectively, the
"Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, expenses, damages,
liabilities (including amounts paid in settlement with the
written consent of the Adviser and Distributor) or actions in
respect thereof (including reasonable 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:
(1) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement, prospectus
or SAI for the Fund or sales literature or other
promotional material 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 or necessary to make such statements not
misleading in light of the circumstances in which
they were made; provided that this agreement to
indemnify will not apply as to any Indemnified Party
if such statement or omission of such alleged
statement or omission
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<PAGE>
was made in reliance upon and in conformity with
information furnished to the Adviser or Fund by or
on behalf of the Company for use in the registration
statement, prospectus or SAI for the Fund or in
sales literature of the Fund (or any amendment or
supplement thereto) or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
(2) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Contracts or in the
Contract or Fund registration statements,
prospectuses or statements of additional information
or sales literature or other promotional material for
the Contracts or of the Fund, or any amendment or
supplement to the foregoing, not supplied by the
Adviser or the Fund or persons under the control of
the Adviser or the Fund respectively) or wrongful
conduct of the Adviser or the Fund or persons under
the control of the Adviser or the Fund respectively,
with respect to the sale or distribution of the
Contracts or Fund shares; or
(3) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, SAI or sales
literature or other promotional material covering the
Contracts (or any amendment or supplement thereto),
or the omission or alleged omission to state therein
a material fact required to be stated or necessary to
make such statement or statements 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 Company by or on behalf of the Adviser or the
Fund or persons under the control of the Adviser or
the Fund; or
(4) arise as a result of any failure by the Fund or the
Adviser to provide the services and furnish the
materials under the terms of this Agreement; or
(5) arise out of or result from any material breach of
any representation and/or warranty made by the
Adviser or the Fund in this Agreement, or arise out
of or result from any other material breach of this
Agreement by the Adviser or the Fund (including a
failure, whether intentional or in good faith or
otherwise, to comply with the requirements of
Subchapter M of the Code specified in Article III,
Section 3.2 of this Agreement and the diversification
requirements specified in Article III, Section 3.3 of
this Agreement, as described more fully in Section
8.5 below);
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except to the extent provided in Sections 8.2(b) and 8.4
hereof. This indemnification will be in addition to any
liability that the Adviser or Distributor otherwise may have.
(b) No party will be entitled to indemnification under Section
8.2(a) if such loss, claim, damage, liability or action is due
to the willful misfeasance, bad faith, or gross negligence in
the performance of such party's duties under this Agreement,
or by reason of such party's reckless disregard or its
obligations or duties under this Agreement.
(c) The Indemnified Parties will promptly notify the Adviser and
the Fund of the commencement of any litigation, proceedings,
complaints or actions by regulatory authorities against them
in connection with the issuance or sale of the Contracts or
the operation of the Account.
8.3 INDEMNIFICATION BY THE FUND
(a) The Fund agrees to indemnify and hold harmless the Company and
each person, if any, who controls or is associated with the
Company within the meaning of such terms under the federal
securities laws and any director, officer, employee or agent
of the foregoing (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 action
in respect thereof (including reasonable 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 operations of the Fund and:
(1) 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
(2) 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
(including a failure, whether intentional or in good
faith or otherwise, to comply with the requirements
of Subchapter M of the Code specified in Article III,
Section 3.2 of this Agreement and the diversification
requirements specified in Article III, Section 3.3 of
this Agreement as described more fully in Section 8.5
below); or
(3) arise out of or result from the incorrect or untimely
calculation or reporting of daily net asset value per
share or dividend or capital gain distribution rate;
19
<PAGE>
except to the extent provided in Sections 8.3(b) and 8.4
hereof. This indemnification will be in addition to any
liability that the Fund otherwise may have.
(b) No party will be entitled to indemnification under Section
8.3(a) if such loss, claim, damage, liability or action is due
to the willful misfeasance, bad faith, or gross negligence in
the performance of such party's duties under this Agreement,
or by reason of such party's reckless disregard of its
obligations and duties under this Agreement.
(c) The Indemnified Parties will promptly notify the Fund of the
commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection
with the issuance or sale of the Contracts or the operation of
the Account.
