<PAGE>
File No. 33-44830
811-6293
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 14
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 27
SEPARATE ACCOUNT VA-K OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(Exact Name of Registrant)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(Name of Depositor)
440 Lincoln Street
Worcester, MA 01653
(Address of Depositor's Principal Executive Offices)
(508) 855-1000
(Depositor's Telephone Number, including Area Code)
Abigail M. Armstrong, Secretary and Counsel
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
(Name and Address of Agent for Service of Process)
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to Paragraph (b) of Rule 485
_X_ on May 1, 1998 pursuant to Paragraph (b) of Rule 485
___ 60 days after filing pursuant to Paragraph (a) (1) of Rule 485
___ on (date) pursuant to Paragraph (a) (1) of Rule 485
___ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
VARIABLE ANNUITY POLICIES
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940 ("the
1940 Act"), Registrant hereby declares that an indefinite amount of its
securities is being registered under the Securities Act of 1933 ("the 1933
Act"). The Rule 24f-2 Notice for the issuer's fiscal year ended December 31,
1997 was filed on or before March 30, 1998.
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF ITEMS CALLED FOR
BY FORM N-4
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
- ----------------- ---------------------
1. . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . Special Terms
3. . . . . . . . . . . . Summary; Annual and Transaction Expenses
4. . . . . . . . . . . . Condensed Financial Information; Performance
Information
5. . . . . . . . . . . . Prospectus A: Description of the Company, the Separate
Account and the Fund
Prospectus B: Description of the Company, the Variable
Account and Delaware Group Premium Fund, Inc.
6. . . . . . . . . . . . Charges and Deductions
7. . . . . . . . . . . . Prospectus A: The Variable Annuity Policies
Prospectus B: Description of the Contract
8. . . . . . . . . . . . Prospectus A: The Variable Annuity Policies
Prospectus B: Electing the Form of Annuity and the
Annuity Date; Description of Variable Annuity Option;
Annuity Benefit Payments
9. . . . . . . . . . . . Death Benefit
10 . . . . . . . . . . . Prospectus A: Purchase Payments; Computation of
Policy Values and Annuity Payments
Prospectus B: Payments; Computation of Values;
Distribution
11 . . . . . . . . . . . Prospectus A: Surrender; Partial Redemption
Prospectus B: Surrender; Withdrawals; Charge for
Surrender and Withdrawal;
Withdrawal Without Surrender Charge; Texas Optional
Retirement Program
12 . . . . . . . . . . . Federal Tax Considerations
13 . . . . . . . . . . . Legal Matters
14 . . . . . . . . . . . Statement of Additional Information - Table of Contents
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- ----------------- ----------------------------------------------
15 . . . . . . . . . . . Cover Page
16 . . . . . . . . . . . Table of Contents
17 . . . . . . . . . . . General Information and History
<PAGE>
18 . . . . . . . . . . . Services
19 . . . . . . . . . . . Underwriters
20 . . . . . . . . . . . Underwriters
21 . . . . . . . . . . . Performance Information
22 . . . . . . . . . . . Annuity Payments
23 . . . . . . . . . . . Financial Statements
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
INDIVIDUAL VARIABLE ANNUITY POLICIES FUNDED THROUGH SUB-ACCOUNTS OF
SEPARATE ACCOUNT VA-K
INVESTING IN SHARES OF DELAWARE GROUP PREMIUM FUND, INC.
This Prospectus describes individual variable annuity policies and group
variable annuity policies, including certificates issued thereunder ("Policies")
offered by Allmerica Financial Life Insurance and Annuity Company ("Company") to
individuals and businesses in connection with retirement plans which may or may
not qualify for special federal income tax treatment. (For information about the
tax status when used with a particular type of plan, see "FEDERAL TAX
CONSIDERATIONS.") The following is a summary of information about these
Policies. More detailed information can be found under the referenced captions
in this Prospectus.
This Prospectus generally describes only the variable accumulation and variable
annuity aspects of the Policies, except where fixed values or fixed annuity
benefit payments are mentioned specifically. Allocations to and transfers to and
from the General Account of the Company are not permitted in certain states.
Certain additional information about the Policies is contained in a Statement of
Additional Information, dated May 1, 1998, as may be amended from time to time,
which has been filed with the Securities and Exchange Commission ("SEC"), and is
incorporated herein by reference. The Statement of Additional Information Table
of Contents is listed on page 3 of this Prospectus. The Statement of Additional
Information ("SAI") is available upon request and without charge. To obtain the
SAI, fill out and return the attached request card, or contact Annuity Client
Services, telephone 1-800-533-2124.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
DELAWARE GROUP PREMIUM FUND, INC. INVESTORS SHOULD RETAIN A COPY OF THIS
PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE POLICIES ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY, AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE POLICIES ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT
UNION. THE POLICIES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS IN THE
POLICIES ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.
DATED MAY 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS................................. 3
SPECIAL TERMS......................................................................... 4
SUMMARY............................................................................... 5
ANNUAL AND TRANSACTION EXPENSES....................................................... 8
CONDENSED FINANCIAL INFORMATION....................................................... 11
PERFORMANCE INFORMATION............................................................... 13
WHAT IS AN ANNUITY?................................................................... 17
RIGHT TO REVOKE OR SURRENDER.......................................................... 17
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT AND
DELAWARE GROUP PREMIUM FUND, INC..................................................... 18
INVESTMENT OBJECTIVES AND POLICIES.................................................... 19
INVESTMENT ADVISORY SERVICES TO THE FUND.............................................. 21
CHARGES AND DEDUCTIONS................................................................ 21
A. Contingent Deferred Sales Charge................................................ 21
B. Premium Taxes................................................................... 24
C. Policy Fee...................................................................... 24
D. Annual Charges Against Separate Account Assets.................................. 24
THE VARIABLE ANNUITY POLICIES......................................................... 25
A. Purchase Payments............................................................... 25
B. Transfer Privilege.............................................................. 26
C. Surrender....................................................................... 27
D. Partial Redemption.............................................................. 28
E. Death Benefit................................................................... 28
F. The Spouse of the Owner as Beneficiary.......................................... 30
G. Assignment...................................................................... 30
H. Electing the Form of Annuity and the Annuity Date............................... 30
I. Description of Variable Annuity Options......................................... 31
J. NORRIS Decision................................................................. 32
K. Computation of Policy Values and Annuity Benefit Payments....................... 32
FEDERAL TAX CONSIDERATIONS............................................................ 34
A. Qualified and Non-Qualified Policies............................................ 35
B. Taxation of the Policies in General............................................. 35
Withdrawals Prior to Annuitization............................................ 35
Annuity Payouts After Annuitization........................................... 35
Penalty on Distribution....................................................... 35
Assignments or Transfers...................................................... 36
Non-Natural Owners............................................................ 36
Deferred Compensation Plans of State and Local Governments and Tax-Exempt
Organizations................................................................. 36
C. Tax Withholding................................................................. 36
D. Provisions Applicable to Qualified Employer Plans............................... 36
Corporate and Self-Employed Pension and Profit Sharing Plans.................. 37
Individual Retirement Annuities............................................... 37
Tax-Sheltered Annuities....................................................... 37
Texas Optional Retirement Program............................................. 37
LOANS (QUALIFIED POLICIES ONLY)....................................................... 37
REPORTS............................................................................... 38
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS..................................... 38
VOTING RIGHTS......................................................................... 39
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................................. 39
LEGAL MATTERS......................................................................... 39
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
FURTHER INFORMATION................................................................... 39
APPENDIX A -- MORE INFORMATION ABOUT THE GENERAL ACCOUNT.............................. A-1
APPENDIX B -- INFORMATION APPLICABLE ONLY TO POLICY NO. A3019-92 (AND STATE
VARIATIONS).......................................................................... B-1
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY...................................................... 2
TAXATION OF THE VARIABLE ACCOUNT AND THE COMPANY..................................... 3
SERVICES............................................................................. 3
UNDERWRITERS......................................................................... 3
ANNUITY BENEFIT PAYMENTS............................................................. 4
EXCHANGE OFFER....................................................................... 6
PERFORMANCE INFORMATION.............................................................. 8
FINANCIAL STATEMENTS................................................................. F-1
</TABLE>
3
<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Sub-Accounts and of the value of all accumulations in the General Account of the
Company then credited to the Policy, on any date before the date annuity benefit
payments are to begin.
ACCUMULATION UNIT: a measure of the Owner's interest in a Sub-Account before
annuity benefit payments begin.
ANNUITANT: the person designated in the Policy to whom the Annuity is to be
paid.
ANNUITY DATE: the date on which annuity benefit payments begin.
ANNUITY UNIT: a measure of the value of the periodic annuity benefit payments
under the Policy.
FIXED ANNUITY PAYOUT: an Annuity payout providing for payments which remain
fixed in amount throughout the annuity benefit payment period.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate investment account.
OWNER: the Owner of a Policy who may exercise all rights under the Policy,
subject to the consent of any irrevocable beneficiary. After the Annuity Date,
the Annuitant will be the Owner.
SEPARATE ACCOUNT: Separate Account VA-K of the Company, consisting of assets
segregated from other assets of the Company. The investment performance of the
assets of the Separate Account is determined separately from the other assets of
the Company. The assets of the Separate Account are not chargeable with
liabilities arising out of any other business which the Company may conduct.
SUB-ACCOUNT: a subdivision of Separate Account VA-K. Each Sub-Account available
under the Policies invests exclusively in the shares of a corresponding
investment series of Delaware Group Premium Fund, Inc.
SURRENDER VALUE: the Accumulated Value of the Policy minus any Policy fee and
contingent deferred sales charge applicable upon surrender.
UNDERLYING SERIES: the Decatur Total Return Series, Devon Series, DelCap Series,
Social Awareness Series, REIT Series, Small Cap Value Series, Trend Series,
International Equity Series, Emerging Market Series, Delaware Series,
Convertible Securities Series, Delchester Series, Capital Reserves Series,
Strategic Income Series, Cash Reserve Series, and Global Bond Series of Delaware
Group Premium Fund, Inc.
VALUATION DATE: a day on which the net asset value of the shares of any of the
Underlying Series is determined and Unit values of the Sub-Accounts are
determined. Valuation dates currently occur on each day on which the New York
Stock Exchange is open for trading, and on such other days (other than a day
during which no payment, partial withdrawal, or surrender of a Policy was
received) when there is a sufficient degree of trading in an Underlying Series
portfolio securities such that the current net asset value of the Sub-Accounts
may be materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
VARIABLE ANNUITY PAYOUT: an Annuity payout providing for payments varying in
amount in accordance with the investment experience of certain Underlying
Series.
4
<PAGE>
SUMMARY
INVESTMENT OPTIONS. The Policies permit net purchase payments to be allocated
among Sub-Accounts available under the Policies, which are subdivisions of
Separate Account VA-K ("Separate Account"), a separate account of the Company
and, where available, a fixed interest account ("General Account") of the
Company (together "accounts"). The Separate Account is registered as a unit
investment trust under the Investment Company Act of 1940, as amended (the "1940
Act"), but such registration does not involve the supervision of the management
or investment practices or policies of the Separate Account by the SEC. For
information about the Separate Account and the Company, see "DESCRIPTION OF THE
COMPANY, THE SEPARATE ACCOUNT, AND THE FUND." For more information about the
General Account see APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Each Sub-Account available under the Policies invests its assets without sales
charge in a corresponding investment series of the Delaware Group Premium Fund,
Inc. (the "Fund"). The Fund is an open-end, diversified series investment
company. The Fund consists of 16 different series: the Decatur Total Return
Series, Devon Series, DelCap Series, Social Awareness Series (formerly Quantum
Series), REIT Series, Small Cap Value Series (formerly Value Series), Trend
Series, International Equity Series, Emerging Markets Series, Delaware Series,
Convertible Securities Series, Delchester Series, Capital Reserves Series,
Strategic Income Series, Cash Reserve Series, and Global Bond Series
("Underlying Series"). Each Underlying Series operates pursuant to different
investment objectives, discussed below. NOT ALL SUB-ACCOUNTS MAY BE AVAILABLE IN
ALL STATES.
INVESTMENT IN THE SUB-ACCOUNTS. The value of each Sub-Account will vary daily
depending on the performance of the investments made by the respective
Underlying Series.
There can be no assurance that the investment objectives of the Underlying
Series can be achieved or that the value of a Policy will equal or exceed the
aggregate amount of the purchase payments made under the Policy. For more
information about the investments of the Underlying Series, see "DESCRIPTION OF
THE COMPANY, THE SEPARATE ACCOUNT, AND THE FUND." The accompanying prospectus of
the Fund describes the investment objectives and risks of each of the Underlying
Series.
Dividends or capital gains distributions received from an Underlying Series are
reinvested in additional shares of that Underlying Series, which are retained as
assets of the Sub-Account.
TRANSFERS AMONG ACCOUNTS. Prior to the Annuity Date, the Policies permit
amounts to be transferred among the Sub-Accounts and, where available, between
the General Account and the Sub-Accounts, subject to certain limitations
described under "B. Transfer Privilege."
ANNUITY BENEFIT PAYMENTS. The Owner may select variable annuity benefit
payments based on certain Sub-Accounts, fixed-amount annuity benefit payments,
or a combination of fixed-amount and variable annuity benefit payments.
Fixed-amount annuity benefit payments are guaranteed by the Company.
See "THE VARIABLE ANNUITY POLICIES" for information about annuity benefit
payment options, selecting the Annuity Date, and how annuity benefit payments
are calculated.
REVOCATION RIGHTS. An individual purchasing a Policy intended to qualify as an
Individual Retirement Annuity ("IRA") may revoke the Policy at any time between
the date of the application and the date ten days after receipt of the Policy.
In certain states an Owner may have special revocation rights. For more
information about revocation rights, see "RIGHT TO REVOKE OR SURRENDER."
PAYMENT MINIMUMS AND MAXIMUMS. Under the Policies, purchase payments are not
limited as to frequency and number, but no payments may be submitted within one
month of the Annuity Date. Generally, the initial purchase payment must be at
least $600 and subsequent payments must be at least $50. Under a
5
<PAGE>
monthly automatic payment plan, or a payroll deduction plan, each purchase
payment must be at least $50. In cases where the contribution on behalf of an
employee under an employer-sponsored retirement plan is less than $600 but more
than $300 annually, however, the Company may issue a Policy on the employee if
the plan's average annual contribution per eligible plan participant is at least
$600.
The Company reserves the right to set maximum limits on the aggregate purchase
payments made under the Policy. In addition, the Internal Revenue Code (the
"Code") imposes maximum limits on contributions under qualified annuity plans.
CHARGES AND DEDUCTIONS. For a complete discussion of charges, see "CHARGES AND
DEDUCTIONS."
A. CONTINGENT DEFERRED SALES CHARGES
No sales charge is deducted from purchase payments at the time the payments are
made. Depending on the length of time that the payments to which the withdrawal
is attributed have remained credited under the Policy, however, a contingent
deferred sales charge of up to 7% may be assessed for a surrender, partial
redemption, or election of any commutable period certain option or a
non-commutable period certain for less than ten years.
B. ANNUAL POLICY FEE
A Policy fee equal to $30 will be deducted from the Accumulated Value under the
Policy for administrative expenses on the Policy anniversary, or upon full
surrender of the Policy during the year, when the Accumulated Value is $50,000
or less. The Policy fee currently is waived for policies issued to a trustee of
a 401(k) plan, but the Company reserves the right to impose the Policy fee on
such policies.
C. PREMIUM TAXES
A deduction for state and local premium taxes, if any, may be made as described
under "B. Premium Taxes." Premium taxes may range from 0 to 3.5%.
D. SEPARATE ACCOUNT ASSET CHARGES
A daily charge, equivalent to 1.25% per annum, is made on the value of each
Sub-Account at each Valuation Date. The charge is retained for the mortality and
expense risks the Company assumes. In addition, to cover administrative
expenses, the Company deducts a daily charge of 0.15% per annum of the value of
the average net assets in the Sub-Accounts available under the Policies.
E. TRANSFER CHARGE
The Company currently makes no charge for transfers. The Company guarantees that
the first 12 transfers in a Policy year will be free of charge. For each
subsequent transfer, the Company reserves the right to assess a charge,
guaranteed never to exceed $25, to reimburse the Company for the costs of
processing the transfer.
F. CHARGES OF THE UNDERLYING SERIES
In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Underlying Series. These charges vary among the
Underlying Series, and may range from an annual rate of 0.64% to an annual rate
of 1.50% of average daily net assets.
SURRENDER OR PARTIAL REDEMPTIONS. At any time before the Annuity Date, the
Owner has the right either to surrender the Policy in full and receive its
current value, minus the Policy fee and any applicable contingent deferred sales
charge, or to redeem a portion of the Policy's value subject to certain limits
and any applicable contingent deferred sales charge. There may be tax
consequences for surrender or redemptions. For further information, see "C.
Surrender" and "D. Partial Redemption" under "THE VARIABLE ANNUITY POLICIES,"
"A. Contingent Deferred Sales Charge" under "CHARGES AND DEDUCTIONS," and
"FEDERAL TAX CONSIDERATIONS."
6
<PAGE>
DEATH BENEFIT. If the Annuitant or Owner should die before the Annuity Date, a
death benefit will be paid to the beneficiary. Upon the death of the Annuitant,
the death benefit is equal to the greatest of (1) the Accumulated Value under
the Policy, or (2) the sum of the gross payments made under the Policy reduced
proportionally to reflect all partial redemptions, or (3) the death benefit that
would have been payable on the most recent fifth year Policy anniversary,
increased for subsequent purchase payments and reduced proportionally to reflect
withdrawals after that date. Upon death of the Owner, the death benefit is equal
to the Accumulated Value of the Policy.
SALES OF POLICIES. The Policies are sold by agents of the Company who are
authorized by applicable law to sell variable annuity policies. These agents are
registered representatives of broker-dealers which are members of the National
Association of Securities Dealers, Inc. See "Sales Expense."
7
<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The following tables show charges under the Contract, expenses of the
Sub-Accounts, and expenses of the Funds. In addition to the charges and expenses
described below, premium taxes are applicable in some states and are deducted as
described under "Premium Taxes."
<TABLE>
<CAPTION>
YEARS FROM
DATE OF
CONTRACT CHARGES: PAYMENT CHARGE
------------ -----------
<S> <C> <C>
CONTINGENT DEFERRED SALES CHARGE: 0-3 7.0%
This charge may be assessed upon surrender, 4 6.0%
withdrawal or annuitization under any commutable 5 5.0%
period certain option or a non-commutable period 6 4.0%
certain option of less than ten years. The 7 3.0%
charge is a percentage of payments applied to More than 7 0%
the amount surrendered (in excess of any amount
that is free of surrender charge) within the
indicated time period.
TRANSFER CHARGE: None
The Company currently makes no 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.
CONTRACT FEE: $30
The fee is deducted annually and upon surrender
prior to the Annuity Date when Accumulated Value
is $50,000 or less. The fee is waived for
Contracts issued to and maintained by the
trustee of a 401(k) plan.
SUB-ACCOUNT EXPENSES:
(on annual basis as percentage of average daily
net assets)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.15%
-----------
Total Asset Charge 1.40%
</TABLE>
8
<PAGE>
FUND EXPENSES: The following table shows the expenses of the Underlying Series
for 1997. For more information concerning fees and expenses, see the prospectus
of the Underlying Series.
<TABLE>
<CAPTION>
TOTAL
EXPENSES
MANAGEMENT OTHER EXPENSES (AFTER (AFTER APPLICABLE
FEES ANY APPLICABLE WAIVERS AND/OR
FUND (AFTER WAIVERS) REIMBURSEMENTS) REIMBURSEMENTS)
- --------------------------------------------------------- ----------------- ----------------------- -------------------
<S> <C> <C> <C>
Decatur Total Return Series.............................. 0.60% 0.11% 0.71%(2)
Devon Series............................................. 0.54% 0.26% 0.80%(1)(2)
DelCap Series............................................ 0.63% 0.22% 0.85%(1)(2)
Social Awareness Series.................................. 0.20% 0.65% 0.85%(1)(2)
REIT Series(@)........................................... 0.75% 0.10% 0.85%(1)(2)
Small Cap Value Series................................... 0.60% 0.25% 0.85%(1)(2)
Trend Series............................................. 0.62% 0.23% 0.85%(1)(2)
International Equity Series.............................. 0.75% 0.15% 0.90%(2)(3)
Emerging Markets Series.................................. 0.30% 1.20% 1.50%(1)(2)
Delaware Series.......................................... 0.60% 0.07% 0.67%(2)
Convertible Securities Series............................ 0.05% 0.80% 0.85%(1)(2)
Delchester Series........................................ 0.60% 0.10% 0.70%(2)
Capital Reserves Series.................................. 0.60% 0.15% 0.75%(2)
Strategic Income Series.................................. 0.22% 0.58% 0.80%(1)(2)
Cash Reserve Series...................................... 0.50% 0.14% 0.64%(2)
Global Bond Series....................................... 0.52% 0.33% 0.85%(1)(2)
</TABLE>
(@) Estimated after expense reimbursement.
(1) For the fiscal year ended December 31, 1997, before waiver and/or
reimbursement by the investment adviser, total series expenses as a percentage
of average daily net assets were 0.91% for Devon Series, 0.87% for DelCap
Series, 1.40% for Social Awareness Series (formerly known as "Quantum Series"),
0.90% for Small Cap Value Series (formerly known as "Value Series"), 0.88% for
Trend Series, 90% for International Equity Series, 2.45% for Emerging Markets
Series, 2.30% for Convertible Securities Series, 1.23% for Strategic Income
Series and 1.08% for Global Bond Series.
(2) The investment adviser for the Decatur Total Return Series, Devon Series,
DelCap Series, Social Awareness Series, REIT Series, Small Cap Value Series,
Trend Series, Delaware Series, Convertible Securities Series, Delchester Series,
Capital Reserves Series, Strategic Income Series, and Cash Reserve Series is
Delaware Management Company, Inc. ("Delaware Management"). The Investment
Adviser for the International Equity Series, Emerging Markets Series and the
Global Bond Series is Delaware International Advisers Ltd. ("Delaware
International"). Effective May 1, 1998 through October 31, 1998, the investment
advisers for the Series of DGPF have agreed voluntarily to waive their
management fees and reimburse each Series for expenses to the extent that total
expenses will not exceed 1.50% for the Emerging Markets Series; 0.95% for the
International Equity Series; 85% for DelCap Series, Social Awareness Series,
REIT Series, Small Cap Value Series; Trend Series; Convertible Securities Series
and Global Bond Series and 0.80% for all other Series. The fee ratios shown
above have been restated, if necessary, to assume that the new voluntary
limitations took effect on January 1, 1997. The declaration of a voluntary
expense limitation does not bind the investment advisers to declare future
expense limitations with respect to these Series.
(3) Effective July 1, 1997, the management fee of the International Equity
Series was voluntarily limited to a rate of 0.95% of the average daily net
assets, replacing a prior limitation of 0.80%. In 1997, the total annual
expenses of the International Equity Series was 0.90% and the management fee was
0.75%.
The following examples demonstrate the cumulative expenses which would be paid
by the Owner at 1-year, 3-year, 5-year, and 10-year intervals under certain
contingencies. Each example assumes a $1,000 investment in a Sub-Account and a
5% annual return on assets. Because the expenses of the Underlying Series
differ,
9
<PAGE>
separate examples are used to illustrate the expenses incurred by an Owner on an
investment in the various Sub-Accounts.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OF
LESSER THAN THOSE SHOWN.
(a) If, at the end of the applicable period, you surrender your Contract or
annuitize* under a commutable period certain option of less than ten years, you
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Decatur Total Return Series.................................................. $ 86 $ 135 $ 163 $ 244
Devon Series................................................................. $ 87 $ 137 $ 168 $ 253
DelCap Series................................................................ $ 88 $ 139 $ 170 $ 258
Social Awareness Series...................................................... $ 88 $ 139 $ 170 $ 258
REIT Series.................................................................. $ 88 $ 139 $ 170 $ 258
Small Cap Value Series....................................................... $ 88 $ 139 $ 170 $ 258
Trend Series................................................................. $ 88 $ 139 $ 170 $ 258
International Equity Series.................................................. $ 88 $ 140 $ 173 $ 263
Emerging Markets Series...................................................... $ 94 $ 157 $ 203 $ 322
Delaware Series.............................................................. $ 86 $ 133 $ 161 $ 240
Convertible Securities Series................................................ $ 88 $ 139 $ 170 $ 258
Delchester Series............................................................ $ 86 $ 134 $ 163 $ 243
Capital Reserves Series...................................................... $ 87 $ 136 $ 165 $ 248
Strategic Income Series...................................................... $ 87 $ 137 $ 168 $ 253
Cash Reserve Series.......................................................... $ 86 $ 133 $ 160 $ 237
Global Bond Series........................................................... $ 88 $ 139 $ 170 $ 258
</TABLE>
(b) If, at the end of the applicable time period, you annuitize* under a life
option or any non-commutable period certain option of ten years or more, or if
you do NOT surrender or annuitize your Contract, you would pay the following
expenses on a $1,000 investment, assuming an annual 5% return on assets:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Decatur Total Return Series.................................................. $ 21 $ 66 $ 113 $ 244
Devon Series................................................................. $ 22 $ 69 $ 118 $ 253
DelCap Series................................................................ $ 23 $ 70 $ 120 $ 258
Social Awareness Series...................................................... $ 23 $ 70 $ 120 $ 258
REIT Series.................................................................. $ 23 $ 70 $ 120 $ 258
Small Cap Value Series....................................................... $ 23 $ 70 $ 120 $ 258
Trend Series................................................................. $ 23 $ 70 $ 120 $ 258
International Equity Series.................................................. $ 23 $ 72 $ 123 $ 263
Emerging Markets Series...................................................... $ 29 $ 90 $ 153 $ 322
Delaware Series.............................................................. $ 21 $ 65 $ 111 $ 240
Convertible Securities Series................................................ $ 23 $ 70 $ 120 $ 258
Delchester Series............................................................ $ 21 $ 66 $ 113 $ 243
Capital Reserves Series...................................................... $ 22 $ 67 $ 115 $ 248
Strategic Income Series...................................................... $ 22 $ 69 $ 118 $ 253
Cash Reserve Series.......................................................... $ 21 $ 64 $ 110 $ 237
Global Bond Series........................................................... $ 23 $ 70 $ 120 $ 258
</TABLE>
Pursuant to requirements of the 1940 Act, the Policy fee has been reflected in
the Examples by a method intended to show the "average" impact of the Policy fee
on an investment in the Separate Account. The total Policy fees collected under
the Policies by the Company are divided by the total average net assets
attributable
10
<PAGE>
to the Policies. The resulting percentage is 0.03%, and the amount of the Policy
fee is assumed to be $0.30 in the Examples. The Policy fee is deducted only when
the accumulated value is $50,000 or less. Lower charges apply to Contracts
issued and maintained as part of a 401(k) plan.
* The Policy fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any policy year under
an option including a life contingency or under any non-commutable period
certain option of ten years or more.
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SEPARATE ACCOUNT VA-K
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
SUB-ACCOUNT 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
DECATUR TOTAL RETURN SERIES
Unit Value:
Beginning of Period.............................. 1.883 1.582 1.178 1.197 1.051 1.000
End of Period.................................... 2.433 1.883 1.582 1.178 1.197 1.051
Number of Units Outstanding at End of Period (in
thousands).......................................... 113,507 65,991 48,305 38,591 25,086 4,208
DEVON SERIES*
Unit Value:
Beginning of Period.............................. N/A N/A N/A N/A N/A N/A
End of Period.................................... 1.261 N/A N/A N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 11,585 N/A N/A N/A N/A N/A
DELCAP SERIES
Unit Value:
Beginning of Period.............................. 1.616 1.432 1.121 1.178 1.070 1.000
End of Period.................................... 1.831 1.616 1.432 1.121 1.178 1.070
Number of Units Outstanding at End of Period (in
thousands).......................................... 57,025 44,667 35,204 29,100 20,802 4,534
SOCIAL AWARENESS SERIES*
Unit Value:
Beginning of Period.............................. N/A N/A N/A N/A N/A N/A
End of Period.................................... 1.272 N/A N/A N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 4,515 N/A N/A N/A N/A N/A
SMALL CAP VALUE SERIES
Unit Value:
Beginning of Period.............................. 1.467 1.214 0.994 1.000 1.000 N/A
End of Period.................................... 1.923 1.467 1.214 0.994 1.000 N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 43,269 15,725 9,467 6,040 6 N/A
TREND SERIES
Unit Value:
Beginning of Period.............................. 1.486 1.358 0.989 1.007 1.000 N/A
End of Period.................................... 1.779 1.486 1.358 0.989 1.007 N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 33,256 21,711 13,410 6,197 50 N/A
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
SUB-ACCOUNT 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY SERIES
Unit Value:
Beginning of Period.............................. 1.540 1.301 1.159 1.144 1.000 1.000
End of Period.................................... 1.619 1.540 1.301 1.159 1.144 1.000
Number of Units Outstanding at End of Period (in
thousands).......................................... 48,813 30,888 21,612 18,761 6,139 182
EMERGING MARKETS SERIES*
Unit Value:
Beginning of Period.............................. N/A N/A N/A N/A N/A N/A
End of Period.................................... 0.880 N/A N/A N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 4,545 N/A N/A N/A N/A N/A
DELAWARE SERIES
Unit Value:
Beginning of Period.............................. 1.616 1.414 1.133 1.150 1.078 1.000
End of Period.................................... 2.015 1.616 1.414 1.133 1.150 1.078
Number of Units Outstanding at End of Period (in
thousands).......................................... 58,759 40,855 37,203 33,332 22,046 3,145
CONVERTIBLE SECURITIES SERIES*
Unit Value:
Beginning of Period.............................. N/A N/A N/A N/A N/A N/A
End of Period.................................... 1.156 N/A N/A N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 1,291 N/A N/A N/A N/A N/A
DELCHESTER SERIES
Unit Value:
Beginning of Period.............................. 1.474 1.326 1.164 1.214 1.058 1.000
End of Period.................................... 1.652 1.474 1.326 1.164 1.214 1.058
Number of Units Outstanding at End of Period (in
thousands).......................................... 56,733 44,760 37,818 31,735 22,281 4,571
CAPITAL RESERVES SERIES
Unit Value:
Beginning of Period.............................. 1.241 1.209 1.075 1.120 1.053 1.000
End of Period.................................... 1.317 1.241 1.209 1.075 1.120 1.053
Number of Units Outstanding at End of Period (in
thousands).......................................... 20,234 20,226 19,818 20,476 16,752 3,828
STRATEGIC INCOME SERIES*
Unit Value:
Beginning of Period.............................. N/A N/A N/A N/A N/A N/A
End of Period.................................... 1.052 N/A N/A N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 5,381 N/A N/A N/A N/A N/A
CASH RESERVE SERIES
Unit Value:
Beginning of Period.............................. 1.124 1.087 1.044 1.021 1.010 1.000
End of Period.................................... 1.165 1.124 1.087 1.044 1.021 1.010
Number of Units Outstanding at End of Period (in
thousands).......................................... 24,014 21,519 11,568 13,998 5,483 1,387
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
SUB-ACCOUNT 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
GLOBAL BOND SERIES
Unit Value:
Beginning of Period.............................. 1.107 1.000 1.000 N/A N/A N/A
End of Period.................................... 1.102 1.107 1.000 N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 3,950 886 0 N/A N/A N/A
</TABLE>
* The date of inception of the Sub-Accounts investing in the Devon Series, the
Social Awareness Series, the Emerging Markets Series, the Convertible Securities
Series and the Strategic income series was 5/1/97.
PERFORMANCE INFORMATION
The Delaware Medallion II Contract first was offered to the public in 1993.The
Company, however, may advertise "total return" and "average annual total return"
performance information based on the periods that the Sub-Accounts have been in
existence and the periods that the Underlying Series have been in existence.
Performance results for all periods shown below are calculated with all charges
assumed to be those applicable to the Sub-Accounts, the Underlying Series, and,
in Tables 1A and 2A, assuming that the Contract is surrendered at the end of the
applicable period and, alternatively, in Tables 1B and 2B, assuming that it is
not surrendered at the end of the applicable period. Both the total return and
yield figures are based on historical earnings and are not intended to indicate
future performance.
The total return of a Sub-Account refers to the total of the income generated by
an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Variable Account charges, and expressed as a
percentage.
The average annual total return represents the average annual percentage change
in the value of an investment in the Sub-Account over a given period of time. It
represents averaged figures as opposed to the actual performance of a
Sub-Account, which will vary from year to year.
The yield of the Sub-Account investing in the Cash Reserve Series refers to the
income generated by an investment in the Sub-Account over a seven-day period
(which period will be specified in the advertisement). This income is then
"annualized" by assuming that the income generated in the specific week is
generated over a 52-week period. This annualized yield is shown as a percentage
of the investment. The "effective yield" calculation is similar but, when
annualized, the income earned by an investment in the Sub-Account is assumed to
be reinvested. Thus the effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
The yield of a Sub-Account investing in a Series other than the Cash Reserve
Series refers to the annualized income generated by an investment in the
Sub-Account over a specified 30-day or one-month period. The yield is calculated
by assuming that the income generated by the investment during that 30-day or
one-month period is generated each period over a 12-month period and is shown as
a percentage of the investment.
Quotations of average annual total return as shown in Table 1A are calculated in
the manner prescribed by the SEC and show the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year period or for a period covering the time the Sub-Account has been in
existence, if less than the prescribed periods. The calculation is adjusted to
reflect the deduction of the annual Sub-Account asset charge of 1.40%, the $30
annual Contract fee, the charges of the Underlying Series and the contingent
deferred sales charge which would be assessed if the investment were completely
withdrawn at the end of the specified period. Quotations of supplemental average
total returns, as shown in Table 1B, are calculated in exactly the same manner
and for the same periods of time except that it does not reflect the contingent
deferred sales charge but assumes that the Contract is not surrendered at the
end of the periods shown.
13
<PAGE>
The performance shown in Tables 2A and 2B is calculated in exactly the same
manner as those in Tables 1A and 1B respectively; however, the period of time is
based on the Underlying Series lifetime, which may predate the Sub-Account's
inception date. These performance calculations are based on the assumption that
the Sub-Account corresponding to the applicable Underlying Series was actually
in existence throughout the stated period and that the contractual charges and
expenses during that period were equal to those currently assessed under the
Contract.
For more detailed information about these performance calculations, including
actual formulas, see the SAI.
PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF A
HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE TIME PERIOD ON WHICH THE
CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF
THE INVESTMENT OBJECTIVES AND POLICIES AND RISK CHARACTERISTICS OF THE
UNDERLYING SERIES IN WHICH THE SUB-ACCOUNT INVESTS AND THE MARKET CONDITIONS
DURING THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED AS A REPRESENTATION
OF WHAT MAY BE ACHIEVED IN THE FUTURE.
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (1) the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman
Aggregate Bond Index or other unmanaged indices so that investors may compare
the Sub-Account results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(2) other groups of variable annuity separate accounts or other investment
products tracked by Lipper Analytical Services, a widely used independent
research firm which ranks mutual funds and other investment products by overall
performance, investment objectives, and assets, or tracked by other services,
companies, publications, or persons, who rank such investment products on
overall performance or other criteria; or (3) the Consumer Price Index (a
measure for inflation) to assess the real rate of return from an investment in
the Sub-Account. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of the Company's relative financial
strength and operating performance in comparison to the norms of the life/health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues and
do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the Underlying
Series.
14
<PAGE>
TABLE 1A
TOTAL ANNUAL RETURNS OF SUB-ACCOUNTS FOR PERIODS ENDING
DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
TOTAL RETURN
FOR YEAR SINCE
ENDED INCEPTION OF
NAME OF UNDERLYING FUND 12/31/97 5 YEARS SUB-ACCOUNT
- --------------------------------------------------------------------------- ------------- ----------- ------------
<S> <C> <C> <C>
Decatur Total Return Series................................................ 22.19% 17.73% 16.58%
Devon Series............................................................... N/A N/A 19.10%
DelCap Series.............................................................. 6.28% 10.64% 10.68%
Social Awareness Series.................................................... N/A N/A 20.19%
REIT Series................................................................ N/A N/A N/A
Small Cap Value Series..................................................... 24.06% N/A 16.83%
Trend Series............................................................... 12.66% N/A 14.47%
International Equity Series................................................ -1.52% 9.39% 9.21%
Emerging Markets Series.................................................... N/A N/A -17.59%
Delaware Series............................................................ 17.64% 12.68% 12.72%
Convertible Securities Series.............................................. N/A N/A 8.59%
Delchester Series.......................................................... 5.04% 8.57% 8.74%
Capital Reserves Series.................................................... -0.59% 3.69% 4.37%
Strategic Income Series.................................................... N/A N/A -1.44%
Cash Reserve Series........................................................ -2.91% 1.94% 2.06%
Global Bond Series......................................................... -6.81% N/A 1.90%
</TABLE>
TABLE 1B
SUPPLEMENTAL TOTAL ANNUAL RETURNS OF SUB-ACCOUNTS FOR PERIODS ENDING
DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
TOTAL RETURN
FOR YEAR SINCE
ENDED INCEPTION OF
NAME OF UNDERLYING FUND 12/31/97 5 YEARS SUB-ACCOUNT
- --------------------------------------------------------------------------- ------------- ----------- ------------
<S> <C> <C> <C>
Decatur Total Return Series................................................ 29.19% 18.24% 16.92%
Devon Series............................................................... N/A N/A 26.10%
DelCap Series.............................................................. 13.28% 11.30% 11.11%
Social Awareness Series.................................................... N/A N/A 27.19%
REIT Series................................................................ N/A N/A N/A
Small Cap Value Series..................................................... 31.06% N/A 17.76%
Trend Series............................................................... 19.66% N/A 15.45%
International Equity Series................................................ 5.10% 10.08% 9.74%
Emerging Markets Series.................................................... N/A N/A -12.05%
Delaware Series............................................................ 24.64% 13.29% 13.12%
Convertible Securities Series.............................................. N/A N/A 15.59%
Delchester Series.......................................................... 12.04% 9.28% 9.21%
Capital Reserves Series.................................................... 6.09% 4.54% 4.94%
Strategic Income Series.................................................... N/A N/A 5.19%
Cash Reserve Series........................................................ 3.62% 2.85% 2.69%
Global Bond Series......................................................... -0.54% N/A 5.96%
</TABLE>
15
<PAGE>
TABLE 2A
TOTAL ANNUAL RETURNS OF SUB-ACCOUNT FOR PERIODS ENDING
DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
SINCE
TOTAL RETURN INCEPTION
FOR YEAR OF
ENDED UNDERLYING
NAME OF UNDERLYING FUND 12/31/97 5 YEARS FUND*
- ---------------------------------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Decatur Total Return Series................................................. 22.19% 17.73% 11.47%
Devon Series................................................................ N/A N/A 19.10%
DelCap Series............................................................... 6.28% 10.64% 10.54%
Social Awareness Series..................................................... N/A N/A 20.19%
REIT Series................................................................. N/A N/A N/A
Small Cap Value Series...................................................... 24.06% N/A 16.91%
Trend Series................................................................ 12.66% N/A 14.60%
International Equity Series................................................. -1.52% 9.39% 9.21%
Emerging Markets Series..................................................... N/A N/A -17.59%
Delaware Series............................................................. 17.64% 12.68% 12.28%
Convertible Securities Series............................................... N/A N/A 8.59%
Delchester Series........................................................... 5.04% 8.57% 8.97%
Capital Reserves Series..................................................... -0.59% 3.69% 5.34%
Strategic Income Series..................................................... N/A N/A -1.44%
Cash Reserve Series......................................................... -2.91% 1.94% 3.63%
Global Bond Series.......................................................... -6.81% N/A 1.90%
</TABLE>
TABLE 2B
SUPPLEMENTAL TOTAL ANNUAL RETURNS OF SUB-ACCOUNT FOR PERIODS ENDING
DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
TOTAL RETURN SINCE
FOR YEAR INCEPTION OF
ENDED UNDERLYING
NAME OF UNDERLYING FUND 12/31/97 5 YEARS FUND*
- --------------------------------------------------------------------- --------------- ------------ --------------
<S> <C> <C> <C>
Decatur Total Return Series.......................................... 29.19% 18.24% 11.47%
Devon Series......................................................... N/A N/A 26.10%
DelCap Series........................................................ 13.28% 11.30% 10.80%
Social Awareness Series.............................................. N/A N/A 27.19%
REIT Series.......................................................... N/A N/A N/A
Small Cap Value Series............................................... 31.06% N/A 17.68%
Trend Series......................................................... 19.66% N/A 15.42%
International Equity Series.......................................... 5.10% 10.08% 9.74%
Emerging Markets Series.............................................. N/A N/A -12.05%
Delaware Series...................................................... 24.64% 13.29% 12.28%
Convertible Securities Series........................................ N/A N/A 15.59%
Delchester Series.................................................... 12.04% 9.28% 8.97%
Capital Reserves Series.............................................. 6.09% 4.54% 5.34%
Strategic Income Series.............................................. N/A N/A 5.19%
Cash Reserve Series.................................................. 3.62% 2.85% 3.63%
Global Bond Series................................................... -0.54% N/A 5.96%
</TABLE>
16
<PAGE>
* The dates of inception of the Underlying Funds are: 10/29/92 for the
International Equity Series; 12/27/93 for the Small Cap Value and Trend Series;
7/02/91 for the DelCap Series; 7/28/88 for the Delaware Series, the Decatur
Total Return Series, the Delchester Series, the Capital Reserves Series, and the
Cash Reserve Series; 5/1/96 for Global Bond Series; and 5/1/97 for the Devon
Series, the Social Awareness Series, the Emerging Markets Series, the
Convertible Securities Series and the Strategic Income Series.
WHAT IS AN ANNUITY?
In general, an annuity is a policy designed to provide a retirement income in
the form of monthly payments for the lifetime of the purchaser or an individual
chosen by the purchaser. The retirement income payments are called "annuity
benefit payments," and the individual receiving the payments is called the
"annuitant." Annuity benefit payments may begin immediately after a lump sum
purchase is made or may begin after an investment period during which the amount
necessary to provide the desired amount of retirement income is accumulated.
Under an annuity policy, the insurance company assumes a mortality risk and an
expense risk. The mortality risk arises from the insurance company's guarantee
that annuity benefit payments will continue for the life of the annuitant,
regardless of how long the annuitant lives or how long all annuitants as a group
live. The expense risk arises from the insurance company's guarantee that
charges will not be increased beyond the limits specified in the policy,
regardless of actual costs of operations.
The owner's purchase payments, less any applicable deductions, are invested by
the insurance company. After retirement, annuity benefit payments are paid to
the annuitant for life or for such other period chosen by the owner. In the case
of a "fixed" annuity, the value of these annuity benefit payments is guaranteed
by the insurance company, which assumes the risk of making the investments to
enable it to make the guaranteed payments. For more information about fixed
annuities see APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
With a variable annuity, the value of the policy and the annuity benefit
payments are not guaranteed but will vary depending on the investment
performance of a portfolio of securities. Any investment gains or losses are
reflected in the value of the policy and in the annuity benefit payments. If the
portfolio increases in value, the value of the policy increases. If the
portfolio decreases in value, the value of the policy decreases.
RIGHT TO REVOKE OR SURRENDER
The Owner may revoke the Policy at any time between the date of the application
and the date ten days (or the number of days required by state law if more than
ten) after receipt of the Policy. Within seven days of receipt of the revocation
request, the Company will return an amount equal to the sum of (1) the
difference between the gross payment(s) received and any amounts allocated to
the Sub-Accounts, and (2) the Accumulated Value of amounts allocated to the
Sub-Accounts as of the date the request is received. If the Policy was purchased
as an IRA or if required by state law, the Company will refund the greater of
the amount described above or the entire purchase payment. In order to revoke
the Policy, the Owner must mail or deliver the Policy (if it has already been
received) to the agent through whom the Policy was purchased, to the Principal
Office at 440 Lincoln Street, Worcester, MA 01653, or to any authorized
representative of the Company. Mailing or delivery must occur on or before ten
days after receipt of the Policy for revocation to be effective.
The liability of the Separate Accounts under this provision is limited to the
Owner's Accumulated Value in each Separate Account on the date of cancellation.
Any additional amounts refunded to the Owner will be paid by the Company.
The refund of any premium paid by check may be delayed until the check has
cleared the Owner's bank.
17
<PAGE>
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT,
AND DELAWARE GROUP PREMIUM FUND, INC.
THE COMPANY. The Company is a life insurance company organized under the laws of
Delaware in July 1974. Its principal office ("Principal Office") is located at
440 Lincoln Street, Worcester, MA 01653, Telephone 508-855-1000. The Company is
subject to the laws of the state of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1997, the
Company had over $9.4 billion in assets and over $26.6 billion of life insurance
in force.
Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirect wholly owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica") which, in turn, is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company and adopted its present name on
October 16, 1995. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1997, First Allmerica and its subsidiaries
(including the Company) had over $16.3 billion in combined assets and over $43.8
billion in life insurance in force.
The Company is a chartered member of the Insurance Marketplace Standard
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE SEPARATE ACCOUNT. Separate Account VA-K (the "Separate Account") is a
separate investment account of the Company. The assets used to fund the variable
portions of the Policies are set aside in the Sub-Accounts of the Separate
Account, and are kept separate from the general assets of the Company. There are
16 Sub-Accounts available under the Policies. Each Sub-Account is administered
and accounted for as part of the general business of the Company, but the
income, capital gains, or capital losses of each Sub-Account are allocated to
such Sub-Account without regard to other income, capital gains, or capital
losses of the Company. Under Delaware law, the assets of the Separate Account
may not be charged with any liabilities arising out of any other business of the
Company.
The Separate Account was authorized by vote of the Board of Directors of the
Company on November 1, 1990. The Separate Account meets the definition of
"separate account" under federal securities laws, and is registered with the SEC
as a unit investment trust under the 1940 Act. Such registration does not
involve the supervision of management or investment practices or policies of the
Separate Account or the Company by the SEC. The Company reserves the right,
subject to compliance with applicable law, to change the names of the Separate
Account and the Sub-Accounts.
THE COMPANY OFFERS OTHER VARIABLE ANNUITY CONTRACTS INVESTING IN THE SEPARATE
ACCOUNT WHICH ARE NOT DISCUSSED IN THIS PROSPECTUS. THE SEPARATE ACCOUNT ALSO
INVESTS IN OTHER UNDERLYING FUNDS WHICH ARE NOT AVAILABLE TO THE POLICIES
DESCRIBED IN THIS PROSPECTUS.
DELAWARE GROUP PREMIUM FUND, INC. Delaware Group Premium Fund, Inc. (the "Fund")
is an open-end, diversified management investment company registered with the
SEC under the 1940 Act. Such registration does not involve supervision by the
SEC of the investments or investment policy of the Fund or its separate
investment series.
18
<PAGE>
The Fund was established to provide a vehicle for the investment of assets of
various separate accounts supporting variable insurance policies. The Fund
currently has 16 investment portfolios ("Underlying Series"), each issuing a
series of shares: Decatur Total Return Series, Devon Series, DelCap Series,
Social Awareness Series, REIT Series, Small Cap Value Series, Trend Series,
International Equity Series, Emerging Markets Series, Delaware Series,
Convertible Securities Series, Delchester Series, Capital Reserves Series,
Strategic Income Series, Cash Reserve Series, and Global Bond Series. The assets
of each Underlying Series are held separate from the assets of the other
Underlying Series. Each Underlying Series operates as a separate investment
vehicle, and the income or losses of one have no effect on the investment
performance of another Underlying Series. Shares of the Underlying Series are
not offered to the general public but solely to separate accounts of life
insurance companies.
The investment adviser for the Decatur Total Return Series, Devon Series, DelCap
Series, Social Awareness Series, Small Cap Value Series, REIT Series, Trend
Series, Delaware Series, Convertible Securities Series, Delchester Series,
Capital Reserves Series, Strategic Income Series, and Cash Reserve Series is
Delaware Management Company, Inc. ("Delaware Management"). The investment
adviser for the International Equity Series, Emerging Markets Series and the
Global Bond Series is Delaware International Advisers Ltd. ("Delaware
International").
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Underlying Series is set forth
below. More detailed information regarding the investment objectives,
restrictions and risks, expenses paid by the Underlying Series, and other
relevant information regarding the Underlying Series may be found in the
Prospectus of the Fund, which accompanies this Prospectus and should be read
carefully before investing. Also, the SAI of the Fund is available upon request.
DECATUR TOTAL RETURN SERIES -- seeks the highest possible total rate of return
by selecting issues that exhibit the potential for capital appreciation while
providing higher than average dividend income. This Series formerly was known as
Equity/Income Series.
DEVON SERIES -- seeks current income and capital appreciation by investing
primarily in income-producing common stocks, with a focus on common stocks that
exhibit the potential for above-average dividend increases over time.
DELCAP SERIES -- seeks long-term capital appreciation by investing its assets in
a diversified portfolio of securities exhibiting the potential for significant
growth. This Series formerly was known as the Growth Series.
SOCIAL AWARENESS SERIES -- seeks to achieve long-term capital appreciation by
investing primarily in equity securities of medium- to large-sized companies
expected to grow over time. This Fund was formerly known as the Quantum Series.
REIT SERIES -- seeks to achieve maximum long-term total return by investing in
securities of companies primarily engaged in the real estate industry.
SMALL CAP VALUE SERIES -- seeks capital appreciation by investing in
small-to-mid cap common stocks whose market value appears low relative to their
underlying value or future earnings and growth potential. Emphasis also--will be
placed on securities of companies that temporarily may be out of favor or whose
value is not yet recognized by the market. This Fund was formerly known as the
Value Series.
TREND SERIES -- seeks long-term capital appreciation by investing primarily in
small-cap common stocks and convertible securities of emerging and other
growth-oriented companies. These securities will have been
19
<PAGE>
judged to be responsive to changes in the marketplace and to have fundamental
characteristics to support growth. Income is not an objective. This Series
formerly was known as Emerging Growth Series.
INTERNATIONAL EQUITY SERIES -- seeks long-term growth without undue risk to
principal by investing primarily in equity securities of foreign issuers
providing the potential for capital appreciation and income
EMERGING MARKETS SERIES -- seeks to achieve long-term capital appreciation by
investing primarily in equity securities of issuers located or operating in
emerging countries. The Series is an international fund. As such, under normal
market conditions, at least 65% of the Series' assets will be invested in equity
securities of issuers organized or having a majority of their assets or deriving
a majority of their operating income in at least three countries that are
considered to be emerging or developing.
DELAWARE SERIES -- seeks a balance of capital appreciation, income and
preservation of capital. It uses a dividend-oriented valuation strategy to
select securities issued by established companies that are believed to
demonstrate potential for income and capital growth. This Series formerly was
known as Multiple Strategy Series.
CONVERTIBLE SECURITIES SERIES -- seeks a high level of total return on its
assets through a combination of capital appreciation and current income by
investing primarily in convertible securities, including privately placed
convertible securities.
DELCHESTER SERIES -- seeks as high a current income as possible by investing in
rated and unrated corporate bonds (including high-yield bonds commonly known as
"junk bonds"), U.S. government securities and commercial paper. Please read the
Fund's prospectus disclosure regarding the risk factors before investing in this
Series. This Series formerly was known as High Yield Series.
CAPITAL RESERVES SERIES -- seeks a high, stable level of current income while
minimizing fluctuations in principal by investing in a diversified portfolio of
short- and intermediate-term securities.
STRATEGIC INCOME SERIES -- seeks high current income and total return by using a
multi-sector investment approach, investing primarily in three sectors of the
fixed-income securities market: high yield, higher-risk securities; investment
grade fixed-income securities; and foreign government and other foreign
fixed-income securities. The Series also may invest in U.S. equity securities.
CASH RESERVE SERIES -- seeks the highest level of income consistent with the
preservation of capital and liquidity through investments in short-term money
market instruments. This Series formerly was known as Money Market Series.
GLOBAL BOND SERIES -- seeks current income consistent with preservation of
principal by investing primarily in fixed-income securities that also may
provide the potential for capital appreciation. At least 65% of the Series'
assets will be invested in fixed-income securities of issuers organized or
having a majority of their assets in or deriving a majority of the operating
income in at least three different countries, one of which may be the United
States. The Capital Reserves Series seeks a high, stable level of current income
while minimizing fluctuations in principal by investing in a diversified
portfolio of short- and intermediate-term securities.
There is no assurance that the investment objectives of the Underlying Series
will be met. In the event of a material change in the investment policy of a
Sub-Account or the Underlying Series in which it invests, you will be notified
of the change. If you have Policy value in that Sub-Account, the Company will
transfer it without charge on written request by you to another Sub-Account or
to the General Account, where available. The Company must receive your written
request within 60 days of the later of (1) the effective date of such change in
the investment policy, or (2) the receipt of the notice of your right to
transfer.
IN SOME STATES, INSURANCE REGULATIONS MAY RESTRICT THE AVAILABILITY OF
PARTICULAR SUB-ACCOUNTS.
20
<PAGE>
INVESTMENT ADVISORY SERVICES TO THE FUND
For managing the portfolios of the Underlying Series and making the investment
decisions, investment advisers are paid an annual fee by their respective
Underlying Series. For Delaware Management, this fee is equal to 0.50% of the
average daily net assets of the Cash Reserve Series; 0.60% of the average daily
net assets of the Decatur Total Return Series, Delchester Series, Capital
Reserves Series, Delaware Series and Devon Series; 0.65% of the average daily
net assets of the Strategic Income Series and 0.75% of the average daily net
assets of the DelCap Series, Small Cap Value Series, Trend Series, Social
Awareness Series, REIT Series and Convertible Securities Series. For Delaware
International Advisors, Ltd., this fee is equal to 0.75% of the average daily
net assets of the International Equity Series and the Global Bond Series, and
1.25% of the Emerging Markets Series.
CHARGES AND DEDUCTIONS
Deductions under the Policies and charges against the assets of the Sub-Accounts
are described below. Other deductions and expenses paid out of the assets of the
Underlying Series are described in the Prospectus and SAI of the Fund.
A. CONTINGENT DEFERRED SALES CHARGE
No charge for sales expense is deducted from purchase payments at the time the
payments are made. A contingent deferred sales charge is deducted from the
Accumulated Value of the Policy, however, in the case of surrender and/or
partial redemption of the Policy or at the time annuity benefit payments begin,
within certain time limits described below.
For purposes of determining the contingent deferred sales charge, the Policy
Value is divided into three categories: (1) New Payments -- purchase payments
received by the Company during the seven years preceding the date of the
surrender; (2) Old Payments -- purchase payments not defined as New Payments;
and (3) Earnings -- the amount of Policy Value in excess of all purchase
payments that have not been previously surrendered. For purposes of determining
the amount of any contingent deferred sales charge, surrenders will be deemed to
be taken first from Old Payments, then from New Payments. Old Payments may be
withdrawn from the Policy at any time without the imposition of a contingent
deferred sales charge. If a withdrawal is attributable all or in part to New
Payments, a contingent deferred sales charge may apply.
No contingent deferred sales charge is imposed, and no commissions are paid, on
Policies issued after December 20, 1993 where the Owner and Annuitant as of the
date of application are both within the following class of individuals:
All employees and registered representatives of any broker-dealer that has
entered into a sales agreement with the Company to sell the Policies; all
officers, directors, trustees and bona fide full-time employees (including
former officers and directors and former employees who had been employed for at
least ten years) of Delaware Management, its affiliates and subsidiaries, and of
any Underlying Series; and any spouses of the above persons or any children or
other legal dependents of the above persons who are under the age of 21.
CHARGES FOR SURRENDER AND PARTIAL REDEMPTION. If a Policy is surrendered, or if
New Payments are redeemed, while the Policy is in force and before the Annuity
Date, a contingent deferred sales charge may be imposed. The amount of the
charge will depend upon the number of years that the New Payments, if any, to
which the withdrawal is attributed have remained credited under the Policy. Any
Free Withdrawal Amount is deducted first as described below. Additional amounts
withdrawn are deducted first from Old Payments. Then, for the purpose of
calculating surrender charges for New Payments, all amounts withdrawn are
assumed to be deducted first from the earliest New Payment and then from the
next earliest New Payment and so on, until all New Payments have been exhausted
pursuant to the FIFO method of accounting. (See "FEDERAL TAX CONSIDERATIONS" for
a discussion of how withdrawals are treated for income tax purposes.)
21
<PAGE>
The Contingent Deferred Sales Charges are as follows:
<TABLE>
<CAPTION>
YEARS FROM CHARGE AS PERCENTAGE OF
DATE OF PAYMENT NEW PAYMENTS WITHDRAWN
- --------------- ---------------------------
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
</TABLE>
The amount redeemed equals the amount requested by the Owner plus the charge, if
any, which is applied against the amount requested. For example, if the
applicable charge is 7% and the Owner has requested $200, the Owner will receive
$200 and the charge will be $14 (assuming no Free Withdrawal Amount, discussed
below) for a total withdrawal of $214. The charge is applied as a percentage of
the New Payments redeemed, but in no event will the total contingent deferred
sales charge exceed a maximum limit of 8% of total gross New Payments. Such
total charge equals the aggregate of all applicable contingent deferred sales
charges for surrender, partial redemptions, and annuitization.
In Maryland, a different contingent deferred sales charge applies to monies in
the General Account. See APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL
ACCOUNT."
FREE WITHDRAWAL AMOUNTS. In each calendar year, the Company will waive the
contingent deferred sales charge, if any, on an amount ("Free Withdrawal
Amount") equal to the greatest of (1), (2) or (3):
Where (1) is: The Accumulated Value as of the Valuation Date coincident
with or next following the date of receipt of the request for
withdrawal, reduced by total gross payments not previously
redeemed ("Cumulative Earnings");
Where (2) is: 10% of the Accumulated Value as of the Valuation Date
coincident with or next following the date of receipt of the
request for withdrawal, reduced by the total amount of any
prior partial redemptions made in the same calendar year to
which no contingent deferred sales charge was applied;
Where (3) is: The amount calculated under the Company's life expectancy
distribution (see "Life Expectancy Distributions," below),
whether or not the withdrawal was part of such distribution
(applies only if the Owner and Annuitant are the same
individual).
For example, an 81-year-old Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Free Withdrawal
Amount of $1,530, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 10% of Accumulated Value ($1,500); or
(3) LED of 10.2% of Accumulated Value ($1,530).
The Free Withdrawal Amount will be deducted first from Cumulative Earnings. If
the Free Withdrawal Amount exceeds Cumulative Earnings, the excess amount will
be deemed withdrawn from payments not previously redeemed on a last-in-first-out
("LIFO") basis. If more than one partial withdrawal is made during the year, on
each subsequent withdrawal the Company will waive the contingent deferred sales
load, if any, until the entire Free Withdrawal Amount has been redeemed.
LIFE EXPECTANCY DISTRIBUTIONS. An Owner who is also the Annuitant may elect to
make a series of systematic withdrawals from the Policy according to a life
expectancy distribution ("LED"), by returning a properly signed LED request form
to the Principal Office. The LED permits the Owner to make systematic
22
<PAGE>
withdrawals from the Policy over his or her lifetime. The amount withdrawn from
the Policy changes each year, because life expectancy changes each year that a
person lives. For example, actuarial tables indicate that a person age 70 has a
life expectancy of 16 years, but a person who attains age 86 has a life
expectancy of another 6.5 years.
If an Owner elects the LED option, in each Policy year a fraction of the
Accumulated Value is withdrawn from the Policy based on the Owner's then life
expectancy. The numerator of the fraction is 1 (one), and the denominator of the
fraction is the remaining life expectancy of the Owner, as determined annually
by the Company. The resulting fraction, expressed as a percentage, is applied to
the Accumulated Value of the Policy at the beginning of the year to determine
the amount to be distributed during the year. The Owner may elect monthly,
bi-monthly, quarterly, semi-annual, or annual distributions, and may terminate
the LED at any time. The Owner also may elect to receive distributions under a
LED which is determined on the joint life expectancy of the Owner and a
beneficiary. The Company also may offer other systematic withdrawal options.
If an Owner makes withdrawals under the LED option prior to age 59 1/2, the
withdrawals may be treated by the IRS as premature distributions from the
Policy. The payments would then be taxed on an "income first" basis, and be
subject to a 10% federal tax penalty. For more information, see "B. Taxation of
the Policies in General," under "FEDERAL TAX CONSIDERATIONS."
SURRENDERS. In the case of a complete surrender, the amount received by the
Owner is equal to the entire Accumulated Value under the Policy, net of the
applicable contingent deferred sales charge on New Payments, the Policy fee, and
any tax withholding, if applicable. Subject to the same rules that are
applicable to partial redemptions, the Company will not assess a contingent
deferred sales charge on a Free Withdrawal Amount. Because Old Payments count in
the calculation of the Free Withdrawal Amount, if Old Payments equal or exceed
the Free Withdrawal Amount, the Company may assess the full applicable
contingent deferred sales charge on New Payments.
Where an Owner who is trustee under a pension plan surrenders, in whole or in
part, a Policy on a terminating employee, the trustee will be permitted to
reallocate all or a part of the total Accumulated Value under the Policy to
other policies issued by the Company and owned by the trustee, with no deduction
for any otherwise applicable contingent deferred sales charge. Any such
reallocation will be at the unit values for the Sub-Accounts as of the valuation
date on which a written, signed request is received at the Principal Office.
For further information on surrender and partial redemption, including minimum
limits on amount redeemed and amount remaining under the Policy in the case of
partial redemption, and important tax considerations, see "C. Surrender" and "D.
Partial Redemption" under "THE VARIABLE ANNUITY POLICIES," and see "FEDERAL TAX
CONSIDERATIONS."
CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If a period certain option is
chosen (Option V or the comparable fixed annuity option), a contingent deferred
sales charge will be deducted from the Accumulated Value of the Policy if the
Annuity Date occurs at any time during the surrender charge period. Such charge
is the same as that which would apply had the policy been surrendered on the
Annuity Date.
No contingent deferred sales charge is imposed at the time of annuitization in
any policy year under an option involving a life contingency (Options I, II,
III, IV-A, IV-B or the comparable fixed annuity options) or involving a
non-commutable period certain of a duration of ten years or more.
SALES EXPENSE. The Company pays sales commissions, not to exceed 6% of purchase
payments, to entities which sell the Policies. To the extent permitted by NASD
rules, expense reimbursement allowances and additional payments for other
services not directly related to the sale of the Policies, including the
recruitment and training of personnel, production of promotional literature, and
similar services may also be made.
23
<PAGE>
The Company intends to recoup the commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges, described above,
and the investment earnings on amounts allocated to accumulate on a fixed basis
in excess of the interest credited on fixed accumulations by the Company. There
is no additional charge to Owners or to the Separate Account. Any contingent
deferred sales charges assessed on a Policy will be retained by the Company.
Alternative commission schedules are available with lower initial commission
amounts based on purchase payments, plus ongoing annual compensation of up to 1%
of policy value.
B. PREMIUM TAXES
Some states and municipalities impose a premium tax on variable annuity
policies. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by the Company when purchase payments were
received, to the extent permitted in the Policy the premium tax charge is
deducted on a pro-rata basis when partial withdrawals are made, upon
surrender of the Policy, or when annuity benefit payments begin (the
Company reserves the right instead to deduct the premium tax charge for
these Policies at the time the purchase payments are received); or
(2) the premium tax charge is deducted when annuity benefit payments begin.
If no amount for premium tax was deducted at the time the purchase
payment was received, but subsequently tax is determined to be due prior
to the Annuity Date, the Company reserves the right to deduct the premium
tax from the Policy value at the time such determination is made.
C. POLICY FEE
A $30 Policy fee currently is deducted on the Policy anniversary date and upon
full surrender of the Policy when the Accumulated Value is $50,000 or less. The
Policy fee is not deducted after annuitization. The Policy fee currently is
waived for Policies issued to a trustee of a 401(k) plan, but the Company
reserves the right to impose the Policy fee on such Policies.
Where Policy value has been allocated to more than one account (General Account
and/or one or more of the Sub-Accounts), a percentage of the total Policy fee
will be deducted from the Policy value in each account. The portion of the
charge deducted from each account will be equal to the percentage which the
Policy value in that account represents of the total Accumulated Value under the
Policy. The deduction of the Policy fee will result in cancellation of a number
of Accumulation Units equal in value to the percentage of the charge deducted
from that account.
D. ANNUAL CHARGES AGAINST SEPARATE ACCOUNT ASSETS
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a charge of 1.25% on an
annual basis of the daily value of each Sub-Account's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Policies. The charge is imposed during both the accumulation
period and the annuity period. The mortality risk arises from the Company's
special death benefit guarantee and its guarantee that it will make annuity
benefit payments in accordance with annuity rate provisions established at the
time the Policy is issued for the life of the Annuitant (or in accordance with
the annuity option selected), no matter how long the Annuitant (or other payee)
lives and no matter how long all Annuitants as a class live. Therefore, the
mortality charge is deducted during the annuity phase on all Policies, including
those that do not involve a life contingency, even though the Company does not
bear direct mortality risk with respect to variable annuity settlement options
that do not involve life contingencies. The expense risk arises from the
Company's guarantee that the charges it makes will not exceed the limits
described in the Policies and in this Prospectus.
24
<PAGE>
If the charge for mortality and expense risks is not sufficient to cover actual
mortality experience and expenses, the Company will absorb the losses. If
expenses are less than the amounts provided to the Company by the charge, the
difference will be a profit to the Company. To the extent this charge results in
a profit to the Company, such profit will be available for use by the Company
for, among other things, the payment of distribution, sales and other expenses.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be .80% for mortality risk and .45%
for expense risk.
ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account available
under the Policies with a daily 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 period and the annuity period. The daily administrative expense
charge is assessed to help defray administrative expenses actually incurred in
the administration of the Sub-Account, without profits. There is no direct
relationship, however, between the amount of administrative expenses imposed on
a given Policy and the amount of expenses actually attributable to that Policy.
Deductions for the Policy fee (described under "C. Policy Fee") and for the
administrative expense charge are designed to reimburse the Company for the cost
of administration and related expenses and are not expected to be a source of
profit. The administrative functions and expense assumed by the Company in
connection with the Separate Account and the Policies include, but are not
limited to, clerical, accounting, actuarial and legal services, rent, postage,
telephone, office equipment and supplies, expenses of preparing and printing
registration statements, expense of preparing and typesetting prospectuses and
the cost of printing prospectuses not allocable to sales expense, filing and
other fees.
TRANSFER CHARGE. The Company currently makes no charge for transfers. The
Company guarantees that the first 12 transfers in a Policy year will be free of
charge, but reserves the right to assess a charge, guaranteed never to exceed
$25, for the thirteenth and each subsequent transfer in a Policy year. For more
information, see "B. Transfer Privilege" under "THE VARIABLE ANNUITY POLICIES."
OTHER CHARGES. Because the Sub-Accounts purchase shares of the Fund, the value
of the net assets of the Sub-Accounts will reflect the investment advisory fee
and other expenses incurred by the Underlying Series. The prospectus and SAI of
the Fund contain additional information concerning expenses of the Underlying
Series.
THE VARIABLE ANNUITY POLICIES
The Policies are designed for use in connection with several types of retirement
plans, as well as for sale to individuals. Participants under such plans, as
well as Owners, and beneficiaries, are cautioned that the rights of any person
to any benefits under such Policies may be subject to the terms and conditions
of the plans themselves, regardless of the terms and conditions of the Policies.
The Policies offered by this Prospectus may be purchased from representatives of
Allmerica Investments, Inc. and certain independent broker-dealers that are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc. (NASD). The principal
underwriter of the Policies is Allmerica Investments, Inc., 440 Lincoln Street,
Worcester, MA, 01653, an indirect wholly owned subsidiary of First Allmerica.
Owners may direct any inquiries to Client Services, Allmerica Financial Life
Insurance and Annuity Company, 440 Lincoln Street, Worcester, MA 01653.
A. PURCHASE PAYMENTS
Purchase payments are payable to the Company. The initial payment will be
credited to the Policy as of the date that the properly completed application
which accompanies the payment is received by the Company at its Principal
Office. If an application is incomplete, or does not specify how payments are to
be allocated
25
<PAGE>
among the Accounts, the initial purchase payment will be returned within five
business days. After a policy is issued, Accumulation Units will be credited to
the Policy at the unit value computed as of the Valuation Date that a purchase
payment is received at the Principal Office.
Purchase payments are not limited as to frequency and number, but there are
certain limitations as to amount. Generally, the initial payment must be at
least $600. Under a salary deduction or a monthly automatic payment plan, the
minimum initial payment is $50. In all cases, each subsequent payment must be at
least $50. Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Policy on the employee, if the plan's average
annual contribution per eligible plan participant is at least $600. Total
payments may not exceed the maximum limit specified in the Policy. If the
payments are divided among two or more accounts, a net amount of at least $10 of
each payment must be allocated to each account.
Generally, payments will be allocated among the Sub-Accounts according to the
Owner's instructions when the Policy is issued. If, however, the Policy is
issued in Georgia, Indiana, Michigan, Missouri, New York, North Carolina,
Oklahoma, Oregon, South Carolina, Texas, Utah, Washington, West Virginia or in
connection with an IRA, for the first 14 days following the date of issue, all
Separate Account allocations will be held in the Cash Reserve Series.
Thereafter, all amounts will be allocated according to the Owner's instructions.
The Owner may change allocation instructions for new payments pursuant to
written or telephone request. If telephone requests are elected by the Owner, a
properly completed authorization form must be on file before telephone requests
will be honored. The policy of the Company and its agents and affiliates is that
they will not be responsible for losses resulting from acting upon telephone
requests reasonably believed to be genuine. The Company will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine;
otherwise, the Company may be liable for any losses due to unauthorized or
fraudulent instructions. The procedures the Company follows for transactions
initiated by telephone include requirements that callers on behalf of an Owner
identify themselves by name and identify the Annuitant by name, date of birth
and social security number. All transfer instructions by telephone are tape
recorded.
B. TRANSFER PRIVILEGE
At any time prior to the Annuity Date, subject to the Company's then current
rules, an Owner may have amounts transferred among the Sub-Accounts or between a
Sub-Account and the General Account, where available. Transfer values will be
effected at the Accumulation Value next computed after receipt of the transfer
order. The Company will make transfers pursuant to written request or, if a
properly completed authorization is on file, pursuant to a telephone request.
Currently, the Company makes no charge for transfers. The first 12 transfers in
a Policy year are guaranteed to be free of any transfer charge. For each
subsequent transfer in a Policy year, the Company reserves the right to assess a
charge, guaranteed not to exceed $25, to reimburse it for the expense of
processing transfers.
Except for transfers made under the automatic transfer option (DOLLAR COST
AVERAGING) and for transfers made under policies issued to residents of Texas,
no transfers from the General Account are permitted except during the 30-day
period beginning on each policy anniversary. During this 30-day "window" period,
any amount (up to 100%) of the policy value may be transferred. In Texas,
transfers from the Fixed Account are also permitted if there has been at least a
ninety day period since the last transfer from the General Account and the
amount of the transfer does not exceed the lesser of $100,000 or 25% of the
Accumulated Value.
The Company reserves the right to impose limitations on transfers including, but
not limited to (1) the minimum amount that may be transferred, (2) the minimum
amount that may remain in a Sub-Account following a transfer from that
Sub-Account, (3) the minimum period of time between transfers involving the
General Account, and (4) the maximum amount that may be transferred each time
from the General Account.
The Owner may elect automatic transfers of a pre-determined dollar amount
(DOLLAR COST AVERAGING), not less than $100, on a periodic basis (monthly,
bi-monthly, quarterly, semi-annually or annually) from the Sub-
26
<PAGE>
Account investing in the Capital Reserve Series, the Strategic Income Series, or
the Cash Reserve Series (the "source account") to one or more of the
Sub-Accounts. Automatic transfers may not be made into the General Account or,
if applicable, the Sub-Account being used as the source account. If an automatic
transfer would reduce the balance in the source account to less than $100, the
entire balance will be transferred proportionately to the chosen Sub-Accounts.
Automatic transfers will continue until the amount in the source account on a
transfer date is zero or the Owner's request to terminate the option is received
by the Company. If additional amounts are allocated to the source account after
its balance has fallen to zero, this option will not restart automatically and
the Owner must provide a new request to the Company.
The General Account may be used as the source account from which automatic
transfers can be made on a monthly, bi-monthly or quarterly basis provided that
(1) the amount of each monthly transfer cannot exceed 10% of the value in the
General Account as of the date of the first transfer; (2) the amount of each
bi-monthly transfer cannot exceed 20% of the value of the General Account as of
the date of the first transfer and (3) each quarterly transfer cannot exceed 25%
of the value in the General Account as of the date of the first transfer.
The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, quarterly, semi-annual or annual basis in accordance with percentage
allocations specified by the Owner. As frequently as requested by the Owner, the
Company will review the percentage allocations in the Sub-Accounts and, if
necessary, transfer amounts to ensure conformity with the designated percentage
allocation mix. If the amount necessary to re-establish the mix on any scheduled
date is less than $100, no transfer will be made. Automatic Account Rebalancing
will continue until the Owner's request to terminate the option is received by
the Company.
The Company reserves the right to limit the number of Sub-Accounts that may be
utilized for automatic transfers and rebalancing, and to discontinue either
option upon advance written notice. The first automatic transfer and all
subsequent transfers of that request in the same Policy year count as one
transfer towards the 12 transfers which are guaranteed to be free of a transfer
charge each Policy year. Currently, automatic transfers and automatic
rebalancing may not be in effect simultaneously.
C. SURRENDER
At any time prior to the Annuity Date, an Owner may surrender the Policy and
receive its Accumulated Value, less applicable charges ("Surrender Amount"). The
Owner must return the Policy and a signed, written request for surrender,
satisfactory to the Company to the Principal Office. The amount payable to the
Owner upon surrender will be based on the Accumulated Value of the Policy as of
the Valuation Date on which the request and the Policy are received at the
Principal Office.
Before the Annuity Date, a contingent deferred sales charge may be deducted when
a Policy is surrendered if payments have been credited to the Policy during the
last seven full Policy years. See "CHARGES AND DEDUCTIONS." The Policy fee will
be deducted upon surrender of the Policy.
After the Annuity Date, only Policies under which future annuity benefit
payments are limited to a specified period (as specified in Annuity Option V)
may be surrendered. The Surrender Amount is the commuted value of any unpaid
installments, computed on the basis of the assumed interest rate incorporated in
such annuity benefit payments. No contingent deferred sales charge is imposed
after the Annuity Date.
Any amount surrendered is normally payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and partial redemptions of amounts in each Sub-Account during
any period which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of each Separate Account is not reasonably
practicable.
27
<PAGE>
The right is reserved by the Company to defer surrenders and partial redemptions
of amounts allocated to the Company's General Account for a period not to exceed
six months.
The surrender rights of Owners who are participants under Section 403(b) plans
or who are participants in the Texas Optional Retirement Program ("Texas ORP")
are restricted; see "Tax-Sheltered Annuities" and "Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
D. PARTIAL REDEMPTION
At any time prior to the Annuity Date, an Owner may redeem a portion of the
Accumulated Value of his or her Policy, subject to the limits stated below. The
Owner must file a signed, written request for redemption, satisfactory to the
Company, at the Principal Office. The written request must indicate the dollar
amount the Owner wishes to receive and the account from which such amount is to
be redeemed. The amount redeemed equals the amount requested by the Owner plus
any applicable contingent deferred sales charge, as described under "CHARGES AND
DEDUCTIONS."
Where allocations have been made to more than one account, a percentage of the
partial redemption may be allocated to each such account. A partial redemption
from a Sub-Account will result in cancellation of a number of units equivalent
in value to the amount redeemed, computed as of the Valuation Date that the
request is received at the Principal Office.
Each partial redemption must be in a minimum amount of $100. No partial
redemption will be permitted if the Accumulated Value remaining under the Policy
would be reduced to less than $1,000. Partial redemptions will be paid in
accordance with the time limitations described under "C. Surrender."
After the Annuity Date, only Policies under which a period certain option has
been elected may be partially redeemed. A partial redemption after the Annuity
Date will result in cancellation of a number of Annuity Units equivalent in
value to the amount redeemed.
For important restrictions on withdrawals which are applicable to Owners who are
participants under Section 403(b) plans or under the Texas ORP, see
"Tax-Sheltered Annuities" and "J. Texas Optional Retirement Program."
For important tax consequences which may result from partial redemptions, see
"FEDERAL TAX CONSIDERATIONS."
E. DEATH BENEFIT
If the Annuitant dies (or an Owner predeceases the Annuitant) prior to the
Annuity Date while the Policy is in force, a death benefit will be paid to the
beneficiary, except where the Policy continues as provided in "F. The Spouse of
the Owner as Beneficiary." Upon death of the Annuitant (including an Owner who
is also the Annuitant), the death benefit is equal to the greatest of (1) the
Accumulated Value under the Policy next determined following receipt of due
proof of death at the Principal Office, or (2) the total amount of gross
payments made under the Policy reduced proportionally to reflect the amount of
all prior partial withdrawals, or (3) the death benefit that would have been
payable on the most recent fifth year Policy anniversary, increased for
subsequent purchase payments and reduced proportionally to reflect withdrawals
after that date. A partial withdrawal will reduce the gross payments available
as a death benefit under (2) in the same proportion that the Accumulated Value
was reduced on the date of withdrawal. For each withdrawal, the reduction is
calculated by multiplying the total amount of gross payments by a fraction, the
numerator of which is the amount of the partial withdrawal and the denominator
of which is the Accumulated Value immediately prior to the withdrawal. For
example, if gross payments total $8,000 and a $3,000 withdrawal is
28
<PAGE>
made when the Accumulated Value is $12,000, the proportional reduction of gross
payments available as a death benefit is calculated as follows: The Accumulated
Value is reduced by 1/4 (3,000 divided by 12,000); therefore, the gross amount
available as a death benefit under (2) also will be reduced by 1/4 (8,000 times
1/4 equals $2,000), so that the $8,000 gross payments are reduced to $6,000.
Payments made after a withdrawal will increase the death benefit available under
(2) by the amount of the payment.
A partial withdrawal after the most recent fifth year Policy anniversary will
decrease the death benefit available under (3) in the same proportion that the
Accumulated Value was reduced on the date of the withdrawal. For example, if the
death benefit that would have been payable on the most recent fifth year Policy
anniversary is $12,000 and partial withdrawals totaling $5,000 are made
thereafter when the Accumulated Value is $15,000, the proportional reduction of
death benefit available under (3) is calculated as follows: The Accumulated
Value is reduced by 1/3 (5,000 divided by 15,000); therefore, the death benefit
that would have been payable on the most recent fifth year Policy anniversary
will also be reduced by 1/3 (12,000 times 1/3 or $4,000), so that the death
benefit available under (3) will be $8,000 ($12,000 minus $4,000). Payments made
after the most recent fifth year Policy anniversary will increase the death
benefit available under (3) by the amount of the payment. Upon death of an Owner
who is not the Annuitant, the death benefit is equal to the Accumulated Value of
the Policy next determined following receipt of due proof of death received at
the Principal Office.
