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File No. 33-47858
811-6666
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post Effective Amendment No. 10
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 10
SEPARATE ACCOUNT I of
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(Exact Name of Registrant)
FIRST ALLMERICA FINANCIAL LIFE INSURANCE 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
First Allmerica Financial Life Insurance 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
("1940 Act"), Registrant hereby declares that an indefinite amount of its
securities is being registered under the Securities Act of 1933 ("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.
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CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
ITEMS CALLED FOR BY FORM N-4
FORM N-4 ITEM NO. CAPTION IN PROSPECTUS
- ----------------- ---------------------
1 Cover Page
2 Special Terms
3 Summary; Annual and Transaction Expenses
4 Condensed Financial Information; Performance Information
5 Description of the Company, the Separate Account, the Trust
6 Charges and Deductions
7 Description of the Contract
8 The Variable Annuity Policies
9 Death Benefit
10 Purchase Payments; Computation of IRA Account Values and
Annuity Payments
11 Surrender; Partial Redemption
12 Federal Tax Considerations
13 Legal Matters
14 Statement of Additional Information-Table of Contents
FORM N-4 ITEM NO. CAPTION IN STATEMENT OF ADDITIONAL INFORMATION
- ----------------- ----------------------------------------------
15 Cover Page
16 Table of Contents
17 General Information and History
18 Services
19 Underwriters
20 Underwriters
21 Performance Information
22 Annuity Payments
23 Financial Statements
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FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
GROUP VARIABLE ANNUITY CONTRACTS FUNDED THROUGH SEPARATE ACCOUNT I
This Prospectus describes group variable annuity contracts ("Contracts") offered
by First Allmerica Financial Life Insurance Company ("Company"). Each Contract
establishes individual retirement annuities ("IRA Accounts") qualified under
Section 408(b) of the Internal Revenue Code ("Code") for the benefit of
Participant-Owners. For information about the tax status of IRA Accounts, see
"FEDERAL TAX CONSIDERATIONS." The Participant-Owners are employees or former
employees (or their spouses, for spousal IRAs) of the Policyholder. An
individual certificate of coverage ("Certificate") will be issued to each
Participant-Owner (hereinafter, referred to as "You") as evidence of your rights
and benefits under the Contract.
The Contracts permit You to make net contributions to each IRA Account to be
allocated among Sub-Accounts of Separate Account I. The Sub-Accounts invest in
the following funds ("Funds") of Allmerica Investment Trust ("Trust"):
ALLMERICA INVESTMENT TRUST
Select International Equity Fund
Select Aggressive Growth Fund
Growth Fund
Equity Index Fund
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
This Prospectus generally describes only the variable accumulation aspects of
the Contracts, except where General Account interests, including fixed values
and annuity payments, are specifically mentioned. ALLOCATIONS TO AND TRANSFERS
TO AND FROM THE GENERAL ACCOUNT ARE NOT PERMITTED IN CERTAIN STATES. Certain
additional information about the Contracts is contained in a Statement of
Additional Information, dated May 1, 1998, as amended from time to time, which
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The Table of Contents for the Statement of Additional
Information ("SAI") is listed on page 2 of this Prospectus. The SAI is available
upon request and without charge. To obtain the SAI, contact Allmerica
Institutional Services, Station C-36, First Allmerica Financial Life Insurance
Company, 440 Lincoln Street, Worcester, Massachusetts 01653, 1-800-533-7865.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS OF
ALLMERICA INVESTMENT TRUST. 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 CONTRACTS ARE OBLIGATIONS OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE
COMPANY AND ARE DISTRIBUTED BY ITS SUBSIDIARY, 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.
INVESTMENT IN THE CONTRACTS ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE
FLUCTUATION OF VALUE AND POSSIBLE LOSS OF PRINCIPAL.
DATED MAY 1, 1998
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TABLE OF CONTENTS
<TABLE>
<S> <C>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION............................ 2
SUMMARY................................................................................. 3
SPECIAL TERMS........................................................................... 6
ANNUAL AND TRANSACTION EXPENSES......................................................... 7
CONDENSED FINANCIAL INFORMATION......................................................... 9
PERFORMANCE INFORMATION................................................................. 10
WHAT IS AN INDIVIDUAL RETIREMENT ANNUITY?............................................... 12
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY........................................... 12
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT, AND THE TRUST......................... 12
Investment Objectives and Policies.................................................... 14
Investment Advisory Services to the Trust............................................. 15
Addition, Deletion or Substitution of Investments..................................... 16
VOTING RIGHTS........................................................................... 16
CHARGES AND DEDUCTIONS.................................................................. 17
Surrender and Redemption Charge....................................................... 17
Premium Taxes......................................................................... 18
IRA Account Fee....................................................................... 18
Annual Charges Against Separate Account Assets........................................ 19
Other Charges......................................................................... 19
DESCRIPTION OF THE CONTRACT............................................................. 19
Contributions......................................................................... 20
Transfer Privilege.................................................................... 21
Surrender Privilege................................................................... 21
Redemption Privilege.................................................................. 22
Death Benefit......................................................................... 22
The Spouse of the Participant-Owner as Beneficiary.................................... 23
Ownership and Non-Alienation of IRA Accounts.......................................... 23
Electing the Form of Annuity and the Annuity Date..................................... 23
Description of Annuity Options........................................................ 23
IRA Account Values and Annuity Payments............................................... 24
FEDERAL TAX CONSIDERATIONS.............................................................. 26
Taxation of the Contracts in General.................................................. 26
Tax Withholding and Penalties......................................................... 27
Individual Retirement Accounts in General............................................. 27
REPORTS................................................................................. 27
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT............................................ 27
LEGAL MATTERS........................................................................... 28
FURTHER INFORMATION..................................................................... 28
APPENDIX A -- MORE INFORMATION ABOUT THE GENERAL ACCOUNT................................ A-1
</TABLE>
TABLE OF CONTENTS
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
GENERAL INFORMATION AND HISTORY......................................................... 2
TAXATION OF THE CONTRACTS, SEPARATE ACCOUNT AND THE COMPANY............................. 3
SERVICES................................................................................ 3
UNDERWRITERS............................................................................ 3
ANNUITY PAYMENTS........................................................................ 4
PERFORMANCE INFORMATION................................................................. 5
FINANCIAL STATEMENTS.................................................................... F-1
</TABLE>
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SUMMARY
IRA ACCOUNT
Each IRA Account established under the Contract is intended to be an individual
retirement annuity qualified under Section 408(b) of the Internal Revenue Code
("Code"). See "Individual Retirement Annuities." You may establish an IRA
Account with a rollover distribution from a qualified retirement plan maintained
by the Policyholder. You may also establish an additional IRA Account for your
spouse. Separate IRA Accounts will be maintained under the Contract for rollover
contributions and annual deductible and non-deductible contributions, unless You
request otherwise in writing. A separate Certificate will be issued for each IRA
Account maintained for You.
INVESTMENT OPTIONS
The Contracts permit net contributions to each IRA Account to be allocated among
Sub-Accounts of Separate Account I ("Separate Account"), a separate account of
the Company, and of the General Account, where available. The Separate Account
is registered as a unit investment trust under the Investment Company Act of
1940, as amended, ("1940 Act"), but such registration does not involve the
supervision of the management or investment practices or policies of the
Separate Account by the Securities and Exchange Commission (the "SEC"). For
information about the Separate Account and the Company, see "DESCRIPTION OF THE
COMPANY, THE SEPARATE ACCOUNT, AND THE TRUST." For more information about the
General Account, see APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Each Sub-Account of the Separate Account invests its assets without sales charge
in a corresponding investment series of Allmerica Investment Trust ("Trust").
The following seven underlying funds ("Funds") are offered under this
Prospectus:
ALLMERICA INVESTMENT TRUST
Select International Equity Fund
Select Aggressive Growth Fund
Growth Fund
Equity Index Fund
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
INVESTMENT IN THE SUB-ACCOUNTS OF THE SEPARATE ACCOUNT
Until the Valuation Date that is 15 days from the date the IRA Account was
established, all Separate Account allocations will be held in the Money Market
Sub-Account. Thereafter, all amounts will be allocated according to your
instructions. The value of each Sub-Account of the Separate Account will vary
daily depending on the performance of the investments made by the respective
Funds. Dividends or capital gains distributions received from a Fund are
reinvested in additional shares of that Fund, which are retained as assets of
the Sub-Account.
There can be no assurance that the investment objectives of the Funds can be
achieved or that the value of an IRA Account will equal or exceed the aggregate
amount of contributions made to the IRA Account. For more information about the
investments of the Funds, see "DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT,
AND THE TRUST." The accompanying prospectus of the Trust describes the
investment objectives and risks of each of the Funds.
TRANSFERS AMONG SUB-ACCOUNTS
The Contracts permit amounts to be transferred prior to the Annuity Date among
the Sub-Accounts of the Separate Account and, where available, the General
Account, subject to certain limitations described under "Transfer Privilege."
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ANNUITY PAYMENTS
You may choose the form of annuity benefit to commence on the Annuity Date. All
annuity benefits are funded through the General Account and are guaranteed by
the Company.
See "DESCRIPTION OF THE CONTRACT" for information about annuity payment options,
selecting the Annuity Date, and how annuity payments are calculated.
REVOCATION RIGHTS
You may revoke your IRA Account at any time between the date of the application
for the IRA Account and the date 10 days after receipt of your Certificate. For
more information about revocation rights, see "RIGHT TO REVOKE IRA ACCOUNT."
CONTRIBUTION MINIMUMS AND MAXIMUMS
Under the Contracts, additional contributions are not limited as to frequency
and number, except that certain contributions must be received by the Company by
April 15 of the year following the calendar year to which the contributions are
attributable. See "Contributions."
The minimum initial contribution from a rollover distribution is the lesser of
(1) $3,500, or (2) such smaller amount as meets the Company's then current
rules. The maximum initial contribution is the amount equal to the taxable
portion of your rollover distribution. You may make additional contributions,
subject to the following requirements: The minimum additional contribution is
the lesser of (1) $1,000, or (2) such smaller amount as meets the Company's then
current rules. The maximum additional contributions (both deductible and
nondeductible) for any taxable year to an IRA Account You establish with a
rollover distribution is the lesser of (1) $2,000, or (2) 100% of your
compensation for that taxable year. You may make an additional rollover
contribution. Additional rollover contributions are not subject to maximum
contribution limits.
If You have established an IRA Account, You may also establish a spousal IRA
Account. The maximum total contributions to both IRA accounts in any taxable
year is $2,250, of which amount no more than $2,000 may be contributed to any
one IRA Account.
CHARGES AND DEDUCTIONS
For a complete discussion of charges, see "CHARGES AND DEDUCTIONS."
SURRENDER AND REDEMPTION CHARGE. No sales charge is deducted from contributions
at the time the contributions are made. However, a withdrawal charge of 4% will
be made on any amount withdrawn from a Sub-Account of the General Account on any
other than its maturity date, and upon the election of an annuity for a
specified number of years, subject to certain exceptions. No sales charge is
deducted upon withdrawal from any Sub-Account of the Separate Account. In those
states where allocations to and transfers to and from the General Account are
not permitted, no withdrawal charge applies.
PREMIUM TAXES. A deduction for State and local premium taxes, if any, may be
made as described under "Premium Taxes."
ANNUAL IRA ACCOUNT FEE. Prior to the Annuity Date, an IRA Account Fee equal to
$25 will be deducted annually from each IRA Account for administrative expenses.
The fee will be deducted on the last Valuation Date of the month of the
anniversary of the establishment of the IRA Account and on the date the IRA
Account is surrendered.
SEPARATE ACCOUNT ASSET CHARGES. A daily charge, equivalent to 0.90% per annum,
is made on the value of each Sub-Account of the Separate Account at each
Valuation Date. The charge is retained for the mortality and expense risks the
Company assumes. In addition, to cover Separate Account administrative expenses,
the
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Company deducts a daily charge of 0.25% per annum of the value of the average
net assets in the Sub-Accounts of the Separate Account.
CHARGES OF THE FUNDS. In addition to the charges described above, certain fees
and expenses are deducted from the assets of the Funds. These charges vary among
the Funds; see "Annual and Transaction Expenses" and the prospectus of the Funds
for more information.
SURRENDER AND REDEMPTION PRIVILEGE
At any time before the Annuity Date, You have the right either:
- - to surrender the IRA Account in full and receive its Surrender Value
(Accumulated Value minus the IRA Account Fee and any applicable withdrawal
charge); or
- - to redeem a portion of the Accumulated Value of the IRA Account subject to
certain limits and any applicable withdrawal charge.
DEATH BENEFIT
If You die before the Annuity Date, a death benefit will be paid to the
beneficiary. The death benefit will be equal to the Accumulated Value of the IRA
Account.
SALES OF CONTRACTS AND CERTIFICATES
The Contracts and Certificates thereunder are sold by agents of the Company who
are registered representatives of Allmerica Investments, Inc. ("Allmerica
Investments"), a broker-dealer affiliate of the Company.
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SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCUMULATED VALUE: the value of an IRA Account on any Valuation Date prior to
the Annuity Date, equal to the sum of the value of all Accumulation Units in the
Sub-Accounts of the Separate Account and of the value of all accumulations in
the General Account of the Company then credited to the IRA Account.
ACCUMULATION UNIT: a measure of the Participant-Owner's interest in a
Sub-Account of the Separate Account prior to the Annuity Date.
ANNUITY DATE: the date on which annuity payments begin.
FUNDS: the following investment portfolios of Allmerica Investment Trust: Select
International Equity Fund, Select Aggressive Growth Fund, Growth Fund, Equity
Index Fund, Investment Grade Income Fund, Government Bond Fund and Money Market
Fund.