8.4 INDEMNIFICATION PROCEDURE
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.4) will not be
liable under the indemnification provisions of this Article VIII with
respect to any claim made against a party entitled to indemnification
under this Article VIII ("Indemnified Party" for the purpose of this
Section 8.4) unless such Indemnified Party will have notified the
Indemnifying Party in writing within a reasonable time after the
summons or other first legal process giving information of the nature
of the claim will have been served upon such Indemnified Party (or
after such party will have received notice of such service on any
designated agent), but failure to notify the Indemnifying Party of any
such claim will not relieve the Indemnifying Party from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of the indemnification provision of
this Article VIII, except to the extent that the failure to notify
results in the failure of actual notice to the Indemnifying Party and
such Indemnifying Party is damaged solely as a result of failure to
give such notice. In case any such action is brought against the
Indemnified Party, the Indemnifying Party will be entitled to
participate, at its own expense, in the defense thereof. The
Indemnifying Party also will be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After
notice from the Indemnifying Party to the Indemnified Party of the
Indemnifying Party's election to assume the defense thereof, the
Indemnified Party will bear the fees and expenses of any additional
counsel retained by it, and the Indemnifying Party 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,
unless: (a) the Indemnifying Party and the Indemnified Party will have
mutually agreed to the retention of such counsel; or (b) the named
parties
20
<PAGE>
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
will not be liable for any settlement of any proceeding effected
without its written consent but if settled with such consent or if
there is 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 will be entitled to the benefits of
the indemnification contained in this Article VIII. The indemnification
provisions contained in this Article VIII will survive any termination
of this Agreement.
8.5 INDEMNIFICATION FOR FAILURE TO COMPLY WITH DIVERSIFICATION REQUIREMENTS
The Fund and the Adviser acknowledge that any failure (whether
intentional or in good faith or otherwise) to comply with the
diversification requirements specified in Article III, Section 3.3 of
this Agreement may result in the Contracts not being treated as
variable contracts for federal income tax purposes, which would have
adverse tax consequences for Contract owners and could also adversely
affect the Company's corporate tax liability. Accordingly, without in
any way limiting the effect of Sections 8.2(a) and 8.3(a) hereof and
without in any way limiting or restricting any other remedies available
to the Company, the Fund, the Adviser and the Distributor will pay on a
joint and several basis all costs associated with or arising out of any
failure, or any anticipated or reasonably foreseeable failure, of the
Fund or any Portfolio to comply with Section 3.3 of this Agreement,
including all costs associated with correcting or responding to any
such failure; such costs may include, but are not limited to, the costs
involved in creating, organizing, and registering a new investment
company as a funding medium for the Contracts and/or the costs of
obtaining whatever regulatory authorizations are required to substitute
shares of another investment company for those of the failed Fund or
Portfolio (including but not limited to an order pursuant to Section
26(b) of the 1940 Act); fees and expenses of legal counsel and other
advisors to the Company and any federal income taxes or tax penalties
(or "toll charges" or exactments or amounts paid in settlement)
incurred by the Company in connection with any such failure or
anticipated or reasonably foreseeable failure. Such indemnification and
reimbursement obligation shall be in addition to any other
indemnification and reimbursement obligations of the Fund, the Adviser
and/or the Distributor under this Agreement.
21
<PAGE>
ARTICLE IX - APPLICABLE LAW
9.1 This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Delaware.
9.2 This Agreement will be subject to the provisions of the 1933 Act, the
1934 Act and the 1940 Act, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the Commission may grant (including, but not limited to,
the Mixed and Shared Funding Exemptive Order) and the terms hereof will
be interpreted and construed in accordance therewith.