The death benefit generally will be paid to the beneficiary in one sum. The
beneficiary may, however, by written request, elect one of the following
options:
(1) The payment of the one sum may be delayed for a period not to exceed
five years from the date of death.
(2) The death benefit may be paid in installments. Payments must begin
within one year from the date of death, and are payable over a period
certain not extended beyond the life expectancy of the beneficiary.
(3) All or a portion of the death benefit may be used to provide a life
annuity for the beneficiary. Benefits must begin within one year from the
date of death and are payable over a period not extended beyond the life
expectancy of the beneficiary. Any annuity benefits will be provided in
accordance with the annuity options of the Policy.
If there is more than one beneficiary, the death benefit will be paid to such
beneficiaries in one sum unless the Company consents to pay an annuity option
chosen by the beneficiaries.
With respect to any death benefit, the Accumulated Value under the Policy shall
be based on the unit values next computed after due proof of death has been
received at the Principal Office. If the beneficiary elects to receive the death
benefit in one sum, the death benefit will be paid within seven business days.
If the beneficiary (other than a spousal beneficiary of an IRA, See "F. The
Spouse of the Owner as Beneficiary," below) has not elected an annuity option
within one year from the date notice of death is received by the Company, the
Company will pay the death benefit in one sum. The death benefit will reflect
any earnings or losses experienced during the period and any withdrawals.
If the Annuitant's death occurs on or after the Annuity Date but before the
completion of all guaranteed monthly annuity benefit payments, any unpaid
amounts or installments will be paid to the beneficiary. The Company must pay
the remaining payments at least as rapidly as under the payment option in effect
on the date of the Annuitant's death. If there is more than one beneficiary, the
commuted value of the payments, computed on the basis of the assumed interest
rate incorporated in the annuity option table on which such payments are based,
shall be paid to the beneficiaries in one sum.
29
<PAGE>
F. THE SPOUSE OF THE OWNER AS BENEFICIARY
If the Owner's spouse is named as beneficiary ("spousal beneficiary") and if the
Owner dies (and predeceases the Annuitant if such Owner is not the Annuitant)
prior to the Annuity Date while the Policy is in force, at the written request
of the spousal beneficiary the death benefit will not be paid and the spousal
beneficiary will become the new Owner (and, if the deceased Owner was also the
Annuitant, the new Annuitant). All other rights and benefits provided in the
Policy will continue, except that any subsequent spouse of such new Owner will
not be entitled to continue the Policy upon such new Owner's death.
G. ASSIGNMENT
The Policy may be assigned by the Owner at any time prior to the Annuity Date
and while the Annuitant is alive. Policies sold in connection with IRA plans and
certain other qualified plans, however, are not assignable. For more information
about these plans, see "FEDERAL TAX CONSIDERATIONS."
The Company will not be deemed to have knowledge of an assignment unless it is
made in writing and filed at the Principal Office. The Company will not assume
responsibility for determining the validity of any assignment. If an assignment
of the Policy is in effect on the Annuity Date, the Company reserves the right
to pay to the assignee, in one sum, that portion of the Surrender Value of the
Policy to which the assignee appears to be entitled. The Company will pay the
balance, if any, in one sum to the Owner in full settlement of all liability
under the Policy. The interest of the Owner and of any beneficiary will be
subject to any assignment.
H. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE
Subject to certain restrictions described below, the Owner has the right (1) to
select the annuity option under which annuity benefit payments are to be made,
and (2) to determine whether payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. Annuity benefit
payments are determined according to the annuity tables in the Policy, by the
annuity option selected, and by the investment performance of the Accounts
selected.
To the extent a fixed annuity is selected, Accumulated Value will be transferred
to the General Account of the Company, and the annuity benefit payments will be
fixed in amount. See APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Under a variable annuity, a payment equal to the value of the fixed number of
Annuity Units in the Sub-Accounts is made each month. Since the value of an
Annuity Unit in a Sub-Account will reflect the investment performance of the
Sub-Account, the amount of each monthly payment will vary.
The annuity option selected must produce an initial payment of at least $50. If
a combination of fixed and variable payments is selected, the initial payment on
each basis must be at least $50. The Company reserves the right to increase
these minimum amounts. If the annuity option selected does not produce initial
payments which meet these minimums, the Company will pay the Accumulated Value
in one sum. Once the Company begins making annuity payments, the Annuitant
cannot make partial redemptions or surrender the annuity benefit, except in the
case where a commutable period certain option (Option V or a comparable fixed
option) has been chosen. Beneficiaries entitled to receive remaining payments
for a "period certain" may elect to instead receive a lump sum settlement.
The Annuity Date is selected by the Owner. To the extent permitted in your
state, the Annuity Date may be the first day of any month (1) before the
Annuitant's 85th birthday, if the Annuitant's age at the date of issue of the
Policy is 75 or under, or (2) within ten years from the date of issue of the
Policy and before the Annuitant's 90th birthday, if the Annuitant's age at the
date of issue is between 76 and 90. The Owner may elect to change the Annuity
Date by sending a request to the Principal Office at least one month before the
Annuity Date. The new Annuity Date must be the first day of any month occurring
before the Annuitant's 90th birthday. The new Annuity Date must be within the
life expectancy of the Annuitant. The Company shall determine such life
expectancy at the time a change in Annuity Date is requested. The Code and the
terms of qualified plans
30
<PAGE>
impose limitations on the age at which annuity benefit payments may commence and
the type of annuity option selected. See "FEDERAL TAX CONSIDERATIONS" for
further information.
If the Owner does not elect otherwise, annuity benefit payments will be made in
accordance with Option I, a variable life annuity with 120 monthly payments
guaranteed. Changes in either the Annuity Date or annuity option can be made up
to one month prior to the Annuity Date.
I. DESCRIPTION OF VARIABLE ANNUITY OPTIONS
The Company currently provides the variable annuity options described below.
Variable annuity options may be funded through the Decatur Total Return Series,
the Capital Reserves Series and the Delaware Series.
The Company also provides fixed-amount annuity options which are comparable to
the variable annuity options. Regardless of how payments were allocated during
the accumulation period, any one of the variable annuity options or the
fixed-amount options may be selected, or any one of the variable annuity options
may be selected in combination with any one of the fixed-amount annuity options.
Other annuity options may be offered by the Company.
OPTION I -- VARIABLE LIFE ANNUITY WITH 120 MONTHLY PAYMENTS GUARANTEED. A
variable annuity payable monthly during the lifetime of the payee with the
guarantee that if the payee should die before 120 monthly payments have been
paid, the monthly annuity benefit payments will continue to the beneficiary
until a total of 120 monthly payments have been paid.
OPTION II -- VARIABLE LIFE ANNUITY. A variable annuity payable monthly only
during the lifetime of the Annuitant. It would be possible under this option for
the Annuitant to receive only one annuity benefit payment if the Annuitant dies
prior to the due date of the second annuity benefit payment, two annuity benefit
payments if the Annuitant dies before the due date of the third annuity benefit
payment, and so on. Payments will continue, however, during the lifetime of the
Annuitant, no matter how long he or she lives.
OPTION III -- UNIT REFUND VARIABLE LIFE ANNUITY. A variable annuity payable
monthly during the lifetime of the payee with the guarantee that if (1) exceeds
(2), then monthly variable annuity benefit payments will continue to the
beneficiary until the number of such payments equals the number determined in
(1).
Where:
(1) is the dollar amount of the Accumulated Value divided by the dollar
amount of the first monthly payment (which determines the greatest number
of payments payable to the beneficiary), and
(2) is the number of monthly payments paid prior to the death of the payee.
OPTION IV-A -- JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. A monthly variable
annuity payable jointly to two payees during their joint lifetime, and then
continuing during the lifetime of the survivor. The amount of each payment to
the survivor is based on the same number of Annuity Units which applied during
the joint lifetime of the two payees. One of the payees must be either the
person designated as the Annuitant in the Policy or the beneficiary. There is no
minimum number of payments under this option. See Option IV-B, below.
OPTION IV-B -- JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY. A monthly
variable annuity payable jointly to two payees during their joint lifetime, and
then continuing thereafter during the lifetime of the survivor. The amount of
each monthly payment to the survivor, however, is based upon two-thirds of the
number of Annuity Units which applied during the joint lifetime of the two
payees. One of the payees must be the person designated as the Annuitant in the
Policy or the beneficiary. There is no minimum number of payments under this
option. See Option IV-A, above.
31
<PAGE>
OPTION V -- PERIOD CERTAIN VARIABLE ANNUITY. A monthly variable annuity payable
for a stipulated number of years ranging from one to 30 years. This option may
be commutable, that is, the payee reserves the right to receive a lump sum in
place of installments, or it becomes non-commutable. The payee must reserve this
right at the time benefits begin.
It should be noted that Option V does not involve a life contingency. In the
computation of the payments under this option, the charge for annuity rate
guarantees, which includes a factor for mortality risks, is made. Although not
contractually required to do so, the Company currently follows a practice of
permitting persons receiving payments under Option V to elect to convert to a
variable annuity involving a life contingency. The Company may discontinue or
change this practice at any time, but not with respect to Owners who have
elected Option V prior to the date of any change in this practice. See "FEDERAL
TAX CONSIDERATIONS" for a discussion of the possible adverse tax consequences of
selecting Option V.
J. NORRIS DECISION
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a policy issued in connection with an employer-sponsored benefit plan
affected by the NORRIS decision will be based on the greater of (1) the
Company's unisex Non-Guaranteed Current Annuity Option Rates, or (2) the
guaranteed male rates described in such Policy, regardless of whether the
Annuitant is male or female.
Although the Company believes that the Supreme Court ruling does not affect
Policies funding IRA plans that are not employer-sponsored, the Company will
apply certain aspects of the ruling to annuity benefits under such Policies,
except in those states in which it is prohibited. Such benefits will be based on
(1) the greater of the guaranteed unisex annuity rates described in the
Policies, or (2) the Company's sex-distinct Non-Guaranteed Current Annuity
Option Rates.
K. COMPUTATION OF POLICY VALUES AND ANNUITY BENEFIT PAYMENTS
THE ACCUMULATION UNIT. Each net purchase payment is allocated to the accounts
selected by the Owner. Allocations to the Sub-Accounts are credited to the
Policy in the form of Accumulation Units. Accumulation Units are credited
separately for each Sub-Account. The number of Accumulation Units of each
Sub-Account credited to the Policy is equal to the portion of the net purchase
payment allocated to the Sub-Account, divided by the dollar value of the
applicable Accumulation Unit as of the Valuation Date the payment is received at
the Principal Office. The number of Accumulation Units resulting from each
payment will remain fixed unless changed by a subsequent split of Accumulation
Unit value, a transfer, a partial redemption, or surrender. The dollar value of
an Accumulation Unit of each Sub-Account varies from Valuation Date to Valuation
Date based on the investment experience of that Sub-Account and will reflect the
investment performance, expenses and charges of its Underlying Series. The value
of an Accumulation Unit was set at $1.00 on the first Valuation Date for each
Sub-Account.
Allocations to the General Account are not converted into Accumulation Units,
but are credited interest at a rate periodically set by the Company. See
APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
The Accumulated Value under the Policy is determined by (1) multiplying the
number of Accumulation Units in each Sub-Account by the value of an Accumulation
Unit of that Sub-Account on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the General Account, if any.
32
<PAGE>
ADJUSTED GROSS INVESTMENT RATE. At each Valuation Date an adjusted gross
investment rate for each Sub-Account for the Valuation Period then ended is
determined from the investment performance of that Sub-Account. Such rate is (1)
the investment income of that Sub-Account for the Valuation Period, plus capital
gains and minus capital losses of that Sub-Account for the Valuation Period,
whether realized or unrealized, adjusted for provisions made for taxes, if any,
divided by (2) the amount of that Sub-Account's assets at the beginning of the
Valuation Period. The adjusted gross investment rate may be either positive or
negative.
NET INVESTMENT RATE AND NET INVESTMENT FACTOR. The net investment rate for a
Sub-Account's variable accumulations for any Valuation Period is equal to the
adjusted gross investment rate of the Sub-Account for such Valuation Period
decreased by the equivalent for such period of a charge equal to 1.40% per
annum. This charge cannot be increased.
The net investment factor is 1.000000 plus the applicable net investment rate.
The dollar value of an Accumulation Unit as of a given Valuation Date is
determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
For an illustration of Accumulation Unit calculation using a hypothetical
example see "ANNUITY BENEFIT PAYMENTS" in the SAI.
THE ANNUITY UNIT. On and after the Annuity Date the Annuity Unit is a measure of
the value of the Annuitant's monthly annuity benefit payments under a variable
annuity option. The value of an Annuity Unit in each Sub-Account initially was
set at $1.00. The value of an Annuity Unit under a Sub-Account on any Valuation
Date thereafter is equal to the value of such unit on the immediately preceding
Valuation Date, multiplied by the product of (1) the net investment factor of
the Sub-Account for the current Valuation Period, and (2) a factor to adjust
benefits to neutralize the assumed interest rate. The assumed interest rate,
discussed below, is incorporated in the variable annuity options offered in the
Policy.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY BENEFIT PAYMENTS. The first
monthly annuity benefit payment is based upon the Accumulated Value as of a date
not more than four weeks preceding the date the first annuity benefit payment is
due. Currently, variable annuity benefit payments are made on the first of the
month based on unit values as of the 15th day of the preceding month.
The Policy provides annuity rates which determine the dollar amount of the first
monthly payment under each form of annuity for each $1,000 of applied value
(Accumulated Value applied under a specific annuity option to provide annuity
income payments, minus any applicable premium tax). The annuity rates in the
Policy are based on a modification of the 1983(a) Individual Mortality Table on
rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "J. NORRIS Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3.5% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity benefit payments will
increase over periods when the actual net investment result of the Sub-Accounts
funding the annuity exceeds the equivalent of the assumed interest rate for the
period. Variable Annuity Benefit Payments will decrease over periods when the
actual net investment result of the respective Sub-Account is less than the
equivalent of the assumed interest rate for the period.
The dollar amount of the first monthly annuity benefit payment under a life
contingency or a non-commutable period certain option of at least a ten-year
option is determined by multiplying (1) the Accumulated Value applied under that
option (after deduction for premium tax, if any) divided by $1,000, by (2) the
applicable amount of the first monthly payment per $1,000 of value. For any
commutable period certain options and for non-commutable period certain options
the Surrender Value less any premium tax is applied. The dollar amount of the
first monthly variable annuity benefit payment is then divided by the value of
an Annuity Unit
33
<PAGE>
of the selected Sub-Accounts to determine the number of Annuity Units
represented by the first payment. This number of Annuity Units remains fixed
under all annuity options except the joint and two-thirds survivor annuity
option. In each subsequent month, the dollar amount of the variable annuity
benefit payment is determined by multiplying this fixed number of Annuity Units
by the value of an Annuity Unit on the applicable Valuation Date.
After the first payment, the dollar amount of each monthly variable annuity
payment will vary with subsequent variations in the value of the Annuity Unit of
the selected Sub-Accounts. The dollar amount of each fixed amount monthly
annuity benefit payment is fixed and will not change, except under the joint and
two-thirds survivor annuity option.
The Company may from time to time offer its Owners both fixed and variable
annuity rates more favorable than those contained in the Policy. Any such rates
will be applied uniformly to all Owners of the same class.
For an illustration of variable annuity benefit payment calculation using a
hypothetical example, see "ANNUITY BENEFIT PAYMENTS" in the SAI.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of a Policy, on withdrawals or
surrenders, on annuity benefit payments, and on the economic benefit to the
owner, annuitant, or beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of current
federal income tax laws as they are interpreted as of the date of this
Prospectus. No representation is made regarding the likelihood of continuation
of current federal income tax laws or of current interpretations by the IRS. In
addition, this discussion does not address state or local tax consequences that
may be associated with this Policy.
It should be recognized that the following discussion of federal income tax
aspects of amounts received under variable annuity policies is not exhaustive,
does not purport to cover all situations, and is not intended as tax advice. A
qualified tax adviser always should be consulted with regard to the application
of law to individual circumstances.
The Company intends to make a charge for any effect which the income, assets, or
existence of the Policy, the Variable Account or the Sub-Accounts may have upon
its tax. The Variable Account presently is not subject to tax, but the Company
reserves the right to assess a charge for taxes should the Variable Account at
any time become subject to tax. Any charge for taxes will be assessed on a fair
and equitable basis in order to preserve equity among classes of Owners and with
respect to each separate account as though that separate account were a separate
taxable entity.
The Variable Account is considered a part of and taxed with the operations of
the Company. The Company is taxed as a life insurance company under Subchapter L
of the Code. The Company files a consolidated tax return with its affiliates.
The IRS has issued regulations relating to the diversification requirements for
variable annuity and variable life insurance policies under Section 817(h) of
the Code. The regulations provide that the investments of a segregated asset
account underlying a variable annuity policy are diversified adequately if no
more than 55% of the value of its assets is represented by any one investment,
no more than 70% by any two investments, no more than 80% by any three
investments, and no more than 90% by any four investments. If the investments
are not adequately diversified, the income on a policy, for any taxable year of
the owner, would be treated as ordinary income received or accrued by the owner.
It is anticipated that the Series of DGPF will comply with the current
diversification requirements. In the event that future IRS regulations and/or
rulings would require Policy modifications in order to remain in compliance with
the diversification standards, the Company will
34
<PAGE>
make reasonable efforts to comply, and it reserves the right to make such
changes as it deems appropriate for that purpose.
A. QUALIFIED AND NON-QUALIFIED POLICIES
From a federal tax viewpoint there are two types of variable annuity policies:
"qualified" policies and "non-qualified" policies. A qualified policy is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, or 408 of the Code, while a non-qualified
policy is one that is not purchased in connection with one of the indicated
retirement plans. The tax treatment for certain withdrawals or surrenders will
vary, depending on whether they are made from a qualified policy or a
non-qualified policy. For more information on the tax provisions applicable to
qualified contracts, see Section D below.
B. TAXATION OF THE POLICIES IN GENERAL
The Company believes that the Policy described in this Prospectus will, with
certain exceptions (see "Non-Natural Owners" below), be considered an annuity
policy under Section 72 of the Code. This section governs the taxation of
annuities. The following discussion concerns annuities subject to Section 72.
WITHDRAWALS PRIOR TO ANNUITIZATION. With certain exceptions, any increase in the
Policy's Accumulated Value is not taxable to the Owner until it is withdrawn
from the Policy. If the Policy is surrendered or amounts are withdrawn prior to
the annuity date, any withdrawal of investment gain in value over the cost basis
of the Policy will be taxed as ordinary income. Under the current provisions of
the Code, amounts received under an annuity policy prior to annuitization
(including payments made upon the death of the annuitant or owner), generally
are first attributable to any investment gains credited to the policy over the
taxpayer's "investment in the policy." Such amounts will be treated as gross
income subject to federal income taxation. "Investment in the Policy" is the
total of all payments to the Policy which were not excluded from the Owner's
gross income less any amounts previously withdrawn which were not included in
income. Section 72(e)(11)(A)(ii) requires that all non-qualified deferred
annuity policies issued by the same insurance company to the same owner during a
single calendar year be treated as one policy in determining taxable
distributions.
ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments are commenced
under the Policy, generally a portion of each payment may be excluded from gross
income. The excludable portion generally is determined by a formula that
establishes the ratio that the cost basis of the Policy bears to the expected
return under the Policy. The portion of the payment in excess of this excludable
amount is taxable as ordinary income. Once all cost basis in the Policy is
recovered, the entire payment is taxable. If the annuitant dies before the cost
basis is recovered, a deduction for the difference is allowed on the annuitant's
final tax return.
PENALTY ON DISTRIBUTION. A 10% penalty tax may be imposed on the withdrawal of
investment gains if the withdrawal is made prior to age 59 1/2. The penalty tax
will not be imposed on withdrawals taken on or after age 59 1/2. or if the
withdrawal follows the death of the Owner (or, if the owner is not an
individual, the death of the primary annuitant, as defined in the Code) or, in
the case of the Owner's "total disability" (as defined in the Code).
Furthermore, under Section 72 of the Code, this penalty tax will not be imposed,
irrespective of age, if the amount received is one of a series of "substantially
equal" periodic payments made at least annually for the life or life expectancy
of the payee. This requirement is met when the Owner elects to have
distributions made over the Owner's life expectancy, or over the joint life
expectancy of the Owner and beneficiary. The requirement that the amount be paid
out as one of a series of "substantially equal" periodic payments is met when
the number of units withdrawn to make each distribution is substantially the
same. Any modification, other than by reason of death or disability, of
distributions which are part of a series of substantially equal periodic
payments that occurs before the Owner's age 59 1/2 or five years, will subject
the Owner to the 10% penalty tax on the prior distributions.
In a Private Letter Ruling, the IRS took the position that where distributions
from a variable annuity policy were determined by amortizing the accumulated
value of the policy over the taxpayer's remaining life expectancy (such as under
the Policy's LED option), and the option could be changed or terminated at any
35
<PAGE>
time, the distributions failed to qualify as part of a "series of substantially
equal payments" within the meaning of Section 72 of the Code. The distributions,
therefore, were subject to the 10% federal penalty tax. This Private Letter
Ruling may be applicable to an Owner who receives distributions under the LED
option prior to age 59 1/2. Subsequent Private Letter Rulings, however, have
treated LED-type withdrawal programs as effectively avoiding the 10% penalty
tax. The position of the IRS on this issue is unclear.
ASSIGNMENTS OR TRANSFERS. If the Owner transfers (assigns) the Policy to another
individual as a gift prior to the Annuity Date, the Code provides that the Owner
will incur taxable income at the time of the transfer. An exception is provided
for certain transfers between spouses. The amount of taxable income upon such
taxable transfer is equal to any investment gain in value over the Owner's cost
basis at the time of the transfer. The transfer also is subject to federal gift
tax provisions. Where the Owner and Annuitant are different persons, the change
of ownership of the Policy to the Annuitant on the Annuity Date, as required
under the Policy, is a gift and will be taxable to the Owner as such; however,
the Owner will not incur taxable income. Instead, the Annuitant will incur
taxable income upon receipt of annuity benefit payments as discussed above.
NON-NATURAL OWNERS. As a general rule, deferred annuity policies owned by
"non-natural persons" (e.g., a corporation) are not treated as annuity policies
for federal tax purposes, and the investment income attributable to
contributions made after February 28, 1986 is taxed as ordinary income that is
received or accrued by the owner during the taxable year. This rule does not
apply to annuity policies purchased with a single payment when the annuity date
is no later than a year from the issue date or to deferred annuities owned by
qualified employer plans, estates, employers with respect to a terminated
pension plan, and entities other than employers, such as a trust, holding an
annuity as an agent for a natural person. This exception, however, will not
apply in cases of any employer who is the owner of an annuity policy under a
non-qualified deferred compensation plan.
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. Under Section 457 of the Code, deferred compensation plans
established by governmental and certain other tax-exempt employers for their
employees may invest in annuity policies. Contributions and investment earnings
are not taxable to employees until distributed. With respect to payments made
after February 28, 1986, however, a policy owned by a state or local government
or a tax-exempt organization will not be treated as an annuity under Section 72.
In addition, plan assets are treated as property of the employer, and are
subject to the claims of the employer's general creditors.
C. TAX WITHHOLDING
The Code requires withholding with respect to payments or distributions from
non-qualified policies and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified policies. In addition, the Code requires reporting to the IRS of
the amount of income received with respect to payment or distributions from
annuities.
The tax treatment of certain withdrawals or surrenders of the non-qualified
Policies offered by this Prospectus will vary according to whether or not the
amount withdrawn or surrendered is allocable to an investment in the Policy made
before or after certain dates.
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS
The tax rules applicable to qualified retirement plans, as defined by the Code,
are complex and vary according to the type of plan. Benefits under a qualified
plan may be subject to that plan's terms and conditions irrespective of the
terms and conditions of any annuity policy used to fund such benefits. As such,
the following is simply a general description of various types of qualified
plans that may use the Policy. Before purchasing any annuity policy for use in
funding a qualified plan, more specific information should be obtained.
36
<PAGE>
A qualified Policy may include special provisions (endorsements) changing or
restricting rights and benefits otherwise available to a non-qualified Owner.
Individuals purchasing a qualified Policy should review carefully any such
changes or limitations which may include restrictions to ownership,
transferability, assignability, contributions, and distributions.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT SHARING
PLANS. Sections 401(a), 401(k) and 403(a) of the Code permit business employers
and certain associations to establish various types of tax-favored retirement
plans for employees. The Self-Employed Individuals' Tax Retirement Act of 1962,
as amended, permits self-employed individuals to establish similar plans for
themselves and their employees. Employers intending to use qualified Policies in
connection with such plans should seek competent advice as to the suitability of
the Policy to their specific needs and as to applicable Code limitations and tax
consequences.
The Company can provide prototype plans for certain pension or profit sharing
plans for review by the plan's legal counsel. For information, ask your
financial representative.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity ("IRA"). IRAs are subject to limits on the amounts
that may be contributed, the persons who may be eligible, and on the time when
distributions may commence. In addition, certain distributions from other types
of retirement plans may be "rolled over," on a tax-deferred basis, to an IRA.
Purchasers of an IRA Policy will be provided with supplementary information as
may be required by the IRS or other appropriate agency, and will have the right
to revoke the Policy as described in this Prospectus. See "Right to Revoke All
Other Policies."
Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) or SIMPLE IRA plans for their employees using
the employees IRAs. Employer contributions that may be made to such plans are
larger than the amounts that may be contributed to regular IRAs and may be
deductible to the employer.
TAX-SHELTERED ANNUITIES ("TSAS"). Under the provisions of Section 403(b) of the
Code, payments made to annuity Policies purchased for employees under annuity
plans adopted by public school systems and certain organizations which are tax
exempt under Section 501(c)(3) of the Code are excludable from the gross income
of such employees to the extent that total annual payments do not exceed the
maximum contribution permitted under the Code. Purchasers of TSA policies should
seek competent advice as to eligibility, limitations on permissible payments and
other tax consequences associated with the policies.
Withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) made to a TSA policy after December
31, 1988, may not begin before the employee attains age 59 1/2, separates from
service, dies or becomes disabled. In the case of hardship, an Owner may
withdraw amounts contributed by salary reduction, but not the earnings on such
amounts. Even though a distribution may be permitted under these rules (e.g.,
for hardship or after separation from service), it may be subject to a 10%
penalty tax as a premature distribution, in addition to income tax.
TEXAS OPTIONAL RETIREMENT PROGRAM. Distributions under a TSA policy issued to
participants in the Texas Optional Retirement Program may not be received except
in the case of the participant's death, retirement or termination of employment
in the Texas public institutions of higher education. These additional
restrictions are imposed under the Texas Government Code and a prior opinion of
the Texas Attorney General.
LOANS (QUALIFIED POLICIES ONLY)
Loans will be permitted only for TSAs and Policies issued to a plan qualified
under Section 401(a) and 401(k) of the Code. Loans are made from the Policy's
value on a pro-rata basis from all accounts. The maximum loan amount is the
amount determined under the Company's maximum loan formula for qualified plans.
The
37
<PAGE>
minimum loan amount is $1,000. Loans will be secured by a security interest in
the Policy. Loans are subject to applicable retirement legislation and their
taxation is determined under the federal income tax laws. The amount borrowed
will be transferred to a fixed, minimum guarantee loan assets account in the
Company's General Account, where it will accrue interest at a specified rate
below the then current loan interest rate. Generally, loans must be repaid
within five years and must be made at least quarterly in substantially equal
amounts. When repayments are received, they will be allocated pro-rata in
accordance with the Owner's most recent allocation instructions.
The amount of the death benefit, the amount payable on a full surrender and the
amount applied to provide an annuity on the Annuity Date will be reduced to
reflect any outstanding loan balance (plus accrued interest thereon). Partial
withdrawals may be restricted by the maximum loan limitation.
REPORTS
An Owner is sent a report semi-annually which states certain financial
information about the Underlying Series. The Company will also furnish an annual
report to the Owner containing a statement of his or her account, including unit
values and other information required by applicable law, rules and regulations.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Underlying Series are no longer available for investment or if, in the Company's
judgment further investment in any Underlying Series should become inappropriate
in view of the purposes of the Separate Account or the affected Sub-Account, the
Company may redeem the shares of that Underlying Series and substitute shares of
another registered open-end management company. The Company will not substitute
any shares attributable to a Policy interest in a Sub-Account without notice to
the Owner and prior approval of the SEC and state insurance authorities, to the
extent required by the 1940 Act or other applicable law. The Separate Account
may, to the extent permitted by law, purchase other securities for other
policies or permit a conversion between policies upon request by an Owner.
The Company also reserves the right to establish additional Sub-Accounts of the
Separate Account, each of which would invest in shares corresponding to a new
Underlying Series 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 Series are sold to separate accounts of unaffiliated
insurance companies ("shared funding") which issue variable annuity and variable
life policies ("mixed funding"). It is conceivable that in the future such
shared funding or mixed funding may be disadvantageous for variable life
insurance Owners or variable annuity Owners. Although the Company and the Fund
do not currently foresee any such disadvantages to either variable life
insurance owners or variable annuity owners, the Company and the Trustees of the
Fund intend to monitor events in order to identify any material conflicts and to
determine what action, if any, should be taken in response thereto.
If any of these substitutions or changes is made, the Company may, by
appropriate endorsement, change the Policy to reflect the substitution or change
and will notify Owners of all such changes. If the Company deems it to be in the
best interest of Owners, and subject to any approvals that may be required under
applicable law, the Separate Account or any Sub-Accounts may be operated as a
management company under the 1940 Act, may be deregistered under the 1940 Act if
registration is no longer required, or may be combined with other Sub-Accounts
or other separate accounts of the Company.
38
<PAGE>
The Company reserves the right, subject to compliance with applicable law, to
(1) transfer assets from Separate Account VA-K or Sub-Account to another of the
Company's separate accounts or sub-accounts having assets of the same class, (2)
to operate the Separate Account or any Sub-Account as a management investment
company under the 1940 Act or in any other form permitted by law, (3) to
deregister the Separate Account under the 1940 Act in accordance with the
requirements of the 1940 Act, and (4) to substitute the shares of any other
registered investment company for the Underlying Series shares held by a
Sub-Account, in the event that Underlying Series shares are unavailable for
investment, or if the Company determines that further investment in such
Underlying Series shares is inappropriate in view of the purpose of the Sub-
Account. In no event will the changes described above be made without notice to
Owners in accordance with the 1940 Act. The Company reserves the right, subject
to compliance with applicable law, to change the names of the Separate Account
or of the Sub-Accounts.
VOTING RIGHTS
The Company will vote Underlying Series shares held by each Sub-Account in
accordance with instructions received from Owners and, after the Annuity Date,
from the Annuitants. Each person having a voting interest in a Sub-Account will
be provided with proxy materials of the Underlying Series, together with a form
with which to give voting instructions to the Company. Shares for which no
timely instructions are received will be voted in proportion to the instructions
which are received. The Company also will vote shares in a Sub-Account that it
owns and which are not attributable to the Policies in the same proportion. If
the 1940 Act or any rules thereunder should be amended, or if the present
interpretation of the 1940 Act or such rules should change and, as a result the
Company determines that it is permitted to vote shares in its own right, whether
or not such shares are attributable to the Policies, the Company reserves the
right to do so.
The number of votes which an Owner or Annuitant may cast will be determined by
the Company as of the record date established by the Underlying Series.
During the accumulation period, the number of Underlying Series shares
attributable to each Owner will be determined by dividing the dollar value of
the Accumulation Units of the Sub-Account credited to the Policy by the net
asset value of one Underlying Series share.
During the annuity period, the number of Underlying Series shares attributable
to each Annuitant will be determined by dividing the reserve held in each
Sub-Account for the Annuitant's variable annuity by the net asset value of one
Underlying Series share. Ordinarily, the Annuitant's voting interest in the
Underlying Series will decrease as the reserve for the variable annuity is
depleted.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves the right, without the consent of Owners, to suspend sales
of the Policies as presently offered and to make any change to provisions of the
Contracts to comply with, or give Owners the benefit of, any federal or state
statute, rule or regulation. Including but not limited to requirements for
annuity contracts and retirement plans under the Code and pertinent regulations
or any state statute or regulation.
LEGAL MATTERS
There are no legal proceedings pending to which the Separate Account is a party.
FURTHER INFORMATION
A Registration Statement under the Securities Act of 1933 relating to this
offering has been filed with the SEC. Certain portions of the Registration
Statement and amendments have been omitted from this Prospectus pursuant to the
rules and regulations of the SEC. The omitted information may be obtained from
the SEC's principal office in Washington, DC, upon payment of the SEC's
prescribed fees.
39
<PAGE>
APPENDIX A
MORE INFORMATION ABOUT THE GENERAL ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the General Account are not generally subject to regulation under
the provisions of the Securities Act of 1933 or the Investment Company Act of
1940. Disclosures regarding the fixed portion of the annuity Policy and the
General Account may be subject to the provisions of the Securities Act of 1933
concerning the accuracy and completeness of statements made in the Prospectus.
The disclosures in this APPENDIX A have not been reviewed by the SEC.
ALLOCATIONS TO AND TRANSFERS TO AND FROM THE GENERAL ACCOUNT OF THE COMPANY ARE
NOT PERMITTED IN CERTAIN STATES.
The General Account of the Company is made up of all of the general assets of
the Company other than those allocated to any Separate Account. Allocations to
the General Account, where available, become part of the assets of the Company
and are used to support insurance and annuity obligations.
A portion or all of net purchase payments may be allocated to accumulate at a
fixed rate of interest in the General Account, where available. Such net amounts
are guaranteed by the Company as to principal and a minimum rate of interest.
Under the Policies, the minimum interest which may be credited on amounts
allocated to the General Account is 3% compounded annually. Additional "Excess
Interest" may or may not be credited at the sole discretion of the Company.
If the Policy is surrendered, or if an Excess Amount is redeemed, while the
Policy is in force and before the Annuity Date, a contingent deferred sales
charge is imposed if such event occurs before the payments attributable to the
surrender or withdrawal have been credited to the Policy less than seven full
Policy years.
If the Policy was issued in Maryland on Form No. A3022-93, the following
surrender charge table applies to monies in the General Account, rather than the
surrender charge table shown in "CHARGES AND DEDUCTION," "A. Contingent Deferred
Sales Charge" (which applies to monies in the Separate Account):
<TABLE>
<CAPTION>
YEARS FROM CHARGE AS PERCENTAGE OF
DATE OF PAYMENT NEW PAYMENTS WITHDRAWN
- --------------- -----------------------
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
More Than 9 No Charge
</TABLE>
A-1
<PAGE>
APPENDIX B
INFORMATION APPLICABLE ONLY TO POLICY NO. A3019-92
(AND STATE VARIATIONS)
If the Policy is issued on Form No. A3019-92, or a state variation thereof
("Delaware Medallion I), the Policy is substantially similar to the Policies
described in this Prospectus ("Delaware Medallion II"), except as follows:
1. The minimum interest rate credited to amounts allocated to the General
Account respecting Delaware Medallion II is 3% compounded annually. For Delaware
Medallion I, the minimum interest rate guarantees are 5% for the first five
Policy years, 4% for the next five Policy years, and 3.5% thereafter.
2. The guaranteed death benefit under Delaware Medallion II is reduced
proportionally to reflect partial withdrawals (in the same proportion that the
Accumulated Value was reduced by the withdrawals). Under Delaware Medallion I,
partial withdrawals are subtracted from the guaranteed death benefit.
Additionally, the stepped-up death benefit applies to the most recent fifth year
Policy anniversary for Delaware Medallion II and applies to the most recent
seventh year Policy anniversary for the Delaware Medallion I.
3. Under Delaware Medallion II, the Free Withdrawal Amount is the greater of
(1) cumulative earnings (Accumulated Value as of the most recent Valuation Date
reduced by total gross payments not previously redeemed), (2) 10% of the
Accumulated Value as of the most recent Valuation Date, reduced by the total
amount of any prior partial redemptions made in the same calendar year to which
no contingent deferred sales charge was applied, or (3) the life expectancy
distribution, if applicable. The Free Withdrawal Amount for Delaware Medallion
II is first deducted from cumulative earnings, and any excess will be deemed
withdrawn on a LIFO basis.
Under Delaware Medallion I, the Free Withdrawal Amount is the greater of (1) 10%
of the Accumulated Value as of December 31 of the previous calendar year, or (2)
the life expectancy distribution, if applicable. The Free Withdrawal Amount for
Delaware Medallion I is deducted first from Old Payments, then from the earliest
New Payments and so on until all New Payments have been exhausted pursuant to
the first-in-first-out ("FIFO") method of accounting (LIFO or last-in-first-out
method in New Jersey).
4. If you surrender the Policy or annuitize under a period certain option at
the end of one, three or five years, the expenses you would pay on a $1,000
investment, assuming 5% annual return on assets, are the same in years one and
ten as shown in the expense example (a) under "ANNUAL AND TRANSACTION EXPENSES"
but may be one to two dollars higher in years three and five due to differences
in the Free
B-1
<PAGE>
Withdrawal calculation. The expense numbers for years three and five under
Delaware Medallion I are as follows:
<TABLE>
<CAPTION>
FUND 3 YEARS 5 YEARS
- ---------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Decatur Total Return............................................ $ 135 $ 165
Devon Series.................................................... $ 137 $ 170
DelCap Series................................................... $ 139 $ 172
Social Awareness Series......................................... $ 139 $ 172
REIT Series..................................................... $ 139 $ 172
Small Cap Value Series.......................................... $ 139 $ 172
Trend Series.................................................... $ 139 $ 172
International Equity Series..................................... $ 140 $ 174
Emerging Markets Series......................................... $ 157 $ 203
Delaware Series................................................. $ 134 $ 163
Convertible Securities Series................................... $ 139 $ 172
Delchester Series............................................... $ 135 $ 165
Capital Reserves Series......................................... $ 136 $ 167
Strategic Income Series......................................... $ 137 $ 170
Cash Reserve Series............................................. $ 133 $ 162
Global Bond Series.............................................. $ 139 $ 172
</TABLE>
The numbers in example (b) are the same for both Delaware Medallion I and II.
B-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
DELAWARE MEDALLION III
PROFILE THIS PROFILE IS A SUMMARY OF SOME OF THE MORE IMPORTANT
MAY 1, 1998 POINTS THAT YOU SHOULD KNOW AND CONSIDER BEFORE PURCHASING
THE DELAWARE MEDALLION III VARIABLE ANNUITY CONTRACT. THE
CONTRACT IS MORE FULLY DESCRIBED LATER IN THIS PROSPECTUS.
PLEASE READ THE PROSPECTUS CAREFULLY.
1. THE DELAWARE MEDALLION III VARIABLE ANNUITY CONTRACT
The Delaware Medallion III variable annuity contract is a contract between you
and Allmerica Financial Life Insurance and Annuity Company. It is designed to
help you accumulate assets for your retirement or other important financial
goals on a tax-deferred basis. Delaware Medallion III combines the concept of
professional money management with the attributes of an annuity contract.
Delaware Medallion III offers a diverse selection of investment portfolios. You
may allocate your payments among any of 16 investment portfolios of the Delaware
Group Premium Fund, Inc., the Guarantee Period Accounts and the Fixed Account
(the Guaranteed Period Accounts and/or the Fixed Account may not be available in
certain jurisdictions.) This range of investment choices enables you to allocate
your money to meet your particular investment needs.
Like all annuities, the contract has an ACCUMULATION PHASE and an ANNUITY PAYOUT
PHASE. During the ACCUMULATION PHASE you can make payments into the contract on
any frequency. Investment and interest gains accumulate tax deferred. You may
withdraw money from your contract during the ACCUMULATION PHASE. However, as
with other tax-deferred investments, you pay taxes on earnings and any untaxed
payments to the contract when you withdraw them. A federal tax penalty may apply
if you withdraw prior to age 59 1/2.
During the ANNUITY PAYOUT PHASE you will receive regular payments from your
contract, provided you annuitize. Annuitization involves beginning a series of
payments from the capital that has built up in your contract. The amount of your
payments during the annuity payout phase will, in part, be determined by your
contract's growth during the accumulation phase.
2. ANNUITY BENEFIT PAYMENTS
If you choose to annuitize your contract, you may select one of six annuity
options: (1) monthly payments for your lifetime; (2) monthly payments for your
lifetime, but for not less than 10 years; (3) monthly payments for your lifetime
with the guarantee that if payments to you are less than the accumulated value a
refund of the remaining value will be paid; (4) monthly payments for your
lifetime and your survivor's lifetime; (5) monthly payments for your lifetime
and your survivor's lifetime with the payment to the survivor being reduced to
2/3; and (6) monthly payments for a specified period of 1 to 30 years.
You also need to decide if you want your annuity payments on a variable basis
(i.e., subject to fluctuation based on investment performance), on a fixed basis
(with benefit payments guaranteed at a fixed amount), or on a combination
variable and fixed basis. Once payments begin, the annuity option cannot be
changed.
3. PURCHASING THIS CONTRACT
You can buy a contract through your financial representative, who can also help
you complete the proper forms. There is no fixed schedule for making payments
into this contract. Payments are not limited as to frequency, but there are
certain limitations as to amount. Currently, the initial payment must be at
least $600 ($1,000 in Washington). In all cases, each subsequent payment must be
at least $50.
P-1
<PAGE>
4. INVESTMENT OPTIONS
You have full investment control over the contract. You may allocate money to
the following investment series:
<TABLE>
<S> <C>
Decatur Total Return Emerging Markets Series
Series
Devon Series Delaware Series
DelCap Series Convertible Securities
Series
Social Awareness Series Delchester Series
REIT Series Capital Reserves Series
Small Cap Value Series Strategic Income Series
Trend Series Cash Reserve Series
International Equity Global Bond Series
Series
</TABLE>
You may also allocate money to the Guarantee Period Accounts and the Fixed
Account. The Guarantee Period Accounts let you choose from among nine different
Guarantee Periods during which interest rates are guaranteed. The Fixed Account
guarantees principal and a minimum rate of interest (never less than 3%
compounded annually).
5. EXPENSES
Each year and upon surrender, a $30 contract fee is deducted from your contract.
The contract fee is waived if the value of the contract is $50,000 or more or if
the contract is issued to and maintained by the Trustees of a 401(k) plan. We
also deduct insurance charges which amount to 1.40% annually of the daily value
of your contract value allocated to the variable investment options. The
insurance charges include a mortality and expense risk charge of 1.25% and an
administrative expense charge of 0.15%. There are also investment management
fees and other series operating expenses that vary by investment series.
If you decide to surrender your contract, make withdrawals or receive payments
under certain annuity options, we may impose a surrender charge between 1% and
7% of the payment withdrawn, based on when your payments were made. In states
where premium taxes are imposed, a premium tax charge will be deducted either
when withdrawals are made or annuity payments commence. There is currently no
charge for processing investment option transfers. We reserve the right to
assess a charge, not to exceed $25, for transfers after your 12 free transfers.
The following chart is designed to help you understand the charges in your
contract. The column "Total Annual Charges" shows the total of the $30 contract
fee (which is represented as 0.03%), the 1.40% insurance charges and the
investment charges for each investment series. The next two columns show you two
examples of the charges, in dollar amounts, you would pay under a contract. The
examples assume you invest $1,000 in an investment series which earns 5%
annually and that you withdraw your money: (1) at the end of year 1, and (2) at
the end of year 10. For year 1, the Total Annual Charges are assessed as well as
the surrender charges.
P-2
<PAGE>
For year 10, the example shows the aggregate of all the annual charges assessed
for 10 years, but there is no surrender charge. The premium tax is assumed to be
0% in both examples.
<TABLE>
<CAPTION>
EXAMPLES:
TOTAL ANNUAL EXPENSE AT
THE END OF
------------------------
TOTAL ANNUAL TOTAL ANNUAL TOTAL ANNUAL (1) (2)
INVESTMENT SERIES INSURANCE CHARGES INVESTMENT CHARGES CHARGES 1 YEAR 10 YEARS
- ------------------------------------------ ------------------- --------------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Decatur Total Return Series............... 1.43% 0.71% 2.14% $ 83 $ 244
Devon Series.............................. 1.43% 0.80% 2.23% $ 83 $ 253
DelCap Series............................. 1.43% 0.85% 2.28% $ 84 $ 258
Social Awareness Series................... 1.43% 0.85% 2.28% $ 84 $ 258
REIT Series*.............................. 1.43% 0.85% 2.28% $ 84 $ 258
Small Cap Value Series.................... 1.43% 0.85% 2.28% $ 84 $ 258
Trend Series.............................. 1.43% 0.85% 2.28% $ 84 $ 258
International Equity Series............... 1.43% 0.90% 2.33% $ 84 $ 263
Emerging Markets Series................... 1.43% 1.50% 2.93% $ 90 $ 322
Delaware Series........................... 1.43% 0.67% 2.10% $ 82 $ 240
Convertible Securities Series............. 1.43% 0.85% 2.28% $ 84 $ 258
Delchester Series......................... 1.43% 0.70% 2.13% $ 83 $ 243
Capital Reserves Series................... 1.43% 0.75% 2.18% $ 83 $ 248
Strategic Income Series................... 1.43% 0.80% 2.23% $ 83 $ 253
Cash Reserve Series....................... 1.43% 0.64% 2.07% $ 82 $ 237
Global Bond Series........................ 1.43% 0.85% 2.28% $ 84 $ 258
</TABLE>
* For this newly formed Fund, the charges have been estimated.
The charges reflect any expense reimbursement or fee waiver. For more detailed
information, see the Fee Table in the Prospectus.
6. TAXES
You will not pay taxes until you withdraw money from your contract. During the
accumulation phase, earnings are withdrawn first and are taxed as ordinary
income. If you make a withdrawal prior to age 59 1/2, you may be subject to a
10% federal tax penalty on the earnings. Payments during the income phase are
considered partly a return of your investment and partly earnings. You will be
subject to income taxes on the earnings portion of each payment. However, if
your contract is funded with pre-tax or tax deductible dollars (such as a
pension or profit sharing plan contribution), then the entire payment will be
taxable.
7. WITHDRAWALS
You can withdraw money from your contract at any time during the accumulation
phase. Any payment invested for more than seven years can be withdrawn without a
surrender charge. For amounts invested seven year or less, you can withdraw,
without a charge, the GREATEST of: (1) 100% of cumulative earnings; (2) 15% of
the contract value per calendar year; or (3) if you are the Owner and Annuitant,
an amount based on your life expectancy. (Similarly, no surrender charge will
apply if an amount is withdrawn based on the Annuitant's life expectancy if the
Owner is a trust or other non-natural person.)
Where permitted by state law, the surrender charges are also waived if after the
contract is issued, the owner (1) is diagnosed with a fatal illness, (2) becomes
disabled (before age 65) or (3) is confined in a medical care facility for the
later of one year from issue or 90 days.
Any withdrawal from a Guarantee Period Account ("GPA") prior to the end of the
guarantee period will be subject to a market value adjustment which may increase
or decrease the value in the account. This adjustment
P-3
<PAGE>
will never impact your original investment, nor will earnings in the GPA amount
to less than an effective annual rate of 3%.
8. PERFORMANCE
The value of your contract will vary up or down depending on the investment
performance of the investment series you choose. The following chart illustrates
past returns for each investment series based on the Sub-Account inception date.
The performance figures reflect the contract fee, the insurance charges, the
investment charges and all other expenses of the investment series. They do not
reflect the surrender charges and if applied would reduce such performance. Past
performance is not a guarantee of future results.
<TABLE>
<CAPTION>
CALENDAR YEAR
---------------------------------------------------------------
INVESTMENT SERIES 1997 1996 1995 1994 1993
- ----------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Decatur Total Return Series........ 29.19% 19.00% 34.24% -1.61% 13.83%
Devon Series....................... N/A N/A N/A N/A N/A
DelCap Series...................... 13.28 % 12.83 % 27.74 % -4.90 % 10.01 %
Social Awareness Series............ N/A N/A N/A N/A N/A
REIT Series........................ N/A N/A N/A N/A N/A
Small Cap Value Series............. 31.06 % 20.81 % 22.12 % -0.64 % N/A
Trend Series....................... 19.66 % 9.41 % 37.29 % -1.90 % N/A
International Equity Series........ 5.10 % 18.32 % 12.29 % 1.20 % 14.35 %
Emerging Markets Series............ N/A N/A N/A N/A N/A
Delaware Series.................... 24.64 % 14.25 % 24.82 % -1.55 % 6.66 %
Convertible Securities Series...... N/A N/A N/A N/A N/A
Delchester Series.................. 12.04 % 11.17 % 13.89 % -4.23 % 14.71 %
Capital Reserves Series............ 6.09 % 2.55 % 12.57 % -4.05 % 6.32 %
Strategic Income Series............ N/A N/A N/A N/A N/A
Cash Reserve Series................ 3.62 % 3.43 % 4.09 % 2.21 % 1.04 %
Global Bond Series................. -0.54 % N/A N/A N/A N/A
</TABLE>
9. DEATH BENEFIT
If the annuitant dies during the accumulation phase, we will pay the beneficiary
a death benefit. The death benefit is equal to the GREATEST of: (a) the
accumulated value increased for any positive market value adjustment; (b) gross
payments compounded daily at an annual rate of 5%, decreased proportionately to
reflect any prior withdrawals; or (c) the death benefit that would have been
payable on the most recent contract anniversary, increased for subsequent
payments and decreased proportionately for subsequent withdrawals.
This guaranteed death benefit works in the following way assuming no withdrawals
are made. On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments compounded at the annual rate of 5%. The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments compounded at the annual rate of 5% or (c) the
locked-in value of the death benefit at the first anniversary. The greatest of
(a), (b) or (c) will be locked in until the next Contract anniversary. This
calculation will then be repeated on each anniversary while the Contract remains
in force and prior to the Annuity Date. As noted above, the values of (b) and
(c) will be decreased proportionately if withdrawals are taken.
10. OTHER INFORMATION
FREE LOOK PERIOD: If you cancel your contract within 10 days after receiving it
(or whatever period is required by your state), you will receive a refund in
accordance with the terms of the contract's "Right to Examine Provision."
P-4
<PAGE>
DOLLAR COST AVERAGING: You may elect to automatically transfer money on a
periodic basis from the Capital Reserves Series, Cash Reserve Series, Strategic
Income Series or Fixed Account to one or more of the other investment options.
AUTOMATIC ACCOUNT REBALANCING: You may elect to automatically have your
contract's accumulated value periodically reallocated ("rebalanced") among your
chosen investment options to maintain your designated percentage allocation mix.
NO PROBATE: In most cases, the death benefit is payable to the beneficiary you
select without having to go through probate.
11. INQUIRIES
If you need more information you may contact us at 1-800-533-2124 or send
correspondence to:
Delaware Medallion
Allmerica Financial
P.O. Box 8632
Boston, Massachusetts 02266-8632
P-5
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
WORCESTER, MASSACHUSETTS
DEFERRED COMBINATION VARIABLE AND FIXED ANNUITY CONTRACTS
FUNDED THROUGH SUB-ACCOUNTS OF
SEPARATE ACCOUNT VA-K INVESTING IN SHARES OF
DELAWARE GROUP PREMIUM FUND, INC.
This Prospectus describes interests under flexible payment deferred combination
variable and fixed annuity contracts, issued either on a group basis or as
individual contracts by Allmerica Financial Life Insurance and Annuity Company
(the "Company") to individuals and businesses in connection with retirement
plans which may or may not qualify for special federal income tax treatment.
(For information about the tax status when used with a particular type of plan,
see "FEDERAL TAX CONSIDERATIONS.") Participation in a group contract will be
accounted for by the issuance of a certificate describing the individual's
interest under the group contract. Participation in an individual contract will
be evidenced by the issuance of an individual contract. Certificates and
individual contracts are referred to herein collectively as the "Contract(s)."
The following is a summary of information about the Contract. More detailed
information can be found under the referenced captions in this Prospectus.
Contract values may accumulate on a variable basis in the Contract's Variable
Account, known as Separate Account VA-K. The assets of the Variable Account are
divided into Sub-Accounts, each investing exclusively in shares of one of the
following series of Delaware Group Premium Fund, Inc. ("DGPF"):
<TABLE>
<S> <C> <C>
Decatur Total Return Trend Series Delchester Series
Series
Devon Series International Equity Capital Reserves
Series Series
DelCap Series Emerging Markets Series Strategic Income
Series
Social Awareness Series Delaware Series Cash Reserve Series
REIT Series Convertible Securities Global Bond Series
Series
Small Cap Value Series
</TABLE>
In most jurisdictions, values also may be allocated on a fixed basis to the
Fixed Account, which is part of the Company's General Account and, during the
accumulation phase, to one or more of the Guarantee Period Accounts. Amounts
allocated to the Fixed Account earn interest at a guaranteed rate for one year
from the date allocated. Amounts allocated to a Guarantee Period Account earn a
fixed rate of interest for the duration of the applicable Guarantee Period. The
interest earned in a Guarantee Period Account is guaranteed if held for the
entire Guarantee Period. If removed prior to the end of the Guarantee Period,
the value may be increased or decreased by a Market Value Adjustment. Amounts
allocated to the Guarantee Period Accounts in the accumulation phase are held in
the Company's Separate Account GPA.
Additional information is contained in a Statement of Additional Information
("SAI"), dated May 1, 1998, as may be amended from time to time, filed with the
Securities and Exchange Commission and incorporated herein by reference. The
Table of Contents of the SAI is listed on page 4 of this Prospectus. The SAI is
available upon request and without charge. To obtain the SAI, fill out and
return the attached request card, or contact Annuity Client Services, telephone
1-800-533-2124.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
DELAWARE GROUP PREMIUM FUND, INC. INVESTORS SHOULD RETAIN A COPY OF THIS
PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
DATED MAY 1, 1998
<PAGE>
THE CONTRACTS ARE OBLIGATIONS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY, AND ARE DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE CONTRACTS ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT
UNION. THE CONTRACTS ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS IN THE
CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.
THE CONTRACTS OFFERED BY THIS PROSPECTUS MAY NOT BE AVAILABLE IN ALL STATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS................................. 4
SPECIAL TERMS......................................................................... 5
SUMMARY............................................................................... 7
ANNUAL AND TRANSACTION EXPENSES....................................................... 12
CONDENSED FINANCIAL INFORMATION....................................................... 15
PERFORMANCE INFORMATION............................................................... 17
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, AND DELAWARE GROUP PREMIUM FUND,
INC.................................................................................. 21
INVESTMENT OBJECTIVES AND POLICIES.................................................... 22
INVESTMENT ADVISORY SERVICES TO DGPF.................................................. 24
DESCRIPTION OF THE CONTRACT........................................................... 24
A. Payments........................................................................ 24
B. Right to Revoke Individual Retirement Annuity................................... 25
C. Right to Revoke All Other Contracts............................................. 25
D. Transfer Privilege.............................................................. 25
Automatic Transfers and Automatic Account Rebalancing Options................. 26
E. Surrender....................................................................... 26
F. Withdrawals..................................................................... 27
Systematic Withdrawals........................................................ 27
Life Expectancy Distributions................................................. 28
G. Death Benefit................................................................... 28
Death of the Annuitant Prior to the Annuity Date.............................. 28
Death of an Owner Who is Not Also the Annuitant Prior to the Annuity Date..... 29
Payment of the Death Benefit Prior to the Annuity Date........................ 29
Death of the Annuitant On or After the Annuity Date........................... 29
H. The Spouse of the Owner as Beneficiary.......................................... 29
I. Assignment...................................................................... 30
J. Electing the Form of Annuity and the Annuity Date............................... 30
K. Description of Variable Annuity Payout Options.................................. 31
L. Annuity Benefit Payments........................................................ 32
The Annuity Unit.............................................................. 32
Determination of the First and Subsequent Annuity Benefit Payments............ 32
M. NORRIS Decision.................................................................. 33
N. Computation of Values........................................................... 33
The Accumulation Unit......................................................... 33
Net Investment Factor......................................................... 33
CHARGES AND DEDUCTIONS................................................................ 34
A. Variable Account Deductions..................................................... 34
Mortality and Expense Risk Charge............................................. 34
Administrative Expense Charge................................................. 34
Other Charges................................................................. 34
B. Contract Fee.................................................................... 35
C. Premium Taxes................................................................... 35
D. Contingent Deferred Sales Charge................................................ 35
Charge for Surrender and Withdrawal........................................... 36
Reduction or Elimination of Surrender Charge.................................. 36
Withdrawal Without Surrender Charge........................................... 37
Surrenders.................................................................... 38
Charge at the Time Annuity Benefit Payments Begin............................. 38
E. Transfer Charge................................................................. 38
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
GUARANTEE PERIOD ACCOUNTS............................................................. 38
FEDERAL TAX CONSIDERATIONS............................................................ 41
A. Qualified and Non-Qualified Contracts........................................... 41
B. Taxation of the Contracts in General............................................ 41
Withdrawals Prior to Annuitization............................................ 42
Annuity Payouts After Annuitization........................................... 42
Penalty on Distribution....................................................... 42
Assignments or Transfers...................................................... 42
Non-Natural Owners............................................................ 43
Deferred Compensation Plans of State and Local Governments and Tax-Exempt
Organizations................................................................. 43
C. Tax Withholding................................................................. 43
D. Provisions Applicable to Qualified Employer Plans............................... 43
Corporate and Self-Employed Pension and Profit Sharing Plans.................. 43
Individual Retirement Annuities............................................... 44
Tax-Sheltered Annuities....................................................... 44
Texas Optional Retirement Program............................................. 44
REPORTS............................................................................... 44
LOANS (QUALIFIED CONTRACTS ONLY)...................................................... 44
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS..................................... 45
CHANGES TO COMPLY WITH LAW AND AMENDMENTS............................................. 45
VOTING RIGHTS......................................................................... 45
DISTRIBUTION.......................................................................... 46
LEGAL MATTERS......................................................................... 46
FURTHER INFORMATION................................................................... 46
APPENDIX A -- MORE INFORMATION ABOUT THE FIXED ACCOUNT................................ A-1
APPENDIX B -- SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT....................... B-1
APPENDIX C -- THE DEATH BENEFIT....................................................... C-1
</TABLE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY...................................................... 2
TAXATION OF THE CONTRACT, THE SEPARATE ACCOUNT AND THE COMPANY....................... 3
SERVICES............................................................................. 3
UNDERWRITERS......................................................................... 3
ANNUITY BENEFIT PAYMENTS............................................................. 4
EXCHANGE OFFER....................................................................... 6
PERFORMANCE INFORMATION.............................................................. 8
FINANCIAL STATEMENTS................................................................. F-1
</TABLE>
4
<PAGE>
SPECIAL TERMS
ACCUMULATED VALUE: the sum of the value of all Accumulation Units in the
Sub-Accounts and of the value of all accumulations in the Fixed Account and
Guarantee Period Accounts credited to the Contract on any date before the
Annuity Date.
ACCUMULATION UNIT: a measure of the Owner's interest in a Sub-Account before
annuity benefit payments begin.
ANNUITANT: the person designated in the Contract upon whose life annuity benefit
payments are to be made.
ANNUITY DATE: the date on which annuity benefit payments begin.
ANNUITY UNIT: a measure of the value of the periodic annuity benefit payments
under the Contract.
FIXED ACCOUNT: the part of the Company's General Account that guarantees
principal and a fixed interest rate, and to which all or a portion of a payment
or transfer under this Contract may be allocated.
FIXED ANNUITY PAYOUT: an annuity in the payout phase providing for annuity
benefit payments which remain fixed in amount throughout the annuity benefit
payment period selected.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate account.
GUARANTEE PERIOD: the number of years that a Guaranteed Interest Rate is
credited.
GUARANTEE PERIOD ACCOUNT: an account which corresponds to a Guaranteed Interest
Rate for a specified Guarantee Period, and is supported by assets in a
non-unitized separate account.
GUARANTEED INTEREST RATE: the annual effective rate of interest, after daily
compounding, credited to a Guarantee Period Account.
MARKET VALUE ADJUSTMENT: a positive or negative adjustment assessed if any
portion of a Guarantee Period Account is withdrawn or transferred prior to the
end of its Guarantee Period.
OWNER: the person, persons or entity entitled to exercise the rights and
privileges under the Contract. Joint Owners are permitted if one of the two is
the Annuitant.
SUB-ACCOUNT: a subdivision of the Variable Account. Each Sub-Account available
under the Contract invests exclusively in the shares of a corresponding series
of Delaware Group Premium Fund, Inc.
SURRENDER VALUE: the Accumulated Value of the Contract on full surrender after
application of any Contract fee, contingent deferred sales charge, and Market
Value Adjustment.
UNDERLYING FUNDS (OR FUNDS): the Decatur Total Return Series, Devon Series,
DelCap Series, Social Awareness Series, REIT Series, Small Cap Value Series,
Trend Series, International Equity Series, Emerging Markets Series, Delaware
Series, Convertible Securities Series, Delchester Series, Capital Reserves
Series, Strategic Income Series, Cash Reserve Series, and Global Bond Series of
Delaware Group Premium Fund, Inc.
VALUATION DATE: a day on which the net asset value of the shares of any of the
Underlying Funds is determined and unit values of the Sub-Accounts are
determined. Valuation Dates currently occur on each day on which the New York
Stock Exchange is open for trading and, on such other days (other than a day
during
5
<PAGE>
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 net asset 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 are not chargeable with liabilities arising
out of any other business which the Company may conduct.
VARIABLE ANNUITY PAYOUT: an annuity in the payout phase providing for payments
varying in amount in accordance with the investment experience of certain
Underlying Funds.
6
<PAGE>
SUMMARY
WHAT IS THE DELAWARE MEDALLION III VARIABLE ANNUITY?
The Delaware Medallion III variable annuity contract is an insurance contract
designed to help you, the Owner, accumulate assets for your retirement or other
important financial goals on a tax-deferred basis. The Contract combines the
concept of professional money management with the attributes of an annuity
contract. Features available through the Contract include:
- - a customized investment portfolio;
- - experienced professional investment advisers;
- - tax deferral on earnings;
- - guarantees that can protect your family during the accumulation phase;
- - income that can be guaranteed for life;
- - issue age up to your 90th birthday.
The Contract has two phases: an accumulation phase and, if you choose to
annuitize, an annuity payout phase. During the accumulation phase, your initial
payment and any additional payments you choose to make may be allocated among
the Sub-Accounts investing in series of the Delaware Group Premium Fund, Inc.
("DGPF), to the Guarantee Period Accounts, and to the Fixed Account. You select
the investment options most appropriate for your investment needs. As those
needs change, you may also change your allocation without incurring any tax
consequences. The Contract's Accumulated Value is based on the investment
performance of the Funds and any accumulations in the Guarantee Period and Fixed
Accounts. No income taxes are paid on any earnings under the Contract unless and
until Accumulated Values are withdrawn. In addition, during the accumulation
phase, the beneficiaries receive certain protections and guarantees in the event
of the Annuitant's death. See discussion below: "WHAT HAPPENS UPON MY DEATH
DURING THE ACCUMULATION PHASE?"
WHAT HAPPENS IN THE ANNUITY PAYOUT PHASE?
During the annuity payout phase, the Annuitant can receive income based on
several annuity payout options. You choose the annuity payout option and the
date for annuity benefit payments to begin. You also decide whether you want
variable annuity benefit payments based on the investment performance of certain
Funds, fixed annuity benefit payments with payment amounts guaranteed by the
Company, or a combination of fixed and variable annuity benefit payments. Among
the payout options available during the annuity payout phase are:
- - periodic payments for your lifetime (assuming you are the Annuitant);
- - periodic payments for your life and the life of another person selected by
you;
- - periodic payments for your lifetime with guaranteed payments continuing to
your beneficiary for ten years in the event that you die before the end of ten
years; and
- - periodic payments over a specified number of years (1-30); under this option
you may reserve the right to convert remaining payments to a lump-sum payout
by electing a "commutable" option.
7
<PAGE>
WHO ARE THE KEY PERSONS UNDER THE CONTRACT?
The Contract is between you, (the "Owner"), and us, Allmerica Financial Life
Insurance and Annuity Company (the "Company"). Each Contract has an Owner (or an
Owner and a Joint Owner, in which case one of the two must be the Annuitant), an
Annuitant and one or more beneficiaries. As Owner, you make payments, choose
investment allocations and select the Annuitant and beneficiary. The Annuitant
is the individual who receives annuity benefit payments under the Contract. The
beneficiary is the person who receives any payment on the death of the Owner or
Annuitant.
HOW MUCH CAN I INVEST AND HOW OFTEN?
The number and frequency of payments are flexible, subject only to a $600
minimum for the initial payment ($1,000 in Washington) and a $50 minimum for any
additional payments. (A lower initial payment amount is permitted for certain
qualified plans and where monthly payments are being forwarded directly from a
financial institution.) In addition, a minimum of $1,000 is always required to
establish a Guarantee Period Account.
WHAT ARE MY INVESTMENT CHOICES?
The Contract permits net payments to be allocated among the Sub-Accounts, the
Guarantee Period Accounts, and the Fixed Account.
YOU HAVE A CHOICE OF 16 SUB-ACCOUNTS INVESTING IN THE FOLLOWING SERIES OF DGPF:
<TABLE>
<S> <C>
Decatur Total Return Series Emerging Markets Series
Devon Series Delaware Series
DelCap Series Convertible Securities
Series
Social Awareness Series Delchester Series
REIT Series Capital Reserves Series
Small Cap Value Series Strategic Income Series
Trend Series Cash Reserve Series
International Equity Series Global Bond Series
</TABLE>
Each Underlying Fund operates pursuant to different investment objectives,
discussed below, and this range of investment options enables you to allocate
your money among the Funds to meet your particular investment needs.
SOME FUNDS MAY NOT BE AVAILABLE IN ALL STATES.
GUARANTEE PERIOD ACCOUNTS. Assets supporting the guarantees under the Guarantee
Period Accounts are held in the Company's Separate Account GPA, a non-unitized
insulated separate account. Values and benefits calculated on the basis of
Guarantee Period Account allocations, however, are obligations of the Company's
General Account. Amounts allocated to a Guarantee Period Account earn a
Guaranteed Interest Rate declared by the Company. The level of the Guaranteed
Interest Rate depends on the number of years of the Guarantee Period selected.
The Company currently offers nine Guarantee Periods ranging from two to ten
years in duration. Once declared, the Guaranteed Interest Rate will not change
during the duration of the Guarantee Period. If amounts allocated to a Guarantee
Period Account are transferred, surrendered or applied to any annuity option at
any time other than the day following the last day of the applicable Guarantee
Period, a Market Value Adjustment will apply that may increase or decrease the
account's value; however, this adjustment will never be applied against your
principal. In addition, earnings in the Guarantee Period Accounts 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 MAY NOT BE AVAILABLE IN ALL STATES.
8
<PAGE>
FIXED ACCOUNT. The Fixed Account is part of the General Account which consists
of all the Company's assets other than those allocated to the Variable Account
and any other separate account. Allocations to the Fixed Account are guaranteed
as to principal and a minimum rate of interest. Additional excess interest may
be declared periodically at the Company's discretion. Furthermore, the initial
rate in effect on the date an amount is allocated to the Fixed Account will be
guaranteed for one year from that date. For more information about the Fixed
Account, see APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
WHO IS THE INVESTMENT ADVISER?
Delaware Management Company, Inc. ("Delaware Management") is the investment
adviser for the Decatur Total Return Series, Devon Series, DelCap Series, Social
Awareness Series, REIT Series, Small Cap Value Series, Trend Series, Delaware
Series, Convertible Securities Series, Delchester Series, Capital Reserves
Series, Strategic Income Series, and Cash Reserve Series. The investment adviser
for the International Equity Series, Emerging Markets Series and the Global Bond
Series is Delaware International Advisers Ltd. ("Delaware International").
CAN I MAKE TRANSFERS AMONG THE FUNDS?
Yes. Prior to the Annuity Date, you may transfer among the Sub-Accounts, the
Guarantee Period Accounts, and the Fixed Account. You will incur no current
taxes on transfers while your money remains in the Contract. See "D. Transfer
Privilege." The first 12 transfers in a Contract year are guaranteed to be free
of a transfer charge. For each subsequent transfer in a Contract year, the
Company does not currently charge but reserves the right to assess a processing
charge guaranteed never to exceed $25.
WHAT IF I NEED MY MONEY BEFORE MY ANNUITY PAYOUT PHASE BEGINS?
You may surrender the Contract or make withdrawals any time before your annuity
payout phase begins. Each year you can take without a surrender charge the
greatest of 100% of cumulative earnings, 15% of the Contract's Accumulated Value
or, if you are both an Owner and the Annuitant, an amount based on your life
expectancy. (Similarly, no surrender charge will apply if an amount is withdrawn
based on the Annuitant's life expectancy and the Owner is a trust or other
non-natural person.) A 10% tax penalty may apply on all amounts deemed to be
earnings if you are under age 59 1/2. Additional amounts may be withdrawn at any
time but may be subject to the surrender charge for payments that have not been
invested in the Contract for more than seven years. (A Market Value Adjustment
may apply to any withdrawal made from a Guarantee Period Account prior to the
expiration of the Guarantee Period.)
In addition, except where prohibited by state law, you may withdraw all or a
portion of your money without a surrender charge if, after the Contract is
issued, you are admitted to a medical care facility, become disabled or are
diagnosed with a fatal illness. For details and restrictions, see "Reduction or
Elimination of Surrender Charge."
WHAT HAPPENS UPON MY DEATH DURING THE ACCUMULATION PHASE?
If the Annuitant, Owner or Joint Owner should die before the Annuity Date, a
death benefit will be paid to the beneficiary. Upon the death of the Annuitant
(or an Owner who is also an Annuitant), the death benefit is equal to the
highest of:
- - The Accumulated Value increased by any positive Market Value Adjustment;
- - Gross payments, with interest accumulating daily at an annual rate of 5%
starting on the date each payment is applied, and continuing throughout your
investments' entire accumulation phase, decreased proportionately to reflect
withdrawals; or
- - The death benefit that would have been payable on the most recent contract
anniversary, increased for subsequent payments and decreased proportionately
for subsequent withdrawals.
9
<PAGE>
This guaranteed death benefit works in the following way assuming no withdrawals
are made. On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments compounded at the annual rate of 5%. The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments compounded at the annual rate of 5% or (c) the
locked-in value of the death benefit at the first anniversary. The greatest of
(a), (b) or (c) will be locked in until the next Contract anniversary. This
calculation will then be repeated on each anniversary while the Contract remains
in force and prior to the Annuity Date. As noted above, the values of (b) and
(c) will be decreased proportionately if withdrawals are taken.
At the death of an Owner who is not also the Annuitant during the accumulation
phase, the death benefit will equal the Accumulated Value of the Contract
increased by any positive Market Value Adjustment.
(If the Annuitant dies after the Annuity Date but before all guaranteed annuity
benefit payments have been made, the remaining payments will be paid to the
beneficiary at least as rapidly as under the annuity option in effect. See "G.
Death Benefit.")
WHAT CHARGES WILL I INCUR UNDER MY CONTRACT?
If the Accumulated Value is less than $50,000 on each Contract anniversary and
upon surrender, a $30 Contract fee will be deducted from the Contract. The
Contract fee is waived for Contracts issued to and maintained by a trustee of a
401(k) plan.
Should you decide to surrender the Contract, make withdrawals, or receive
payments under certain annuity payout options, you may be subject to a
contingent deferred sales charge. If applicable, this charge will be between 1%
and 7% of payments withdrawn, based on when the payments were made.
A deduction for state and local premium taxes, if any, may be made as described
under "C. Premium Taxes."
The Company will deduct a daily Mortality and Expense Risk Charge and
Administrative Expense Charge equal to 1.25% and 0.15%, respectively, of the
average daily net assets invested in each Underlying Fund. The Funds will incur
certain management fees and expenses which are more fully described in "Other
Charges" and in the DGPF prospectus which accompanies this Prospectus.
CAN I EXAMINE THE CONTRACT?
Yes. The Contract will be delivered to you after your purchase. If you return
the Contract to the Company within ten days of receipt, the Contract will be
canceled. (There may be a longer period in certain states; see the "Right to
Examine" provision on the cover of the Contract.) If you cancel the Contract,
you will receive a refund of any amounts allocated to the Fixed and Guarantee
Period Accounts and the Accumulated Value of any amounts allocated to the
Sub-Accounts (plus any fees or charges that may have been deducted.) However, if
state law requires or if the Contract was issued as an Individual Retirement
Annuity ("IRA"), you will generally receive a refund of your entire payment. (In
certain states this refund may be the greater of (1) your payment or (2) the
amounts allocated to the Fixed and Guarantee Period Accounts plus the
Accumulated Value of amounts in the Sub-Accounts, plus any fees or charges
previously deducted.) See "B. Right to Revoke Individual Retirement Annuity."
10
<PAGE>
CAN I MAKE FUTURE CHANGES UNDER THE CONTRACT?
There are several changes you can make after receiving the Contract:
- - You may assign your ownership to someone else, except under certain qualified
plans.
- - You may change the beneficiary, unless you have designated a beneficiary
irrevocably.
- - You may change your allocation of payments.
- - You may make transfers of Contract value among your current investments
without any tax consequences.
- - You may cancel the Contract within ten days of delivery (or longer if required
by law).
11
<PAGE>
ANNUAL AND TRANSACTION EXPENSES
The following tables show charges under the Contract, expenses of the
Sub-Accounts, and expenses of the Funds. In addition to the charges and expenses
described below, premium taxes are applicable in some states and are deducted as
described under "Premium Taxes."
<TABLE>
<CAPTION>
YEARS FROM
DATE OF
CONTRACT CHARGES: PAYMENT CHARGE
------------ -----------
<S> <C> <C>
CONTINGENT DEFERRED SALES CHARGE: 0-1 7.0%
This charge may be assessed upon surrender, 2 6.0%
withdrawal or annuitization under any commutable 3 5.0%
period certain option or a noncommutable period 4 4.0%
certain option of less than ten years. The 5 3.0%
charge is a percentage of payments applied to 6 2.0%
the amount surrendered (in excess of any amount 7 1.0%
that is free of surrender charge) within the More than 7 0%
indicated time period.
TRANSFER CHARGE: None
The Company currently makes no 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.
CONTRACT FEE: $30
The fee is deducted annually and upon surrender
prior to the Annuity Date when Accumulated Value
is less than $50,000. The fee is waived for
Contracts issued to and maintained by the
trustee of a 401(k) plan.
SUB-ACCOUNT EXPENSES:
(on annual basis as percentage of average daily
net assets)
Mortality and Expense Risk Charge 1.25%
Administrative Expense Charge 0.15%
-----------
Total Asset Charge 1.40%
</TABLE>
12
<PAGE>
FUND EXPENSES: The following table shows the expenses of the Underlying Funds as
of December 31, 1997 (restated, if necessary, to reflect changes in expense
limitations effective May 1, 1998.) For more information concerning fees and
expenses, see the prospectus of the Underlying Funds.
<TABLE>
<CAPTION>
OTHER EXPENSES (AFTER
MANAGEMENT ANY APPLICABLE TOTAL
FUND FEES REIMBURSEMENTS) EXPENSES
- ------------------------------------------------------------------ --------------- ----------------------- -------------
<S> <C> <C> <C>
Decatur Total Return Series....................................... 0.60% 0.11% 0.71%(2)
Devon Series...................................................... 0.54% 0.26% 0.80%(1)(2)
DelCap Series..................................................... 0.63% 0.22% 0.85%(1)(2)
Social Awareness Series........................................... 0.20% 0.65% 0.85%(1)(2)
REIT Series@...................................................... 0.75% 0.10% 0.85%(1)(2)
Small Cap Value Series............................................ 0.60% 0.25% 0.85%(1)(2)
Trend Series...................................................... 0.62% 0.23% 0.85%(1)(2)
International Equity Series....................................... 0.75% 0.15% 0.90%(2)(3)
Emerging Markets Series........................................... 0.30% 1.20% 1.50%(1)(2)
Delaware Series................................................... 0.60% 0.07% 0.67%(2)
Convertible Securities Series..................................... 0.05% 0.80% 0.85%(1)(2)
Delchester Series................................................. 0.60% 0.10% 0.70%(2)
Capital Reserves Series........................................... 0.60% 0.15% 0.75%(2)
Strategic Income Series........................................... 0.22% 0.58% 0.80%(1)(2)
Cash Reserve Series............................................... 0.50% 0.14% 0.64%(2)
Global Bond Series................................................ 0.52% 0.33% 0.85%(1)(2)
</TABLE>
(@) Estimated after expense reimbursement.
(1) For the fiscal year ended December 31, 1997, before waiver and/or
reimbursement by the investment adviser, total Series expenses as a percentage
of average daily net assets were 0.91% for Devon Series, 0.87% for DelCap
Series, 1.40% for Social Awareness Series (formerly known as "Quantum Series"),
0.90% for Small Cap Value Series (formerly known as "Value Series"), 0.88% for
Trend Series, 90% for International Equity Series, 2.45% for Emerging Markets
Series, 2.30% for Convertible Securities Series, 1.23% for Strategic Income
Series and 1.08% for Global Bond Series.
(2) The investment adviser for the Decatur Total Return Series, Devon Series,
DelCap Series, Social Awareness Series, REIT Series, Small Cap Value Series,
Trend Series, Delaware Series, Convertible Securities Series, Delchester Series,
Capital Reserves Series, Strategic Income Series, and Cash Reserve Series is
Delaware Management Company, Inc. ("Delaware Management"). The Investment
Adviser for the International Equity Series, Emerging Markets Series and the
Global Bond Series is Delaware International Advisers Ltd. ("Delaware
International"). Effective May 1, 1998 through October 31, 1998, the investment
advisers for the Series of DGPF have agreed voluntarily to waive their
management fees and reimburse each Series for expenses to the extent that total
expenses will not exceed 1.50% for the Emerging Markets Series; 0.95% for the
International Equity Series; 85% for DelCap Series, Social Awareness Series,
REIT Series, Small Cap Value Series, Trend Series, Convertible Securities Series
and Global Bond Series and 0.80% for all other Series. The fee ratios shown
above have been restated, if necessary, to assume that the new voluntary
limitations took effect on January 1, 1997. The declaration of a voluntary
expense limitation does not bind the investment advisers to declare future
expense limitations with respect to these Funds.
(3) Effective July 1, 1997, the management fee of the International Equity
Series was voluntarily limited to a rate of 0.95% of the average daily net
assets, replacing a prior limitation of 0.80%. In 1997, the total annual
expenses of the International Equity Series was 0.90% and the management fee was
0.75%.
The following examples demonstrate the cumulative expenses which would be paid
by the Owner at 1-year, 3-year, 5-year, and 10-year intervals under certain
contingencies. Each example assumes a $1,000 investment in a Sub-Account and a
5% annual return on assets. 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.
13
<PAGE>
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OF
LESSER THAN THOSE SHOWN.