GENERAL ACCOUNT: all the assets of the Company other than those held in a
separate investment account.
PARTICIPANT-OWNER: an employee or former employee of the Policyholder who makes
contributions under the Contract in accordance with its provisions.
SEPARATE ACCOUNT: Separate Account I of the Company. Separate Account I consists
of assets segregated from other assets of the Company. The investment
performance of the assets of the Separate Account is determined separately from
the other assets of the Company. The assets of the Separate Account are not
chargeable with liabilities arising out of any other business which the Company
may conduct.
SUB-ACCOUNT: respecting the Separate Account, a subdivision offered under this
Prospectus which invests exclusively in the shares of a Fund of Allmerica
Investment Trust; respecting the General Account, an account, with a fixed
interest rate guaranteed until a specified maturity date, maintained within the
General Account for crediting interest to Participant-Owner contributions
allocable to the General Account.
SURRENDER VALUE: the Accumulated Value of an IRA Account minus any IRA Account
Fee and withdrawal charge applicable upon surrender.
VALUATION DATE: a day on which the Accumulated Values of all IRA 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 Contract or
Certificate was received) when there is a sufficient degree of trading in a
Fund's portfolio securities such that the current net asset value of the
Sub-Accounts of the Separate Account may be materially affected.
VALUATION PERIOD: the interval between two consecutive Valuation Dates.
YOU OR YOUR: refers to the Participant-Owner under the Contract.
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ANNUAL AND TRANSACTION EXPENSES
The purpose of the following tables is to assist the Participant-Owner in
understanding the various costs and expenses that a Participant-Owner will bear
directly or indirectly under the Contract. The tables reflect charges under the
Contract, expenses of the Sub-Accounts of the Separate Account, and expenses of
the Funds. In addition to the charges and expenses described below, in some
states premium taxes may be applicable.
SURRENDER AND REDEMPTION CHARGE: None on value in Sub-Accounts of the Separate
Account. (A charge may be made on surrender or partial redemption of the IRA
Account, equal to 4% of the amount withdrawn from a Sub-Account of the General
Account on other than its maturity date.)
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TRANSFER CHARGE: None.
ANNUAL IRA ACCOUNT FEE: An annual IRA Account Fee of $25
is deducted prior to the Annuity
Date.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account
value)
MORTALITY AND EXPENSE RISK CHARGE: 0.90%
ADMINISTRATIVE EXPENSE CHARGE: 0.25%
TOTAL ANNUAL EXPENSES: 1.15%
</TABLE>
In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Funds. For more information concerning fees and
expenses, see the prospectus of the Funds.
1997 ANNUAL FUND EXPENSES
<TABLE>
<CAPTION>
OTHER FUND TOTAL FUND
MANAGEMENT EXPENSES (AFTER ANY EXPENSES (AFTER ANY
FEE (AFTER ANY APPLICABLE WAIVERS/
FUND WAIVERS REIMBURSEMENTS) REIMBURSEMENTS)
- -------------------------------------------------------------- ----------------- ------------------- -------------------
<S> <C> <C> <C>
Select International Equity Fund.............................. 0.92%# 0.20% 1.12%(1)(2)
Select Aggressive Growth Fund................................. 0.89%# 0.09% 0.98%(1)(2)
Growth Fund................................................... 0.46%# 0.06% 0.52%(1)(2)
Equity Index Fund............................................. 0.31% 0.13% 0.44%(1)
Investment Grade Income Fund.................................. 0.44%# 0.10% 0.54%(1)
Government Bond Fund.......................................... 0.50% 0.17% 0.67%(1)
Money Market Fund............................................. 0.27% 0.08% 0.35%(1)
</TABLE>
# Effective September 1, 1997, the management fee rates for these funds were
revised. The management fee ratios shown in the table above have been adjusted
to assume that the revised rates took effect on January 1, 1997.
(1) Until further notice, Allmerica Financial Investment Management Services,
Inc. ("Manager") has declared a voluntary expense limitation of 1.50% of average
net assets for the Select International Equity Fund, 1.35% for the Select
Aggressive Growth Fund, 1.20% for the Growth Fund, 1.00% for the Investment
Grade Income Fund and Government Bond Fund, and 0.60% for the Money Market Fund
and Equity Index Fund. The total operating expenses of the Funds of the Trust
were less than their respective expense limitations throughout 1997. The
declaration of a voluntary expense limitation in any year does not bind the
Manager to declare future expense limitations with respect to these funds.
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(2) These funds have entered into agreements with brokers whereby the brokers
rebate a portion of commissions. Had these amounts been treated as reductions of
expenses, the total operating expenses would have been 1.10% for Select
International Equity Fund; 0.93% for Select Aggressive Growth Fund and 0.50% for
Growth Fund.
The following Examples demonstrate the cumulative expenses which would be paid
by You at 1-year, 3-year, 5-year and 10-year intervals, assuming a $1,000
investment in a Sub-Account of the Separate Account and a 5% annual return on
assets. Because the expenses of the Funds differ, separate Examples are used to
illustrate the expenses incurred by You on an investment in the various
Sub-Accounts of the Separate Account. No withdrawal charge is illustrated in the
Examples because there is no withdrawal charge applied to investments in a
Sub-Account of the Separate Account. Whether or not You surrender or annuitize
at the end of the applicable period, the illustrated expenses would be the same.
THE INFORMATION GIVEN UNDER THE FOLLOWING EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN.
<TABLE>
<CAPTION>
UNDERLYING FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select International Equity Fund............... $ 26 $ 79 $ 135 $ 287
Select Aggressive Growth Fund.................. $ 24 $ 75 $ 128 $ 273
Growth Fund.................................... $ 20 $ 61 $ 105 $ 226
Equity Index Fund.............................. $ 19 $ 58 $ 101 $ 218
Investment Grade Income Fund................... $ 20 $ 62 $ 106 $ 228
Government Bond Fund........................... $ 21 $ 65 $ 112 $ 242
Money Market Fund.............................. $ 18 $ 56 $ 96 $ 208
</TABLE>
As required in rules promulgated under the 1940 Act, the IRA Account Fee has
been reflected in the Examples by a method intended to show the "average" impact
of the IRA Account Fee on an investment in the Separate Account. The total IRA
Account Fees collected under the Contracts by the Company are divided by the
total average net assets attributable to the Contracts. The resulting percentage
is 0.30%, and the amount of the IRA Account Fees is assumed to be $3.00 in the
Examples. After annuitization, the IRA Account Fee is not deducted.
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CONDENSED FINANCIAL INFORMATION
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT I
<TABLE>
<CAPTION>
SUB-ACCOUNT 1997 1996 1995 1994 1993
- --------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
GROWTH
Unit Value:
Beginning of Period.................................... 165.955 139.674 106.389 107.455 100.000
End of Period.......................................... 20.530 165.955 139.674 106.389 107.455
Number of Units Outstanding at End of Period
(in thousands)......................................... 100 7 5 4 3
INVESTMENT GRADE INCOME
Unit Value:
Beginning of Period.................................... 119.395 116.633 100.109 104.357 100.00
End of Period.......................................... 12.917 119.395 116.633 100.109 104.357
Number of Units Outstanding at End of Period
(in thousands)......................................... 36 2 1 1 1
MONEY MARKET
Unit Value:
Beginning of Period.................................... 113.415 108.898 104.088 101.316 100.000
End of Period.......................................... 11.823 113.415 108.898 104.088 101.316
Number of Units Outstanding at End of Period
(in thousands)......................................... 74 6 3 4 1
EQUITY INDEX
Unit Value:
Beginning of Period.................................... 173.261 143.302 106.437 106.555 100.000
End of Period.......................................... 22.678 173.261 143.302 106.437 106.555
Number of Units Outstanding at End of Period
(in thousands)......................................... 50 2 1 1 1
GOVERNMENT BOND
Unit Value:
Beginning of Period.................................... 114.085 111.493 99.753 101.808 100.000
End of Period.......................................... 12.078 114.085 111.493 99.753 101.808
Number of Units Outstanding at End of Period
(in thousands)......................................... 27 2 2 1 3
SELECT AGGRESSIVE GROWTH
Unit Value:
Beginning of Period.................................... 0 N/A N/A N/A N/A
End of Period.......................................... 10.078 N/A N/A N/A N/A
Number of Units Outstanding at End of Period
(in thousands)......................................... 1 0 0 0 0
SELECT INTERNATIONAL EQUITY
Unit Value:
Beginning of Period.................................... 0 N/A N/A N/A N/A
End of Period.......................................... 9.340 N/A N/A N/A N/A
Number of Units Outstanding at End of Period
(in thousands)......................................... - 0 0 0 0
</TABLE>
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PERFORMANCE INFORMATION
The Contracts were first offered to the public in 1993. However, the Company may
advertise "total return" and "average annual total return" performance
information based on the periods that the Sub-Accounts have been in existence
(Table 1) and the period that the Funds have been in existence (Table 2). The
results for any period prior to the Contracts being offered will be calculated
as if the Contracts had been offered during that period of time, with all
charges assumed to be those applicable to the Sub-Accounts and the Funds. 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 certain charges, and expressed as a percentage of
the investment.
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 Money Market Fund refers to the income generated by an
investment in the Sub-Account over a seven-day period (which period will be
specified in the advertisement). This income is then "annualized" by assuming
that the income generated in the specific week is generated over a 52-week
period. This annualized yield is shown as a percentage of the investment. The
"effective yield" calculation is similar, but when annualized, the income earned
by an investment in the Sub-Account is assumed to be reinvested. Thus the
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
The yield of a Sub-Account investing in a portfolio other than the Money Market
Fund refers to the annualized income generated by an investment in the
Sub-Account over a specified 30-day or one-month period. The yield is calculated
by assuming that the income generated by the investment during that 30-day or
one-month period is generated each period over a 12-month period and is shown as
a percentage of the investment.
Quotations of average annual total return as shown in Table 1 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 1.15%, the $25
annual IRA Account fee. The performance shown in Table 2 is calculated in
exactly the same manner as in Table 1; 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 a Sub-Account may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S & P
500"), Dow Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond
Index or other unmanaged indices so that investors may compare the Sub-Account
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii) other
groups of variable 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, such as Morning Star, Inc. who rank such investment
products on overall performance or other criteria; or (iii) the Consumer Price
Index (a measure for inflation) to assess the real rate of return from an
investment 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.
10
<PAGE>
PERFORMANCE INFORMATION FOR ANY SUB-ACCOUNT REFLECTS ONLY THE PERFORMANCE OF A
HYPOTHETICAL INVESTMENT IN THE SUB-ACCOUNT DURING THE PARTICULAR TIME PERIOD ON
WHICH THE CALCULATIONS ARE BASED. PERFORMANCE INFORMATION SHOULD BE CONSIDERED
IN LIGHT OF THE INVESTMENT OBJECTIVES AND POLICIES, RISK CHARACTERISTICS AND
QUALITY OF THE PORTFOLIO OF THE 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.
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.
TABLE 1
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT
FOR PERIODS ENDING DECEMBER 31, 1977
SINCE INCEPTION OF SUB-ACCOUNT
<TABLE>
<CAPTION>
FOR YEAR SINCE
ENDED INCEPTION OF
UNDERLYING FUND 12/31/97 SUB-ACCOUNT*
- --------------------------------------------------------- ------------ ---------------
<S> <C> <C>
Select International Equity Fund......................... N/A -6.90%
Select Aggressive Growth Fund............................ N/A 0.48 %
Growth Fund.............................................. 23.41 % 16.50 %
Equity Index Fund........................................ 30.59 % 19.03 %
Investment Grade Income Fund............................. 7.88 % 5.27 %
Government Bond Fund..................................... 5.57 % 3.87 %
Money Market Fund........................................ 3.94 % 3.30 %
</TABLE>
* The inception dates for the Sub-Accounts are: 7/1/97 for Select International
Equity Fund and Select Aggressive Growth Fund, 5/17/93 for the Government Bond
Fund, 5/14/93 for the Growth Fund and Equity Index Fund, 4/12/93 for the
Investment Grade Income Fund and 4/7/93 for the Money Market Fund.
TABLE 2
AVERAGE ANNUAL TOTAL RETURNS OF SUB-ACCOUNT FOR PERIODS
ENDING DECEMBER 31, 1997
SINCE INCEPTION OF UNDERLYING FUND
<TABLE>
<CAPTION>
FOR YEAR 10 YEARS OR
ENDED 5 SINCE INCEPTION OF
SUB-ACCOUNT INVESTING IN UNDERLYING FUND 12/31/97 YEARS UNDERLYING FUND IF LESS*
- ----------------------------------------------- ------------ ---------- --------------------------
<S> <C> <C> <C>
Select International Equity Fund............... 3.14% N/A 9.56%
Select Aggressive Growth Fund.................. 17.04% 15.15% 17.89%
Growth Fund.................................... 23.41% 14.73% 15.47%
Equity Index Fund.............................. 30.59% 17.86% 18.00%
Investment Grade Income Fund................... 7.88% 5.97% 7.63%
Government Bond Fund........................... 5.57% 4.44% 5.36%
Money Market Fund.............................. 3.94% 3.20% 4.28%
</TABLE>
* The inception dates for the Underlying Funds are: 4/29/85 for Growth,
Investment Grade Income and Money Market; 9/28/90 for Equity Index; 8/26/91 for
Government Bond; 8/21/92 for Select Aggressive Growth; 5/2/94 for Select
International Equity.
11
<PAGE>
WHAT IS AN INDIVIDUAL RETIREMENT ANNUITY?