ARTICLE X - TERMINATION
10.1 This Agreement will terminate:
(a) at the option of any party, with or without cause, with
respect to one, some or all of the Portfolios, upon six (6)
month's advance written notice to the other parties or, if
later, upon receipt of any required exemptive relief or orders
from the SEC, unless otherwise agreed in a separate written
agreement among the parties; or
(b) at the option of the Company, upon written notice to the other
parties, with respect to any Portfolio if shares of the
Portfolio are not reasonably available to meet the
requirements of the Contracts as determined in good faith by
the Company; or
(c) at the option of the Company, upon written notice to the other
parties, 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
Company; or
(d) at the option of the Fund, upon written notice to the other
parties, upon institution of formal proceedings against the
Company by the NASD, the Commission, the Insurance Commission
of any state or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale
of the Contracts, the administration of the Contracts, the
operation of the Account, or the purchase of the Fund shares,
provided that the Fund determines in its sole judgment,
exercised in good faith, that any such proceeding would have a
material adverse effect on the Company's ability to perform
its obligations under this Agreement; or
22
<PAGE>
(e) at the option of the Company, upon written notice to the other
parties, upon institution of formal proceedings against the
Fund or the Adviser by the NASD, the Commission or any state
securities or insurance department or any other regulatory
body, provided that the Company determines in its sole
judgment, exercised in good faith, that any such proceeding
would have a material adverse effect on the Fund's or the
Adviser's ability to perform its obligations under this
Agreement; or
(f) at the option of the Company, upon written notice to the other
parties, 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 and in good faith believes that the Fund may fail
to so qualify; or
(g) at the option of the Company, upon written notice to the other
parties, with respect to any Portfolio if the Fund fails to
meet the diversification requirements specified in Section 3.3
hereof or if the Company reasonably and in good faith believes
the Fund may fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon written
notice to the other parties, upon another party's material
breach of any provision of this Agreement; or
(i) at the option of the Company, if the Company determines 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 or financial condition since the date of
this Agreement or is the subject of material adverse publicity
which is likely to have a material adverse impact upon the
business and operations of the Company, such termination to be
effective sixty (60) days' after receipt by the other parties
of written notice of the election to terminate; or
(j) at the option of the Fund or the Adviser, if the Fund or
Adviser respectively, determines in its sole judgment
exercised in good faith that the Company has suffered a
material adverse change in its business, operations or
financial condition since the date of this Agreement or is the
subject of material adverse publicity which is likely to have
a material adverse impact upon the business and operations of
the Fund or the Adviser, such termination to be effective
sixty (60) days' after receipt by the other parties of written
notice of the election to terminate; or
(k) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the Contract
owners having an interest in the Account (or any sub-account)
to substitute the shares of another investment company for the
corresponding Portfolio's shares of the Fund in accordance
with the terms of the Contracts for which those Portfolio
23
<PAGE>
shares had been selected to serve as the underlying portfolio.
The Company will give sixty (60) days' prior written notice to
the Fund of the date of any proposed vote or other action
taken to replace the Fund's shares or of the filing of any
required regulatory approval(s); or
(l) at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of the
disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of: (1) all
Contract owners of variable insurance products of all separate
accounts; or (2) the interests of the Participating Insurance
Companies investing in the Fund as set forth in Article VII of
this Agreement; or
(m) at the option of the Fund in the event any of the Contracts
are not issued or sold in accordance with applicable federal
and/or state law. Termination will be effective immediately
upon such occurrence without notice.
10.2 NOTICE REQUIREMENT
(a) No termination of this Agreement, except a termination under
Section 10.1 (m) of this Agreement, will be effective unless
and until the party terminating this Agreement gives prior
written notice to all other parties of its intent to
terminate, which notice will set forth the basis for the
termination.
(b) In the event that any termination of this Agreement is based
upon the provisions of Article VII, such prior written notice
will be given in advance of the effective date of termination
as required by such provisions.
10.3 EFFECT OF TERMINATION
Notwithstanding any termination of this Agreement, the Fund, the
Adviser and the Distributor will, 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 will be permitted to reallocate
investments in the Designated Portfolios (as in effect on such date),
redeem investments in the Designated Portfolios and/or invest in the
Designated Portfolios upon the making of additional purchase payments
under the Existing Contracts. The parties agree that this Section 10.3
will not apply to any terminations under Article VII and the effect of
such Article VII terminations will be governed by Article VII of this
Agreement.
10.4 SURVIVING PROVISIONS
Notwithstanding any termination of this Agreement, each party's
obligations under Article VIII to indemnify other parties will survive
and not be affected by any termination of this Agreement. In
24
<PAGE>
addition, with respect to Existing Contracts, all provisions of this
Agreement also will survive and not be affected by any termination of
this Agreement.
ARTICLE XI - NOTICES
Any notice will be deemed duly 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
parties.
If to the Company:
------------------
Allmerica Financial Life Insurance
and Annuity Company
440 Lincoln Street
Worcester, MA 01653
Attn: Richard M. Reilly, President
If to the Fund:
---------------
INVESCO Variable Investment Funds, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: Ronald L. Grooms, Treasurer
If to the Adviser:
------------------
INVESCO Funds Group, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: Ronald L. Grooms, Senior Vice President
If to the Distributor:
----------------------
INVESCO Distributors, Inc.