(a) If, at the end of the applicable time period, you surrender your Contract or
annuitize* under a commutable period certain option of less than ten years, you
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Decatur Total Return Series.................................................. $ 83 $ 112 $ 143 $ 244
Devon Series................................................................. $ 83 $ 115 $ 147 $ 253
DelCap Series................................................................ $ 84 $ 116 $ 150 $ 258
Social Awareness Series...................................................... $ 84 $ 116 $ 150 $ 258
REIT Series.................................................................. $ 84 $ 116 $ 150 $ 258
Small Cap Value Series....................................................... $ 84 $ 116 $ 150 $ 258
Trend Series................................................................. $ 84 $ 116 $ 150 $ 258
International Equity Series.................................................. $ 84 $ 118 $ 152 $ 263
Emerging Markets Series...................................................... $ 90 $ 135 $ 181 $ 322
Delaware Series.............................................................. $ 82 $ 111 $ 141 $ 240
Convertible Securities Series................................................ $ 84 $ 116 $ 150 $ 258
Delchester Series............................................................ $ 83 $ 112 $ 142 $ 243
Capital Reserves Series...................................................... $ 83 $ 113 $ 145 $ 248
Strategic Income Series...................................................... $ 83 $ 115 $ 147 $ 253
Cash Reserve Series.......................................................... $ 82 $ 110 $ 139 $ 237
Global Bond Series........................................................... $ 84 $ 116 $ 150 $ 258
</TABLE>
(b) If, at the end of the applicable time period, you annuitize* under a life
option or any non-commutable period certain option of ten years or more, or if
you do NOT surrender or annuitize your Contract, you would pay the following
expenses on a $1,000 investment, assuming an annual 5% return on assets:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Decatur Total Return Series.................................................. $ 21 $ 66 $ 113 $ 244
Devon Series................................................................. $ 22 $ 69 $ 118 $ 253
DelCap Series................................................................ $ 23 $ 70 $ 120 $ 258
Social Awareness Series...................................................... $ 23 $ 70 $ 120 $ 258
REIT Series.................................................................. $ 23 $ 70 $ 120 $ 258
Small Cap Value Series....................................................... $ 23 $ 70 $ 120 $ 258
Trend Series................................................................. $ 23 $ 70 $ 120 $ 258
International Equity Series.................................................. $ 23 $ 72 $ 123 $ 263
Emerging Markets Series...................................................... $ 29 $ 90 $ 153 $ 322
Delaware Series.............................................................. $ 21 $ 65 $ 111 $ 240
Convertible Securities Series................................................ $ 23 $ 70 $ 120 $ 258
Delchester Series............................................................ $ 21 $ 66 $ 113 $ 243
Capital Reserves Series...................................................... $ 22 $ 67 $ 115 $ 248
Strategic Income Series...................................................... $ 22 $ 69 $ 118 $ 253
Cash Reserve Series.......................................................... $ 21 $ 64 $ 110 $ 237
Global Bond Series........................................................... $ 23 $ 70 $ 120 $ 258
</TABLE>
* The Contract fee is not deducted after annuitization. No contingent deferred
sales charge is assessed at the time of annuitization in any Contract year under
an option, including a life contingency, or under any non-commutable period
certain option of ten years or more.
Pursuant to requirements of the Investment Company Act of 1940 ("1940 Act") the
Contract fee has been reflected in the examples by a method intended to show the
"average" impact of the Contract fee on an
14
<PAGE>
investment in the Variable Account. The total Contract fees collected under the
Contract by the Company are divided by the total average net assets attributable
to the Contract. The resulting percentage is 0.03, and the amount of the
Contract fee is assumed to be $0.30 in the examples. The Contract fee is
deducted only when the Accumulated Value is less than $50,000. Lower costs apply
to Contracts issued and maintained as part of a 401(k) plan.
CONDENSED FINANCIAL INFORMATION
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
SEPARATE ACCOUNT VA-K
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
SUB-ACCOUNT 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
DECATUR TOTAL RETURN SERIES
Unit Value:
Beginning of Period.............................. 1.883 1.582 1.178 1.197 1.051 1.000
End of Period.................................... 2.433 1.883 1.582 1.178 1.197 1.051
Number of Units Outstanding at End of Period (in
thousands).......................................... 113,507 65,991 48,305 38,591 25,086 4,208
DEVON SERIES*
Unit Value:
Beginning of Period.............................. N/A N/A N/A N/A N/A N/A
End of Period.................................... 1.261 N/A N/A N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 11,585 N/A N/A N/A N/A N/A
DELCAP SERIES
Unit Value:
Beginning of Period.............................. 1.616 1.432 1.121 1.178 1.070 1.000
End of Period.................................... 1.831 1.616 1.432 1.121 1.178 1.070
Number of Units Outstanding at End of Period (in
thousands).......................................... 57,025 44,667 35,204 29,100 20,802 4,534
SOCIAL AWARENESS SERIES*
Unit Value:
Beginning of Period.............................. N/A N/A N/A N/A N/A N/A
End of Period.................................... 1.272 N/A N/A N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 4,515 N/A N/A N/A N/A N/A
SMALL CAP VALUE SERIES
Unit Value:
Beginning of Period.............................. 1.467 1.214 0.994 1.000 1.000 N/A
End of Period.................................... 1.923 1.467 1.214 0.994 1.000 N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 43,269 15,725 9,467 6,040 6 N/A
TREND SERIES
Unit Value:
Beginning of Period.............................. 1.486 1.358 0.989 1.007 1.000 N/A
End of Period.................................... 1.779 1.486 1.358 0.989 1.007 N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 33,256 21,711 13,410 6,197 50 N/A
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
SUB-ACCOUNT 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY SERIES
Unit Value:
Beginning of Period.............................. 1.540 1.301 1.159 1.144 1.000 1.000
End of Period.................................... 1.619 1.540 1.301 1.159 1.144 1.000
Number of Units Outstanding at End of Period (in
thousands).......................................... 48,813 30,888 21,612 18,761 6,139 182
EMERGING MARKETS SERIES*
Unit Value:
Beginning of Period.............................. N/A N/A N/A N/A N/A N/A
End of Period.................................... 0.880 N/A N/A N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 4,545 N/A N/A N/A N/A N/A
DELAWARE SERIES
Unit Value:
Beginning of Period.............................. 1.616 1.414 1.133 1.150 1.078 1.000
End of Period.................................... 2.015 1.616 1.414 1.133 1.150 1.078
Number of Units Outstanding at End of Period (in
thousands).......................................... 58,759 40,855 37,203 33,332 22,046 3,145
CONVERTIBLE SECURITIES SERIES*
Unit Value:
Beginning of Period.............................. N/A N/A N/A N/A N/A N/A
End of Period.................................... 1.156 N/A N/A N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 1,291 N/A N/A N/A N/A N/A
DELCHESTER SERIES
Unit Value:
Beginning of Period.............................. 1.474 1.326 1.164 1.214 1.058 1.000
End of Period.................................... 1.652 1.474 1.326 1.164 1.214 1.058
Number of Units Outstanding at End of Period (in
thousands).......................................... 56,733 44,760 37,818 31,735 22,281 4,571
CAPITAL RESERVES SERIES
Unit Value:
Beginning of Period.............................. 1.241 1.209 1.075 1.120 1.053 1.000
End of Period.................................... 1.317 1.241 1.209 1.075 1.120 1.053
Number of Units Outstanding at End of Period (in
thousands).......................................... 20,234 20,226 19,818 20,476 16,752 3,828
STRATEGIC INCOME SERIES*
Unit Value:
Beginning of Period.............................. N/A N/A N/A N/A N/A N/A
End of Period.................................... 1.052 N/A N/A N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 5,381 N/A N/A N/A N/A N/A
CASH RESERVE SERIES
Unit Value:
Beginning of Period.............................. 1.124 1.087 1.044 1.021 1.010 1.000
End of Period.................................... 1.165 1.124 1.087 1.044 1.021 1.010
Number of Units Outstanding at End of Period (in
thousands).......................................... 24,014 21,519 11,568 13,998 5,483 1,387
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
SUB-ACCOUNT 1997 1996 1995 1994 1993 1992
- ----------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
GLOBAL BOND SERIES
Unit Value:
Beginning of Period.............................. 1.107 1.000 1.000 N/A N/A N/A
End of Period.................................... 1.102 1.107 1.000 N/A N/A N/A
Number of Units Outstanding at End of Period (in
thousands).......................................... 3,950 886 0 N/A N/A N/A
</TABLE>
* The date of inception of the Sub-Accounts investing in the Devon Series, the
Social Awareness Series, the Emerging Markets Series, the Convertible Securities
Series and the Strategic income series was 5/1/97.
PERFORMANCE INFORMATION
The Delaware Medallion III Contract was first offered to the public in 1996. The
Company, however, may advertise "total return" and "average annual total return"
performance information based on the periods that the Sub-Accounts have been in
existence and the periods that the Underlying Funds have been in existence.
Performance results for all periods shown below are calculated with all charges
assumed to be those applicable to the Sub-Accounts, the Underlying Funds, and,
in Tables 1A and 2A, assuming that the Contract is surrendered at the end of the
applicable period and, alternatively, in Tables 1B and 2B, assuming that it is
not surrendered at the end of the applicable period. Both the total return and
yield figures are based on historical earnings and are not intended to indicate
future performance.
The total return of a Sub-Account refers to the total of the income generated by
an investment in the Sub-Account and of the changes in the value of the
principal (due to realized and unrealized capital gains or losses) for a
specified period, reduced by Variable Account charges, and expressed as a
percentage.
The average annual total return represents the average annual percentage change
in the value of an investment in the Sub-Account over a given period of time. It
represents averaged figures as opposed to the actual performance of a
Sub-Account, which will vary from year to year.
The yield of the Sub-Account investing in the Cash Reserve Series refers to the
income generated by an investment in the Sub-Account over a seven-day period
(which period will be specified in the advertisement). This income is then
"annualized" by assuming that the income generated in the specific week is
generated over a 52-week period. This annualized yield is shown as a percentage
of the investment. The "effective yield" calculation is similar but, when
annualized, the income earned by an investment in the Sub-Account is assumed to
be reinvested. Thus the effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
The yield of a Sub-Account investing in a Fund other than the Cash Reserve
Series refers to the annualized income generated by an investment in the
Sub-Account over a specified 30-day or one-month period. The yield is calculated
by assuming that the income generated by the investment during that 30-day or
one-month period is generated each period over a 12-month period and is shown as
a percentage of the investment.
Quotations of average annual total return as shown in Table 1A are calculated in
the manner prescribed by the SEC and show the percentage rate of return of a
hypothetical initial investment of $1,000 for the most recent one, five and ten
year period or for a period covering the time the Sub-Account has been in
existence, if less than the prescribed periods. The calculation is adjusted to
reflect the deduction of the annual Sub-Account asset charge of 1.40%, the $30
annual Contract fee, the Underlying Fund charges and the contingent deferred
sales charge which would be assessed if the investment were completely withdrawn
at the end of the specified period. Quotations of supplemental average total
returns, as shown in Table 1B, are calculated in exactly the same manner and for
the same periods of time except that it does not reflect the contingent deferred
sales charge but assumes that the Contract is not surrendered at the end of the
periods shown.
17
<PAGE>
The performance shown in Tables 2A and 2B is calculated in exactly the same
manner as those in Tables 1A and 1B respectively; however, the period of time is
based on the Underlying Fund's lifetime, which may predate the Sub-Account's
inception date. These performance calculations are based on the assumption that
the Sub-Account corresponding to the applicable Underlying Fund was actually in
existence throughout the stated period and that the contractual charges and
expenses during that period were equal to those currently assessed under the
Contract.
For more detailed information about these performance calculations, including
actual formulas, see the SAI.
PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF A
HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE TIME PERIOD ON WHICH THE
CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED IN LIGHT OF
THE INVESTMENT OBJECTIVES AND POLICIES AND RISK CHARACTERISTICS OF THE
UNDERLYING FUND IN WHICH THE SUB-ACCOUNT INVESTS AND THE MARKET CONDITIONS
DURING THE GIVEN TIME PERIOD, AND SHOULD NOT BE CONSIDERED AS A REPRESENTATION
OF WHAT MAY BE ACHIEVED IN THE FUTURE.
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to: (1) the Standard & Poor's 500 Composite Stock Price
Index ("S&P 500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman
Aggregate Bond Index or other unmanaged indices so that investors may compare
the Sub-Account results with those of a group of unmanaged securities widely
regarded by investors as representative of the securities markets in general;
(2) other groups of variable annuity separate accounts or other investment
products tracked by Lipper Analytical Services, a widely used independent
research firm which ranks mutual funds and other investment products by overall
performance, investment objectives, and assets, or tracked by other services,
companies, publications, or persons, who rank such investment products on
overall performance or other criteria; or (3) the Consumer Price Index (a
measure for inflation) to assess the real rate of return from an investment in
the Sub-Account. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
At times, the Company may also advertise the ratings and other information
assigned to it by independent rating organizations such as A.M. Best Company
("A.M. Best"), Moody's Investors Service ("Moody's"), Standard & Poor's
Insurance Rating Services ("S&P") and Duff & Phelps. A.M. Best's and Moody's
ratings reflect their current opinion of the Company's relative financial
strength and operating performance in comparison to the norms of the life/health
insurance industry. S&P's and Duff & Phelps' ratings measure the ability of an
insurance company to meet its obligations under insurance policies it issues and
do not measure the ability of such companies to meet other non-policy
obligations. The ratings also do not relate to the performance of the Underlying
Funds.
18
<PAGE>
TABLE 1A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR PERIODS ENDING
DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
TOTAL RETURN
FOR YEAR SINCE
ENDED INCEPTION OF
NAME OF UNDERLYING FUND 12/31/97 5 YEARS SUB-ACCOUNT
- --------------------------------------------------------------------------- ------------- ----------- ------------
<S> <C> <C> <C>
Decatur Total Return Series................................................ 22.19% 17.93% 16.75%
Devon Series............................................................... N/A N/A 19.10 %
DelCap Series.............................................................. 6.54 % 10.91 % 10.90 %
Social Awareness Series.................................................... N/A N/A 20.19 %
REIT Series................................................................ N/A N/A N/A
Small Cap Value Series..................................................... 24.06 % N/A 17.14 %
Trend Series............................................................... 12.66 % N/A 14.80 %
International Equity Series................................................ -1.15 % 9.67 % 9.47 %
Emerging Markets Series.................................................... N/A N/A -17.29 %
Delaware Series............................................................ 17.64 % 12.93 % 12.92 %
Convertible Securities Series.............................................. N/A N/A 8.71 %
Delchester Series.......................................................... 5.37 % 8.85 % 8.98 %
Capital Reserves Series.................................................... -0.22 % 4.03 % 4.66 %
Strategic Income Series.................................................... N/A N/A -1.07 %
Cash Reserve Series........................................................ -2.55 % 2.32 % 2.38 %
Global Bond Series......................................................... -6.46 % N/A 2.68 %
</TABLE>
TABLE 1B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR
PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
TOTAL RETURN
FOR YEAR SINCE
ENDED INCEPTION OF
NAME OF UNDERLYING FUND 12/31/97 5 YEARS SUB-ACCOUNT
- --------------------------------------------------------------------------- ------------- ----------- ------------
<S> <C> <C> <C>
Decatur Total Return Series................................................ 29.19% 18.24% 16.92%
Devon Series............................................................... N/A N/A 26.10 %
DelCap Series.............................................................. 13.28 % 11.30 % 11.11 %
Social Awareness Series.................................................... N/A N/A 27.19 %
REIT Series................................................................ N/A N/A N/A
Small Cap Value Series..................................................... 31.06 % N/A 17.76 %
Trend Series............................................................... 19.66 % N/A 15.45 %
International Equity Series................................................ 5.10 % 10.08 % 9.74 %
Emerging Markets Series.................................................... N/A N/A -12.05 %
Delaware Series............................................................ 24.64 % 13.29 % 13.12 %
Convertible Securities Series.............................................. N/A N/A 15.59 %
Delchester Series.......................................................... 12.04 % 9.28 % 9.21 %
Capital Reserves Series.................................................... 6.09 % 4.54 % 4.94 %
Strategic Income Series.................................................... N/A N/A 5.19 %
Cash Reserve Series........................................................ 3.62 % 2.85 % 2.69 %
Global Bond Series......................................................... -0.54 % N/A 5.96 %
</TABLE>
19
<PAGE>
TABLE 2A
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR PERIODS ENDING
DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING COMPLETE WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
SINCE
TOTAL RETURN INCEPTION
FOR YEAR OF
ENDED UNDERLYING
NAME OF UNDERLYING FUND 12/31/97 5 YEARS FUND*
- ---------------------------------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Decatur Total Return Series................................................. 22.19% 17.93% 11.47%
Devon Series................................................................ N/A N/A 19.10 %
DelCap Series............................................................... 6.54 % 10.91 % 10.72 %
Social Awareness Series..................................................... N/A N/A 20.19 %
REIT Series................................................................. N/A N/A N/A
Small Cap Value Series...................................................... 24.06 % N/A 17.22 %
Trend Series................................................................ 12.66 % N/A 14.93 %
International Equity Series................................................. -1.15 % 9.67 % 9.47 %
Emerging Markets Series..................................................... N/A N/A -17.29 %
Delaware Series............................................................. 17.64 % 12.93 % 12.28 %
Convertible Securities Series............................................... N/A N/A 8.71 %
Delchester Series........................................................... 5.37 % 8.85 % 8.97 %
Capital Reserves Series..................................................... -0.22 % 4.03 % 5.34 %
Strategic Income Series..................................................... N/A N/A -1.07 %
Cash Reserve Series......................................................... -2.55 % 2.32 % 3.63 %
Global Bond Series.......................................................... -6.46 % N/A 2.68 %
</TABLE>
TABLE 2B
SUPPLEMENTAL AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR
PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING FUND
(ASSUMING NO WITHDRAWAL OF THE INVESTMENT)
<TABLE>
<CAPTION>
TOTAL RETURN SINCE
FOR YEAR INCEPTION OF
ENDED UNDERLYING
NAME OF UNDERLYING FUND 12/31/97 5 YEARS FUND*
- --------------------------------------------------------------------- --------------- ------------ --------------
<S> <C> <C> <C>
Decatur Total Return Series.......................................... 29.19% 18.24% 11.47%
Devon Series......................................................... N/A N/A 26.10 %
DelCap Series........................................................ 13.28 % 11.30 % 10.80 %
Social Awareness Series.............................................. N/A N/A 27.19 %
REIT Series.......................................................... N/A N/A N/A
Small Cap Value Series............................................... 31.06 % N/A 17.68 %
Trend Series......................................................... 19.66 % N/A 15.42 %
International Equity Series.......................................... 5.10 % 10.08 % 9.74 %
Emerging Markets Series.............................................. N/A N/A -12.05 %
Delaware Series...................................................... 24.64 % 13.29 % 12.28 %
Convertible Securities Series........................................ N/A N/A 15.59 %
Delchester Series.................................................... 12.04 % 9.28 % 8.97 %
Capital Reserves Series.............................................. 6.09 % 4.54 % 5.34 %
Strategic Income Series.............................................. N/A N/A 5.19 %
Cash Reserve Series.................................................. 3.62 % 2.85 % 3.63 %
Global Bond Series................................................... -0.54 % N/A 5.96 %
</TABLE>
20
<PAGE>
* The dates of inception of the Underlying Funds are: 10/29/92 for the
International Equity Series; 12/27/93 for the Small Cap Value and Trend Series;
7/02/91 for the DelCap Series; 7/28/88 for the Delaware Series, the Decatur
Total Return Series, the Delchester Series, the Capital Reserves Series, and the
Cash Reserve Series; 5/1/96 for Global Bond Series; and 5/1/97 for the Devon
Series, the Social Awareness Series, the Emerging Markets Series, the
Convertible Securities Series and the Strategic Income Series.
DESCRIPTION OF THE COMPANY, THE VARIABLE ACCOUNT, AND
DELAWARE GROUP PREMIUM FUND, INC.
THE COMPANY. The Company is a life insurance company organized under the laws of
Delaware in July 1974. Its principal office ("Principal Office") is located at
440 Lincoln Street, Worcester, MA 01653, Telephone 508-855-1000. The Company is
subject to the laws of the state of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1997, the
Company had over $9.4 billion in assets and over $26.6 billion of life insurance
in force.
Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirectly wholly owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica") which, in turn, is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company and adopted its present name on
October 16, 1995. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1997, First Allmerica and its subsidiaries
(including the Company) had over $16.3 billion in combined assets and over $43.8
billion in life insurance in force.
The Company is a chartered member of the Insurance Marketplace Standard
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE VARIABLE ACCOUNT. The Variable Account is a separate investment account of
the Company referred to as Separate Account VA-K. The assets used to fund the
variable portions of the Contract are set aside in the Sub-Accounts of the
Variable Account, and are kept separate and apart from the general assets of the
Company. There are 16 Sub-Accounts available under the Contract. Each
Sub-Account is administered and accounted for as part of the general business of
the Company, but the income, capital gains or capital losses of each Sub-Account
are allocated to such Sub-Account without regard to other income, capital gains,
or capital losses of the Company. Under Delaware law, the assets of the Variable
Account may not be charged with any liabilities arising out of any other
business of the Company.
The Variable Account was authorized by vote of the Board of Directors of the
Company on November 1, 1990. The Variable Account meets the definition of a
"separate account" under federal securities law, and is registered with the SEC
as a unit investment trust under the 1940 Act. The registration of the Variable
Account and DGPF does not involve the supervision by the SEC of management or
investment practices or Contracts of the Variable Account, the Company, DGPF or
the Underlying Funds.
THE COMPANY OFFERS OTHER VARIABLE ANNUITY CONTRACTS INVESTING IN THE VARIABLE
ACCOUNT WHICH ARE NOT DISCUSSED IN THIS PROSPECTUS. THE VARIABLE ACCOUNT ALSO
INVESTS IN OTHER UNDERLYING FUNDS WHICH ARE NOT AVAILABLE TO THE CONTRACT
DESCRIBED IN THIS PROSPECTUS.
21
<PAGE>
DELAWARE GROUP PREMIUM FUND, INC. Delaware Group Premium Fund, Inc. ("DGPF") is
an open-end, diversified management investment company registered with the SEC
under the 1940 Act. Such registration does not involve supervision by the SEC of
the investments or investment policy of DGPF or its separate investment series.
DGPF was established to provide a vehicle for the investment of assets of
various separate accounts supporting variable insurance contracts. DGPF
currently has 16 investment portfolios, each issuing a series of shares: Decatur
Total Return Series, Devon Series, DelCap Series, Social Awareness Series, REIT
Series, Small Cap Value Series, Trend Series, International Equity Series,
Emerging Markets Series, Delaware Series, Convertible Securities Series,
Delchester Series, Capital Reserves Series, Strategic Income Series, Cash
Reserve Series, and Global Bond Series (collectively, the "Underlying Funds").
The assets of each Underlying Fund are held separate from the assets of the
other Underlying Funds. Each Underlying Fund operates as a separate investment
vehicle, and the income or losses of one Underlying Fund have no effect on the
investment performance of another Underlying Fund. Shares of the Underlying
Funds are not offered to the general public but solely to separate accounts of
life insurance companies.
The investment adviser for the Decatur Total Return Series, Devon Series, DelCap
Series, Social Awareness Series, REIT Series, Small Cap Value Series, Trend
Series, Delaware Series, Convertible Securities Series, Delchester Series,
Capital Reserves Series, Strategic Income Series, and Cash Reserve Series is
Delaware Management Company, Inc. ("Delaware Management"). The investment
adviser for the International Equity Series, Emerging Markets Series and the
Global Bond Series is Delaware International Advisers Ltd. ("Delaware
International").
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Underlying Funds of DGPF 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 FUNDS MAY BE FOUND IN THE
PROSPECTUSES OF THE FUNDS WHICH ACCOMPANY THIS PROSPECTUS, AND SHOULD BE READ
CAREFULLY BEFORE INVESTING. The Statement of Additional Information of DGPF is
available upon request.
DECATUR TOTAL RETURN SERIES -- seeks the highest possible total rate of return
by selecting issues that exhibit the potential for capital appreciation while
providing higher than average dividend income. This Fund formerly was known as
the Equity/Income Series.
DEVON SERIES -- seeks current income and capital appreciation by investing
primarily in income-producing common stocks, with a focus on common stocks that
exhibit the potential for above-average dividend increases over time.
DELCAP SERIES -- seeks long-term capital appreciation by investing its assets in
a diversified portfolio of securities exhibiting the potential for significant
growth. This Fund formerly was known as the Growth Series.
SOCIAL AWARENESS SERIES -- seeks to achieve long-term capital appreciation by
investing primarily in equity securities of medium- to large-sized companies
expected to grow over time. This Fund was formerly known as the Quantum Series.
REIT SERIES -- seeks to achieve maximum long-term total return by investing in
securities of companies primarily engaged in the real estate industry.
SMALL CAP VALUE SERIES -- seeks capital appreciation by investing in
small-to-mid cap common stocks whose market value appears low relative to their
underlying value or future earnings and growth potential. Emphasis also--will be
placed on securities of companies that temporarily may be out of favor or whose
value is not yet recognized by the market. This Fund was formerly known as the
Value Series.
22
<PAGE>
TREND SERIES -- seeks long-term capital appreciation by investing primarily in
small-cap common stocks and convertible securities of emerging and other
growth-oriented companies. These securities will have been judged to be
responsive to changes in the marketplace and to have fundamental characteristics
to support growth. Income is not an objective. This Fund formerly was known as
the Emerging Growth Series.
INTERNATIONAL EQUITY SERIES -- seeks long-term growth without undue risk to
principal by investing primarily in equity securities of foreign issuers
providing the potential for capital appreciation and income.
EMERGING MARKETS SERIES -- seeks to achieve long-term capital appreciation by
investing primarily in equity securities of issuers located or operating in
emerging countries. The Series is an international fund. As such, under normal
market conditions, at least 65% of the Series' assets will be invested in equity
securities of issuers organized or having a majority of their assets or deriving
a majority of their operating income in at least three countries that are
considered to be emerging or developing.
DELAWARE SERIES -- seeks a balance of capital appreciation, income and
preservation of capital. It uses a dividend-oriented valuation strategy to
select securities issued by established companies that are believed to
demonstrate potential for income and capital growth. This Fund formerly was
known as the Multiple Strategy Series.
CONVERTIBLE SECURITIES SERIES -- seeks a high level of total return on its
assets through a combination of capital appreciation and current income by
investing primarily in convertible securities, which may include privately
placed convertible securities.
DELCHESTER SERIES -- seeks as high a current income as possible by investing in
rated and unrated corporate bonds (including high-yield bonds commonly known as
"junk bonds"), U.S. government securities and commercial paper. Please read the
Fund's prospectus disclosure regarding the risk factors before investing in this
Series. This Fund formerly was known as High Yield Series.
CAPITAL RESERVES SERIES -- seeks a high, stable level of current income while
minimizing fluctuations in principal by investing in a diversified portfolio of
short- and intermediate-term securities.
STRATEGIC INCOME SERIES -- seeks high current income and total return by using a
multi-sector investment approach, investing primarily in three sectors of the
fixed-income securities market: high yield, higher-risk securities; investment
grade fixed-income securities; and foreign government and other foreign
fixed-income securities. The Fund also may invest in U.S. equity securities.
CASH RESERVE SERIES -- seeks the highest level of income consistent with the
preservation of capital and liquidity through investments in short-term money
market instruments. This Fund formerly was known as Money Market Series.
GLOBAL BOND SERIES -- seeks current income consistent with preservation of
principal by investing primarily in fixed-income securities that also may
provide the potential for capital appreciation. At least 65% of the Series'
assets will be invested in fixed-income securities of issuers organized or
having a majority of their assets in or deriving a majority of the operating
income in at least three different countries, one of which may be the United
States.
There is no assurance that the investment objectives of the Underlying Funds
will be met. In the event of a material change in the investment policy of a
Sub-Account or the Fund in which it invests, you will be notified of the change.
No material changes in the investment policy of the Variable Account or any
Sub-Accounts will be made without approval pursuant to the applicable state
insurance laws. If you have Contract value in that Sub-Account, the Company will
transfer it without charge, on written request by you, to another Sub-Account or
to the General Account. The Company must receive your written request within
sixty (60) days of the later of (1) the effective date of such change in the
investment policy, or (2) the receipt of the notice of your right to transfer.
23
<PAGE>
INVESTMENT ADVISORY SERVICES TO DGPF
For managing the portfolios of the Underlying Funds and making the investment
decisions, investment advisers are paid an annual fee by their respective
Underlying Funds. For Delaware Management, this fee is equal to 0.50% of the
average daily net assets of the Cash Reserve Series; 0.60% of the average daily
net assets of the Decatur Total Return Series, Delchester Series, Capital
Reserves Series, Delaware Series and Devon Series; 0.65% of the average daily
net assets of the Strategic Income Series and 0.75% of the average daily net
assets of the DelCap Series, Small Cap Value Series, Trend Series, Social
Awareness Series, REIT Series and Convertible Securities Series. For Delaware
International Advisors, Ltd., this fee is equal to 0.75% of the average daily
net assets of the International Equity Series and the Global Bond Series, and
1.25% of the Emerging Markets Series.
DESCRIPTION OF THE CONTRACT
A. PAYMENTS
The Company's underwriting requirements, which include receipt of the initial
payment and allocation instructions by the Company at its Principal Office, must
be met before a Contract can be issued. These requirements also may include the
proper completion of an application; however, where permitted, the Company may
issue a Contract without completion of an application for certain classes of
annuity Contracts. Payments are to be made payable to the Company. A net payment
is equal to the payment received less the amount of any applicable premium tax.
The initial net payment will be credited to the Contract and allocated among the
requested accounts as of the date that all underwriting requirements are
properly met. If all underwriting requirements are not complied with within five
business days of the Company's receipt of the initial payment, the payment will
be returned immediately unless the Owner specifically consents to the holding of
the initial payment until completion of any outstanding underwriting
requirements. Subsequent payments will be credited as of the Valuation Date
received at the Principal Office.
Payments are not limited as to frequency and number, but there are certain
limitations as to amount. Currently, the initial payment must be at least $600
($1,000 in Washington). Under a salary deduction or monthly automatic payment
plan, the minimum initial payment is $50. In all cases, each subsequent payment
must be at least $50. Where the contribution on behalf of an employee under an
employer-sponsored retirement plan is less than $600 but more than $300
annually, the Company may issue a Contract on the employee if the plan's average
annual contribution per eligible plan participant is at least $600. The minimum
allocation to a Guarantee Period Account is $1,000. If less than $1,000 is
allocated to a Guarantee Period Account, the Company reserves the right to apply
that amount to the Cash Reserve Series.
Generally, unless otherwise requested, all payments will be allocated among the
accounts in the same proportion that the initial net payment is allocated or, if
subsequently changed, according to the most recent allocation instructions. The
Owner may change allocation instructions for new payments pursuant to a written
or telephone request. If telephone requests are elected by the Owner, a properly
completed authorization must be on file before telephone requests will be
honored. The policy of the Company and its agents and affiliates is that they
will not be responsible for losses resulting from acting upon telephone requests
reasonably believed to be genuine. The Company will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine; otherwise,
the Company may be liable for any losses due to unauthorized or fraudulent
instructions. The procedures the Company follows for transactions initiated by
telephone include requirements that callers on behalf of an Owner identify
themselves by name and identify the Annuitant by name, date of birth and social
security number. All transfer instructions by telephone are tape recorded.
24
<PAGE>
B. RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY
An individual purchasing a Contract intended to qualify as an IRA may revoke the
Contract at any time within ten days after receipt of the Contract and receive a
refund. In order to revoke the Contract, the Owner must mail or deliver the
Contract to the agent through whom the Contract was purchased, to the Principal
Office at 440 Lincoln Street, Worcester, MA 01653, or to any local agency of the
Company. Mailing or delivery must occur within ten days after receipt of the
Contract for revocation to be effective.
Within seven days the Company will provide a refund equal to gross payment(s)
received. In some states, however, the refund may equal the greater of (a) gross
payments, or (b) the amounts allocated to the Fixed and Guarantee Period
Accounts plus the Accumulated Value of amounts in the Sub-Accounts plus any
amounts deducted under the Contract or by the Underlying Funds for taxes,
charges or fees. At the time the Contract is issued, the "Right to Examine
Contract" provision on the cover page of the Contract will specifically indicate
whether the refund will be equal to gross payments or equal to the greater of
(a) or (b) as set forth above.
The liability of the Variable Account under this provision is limited to the
Owner's Accumulated Value in the Sub-Accounts on the date of cancellation. Any
additional amounts refunded to the Owner will be paid by the Company.
C. RIGHT TO REVOKE ALL OTHER CONTRACTS
In Georgia, Idaho, Indiana, Michigan, Missouri, North Carolina, Oklahoma,
Oregon, South Carolina, Texas, Utah, Washington and West Virginia, an Owner may
revoke the Contract at any time within ten days (20 in Idaho) after receipt of
the Contract and receive a refund as described under "B. Right to Revoke
Individual Retirement Annuity," above.
In all other states, an Owner may return the Contract at any time within ten
days (or the number of days required by state law if more than ten) after
receipt of the Contract. The Company will pay to the Owner an amount equal to
the sum of (1) the difference between the payments received, including fees, and
any amount allocated to the Variable Account, and (2) the Accumulated Value of
amounts allocated to the Variable Account as of the date the request is
received. If the Contract was purchased as an IRA, the IRA revocation right
described above may be utilized in lieu of the special surrender right.
D. TRANSFER PRIVILEGE
Prior to the Annuity Date, the Owner may transfer amounts among accounts at any
time upon written or telephone request to the Company. As discussed in "A.
Payments," a properly completed authorization form must be on file before
telephone requests will be honored. Transfer values will be based on the
Accumulated Value next computed after receipt of the transfer request.
Transfers to a Guarantee Period Account must be at least $1,000. If the amount
to be transferred to a Guarantee Period Account is less than $1,000, the Company
may transfer that amount to the Money Market Portfolio.
Currently, the Company makes no charge for transfers. The first twelve transfers
in a Contract year are guaranteed to be free of any transfer charge. For each
subsequent transfer in a Contract year, the Company does not currently charge
but reserves the right to assess a charge, guaranteed never to exceed $25, to
reimburse it for the expense of processing transfers.
The Owner may authorize an independent third party to transact allocations and
transfers in accordance with an asset allocation strategy or other investment
strategy. The Company may provide administrative or other support services to
these independent third parties, however, the Company does not engage any third
parties to offer allocation or other investment services under this Contract,
does not endorse or review any allocation or transfer recommendations and is not
responsible for the investment results of such allocations or transfers
transacted on the Owner's behalf. In addition, the Company reserves the right to
discontinue services or limit the number of Funds that it may provide such
services for. The Company does not charge the Owner for providing additional
support services.
25
<PAGE>
AUTOMATIC TRANSFERS (DOLLAR COST AVERAGING) AND AUTOMATIC ACCOUNT REBALANCING
OPTIONS. The Owner may elect automatic transfers of a predetermined dollar
amount, not less than $100, on a periodic basis (monthly, bi-monthly, quarterly,
semi-annually or annually) from the Capital Reserves Series, the Strategic
Income Series, the Cash Reserve Series, or the Fixed Account (the "source
account") to one or more of the Funds. Automatic transfers may not be made into
the Fixed Account, the Guarantee Period Accounts or, if applicable, the Fund
being used as the source account. If an automatic transfer would reduce the
balance in the source account to less than $100, the entire balance will be
transferred proportionately to the chosen Funds. Automatic transfers will
continue until the amount in the source account on a transfer date is zero or
the Owner's request to terminate the option is received by the Company. If
additional amounts are allocated to the source account after its balance has
fallen to zero, this option will not restart automatically and the Owner must
provide a new request to the Company.
To the extent permitted by state law, the Company reserves the right, from time
to time, to credit an enhanced interest rate to certain initial and/or
subsequent payments which are deposited into the Fixed Account and which utilize
the Fixed Account as the source account for the payment from which to process
automatic transfers. For more information, see APPENDIX A, "MORE INFORMATION
ABOUT THE FIXED ACCOUNT."
The Owner may request automatic rebalancing of Sub-Account allocations on a
monthly, quarterly, semi-annual or annual basis in accordance with percentage
allocations specified by the Owner. As frequently as specified by the Owner, the
Company will review the percentage allocations in the Funds and, if necessary,
transfer amounts to ensure conformity with the designated percentage allocation
mix. If the amount necessary to re-establish the mix on any scheduled date is
less than $100, no transfer will be made. Automatic Account Rebalancing will
continue in accordance with the most recent percentage allocation mix received
until the Owner's request to terminate or change the option is received by the
Company. As such, subsequent payments allocated in a manner different from the
percentage allocation mix in effect on the date the payment is received will be
reallocated in accordance with the existing mix on the next scheduled date
unless the Owner's request to change the mix is received by the Company.
The Company reserves the right to limit the number of Funds that may be utilized
for automatic transfers and rebalancing, and to discontinue either option upon
advance written notice. Currently, Dollar Cost Averaging and Automatic Account
Rebalancing may not be in effect simultaneously. Either option may be elected
when the Contract is purchased or at a later date.
E. SURRENDER
At any time prior to the Annuity Date, an Owner may surrender the Contract and
receive its Surrender Value. The Owner must return the Contract and a signed,
written request for surrender, satisfactory to the Company, to the Principal
office. The amount payable to the Owner upon surrender will be based on the
Contract's Accumulated Value as of the Valuation Date on which the request and
the Contract are received at the Principal Office.
After the Annuity Date, only Contracts under which a commutable period certain
option was elected may be surrendered. The Surrender Amount is the commuted
value of any unpaid installments, computed on the basis of the assumed interest
rate incorporated in such annuity benefit payments. No contingent deferred sales
charge is imposed after the Annuity Date.
Any amount surrendered normally is payable within seven days following the
Company's receipt of the surrender request. The Company reserves the right to
defer surrenders and withdrawals of amounts in each Sub-Account in any period
during which (1) trading on the New York Stock Exchange is restricted as
determined by the SEC or such Exchange is closed for other than weekends and
holidays, (2) the SEC has by order permitted such suspension, or (3) an
emergency, as determined by the SEC, exists such that disposal of portfolio
securities or valuation of assets of each separate account is not reasonably
practicable.
26
<PAGE>
The right is reserved by the Company to defer surrenders and withdrawals of
amounts allocated to the Company's Fixed Account and Guarantee Period Accounts
for a period not to exceed six months.
The surrender rights of Owners who are participants under Section 403(b) plans
or who are participants in the Texas Optional Retirement Program ("Texas ORP")
are restricted; see "Tax-Sheltered Annuities" and "Texas Optional Retirement
Program."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
F. WITHDRAWALS
At any time prior to the Annuity Date, an Owner may withdraw a portion of the
Accumulated Value of his or her Contract, subject to the limits stated below.
The Owner must send a signed, written request for withdrawal, satisfactory to
the Company, to the Company's Principal Office. The written request must
indicate the dollar amount the Owner wishes to receive and the accounts from
which such amount is to be withdrawn. The amount withdrawn equals the amount
requested by the Owner plus any applicable contingent deferred sales charge, as
described under "CHARGES AND DEDUCTIONS." In addition, amounts withdrawn from a
Guarantee Period Account prior to the end of the applicable Guarantee Period
will be subject to a Market Value Adjustment, as described under "GUARANTEE
PERIOD ACCOUNTS."
Where allocations have been made to more than one account, a percentage of the
withdrawal may be allocated to each such account. A withdrawal from a
Sub-Account will result in cancellation of a number of units equivalent in value
to the amount withdrawn, computed as of the Valuation Date that the request is
received at the Principal Office.
Each withdrawal must be in a minimum amount of $100. No withdrawal will be
permitted if the Accumulated Value remaining under the Contract would be reduced
to less than $1,000. Withdrawals will be paid in accordance with the time
limitations described under "E. Surrender."
After the Annuity Date, only a Contract under which a commutable period certain
option was elected may have withdrawals taken. A withdrawal after the Annuity
Date will result in cancellation of a number of Annuity Units equivalent in
value to the amount redeemed.
For important restrictions on withdrawals which are applicable to Owners who are
participants under Section 403(b) plans or under the Texas ORP, see
"Tax-Sheltered Annuities" and "Texas Optional Retirement Program." For important
tax consequences which may result from withdrawals, see "FEDERAL TAX
CONSIDERATIONS."
SYSTEMATIC WITHDRAWALS. The Owner may elect an automatic schedule of withdrawals
("systematic withdrawals") from amounts in the Sub-Accounts and/or the Fixed
Account on a monthly, bi-monthly, quarterly, semi-annual or annual basis.
Systematic withdrawals from Guarantee Period Accounts are not available. The
minimum amount of each automatic withdrawal is $100, and will be subject to any
applicable withdrawal charges. If elected at the time of purchase, the Owner
must designate in writing the specific dollar amount of each withdrawal and the
percentage of this amount which should be taken from each designated Sub-Account
and/or the Fixed Account. Systematic withdrawals then will begin on the date
indicated on the application. If elected after the issue date, the Owner may
elect, by written request, a specific dollar amount and the percentage of this
amount to be taken from each designated Sub-Account and/or the Fixed Account, or
the Owner may elect to withdraw a specific percentage of the Accumulated Value
calculated as of the withdrawal dates, and may designate the percentage of this
amount which should be taken from each account. The first withdrawal will take
place on the date the written request is received at the Principal Office or, if
later, on a date specified by the Owner.
27
<PAGE>
If a withdrawal would cause the remaining Accumulated Value to be less than
$1,000, systematic withdrawals will be discontinued. Systematic withdrawals will
cease automatically on the Annuity Date. The Owner may change or terminate
systematic withdrawals only by written request to the Principal Office.
LIFE EXPECTANCY DISTRIBUTIONS. Prior to the Annuity Date an Owner who is also
the Annuitant may elect to make a series of systematic withdrawals from the
Contract according to a life expectancy distribution ("LED") option, by
returning a properly signed LED request form to the Principal Office. The LED
option permits the Owner to make systematic withdrawals from the Contract over
his or her lifetime. The amount withdrawn from the Contract changes each year,
because life expectancy changes each year that a person lives. For example,
actuarial tables indicate that a person age 70 has a life expectancy of 16
years, but a person who attains age 86 has a life expectancy of another 6.5
years.
If an Owner elects the LED option, in each Contract year a fraction of the
Accumulated Value is withdrawn based on the Owner's then life expectancy. The
numerator of the fraction is 1 (one), and the denominator of the fraction is the
remaining life expectancy of the Owner, as determined annually by the Company.
The resulting fraction, expressed as a percentage, is applied to the Accumulated
Value at the beginning of the year to determine the amount to be distributed
during the year. The Owner may elect monthly, bi-monthly, quarterly,
semi-annual, or annual distributions, and may terminate the LED option at any
time. The Owner also may elect to receive distributions under an LED option
which is determined on the joint life expectancy of the Owner and a beneficiary.
The Company also may offer other systematic withdrawal options.
Where the Owner is a trust or other non-natural person, the Owner may elect the
LED option based on the Annuitant's life expectancy.
If an Owner makes withdrawals under the LED option prior to age 59 1/2, the
withdrawals may be treated by the Internal Revenue Service ("IRS") as premature
distributions from the Contract. The payments then would be taxed on an "income
first" basis and be subject to a 10% federal tax penalty. For more information,
see "FEDERAL TAX CONSIDERATIONS" and "B. Taxation of the Contracts in General."
For further information on surrender and withdrawal, including minimum limits on
amount withdrawn and amount remaining under the Contract in the case of
withdrawal, and important tax considerations, see "E. Surrender" and "F.
Withdrawal" under "DESCRIPTION OF THE CONTRACT," and "FEDERAL TAX
CONSIDERATIONS."
G. DEATH BENEFIT
DEATH OF THE ANNUITANT PRIOR TO THE ANNUITY DATE. At the death of the Annuitant
(including an Owner who is also the Annuitant), the benefit is equal to the
greatest of (a) the Accumulated Value under the Contract increased by any
positive Market Value Adjustment; (b) gross payments compounded daily at an
annual rate of 5% starting on the date each payment is applied, decreased
proportionately to reflect withdrawals (for each withdrawal, the proportionate
reduction is calculated as the death benefit under this option immediately prior
to the withdrawal multiplied by the withdrawal amount and divided by the
Accumulated Value immediately prior to the withdrawal); or (c) the death benefit
that would have been payable on the most recent contract anniversary, increased
for subsequent payments and decreased proportionately for subsequent
withdrawals.
This guaranteed death benefit works in the following way assuming no withdrawals
are made. On the first anniversary, the death benefit will be equal to the
greater of (a) the Accumulated Value (increased by any positive Market Value
Adjustment) or (b) gross payments compounded at the annual rate of 5%. The
higher of (a) or (b) will then be locked in until the second anniversary, at
which time the death benefit will be equal to the greatest of (a) the Contract's
then current Accumulated Value increased by any positive Market Value
Adjustment; (b) gross payments compounded at the annual rate of 5% or (c) the
locked-in value of the death benefit at the first anniversary. The greatest of
(a), (b) or (c) will be locked in until the next Contract anniversary. This
calculation will then be repeated on each anniversary while the Contract remains
in force
28
<PAGE>
and prior to the Annuity Date. As noted above, the values of (b) and (c) will be
decreased proportionately if withdrawals are taken. See APPENDIX C, "THE DEATH
BENEFIT" for specific examples of death benefit calculations.
DEATH OF AN OWNER WHO IS NOT ALSO THE ANNUITANT PRIOR TO THE ANNUITY DATE. If an
Owner who is not also the Annuitant dies before the Annuity Date, the death
benefit will be the Accumulated Value increased by any positive Market Value
Adjustment. The death benefit never will be reduced by a negative Market Value
Adjustment.
PAYMENT OF THE DEATH BENEFIT PRIOR TO THE ANNUITY DATE. The death benefit
generally will be paid to the beneficiary in one sum within seven business days
of the receipt of due proof of death at the Principal Office unless the Owner
has specified a death benefit annuity option. Instead of payment in one sum, the
beneficiary may, by written request, elect to:
(1) defer distribution of the death benefit for a period not more than five
years from the date of death; or
(2) receive a life annuity or an annuity for a period certain not extending
beyond the beneficiary's life expectancy, with annuity benefit payments
beginning one year from the date of death.
If distribution of the death benefit is deferred under (1) or (2), any value in
the Guarantee Period Accounts will be transferred to the Sub-Account investing
in the Cash Reserve Series. The excess, if any, of the death benefit over the
Accumulated Value also will be added to the Cash Reserve Series. The beneficiary
may, by written request, effect transfers and withdrawals during the deferral
period and prior to annuitization under (2), but may not make additional
payments. The death benefit will reflect any earnings or losses experienced
during the deferral period. If there are multiple beneficiaries, the consent of
all is required.
With respect to the death benefit, the Accumulated Value under the Contract will
be based on the unit values next computed after due proof of the death has been
received.
DEATH OF THE ANNUITANT ON OR AFTER THE ANNUITY DATE. If the Annuitant's death
occurs on or after the Annuity Date but before completion of all guaranteed
annuity benefit payments, any unpaid amounts or installments will be paid to the
beneficiary. The Company must pay out the remaining payments at least as rapidly
as under the payment option in effect on the date of the Annuitant's death.
H. THE SPOUSE OF THE OWNER AS BENEFICIARY
The Owner's spouse, if named as the sole beneficiary, may by written request
continue the Contract in lieu of receiving the amount payable upon the death of
the Owner. Upon such election, the spouse will become the Owner and Annuitant
subject to the following: (1) any value in the Guarantee Period Accounts will be
transferred to the Cash Reserve Series; (2) the excess, if any, of the death
benefit over the Contract's
29
<PAGE>
Accumulated Value also will be added to the Cash Reserve Series. Additional
payments may be made; however, a surrender charge will apply to these amounts.
All other rights and benefits provided in the Contract will continue, except
that any subsequent spouse of such new Owner will not be entitled to continue
the Contract upon such new Owner's death.
I. ASSIGNMENT
The Contract, other than that sold in connection with certain qualified plans,
may be assigned by the Owner at any time prior to the Annuity Date and while the
Annuitant is alive. The Company will not be deemed to have knowledge of an
assignment unless it is made in writing and filed at the Principal Office. The
Company will not assume responsibility for determining the validity of any
assignment. If an assignment of the Contract is in effect on the Annuity Date,
the Company reserves the right to pay to the assignee, in one sum, that portion
of the Surrender Value of the Contract to which the assignee appears to be
entitled. The Company will pay the balance, if any, in one sum to the Owner in
full settlement of all liability under the Contract. The interest of the Owner
and of any beneficiary will be subject to any assignment. For important tax
consequences which may result from assignments, see "FEDERAL TAX
CONSIDERATIONS."
J. ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE
The Annuity Date is selected by the Owner. To the extent permitted in your
state, the Annuity Date may be the first day of any month (1) before the
Annuitant's 85th birthday, if the Annuitant's age on the issue date of the
Contract is 75 or under; or (2) within ten years from the issue date of the
Contract and before the Annuitant's 90th birthday, if the Annuitant's age on the
issue date is between 76 and 90. The Owner may elect to change the Annuity Date
by sending a request to the Principal Office at least one month before the
Annuity date. The new Annuity Date must be the first day of any month occurring
before the Annuitant's 90th birthday, and must be within the life expectancy of
the Annuitant. The Company shall determine such life expectancy at the time a
change in Annuity Date is requested. The Code and the terms of qualified plans
impose limitations on the age at which annuity benefit payments may commence and
the type of annuity option selected. See "FEDERAL TAX CONSIDERATIONS" for
further information.
Subject to certain restrictions described below, the Owner has the right (1) to
select the annuity option under which annuity benefit payments are to be made,
and (2) to determine whether payments are to be made on a fixed basis, a
variable basis, or a combination fixed and variable basis. Annuity benefit
payments are determined according to the annuity tables in the Contract, by the
annuity option selected, and by the investment performance of the accounts
selected.
To the extent a fixed annuity is selected, Accumulated Value will be transferred
to the Fixed Account of the Company, and the annuity benefit payments will be
fixed in amount. See APPENDIX A, "MORE INFORMATION ABOUT THE FIXED ACCOUNT."
Under a variable annuity payout, a payment equal to the value of the fixed
number of Annuity Units in the Sub-Accounts is made monthly, quarterly,
semi-annually or annually. Since the value of an Annuity Unit in a Sub-Account
will reflect the investment performance of the Sub-Account, the amount of each
annuity benefit payment will vary.
The annuity payout option selected must produce an initial payment of at least
$50 (a lower amount may be required under some state laws). The Company reserves
the right to increase these minimum amounts. If the annuity payout option
selected does not produce an initial payment which meets this minimum, a single
payment will be made. Once the Company begins making annuity benefit payments,
the Annuitant cannot make withdrawals or surrender the annuity except in the
case where a commutable period certain option has been elected. Only
beneficiaries entitled to receive remaining payments for a "period certain" may
elect to instead receive a lump sum settlement.
30
<PAGE>
If the Owner does not elect otherwise, a variable life annuity with periodic
payments for ten years guaranteed will be purchased. Changes in either the
Annuity Date or annuity option can be made up to one month prior to the Annuity
Date.
K. DESCRIPTION OF VARIABLE ANNUITY PAYOUT OPTIONS
The Company provides the variable annuity payout options described below.
Currently, variable annuity options may be funded through the Decatur Total
Return Series, the Delaware Series, and the Capital Reserves Series. The Company
also provides these same options funded through the Fixed Account (fixed annuity
payout option). Regardless of how payments were allocated during the
accumulation period, any of the variable annuity payout options or the fixed
payout options may be selected, or any of the variable annuity payout options
may be selected in combination with any of the fixed annuity payout options.
Other annuity options may be offered by the Company.
VARIABLE LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR TEN YEARS. This is a
variable annuity payable periodically during the lifetime of the payee with the
guarantee that if the payee should die before all payments have been made, the
remaining annuity benefit payments will continue to the beneficiary.
VARIABLE LIFE ANNUITY PAYABLE PERIODICALLY DURING THE LIFETIME OF THE ANNUITANT
ONLY. It would be possible under this option for the Annuitant to receive only
one annuity benefit payment if the Annuitant dies prior to the due date of the
second annuity benefit payment, two annuity benefit payments if the Annuitant
dies before the due date of the third annuity benefit payment, and so on.
Payments will continue, however, during the lifetime of the Annuitant, no matter
how long he or she lives.
UNIT REFUND VARIABLE LIFE ANNUITY. This is a variable annuity payable
periodically during the lifetime of the payee with the guarantee that if (1)
exceeds (2), then periodic variable annuity benefit payments will continue to
the beneficiary until the number of such payments equals the number determined
in (1).
Where: (1) is the dollar amount of the Accumulated Value divided by the
dollar amount of the first payment, and
(2) is the number of payments paid prior to the death of the
payee.
JOINT AND SURVIVOR VARIABLE LIFE ANNUITY. This variable annuity is payable
jointly to two payees during their joint lifetime, and then continuing during
the lifetime of the survivor. The amount of each payment to the survivor is
based on the same number of Annuity Units which applied during the joint
lifetime of the two payees. One of the payees must be either the person
designated as the Annuitant in the Contract or the beneficiary. There is no
minimum number of payments under this option.
JOINT AND TWO-THIRDS SURVIVOR VARIABLE LIFE ANNUITY. This is a variable annuity
payable jointly to two payees during their joint lifetime, and then continuing
thereafter during the lifetime of the survivor. The amount of each periodic
payment to the survivor, however, is based upon two-thirds of the number of
Annuity Units which applied during the joint lifetime of the two payees. One of
the payees must be the person designated as the Annuitant or the beneficiary in
the Contract. There is no minimum number of payments under this option.
PERIOD CERTAIN VARIABLE ANNUITY. This variable annuity provides periodic
payments for a stipulated number of years ranging from one to 30. This option
may be commutable, that is, the payee reserves the right to receive a lump sum
in place of installments, or it becomes noncommutable. The payee must reserve
this right at the time benefits begin.
The period certain option does not involve a life contingency. In the
computation of the payments under this option, the charge for annuity rate
guarantees, which includes a factor for mortality risks, is made. Although not
contractually required to do so, the Company currently follows a practice of
permitting persons receiving
31
<PAGE>
payments under the period certain option to elect to convert to a variable
annuity involving a life contingency. The Company may discontinue or change this
practice at any time, but not with respect to election of the option made prior
to the date of any change in this practice. See "FEDERAL TAX CONSIDERATIONS" for
a discussion of the possible adverse tax consequences of selecting a period
certain option.
L. ANNUITY BENEFIT PAYMENTS
THE ANNUITY UNIT. On and after the Annuity Date, the Annuity Unit is a measure
of the value of the Annuitant's monthly annuity benefit payments under a
variable annuity option. The value of an Annuity Unit in each Sub-Account
initially was set at $1.00. The value of an Annuity Unit under a Sub-Account on
any Valuation Date thereafter is equal to the value of such unit on the
immediately preceding Valuation Date, multiplied by the product of (1) the net
investment factor of the Sub-Account for the current Valuation Period, and (2) a
factor to adjust benefits to neutralize the assumed interest rate. The assumed
interest rate, discussed below, is incorporated in the variable annuity options
offered in the Contract.
DETERMINATION OF THE FIRST AND SUBSEQUENT ANNUITY BENEFIT PAYMENTS. The first
periodic annuity benefit payment is based upon the Accumulated Value as of a
date not more than four weeks preceding the date that the first annuity benefit
payment is due. Variable annuity benefit payments are due on the first of a
month, which is the date the payment is to be received by the Annuitant, and
currently are based on unit values as of the 15th day of the preceding month.
The Contract provides annuity rates which determine the dollar amount of the
first periodic payment under each form of annuity for each $1,000 of applied
value. For life option and non-commutable period certain options of ten or more
years, the annuity value is the Accumulated Value less any premium taxes and
adjusted for any Market Value Adjustment. For commutable period certain options
or any period certain option less than ten years, the value is the Surrender
Value less any premium tax. For a death benefit annuity, the annuity value will
be the amount of the death benefit. The annuity rates in the Contract are based
on a modification of the 1983(a) Individual Mortality Table on rates.
The amount of the first monthly payment depends upon the form of annuity
selected, the sex (however, see "M. NORRIS Decision") and age of the Annuitant
and the value of the amount applied under the annuity option. The variable
annuity options offered by the Company are based on a 3 1/2% assumed interest
rate. Variable payments are affected by the assumed interest rate used in
calculating the annuity option rates. Variable annuity benefit payments will
increase over periods when the actual net investment result of the Sub-Accounts
funding the annuity exceeds the equivalent of the assumed interest rate for the
period. Variable annuity benefit payments will decrease over periods when the
actual net investment result of the respective Sub-Account is less than the
equivalent of the assumed interest rate for the period.
The dollar amount of the first periodic annuity benefit payment under life
annuity options and non-commutable period certain options of ten years or more
is determined by multiplying (1) the Accumulated Value applied under that option
(after application of any Market Value Adjustment and less premium tax, if any)
divided by $1,000, by (2) the applicable amount of the first monthly payment per
$1,000 of value. For commutable period certain options and any period certain
option of less than ten years, the Surrender Value less premium taxes, if any,
is used rather than the Accumulated Value. The dollar amount of the first
variable annuity benefit payment is then divided by the value of an Annuity Unit
of the selected Sub-Accounts to determine the number of Annuity Units
represented by the first payment. This number of Annuity Units remains fixed
under all annuity options except the joint and two-thirds survivor annuity
option. For each subsequent payment, the dollar amount of the variable annuity
benefit payment is determined by multiplying this fixed number of Annuity Units
by the value of an Annuity unit on the applicable Valuation Date.
After the first payment, the dollar amount of each periodic variable annuity
benefit payment will vary with subsequent variations in the value of the Annuity
Unit of the selected Sub-Accounts. The dollar amount of
32
<PAGE>
each fixed amount annuity benefit payment is fixed and will not change, except
under the joint and two-thirds survivor annuity option.
From time to time, the Company may offer the Owner both fixed and variable
annuity rates more favorable than those contained in the Contract. Any such
rates will be applied uniformly to all Owners of the same class. For an
illustration of variable annuity benefit payment calculation using a
hypothetical example, see "ANNUITY BENEFIT PAYMENTS" in the SAI.
M. NORRIS DECISION
In the case of ARIZONA GOVERNING COMMITTEE V. NORRIS, the United States Supreme
Court ruled that, in connection with retirement benefit options offered under
certain employer-sponsored employee benefit plans, annuity options based on
sex-distinct actuarial tables are not permissible under Title VII of the Civil
Rights Act of 1964. The ruling requires that benefits derived from contributions
paid into a plan after August 1, 1983 be calculated without regard to the sex of
the employee. Annuity benefits attributable to payments received by the Company
under a Contract issued in connection with an employer-sponsored benefit plan
affected by the Norris decision will be based on the greater of (1) the
Company's unisex Non-Guaranteed Current Annuity Option Rates, or (2) the
guaranteed unisex rates described in such Contract, regardless of whether the
Annuitant is male or female.
N. COMPUTATION OF VALUES
THE ACCUMULATION UNIT. Each net payment is allocated to the accounts selected by
the Owner. Allocations to the Sub-Accounts are credited to the Contract in the
form of Accumulation Units. Accumulation Units are credited separately for each
Sub-Account. The number of Accumulation Units of each Sub-Account credited to
the Contract is equal to the portion of the net payment allocated to the
Sub-Account, divided by the dollar value of the applicable Accumulation Unit as
of the Valuation Date the payment is received at the Principal Office. The
number of Accumulation Units resulting from each payment will remain fixed
unless changed by a subsequent split of Accumulation Unit value, a transfer, a
withdrawal, or surrender. The dollar value of an Accumulation Unit of each
Sub-Account varies from Valuation Date to Valuation Date based on the investment
experience of that Sub-Account, and will reflect the investment performance,
expenses and charges of its Underlying Funds. The value of an Accumulation Unit
was set at $1.00 on the first Valuation Date for each Sub-Account.
Allocations to Guarantee Period Accounts and the Fixed Account are not converted
into Accumulation Units, but are credited interest at a rate periodically set by
the Company.
The Accumulated Value under the Contract is determined by (1) multiplying the
number of Accumulation Units in each Sub-Account by the value of an Accumulation
Unit of that Sub-Account on the Valuation Date, (2) adding the products, and (3)
adding the amount of the accumulations in the Fixed Account, if any.
NET INVESTMENT FACTOR. The Net Investment Factor is an index that measures the
investment performance of a Sub-Account from one Valuation Period to the next.
This factor is equal to 1.000000 plus the result from dividing (1) by (2) and
subtracting (3) and (4) where:
(1) is the investment income of a Sub-Account for the Valuation Period,
including realized or unrealized capital gains and losses during the
Valuation Period, adjusted for provisions made for taxes, if any;
(2) is the value of that Sub-Account's assets at the beginning of the
Valuation Period;
(3) is a charge for mortality and expense risks equal to 1.25% on an annual
basis of the daily value of the Sub-Account's assets, and
(4) is an administrative charge equal to 0.15% on an annual basis of the
daily value of the Sub-Account's assets.
33
<PAGE>
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
an hypothetical example see the SAI. Subject to compliance with applicable state
and federal law, the Company reserves the right to change the methodology for
determining the net investment factor.
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 prospectus and the SAI of DGPF.
A. VARIABLE ACCOUNT DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a charge of 1.25% on an
annual basis of the daily value of each Sub-Account's assets to cover the
mortality and expense risk which the Company assumes in relation to the variable
portion of the Contract. 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 option selected), no matter how
long the Annuitant (or other payee) lives, and no matter how long all Annuitants
as a class live. Therefore, the mortality charge is deducted during the annuity
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.
Since mortality and expense risks involve future contingencies which are not
subject to precise determination in advance, it is not feasible to identify
specifically the portion of the charge which is applicable to each. The Company
estimates that a reasonable allocation might be .80% for mortality risk and .45%
for expense risk.
ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account with a
daily charge at an annual rate of 0.15% of the average daily net assets of the
Sub-Account. The charge is imposed during both the accumulation phase and the
annuity payout phase. The daily administrative expense charge is assessed to
help defray administrative expenses actually incurred in the administration of
the Sub-Account, without profits. There is no direct relationship, however,
between the amount of administrative expenses imposed on a given Contract and
the amount of expenses actually attributable to that Contract.
Deductions for the Contract fee (described 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 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.
34
<PAGE>
The prospectus and SAI of DGPF contain additional information concerning
expenses of the Underlying Funds.
B. CONTRACT FEE
Currently, a $30 Contract fee is deducted on the Contract anniversary date and
upon full surrender of the Contract when the Accumulated Value is less than
$50,000. The Contract fee is waived for a Contract issued to and maintained by
the trustee of a 401(k) plan. Where Contract value has been allocated to more
than one account, a percentage of the total Contract fee will be deducted from
the value in each account. The portion of the charge deducted from each account
will be equal to the percentage which the value in that account bears to the
Accumulated Value under the Contract. The deduction of the Contract fee from a
Sub-Account will result in cancellation of a number of Accumulation Units equal
in value to the percentage of the charge deducted from that account.
Where permitted by law, the Contract fee also may be waived for Contracts where,
on the issue date, either the Owner or the Annuitant is within the class of
"eligible persons" as defined in the "Reduction or Elimination of Surrender
Charge" provision below.
C. PREMIUM TAXES
Some states and municipalities impose a premium tax on variable annuity
contracts. State premium taxes currently range up to 3.5%.
The Company makes a charge for state and municipal premium taxes, when
applicable, and deducts the amount paid as a premium tax charge. The current
practice of the Company is to deduct the premium tax charge in one of two ways:
(1) if the premium tax was paid by the Company when payments were received,
the premium tax charge is deducted on a pro-rata basis when withdrawals
are made, upon surrender of the Contract, or when annuity benefit
payments begin (the Company reserves the right instead to deduct the
premium tax charge for the Contract at the time the payments are
received); or
(2) the premium tax charge is deducted when annuity benefit payments begin.
In no event will a deduction be taken before the Company has incurred a tax
liability under applicable state law.
If no amount for premium tax was deducted at the time the payment was received,
but subsequently tax is determined to be due prior to the Annuity Date, the
Company reserves the right to deduct the premium tax from the Contract value at
the time such determination is made.
D. CONTINGENT DEFERRED SALES CHARGE
No charge for sales expense is deducted from payments at the time the payments
are made. A contingent deferred sales charge, however, is deducted from the
Accumulated Value of the Contract in the case of surrender and/or withdrawal of
the Contract or at the time annuity benefit payments begin, within certain time
limits described below.
For purposes of determining the contingent deferred sales charge, the
Accumulated Value is divided into three categories: (1) New Payments -- payments
received by the Company during the seven years preceding the date of the
surrender; (2) Old Payments -- accumulated payments not defined as New Payments;
and (3) the amount available under the Withdrawal Without Surrender Charge
provision. See "Withdrawal Without Surrender Charge" below. For purposes of
determining the amount of any contingent deferred sales charge, surrenders will
be deemed to be taken first from amounts available as a Withdrawal Without
Surrender Charge, if any, then from Old Payments, and then from New Payments.
Amounts available as a Withdrawal Without Surrender Charge followed by Old
Payments may be withdrawn from the Contract at any time
35
<PAGE>
without the imposition of a contingent deferred sales charge. If a withdrawal is
attributable all or in part to New Payments, a contingent deferred sales charge
may apply.
CHARGE FOR SURRENDER AND WITHDRAWAL. If the Contract is surrendered, or if New
Payments are withdrawn, while the Contract is in force and before the Annuity
Date, a contingent deferred sales charge may be imposed. The amount of the
charge will depend upon the number of years that the New Payments, if any, to
which the withdrawal is attributed have remained credited under the Contract.
Amounts withdrawn are deducted first from Old Payments. Then, for the purpose of
calculating surrender charges for New Payments, all amounts withdrawn are
assumed to be deducted first from the earliest New Payment and then from the
next earliest New Payment and so on, until all New Payments have been exhausted
pursuant to the first-in-first-out ("FIFO") method of accounting. (See "FEDERAL
TAX CONSIDERATIONS" for a discussion of how withdrawals are treated for income
tax purposes.)
The contingent deferred sales charges are as follows:
<TABLE>
<CAPTION>
YEARS FROM CHARGE AS PERCENTAGE OF
DATE OF PAYMENT NEW PAYMENTS WITHDRAWN
- --------------- -------------------------
<S> <C>
less than 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
More than 7 0%
</TABLE>
The amount withdrawn equals the amount requested by the Owner plus the charge,
if any. The charge is applied as a percentage of the New Payments withdrawn, but
in no event will the total contingent deferred sales charge exceed a maximum
limit of 7% of total gross New Payments. Such total charge equals the aggregate
of all applicable contingent deferred sales charges for surrender, withdrawals
and annuitization.
REDUCTION OR ELIMINATION OF SURRENDER CHARGE. Where permitted by state law, the
Company will waive the contingent deferred sales charge in the event that an
Owner (or the Annuitant, if the Owner is not an individual) is: (1) admitted to
a medical care facility after the issue date of the Contract and remains
confined there until the later of one year after the issue date or 90
consecutive days; (2) first diagnosed by a licensed physician as having a fatal
illness after the issue date of the Contract; or (3) physically disabled after
the issue date of the Contract and before attaining age 65. The Company may
require proof of such disability and continuing disability, including written
confirmation of receipt and approval of any claim for Social Security Disability
Benefits, and reserves the right to obtain an examination by a licensed
physician of its choice and at its expense.
For purposes of the above provision, "medical care facility" means any
state-licensed facility (or, in a state that does not require licensing a
facility that is operating pursuant to state law), providing medically necessary
inpatient care which is prescribed by a licensed "physician" in writing and
based on physical limitations which prohibit daily living in a non-institutional
setting; "fatal illness" means a condition diagnosed by a licensed physician
which is expected to result in death within two years of the diagnosis; and
"physician" means a person other than the Owner, Annuitant or a member of one of
their families who is state licensed to give medical care or treatment and is
acting within the scope of that license.
Where contingent deferred sales charges have been waived under any one of the
three situations discussed above, no additional payments under the Contract will
be accepted unless required by state law.
36
<PAGE>
In addition, from time to time the Company may allow a reduction in or
elimination of the contingent deferred sales charge, the period during which the
charge applies, or both, and/or credit additional amounts on the Contract when
the Contract is sold to individuals or groups of individuals in a manner that
reduces sales expenses. The Company will consider factors such as the following:
(1) the size and type of group or class, and the persistency expected from that
group or class; (2) the total amount of payments to be received and the manner
in which payments are remitted; (3) the purpose for which the Contract is being
purchased and whether that purpose makes it likely that costs and expenses will
be reduced; (4) other transactions where sales expenses are likely to be
reduced; or (5) the level of commissions paid to selling broker-dealers or
certain financial institutions with respect to Contracts within the same group
or class (for example, broker-dealers who offer the Contract in connection with
financial planning services offered on a fee-for-service basis). The Company
also may reduce or waive the contingent sales charge and/or credit additional
amounts on the Contract where either the Owner or the Annuitant on the issue
date are within the following classes of individuals ("eligible persons"):
employees and registered representatives of any broker-dealer which has entered
into a sales agreement with the Company to sell the Contract; an employee of the
Company, its affiliates or subsidiaries; officers, directors, trustees and
employees of any of the Underlying Funds, investment managers or Sub-Advisers;
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. Finally, if permitted under state law, contingent
deferred sales charges may be waived under Section 403(b) Contracts where the
amount withdrawn is being contributed to a life insurance policy issued by the
Company as part of the individual's Section 403(b) plan.
Any reduction or elimination in the amount or duration of the contingent
deferred sales charge will not discriminate unfairly among purchasers of the
Contract. The Company will not make any changes to the charge where prohibited
by law.
Pursuant to Section 11 of the 1940 Act and Rule 11a-2 thereunder, the contingent
deferred sales charge is modified to effect certain exchanges of existing
annuity contracts issued by the Company for the Contract. See "EXCHANGE OFFER"
in the SAI.
WITHDRAWAL WITHOUT SURRENDER CHARGE. In each calendar year, the Company will
waive the contingent deferred sales charge, if any, on an amount ("Withdrawal
Without Surrender Charge") equal to the greatest of (1), (2) or (3):
Where (1) is: The Accumulated Value as of the Valuation Date coincident
with or next following the date of receipt of the request for
withdrawal, reduced by total gross payments not previously
redeemed (Cumulative Earnings);
Where (2) is: 15% of the Accumulated Value as of the Valuation Date
coincident with or next following the date of receipt of the
request for withdrawal, reduced by the total amount of any
prior withdrawals made in the same calendar year to which no
contingent deferred sales charge was applied; and
Where (3) is: The amount calculated under the Company's life expectancy
distribution Option (see Life Expectancy Distributions)
whether or not the withdrawal was part of such distribution
(applies only if Annuitant is also an Owner).
For example, an 81-year-old Owner/Annuitant with an Accumulated Value of
$15,000, of which $1,000 is Cumulative Earnings, would have a Withdrawal Without
Surrender Charge Amount of $2,250, which is equal to the greatest of:
(1) Cumulative Earnings ($1,000);
(2) 15% of Accumulated Value ($2,250); or
(3) LED of 10.2% of Accumulated Value ($1,530).
37
<PAGE>
The Withdrawal Without Surrender Charge will be deducted first from Cumulative
Earnings. If the Withdrawal Without Surrender Charge exceeds Cumulative
Earnings, the excess amount will be deemed withdrawn from payments not
previously withdrawn on a LIFO basis. If more than one withdrawal is made during
the year, on each subsequent withdrawal the Company will waive the contingent
deferred sales charge, if any, until the entire Withdrawal Without Surrender
Charge has been withdrawn. Amounts withdrawn from a Guarantee Period Account
prior to the end of the applicable Guarantee Period will be subject to a Market
Value Adjustment.
SURRENDERS. In the case of a complete surrender, the amount received by the
Owner is equal to the entire Accumulated Value under the Contract, net of the
applicable contingent deferred sales charge on New Payments, the Contract fee
and any applicable tax withholding and adjusted for any applicable Market Value
Adjustment. Subject to the same rules that are applicable to withdrawals, the
Company will not assess a contingent deferred sales charge on an amount equal to
the greatest Withdrawal Without Surrender Charge amount available.
Where an Owner who is trustee under a pension plan surrenders, in whole or in
part, a Contract on a terminating employee, the trustee will be permitted to
reallocate all or a part of the Accumulated Value under the Contract to other
contracts issued by the Company and owned by the trustee, with no deduction for
any otherwise applicable contingent deferred sales charge. Any such reallocation
will be at the Accumulation Unit values for the Sub-Accounts as of the valuation
date on which a written, signed request is received at the Principal Office.
CHARGE AT THE TIME ANNUITY BENEFIT PAYMENTS BEGIN. If any commutable period
certain option or a non-commutable period certain option for less than ten years
is chosen, a contingent deferred sales charge will be deducted from the
Accumulated Value of the Contract if the Annuity Date occurs at any time when
the surrender charge would still apply had the Contract been surrendered on the
Annuity Date.
No contingent deferred sales charge is imposed at the time of annuitization in
any Contract year under an option involving a life contingency or for any
non-commutable period certain option for ten years or more. A Market Value
Adjustment, however, may apply. See "GUARANTEE PERIOD ACCOUNTS." If an owner of
an existing fixed annuity contract issued by the Company wishes to elect a
variable annuity option, the Company may permit such owner to exchange, at the
time of annuitization, the fixed contract for the Contract offered in this
Prospectus. The proceeds of the fixed contract, minus any contingent deferred
sales charge applicable under the fixed contract if a period certain option is
chosen, will be applied towards the variable annuity option desired by the
Owner. The number of Annuity Units under the option will be calculated using the
Annuity Unit values as of the 15th of the month preceding the Annuity Date.
E. TRANSFER CHARGE
The Company currently makes no charge for processing transfers. The Company
guarantees that the first 12 transfers in a Contract year will be free of
transfer charge, but reserves the right to assess a charge, guaranteed never to
exceed $25, for each subsequent transfer in a Contract year.
GUARANTEE PERIOD ACCOUNTS
Due to certain exemptive and exclusionary provisions in the securities laws,
interests in the Guarantee Period Accounts and the Company's Fixed Account are
not registered as an investment company under the provisions of the Securities
Act of 1933 ("the 1933 Act") or the 1940 Act. Accordingly, the staff of the SEC
has not reviewed the disclosures in this Prospectus relating to the Guarantee
Period Accounts or the Fixed Account. Nevertheless, disclosures regarding the
Guarantee Period Accounts and the Fixed Account of this annuity Contract or any
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 this
Prospectus.
38
<PAGE>
INVESTMENT OPTIONS. In most jurisdictions, there currently are nine Guarantee
Periods available under the Contract with durations of two, three, four, five,
six, seven, eight, nine and ten years. Each Guarantee Period established for the
Owner is accounted for separately in a non-unitized segregated account. Each
Guarantee Period Account provides for the accumulation of interest at a
Guaranteed Interest Rate. The Guaranteed Interest Rate on amounts allocated or
transferred to a Guarantee Period Account is determined from time to time by the
Company in accordance with market conditions; however, once an interest rate is
in effect for a Guarantee Period Account, the Company may not change it during
the duration of the Guarantee Period. In no event will the Guaranteed Interest
Rate be less than 3%.
To the extent permitted by law, the Company reserves the right at any time to
offer Guarantee Periods with durations that differ from those which were
available when the 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 (subject to the
Fixed Account limitations in some states; see APPENDIX A, "MORE INFORMATION
ABOUT THE FIXED ACCOUNT"). 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
Cash Reserve Series. The Owner may allocate amounts to any of the Guarantee
Periods available. Notwithstanding any other provision in this Prospectus, with
respect to a Contract issued in the state of Pennsylvania, no amounts may be
allocated or transferred to any Guarantee Period that would extend more than six
months beyond the Annuity Date in effect on the date the allocation or transfer
is effected.
At least 45 days, but not more than 75 days, prior to the end of a Guarantee
Period, the Company will notify the Owner in writing of the expiration of that
Guarantee Period. At the end of a Guarantee Period the Owner may transfer
amounts to the Sub-Accounts, the Fixed Account or establish a new Guarantee
Period Account of any duration then offered by the Company without a Market
Value Adjustment. If reallocation instructions are not received at the Principal
Office before the end of a Guarantee Period, the account value automatically
will be applied to a new Guarantee Period Account with the same duration, unless
(1) less than $1,000 would remain in the Guarantee Period Account on the
expiration date, or (2) the Guarantee Period would extend beyond the Annuity
Date, or is no longer available. In such cases, the Guarantee Period Account
value will be transferred to the Cash Reserve Series. Where amounts
automatically have been renewed in a new Guarantee Period, it is the Company's
current practice to give the Owner an additional 30 days to transfer out of the
Guarantee Period Account without application of a Market Value Adjustment. This
practice may be discontinued or changed at the Company's discretion.
MARKET VALUE ADJUSTMENT. No Market Value Adjustment will be applied to
transfers, withdrawals, or a surrender from a Guarantee Period Account on the
expiration of its Guarantee Period. In addition, no negative Market Value
Adjustment will be applied to a death benefit although a positive Market Value
Adjustment, if any, will be applied to increase the value of the death benefit
when based on the Contract's Accumulated Value. See "G. Death Benefit." A Market
Value Adjustment will apply to all other transfers, withdrawals, or a surrender.
Amounts applied under an annuity option are treated as withdrawals when
calculating the Market Value Adjustment. The Market Value Adjustment will be
determined by multiplying the amount taken from
39
<PAGE>
each Guarantee Period Account before deduction of any Surrender Charge by the
market value factor. The market value factor for each Guarantee Period Account
is equal to:
[(1+i)/(1+j)](n/365) - 1
where: i is the Guaranteed Interest Rate expressed as a decimal (for
example: 3% = 0.03) being credited to the current Guarantee
Period;
j is the new Guaranteed Interest Rate, expressed as a decimal,
for a Guarantee Period with a duration equal to the number of
years remaining in the current Guarantee Period, rounded to
the next higher number of whole years. If that rate is not
available, the Company will use a suitable rate or index
allowed by the Department of Insurance; and
n is the number of days remaining from the Effective Valuation
Date to the end of the current Guarantee Period.
Based on the application of this formula, the value of a Guarantee Period
Account will increase after the Market Value Adjustment is applied if the then
current market rates are lower than the rate being credited to the Guarantee
Period Account. Similarly, the value of a Guarantee Period Account will decrease
after the Market Value Adjustment is applied if the then current market rates
are higher than the rate being credited to the Guarantee Period Account. The
Market Value Adjustment is limited, however, so that even if the account value
is decreased after application of a Market Value Adjustment, it will equal or
exceed the Owner's principal plus 3% earnings per year less applicable Contract
fees. Conversely, if the then current market rates are lower and the account
value is increased after the Market Value Adjustment is applied, the increase in
value also is affected by the minimum guaranteed rate of 3% such that the amount
that will be added to the Guarantee Period Account is limited to the difference
between the amount earned and the 3% minimum guaranteed earnings. For examples
of how the Market Value Adjustment works, see "APPENDIX B."
PROGRAM TO PROTECT PRINCIPAL AND PROVIDE GROWTH POTENTIAL. Under this feature,
the Owner elects a Guarantee Period and one or more Sub-Accounts. The Company
then will compute the proportion of the initial payment that must be allocated
to the Guarantee Period selected, assuming no transfers or withdrawals, in order
to ensure that on the last day of the Guarantee Period it will equal the amount
of the entire initial payment. The required amount then will be allocated to the
pre-selected Guarantee Period Account and the remaining balance to the other
investment options selected by the Owner in accordance with the procedures
described in "A. Payments."