Each IRA Account established under the Contract is intended to be an individual
retirement annuity qualified under Section 408(b) of the Code. See "Individual
Retirement Annuities." An IRA Account may be established by a Participant-Owner
with a rollover distribution from a qualified retirement plan maintained by the
Policyholder which is eligible for rollover treatment as described in Section
402(a)(5), 402(a)(6) or 403(a)(4) of the Code. Such Participant-Owner may also
establish an additional IRA Account for his or her spouse. Separate IRA Accounts
will be maintained under the Contract for rollover contributions and annual
deductible and non-deductible contributions, unless a Participant-Owner requests
otherwise in writing. A separate Certificate will be issued for each IRA Account
maintained for the Participant-Owner.
In general, an annuity is 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 payments."
Under an annuity, the insurance company assumes a mortality risk and an expense
risk. The mortality risk arises from the insurance company's guarantee that
annuity payments will continue for the life of the payee, regardless of how long
the payee lives or how long all payees 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 contract, regardless of actual costs of operations.
Your contributions, less any applicable deductions, are invested by the
insurance company. After retirement, annuity payments are paid to the payee for
life or for such other period chosen by You. Annuity payments under the
Contracts are fixed and 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."
During variable accumulation, values are not guaranteed but will vary depending
on the investment performance of a portfolio of securities. Any investment gains
or losses are reflected in accumulated value. If the portfolio increases in
value, the accumulated value increases. If the portfolio decreases in value, the
accumulated value decreases.
RIGHT TO REVOKE INDIVIDUAL RETIREMENT ANNUITY
You may revoke your IRA Account at any time between the date of the application
for the IRA Account and the date 10 days after receipt of the Certificate.
Within seven days the Company will refund the greater of (1) the entire
contribution, or (2) the Accumulated Value plus any amounts deducted from the
IRA Account or by the Trust for taxes, charges or fees. In order to revoke the
IRA Account, You must mail or deliver the Certificate (if it has already been
received), to the Home Office of the Company at 440 Lincoln Street, Worcester,
Massachusetts 01653, or to any local agency of the Company. Mailing or delivery
must occur on or before 10 days after receipt of the Certificate for revocation
to be effective.
The liability of the Separate Account under this provision is limited to your
Accumulated Value in the Separate Account on the date of cancellation. Any
additional amounts refunded to the Participant-Owner will be paid by the
Company.
DESCRIPTION OF THE COMPANY, THE SEPARATE ACCOUNT AND THE TRUST
THE COMPANY
The Company organized under the laws of Massachusetts in 1844, is the fifth
oldest life insurance company in America. Effective October 16, 1995, the
Company converted from a mutual life insurance company, known as State Mutual
Life Assurance Company of America, to a stock life insurance company and adopted
its present name. The Company is a wholly-owned subsidiary of Allmerica
Financial Corporation ("AFC"). As of December 31, 1997, the Company and its
subsidiaries had over $16.3 billion in combined assets and over
12
<PAGE>
$43.8 billion in life insurance in force. The Company's principal office is
located at 440 Lincoln Street, Worcester, Massachusetts 01653, telephone
508-855-1000 ("Principal Office").
The Company is subject to the laws of the Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
of Massachusetts. In addition, the Company is subject to the insurance laws and
regulations of other states and jurisdictions in which it is licensed to
operate.
The Company is a charter member of the Insurance Marketplace Standard
Association ("IMSA"). Companies that belong to IMSA subscribe to a rigorous set
of standards that cover the various aspects of sales and service for
individually sold life insurance and annuities. IMSA members have adopted
policies and procedures that demonstrate a commitment to honesty, fairness and
integrity in all customer contacts involving sales and service of individual
life insurance and annuity products.
THE SEPARATE ACCOUNT
Separate Account I ("Separate Account") is a separate investment account of the
Company. The Separate Account currently consists of seven Sub-Accounts. The
assets used to fund the variable portions of the Contracts are set aside in the
Sub-Accounts of the Separate Account and are kept separate and apart from the
general assets of the Company. Each Sub-Account is administered and accounted
for as part of 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 Massachusetts law, as provided in the Contracts, the assets of the
Separate Account cannot 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 August 20, 1991. The Separate Account meets the definition of
"separate account" under federal securities laws and is registered with the
Securities and Exchange Commission ("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.
ALLMERICA INVESTMENT TRUST
Allmerica Investment Trust ("Trust") 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 Trust or its separate investment funds.
The Trust was established as a Massachusetts business trust on October 11, 1984,
for the purpose of providing a vehicle for the investment of assets of various
separate accounts established by the Company or other affiliated insurance
companies. Currently, the Trust has fourteen investment portfolios, each issuing
a series of shares. Seven investment portfolios of the Trust are offered under
this Prospectus.
Allmerica Financial Investment Management Services, Inc. ("Manager") serves as
investment adviser of the Trust. The Manager has entered into sub-adviser
agreements with other investment managers ("Sub-Advisers"), who manage the
investments of the Funds. See "INVESTMENT ADVISORY SERVICES TO THE TRUST."
The assets of each Fund are held separate from the assets of the other Funds.
Each Fund operates as a separate investment vehicle and the income or losses of
one Fund have no effect on the investment performance of another Fund. Shares of
the Trust are not offered to the general public but solely to such separate
accounts.
13
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Funds is set forth below. The
Funds are listed by general investment risk characteristics. MORE DETAILED
INFORMATION REGARDING THE INVESTMENT OBJECTIVES, RESTRICTIONS AND RISKS,
EXPENSES PAID BY THE FUNDS AND OTHER RELEVANT INFORMATION REGARDING THE
UNDERLYING FUNDS MAY BE FOUND IN THE PROSPECTUS OF THE TRUST, WHICH ACCOMPANIES
THIS PROSPECTUS AND SHOULD BE READ CAREFULLY BEFORE INVESTING. The Statement of
Additional Information of the Trust is available upon request. There can be no
assurance that the investment objectives of the Funds can be achieved.
SELECT INTERNATIONAL EQUITY FUND -- The Select International Equity Fund of the
Trust seeks maximum long-term total return (capital appreciation and income)
primarily by investing in common stocks of established non-U.S. companies.
SELECT AGGRESSIVE GROWTH FUND -- The Select Aggressive Growth Fund of the Trust
seeks above-average capital appreciation by investing primarily in common stocks
of companies which are believed to have significant potential for capital
appreciation.
GROWTH FUND -- The Growth Fund of the Trust is invested in common stocks and
securities convertible into common stocks that are believed to represent
significant underlying value in relation to current market prices. The objective
of the Growth Fund is to achieve long-term growth of capital. Realization of
current investment income, if any, is incidental to this objective.
EQUITY INDEX FUND -- The Equity Index Fund of the Trust seeks to provide
investment results that correspond to the aggregate price and yield performance
of a representative selection of United States publicly traded common stocks.
The Equity Index Fund seeks to achieve its objective by attempting to replicate
the aggregate price and yield performance of the Standard & Poor's Composite
Index of 500 Stocks.
INVESTMENT GRADE INCOME FUND -- The Investment Grade Income Fund of the Trust is
invested in a diversified portfolio of fixed income securities with the
objective of seeking as high a level of total return (including both income and
capital appreciation) as is consistent with prudent investment management.
GOVERNMENT BOND FUND -- The Government Bond Fund of the Trust has the investment
objectives of seeking high income, preservation of capital and maintenance of
liquidity, primarily through investments in debt instruments issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, and in
related options, futures and repurchase agreements.
MONEY MARKET FUND -- The Money Market Fund of the Trust is invested in a
diversified portfolio of high-quality, short-term money market instruments with
the objective of obtaining maximum current income consistent with the
preservation of capital and liquidity.
IN SOME STATES, INSURANCE REGULATIONS MAY RESTRICT THE AVAILABILITY OF
PARTICULAR SUB-ACCOUNTS.
In the event of a material change in the investment policy of a Sub-Account or
the Fund in which it invests, the Participant-Owner will be notified of the
change. If a Participant-Owner has Accumulated Value in that Sub-Account, the
Company will transfer it without charge on written request by the
Participant-Owner to another Sub-Account of the Separate Account or to a
Sub-Account of the General Account, if available. The Company must receive the
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 the
Participant-Owner's right to transfer.
14
<PAGE>
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISORY SERVICES TO THE TRUST
The overall responsibility for the supervision of the affairs of the Trust vests
in the Trustees. The Trustees have entered into a Management Agreement with
Allmerica Financial Investment Management Services, Inc. ("Manager"), an
indirect wholly-owned subsidiary of the Company, to handle the day-to-day
affairs of the Trust. The Manager, subject to review by the Trustees, is
responsible for the actual management of the Funds. The Manager is also
obligated to perform certain administrative and management services for the
Trust, furnishes to the Trust all necessary office space, facilities, and
equipment, and pays the compensation, if any, of officers and Trustees who are
affiliated with the Manager.
Other than the expenses specifically assumed by the Manager under the Management
Agreement, all expenses incurred in the operation of the Trust are borne by it,
including fees and expenses associated with the registration and qualification
of the Trust's shares under the Securities Act of 1933 (the "1933 Act"), other
fees payable to the SEC, independent public accountant, legal and custodian
fees, association membership dues, taxes, interest, insurance premiums,
brokerage commission, fees and expenses of the Trustees who are not affiliated
with the Manager, expenses for proxies, prospectuses, and reports to
shareholders, and other expenses.
For providing its services under the Management Agreement, the Manager receives
a fee, computed daily at an annual rate based on the average daily net asset
value of each Underlying Fund as follows:
<TABLE>
<S> <C> <C>
Select International Equity Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Select Aggressive Growth Fund First $100 million 1.00%
Next $150 million 0.90%
Over $250 million 0.85%
Growth Fund First $250 million 0.60%
Next $250 million 0.40%
Over $500 million 0.35%
Equity Index Fund First $50 million 0.35%
Next $200 million 0.30%
Over $250 million 0.25%
Investment Grade Income Fund First $50 million 0.50%
Next $50 million 0.45%
Over $100 million 0.40%
Government Bond Fund * 0.50%
Money Market Fund First $50 million 0.35%
Next $200 million 0.25%
Over $250 million 0.20%
</TABLE>
* For the Government Bond Fund, the investment management fee does not vary
according to the level of assets in the Fund. The Manager's fee computed for
each Fund will be paid from the assets of such Fund.
The Manager's fee will be paid from the assets of each Fund. Pursuant to the
Management Agreement with the Trust, the Manager has entered into agreements
("Sub-Adviser Agreements") with other investment advisers ("Sub-Advisers") under
which each Sub-Adviser manages the investments of one or more of the Funds.
Under the Sub-Adviser Agreement, the Sub-Adviser is authorized to engage in
portfolio transactions on behalf of the applicable Fund, subject to such general
or specific instructions as may be given by the Trustees.
15
<PAGE>
The terms of a Sub-Adviser Agreement cannot be materially changed without the
approval of a majority in interest of the shareholders of the affected Fund. The
Manager is solely responsible for the payment of all fees for investment
management services to the Sub-Advisers.
The prospectus of the Trust contains additional information concerning the
Funds, including information about additional expenses paid by the Funds, and
should be read in conjunction with this Prospectus.
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 of the Separate Account or that the Sub-Accounts may purchase. If
the shares of any Fund are no longer available for investment or if in the
Company's judgment further investment in any Fund should become inappropriate in
view of the purposes of the Separate Account or the affected Sub-Account, the
Company may redeem the shares of that Fund and substitute shares of another
registered open-end management company. The Company will not substitute any
shares attributable to an IRA Account interest in a Sub-Account without notice
to You 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
contracts or certificates or permit a conversion between certificates upon
request by a Participant-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
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
Participant-Owners on a basis to be determined by the Company.
Shares of the Funds are also issued to separate accounts of the Company and its
affiliates which issue variable life policies ("mixed funding") and other
variable annuities. It is conceivable that in the future such mixed funding may
be disadvantageous for variable life Policy-Owners or variable annuity contract
owners. Although we do not currently foresee any such disadvantage to either
variable life insurance or variable annuity policy owners/participant-owners,
the Company and the Boards of the funds 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 the Trustees of the Trust were to conclude that
separate funds should be established for variable life and variable annuity
separate accounts, the Company will bear the expenses.
If any of these substitutions or changes are made, the Company may by
appropriate endorsement change the Contract and Certificate thereunder to
reflect the substitution or change and will notify You of all such changes. If
the Company deems it to be in the best interest of Participant-Owners, and
subject to any approvals that may be required under applicable law, the Separate
Account or any of its 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.
VOTING RIGHTS
The Company will vote Fund shares held by each Sub-Account in accordance with
instructions received from Participant-Owners, who will be provided with proxy
materials of the 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 will also vote shares in a Sub-Account that it owns and which are not
attributable to Contracts in the same proportion. If the 1940 Act or any rules
thereunder should be amended or if the present interpretation of the 1940 Act or
such rules should change, and as a result the Company determines that it is
permitted to vote shares in its own right, whether or not such shares are
attributable to the Policies, the Company reserves the right to do so.
16
<PAGE>
The number of votes which You may cast will be determined by the Company as of
the record date established by the Fund. The number of Fund shares attributable
to You will be determined by dividing the dollar value of the Accumulation Units
of the Sub-Account credited under the Contract by the net asset value of one
Fund share.
CHARGES AND DEDUCTIONS
Deductions under the Contracts and charges against the assets of the
Sub-Accounts of the Separate Account are described below. Other deductions and
expenses paid out of the assets of the Funds are described in the Prospectus and
Statement of Additional Information of the Trust.
SURRENDER AND REDEMPTION CHARGE
No charge for sales expenses is deducted from contributions at the time the
contributions are made. However, a withdrawal charge of 4% will be made on any
amount withdrawn from a Sub-Account of the General Account on other than its
maturity date, and upon election of an annuity for a specified number of years,
subject to certain exceptions described below. No sales charge is deducted upon
withdrawals from any Sub-Accounts of the Separate Account.