7800 E. Union Avenue
Denver, Colorado 80217-3706
Attn: Ronald L. Grooms, Senior Vice President
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 directors, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 The Fund and the Adviser acknowledge that the identities of the
customers of the Company or any of its affiliates (collectively the
"Protected Parties" for purposes of this Section 12.2), information
maintained regarding those customers, and all computer programs and
procedures developed by the Protected Parties or any of their employees
or agents in connection with the Company's performance
25
<PAGE>
of its duties under this Agreement are the valuable property of the
Protected Parties. The Fund and the Adviser agree that if they come
into possession of any list or compilation of the identities of or
other information about the Protected Parties' customers, or any other
property of the Protected Parties, other than such information as may
be independently developed or compiled by the Fund or the Adviser from
information supplied to them by the Protected Parties' customers who
also maintain accounts directly with the Fund or the Adviser, the Fund
and the Adviser will hold such information or property in confidence
and refrain from using, disclosing or distributing any of such
information or other property except: (a) with the Company's prior
written consent; or (b) as required by law or judicial process. The
Fund and the Adviser acknowledge that any breach of the agreements in
this Section 12.2 would result in immediate and irreparable harm to the
Protected Parties for which there would be no adequate remedy at law
and agree that in the event of such a breach, the Protected Parties
will be entitled to equitable relief by way of temporary and permanent
injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
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 will constitute one and the
same instrument.
12.5 If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement will not be affected thereby.
12.6 This Agreement will not be assigned by any party hereto without the
prior written consent of all the parties.
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 law.
12.8 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect.
12.9 Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including without limitation
the Commission, the NASD and state insurance regulators) and will
permit each other and 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.
12.10 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 board
26
<PAGE>
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.
12.11 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,
the Accounts or the Portfolios of the Fund or other applicable terms of
this Agreement.
27
<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 representative and its
seal to be hereunder affixed hereto as of the date specified below.
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
---------------------
Richard M. Reilly, President
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By: /s/ Ronald L. Grooms
--------------------
Ronald L. Grooms, Treasurer
INVESCO FUNDS GROUP, INC.
By: /s/ Ronald L. Grooms
--------------------
Ronald L. Grooms, Senior Vice President
INVESCO DISTRIBUTORS, INC.
By: /s/ Ronald L. Grooms
--------------------
Ronald L. Grooms, Senior Vice President
28
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE A
The following Separate Accounts and Associated Contracts of Allmerica Financial
Life Insurance and Annuity Company are permitted in accordance with the
provisions of this Agreement to invest in Portfolios of the Fund shown in
Schedule B:
Contracts Funded by Separate Account Name of Separate Account
- ------------------------------------ ------------------------
Agency Accumulator Separate Account VA-K
9-Jul-98 Page 1 of 1
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE B
The Separate Account(s) shown on Schedule A may invest in the following
Portfolios of the Fund.
INVESCO VIF -
Invesco Dynamics Fund
9-Jul-98 Page 1 of 1
<PAGE>
PARTICIPATION AGREEMENT
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.
1. 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 Contracts 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.
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 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 in this Step #2. 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.
3. 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 6.2 of the Agreement
to which this Schedule relates.
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 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.)
9-Jul-98 Page 1 of 1
<PAGE>
5. 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
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 the Fund.
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 the Fund 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 "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.
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 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.
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.
9-Jul-98 Page 1 of 1
<PAGE>
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.) The Fund must review
and approve tabulation format.
13. 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.
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.
The Fund 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, the Fund 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.
9-Jul-98 Page 1 of 1
<PAGE>
JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
(SERVICE SHARES)
THIS AGREEMENT is made this 25th day of February, between JANUS ASPEN
SERIES, an open-end management investment company organized as a Delaware
business trust (the "Trust"), JANUS DISTRIBUTORS, INC. ("JDI"), a Colorado
corporation and distributor of shares of the Trust, and ALLMERICA FINANCIAL LIFE
INSURANCE AND ANNUITY COMPANY, a life insurance company organized under the laws
of the State of Delaware (the "Company"), on its own behalf and on behalf of
each segregated asset account of the Company (the "Accounts").