WITHDRAWALS. Prior to the Annuity Date, the Owner may make withdrawals of
amounts held in the Guarantee Period Accounts. Withdrawals from these accounts
will be made in the same manner and be subject to the same rules as set forth
under "E. Surrender" and "F. Withdrawals." In addition, the following provisions
also apply to withdrawals from a Guarantee Period Account: (1) a Market Value
Adjustment will apply to all withdrawals, including Withdrawals without
Surrender Charge, unless made at the end of the Guarantee Period; and (2) the
Company reserves the right to defer payments of amounts withdrawn from a
Guarantee Period Account for up to six months from the date it receives the
withdrawal request. If deferred for 30 days or more, the Company will pay
interest on the amount deferred at a rate of at least 3%.
In the event that a Market Value Adjustment applies to a withdrawal of a portion
of the value of a Guarantee Period Account, it will be calculated on the amount
requested and deducted or added to the amount remaining in the Guarantee Period
Account. If the entire amount in a Guarantee Period Account is requested, the
adjustment will be made to the amount payable. If a contingent deferred sales
charge applies to the withdrawal, it will be calculated as set forth under "D.
Contingent Deferred Sales Charge" after application of the Market Value
Adjustment.
40
<PAGE>
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 this Contract.
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS IS NOT EXHAUSTIVE,
DOES NOT PURPORT TO COVER ALL SITUATIONS, AND IS NOT INTENDED AS TAX ADVICE. A
QUALIFIED TAX ADVISER ALWAYS SHOULD BE CONSULTED WITH REGARD TO THE APPLICATION
OF LAW TO INDIVIDUAL CIRCUMSTANCES.
The Company intends to make a charge for any effect which the income, assets, or
existence of the Contract, the Variable Account or the Sub-Accounts may have
upon its tax. The Variable Account presently is not subject to tax, but the
Company reserves the right to assess a charge for taxes should the Variable
Account at any time become subject to tax. Any charge for taxes will be assessed
on a fair and equitable basis in order to preserve equity among classes of
Owners and with respect to each separate account as though that separate account
were a separate taxable entity.
The Variable Account is considered a part of and taxed with the operations of
the Company. The Company is taxed as a life insurance company under Subchapter L
of the Code. The Company files a consolidated tax return with its affiliates.
The IRS has issued regulations relating to the diversification requirements for
variable annuity and variable life insurance contracts under Section 817(h) of
the Code. The regulations provide that the investments of a segregated asset
account underlying a variable annuity contract are diversified adequately if no
more than 55% of the value of its assets is represented by any one investment,
no more than 70% by any two investments, no more than 80% by any three
investments, and no more than 90% by any four investments. If the investments
are not adequately diversified, the income on a 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 Series of DGPF will comply with the current
diversification requirements. In the event that future IRS regulations and/or
rulings would require Contract modifications in order to remain in compliance
with the diversification standards, the Company will make reasonable efforts to
comply, and it reserves the right to make such changes as it deems appropriate
for that purpose.
A. QUALIFIED AND NON-QUALIFIED CONTRACTS
From a federal tax viewpoint there are two types of variable annuity contracts:
"qualified" contracts and "non-qualified" contracts. A qualified contract is one
that is purchased in connection with a retirement plan which meets the
requirements of Sections 401, 403, or 408 of the Code, while a non-qualified
contract is one that is not purchased in connection with one of the indicated
retirement plans. The tax treatment for certain withdrawals or surrenders will
vary, depending on whether they are made from a qualified contract or a non-
qualified contract. For more information on the tax provisions applicable to
qualified contracts, see Section D below.
B. TAXATION OF THE CONTRACTS IN GENERAL
The Company believes that the Contract described in this Prospectus will, with
certain exceptions (see "Non-Natural Owners" below), be considered an annuity
contract under Section 72 of the Code. This section governs the taxation of
annuities. The following discussion concerns annuities subject to Section 72.
41
<PAGE>
WITHDRAWALS PRIOR TO ANNUITIZATION. With certain exceptions, any increase in the
Contract's Accumulated Value is not taxable to the Owner until it is withdrawn
from the Contract. If the Contract is surrendered or amounts are withdrawn prior
to the annuity date, any withdrawal of investment gain in value over the cost
basis of the Contract will be taxed as ordinary income. Under the current
provisions of the Code, amounts received under an annuity contract prior to
annuitization (including payments made upon the death of the annuitant or
owner), generally are first attributable to any investment gains credited to the
contract over the taxpayer's "investment in the contract." Such amounts will be
treated as gross income subject to federal income taxation. "Investment in the
Contract" is the total of all payments to the Contract which were not excluded
from the Owner's gross income less any amounts previously withdrawn which were
not included in income. Section 72(e)(11)(A)(ii) requires that all non-qualified
deferred annuity contracts issued by the same insurance company to the same
owner during a single calendar year be treated as one contract in determining
taxable distributions.
ANNUITY PAYOUTS AFTER ANNUITIZATION. When annuity benefit payments are commenced
under the Contract, generally a portion of each payment may be excluded from
gross income. The excludable portion generally is determined by a formula that
establishes the ratio that the investment in the Contract bears to the expected
return under the Contract. The portion of the payment in excess of this
excludable amount is taxable as ordinary income. Once all investment in the
Contract is recovered, the entire payment is taxable. If the Annuitant dies
before the investment in the Contract is recovered, a deduction for the
difference is allowed on the Annuitant's final tax return.
PENALTY ON DISTRIBUTION. A 10% penalty tax may be imposed on the withdrawal of
investment gains if the withdrawal is made prior to age 59 1/2. The penalty tax
will not be imposed on withdrawals taken on or after age 59 1/2, or if the
withdrawal follows the death of the Owner (or, if the Owner is not an
individual, the death of the primary Annuitant, as defined in the Code) or, in
the case of the Owner's "total disability" (as defined in the Code).
Furthermore, under Section 72 of the Code, this penalty tax will not be imposed,
irrespective of age, if the amount received is one of a series of "substantially
equal" periodic payments made at least annually for the life or life expectancy
of the payee. This requirement is met when the Owner elects to have
distributions made over the Owner's life expectancy, or over the joint life
expectancy of the Owner and beneficiary. The requirement that the amount be paid
out as one of a series of "substantially equal" periodic payments is met when
the number of units withdrawn to make each distribution is substantially the
same. Any modification, other than by reason of death or disability, of
distributions which are part of a series of substantially equal periodic
payments that occurs before the Owner's age 59 1/2 or five years, will subject
the Owner to the 10% penalty tax on the prior distributions.
In a Private Letter Ruling, the IRS took the position that where distributions
from a variable annuity contract were determined by amortizing the accumulated
value of the contract over the taxpayer's remaining life expectancy (such as
under the Contract's LED option), and the option could be changed or terminated
at any time, the distributions failed to qualify as part of a "series of
substantially equal payments" within the meaning of Section 72 of the Code. The
distributions, therefore, were subject to the 10% federal penalty tax. This
Private Letter Ruling may be applicable to an Owner who receives distributions
under the LED option prior to age 59 1/2. Subsequent Private Letter Rulings,
however, have treated LED-type withdrawal programs as effectively avoiding the
10% penalty tax. The position of the IRS on this issue is unclear.
ASSIGNMENTS OR TRANSFERS. If the Owner transfers (assigns) the Contract to
another individual as a gift prior to the Annuity Date, the Code provides that
the Owner will incur taxable income at the time of the transfer. An exception is
provided for certain transfers between spouses. The amount of taxable income
upon such taxable transfer is equal to any investment gain in value over the
Owner's cost basis at the time of the transfer. The transfer also is subject to
federal gift tax provisions. Where the Owner and Annuitant are different
persons, the change of ownership of the Contract to the Annuitant on the Annuity
Date, as required under the Contract, is a gift and will be taxable to the Owner
as such; however, the Owner will not incur taxable income. Instead, the
Annuitant will incur taxable income upon receipt of annuity benefit payments as
discussed above.
42
<PAGE>
NON-NATURAL OWNERS. As a general rule, deferred annuity contracts owned by
"non-natural persons" (e.g., a corporation) are not treated as annuity contracts
for federal tax purposes, and the investment income attributable to
contributions made after February 28, 1986 is taxed as ordinary income that is
received or accrued by the owner during the taxable year. This rule does not
apply to annuity contracts purchased with a single payment when the annuity date
is no later than a year from the issue date or to deferred annuities owned by
qualified employer plans, estates, employers with respect to a terminated
pension plan, and entities other than employers, such as a trust, holding an
annuity as an agent for a natural person. This exception, however, will not
apply in cases of any employer who is the owner of an annuity contract under a
non-qualified deferred compensation plan.
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS. Under Section 457 of the Code, deferred compensation plans
established by governmental and certain other tax-exempt employers for their
employees may invest in annuity contracts. Contributions and investment earnings
are not taxable to employees until distributed. With respect to payments made
after February 28, 1986, however, a contract owned by a state or local
government or a tax-exempt organization will not be treated as an annuity under
Section 72 . In addition, plan assets are treated as property of the employer,
and are subject to the claims of the employer's general creditors.
C. TAX WITHHOLDING
The Code requires withholding with respect to payments or distributions from
non-qualified contracts and IRAs, unless a taxpayer elects not to have
withholding. A 20% withholding requirement applies to distributions from most
other qualified contracts. In addition, the Code requires reporting to the IRS
of the amount of income received with respect to payment or distributions from
annuities.
The tax treatment of certain withdrawals or surrenders of the non-qualified
Contracts offered by this Prospectus will vary according to whether or not the
amount withdrawn or surrendered is allocable to an investment in the Contract
made before or after certain dates.
D. PROVISIONS APPLICABLE TO QUALIFIED EMPLOYER PLANS
The tax rules applicable to qualified retirement plans, as defined by the Code,
are complex and vary according to the type of plan. Benefits under a qualified
plan may be subject to that plan's terms and conditions irrespective of the
terms and conditions of any annuity contract used to fund such benefits. As
such, the following is simply a general description of various types of
qualified plans that may use the Contract. Before purchasing any annuity
contract for use in funding a qualified plan, more specific information should
be obtained.
A qualified Contract may include special provisions (endorsements) changing or
restricting rights and benefits otherwise available to Owners of a non-qualified
Contract. Individuals purchasing a qualified Contract should review carefully
any such changes or limitations which may include restrictions to ownership,
transferability, assignability, contributions, and distributions.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND PROFIT SHARING
PLANS. Sections 401(a), 401(k) and 403(a) of the Code permit business employers
and certain associations to establish various types of tax-favored retirement
plans for employees. The Self-Employed Individuals' Tax Retirement Act of 1962,
as amended, permits self-employed individuals to establish similar plans for
themselves and their employees. Employers intending to use qualified Contracts
in connection with such plans should seek competent advice as to the suitability
of the Contract to their specific needs and as to applicable Code limitations
and tax consequences.
The Company can provide prototype plans for certain pension or profit sharing
plans for review by the plan's legal counsel. For information, ask your
financial representative.
43
<PAGE>
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity ("IRA"). Note: This term covers all IRAs permitted
under Section 408(b) of the Code including Roth IRAs. IRAs are subject to limits
on the amounts that may be contributed, the persons who may be eligible, and on
the time when distributions may commence. In addition, certain distributions
from other types of retirement plans may be "rolled over," on a tax-deferred
basis, to an IRA. Purchasers of an IRA Contract will be provided with
supplementary information as may be required by the IRS or other appropriate
agency, and will have the right to revoke the Contract as described in this
Prospectus. See "B. Right to Revoke Individual Retirement Annuities."
Eligible employers that meet specified criteria may establish simplified
employee pension plans (SEP-IRAs) or SIMPLE IRA plans for their employees using
the employees IRAs. Employer contributions that may be made to such plans are
larger than the amounts that may be contributed to regular IRAs and may be
deductible to the employer.
TAX-SHELTERED ANNUITIES (TSAS). Under the provisions of Section 403(b) of the
Code, payments made to annuity Contracts purchased for employees under annuity
plans adopted by public school systems and certain organizations which are tax
exempt under Section 501(c)(3) of the Code are excludable from the gross income
of such employees to the extent that total annual payments do not exceed the
maximum contribution permitted under the Code. Purchasers of TSA contracts
should seek competent advice as to eligibility, limitations on permissible
payments and other tax consequences associated with the contracts.
Withdrawals or other distributions attributable to salary reduction
contributions (including earnings thereon) made to a TSA contract after December
31, 1988, may not begin before the employee attains age 59 1/2, separates from
service, dies or becomes disabled. In the case of hardship, an Owner may
withdraw amounts contributed by salary reduction, but not the earnings on such
amounts. Even though a distribution may be permitted under these rules (e.g.,
for hardship or after separation from service), it may be subject to a 10%
penalty tax as a premature distribution, in addition to income tax.
TEXAS OPTIONAL RETIREMENT PROGRAM. Distributions under a TSA contract issued to
participants in the Texas Optional Retirement Program may not be received except
in the case of the participant's death, retirement or termination of employment
in the Texas public institutions of higher education. These additional
restrictions are imposed under the Texas Government Code and a prior opinion of
the Texas Attorney General.
REPORTS
An Owner is sent a report semi-annually which states certain financial
information about the Underlying Funds. The Company also will furnish an annual
report to the Owner containing a statement of his or her account, including unit
values and other information as required by applicable law, rules and
regulations.
LOANS (QUALIFIED CONTRACTS ONLY)
Loans are available to owners of TSA Contracts (i.e., Contracts issued under
Section 403(b) of the Code) and to Contracts issued to plans qualified under
Sections 401(a) and 401(k) of the Code. Loans are subject to provisions of the
Code and to applicable qualified retirement plan rules. Tax advisors and plan
fiduciaries should be consulted prior to exercising loan privileges.
Loaned amounts will be withdrawn first from Sub-Account and Fixed Account values
on a pro-rata basis until exhausted. Thereafter, any additional amounts will be
withdrawn from the Guarantee Period Accounts (pro rata by duration and LIFO
within each duration), subject to any applicable Market Value Adjustments. The
maximum loan amount will be determined under the Company's maximum loan formula.
The minimum loan amount is $1,000. Loans will be secured by a security interest
in the Contract and the amount borrowed will be transferred to a loan asset
account within the Company's General Account, where it will accrue interest at a
specified rate below the then-current loan rate. Generally, loans must be repaid
within five years or less, and
44
<PAGE>
repayments must be made quarterly and in substantially equal amounts. Repayments
will be allocated pro rata in accordance with the most recent payment
allocation, except that any allocations to a Guarantee Period Account will be
allocated instead to the Cash Reserve Sub-Account.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for, the shares that are held in the
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Underlying Fund 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 redeem the shares of that Underlying Fund and substitute shares of
another registered open-end management company. The Company will not substitute
any shares attributable to a Contract interest in a Sub-Account without notice
to the Owner and prior approval of the SEC and state insurance authorities, to
the extent required by the 1940 Act or other applicable law. The Variable
Account may, to the extent permitted by law, purchase other securities for other
Contracts or permit a conversion between Contracts upon request by an Owner.
The Company also reserves the right to establish additional sub-accounts of the
Variable Account, each of which would invest in shares corresponding to a new
underlying fund or in shares of another investment company having a specified
investment objective. Subject to applicable law and any required SEC approval,
the Company may, in its sole discretion, establish new sub-accounts or eliminate
one or more Sub-Accounts if marketing needs, tax considerations or investment
conditions warrant. Any new sub-accounts may be made available to existing
Owners on a basis to be determined by the Company.
Shares of the Underlying Funds also are issued to separate accounts of the
Company and its affiliates which issue variable life contracts ("mixed
funding"). Shares of the Funds also are issued to other unaffiliated insurance
companies which issue variable annuities and variable life contracts ("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 currently the Company and the DGPF do not foresee any such
disadvantages to either variable life insurance owners or variable annuity
owners, the Company and DGPF 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 it were concluded that separate funds
should be established for variable life and variable annuity separate accounts,
the Company will bear the attendant expenses.
If any of these substitutions or changes are made, the Company may, by
appropriate endorsement, change the Contract to reflect the substitution or
change and will notify Owners of all such changes. If the Company deems it to be
in the best interest of Owners, and subject to any approvals that may be
required under applicable law, the Variable Account or any Sub-Account may be
operated as a management company under the 1940 Act, may be deregistered under
the 1940 Act if registration no longer is required, or may be combined with
other sub-accounts or other separate accounts of the Company.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
The Company reserves the right, without the consent of Owners, to suspend sales
of the Contract as presently offered, and to make any change to provisions of
the Contract to comply with, or give Owners the benefit of, any federal or state
statute, rule or regulation, including but not limited to requirements for
annuity contracts and retirement plans under the Code and pertinent regulations
or any state statute or regulation.
VOTING RIGHTS
The Company will vote Underlying Fund shares held by each Sub-Account in
accordance with instructions received from Owners and, after the Annuity Date,
from the Annuitants. Each person having a voting interest
45
<PAGE>
in a Sub-Account will be provided with proxy materials of the Underlying Fund,
together with a form with which to give voting instructions to the Company.
Shares for which no timely instructions are received will be voted in proportion
to the instructions which are received. The Company also will vote shares in a
Sub-Account that it owns and which are not attributable to the Contract in the
same proportion. If the 1940 Act or any rules thereunder should be amended, or
if the present interpretation of the 1940 Act or such rules should change, and
as a result the Company determines that it is permitted to vote shares in its
own right, whether or not such shares are attributable to the Contract, the
Company reserves the right to do so.
The number of votes which an Owner or Annuitant may cast will be determined by
the Company as of the record date established by the Underlying Fund. During the
accumulation period, the number of Underlying Fund shares attributable to each
Owner will be determined by dividing the dollar value of the Accumulation Units
of the Sub-Account credited to the Contract by the net asset value of one
Underlying Fund share.
During the annuity payout phase, the number of Underlying Fund shares
attributable to each Annuitant will be determined by dividing the reserve held
in each Sub-Account for the Annuitant's variable annuity by the net asset value
of one Underlying Fund share. Ordinarily, the Annuitant's voting interest in the
Underlying Fund will decrease as the reserve for the variable annuity is
depleted.
DISTRIBUTION
The Contract offered by this Prospectus may be purchased from certain
independent broker-dealers which are registered under the Securities and
Exchange Act of 1934 and members of the National Association of Securities
Dealers, Inc. (the "NASD.") The Contract also is offered through Allmerica
Investments, Inc., which is the principal underwriter and distributor of the
Contract. Allmerica Investments, Inc., 440 Lincoln Street, Worcester, MA 01653,
is a registered broker-dealer, a member of the NASD and an indirectly wholly
owned subsidiary of First Allmerica.
The Company pays commissions, not to exceed 6.0% of purchase payments, to
broker-dealers which sell the Contract. Alternative commission schedules are
available with lower initial commission amounts based on payments, plus ongoing
annual compensation of up to 1% of Contract value. To the extent permitted by
NASD rules, promotional incentives or payments also 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 commissions and other sales expenses through a
combination of anticipated contingent deferred sales charges and profits from
the Company's General Account. Commissions paid on the Contract, including
additional incentives or payments, do not result in any additional charge to
Owners or to the Variable Account. Any contingent deferred sales charges
assessed on a Contract will be retained by the Company.
Owners may direct any inquiries to their financial adviser or to Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, MA 01653, Telephone
1-800-366-1492.
LEGAL MATTERS
There are no legal proceedings pending to which the Variable Account is a party.
FURTHER INFORMATION
A Registration Statement under the 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted in this Prospectus pursuant to the rules and
regulations of the SEC. The omitted information may be obtained from the SEC's
principal office in Washington, DC, upon payment of the SEC's prescribed fees.
46
<PAGE>
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 the 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 purchase 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.
If a Contract is surrendered, or if an amount in excess of the Withdrawal
Without Surrender Charge is withdrawn, while the Contract is in force and before
the Annuity Date, a contingent deferred sales charge is imposed if such event
occurs before the payments attributable to the surrender or withdrawal have been
credited to the Contract for at least seven full Contract years.
In Massachusetts, payments and transfers to the Fixed Account are subject to the
following restrictions:
If a Contract is issued prior to the Annuitant's 60th birthday,
allocations to the Fixed Account will be permitted until the
Annuitant's 61st birthday. On and after the Annuitant's 61st
birthday, no additional Fixed Account allocations will be
accepted. If 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, if the Contract is issued after the Annuitant's 81st birthday, no
payments or transfers to the Fixed Account will be permitted.
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 Cash Reserve
Series.
To the extent permitted by state law, the Company reserves the right, from time
to time, to credit an enhanced interest rate to certain initial and/or
subsequent payments ("eligible payments") which are deposited into the Fixed
Account under an Automatic Transfer Option (dollar cost averaging election) that
uses the Fixed Account as the source account from which automatic transfers are
then processed. The following are not considered eligible payments: amounts
transferred into the Fixed Account from the Variable Account and/or the
Guarantee Period Accounts; amounts already in the Fixed Account at the time an
eligible payment is deposited and amounts transferred to the Contract from
another annuity contract issued by the Company.
An eligible payment must be automatically transferred out of the Fixed Account
over a continuous six month period. The enhanced rate will apply during the six
month period to any portion of the eligible payment remaining in the Fixed
Account. Amounts automatically transferred out of the Fixed Account will no
longer earn the enhanced rate of interest and, as of the date of transfer, will
be subject to the variable investment performance of the sub-account(s)
transferred into. If the automatic transfer option is terminated prior to the
end of the six month period, the enhanced rate will no longer apply. The Company
reserves the right to extend the period of time that the enhanced rate will
apply.
A-1
<PAGE>
APPENDIX B
SURRENDER CHARGES AND THE MARKET VALUE ADJUSTMENT
PART 1: SURRENDER CHARGES
FULL SURRENDER
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no withdrawals and that the Withdrawal Without
Surrender Charge Amount is equal to the greater of 15% of the Accumulated Value
or the accumulated earnings in the Contract. The table below presents examples
of the surrender charge resulting from a full surrender based on hypothetical
Accumulated Values:
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE CHARGE AMOUNT PERCENTAGE CHARGE
- --------------- ------------ ----------------- ---------------- -----------
<S> <C> <C> <C> <C>
1 $ 54,000.00 $8,100.00 7% $ 3,213.00
2 58,320.00 8,748.00 6% 2,974.32
3 62,985.60 12,985.60 5% 2,500.00
4 68,024.45 18,024.45 4% 2,000.00
5 73,466.40 23,466.40 3% 1,500.00
6 79,343.72 29,343.72 2% 1,000.00
7 85,691.21 35,691.21 1% 500.00
8 92,546.51 45,546.51 0% 0.00
</TABLE>
WITHDRAWALS
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume that the Withdrawal Without Surrender Charge Amount is equal to
the greater of 15% of the current Accumulated Value or the accumulated earnings
in the Contract and there are withdrawals as detailed below. The table below
presents examples of the surrender charge resulting from withdrawals of the
Owner's account, based on hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL WITHDRAWAL SURRENDER
CONTRACT ACCUMULATED WITHOUT SURRENDER CHARGE SURRENDER
YEAR VALUE WITHDRAWALS CHARGE AMOUNT PERCENTAGE CHARGE
- --------------- ------------ ------------ ----------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
1 $ 54,000.00 $ 0.00 $8,100.00 7% $ 0.00
2 58,320.00 0.00 8,748.00 6% 0.00
3 62,985.60 0.00 12,985.60 5% 0.00
4 68,024.45 30,000.00 18,024.45 4% 479.02
5 41,066.40 10,000.00 6,159.96 3% 115.20
6 33,551.72 5,000.00 5,032.76 2% 0.00
7 30,835.85 10,000.00 4,625.38 1% 53.75
8 22,502.72 15,000.00 3,375.41 0% 0.00
</TABLE>
PART 2: MARKET VALUE ADJUSTMENT
The market value factor is: [(1+i)/(1+j)](n/365) - 1
The following examples assume:
1. The payment was allocated to a ten-year Guarantee Period Account with a
Guaranteed Interest Rate of 8%.
2. The date of surrender is seven years (2555 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.
B-1
<PAGE>
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)](n/365) - 1
= [(1+.08)/(1+.10)](2555/365) - 1
= (.98182)(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)](n/365) - 1
= [(1+.08)/(1+.07)](2555/365) - 1
= (1.0093)(7) - 1
= .06694
The market value adjustment = the market value factor multiplied by the withdrawal
= .06694 X $62,985.60
= $4,216.26
</TABLE>
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)](n/365) - 1
= [(1+.08)/(1+.11)](2555/365) - 1
= (.97297)(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 (-$10,993.51 or -$8,349.25)
= -$8,349.25
</TABLE>
B-2
<PAGE>
POSITIVE MARKET VALUE ADJUSTMENT (CAPPED)
Assume that on the date of surrender, the current rate (j) is 6.00% or 0.06
<TABLE>
<C> <C> <S>
The market value factor = [(1+i)/(1+j)](n/365) - 1
= [(1+.08)/(1+.06)](2555/365) - 1
= (1.01887)(7) - 1
= .13981
The market value adjustment = Minimum of the market value factor multiplied by the
withdrawal or the excess interest earned over 3%
The market value factor = Minimum of (.13981 X $62,985.60 or $8,349.25)
= Minimum of ($8,806.02 or $8,349.25)
= $8,349.25
</TABLE>
B-3
<PAGE>
APPENDIX C
THE DEATH BENEFIT
PART 1: DEATH OF THE ANNUITANT
DEATH BENEFIT ASSUMING NO WITHDRAWALS
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no withdrawals and that the Death Benefit Effective
Annual Yield is equal to 5%. The table below presents examples of the Death
Benefit based on the Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE DEATH DEATH DEATH DEATH
YEAR VALUE ADJUSTMENT BENEFIT (A) BENEFIT (B) BENEFIT (C) BENEFIT
- ------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 53,000.00 $ 52,500.00 $ 50,000.00 $53,000.00
2 53,530.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 58,883.00 0.00 58,883.00 57,881.25 55,125.00 58,883.00
4 52,994.70 500.00 53,494.70 60,775.31 58,883.00 60,775.31
5 58,294.17 0.00 58,294.17 63,814.08 60,775.31 63,814.08
6 64,123.59 500.00 64,623.59 67,004.78 63,814.08 67,004.78
7 70,535.95 0.00 70,535.95 70,355.02 67,004.78 70,535.95
8 77,589.54 500.00 78,089.54 73,872.77 70,535.95 78,089.54
9 85,348.49 0.00 85,348.49 77,566.41 78,089.54 85,348.49
10 93,883.34 0.00 93,883.34 81,444.73 85,348.49 93,883.34
</TABLE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment. Death Benefit (b) is the gross payments accumulated daily at
the Death Benefit Effective Annual Yield of 5%, reduced proportionately to
reflect withdrawals. Death Benefit (c) is the death benefit that would have been
payable on the most recent Contract anniversary, increased for subsequent
payments, and decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c).
DEATH BENEFIT ASSUMING WITHDRAWALS
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are withdrawals as detailed in the table below and that
the Death Benefit Effective Annual Yield is equal to 5%. The table below
presents examples of the Death Benefit based on the Hypothetical Accumulated
Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE DEATH DEATH DEATH DEATH
YEAR VALUE WITHDRAWALS ADJUSTMENT BENEFIT (1) BENEFIT (2) BENEFIT (3) BENEFIT
- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $ 0.00 $ 53,000.00 $ 52,500.00 $ 50,000.00 $53,000.00
2 53,530.00 0.00 500.00 54,030.00 55,125.00 53,000.00 55,125.00
3 3,883.00 50,000.00 0.00 3,883.00 4,171.13 3,972.50 4,171.13
4 3,494.70 0.00 500.00 3,994.70 4,379.68 4,171.13 4,379.68
5 3,844.17 0.00 0.00 3,844.17 4,598.67 4,379.68 4,598.67
6 4,228.59 0.00 500.00 4,728.59 4,828.60 4,598.67 4,828.60
7 4,651.45 0.00 0.00 4,651.45 5,070.03 4,828.60 5,070.03
8 5,116.59 0.00 500.00 5,616.59 5,323.53 5,070.03 5,616.59
9 5,628.25 0.00 0.00 5,628.25 5,589.71 5,616.59 5,628.25
10 691.07 5,000.00 0.00 691.07 712.70 683.44 712.70
</TABLE>
C-1
<PAGE>
Death Benefit (a) is the Accumulated Value increased by any positive Market
Value Adjustment. Death Benefit (b) is the gross payments accumulated daily at
the Death Benefit Effective Annual Yield of 5% reduced proportionately to
reflect withdrawals. Death Benefit (c) is the death benefit that would have been
payable on the most recent Contract anniversary, increased for subsequent
payments, and decreased proportionately for subsequent withdrawals.
The Hypothetical Death Benefit is equal to the greatest of Death Benefits (a),
(b), or (c).
PART 2: DEATH OF THE OWNER WHO IS NOT THE ANNUITANT
Assume a payment of $50,000 is made on the issue date and no additional payments
are made. Assume there are no withdrawals. The table below presents examples of
the death Benefit based on the Hypothetical Accumulated Values.
<TABLE>
<CAPTION>
HYPOTHETICAL HYPOTHETICAL HYPOTHETICAL
CONTRACT ACCUMULATED MARKET VALUE DEATH
YEAR VALUE ADJUSTMENT BENEFIT
- ------------- ------------ ------------ ------------
<S> <C> <C> <C>
1 $ 53,000.00 $ 0.00 $53,000.00
2 53,530.00 500.00 54,030.00
3 58,883.00 0.00 58,883.00
4 52,994.70 500.00 53,494.70
5 58,294.17 0.00 58,294.17
6 64,123.59 500.00 64,623.59
7 70,535.95 0.00 70,535.95
8 77,589.54 500.00 78,089.54
9 85,348.49 0.00 85,348.49
10 93,883.34 0.00 93,883.34
</TABLE>
The Hypothetical Death Benefit is the Accumulated Value increased by any
positive Market Value Adjustment.
C-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
STATEMENT OF ADDITIONAL INFORMATION
OF
INDIVIDUAL AND GROUP VARIABLE ANNUITY CONTRACTS FUNDED THROUGH
SUB-ACCOUNTS OF
SEPARATE ACCOUNT VA-K
INVESTING IN SHARES OF DELAWARE GROUP PREMIUM FUND, INC.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS OF SEPARATE ACCOUNT VA-K, DATED MAY 1, 1998
("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ANNUITY CLIENT
SERVICES, ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY, 440 LINCOLN
STREET, WORCESTER, MASSACHUSETTS 01653, TELEPHONE 1-800-533-2124.
DATED MAY 1, 1998
1
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY . . . . . . . . . . . . . . . . . . . . 2
TAXATION OF THE CONTRACT, THE VARIABLE ACCOUNT
AND THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
UNDERWRITERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ANNUITY BENEFIT PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . 4
EXCHANGE OFFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 8
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . F-1
GENERAL INFORMATION AND HISTORY
Separate Account VA-K (the "Variable Account") is a separate investment account
of Allmerica Financial Life Insurance and Annuity Company (the "Company")
established by vote of its Board of Directors on November 1, 1990. The Company
is a life insurance company organized under the laws of Delaware in July 1974.
Its principal office (the "Principal Office") is located at 440 Lincoln Street,
Worcester, Massachusetts 01653, telephone (508) 855-1000. The Company is
subject to the laws of the State of Delaware governing insurance companies and
to regulation by the Commissioner of Insurance of Delaware. In addition, the
Company is subject to the insurance laws and regulations of other states and
jurisdictions in which it is licensed to operate. As of December 31, 1997, the
Company had over $9.4 billion in assets and over $26.6 billion of life insurance
in force.
Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirectly wholly owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica") which, in turn, is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company and adopted its present name on
October 16, 1995. First Allmerica is the fifth oldest life insurance company in
America. As of December 31, 1997, First Allmerica and its subsidiaries
(including the Company) had over $16.3 billion in combined assets and over $43.8
billion in life insurance in force.
Currently, 16 Sub-Accounts of the Variable Account are available under the
Delaware Medallion III contract (the "Contract") and Delaware Medallion I and
II contracts (Forms A3019-92 and A3021-93), two predecessor contracts no
longer being sold. (Delaware Medallion I, II and III are referred to
collectively as "the contracts"). Each Sub-Account invests in a
corresponding investment portfolio of Delaware Group Premium Fund, Inc. (the
"Fund"). The series are managed by Delaware Management Company, Inc. (except
for the International Equity Series, Emerging Markets Series and Global Bond
Series which are managed by Delaware
2
<PAGE>
International Advisers, LTD.).
The Fund is an open-end, diversified management investment company. Sixteen
different investment series of the Fund are available under the Contract: the
Decatur Total Return Series (formerly Equity-Income Series), Delchester Series
(formerly High Yield Series), Capital Reserve Series, Cash Reserve Series
(formerly Money Market Series), Growth Series, Delaware Series (formerly
Strategy Series), Small Cap Value Series (formerly Value Series), Trend Series
(formerly Emerging Growth Series), Global Bond Series, International Equity
Series, Strategic Income Series, Devon Series, Emerging Markets Series,
Convertible Securities Series, REIT Series, and Social Awareness Series
(formerly Quantum Series) (the "Underlying Series"). Each Underlying Series 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
Contract, 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
Contract 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 Series shares owned by the Sub-Accounts are held
on an open account basis. A Sub-Account's ownership of Underlying Series shares
is reflected on the records of the Underlying Series and is not represented by
any transferable stock certificates.
EXPERTS. The financial statements of the Company as of December 31, 1997 and
1996 and for each of the two years in the period ended December 31, 1997, and
the financial statements of the Separate Account VA-K -- Delaware Medallion
of the Company as of December 31, 1997 and for the periods indicated,
included in this Statement of Additional Information constituting part of
this Registration Statement, have been so included in reliance on the reports
of Price Waterhouse LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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
3
<PAGE>
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 certain independent broker-dealers which are NASD members and
whose representatives are authorized by applicable law to sell variable annuity
contracts.
All persons selling the Contract are required to be licensed by their respective
state insurance authorities for the sale of variable annuity contracts. The
Company pays commissions, not to exceed 6.0% of purchase payments, to entities
which sell the Contract. To the extent permitted by NASD rules, promotional
incentives or payments may also 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. A
Promotional Allowance of 1.0% is paid to Delaware Distributors, Inc. for
administrative and support services with respect to the distribution of the
Contract; however, Delaware Distributors, Inc. may direct the Company to pay a
portion of said allowance to broker-dealers who provide support services
directly.
The aggregate amounts of commissions paid to Delaware Distributors, Inc. and to
independent broker-dealers, respectively, for sales of contracts funded by
Separate Account VA-K investing solely in one or more of the Underlying Series
was $2,590,201.63 and $21,355,342.19 in 1997, $913,045.90 and $7,560,561.53 in
1996 and $495,561.71 and $4,278,212.71 in 1995. Sales of these contracts began
in 1992.
Commissions paid by the Company do not result in any charge to Owners or to the
Variable Account in addition to the charges described under "CHARGES AND
DEDUCTIONS" in the Prospectus. The Company intends to recoup the commission and
other sales expense through a combination of anticipated surrender, withdrawal
and/or annuitization charges, profits from the Company's general account,
including the investment earnings on amounts allocated to accumulate on a fixed
basis in excess of the interest credited on fixed accumulations by the Company,
and the profit, if any, from the mortality and expense risk charge.
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 $1,675. The
Accumulation Unit Value at the end of the current Valuation Period would be
calculated as follows:
(1) Accumulation Unit Value -- Previous Valuation Period. . . . . .$ 1.135000
(2) Value of Assets -- Beginning of Valuation Period. . . . . . . .$5,000,000
(3) Excess of Investment Income and Net Gains Over Capital losses . . .$1,675
4
<PAGE>
(4) Adjusted Gross Investment Rate for the Valuation Period (3)
divided by (2). . . . . . . . . . . . . . . . . . . . . . . . . .0.000335
(5) Annual Charge (one-day equivalent of 1.40% per annum) . . . . . .0.000039
(6) Net Investment Rate (4) - (5). . . . . . . . . . . . . . . . . .0.000296
(7) Net Investment Factor 1.000000 + (6). . . . . . . . . . . . . . . .000296
(8) Accumulation Unit Value -- Current Period (1) x (7) . . . . . .$ 1.135336
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
Accumulation Unit Value at the end of the Valuation Period would have been
$1.134576.
The method for determining the amount of annuity benefit payments is described
in detail under "Determination of the First and Subsequent Annuity Benefit
Payments" in the Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY BENEFIT PAYMENT CALCULATION USING HYPOTHETICAL
EXAMPLE. The determination of the Annuity Unit value and the variable annuity
benefit payment may be illustrated by the following hypothetical example: Assume
an Annuitant has 40,000 Accumulation Units in a Variable Account, and that the
value of an Accumulation Unit on the Valuation Date used to determine the amount
of the first variable annuity benefit payment is $1.120000. Therefore, the
Accumulation Value of the Contract is $44,800 (40,000 x $1.120000). Assume also
that the Owner elects an option for which the first monthly payment is $6.57 per
$1,000 of Accumulated Value applied. Assuming no premium tax or contingent
deferred sales charge, the first monthly payment would be 44.800 multiplied by
$6.57, or $294.34.
Next, assume that the Annuity Unit value for the assumed rate of 3.5% per annum
for the Valuation Date as of which the first payment was calculated was
$1.100000. Annuity Unit values will not be the same as Accumulation Unit Values
because the former reflect the 3.5% assumed interest rate used in the annuity
rate calculations. When the Annuity Unit value of $1.100000 is divided into the
first monthly payment the number of Annuity Units represented by that payment is
determined to be 267.5818. The value of this same number of Annuity Units will
be paid in each subsequent month under most options. Assume further that the
net investment factor for the Valuation Period applicable to the next annuity
benefit payment is 1.000190. Multiplying this factor by .999906 (the one-day
adjustment factor for the assumed interest rate of 3.5% per annum) produces a
factor of 1.000096. This then is multiplied by the Annuity Unit value on the
immediately preceding Valuation Date (assumed here to be $1.105000). The result
is an Annuity Unit value of $1.105106 for the current monthly payment. The
current monthly payment then is determined by multiplying the number of Annuity
Units by the current Annuity Unit value, or 267.5818 times $1.105106, which
produces a current monthly payment of $295.71.
METHOD FOR DETERMINING COMMUTED VALUE ON VARIABLE ANNUITY PERIOD CERTAIN OPTIONS
AND ILLUSTRATION USING HYPOTHETICAL EXAMPLE. The Contract offers both
commutable and non-commutable period certain annuity options. A commutable
option gives the Annuitant the right to exchange any remaining payments for a
lump sum payment based on the commuted value. The Commuted Value is the present
value of remaining payments calculated at 3.5% interest. The determination of
the Commuted Value may be illustrated by the following hypothetical example.
Assume a commutable period certain option is elected. The number of Annuity
Units upon which each payment is based would be calculated using the Surrender
Value less any premium tax rather than the Accumulated Value. Assume this
results in 250.0000 Annuity Units. Assume the Commuted Value is requested with
60 monthly payments remaining and a current Annuity Unit Value of $1.200000.
Based on these assumptions, the dollar amount of remaining payments would be
$300 a month for 60 months. The
5
<PAGE>
present value at 3.5% of all remaining payments would be $16,560.72.
EXCHANGE OFFER
A. VARIABLE ANNUITY CONTRACT EXCHANGE OFFER
The Company will permit Owners of certain variable annuity contracts, described
below, to exchange their contracts at net asset value for the variable annuity
contracts described in the Prospectus, which is issued on Form No. A3025-96 or a
state variation thereof ("new Contract"). The Company reserves the right to
suspend this exchange offer at any time.
This offer applies to the exchange of the Company's Elective Payment Variable
Annuity contracts issued on Forms A3012-79 and A3013-79 ("Elective Payment
Exchanged Contract," all such contracts having numbers with a "JQ" or "JN"
prefix), and Single Payment Variable Annuity contracts issued on Forms A3014-79
and A3015-79 ("Single Payment Exchanged Contract," all such contracts having
numbers with a "KQ" or "KN" prefix). These contracts are referred to
collectively as the "Exchanged Contract" To effect an exchange, the Company
should receive (1) a completed application for the new Contract, (2) the
contract being exchanged, and (3) a signed Letter of Awareness.
CONTINGENT DEFERRED SALES CHARGE COMPUTATION. No surrender charge otherwise
applicable to the Exchanged Contract will be assessed as a result of the
exchange. Instead, the contingent deferred sales charge under the new
Contract will be computed as if the payments that had been made to the
Exchanged Contract were made to the new Contract as of the date of issue of
the Exchanged Contract. Any additional payments to the new Contract after the
exchange will be subject to the contingent deferred sales charge computation
outlined in the new Contract and the Prospectus; i.e., the charge will be
computed based on the number of years that the additional payment (or portion
of that payment) that is being withdrawn has been credited to the new
Contract.
SUMMARY OF DIFFERENCES BETWEEN EXCHANGED CONTRACT AND THE NEW CONTRACT. The new
Contract and the Exchanged Contract differ substantially as summarized below.
There may be additional differences important to a person considering an
exchange, and the Prospectuses for the new Contract and the Exchanged Contract
should be reviewed carefully before the exchange request is submitted to the
Company.
CONTINGENT DEFERRED SALES CHARGE. The contingent deferred sales charge under
the new Contract, as described in the Prospectus, imposes higher charge
percentages against the excess amount redeemed than the Single Payment Exchanged
Contract. In addition, if an Elective Payment Exchanged Contract was issued
more than nine years before the date of an exchange under this offer, additional
payments to the Exchanged Contract would not be subject to a surrender charge.
New payments to the new Contract may be subject to a charge if withdrawn prior
to the surrender charge period described in the Prospectus.
CONTRACT FEE. Under the new Contract, the Company deducts a $30 fee on each
Contract anniversary and at surrender if the Accumulated Value is less than
$50,000. This fee is waived if the new Contract is part of a 401(k) plan. No
Contract fees are charged on the Single Payment Exchanged Contract. A $9
semi-annual fee is charged on the Elective Payment Exchanged Contract if the
Accumulated Value is $10,000 or less.
VARIABLE ACCOUNT ADMINISTRATIVE EXPENSE CHARGE. Under the new Contract, the
Company assesses each Sub-Account a daily administrative expense charge at an
annual rate of 0.15% of the average daily net assets of the Sub-Account. No
administrative expense charge based on a percentage of Sub-Account assets is
imposed under the Exchanged Contract.
TRANSFER CHARGE. No charge for transfers is imposed under the Exchanged
Contract. Currently, no transfer charge is imposed under the new Contract;
however, the Company reserves the right to assess a charge not to exceed $25 for
each transfer after the twelfth in any Contract year.
6
<PAGE>
DEATH BENEFIT. The Exchanged Contract offers a death benefit that is guaranteed
to be the greater of a Contract's Accumulated Value or gross payments made (less
withdrawals). At the time an exchange is processed, the Accumulated Value of
the Exchanged Contract becomes the "payment" for the new Contract. Therefore,
prior purchase payments made under the Exchanged Contract (if higher than the
Exchanged Contract's Accumulated Value) no longer are a basis for determining
the death benefit under the new Contract. Consequently, whether the initial
minimum death benefit under the new Contract is greater than, equal to, or less
than, the death benefit of the Exchanged Contract depends on whether the
Accumulated Value transferred to the new Contract is greater than, equal to, or
less than, the gross payments under the Exchanged Contract. In addition, under
the Exchanged Contract, the amount of any prior withdrawals is subtracted from
the value of the death benefit. Under the new Contract, where there is a
reduction in the death benefit amount due to a prior withdrawal, the value of
the death benefit is reduced in the same proportion that the new Contract's
Accumulated Value was reduced on the date of the withdrawal.
ANNUITY TABLES. The Exchanged Contract contains higher guaranteed annuity
rates.
INVESTMENTS. Accumulated Values and payments under the new Contract may be
allocated to significantly more investment options than are available under the
Exchanged Contract.
B. FIXED ANNUITY EXCHANGE OFFER
This exchange offer also applies to all fixed annuity contracts issued by the
Company. A fixed annuity contract to which this exchange offer applies may be
exchanged at net asset value for the Contract described in this Prospectus,
subject to the same provisions for effecting the exchange and for applying the
new Contract's contingent deferred sales charge as described above for variable
annuity contracts. This Prospectus should be read carefully before making such
exchange. Unlike a fixed annuity, the new Contract's value is not guaranteed
and will vary depending on the investment performance of the Underlying Series
to which it is allocated. The new Contract has a different charge structure
than a fixed annuity contract, which includes not only a contingent deferred
sales charge that may vary from that of the class of contracts to which the
exchanged fixed contract belongs, but also Contract fees, mortality and expense
risk charges (for the Company's assumption of certain mortality and expense
risks), administrative expense charges, transfer charges (for transfers
permitted among Sub-Accounts and the Fixed Account), and expenses incurred by
the Underlying Series. Additionally, the interest rates offered under the Fixed
Account of the new Contract and the Annuity Tables for determining minimum
annuity benefit payments may be different from those offered under the exchanged
fixed contract.
C. EXERCISE OF "FREE-LOOK PROVISION" AFTER ANY EXCHANGE
Persons who, under the terms of this exchange offer, exchange their contract
for the new Contract and subsequently revoke the new Contract within the time
permitted, as described in the sections of this Prospectus captioned "Right
to Revoke Individual Retirement Annuity" and "Right to Revoke All Other
Contracts," will have their exchanged contract automatically reinstated as of
the date of revocation. The refunded amount will be applied as the new
current Accumulated Value under the reinstated contract, which may be more or
less than it would have been had no exchange and reinstatement occurred. The
refunded amount will be allocated initially among the Fixed Account and
Sub-Accounts of the reinstated contract in the same proportion that the value
in the Fixed Account and the value in each Sub-Account bore to the
transferred Accumulated Value on the date of the exchange of the contract for
the new Contract. For purposes of calculating any contingent deferred sales
charge under the reinstated contract, the reinstated contract will be deemed
to have been issued and to have received past purchase payments as if there
had been no exchange.
7
<PAGE>
PERFORMANCE INFORMATION
Performance information for a Sub-Account may be compared, in reports and
promotional literature, to certain indices described in the Prospectus under
"PERFORMANCE INFORMATION." In addition, the Company may provide advertising,
sales literature, periodic publications or other material information on various
topics of interest to Owners and prospective Owners. These topics may include
the relationship between sectors of the economy and the economy as a whole and
its effect on various securities markets, investment strategies and techniques
(such as value investing, market timing, dollar cost averaging, asset
allocation, constant ratio transfer and account rebalancing), the advantages and
disadvantages of investing in tax-deferred and taxable investments, customer
profiles and hypothetical purchase and investment scenarios, financial
management and tax and retirement planning, and investment alternatives to
certificates of deposit and other financial instruments, including comparisons
between the Contract and the characteristics of and market for such financial
instruments. Total return data and supplemental total return information may be
advertised based on the period of time that an Underlying Series and an
underlying Sub-Account have been in existence, even if longer than the period of
time that the Contract has been offered. The results for any period prior to a
Contract being offered will be calculated as if the Contract had been offered
during that period of time, with all charges assumed to be those applicable to
the Contract.
TOTAL RETURN
"Total Return" refers to the total of the income generated by an investment in a
Sub-Account and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specific period, reduced
by the Sub-Account's asset charge and any applicable contingent deferred sales
charge which would be assessed upon complete withdrawal of the investment.
Total Return figures are calculated by standardized methods prescribed by rules
of the Securities and Exchange Commission (the "SEC"). The quotations are
computed by finding the average annual compounded rates of return over the
specified periods that would equate the initial amount invested to the ending
redeemable values, according to the following formula:
(n)
P(1 + T) = ERV
Where: P = a hypothetical initial payment to the
Variable Account of $1,000
T = average annual total return
n = number of years
ERV = the ending redeemable value of the $1,000
payment at the end of the specified period
The calculation of Total Return includes the annual charges against the assets
of the Sub-Account. This charge is 1.40% on an annual basis. The calculation
of ending redeemable value assumes (1) the Contract was issued at the beginning
of the period, and (2) a complete surrender of the Contract at the end of the
period. The deduction of the contingent deferred sales charge, if any,
applicable at the end of the period is included in the calculation, according to
the following schedule:
CONTRACT FORM A3019-92 (DELAWARE MEDALLION I)
AND A3021-93 (DELAWARE MEDALLION II)
--------------------------------------------------
(NO GUARANTEE PERIOD ACCOUNT OPTIONS)
8
<PAGE>
<TABLE>
<CAPTION>
YEARS FROM DATE OF CHARGE AS PERCENTAGE OF
PAYMENT TO DATE OF NEW PURCHASE PAYMENTS
WITHDRAWAL WITHDRAWN*
<S> <C>
0-3 7%
4 6%
5 5%
6 4%
7 3%
Thereafter 0%
</TABLE>
CONTRACT FORM A3025-96 (DELAWARE MEDALLION III)
--------------------------------------------------
(WITH GUARANTEE PERIOD ACCOUNT OPTIONS)
<TABLE>
<CAPTION>
YEARS FROM DATE OF CHARGE AS PERCENTAGE OF
PAYMENT TO DATE OF NEW PURCHASE PAYMENTS
WITHDRAWAL WITHDRAWN*
<S> <C>
0-1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
Thereafter 0%
</TABLE>
* Subject to the maximum limit described in the Prospectus.
No contingent deferred sales charge is deducted upon expiration of the periods
specified above. In each calendar year, a certain amount (withdrawal without
surrender charge amount, as described in the Prospectus) is not subject to the
contingent deferred sales charge.
The calculations of Total Return include the deduction of the $30 annual
Contract fee.
SUPPLEMENTAL TOTAL RETURN INFORMATION
The Supplemental Total Return Information in this section refers to the total of
the income generated by an investment in a Sub-Account and of the changes of
value of the principal invested (due to realized and unrealized capital gains or
losses) for a specified period reduced by the Sub-Account's asset charges. It is
assumed, however, that the investment is NOT withdrawn at the end of each
period.
The quotations of Supplemental Total Return are computed by finding the average
annual compounded rates of return over the specified periods that would equate
the initial amount invested to the ending values, according to the following
formula:
(n)
P(1 + T) = EV
Where: P = a hypothetical initial payment to the
Variable Account of $1,000
9
<PAGE>
T = average annual total return
n = number of years
EV = the ending value of the $1,000 payment at
the end of the specified period
The calculation of Supplemental Total Return reflects the 1.40% annual charge
against the assets of the Sub-Accounts. The ending value assumes that the
Contract is NOT surrendered at the end of the specified period, and therefore
there is no adjustment for the contingent deferred sales charge that would be
applicable if the Contract was surrendered at the end of the period.
The calculations of Supplemental Total Return include the deduction of the $30
annual Contract fee.
YIELD AND EFFECTIVE YIELD - THE MONEY MARKET SUB-ACCOUNT
Set forth below is yield and effective yield information for the Money Market
Sub-Account for the seven-day period ended December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Yield 4.28%
Effective Yield 4.37%
</TABLE>
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the SEC. Under those methods, the yield quotation is
computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing account having a balance of one
accumulation unit of the Sub-Account at the beginning of the period, subtracting
a charge reflecting the annual 1.40% deduction for mortality and expense risk
and the administrative charge, dividing the difference by the value of the
account at the beginning of the same period to obtain the base period return,
and then multiplying the return for a seven-day base period by (365/7), with the
resulting yield carried to the nearest hundredth of one percent.
The Money Market Sub-Account computes effective yield by compounding the
unannualized base period return by using the formula:
(365/7)
Effective Yield = [(base period return + 1) ] - 1
The calculations of yield and effective yield reflect the $30 annual Contract
fee.
FINANCIAL STATEMENTS
Financial Statements are included for Allmerica Financial Life Insurance and
Annuity Company and for its Separate Account VA-K.
10
<PAGE>
ALLMERICA FINANCIAL
LIFE INSURANCE AND
ANNUITY COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Allmerica Financial Life Insurance and Annuity Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholder's equity, and of cash
flows present fairly, in all material respects, the financial position of
Allmerica Financial Life Insurance and Annuity Company at December 31, 1997 and
1996, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 3, 1998
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
----------------------------------------------- --------- ---------
<S> <C> <C>
REVENUES
Premiums..................................... $ 22.8 $ 32.7
Universal life and investment product
policy fees.............................. 212.2 176.2
Net investment income...................... 164.2 171.7
Net realized investment gains (losses)..... 2.9 (3.6)
Other income............................... 1.4 0.9
--------- ---------
Total revenues......................... 403.5 377.9
--------- ---------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses...................... 187.8 192.6
Policy acquisition expenses................ 2.8 49.9
Loss from cession of disability income
business................................. 53.9 --
Other operating expenses................... 101.3 86.6
--------- ---------
Total benefits, losses and expenses.... 345.8 329.1
--------- ---------
Income before federal income taxes............. 57.7 48.8
--------- ---------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 13.9 26.9
Deferred................................... 7.1 (9.8)
--------- ---------
Total federal income tax expense....... 21.0 17.1
--------- ---------
Net income..................................... $ 36.7 $ 31.7
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-1
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
-------------------------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities at fair value (amortized cost of
$1,340.5 and $1,660.2)............................ $1,402.5 $1,698.0
Equity securities at fair value (cost of $34.4 and
$33.0)............................................ 54.0 41.5
Mortgage loans...................................... 228.2 221.6
Real estate......................................... 12.0 26.1
Policy loans........................................ 140.1 131.7
Other long term investments......................... 20.3 7.9
---------- ----------
Total investments............................... 1,857.1 2,126.8
---------- ----------
Cash and cash equivalents............................. 31.1 18.8
Accrued investment income............................. 34.2 37.7
Deferred policy acquisition costs..................... 765.3 632.7
Reinsurance receivables on paid and unpaid losses,
benefits and unearned premiums...................... 251.1 81.5
Other assets.......................................... 10.7 8.2
Separate account assets............................... 7,567.3 4,524.0
---------- ----------
Total assets.................................... $10,516.8 $7,429.7
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $2,097.3 $2,171.3
Outstanding claims, losses and loss adjustment
expenses.......................................... 18.5 16.1
Unearned premiums................................... 1.8 2.7
Contractholder deposit funds and other policy
liabilities....................................... 32.5 32.8
---------- ----------
Total policy liabilities and accruals........... 2,150.1 2,222.9
---------- ----------
Expenses and taxes payable............................ 77.6 77.3
Reinsurance premiums payable.......................... 4.9 --
Deferred federal income taxes......................... 75.9 60.2
Separate account liabilities.......................... 7,567.3 4,523.6
---------- ----------
Total liabilities............................... 9,875.8 6,884.0
---------- ----------
Commitments and contingencies (Note 13)
SHAREHOLDER'S EQUITY
Common stock, $1,000 par value, 10,000 shares
authorized, 2,521 and 2,518 shares issued and
outstanding......................................... 2.5 2.5
Additional paid in capital............................ 386.9 346.3
Unrealized appreciation on investments, net........... 38.5 20.5
Retained earnings..................................... 213.1 176.4
---------- ----------
Total shareholder's equity...................... 641.0 545.7
---------- ----------
Total liabilities and shareholder's equity...... $10,516.8 $7,429.7
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-2
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
----------------------------------------------- --------- ---------
<S> <C> <C>
COMMON STOCK
Balance at beginning of period............. $ 2.5 $ 2.5
Issued during year......................... -- --
--------- ---------
Balance at end of period................... 2.5 2.5
--------- ---------
ADDITIONAL PAID IN CAPITAL
Balance at beginning of period............. 346.3 324.3
Contribution from Parent................... 40.6 22.0
--------- ---------
Balance at end of period................... 386.9 346.3
--------- ---------
RETAINED EARNINGS
Balance at beginning of period............. 176.4 144.7
Net income................................. 36.7 31.7
--------- ---------
Balance at end of period................... 213.1 176.4
--------- ---------
NET UNREALIZED APPRECIATION ON INVESTMENTS
Balance at beginning of period............. 20.5 23.8
Net appreciation (depreciation) on
available for sale securities............ 27.0 (5.1)
(Provision) benefit for deferred federal
income taxes............................. (9.0) 1.8
--------- ---------
Balance at end of period................... 38.5 20.5
--------- ---------
Total shareholder's equity............. $641.0 $545.7
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(AN INDIRECT WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
-------------------------------------------- ---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 36.7 $ 31.7
Adjustments to reconcile net income to
net cash used in operating activities:
Net realized gains.................. (2.9) 3.6
Net amortization and depreciation... -- 3.5
Loss from cession of disability
income business................... 53.9 --
Deferred federal income taxes....... 7.1 (9.8)
Payment related to cession of
disability income business........ (207.0) --
Change in deferred acquisition
costs............................. (181.3) (66.8)
Change in premiums and notes
receivable, net of reinsurance
payable........................... 3.9 (0.2)
Change in accrued investment
income............................ 3.5 1.2
Change in policy liabilities and
accruals, net..................... (72.4) (39.9)
Change in reinsurance receivable.... 22.1 (1.5)
Change in expenses and taxes
payable........................... 0.2 32.3
Separate account activity, net...... 0.4 10.5
Other, net.......................... (7.5) (0.2)
---------- ----------
Net used in operating
activities.................... (343.3) (35.6)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................ 909.7 809.4
Proceeds from disposals of equity
securities............................ 2.4 1.5
Proceeds from disposals of other
investments........................... 23.7 17.4
Proceeds from mortgages matured or
collected............................. 62.9 34.0
Purchase of available-for-sale fixed
maturities............................ (579.7) (795.8)
Purchase of equity securities........... (3.2) (13.2)
Purchase of other investments........... (79.4) (36.2)
Other investing activities, net......... -- (2.0)
---------- ----------
Net cash provided by investing
activities........................ 336.4 15.1
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and
capital paid in....................... 19.2 22.0
---------- ----------
Net cash provided by financing
activities........................ 19.2 22.0
---------- ----------
Net change in cash and cash equivalents..... 12.3 1.5
Cash and cash equivalents, beginning of
period..................................... 18.8 17.3
---------- ----------
Cash and cash equivalents, end of period.... $ 31.1 $ 18.8
---------- ----------
---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ -- $ 3.4
Income taxes paid....................... $ 5.4 $ 16.5
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC" or the
"Company") is organized as a stock life insurance company, and is a wholly-owned
subsidiary of SMA Financial Corporation ("SMAFCO"), which is wholly owned by
First Allmerica Financial Life Insurance Company ("FAFLIC"). FAFLIC is a
wholly-owned subsidiary of Allmerica Financial Corporation ("AFC").
The consolidated financial statements of AFLIAC include the accounts of Somerset
Square, Inc., a wholly-owned non-insurance company and its results of operations
for the month of December, 1997. Somerset Square, Inc. was transferred from
SMAFCO effective November 30, 1997. (See Significant Transactions.)
The Statutory stockholder's equity of the Company is being maintained at a
minimum level of 5% of general account assets by FAFLIC in accordance with a
policy established by vote of FAFLIC's Board of Directors.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Certain reclassifications have been
made to the 1996 financial statements in order to conform to the 1997
presentation.
B. VALUATION OF INVESTMENTS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 115 ("Statement No. 115"), "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES", the Company is required to classify its investments into one
of three categories: held-to-maturity, available-for-sale or trading. The
Company determines the appropriate classification of debt securities at the time
of purchase and reevaluates such designation as of each balance sheet date.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by management to be realized on transfers of mortgage loans to
real estate (upon foreclosure), on the disposition or settlement of mortgage
loans and on mortgage loans which management believes may not be collectible in
full. In establishing reserves, management considers, among other things, the
estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. As a result of this decision real estate held by the
Company and real estate joint ventures were written down to the estimated fair
value less cost to sell. Depreciation is not recorded on these assets while they
are held for disposal.
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are reported
as a component of revenues based upon specific identification of the investment
assets sold. When an other-than-temporary impairment of the value of a specific
investment
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
or a group of investments is determined, a realized investment loss is recorded.
Changes in the valuation allowance for mortgage loans and real estate are
included in realized investment gains or losses.
C. FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions involving
various types of financial instruments, including debt, investments such as
fixed maturities, mortgage loans and equity securities, and investment and loan
commitments. These instruments involve credit risk and also may be subject to
risk of loss due to interest rate fluctuation. The Company evaluates and
monitors each financial instrument individually and, when appropriate, obtains
collateral or other security to minimize losses.
D. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, amounts due from banks and
highly liquid debt instruments purchased with an original maturity of three
months or less.
E. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs consist of commissions, underwriting costs and other costs,
which vary with, and are primarily related to, the production of revenues.
Acquisition costs related to universal life products, variable annuities and
contractholder deposit funds are deferred and amortized in proportion to total
estimated gross profits from investment yields, mortality, surrender charges and
expense margins over the expected life of the contracts. This amortization is
reviewed annually and adjusted retrospectively when the Company revises its
estimate of current or future gross profits to be realized from this group of
products, including realized and unrealized gains and losses from investments.
Acquisition costs related to fixed annuities and other life insurance products
are deferred and amortized, generally in proportion to the ratio of annual
revenue to the estimated total revenues over the contract periods based upon the
same assumptions used in estimating the liability for future policy benefits.
Deferred acquisition costs for each product are reviewed to determine if they
are recoverable from future income, including investment income. If such costs
are determined to be unrecoverable, they are expensed at the time of
determination. Although realization of deferred policy acquisition costs is not
assured, management believes it is more likely than not that all of these costs
will be realized. The amount of deferred policy acquisition costs considered
realizable, however, could be reduced in the near term if the estimates of gross
profits or total revenues discussed above are reduced. The amount of
amortization of deferred policy acquisition costs could be revised in the near
term if any of the estimates discussed above are revised.
F. SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the benefit of certain pension, variable annuity
and variable life insurance contractholders. Assets consist principally of
bonds, common stocks, mutual funds, and short-term obligations at market value.
The investment income, gains, and losses of these accounts generally accrue to
the contractholders and, therefore, are not included in the Company's net
income. Appreciation and depreciation of the Company's interest in the separate
accounts, including undistributed net investment income, is reflected in
shareholder's equity or net investment income.
G. POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity products.
Such liabilities are established in amounts adequate to meet the estimated
future obligations of policies in force. The liabilities associated with
traditional life insurance products are computed using the net level premium
method for individual life and annuity policies, and are based upon estimates as
to future investment yield, mortality and withdrawals that include provisions
for adverse deviation. Future policy benefits for individual life insurance and
annuity policies are computed using interest rates ranging from 2 1/2% to 6% for
life insurance and 2% to 9 1/2% for
F-6
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
annuities. Mortality, morbidity and withdrawal assumptions for all policies are
based on the Company's own experience and industry standards. Liabilities for
universal life include deposits received from customers and investment earnings
on their fund balances, less administrative charges. Universal life fund
balances are also assessed mortality and surrender charges. Individual health
benefit liabilities for active lives are estimated using the net level premium
method, and assumptions as to future morbidity, withdrawals and interest which
provide a margin for adverse deviation. Benefit liabilities for disabled lives
are estimated using the present value of benefits method and experience
assumptions as to claim terminations, expenses and interest.
Liabilities for outstanding claims, losses and loss adjustment expenses are
estimates of payments to be made for reported claims and estimates of claims
incurred but not reported. These liabilities are determined using case basis
evaluations and statistical analyses and represent estimates of the ultimate
cost of all claims incurred but not paid. These estimates are continually
reviewed and adjusted as necessary; such adjustments are reflected in current
operations.
Premiums for individual accident and health insurance are reported as earned on
a pro-rata basis over the contract period.
The unexpired portion of these premiums is recorded as unearned premiums.
Contractholder deposit funds and other policy liabilities include
investment-related products and consist of deposits received from customers and
investment earnings on their fund balances.
All policy liabilities and accruals are based on the various estimates discussed
above. Although the adequacy of these amounts cannot be assured, management
believes that it is more likely than not that policy liabilities and accruals
will be sufficient to meet future obligations of policies in force. The amount
of liabilities and accruals, however, could be revised in the near term if the
estimates discussed above are revised.
H. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life and health insurance and individual annuity
products, excluding universal life and investment-related products, are
considered revenue when due. Individual accident and health insurance premiums
are recognized as revenue over the related contract periods. Benefits, losses
and related expenses are matched with premiums, resulting in their recognition
over the lives of the contracts. This matching is accomplished through the
provision for future benefits, estimated and unpaid losses and amortization of
deferred policy acquisition costs. Revenues for investment-related products
consist of net investment income and contract charges assessed against the fund
values. Related benefit expenses primarily consist of net investment income
credited to the fund values after deduction for investment and risk charges.
Revenues for universal life and group variable universal life products consist
of net investment income, and mortality, administration and surrender charges
assessed against the fund values. Related benefit expenses include universal
life benefits in excess of fund values and net investment income credited to
universal life fund values. Certain policy charges that represent compensation
for services to be provided in future periods are deferred and amortized over
the period benefited using the same assumptions used to amortize capitalized
acquisition costs.
I. FEDERAL INCOME TAXES
AFC, its life insurance subsidiaries, FAFLIC and AFLIAC, and its non-life
insurance domestic subsidiaries file a life-nonlife consolidated United States
Federal income tax return. Entities included within the consolidated group are
segregated into either a life insurance or non-life insurance company subgroup.
The consolidation of these subgroups is subject to certain statutory
restrictions on the percentage of eligible non-life insurance company taxable
operating losses that can be applied to offset life insurance company taxable
income. Allmerica P&C and its subsidiaries will be included in the AFC
consolidated return as part of the
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
non-life insurance company subgroup for the period July 17, 1997 through
December 31, 1997. For the period January 1, 1997 through July 16, 1997,
Allmerica P&C and its subsidiaries will file a separate consolidated United
States Federal income tax return.
The Board of Directors has delegated to AFC management, the development and
maintenance of appropriate Federal Income Tax allocation policies and
procedures, which are subject to written agreement between the companies. The
Federal income tax for all subsidiaries in the consolidated return of AFC is
calculated on a separate return basis. Any current tax liability is paid to AFC.
Tax benefits resulting from taxable operating losses or credits of AFC's
subsidiaries are not reimbursed to the subsidiary until such losses or credits
can be utilized by the subsidiary on a separate return basis.
Deferred income taxes are generally recognized when assets and liabilities have
different values for financial statement and tax reporting purposes, and for
other temporary taxable and deductible differences as defined by Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). These differences result primarily from loss reserves, policy acquisition
expenses, and unrealized appreciation/depreciation on investments.
J. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. This statement establishes standards for
the way that public enterprises report information about operating segments in
annual financial statements and requires that selected information about those
operating segments be reported in interim financial statements. This statement
supersedes Statement No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS
ENTERPRISE. Statement No. 131 requires that all public enterprises report
financial and descriptive information about their reportable operating segments.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. This statement is effective for fiscal years beginning
after December 15, 1997. The Company anticipates no impact from the adoption of
Statement No. 131.
In June 1997, the FASB also issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME, which established standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. All items that are required to be recognized under
accounting standards as components of comprehensive income are to be reported in
a financial statement that is displayed with the same prominence as other
financial statements. This statement stipulates that comprehensive income
reflect the change in equity of an enterprise during a period from transactions
and other events and circumstances from non-owner sources. This statement is
effective for fiscal years beginning after December 15, 1997. The Company
anticipates that the adoption of Statement No. 130 will result primarily in
reporting the changes in unrealized gains and losses on investments in debt and
equity securities in comprehensive income.
2. SIGNIFICANT TRANSACTIONS
On April 14, 1997, the Company entered into an agreement in principle to
transfer the Company's individual disability income under a 100% coinsurance
agreement to Metropolitan Life Insurance Company. The coinsurance agreement
became effective October 1, 1997. The transaction has resulted in the
recognition of a $53.9 million pre-tax loss in the first quarter of 1997.
During the 4th quarter of 1997, SMAFCO contributed $40.6 million of additional
paid in capital to the Company. The nature of the contribution was $19.2 million
in cash and $21.4 million in other assets including Somerset Square, Inc.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Effective January 1, 1998, the Company entered into an agreement with
Reinsurance Group of America, Inc. to reinsure the mortality risk on the
universal life and variable universal life blocks of business. Management
believes that this agreement will not have a material effect on the results of
operations or financial position of the Company.
3. INVESTMENTS
A. SUMMARY OF INVESTMENTS
The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with the provisions of SFAS No. 115.
The amortized cost and fair value of available-for-sale fixed maturities and
equity securities were as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------
GROSS GROSS
DECEMBER 31, AMORTIZED UNREALIZED UNREALIZED FAIR
(IN MILLIONS) COST (1) GAINS LOSSES VALUE
- ---------------------------------------- ---------- -------- --------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and U.S.
government and agency securities....... $ 6.3 $ .5 $-- $ 6.8
States and political subdivisions....... 2.8 .2 -- 3.0
Foreign governments..................... 50.1 2.0 -- 52.1
Corporate fixed maturities.............. 1,147.5 58.7 3.3 1,202.9
Mortgage-backed securities.............. 133.8 5.2 1.3 137.7
---------- -------- --------- --------
Total fixed maturities
available-for-sale..................... $1,340.5 $66.6 $ 4.6 $1,402.5
---------- -------- --------- --------
Equity securities....................... $ 34.4 $19.9 $ 0.3 $ 54.0
---------- -------- --------- --------
---------- -------- --------- --------
1996
--------------------------------------------
U.S. Treasury securities and U.S.
government and agency securities....... $ 15.7 $ 0.5 $ 0.2 $ 16.0
States and political subdivisions....... 8.9 1.6 -- 10.5
Foreign governments..................... 53.2 2.9 -- 56.1
Corporate fixed maturities.............. 1,437.2 38.6 6.1 1,469.7
Mortgage-backed securities.............. 145.2 2.2 1.7 145.7
---------- -------- --------- --------
Total fixed maturities
available-for-sale..................... $1,660.2 $45.8 $ 8.0 $1,698.0
---------- -------- --------- --------
Equity securities....................... $ 33.0 $10.2 $ 1.7 $ 41.5
---------- -------- --------- --------
---------- -------- --------- --------
</TABLE>
(1) Amortized cost for fixed maturities and cost for equity securities.
In connection with AFLIAC's voluntary withdrawal of its license in New York,
AFLIAC agreed with the New York Department of Insurance to maintain, through a
custodial account in New York, a security deposit, the market value of which
will at all times equal 102% of all outstanding liabilities of AFLIAC for New
York policyholders, claimants and creditors. At December 31, 1997, the amortized
cost and market value of these assets on deposit were $276.8 million and $291.7
million, respectively. At December 31, 1996, the amortized cost and market value
of these assets on deposit were $284.9 million and $292.2 million, respectively.
In addition, fixed maturities, excluding those securities on deposit in New
York, with an amortized cost of $4.2 million were on deposit with various state
and governmental authorities at December 31, 1997 and 1996.
There were no contractual fixed maturity investment commitments at December 31,
1997 and 1996, respectively.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and fair value by maturity periods for fixed maturities are
shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties, or the Company may have the right to put or sell the
obligations back to the issuers. Mortgage backed securities are included in the
category representing their ultimate maturity.
<TABLE>
<CAPTION>
1997
--------------------
DECEMBER 31, AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ------------------------------------------------------------ --------- ---------
<S> <C> <C>
Due in one year or less..................................... $ 63.0 $ 63.5
Due after one year through five years....................... 328.8 343.9
Due after five years through ten years...................... 649.5 679.9
Due after ten years......................................... 299.2 315.2
--------- ---------
Total....................................................... $1,340.5 $1,402.5
--------- ---------
--------- ---------
</TABLE>
The proceeds from voluntary sales of available-for-sale securities and the gross
realized gains and gross realized losses on those sales were as follows:
<TABLE>
<CAPTION>
PROCEEDS
FROM
FOR THE YEARS ENDED DECEMBER 31, VOLUNTARY GROSS GROSS
(IN MILLIONS) SALES GAINS LOSSES
- ------------------------------------------------------------ ---------- ------ ------
<S> <C> <C> <C>
1997
Fixed maturities............................................ $702.9 $ 11.4 $ 5.0
Equity securities........................................... $ 1.3 $ 0.5 $ --
1996
Fixed maturities............................................ $496.6 $ 4.3 $ 8.3
Equity securities........................................... $ 1.5 $ 0.4 $ 0.1
</TABLE>
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
EQUITY
FOR THE YEAR ENDED DECEMBER 31, FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- ------
<S> <C> <C> <C>
1997
Net appreciation, beginning of year......................... $ 12.7 $ 7.8 $ 20.5
Net appreciation on available-for-sale securities........... 24.3 12.5 36.8
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (9.8) -- (9.8)
Provision for deferred federal income taxes................. (5.1) (3.9) (9.0)
---------- ----- ------
9.4 8.6 18.0
---------- ----- ------
Net appreciation, end of year............................... $ 22.1 $ 16.4 $ 38.5
---------- ----- ------
---------- ----- ------
</TABLE>
(1) Includes net appreciation on other investments of $11.1 million in 1997, and
$2.2 million in 1996.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 FIXED SECURITIES
(IN MILLIONS) MATURITIES AND OTHER (1) TOTAL
- ------------------------------------------------------------ ---------- ------------- ------
<S> <C> <C> <C>
Net appreciation, beginning of year......................... $ 20.4 $ 3.4 $ 23.8
Net (depreciation) appreciation on available-for-sale
securities................................................. (20.8) 6.7 (14.1)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ 9.0 -- 9.0
Benefit (provision) for deferred federal income taxes....... 4.1 (2.3) 1.8
---------- ----- ------
(7.7) 4.4 (3.3)
---------- ----- ------
Net appreciation, end of year............................... $ 12.7 $ 7.8 $ 20.5
---------- ----- ------
---------- ----- ------
</TABLE>
(1) Includes net appreciation on other investments of $11.1 million in 1997, and
$2.2 million in 1996.
B. MORTGAGE LOANS AND REAL ESTATE
AFLIAC's mortgage loans and real estate are diversified by property type and
location. Real estate investments have been obtained primarily through
foreclosure. Mortgage loans are collateralized by the related properties and
generally are no more than 75% of the property's value at the time the original
loan is made.
The carrying values of mortgage loans and real estate investments net of
applicable reserves were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Mortgage loans.............................................. $228.2 $221.6
Real estate:
Held for sale............................................. 12.0 26.1
Held for production of income............................. -- --
---------- ------
Total real estate....................................... $ 12.0 $ 26.1
---------- ------
Total mortgage loans and real estate........................ $240.2 $247.7
---------- ------
---------- ------
</TABLE>
Reserves for mortgage loans were $9.4 million and $9.5 million at December 31,
1997 and 1996, respectively.
During 1997, the Company committed to a plan to dispose of all real estate
assets by the end of 1998. As a result, real estate assets with a carrying
amount of $15.7 million were written down to the estimated fair value less cost
to sell of $12.0 million, and a net realized investment loss of $3.7 million was
recognized. Depreciation is not recorded on these assets while they are held for
disposal.
There were no non-cash investing activities, including real estate acquired
through foreclosure of mortgage loans, in 1997. During 1996, non-cash investing
activities included real estate acquired through foreclosure of mortgage loans,
which had a fair value of $0.9 million.
At December 31, 1997, contractual commitments to extend credit under commercial
mortgage loan agreements amounted to approximately $18.7 million. These
commitments generally expire within one year.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Property type:
Office building........................................... $101.7 $ 86.1
Residential............................................... 19.3 39.0
Retail.................................................... 42.2 55.9
Industrial/warehouse...................................... 61.9 52.6
Other..................................................... 24.5 25.3
Valuation allowances...................................... (9.4) (11.2)
---------- ------
Total....................................................... $240.2 $247.7
---------- ------
---------- ------
Geographic region:
South Atlantic............................................ $ 68.7 $ 72.9
Pacific................................................... 56.6 37.0
East North Central........................................ 61.4 58.3
Middle Atlantic........................................... 29.8 35.0
West South Central........................................ 6.9 5.7
New England............................................... 12.4 21.9
Other..................................................... 13.8 28.1
Valuation allowances...................................... (9.4) (11.2)
---------- ------
Total....................................................... $240.2 $247.7
---------- ------
---------- ------
</TABLE>
At December 31, 1997, scheduled mortgage loan maturities were as follows: 1998
- -- $52.0 million; 1999 -- $17.1 million; 2000 -- $46.3 million; 2001 -- $7.0
million; 2002 -- $11.7 million; and $94.1 million thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties and loans may be
refinanced. During 1997, the Company did not refinance any mortgage loans based
on terms which differed from those granted to new borrowers.
C. INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the balance sheet and changes thereto
are shown below.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, BALANCE AT BALANCE AT
(IN MILLIONS) JANUARY 1 ADDITIONS DEDUCTIONS DECEMBER 31
- ------------------------------------------------------------ ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
1997
Mortgage loans.............................................. $ 9.5 $ 1.1 $ 1.2 $ 9.4
Real estate................................................. 1.7 3.7 5.4 --
----- --- --- -----
Total................................................... $ 11.2 $ 4.8 $ 6.6 $ 9.4
----- --- --- -----
----- --- --- -----
1996
Mortgage loans.............................................. $ 12.5 $ 4.5 $ 7.5 $ 9.5
Real estate................................................. 2.1 -- 0.4 1.7
----- --- --- -----
Total................................................... $ 14.6 $ 4.5 $ 7.9 $ 11.2
----- --- --- -----
----- --- --- -----
</TABLE>
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Deductions of $5.4 million to the investment valuation allowance related to real
estate in 1997 primarily reflect writedowns to the estimated fair value less
cost to sell pursuant to the aforementioned 1997 plan of disposal.
The carrying value of impaired loans was $20.6 million and $21.5 million, with
related reserves of $7.1 million and $7.3 million as of December 31, 1997 and
1996, respectively. All impaired loans were reserved as of December 31, 1997 and
1996.
The average carrying value of impaired loans was $19.8 million and $26.3
million, with related interest income while such loans were impaired of $2.2
million and $3.4 million as of December 31, 1997 and 1996, respectively.
D. OTHER
At December 31, 1997, AFLIAC had no concentration of investments in a single
investee exceeding 10% of shareholder's equity.
4. INVESTMENT INCOME AND GAINS AND LOSSES
A. NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Fixed maturities............................................ $130.0 $137.2
Mortgage loans.............................................. 20.4 22.0
Equity securities........................................... 1.3 0.7
Policy loans................................................ 10.8 10.2
Real estate................................................. 3.9 6.2
Other long-term investments................................. 1.0 0.8
Short-term investments...................................... 1.4 1.4
-------- ------
Gross investment income..................................... 168.8 178.5
Less investment expenses.................................... (4.6) (6.8)
-------- ------
Net investment income....................................... $164.2 $171.7
-------- ------
-------- ------
</TABLE>
At December 31, 1997, mortgage loans on non-accrual status were $2.8 million,
which were all restructured loans. There were no fixed maturities on non-accrual
status at December 31, 1997. The effect of non-accruals, compared with amounts
that would have been recognized in accordance with the original terms of the
investment, had no impact in 1997, and reduced net income by $0.1 million in
1996.
The payment terms of mortgage loans may from time to time be restructured or
modified. The investment in restructured mortgage loans, based on amortized
cost, amounted to $21.1 million and $25.4 million at December 31, 1997 and 1996,
respectively. Interest income on restructured mortgage loans that would have
been recorded in accordance with the original terms of such loans amounted to
$1.9 million and $3.6 million in 1997 and 1996, respectively. Actual interest
income on these loans included in net investment income aggregated $2.1 million
and $2.2 million in 1997 and 1996, respectively.