LIFE EXPECTANCY DISTRIBUTIONS. You may elect to make a series of systematic
withdrawals from your IRA Account according to a life expectancy distribution
("LED"), by returning a properly signed LED request form to the Company's Home
Office. The LED permits You to make systematic withdrawals from the IRA Account
over your lifetime. The amount withdrawn from the IRA Account 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 6.5 years.
If You elect the LED, in each calendar year a fraction of the Accumulated Value
is withdrawn from the IRA Account based on your then life expectancy. The
numerator of the fraction is 1 (one) and the denominator of the fraction is your
remaining life expectancy, as determined annually by the Company. The resulting
fraction, expressed as a percentage, is applied to the Accumulated Value of the
IRA Account at the beginning of the year to determine the amount to be
distributed during the year. You may elect monthly, bimonthly, quarterly,
semiannual or annual distributions and may terminate the LED at any time. You
may also elect to receive distributions under a LED which is determined on the
joint life expectancy of You and a beneficiary. The Company may also offer other
systematic withdrawals.
The Company will impose no withdrawal charge respecting any amount received in a
calendar year as part of a series of LED distributions that:
- - does not exceed the minimum amount required to be distributed to satisfy the
requirements of Section 401(a)(9) of the Code;
- - is withdrawn from a Sub-Account of the Separate Account;
- - is withdrawn from a Sub-Account of the General Account on its maturity date;
or
- - is withdrawn from one or more Sub-Accounts of the General Account, but does
not exceed 20% of the portion of the Accumulated Value allocated to the
General Account on the preceding December 31.
If You make withdrawals under the LED distribution prior to age 59 1/2, the
withdrawals may be treated by the Internal Revenue Service ("IRS") as premature
distributions from the IRA Account. The payments would then be taxed on an
"income first" basis and be subject to a 10% federal tax penalty. For more
information, see "FEDERAL TAX CONSIDERATIONS," "Taxation of the Contracts in
General."
SURRENDERS. In a complete surrender, the amount You receive is equal to the
entire Accumulated Value of Your IRA Account, net of any applicable withdrawal
charge, IRA Account Fee and tax withholding. For further information on
surrender and partial redemption, including minimum limits on amount redeemed
and amount remaining in the IRA Account for partial redemptions, see "Surrender"
and "Partial Redemption" under "THE VARIABLE ANNUITY CONTRACTS" and see "FEDERAL
TAX CONSIDERATIONS."
17
<PAGE>
CHARGE AT THE TIME ANNUITY PAYMENTS BEGIN. If a period certain option is chosen
(Option V), a withdrawal charge will be deducted from the Accumulated Value of
the IRA Account. Such charge is the same as that which would apply had the IRA
Account been surrendered on the Annuity Date.
No withdrawal charge is imposed at the time of annuitization in any Certificate
year under an option involving a life contingency (Options I, II, III, IV-A or
IV-B).
SALES EXPENSE. Currently, no commissions on the Contracts or Certificates
thereunder are paid by the Company. Sales expenses do not result in any
additional charge to You or to the Separate Account. The Company intends to
recoup sales expenses through a combination of anticipated withdrawal charges,
described above, and profits from the General Account. Any withdrawal charges
assessed under a Contract will be retained by the Company except for amounts it
may pay to Allmerica Investments for services it performs and expenses it may
incur as principal underwriter and general distributor.
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, where
applicable. In accordance with the laws of the state involved, the premium tax
charge usually is deducted in one of two ways:
(1) the premium tax charge is deducted at the time the contribution is received
(and the contributions allocated to the General Account or Sub-Accounts of
the Separate Account will be net of such charge); or
(2) the premium tax charge is deducted at the time annuity payments begin.
Where permitted by state law, it is the Company's policy to follow the practice
in (2) above. However, if no amount for premium tax was deducted at the time the
contribution 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 Accumulation Value of the IRA Account at the time such determination is
made.
IRA ACCOUNT FEE
Prior to the Annuity Date, an IRA Account Fee is deducted annually on the last
Valuation Date of the month of the anniversary of the establishment of the IRA
Account ("Anniversary Deduction") and upon full surrender of the IRA Account.
The IRA Account Fee is $25. For IRA Accounts established after April 30, 1993,
the IRA Account Fee will be waived in the following circumstances: if the
contribution establishing the IRA Account was at least $15,000, the IRA Account
Fee will be waived on the first Anniversary Deduction; if the Accumulated Value
of the IRA Account was at least $15,000 as of December 31 of the calendar year
previous to any subsequent Anniversary Deduction, the IRA Account Fee will be
waived on such subsequent Anniversary Deduction.
Where Accumulation Value has been allocated to more than one Sub-Account of the
General Account and/or Sub-Account of the Separate Account, a percentage of the
total IRA Account Fee will be deducted from the Accumulation Value in each
Sub-Account. The portion of the charge deducted from each Sub-Account will be
equal to the percentage which the Accumulation Value in that Sub-Account
represents of the total Accumulated Value of the IRA Account. The deduction of
the IRA Account Fee will result in cancellation of a number of Accumulation
Units equal in value to the percentage of the charge deducted from any
Sub-Account of the Separate Account. No deduction from a Sub-Account of the
General Account will be permitted to reduce credited interest to a rate lower
than the minimum guaranteed interest rates stated in Appendix A, "MORE
INFORMATION ABOUT THE GENERAL ACCOUNT."
18
<PAGE>
ANNUAL CHARGES AGAINST SEPARATE ACCOUNT ASSETS
The following annual charges are deducted against the assets of the Separate
Account:
MORTALITY AND EXPENSE RISK CHARGE. The Company makes a daily charge equal to an
annual rate of 0.90% 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 Contracts. The charge is imposed only during the
accumulation period. The mortality risk arises from the Company's guarantee that
it will make annuity payments in accordance with annuity rate provisions
established at the time the Certificate is issued for the life of the payee (or
in accordance with the annuity option selected), no matter how long the payee
lives and no matter how long all payees as a class live. The expense risk arises
from the Company's guarantee that the charges it makes will not exceed the
limits described in the Contracts 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 .25% for mortality risk and .65%
for expense risk.
ADMINISTRATIVE EXPENSE CHARGE. The Company assesses each Sub-Account of the
Separate Account with a daily charge equal to an annual rate of 0.25% of the
average daily net assets of the Sub-Account. The charge is imposed only during
the accumulation period. The daily Administrative Expense Charge is assessed to
help defray administrative expenses actually incurred in the administration of
the Sub-Account of the Separate Account, without profits. However, there is no
direct relationship between the amount of administrative expenses imposed under
a given Certificate and the amount of expenses actually attributable to that
Certificate.
Deductions for the IRA Account Fee (described under "IRA Account 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 IRA Accounts 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 of the Separate Account 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 Funds. The Prospectus and
Statement of Additional Information of the Trust contain additional information
concerning expenses of the Funds.
DESCRIPTION OF THE CONTRACT
The Contract is designed for use in connection with individual retirement
annuities. You and your beneficiaries are cautioned that the rights of any
person to any benefits under the Contract may be subject to the terms and
conditions of Section 408 of the Code, regardless of the terms and conditions of
the Contract. Distributions under the Contract must be made or commenced not
later than the April 1 following the taxable year in which You attain age 70 1/2
and must be made in accordance with Section 401(a)(9) of the Code.
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The Contracts and Certificates thereunder offered by the Prospectus may be
purchased from representatives of Allmerica Investments, Inc., a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. ("NASD"). Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653, is
indirectly wholly-owned by the Company. You may direct any inquiries to the
Company's Home Office, First Allmerica Financial Life Insurance Company, 440
Lincoln Street, Worcester, Massachusetts 01653.
Written requests required under the Contract must be in a form satisfactory to
the Company and filed at its Home Office. However, with the consent of the
Company, You may make IRA Account investment transfers, contribution allocation
instructions and other specified transactions by telephone request, if a
properly completed authorization form is on file at the Company's Home Office.
CONTRIBUTIONS
Contributions are payable to the Company at its Home Office and must be made by
cash or check. For each contribution, You must indicate in writing:
- - the type of contribution being made;
- - the taxable year for which the contribution is intended (if applicable); and
- - investment allocation instructions.
The initial contribution will be credited to an IRA Account as of the date that
the Company has at its Home Office both (1) a properly completed application for
the IRA Account, and (2) the initial contribution. If an application is
incomplete, or does not specify how payments are to be allocated among the
Sub-Accounts, the initial contribution will be returned within five business
days. For additional contributions made after an IRA Account has been
established, Accumulation Units will be credited at the unit value computed as
of the Valuation Date that the additional contribution is received at the
Company's Home Office.
Under the Contracts, additional contributions are not limited as to frequency
and number, except that deductible and nondeductible contributions and
contributions to a spousal IRA Account must be received by the Company by April
15 of the year following the calendar year to which the contributions are
attributable.
The minimum initial contribution from a rollover distribution is the lesser of
(1) $3,500, or (2) such smaller amount as meets the Company's then current
rules. The maximum initial contribution is the amount equal to the taxable
portion of your rollover distribution.
After an IRA Account has been established, You may make additional
contributions, subject to the following requirements: The minimum additional
contribution is the lesser of (1) $1,000, or (2) such smaller amount as meets
the Company's then current rules. For any taxable year, the maximum for total
additional deductible and nondeductible contributions is the lesser of (1)
$2,000, or (2) 100% of your compensation for the taxable year as defined in
Section 219(f) of the Code. This maximum does not apply to additional rollover
contributions or spousal IRA contributions discussed below.
You may make an additional rollover contribution as defined in Section
402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8) or 408(d)(3) of the Code.
Additional rollover contributions are subject to the minimum additional
contribution discussed above, but not to any maximum for total additional
contributions.
You may also establish and maintain a spousal IRA Account in accordance with
Sections 219(c) and 408(b) of the Code. The maximum total contributions to both
IRA Accounts in any taxable year is $2,250, of which amount no more than $2,000
may be contributed to any one IRA Account.
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Generally, contributions will be allocated among the Sub-Accounts according to
your instructions. However, until the Valuation Date that is 15 days from the
date the IRA Account was established, all Separate Account allocations will be
held in the Sub-Account that invests in the Money Market Fund. Thereafter, all
amounts will be allocated according to your instructions.
If no contributions have been credited to the IRA Account for three consecutive
Certificate years and, at any time thereafter, the IRA Account's Accumulated
Value is less than $1,000, the Company reserves the right to terminate the IRA
Account for its Accumulated Value.
TRANSFER PRIVILEGE
Prior to the Annuity Date, You may have amounts transferred among the
Sub-Accounts, subject to the restrictions stated below. Requests for transfers
must be in writing. Transfers will be made on the Valuation Date coincident
with, or next following, the date the written request is received by the
Company.
Currently, the Company makes no charge for transfers. During each calendar year,
You may make up to four transfers among Sub-Accounts of the Separate Account or
General Account, where available. In addition, You may transfer from a
Sub-Account of the General Account on the Sub-Account maturity date.
The maximum dollar amount that may be transferred during a calendar year from
Sub-Accounts of the General Account prior to their maturity date is 20% of the
value on the preceding December 31 of the portion of the Accumulated Value of
the IRA Account that was allocated to the General Account. Transfers from such
Sub-Accounts will be made on a LIFO (last-in-first-out) basis, so that transfers
will be first made from the most recently established Sub-Account.
Automatic transfers may also be made from policy value allocated to the
Company's General Account (a) to one or more of the Sub-Accounts or (b) in order
to reallocate Policy value among Sub-accounts. Automatic transfers from the
General Account may be made on a monthly, bimonthly, or quarterly basis,
provided that:
- - the amount of each monthly transfer cannot exceed 10% of policy value in the
General Account as of the date of the first transfer;
- - each bimonthly transfer cannot exceed 20% of policy value in the General
Account as of the date of the first transfer;
- - each quarterly transfer cannot exceed 25% of policy value in the General
Account as of the date of the first transfer.
All transfers from Sub-Accounts must involve a minimum of $500, or the entire
amount in the Sub-Account, if less. If any transfer would reduce the value of
the Sub-Account from which the transfer is to be made to less than $1,000, the
Company reserves the right to include such remaining value in the amount
transferred.
SURRENDER PRIVILEGE
At any time prior to the Annuity Date, You may request surrender of the IRA
Account and receive its Surrender Value. You must return a signed, written
request for surrender and the Certificate to the Company's Home Office. The
Surrender Value will be based on the Accumulated Value of the IRA Account as of
the Valuation Date coincident with or next following the date the Company
receives the written request and Certificate at its Home Office.
A withdrawal charge may be deducted when an IRA Account is surrendered if all or
a portion of the Accumulated Value is allocated to Sub-Accounts of the General
Account. See "CHARGES AND DEDUCTIONS." The IRA Account Fee will be deducted upon
surrender of the IRA Account.
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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 of the
Separate 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 the assets of the Separate
Account is not reasonably practicable.
The right is reserved by the Company to defer surrenders and partial redemptions
of amounts allocated to a Sub-Account of the General Account for a period not to
exceed six months.
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
REDEMPTION PRIVILEGE
At any time prior to the Annuity Date, You may redeem a portion of the
Accumulated Value of your IRA Account, subject to the limits stated below. You
must file a signed, written request for redemption at the Company's Home Office.
The written request must indicate the dollar amount You wish to receive and, if
applicable, the Sub-Account(s) of the Separate Account from which such amount is
to be redeemed. Withdrawals from a Sub-Account of the General Account will be
made on a LIFO (last-in-first-out) basis, so that withdrawals will be made first
from the most recently established Sub-Account of the General Account. The
amount redeemed equals the amount You requested plus any applicable withdrawal
charge, as described under "CHARGES AND DEDUCTIONS."