W I T N E S S E T H:
--------------------
WHEREAS, the Trust has registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the beneficial interest in
the Trust is divided into several series of shares, each series representing an
interest in a particular managed portfolio of securities and other assets (the
"Portfolios"); and
WHEREAS, the Trust has registered the offer and sale of a class of
shares designated the Service Shares ("Shares") of each of its Portfolios under
the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the Trust has received an order from the Securities and
Exchange Commission granting Participating Insurance Companies and their
separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a)
and 15(b) of the 1940 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder,
to the extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Exemptive Order"); and
WHEREAS, JDI serves as distributor of shares of the Trust; and
WHEREAS, the Company has registered or will register (unless
registration is not required under applicable law) certain variable life
insurance policies and/or variable annuity contracts under the 1933 Act (the
"Contracts"); and
-1-
<PAGE>
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Company desires to utilize the Shares of one or more
Portfolios as an investment vehicle of the Accounts;
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I
SALE OF TRUST SHARES
--------------------
1.1 The Trust shall make Shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. Shares of a
particular Portfolio of the Trust shall be ordered in such quantities and at
such times as determined by the Company to be necessary to meet the
requirements of the Contracts. The Trustees of the Trust (the "Trustees") may
refuse to sell Shares of any Portfolio to any person, or suspend or terminate
the offering of Shares of any Portfolio if such action is required by law or
by regulatory authorities having jurisdiction or is, in the sole discretion
of the Trustees acting in good faith and in light of their fiduciary duties
under federal and any applicable state laws, necessary in the best interests
of the shareholders of such Portfolio.
1.2 The Trust will redeem any full or fractional Shares of any
Portfolio when requested by the Company on behalf of an Account at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of
the then current prospectus of the Trust. The Trust shall make payment for
such shares in the manner established from time to time by the Trust, but in
no event shall payment be delayed for a greater period than is permitted by
the 1940 Act.
1.3 For the purposes of Sections 1.1 and 1.2, the Trust hereby
appoints the Company as its agent for the limited purpose of receiving and
accepting purchase and redemption orders resulting from investment in and
payments under the Contracts. Receipt by the Company shall constitute receipt
by the Trust provided that i) such orders are received by the Company in good
order prior to the time the net asset value of each Portfolio is priced in
accordance with its prospectus and ii) the Trust receives notice of such
orders by 10:00 a.m. New York time on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Trust calculates its net asset value
pursuant to the rules of the Securities and Exchange Commission.
-2-
<PAGE>
1.4 Purchase orders that are transmitted to the Trust in accordance
with Section 1.3 shall be paid for no later than 12:00 noon New York time on
the same Business Day that the Trust receives notice of the order. Payments
shall be made in federal funds transmitted by wire.
1.5 Issuance and transfer of the Trust's Shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Account. Shares ordered from the Trust will be recorded in the appropriate
title for each Account or the appropriate subaccount of each Account.
1.6 The Trust shall furnish prompt notice to the Company of any
income dividends or capital gain distributions payable on the Trust's Shares.
The Company hereby elects to receive all such income dividends and capital
gain distributions as are payable on a Portfolio's Shares in additional
Shares of that Portfolio. The Trust shall notify the Company of the number of
Shares so issued as payment of such dividends and distributions.
1.7 The Trust shall make the net asset value per Share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per Share is calculated and shall use its
best efforts to make such net asset value per Share available by 6 p.m. New
York time.
1.8 The Trust agrees that its Shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the
Exemptive Order. No Shares of any Portfolio will be sold directly to the
general public. The Company agrees that Trust Shares will be used only for
the purposes of funding the Contracts and the Accounts.
1.9 The Trust agrees that all Participating Insurance Companies
shall have the obligations and responsibilities regarding pass-through voting
and conflicts of interest corresponding to those contained in Section 2.8 and
Article IV of this Agreement.
ARTICLE II
OBLIGATIONS OF THE PARTIES
--------------------------
2.1 The Trust shall prepare and be responsible for filing with the
Securities and Exchange Commission and any state regulators requiring such
filing all shareholder reports, notices, proxy materials (or similar
materials such as voting instruction solicitation materials), prospectuses
and statements of additional information of the Trust. The Trust shall bear
the costs of registration and qualification of its shares, preparation and
filing of the documents listed in this Section 2.1 and all taxes to which an
issuer is subject on the issuance and transfer of its shares.
2.2 At the option of the Company, the Trust shall either (a) provide
the Company (at the Company's expense) with as many copies of the Trust's
Shares' current prospectus,
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<PAGE>
annual report, semi-annual report and other shareholder communications,
including any amendments or supplements to any of the foregoing, as the
Company shall reasonably request; or (b) provide the Company with a camera
ready copy of such documents in a form suitable for printing. The Trust shall
provide the Company with a copy of the Shares' statement of additional
information in a form suitable for duplication by the Company. The Trust (at
its expense) shall provide the Company with copies of any Trust-sponsored
proxy materials in such quantity as the Company shall reasonably require for
distribution to Contract owners.