There were no fixed maturities or mortgage loans which were non-income producing
for the twelve months ended December 31, 1997.
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
B. REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Fixed maturities............................................ $ 3.0 $ (3.3)
Mortgage loans.............................................. (1.1) (3.2)
Equity securities........................................... 0.5 0.3
Real estate................................................. (1.5) 2.5
Other....................................................... 2.0 0.1
---------- ------
Net realized investment losses.............................. $ 2.9 $ (3.6)
---------- ------
---------- ------
</TABLE>
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of fair value information about certain financial instruments
(insurance contracts, real estate, goodwill and taxes are excluded) for which it
is practicable to estimate such values, whether or not these instruments are
included in the balance sheet. The fair values presented for certain financial
instruments are estimates which, in many cases, may differ significantly from
the amounts which could be realized upon immediate liquidation. In cases where
market prices are not available, estimates of fair value are based on discounted
cash flow analyses which utilize current interest rates for similar financial
instruments which have comparable terms and credit quality.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair value.
FIXED MATURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models using discounted cash flow
analyses.
EQUITY SECURITIES
Fair values are based on quoted market prices, if available. If a quoted market
price is not available, fair values are estimated using independent pricing
sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are estimated by discounting the future contractual cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings. The fair value of below investment grade mortgage loans are
limited to the lesser of the present value of the cash flows or book value.
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
REINSURANCE RECEIVABLES
The carrying amount of the reinsurance receivable for outstanding claims, losses
and loss adjustment expenses reported in the balance sheet approximates fair
value.
POLICY LOANS
The carrying amount reported in the balance sheet approximates fair value since
policy loans have no defined maturity dates and are inseparable from the
insurance contracts.
INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under investment type contracts are
estimated based on current surrender values.
The estimated fair values of the financial instruments were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
DECEMBER 31, CARRYING FAIR CARRYING FAIR
(IN MILLIONS) VALUE VALUE VALUE VALUE
- ------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................................. $ 31.1 $ 31.1 $ 18.8 $ 18.8
Fixed maturities.......................................... 1,402.5 1,402.5 1,698.0 1,698.0
Equity securities......................................... 54.0 54.0 41.5 41.5
Mortgage loans............................................ 228.2 239.8 221.6 229.3
Policy loans.............................................. 140.1 140.1 131.7 131.7
Reinsurance receivables................................... 251.1 251.1 72.5 72.5
--------- --------- --------- ---------
$2,107.0 $2,118.6 $2,184.1 $2,191.8
--------- --------- --------- ---------
--------- --------- --------- ---------
FINANCIAL LIABILITIES
Individual annuity contracts.............................. 876.0 850.6 910.2 885.9
Supplemental contracts without life contingencies......... 15.3 15.3 15.9 15.9
Other individual contract deposit funds................... 0.3 0.3 0.3 0.3
--------- --------- --------- ---------
$ 891.6 $ 866.2 $ 926.4 $ 902.1
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
6. DEBT
In 1997 the Company incurred no debt. During 1996, the Company utilized
repurchase agreements to finance certain investments.
Interest expense was $3.4 million in 1996, relating to the repurchase
agreements, and is recorded in other operating expenses.
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FEDERAL INCOME TAXES
Provisions for federal income taxes have been calculated in accordance with the
provisions of SFAS No. 109. A summary of the federal income tax expense
(benefit) in the statement of income is shown below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- ------
<S> <C> <C>
Federal income tax expense (benefit)
Current................................................... $ 13.9 $ 26.9
Deferred.................................................. 7.1 (9.8)
----- -----
Total....................................................... $ 21.0 $ 17.1
----- -----
----- -----
</TABLE>
The provision for federal income taxes does not materially differ from the
amount of federal income tax determined by applying the appropriate U.S.
statutory income tax rate to income before federal income taxes. The deferred
tax (assets) liabilities are comprised of the following at December 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Deferred tax (assets) liabilitie
Loss reserves............................................. $(175.8) $(137.0)
Deferred acquisition costs................................ 226.4 186.9
Investments, net.......................................... 27.0 14.2
Bad debt reserve.......................................... (2.0) (1.1)
Other, net................................................ 0.3 (2.8)
---------- -------------
Deferred tax liability, net............................... $ 75.9 $ 60.2
---------- -------------
---------- -------------
</TABLE>
Gross deferred income tax liabilities totaled $253.7 million and $201.1 million
at December 31, 1997 and 1996. Gross deferred income tax assets totaled $177.8
million and $140.9 at December 31, 1997 and 1996.
Management believes, based on the Company's recent earnings history and its
future expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, management considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary.
The Company's federal income tax returns are routinely audited by the IRS, and
provisions are routinely made in the financial statements in anticipation of the
results of these audits. The IRS has examined the life-nonlife consolidated
group's federal income tax returns through 1991. The Company is currently
considering its response to certain adjustments proposed by the IRS with respect
to the life-nonlife consolidated group's federal income tax returns for 1989,
1990, and 1991. In management's opinion, adequate tax liabilities have been
established for all years. However, the amount of these tax liabilities could be
revised in the near term if estimates of the Company's ultimate liability are
revised.
8. RELATED PARTY TRANSACTIONS
The Company has no employees of its own, but has agreements under which FAFLIC
provides management, space and other services, including accounting, electronic
data processing, human resources, legal and other staff functions. Charges for
these services are based on full cost including all direct and indirect overhead
costs, and amounted to $124.1 million and $112.4 million in 1997 and 1996. The
net amounts payable to FAFLIC and affiliates for accrued expenses and various
other liabilities and receivables were $15.0 million and $13.3 million at
December 31, 1997 and 1996.
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. DIVIDEND RESTRICTIONS
Delaware has enacted laws governing the payment of dividends to stockholders by
insurers. These laws affect the dividend paying ability of the Company.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding December 31
or (ii) the individual company's statutory net gain from operations for the
preceding calendar year (if such insurer is a life company) or its net income
(not including realized capital gains) for the preceding calendar year (if such
insurer is not a life company). Any dividends to be paid by an insurer, whether
or not in excess of the aforementioned threshold, from a source other than
statutory earned surplus would also require the prior approval of the Delaware
Commissioner of Insurance.
At January 1, 1998, AFLIAC could pay dividends of $33.9 million to FAFLIC
without prior approval.
10. REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that may
arise from events that cause unfavorable underwriting results by reinsuring
certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers. Reinsurance transactions are accounted for in
accordance with the provisions of SFAS No. 113.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the claim liability associated with the reinsured policy. Reinsurance contracts
do not relieve the Company from its obligations to policyholders. Failure of
reinsurers to honor their obligations could result in losses to the Company;
consequently, allowances are established for amounts deemed uncollectible. The
Company determines the appropriate amount of reinsurance based on evaluation of
the risks accepted and analyses prepared by consultants and reinsurers and on
market conditions (including the availability and pricing of reinsurance). The
Company also believes that the terms of its reinsurance contracts are consistent
with industry practice in that they contain standard terms with respect to lines
of business covered, limit and retention, arbitration and occurrence. Based on
its review of its reinsurers' financial statements and reputations in the
reinsurance marketplace, the Company believes that its reinsurers are
financially sound.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Insurance premiums:
Direct.................................................... $ 48.8 $ 53.3
Assumed................................................... 2.6 3.1
Ceded..................................................... (28.6) (23.7)
-------- ------
Net premiums................................................ $ 22.8 $ 32.7
-------- ------
-------- ------
Insurance and other individual policy benefits, claims,
losses and loss adjustment expenses:
Direct.................................................... $226.0 $206.4
Assumed................................................... 4.2 4.5
Ceded..................................................... (42.4) (18.3)
-------- ------
Net policy benefits, claims, losses and loss adjustment
expenses................................................... $187.8 $192.6
-------- ------
-------- ------
</TABLE>
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. DEFERRED POLICY ACQUISITION EXPENSES
The following reflects the changes to the deferred policy acquisition asset:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Balance at beginning of year................................ $632.7 $555.7
Acquisition expenses deferred............................. 184.1 116.6
Amortized to expense during the year...................... (53.0) (49.9)
Adjustment to equity during the year...................... (10.2) 10.3
Adjustment for cession of disability income insurance..... (38.6) --
Adjustment for revision of universal life and variable
universal life insurance mortality assumptions.......... 50.3 --
---------- ------
Balance at end of year...................................... $765.3 $632.7
---------- ------
---------- ------
</TABLE>
On October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.3 million recapitalization of deferred policy acquisition costs.
12. LIABILITIES FOR INDIVIDUAL ACCIDENT AND HEALTH BENEFITS
The Company regularly updates its estimates of liabilities for future policy
benefits and outstanding claims, losses and loss adjustment expenses as new
information becomes available and further events occur which may impact the
resolution of unsettled claims. Changes in prior estimates are reflected in
results of operations in the year such changes are determined to be needed and
recorded.
The liability for future policy benefits and outstanding claims, losses and loss
adjustment expenses related to the Company's accident and health business was
$219.9 million and $226.2 million at December 31, 1997 and 1996. Accident and
health claim liabilities have been re-estimated for all prior years and were
increased by $-0- million in 1997 and $3.2 million in 1996. Due to the
reinsurance agreement whereby the Company has ceded substantially all of its
accident and health business to the Metropolitan, management believes that no
material adverse development of losses will occur. However, the amount of the
liabilities could be revised in the near term if the estimates are revised.
13. CONTINGENCIES
REGULATORY AND INDUSTRY DEVELOPMENTS
Unfavorable economic conditions may contribute to an increase in the number of
insurance companies that are under regulatory supervision. This may result in an
increase in mandatory assessments by state guaranty funds, or voluntary payments
by solvent insurance companies to cover losses to policyholders of insolvent or
rehabilitated companies. Mandatory assessments, which are subject to statutory
limits, can be partially recovered through a reduction in future premium taxes
in some states. The Company is not able to reasonably estimate the potential
effect on it of any such future assessments or voluntary payments.
LITIGATION
In July 1997, a lawsuit was instituted in Louisiana against Allmerica Financial
Corp. and certain of its subsidiaries by individual plaintiffs alleging fraud,
unfair or deceptive acts, breach of contract, misrepresentation and related
claims in the sale of life insurance policies. In October 1997, plaintiffs
voluntarily dismissed the Louisiana suit and refiled the action in Federal
District Court in Worcester, Massachusetts. The plaintiffs
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
seek to be certified as a class. The case is in the early stages of discovery
and the Company is evaluating the claims. Although the Company believes it has
meritorious defenses to plaintiffs' claims, there can be no assurance that the
claims will be resolved on a basis which is satisfactory to the Company.
The Company has been named a defendant in various legal proceedings arising in
the normal course of business. In the opinion of management, based on the advice
of legal counsel, the ultimate resolution of these proceedings will not have a
material effect on the Company's financial statements. However, liabilities
related to these proceedings could be established in the near term if estimates
of the ultimate resolution of these proceedings are revised.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Although the Company does not
believe that there is a material contingency associated with the Year 2000
project, there can be no assurance that exposure for material contingencies will
not arise.
14. STATUTORY FINANCIAL INFORMATION
The Company is required to file annual statements with state regulatory
authorities prepared on an accounting basis prescribed or permitted by such
authorities (statutory basis). Statutory surplus differs from shareholder's
equity reported in accordance with generally accepted accounting principles for
stock life insurance companies primarily because policy acquisition costs are
expensed when incurred, investment reserves are based on different assumptions,
life insurance reserves are based on different assumptions and income tax
expense reflects only taxes paid or currently payable. Statutory net income and
surplus are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Statutory net income........................................ $ 31.5 $ 5.4
Statutory Surplus........................................... $307.1 $234.0
---------- ------
---------- ------
</TABLE>
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Allmerica Financial Life Insurance and Annuity
Company and Policyowners of the Separate Account VA-K -- Delaware Medallion
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
(Decatur Total Return, Delchester, Capital Reserves, Cash Reserve, DelCap,
Delaware, International Equity, Value, Trend, Global Bond, Strategic Income,
Devon, Emerging Markets, Convertible Securities and Quantum) constituting the
Separate Account VA-K -- Delaware Medallion of Allmerica Financial Life
Insurance and Annuity Company at December 31, 1997, the results of each of
their operations for the year then ended and the changes in each of their net
assets for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Allmerica Financial Life Insurance and Annuity Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments at December 31, 1997 by correspondence with the
Fund, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 25, 1998
<PAGE>
SEPARATE ACCOUNT VA-K -- DELAWARE MEDALLION
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
DECATUR CAPITAL CASH
TOTAL RETURN* DELCHESTER* RESERVES RESERVE* DELCAP* DELAWARE*
------------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 7):
Investments in shares of Delaware Group
Premium Fund, Inc......................... $276,184,391 $93,731,929 $26,640,341 $27,977,639 $104,414,571 $118,399,235
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor)... -- -- 1,214 87 -- 459
------------- ----------- ----------- ----------- ------------ ------------
Total assets.............................. 276,184,391 93,731,929 26,641,555 27,977,726 104,414,571 118,399,694
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and Annuity Company (Sponsor)... 2,054 52 -- -- 2 --
------------- ----------- ----------- ----------- ------------ ------------
Net assets................................ $276,182,337 $93,731,877 $26,641,555 $27,977,726 $104,414,569 $118,399,694
------------- ----------- ----------- ----------- ------------ ------------
------------- ----------- ----------- ----------- ------------ ------------
Net asset distribution by category:
Qualified variable annuity policies....... $ 64,786,449 $22,918,416 $ 5,922,252 $ 6,202,784 $ 26,323,893 $ 29,887,406
Non-qualified variable annuity policies... 211,395,888 70,813,461 20,719,303 21,774,942 78,090,676 88,512,288
------------- ----------- ----------- ----------- ------------ ------------
$276,182,337 $93,731,877 $26,641,555 $27,977,726 $104,414,569 $118,399,694
------------- ----------- ----------- ----------- ------------ ------------
------------- ----------- ----------- ----------- ------------ ------------
Qualified units outstanding, December 31,
1997...................................... 26,626,049 13,871,907 4,498,059 5,324,036 14,376,549 14,832,452
Net asset value per qualified unit, December
31, 1997.................................. $ 2.433198 $ 1.652146 $ 1.316624 $ 1.165053 $ 1.831030 $ 2.015001
Non-qualified units outstanding, December
31, 1997.................................. 86,879,854 42,861,503 15,736,689 18,690,087 42,648,496 43,926,672
Net asset value per non-qualified unit,
December 31, 1997......................... $ 2.433198 $ 1.652146 $ 1.316624 $ 1.165053 $ 1.831030 $ 2.015001
<CAPTION>
INTERNATIONAL
EQUITY VALUE TREND*
------------- ----------- -----------
<S> <C> <C> <C>
ASSETS (NOTES 3 AND 7):
Investments in shares of Delaware Group
Premium Fund, Inc......................... $79,045,202 $83,216,792 $59,169,434
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor)... -- -- --
------------- ----------- -----------
Total assets.............................. 79,045,202 83,216,792 59,169,434
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and Annuity Company (Sponsor)... 220 -- --
------------- ----------- -----------
Net assets................................ $79,044,982 $83,216,792 $59,169,434
------------- ----------- -----------
------------- ----------- -----------
Net asset distribution by category:
Qualified variable annuity policies....... $19,177,515 $18,870,533 $15,110,245
Non-qualified variable annuity policies... 59,867,467 64,346,259 44,059,189
------------- ----------- -----------
$79,044,982 $83,216,792 $59,169,434
------------- ----------- -----------
------------- ----------- -----------
Qualified units outstanding, December 31,
1997...................................... 11,842,709 9,811,927 8,492,728
Net asset value per qualified unit, December
31, 1997.................................. $ 1.619352 $ 1.923224 $ 1.779198
Non-qualified units outstanding, December
31, 1997.................................. 36,970,014 33,457,496 24,763,511
Net asset value per non-qualified unit,
December 31, 1997......................... $ 1.619352 $ 1.923224 $ 1.779198
</TABLE>
* Name changed. See Note 1.
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
SEPARATE ACCOUNT VA-K -- DELAWARE MEDALLION
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
STRATEGIC EMERGING CONVERTIBLE
GLOBAL BOND INCOME DEVON MARKETS SECURITIES QUANTUM
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 7):
Investments in shares of Delaware Group
Premium Fund, Inc......................... $4,351,550 $5,662,139 $14,611,298 $3,998,485 $1,492,853 $5,743,342
Receivable from Allmerica Financial Life
Insurance and Annuity Company (Sponsor)... -- -- -- -- -- --
----------- ---------- ----------- ---------- ----------- ----------
Total assets.............................. 4,351,550 5,662,139 14,611,298 3,998,485 1,492,853 5,743,342
LIABILITIES:
Payable to Allmerica Financial Life
Insurance and Annuity Company (Sponsor)... -- -- -- -- -- --
----------- ---------- ----------- ---------- ----------- ----------
Net assets................................ $4,351,550 $5,662,139 $14,611,298 $3,998,485 $1,492,853 $5,743,342
----------- ---------- ----------- ---------- ----------- ----------
----------- ---------- ----------- ---------- ----------- ----------
Net asset distribution by category:
Qualified variable annuity policies....... $ 858,608 $1,065,078 $ 3,453,637 $1,161,559 $ 255,393 $2,118,630
Non-qualified variable annuity policies... 3,492,942 4,597,061 11,157,661 2,836,926 1,237,460 3,624,712
----------- ---------- ----------- ---------- ----------- ----------
$4,351,550 $5,662,139 $14,611,298 $3,998,485 $1,492,853 $5,743,342
----------- ---------- ----------- ---------- ----------- ----------
----------- ---------- ----------- ---------- ----------- ----------
Qualified units outstanding, December 31,
1997...................................... 779,297 1,012,240 2,738,222 1,320,270 220,882 1,665,385
Net asset value per qualified unit, December
31, 1997.................................. $ 1.101772 $ 1.052199 $ 1.261270 $ 0.879789 $ 1.156243 $ 1.272156
Non-qualified units outstanding, December
31, 1997.................................. 3,170,294 4,369,003 8,846,371 3,224,552 1,070,242 2,849,268
Net asset value per non-qualified unit,
December 31, 1997......................... $ 1.101772 $ 1.052199 $ 1.261270 $ 0.879789 $ 1.156243 $ 1.272156
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
SEPARATE ACCOUNT VA-K -- DELAWARE MEDALLION
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DECATUR CAPITAL
TOTAL RETURN* DELCHESTER* RESERVES
------------- ----------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends............................................................................ $ 4,158,362 $6,944,014 $1,599,356
------------- ----------- ----------
EXPENSES (NOTE 4):
Mortality and expense risk fees...................................................... 2,451,690 941,250 313,520
Administrative expense fees.......................................................... 303,018 116,334 38,749
------------- ----------- ----------
Total expenses..................................................................... 2,754,708 1,057,584 352,269
------------- ----------- ----------
Net investment income (loss)......................................................... 1,403,654 5,886,430 1,247,087
------------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors.................................. 11,082,819 -- --
Net realized gain (loss) from sales of investments................................... 1,824,726 188,009 (133,028)
------------- ----------- ----------
Net realized gain (loss)........................................................... 12,907,545 188,009 (133,028)
Net unrealized gain (loss)........................................................... 33,563,598 2,650,381 395,201
------------- ----------- ----------
Net realized and unrealized gain (loss)............................................ 46,471,143 2,838,390 262,173
------------- ----------- ----------
Net increase (decrease) in net assets from operations.............................. $47,874,797 $8,724,820 $1,509,260
------------- ----------- ----------
------------- ----------- ---------
<CAPTION>
CASH
RESERVE* DELCAP* DELAWARE*
--------- ---------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends............................................................................ $1,361,016 $ -- $ 2,301,238
---------- ---------- -----------
EXPENSES (NOTE 4):
Mortality and expense risk fees...................................................... 338,306 1,100,795 1,116,089
Administrative expense fees.......................................................... 41,814 136,053 137,944
---------- ----------- -----------
Total expenses..................................................................... 380,120 1,236,848 1,254,033
---------- ----------- -----------
Net investment income (loss)......................................................... 980,896 (1,236,848) 1,047,205
---------- ------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors.................................. -- 4,097,064 4,313,867
Net realized gain (loss) from sales of investments................................... -- 853,448 766,387
---------- ----------- -----------
Net realized gain (loss)........................................................... -- 4,950,512 5,080,254
Net unrealized gain (loss)........................................................... -- 7,541,834 14,032,322
---------- ----------- -----------
Net realized and unrealized gain (loss)............................................ -- 12,492,346 19,112,576
---------- ----------- -----------
Net increase (decrease) in net assets from operations.............................. $ 980,896 $11,255,498 $20,159,781
---------- ----------- -----------
---------- ----------- -----------
<CAPTION>
INTERNATIONAL
EQUITY VALUE
------------ ----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends............................................................................ $1,809,863 $ 193,121
------------ -----------
EXPENSES (NOTE 4):
Mortality and expense risk fees...................................................... 838,686 619,623
Administrative expense fees.......................................................... 103,658 76,582
------------ -----------
Total expenses..................................................................... 942,344 696,205
------------ -----------
Net investment income (loss)......................................................... 867,519 (503,084)
------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors.................................. -- 1,632,754
Net realized gain (loss) from sales of investments................................... 1,086,958 440,827
------------ -----------
Net realized gain (loss)........................................................... 1,086,958 2,073,581
Net unrealized gain (loss)........................................................... (207,547) 11,414,705
------------ -----------
Net realized and unrealized gain (loss)............................................ 879,411 13,488,286
------------ -----------
Net increase (decrease) in net assets from operations.............................. $1,746,930 $12,985,202
------------ -----------
------------ -----------
</TABLE>
* Name changed. See Note 1.
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
SEPARATE ACCOUNT VA-K -- DELAWARE MEDALLION
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
TREND* GLOBAL BOND
--------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................................................................ $ 118,730 $ 107,550
--------- ------------
EXPENSES (NOTE 4):
Mortality and expense risk fees.................................................................. 550,964 33,939
Administrative expense fees...................................................................... 68,097 4,194
--------- ------------
Total expenses................................................................................. 619,061 38,133
--------- ------------
Net investment income (loss)..................................................................... (500,331) 69,417
--------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors.............................................. 427,430 8,738
Net realized gain (loss) from sales of investments............................................... 461,748 (4,984)
--------- ------------
Net realized gain (loss)....................................................................... 889,178 3,754
Net unrealized gain (loss)....................................................................... 7,695,169 (41,472)
--------- ------------
Net realized and unrealized gain (loss)........................................................ 8,584,347 (37,718)
--------- ------------
Net increase (decrease) in net assets from operations.......................................... $8,084,016 $ 31,699
--------- ------------
--------- ------------
<CAPTION>
STRATEGIC
INCOME** DEVON**
----------- ---------
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................................................................ $ -- $ --
----------- ----------
EXPENSES (NOTE 4):
Mortality and expense risk fees.................................................................. 18,875 49,913
Administrative expense fees...................................................................... 2,333 6,169
----------- ----------
Total expenses................................................................................. 21,208 56,082
----------- ----------
Net investment income (loss)..................................................................... (21,208) (56,082)
----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors.............................................. -- --
Net realized gain (loss) from sales of investments............................................... 14,572 21,536
----------- ----------
Net realized gain (loss)....................................................................... 14,572 21,536
Net unrealized gain (loss)....................................................................... 69,661 1,105,203
----------- ----------
Net realized and unrealized gain (loss)........................................................ 84,233 1,126,739
----------- ----------
Net increase (decrease) in net assets from operations.......................................... $ 63,025 $1,070,657
----------- ----------
----------- ----------
<CAPTION>
EMERGING CONVERTIBLE
MARKETS** SECURITIES**
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends........................................................................................ $ -- $ --
----------- -----------
EXPENSES (NOTE 4):
Mortality and expense risk fees.................................................................. 19,357 4,720
Administrative expense fees...................................................................... 2,393 583
----------- -----------
Total expenses................................................................................. 21,750 5,303
----------- -----------
Net investment income (loss)..................................................................... (21,750) (5,303)
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors.............................................. -- --
Net realized gain (loss) from sales of investments............................................... (35,769) 4,255
----------- -----------
Net realized gain (loss)....................................................................... (35,769) 4,255
Net unrealized gain (loss)....................................................................... (605,410) 46,234
----------- -----------
Net realized and unrealized gain (loss)........................................................ (641,179) 50,489
----------- -----------
Net increase (decrease) in net assets from operations.......................................... $(662,929) $ 45,186
----------- -----------
----------- -----------
<CAPTION>
QUANTUM**
-----------
<S> <C>
INVESTMENT INCOME:
Dividends........................................................................................ $ --
-----------
EXPENSES (NOTE 4):
Mortality and expense risk fees.................................................................. 18,885
Administrative expense fees...................................................................... 2,334
-----------
Total expenses................................................................................. 21,219
-----------
Net investment income (loss)..................................................................... (21,219)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain distributions from portfolio sponsors.............................................. --
Net realized gain (loss) from sales of investments............................................... (157)
-----------
Net realized gain (loss)....................................................................... (157)
Net unrealized gain (loss)....................................................................... 357,646
-----------
Net realized and unrealized gain (loss)........................................................ 357,489
-----------
Net increase (decrease) in net assets from operations.......................................... $ 336,270
-----------
-----------
</TABLE>
* Name changed. See Note 1.
** For the period 5/1/97 (date of initial investment) to 12/31/97
The accompanying notes are an integral part of these financial statements.
SA-4
<PAGE>
SEPARATE ACCOUNT VA-K -- DELAWARE MEDALLION
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
DECATUR TOTAL RETURN* DELCHESTER* CAPITAL RESERVES
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------------- ------------------------- ------------------------
1997 1996 1997 1996 1997 1996
------------ ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ 1,403,654 $ 1,206,588 $ 5,886,430 $ 4,244,189 $ 1,247,087 $ 1,208,234
Net realized gain
(loss)................ 12,907,545 7,096,091 188,009 (237,364) (133,028) (137,628)
Net unrealized gain
(loss)................ 33,563,598 8,227,305 2,650,381 1,730,320 395,201 (441,461)
------------ ----------- ------------ ----------- ----------- -----------
Net increase (decrease)
in net assets from
operations............ 47,874,797 16,529,984 8,724,820 5,737,145 1,509,260 629,145
------------ ----------- ------------ ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
(NOTE 5):
Net purchase payments... 87,651,571 26,861,532 22,061,325 8,793,670 7,031,746 4,929,268
Withdrawals............. (9,728,446) (5,222,416) (4,437,910) (3,268,319) (1,899,348) (1,645,843)
Annuity benefits........ (4,712,412) (2,162,269) (1,898,693) (1,057,653) (581,015) (508,279)
Other transfers from
(to) the General
Account of
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... 30,840,125 11,835,914 7,719,854 1,221,259 (4,513,051) (2,280,137)
Net increase (decrease)
in investment by
Allmerica
Financial Life
Insurance and Annuity
Company
(Sponsor)............. -- -- -- -- -- --
------------ ----------- ------------ ----------- ----------- -----------
Net increase (decrease)
in net assets from
capital
transactions.......... 104,050,838 31,312,761 23,444,576 5,688,957 38,332 495,009
------------ ----------- ------------ ----------- ----------- -----------
Net increase (decrease)
in net assets......... 151,925,635 47,842,745 32,169,396 11,426,102 1,547,592 1,124,154
NET ASSETS:
Beginning of period....... 124,256,702 76,413,957 61,562,481 50,136,379 25,093,963 23,969,809
------------ ----------- ------------ ----------- ----------- -----------
End of period............. $276,182,337 $124,256,702 $ 93,731,877 $61,562,481 $26,641,555 $25,093,963
------------ ----------- ------------ ----------- ----------- -----------
------------ ----------- ------------ ----------- ----------- -----------
<CAPTION>
CASH RESERVE* DELCAP*
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------ -------------------
1997 1996 1997 1996
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ 980,896 $ 635,586 $ (1,236,848) $ (610,918)
Net realized gain
(loss)................ -- -- 4,950,512 5,454,089
Net unrealized gain
(loss)................ -- -- 7,541,834 1,533,852
----------- ----------- ----------- -----------
Net increase (decrease)
in net assets from
operations............ 980,896 635,586 11,255,498 6,377,023
----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
(NOTE 5):
Net purchase payments... 86,330,576 47,950,225 20,251,239 11,468,579
Withdrawals............. (2,909,292) (1,312,824) (5,335,134) (2,926,784)
Annuity benefits........ (908,414) (403,064) (1,474,199) (871,034)
Other transfers from
(to) the General
Account of Allmerica
Financial Life
Insurance and Annuity
Company (Sponsor)..... (79,704,440) (35,250,480) 7,538,276 7,723,573
Net increase (decrease)
in investment by
Allmerica Financial
Life Insurance and
Annuity Company
(Sponsor)............. -- -- -- --
----------- ----------- ----------- -----------
Net increase (decrease)
in net assets from
capital transactions.. 2,808,430 10,983,857 20,980,182 15,394,334
----------- ----------- ------------ -----------
Net increase (decrease)
in net assets......... 3,789,326 11,619,443 32,235,680 21,771,357
NET ASSETS:
Beginning of period....... 24,188,400 12,568,957 72,178,889 50,407,532
----------- ----------- ------------ -----------
End of period............. $27,977,726 $24,188,400 $104,414,569 $72,178,889
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
* Name changed. See Note 1.
The accompanying notes are an integral part of these financial statements.
SA-5
<PAGE>
SEPARATE ACCOUNT VA-K -- DELAWARE MEDALLION
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
DELAWARE* INTERNATIONAL EQUITY VALUE
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------------- ------------------------- ------------------------
1997 1996 1997 1996 1997 1996
------------ ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ 1,047,205 $ 941,534 $ 867,519 $ 454,880 $ (503,084) $ (38,072)
Net realized gain
(loss)................ 5,080,254 2,938,216 1,086,958 681,934 2,073,581 708,779
Net unrealized gain
(loss)................ 14,032,322 4,036,190 (207,547) 5,076,258 11,414,705 2,616,686
------------ ----------- ------------ ----------- ----------- -----------
Net increase (decrease)
in net assets from
operations............ 20,159,781 7,915,940 1,746,930 6,213,072 12,985,202 3,287,393
------------ ----------- ------------ ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
(NOTE 5):
Net purchase payments... 28,079,177 8,052,542 26,179,348 8,518,462 33,479,580 5,421,668
Withdrawals............. (5,567,318) (3,179,878) (2,928,122) (1,774,463) (1,838,474) (549,128)
Annuity benefits........ (1,498,054) (1,819,910) (1,217,294) (614,364) (989,577) (241,891)
Other transfers from
(to) the General
Account of
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... 11,192,047 2,449,446 7,687,981 7,119,287 16,508,321 3,659,512
Net increase (decrease)
in investment by
Allmerica
Financial Life
Insurance and Annuity
Company
(Sponsor)............. -- -- -- -- -- --
------------ ----------- ------------ ----------- ----------- -----------
Net increase (decrease)
in net assets from
capital
transactions.......... 32,205,852 5,502,200 29,721,913 13,248,922 47,159,850 8,290,161
------------ ----------- ------------ ----------- ----------- -----------
Net increase (decrease)
in net assets......... 52,365,633 13,418,140 31,468,843 19,461,994 60,145,052 11,577,554
NET ASSETS:
Beginning of period....... 66,034,061 52,615,921 47,576,139 28,114,145 23,071,740 11,494,186
------------ ----------- ------------ ----------- ----------- -----------
End of period............. $118,399,694 $66,034,061 $ 79,044,982 $47,576,139 $83,216,792 $23,071,740
------------ ----------- ------------ ----------- ----------- -----------
------------ ----------- ------------ ----------- ----------- -----------
<CAPTION>
TREND* GLOBAL BOND
YEAR ENDED PERIOD
DECEMBER 31, YEAR ENDED FROM
------------------------ ----------- 5/1/96**
1997 1996 12/31/97 TO 12/31/96
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ (500,331) $ (216,761) $ 69,417 $ 4,953
Net realized gain
(loss)................ 889,178 2,471,907 3,754 1,345
Net unrealized gain
(loss)................ 7,695,169 (521,722) (41,472) 21,456
----------- ----------- ----------- ---------
Net increase (decrease)
in net assets from
operations............ 8,084,016 1,733,424 31,699 27,754
----------- ----------- ----------- ---------
FROM CAPITAL TRANSACTIONS
(NOTE 5):
Net purchase payments... 15,952,787 8,195,825 2,726,329 396,978
Withdrawals............. (1,693,912) (1,365,861) (158,288) (2,674)
Annuity benefits........ (706,139) (399,556) (30,780) --
Other transfers from
(to) the General
Account of Allmerica
Financial Life
Insurance and Annuity
Company (Sponsor)..... 5,260,928 5,895,067 801,534 559,017
Net increase (decrease)
in investment by
Allmerica Financial
Life Insurance and
Annuity Company
(Sponsor)............. -- -- -- (19)
----------- ----------- ----------- ---------
Net increase (decrease)
in net assets from
capital transactions.. 18,813,664 12,325,475 3,338,795 953,302
----------- ----------- ----------- ---------
Net increase (decrease)
in net assets......... 26,897,680 14,058,899 3,370,494 981,056
NET ASSETS:
Beginning of period....... 32,271,754 18,212,855 981,056 --
----------- ----------- ----------- ---------
End of period............. $59,169,434 $32,271,754 $ 4,351,550 $981,056
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
* Name changed. See Note 1.
** Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-6
<PAGE>
SEPARATE ACCOUNT VA-K -- DELAWARE MEDALLION
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC EMERGING CONVERTIBLE
INCOME DEVON MARKETS SECURITIES QUANTUM
PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM PERIOD FROM
5/1/97** TO 5/1/97** TO 5/1/97** TO 5/1/97** TO 5/1/97** TO
12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
FROM OPERATIONS:
Net investment income
(loss)................ $ (21,208) $ (56,082) $ (21,750) $ (5,303) $ (21,219)
Net realized gain
(loss)................ 14,572 21,536 (35,769) 4,255 (157)
Net unrealized gain
(loss)................ 69,661 1,105,203 (605,410) 46,234 357,646
------------ ----------- ------------ ----------- -----------
Net increase (decrease)
in net assets from
operations............ 63,025 1,070,657 (662,929) 45,186 336,270
------------ ----------- ------------ ----------- -----------
FROM CAPITAL TRANSACTIONS
(NOTE 5):
Net purchase payments... 4,823,077 8,738,532 3,262,385 1,264,048 4,358,237
Withdrawals............. (27,107) (133,441) (24,233) (20,946) (56,777)
Annuity benefits........ (16,144) (56,370) (3,857) -- --
Other transfers from
(to) the General
Account of
Allmerica Financial
Life Insurance and
Annuity
Company (Sponsor)..... 819,289 4,991,924 1,427,120 204,569 1,105,617
Net increase (decrease)
in investment by
Allmerica
Financial Life
Insurance and Annuity
Company
(Sponsor)............. (1) (4) (1) (4) (5)
------------ ----------- ------------ ----------- -----------
Net increase (decrease)
in net assets from
capital
transactions.......... 5,599,114 13,540,641 4,661,414 1,447,667 5,407,072
------------ ----------- ------------ ----------- -----------
Net increase (decrease)
in net assets......... 5,662,139 14,611,298 3,998,485 1,492,853 5,743,342
NET ASSETS:
Beginning of period....... -- -- -- -- --
------------ ----------- ------------ ----------- -----------
End of period............. $ 5,662,139 $14,611,298 $ 3,998,485 $1,492,853 $5,743,342
------------ ----------- ------------ ----------- -----------
------------ ----------- ------------ ----------- -----------
</TABLE>
** Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-7
<PAGE>
SEPARATE ACCOUNT VA-K -- DELAWARE MEDALLION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Separate Account VA-K, which funds the Delaware Medallion variable annuity
contracts (the Delaware contracts), in addition to other contracts (the
Allmerica Advantage and ExecAnnuity Plus 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 fifteen Sub-Accounts under the Delaware contracts. Each
Sub-Account invests exclusively in a corresponding investment portfolio of the
Delaware Group Premium Fund, Inc. (DGPF), managed by Delaware Management
Company, Inc., or Delaware International Advisers, Ltd. DGPF (the "Fund") is an
open-end, diversified management investment company registered under the 1940
Act.
Separate Account VA-K funds two types of variable annuity contracts,
"qualified" contracts and "non-qualified" contracts. A qualified contract is one
that is purchased in connection with a retirement plan which meets the
requirements of Section 401, 403, or 408 of the Internal Revenue Code, while a
non-qualified contract is one that is not purchased in connection with one of
the indicated retirement plans. The tax treatment for certain withdrawals or
surrenders will vary according to whether they are made from a qualified
contract or a non-qualified contract.
The following name changes were made effective May 1, 1997:
<TABLE>
<CAPTION>
Sub-Account Sub-Account
formerly known as currently known as
- -------------------- ----------------------
<S> <C>
Equity Income Decatur Total Return
High Yield Delchester
Money Market Cash Reserve
Growth DelCap
Multiple Strategy Delaware
Emerging Growth Trend
</TABLE>
Also effective May 1, 1997, the Strategic Income, Devon, Emerging Markets,
Convertible Securities and Quantum Sub-Accounts were added to Separate Account
VA-K.
Certain prior year balances have been reclassified to conform with current
year presentation.
SA-8
<PAGE>
SEPARATE ACCOUNT VA-K -- DELAWARE MEDALLION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS -- Security transactions are recorded on the trade date.
Investments in shares of DGPF are stated at the net asset value per share of the
respective investment portfolio of DGPF. Net realized gains and losses on
securities sold are determined using the average cost method. Dividends and
capital gain distributions are recorded on the ex-dividend date and are
reinvested in additional shares of the respective investment portfolio of DGPF
at net asset value.
FEDERAL INCOME TAXES -- The Company is taxed as a "life insurance company"
under Subchapter L of the Internal Revenue Code (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.
NOTE 3 -- INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in DGPF at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
PORTFOLIO INFORMATION
---------------------------------------
NET ASSET
NUMBER OF AGGREGATE VALUE
INVESTMENT PORTFOLIO SHARES COST PER SHARE
- ------------------------------------------------------ ------------ ------------ ---------
<S> <C> <C> <C>
Decatur Total Return*................................. 14,690,659 $221,041,377 $18.800
Delchester*........................................... 9,856,144 90,757,537 9.510
Capital Reserves...................................... 2,721,179 26,901,062 9.790
Cash Reserve*......................................... 2,797,764 27,977,639 10.000
DelCap*............................................... 6,046,009 84,621,324 17.270
Delaware*............................................. 6,215,183 92,134,718 19.050
International Equity.................................. 5,093,119 71,368,261 15.520
Value................................................. 4,643,794 67,463,042 17.920
Trend*................................................ 3,402,498 48,939,852 17.390
Global Bond........................................... 414,433 4,371,566 10.500
Strategic Income...................................... 533,158 5,592,478 10.620
Devon................................................. 1,147,785 13,506,096 12.730
Emerging Markets...................................... 450,280 4,603,895 8.880
Convertible Securities................................ 127,922 1,446,619 11.670
Quantum............................................... 447,301 5,385,697 12.840
</TABLE>
* Name changed. See Note 1.
NOTE 4 -- RELATED PARTY TRANSACTIONS
The Company makes a charge of 1.25% per annum 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 .15% 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.
SA-9
<PAGE>
SEPARATE ACCOUNT VA-K -- DELAWARE MEDALLION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- RELATED PARTY TRANSACTIONS (CONTINUED)
For contracts issued on Form A3019-92 and 3022-93 (Delaware Medallion I &
II), a $30 contract fee is deducted on the contract anniversary date and upon
full surrender when the accumulated value is $50,000 or less. For contracts
issued on Form A3025-96 (Delaware Medallion III), a $30 fee is deducted on the
contract anniversary date and upon full surrender if the accumulated value is
less than $50,000. The fee is currently waived on all contracts (3019, 3022 and
3025) issued to the trustee of a 401(k) plan. For the years ended December 31,
1997 and 1996, contract fees deducted from the accumulated value in Separate
Account VA-K amounted to $150,569 and $124,909, respectively. These amounts are
included on the statements of changes in net assets with other transfers to the
General Account.
Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned
subsidiary of First Allmerica, is principal underwriter and general distributor
of Separate Account VA-K, and does not receive any compensation for sales of the
contracts. Commissions are paid by the Company to registered representatives of
broker-dealers who are registered under the Securities Exchange Act of 1934 and
are members of the National Association of Securities Dealers. As the current
series of contracts have a contingent deferred sales charge, no deduction is
made for sales charges at the time of the sale. For the years ended December 31,
1997 and 1996, the Company received $642,056 and $532,875, respectively, for
contingent deferred sales charges applicable to Separate Account VA-K.
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS
Transactions from contractowners and sponsor were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
-------------------------------- -----------------------------
UNITS AMOUNT UNITS AMOUNT
-------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Decatur Total Return*
Issuance of Units............................ 68,270,519 $ 146,192,020 26,906,850 $ 47,592,265
Redemption of Units.......................... (20,756,214) (42,141,182) (9,220,610) (16,279,504)
-------------- ---------------- ------------- --------------
Net increase............................... 47,514,305 $ 104,050,838 17,686,240 $ 31,312,761
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
Delchester*
Issuance of Units............................ 29,125,526 $ 44,257,190 14,527,804 $ 20,687,367
Redemption of Units.......................... (14,151,785) (20,812,614) (10,585,763) (14,998,410)
-------------- ---------------- ------------- --------------
Net increase............................... 14,973,741 $ 23,444,576 3,942,041 $ 5,688,957
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
Capital Reserves
Issuance of Units............................ 8,221,438 $ 10,561,345 5,977,466 $ 7,520,009
Redemption of Units.......................... (8,212,795) (10,523,013) (5,569,637) (7,025,000)
-------------- ---------------- ------------- --------------
Net increase............................... 8,643 $ 38,332 407,829 $ 495,009
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
Cash Reserve*
Issuance of Units............................ 131,928,339 $ 140,946,919 75,179,072 $ 83,421,240
Redemption of Units.......................... (129,433,053) (138,138,489) (65,228,364) (72,437,383)
-------------- ---------------- ------------- --------------
Net increase............................... 2,495,286 $ 2,808,430 9,950,708 $ 10,983,857
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
</TABLE>
SA-10
<PAGE>
SEPARATE ACCOUNT VA-K -- DELAWARE MEDALLION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
-------------------------------- -----------------------------
UNITS AMOUNT UNITS AMOUNT
-------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
DelCap*
Issuance of Units............................ 26,495,301 $ 43,296,401 18,397,427 $ 29,743,277
Redemption of Units.......................... (14,137,262) (22,316,219) (8,934,678) (14,348,943)
-------------- ---------------- ------------- --------------
Net increase............................... 12,358,039 $ 20,980,182 9,462,749 $ 15,394,334
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
Delaware*
Issuance of Units............................ 27,585,743 $ 48,944,960 8,988,500 $ 13,995,384
Redemption of Units.......................... (9,681,899) (16,739,108) (5,336,652) (8,493,184)
-------------- ---------------- ------------- --------------
Net increase............................... 17,903,844 $ 32,205,852 3,651,848 $ 5,502,200
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
International Equity
Issuance of Units............................ 30,763,158 $ 50,328,666 14,899,213 $ 21,486,538
Redemption of Units.......................... (12,838,737) (20,606,753) (5,613,082) (8,237,616)
-------------- ---------------- ------------- --------------
Net increase............................... 17,924,421 $ 29,721,913 9,286,131 $ 13,248,922
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
Value
Issuance of Units............................ 34,444,086 $ 58,324,155 9,120,472 $ 12,060,935
Redemption of Units.......................... (6,900,158) (11,164,305) (2,861,959) (3,770,774)
-------------- ---------------- ------------- --------------
Net increase............................... 27,543,928 $ 47,159,850 6,258,513 $ 8,290,161
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
Trend*
Issuance of Units............................ 19,609,154 $ 31,318,712 19,526,544 $ 29,133,745
Redemption of Units.......................... (8,063,478) (12,505,048) (11,225,741) (16,808,270)
-------------- ---------------- ------------- --------------
Net increase............................... 11,545,676 $ 18,813,664 8,300,803 $ 12,325,475
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
Global Bond
Issuance of Units............................ 3,952,054 $ 4,369,828 928,356 $ 998,769
Redemption of Units.......................... (888,337) (1,031,033) (42,482) (45,467)
-------------- ---------------- ------------- --------------
Net increase............................... 3,063,717 $ 3,338,795 885,874 $ 953,302
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
Strategic Income
Issuance of Units............................ 7,008,292 $ 6,633,553 -- $ --
Redemption of Units.......................... (1,627,049) (1,034,439) -- --
-------------- ---------------- ------------- --------------
Net increase............................... 5,381,243 $ 5,599,114 -- $ --
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
Devon
Issuance of Units............................ 13,727,287 $ 15,666,740 -- $ --
Redemption of Units.......................... (2,142,694) (2,126,099) -- --
-------------- ---------------- ------------- --------------
Net increase............................... 11,584,593 $ 13,540,641 -- $ --
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
Emerging Markets
Issuance of Units............................ 5,638,069 $ 5,619,161 -- $ --
Redemption of Units.......................... (1,093,247) (957,747) -- --
-------------- ---------------- ------------- --------------
Net increase............................... 4,544,822 $ 4,661,414 -- $ --
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
</TABLE>
SA-11
<PAGE>
SEPARATE ACCOUNT VA-K -- DELAWARE MEDALLION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- CONTRACTOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
-------------------------------- -----------------------------
UNITS AMOUNT UNITS AMOUNT
-------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Convertible Securities
Issuance of Units............................ 1,415,849 $ 1,492,628 -- $ --
Redemption of Units.......................... (124,725) (44,961) -- --
-------------- ---------------- ------------- --------------
Net increase............................... 1,291,124 $ 1,447,667 -- $ --
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
Quantum
Issuance of Units............................ 5,699,433 $ 6,653,701 -- $ --
Redemption of Units.......................... (1,184,780) (1,246,629) -- --
-------------- ---------------- ------------- --------------
Net increase............................... 4,514,653 $ 5,407,072 -- $ --
-------------- ---------------- ------------- --------------
-------------- ---------------- ------------- --------------
</TABLE>
* Name changed. See Note 1.
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.
SA-12
<PAGE>
SEPARATE ACCOUNT VA-K -- DELAWARE MEDALLION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the DGPF shares by Separate
Account VA-K during the year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
- ---------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Decatur Total Return*........................................... $127,941,767 $ 11,400,796
Delchester*..................................................... 38,074,130 8,743,156
Capital Reserves................................................ 7,380,320 6,096,006
Cash Reserve*................................................... 78,502,079 74,712,813
DelCap*......................................................... 31,380,166 7,539,766
Delaware*....................................................... 42,341,059 4,774,594
International Equity............................................ 38,609,217 8,019,585
Value........................................................... 51,061,046 2,771,526
Trend*.......................................................... 23,138,012 4,397,249
Global Bond..................................................... 4,085,731 668,781
Strategic Income................................................ 6,616,376 1,038,470
Devon........................................................... 14,743,756 1,259,197
Emerging Markets................................................ 5,342,764 703,100
Convertible Securities.......................................... 1,543,365 101,001
Quantum......................................................... 6,352,339 966,486
------------ ------------
Totals.......................................................... $477,112,127 $133,192,526
------------ ------------
------------ ------------
</TABLE>
* Name changed. See Note 1.
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 is filed herewith.
EXHIBIT 2 Not Applicable. Pursuant to Rule 26a-2, the Insurance
Company may hold the assets of the Registrant NOT
pursuant to a trust indenture or other such instrument.
EXHIBIT 3 (a) Underwriting and Administrative Services Agreement
is filed herewith.
(b) Wholesaling Agreement is filed herewith.
(c) Sales Agreements with Commission Schedule are filed
herewith.
(d) General Agent's Agreement is filed herewith.
(e) Career Agent Agreement is filed herewith.
(f) Registered Representative's Agreement is filed
herewith.
EXHIBIT 4 Specimen Generic Policy Form A is filed herewith. Generic
Policy Form B was previously filed on May 1, 1996 in
Post-Effective Amendment No. 11 and is incorporated by
reference herein.
EXHIBIT 5 Specimen Generic Application Form A is filed herewith.
Generic Policy Application Form B was previously filed on
May 1, 1996 in Post-Effective Amendment No. 11 and is
incorporated by reference herein.
EXHIBIT 6 The Depositor's Articles of Incorporation, as amended
effective October 1, 1995 to reflect its new name, was
previously filed on September 28, 1995 in Post-Effective
Amendment No. 9 and is incorporated by reference herein.
EXHIBIT 7 Not Applicable.
<PAGE>
EXHIBIT 8 (a) Fidelity Service Agreement was previously filed on
April 26, 1996 in Post-Effective Amendment No. 10 and
is incorporated by reference herein.
(b) An Amendment to the Fidelity Service Agreement,
effective as of January 1, 1997, was previously filed
on May 1, 1997 in Post-Effective Amendment No. 13 and
is incorporated by reference herein.
(c) Fidelity Service Contract, effective as of January 1,
1997, was previously filed on May 1, 1997 in
Post-Effective Amendment No. 13 and is incorporated by
reference herein.
(d) BFDS Agreements for lockbox and mailroom services are
filed herewith.
EXHIBIT 9 Opinion of Counsel is filed herewith.
EXHIBIT 10 Consent of Independent Accountants is filed herewith.
EXHIBIT 11 None.
EXHIBIT 12 None.
EXHIBIT 13 Not Applicable.
EXHIBIT 14 Not Applicable.
EXHIBIT 15 Participation Agreement with Delaware Group Premium Fund,
Inc. and Amendment is filed herewith.
ITEM 25. DIRECTORS AND EXECUTIVE OFFICERS OF THE DEPOSITOR
The Principal business address of all the following Directors and Officers
is:
440 Lincoln Street
Worcester, Massachusetts 01653
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
NAME AND POSITION PRINCIPAL OCCUPATION(S) DURING
WITH COMPANY PAST FIVE YEARS
------------ ---------------
Bruce C. Anderson
Director Director of First Allmerica since
1996; Vice President, First
Allmerica since 1984
Abigail M. Armstrong Secretary of First Allmerica since
Secretary and Counsel 1996; Counsel, First Allmerica
since 1991
Robert E. Bruce Director and Chief Information Officer
Director and Chief of First Allmerica since 1997; Vice
Information Officer President of First Allmerica since
1995; Corporate Manager, Digital
Equipment Corporation 1979 to 1995
John P. Kavanaugh Director and Chief Investment
Director, Vice President and Officer of First Allmerica since 1996;
Vice President, First
<PAGE>
Chief Investment Officer Allmerica since 1991
John F. Kelly
Director, Vice President and Director of First Allmerica since
General Counsel 1996; Senior Vice President, First
Allmerica since 1986; General Counsel,
First Allmerica since 1981; Assistant
Secretary, First Allmerica since 1991
J. Barry May Director of First Allmerica since
Director 1996; Director and President, The
Hanover Insurance Company since
1996; Vice President, The Hanover
Insurance Company, 1993 to 1996;
General Manager, The Hanover
Insurance Company 1989 to 1993
James R. McAuliffe Director of First Allmerica since
Director 1996; Director of Citizens Insurance
Company of America since 1992,
President since 1994, and CEO since
1996; Vice President, First Allmerica
1982 to 1994; Chief Investment
Officer, First Allmerica 1986 to 1994
John F. O'Brien Director, Chairman of the Board,
Director, Chairman of the Board, President and Chief Executive
President and Chief Officer, First Allmerica since 1989
Executive Officer
Edward J. Parry, III Director and Chief Financial Officer
Director, Vice President, of First Allmerica since 1996; Vice
Chief Financial Officer and President and Treasurer, First
Treasurer Allmerica since 1993; Assistant
Vice President 1992 to 1993
Richard M. Reilly Director of First Allmerica since
Director and Vice President 1996; Vice President, First
Allmerica since 1990; Director,
Allmerica Investments, Inc. since
1990; Director and President,
Allmerica Financial Investment
Management Services, Inc. since 1990
Eric A. Simonsen Director of First Allmerica since
Director and Vice President 1996; Vice President, First
Allmerica since 1990; Chief
Financial Officer, First Allmerica
1990 to 1996
Phillip E. Soule Director of First Allmerica since
Director and Vice President 1996; Vice President, First
Allmerica since 1987
ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
See attached organization chart.
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
Worcester MA 01653 Trust
AFC Capital Trust I 440 Lincoln Street Statutory Business Trust
Worcester MA 01653
Allmerica Asset Management 440 Lincoln Street Investment advisory services
Limited Worcester MA 01653
Allmerica Asset Management, 440 Lincoln Street Investment advisory services
Inc. Worcester MA 01653
<PAGE>
Allmerica Benefits, Inc. 440 Lincoln Street Non-insurance medical services
Worcester MA 01653
Allmerica Equity Index Pool 440 Lincoln Street Massachusetts Grantor Trust
Worcester MA 01653
Allmerica Financial Alliance 100 North Parkway Multi-line property and casualty
Insurance Company Worcester MA 01605 insurance
Allmerica Financial Benefit 100 North Parkway Multi-line property and casualty
Insurance Company Worcester MA 01605 insurance
Allmerica Financial 440 Lincoln Street Holding Company
Corporation Worcester MA 01653
Allmerica Financial Insurance 440 Lincoln Street Insurance Broker
Brokers, Inc. Worcester MA 01653
Allmerica Financial Life 440 Lincoln Street Life insurance, accident
Insurance and Annuity Company Worcester MA 01653 and health insurance,
(formerly known as SMA Life annuities, variable
Assurance Company) annuities and variable
life insurance
Allmerica Financial Services 440 Lincoln Street Insurance Agency
Insurance Agency, Inc. Worcester MA 01653
Allmerica Funding Corp. 440 Lincoln Street Special purpose funding
Worcester MA 01653 vehicle for commercial paper
Allmerica Funds 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica, Inc. 440 Lincoln Street Common employer for
Worcester MA 01653 Allmerica Financial
Corporation entities
Allmerica Institutional 440 Lincoln Street Accounting, marketing and
Services, Inc. Worcester MA 01653 shareholder services for
(formerly known as 440 investment companies
Financial Group of Worcester,
Inc.)
Allmerica Investment 440 Lincoln Street Investment advisory services
Management Company, Inc. Worcester MA 01653
Allmerica Investments, Inc. 440 Lincoln Street Securities, retail broker-dealer
Worcester MA 01653
Allmerica Investment Trust 440 Lincoln Street Investment Company
Worcester MA 01653
Allmerica Plus Insurance 440 Lincoln Street Insurance Agency
Agency, Inc. Worcester MA 01653
Allmerica Property & Casualty 440 Lincoln Street Holding Company
Companies, Inc. Worcester MA 01653
Allmerica Securities Trust 440 Lincoln Street Investment Company
Worcester MA 01653
<PAGE>
Allmerica Services 440 Lincoln Street Internal administrative
Corporation Worcester MA 01653 services provider to
Allmerica Financial
Corporation entities
Allmerica Trust Company, N.A. 440 Lincoln Street Limited purpose national
Worcester MA 01653 trust company
AMGRO, Inc. 100 North Parkway Premium financing
Worcester MA 01605
APC Funding Corp. 440 Lincoln Street Special purpose funding
Worcester MA 01653 vehicle for commercial paper
Beltsville Drive Limited 440 Lincoln Street Real estate partnership
Partnership Worcester MA 01653
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance Company of 645 West Grand River Multi-line property and
America Howell MI 48843 casualty insurance
Citizens Insurance Company of 333 Pierce Road Multi-line property and
Illinois Itasca IL 60143 casualty insurance
Citizens Insurance Company of 3950 Priority Way Multi-line property and
the Midwest South Drive, Suite 200 casualty insurance
Indianapolis IN 46280
Citizens Insurance Company of 8101 N. High Street Multi-line property and
Ohio P.O. Box 342250 casualty insurance
Columbus OH 43234
Citizens Management, Inc. 645 West Grand River Services management company
Howell MI 48843
First Allmerica Financial 440 Lincoln Street Life, pension, annuity,
Life Insurance Company Worcester MA 01653 accident and health
(formerly State Mutual Life insurance company
Assurance Company of America)
First Sterling Limited 440 Lincoln Street Holding Company
Worcester MA 01653
First Sterling Reinsurance 440 Lincoln Street Reinsurance Company
Company Limited Worcester MA 01653
Greendale Special Placements 440 Lincoln Street Massachusetts Grantor Trust
Fund Worcester MA 01653
The Hanover American 100 North Parkway Multi-line property and
Insurance Company Worcester MA 01605 casualty insurance
The Hanover Insurance Company 100 North Parkway Multi-line property and
Worcester MA 01605 casualty insurance
Hanover Texas Insurance 801 East Campbell Road Attorney-in-fact for Hanover
Management Company, Inc. Richardson TX 75081 Lloyd's Insurance Company
<PAGE>
Hanover Lloyd's Insurance 801 East Campbell Road Multi-line property and
Company Richardson TX 75081 casualty insurance
Linder Skokie Real Estate 440 Lincoln Street Real estate holding company
Corporation Worcester MA 01653
Lloyds Credit Corporation 440 Lincoln Street Premium financing service
Worcester MA 01653 franchises
Logan Wells Water Company, 603 Heron Drive Water Company serving land
Inc. Bridgeport NJ 08014 development investment
Massachusetts Bay Insurance 100 North Parkway Multi-line property and
Company Worcester MA 01605 casualty insurance
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Somerset Square, Inc. 440 Lincoln Street Real estate holding company
Worcester MA 01653
Sterling Risk Management 440 Lincoln Street Risk management services
Services, Inc. Worcester MA 01653
</TABLE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 27, 1998, there were 6,006 Contract owners of qualified
contracts and 10,629 Contract owners 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:
- VEL Account, VEL II Account, Inheiritance Account, Group Vel
Account, Separate Accounts VA-A, VA-B, VA-C, VA-G, VA-H, VA-K,
VA-P, Allmerica Select Separate Account, Fulcrum Separate
Account, Fulcrum Variable Life Separate Account, Inheiritage
Account and
<PAGE>
Separate Account KGC of Allmerica Financial Life Insurance and
Annuity Company
- Inheiritage Account, Separate Accounts I, VA-K, VA-P, VEL II
Account, Inheiritage Account, Group VEL Account, Allmerica Select
Separate Account ,Separate Account KGC, Separate Account KG and
Fulcrum Separate Account of First Allmerica Financial Life
Insurance Company.
- Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
NAME POSITION OR OFFICE WITH UNDERWRITER
---- -----------------------------------
Abigail M. Armstrong Secretary and Counsel
Emil J. Aberizk, Jr. Vice President
Edward T. Berger Vice President and Chief Compliance Officer
Richard F. Betzler, Jr. Vice President
Philip J. Coffey Vice President
Thomas P. Cunningham Vice President, Chief Financial Officer and
Controller
John F. Kelly Director
William F. Monroe, Jr. Vice President
David J. Mueller Vice President
John F. O'Brien Director
Stephen Parker President, Director and Chief Executive Officer
Edward J. Parry, III Treasurer
Richard M. Reilly Director
Eric A. Simonsen Director
Mark G. Steinberg Senior Vice President
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Each account, book or other document required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3
thereunder are maintained by the Company at 440
<PAGE>
Lincoln Street, Worcester, Massachusetts.
ITEM 31. MANAGEMENT SERVICES
Effective March 31, 1995, the Company provides daily unit value
calculations and related services for the Company's separate accounts.
ITEM 32. UNDERTAKINGS
(a) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to
file with the Securities and Exchange Commission such supplementary
and periodic information, documents, and reports as may be prescribed
by any rule or regulation of the Commission heretofore or hereafter
duly adopted pursuant to authority conferred in that section.
(b) The registrant hereby undertakes to include in the prospectus a
postcard that the applicant can remove to send for a Statement of
Additional Information.
(c) The registrant hereby undertakes to deliver a Statement of Additional
Information promptly upon written or oral request, according to the
requirements of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act
may be permitted to Directors, Officers and Controlling Persons of
Registrant under any registration statement, underwriting agreement or
otherwise, Registrant has been advised that, in the opinion of the
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 redemption restrictions imposed
by the Program and by
<PAGE>
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 redemption restrictions imposed
by the Program and by Section 403(b)(11) have been included in sales
literature used in connection with the offer of the Company's variable
contracts.
3. Sales Representatives who solicit participants to purchase the
variable contracts have been instructed to specifically bring the
redemption 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 redemption 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 Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Worcester, and Commonwealth of Massachusetts on the
15th day of April, 1998.
SEPARATE ACCOUNT VA-K OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ Abigail M. Armstrong
--------------------------------
Abigail M. Armstrong, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signatures Title Date
- ---------- ----- ----
/s/ John F. O'Brien Director and Chairman of April 15, 1998
- ------------------------- the Board
John F. O'Brien
/s/ Bruce C. Anderson Director
- -------------------------
Bruce C. Anderson
/s/ Robert E. Bruce Director and Chief Information
- ------------------------- Officer
Robert E. Bruce
/s/ John P. Kavanaugh Director, Vice President and
- ------------------------- Chief Investment Officer
John P. Kavanaugh
/s/ John F. Kelly Director, Vice President and
- ------------------------- General Counsel
John F. Kelly
/s/ J. Barry May Director
- -------------------------
J. Barry May
/s/ James R. McAuliffe Director
- -------------------------
James R. McAuliffe
/s/ Edward J. Parry III Director, Vice President, Chief
- ------------------------- Financial Officer and Treasurer
Edward J. Parry III
/s/ Richard M. Reilly Director, President and
- ------------------------- Chief Executive Officer
Richard M. Reilly
/s/ Eric A. Simonsen Director and Vice President
- -------------------------
Eric A. Simonsen
/s/ Phillip E. Soule Director
- -------------------------
Phillip E. Soule
<PAGE>
EXHIBIT TABLE
Exhibit 1 Vote of Board of Directors
Exhibit 3(a) Underwriting and Administrative Services Agreement
Exhibit 3(b) Wholesaling Agreement
Exhibit 3(c) Sales Agreements with Commission Schedule
Exhibit 3(d) General Agent's Agreement
Exhibit 3(e) Career Agent Agreement
Exhibit 3(f) Registered Representative's Agreement
Exhibit 4 Policy Form A
Exhibit 5 Application Form A
Exhibit 8(d) BFDS Agreements
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
Exhibit 15 Participation Agreement with Delaware Group Premium Fund, Inc.
and Amendment
<PAGE>
Worcester, Massachusetts November 1, 1990
In accordance with Article IV, Section 6 of the Bylaws of SMA Life Assurance
Company, the following were consented to by all the members of the Board of
Directors of the Company:
VOTED: That the Company establish a separate account ("the Separate Account")
pursuant to the provisions of Article Third (b) and (c) of its
Certificate of Incorporation and as authorized by Section 2932 of
the Delaware Insurance Code; and
That the Separate Account shall be established for the purpose of
providing for the issuance by the Company of such variable annuity
contracts or other contracts ("Contracts") as may be designated from
time-to-time and shall constitute a separate account into which are
allocated amounts paid to or held by the Company under such Contracts;
and
That the fundamental investment policy of the Separate Account shall
be to invest or reinvest its assets in securities issued by investment
companies registered under the Investment Company Act of 1940, as
amended; and
That eight investment divisions be and hereby are established within
the Separate Account to which net payments under the Contracts may be
allocated in accordance with instructions received from
Contractholders, and that the President be and hereby is authorized to
increase or decrease the number of investment divisions in the
Separate Account as he deems necessary or appropriate from
time-to-time; and
That each such investment division shall invest only in the shares of
a single investment company or a single mutual fund portfolio of an
investment company organized as a series fund pursuant to the
Investment Company Act of 1940; and
That each investment division may be comprised of two sub-divisions,
one to hold the amounts contributed under Contracts issued to
retirement plans qualifying for favorable tax treatment under the
provisions of the Internal Revenue Code, as amended, and the other to
hold amounts contributed under contracts not issued to such qualified
plans; and
That the income, gains and losses, whether or not realized, from
assets allocated to the Separate Account shall, in accordance with the
Contracts, be credited to or charged against the Separate Account
without regard to other income, gains or losses of the Company; and
1
<PAGE>
That the income, gains and losses, whether or not realized, from
assets allocated to each investment division of the Separate Account
shall, in accordance with the Contracts, be credited to or charged
against such investment division of the Separate Account without
regard to other income, gains or losses of any other investment
division of the Separate Account; and
That the appropriate officers of the Company be and they hereby are
authorized to deposit such amounts in the Separate Account or in each
investment division thereof as may be necessary or appropriate to
facilitate the commencement of the Separate Account operations; and
That the appropriate officers of the Company be and they hereby are
authorized to transfer funds from time-to-time between the Company's
general account and the Separate Account as deemed necessary or
appropriate and consistent with the terms of the Contracts; and
That the appropriate officers of the Company be and they hereby are
authorized to change the name or designation of the Separate Account
to such other name or designation as they may deem necessary or
appropriate; and
That the appropriate officers of the Company, with such assistance
from the Company's auditors, legal counsel and independent
consultants, or others as they may require, be, and they hereby are,
authorized and directed to take all action necessary to: (a) register
the Separate Account as a unit investment trust under the Investment
Company Act of 1940, as amended; (b) register the Contracts in such
amounts, which may be an indefinite amount, as the appropriate
officers of the Company shall from time-to-time deem appropriate under
the Securities Act of 1933; and (c) take all other actions which are
necessary in connection with the offering of said Contracts for sale
and the operation of the Separate Account in order to comply with the
Investment Company Act of 1940, the Securities Exchange Act of 1934,
the Securities Act of 1933, and other applicable federal laws,
including the filing of any amendments to registration statements, any
undertakings, and any applications for exemptions from the Investment
Company Act of 1940 or other applicable federal laws as the
appropriate officers of the Company shall deem necessary or
appropriate; and
That the President, any Vice President, and Secretary and Counsel, and
each of them with full power to act without the others, hereby are
severally authorized and empowered to prepare, execute and cause to be
filed with the Securities and Exchange Commission on behalf of the
Separate Account, and by the Company as sponsor and depositor, a Form
of Notification of Registration Statement under the Securities Act of
1933 registering the Contracts, and any and all amendments to the
foregoing on behalf of the Separate Account and the Company and on
behalf of and as attorneys for the principal executive officer and/or
the principal financial officer and/or the principal accounting
officer and/or any other officer of the Company; and
2
<PAGE>
That the Secretary and Counsel is hereby appointed as agent for
service under any such registration statement and is duly authorized
to receive communications and notices from the Securities and Exchange
Commission with respect thereto and to exercise the powers given to
such agent in the rules and regulations of the Securities and Exchange
Commission under the Securities Act of 1933, the Securities Exchange
Act of 1934, or the Investment Company Act of 1940; and
That the appropriate officers of the Company be and they hereby are
authorized on behalf of the Separate Account and on behalf of the
Company to take any and all action that they may deem necessary or
advisable in order to sell the Contracts, including any registrations,
filings and qualifications of the Company, its officers, agents and
employees, and the Contracts under the insurance and security laws of
any other states of the United States of America or other
jurisdictions, and in connection therewith to prepare, execute,
deliver and file all such applications, reports, covenants,
resolutions, applications for exemptions, consents to service of
process and other papers and instruments as may be required under such
laws, and to take any and all further action which said officers or
counsel of the Company may deem necessary or desirable (including
entering into whatever agreements and contracts may be necessary) in
order to maintain such registrations or qualifications for as long as
said officers or counsel deem it to be in the best interests of the
Separate Account and the Company; and
That the President, any Vice President, and the Secretary and Counsel
of the Company be and hereby are authorized in the names and on behalf
of the Separate Account and the Company to execute and file
irrevocable written consents on the part of the Separate Account and
of the Company to be used in such states wherein such consents to
service of process may be requisite under the insurance or security
laws therein, in connection with said registration or qualification of
Contracts, and to appoint the appropriate state official, or such
other person as may be allowed by said insurance or securities laws,
agent of the Separate Account and of the Company for the purpose of
receiving and accepting process; and
That the President of the Company be and hereby is authorized to
establish procedures under which the Company will institute procedures
for providing voting rights for owners of such Contracts with respect
to securities owned by the Separate Account; and
That the President of the Company is hereby authorized to execute such
agreement or agreements as deemed necessary and appropriate (i) with
SMA Equities, Inc., or other qualified entity under which SMA
Equities, Inc., or other such entity, will be appointed principal
underwriter and distributor for the Contracts, (ii) with one or more
qualified banks or other qualified entities to provide administrative
and/or custodial services in connection with the establishment and
maintenance of the Separate Account and the design, issuance and
administration of the Contracts; and
3
<PAGE>
That, since it is expected that the Separate Account will invest in
the securities issued by one or more investment companies, the
appropriate officers of the Company are hereby authorized to execute
whatever agreement or agreements as may be necessary or appropriate to
enable such investments to be made; and
That the appropriate officers of the Company, and each of them, are
hereby authorized to execute and deliver all such documents and papers
and to do or cause to be done all such acts and things as they may
deem necessary or desirable to carry out the foregoing votes and the
intent and purposes thereof.
* * *
/s/ Sheila B. St. Hilaire
-------------------------
Sheila B. St. Hilaire
Secretary
4
<PAGE>
UNDERWRITING AND
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made this 26th day of November, 1997 between and among Allmerica
Financial Life Insurance and Annuity Company, a Delaware corporation (the
"Company"), each of its separate investment accounts (the "Accounts") which is a
registered investment company under the Investment Company Act of 1940 (the
"1940 Act"), as may be established by the Company from time-to-time, and
Allmerica Investments, Inc., a Massachusetts corporation (the "Distributor").
WITNESSETH:
WHEREAS, the Company and the respective Accounts issue certain variable annuity
contracts or variable insurance policies (the "contracts") which may be deemed
to be securities under the Securities Act of 1933 (the "1933 Act"), and the laws
of some states;
WHEREAS, the Distributor, an affiliate of the Company, is registered as a
broker-dealer with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934 (the "1934 Act") and is a member of the National
Association of Securities Dealers, Inc. ("NASD");
WHEREAS, the parties desire to have the Distributor act as principal underwriter
for the Accounts set forth in Exhibit A, as may be amended from time-to-time by
mutual consent of the parties, and to assume full responsibility for the
securities activities of all "persons associated" (as that term is defined in
Section 3(a)(18) of the 1934 Act) with the Distributor and engaged directly or
indirectly in the variable contract operation (the "associated persons");
WHEREAS, the parties desire to have the Company perform certain administrative
services in connection with the sale and servicing of the contracts.
NOW, THEREFORE, in consideration of the covenants and mutual promises of the
parties made to each other, it is hereby covenanted and agreed as follows:
1. The Distributor will act as the exclusive principal underwriter for the
Accounts and as such will assume full responsibility for the securities
activities of all the associated persons in connection with the sale of the
contracts. The Distributor will train the associated persons, use its best
efforts to prepare them to complete satisfactorily the applicable NASD and
state examinations so that they may be qualified, register the associated
persons as its registered representatives before they engage in the sale of
the contracts, and supervise and control them in the performance of such
activities. Notwithstanding anything in this Agreement to the contrary,
the Distributor may enter into sales agreements with independent
broker-dealers for the sale of the contracts. All such sales agreements
entered into by the Distributor with independent broker-dealers shall
provide that each independent broker-dealer will assume full responsibility
for continued compliance by itself and its associated persons with the NASD
Rules of Fair Practice and Federal and state securities laws.
2. The Distributor will assume full responsibility for the continued
compliance by itself and its associated persons with the NASD Rules of Fair
Practice and Federal and state securities laws, to the extent applicable in
connection with the sale of the contracts. The Distributor, directly or
through the Company as its agent, will make timely filings with the SEC,
NASD, and any other securities regulatory authorities of all reports and
any sales literature relating to the Accounts required by law to be filed
by the Distributor.
3. The Company will prepare and submit to the Accounts (a) all registration
statements and prospectuses (including amendments) and all reports required
by law to be filed by the Accounts with Federal and state securities
regulatory authorities, and (b) all notices, proxies, proxy statements, and
periodic reports that are to be transmitted to persons having voting rights
with respect to the Accounts.
- 1 -
<PAGE>
4. The Company will, except as otherwise provided in this Agreement, bear the
cost of all services and expenses, including legal services and expenses,
filing fees, and other fees incurred in connection with (a) registering and
qualifying the Accounts and the contracts, and (b) preparing, printing, and
distributing all registration statements and prospectuses (including
amendments), contracts, notices, periodic reports, proxy solicitation
material, sales literature, and advertising filed or distributed in
connection with the sale of the contracts.
All cost associated with the variable contract compliance function
including, but not limited to, fees and expenses associated with qualifying
and licensing associated persons with Federal and state regulatory
authorities and the NASD and with performing compliance-related
administrative services, shall be allocated to the Company. To the extent
that the Distributor incurs out-of-pocket expenses in connection with the
variable contracts compliance function, the Company shall reimburse the
Distributor for such expenses. To the extent that such costs are in
connection with services provided by employees of the Company, they shall
be charged to the Company. The determination and allocation of all such
costs shall be pursuant to the Cost Distribution Policy as stated in the
Consolidated Service Agreement (effective January 1, 1993) among the
Allmerica Financial group of affiliated companies, as may be amended from
time.
5. All purchase payments made under the contracts will be forwarded by or on
behalf of Contract Owners directly to the Company and shall become the
exclusive property of the Company. The Company agrees to pay on behalf of
Distributor all sales commissions and any other remuneration due in
connection with the sale of the contracts by associated persons of the
Distributor and any independent broker-dealers having a sales agreement
with the Distributor. The Distributor or the Company as agent for the
Distributor shall pay all other remuneration due any other person for
activities relating to the sale of the contracts. The Company shall
reimburse the Distributor fully and completely for all amounts paid by the
Distributor to any person pursuant to this Section.
6. The Company will, as the Distributor's agent, (a) maintain and preserve in
accordance with Rules 17a-3 and 17a-4 under the 1934 Act all books and
records required to be maintained by the Distributor in connection with the
offer and sale of the contracts being offered for sale pursuant to this
Agreement, which books and records shall remain the property of the
Distributor, and shall at all times be subject to inspection by the SEC in
accordance with Section 17(a) of the 1934 Act, and all other regulatory
bodies having jurisdiction, and (b) send a written confirmation for each
such transaction reflecting the facts of the transaction and showing that
it is being sent on behalf of the Distributor acting in the capacity of
agent for the Accounts, in conformance with the requirements of Rule 10b-10
of the 1934 Act.
7. Each party hereto shall advise the others promptly of (a) any action of the
SEC or any authorities of any state or territory of which it has knowledge,
affecting registration or qualification of the Accounts or the contracts,
or the right to offer the contracts for sale, and (b) the happening of any
event which makes untrue any statement, or which requires the making of any
change in the registration statement or prospectus in order to make the
statements therein not misleading.
8. The Company agrees to be responsible to the Accounts for all sales and
administrative expenses incurred in connection with the administration of
the contracts and the Accounts other than applicable taxes arising from
income and capital gains of the Accounts and any other taxes arising from
the existence and operation of the Accounts.
9. As compensation for services performed and expenses incurred under this
Agreement, the Company will receive the charges and deductions as provided
in each outstanding series of the Company's contracts. Distributor will
receive the compensation provided for in Section 4, and may receive such
additional compensation, if any, as may be agreed upon by the parties from
time-to-time.
- 2 -
<PAGE>
10. Each party hereto agrees to furnish any other state insurance commissioner
or regulatory authority with jurisdiction over the contracts with any
information or reports in connection with services provided under this
Agreement which may be requested in order to ascertain whether the variable
insurance product operations of the Company are being conducted in a manner
consistent with applicable statutes, rules and regulations.
11. This Agreement shall upon execution become effective as of the date first
above written, and
(a) Unless otherwise terminated, this Agreement shall continue in effect
from year-to-year;
(b) This Agreement may be terminated by any party at any time upon giving
60 days' written notice to the other parties hereto; and
(c) This Agreement shall automatically terminate in the event of its
assignment.
12. The initial Accounts covered by this Agreement are set forth in Appendix A.
This Agreement, including Appendix A, may be amended at any time by mutual
consent of the parties.
13. This Agreement shall be governed by and construed in accordance with the
laws of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
ALLMERICA FINANCIAL LIFE INSURANCE
AND ANNUITY COMPANY
By: /s/ David J. Mueller
-------------------------------------
Title: Vice President
ALLMERICA INVESTMENTS, INC.
By: /s/ Thomas P. Cunningham
-------------------------------------
Title: Vice President
- 3 -
<PAGE>
Appendix A
SEPARATE ACCOUNTS OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
AS OF SEPTEMBER 1, 1997
VEL Account
VEL II Account
Inheiritage Account
Allmerica Select Separate Account II
Group VEL Account
Fulcrum Variable Life Separate Account
Separate Account VA-K
Separate Account VA-P
Allmerica Select Separate Account
Separate Account KG
Separate Account KGC
Fulcrum Separate Account
- 4 -
<PAGE>
WHOLESALING AGREEMENT
AGREEMENT dated as of February 7, 1992 by and between SMA LIFE
ASSURANCE COMPANY, a Delaware insurance company ("SMA"), SMA EQUITIES, INC., a
Massachusetts corporation ("EQUITIES"), DELAWARE DISTRIBUTORS, INC., a Delaware
corporation (hereinafter referred to as "DELAWARE"), and the insurance agency
affiliates of DELAWARE listed on Schedule 1 to this Agreement (hereinafter
referred to as "DELAWARE AGENCY AFFILIATES").