Where allocations have been made to more than one Sub-Account, a percentage of
the partial redemption may be allocated to each Sub-Account. A partial
redemption from a Sub-Account of the Separate Account will result in
cancellation of a number of units equivalent in value to the amount redeemed,
computed as of the Valuation Date coincident with or next following the date the
Company receives the written request at its Home Office.
Each partial redemption must be in a minimum amount of $500. No partial
redemption will be permitted if the Accumulated Value remaining in the IRA
Account would be reduced to less than $1,000. Partial redemptions will be paid
in accordance with the time limitations described under "Surrender." For
important tax consequences which may result from partial redemptions, see
"FEDERAL TAX CONSIDERATIONS."
DEATH BENEFIT
If your death occurs prior to the Annuity Date, a death benefit will be paid to
the beneficiary. The death benefit is equal to the Accumulated Value of the IRA
Account as of the Valuation Date coincident with or next following the date of
receipt of due proof of death at the Company's Home Office.
The death benefit generally will be paid to the beneficiary in one sum. However,
You may direct that all or part of the death benefit be paid under one or more
of the annuity options provided in the Contract. See "Description of Annuity
Options." The beneficiary may also request in writing to be paid in accordance
with an annuity option under the Contract.
If your death occurs on or after the Annuity Date but before the completion of
all guaranteed monthly annuity payments, any unpaid amounts or installments will
be paid to the beneficiary. If there is more than one beneficiary, the death
benefit will be paid in one sum. This sum will be the commuted value of any
unpaid payments certain, commuted on the basis of the interest rate used in the
determination of the annuity benefit as of the Valuation Date coincident with or
next following the date of receipt by the Company at its Home Office of due
proof of death.
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If the beneficiary elects to receive the death benefit in one sum, the death
benefit will be paid within seven days of the date on which due proof of death
is received at the Company's Home Office. The death benefit will reflect any
earnings or losses experienced during the period and any withdrawals.
THE SPOUSE OF THE PARTICIPANT-OWNER AS BENEFICIARY
If You die prior to the Annuity Date leaving your spouse as beneficiary, at the
written request of the spousal beneficiary and with the consent of the Company,
the death benefit will not be paid and the spousal beneficiary will become the
Participant-Owner of the IRA Account. However, all or a portion of the death
benefit may be withdrawn without charge within one year of the date on which
notice of death is received at the Company's Home Office. All rights and
benefits provided under the Contract will continue, except that any subsequent
spouse of such new Participant-Owner will not be entitled to continue the IRA
Account upon such new Participant-Owner's death.
OWNERSHIP AND NON-ALIENATION OF IRA ACCOUNTS
You are the owner of your IRA Account. IRA Accounts may not be transferred by
You. No part of your interest in an IRA Account can be forfeited. You may not
make any loans under an IRA Account. An IRA Account cannot be pledged, assigned
or otherwise used to secure a loan.
ELECTING THE FORM OF ANNUITY AND THE ANNUITY DATE
Subject to certain restrictions described below, You have the right to select
the annuity option under which annuity payments are to be made. Annuity payments
are determined according to the annuity tables in the Contract and by the
annuity option selected. All annuity options are funded through the General
Account. See APPENDIX A, "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Accumulated Value will be transferred to the General Account of the Company, and
the annuity payments will be fixed in amount.
The annuity option selected must produce an initial payment of at least $50. If
the annuity option(s) selected does not produce initial payments which meet this
minimum, the Company will pay the Surrender Value or death benefit, as the case
may be, in one sum. Once the Company begins making annuity payments, You cannot
make partial redemptions or surrender the annuity benefit. Only beneficiaries
entitled to receive remaining payments for a "period certain" may elect to
instead receive a lump sum settlement.
You select the Annuity Date. The Annuity Date may be the first day of any month
on or after the Participant-Owner's 50th birthday but before the
Participant-Owner's 85th birthday. You may elect to change the Annuity Date by
sending a written request to the Company's Home Office at least one month before
the new Annuity Date. The Code imposes limitations on the age at which
distributions may commence. See "FEDERAL TAX CONSIDERATIONS" for further
information.
If You do not elect otherwise, annuity payments will be made in accordance with
Option I, a life annuity with 120 monthly payments guaranteed. Changes in an
annuity option choice can be made up to one month prior to the Annuity Date.
DESCRIPTION OF ANNUITY OPTIONS
The Company currently provides the annuity options described below. Other
annuity options may be offered by the Company.
OPTION I -- LIFE ANNUITY WITH 120 MONTHLY PAYMENTS GUARANTEED
Option I is an 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 payments will continue to the beneficiary
until a total of 120 monthly payments have been paid.
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OPTION II -- LIFE ANNUITY
Option II is an annuity payable monthly only during the lifetime of the
payee. It would be possible under this option for the payee to receive only
one annuity payment if the payee dies prior to the due date of the second
annuity payment, two annuity payments if the payee dies before the due date
of the third annuity payment, and so on. However, payments will continue
during the lifetime of the payee, no matter how long the payee lives.
OPTION III -- UNIT REFUND LIFE ANNUITY
Option III is an annuity payable monthly during the lifetime of the payee
with the guarantee that if (1) exceeds (2) then monthly annuity 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 LIFE ANNUITY
Option IV-A is a monthly 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 amount paid
during the joint lifetime of the two payees. One of the payees must be either
You or the beneficiary. There is no minimum number of payments under this
option.
OPTION IV-B -- JOINT AND TWO-THIRDS SURVIVOR LIFE ANNUITY
Option IV-B is a monthly annuity payable jointly to two payees during their
joint lifetime, and then continuing thereafter during the lifetime of the
survivor. However, the amount of each monthly payment to the survivor is
based upon two-thirds of the amount which applied during the joint lifetime
of the two payees. One of the payees must be You or the beneficiary. There is
no minimum number of payments under this option.
OPTION V -- PERIOD CERTAIN ANNUITY
Option V is a monthly annuity payable for a stipulated number of from one to
thirty years. The annuity value applied under this option will be the
Surrender Value. If the payee dies before the completion of the period
stipulated under Option V, payments will continue to be paid to the
beneficiary.
Option V does not involve a life contingency. In the computation of the
payments under this option (see "Determination of Annuity Payments"), the
charge for annuity rate guarantees, which includes a factor for mortality
risks, is made. See "FEDERAL TAX CONSIDERATIONS" for a discussion of the
possible adverse tax consequences of selecting Option V.
IRA ACCOUNT VALUES AND ANNUITY PAYMENTS
IRA Account values and annuity payments are computed as follows:
THE ACCUMULATION UNIT. Each net contribution is allocated to the Sub-Account(s)
selected by You. Allocations to the Sub-Accounts of the Separate Account are
credited to the IRA Account in the form of Accumulation Units. Accumulation
Units are credited separately for each Sub-Account of the Separate Account. The
number of Accumulation Units of each Sub-Account credited to the IRA Account is
equal to the portion of the net contribution allocated to the Sub-Account,
divided by the dollar value of the applicable Accumulation Unit as of the
Valuation Date such contribution is allocated. The number of Accumulation Units
resulting from each contribution 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
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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 Funds. The value of an Accumulation Unit was set at $100.0000 on the first
Valuation Date for each Sub-Account of the Separate Account.
Allocations to Sub-Accounts of 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 of the IRA Account is determined by
- - MULTIPLYING the number of Accumulation Units in each Sub-Account of the
Separate Account by the dollar value of an Accumulation Unit of that
Sub-Account on the Valuation Date,
- - ADDING the products, and
- - ADDING the amount of the accumulations in the Sub-Accounts of the General
Account, if any.
ADJUSTED GROSS INVESTMENT RATE. At each Valuation Date an adjusted gross
investment rate for each Sub-Account of the Separate 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
variable accumulations for a Sub-Account of the Separate Account 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 1.15% per annum. This charge cannot be increased.
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. The net investment factor is 1.000000 plus the applicable net
investment rate.
For an illustration of Accumulation Unit calculation using a hypothetical
example, see "ANNUITY PAYMENTS" in the Statement of Additional Information.
DETERMINATION OF ANNUITY PAYMENTS. The amount of the first monthly annuity
payment is based on the annuity value applied and the annuity option selected.
The annuity value applied under an annuity option is the amount described below,
minus any applicable premium tax charge: (1) if Option V is chosen -- the
Surrender Value; (2) if any other annuity option offered by the Company is
chosen -- the Accumulated Value; and (3) if a death benefit annuity is payable
at any time -- the amount of the death benefit.
Annuity values will be based on a Valuation Date applied uniformly not more than
four weeks preceding the Annuity Date. Currently, the Valuation Date for annuity
values is the 15th date of the month preceding the Annuity Date, and annuity
payments are made on the first of the month 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 monthly payment under each form of annuity for each $1,000 of applied
annuity value. Guaranteed life annuity rates in the Contract are based on a
modification of the 1983 Group Annuity Mortality Table on unisex rates.
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The amount of the first monthly payment depends upon the form of annuity
selected, the age of the payee and the value of the amount applied under the
annuity option. The dollar amount of each monthly annuity 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 fixed annuity rates more favorable than
those contained in the Contract. Any such rates will be applied uniformly to all
Participant-Owners of the same class.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of an IRA Account, on
redemptions or surrenders, on annuity payments, and on the economic benefit to
You or the beneficiary depends upon a variety of factors. The following
discussion is based upon the Company's understanding of 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.
IT SHOULD BE RECOGNIZED THAT THE FOLLOWING DISCUSSION OF FEDERAL INCOME TAX
ASPECTS OF AMOUNTS RECEIVED UNDER VARIABLE ANNUITY CONTRACTS AND INDIVIDUAL
RETIREMENT ANNUITIES IS NOT EXHAUSTIVE, DOES NOT PURPORT TO COVER ALL SITUATIONS
AND IS NOT INTENDED AS TAX ADVICE. A QUALIFIED TAX ADVISER SHOULD ALWAYS 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 Contracts, the Separate Account or its Sub-Accounts may have
upon the Company's tax. The Separate Account presently is not subject to tax,
but the Company reserves the right to assess a charge for taxes should the
Separate 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 Participant-Owners and with respect to each Separate Account as though that
Separate Account were a separate taxable entity.
The Separate 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 Code. The Company files a consolidated tax return with
certain of its subsidiaries.
TAXATION OF THE CONTRACTS IN GENERAL
The Company believes that the Contracts and IRA Accounts described in this
Prospectus will be considered annuities under Section 72 of the Code. This
section provides for the taxation of annuities. The following discussion
concerns annuities subject to Section 72.
With certain exceptions, any increase in the Accumulated Value of the IRA
Account is not taxable to You until it is withdrawn. If the IRA Account is
surrendered or amounts are withdrawn prior to the Annuity Date, to the extent of
the amount withdrawn, any investment gain in value over the cost basis of the
IRA Account would be taxed as ordinary income.
A 10% penalty tax may be imposed on the withdrawal of any amounts includable in
gross income if the withdrawal is made prior to age 59 1/2. The penalty tax will
not be imposed after age 59 1/2, or if the withdrawal follows your death, or in
the case of your "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 You elect to have distributions made over your life
expectancy, or over the joint life expectancy of You and the beneficiary.
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 Policy's LED), and 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
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Code. The distributions were therefore subject to the 10% federal tax penalty.
This private letter ruling may be applicable to a Participant-Owner who receives
distributions under the LED 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.
When annuity payments are commenced under the Contract and You have a cost
basis, generally a portion of each payment may be excluded from gross income.
The excludable portion is generally determined by a formula that establishes the
ratio that the cost basis of the IRA Account bears to the expected return under
the IRA Account. The portion of the payment in excess of this excludable amount
is taxable as ordinary income. Once all cost basis in the IRA Account is
recovered, the entire payment is taxable. If the last payee dies before cost
basis is recovered, a deduction for the difference is allowed on the payee's
final tax return.
TAX WITHHOLDING AND PENALTIES
The Code requires withholding with respect to payments or distributions from
annuities, unless a taxpayer elects not to have withholding. In addition, the
Code requires reporting to the IRS of the amount of income received with respect
to payment or distributions from annuities.
In certain situations, the Code provides for a tax penalty if, prior to death,
disability or attainment of age 59 1/2, You make a withdrawal or receive any
amount under the Policy, unless the distribution is in the form of a life
annuity (including life expectancy distributions). The penalty is 10% of the
amount includible in income by You.
INDIVIDUAL RETIREMENT ACCOUNTS IN GENERAL
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as an Individual Retirement Annuity ("IRA").
The assets of an IRA may be invested in, among other things, this Contract. 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 this 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.
REPORTS
You will be sent a report semi-annually which states certain financial
information about the Funds. The Company will also furnish an annual report to
You containing a statement of your account, including unit values and other
information required by applicable law, rules and regulations.
CHANGES IN OPERATION OF THE SEPARATE ACCOUNT
The Company reserves the right, subject to compliance with applicable law, to:
- - transfer assets from the Separate Account or any of its Sub-Accounts to
another of the Company's separate accounts or sub-accounts having assets of
the same class;
- - to operate the Separate Account or any of its Sub-Accounts as a management
investment company under the 1940 Act or in any other form permitted by law,
- - to deregister the Separate Account under the 1940 Act in accordance with the
requirements of the 1940 Act; or
- - to substitute the shares of any other registered investment company for the
Fund shares held by a Sub-Account of the Separate Account, in the event that
Fund shares are unavailable for investment, or if the
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Company determines that further investment in such Fund shares is
inappropriate in view of the purpose of the Sub-Account. In no event will the
changes described above be made without notice to You in accordance with the
1940 Act. The Company reserves the right, subject to compliance with
applicable law, to change the name of the Separate Account or any of its
Sub-Accounts.