2.3 (a) The Company shall bear the costs of printing and
distributing the Trust's Shares' prospectus, statement of additional
information, shareholder reports and other shareholder communications to
owners of and applicants for policies for which Shares of the Trust are
serving or are to serve as an investment vehicle. The Trust or its adviser
shall bear the costs of distributing proxy materials (or similar materials
such as voting solicitation instructions) to Contract owners for proxy
materials initiated by the Trust or its adviser; the Company shall bear such
costs for proxy materials initiated by the Company. The Company assumes sole
responsibility for ensuring that such materials are delivered to Contract
owners in accordance with applicable federal and state securities laws.
(b) If the Company elects to include any materials provided by
the Trust, specifically prospectuses, SAIs, shareholder reports and proxy
materials, on its web site or in any other computer or electronic format, the
Company assumes sole responsibility for maintaining such materials in the
form provided by the Trust and for promptly replacing such materials with all
updates provided by the Trust.
2.4 The Company agrees and acknowledges that the Trust's adviser,
Janus Capital Corporation ("Janus Capital"), is the sole owner of the name
and mark "Janus" and that all use of any designation comprised in whole or
part of Janus (a "Janus Mark") under this Agreement shall inure to the
benefit of Janus Capital. Except as provided in Section 2.5, the Company
shall not use any Janus Mark on its own behalf or on behalf of the Accounts
or Contracts in any registration statement, advertisement, sales literature
or other materials relating to the Accounts or Contracts without the prior
written consent of Janus Capital. Upon termination of this Agreement for any
reason, the Company shall cease all use of any Janus Mark(s) as soon as
reasonably practicable.
2.5 The Company shall furnish, or cause to be furnished, to the
Trust or its designee, a copy of each Contract prospectus or statement of
additional information in which the Trust or its investment adviser is named
prior to the filing of such document with the Securities and Exchange
Commission. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust or its investment adviser is named, at least
fifteen Business Days prior to its use. No such material shall be used if the
Trust or its designee reasonably objects to such use within fifteen Business
Days after receipt of such material.
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<PAGE>
2.6 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
or its investment adviser in connection with the sale of the Contracts other
than information or representations contained in and accurately derived from
the registration statement or prospectus for the Trust Shares (as such
registration statement and prospectus may be amended or supplemented from
time to time), reports of the Trust, Trust-sponsored proxy statements, or in
sales literature or other promotional material approved by the Trust or its
designee, except as required by legal process or regulatory authorities or
with the written permission of the Trust or its designee.
2.7 The Trust shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Contracts (as such registration statement and
prospectus may be amended or supplemented from time to time), or in materials
approved by the Company for distribution including sales literature or other
promotional materials, except as required by legal process or regulatory
authorities or with the written permission of the Company.
2.8 So long as, and to the extent that the Securities and Exchange
Commission interprets the 1940 Act to require pass-through voting privileges
for variable policyowners, the Company will provide pass-through voting
privileges to owners of policies whose cash values are invested, through the
Accounts, in shares of the Trust. The Trust shall require all Participating
Insurance Companies to calculate voting privileges in the same manner and the
Company shall be responsible for assuring that the Accounts calculate voting
privileges in the manner established by the Trust. With respect to each
Account, the Company will vote Shares of the Trust held by the Account and
for which no timely voting instructions from policyowners are received as
well as Shares it owns that are held by that Account, in the same proportion
as those Shares for which voting instructions are received. The Company and
its agents will in no way recommend or oppose or interfere with the
solicitation of proxies for Trust shares held by Contract owners without the
prior written consent of the Trust, which consent may be withheld in the
Trust's sole discretion.
2.9 The Company shall notify the Trust of any applicable state
insurance laws that restrict the Portfolios' investments or otherwise affect
the operation of the Trust and shall notify the Trust of any changes in such
laws.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 The Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of the State of
Delaware and that it has legally and validly established each Account as a
segregated asset account under such law.
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<PAGE>
3.2 The Company represents and warrants that each Account has been
registered or, prior to any issuance or sale of the Contracts, will be
registered as a unit investment trust in accordance with the provisions of
the 1940 Act.
3.3 The Company represents and warrants that the Contracts or
interests in the Accounts (1) are or, prior to issuance, will be registered
as securities under the 1933 Act or, alternatively (2) are not registered
because they are properly exempt from registration under the 1933 Act or will
be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act. The Company further represents and warrants
that the Contracts will be issued and sold in compliance in all material
respects with all applicable federal and state laws; and the sale of the
Contracts shall comply in all material respects with state insurance
suitability requirements.