WITNESSETH:
WHEREAS, SMA proposes to register with the Securities and Exchange
Commission interests in certain variable annuity contracts and variable life
insurance contracts under the Securities Act of 1933 and to issue and sell such
contracts through EQUITIES acting as the principal underwriter for such
contracts; and
WHEREAS, SMA, EQUITIES and DELAWARE desire to establish an
arrangement whereby DELAWARE will act as a wholesaler for such variable annuity
contracts and variable life insurance contracts and, as such, will recruit
business firms to distribute such contracts;
NOW, THEREFORE, in consideration of their mutual promises, SMA,
EQUITIES and DELAWARE hereby agree as follows:
1. Definitions
a. Account -- Each and any separate account established by SMA and
listed on Schedule 2 to this Agreement, as amended from time to time in
accordance with Section 2.e of this
<PAGE>
Agreement. The phrase "Account supporting the Contracts" or "Account supporting
a class of Contracts" shall mean the separate account identified in such
Contracts as the separate account to which the Purchase Payments made under such
Contracts are allocated and as to which income, gains and losses, whether or not
realized, from assets allocated to such separate account, are, in accordance
with such Contracts, credited to or charged against such separate account
without regard to other income, gains, or losses of SMA or any other separate
account established by SMA.
b. Contracts -- The variable annuity contracts or variable life
insurance contracts described more specifically on Schedule 3 to this Agreement,
as amended from time to time. The term "Contracts" shall include any riders to
such contracts and any other contracts offered in connection therewith or any
contracts for which such Contracts may be exchanged or converted. The phrase "a
class of Contracts" shall mean those variable annuity contracts or variable life
insurance contracts, as the case may be, issued on the same policy form or forms
and covered by the same Registration Statement, as shown on Schedule 3 to this
Agreement.
c. Registration Statement -- At any time while this Agreement is in
effect, the currently effective registration statement filed with the SEC under
the 1933 Act, or currently effective post-effective amendment thereto, relating
to a class of Contracts, including financial statements included in, and all
- 2 -
<PAGE>
exhibits to, such registration statement or post-effective amendment. (For
purposes of Sections 5.a and 11 of this Agreement, however, the term
"Registration Statement" means any document that is or at any time was a
Registration Statement within the meaning of this Section 1.c.)
d. Prospectus -- The prospectus and any statement of additional
information included within a Registration Statement, except that, if the
prospectus and statement of additional information most recently filed with the
SEC pursuant to Rule 497 under the 1933 Act after the date on which the
Registration Statement became effective differs from the prospectus and
statement of additional information included within the Registration Statement
at the time it became effective, the term "Prospectus" shall refer to the most
recently filed prospectus and statement of additional information filed under
Rule 497 under the 1933 Act from and after the date on which they each shall
have been filed. (For purposes of Sections 5.a and 11 of this Agreement,
however, the term "any Prospectus" means any document that is or at any time was
a Prospectus within the meaning of this Section 1.d.)
e. Fund -- Delaware Group Premium Fund, Inc.
f. Fund Registration Statement -- At any time while this Agreement
is in effect, the currently effective registration statement filed with the SEC
under the 1933 Act, or currently effective post-effective amendment thereto, for
shares of the Fund. (For purposes of Section 11 of this Agreement, however,
- 3 -
<PAGE>
the term "Fund Registration Statement" means any document that is or at any time
was a Fund Registration Statement within the meaning of this Section l.f.)
g. Fund Prospectus -- At any time while this Agreement is in effect,
the prospectus and statement of additional information for the Fund most
recently filed with the SEC pursuant to Rule 497 under the 1933 Act. (For
purposes of Section 11 of this Agreement, however, the term "Fund Prospectus"
means any document that is or at any time was a Fund Prospectus within the
meaning of this Section 1.g.)
h. 1933 Act -- The Securities Act of 1933, as amended.
i. 1934 Act -- The Securities Exchange Act of 1934, as amended.
j. 1940 Act -- The Investment Company Act of 1940, as amended.
k. SEC -- The Securities and Exchange Commission.
l. NASD -- The National Association of Securities Dealers, Inc.
m. Regulations -- The rules and regulations promulgated by the SEC
under the 1933 Act, the 1934 Act and the 1940 Act as in effect at the time this
Agreement is executed or thereafter promulgated, and as they may be amended from
time to time.
- 4 -
<PAGE>
n. Territory -- The fifty states of the United States, the District
of Columbia, and all other territories of the United States.
o. State -- any state or commonwealth of the United States, the
District of Columbia or any other territory of the United States.
p. Broker -- An entity registered as a broker-dealer and licensed as
a life insurance agent or affiliated with an entity so licensed, and recruited
by DELAWARE and subsequently authorized by SMA and EQUITIES to distribute the
Contracts pursuant to a sales agreement with SMA and EQUITIES entered into in
accordance with Section 3 of this Agreement.
q. Associated Person -- This term as used in this Agreement shall
have the meaning assigned to it in the 1934 Act.
r. Representative -- An Associated Person of DELAWARE or a Broker
registered with the NASD as a registered representative or principal of DELAWARE
or Broker, as the case may be.
s. Purchase Payment -- A payment made under a Contract by an
applicant or purchaser to purchase benefits under the Contract.
t. Procedures -- The administrative procedures prepared and
distributed by SMA, as such may be amended or supplemented from time to time,
relating to the solicitation, sale and delivery of the Contracts.
- 5 -
<PAGE>
u. Participation Agreement -- The agreement dated as of December 23,
1991 among SMA, DELAWARE and the Fund relating to the investment of assets of
SMA separate accounts in the Fund.
2. Appointment and Wholesaling Rights
a. SMA hereby appoints DELAWARE as an agent under relevant state
insurance laws to represent SMA in the wholesaling activities contemplated by
this Agreement. In those states where DELAWARE is not licensed as an insurance
agent, SMA hereby appoints the appropriate entity or individual ("DELAWARE
AGENCY AFFILIATE") affiliated with DELAWARE (as set forth on Schedule 1 to this
Agreement, as such Schedule may be amended from time to time by DELAWARE to
reflect changes in the licensing status of DELAWARE or DELAWARE AGENCY
AFFILIATES) as its agent under the insurance laws to engage in such wholesaling
activities. EQUITIES hereby authorizes DELAWARE under applicable securities laws
to engage in the activities contemplated in this Agreement relating to the
wholesaling of the Contracts for which EQUITIES acts or may act as principal
underwriter.
b. DELAWARE (both on its own behalf and on behalf of DELAWARE AGENCY
AFFILIATES) undertakes to use its best efforts to recruit Brokers in accordance
with Section 3 of this Agreement, consistent with market conditions and
compliance with its responsibilities under the federal securities laws and NASD
rules and regulations. The obligations of DELAWARE and DELAWARE AGENCY
AFFILIATES hereunder are further subject to the accuracy of the representations
and warranties of SMA and EQUITIES contained in
- 6 -
<PAGE>
this Agreement and to the performance by SMA of its obligations hereunder.
c. The appointment and authorization of DELAWARE and DELAWARE AGENCY
AFFILIATES to engage in wholesaling activities pursuant to this Agreement is
exclusive as to the Contracts listed on Schedule 3, as amended from time to time
in accordance with Section 2.e of this Agreement. Neither SMA nor EQUITIES shall
authorize any other person (as principal underwriter or otherwise) to engage in
wholesaling or distribution activities with respect to the Contracts or to
recruit business firms to engage in wholesaling or distribution activities with
respect to the Contracts (other than business firms recommended by DELAWARE
pursuant to Section 3 of this Agreement) without DELAWARE's prior written
consent, nor shall SMA or EQUITIES separately engage in wholesaling or
distribution activities relating to the Contracts.
SMA shall design the Contracts, subject to consultation with
DELAWARE and subject to DELAWARE's right to refuse to engage in wholesaling
activities with respect to a class of Contracts that DELAWARE reasonably
determines to be unattractive from a marketing or business perspective. The
Contracts shall be issued by SMA and the variable portion thereof shall be
supported by the Accounts. SMA alone shall be responsible for filing the initial
Registration Statement and any amendments thereto with the SEC in accordance
with the 1933 Act, 1934 Act and 1940 Act and the Regulations to register
interests in each class of Contracts. To the extent that any Contract
- 7 -
<PAGE>
offers a general account option, SMA shall either register that option under the
1933 Act or provide an opinion of counsel, satisfactory to DELAWARE's counsel,
that such option need not be registered under the 1933 Act. SMA will not make
any amendment or rider to the Contracts or a class of Contracts, or file a
Registration Statement, or make an amendment to a Registration Statement or
supplement to a Prospectus, without DELAWARE having been given the opportunity
to review and having consented in writing to any such filing, amendment, rider
or supplement. However, such opportunity to review and consent shall not make
DELAWARE responsible for the content of any such filing, amendment, rider or
supplement; SMA alone shall be responsible for such content.
SMA shall register each Account with the SEC. The subaccounts
of each Account available under the Contracts or a class of Contracts are listed
on Schedule 3 to this Agreement, as amended from time to time in accordance with
Section 2.e of this Agreement. All amounts available under the Contracts shall
be invested only in the Fund (through the Account(s) supporting the Contracts)
and/or allocated to SMA's general account, provided that such amounts may also
be invested in an investment company or investment vehicle other than the Fund
if: (1) such other investment company is advised by the Fund's investment
adviser; (2) the Fund and/or DELAWARE, in their sole discretion, consents to the
use of such other investment company or investment vehicle; (3) there is a
substitution of the Fund made in
- 8 -
<PAGE>
accordance with Section 10.1(e) of the Participation Agreement; or (4) the
Participation Agreement is terminated pursuant to Article X of the Participation
Agreement. SMA will not take action to operate any Account, or any subaccount(s)
of an Account listed on Schedule 3 to this Agreement, as amended from time to
time in accordance with Section 2.e of this Agreement, as a management
investment company under the 1940 Act without the Fund's and DELAWARE's prior
written consent.
d. SMA shall obtain appropriate authorizations, to the extent
necessary, whether by registration, qualification, approval or otherwise, for
the issuance and sale of the Contracts in each State in the Territory (provided,
however, that it shall be within SMA's discretion whether to obtain such
authorization in Hawaii and Guam). From time to time, SMA shall notify DELAWARE
in writing of all States in the Territory in which each class of Contracts can
then lawfully be offered. To the extent that SMA is not authorized to issue the
Contracts or any class of Contracts in any State in the Territory, SMA shall
employ all reasonable efforts to obtain such authorization in such State
(provided, however, that it shall be within SMA's discretion whether to obtain
such authorization in Hawaii or Guam).
e. DELAWARE may unilaterally amend Schedule 1 from time to time
pursuant to Section 2.a of this Agreement. The parties to this Agreement may
amend Schedules 2 and 3 to this Agreement from time to time by mutual agreement
to reflect changes in or relating to the Contracts and the Accounts and to
- 9 -
<PAGE>
add new classes of variable annuity contracts and variable life insurance
contracts to be issued by SMA for which DELAWARE will act as wholesaler. The
provisions of this Agreement shall be equally applicable to each such class of
Contracts, unless the context otherwise requires. Schedule 4 to this Agreement
may be amended only by mutual agreement of the parties to this Agreement
pursuant to Section 9 of this Agreement.
3. Recruitment of Brokers and Related Responsibilities
a. SMA and EQUITIES hereby authorize DELAWARE and any DELAWARE
AGENCY AFFILIATES to contact and recommend business firms to act as Brokers for
the sale of the Contracts. SMA shall have the right to reject any such
recommendation, but shall not do so arbitrarily or unreasonably.
b. SMA and EQUITIES shall have the responsibility for and bear the
cost of: (i) executing appropriate sales agreements with the business firms
recommended by DELAWARE or DELAWARE AGENCY AFFILIATES and (ii) except as limited
in Section 9.c of this Agreement, appointing such business firms, and/or
Associated Persons of such firms, as insurance agents of SMA in those States
where such business firms and/or Associated Persons possess insurance agent
licenses. None of DELAWARE, DELAWARE AGENCY AFFILIATES, SMA or EQUITIES shall
have responsibility for, or bear the cost of, any registration or licensing of
Brokers or any of their Associated Persons with the SEC, NASD or any state
insurance governmental or regulatory agency. The costs of appointment shall be
borne as provided in Section 9.c hereof.
- 10 -
<PAGE>
SMA shall maintain the appointment records of all agents appointed by SMA to
distribute the Contracts or to engage in the wholesaling activities contemplated
by this Agreement.
c. Any sales agreement entered into by SMA and/or EQUITIES with a
Broker shall provide that:
(1) The Broker (or an affiliated person duly registered as a
broker-dealer with the SEC) shall train, supervise, and be solely responsible
for the conduct of, all of its Associated Persons in the proper method of
solicitation, sale and delivery of the Contracts for the purpose of complying on
a continuous basis with the NASD Rules of Fair Practice and with federal and
state securities and insurance law requirements applicable in connection with
the offering and sale of the Contracts;
(2) Purchase Payments shall be made payable to SMA and
shall be delivered together with all applications and related information
in accordance with the Procedures;
(3) The Broker shall be solely responsible for all
compensation paid to its Representatives and all related tax reporting
that may be required under applicable law;
(4) The Broker and its Representatives shall not use,
develop or distribute any promotional, sales or advertising material that
has not been approved in writing by SMA, EQUITIES and DELAWARE and filed
with the appropriate governmental or regulatory agencies; and
- 11 -
<PAGE>
(5) The Broker shall not have authority, on behalf of
SMA, EQUITIES, DELAWARE or DELAWARE AGENCY AFFILIATES: to make, alter or
discharge any Contract or other contract entered into pursuant to a
Contract; to waive any Contract forfeiture provision; to extend the time
of paying any Purchase Payment; to receive any monies or Purchase Payments
(except for the sole purpose of forwarding monies or Purchase Payments to
SMA); or to expend, or contract for the expenditure of, funds of SMA,
EQUITIES, DELAWARE or DELAWARE AGENCY AFFILIATES.
d. DELAWARE and DELAWARE AGENCY AFFILIATES shall provide assistance
to SMA in the appointment procedure applicable to Brokers and their
Representatives as may be reasonably acceptable to SMA.
e. DELAWARE shall train, supervise, and be solely responsible for
the conduct of, all of its Associated Persons (including DELAWARE AGENCY
AFFILIATES, but not Brokers or their Representatives unaffiliated with DELAWARE
or DELAWARE AGENCY AFFILIATES), for the purpose of complying on a continuous
basis with the NASD Rules of Fair Practice and with federal and state securities
and insurance laws applicable to the wholesaling activities contemplated in this
Agreement. DELAWARE and DELAWARE AGENCY AFFILIATES shall be responsible for the
maintenance of licenses, certifications or permits that they determine to be
necessary for themselves and/or their Associated Persons pursuant to any federal
or state securities law or state insurance law.
- 12 -
<PAGE>
f. None of DELAWARE, DELAWARE AGENCY AFFILIATES, SMA or EQUITIES
will have any supervisory responsibility (as such supervision is contemplated by
the 1934 Act or the NASD's Rules of Fair Practice) with respect to Brokers or
their Representatives. Under no circumstances will DELAWARE or DELAWARE AGENCY
AFFILIATES be responsible for Brokers' or their Representatives' failure to
comply with applicable law or the Procedures.
g. DELAWARE shall not have authority on behalf of SMA: to make,
alter or discharge any Contract or other contract entered into pursuant to a
Contract; to waive any Contract forfeiture provision; to extend the time of
paying any Purchase Payment; or to receive any monies or Purchase Payments.
DELAWARE shall not expend, nor contract for the expenditure of, funds of SMA;
nor shall DELAWARE possess or exercise any authority on behalf of SMA other than
that expressly conferred on DELAWARE by this Agreement.
h. DELAWARE and DELAWARE AGENCY AFFILIATES shall act as independent
contractors in the performance of their duties and obligations under this
Agreement and nothing contained in this Agreement shall constitute DELAWARE or
any DELAWARE AGENCY AFFILIATE or their respective Associated Persons as
employees of SMA or EQUITIES in connection with the wholesaling activities
contemplated by this Agreement or otherwise.
- 13 -
<PAGE>
4. Marketing and Sales Material
a. SMA shall be responsible for the design of initial promotional,
sales and advertising material relating to the Contracts. Once $100,000,000 of
Purchase Payments are accepted by SMA and at each $100,000,000 increment
thereafter, SMA, at the request of DELAWARE, shall redesign the material then
being used; each such redesign shall be at SMA's expense, but shall not be
substantially different from the design of the material then being used.
Prior to use with any member of the public, SMA shall provide
to DELAWARE copies of all promotional, sales and advertising material developed
by SMA for DELAWARE's review and written approval. Upon receipt of such material
from SMA, DELAWARE shall be given a reasonable amount of time to complete its
review. DELAWARE will respond on a prompt and timely basis in approving any such
material. Failure to respond shall not relieve SMA of the obligation to obtain
the prior written approval of DELAWARE.
In the event that DELAWARE shall design any promotional,
sales or advertising material relating to the Contracts, DELAWARE shall provide
to SMA copies of such material for SMA's review and written approval. Upon
receipt of such material from DELAWARE, SMA shall be given a reasonable amount
of time to complete its review. SMA will respond on a prompt and timely basis in
approving any such material. Failure to respond
- 14 -
<PAGE>
shall not relieve DELAWARE of the obligation to obtain the prior written
approval of SMA.
If SMA has provided an opinion of counsel pursuant to Section
2.c of this Agreement to the effect that the general account option offered
under the Contracts or class of Contracts need not be registered under the 1933
Act in reliance on Section 3(a)(8) of the 1933 Act or Rule 151 thereunder, SMA
shall be solely responsible for ensuring, and hereby agrees to ensure, that any
promotional, sales or advertising material is consistent with Section 3(a)(8) or
Rule 151, as applicable, with respect to such general account option; provided,
however, that SMA will not be responsible under this provision for marketing
materials used by Brokers or their Representatives which have not been
authorized by SMA under Section 4 of this Agreement.
EQUITIES shall be responsible for filing, as required, all
promotional, sales or advertising material, whether developed by SMA, EQUITIES
or DELAWARE, with the NASD and any federal and state securities governmental or
regulatory agencies. SMA shall be responsible for filing, as required, such
material, whether developed by SMA, EQUITIES or DELAWARE, with any state
insurance governmental or regulatory agencies. Neither DELAWARE nor DELAWARE
AGENCY AFFILIATES shall have any responsibility for any of the filings referred
to in this paragraph.
If any such promotional, sales or advertising material names
the Fund or the Fund's investment adviser, SMA shall furnish such material to
the Fund or the Fund's distributor
- 15 -
<PAGE>
(if other than DELAWARE) prior to its use. Such material shall not be used
unless written approval has been obtained from the Fund or the Fund's
distributor. Failure of the Fund or the Fund's distributor to respond shall not
relieve SMA or EQUITIES of the obligation to obtain the prior written approval
of the Fund or the Fund's distributor.
b. DELAWARE acknowledges that SMA shall have the unconditional right
to reject, in whole or in part, any application for a Contract. In the event an
application is rejected, any Purchase Payment submitted will be returned by or
on behalf of SMA to the applicant. SMA will notify DELAWARE and the Broker who
submitted the Purchase Payment of such action. In the event that a purchaser
exercises his free look right under his Contract, any amount to be refunded as
provided in such Contract will be so refunded to the purchaser by or on behalf
of SMA. SMA will notify DELAWARE and the Broker who solicited the sale of the
Contract of such action.
c. SMA and DELAWARE shall equally share the costs (other than those
borne by the Fund pursuant to the Participation Agreement) for printing any
preliminary and all definitive Prospectuses for the Contracts and Fund
Prospectuses and any supplements thereto.
d. DELAWARE will pay the following expenses related to its
wholesaling activities contemplated by this Agreement: (i) the compensation, if
any, of its Associated Persons; (ii) expenses associated with the initial
licensing and training of
- 16 -
<PAGE>
its Associated Persons involved in the wholesaling activities; (iii) the
printing and mailing of any promotional, sales or advertising material for use
in connection with the distribution of the Contracts; (iv) expenses associated
with telecommunications with SMA at the sites of DELAWARE or its Associated
Persons, including site installations and purchases, leases or rentals of
modems, terminals and other hardware, and lease line telephone charges; and (v)
any other expenses incurred by DELAWARE or its Associated Persons for the
purpose of carrying out the obligations of DELAWARE hereunder. Except for such
expenses and the expenses described in Section 4.c of this Agreement, DELAWARE
shall not be responsible for any expenses relating to the Contracts or
distribution of the Contracts or the processing of Contracts or applications,
including without limitation any expenses incurred in connection with the return
of Purchase Payments solicited by Brokers for applications rejected or not
timely received by SMA, or relating to any of the matters or acts contemplated
by this Agreement.
e. SMA will pay all expenses in connection with: (i) the preparation
and filing with appropriate governmental or regulatory agencies of the
Registration Statement and each preliminary Prospectus and definitive
Prospectus; (ii) the preparation and issuance of the Contracts; (iii) any
authorization, registration, qualification or approval of the Contracts required
under the securities, blue-sky laws or insurance laws of the States in the
Territory; (iv) registration
- 17 -
<PAGE>
fees for the Contracts payable to the SEC, the NASD or any other governmental or
regulatory agency; (v) the mailing of Prospectuses for the Contracts and Fund
Prospectuses and any supplements thereto, as required by federal securities
laws, and proxy soliciting materials and periodic reports relating to the Fund
or the Accounts to Contract owners; (vi) the printing of applications, the
Procedures and any other administrative forms utilized in connection with the
distribution of the Contracts; (vii) compensation as provided in Section 9
hereof; and (viii) any other expenses related to the distribution of the
Contracts except those set forth in Section 4.d of this Agreement and except as
provided in Section 4.c of this Agreement.
f. SMA alone shall be responsible for and bear the cost of
administration of the Contracts following their issuance including all
Contractowner service and communication activities, but DELAWARE shall be
responsible for answering inquiries from Brokers or Representatives regarding
the investment performance of the Contracts as permitted by applicable law.
g. SMA, as agent for EQUITIES, will confirm to each applicant for
and owner of a Contract in accordance with Rule 10b-10 under the 1934 Act its
acceptance of Purchase Payments and such other transactions as are required by
Rule 10b-10 or administrative interpretations thereunder and in accordance with
Release 8389 under the 1934 Act.
- 18 -
<PAGE>
5. Representations and Warranties
a. SMA and EQUITIES each represent and warrant to DELAWARE and each
DELAWARE AGENCY AFFILIATE, on the effective date of each Registration Statement
for the Contracts (or class of Contracts) and at each time that a Contract is
sold and, with respect to Clauses (7), (8), (11) and (12) below, also on the
date of this Agreement, as follows:
(1) The Registration Statement has been declared effective by
the SEC or has become effective in accordance with the Regulations.
(2) The Registration Statement and the Prospectus each comply
in all material respects with the provisions of the 1933 Act and the 1940
Act and the Regulations, and neither the Registration Statement nor the
Prospectus contains an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, in light of the circumstances in
which they were made; provided, however, that none of the representations
and warranties in this Section 5.a(2) shall apply to statements in or
omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with information furnished to SMA in writing by
DELAWARE expressly for use in the Registration Statement.
(3) Neither SMA nor EQUITIES has received any notice from the
SEC with respect to the Registration
- 19 -
<PAGE>
Statement or the Account supporting the Contracts described in the Registration
Statement pursuant to Section 8(e) of the 1940 Act and no stop order under the
1933 Act has been issued and no proceeding therefor has been instituted or
threatened by the SEC.
(4) The accountants who certified the financial statements
included in the Registration Statement and Prospectus are independent
public accountants as required by the 1933 Act and the Regulations.
(5) The financial statements included in the Registration
Statement present fairly the respective financial positions of SMA and the
Account supporting the Contracts described in the Registration Statement
as of the dates indicated; and such financial statements have been
prepared in conformity with generally accepted accounting principles in
the United States applied on a consistent basis.
(6) Subsequent to the respective dates as of which information
is given in the Registration Statement or the Prospectus, there has not
been any material adverse change in the condition, financial or otherwise,
of SMA, EQUITIES or the Account supporting the Contracts described in the
Registration Statement that would cause such information to be materially
misleading.
(7) SMA has been duly organized and is validly existing as a
corporation in good standing under the laws of
- 20 -
<PAGE>
the State of Delaware with full power and authority to own, lease and
operate its properties and conduct its business in the manner described in
the Prospectus; is duly qualified to transact the business of a life,
health and accident insurance company; and is in good standing, in each
State in the Territory in which the Contracts are or will be offered.
(8) EQUITIES has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware
with full power and authority to own, lease and operate its properties and
conduct its business in the manner described in the Prospectus; is duly
registered as a broker-dealer with the SEC and with the securities
commission of every state in the Territory with which such registration is
required; and is a member in good standing with the NASD.
(9) The Account supporting the Contracts described in the
Registration Statement has been duly authorized and established and is
validly existing as a separate account under Title 18, Section 2392, of
the Delaware Insurance Code under the laws of the State of Delaware and is
duly registered with the SEC as a unit investment trust under the 1940
Act.
(10) The form of the Contracts has been approved to the extent
required by the Delaware Insurance Commissioner and by the governmental
agency responsible for
- 21 -
<PAGE>
regulating insurance companies in each other State in the Territory in
which the Contracts are offered.
(11) The execution and delivery of this Agreement and the
consummation of the transactions contemplated in this Agreement have been
duly authorized by all necessary corporate action by SMA and EQUITIES and
when so executed and delivered this Agreement will be the valid and
binding obligation of SMA and EQUITIES enforceable in accordance with its
terms.
(12) The consummation of the transactions contemplated by this
Agreement, and the fulfillment of the terms of this Agreement, will not
conflict with, result in any breach of any of the terms and provisions of,
or constitute (with or without notice or lapse of time) a default under,
the charter or bylaws of SMA or EQUITIES, or any indenture, agreement,
mortgage, deed of trust, or other instrument to which SMA or EQUITIES is a
party or by which either is bound, or violate any law, or, to the best of
SMA's or EQUITIES's knowledge, any order, rule or regulation applicable to
SMA or EQUITIES of any court or of any federal or state regulatory body,
administrative agency or any other governmental instrumentality having
jurisdiction over SMA or EQUITIES or any of their respective properties.
(13) No consent, approval, authorization or order of any court
or governmental authority or agency is required for the issuance or sale
of the Contracts or for the
- 22 -
<PAGE>
consummation of the transactions contemplated by this Agreement, that has
not been obtained.
(14) SMA has filed with the SEC all statements and other
documents required for registration under the provisions of the 1940 Act
and the Regulations thereunder of the Account supporting the Contracts
described in the Registration Statement, and such registration has been
effected; there are no agreements or documents required by the 1933 Act,
the 1940 Act or the Regulations to be filed with the SEC as exhibits to
the Registration Statement, that have not been so filed; and SMA has
obtained all exemptive or other orders of the SEC necessary to make the
public offering and consummate the sale of the Contracts pursuant to this
Agreement and to permit the operation of the Account supporting the
Contracts described in the Registration Statement, as contemplated in the
Prospectus.
(15) The Contracts have been duly authorized by SMA and
conform to the descriptions thereof in the Registration Statement and the
Prospectus and, when issued as contemplated by the Registration Statement,
will constitute legal, validly issued and binding obligations of SMA in
accordance with their terms.
b. DELAWARE represents and warrants to SMA on the date hereof as
follows:
(1) DELAWARE has taken all action including, without
limitation, those necessary under its articles of
- 23 -
<PAGE>
incorporation, by-laws and applicable state corporate law, necessary to
authorize the execution, delivery and performance of this Agreement and
all transactions contemplated hereunder.
(2) DELAWARE is and during the term of this Agreement shall
remain duly registered as a broker-dealer under the 1934 Act, a member in
good standing with the NASD, and duly registered as a broker-dealer under
applicable state securities laws.
6. Additional Responsibilities of SMA
a. SMA shall use its best efforts:
(1) to maintain the registration of the Contracts with the SEC
and any state securities commissions of any State in the Territory where
the securities or blue-sky laws of such State require registration of the
Contracts, including without limitation using its best efforts to prevent
a stop order from being issued or if a stop order has been issued to cause
such stop order to be withdrawn;
(2) to gain approval or other authorization of the Contract
forms where required under the insurance laws and regulations of each
State in the Territory (provided, however, that it shall be within SMA's
discretion whether to obtain such approval or authorization in Hawaii and
Guam); and
- 24 -
<PAGE>
(3) to keep such registration, approval and authorization in
effect thereafter so long as the Contracts are outstanding.
b. During the term of this Agreement SMA shall take all action
required to cause each class of Contracts to comply, and to continue to comply,
as annuity contracts or life insurance contracts, as the case may be, and to
cause the Registration Statement and the Prospectus for each class of Contracts
to comply, and to continue to comply, with: all applicable federal laws and
regulations and all applicable laws and regulations of each State in the
Territory.
c. SMA, during the term of this Agreement, shall notify DELAWARE
immediately:
(1) When each Registration Statement has become effective or
any post-effective amendment with respect to the Registration Statement
thereafter becomes effective;
(2) Of any request by the SEC for any amendment to a
Registration Statement or supplement to a Prospectus or for additional
information;
(3) Of any event that makes any material statement made in a
Registration Statement or a Prospectus untrue in any material respect or
results in a material omission in a Registration Statement or a
Prospectus;
(4) Of the issuance by the SEC of any stop order with respect
to a Registration Statement or any amendment thereto or the initiation of
any proceedings for that
- 25 -
<PAGE>
purpose or for any other purpose relating to the registration and/or
offering of the Contracts (or class of Contracts);
(5) In which States in the Territory registration of the
Contracts (or class of Contracts) is required under the securities or
blue-sky laws, and when such registrations have become effective.
d. SMA shall furnish to DELAWARE without charge promptly after
filing five (5) copies of each Registration Statement as originally filed and
any pre-effective or post-effective amendment thereto, including financial
statements and all exhibits, including exhibits incorporated therein by
reference.
e. SMA shall timely file all reports, statements and amendments
required to be filed by or for each Account or class of Contracts under the 1933
Act and/or the 1940 Act or the Regulations.
f. SMA shall deliver to DELAWARE, as soon as practicable after it
becomes available, the Annual Statement for SMA and for each Account in the form
filed with the State of Delaware, and shall deliver any quarterly reports upon
DELAWARE's request.
g. SMA and EQUITIES will provide DELAWARE access to such records,
officers and employees of SMA, EQUITIES and each Account at reasonable times as
is necessary to enable DELAWARE to fulfill its obligations under the federal
securities laws and
- 26 -
<PAGE>
NASD rules. DELAWARE will provide SMA and EQUITIES access to such of its
records, officers and employees at reasonable times as is necessary to enable
SMA and EQUITIES to fulfill their obligations under the federal securities laws
and NASD rules.
7. Confidentiality and Trademark Rights
a. SMA and EQUITIES acknowledge that the names and addresses of all
customers and prospective customers (for purposes of this Section 7.a, the terms
"customers" and "prospective customers" shall not mean Brokers) of DELAWARE, of
its parent company and of any affiliated person of DELAWARE, DELAWARE AGENCY
AFFILIATES or of any Broker that may come to the attention of SMA, EQUITIES or
any person affiliated with SMA or EQUITIES as a result of their relationship
with DELAWARE, its parent company or any affiliated person of DELAWARE, DELAWARE
AGENCY AFFILIATES or any Broker and not from any independent source, are
confidential and shall not be used by SMA or EQUITIES or any person affiliated
with SMA or EQUITIES for any purpose whatsoever except as may be necessary in
connection with the administration of the Contracts sold by the Brokers,
including responses to specific requests made to SMA for service by Contract
owners or efforts to prevent the replacement of such Contracts or to encourage
the exercise of options under the terms of the Contracts. The restrictions set
forth in the previous sentence do not apply if and to the extent a Broker
knowingly discloses the names and addresses of its customers or prospective
customers to SMA or EQUITIES outside the operation of this
- 27 -
<PAGE>
Agreement. In no event shall the names and addresses of such customers and
prospective customers be furnished by SMA, EQUITIES or any of their affiliated
persons to any other person. The intent of this paragraph is that neither SMA
nor EQUITIES, nor persons affiliated with SMA or EQUITIES, shall utilize, or
permit to be utilized, their knowledge of DELAWARE, of its parent company or of
any affiliated person of DELAWARE, DELAWARE AGENCY AFFILIATES or any Broker,
derived as a result of the relationship created through the funding and sale of
the Contracts or the solicitation of sales of any product or service. This
paragraph shall remain operative and in full force and effect regardless of the
termination of this Agreement, and shall survive any such termination.
b. Delaware Management Holdings, Inc. owns all right, title and
interest, including the good will associated therewith, in and to the marks
DELAWARE, DELAWARE GROUP and DELAWARE GROUP PREMIUM FUND, used in connection
with the underlying investment medium for the Contracts, and in and to the name
DELAWARE in whatever manner used in connection with the performance of this
Agreement. In addition, SMA agrees that Delaware Management Holdings, Inc. owns
all right, title and interest, including the goodwill associated therewith, in
and to the mark MEDALLION (and all variations thereof) used in connection with
the Contracts (such marks and the marks identified in the preceding sentence are
hereinafter referred to as "Delaware licensed marks"). Delaware Management
Holdings, Inc. has granted to DELAWARE the
- 28 -
<PAGE>
right and license to use the Delaware licensed marks and the right to
sub-license others. DELAWARE hereby grants to SMA a non-exclusive right and
license to use the Delaware licensed marks in connection with the Contracts and
SMA's performance of the services as set forth under this Agreement.
(1) Term. The grant of license as specified in this Section
7.b shall terminate on the earlier of the following events: (A) a change of name
of the Fund to a name that does not include the term DELAWARE in accordance with
the provisions of the Investment Advisory Agreement between the Fund and
Delaware Management Company, Inc.; (B) whenever the Contracts shall cease to be
invested in the Fund; (C) solely at the option of DELAWARE, upon a termination
of this Agreement; or (D) 30 days after receipt by SMA of written notice of
termination, based on any or no reason, of the license from DELAWARE. Subject to
the preceding sentence, the grant of license as specified in this Section 7.b
shall survive the termination of the Agreement. Upon termination of the grant of
license, SMA shall immediately cease to issue new annuity contracts or life
insurance contracts or to use or disseminate any promotional, sales or
advertising material relating to the Contracts or service existing Contracts
under any of the Delaware licensed marks and shall likewise cease any activity
that suggests that it has any right under any of the Delaware licensed marks or
that it has any association with DELAWARE in connection with any such contracts.
- 29 -
<PAGE>
(2) Pre-Release Approval of Trademark-Bearing Materials. SMA
agrees that it will display the Delaware licensed marks only in such form and
manner as are specifically approved by DELAWARE and that it will cause them to
appear on all promotional, sales or advertising material used in connection with
the Contracts or related services with such legends, markings and notices as
DELAWARE may request in order to give appropriate notice of service mark
registration when effected. SMA shall obtain the prior written approval of
DELAWARE for the public release of any material bearing the Delaware licensed
marks. Such material shall include, but not be limited to, samples of each
proposed standard Contract form and application, form correspondence with
Contractowners, standard reports to Contractowners and any other standard
operating material that bear any of the Delaware licensed marks.
During the term of this grant of license, DELAWARE may request
that SMA submit samples of any material bearing any of the Delaware licensed
marks that were previously approved by DELAWARE but, due to changed
circumstances, DELAWARE may wish to reconsider, or that were not previously
approved in the manner set forth above. If, on reconsideration or on initial
review, respectively, any such sample fails to meet with the written approval of
DELAWARE, then SMA shall immediately cease using or disseminating such
disapproved material. SMA shall obtain the prior written approval of DELAWARE
for the use of any new
- 30 -
<PAGE>
material developed to replace the disapproved material, in the manner set forth
above.
(3) Acknowledgement of Ownership. SMA: (1) acknowledges and
stipulates that the Delaware licensed marks are valid and enforceable marks
owned exclusively by Delaware Management Holdings, Inc. and that, pursuant to
such ownership, Delaware Management Holdings, Inc. has the exclusive right to
use, and license others to use, the Delaware licensed marks as indications of
source, origin, sponsorship, affiliation or endorsement; (2) agrees never to
contend otherwise in legal proceedings or in other circumstances and agrees that
it will not, during the term of this license or thereafter, attack the validity
of the license; and (3) acknowledges and agrees that the use of the Delaware
licensed marks pursuant to this grant of license shall inure to the benefit of
Delaware Management Holdings, Inc. and shall not create any right of ownership
in the Delaware licensed marks for SMA.
(4) Assignment. This license is personal to SMA and may not be
assigned without the prior written consent of DELAWARE.
(5) Breach. If SMA shall violate or fail to perform any of its
obligations under this license, DELAWARE shall have the right to terminate this
license upon 30 days written notice, and such notice of termination shall become
effective unless SMA shall completely remedy the default within such 30-day
period. Termination of the license under the provisions of this
- 31 -
<PAGE>
paragraph shall be without prejudice to any other rights that DELAWARE may have
against SMA.
(6) Quality of Services. The quality of all services performed
by SMA in connection with the license hereunder shall be of a standard that is
equally as high as that of DELAWARE's own in respect of the Delaware licensed
marks. DELAWARE also shall have the right, upon reasonable advance notice to
SMA, to inspect the process of performing any and all such services, at whatever
place or places the same may be conducted.
(7) DELAWARE's Rights. All rights in the Delaware licensed
marks other than those specifically granted herein are reserved by DELAWARE for
its own use and benefit. Upon the termination of this license, for any reason
whatsoever, all rights in the Delaware licensed marks and any service mark
registrations pertaining thereto shall automatically revert to DELAWARE. SMA
shall at any time, whether during or after the term of this license, execute any
documents reasonably required by DELAWARE to confirm DELAWARE's ownership of all
such rights.
8. Records. SMA, EQUITIES, DELAWARE and DELAWARE AGENCY AFFILIATES each
shall maintain such accounts, books and other documents as are required to be
maintained by each of them by applicable laws and regulations and shall preserve
such accounts, books and other documents for the periods prescribed by such laws
and regulations. The accounts, books and records of SMA,
- 32 -
<PAGE>
EQUITIES, the Account, DELAWARE and DELAWARE AGENCY AFFILIATES as to all
transactions hereunder shall be maintained so as to clearly and accurately
disclose the nature and details of the transactions, including such accounting
information as necessary to support the reasonableness of the amounts paid by
SMA hereunder. Each party shall have the right to inspect and audit such
accounts, books and records of the other party during normal business hours upon
reasonable written notice to the other party. Each party shall keep confidential
all information obtained pursuant to such an inspection or audit, and shall
disclose such information to third parties only upon receipt of written
authorization from the other party, except as required by law.
9. Compensation
a. Commissions. SMA shall compensate DELAWARE or DELAWARE AGENCY
AFFILIATES for sales of the Contracts by the Brokers pursuant to Schedule 4 to
this Agreement, as such Schedule may be amended from time to time upon mutual
agreement of the parties to this Agreement. Such compensation shall be based on
Purchase Payments received and accepted by SMA for all Contracts issued on
applications obtained by the Brokers or any of their respective Representatives.
SMA will pay compensation due DELAWARE or DELAWARE AGENCY AFFILIATES in
accordance with the procedures set forth on Schedule 4. The compensation
provided for in this Section 9 shall be payable to DELAWARE for so long as the
Contracts are outstanding regardless of whether this Agreement is still in
effect. Compensation payable after the
- 33 -
<PAGE>
termination of this Agreement shall be paid in accordance with Schedule 4 as in
effect at the time of termination.
If any State in the Territory by insurance rule, regulation or
statute, prohibits any payment of compensation to a class of business entities
including DELAWARE, DELAWARE shall designate in writing a business entity or
natural person, including DELAWARE AGENCY AFFILIATES, meeting the requirements
of such State to receive any amounts that may otherwise be payable to DELAWARE
hereunder. DELAWARE may change such designation from time to time upon written
notice to SMA. Any payments made by SMA to any person or entity so designated by
DELAWARE shall discharge SMA's liability to DELAWARE hereunder.
If a purchaser rescinds a Contract or exercises a right to
surrender a contract for return of all Purchase Payments, DELAWARE will pay on
demand the amount of any commissions it received on the Purchase Payments
returned.
b. Indebtedness. Nothing in this Agreement shall be construed as
giving DELAWARE the right to incur any indebtedness on behalf of SMA.
c. Appointment Fees. SMA will pay the initial and renewal fees for
agent appointment by SMA of duly licensed DELAWARE, DELAWARE AGENCY AFFILIATES
and Brokers and their respective Associated Persons; provided, however, that if
total sales of the Contracts do not exceed $20 million during any calendar year,
DELAWARE will reimburse SMA for the total amount
- 34 -
<PAGE>
of initial or renewal fees paid by SMA during such calendar year(s).
d. Reporting. DELAWARE shall be responsible for all tax reporting
information that DELAWARE is required to provide under applicable tax law to its
Associated Persons with respect to the Contracts. Nothing contained in this
Agreement or any sales agreement with a Broker is to be construed to require
DELAWARE to provide any tax reporting information directly or indirectly to any
Broker or its Representatives.
e. Survival. This Section 9 shall remain operative and in full force
and effect regardless of the termination of this Agreement, and shall survive
any such termination.
10. Investigation and Proceedings
a. SMA, EQUITIES and DELAWARE will cooperate fully in any securities
or insurance governmental or regulatory investigation or proceeding or judicial
proceeding arising in connection with the offering, sale or distribution of the
Contracts for which DELAWARE acts as wholesaler pursuant to this Agreement.
Without limiting the foregoing, SMA, EQUITIES and DELAWARE agree to notify one
another promptly of any customer complaint or notice of any governmental or
regulatory investigation or proceeding or judicial proceeding received by any of
them with respect to SMA, EQUITIES, DELAWARE or any of their respective
Associated Persons or that may affect SMA's issuance of any Contract for which
DELAWARE acts as wholesaler pursuant to this Agreement.
- 35 -
<PAGE>
b. In the case of a substantive customer complaint, SMA, EQUITIES,
DELAWARE and DELAWARE AGENCY AFFILIATES will cooperate in investigating such
complaint and any response by SMA or EQUITIES, as one party, or DELAWARE or
DELAWARE AGENCY AFFILIATES, as another party, to such complaint will be sent to
the other party for approval not less than five business days prior to its being
sent to the customer or any governmental or regulatory agency, except that if a
more prompt response is required, the proposed response shall be communicated by
telephone, telegraph or facsimile. Neither such party will release any such
response without the other party's prior written approval, unless otherwise
required by applicable law.
11. Indemnification
a. SMA and EQUITIES, jointly and severally, shall indemnify and hold
harmless DELAWARE and DELAWARE AGENCY AFFILIATES and each person who controls or
is associated with DELAWARE or DELAWARE AGENCY AFFILIATES within the meaning of
such terms under the federal securities laws, and any officer, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
DELAWARE, DELAWARE AGENCY AFFILIATES and/or such person may become subject,
under any statute or regulation, at common law or
- 36 -
<PAGE>
otherwise, insofar as such losses, claims, damages or liabilities:
(1) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus, blue-sky application or other document executed by
SMA specifically for the purpose of qualifying any or all of the Contracts
for sale under the securities laws of any State, promotional, sales or
advertising material for the Contracts, or the Contracts themselves (or
any amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which
they were made; provided that this obligation to indemnify shall not apply
if such untrue statement or omission or such alleged untrue statement or
alleged omission was made in reliance upon and in conformity with
information furnished in writing to SMA or EQUITIES by DELAWARE
specifically for use in the preparation of any such Registration
Statement, Prospectus or blue-sky application or other document, material
or Contract (or any such amendment or supplement thereto); or
(2) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any Fund
Registration Statement, Fund Prospectus, blue-sky application or other
document executed by the Fund specifically for the purpose of qualifying
any or all of the shares of the Fund for sale under the securities law of
any State, or in any promotional, sales or advertising material or written
information relating to the shares of the Fund authorized by 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 in light of the circumstances in which
they were made, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information
furnished in writing to DELAWARE or the Fund by SMA specifically for use
in the preparation of any such Fund Registration Statement, Fund
Prospectus, blue-sky application or other document (or any such amendment
or supplement thereto); or
(3) arise out of or are based upon any untrue statement or
alleged untrue statement or omission or alleged omission of a material
fact by or on behalf of SMA or
- 37 -
<PAGE>
EQUITIES (other than statements or representations contained in the Fund
Registration Statement, Fund Prospectus or promotional, sales or
advertising material of the Fund that were not supplied by SMA, EQUITIES
or persons under their control) or wrongful conduct of SMA or EQUITIES or
persons under their control with respect to the sale or distribution of
the Contracts; or
(4) result because of the terms of any Contract or because of
any material breach by SMA or EQUITIES of any terms of this Agreement or
of any Contract or that proximately result from any activities of SMA's or
EQUITIES' officers, directors, employees or agents or their failure to
take action in connection with the sale of a Contract, to the extent of
SMA's or EQUITIES' obligations under this Agreement or otherwise, or the
processing or administration of the Contracts.
This indemnification obligation will be in addition to any liability that SMA or
EQUITIES may otherwise have; provided, however, that no person shall be entitled
to indemnification pursuant to this Section 11.a if such loss, claim, damage or
liability is due to the willful misfeasance, bad faith, gross negligence or
reckless disregard of duty by the person seeking indemnification.
b. DELAWARE shall indemnify and hold harmless SMA and EQUITIES and
each person who controls or is associated with SMA or EQUITIES within the
meaning of such terms under the federal securities laws and any officer,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which SMA and/or any such person may become subject under any statute or
regulation, at common law or
- 38 -
<PAGE>
otherwise, insofar as such losses, claims, damages or liabilities arise out of
or are based upon:
(1) any untrue statement or alleged untrue statement of a
material fact contained in any Registration Statement, Prospectus or
blue-sky application or other document executed by SMA specifically for
the purposes of qualifying any or all of the Contracts for sale under the
securities law of any State (or any amendment or supplement to the
foregoing), or omission or alleged omission to state therein a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, in light of the circumstances in which
they were made, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information
furnished in writing to SMA or EQUITIES by DELAWARE specifically for use
in the preparation of any such Registration Statement, Prospectus, such
blue-sky application or other document (or any such amendment or
supplement thereto); or
(2) any use of promotional, sales or advertising material for
the Contracts not authorized by SMA or any verbal or written
misrepresentations or any unlawful sales practices concerning the
Contracts by DELAWARE or DELAWARE AGENCY AFFILIATES under federal
securities laws or NASD regulations (but not including state insurance
laws compliance with which is a responsibility of SMA or EQUITIES under
this Agreement or otherwise); or
(3) claims by agents, representatives or employees of DELAWARE
for commissions or other compensation or remuneration of any type; or
(4) any material breach by DELAWARE or DELAWARE AGENCY
AFFILIATES of any provision of this Agreement.
This indemnification obligation will be in addition to any liability that
DELAWARE may otherwise have; provided, however, that no person shall be entitled
to indemnification pursuant to this Section 11.b if such loss, claim, damage or
liability is due to the willful misfeasance, bad faith, gross negligence or
reckless disregard of duty by the person seeking indemnification.
- 39 -
<PAGE>
c. After receipt by a party entitled to indemnification
("indemnified party") under this Section 11 of notice of the commencement of any
action, if a claim in respect thereof is to be made by the indemnified party
against any person obligated to provide indemnification under this Section 11
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that the omission to so notify the indemnifying party will not relieve
it from any liability under this Section 11, except to the extent that the
omission results in a failure of actual notice to the indemnifying party and
such indemnifying party is damaged solely as a result of the failure to give
such notice. The indemnifying party, upon the request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be
- 40 -
<PAGE>
inappropriate due to actual or potential differing interests between them. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party shall
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
d. The indemnification provisions contained in this Section 11 shall
remain operative in full force and effect, regardless of (i) any investigation
made by or on behalf of SMA or by or on behalf of any controlling person
thereof, (ii) delivery of any Contracts and Purchase Payments therefor, or (iii)
any termination of this Agreement. A successor by law of DELAWARE or SMA, as the
case may be, shall be entitled to the benefits of the indemnification provisions
contained in this Section 11.
12. Termination
a. This Agreement may be terminated at the option of any party upon
six months advance written notice to the other parties, such termination to be
effective no earlier than one year following the date on which the first
Contract is issued to the public.
b. This Agreement shall terminate automatically if it is assigned.
This Agreement may be terminated at the option of SMA and EQUITIES, as one
party, or DELAWARE and DELAWARE AGENCY
- 41 -
<PAGE>
AFFILIATES, as one party, upon the other party's material breach of any
provision of this Agreement.
c. Upon termination of this Agreement all authorizations, rights and
obligations shall cease except: (i) the obligation to settle accounts hereunder,
including commissions on Purchase Payments subsequently received for Contracts
in effect at the time of termination or issued pursuant to applications received
by SMA prior to termination; (ii) the provisions contained in Sections 7, 9 and
11 of this Agreement; and (iii) the indemnification provisions set forth in
Section 11 of this Agreement, or as otherwise specifically noted in this
Agreement.
13. Rights, Remedies, etc. are 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, which the
parties to this Agreement are entitled to under state and federal laws. Failure
of DELAWARE or DELAWARE AGENCY AFFILIATES, as one party, or SMA or EQUITIES, as
another party, to insist upon strict compliance by the other party with any of
the conditions of this Agreement shall not be construed as a waiver of any of
the conditions, but the same shall remain in full force and effect. No waiver of
any of the provisions of this Agreement shall be deemed, or shall constitute, a
waiver of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver.
- 42 -
<PAGE>
14. Notices. All notices hereunder are to be made in writing and shall be
given:
if to SMA, to:
Charles W. Grover II
Vice President, Individual Insurance Marketing
SMA Life Assurance Company
440 Lincoln Street
Worcester, MA 01605
if to EQUITIES:
Richard M. Reilly
President
SMA Equities, Inc.
440 Lincoln Street
Worcester, MA 01605
if to DELAWARE or DELAWARE AGENCY AFFILIATES, to:
Daniel J. O'Brien
Delaware Distributors, Inc.
One Commerce Square, 40th Floor
Philadelphia, PA 19103
or such other address as such party may hereafter specify in writing. Each such
notice to a party shall be either hand delivered or transmitted by registered or
certified United States mail with return receipt requested, and shall be
effective upon delivery.
15. Interpretation, Jurisdiction, Etc. This Agreement constitutes the
whole agreement between the parties to this Agreement relating to the
wholesaling activities contemplated in this Agreement, and supersedes all prior
oral or written negotiations between the parties to this Agreement with respect
to the subject matter of this Agreement. The parties acknowledge that SMA,
DELAWARE and the Fund have entered into the Participation Agreement in
contemplation of entering into this
- 43 -
<PAGE>
Agreement. This Agreement shall be construed and the provisions of this
Agreement interpreted under and in accordance with the internal laws of the
State of Delaware without giving effect to principles of conflict of laws.
16. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach of this Agreement, shall be settled by arbitration
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof.
17. Headings. The headings in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions of
this Agreement or otherwise affect their construction or effect.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
19. Severability. This is a severable agreement and in the event that any
part or parts of this Agreement shall be held to be unenforceable to its or
their full extent, then it is the intention of the parties to this Agreement
that such part or parts shall be enforced to the extent permitted under the law,
and, in any event, that all other parts of this Agreement shall remain valid and
duly enforceable as if the unenforceable part or parts had never been a part of
this Agreement.
- 44 -
<PAGE>
20. Regulation. This Agreement shall be subject to the provisions of the
1933 Act, 1934 Act and 1940 Act and the Regulations and the rules and
regulations of the NASD, from time to time in effect, including such exemptions
from the 1940 Act as the SEC may grant, and the terms of this Agreement shall be
interpreted and construed in accordance therewith. Without limiting the
generality of the foregoing, the term "assigned" shall not include any
transaction exempted from Section 15(b)(2) of the 1940 Act.
- 45 -
<PAGE>
IN WITNESS WHEREOF, each party hereto represents that the officer signing
this Agreement on the party's behalf is duly authorized to execute this
Agreement; and each party has caused this Agreement to be duly executed by such
authorized officer on the date specified below.
SMA LIFE ASSURANCE COMPANY
Date: By: /s/ Charles W. Grover II
---------------------------------------
Name: Charles W. Grover II
Title: Vice President
SMA EQUITIES, INC.
Date: By: /s/ Richard M. Reilly
---------------------------------------
Name: Richard M. Reilly
Title: President
DELAWARE DISTRIBUTORS, INC.
(On its own behalf and on behalf of
the DELAWARE AGENCY AFFILIATES)
Date: By: /s/ M. Drennan
---------------------------------------
Name: M. Drennan
Title: Vice President
- 46 -
<PAGE>
Schedule 1
DELAWARE AGENCY AFFILIATES
Effective February 7, 1992
Name of State(s) In
DELAWARE AGENCY AFFILIATE Which Licensed
- ------------------------- --------------
Daniel J. O'Brien Pennsylvania
<PAGE>
Schedule 2
Separate Account Subaccounts
Available under the Contracts
Effective February 7, 1992
Name of Separate Account Subaccounts Fund Portfolios
- ------------------------ ----------- ---------------
Separate Account VA-K of 201 Equity Income
SMA Life Assurance Company 202 High Yield
203 Capital Reserve
204 Money Market
205 Growth
206 Multiple Strategy
<PAGE>
Schedule 3
Contracts Subject to Wholesaling Agreement
Effective February 7, 1992
SEC
Marketing Policy Registration Name of
Name of Contract Form No. No. Separate Account
- ---------------- -------- --- ----------------
Delaware Medallion
Variable Annuity A3019-92 33-44830 Separate Account VA-K
of SMA Life Assurance Company
<PAGE>
SCHEDULE 4
COMPENSATION SCHEDULE
EFFECTIVE FEBRUARY 18, 1993
Net Commissions Payable by SMA to DELAWARE on Sale of Contracts
First $100 million of initial 1.80%*
and subsequent Purchase Payments
received and accepted by SMA
All initial and subsequent 1.55%*
Purchase Payments received
and accepted by SMA after
first $100 million
*The above percentages are reduced to 1.30% and 1.05%, respectively, for
Policies issued in Pennsylvania and to 1.675% and 1.425%, respectively, for
Policies issued in New Jersey. In any calendar year, if more than 1% of all
purchase payments made by Policy Owners during the first Policy Year are
withdrawn under the 10% Free Withdrawal privilege of the Policies, then Delaware
will pay on demand any commissions paid to Delaware and the Broker-Dealer firms
attributable to such excess purchase payments redeemed.
Actual commissions paid will be net of a charge to DELAWARE in the amount of $30
for each policy anniversary and surrender of any Contract issued to a trustee of
a 401(k) plan where the Accumulated Value was $50,000 or less. This charge will
apply only to the extent that SMA waives its policy fee for such 401(k) plans.
Commissions will be paid to DELAWARE according to then current SMA practice, but
no less frequently than twice each month.
3
<PAGE>
SALES
AGREEMENT ALLMERICA INVESTMENTS, INC.
440 Lincoln Street
Worcester, Massachusetts 01653
- ------------------------------------------------------------------------------
Agreement, effective as of _________________, 19___, by and between Allmerica
Investments, Inc., a Massachusetts corporation (herein "Allmerica"), ________
__________________________________________________________________________, a
_____________________________ corporation (herein the "Broker-Dealer") and the
affiliates of Broker-Dealer listed on Exhibit "A" attached hereto, each
affiliate being referred to herein as a "General Agent".
Allmerica, subject to the terms and conditions set forth in this Agreement,
authorizes and appoints each General Agent to solicit applications for the
sale of Contracts. Each General Agent accepts this appointment and each
General Agent and the Broker-Dealer agree to the terms and conditions set
forth below.
DEFINITIONS
INSURANCE COMPANIES - All Contracts will be issued by First Allmerica
Financial Life Insurance Company (herein "First Allmerica") or by Allmerica
Financial Life Insurance and Annuity Company (herein "Allmerica Financial
Life"), a subsidiary of First Allmerica. The Principal Office of First
Allmerica and Allmerica Financial Life (herein collectively referred to as
"the Insurance Companies") is located at 440 Lincoln Street, Worcester,
Massachusetts 01653.
CONTRACTS - The variable annuity and variable life insurance contracts of the
Insurance Companies listed on the attached Commission Schedule(s), for which
Allmerica Investments, Inc., an affiliate of First Allmerica, has been
appointed the exclusive distributor and principal underwriter.
REGISTERED REPRESENTATIVES - Individuals affiliated with each General Agent
and the Broker-Dealer who are licensed as life insurance agents in those
jurisdictions in which applications for the sale of Contracts are to be
solicited and who are also duly registered with the National Association of
Securities Dealers, Inc. (herein "NASD") in compliance with the '34 Act.
'33 ACT - The Securities Act of 1933, as amended.
'34 ACT - The Securities Exchange Act of 1934, as amended.
RELATIONSHIP OF PARTIES
SECTION 1. Nothing in this Agreement will be construed to create the
relationship of employer and employee between Allmerica or either Insurance
Company and any General Agent, the Broker-Dealer or any Registered
Representative. General Agents and Registered Representatives will be free
to exercise their independent judgment as to the time, place and manner of
solicitation and servicing of business underwritten by the Insurance
Companies. However, General Agents, the Broker-Dealer and Registered
Representatives shall have no authority to act on behalf of Allmerica or the
1
<PAGE>
Insurance Companies in a manner which does not conform to applicable
statutes, ordinances, or governmental regulations or to reasonable rules
adopted from time to time by Allmerica or the Insurance Companies.
LIMITATIONS ON AUTHORITY
SECTION 2. General Agents, the Broker-Dealer and Registered Representatives
will have no authority to accept risks of any kind; to make, alter or
discharge Contracts; to waive forfeitures or exclusions; to alter or amend
any papers received from either Insurance Company; to deliver any life
insurance Contract or any document, agreement or endorsement changing the
amount of insurance coverage if the General Agent, the Broker-Dealer or the
soliciting Registered Representative know or have reason to believe that the
insured is uninsurable; or to accept any payment unless the payment meets the
minimum payment requirement for the Contract established by the Insurance
Company.
LICENSING AND REGISTRATION
SECTION 3. Each General Agent is hereby authorized to recommend Registered
Representatives for appointment by the Insurance Companies and only
individuals so recommended by a General Agent shall become Registered
Representatives hereunder. Allmerica shall arrange for the Insurance
Companies to apply for life insurance agent appointments in the appropriate
jurisdictions for such recommended Registered Representatives. Until
Contracts of First Allmerica are offered for sale, applications for
appointments shall only be made on behalf of Allmerica Financial Life.
Notwithstanding the foregoing, the Insurance Companies and Allmerica reserve
the right to refuse to appoint any proposed Registered Representative and/or
to terminate any Registered Representative who has been appointed by the
Insurance Companies.
AGREEMENTS BY GENERAL AGENT AND BROKER-DEALER
SECTION 4. The Broker-Dealer agrees that at all times when performing its
duties under this Agreement it shall be duly registered as a securities
broker-dealer under the '34 Act, be a member in good standing of the NASD,
and be duly licensed or registered as a securities broker-dealer in each
jurisdiction where such licensing or registration is required in connection
with the sale of the Contracts or the supervision of Registered
Representatives who solicit applications for the Contracts.
Each General Agent agrees that at all times when performing its duties under
this Agreement it shall be duly licensed to sell Contracts in each
jurisdiction in which General Agent intends to perform hereunder.
Each General Agent and the Broker-Dealer shall be responsible for carrying
out their sales and administrative obligations under this Agreement in
continued compliance with the NASD Rules of Fair Practice, federal and state
securities laws and regulations, and state insurance laws and regulations.
Each General Agent and the Broker-Dealer agree to offer the Contracts for
sale through their Registered Representatives and to offer such Contracts
only in accordance with the prospectus. General Agents, the Broker-Dealer
and Registered Representatives are not authorized to give any information or
make any representations concerning such Contracts other
2
<PAGE>
than those contained in the prospectus or in such sales literature or
advertising as may be authorized by Allmerica.
Each General Agent and the Broker-Dealer agree that they shall be fully
responsible for ensuring that no person shall offer or sell Contracts on
their behalf until such person is appropriately licensed, registered or
otherwise qualified to offer and sell such Contracts under the state and
federal securities laws and the insurance laws of each jurisdiction in which
such person intends to solicit.
Each General Agent and the Broker-Dealer agree to train, supervise and be
solely responsible for the conduct of their Registered Representatives in the
solicitation and sale of the Contracts and for the supervision as to their
strict compliance with Allmerica's rules and procedures, the NASD rules of
Fair Practice, and applicable rules and regulations of any other governmental
or other agency that has jurisdiction over the offering for sale of the
Contracts.
Each General Agent and the Broker-Dealer shall take reasonable steps to
ensure that their Registered Representatives shall not make recommendations
to an applicant to purchase a Contract in the absence of reasonable grounds
to believe that the purchase of such Contract is suitable for such applicant.
Such determination will be based upon, but will not be limited to,
information furnished to a Registered Representative after reasonable inquiry
of such applicant concerning the applicant's insurance and investment
objectives, financial situation and needs.
Each General Agent and the Broker-Dealer agree that Registered
Representatives shall conduct their business with respect to the Contracts at
all times in compliance with all applicable federal and state laws and
regulations and shall be subject to a standard of conduct including, but not
limited to, the following:
(a) A Registered Representative shall not solicit or participate in the sale
of the Contracts in any jurisdiction until such Registered Representative
is trained and licensed.
(b) A Registered Representative shall not solicit for the sale of Contracts
without delivering the then currently effective prospectus for such
Contracts and any then applicable amendments or supplements thereto,
including the current prospectus(es) for any fund(s) in which Contract
separate account(s) invest.
(c) A Registered Representative shall have no authority to advertise for or
on behalf of the Insurance Companies or Allmerica without express written
authorization from Allmerica.
AGREEMENTS BY ALLMERICA
SECTION 5. Allmerica agrees that at all times while this Agreement remains
in force that it shall be a registered broker-dealer under the '34 Act and be
a member in good standing of the NASD.
3
<PAGE>
During the term of this Agreement, Allmerica will provide to, or cause to be
provided to, each General Agent and the Broker-Dealer, without charge, as
many copies of the prospectus(es) for the Contracts (and any amendments, or
supplements thereto), the current prospectus(es) for any underlying fund(s)
and applications for the Contracts as each General Agent and the
Broker-Dealer may reasonably request. Upon termination of the Agreement, any
prospectuses, applications, and other materials and supplies furnished by
Allmerica to General Agents and the Broker-Dealer shall be promptly returned
to Allmerica.
Allmerica agrees to promptly notify each General Agent and the Broker-Dealer
of newly declared effective prospectus(es) for the Contracts and any
amendments or supplements thereto.
Allmerica agrees to keep each General Agent and the Broker-Dealer informed of
all jurisdictions in which the Insurance Companies are licensed to sell the
Contracts and in which the Contracts may be offered for sale.
SUBMISSION OF APPLICATIONS; DELIVERY OF CONTRACTS; REJECTED BUSINESS
SECTION 6. Each General Agent or the Broker-Dealer will submit, or cause to
be submitted, directly to the Principal Office of the Insurance Companies all
Contract applications solicited by their Registered Representatives. Each
General Agent or the Broker-Dealer will deliver, or cause to be delivered,
within 10 days of the date of issue all Contracts issued on applications
submitted by the General Agent, the Broker-Dealer or their Registered
Representatives. Each General Agent or the Broker-Dealer will promptly
return, or cause to be returned, to the Insurance Companies any Contract
which is declined by the applicant or which cannot be delivered within the
time permitted by the Insurance Company's rules.
ILLUSTRATIONS AND PROPOSALS
SECTION 7. General Agents, the Broker-Dealer and Registered Representatives
will not furnish any prospective Contract owner with an illustration of the
financial or other aspects of a Contract or a proposal for a Contract unless
the same has been either furnished by the Insurance Companies or prepared
from computer software or other material furnished or approved by the
Insurance Companies. Any illustration or proposal will conform to standards
of completeness and accuracy established by the Insurance Companies. If the
proposal or illustration was not furnished by the Insurance Companies, each
General Agent or the Broker-Dealer will retain in its records for
availability to the Insurance Companies a copy thereof or the means to
duplicate the same. Any computer software or materials furnished by either
Insurance Company will be and remain its property.
ACCOUNTING FOR FUNDS COLLECTED
SECTION 8. In accordance with the rules of the Insurance Companies, each
General Agent and the Broker-Dealer will account for and remit immediately to
the Principal Office of the Insurance Companies all funds received or
collected for or on behalf of either Insurance Company without deduction for
any commissions, or other claim the General Agent, the Broker-Dealer or any
Registered Representative may have against either Insurance Company or
Allmerica and will make such reports and file such
4
<PAGE>
substantiating documents and records as the Insurance Companies may
reasonably require.
INDEMNIFICATION
SECTION 9. Each General Agent and the Broker-Dealer, jointly and severally,
shall indemnify and hold Allmerica and the Insurance Companies and their
officers, directors and employees harmless from any liability arising from
any act or omission of the General Agent, the Broker-Dealer or of any
affiliate of the Broker-Dealer, or any officer, director, employee of the
General Agent or the Broker-Dealer or of their Registered Representatives,
including but not limited to, any fines, penalties, attorney's fees, costs of
settlement, damages or financial loss. Each General Agent and the
Broker-Dealer expressly authorize Allmerica and the Insurance Companies,
without precluding them from exercising any other remedy they may have, to
charge against all compensation due or to become due to the General Agent or
the Broker-Dealer under this Agreement, any monies paid on any liability
incurred by Allmerica or the Insurance Companies by reason of any such act or
omission of any General Agent, the Broker-Dealer, any affiliate of the
Broker-Dealer, or of any officer, director, employee of a General Agent or
the Broker-Dealer or of their Registered Representatives.
Allmerica shall indemnify and hold each General Agent and the Broker-Dealer
and their officers, directors, employees and registered representatives
harmless from any liability arising from any act or omission of Allmerica,
the Insurance Companies or any affiliate of Allmerica or any of the Insurance
Companies (collectively the "Allmerica Companies"), or any officer, director
or employee of the Allmerica Companies, including but not limited to, any
fines, penalties, reasonable attorney's fees, costs of settlement, damages or
financial loss.
The indemnifications provided by this Section shall survive termination of
this Agreement.
If a Contract is not delivered to the Contract owner within 10 days of the
date of issue of the Contract and if after delivery the owner returns the
Contract to the Insurance Company and receives a full refund of all payments
made, in any situation where the failure to deliver in a timely manner was
due to the inaction or negligence of a General Agent, the Broker-Dealer or a
Registered Representative, the difference between the payments refunded and
the cash value of the Contract on the date the Contract is received by the
Insurance Company at its Principal Office shall be reimbursed to the
Insurance Company by the offending General Agent or the Broker-Dealer in any
case where the cash value is less than the payments refunded. Any such
reimbursement shall be paid to the affected Insurance Company within 30 days
of receipt of a written request for payment.
COMMISSION REFUNDS
SECTION 10. If a Contract owner rescinds a Contract or exercises a right to
surrender a Contract for return of all payments made, the soliciting General
Agent or the Broker-Dealer will repay the appropriate Insurance Company the
amount of any
5
<PAGE>
commissions received on the payments returned within 10 days of receipt of a
written request for repayment.
BASIS OF COMPENSATION
SECTION 11. While this Agreement remains in force, the Insurance Companies
agree to pay each General Agent commissions in accordance with the Commission
Schedule(s) attached hereto and incorporated herein, from which amounts the
General Agent agrees to pay its Registered Representatives. Commission
payments will be made for each Contract issued pursuant to an application
solicited by duly appointed Registered Representatives.
TIME OF PAYMENT OF COMMISSIONS
SECTION 12. A payment will not be considered made until it has been received
by the Insurance Company at its Principal Office. On payments made,
commissions will be paid at regular intervals in accordance with the rules of
the Insurance Companies.
TERMINATION
SECTION 13. This Agreement shall automatically terminate immediately and
without notice upon any General Agent's or the Broker-Dealer's ceasing to
comply with any of the terms and conditions of this Agreement or upon the
dissolution, bankruptcy or insolvency of a General Agent or the Broker-Dealer.
Whether or not there is a breach of this Agreement, the Broker-Dealer or
Allmerica may terminate this Agreement by giving ten (10) days' written
notice to the other party at any time during the first year hereof, and by
giving thirty (30) days' written notice after the expiration of the first
year hereof.
Upon termination of this Agreement all authorizations, rights and obligations
shall cease except the obligation to pay commissions due on payments received
prior to termination for Contracts in effect on the date of termination, or
for Contracts to be issued pursuant to applications received by the Insurance
Companies prior to termination. Except as provided in the preceding
sentence, no further commissions shall be paid after termination of this
Agreement.
RIGHT OF SET-OFF
SECTION 14. Allmerica and the Insurance Companies will have a lien on any
commissions payable under this Agreement, whether or not such payments are
now due or hereafter become due, and may apply any such monies to the
satisfaction of indebtedness to Allmerica or to either Insurance Company to
the extent permitted by law.
NON-WAIVER OF BREACH
SECTION 15. Waiver of any breach of any provision of this Agreement will not
be construed as a waiver of the provision or of the right of Allmerica to
enforce said provision thereafter.
ASSIGNABILITY
SECTION 16. This Agreement is not transferable. Without the written consent
of Allmerica and the Insurance Companies, no rights or interest in or to
commissions will be subject to assignment, and any attempted assignment, sale
or transfer of any commissions without such written consents will immediately
make this Agreement
6
<PAGE>
void and be a release to Allmerica and to the Insurance Companies in full of
any and all of their obligations hereunder.
RESERVATION OF RIGHT TO CHANGE
SECTION 17. Allmerica reserves the right at any time, and from time to time,
to change prospectively the terms and conditions of this Agreement, including
but not limited to, the rates of commissions. Any change will become
effective on the date specified in a notice or, if later, 10 days after the
notice is given to each General Agent and the Broker-Dealer. However, the
requirement to give advance notice shall not apply if the change becomes
necessary or expedient by reason of legislation or the requirements of any
governmental body and, in the opinion of Allmerica, it is not reasonably
possible to meet the 10 day requirement. Changes will not be retroactive and
will apply only to life insurance coverage solicited or annuity payments made
on or after the effective date of the change.
COMPLAINTS AND INVESTIGATIONS
SECTION 18. Each General Agent, the Broker-Dealer and Allmerica agree to
cooperate fully in any customer complaint, insurance or securities regulatory
proceeding or judicial proceeding with respect to the General Agent, the
Broker-Dealer, Allmerica, the Insurance Companies, their affiliates or their
Registered Representatives to the extent that such customer complaint or
proceeding is in connection with Contracts marketed under this Agreement. To
the extent required, Allmerica will arrange for the Insurance Companies to
cooperate in any such complaint or proceeding. Without limiting the
foregoing:
(a) General Agents and the Broker-Dealer will be notified promptly by
Allmerica or the Insurance Companies of any written customer complaint or
notice of any regulatory proceeding or judicial proceeding of which they
become aware including the General Agent, the Broker-Dealer or any
Registered Representative which may be related to the issuance of any
Contract marketed under this Agreement. Each General Agent or the
Broker-Dealer will promptly notify Allmerica of any written customer
complaint or notice of any regulatory proceeding or judicial proceeding
received by the General Agent or the Broker-Dealer including the General
Agent, the Broker-Dealer or any of their Registered Representatives which
may be related to the issuance of any Contract marketed under this
Agreement or any activity in connection with any such Contract(s).
(b) In the case of a customer complaint, each General Agent, the
Broker-Dealer, Allmerica and the Insurance Companies will cooperate in
investigating such complaint and any proposed response to such complaint
will be sent to the other parties to this Agreement for approval not less
than five business days prior to its being sent to the customer or
regulatory authority, except that if a more prompt response is required,
the proposed response shall be communicated by telephone or facsimile
transmission.
7
<PAGE>
CONFIDENTIALITY
SECTION 19. Allmerica agrees that the names and addresses of all customers
and prospective customers of each General Agent and the Broker-Dealer and of
any company or person affiliated with a General Agent or the Broker-Dealer,
and the names and addresses of any Registered Representatives of the
Broker-Dealer which may come to the attention of Allmerica exclusively as a
result of its relationship with a General Agent and the Broker-Dealer or any
affiliated company and not from any independent source, are confidential and
shall not be used by Allmerica, the Insurance Companies, or any company or
person affiliated with Allmerica or the Insurance Companies, nor divulged to
any party for any purpose whatsoever, except as may be necessary in
connection with the administration and marketing of the Contracts sold by or
through General Agents, including responses to specified requests to the
Insurance Companies for service by Contract owners or efforts to prevent the
replacement of such Contracts or to encourage the exercise of options under
the terms of the Contracts. In no event shall the names and addresses of
such customers, prospective customers and Registered Representatives be
furnished by Allmerica to any other company or person, including but not
limited to, any of their managers, registered representatives, or brokers who
are not Registered Representatives of the Broker-Dealer, any company
affiliated with Allmerica or any manager, agency, or broker of such company,
or any securities broker-dealer or any insurance agent affiliated with such
broker-dealer. The intent of this section is that Allmerica, the Insurance
Companies or companies or persons affiliated with them shall not utilize, or
permit to be utilized, their knowledge of each General Agent, the
Broker-Dealer or of any affiliated companies which is derived exclusively as
a result of the relationships created through the sale of the Contracts.
Notwithstanding the foregoing provisions of this Section 19, nothing herein
shall prohibit Allmerica, the Insurance Companies or any company or person
affiliated with Allmerica or the Insurance Companies from (i) seeking
business relationships and entering into separate sales agreements with
Registered Representatives of the Broker-Dealer if the names of said
Registered Representatives were obtained from independent sources and not
exclusively as a result of Allmerica's relationship with a General Agent and
the Broker-Dealer; (ii) from entering into separate sales agreements with
Registered Representatives of the Broker-Dealer upon the request and at the
initiation of said Registered Representatives; or (iii) divulging the names
and addresses of any such customers, prospective customers, Registered
Representatives, or other companies or persons described in the preceding
paragraph in connection with any customer complaint or insurance or
securities regulatory proceeding described in Section 18.
BONDING
SECTION 20. Each General Agent and the Broker-Dealer agree to furnish such
bond or bonds as Allmerica may require. Upon failure or inability of a
General Agent or the Broker-Dealer to obtain or renew any such bonds, this
Agreement shall terminate at Allmerica's discretion upon notice by Allmerica.
8
<PAGE>
NOTICE
SECTION 21. Whenever this Agreement requires a notice to be given, the
requirement will be considered to have been met, in the case of notice to the
Insurance Companies or to Allmerica, if delivered or mailed postage prepaid
to the address specified on page 1 of this Agreement and, in the case of
notice to a General Agent or the Broker-Dealer, if delivered or mailed
postage prepaid to the intended recipient's principal place of business.
CAPTIONS
SECTION 22. Captions are used for informational purposes only and no caption
shall be construed to affect the substance of any provision of this Agreement.
EFFECTIVENESS; ENTIRE CONTRACT; PRIOR AGREEMENTS
SECTION 23. This Agreement contains the entire contract between the parties.
Upon execution it will replace all previous agreements between each General
Agent or the Broker-Dealer and Allmerica and the Insurance Companies, or any
of them, relating to the solicitation of Contracts. It is hereby understood
and agreed that any other agreement or representation, commitment, promise or
statement of any nature, whether oral or written, relating to or purporting
to relate to the relationship of the parties is hereby rendered null and
void.
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate to
take effect on its effective date.
*For: _________________________________ For: Allmerica Investments, Inc.
Name of General Agent
By:__________________________________ By:________________________________
Name:________________________________ Name:______________________________
Title:_______________________________ Title:_____________________________
Date:________________________________ Date:______________________________
For: __________________________________
Name of Broker-Dealer
By:__________________________________
Name:________________________________
Title:_______________________________
Date:________________________________
* A separate signature line is required for each General Agent affiliate of the
Broker-Dealer.
9
<PAGE>
SALES
AGREEMENT ALLMERICA INVESTMENTS, INC.
440 Lincoln Street
Worcester, Massachusetts 01653
- ------------------------------------------------------------------------------
Agreement, effective as of _________________, 19___, by and between Allmerica
Investments, Inc., a Massachusetts corporation (herein "Allmerica") and
_________________________________________________________________, a
________________________ corporation (herein "Broker-Dealer").
Allmerica, subject to the terms and conditions set forth in this Agreement,
authorizes and appoints Broker-Dealer to solicit applications for the sale of
Contracts. Broker-Dealer accepts this appointment and agrees to the terms
and conditions set forth below.
DEFINITIONS
INSURANCE COMPANIES - All Contracts will be issued by First Allmerica
Financial Life Insurance Company (herein "First Allmerica") or by Allmerica
Financial Life Insurance and Annuity Company (herein "Allmerica Financial
Life"), a subsidiary of First Allmerica. The Principal Office of First
Allmerica and Allmerica Financial Life (herein collectively referred to as
"the Insurance Companies") is located at 440 Lincoln Street, Worcester,
Massachusetts 01653.
CONTRACTS - The variable annuity and variable life insurance contracts of the
Insurance Companies listed on the attached Commission Schedule(s), for which
Allmerica Investments, Inc., an affiliate of First Allmerica, has been
appointed the exclusive distributor and principal underwriter.
REGISTERED REPRESENTATIVES - Individuals affiliated with Broker-Dealer who
are licensed as life insurance agents in those jurisdictions in which
applications for the sale of Contracts are to be solicited and who are also
duly registered with the National Association of Securities Dealers, Inc.
(herein "NASD") in compliance with the '34 Act.
'33 ACT - The Securities Act of 1933, as amended.
'34 ACT - The Securities Exchange Act of 1934, as amended.
RELATIONSHIP OF PARTIES
SECTION 1. Nothing in this Agreement will be construed to create the
relationship of employer and employee between Allmerica or either Insurance
Company and any Broker-Dealer or Registered Representative. Broker-Dealer
and each Registered Representative will be free to exercise their independent
judgment as to the time, place and manner of solicitation and servicing of
business underwritten by the Insurance Companies. However, neither
Broker-Dealer nor any Registered Representative shall have authority to act
on behalf of Allmerica or the Insurance
1
<PAGE>
Companies in a manner which does not conform to applicable statutes,
ordinances, or governmental regulations or to reasonable rules adopted from
time to time by Allmerica or the Insurance Companies.
LIMITATIONS OF AUTHORITY
SECTION 2. Neither Broker-Dealer nor any Registered Representative will have
authority to accept risks of any kind; to make, alter or discharge Contracts;
to waive forfeitures or exclusions; to alter or amend any papers received
from either Insurance Company; to deliver any life insurance Contract or any
document, agreement or endorsement changing the amount of insurance coverage
if Broker-Dealer or the soliciting Registered Representative knows or has
reason to believe that the insured is uninsurable; or to accept any payment
unless the payment meets the minimum payment requirement for the Contract
established by the Insurance Company.
LICENSING AND REGISTRATION
SECTION 3. Broker-Dealer is hereby authorized to recommend Registered
Representatives for appointment by the Insurance Companies and only
individuals so recommended by Broker-Dealer shall become Registered
Representatives hereunder. Allmerica shall arrange for the Insurance
Companies to apply for life insurance agent appointments in the appropriate
jurisdictions for such recommended Registered Representatives of
Broker-Dealer.
Notwithstanding the foregoing, the Insurance Companies and Allmerica reserve
the right to refuse to appoint any proposed Registered Representative and/or
to terminate any Registered Representative or firm who has been appointed by
the Insurance Companies.
AGREEMENTS BY BROKER-DEALER
SECTION 4. Broker-Dealer agrees that at all times when performing its duties
under this Agreement it shall be duly registered as a securities
broker-dealer under the '34 Act, be a member in good standing of the NASD,
and be duly licensed or registered as a securities broker-dealer in each
jurisdiction where such licensing or registration is required in connection
with the sale of the Contracts or the supervision of Registered
Representatives who solicit applications for the Contracts.
Broker-Dealer agrees that at all times when performing its duties under this
Agreement it shall be duly licensed to sell Contracts in each jurisdiction in
which Broker-Dealer intends to perform hereunder.
Broker-Dealer shall be responsible for carrying out its sales and
administrative obligations under this Agreement in continued compliance with
the NASD Rules of Fair Practice, federal and state securities laws and
regulations, and state insurance laws and regulations. Broker-Dealer agrees
to offer the Contracts for sale through its Registered Representatives and to
offer such Contracts only in accordance with the prospectus. Broker-Dealer
and Registered Representative(s) are not authorized to give any information
or make any representations concerning such Contracts other than
2
<PAGE>
those contained in the prospectus or in such sales literature or advertising
as may be authorized by Allmerica.
Broker-Dealer agrees that it shall take reasonable steps to ensure that no
person shall offer or sell Contracts on its behalf until such person is
appropriately licensed, registered or otherwise qualified to offer and sell
such Contracts under the state and federal securities laws and the insurance
laws of each jurisdiction in which such person intends to solicit.