LEGAL MATTERS
There are no legal proceedings pending to which the Separate 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 from this Prospectus pursuant to the rules and
regulations of the SEC. The omitted information may be obtained from the SEC
principal office in Washington, D.C., upon payment of the SEC's prescribed fees.
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APPENDIX A
MORE INFORMATION ABOUT THE GENERAL ACCOUNT
Because of exemption and exclusionary provisions in the securities laws,
interests in the General Account are not generally subject to regulation under
the provisions of the 1933 Act or the 1940 Act. Disclosures regarding the fixed
portion of the Contract and the Sub-Accounts of the General Account may be
subject to the provisions of the 1933 Act concerning the accuracy and
completeness of statements made in the Prospectus. The disclosures in this
APPENDIX A have not been reviewed by the SEC. ALLOCATIONS TO AND TRANSFERS TO
AND FROM THE GENERAL ACCOUNT 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 become part of the assets of the Company and are used to
support insurance and annuity obligations.
A portion or all of net contributions may be allocated to a Sub-Account within
the General Account to accumulate at a fixed rate of interest. Such net amounts
are guaranteed by the Company as to principal and a minimum rate of interest.
Under the Contracts, the minimum interest which may be credited on amounts
allocated to a Sub-Account of the General Account is 4.5% compounded annually
for the first five Certificate years, 4% compounded annually for the next five
Certificate years, and 3.5% compounded annually thereafter. Additional "excess
interest" may or may not be credited at the sole discretion of the Company.
Currently, Sub-Accounts of the General Account will mature at three-year
intervals. In no case will excess interest be guaranteed for periods of less
than one year.
Additional contributions allocated all or in part to a Sub-Account of the
General Account must be received by the Company no later than 1:00 p.m. Eastern
time to be applied to the Sub-Account of the General Account on the date of
receipt. Additional contributions received after 1:00 p.m. will be credited to
the Sub-Account of the General Account on the next business day.
At least 30 days prior to the maturity date of a Sub-Account of the General
Account, the Company will notify the Participant-Owner of the new interest rate
and maturity date that will apply to the new Sub-Account on the maturity date.
Unless the Participant-Owner directs otherwise, the Accumulated Value of the IRA
Account allocated to the matured Sub-Account will be allocated to the new
Sub-Account.
If an IRA Account with Accumulated Value allocated to one or more Sub-Accounts
of the General Account is surrendered, or if a partial redemption is made from a
Sub-Account of the General Account, a withdrawal charge of 4% will be made on
any amounts withdrawn from such Sub-Accounts. The withdrawal charge will not
apply to amounts withdrawn on a maturity date or under an LED distribution as
provided in the Contract, see "LED Distributions."
If a period certain option is chosen (Option V), a withdrawal charge will be
deducted from the Accumulated Value of the IRA Account. Such charge is the same
as that which would apply had the IRA Account been surrendered on the Annuity
Date.
A-1
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
STATEMENT OF ADDITIONAL INFORMATION
OF
GROUP VARIABLE ANNUITY CONTRACTS FUNDED THROUGH
SEPARATE ACCOUNT I
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS FOR THE SEPARATE ACCOUNT DATED MAY 1, 1998
("THE PROSPECTUS"). THE PROSPECTUS MAY BE OBTAINED FROM ALLMERICA FINANCIAL,
STATION C-36, FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY, 440 LINCOLN
STREET, WORCESTER, MASSACHUSETTS 01653, TELEPHONE 1-800-533-7865.
DATED MAY 1, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY. . . . . . . . . . . . . . . . . . . . . . . .2
TAXATION OF THE CONTRACT, THE SEPARATE ACCOUNT AND THE
COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
UNDERWRITERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
ANNUITY PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
GENERAL INFORMATION AND HISTORY
Separate Account I (the "Separate Account") is a separate investment account of
First Allmerica Financial Life Insurance Company (the "Company") established by
vote of the Board of Directors on August 20, 1991. The Company organized under
the laws of Massachusetts in 1844, is the fifth oldest life insurance company in
America. As of December 31, 1997, the Company and its subsidiaries had over
$16.3 billion in combined assets and over $43.8 billion of life insurance in
force. Effective October 16, 1995, the Company converted from a mutual life
insurance company known as State Mutual Life Assurance Company of America to a
stock life insurance company and adopted its present name. The Company is a
wholly-owned subsidiary of Allmerica Financial Corporation ("AFC"). The
Company's 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 Commonwealth of Massachusetts
governing insurance companies and to regulation by the Commissioner of Insurance
of Massachusetts. In addition, the Company is subject to the insurance laws and
regulations of other states and jurisdictions in which it is licensed to
operate.
The Separate Account currently consists of seven Sub-Accounts. Each Sub-Account
invests in a corresponding investment portfolio of Allmerica Investment Trust
(the "Trust"). The Trust is managed by Allmerica Investment Management Company,
Inc. (the "Manager").
The Trust is an open-end, diversified management investment company. Seven
different investment portfolios of the Trust are available under the Contracts:
the Select International Equity Fund, Select Aggressive Growth Fund, Growth
Fund, Equity Index Fund, Investment Grade Income Fund, Government Bond Fund and
Money Market Fund ("Funds"). Each Fund has its own investment objectives, sub-
adviser and certain attendant risks.
-2-
<PAGE>
TAXATION OF THE CONTRACTS, SEPARATE
ACCOUNT AND THE COMPANY
The Company currently imposes no charge for taxes payable in connection with the
Contracts, other than for state and local premium taxes and similar assessments
when applicable. The Company reserves the right to impose a charge for any
other taxes that may become payable in the future in connection with the
Contracts or the Separate Account.
The Separate 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 Contracts or the Separate 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 Participant-Owners. The
Separate Account presently is not subject to tax.
SERVICES
CUSTODIAN OF SECURITIES. The Company serves as custodian of the assets of the
Separate Account. Fund shares owned by the Sub-Accounts are held on an open
account basis. A Sub-Account's ownership of Fund shares is reflected on the
records of the Fund and is not represented by any transferable stock
certificates.
EXPERTS. The financial statements of the Company as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997,
and the financial statements of the Separate Account I of the Company as of
December 31, 1997 and 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 Contracts.
UNDERWRITERS
Allmerica Investments, Inc. ("Allmerica Investments"), a registered broker-
dealer under the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc. ("NASD"), serves as principal
underwriter and general distributor for the Contracts pursuant to a contract
with Allmerica Investments, the Company and the Separate Account. Allmerica
Investments distributes the Contracts on a best efforts basis. Allmerica
Investments, Inc., 440 Lincoln Street, Worcester, Massachusetts 01653 was
organized in 1969 as a wholly-owned subsidiary of the Company and presently is
indirectly wholly-owned by the Company.
All persons selling the Contracts and Certificates thereunder are required to be
licensed by their respective state insurance authorities for the sale of
variable annuity contracts. Commissions are not paid by the Company on sales of
the Contracts and Certificates.
-3-
<PAGE>
Commissions are paid by the Company and do not result in any charge to
Participant-Owners or to the Separate 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 PAYMENTS
The method by which the Accumulated Value under the Contract is determined is
described in detail under "IRA ACCOUNT VALUES AND ANNUITY PAYMENTS" in the
Prospectus.
ILLUSTRATION OF ACCUMULATION UNIT CALCULATION USING HYPOTHETICAL EXAMPLE. The
Accumulation Unit calculation for a daily Valuation Period may be illustrated by
the following hypothetical example: Assume that the assets of a Sub-Account at
the beginning of a one-day Valuation Period were $5,000,000; that the value of
an Accumulation Unit on the previous date was $1.135000; and that during the
Valuation Period, the investment income and net realized and unrealized capital
gains exceed net realized and unrealized capital losses by $1,675. The
Accumulation Unit Value at the end of the current Valuation Period would be
calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
(1) Accumulation Unit Value - Previous Valuation Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.135000
(2) Value of Assets - Beginning of Valuation Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,000,000
(3) Excess of Investment Income and Net Gains Over Capital Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . $1,675
(4) Adjusted Gross Investment Rate for the Valuation Period (3) divided by (2) . . . . . . . . . . . . . . . . . . . 0.000335
(5) Annual Charge (one day equivalent of 1.15% per annum). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.000032
(6) Net Investment Rate (4)-(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.000303
(7) Net Investment Factor 1.000000 + (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.000303
(8) Accumulation Unit Value - Current Period (1)x(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.135344
</TABLE>
Conversely, if unrealized capital losses and charges for expenses and taxes
exceeded investment income and net realized capital gains by $1,675, the
Accumulation Unit Value at the end of the Valuation Period would have been
$1.134583.
The method for determining the amount of annuity payments is described in detail
under "K. IRA ACCOUNT VALUES AND ANNUITY PAYMENTS" in the Prospectus.
ILLUSTRATION OF VARIABLE ANNUITY PAYMENT CALCULATION USING HYPOTHETICAL EXAMPLE.
The determination of the Annuity Unit value and the variable annuity payment may
be illustrated by the following hypothetical example: Assume a Participant-
Owner has 40,000 Accumulation Units in a Separate 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 Policy is $44,800 (40,000 x $1.120000). Assume also
that the Participant-Owner elects an option for which the first monthly payment
is $6.57 per $1,000
-4-
<PAGE>
of Accumulated Value applied. Assuming no premium tax or surrender or
redemption 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 is then 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 is then 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.
PERFORMANCE INFORMATION
The following describes how performance information will be calculated with
respect to the Sub-Accounts.
TOTAL RETURN.
"Total Return" refers to the total of the income generated by an investment in a
Sub-Account and of the changes of value of the principal invested (due to
realized and unrealized capital gains or losses) for a specified period, reduced
by the Sub-Accounts asset charge and the deduction of the $25 IRA Account Fee.
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 Separate 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 1.15% 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 IRA Account at the end of the
period.
SUPPLEMENTAL TOTAL RETURN INFORMATION.
The Supplemental Total Return Information in this section refers to the total of
the income generated by an
-5-
<PAGE>
investment in a Sub-Account and of the changes of value of the principal
invested (due to realized and unrealized capital gains or losses) for a
specified period reduced by the Sub-Account's asset charge. 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 Separate Account of
$1,000
T = average annual total return
n = number of years
EV = the ending redeemable value of the $1,000 payment at the end
of the specified period
The calculation of Supplemental Total Return reflects the 1.15% annual charge
against the assets of the Sub-Accounts. The ending value assumes that the
Contract is NOT withdrawn at the end of the specified period.
The calculations of Supplemental Total Return include the deduction of the $25
annual Contract fee.
YIELD AND EFFECTIVE YIELD - THE MONEY MARKET SUB-ACCOUNT.
Set forth below is the yield and effective yield for the Money Market Sub-
Account for the seven-day period ended December 31, 1997:
Yield 5.27%
Effective Yield 5.40%
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 1.15% 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 $25 Annual Contract
Fee.
FINANCIAL STATEMENTS
Financial Statements are included for First Allmerica Financial Life Insurance
Company and for its Separate Account I.