3.4 The parties to the Agreement each represent and warrant that, to
their knowledge, their respective user interfaces and operating systems and
environments that are material to the performance of this Agreement will
properly process data prior to, during and after the calendar year 2000 and
will recognize accurate century data, including leap years. Notwithstanding
any other provision of this Agreement, no party, nor any of their affiliates,
officers, employees or agents shall be liable for any loss, liability, cost,
damage, or expense (including reasonable attorneys' fees and costs)
("Losses"), except for Losses directly resulting from such party's
negligence, bad faith, or willful malfeasance. No party shall be liable for
any indirect, special, or consequential losses, even if the party has notice
of the possibility of such losses.
3.5 The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.6 The Trust represents and warrants that the Trust Shares offered
and sold pursuant to this Agreement will be registered under the 1933 Act and
the Trust shall be registered under the 1940 Act prior to any issuance or
sale of such Shares. The Trust shall amend its registration statement under
the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its Shares. The Trust shall register and
qualify its Shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Trust.
3.7 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in
Section 817(h) of the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder.
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<PAGE>
ARTICLE IV
POTENTIAL CONFLICTS
-------------------
4.1 The parties acknowledge that the Trust's Shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. 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 Trustees shall
promptly inform the Company if they determine that an irreconcilable material
conflict exists and the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Exemptive Order by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner
voting instructions.
4.3 If it is determined by a majority of the Trustees, or a majority
of its disinterested Trustees, that a material irreconcilable conflict exists
that affects the interests of Contract owners, the Company shall, in
cooperation with other Participating Insurance Companies whose contract
owners are also affected, at its expense and to the extent reasonably
practicable (as determined by the Trustees) take whatever steps are necessary
to remedy or eliminate the irreconcilable material conflict, which steps
could include: (a) withdrawing the assets allocable to some or all of the
Accounts from the Trust or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio
of the Trust, or submitting the question of whether or not such segregation
should be implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any appropriate group (I.E., annuity
contract owners, life insurance contract owners, or variable contract owners
of one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contract owners the option of making
such a change; and (b) establishing a new registered management investment
company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority
vote, the Company may be required, at the Trust's election, to withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account; provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by
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<PAGE>
a majority of the disinterested Trustees. Any such withdrawal and
termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of
such six (6) month period, the Trust shall continue to accept and implement
orders by the Company for the purchase and redemption of shares of the Trust.
4.5 If 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 Trust and terminate this
Agreement with respect to such Account within six (6) months after the
Trustees inform 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 Trustees. Until the end of such six (6) month period,
the Trust shall continue to accept and implement orders by the Company for
the purchase and redemption of shares of the Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no
event will the Company be required 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 Trustees determine that any proposed action
does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Trust and terminate
this Agreement within six (6) months after the Trustees inform 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 Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Exemptive
Order, and said reports, materials and data shall be submitted more
frequently if deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the 1940 Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Exemptive Order) on terms and
conditions materially different from those contained in the Exemptive Order,
then the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable.
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<PAGE>
ARTICLE V
INDEMNIFICATION
---------------
5.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless the Trust, JDI, and each of its Trustees, Directors,
officers, employees and agents and each person, if any, who controls the
Trust or JDI within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Article V) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Company) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law
or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in the
Contracts themselves or in sales literature generated or approved by
the Company on behalf of the Contracts or Accounts (or any amendment or
supplement to any of the foregoing) (collectively, "Company Documents"
for the purposes of this Article V), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this indemnity shall not apply as
to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Company by or on
behalf of the Trust or JDI for use in Company Documents or otherwise
for use in connection with the sale of the Contracts or Trust Shares;
or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Trust Documents as defined in Section 5.2(a)) or wrongful
conduct of the Company or persons under its control, with respect to
the sale or acquisition of the Contracts or Trust Shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Trust
Documents as defined in Section 5.2(a) or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately derived
from written information furnished to the Trust by or on behalf of the
Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation 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.
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<PAGE>
5.2 INDEMNIFICATION BY THE TRUST. The Trust agrees to indemnify and
hold harmless the Company and each of its directors, officers, employees and
agents and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Article V) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Trust) or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and
reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as
such Losses:
(a) 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 Trust (or any amendment or
supplement thereto), (collectively, "Trust Documents" for the purposes
of this Article V), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Trust by or on behalf
of the Company for use in Trust Documents or otherwise for use in
connection with the sale of the Contracts or Trust Shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Company Documents) or wrongful conduct of the Trust or
persons under its control, with respect to the sale or acquisition of
the Contracts or Trust Shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Company
Documents or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written information
furnished to the Company by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Trust to
provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Trust.