Broker-Dealer agrees to train, supervise and be solely responsible for the
conduct of its Registered Representatives in the solicitation and sale of the
Contracts and for the supervision as to their strict compliance with
Allmerica's rules and procedures, the NASD rules of Fair Practice, and
applicable rules and regulations of any other governmental or other agency
that has jurisdiction over the offering for sale of the Contracts.
Broker-Dealer shall take reasonable steps to ensure that its Registered
Representatives shall not make recommendations to an applicant to purchase a
Contract in the absence of reasonable grounds to believe that the purchase of
such Contract is suitable for such applicant. Such determination will be
based upon, but will not be limited to, information furnished to a Registered
Representative after reasonable inquiry of such applicant concerning the
applicant's insurance and investment objectives, financial situation and
needs.
Broker-Dealer shall take reasonable steps to ensure that Registered
Representatives of Broker-Dealer shall conduct their business with respect to
the Contracts at all times in compliance with all applicable federal and
state laws and regulations and shall be subject to a standard of conduct
including, but not limited to, the following:
(a) A Registered Representative shall not solicit or participate in the sale
of the Contracts in any jurisdiction until such Registered Representative
is trained and licensed.
(b) A Registered Representative shall not solicit applications for the sale of
the Contracts without delivering the then currently effective prospectus
for such Contracts and any then applicable amendments or supplements
thereto, including the current prospectus(es) for any fund(s) in which
Contract separate account(s) invest.
(c) A Registered Representative shall have no authority to advertise for or
on behalf of the Insurance Companies or Allmerica without express written
authorization from Allmerica.
3
<PAGE>
AGREEMENTS BY ALLMERICA
SECTION 5. Allmerica agrees that at all times while this Agreement remains
in force that it shall be a registered Broker-Dealer under the '34 Act and be
a member in good standing of the NASD.
During the term of this Agreement, Allmerica will provide Broker-Dealer,
without charge, with as many copies of the prospectus(es) for the Contracts
(and any amendments, or supplements thereto), the current prospectus(es) for
any underlying fund(s) and applications for the Contracts as Broker-Dealer
may reasonably request. Upon termination of the Agreement, any prospectuses,
applications, and other materials and supplies furnished by Allmerica to
Broker-Dealer shall be promptly returned to Allmerica by Broker-Dealer.
Allmerica agrees to promptly notify Broker-Dealer of newly declared effective
prospectus(es) for the Contracts and any amendments or supplements thereto.
Allmerica agrees to keep Broker-Dealer informed of all jurisdictions in which
the Insurance Companies are licensed to sell the Contracts and in which the
Contracts may be offered for sale.
SUBMISSION OF APPLICATIONS; DELIVERY OF CONTRACTS; REJECTED BUSINESS
SECTION 6. Broker-Dealer will submit, or cause to be submitted, directly to
the Principal Office of the Insurance Companies all Contract applications
solicited by Registered Representatives of the Broker-Dealer. Broker-Dealer
will deliver, or cause to be delivered, within 10 days of its receipt by
Broker-Dealer all Contracts issued on applications submitted by Broker-Dealer
or its Registered Representatives and will ensure that any Contract
endorsement, amendment or other agreement is properly executed by the
Contract owner at the time of Contract delivery. Broker-Dealer will promptly
return, or cause to be returned, to the Insurance Companies any Contract
which is declined by the applicant or which cannot be delivered within the
time permitted by the Insurance Company's rules.
ILLUSTRATIONS AND PROPOSALS
SECTION 7. Neither Broker-Dealer nor any Registered Representative of
Broker-Dealer will furnish any prospective Contract owner with an
illustration of the financial or other aspects of a Contract or a proposal
for a Contract unless the same has been either furnished by the Insurance
Companies or prepared from computer software or other material furnished or
approved by the Insurance Companies. Any illustration or proposal will
conform to standards of completeness and accuracy established by the
Insurance Companies. If the proposal or illustration was not furnished by
the Insurance Companies, Broker-Dealer will retain in its records for
availability to the Insurance Companies a copy thereof or the means to
duplicate the same. Any computer software or materials furnished by either
Insurance Company will be and remain its property.
4
<PAGE>
ACCOUNTING FOR FUNDS COLLECTED
SECTION 8. In accordance with the rules of the Insurance Companies,
Broker-Dealer will account for and remit immediately to the Principal Office
of the Insurance Companies all funds received or collected by Broker-Dealer
or by Registered Representatives of Broker-Dealer for or on behalf of either
Insurance Company without deduction for any commissions, or other claim
Broker-Dealer or the Registered Representative may have against either
Insurance Company or Allmerica and will make such reports and file such
substantiating documents and records as the Insurance Companies may
reasonably require.
INDEMNIFICATION
SECTION 9. Broker-Dealer shall indemnify and hold Allmerica and the
Insurance Companies and their officers, directors and employees harmless from
any liability arising from any act or omission of Broker-Dealer or of any
affiliate of Broker-Dealer, or any officer, director, employee of
Broker-Dealer or of its Registered Representatives, including but not limited
to, any fines, penalties, attorney's fees, costs of settlement, damages or
financial loss. Broker-Dealer expressly authorizes Allmerica and the
Insurance Companies, without precluding them from exercising any other remedy
they may have, to charge against all compensation due or to become due to
Broker-Dealer under this Agreement, any monies paid on any liability incurred
by Allmerica or the Insurance Companies by reason of any such act or omission
of Broker-Dealer, or any affiliate of Broker-Dealer, or of any officer,
director, employee of Broker-Dealer or of its Registered Representatives.
Allmerica shall indemnify and hold Broker-Dealer, its affiliates and their
officers, directors and employees harmless from any liability arising from
any act or omission of Allmerica, the Insurance Companies or any affiliate of
Allmerica or any of the Insurance Companies (collectively the "Allmerica
Companies"), or any officer, director or employee of the Allmerica Companies,
including but not limited to, any fines, penalties, reasonable attorney's
fees, costs of settlement damages or financial loss.
The indemnifications provided by this Section shall survive termination of this
Agreement.
If a Contract is not delivered to the Contract owner within 10 days of its
receipt by the Broker-Dealer and if after delivery the owner returns the
Contract to the Insurance Company and receives a full refund of all payments
made, in any situation where the failure to deliver in a timely manner was due
to the inaction or negligence of the Broker-Dealer or a Registered
Representative of Broker-Dealer, the difference between the payments refunded
and the cash value of the Contract on the date the Contract is received by the
Insurance Company at its Principal Office shall be reimbursed to the Insurance
Company by the Broker-Dealer in any case where the cash value is less than the
payments refunded. Any such reimbursement shall be paid by the Broker-Dealer to
the affected Insurance Company within 30 days of Broker-Dealer's receipt of a
written request for payment.
5
<PAGE>
If Broker-Dealer utilizes delivery receipts as part of its Contract delivery
rules and procedures, the date of execution of the delivery receipt by the
Contract owner shall be deemed to be the date of Contract delivery for
purposes of this Agreement.
COMMISSION REFUNDS
SECTION 10. If a Contract owner rescinds a Contract or exercises the
Contract's Right to Examine privilege (i.e., free-look), then Broker-Dealer
will repay the appropriate Insurance Company the amount of any commissions
received on the payments returned within 10 days of Broker-Dealer's receipt
of a written request for repayment.
BASIS OF COMPENSATION
SECTION 11. While this Agreement remains in force, the Insurance Companies
agree to pay Broker-Dealer commissions in accordance with the Commission
Schedule(s) attached hereto and incorporated herein, from which amounts
Broker-Dealer agrees to pay its Registered Representatives. Commission
payments will be made to Broker-Dealer for each Contract issued pursuant to
an application solicited by duly appointed Registered Representatives of
Broker-Dealer.
TIME OF PAYMENT OF COMMISSIONS
SECTION 12. A payment will not be considered made until it has been received
by the Insurance Company at its Principal Office. On payments made,
commissions will be paid at regular intervals in accordance with the rules of
the Insurance Companies.
TERMINATION
SECTION 13. This Agreement shall automatically terminate immediately and
without notice upon Broker-Dealer's or Allmerica's ceasing to comply with any
of the terms and conditions of this Agreement or upon the dissolution,
bankruptcy or insolvency of Broker-Dealer or Allmerica.
Whether or not there is a breach of this Agreement, Broker-Dealer or
Allmerica may terminate this Agreement by giving ten (10) days' written
notice to the other party at any time during the first year hereof, and by
giving thirty (30) days' written notice after the expiration of the first
year hereof.
Upon termination of this Agreement all authorizations, rights and obligations
shall cease except the obligation to pay commissions due on payments received
prior to termination for Contracts in effect on the date of termination, or
for Contracts to be issued pursuant to applications received by the Insurance
Companies prior to termination. Except as provided in the preceding
sentence, no further commissions shall be paid after termination of this
Agreement.
RIGHT TO SET-OFF
SECTION 14. Allmerica and the Insurance Companies will have a lien on any
commissions payable under this Agreement, whether or not such payments are
now due or hereafter become due, and may apply any such monies to the
satisfaction of indebtedness to Allmerica or to either Insurance Company to
the extent permitted by law.
6
<PAGE>
NON-WAIVER OF BREACH
SECTION 15. Waiver of any breach of any provision of this Agreement will not
be construed as a waiver of the provision or of the right of Allmerica or
Broker-Dealer to enforce said provision thereafter.
ASSIGNABILITY
SECTION 16. This Agreement is not transferable. Without the written consent
of Allmerica and the Insurance Companies, no rights or interest in or to
commissions will be subject to assignment, and any attempted assignment, sale
or transfer of any commissions without such written consents will be void and
of no effect hereunder.
RESERVATION OF RIGHT TO CHANGE
SECTION 17. Allmerica reserves the right at any time, and from time to time,
to change prospectively the terms and conditions of this Agreement, including
but not limited to, the rates of commissions. Any change will become
effective on the date specified in a notice or, if later, 30 days after the
notice is given to Broker-Dealer. However, the requirement to give advance
notice shall not apply if the change becomes necessary or expedient by reason
of legislation or the requirements of any governmental body and, in the
opinion of Allmerica, it is not reasonably possible to meet the 30 day
requirement. Changes will not be retroactive and will apply only to life
insurance coverage solicited or annuity payments made on or after the
effective date of the change.
COMPLAINTS AND INVESTIGATIONS
SECTION 18. Broker-Dealer and Allmerica agree to cooperate fully in any
customer complaint, insurance or securities regulatory proceeding or judicial
proceeding with respect to Broker-Dealer, Allmerica, the Insurance Companies,
their affiliates or their Registered Representatives to the extent that such
customer complaint or proceeding is in connection with Contracts marketed
under this Agreement. To the extent required, Allmerica will arrange for the
Insurance Companies to cooperate in any such complaint or proceeding.
Without limiting the foregoing:
(a) Broker-Dealer will be notified promptly by Allmerica or the Insurance
Companies of any written customer complaint or notice of any regulatory
proceeding or judicial proceeding of which they become aware including
Broker-Dealer or any Registered Representative of Broker-Dealer which may
be related to the issuance of any Contract marketed under this Agreement.
Broker-Dealer will promptly notify Allmerica of any written customer
complaint, or notice of any regulatory proceeding or judicial proceeding
received by Broker-Dealer, with respect to Broker-Dealer or any of its
Registered Representatives in connection with any Contract marketed under
this Agreement or any activity in connection with any such Contract(s).
(b) In the case of a customer complaint specified above, Broker-Dealer,
Allmerica and the Insurance Companies will cooperate in investigating
such complaint and any proposed response to such complaint will be sent
to the other party of this Agreement for approval not less than five
business days prior to its being sent to the customer or regulatory
authority, except that if a more prompt
7
<PAGE>
response is required, the proposed response shall be communicated by
telephone or facsimile transmission.
CONFIDENTIALITY
SECTION 19. Allmerica agrees that the names and addresses of all customers
and prospective customers of Broker-Dealer and of any company or person
affiliated with Broker-Dealer, and the names and addresses of any Registered
Representatives of Broker-Dealer which may come to the attention of Allmerica
exclusively as a result of its relationship with Broker-Dealer or any
affiliated company and not from any independent source, are confidential and
shall not be used by Allmerica, the Insurance Companies, or any company or
person affiliated with Allmerica or the Insurance Companies, nor divulged to
any party for any purpose whatsoever, except as may be necessary in
connection with the administration and marketing of the Contracts sold by or
through Broker-Dealer, including responses to specified requests to the
Insurance Companies for service by Contract owners or efforts to prevent the
replacement of such Contracts or to encourage the exercise of options under
the terms of the Contracts. In no event shall the names and addresses of
such customers, prospective customers and Registered Representatives be
furnished by Allmerica to any other company or person, including but not
limited to, any of their managers, registered representatives, or brokers who
are not Registered Representatives of Broker-Dealer, any company affiliated
with Allmerica or any manager, agency, or broker of such company, or any
securities broker-dealer or any insurance agent affiliated with such
broker-dealer. The intent of this section is that Allmerica, the Insurance
Companies or companies or persons affiliated with them shall not utilize, or
permit to be utilized, their knowledge of Broker-Dealer or of any affiliated
companies which is derived exclusively as a result of the relationships
created through the sale of the Contracts.
Notwithstanding the foregoing provisions of this Section 19, nothing herein
shall prohibit Allmerica, the Insurance Companies or any company or person
affiliated with Allmerica or the Insurance Companies from (i) seeking
business relationships and entering into separate sales agreements with
Registered Representatives of Broker-Dealer if the names of said Registered
Representatives were obtained from independent sources and not exclusively as
a result of Allmerica's relationship with Broker-Dealer; (ii) from entering
into separate sales agreements with Registered Representatives of
Broker-Dealer upon the request and at the initiation of said Registered
Representatives; or (iii) divulging the names and addresses of any such
customers, prospective customers, Registered Representatives, or other
companies or persons described in the preceding paragraph in connection with
any customer complaint or insurance or securities regulatory proceeding
described in Section 18. PROVIDED, HOWEVER, that Allmerica shall not enter
into separate sales agreements with Registered Representatives of
Broker-Dealer while such Registered Representatives are affiliated with
Broker-Dealer.
8
<PAGE>
BONDING
SECTION 20. Broker-Dealer represents that it shall maintain bonding in the
form, type, and amount required under the NASD Rules of Fair Practice.
NOTICE
SECTION 21. Whenever this Agreement requires a notice to be given, the
requirement will be considered to have been met, in the case of notice to the
Insurance Companies or to Allmerica, if delivered or mailed postage prepaid
to the address specified on page 1 of this Agreement and, in the case of
notice to Broker-Dealer, if delivered or mailed postage prepaid to the
intended recipient's principal place of business.
CAPTIONS
SECTION 22. Captions are used for informational purposes only and no caption
shall be construed to affect the substance of any provision of this Agreement.
EFFECTIVENESS; ENTIRE CONTRACT; PRIOR AGREEMENTS
SECTION 23. This Agreement contains the entire contract between the parties.
Upon execution it will replace all previous agreements between Broker-Dealer
and Allmerica and the Insurance Companies, or any of them, relating to the
solicitation of Contracts. It is hereby understood and agreed that any other
agreement or representation, commitment, promise or statement of any nature,
whether oral or written, relating to or purporting to relate to the
relationship of the parties is hereby rendered null and void.
IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate to
take effect on its effective date.
*For: _________________________________ For: Allmerica Investments, Inc.
Name of Broker-Dealer
By:__________________________________ By:________________________________
Name:________________________________ Name:______________________________
Title:_______________________________ Title:_____________________________
Date:________________________________ Date:______________________________
9
<PAGE>
DELAWARE MEDALLION III FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
VARIABLE ANNUITY ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY CO.
PRINCIPAL OFFICE: 440 LINCOLN ST.; WORCESTER, MA 01653
BROKER COMMISSION SCHEDULE
(PERCENT OF PREMIUM)
INDIVIDUAL ANNUITIES
COMMISSION SCHEDULE DG - 1 (Rev. 1/98) (Applicable to Individual
Annuities Issued on or after January 1, 1998)
FLEXIBLE PREMIUM VARIABLE ANNUITY CONTRACTS
Issued by Allmerica Financial Life Insurance and Annuity Company
(First Allmerica Financial Life Insurance Company in New York and
Hawaii).
COMMISSION PERCENTAGE
1. All contracts EXCEPT contracts issued to 401(k) plans or
contracts where the owner or annuitant is beyond age 85-1/2 at date
of contract issue.
THE FOLLOWING CHOICES ARE AVAILABLE:
(a) 6.00% of each premium paid, no trail commission
(b) 5.25% of each premium paid, .25% annual trail commission
(c) 4.00% of each premium paid, .50% annual trail commission
(d) 2.00% of each premium paid, 1.00% annual trail commission.
2. CONTRACTS ISSUED TO 401(k) PLANS
All upfront commissions on 401(k) contracts are reduced by 1.00%.
3. Contracts issued where the owner or annuitant is beyond age 85-1/2 at
date of issue.
NO CHOICE AVAILABLE
2.00% of each premium paid, 1.00% annual trail commission
RULES FOR TRAIL COMMISSION PAYMENTS
A Commission Option must be selected for each eligible contract on the
back of the contract application unless the Broker has pre-selected a
particular option for all contracts. If no commission selection is
made, the commission will be payable under the default commission
option pre-selected by the Broker. If the Broker has not pre-selected
a default option and no commission selection is made, the commission
will be payable under option (a) above.
Trail commissions will be paid quarterly in January, April, July and
October. The first trail commission for a contract will be paid on
the first quarterly payment date following the first anniversary of
the date of issue (e.g., if a contract is issued on July 5, 1997, the
first trail commission will be payable in October, 1998). Trail
commissions will continue to be paid while the Sales Agreement remains
in force and will be paid on a particular contract until the contract
is surrendered or annuity benefits begin to be paid under an annuity
option. Quarterly trail commissions will be a percentage of the
unloanded account value of each eligible contract. For purposes of
trail commission calculations, "unloaned account value" means the cash
value of the contract on the last day of the calendar quarter
immediately preceding the payment date less the principal of any
contract loan and accrued interest thereon. The quarterly trail
commission percentage will be 25% of the applicable annual rate (e.g.,
.0625% if the annual rate is .25%, .125% if the annual rate is .50%).
If a First Allmerica or Allmerica Financial Life annuity contract is
exchanged for another First Allmerica or Allmerica Financial Life
annuity contract, the commission rate, including any applicable trail
commission rate, will be applicable to the exchanged contract. No
commissions other than continuing trail commissions are payable on the
rollover amount allocated to the new contract. Trails will be paid as
described above based on the issue date of the new contract.
NOTE: NO TRAIL COMMISSIONS WILL BE PAYABLE AFTER THE DATE THE SALES
AGREEMENT IS TERMINATED FOR ANY REASON.
<PAGE>
ALLMERICA ALLMERICA 440 Lincoln Street GENERAL AGENT'S
FINANCIAL INVESTMENTS, INC. Worcester, MA 01653 AGREEMENT
- --------------------------------------------------------------------------------
Allmerica Investments, Inc. ("Company") hereby appoints
__________________________________________________
("General Agent") as local supervisor for the purpose of training and
supervising all associated persons and registered representatives of Company
assigned to _________________________________________________________
("Agency") engaged in the solicitation, sale or service of variable life
insurance and variable annuity contracts offered by Allmerica Financial Life
Insurance and Annuity Company and/or First Allmerica Financial Life Insurance
Company, mutual funds, limited partnerships and general securities (collectively
"Investment Products and Services") offered and/or distributed by Company. This
appointment is effective as of the date accepted by General Agent and
acknowledged by Company.
1. SUPERVISION: General Agent agrees to supervise all registered
representatives assigned to Agency, both those operating from Agency and
those operating from detached locations, consistent with the standards of
conduct outlined in Company's Business Conduct Guide, Company's Statement
of Compliance for the Office of Supervisory Jurisdiction and Branch
Offices, the Program for Allmerica Financial Life/Allmerica Investments
Office Examinations, and the procedures and requirements outlined in other
Company manuals, memoranda and other publications, as may be amended from
time to time.
General Agent agrees to be responsible for Investment Products and Services
activity conducted through Agency by monitoring Investment Products and
Services activity in order to ensure that the business is processed in
accordance with regulatory and Company standards and to notify Company of
any irregularities and/or deficiencies.
General Agent agrees to be responsible for the maintenance and periodic
review of the books and records of Agency, as required by Company.
On at least an annual basis, General Agent agrees to conduct and/or
participate, in coordination with Company's compliance personnel, an agency
compliance meeting which all registered representatives assigned to Agency
shall attend. If for any reason a registered representative does not
attend agency compliance meeting, General Agent will schedule a personal
interview, on at least an annual basis, for the purpose of reviewing
activity of registered representative with respect to Investment Products
and Services and to discuss the compliance topics reviewed at agency
compliance meeting.
General Agent agrees to acquire and/or comply with all of the applicable
laws, rules and regulations (General Securities Principal Registration) of
the Securities and Exchange Commission (SEC), National Association of
Securities Dealers, Inc. (NASD) and all other federal and state laws and
regulations.
General Agent agrees to maintain all NASD registrations required to
supervise the solicitation and sale of Investment Products and Services
offered through Agency. General Agent will maintain all state securities
licenses and state insurance licenses as may be required to offer and
solicit Investment Products and Services.
2. LIMITATIONS OF AUTHORITY: General Agent has no authority to accept any
risk on Company's behalf, to issue, make, alter or discharge any contract,
to extend the time of payments, to waive or extend any contract obligation
or condition, or to alter or amend any communication sent by Company
without express authority in writing from an officer of Company.
3. ASSIGNABILITY: No assignment, sale or transfer of this Agreement or any
of the rights, claims or interests under it may be made by General Agent
without the prior written consent of Company. An assignment, sale or
transfer by General Agent without written consent of Company will
immediately make this Agreement void and shall be a release in full to
Company of any and all of its obligations under this Agreement.
4. AGENCY STAFFING: General Agent agrees to recruit, train and supervise
registered representatives to solicit Investment Products and Services
offered through Company. General Agent agrees to develop a sales force of
sufficient size and quality to adequately penetrate the market with
Investment Products and Services of Company.
<PAGE>
5. BUSINESS AUTHORIZED: General Agent agrees to act for Company in the
solicitation of orders only for those Investment Products and Services for
which Company has executed sales agreements. General Agent shall monitor
his/her registered representatives on a continuing basis to prevent the
offering or the selling of Investment Products and Services not offered by
Company and to prevent registered representatives of Company from
exercising discretionary authority on behalf of any of their clients.
6. SUBMISSION OF APPLICATIONS/ACCOUNTING FOR FUNDS COLLECTED: General Agent
agrees to establish and maintain at Agency procedures, as outlined in
Company manuals, concerning the collection, recording and transmittal of
all applications and/or payments collected on behalf of Company, any
issuer, or any sponsor.
General Agent agrees to be responsible to Company for monies collected by
registered representatives and for any securities, certificates, payments,
receipts and other Company papers in the possession of registered
representatives and employees of Agency.
Purchase checks for Investment Products and Services are to be client
personal checks, cashier's checks or money orders made payable to either
the Company, appropriate issuer, sponsor or other designated agent.
Purchase checks may not be made payable to registered representative,
General Agent or any personal or Agency Accounts.
7. REVIEW OF INVESTMENT PRODUCT BUSINESS: General Agent agrees, in accordance
with Company procedures, to conduct periodic reviews of Investment Product
and Services business of each registered representative. Such review of
Investment Product and Services business shall include, but not be limited
to, reviews for adequate NASD registrations and state securities and/or
insurance licensing of registered representative, prompt transmittal of
applications, checks and other pertinent items to Agency and subsequently
to Home Office, the correct use of applications and proper mode of payment
and the suitability of Investment Products and Service based on client's
financial profile and objectives.
8. BOOKS AND RECORDS: General Agent agrees to maintain a regular and
accurate record of all Investment Products and Services transactions of
Agency, including any journal, account books, records, papers, customer
account files or any other material, as required by Company. General Agent
agrees, at such times that Company may request, to make detailed report to
Company, on forms furnished for that purpose, showing an accurate
accounting of all monies and other items received for, or on behalf of
Company.
General Agent agrees that all records, files and papers are, and remain,
property of Company and will at all times be freely exhibited for the
purpose of examinations and inspection by duly authorized personnel of
Company.
Upon termination, all records revert to Company and should be turned over
to a Company representative.
9. DISTRIBUTION AND USE OF ADVERTISING MATERIAL, CORRESPONDENCE: General
Agent agrees not to directly or indirectly recommend or distribute any
advertising and/or sales literature to registered representatives
(including but not limited to prospectuses, illustrations, circulars, form
letters or postal cards, business cards, stationary, booklets, schedules,
broadcasting and other sales material of any kind) concerning Company
and/or the offering of Investment Products and Services until the material
has been approved in writing by a registered principal in the Company's
Compliance Department.
General Agent also agrees to obtain from his/her registered
representatives, at the time of development, copies of all correspondence
pertaining to the solicitations and/or sale of any Investment Products and
Services or to any other aspect of their Investment Products and Services
business, and to forward the correspondence to Home Office to allow for the
review and endorsement of correspondence in writing, on an official record
of Company, by a registered principal in the Company's Compliance
Department. General Agent shall periodically inspect Registered
Representatives' materials, sales literature and correspondence to ensure
compliance with Company requirements.
10. COMPENSATION: General Agent, subject to the provisions of this Agreement,
will be allowed expense reimbursement or allowances and overriding
commissions on payments collected on all Investment Product sales solicited
by Registered Representatives assigned to General Agent and effected
through Agency at rates established and published by Company, as may be
amended from time to time.
<PAGE>
11. COMMISSIONS: Company will pay commissions to General Agent, after
concession payments are made to Company by an issuer or sponsor, in
connection with sales of Investment Products and Services effected through
General Agent's personal solicitation. Such commissions will be paid on
the same basis and terms as specified in Company's Registered
Representative Agreement, which is incorporated herein by reference and as
may be amended from time to time.
12. TERMINATION WITHOUT CAUSE: General Agent and Company may terminate this
Agreement at any time without cause.
13. RELATIONSHIP OF PARTIES: Nothing contained in this Agreement is to be
construed to create the relationship of employer and employee between
Company and General Agent. General Agent, however, is to always comply
with all of the applicable laws, rules and regulations of the SEC, NASD,
federal and state authorities as well as Company's rules, regulations and
procedures concerning methods of conducting Investment Products and
Services business, as may be amended from time to time.
14. EFFECTIVENESS OF CONTRACT: This Agreement between General Agent and
Company is not binding until Agreement has been duly executed by both
parties. This Agreement supersedes all previous agreements, whether oral
or written. This Agreement shall not cancel or affect any right, claim or
interest General Agent may have concerning commissions now due or hereafter
to become due under preceding agreements between General Agent and Company.
Neither shall Agreement cancel, terminate or affect in any way any lien,
right or interest which Company may have, or may hereafter acquire, with
respect to commissions or equities to General Agent under any other
agreement with Company, any provision of any such agreement which, by its
terms or by implications, continues beyond termination of such agreement.
IN WITNESS THEREOF, this Agreement has been executed by the undersigned on the
dates indicated below.
Allmerica Investments, Inc.
By: By:
---------------------------------- ----------------------------------
General Agent Signature Home Office Principal
Date: Date:
-------------------------------- --------------------------------
<PAGE>
ALLMERICA FINANCIAL LIFE 440 Lincoln Street
INSURANCE AND ANNUITY COMPANY Worcester, MA 01653 CAREER AGENT AGREEMENT
- --------------------------------------------------------------------------------
Allmerica Financial Life Insurance and Annuity Company (the "Company") does
hereby appoint_____________________________ of _________________________________
("Career Agent") its Agent to solicit applications for insurance and annuities
and to submit such applications through the office of
__________________________________________ ("General Agent"), this appointment
to be effective on _____________________________.
Career Agent accepts this appointment, subject to the terms and provisions set
forth in this Agreement.
WITNESSETH:
Career Agent will solicit applications for coverages offered by the Company and
for which he/she is duly licensed. Career Agent is authorized to collect and
pay over to General Agent premiums on coverages solicited by him/her. Career
Agent shall not delegate any authority granted under this Agreement and shall
not appoint any solicitors or subagents to act on his/her behalf.
TERRITORY AND CLASSES OF BUSINESS
Territory SECTION 1. The district within which Career Agent may
solicit insurance and annuity applications for the Company
is the district assigned to General Agent.
Permissible SECTION 2. Career Agent agrees that in the sale and service
Activity of insurance and annuities he/she will act only on behalf of
the Company and such of its affiliates as he/she is
authorized to represent; and he/she will not engage in any
other activity for remuneration or profit which requires
his/her personal services without first obtaining the
consent of the Company. If the Company makes arrangements
with another business entity to make any of its products
available to Career Agents, this will constitute consent to
Career Agent to enter into an arrangement with such entity
to sell and service such products on its behalf. If, with
the consent of the Company, Career Agent engages in any
personal service activities for remuneration or profit,
he/she will, upon request of the Company, disclose the
amount of time expended and the amount of income derived
from such other activities.
STATUS, DUTIES AND AUTHORITY
Relationship SECTION 3. Nothing in this Agreement will be construed to
of Parties create the relationship of employer and employee between the
Company and Career Agent. Within the scope of his/her
authority, Career Agent will be free to exercise his/her
independent judgment as to the time, place and manner of
solicitation and servicing of business underwritten by the
Company. However, he/she will have no authority to act in a
manner which does not conform to applicable statutes,
ordinances or governmental regulations pertaining to the
conduct of the business or to reasonable rules adopted, from
time to time, by the Company.
-1-
<PAGE>
Limitations SECTION 4. Career Agent will have no authority to accept
on Authority risks of any kind; to make, alter or discharge contracts of
insurance or annuities; to waive forfeitures or exclusions;
to fix any premium for hazardous or substandard risks; to
alter or amend any papers received by him/her from the
Company; to deliver any policy of insurance or any document,
agreement or endorsement changing the amount of insurance
coverage if Career Agent knows or has reason to believe that
the insured is uninsurable; to collect any premium after the
expiration of the policy grace period except in connection
with a policy reinstatement; to accept payment of any
premium unless the premium meets the minimum premium
requirement for the policy established by the Company; or to
contract any debt rendering or purporting to render the
Company liable therefor, without express authority in
writing from an authorized officer of the Company.
Implied SECTION 5. Career Agent will have no power or authority
Authority other than as expressly provided in this Agreement and no
other power or authority shall be implied from the grant or
denial of power specifically mentioned in this Agreement.
Duty of SECTION 6. Career Agent agrees that he/she will not
Compliance; intentionally violate any applicable state or Federal law,
Negative ruling or regulation pertaining to the insurance business or
Obligations any rule or regulation of the Company. Career Agent will
not knowingly engage in any activity which is detrimental to
the best interests of the Company or any of its affiliates.
Neither while this Career Agent Agreement is in force nor
for a period of two years following the termination of this
Agreement will Career Agent directly or indirectly interfere
with the relationship of the Company or any of its
affiliates with any agent or broker.
Policy While this Agreement remains in force, Career Agent agrees
Termination that he/she will not, directly or indirectly, replace or
and Replacement induce or attempt to induce any policyholder to terminate or
replace any policy issued by the Company or any of its
affiliates except when permitted by the rules of the issuing
insurer. For a period of two years following termination of
this Agreement, Career Agent agrees that he/she will not,
directly or indirectly, replace or induce or attempt to
induce any policyholder serviced through the office of the
General Agent to terminate or replace any policy issued by
the Company or any of its affiliates.
SOLICITATION OF INSURANCE AND ANNUITIES
Submission of SECTION 7. Career Agent will submit through General Agent
Applications; all Company policy applications solicited by him/her,
Delivery of whether or not it appears the proposed insured is an
Policies; acceptable risk under the rules of the Company. Career
Rejected Agent will deliver, or cause to be delivered, in accordance
Business with the rules of the Company all policies issued on
applications submitted by him/her and will return to General
Agent any policy which is declined by the applicant or which
cannot be delivered within the time permitted by the
Company's rules. If an application is declined by the
Company or is accepted at a rate higher than standard which
is not acceptable to the applicant, with the Company's
permission Career Agent may place the coverage with another
insurance company.
-2-
<PAGE>
Limitation on SECTION 8. Career Agent will not solicit any insurance or
Solicitation annuities in any jurisdiction in which he/she is not
licensed nor will he/she solicit by mail or otherwise any
insurance or annuities outside the district assigned to
General Agent without first receiving consent of the Company
and ascertaining that he/she is properly licensed to solicit
such insurance or annuities.
Advertising SECTION 9. The Company, through General Agent, will make
Material, Rate available to Career Agent a supply of canvassing and
Books, Forms, advertising materials, stationery, books, records and forms
etc. necessary or suitable to properly solicit insurance and
annuities. Career Agent will not print, publish or
distribute any advertisement, circular, statement or
document relating to the business of the Company or any of
its affiliates or use any title or language descriptive of
his/her status without the prior approval of the Company.
Policyowner Solely to assist Career Agent in rendering service to
Service Aids policyowners, Career Agent may use whatever aids, such as
data cards, computer printouts, etc. as may be available.
All such aids, whether furnished by the Company or otherwise
- including any copies thereof - shall be the property of
the Company.
Illustrations Career Agent will not furnish any prospective insured or
and Proposals policyowner an illustration of the financial or other
aspects of a policy or a proposal for a policy of the
Company unless the same has been either furnished by the
Company or prepared from computer software or other material
furnished or approved by the Company. Any illustration or
proposal delivered by Career Agent will conform to standards
of completeness and accuracy established by the Company. If
the proposal or illustration was not furnished by the
Company, Career Agent will retain in his/her records for
availability to the Company a copy thereof or the means to
duplicate the same. Any computer software or materials
furnished by the Company will be and remain its property.
Return of Upon termination of this Agreement, Career Agent will return
Materials, etc. to the Company all manuals, computer software, policyholder
data cards, policyholder files, stationery and business
cards and other material which, by the terms of this Section
or otherwise, is the property of the Company.
Accounting for SECTION 10. In accordance with the rules of the Company,
Funds Collected Career Agent will account for and remit immediately through
General Agent all funds received or collected by him/her for
or on behalf of the Company without deduction for any
commissions, fees, or other claim he/she may have against
the Company and will make such reports and file such
substantiating documents and records as the Company or
General Agent may require.
Liability for SECTION 11. If the Company pays Career Agent commissions or
Refund of fees in advance of receipt of the premium on which the
Commissions payment is based, the amount by which the payment to Career
and Fees Agent exceeds, at any time, the amount attributable to the
premiums paid will constitute a personal debt of Career
Agent payable on demand. If the Company returns premiums on
a policy for any reason whatsoever (other than as a part of
claim settlement) or rescinds or cancels a policy for any
reason whatsoever or if a policyholder exercises a right to
surrender
-3-
<PAGE>
the policy for return of all premiums paid, Career Agent
will pay on demand the amount of any commissions received on
the premiums returned.
Notwithstanding the foregoing, after this Agreement has been
in force for 10 complete years and prior to the date the
Agreement is terminated for cause, unearned commissions paid
in advance on policies the premiums for which are being paid
under the Company's Monthly Automatic Premium (MAP) Plan or
other annualized commission arrangement that are repayable
because of a lapse or surrender of the policy may only be
recovered by set-off from first year and renewal commissions
and fees otherwise payable by the Company or its affiliates
to Career Agents.
COMPENSATION
Basis of SECTION 12. Career Agent's compensation will be a
Compensation combination of commissions and fees payable on premiums for
individual and group life, health and annuity policies
placed with the Company. The amount of commissions and fees
payable for individual insurance and annuity policies will
be determined by the further provisions of this Agreement
and the published rules of the Company. The amount of
commissions and fees payable on group life and health
insurance and group annuity policies solicited by Career
Agent will be specified in separate agreements related
solely to that class of business.
Commissions payable on premiums on a policy resulting from
conversion, exchange, replacement or the exercise of an
option to purchase additional insurance will be determined
by Company rules in effect at the time of the conversion,
exchange, replacement or exercise of the option.
Published Rules The Company may, by published rule, limit the amount of
Affecting premium on which commissions or fees are payable and limit,
Compensation defer, or exclude commissions or fees because of the nature
of the transaction, discretionary nature of the premium or
other circumstances.
Payor All compensation due Career Agent under this Agreement will
be paid by First Allmerica Financial Life Insurance Company
(First Allmerica), an affiliate of the Company, as the
common paymaster.
Time of Payment SECTION 13. A premium will not be considered paid until it
of Commissions has been received by the Company at its Principal Office.
On premiums paid or allocated prior to the 15th day of the
month, commissions and fees will be paid on the last
business day of the month. On premiums paid or allocated
subsequent to the 15th day of the month, commissions and
fees will be paid on the 15th day of the following month, or
on the last business day preceding such pay date, if such
pay date is not a business day.
-4-
<PAGE>
TERMINATION AND ITS EFFECT ON COMMISSIONS AND FEES
Termination SECTION 14. This Agreement may be terminated for cause and
for Cause without notice if Career Agent:
(a) misappropriates any funds belonging to or received on
behalf of the Company or any of its affiliates; or
(b) withholds any funds or other property belonging to the
Company or any of its affiliates after the same should
have been reported and transmitted to the Company or
its affiliate or after a demand has been made for the
same; or
(c) commits any willful or dishonest act which injures the
Company or any of its affiliates; or
(d) commits any intentional act which violates any
applicable Fair Trade Practices Act and thereby injures
the Company or any of its affiliates; or
(e) intentionally performs any act prohibited by law or
intentionally omits any act required by law with the
result that the Company or any of its affiliates is
subject to disciplinary action; or
(f) willfully violates any of the provisions of this
Agreement.
Forfeiture of SECTION 15. No commissions or fees will be paid following
Commissions termination of this Agreement, if it is terminated for
and Fees cause, nor will commissions or fees continue to be paid
after termination of this Agreement if Career Agent breaches
any of its terms or conditions by the commission of an act
prohibited by its terms.
Termination SECTION 16. Notwithstanding the foregoing, and whether or
Without Cause not there is a breach of this Agreement, either party may
terminate this Agreement during its first year by giving 10
days' notice in writing to the other party of the intention
to do so and thereafter by giving 30 days' notice in writing
to the other party of the intention to do so.
Effect of Certain SECTION 17. If this Agreement terminates without breach of
Terminations any of its provisions by Career Agent:
(a) by reason of the death of Career Agent; or
(b) by reason of the permanent Total Disability of Career
Agent; or
(c) by reason of retirement of Career Agent under the
Career Agents' Retirement Plan established and
maintained by the Company; or
(d) by reason of employment of Career Agent by the Company
or any of its affiliates in some capacity other than as
a Career Agent;
-5-
<PAGE>
commissions will continue to be paid to Career Agent only as
provided in the Exhibits attached hereto.
After termination of this Agreement by reason of the
permanent Total Disability of Career Agent, if Career Agent
recovers from said disability, this Agreement may be
reinstated. If Career Agent recovers from disability and
this Agreement is not reinstated, commissions will be
payable on premiums paid thereafter only if they would have
been payable if Section 18 had applied on termination.
Effect of Other SECTION 18. If this Agreement terminates without breach of
Terminations any of its provisions by Career Agent for any reason other
Without Cause than asset forth in Section 17, commissions will continue to
be paid to Career Agent only as provided in the Exhibits
attached hereto.
GENERAL PROVISIONS
Right of SECTION 19. The Company, for its own benefit, for the
Set-Off benefit of its affiliates and for the benefit of the General
Agent, will have a lien on any commissions and fees payable
under this Agreement, whether or not the commissions are now
due or hereafter become due, and may apply any such monies
to the satisfaction of indebtedness to any of said persons
to the extent permitted by law.
Non-waiver SECTION 20. Waiver of any breach of any provision of this
of Breach Agreement will not be construed as a waiver of the provision
or of the right of the Company to enforce said provision
thereafter.
Assignability SECTION 21. This Agreement is not transferable. Without
the consent of the Company, no rights or interest in or to
commissions or fees will be subject to assignment, other
than a collateral assignment of commissions and fees, and
any attempted absolute assignment, sale or transfer of this
Agreement or of any commissions or fees without the written
consent of the Company will immediately make this Agreement
void and be a release to the Company in full of any and all
of its obligations hereunder.
Errors and SECTION 22. Career Agent agrees to maintain errors and
Omissions omissions insurance coverage meeting the Company's minimum
Coverage coverage requirements and to furnish the Company proof of
such coverage upon request. If any lawsuit is brought
against the Company as a result of any alleged action, error
or omission of Career Agent and if (1) Career Agent has
maintained errors and omissions coverage which complies with
the Company's minimum requirements, and (2) the alleged
action, error or omission of Career Agent was not committed
intentionally or with dishonest, fraudulent or criminal
intent, Career Agent agrees to reimburse the Company and its
affiliates for all costs of the lawsuit, including
attorney's fees, and all damages resulting therefrom up to
the Company's Career Agent liability limit. The minimum
coverage requirements and Career Agent liability limit will
be set forth in a bulletin or announcement published by the
Company and are subject to change at any time. Distribution
of the bulletin or announcement in the usual manner will
constitute notice to Career Agent. If any lawsuit is
brought against the Company as a result of any alleged
Career Agent action, error or omission and if Career Agent
(1) did not maintain at least the
-6-
<PAGE>
required minimum errors and omissions coverage, or (2) did
maintain such coverage but Career Agent's action, error or
omission was committed intentionally or with dishonest,
fraudulent or criminal intent, Career Agent agrees to
reimburse the Company and its affiliates for all costs of
the lawsuit, including attorney's fees, and all damages
resulting therefrom unless the court determines the suit to
be groundless and without merit.
Reservation of SECTION 23. The Company reserves the right at any time to
Right to Change change the terms and conditions of this Agreement,
including but not limited to, the rates of commissions and
fees, or to discontinue the payment of any commissions and
fees described in the Exhibits attached hereto.
Effective Date SECTION 24. Any change will become effective on the date
of Change specified in a notice or, if later, 30 days after the notice
is given to Career Agent. However, the requirement to give
advance notice shall not apply if the change becomes
necessary or expedient by reason of legislation or the
requirements of any governmental body and, in the opinion of
the Company, it is not reasonably possible to meet the 30
day requirement. Changes will not be retroactive and will
apply only to units of coverage solicited on or after the
effective date of the change. Notice of any change may be
given by a Company bulletin or announcement and distribution
of the bulletin or announcement in the usual manner will
constitute notice to Career Agent.
Arbitration SECTION 25. By his/her execution of this Agreement, Career
Agent agrees to settle any dispute, claim or controversy
arising between Career Agent and the Company by arbitration
pursuant to the then current rules of the American
Arbitration Association. Judgment upon any award rendered
in the arbitration may be entered in any court of competent
jurisdiction.
All applicable disputes shall be referred to three
arbitrators, one to be chosen by each party, and the third
by the two so chosen. If either party refuses or neglects
to appoint an arbitrator within thirty days after the
receipt of written notice from the other party requesting it
to do so, the requesting party may nominate two arbitrators
who shall choose the third. In the event the two
arbitrators do not agree on the selection of the third
arbitrator within thirty days after both arbitrators have
been named, then the third arbitrator shall be selected
pursuant to the then current rules of the American
Arbitration Association. The decision of the majority of
the arbitrators shall be final and binding upon all parties.
The expenses of the arbitrators and of the arbitration shall
be equally divided between all parties. Arbitration is the
sole remedy for disputes arising under this Career Agent
Agreement.
General Agent SECTION 26. General Agent means the General Agent
identified on the face page or any other General Agent in
charge from time to time of a general agency office to which
Career Agent is assigned.
Definitions SECTION 27. As used in this Agreement, including the
Exhibits attached hereto:
"Replacement" means a transaction in which a new life or
disability insurance policy or a new annuity contract is to
be purchased, and by reason of the transaction, all or a
portion of
-7-
<PAGE>
any existing life or disability insurance policy or any
existing annuity contract has been or is to be lapsed,
forfeited, reduced in face amount, surrendered, assigned to
the replacing insurer, placed on a reduced paid-up basis or
under another nonforfeiture provision or terminated, or
subjected to borrowing or withdrawals, whether in a single
sum or under a schedule of borrowing or withdrawals over a
period of time.
"Total Disability" means the inability of the Career Agent,
because of injury or sickness, to perform the duties of any
occupation for which he/she is reasonably fitted by
training, education or experience. During the first 24
months of total disability, Career Agent will be considered
to have met the foregoing requirement if he/she is unable to
perform the duties of his/her regular occupation and is not
performing the duties of any other occupation. Total
disability will be considered permanent after it has existed
6 months and thereafter while it continues.
"Flexible premium policy" means an individual insurance or
annuity policy under which the policyowner may unilaterally
vary the amount and timing of premium payments.
"Unit of Coverage" means all benefits of a policy which have
the same date of issue, except as modified by Company
published rules. Usually all the benefits specified in the
policy Schedule of Benefits and in each Supplementary
Schedule of Benefits constitute a unit of coverage.
"Policy Year," as to each unit of coverage, means a period
of 1 year commencing on its date of issue and each
anniversary thereof.
"Monthaversary," as to each unit of coverage, means its date
of issue and the corresponding day of each month thereafter.
"Basic premium," for each unit of coverage, means the sum of
the basic or target premiums for each benefit in the unit,
as determined from the Company's Rate Manual.
"Excess premium" means premium paid in any policy year in
excess of basic or target premium.
"Agreement" means this entire agreement, including all
Exhibits and commission and fee schedules attached thereto.
Other Exhibits issued hereafter will become a part of this
Agreement on their effective date.
Notice SECTION 28. Whenever this Agreement requires a notice to be
given, the requirement will be considered to have been met,
in the case of notice to the Company, if delivered or mailed
postage prepaid to General Agent at the agency office or to
a Vice President in the Company's Allmerica Financial
Services Operation and, in the case of notice to Career
Agent, if left at the usual place for him/her to pick up
mail within the agency office, or by mailing postage
prepaid, to Career Agent's last home address known to the
Company or to such other address as may be designated by
Career Agent.
-8-
<PAGE>
Captions SECTION 29. Captions are used for informational purposes
only and no caption shall be construed to affect the
substance of any provision of this Agreement.
Effectiveness; SECTION 30. This Agreement contains the entire contract
Entire Contract; between the parties. Upon execution it will replace all
Prior Agreements previous agreements between Career Agent and the Company
relating to the solicitation of insurance and annuity
policies except as the previous agreement relates to the
payment of commissions and fees on policies solicited prior
to the effective date of this Agreement. For purposes of
determining vestings on termination, the date of the
earliest prior Career Agent Agreement executed by Career
Agent during his current period of continuous service with
the Company and First Allmerica will be considered the date
of this Agreement. It is hereby understood and agreed that
any other agreement or representation, commitment, promise
or statement of any nature, whether oral or written,
relating to or purporting to relate to the relationship of
the parties is hereby rendered null and void.
IT IS UNDERSTOOD THAT THIS IS AN "AT WILL" RELATIONSHIP WHICH MAY BE TERMINATED
BY EITHER PARTY WITHOUT CAUSE OR REASON AS PROVIDED FOR IN SECTION 16.
IN WITNESS WHEREOF, the parties have executed this Agreement in triplicate to
take effect on its effective date.
Allmerica Financial Life Insurance and Annuity Company
By:
--------------------------------------------------
Vice President
--------------------------------------------------
Career Agent
Approved:
--------------------------------------------------
General Agent
-9-
<PAGE>
COMMISSION SCHEDULE FOR VARIABLE ANNUITY POLICIES:
Writing Agent 5% of all initial and subsequent payment amounts
General Agent 2.0% of all initial and subsequent payment amounts
Middle Management Overrides will be paid to fully-licensed and NASD
registered Middle Management in an amount of 10% of
commissions earned on policies written by career
agents in their first two contract years or trainee
agents in their first five contract years.
<PAGE>
Registered
[LOGO] ALLMERICA Allmerica 440 Lincoln Street Representative's
FINANCIAL(R) Investments, Inc. Worcester, MA 01653 Agreement
- --------------------------------------------------------------------------------
Allmerica Investments, Inc. ("Company") hereby appoints ________________________
("Registered Representative") for the purpose of selling and servicing variable
contracts offered by Allmerica Financial Life Insurance and Annuity Company,
mutual funds, limited partnerships and other investment products and services
(collectively "Investment Products and Services") offered and distributed by
Company. Registered Representative will submit Investment Products and Services
business through the office of _________________________________________________
("General Agent") or successor at ______________________________________________
("Agency") or successor. This appointment is effective as of the date accepted
by Registered Representative and acknowledged by General Agent.
1. DUTY OF COMPLIANCE/SUPERVISION: Registered Representative is assigned to
the above named Agency and General Agent for the purposes of training,
supervision and recordkeeping. Registered Representative agrees to comply
with all of the applicable laws, rules and regulations of the Securities
and Exchange Commission (SEC), National Association of Securities Dealers,
Inc. (NASD) and all other applicable federal and state insurance and
securities laws and regulations.
Registered Representative agrees to comply with all procedures and
requirements outlined in Company manuals, memoranda and other publications
as may be amended from time-to-time.
Registered Representative agrees to abide by Company's Compliance Program
including his/her mandatory attendance, on at least an annual basis, at
Agency's Compliance Meeting(s) and/or Interview(s). Failure to attend
Compliance Meeting and/or Interview is grounds for immediate termination
for cause.
2. LIMITATIONS OF AUTHORITY: Registered Representative may not delegate any
authority granted under this Agreement and shall not appoint any
solicitors or subagents to act on his/her behalf. Registered
Representative may not sign and/or submit any customer applications or
orders on behalf of any individual who is not fully qualified as a
Registered Representative of Company.
Registered Representative will only offer for sale those Investment
Products and Services for which he/she is properly NASD registered,
securities-licensed through Company and, if required by state law, state
insurance-licensed through Allmerica Financial Life Insurance and Annuity
Company, and for which Company has fully executed sales agreements with
the sponsor or issuer. To participate in the sale of Investment Products
and Services for which no agreement has been executed is to "sell-away"
from Company and is grounds for immediate termination of this Agreement
upon written notice to Registered Representative.
Registered Representative will maintain his/her NASD registration solely
through Company and will provide full disclosure to Company of his/her
background. Registered Representative agrees to notify Company immediately
of any matter requiring disclosure on the NASD Form U-4, Uniform
Application for Securities Industry Registration, including but not
limited to any income generating business activity, other than personal,
passive investment, which is outside the scope of Registered
Representative's Agreement with Company.
Customer accounts or applications may only be accepted on behalf of
Company based on approval by a Home Office principal. Registered
Representative has no authority to accept any risk on Company's behalf, to
incur any indebtedness or liability on behalf of Company and understands
and agrees to Company's prohibition against assuming discretionary
authority over client investments.
3. ASSIGNABILITY: No assignment, sale or transfer of this Agreement or any of
the rights, claims or interests under it may be made by Registered
Representative without the prior written consent of Company. Such
assignment, sale or transfer by Registered Representative without written
consent of Company will immediately make this Agreement void, and will be
a release in full to Company of any and all of its obligations hereunder.
4. SUBMISSION OF APPLICATIONS/ACCOUNTING FOR FUNDS COLLECTED: All
applications and/or payments collected by Registered Representative on
behalf of Company or any issuer or sponsor are to be delivered immediately
to Registered Representative's Agency no later than noon of the business
day following receipt by Registered Representative.
Investment Product and Services purchase checks are to be client personal
checks, cashier's checks or money orders made payable to either the
Company, appropriate issuer, sponsor or other designated agent. Such
checks may not be made payable to Registered Representative, General Agent
or any personal or Agency account.
5. SUITABILITY/RESPONSIBILITY TO EXPLAIN INVESTMENT PRODUCTS: Registered
Representative agrees to make Investment Product and Services
recommendations to clients only after obtaining sufficient information
regarding a client's financial background, goals and objectives so as to
make a reasonable determination that the proposed Investment Product
and/or Service is suitable based on such background, goals and
objectives. Registered Representative agrees to fully explain the risks,
terms and conditions of the purchase of an Investment Product or Service
and that he/she will not make untrue statements, interpretations,
misrepresentations nor omit or evade material facts concerning such
Investment Product or Service.
6. DISTRIBUTION AND USE OF ADVERTISING MATERIAL, CORRESPONDENCE: Registered
Representative agrees not to directly or indirectly use or distribute
any advertising or sales literature material (including but not limited
to prospectuses, illustrations, circulars, form letters or postal cards,
business cards, stationery, booklets, schedules, broadcasting and other
sales material of any kind) concerning Company and/or the offering of
Investment Products and Services of any kind until the material has been
approved by Company in writing.
Registered Representative also agrees to provide to General Agent copies
of all correspondence pertaining to the solicitation of execution of any
Investment Products and Services transaction, and to any other aspect of
his/her Investment Products and Services business in order to allow for
the review and endorsement of the correspondence in writing, on an
official internal record of Company by a registered principal located at
Home Office.
SMAE-050NS (11/95)
<PAGE>
7. RECORDKEEPING: Registered Representative agrees, in accordance with
Company guidelines and requirements, to cooperate in the maintenance of
complete customer account files and other records at the assigned Agency
which pertain to the conduct of Investment Products and Services business
through Company. Customer account files of Registered Representative are
to be considered the property of Company and are not to be taken from the
immediate Agency premises for any purpose.
8. COMMISSIONS: Commissions for the sale of Investment Products and Services
offered or effected by Registered Representative will be paid after
compensation for those sales is paid to Company. Commissions for
Investment Products and Services will be paid at the rates established and
published by Company.
Commissions may be changed by Company at any time without advance notice.
However, this policy shall not be applied retroactively to divest any
Registered Representative of specific commission amounts already due
him/her.
Registered Representative agrees not to share commissions with
non-qualified representatives or with clients.
Under certain circumstances, i.e., termination of agents subject to
variable contract commission vesting, retirement or death, Registered
Representative or his/her estate may be entitled to receive continuing
commissions from Company for transactions conducted prior to the cessation
of his/her service with Company. Continuing commissions will be paid based
on vesting schedules established and published by Company, as may be
amended from time-to-time.
If Company or any issuer or sponsor returns or waives payments on any
application or order, commissions will not be due or payable on the
payments. Registered Representative shall repay to Company on demand any
commissions already received by Registered Representative with respect to
such returned or waived payments.
Where cancellation of any Investment Products and Services order results
in expense or loss to Company, Registered Representative is liable for
reimbursement to Company of the expense or loss including but not limited
to any sales charge levied by an issuer and any decline in the price of an
Investment Product, as of the time of cancellation.
In the event Registered Representative becomes party to a Career Builder
Supplemental Agreement (Supplemental Agreement) with First Allmerica
Financial Life Insurance Company ("First Allmerica"), and its affiliate,
Allmerica Financial Life Insurance and Annuity Company, commissions
payable under this Registered Representative's Agreement will be credited
to the Reserve Account described in such Supplemental Agreement during the
period such Supplemental Agreement is in effect and will be paid to
Registered Representative only as provided therein.
Company reserves the right to pay commissions to the Registered
Representative for Investment Products and Services sold or performed by
utilizing one check issued by Allmerica Financial or one of its
wholly-owned subsidiaries. Such check may also contain compensation for
traditional life, health and disability policies as well as other products
and services sold by Registered Representatives through Allmerica
Financial.
9. RIGHT OF OFF-SET: Company, for its own benefit and/or the benefit of its
affiliates, will have a lien on any commissions and other compensation
payable under this Agreement, and may deduct any monies owed Company or
affiliates from such commissions or other compensation to the extent
permitted by law.
10. TERMINATION FOR CAUSE: If Registered Representative withholds or
misappropriates monies, securities, certificates, payments, receipts,
"sells-away," commits any willful or dishonest act which, in the sole
discretion of Company, is detrimental to Company, or fails to comply with
any of the conditions, duties or obligations of this Agreement, this
Agreement will immediately terminate without notice.
11. TERMINATIONS WITHOUT CAUSE: Registered Representative or company may
terminate this Agreement without cause during the first twelve (12) months
following the date this Agreement is executed by providing ten (10) days'
notice in writing to the other party of the intention to terminate. After
the first twelve (12) months, Registered Representative or Company may
terminate this Agreement without cause upon thirty (30) days' notice in
writing of the intention to terminate.
In the event Registered Representative terminates his/her Career Agent
Agreement with First Allmerica Financial Life Insurance Company, this
Agreement will be terminated upon written notice as described herein.
12. RELATIONSHIP OF PARTIES: Nothing contained in this Agreement is to be
construed to create the relationship of employer and employee between
Company and Registered Representative or between Company's General Agent
and Registered Representative. Registered Representative shall exercise
his/her own judgment concerning the individual(s) to whom he/she will
solicit Investment Products and Services as well as the time, place and
manner of the solicitations. Registered Representative, however, shall
comply with all applicable laws, rules and regulations of the SEC, NASD,
federal and state authorities as well as Company's rules, regulations
and procedures concerning the conduct of Investment Products and
Services business, as may be amended from time-to-time.
13. EFFECTIVENESS OF CONTRACT: This Agreement constitutes the entire contract
between Registered Representative and Company.
Registered Representative accepts the appointment, subject to all of the
conditions and provisions set forth in this Agreement. This Agreement
supersedes all previous agreements, whether oral or written between the
parties, and no modification, except to attached Compensation Schedules
(if any), will be valid unless made in writing and signed by both parties.
IN WITNESS WHEREOF, this Agreement has been executed by the undersigned on the
____________________________________ day of
_________________________ ,19 _______. Allmerica Investments, Inc.
By__________________________
__________________________________ ____________________________
Registered Representative General Agent
<PAGE>
DEFINITIONS
1. "Accumulation Unit" means a measure of the value of a Sub-Account before
annuity payments begin.
2. "Annuity Date" means the date on which annuity payments are to commence. If
the Owner has not elected an alternative Annuity Date, such payments will begin
on the Annuity Date specified on page 3.
3. "Annuity Unit" means a measure of the value of annuity payments under a
Variable Annuity Option of the policy.
4. "Company" means Allmerica Financial Life Insurance and Annuity Company.
5. "Fund" means the Delaware Group Premium Fund, Inc. or any of its portfolio
series, or any other registered investment company substituted or added.
6. "General Account" means all assets of the Company which are not allocated to
the Separate Account or any other separate investment accounts of the Company.
7. "Owner" means the person or persons who may exercise the rights and
privileges under this policy. No more than two owners are permitted. In the case
of joint owners, one must be the annuitant.
8. "Policy Year" means a period of one year computed from the Date of Issue, or
from an anniversary of the Date of Issue.
9. "Principal Office" means the Company's office located at 440 Lincoln Street,
Worcester, Massachusetts, 01653 (1-800-533-2124).
10. "Separate Account" means the Company's separate investment account known as
Separate Account VA-K. The investment performance of the assets of the Separate
Account is determined separately from the other assets of the Company.
11. "Sub-Account" means a subdivision of Separate Account VA-K, the assets of
which are invested exclusively in shares of a corresponding Fund.
12. "Surrender Value" means the Accumulated Value of the policy (described on
page 7) less any applicable surrender charges (as specified on page 10), and
policy fee (as specified on page 8).
13. "Valuation Date" means the time as of which the values of all units of
variable annuity policies are determined. Valuation Dates occur at the close of
business on each day on which the New York Stock Exchange is open for trading.
14. "Valuation Period" means the interval between two consecutive Valuation
Dates.
15. "Written Request" or "Written Notice" means a request or notice in writing
satisfactory to the Company and filed at its Principal Office.
Form A3022-93 (5)
<PAGE>
OWNERSHIP AND BENEFICIARY
1. Owner During the lifetime of the Annuitant and prior to the Annuity Date, the
Owner will be as shown in the application unless changed in accordance with the
terms of this policy. On and after the Annuity Date, the Annuitant will be the
Owner except where the Owner immediately prior to the Annuity Date is an entity
other than a natural person. In that case, ownership will remain the same on and
after the Annuity Date.
Prior to the Annuity Date the Owner may vote at meetings of policyowners as
provided in the Voting Rights provision. The Owner may exercise all other rights
and options granted in this policy or by the Company, subject to the consent of
any irrevocable beneficiary. The consent of the Annuitant, if the Annuitant is
not the Owner, or any revocable Beneficiary is not required for the excercise of
any ownership rights. Where the policy is owned jointly, the consent of both
Owners is required in order to exercise any ownership rights.
2. Assignment The Owner may be changed at any time prior to the Annuity Date and
while the Annuitant is alive. Only the Owner may assign this policy. An absolute
assignment will transfer ownership to the assignee. The policy may also be
collaterally assigned as security. The limitations on ownership rights while the
collateral assignment is in force are set forth in the assignment. An assignment
will take place only when the Company has received Written Notice and recorded
the change at the Principal Office. The Company will not be deemed to know of
any assignment of this policy until it has received Written Notice. When
recorded, the assignment will take effect as of the date the Written Notice was
signed. Any rights created by the change will be subject to any payment made or
action taken by the Company before the change was recorded.
The Company will not be responsible for the validity of any assignment or the
extent of any assignee's interest. On the Annuity Date the Company may pay to
the assignee that portion of the Surrender Value of this policy which is due.
Such payment will be made in one sum. Any remaining Surrender Value will be paid
in one sum to the Owner. Such payment will discharge all liability under this
policy. The interests of the Annuitant and the Beneficiary will be subject to
any assignment.
3. Beneficiary The Beneficiary is as named in the application unless changed in
accord with the terms of this policy. All death benefits provided by this policy
will be divided equally among the surviving Beneficiaries, unless the Owner
directs otherwise.
Unless the Owner directs otherwise, the interest of a Beneficiary who dies
before the Annuitant will pass to any surviving Beneficiaries in proportion to
their share in the proceeds. If there is no surviving Beneficiary, the deceased
Beneficiary's interest will pass to the Owner.
The Owner may declare the choice of any Beneficiary to be revocable or
irrevocable. A revocable Beneficiary may be changed at a later time. An
irrevocable Beneficiary must consent in writing to any change. Unless otherwise
specifically indicated, the Beneficiary will be considered to be revocable.
4. Change of Beneficiary The Owner may change any Beneficiary, except an
irrevocable one, any time while this policy is in force. Such change may be made
only by Written Request, and will be subject to the rights of any assignee of
record. When the Company receives the Request, the change will take place as of
the date it was signed, even if the Annuitant is not living on the date the
Company receives the Request. Any rights created by the change will be subject
to any payment made or action taken by the Company before the change was
recorded.
5. Protection of Proceeds To the extent allowed by law, the proceeds of this
policy and any payments made under it will be exempt from attachment by the
claims of creditors of the payee. Neither the Annuitant nor the Beneficiary can
assign, transfer, commute, anticipate or encumber the proceeds or payments
unless given that right by the Owner.
Form A3022-93 (6)
<PAGE>
ELECTIVE PAYMENTS
1. Elective Payments Prior to the Annuity Date and while this policy is in
force, the Owner may make additional payments under this policy. Each additional
payment must be at least $50.
The sum of payments made to this policy may not exceed $1,000,000. Upon Written
Request, the $1,000,000 maximum may be increased to an amount acceptable to the
Company under its then current rules.
2. Net Payments Each Net Payment is equal to the gross elective payment less the
amount of any premium tax, if applicable, which must be paid by the Company as a
result of the payment being credited to the policy. Until the Company notifies
the Owner otherwise in writing, if a premium tax must be paid by the Company as
a result of a payment being credited to the policy, the amount of the premium
tax will not be deducted when the payment is first credited to the policy but
will be deducted from the Accumulated Value of the policy when the policy is
surrendered or when the Annuity Value to be applied under an annuity option is
being determined.
3. Net Payment Allocations Net Payments will be allocated on a percentage basis
among the General Account and/or the Sub-Accounts as specified by the Owner in
the policy application. If a Net Payment is to be allocated between two or more
accounts, not less than $10 may be allocated to any account. If the percentage
allocation elected by the Owner would result in an allocation of less than $10
to any one of such accounts, the Company reserves the right to apply such amount
to one of the other accounts in accordance with Company rules and procedures.
The Owner may change the allocation of future Net Payments at any time on
Written Request.
POLICY VALUES
1. Accumulation Unit Values The dollar value of an Accumulation Unit under a
Sub-Account as of any Valuation Date is determined by multiplying the dollar
value of an Accumulation Unit as of the immediately preceding Valuation Date by
the Net Investment Factor for the Valuation Period at the end of which the
Accumulation Unit value is being determined.
Accumulation Units are credited to the policy for benefits funded by a
Sub-Account. The number of Accumulation Units so credited is equal to the
specified portion of the Net Payment divided by the dollar value of an
applicable Accumulation Unit as of the Valuation Date such payment is applied.
On any date prior to the Annuity Date the Accumulated Value of this policy is
the sum of the value of all Accumulation Units then credited to the Separate
Account plus the value of any General Account accumulations.
2. Annuity Unit Values The value of an Annuity Unit under a Sub-Account on any
Valuation Date is equal to the value of such Unit on the immediately preceding
Valuation Date multiplied by the product of:
(a) a discount factor equivalent to an assumed rate of interest of 3 1/2% per
annum; and
(b) the Net Investment Factor of the Sub-Account funding such Variable Annuity
payments for the applicable Valuation Period.
The dollar value of an Annuity Unit as of any date other than a Valuation Date
shall be equal to its value as of the immediately preceding Valuation Date.
The dollar amount of each monthly variable annuity payment shall be equal to the
number of Annuity Units multiplied by the applicable value of the Annuity Unit,
except that under Annuity Option IV-B, monthly annuity payments payable to the
surviving payee shall be based upon 2/3rds of the number of Annuity Units which
applied during the joint lifetime of the two payees.
Form A3022-93 (7)
<PAGE>
POLICY VALUES (Continued from page 7)
3. Adjusted Gross Investment Rate The Adjusted Gross Investment Rate of a
Sub-Account for any Valuation Period is equal to:
(a) (i) the investment income of such Sub-Account for the Valuation
Period, plus capital gains and minus capital losses of such Sub-Account
for the Valuation Period, whether realized or unrealized; minus
(ii) an amount for capital gains taxes and any other taxes based on
income of, assets in, or the existence of such Sub-Account, whichever may
be applicable; divided by
(b) the amount of such Sub-Account's assets at the beginning of the
Valuation Period.
The Adjusted Gross Investment Rate may be positive or negative.
4. Net Investment Rate and Net Investment Factor The Net Investment Rate of a
Sub-Account for any Valuation Period shall be equal to the Adjusted Gross
Investment Rate for such Valuation Period decreased by (a) a factor equivalent
to .0125 per annum for mortality and expense risks and (b) a factor equivalent
to .0015 per annum for administrative charges associated with each sub-account.
Such factors may be decreased by the Board of Directors of the Company. In no
event shall they exceed the maximum stated in the Guarantees provision. The Net
Investment Factor is 1.000000 plus the Net Investment Rate.
5. Policy Value of the General Account Allocations to the General Account are
not converted into Accumulation Units but are credited interest at a rate
periodically set by the Company. For one year from the date a payment allocated
to the General Account is received at the Company's Principal Office, the rate
of interest credited to that payment will be the Initial Rate in effect on such
date. Thereafter, the rate of interest for that payment will be the greater of:
(a) the Company's Current Interest Rate or
(b) an interest rate of 3 1/2% compounded annually.
The policy value of the General Account will be at least equal to the minimum
required by the law in the state in which this policy is delivered.
6. Policy Fee The Company will deduct a $30 policy fee on each policy
anniversary prior to the Annuity Date and on the date the policy is surrendered
except for policies issued to and maintained by the Trustee of a 401(k) Plan.
The Company reserves the right to impose a fee up to $30 on such a policy.
Where the policy value has been allocated to more than one account, the policy
fee will be deducted from the accumulated value of each account in the same
proportion as such value bears to the total policy value. No policy fee will be
deducted if the Accumulated Value on the date the fee would otherwise have been
deducted exceeds $50,000.
TRANSFERS BEFORE ANNUITY DATE
Prior to the Annuity Date, the Owner may transfer amounts between the General
Account and the Sub-Accounts or among the Sub-Accounts subject to the Company's
then current rules. Transfers will be made pursuant to a Written Request made to
the Company's Principal Office. Subject to the restrictions described herein,
all transfers shall be made on the Valuation Date coincident with or next
following the date the Written Request is received.
The minimum and maximum amounts that may be transferred shall be determined by
the Company according to its then current rules. In addition, the Company
reserves the right to limit the number of transfers which may be made in each
policy year and to establish other reasonable rules restricting transfers.
If a transfer would reduce the policy value of the account from which the
transfer is to be made to less than the current minimum balance required by the
Company for such account, the Company reserves the right to include such
remaining value in the amount transferred.
There will be no charge for the first twelve transfers per policy year. A
transfer charge of up to $25 may be imposed on each additonal transfer and
deducted from the amount that is transferred.
Form A3022-93 (8)
<PAGE>
GUARANTEES
The Company makes the following guarantees for this policy:
(a) The factors deducted from the Adjusted Gross Investment Rate of a
Sub-Account to obtain its Net Investment Rate will not exceed the
equivalent of (a) .0125 per annum for mortality and expense risks and (b)
.0015 per annum for administrative charges.
(b) The Policy Fee and Surrender Charge will not exceed the amount specified
in this policy.
(c) The interest rate in effect on the date a payment to the General Account
is received at the Principal Office is guaranteed for one year.
(d) The dollar amount of variable annuity payments will not be affected by
variations in actual mortality experience from the mortality assumptions
used in determining the first annuity payment.
The Company assumes the risk that actual mortality experience and expenses may
exceed the maximum charges made to cover such mortality and expenses. If actual
mortality experience and expenses exceed the amounts provided for such costs,
the Company will absorb the resultant losses. If actual mortality experience and
expenses are less than the amounts provided for such costs, the difference will
be a profit to the Company.
SURRENDER - PARTIAL REDEMPTIONS
1. Surrender Privilege The Owner may, by Written Request, surrender this policy
for its Surrender Value prior to the Annuity Date. The Surrender Value will be
based on the Accumulated Value as of the Valuation Date coincident with or next
following the date the Company receives the Written Request at its Principal
Office.
The Surrender Value for amounts allocated to a Separate Account shall be paid
within 7 days (plus any period of extension under applicable laws, rules and
regulations governing the redemption of variable annuities) from the date of
receipt of such Written Request.
The Surrender Value for amounts allocated to the General Account shall normally
be paid within 7 days from the date of receipt of such Written Request; however,
the Company may defer payment for up to 6 months from the date when the Written
Request is received. If payment of amounts allocated to the General Account is
deferred for 30 days or more, the amount payable will draw interest at a rate of
not less than 3% per year. When surrendered, this policy terminates. The Company
will then have no further liability under this policy.
2. Partial Redemption Privilege The Owner may, by Written Request, redeem a part
of the Accumulated Value of this policy, subject to the terms of this provision.
This privilege may be exercised before the Annuity Date and before the
Annuitant's death.
The amount of each Partial Redemption must be at least $200. No Partial
Redemption will be permitted if less than $1,000 would remain credited to the
policy after payment of the amount requested to be redeemed and deduction of any
applicable charge.
The Written Request must indicate the dollar amount to be paid and should
specify the account(s) from which value(s) is/are to be redeemed. If a Partial
Redemption is requested, the dollar amount of the request will be paid to the
Owner. In addition, the amount of any applicable Redemption Charge will be
deducted from the Accumulated Value on a last-in, first-out basis. The time
limits of the Surrender Privilege provision will apply to Partial Redemptions.
3. Free Withdrawal In each calendar year, Partial Redemptions not in excess of
the greater of (a) or (b) may be withdrawn free of any Redemption Charge:
(a) Cumulative earnings - calculated as the Accumulated Value as of the
Valuation Date coincident with or next following the date of receipt of
the Written Request reduced by total gross payments not previously
redeemed;
(b) ten percent of the Accumulated Value as of the Valuation Date coincident
with or next following the date of receipt of the Written Request reduced
by the total amount of any prior Partial Redemptions made in the same
calendar year to which no Redemption Charge was applied.
Regardless of whether the Free Withdrawal Amount is based upon (a) or (b) above,
it will first be deducted from cumulative earnings. To the extent that the Free
Withdrawal Amount exceeds cumulative earnings, the excess amount will be deemed
withdrawn from payments not previously redeemed on a last-in, first-out basis.
Form A3022-93 (9)
<PAGE>
SURRENDER - PARTIAL REDEMPTIONS (continued from page 9)
Any amounts redeemed in excess of the Free Withdrawal Amount will be subject to
a Redemption Charge as described below.
4. Life Expectancy Distribution Benefit In each Calendar Year, the amount of the
life expectancy distributions (LED) available under the Company's then current
life expectancy distribution rules that exceeds the Free Withdrawal Amount may
also be withdrawn without charge. LED is available only if the Owner and
Annuitant are the same individual.
5. Surrender and Redemption Charge If the Owner surrenders the policy or takes a
Partial Redemption before the Annuity Date and while the policy is in force, a
withdrawal charge may be imposed.
First, to determine the amount of any withdrawal charge, the Company will
determine any amounts available to be redeemed without charge for the current
calendar year in accordance with the Free Withdrawal privilege. Such amounts in
excess of cumulative earnings will be deemed to be taken first from payments
which have not been cancelled due to prior partial redemptions on a last-in,
first-out basis.
Second, the Company will withdraw any amounts available to be redeemed without
charge under the LED benefit provision.
Third, the Company will make withdrawals from the remaining payments which have
not been cancelled due to partial redemptions on a first-in, first-out basis.
Fourth, the Company will compute any applicable charges in accordance with the
following table of surrender charges until the total amount withdrawn equals the
amount of the partial withdrawal plus the withdrawal charge or until all
remaining payments have been exhausted:
<TABLE>
<CAPTION>
Years Measured From Charge As A
Date of Premium Payment Percentage Of the
To Date of Withdrawal Payments Withdrawn
- ------------------------- --------------------
<S> <C>
More than 7 No Charge
7 3%
6 4%
5 5%
4 6%
0-3 7%
</TABLE>
The withdrawal charge will then be deducted from the Accumulated Value on a
last-in first-out basis.
DEATH BENEFITS
1. Prior to Annuitization If the Annuitant dies while the policy is in force
prior to the Annuity Date and prior to the death of an Owner, if the Owner and
Annuitant are different individuals, the Company upon receipt at its Principal
Office of due proof of the Annuitant's death will pay the Death Benefit to the
Beneficiary. The Death Benefit payable will equal the greatest of:
(a) The Accumulated Value of this policy as of the Valuation Date coincident
with or next following the date of receipt of due proof of the Annuitant's
death;
(b) The sum of the gross payments made under this policy reduced to reflect
all partial withdrawals. A partial withdrawal will reduce the gross
payments available as a Death Benefit in the same proportion that it
reduced the policy's Accumulated Value on the date of the withdrawal. For
each withdrawal, the reduction is calculated by multiplying the total
amount of gross payments by a fraction, the numerator of which is the
amount of the partial withdrawal and the denominator of which is the
Accumulated Value immediately prior to the withdrawal. (Example: Gross
payments total $8,000. A $3,000 withdrawal is made when the Accumulated
Value is $12,000. The Accumulated Value is reduced by 1/4, from $12,000 to
$9,000, therefore the gross amount available as a Death Benefit under (b)
will also be reduced by 1/4 (8,000 X 3,000/12,000 = 2,000 8,000 - 2,000 =
6,000.) Payments made after a withdrawal will increase the Death Benefit
under (b) by the amount of the payment; or
(c) The Death Benefit that would have been payable on the most recent fifth
policy anniversary increased for subsequent purchase payments and reduced
for subsequent partial withdrawals in the same proportion that the
policy's Accumulated Value was reduced on the date of the withdrawal.
Form A3022-93 (10)
<PAGE>
DEATH BENEFITS (continued from page 10)
If an Owner who is not also the Annuitant predeceases the Annuitant prior to the
Annuity Date while this policy is in force, the Company will pay a Death Benefit
equal to the Accumulated Value of the policy as of the Valuation Date coincident
with or next following the date on which due proof of the Owner's death is
received.
The Death Benefit is ordinarily payable to the Beneficiary in one sum. Payment
will be made within 7 days of the date on which due proof of death is received
at the Company's Principal Office. In lieu of immediate payment, the Beneficiary
may by Written Request:
(a) elect to defer the lump sum for a period not to exceed 5 years from the
date of the death; or
(b) elect to receive the Death Benefit in the form of a life annuity or an
annuity for a period certain not extending beyond the Beneficiary's life
expectancy. Annuity benefits must begin within one year from the date of
the death and will be provided in accord with the Annuity Options of this
policy.
If the deceased Annuitant is also an Owner and the sole Beneficiary is his or
her spouse, the Beneficiary may upon Written Request, elect to continue the
policy in force and become the new Owner and Annuitant. All other rights and
benefits under this policy will continue except that any subsequent spouse of
the new Owner, if named as Beneficiary, will not be entitled to continue the
policy in force pursuant to this provision.
The death of the first of any joint Owner prior to the Annuity Date is deemed
the death of the Owner and will cause the Death Benefit to be paid in accordance
with the options set forth above.
2. After Annuitization If the Annuitant dies on or after the Annuity Date but
before the completion of all guaranteed annuity payments, any remaining payments
will be paid to the Beneficiary at least as rapidly as under the payment option
in effect on the date of the Annuitant's death. If there is more than one
Beneficiary, payment will be made in one sum. This sum will be the commuted
value of any unpaid payments certain commuted as of the Valuation Date
coincident with or next following receipt by the Company at its Principal Office
of due proof of death. Such commuted value will be computed on the basis of the
interest rate used in the determination of the annuity benefit.
Form A3022-93 (11)
<PAGE>
ANNUITY OPTIONS
1. Annuity Benefit The Owner may choose the form of benefit to be paid to the
Annuitant. The benefit will be limited to the Annuity Options set forth below,
and any other option offered by the Company for this class of policies.
If the Owner does not choose an option, Option I will apply.
This policy will be endorsed on the Annuity Date. The endorsement will set forth
the benefits payable to the Annuitant.
2. Funding of Annuity Options Variable Annuity Options may be funded through
Capital Reserves Series, Equity Income Series and Multiple Strategy Series
unless otherwise changed by endorsement. All Fixed Annuity Options are funded
through the General Account.
3. Death Benefit Annuity The Owner may direct that all or part of any Death
Benefit payable before the Annuity Date be paid to the Beneficiary under one or
more of the Annuity Options provided in this policy.
If the Annuitant dies before the Annuity Date and before the Owner has chosen an
Annuity Option, the Beneficiary may choose an option.
A corporate or fiduciary Beneficiary may choose only Option V or X.
4. Proof of Age and Survival of Payee Proof of the payee's date of birth is a
condition precedent to payment of any annuity benefits under this policy. The
proof must be satisfactory to the Company, and must be received at its Principal
Office.
The Company may require evidence that a payee is living. Such evidence must be
satisfactory to the Company and may be required before any annuity payment is
made under this policy.
5. Minimum Payments Every Annuity Option must be paid on a monthly basis. The
initial monthly payment must be at least $50. If the chosen option produces an
initial monthly payment of less than $50, the Surrender Value or Death Benefit
will be paid in one sum. A single payment of the Surrender Value will be made to
the Owner. A single payment of the Death Benefit will be made to the
Beneficiary.
The Company reserves the right to increase the minimum payment to not more than
$500, subject to applicable state regulations.