-6-
<PAGE>
FIRST ALLMERICA
FINANCIAL LIFE
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
First Allmerica Financial Life Insurance 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 First
Allmerica Financial Life Insurance Company and its subsidiaries at December 31,
1997 and 1996, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, 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>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
----------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
REVENUES
Premiums................................... $2,311.0 $2,236.3 $2,222.8
Universal life and investment product
policy fees............................... 237.3 197.2 172.4
Net investment income...................... 641.8 670.8 710.5
Net realized investment gains.............. 76.5 66.8 19.1
Realized gain from sale of mutual fund
processing business....................... -- -- 20.7
Other income............................... 117.6 108.4 109.3
--------- --------- ---------
Total revenues......................... 3,384.2 3,279.5 3,254.8
--------- --------- ---------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses....................... 2,004.6 1,957.0 2,010.3
Policy acquisition expenses................ 425.1 470.1 470.9
Loss from cession of disability income
business.................................. 53.9 -- --
Other operating expenses................... 523.7 503.2 468.7
--------- --------- ---------
Total benefits, losses and expenses.... 3,007.3 2,930.3 2,949.9
--------- --------- ---------
Income before federal income taxes......... 376.9 349.2 304.9
--------- --------- ---------
FEDERAL INCOME TAX EXPENSE (BENEFIT)
Current.................................... 83.3 96.8 119.7
Deferred................................... 14.2 (15.7) (37.0)
--------- --------- ---------
Total federal income tax expense....... 97.5 81.1 82.7
--------- --------- ---------
Income before minority interest................ 279.4 268.1 222.2
Minority interest.............................. (79.4) (74.6) (73.1)
--------- --------- ---------
Income before extraordinary item............... 200.0 193.5 149.1
Extraordinary item -- demutualization
expenses...................................... -- -- (12.1)
--------- --------- ---------
Net income..................................... $ 200.0 $ 193.5 $ 137.0
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-1
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A 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
$6,992.8 and $7,279.1)............................. $ 7,253.5 $ 7,461.5
Equity securities at fair value (cost of $341.1 and
$327.9)............................................ 479.0 473.1
Mortgage loans...................................... 567.5 650.1
Real estate......................................... 50.3 120.7
Policy loans........................................ 141.9 132.4
Other long term investments......................... 148.3 128.8
---------- ----------
Total investments............................... 8,640.5 8,966.6
---------- ----------
Cash and cash equivalents............................. 213.9 175.9
Accrued investment income............................. 141.8 148.6
Deferred policy acquisition costs..................... 965.5 822.7
---------- ----------
Reinsurance receivables:
Future policy benefits.............................. 307.1 102.8
Outstanding claims, losses and loss adjustment
expenses........................................... 626.7 663.8
Unearned premiums................................... 32.9 46.2
Other............................................... 73.5 62.8
---------- ----------
Total reinsurance receivables................... 1,040.2 875.6
---------- ----------
Deferred federal income taxes......................... -- 66.9
Premiums, accounts and notes receivable............... 554.4 533.0
Other assets.......................................... 373.0 304.4
Closed block assets................................... 806.7 810.8
Separate account assets............................... 9,755.4 6,233.0
---------- ----------
Total assets.................................... $22,491.4 $18,937.5
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits.............................. $ 2,598.5 $ 2,613.7
Outstanding claims, losses and loss adjustment
expenses........................................... 2,825.0 2,944.1
Unearned premiums................................... 846.8 822.5
Contractholder deposit funds and other policy
liabilities........................................ 1,852.7 2,060.4
---------- ----------
Total policy liabilities and accruals........... 8,123.0 8,440.7
---------- ----------
Expenses and taxes payable............................ 662.6 617.5
Reinsurance premiums payable.......................... 37.7 31.4
Short term debt....................................... 33.0 38.4
Deferred federal income taxes......................... 12.9 --
Long term debt........................................ 2.6 2.7
Closed block liabilities.............................. 885.6 899.4
Separate account liabilities.......................... 9,749.7 6,227.2
---------- ----------
Total liabilities............................... 19,507.1 16,257.3
---------- ----------
Minority interest..................................... 748.9 784.0
Commitments and contingencies (Notes 13 and 18)
SHAREHOLDER'S EQUITY
Common stock, $10 par value, 1 million shares
authorized, 500,000 shares issued and outstanding... 5.0 5.0
Additional paid in capital............................ 453.7 392.4
Unrealized appreciation on investments, net........... 209.3 131.4
Retained earnings..................................... 1,567.4 1,367.4
---------- ----------
Total shareholder's equity...................... 2,235.4 1,896.2
---------- ----------
Total liabilities and shareholder's equity...... $22,491.4 $18,937.5
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-2
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A 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 1995
----------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of period............. $ 5.0 $ 5.0 $ --
Demutualization transaction................ -- -- 5.0
--------- --------- ---------
Balance at end of period................... 5.0 5.0 5.0
--------- --------- ---------
ADDITIONAL PAID-IN-CAPITAL
Balance at beginning of period............. 392.4 392.4 --
Contributed from parent.................... 61.3 -- 392.4
--------- --------- ---------
Balance at end of period................... 453.7 392.4 392.4
--------- --------- ---------
RETAINED EARNINGS
Balance at beginning of period............. 1,367.4 1,173.9 1,071.4
Net income prior to demutualization........ -- -- 93.2
--------- --------- ---------
1,367.4 1,173.9 1,164.6
Demutualization transaction................ -- -- (34.5)
Net income subsequent to demutualization... 200.0 193.5 43.8
--------- --------- ---------
Balance at end of period................... 1,567.4 1,367.4 1,173.9
--------- --------- ---------
NET UNREALIZED APPRECIATION ON INVESTMENTS
Balance at beginning of period............. 131.4 153.0 (79.0)
Effect of transfer of securities from
held-to-maturity to available-for-sale:
Net appreciation on available-for-sale
debt securities........................ -- -- 22.4
Provision for deferred federal income taxes
and minority interest..................... -- -- (9.6)
--------- --------- ---------
-- -- 12.8
--------- --------- ---------
Net appreciation (depreciation) on
available for sale securities............. 170.9 (35.1) 466.0
(Benefit) provision for deferred federal
income taxes.............................. (59.8) 11.8 (163.1)
Minority interest.......................... (33.2) 1.7 (83.7)
--------- --------- ---------
209.3 (21.6) 219.2
--------- --------- ---------
Balance at end of period................... 209.3 131.4 153.0
--------- --------- ---------
Total shareholder's equity............. $2,235.4 $1,896.2 $1,724.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ALLMERICA FINANCIAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
-------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................. $ 200.0 $ 193.5 $ 137.0
Adjustments to reconcile net income to
net cash provided by operating
activities:
Minority interest................... 79.4 74.6 73.1
Net realized gains.................. (77.8) (66.8) (39.8)
Net amortization and depreciation... 31.6 44.7 57.7
Deferred federal income taxes....... 14.2 (15.7) (37.0)
Change in deferred acquisition
costs............................... (189.7) (73.9) (38.4)
Change in premiums and notes
receivable, net of reinsurance...... (15.1) (16.8) (42.0)
Change in accrued investment
income.............................. 7.1 16.7 7.0
Change in policy liabilities and
accruals, net....................... (134.9) (184.3) 116.2
Change in reinsurance receivable.... 27.2 123.8 (75.6)
Change in expenses and taxes
payable............................. 49.4 26.0 7.5
Separate account activity, net...... -- 5.2 (0.1)
Loss from cession of disability
income business..................... 53.9 -- --
Payment related to cession of
disability income business.......... (207.0) -- --
Other, net.......................... 20.4 38.5 (33.8)
---------- ---------- ----------
Net cash (used in) provided by
operating activities......... (141.3) 165.5 131.8
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposals and maturities
of available-for-sale fixed
maturities............................. 2,947.9 3,985.8 2,738.4
Proceeds from disposals of
held-to-maturity fixed maturities...... -- -- 271.3
Proceeds from disposals of equity
securities............................. 162.7 228.7 120.0
Proceeds from disposals of other
investments............................ 116.3 99.3 40.5
Proceeds from mortgages matured or
collected.............................. 204.7 176.9 230.3
Purchase of available-for-sale fixed
maturities............................. (2,596.0) (3,771.1) (3,273.3)
Purchase of equity securities........... (67.0) (90.9) (254.0)
Purchase of other investments........... (175.0) (168.0) (24.8)
Proceeds from sale of mutual fund
processing business.................... -- -- 32.9
Capital expenditures.................... (15.3) (12.8) (14.1)
Other investing activities, net......... 1.3 4.3 4.7
---------- ---------- ----------
Net cash provided by (used in)
investing activities................ 579.6 452.2 (128.1)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits and interest credited to
contractholder deposit funds........... 457.6 268.7 445.8
Withdrawals from contractholder deposit
funds.................................. (647.1) (905.0) (1,069.9)
Change in short term debt............... (5.4) 10.4 (4.8)
Change in long term debt................ (0.1) (0.1) 0.2
Dividends paid to minority
shareholders........................... (9.4) (3.9) (4.1)
Additional paid in capital.............. 0.1 -- 392.4
Payments to policyholders' membership
interests.............................. -- -- (27.9)
Subsidiary treasury stock purchased, at
cost................................... (195.0) (42.0) (20.9)
---------- ---------- ----------
Net cash used in financing
activities................... (399.3) (671.9) (289.2)
---------- ---------- ----------
Net change in cash and cash equivalents..... 39.0 (54.2) (285.5)
Net change in cash held in the Closed
Block...................................... (1.0) (6.5) (17.6)
Cash and cash equivalents, beginning of
period..................................... 175.9 236.6 539.7
---------- ---------- ----------
Cash and cash equivalents, end of period.... $ 213.9 $ 175.9 $ 236.6
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid........................... $ 3.6 $ 18.6 $ 4.1
Income taxes paid....................... $ 66.3 $ 72.0 $ 90.6
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
First Allmerica Financial Life Insurance Company ("FAFLIC", or the "Company")
was organized as a mutual life insurance company until October 16, 1995. FAFLIC
converted to a stock life insurance company pursuant to a plan of reorganization
effective October 16, 1995 and became a wholly owned subsidiary of Allmerica
Financial Corporation ("AFC"). The consolidated financial statements have been
prepared as if FAFLIC were organized as a stock life insurance company for all
periods presented. Thus, generally accepted accounting principles for stock life
insurance companies have been applied retroactively for all periods presented.
The consolidated financial statements of FAFLIC include the accounts of
Allmerica Financial Life Insurance and Annuity Company ("AFLIAC"), its wholly
owned life insurance subsidiary, non-insurance subsidiaries (principally
brokerage and investment advisory subsidiaries), and Allmerica Property and
Casualty Companies, Inc. (a 65.78%-owned non-insurance holding company). The
Closed Block assets and liabilities at December 31, 1997 and 1996, and its
results of operations subsequent to demutualization are presented in the
consolidated financial statements as single line items. Unless specifically
stated, all disclosures contained herein supporting the consolidated financial
statements at December 31, 1997 and 1996, and the years then ended exclude the
Closed Block related amounts. All significant intercompany accounts and
transactions have been eliminated.
Minority interest relates to the Company's investment in Allmerica P&C (APY) and
its only significant subsidiary, The Hanover Insurance Company ("Hanover").
Hanover's 82.5%-owned subsidiary is Citizens Corporation, the holding company
for Citizens Insurance Company of America ("Citizens"). Minority interest also
includes an amount related to the minority interest in Citizens Corporation.
APY and a wholly-owned subsidiary of AFC merged on July 16, 1997. Through the
merger, AFC acquired all of the outstanding common stock of Allmerica P&C that
it did not already own in exchange for cash and stock. The merger has been
accounted for as a purchase. A total of $90.6 million, representing the excess
of the purchase price over the fair values of the net assets acquired, net of
deferred taxes, has been allocated to goodwill and is being amortized over a
40-year period. Additional information pertaining to the merger agreement is
included in Note 2, significant transactions.
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.
B. CLOSED BLOCK
As of October 16, 1995, the Company established and began operating a closed
block (the "Closed Block") for the benefit of the participating policies
included therein, consisting of certain individual life insurance participating
policies, individual deferred annuity contracts and supplementary contracts not
involving life contingencies which were in force on October 16, 1995; such
policies constitute the "Closed Block Business". The purpose of the Closed Block
is to protect the policy dividend expectations of such FAFLIC dividend paying
policies and contracts after the demutualization. Unless the Commissioner
consents to an earlier termination, the Closed Block will continue to be in
effect until the date none of the Closed Block policies are in force. On October
16, 1995, FAFLIC, allocated to the Closed Block, assets in an amount that is
expected to produce cash flows which, together with future revenues from the
Closed Block Business, are reasonably sufficient to support the Closed Block
Business, including provision for payment of policy
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
benefits, certain future expenses and taxes and for continuation of policyholder
dividend scales in effect in 1994 so long as the experience underlying such
dividend scales continues. The Company expects that the factors underlying such
experience will fluctuate in the future and policyholder dividend scales for
Closed Block Business will be set accordingly.
Although the assets and income allocated to the Closed Block inure solely to the
benefit of the holders of policies included in the Closed Block, the excess of
Closed Block liabilities over Closed Block assets at October 16, 1995 measured
on a GAAP basis represent the expected future post-tax income from the Closed
Block which may be recognized in income over the period the policies and
contracts in the Closed Block remain in force.
If the actual income from the Closed Block in any given period equals or exceeds
the expected income for such period as determined at October 16, 1995, the
expected income would be recognized in income for that period. Further, any
excess of the actual income over the expected income would also be recognized in
income to the extent that the aggregate expected income for all prior periods
exceeded the aggregate actual income. Any remaining excess of actual income over
expected income would be accrued as a liability for policyholder dividends in
the Closed Block to be paid to the Closed Block policyholders. This accrual for
future dividends effectively limits the actual Closed Block income recognized in
income to the Closed Block income expected to emerge from operation of the
Closed Block as determined as of October 16, 1995.
If, over the period the policies and contracts in the Closed Block remain in
force, the actual income from the Closed Block is less than the expected income
from the Closed Block, only such actual income (which could reflect a loss)
would be recognized in income. If the actual income from the Closed Block in any
given period is less than the expected income for that period and changes in
dividends scales are inadequate to offset the negative performance in relation
to the expected performance, the income inuring to shareholders of the Company
will be reduced. If a policyholder dividend liability had been previously
established in the Closed Block because the actual income to the relevant date
had exceeded the expected income to such date, such liability would be reduced
by this reduction in income (but not below zero) in any periods in which the
actual income for that period is less than the expected income for such period.
C. 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.
In November 1995, the Financial Accounting Standards Board ("FASB") issued a
Special Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, which permitted companies to
reclassify securities, where appropriate, based on the new guidance. As a
result, the Company transferred securities with amortized cost and fair value of
$696.4 million and $725.6 million, respectively, from the held-to-maturity
category to the available-for-sale category, which resulted in a net increase in
shareholder's equity of $12.8 million.
Marketable equity securities and debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of shareholders' equity. The amortized cost of debt securities is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income.
Mortgage loans on real estate are stated at unpaid principal balances, net of
unamortized discounts and reserves. Reserves on mortgage loans are based on
losses expected by the Company to be realized on transfers
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
of mortgage loans to real estate (upon foreclosure), on the disposition or
settlement of mortgage loans and on mortgage loans which the Company believes
may not be collectible in full. In establishing reserves, the Company considers,
among other things, the estimated fair value of the underlying collateral.
Fixed maturities and mortgage loans that are delinquent are placed on
non-accrual status, and thereafter interest income is recognized only when cash
payments are received.
Policy loans are carried principally at unpaid principal balances.
During 1997, the Company 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 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.
D. 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, investment and loan
commitments, and interest rate futures contracts. 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.
Derivative financial instruments are accounted for under three different
methods: fair value accounting, deferral accounting and accrual accounting.
Interest rate swap contracts used to hedge interest rate risk are accounted for
using a combination of the fair value method and accrual method, with changes in
fair value reported in unrealized gains and losses in equity consistent with the
underlying hedged security, and the net payment or receipt on the swaps reported
in net investment income. Foreign currency swap contracts used to hedge foreign
currency exchange risk are accounted for using a combination of the fair value
method and accrual method, with changes in fair value reported in unrealized
gains and losses in equity consistent with the underlying hedged security, and
the net payment or receipt on the swaps reported in net investment income.