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<PAGE>
5.3 INDEMNIFICATION BY JDI. JDI agrees to indemnify and hold
harmless the Company and each of its directors, officers, employees and
agents and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Article V) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
JDI) or expenses (including the reasonable costs of investigating or
defending any alleged loss, claim, damage, liability or expense and
reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as
such Losses:
(a) 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 Trust (or any amendment or
supplement thereto), (collectively, "Trust Documents" for the purposes
of this Article V), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Trust by or on behalf
of the Company for use in Trust Documents or otherwise for use in
connection with the sale of the Contracts or Trust Shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Company Documents) or wrongful conduct of JDI or persons
under its control, with respect to the sale or acquisition of the
Contracts or Trust Shares; or
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Company
Documents or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written information
furnished to the Company by or on behalf of JDI; or
(d) arise out of or result from any failure by JDI to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by JDI in this Agreement or arise
out of or result from any other material breach of this Agreement by
JDI.
5.4 Neither the Company, the Trust nor JDI shall be liable under the
indemnification provisions of Sections 5.1, 5.2 or 5.3, as applicable, with
respect to any Losses incurred or assessed against an Indemnified Party that
arise from such Indemnified
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<PAGE>
Party's willful misfeasance, bad faith or negligence in the performance of
such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement.
5.5 Neither the Company, the Trust nor JDI shall be liable under the
indemnification provisions of Sections 5.1, 5.2 or 5.3, as applicable, with
respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the other party in writing within a
reasonable time after the summons, or other first written notification,
giving information of the nature of the claim shall have been served upon or
otherwise received by such Indemnified Party (or after such Indemnified Party
shall have received notice of service upon or other notification to any
designated agent), but failure to notify the party against whom
indemnification is sought of any such claim shall not relieve that party from
any liability which it may have to the Indemnified Party in the absence of
Sections 5.1, 5.2 and 5.3.
5.6 In case any such action is brought against the Indemnified
Parties, the indemnifying party shall be entitled to participate, at its own
expense, in the defense of such action. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory
to the party named in the action. After notice from the indemnifying party to
the Indemnified Party of an election to assume such defense, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by
it, and the indemnifying party will not be liable to the Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
ARTICLE VI
TERMINATION
------------
6.1 This Agreement may be terminated by any party for any reason by
ninety (90) days advance written notice delivered to the other parties.
6.2 Notwithstanding any termination of this Agreement, the Trust
shall, at the option of the Company, continue to make available additional
shares of the Trust (or any Portfolio) pursuant to the terms and conditions
of this Agreement for all Contracts in effect on the effective date of
termination of this Agreement, provided that the Company continues to pay the
costs set forth in Section 2.3.
6.3 The provisions of Article V shall survive the termination of
this Agreement, and the provisions of Article IV and Section 2.8 shall
survive the termination of this Agreement as long as Shares of the Trust are
held on behalf of Contract owners in accordance with Section 6.2.
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ARTICLE VII
NOTICES
-------
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to the Trust:
Janus Aspen Series
100 Fillmore Street
Denver, Colorado 80206
Attention: General Counsel
If to JDI:
Janus Distributors, Inc.
100 Fillmore Street
Denver, Colorado 80206
Attention: General Counsel
If to the Company:
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
Attention: Richard M. Reilly, President
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of State of Colorado.
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8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this
Agreement, of any and every nature whatsoever, shall be satisfied solely out
of the assets of the Trust and that no Trustee, officer, agent or holder of
shares of beneficial interest of the Trust shall be personally liable for any
such liabilities.
8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
8.8 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the prior written approval of the
other party.
8.10 No provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
both parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year
first above written.
JANUS ASPEN SERIES
By: /s/ Bonnie M. Howe
----------------------------------
Name: Bonnie M. Howe
----------------------------------
Title: Vice President
----------------------------------
JANUS DISTRIBUTORS, INC.
By: /s/ Kelley Abbott Howes
----------------------------------
Name: Kelley Abbott Howes
----------------------------------
Title: Vice President
----------------------------------
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
By: /s/ Richard M. Reilly
----------------------------------
Name: Richard M. Reilly
----------------------------------
Title: President
----------------------------------
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