The Annuity Value may be divided and applied to provide both a variable and
fixed annuity benefit, except that the amount so applied to each form of benefit
must produce an initial monthly payment of at least $50.
6. Payment Period Annuity payments to any payee shall cease with the last
payment due prior to the date of death of such payee (or surviving payee in the
case of joint payees) or with the later completion of all guaranteed payments,
as the case may be.
7. Number of Variable Annuity Units The number of Variable Annuity Units
determining the annuity benefits payable hereunder shall be equal to the dollar
amount of the first monthly benefit divided by the value of the Variable Annuity
Unit as of the Valuation Date used to calculate the dollar amount of the first
payment. Once payments have begun, the number of Variable Annuity Units will
remain fixed unless a split has been made as herein provided.
8. Annuity Value The Annuity Value to be applied under an Annuity Option will be
the amount described below; less any premium taxes payable by the Company as a
result of the Annuity Option selection:
(a) If Option V or X is chosen with a duration of 10 or more years and is
noncommutable--the Accumulated Value. Any other form of Option V or X--the
Surrender Value.
(b) If Option I, II, III, IV-A, IV-B, VI, VII, VIII, IX-A, IX-B or any other
Option offered by the Company involving a life contingency is chosen --
the Accumulated Value.
(c) If a Death Benefit Annuity is payable at any time--the amount of the Death
Benefit.
The amount applied under a Variable Annuity Option will be based on the
Accumulation Unit value on a Valuation Date not more than four weeks (uniformly
applied) preceding the Annuity Date.
Form A3022-93 (12)
<PAGE>
DESCRIPTION OF ANNUITY OPTIONS
1. Monthly Payments The amount of the first payment under Options I through III
and VI through VIII will be determined on the basis of:
(a) the age nearest birthday of the payee on the Annuity Date;
(b) the Annuity Value applied under the Option.
The amount of the first monthly payment under Options IV-A, IV-B, IX-A and IX-B
will be determined on the basis of:
(a) the Adjusted Ages of the payees on the Annuity Date;
(b) the Annuity Value applied under the Option.
The amount of the first payment under Options V and X will be based on the
number of years certain selected and the Annuity Value applied.
The amount of each subsequent payment under Options I, II, III, IV-A, IV-B and V
will vary in accordance with the value of the Variable Annuity Units. The amount
of each subsequent payment under Options VI through VIII, IX-A, IX-B, and X will
be in the same amount as the first payment; except that under Option IX-B, after
the death of the first payee, the amount of each payment to the surviving payee
shall be 2/3rds of the amount of the first payment.
All Annuity Options are based on an interest rate of 3 1/2% per annum.
2. Rates The first payment under an Annuity Option for each $1,000 of Annuity
Value applied will be the greater of:
(a) the rate per $1,000 of Annuity Value applied specified in the Company's
published Non-Guaranteed Current Annuity Option rates applicable to this
class of policies; or
(b) the rate set forth in this policy for the applicable Annuity Option.
3. Brief Description of Options
OPTIONS I AND VI--VARIABLE OR FIXED LIFE ANNUITY WITH 120 MONTHLY PAYMENTS
GUARANTEED
Monthly payments during the life of the payee. If the payee dies before 120
payments have been made, the monthly payments will continue to the Beneficiary
until a total of 120 payments have been made.
OPTIONS II AND VII--VARIABLE OR FIXED LIFE ANNUITY
Monthly payments during the life of the payee.
OPTIONS III AND VIII--UNIT REFUND VARIABLE OR FIXED LIFE ANNUITY
Monthly payments during the life of the payee. If the payee dies, the monthly
payments will be continued to the Beneficiary if (a) exceeds (b) below.
(a) the dollar amount of the Annuity Value applied under this option, divided
by the first monthly payment.
(b) the number of monthly payments made under this option before the death of
the payee.
If (a) exceeds (b), the monthly payments will continue until the total number of
payments equals the number determined in (a).
Form A3022-93 (13)
<PAGE>
DESCRIPTION OF ANNUITY OPTIONS (continued from page 13)
OPTIONS IV-A AND IX-A--JOINT AND SURVIVOR VARIABLE OR FIXED LIFE ANNUITY
Monthly payments jointly to two payees during their joint lives. One of the
payees must be the Annuitant. If this option is chosen after the Annuitant dies,
one of the payees must be the Beneficiary. The payments will continue during the
life of the survivor. The monthly payment to the survivor will be the same
amount which was paid during the joint lives of the two payees.
OPTIONS IV-B AND IX-B--JOINT AND TWO-THIRDS SURVIVOR VARIABLE OR FIXED LIFE
ANNUITY
Monthly payments jointly to two payees during their joint lives. One of the
payees must be the Annuitant. If this option is chosen after the Annuitant dies,
one of the payees must be the Beneficiary. The payments will continue during the
life of the survivor. The monthly payment to the survivor will be 2/3rds of the
amount which was paid during the joint lives of the two payees.
OPTIONS V AND X--VARIABLE OR FIXED ANNUITY CERTAIN
Monthly payments for a number of years. The number of years selected may be from
1 to 30.
Form A3022-93 (14)
<PAGE>
=============================Annuity Option Tables==============================
<TABLE>
<CAPTION>
Showing Amount of First Monthly Annuity Benefit Payment
For Each $1,000 of Annuity Value Applied
- --------------------------------------------------------------------------------
Age OPTION I-Variable OPTION II-Variable OPTION III-Variable
Nearest OPTION VI-Fixed OPTION VII-Fixed OPTION VIII-Fixed
Birthday
- --------------------------------------------------------------------------------
Life Annuity Unit Refund
with 120 Monthly Life Life
Payments Guaranteed Annuity Annuity
--------------------------------------------------------------------
<S> <C> <C> <C>
50 4.17 4.19 4.10
51 4.23 4.25 4.15
52 4.29 4.32 4.20
53 4.35 4.38 4.26
54 4.42 4.46 4.32
55 4.49 4.53 4.38
56 4.56 4.61 4.45
57 4.64 4.69 4.52
58 4.72 4.78 4.59
59 4.81 4.88 4.67
60 4.90 4.98 4.75
61 5.00 5.09 4.83
62 5.10 5.20 4.92
63 5.21 5.32 5.02
64 5.33 5.46 5.12
65 5.44 5.60 5.22
66 5.57 5.74 5.33
67 5.70 5.90 5.45
68 5.84 6.07 5.57
69 5.98 6.26 5.70
70 6.13 6.45 5.84
71 6.29 6.66 5.98
72 6.45 6.89 6.14
73 6.62 7.13 6.30
74 6.79 7.39 6.47
75 6.97 7.68 6.65
- --------------------------------------------------------------------------------
</TABLE>
Form A3022-93 (15) (Continued on page 16)
<PAGE>
=======================Annuity Option Tables (Continued)========================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Option IV-A-Variable Option IV-B-Variable
Option IX-A-Fixed Option IX-B-Fixed
Joint and Survivor Joint and Two Thirds Survivor
Life Annuity Life Annuity
Older Age Older Age
- ---------------------------------------------------------------------------------------------------------------
50 55 60 65 70 75 80 50 55 60 65 70 75 80
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Y 50 3.70 3.77 3.82 3.86 3.89 3.91 3.93 4.03 4.16 4.31 4.47 4.65 4.83 5.02
0
U 55 3.92 4.01 4.08 4.14 4.17 4.20 4.33 4.50 4.69 4.89 5.10 5.32
N
G 60 4.22 4.34 4.43 4.50 4.54 4.72 4.95 5.19 5.44 5.69
E
R 65 4.61 4.77 4.90 4.98 5.25 5.55 5.87 6.18
70 5.16 5.38 5.54 5.99 6.39 6.79
A
G 75 5.92 6.23 7.03 7.57
E
80 7.00 8.50
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Form A3022-93 (16) (Continued on page 17)
<PAGE>
========================Annuity Option Tables (Continued)=======================
<TABLE>
<CAPTION>
----------------------------------------------
OPTION V-Variable
OPTION X-Fixed
----------------------------------------------
Annuity Certain
Number of for a specified
Years Certain Number of Years
----------------------------------------------
<S> <C>
1 84.65
2 43.05
3 29.19
4 22.27
5 18.12
6 15.35
7 13.38
8 11.90
9 10.75
10 9.83
11 9.09
12 8.46
13 7.94
14 7.49
15 7.10
16 6.76
17 6.47
18 6.20
19 5.97
20 5.75
21 5.56
22 5.39
23 5.24
24 5.09
25 4.96
26 4.84
27 4.73
28 4.63
29 4.53
30 4.45
----------------------------------------------
</TABLE>
Form A3022-93 (17)
<PAGE>
GENERAL PROVISIONS
1. Entire Contract The entire contract consists of this policy and the written
application, a copy of which is attached at issue. All statements made in the
application shall be deemed representations and not warranties. The Company will
not use any statement to void this policy or defend a claim under it unless that
statement is in the application.
2. Misstatement of Age If a payee's age is misstated, the Company will adjust
all benefits under this policy to those that the Annuity Value applied would
have purchased at the correct age. Any underpayments already made by the Company
will be made up immediately. Any overpayments made by the Company will be
charged against the benefits due after the adjustment.
3. Modifications Agents are not authorized to modify this contract. Agents may
not extend the time or modify the conditions for making payments.
4. Incontestability Except for non-payment of the Initial Elective Payment, this
policy cannot be contested after it has been in force for two years from the
Date of Issue.
5. Change of Annuity Date Unless an earlier date is designated on the
application, the Annuity Date will be the later of:
(a) the first day of the calendar month before the Annuitant's 85th birthday;
or
(b) the tenth policy anniversary (not to exceed the first day of the calendar
month before the Annuitant's 90th birthday.)
The Owner may elect an alternative Annuity Date by Written Request at any time
after the policy has been issued. Such request must be received at the Company's
Principal Office at least one month before the new Annuity Date. The alternative
Annuity Date may be the first of any month prior to the Annuitant's 90th
birthday and must be within the life expectancy of the Annuitant. The Company
shall determine such expectancy at the time a change in the Annuity Date is
requested.
6. Annual Report The Company will furnish an annual report to the Owner
containing a statement of the number and value of the Accumulation Units
credited to the Sub-Accounts, the policy value of the General Account, and any
other information required by applicable law, rules and regulations.
7. Addition, Deletion, or Substitution of Investments The Company reserves the
right, subject to compliance with applicable law, to make additions to,
deletions from, or substitutions for the shares of a Fund that are held by the
Sub-Accounts or that the Sub-Accounts may purchase. The Company reserves the
right to eliminate the shares of any Fund if the shares of a Fund are no longer
available for investment or if, in the Company's judgment, further investment in
any eligible Fund should become inappropriate in view of the purposes of the
Sub-Accounts.
The Company will not substitute shares attributable to any interest in a
Sub-Account without notice to the Owner and any prior approval of the Securities
and Exchange Commission required by the Investment Company Act of 1940. This
shall not prevent the Separate Account from purchasing other securities for
other series or classes of policies, or from permitting a conversion between
series or classes of policies or contracts on the basis of requests made by
owners.
Form A3022-93 (18)
<PAGE>
GENERAL PROVISIONS (continued from page 18)
The Company reserves the right to establish additional Sub-Accounts and to make
such Sub-Accounts available to any class or series of policies as the Company
deems appropriate. Each new Sub-Account would invest in a new investment company
or in shares of another open-end investment company. Subject to obtaining any
required approvals or any consents required by applicable law, the Company also
reserves the right to eliminate or combine existing Sub-Accounts and to transfer
the assets of one or more Sub-Accounts to any other Sub-Accounts.
In the event of any substitution or change, the Company may, by appropriate
endorsement, make such changes in this and other policies as may be necessary or
appropriate to reflect the substitution or change. If the Company considers it
to be in the best interests of policyholders, the Separate Account or any
Sub-Account(s) may be operated as a management company under the Investment
Company Act of 1940, or it may be deregistered under that Act in the event
registration is no longer required, or it may be combined with other separate
accounts of the Company.
8. Change of Name Subject to compliance with applicable law, the Company
reserves the right to change the names of the Separate Account or the
Sub-Accounts.
9. Federal Tax Considerations The Company intends to make a charge for any
effect which the income, assets or existence of the Separate Account may have
upon its tax. The Separate Account presently is not subject to tax, but the
Company reserves the right to assess a charge for taxes if the Separate Account
at any time becomes subject to tax.
10. Splitting of Units The Company reserves the right to split the value of an
Accumulation Unit, an Annuity Unit, or both, if such action is deemed to be in
the best interest of the Owners, the Annuitants and the Company. In effecting
any such split of unit value, strict equity will be preserved and such split
will have no material effect upon the benefits, provisions or investment return
of this policy or upon the Owner, the Annuitant, any Beneficiary, or the
Company. A split may be effected either to increase or decrease the number of
units.
11. Insulation of Separate Account The investment performance of assets of the
Separate Account is determined separately from the other assets of the Company.
The assets of the Separate Account are not chargeable with liabilities arising
out of any other business which the Company may conduct.
Form A3022-93 (19)
<PAGE>
NOTICE - VOTING RIGHTS
Each Owner is entitled to vote at meetings of policyowners of those Sub-Accounts
to which payments are currently allocated under this policy; provided, however,
that after the Annuity Date only the Annuitant shall have the right to vote at
such meetings.
Prior to the Annuity Date, the number of votes which an Owner may cast at a
meeting of Sub-Account Owners shall be determined by dividing the dollar value
of the Accumulation Units of the Sub-Account by the net asset value of one Fund
share.
After the Annuity Date, an Annuitant under a variable annuity option may cast
the number of votes equal to:
(i) the amount of the reserve held in each Sub-Account to meet the annuity
obligations related to such Annuitant under the policy; divided by
(ii) the value of an applicable Accumulation Unit as of the record date for the
meeting.
Proper written notice of such meetings, as required by law, shall be given to
each Owner or Annuitant.
Owners and Annuitants entitled to vote, and the number of votes which each may
cast, shall be determined as of a record date within 90 days of the date of the
meeting. To be entitled to vote, a policyowner must be an Owner on both the
record date as of which the number of votes is determined and the date of the
meeting. In determining the number of votes a person may cast, fractional votes
shall be disregarded.
Elective Payment Variable Annuity Policy. Annuity Benefit payable to Annuitant
commencing at Annuity Date. Death Benefit payable at death of Annuitant prior to
Annuity Date. Non-Participating.
Form A3022-93 (20)
<PAGE>
DELAWARE Medallion [DELAWARE Medallion LOGO]
VARIABLE ANNUITY APPLICATION
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street, Worcester, MA 01653
Print clearly in black ink.
- --------------------------------------------------------------------------------
1 ANNUITANT
- --------------------------------------------------------------------------------
First Middle Last
______________________________________________________________________________
Street Address Apt.
______________________________________________________________________________
City State Zip
______________________________________________________________________________
Daytime Telephone Sex Date of Birth
( ) |_| Male |_|Female / /
______________________________________________________________________________
S.S. # _______________________________________________________________________
- --------------------------------------------------------------------------------
2 OWNER (Complete Only if Different from Annuitant or If Joint Owners)
- --------------------------------------------------------------------------------
First Middle Last
______________________________________________________________________________
Street Address Apt.
______________________________________________________________________________
City State Zip
______________________________________________________________________________
S.S.#/Tax I.D.# Date of Birth
/ /
- --------------------------------------------------------------------------------
3 BENEFICIARY
- --------------------------------------------------------------------------------
Primary
______________________________________________________________________________
Contingent
______________________________________________________________________________
- --------------------------------------------------------------------------------
4 TYPE OF PLAN
- --------------------------------------------------------------------------------
|_| Nonqualified |_| 403(b) TSA
|_| Nonqualified Deferred Comp. |_| 408(b) IRA
|_| 401(a) Pension/Profit Sh. |_| 408(k) SEP-IRA
|_| 401(k) Profit Sharing |_| 457 Def. Comp.
- --------------------------------------------------------------------------------
5 INITIAL PAYMENT
- --------------------------------------------------------------------------------
Initial Payment Amount $ _____________________________________________________
If IRA or SEP-IRA application, the applicant has received a Disclosure Buyer's
Guide and this payment is a (check one)
|_| Rollover |_| Trustee to Trustee Transfer
|_| Regular or SEP-IRA Payment for Tax Year __________________________________
- --------------------------------------------------------------------------------
6 ALLOCATION OF PAYMENTS
- --------------------------------------------------------------------------------
__ __ __ % General Account-Fixed Interest (157-158) (Not available in OR/WA)
__ __ __ % Equity/Income (041-042)
__ __ __ % High Yield (043-044)
__ __ __ % Capital Reserves (045-046)
__ __ __ % Money Market (047-048)
__ __ __ % Growth (049-050)
__ __ __ % Multiple Strategy (051-052)
__ __ __ % International Equity (053-054)
__ __ __ % Value (055-056)
__ __ __ % Emerging Growth (057-058)
__ __ __ % _____________________________________________________
__ __ __ % _____________________________________________________
__ __ __ % _____________________________________________________
__ __ __ % _____________________________________________________
__ __ __ % _____________________________________________________
1 0 0 % Total
__ __ __
Note: If the policy applied for provides for a full refund of the initial
payment under its "Right to Examine" provision, that portion of each
payment not allocated to the General Account will be allocated solely to
the Money Market account during its first 15 days. Reallocation will
then be made as specified.
- --------------------------------------------------------------------------------
7 ANNUITY DATE
- --------------------------------------------------------------------------------
|_| First of month after age 70 (Qualified)
|_| First of (Month & Year) ______ /______
- --------------------------------------------------------------------------------
8 REPLACEMENT
- --------------------------------------------------------------------------------
Will the proposed policy replace or change any existing annuity or
insurance policy?
|_| No |_| Yes (If yes, list company name and policy number)
_______________________________________________________________
- --------------------------------------------------------------------------------
9 PRINCIPAL OFFICE AMENDMENTS
- --------------------------------------------------------------------------------
(Not application in West Virginia)
- --------------------------------------------------------------------------------
10 SIGNATURES
- --------------------------------------------------------------------------------
It is understood, and agreed that: (1) the above information is true and
complete to the best of my knowledge; (2) this application, a copy of which
will be attached to the policy when issued, will become a part of the policy
issued; (3) no agent is authorized to modify the terms of the prospectus,
this application or any policy. I acknowledge receipt of a current prospectus
describing the policy I am applying for. I understand that annuity payments
and other values, when based on the investment experience of a separate
account, are variable and not guaranteed as to fixed dollar amount.
___________________________________ ______________________________________
Signature of Owner Signed at (City and State) Date
___________________________________ ______________________________________
Signature of Owner Signature of Registered Representative
Form SML-1340 (9/93) (Rev. 9/95)
<PAGE>
- --------------------------------------------------------------------------------
11 TELEPHONE TRANSFERS
- --------------------------------------------------------------------------------
|_| I hereby authorize and direct Allmerica Financial Life Insurance and
Annuity Company to accept telephone instructions from any person who can
furnish proper identification to exchange units from subaccount to subaccount
and/or change the allocation of future investments. I agree to hold harmless
and indemnify Allmerica Financial Life Insurance and Annuity Company and its
affiliates and any mutual fund managed by such affiliates and their
directors, officers, employees and agents for any losses arising from such
instructions.
Signature of policy owner: ___________________________________________
- --------------------------------------------------------------------------------
12 SYSTEMATIC TRANSFERS
- --------------------------------------------------------------------------------
I wish to effect (check one:)
|_| Dollar Cost Averaging Transfers from Fixed Interest Account, Money
Market or Capital Reserves. (Form SML-1206, Option A)
|_| Automatic Account Rebalancing Transfers. (Form SML-1206, Option B)
Systematic Transfer Application must be attached.
- --------------------------------------------------------------------------------
13 MONTHLY AUTOMATIC PAYMENTS (MAP)
- --------------------------------------------------------------------------------
|_| I wish to authorize monthly automatic deductions from my checking account
for application to this policy. (Form 1968)
MAP authorization and voided check must be attached.
- --------------------------------------------------------------------------------
14 OPTIONAL BILLING REMINDERS
- --------------------------------------------------------------------------------
|_| I wish to receive periodic reminders that I can include with future
remittances. (Form SML-1203)
Payment reminder request must be attached.
THE FOLLOWING SECTIONS MUST BE COMPLETED BY THE REGISTERED REPRESENTATIVE.
- --------------------------------------------------------------------------------
15 REPLACEMENT
- --------------------------------------------------------------------------------
a) Have you reviewed the Annuity and Life Insurance Replacement Regulation of
the state in which this business was written and do you understand the
definition of Replacement as set forth therein? |_| Yes |_| No
b) To the best of your knowledge, will the annuity policy being applied for
replace life insurance or annuity policies in this or any other company?
If yes, list policies in Section 8. |_| Yes |_| No
- --------------------------------------------------------------------------------
16 REMARKS Note: Qualified Plans require additional forms.
- --------------------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
- --------------------------------------------------------------------------------
17 REGISTERED REPRESENTATIVE / DEALER INFORMATION
- --------------------------------------------------------------------------------
I certify that (1) the information provided by the owner has been accurately
recorded; (2) a current prospectus was delivered; (3) no written sales materials
other than those approved by the Principal Office were used; and (4) I have
reasonable grounds to believe the purchase of the policy applied for is suitable
for the owner.
( )
________________________________________________________________________________
Signature of Registered Representative Telephone
_____________ ____________
_______________________________________________ ___________________________
Printed Name of Registered Representative Code Number TR Code
________________________________________________________________________________
Printed Name of Broker/Dealer Code Number
( )
________________________________________________________________________________
Address of Broker/Dealer for Policy Delivery Telephone
<PAGE>
AGREEMENT FOR LOCKBOX SERVICES
This Agreement is entered into as of July 1, 1997, by and between Boston
Financial Data Services Inc. ("BFDS") and First Allmerica Financial Life
Insurance Company, its subsidiaries and affiliates ("Customer") for the
lockbox services provided in the Exhibit(s) attached hereto and hereby made a
part of this Agreement.
WHEREFORE the parties hereto in consideration of the mutual covenants
contained herein and intending to be legally bound, agree as follows:
A. SERVICES:
Upon Customer's authorization of the postmaster in Boston to permit employees
of BFDS to access the P.O. Box specified and subject to the terms and
conditions of this Agreement, BFDS hereby agrees to provide Customer with the
services described in the Exhibit(s) attached hereto.
B. INVOICES:
As compensation for services hereunder, Customer shall pay BFDS mutually
agreed upon fees and expenses as specified in Exhibit _A_. These fees will
remain in effect for a period of three years with an allowable increase in
year two and three no greater than the calculated Northeast CPI for the
previous period. In addition, BFDS will charge such account for all
reasonable out-of-pocket expenses, such as courier fees, incurred by BFDS in
connection with any rent paid by BFDS for the P.O. Box. Payment on all
invoices submitted by BFDS shall be due net thirty (30) days from receipt of
invoice.
C. TERMINATION:
This Agreement may be terminated by either party with material cause at any
time by 30 days prior written notice to the other, and without cause at any
time by 90 days prior written notice to the other. Either party may
terminate this Agreement at any time on notice to the other in the event of
dissolution or insolvency or the commencement of any proceedings under any
bankruptcy or insolvency law by or against the other.
D. LIABILITY AND INDEMNIFICATION:
Notwithstanding anything to the contrary contained herein, neither party, in
performing its duties under this Agreement, shall be liable to the other
except for gross negligence or willful misconduct. Neither party shall be
liable for special or consequential damages. BFDS shall maintain fidelity
bonding of at least $1,000,000.00 for claims arising from fraudulent or
dishonest acts on the part of any BFDS employee, which shall be underwritten
by reputable insurer(s) licensed to do business in the Commonwealth of
Massachusetts and having an A. M. Best rating of "A" or better. Within ten
(10) days from Customer's request therefor, BFDS shall provide to Customer
either (a) copies of all relevant insurance policies, or (b) Certificates of
Insurance reasonably specifying the policies required hereunder.
E. FORCE MAJEURE:
Neither party shall be responsible for delays or failure in performance
resulting from causes beyond its control, including, without limitation, acts
of God, riots, acts of war, governmental regulations, fire, communication
line failures, power failures, earthquakes, or other disasters.
F. NO ADVERTISEMENT:
BFDS shall not (a) make any mention of this Agreement in any advertisement or
promotional material; or (b) issue or release any publicity statement or
release concerning this Agreement or the services provided, or to be
provided,
<PAGE>
hereunder, without the written consent of Customer being first obtained.
G. SOLICITATION:
BFDS shall not solicit any of Customer's employees while said employees are
employed by Customer, and for one (1) year following the date that Customer's
employee has terminated employment with Customer, unless otherwise expressly
agreed in writing by Customer.
H. CONFIDENTIALITY:
As used herein, the term "confidential information" shall mean non-public
information that either party designates as confidential, or which, under the
circumstances, ought to be treated as confidential. Confidential information
may be in any tangible form, including without limitation written or printed
text or documents, audio or video tapes, CD's or disks and computer disks or
tapes, whether in machine readable or user readable form. Confidential
information shall include without limitation information relating directly or
indirectly to the marketing or promotion of either party's products, released
or unreleased software or other programs, trade secrets, business policies
and/or practices, and any information received by or about third parties,
including claimants, that either party is obligated to treat as confidential.
Customer and BFDS hereby acknowledge and agree that, in providing sufficient
information or access to BFDS to allow BFDS to perform in accordance with
this Agreement, or otherwise allowing BFDS to perform as required hereunder,
Customer and/or its agents, servants, customers or employees may disclose to
BFDS, or BFDS may otherwise obtain, certain information that is confidential
and/or proprietary to Customer and/or its agents, servants, employees,
customers or the dependents thereof. Customer and BFDS hereby also
acknowledge and agree that, in providing sufficient information or access to
Customer to allow Customer to perform in accordance with this Agreement, or
otherwise allowing Customer to perform as required hereunder, BFDS and/or its
agents, servants, customers or employees may disclose to Customer, or
Customer may otherwise obtain, certain information that is confidential
and/or proprietary to BFDS and/or its agents, servants, employees, customers
or the dependents thereof. Accordingly, the parties hereby agree to keep
such information confidential and prevent its unauthorized disclosure. Each
party shall: (a) not make any copies of the other's (and/or its agents'
servants' or employees', or customers') confidential information without
first obtaining the written consent of such other and/or the appropriate
individual(s) therefor; (b) not utilize any confidential information of the
other (and/or any confidential information of its agents, servants,
employees, or customers) except in the furtherance of the obligations and
responsibilities specified hereunder, and for no other purpose(s) whatsoever;
and (c) return any such confidential information in its possession to the
other immediately upon (i) the other's demand therefor, (ii) the
accomplishment of the purpose for which such confidential information is or
was held or obtained, or (iii) the expiration or other termination of this
Agreement. In the event of any breach or threatened breach by either party
(or any of either party's agents, servants, vendors, principles, owners,
affiliated persons or employees) of the covenants, agreements and/or
conditions contained in this section, the other party and/or the appropriate
agents, servants, employees, claimants, or customers shall be entitled to an
injunction prohibiting such breach in addition to any other legal and/or
equitable remedies available to them and/or the appropriate individual(s) in
connection with such breach. The parties acknowledge that any confidential
information disclosed to it is valuable, proprietary and unique and that any
disclosure thereof in breach of this Agreement shall result in irreparable
harm. The agreements, covenants and conditions contained in this section
shall survive the expiration or any earlier termination of this Agreement.
I. ASSIGNMENT:
II.
Notwithstanding the foregoing, Customer may, without the consent of BFDS,
assign or transfer this Agreement to any present or future affiliate or
<PAGE>
subsidiary of First Allmerica Financial Life Insurance Company. BFDS agrees
to release Customer from all obligations under this Agreement in the event
that such obligations are assumed under the preceding sentence by a
corporation or entity whose financial responsibility is equivalent to or
greater than that of Customer. As used herein, the term "Customer" shall
include First Allmerica Financial Life Insurance Company and all of its
present or future affiliates or subsidiaries, including without limitation
all corporate successors of any of the foregoing that may result from merger,
consolidation, reorganization, demutualization or conversion. As used
herein, the term "affiliate" shall include any entity controlling, controlled
by or under common control with, First Allmerica Financial Life Insurance
Company, or which following a merger, consolidation, demutualization or
reorganization involving First Allmerica Financial Life Insurance Company is
controlled by an entity that controlled First Allmerica Financial Life
Insurance Company or that First Allmerica Financial Life Insurance Company
controlled or that was under common control with First Allmerica Financial
Life Insurance Company, in each case, prior to such merger, consolidation,
demutualization or reorganization. BFDS may not, without the consent of
Customer, assign or transfer this Agreement to any present or future
affiliate or subsidiary of Boston Financial Data Services, Inc.
J. NOTICE:
Any notice under this Agreement shall be deemed to have been given if sent by
mail, postage prepaid, to the following addresses: if to Customer - First
Allmerica Financial Life Insurance Company, 440 Lincoln Street, Worcester, MA
01653, Attn: Manager, Cash Management, N479; or such other address as
Customer may designate by written notice to BFDS; if to BFDS - Boston
Financial Data Service, Inc., 2 Heritage Drive, No. Quincy, MA 02171,
Attention: Cash Management Services, 1st Floor.
K. SEVERABILITY:
Each and every covenant, provision, term and clause contained in this
Agreement is severable from the others, and each such covenant, provision,
term and clause shall be valid and effective notwithstanding the invalidity
or unenforceability of any other such covenant, provision, term or clause.
L. ENTIRE AGREEMENT:
This Agreement constitutes the entire Agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter hereof,
whether written or oral, and may not be changed or otherwise terminated,
orally or otherwise, except as expressly provided herein or by an instrument
in writing signed by a duly authorized representative of Customer and BFDS.
M. GOVERNING LAW:
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
The Exhibits attached hereto are hereby made a part of this Agreement.
Additional Exhibits may be added to this Agreement if set forth in a writing
signed by a duly authorized representative of both parties. If any terms are
inconsistent between this Agreement and any Exhibits attached hereto, the
terms of this Agreement shall prevail.
IN WITNESS WHEREOF, the parties hereto by their duly authorized
representatives have executed this Agreement effective as of the date first
written above.
BOSTON FINANCIAL DATA SERVICES, INC.
BY: /s/ STEPHEN HILL
<PAGE>
EXHIBIT A
(ALLMERICA FINANCIAL FEE PROPOSAL BOSTON FINANCIAL DATA SERVICES MAY 1997)
(REV. 7-14-97)
<PAGE>
Allmerica Financial
440 Lincoln Street
Worcester, MA 01653
Re: Retail Lockbox Agreement (Page 1 of 3)
Boston Financial Data Services Inc, ("BFDS") is pleased to establish a
lockbox service for your organization. The lockbox will be operated in
conjunction with Post Office Box No (the "P.O. Box") (See Attached) Boston,
MA, our unique zip code of 02266, and your deposit account(s) at Bank of
Boston entitled (the "Account").
We understand that you have authorized the postmaster in Boston to
permit employees of BFDS to access the P.O. Box. Subject to the terms of
this Agreement, BFDS hereby agrees to provide the following services:
1. BFDS will collect all mail received at the P.O. Box at
various times each day.
2. All checks removed by BFDS from the P.O. Box will be deposited
into the Account as instructed within the client's operating
procedures.
3. BFDS shall not have any responsibilities to read any letter
or other communication received in the P.O. Box, although
checks received with any letter or other communication will
be deposited in the Account. Likewise, any post-dated check
which BFDS determines will be received by the drawee bank by
the date of such check will be deposited in the Account.
BFDS is authorized to endorse checks deposited in the Account
with the endorsement "absence of endorsement guaranteed" or
other similar endorsements and you agree to indemnify BFDS
against any loss, cost or expense resulting from such
endorsement.
4. All processing, depositing and collection of checks shall be
subject to the established procedures followed from time to
time by BFDS in connection with any regular deposit received
by BFDS.
5. Checks returned unpaid because of insufficient funds will be
automatically forwarded for collection a second time; if
unpaid after the second presentation, such checks, together
with advice of debit, will be sent to you.
6. As compensation for services hereunder, you shall pay BFDS mutually
agreed upon fees and expenses.
These fees are to be applied to your account and will remain in effect
for a period of three years with an allowable increase in year two and
three no greater than the calculated Northeast CPI for the previous
period. In addition, BFDS will charge the Account for all out-of-pocket
expenses, such as courier fees, incurred by BFDS in connection with any
rent paid by BFDS for the P.O. Box.
7. This Agreement may be terminated by either party at any time by 90- days
prior written notice to the other, provided that BFDS may terminate this
Agreement at any time on notice to you in the event of your dissolution
or
<PAGE>
insolvency or the commencement of any proceedings under any bankruptcy or
insolvency law or by or against you.
8. BFDS, in performing its duties under this Agreement, shall not be liable
to you except for gross negligence or willful misconduct. BFDS shall
not be responsible for delays or failure in performance resulting from
causes beyond its control including, without limitation, acts of God,
strikes, lockouts, riots, acts of war, governmental regulations, fire,
communication line failures, power failures, earthquakes or other
disasters. BFDS shall also not be liable for special or consequential
damages.
9. Any notice under this Agreement shall be deemed to have been given if
sent by mail, postage prepaid, to the following addresses: If to you,
the address set forth on page one hereof, or to such other address as
you may designate by written notice to BFDS; if to BFDS, Boston
Financial Data Service, Inc., 2 Heritage Drive, No. Quincy, MA 02171,
Attention: Cash Management Services, 1st Floor.
10. This Agreement constitutes the entire Agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof, whether written or oral.
11. BFDS hereby agrees that all records which it maintains on behalf of
Allmerica are property of Allmerica, and further agrees to surrender
promptly to Allmerica such records upon Allmerica's request. However,
BFDS has the right to make copies of such records, in its discretion.
To the extent that any records maintained on behalf of Allmerica are
subject to section 31a-1 under the Investment Company Act of 1940 ("1940
Act"), BFDS agrees to preserve such records for the periods prescribed
by rule 31a-2 under the 1940 Act.
12. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
SEC, the NASD, and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in conjunction
with any investigation or inquiry relating to the services to be
provided by BFDS. Notwithstanding the generality of the foregoing, each
party hereto further agrees to furnish the Insurance Commissioner of any
state with any information or reports in connection with services
provided under this Agreement which such Commissioner may reasonably
request in order to ascertain whether the variable contracts operations
of Allmerica are being conducted in a manner consistent with the state's
regulations concerning variable contracts and any other applicable law
or regulation.
13. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
BOSTON FINANCIAL DATA SERVICES INC.
BY: /s/ Stephen Hill
TITLE: Vice President
DATE: 11/4/97
ALLMERICA FINANCIAL
BY: /s/ Edward A. Ostrout
TITLE: Assistant Treasurer
DATE: 11/5/97
<PAGE>
Service Level Agreement
Boston Financial Data Services
First Allmerica Financial Life Insurance Company
and
Allmerica Financial Life Insurance and Annuity Company
THIS AGREEMENT is entered into as of this _____ day of January, 1998 by and
among First Allmerica Financial Life Company and Allmerica Financial Life
Insurance and Annuity Company (collectively, "Allmerica") and Boston Financial
Data Services, Inc., ("BFDS").
WHEREAS, Allmerica and BFDS have entered into a Retail Lockbox Agreement and
Allmerica wishes to obtain from BFDS additional mailroom services in connection
with said Retail Lockbox Agreement,
NOW, THEREFORE, in consideration of their mutual promises, Allmerica and BFDS
hereby agree as follows:
1. SERVICES
BFDS hereby agrees to provide Customer with Services ("Services")
according to the specifications ("Service Levels") described in the
following Exhibits(s), which are attached hereto and made a part of this
Agreement:
1. Exhibit B "Boston Financial Data Services--Operations Support Services--
Service
Level Agreement--Allmerica Financial"
2. Exhibit C "Allmerica Financial--Notes for BFDS on Allmerica's intended
Procedures"
Additional Exhibits may be added to this Agreement if set forth in a writing
signed by duly authorized representatives of both parties. If any terms are
inconsistent between this Agreement and any exhibits attached hereto, the
terms of this Agreement shall prevail.
Material failure to provide the Services and Service Levels set forth in the
Exhibits shall be considered a Default for the purposes of section 4.
TERMINATION.
2. COMPENSATION
As compensation for services hereunder, Customer shall pay BFDS mutually
agreed upon fees and expenses as specified in Exhibit A.
<PAGE>
3. LIMITATION OF LIABILITY
Notwithstanding anything to the contrary contained herein, neither party, in
performing its duties under this Agreement, shall be liable to the other
except for gross negligence or willful misconduct. Neither party shall be
liable for special or consequential damages. BFDS shall maintain fidelity
bonding of at least $1,000,000 for claims arising from fraudulent or
dishonest acts on the part of any BFDS employee, which shall be underwritten
by reputable insurers(s) licensed to do business in the Commonwealth of
Massachusetts and having an A.M. Best rating of "A" or better. Within ten
(10) days from Customer's request therefor, BFDS shall provide to Customer
either (a) copies of all relevant insurance Policies, or (b) Certificates of
Insurance reasonably specifying the policies required hereunder.
Neither party shall not responsible for delays or failure in performance
resulting from causes beyond its control including, without limitation,
acts, of God, strikes, lockouts, rots, acts of war, governmental
regulations, fire, communication line failures, power failures, earthquakes
or other disasters.
4. TERMINATION
This Agreement may be terminated: (a) by either party at any time by 90 days
prior written notice to the other; (b) at any time by mutual written consent
of the parties; or (c) by either party immediately, upon notice to the other
party that the other party is in Default. The occurrence of any one or more
of the following events shall constitute a Default under the Agreement by
the party to whom the event relates:
(a) Any failure or refusal by a party to substantially perform or satisfy
any material term or condition of the Agreement, if such failure or
refusal continues for more than 30 days after the earlier of (i) notice
thereof to such defaulting party by the other party, or (ii) actual
knowledge by the failing party that it is failing to perform or satisfy a
material term or condition of the Agreement.
(b) The voluntary or involuntary bankruptcy or insolvency of a party, the
voluntary or involuntary dissolution or liquidation of a party, the
admission in writing by a party of its inability to pay its debts as
they mature, or the assignment by a party for the benefit of creditors.
- 2 -
<PAGE>
5. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at
such other address as such party may from time to time specify in writing to
the other party.
If to the Fund:
Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, MA 02171
If to Allmerica:
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester, MA 01653
Attention: William Hayward, Vice President
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
Attention: William Hayward, Vice President
6. RECORDS
BFDS hereby agrees that all records which it maintains on behalf of
Allmerica are the property of Allmerica, and further agrees to surrender
promptly to Allmerica such records upon Allmerica's request. However, BFDS
has the right to make copies of such records, in its discretion. To the
extent that any records maintained on behalf of Allmerica are subject to
section 312a-1 under the Investment Company Act of 1940 ("1940 Act") BFDS
agrees to preserve such records for the periods prescribed by Rule 31a-2
under the 1940 Act.
7. COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
8. SEVERABILITY
Each and every covenant, profession, term and clause contained in this
Agreement is severable from the others, and each such covenant, provision,
term and clause shall be valid and effective notwithstanding the invalidity
or unenforceability of any other such covenant, provision, term, or clause.
If any provision of the Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
- 3 -
<PAGE>
9. ASSIGNMENT
Customer may, without the consent of BFDS, assign or transfer this Agreement
to any present or future affiliate or subsidiary of First Allmerica
Financial Life Insurance Company. As used herein, the term "affiliate"
shall include any entity controlling, controlled by or under common control
with, First Allmerica Financial Life Insurance Company. BFDS may not,
without the consent of Customer, assign or transfer this Agreement to any
present or future affiliate or subsidiary of BFDS. This Agreement or any of
the rights and obligations hereunder may not be assigned by any party
without the prior written consent of all parties hereto.
10. REGULATORY AUTHORITIES
Each party hereto shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD,
and state insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Insurance Commissioner of any state with any
information or reports in connection with services provided under this
Agreement which such Commissioner may request in order to ascertain whether
the insurance operations of the Company are being conducted in a manner
consistent with applicable laws and regulations.
11. CAPTIONS
The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12. CONTROLLING LAW
This Agreement shall be governed by and its provisions shall be construed in
accordance with the laws of the Commonwealth of Massachusetts.
- 4 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ William Hayward
-----------------------------------------------------
Title: Vice President & Managing Director
-----------------------------------------------------
Date: 2/6/98
-----------------------------------------------------
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
By: /s/ William Hayward
-----------------------------------------------------
Title: Vice President & Managing Director
-----------------------------------------------------
Date: 2/6/98
-----------------------------------------------------
BOSTON FINANCIAL DATA SERVICES, INC.
By: /s/ John E. Ciardi
-----------------------------------------------------
Title: Vice President - Operations Support Services
-----------------------------------------------------
Date: 2/4/98
-----------------------------------------------------
- 5 -
<PAGE>
April 15, 1998
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
RE: SEPARATE ACCOUNT VA-K (DELAWARE MEDALLION) OF ALLMERICA FINANCIAL
LIFE INSURANCE AND ANNUITY COMPANY
FILE #'S: 33-44830 AND 811-6293
Gentlemen:
In my capacity as Counsel of Allmerica Financial Life Insurance and Annuity
Company (the "Company"), I have participated in the preparation of the
Post-Effective Amendment to the Registration Statement for Separate Account VA-K
on Form N-4 under the Securities Act of 1933 and the Investment Company Act of
1940, with respect to the Company's qualified and non-qualified variable annuity
contracts.
I am of the following opinion:
1. Separate Account VA-K is a separate account of the Company validly existing
pursuant to the Delaware Insurance Code and the regulations issued
thereunder.
2. The assets held in Separate Account VA-K are not chargeable with
liabilities arising out of any other business the Company may conduct.
3. The variable annuity contracts, when issued in accordance with the
Prospectuses contained in the Post-Effective Amendment to the Registration
Statement and upon compliance with applicable local law, will be legal and
binding obligations of the Company in accordance with their terms and when
sold will be legally issued, fully paid and non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to this
Post-Effective Amendment to the Registration Statement on Form N-4 under the
Securities Act of 1933.
Very truly yours,
/s/ Sylvia Kemp-Orino
Sylvia Kemp-Orino
Assistant Vice President and Counsel
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 14 to the Registration
Statement of the Separate Account VA-K of Allmerica Financial Life Insurance
and Annuity Company on Form N-4 of our report dated February 3, 1998,
relating to the financial statements of Allmerica Financial Life Insurance
and Annuity Company, and our report dated March 25, 1998, relating to the
financial statements of the Separate Account VA-K -- Delaware Medallion of
Allmerica Financial Life Insurance and Annuity Company, both of which appear
in such Statement of Additional Information. We also consent to the reference
to us under the heading "Experts" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
April 23, 1998
<PAGE>
PARTICIPATION AGREEMENT
Among
DELAWARE GROUP PREMIUM FUND, INC.
And
SMA LIFE ASSURANCE COMPANY
And
DELAWARE DISTRIBUTORS, INC.
THIS AGREEMENT, made and entered into this 23 day of December, 1991
by and among DELAWARE GROUP PREMIUM FUND, INC., a corporation organized under
the laws of Maryland (the "Fund"), SMA LIFE ASSURANCE COMPANY, a Delaware
corporation (the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement as in effect at the
time this Agreement is executed and such other separate accounts that may be
added to Schedule 1 from time to time in accordance with the provisions of
Article XI of this Agreement (each such account referred to as the "Account"),
and DELAWARE DISTRIBUTORS, INC., a Delaware corporation (the "Distributor").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred
<PAGE>
to as "Product owners") to be offered by insurance companies which have entered
into participation agreements with the Fund ("Participating Insurance
Companies"); and
WHEREAS, the common stock of the Fund (the "Fund shares") consists
of separate series ("Series") issuing separate classes of shares ("Series
shares"), each such class representing an interest in a particular managed
portfolio of securities and other assets; and
WHEREAS, the Fund filed with the Securities and Exchange Commission
(the "SEC") and the SEC has declared effective a registration statement
(referred to herein as the "Fund Registration Statement" and the prospectus
contained therein, or filed pursuant to Rule 497 under the 1933 Act, referred to
herein as the "Fund Prospectus") on Form N-1A to register itself as an open-end
management investment company (File No. 811-5162) under the Investment Company
Act of 1940, as amended (the "1940 Act"), and the Fund shares (File No.
33-14363) under the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has filed or will file a registration statement
with the SEC to register under the 1933 Act certain variable annuity contracts
described in Schedule 2 to this Agreement as in effect at the time this
Agreement is executed and such other variable annuity contracts and variable
life insurance policies which may be added to Schedule 2 from time to time in
accordance with Article XI of this Agreement
- 2 -
<PAGE>
(such policies and contracts shall be referred to herein collectively as the
"contracts," each such registration statement for a class or classes of
contracts listed on Schedule 2 being referred to as the "Contracts Registration
Statement" and the prospectus for each such class or classes being referred to
herein as the "Contracts Prospectus," and the owners of the such contracts, as
distinguished from all Product Owners, being referred to as "Contract Owners");
and
WHEREAS, the Account, a validly existing separate account, duly
authorized by resolution of the Board of Directors of the Company on the date
set forth on Schedule 1, sets aside and invests assets attributable to the
Contracts; and
WHEREAS, the Company has registered or will have registered the
Account with the SEC as a unit investment trust under the 1940 Act before any
Contracts are issued by the Account; and
WHEREAS, the Distributor is registered as a broker-dealer with the
SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
is a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"); and
WHEREAS, the Distributor and the Fund have entered into an agreement
(the "Fund Distribution Agreement") pursuant to which the Distributor will
distribute Fund shares; and
WHEREAS, Delaware Management Company, Inc. (the "Investment
Manager") is registered as an investment adviser
- 3 -
<PAGE>
under the 1940 Act and any applicable state securities laws and serves as an
investment manager to the Fund pursuant to an agreement; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase Series shares on behalf of the
Account to fund the Contracts and the Distributor is authorized to sell such
Series shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Distributor agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Distributor agrees to sell to the Company those Series
shares which the Company orders on behalf of the Account, executing such orders
on a daily basis in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make the shares of its Series available for
purchase by the Company on behalf of the Account at the then applicable net
asset value per share on Business Days as defined in Section 1.4 of this
Agreement, and the Fund shall use reasonable efforts to calculate such net asset
value on each such Business Day. Notwithstanding any other provision in this
Agreement to the contrary, the Board of Directors of the Fund (the "Fund Board")
may suspend or terminate the offering of Fund shares of any Series, if such
action is required by law or by
- 4 -
<PAGE>
regulatory authorities having jurisdiction or if, in the sole discretion of the
Fund Board acting in good faith and in light of its fiduciary duties under
Federal and any applicable state laws, suspension or termination is necessary
and in the best interests of the shareholders of any Series (it being understood
that "shareholders" for this purpose shall mean Product owners).
1.3. The Fund agrees to redeem, at the Company's request, any full
or fractional shares of the Fund held by the Account or the Company, executing
such requests at the net asset value on a daily basis in accordance with Section
1.4 of this Agreement, the applicable provisions of the 1940 Act and the then
currently effective Fund Prospectus. Notwithstanding the foregoing, the Fund may
delay redemption of Fund shares of any Series to the extent permitted by the
1940 Act, any rules, regulations or orders thereunder, or the then currently
effective Fund Prospectus.
1.4.
(a) For purposes of Sections 1.1, 1.2 and 1.3, the Company
shall be the agent of the Fund for the limited purpose of receiving redemption
and purchase requests from the Account (but not from the general account of the
Company), and receipt on any Business Day by the Company as such limited agent
of the Fund prior to the time prescribed in the current Fund Prospectus (which
as of the date of execution of this Agreement is 4 p.m.) shall constitute
receipt by the Fund on that same Business Day, provided that the Fund receives
notice of such
- 5 -
<PAGE>
redemption or purchase request by 11:00 a.m. Eastern Time on the next following
Business Day. For purposes of this Agreement, "Business Day" shall mean any day
on which the New York Stock exchange is open for trading or as otherwise
provided in the Fund's then currently effective Fund Prospectus.
(b) The Company shall pay for shares of each Series on the
same day that it places an order with the Fund to purchase those Series shares.
Payment for Series shares will be made by the Account or the Company in Federal
Funds transmitted to the Fund by wire to be received by 11:00 a.m. on the day
the Fund is properly notified of the purchase order for Series shares (unless
sufficient proceeds are available from redemption of shares of other Series). If
Federal Funds are not received on time, such funds will be invested, and Series
shares purchased thereby will be issued, as soon as practicable.
(c) Payment for Series shares redeemed by the Account or the
Company will be made in Federal Funds transmitted to the Company by wire on the
day the Fund is notified of the redemption order of Series shares (unless
redemption proceeds are applied to the purchase of shares of other Series),
except that the Fund reserves the right to delay payment of redemption proceeds,
but in no event may such payment be delayed longer than the period permitted
under Section 22(e) of the 1940 Act. Neither the Fund nor the Distributor shall
bear any responsibility whatsoever for the proper disbursement or
- 6 -
<PAGE>
crediting of redemption proceeds; the Company alone shall be responsible for
such action.
1.5. Issuance and transfer of Fund shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable
to the Company of any income dividends or capital gain distributions payable on
any Series shares. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any Series shares in the form of additional shares of that Series. The Company
reserves the right, on its behalf and on behalf of the Account, to revoke this
election and to receive all such dividends in cash. The Fund shall notify the
Company of the number of Series shares so issued as payment of such dividends
and distributions.
1.7. The Fund shall use its best efforts to make the net asset value
per share for each Series available to the Company by 7 p.m. Eastern Time each
Business Day, and in any event, as soon as reasonably practicable after the net
asset value per share for such Series is calculated, and shall calculate such
net asset value in accordance with the then currently effective Fund Prospectus.
Neither the Fund, any Series, the Distributor, nor the Investment Manager nor
any of
- 7 -
<PAGE>
their affiliates shall be liable for any information provided to the Company
pursuant to this Agreement which information is based on incorrect information
supplied by the Company to the Fund, the Distributor or the Investment Manager.
1.8. While this Agreement is in effect, the Company agrees that all
amounts available for investment under the Contracts (other than those listed on
Schedule 3) shall be invested only in the Fund and/or allocated to the Company's
general account, provided that such amounts may also be invested in an
investment company other than the Fund if: (a) such other investment company is
advised by the Fund's investment adviser; (b) the Fund and/or the Distributor,
in their sole discretion, consents to the use of such other investment company;
(c) there is a substitution of the Fund made in accordance with Section 10.1(e)
of this Agreement; or (d) this Agreement is terminated pursuant to Article X of
this Agreement. The Company also agrees that it will not take any action to
operate the Account as a management investment company under the 1940 Act
without the Fund's and Distributor's prior written consent.
1.9. The Fund and the Distributor agree that Fund shares will be
sold only to Participating Insurance Companies and their separate accounts. The
Fund and the Distributor will not sell Fund shares to any insurance company or
separate account unless an agreement complying with Article VII of this
Agreement is in effect to govern such sales. No Fund shares of any Series will
be sold to the general public.
- 8 -
<PAGE>
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, (b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws and (c) that the Company
will require of every person distributing the Contracts (i) that the Contracts
be offered and sold in compliance in all material respects with all applicable
Federal and state laws and (ii) that at the time it is issued each Contract is a
suitable purchase for the applicant therefor under applicable state insurance
laws. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that it has
legally and validly authorized the Account as a separate account under Title 18,
Section 2932 of the Delaware Insurance Code, and has registered or, prior to the
issuance of any Contracts, will register the Account as a unit investment trust
in accordance with the provisions of the 1940 Act to serve as a separate account
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law and that the Fund is
and shall remain registered under the 1940 Act for so long as the Fund shares
are sold. The
- 9 -
<PAGE>
Fund further represents and warrants that it is a corporation duly organized and
in good standing under the laws of Maryland.
2.3. The Fund represents that it currently qualifies and will make
every effort to continue to qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
to maintain such qualification (under Subchapter M or any successor or similar
provision), and that it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
2.4. The Fund represents that it will comply with Section 817(h) of
the Code, and all regulations issued thereunder.
2.5. The Company represents that the Contracts are currently and at
the time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code. The
Company shall make every effort to maintain such treatment and shall notify the
Fund and the Distributor immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.6. The Fund represents that the Fund's investment policies, fees
and expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Delaware, to the extent required to
perform this Agreement and with any investment restrictions set forth on
Schedule 4, as
- 10 -
<PAGE>
amended from time to time by the Company in accordance with Section 6.6. The
Fund, however, makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) otherwise complies with the insurance laws or regulations of any
state. The Company alone shall be responsible for informing the Fund of any
investment restrictions imposed by state insurance law and applicable to the
Fund.
2.7. The Distributor represents and warrants that the Distributor is
duly registered as a broker-dealer under the 1934 Act, a member in good standing
with the NASD, and duly registered as a broker-dealer under applicable state
securities laws; its operations are in compliance with applicable law, and it
will distribute the Fund shares according to applicable law.
2.8. The Distributor, on behalf of the Investment Manager,
represents and warrants that the Investment Manager is registered as an
investment adviser under the Investment Advisers Act of 1940 and is in
compliance with applicable federal and state securities laws.
2.9. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-l under the 1940 Act.
-11-
<PAGE>
ARTICLE III. Prospectuses and Proxy Statements; Sales Material and Other
Information
3.1. The Distributor shall provide the Company (at its expense) with
as many copies of the current Fund Prospectus as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide the
Fund Prospectus (including a final copy of the new prospectus as set in type at
the Distributor's expense) and other assistance as is reasonably necessary in
order for the Company to have a new Contracts Prospectus printed together with
the Fund Prospectus in one document (the cost of such printing to be shared
equally by the Company and the Distributor).
3.2. The Fund Prospectus shall state that the Statement of
Additional Information for the Fund is available from the Distributor (or, in
the Fund's discretion, the Fund Prospectus shall state that such Statement is
available from the Fund), and the Distributor (or the Fund) shall provide such
Statement free of charge to the Company and to any outstanding or prospective
Contract owner who requests such Statement.
3.3. The Fund (at its cost) shall provide the Company with copies of
its proxy material, shareholder reports and other communications to the Company.
3.4. The Company shall not, without the prior written consent of the
Distributor (unless otherwise required by applicable law), solicit, induce or
encourage Contract owners to (a) change the Fund's investment adviser or
contract with any
- 12 -
<PAGE>
sub-investment adviser, or (b) change, modify, substitute, add or delete the
Fund or other investment media.
3.5. The Company shall furnish each piece of sales literature or
other promotional material in which the Fund or the Investment Manager or the
Distributor is named to the Fund or the Distributor prior to its use. No such
material shall be used, except with the prior written permission of the Fund or
the Distributor. The Fund and the Distributor agree to respond to any request
for approval on a prompt and timely basis. Failure to respond shall not relieve
the Company of the obligation to obtain the prior written permission of the Fund
or the Distributor.
3.6. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund or by the Distributor, except with the prior written permission of the
Fund or the Distributor. The Fund and the Distributor agree to respond to any
request for permission on a prompt and timely basis. Failure to respond shall
not relieve the Company of the obligation to obtain the prior written permission
of the Fund or the Distributor.
- 13 -
<PAGE>
3.7. The Fund and the Distributor shall not give any information or
make any representations on behalf of the Company or concerning the Company, the
Account or the Contracts other than the information or representations contained
in the Contracts Registration Statement or Contracts Prospectus, as such
Registration Statement and Prospectus may be amended or supplemented from time
to time, or in published reports of the Account which are in the public domain
or approved in writing by the Company for distribution to Contract owners, or in
sales literature or other promotional material approved in writing by the
Company, except with the prior written permission of the Company. The Company
agrees to respond to any request for permission on a prompt and timely basis.
Failure to respond shall not relieve the Fund or the Distributor of the
obligation to obtain the prior written permission of the Company.
3.8. The Fund will provide to the Company at least one complete copy
of all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, promptly after the filing of such
document with the SEC or other regulatory authorities.
3.9. The Company will provide to the Fund at least one complete
copy of all Contracts Registration Statements, Contracts
- 14 -
<PAGE>
Prospectuses, Statements of Additional Information, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
or supplements to any of the above, that relate to the Contracts or those
Sub-Accounts of the Account to which Contract purchase payments and value are
allocable, promptly after the filing of such document with the SEC or other
regulatory authorities.
3.10. Each party will provide to the other party copies of draft
versions of any registration statements, prospectuses, statements of additional
information, reports, proxy statements, solicitations for voting instructions,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, to the extent that the other party reasonably needs such information for
purposes of preparing a report or other filing to be filed with or submitted to
a regulatory agency. If a party requests any such information before it has been
filed, the other party will provide the requested information if then available
and in the version then available at the time of such request.
3.11. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape dis-
- 15 -
<PAGE>
play, signs or billboards, motion pictures or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, Statements of Additional Information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. Voting
Subject to applicable law, the Company shall:
(a) solicit voting instructions from Contract owners;
(b) vote Fund shares of each Series attributable to Contract
owners in accordance with instructions or proxies timely
received from such Contract owners;
(c) vote Fund shares of each Series attributable to Contract
owners for which no instructions have been received in
the same proportion as Fund shares of such Series for
which instructions have been timely received; and
(d) vote Fund shares of each Series held by the Company on
its own behalf or on behalf of the Account that are not
attributable to Contract owners in the same proportion
as Fund shares of such Series for which instructions
have been timely received.
- 16 -
<PAGE>
The Company shall be responsible for assuring that voting privileges for the
Account are calculated in a manner consistent with the provisions set forth
above and with other Participating Insurance Companies.
ARTICLE V. Fees and Expenses
5.1. The Fund and Distributor shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Series
adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then the Distributor may make payments to the
Company in amounts agreed to by the Company and the Distributor in writing.
Currently, no such payments are contemplated. The Fund currently does not intend
to make any payments to finance distribution expenses pursuant to Rule 12b-l
under the 1940 Act or in contravention of such rule, although it may make
payments pursuant to Rule 12b-1 in the future.
5.2. All expenses incident to performance by the Fund under this
Agreement (including expenses expressly assumed by the Fund pursuant to this
Agreement) shall be paid by the Fund to the extent permitted by law. Except as
may otherwise be provided in Sections 1.4 and 3.1 of this Agreement (or Article
VII, as it may be amended), the Company shall not bear any of the expenses for
the cost of registration and qualification of the Fund shares under Federal and
any state securities law, preparation and filing of the Fund Prospectus and Fund
Registration Statement,
- 17 -
<PAGE>
Fund proxy materials and reports, setting the Prospectus in type, setting in
type and printing and distributing the Fund proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes an
annual report), the preparation of all statements and notices required by any
Federal or state securities law, all taxes on the issuance or transfer of Fund
shares, and any expenses permitted to be paid or assumed by the Fund pursuant to
a plan, if any, under Rule 12b-1 under the 1940 Act.
ARTICLE VI. Compliance Undertakings
6.1. The Fund undertakes to comply with Subchapter M and Section
817(h) of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statement
under the 1933 Act and the Account's Registration Statement under the 1940 Act
from time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the
1933 Act and the 1940 Act from time to time as required in order to effect for
so long as Fund shares are sold the continuous offering of Fund shares as
described in the
- 18 -
<PAGE>
then currently effective Fund Prospectus. The Fund shall register and qualify
Fund shares for sale to the extent required by applicable securities laws of the
various states.
6.4. The Company shall be responsible for assuring that any
prospectus offering a Contract that is a life insurance contract where it is
reasonably probable that such Contract would be a "modified endowment contract,"
as that term is defined in Section 7702A of the Code, will identify such
Contract as a modified endowment contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
6.6. The Company shall amend Schedule 4 when appropriate in order to
inform the Fund of any applicable investment restrictions with which the Fund
must comply.
ARTICLE VII. Potential Conflicts
The parties to this Agreement acknowledge that the Fund intends to
file an application with the SEC to request an order granting relief from
various provisions of the 1940 Act and the rules thereunder to the extent
necessary to permit Fund shares to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
Participating Insurance Companies. The parties to this Agreement
- 19 -
<PAGE>
agree that any conditions or undertakings that may be imposed on the Company,
the Fund and/or the Distributor by virtue of such order shall be incorporated
herein by this reference, as of the date such order is granted, as though set
forth herein in full, and such parties agree to comply with such conditions and
undertakings to the extent applicable to each such party. The Fund and the
Distributor will not enter into a participation agreement with any other
Participating Insurance Company unless it imposes the same conditions and
undertakings incorporated by reference herein on the parties to such agreement.
ARTICLE VIII. Indemnification
8.1. Indemnification by the Company
The Company agrees to indemnify and hold harmless the Fund, the
Distributor and each person who controls or is associated with the Fund or the
Distributor within the meaning of such terms under the federal securities laws
and any officer, trustee, director, employee or agent of the foregoing, against
any and all losses, claims, damages or liabilities, joint or several (including
any investigative, legal and other expenses reasonably incurred in connection
with, and any amounts paid in settlement of, any action, suit or proceeding or
any claim asserted), to which they or any of them may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any
- 20 -
<PAGE>
material fact contained in the Contracts Registration
Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts
themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which
they were made; provided that this obligation to indemnify
shall not apply if such statement or omission or such alleged
statement or alleged omission was made in reliance upon and in
conformity with information furnished in writing to the
Company by the Fund or the Distributor (or a person authorized
in writing to do so on behalf of the Fund or the Distributor)
for use in the Contracts Registration Statement, Contracts
Prospectus or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact by or on behalf of the
Company (other than statements or representations contained in
the Fund Registration Statement, Fund Prospectus or sales
literature or other promotional material of the Fund not
supplied by the Company or persons under its control) or
wrongful conduct of the Company or persons under its control
with respect to the sale or distribution of the Contracts or
Fund shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other
promotional material of the Fund or any amendment thereof or
supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on
behalf of the Company; or
(d) arise as a result of any failure by the Company to provide the
services and furnish the materials or
- 21 -
<PAGE>
to make any payments under the terms of this Agreement; or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to
transmit a request for redemption or purchase of Fund shares
on a timely basis in accordance with the procedures set forth
in Article I.
This indemnification will be in addition to any liability which the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. Indemnification by the Distributor
The Distributor agrees to indemnify and hold harmless the Company
and each person who controls or is associated with the Company within the
meaning of such terms under the federal securities laws and any officer,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund
Registration Statement, Fund Prospectus (or any amendment or
- 22 -
<PAGE>
supplement thereto) or sales literature or other promotional
material of the Fund, or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or
omission or alleged statement or alleged omission was made in
reliance upon and in conformity with information furnished in
writing by the Company to the Fund or the Distributor for use
in the Fund Registration Statement, Fund Prospectus (or any
amendment or supplement thereto) or sales literature for the
Fund or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact by the Distributor or the
Fund (other than statements or representations contained in
the Fund Registration Statement, Fund Prospectus or sales
literature or other promotional material of the Fund not
supplied by the Distributor or the Fund or persons under their
control) or wrongful conduct of the Distributor or persons
under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Contract's Registration
Statement, Contracts Prospectus or sales literature or other
promotional material for the Contracts (or any amendment or
supplement thereto), or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such
statement or omission was made in reliance upon information
furnished in writing by the Distributor or the Fund to the
Company (or a person authorized in writing to do so on behalf
of the Fund or the Distributor); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
- 23 -
<PAGE>
requirements specified in Article VI of this Agreement); or
(e) arise out of any material breach by the Distributor or the
Fund of this Agreement.
This indemnification will be in addition to any liability which the Distributor
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. Indemnification Procedures
After receipt by a party entitled to indemnification ("indemnified
party") under this Article VIII of notice of the commencement of any action, if
a claim in respect thereof is to be made by the indemnified party against any
person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that the omission to so notify the indemnifying party will not relieve
it from any liability under this Article VIII, except to the extent that the
omission results in a failure of actual notice to the indemnifying party and
such indemnifying party is damaged solely as a result of the failure to give
such notice. The indemnifying party, upon the request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
- 24 -
<PAGE>
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article VIII.
The indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of
- 25 -
<PAGE>
the state of Delaware, without giving effect to the principles of conflicts of
laws.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant, and the terms hereof shall be limited, interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon six months advance written
notice to the other parties, such termination to be effective no earlier than
one year following the date on which the first Contract is issued to the public;
or
(b) at the option of the Company if shares of any Series are
not reasonably available to meet the requirements of the Contracts as determined
by the Company. Prompt notice of the election to terminate for such cause shall
be furnished by the Company, said termination to be effective ten days after
receipt of notice unless the Fund makes available a sufficient number of Fund
shares to meet the requirements of the Contracts within said ten-day period; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the insurance commission
of any state or any other regulatory body
- 26 -
<PAGE>
regarding the Company's duties under this Agreement or related to the sale of
the Contracts, the operation of the Account, the administration of the Contracts
or the purchase of Fund shares, or an expected or anticipated ruling, judgment
or outcome which would, in the Fund's reasonable judgment, materially impair the
Company's ability to meet and perform the Company's obligations and duties
hereunder; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund by the NASD, the SEC, or any state securities or
insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract owners having an
interest in the affected Series and the written approval of the Distributor
(unless otherwise required by applicable law), to substitute the shares of
another investment company for the corresponding Series shares of the Fund in
accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the
Contracts are not registered, issued or sold in accordance with applicable
Federal and/or state law; or
(g) by either the Company or the Fund upon a determination by
a majority of the Fund Board, or a majority of disinterested Fund Board members,
that an irreconcilable material conflict exists among the interests of (i) all
Product owners or (ii) the interests of the Participating Insurance Companies
investing in the Fund; or
- 27 -
<PAGE>
(h) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code, or under any
successor or similar provision, or if the Company reasonably believes based on
an opinion of counsel satisfactory to the Fund that the Fund may fail to so
qualify; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code and any
regulations thereunder; or
(j) at the option of the Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Fund reasonably believes that the Contracts may fail to so
qualify; or
(k) at the option of either the Fund or the Distributor if the
Fund or the Distributor, respectively, shall determine, in their sole judgment
exercised in good faith, that either (1) the Company shall have suffered a
material adverse change in its business or financial condition or (2) the
Company shall have been the subject of material adverse publicity which is
likely to have a material adverse impact upon the business and operations of
either the Fund or the Distributor; or
(l) at the option of the Company, if the Company shall
determine, in its sole judgment exercised in good faith, that the Fund or the
Distributor shall have been the subject of material adverse publicity which is
likely to have a material
- 28 -
<PAGE>
adverse impact upon the business and operations of the Company; or
(m) upon the assignment of this Agreement (including, without
limitation, any transfer of the Contracts or the Account to another insurance
company pursuant to an assumption reinsurance agreement) unless the
non-assigning party consents thereto or unless this Agreement is assigned to an
affiliate of the Distributor.
10.2. Notice Requirement. Except as otherwise provided in Section
10.1, no termination of this Agreement shall be effective unless and until the
party terminating this Agreement gives prior written notice to all other parties
to this Agreement of its intent to terminate which notice shall set forth the
basis for such termination. Furthermore:
(a) In the event that any termination is based upon the
provisions of Article VII or the provisions of Section 10.1(a) of this
Agreement, such prior written notice shall be given in advance of the effective
date of termination as required by such provisions; and
(b) in the event that any termination is based upon the
provisions of Section 10.1(c) or 10.1(d) of this Agreement, such prior written
notice shall be given at least ninety (90) days before the effective date of
termination.
(c) in the event that any termination is based upon the
provisions of Section 10.1(e) of this Agreement, such prior written notice shall
be given at least sixty (60) days
- 29 -
<PAGE>
before the date of any proposed vote to replace the Fund's shares.
10.3. Except as necessary to implement Contract owner initiated
transactions, or as required by state insurance laws or regulations, the Company
shall not redeem Fund shares attributable to the Contracts (as opposed to Fund
shares attributable to the Company's assets held in the Account).
10.4. Effect of Termination
(a) Notwithstanding any termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund and the Distributor may, at the
option of the Fund, continue to make available additional Fund shares for so
long after the termination of this Agreement as the Fund desires pursuant to the
terms and conditions of this Agreement as provided in paragraph (b) below, for
all Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if the Fund or Distributor so elects to make additional Fund shares
available, the owners of the Existing Contracts or the Company, whichever shall
have legal authority to do so, shall be permitted to reallocate investments in
the Fund, redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing Contracts.
(b) In the event of a termination of this Agreement pursuant
to Section 10.1 of this Agreement, the Fund and the Distributor shall promptly
notify the Company whether the
- 30 -
<PAGE>
Distributor and the Fund will continue to make Fund shares available after such
termination. If Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect except for
Section 10.1(a) and thereafter either the Fund or the Company may terminate the
Agreement, as so continued pursuant to this Section 10.4, upon prior written
notice to the other party, such notice to be for a period that is reasonable
under the circumstances but, if given by the Fund, need not be for more than six
months.
(c) The parties agree that this Section 10.4 shall not apply
to any termination made pursuant to Article VII or any conditions or
undertakings incorporated by reference in Article VII, and the effect of such
Article VII termination shall be governed by the provisions set forth or
incorporated by reference therein.
ARTICLE XI. Applicability to New Accounts and New Contacts
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts
and to add new classes of variable annuity contracts and variable life insurance
policies to be issued by the Company through a Separate Account investing in the
Fund. The provisions of this Agreement shall be equally applicable to each such
class of contracts or policies, unless the context otherwise requires.
- 31 -
<PAGE>
ARTICLE XII. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Delaware Group Premium Fund, Inc.
Ten Penn Center Plaza
Philadelphia, PA 19103
Attn: Daniel J. O'Brien
If to the Company:
Charles W. Grover II
Vice President, Individual Insurance Marketing
SMA Life Assurance Company
440 Lincoln Street
Worcester, MA 01605
If to the Distributor:
Mr. Michael P. Drennan
Vice President
Delaware Distributors, Inc.
Ten Penn Center Plaza
Philadelphia, PA 19103
ARTICLE XIII. Miscellaneous
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
- 32 -
<PAGE>
13.3. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
- 33 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
SMA LIFE ASSURANCE COMPANY
(Company)
Date: 12/23/, 1991 By: /s/ Charles W. Grover, II
-----------------------------
Name: Charles W. Grover, II
Title: Vice President, Ind. Ins.
Marketing
DELAWARE GROUP PREMIUM FUND, INC.
(Fund)
Date: 12/23, 1991 By: /s/ Michael P. Drennan
-----------------------------
Name: Michael P. Drennan
Title: Vice President
DELAWARE DISTRIBUTORS, INC.
(Distributor)
Date: 12/23, 1991 By: /s/ Michael P. Drennan
-----------------------------
Name: Michael P. Drennan
Title: Vice President
<PAGE>
Schedule 1
Separate Accounts of SMA Life Assurance Company
Investing in the Fund
As of December 23, 1991
Name of Account Date Established
- --------------- ----------------
Separate Account VA-K
of SMA Life Assurance Company November 1, 1990
<PAGE>
Schedule 2
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of December 23, 1991
Individual Variable Annuity Policies
funded by sub-accounts of Separate Account VA-K
and investing in shares of
Delaware Group Premium Fund, Inc.
<PAGE>
Schedule 3
Variable Contracts
Excluded from Section 1.8
As of December 23, 1991
Individual Variable Annuity Policies Marketed
under the name "ExecAnnuity Plus"
<PAGE>
Schedule 4
Investment Restrictions
Applicable to the Fund
As of December 23, 1991
None
<PAGE>
FIRST AMENDMENT TO
PARTICIPATION AGREEMENT
THIS FIRST AMENDMENT (the "Amendment Agreement") to the Participation
Agreement dated December 23, 1991 (the "Participation Agreement") by and among
DELAWARE GROUP PREMIUM FUND, INC. (the "FUND"), SMA LIFE ASSURANCE COMPANY
("SMA"), on its own behalf and on behalf of each separate account of SMA, and
DELAWARE DISTRIBUTORS, INC. (the "DISTRIBUTOR") is made as of the first day of
April, 1994 by and among the FUND, the DISTRIBUTOR, SMA, on its own behalf and
on behalf of each separate account of SMA named in Schedule 1 to this Amendment
Agreement as in effect as of the time this Amendment Agreement is executed and
such other separate accounts of SMA that may be added to Schedule 1 from time to
time in accordance with the provisions of Article XI of the Participation
Agreement (each such account referred to as the "SMA Account"), and STATE MUTUAL
LIFE ASSURANCE COMPANY OF AMERICA ("STATE MUTUAL"), on its own behalf and on
behalf of each separate account of STATE MUTUAL named in Schedule 1 to this
Amendment Agreement as in effect as of the time this Amendment Agreement is
executed and such other separate accounts of STATE MUTUAL that may be added to
Schedule 1 from time to time in accordance with the provisions of Article XI of
the Participation Agreement (each such account referred to as the "STATE MUTUAL
Account").
WHEREAS, the FUND, SMA, and the DISTRIBUTOR previously entered into the
Participation Agreement; and
<PAGE>
WHEREAS, the FUND, SMA, and the DISTRIBUTOR wish to add STATE MUTUAL as a
party to the Participation Agreement to enable STATE MUTUAL to purchase shares
of common stock issued by the various series of the FUND on behalf of the STATE
MUTUAL Account;
NOW THEREFORE, for consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, the FUND, the
DISTRIBUTOR, SMA, and STATE MUTUAL agree as follows:
1. Effective as of the date hereof, STATE MUTUAL shall be a party to the
Participation Agreement and shall independently be entitled to the same rights
and subject to the same obligations, covenants, conditions, undertakings and
liabilities under the Participation Agreement as SMA.
2. Effective as of the date hereof, STATE MUTUAL hereby makes, on its own
behalf and in respect of the STATE MUTUAL Account and Contracts (as defined in
the Participation Agreement) issued by STATE MUTUAL and not on behalf of SMA nor
in respect of the SMA Account or Contracts issued by SMA, the representations
and warranties set forth in Sections 2.1 and 2.5 of the Participation Agreement.
3. Effective as of the date hereof, all references in the Participation
Agreement to "the Company" shall hereafter be references to "SMA and/or STATE
MUTUAL, as the case may be."
2
<PAGE>
4. Effective as of the date hereof, the term "the Account" in the
Participation Agreement shall hereafter be read to include the SMA Account
and/or the STATE MUTUAL Account, as the case may be.
5. Effective as of the date hereof, except as otherwise set forth herein,
the term "Contracts" in the Participation Agreement shall hereafter be read to
include Contracts issued by SMA and/or Contracts issued by STATE MUTUAL, as the
case may be.
6. Schedules 1, 2, and 3 to the Participation Agreement are hereby amended
and restated in their entirety as set forth on Schedules 1, 2, and 3,
respectively, to this Amendment Agreement.
7. All references in the Participation Agreement to the "Investment
Manager" shall hereafter be references to Delaware Management Company, Inc. or
Delaware International Advisers Ltd., as appropriate.
8. With respect to the termination provisions set forth in Article X of
the Participation Agreement, (i) any notice provided by or option exercised by
SMA shall be operative solely with respect to SMA, and (ii) any notice provided
by or option exercised by STATE MUTUAL shall be operative solely with respect to
STATE MUTUAL.
9. All notices to be provided to any party to the Participation Agreement,
as amended, shall be sent in accordance with Article XII of the Participation
Agreement at the address of such party set forth below or at such other address
as such party may from time to time specify in writing to the other parties:
3
<PAGE>
If to the FUND:
Delaware Group Premium Fund, Inc.
1818 Market Street
Philadelphia, PA 19103
Attn: Daniel J. O'Brien
If to SMA:
Lila M. Weihs
Director, Annuity Products
SMA Life Assurance Company
440 Lincoln Street
Worcester, MA 01653
If to the DISTRIBUTOR:
Delaware Distributors, Inc.
1818 Market Street
Philadelphia, PA 19103
Attn: Michael P. Drennan, Vice President
If to STATE MUTUAL:
Lila M. Weihs
Director, Annuity Products
State Mutual Life Assurance Company of the America
440 Lincoln Street
Worcester, MA 01653
10. All other provisions of the Participation Agreement not amended by
this Amendment Agreement shall remain in full force and effect as set forth in
the Participation Agreement.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
Agreement to be executed in its name and on its behalf by its duly authorized
officer as of the date first set forth above.
STATE MUTUAL LIFE ASSURANCE SMA LIFE ASSURANCE COMPANY
COMPANY OF AMERICA
By: /s/ Richard M. Reilly By: /s/ Richard M. Reilly
--------------------------- ---------------------------
Name: Richard M. Reilly Name: Richard M. Reilly
Title: Vice President Title: Vice President
DELAWARE GROUP PREMIUM DELAWARE DISTRIBUTORS, INC.
FUND, INC.
By: /s/ By: /s/
--------------------------- ---------------------------
Name: Name:
Title: Title:
5
<PAGE>
SCHEDULE 1
Separate Accounts of SMA Life Assurance Company
and State Mutual Life Assurance Company of America
Investing in the Fund
As of April 1, 1994
Name of Account Date Established
- --------------- ----------------
Separate Account VA-K November 1, 1990
of SMA Life Assurance Company
Separate Account VEL June 3, 1987
of SMA Life Assurance Company
Separate Account VEL II January 21, 1993
of SMA Life Assurance Company
Separate Account Inheiritage* September 15, 1993
of SMA Life Assurance Company
Separate Account VA-K of August 20, 1991
State Mutual Life Assurance
Company of America
Separate Account VEL-II August 20, 1991
of State Mutual Life Assurance
Company of America
Separate Account Inheiritage* August 20, 1991
of State Mutual Life Assurance
Company of America
* Regulatory approvals are pending for the Inheiritage products.
<PAGE>
SCHEDULE 2
(continued)
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of April 1, 1994
State Mutual Life Assurance Company of America
Individual Delaware Medallion Variable Annuity Contracts funded by sub-accounts
of Separate Account VA-K and investing in shares of Delaware Group Premium Fund,
Inc.
Individual ExecAnnuity Plus Variable Annuity Contracts funded by sub-accounts of
Separate Account VA-K and investing in shares of the International Equity Series
of Delaware Group Premium Fund, Inc.
Individual VEL II Variable Life Insurance Policies funded by sub-accounts of
Separate Account VEL II and investing in shares of the International Equity.
Series of Delaware Group Premium Fund, Inc.
Individual Inheiritage* Variable Life Insurance Policies funded by sub-accounts
of Separate Account Inheiritage and investing in shares of the International
Equity Series of Delaware Group Premium Fund, Inc.
* Regulatory approvals are currently pending for the Inheiritage product.
<PAGE>
SCHEDULE 3
Variable Contracts
Excluded from Section 1.8
As of April 1, 1994
SMA Life Assurance Company
Individual Variable Annuity Policies Marketed under the name "ExecAnnuity Plus"
Individual Variable Life Insurance Policies Marketed under the name "VEL"
Individual Variable Life Insurance Policies Marketed under the name "VEL Plus"
Individual Variable Life Insurance Policies Marketed under the name "VEL II"
Individual Variable Life Insurance Policies to be Marketed under the name
"Inheiritage" *
State Mutual Life Assurance Company of America
Individual Variable Annuity Policies Marketed under the name "ExecAnnuity Plus"
Individual Variable Life Insurance Policies Marketed under the name "VEL II"
Individual Variable Life Insurance Policies to be Marketed under the name
"Inheiritage"*
*Regulatory approvals are currently pending for the Inheiritage product.