Futures contracts used to hedge interest rate risk are accounted for using the
deferral method, with gains and losses deferred in unrealized gains and losses
in equity and recognized in earnings in conjunction with the earnings
recognition of the underlying hedged item. Other swap contracts entered into for
investment purposes are accounted for using the fair value method, with changes
in fair value reported in realized investment gains and losses in earnings.
E. 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.
F. 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.
Property and casualty, group life and group health insurance business
acquisition costs are deferred and amortized over the terms of the insurance
policies. Acquisition
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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 life product and property and casualty line
of business 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.
G. PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is provided using the
straight-line or accelerated method over the estimated useful lives of the
related assets which generally range from 3 to 30 years. Amortization of
leasehold improvements is provided using the straight-line method over the
lesser of the term of the leases or the estimated useful life of the
improvements.
H. 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.
I. 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 annuities. Estimated liabilities are
established for group life and health policies that contain experience rating
provisions. 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. Liabilities for
outstanding claims, losses and loss adjustment expenses are estimates of
payments to be made on property and casualty and health insurance for reported
losses and estimates of losses incurred but not reported. These liabilities are
determined using case basis evaluations and statistical analyses and represent
estimates of the ultimate cost of all losses incurred but not paid. These
estimates are continually reviewed and adjusted as necessary; such adjustments
are reflected in
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
current operations. Estimated amounts of salvage and subrogation on unpaid
property and casualty losses are deducted from the liability for unpaid claims.
Premiums for property and casualty, group life, and 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 such as guaranteed investment contracts, deposit
administration funds and immediate participation guarantee funds 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.
J. PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Premiums for individual life and health insurance and individual and group
annuity products, excluding universal life and investment-related products, are
considered revenue when due. Property and casualty and group life, 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 products consist of net
investment income, and mortality, administration and surrender charges assessed
against the fund values. Related benefit expenses include universal life benefit
claims in excess of fund values and net investment income credited to universal
life fund values. Certain policy charges that represent compensation for
services to be provided in future periods are deferred and amortized over the
period benefited using the same assumptions used to amortize capitalized
acquisition costs.
K. POLICYHOLDER DIVIDENDS
Prior to demutualization, certain life, health and annuity insurance policies
contained dividend payment provisions that enabled the policyholder to
participate in the earnings of the Company. The amount of policyholders'
dividends was determined annually by the Board of Directors. The aggregate
amount of policyholders' dividends was related to the actual interest,
mortality, morbidity and expense experience for the year and the Company's
judgment as to the appropriate level of statutory surplus to be retained. Upon
demutualization, certain participating individual life insurance policies and
individual annuity and supplemental contracts were transferred to the Closed
Block. The Closed Block was funded to protect the dividend expectations of such
policies and contracts. Accordingly, these policies no longer participate in the
earnings and surplus of the Open Block. Subsequent to demutualization, the
Company ceased issuance of participating policies.
Prior to demutualization, the participating life insurance in force was 16.2% of
the face value of total life insurance in force at December 31, 1994. The
premiums on participating life, health and annuity policies were 11.3% and 6.4%
of total life, health and annuity statutory premiums prior to demutualization in
1995 and 1994, respectively. Total policyholders' dividends were $23.3 million
and $32.8 million prior to demutualization in 1995 and 1994, respectively.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
L. FEDERAL INCOME TAXES
AFC, its life insurance subsidiaries, FAFLIC, 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. APY and its subsidiaries will be included in the AFC consolidated return
as part of the 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,
APY 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.
M. 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.
N. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
2. SIGNIFICANT TRANSACTIONS
On February 3, 1997, AFC Capital Trust (the "Trust"), a subsidiary business
trust of AFC, issued $300 million Series A Capital Securities, which pay
cumulative dividends at a rate of 8.207% semiannually commencing August 15,
1997. The Trust exists for the sole purpose of issuing the Capital Securities
and investing the proceeds thereof in an equivalent amount of 8.207% Junior
Subordinated Deferrable Interest Debentures due 2027 of AFC (the "Subordinated
Debentures"). Through certain guarantees, the Subordinated Debentures and the
terms of related agreements, AFC has irrevocably and unconditionally guaranteed
the obligations of the Trust under the Capital Securities. Net proceeds from the
offering of approximately $296.3 million are intended to fund a portion of the
acquisition of the 24.2 million publicly-held shares of APY pursuant to an
Agreement and Plan of Merger dated February 19, 1997.
The merger of APY and a wholly-owned subsidiary of AFC was consummated on July
16, 1997. Through the merger, AFC acquired all of the outstanding common stock
of APY that FAFLIC did not already own in exchange for cash of $425.6 million
and approximately 9.7 million shares of AFC stock valued at $372.5 million. At
consummation of this transaction AFC owned 59.5% through FAFLIC and 40.5%
directly.
The merger has been accounted for as a purchase by AFC. Total consideration of
approximately $798.1 million has been allocated to the minority interest in the
assets and liabilities based on estimates of their fair values. The minority
interest acquired totaled $703.5 million. A total of $90.6 million representing
the excess of the purchase price over the fair values of the net assets
acquired, net of deferred taxes, has been allocated to goodwill and is being
amortized over a 40-year period.
The pushdown of goodwill to APY resulted in an increase to the consolidated
equity of FAFLIC of $61.3 million as additional paid in capital. The effects of
this transaction on the 1997 results of the Company are as follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------
<S> <C>
Revenue........................................................................................ $ (6.7)
-----
-----
Realized capital gains included in revenue..................................................... $ (4.9)
-----
-----
Net income..................................................................................... $ (6.1)
-----
-----
Unrealized appreciation on investments......................................................... $ 4.4
-----
-----
</TABLE>
In December 1997, APY redeemed 5,735.3 shares of its issued and outstanding
common stock owned by AFC for $195 million in cash and securities. The effect of
this transaction was to increase FAFLIC's ownership of APY by 6.3%.
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.
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.
Pursuant to the plan of reorganization effective October 16, 1995, AFC issued
37.5 million shares of its common stock to eligible policyholders. AFC also
issued 12.6 million shares of its common stock at a price of
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
$21.00 per share in a public offering, resulting in net proceeds of $248.0
million, and issued Senior Debentures in the principal amount of $200.0 million
which resulted in net proceeds of $197.2 million. AFC contributed $392.4 million
of these proceeds to FAFLIC.
Effective March 31, 1995, the Company entered into an agreement with TSSG, a
division of First Data Corporation, pursuant to which the Company sold its
mutual fund processing business and agreed not to engage in this business for
four years after that date. In accordance with this agreement, the Company
received proceeds of $32.1 million. A gain of $13.5 million, net of taxes of
$7.2 million, was recorded in March 1995. Additionally, the Company received a
non-recurring $3.1 million contingent payment, net of taxes of $1.7 million, in
1996, related to the aforementioned sale.
3. INVESTMENTS
A. SUMMARY OF INVESTMENTS
The Company accounts for its investments, all of which are classified as
available-for-sale, in accordance with 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....... $ 265.3 $ 9.5 $ 0.9 $ 273.9
States and political subdivisions....... 2,200.6 78.3 3.1 2,275.8
Foreign governments..................... 110.8 8.5 2.2 117.1
Corporate fixed maturities.............. 4,041.6 175.1 12.2 4,204.5
Mortgage-backed securities.............. 374.5 9.7 2.0 382.2
--------- ---------- ----------- --------
Total fixed maturities.................. $ 6,992.8 $281.1 $ 20.4 $7,253.5
--------- ---------- ----------- --------
--------- ---------- ----------- --------
Equity securities....................... $ 341.1 $141.9 $ 4.0 $ 479.0
--------- ---------- ----------- --------
--------- ---------- ----------- --------
<CAPTION>
1996
-----------------------------------------------
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....... $ 273.6 $ 9.3 $ 1.6 $ 281.3
States and political subdivisions....... 2,236.9 48.5 7.7 2,277.7
Foreign governments..................... 108.0 7.3 -- 115.3
Corporate fixed maturities.............. 4,277.5 140.3 15.7 4,402.1
Mortgage-backed securities.............. 383.1 4.7 2.7 385.1
--------- ---------- ----------- --------
Total fixed maturities.................. $ 7,279.1 $210.1 $ 27.7 $7,461.5
--------- ---------- ----------- --------
--------- ---------- ----------- --------
Equity securities....................... $ 327.9 $148.9 $ 3.7 $ 473.1
--------- ---------- ----------- --------
--------- ---------- ----------- --------
</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 general account liabilities of
AFLIAC for New York policyholders, claimants and creditors. At December 31,
1997, the amortized cost and market
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
value of assets on deposit were $276.8 million and $291.7 million, respectively.
At December 31, 1996, the amortized cost and market value of 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 $105.1 million and $98.0 million were on deposit
with various state and governmental authorities at December 31, 1997 and 1996,
respectively.
There were no contractual fixed maturity investment commitments at December 31,
1997 and 1996, respectively.
The amortized cost and fair value by maturity periods for fixed maturities are
shown below. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties, or the Company may have the right to put or sell the
obligations back to the issuers. Mortgage backed securities are included in the
category representing their ultimate maturity.
<TABLE>
<CAPTION>
1997
--------------------
DECEMBER 31 AMORTIZED FAIR
(IN MILLIONS) COST VALUE
- ---------------------------------------- --------- --------
<S> <C> <C>
Due in one year or less................. $ 464.5 $ 467.7
Due after one year through five years... 2,142.9 2,225.7
Due after five years through ten
years.................................. 2,137.3 2,217.1
Due after ten years..................... 2,248.1 2,343.0
--------- --------
Total................................... $ 6,992.8 $7,253.5
--------- --------
--------- --------
</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............................. $1,894.8 $27.6 $ 16.2
Equity securities............................ $ 145.5 $55.8 $ 1.3
1996
Fixed maturities............................. $2,432.8 $19.3 $ 30.5
Equity securities............................ $ 228.1 $56.1 $ 1.3
1995
Fixed maturities............................. $1,612.3 $23.7 $ 33.0
Equity securities............................ $ 122.2 $23.1 $ 6.9
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Unrealized gains and losses on available-for-sale and other securities, are
summarized as follows:
<TABLE>
<CAPTION>
EQUITY
SECURITIES
FOR THE YEARS ENDED DECEMBER 31 FIXED AND OTHER
(IN MILLIONS) MATURITIES (1) TOTAL
- ------------------------------------------------------------ ---------- ----------- -------
<S> <C> <C> <C>
1997
Net appreciation, beginning of year......................... $ 71.3 $ 60.1 $ 131.4
Net appreciation (depreciation) on available-for-sale
securities.............................................. 83.2 (5.9) 77.3
Appreciation due to AFC purchase of minority interest of
Allmerica P&C........................................... 50.7 59.6 110.3
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities............. (16.7) -- (16.7)
Provision for deferred federal income taxes and minority
interest................................................ (65.9) (27.1) (93.0)
---------- ----------- -------
51.3 26.6 77.9
---------- ----------- -------
Net appreciation, end of year............................... $122.7 $ 86.6 $ 209.3
---------- ----------- -------
---------- ----------- -------
1996
Net appreciation, beginning of year......................... $108.7 $ 44.3 $ 153.0
Net (depreciation) appreciation on available-for-sale
securities.............................................. (94.1) 35.9 (58.2)
Net appreciation from the effect on deferred policy
acquisition costs and on policy liabilities............. 23.1 -- 23.1
Provision for deferred federal income taxes and minority
interest................................................ 33.6 (20.1) 13.5
---------- ----------- -------
(37.4) 15.8 (21.6)
---------- ----------- -------
Net appreciation, end of year............................. $ 71.3 $ 60.1 $ 131.4
---------- ----------- -------
---------- ----------- -------
1995
Net appreciation (depreciation), beginning of year.......... $(89.4) $ 10.4 $ (79.0)
Effect of transfer of securities between classifications:
Net appreciation on available-for-sale securities......... 29.2 -- 29.2
Net depreciation from the effect of accounting change on
deferred policy acquisition costs and on policy
liabilities............................................. (6.8) -- (6.8)
Provision for deferred federal income taxes and minority
interest................................................ (9.6) -- (9.6)
---------- ----------- -------
12.8 -- 12.8
---------- ----------- -------
Net appreciation on available-for-sale securities........... 465.4 87.5 552.9
Net depreciation from the effect on deferred policy
acquisition costs and on policy liabilities................ (86.9) (86.9)
Provision for deferred federal income taxes and minority
interest................................................... (193.2) (53.6) (246.8)
---------- ----------- -------
185.3 33.9 219.2
---------- ----------- -------
Net appreciation, end of year............................... $108.7 $ 44.3 $ 153.0
---------- ----------- -------
---------- ----------- -------
</TABLE>
(1) Includes net appreciation on other investments of $1.8 million, $0.6
million, and 2.2 million in 1997, 1996 and 1995, respectively.
B. MORTGAGE LOANS AND REAL ESTATE
FAFLIC'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.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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.......................... $567.5 $ 650.1
Real estate:
Held for sale......................... 50.3 110.4
Held for production of income......... -- 10.3
------ --------
Total real estate................... 50.3 120.7
------ --------
Total mortgage loans and real estate.... $617.8 $ 770.8
------ --------
------ --------
</TABLE>
Reserves for mortgage loans were $20.7 million and $19.6 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 $54.7 million were written down to the estimated fair value less cost
to sell of $50.3 million, and a net realized investment loss of $4.4 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 and 1995, non-cash
investing activities included real estate acquired through foreclosure of
mortgage loans, which had a fair value of $0.9 million and $26.1 million,
respectively.
At December 31, 1997, contractual commitments to extend credit under commercial
mortgage loan agreements amounted to approximately $39.4 million, of which $10.0
million related to the Closed Block. These commitments generally expire within
one year.
Mortgage loans and real estate investments comprised the following property
types and geographic regions:
<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996
- ---------------------------------------- ------ --------
<S> <C> <C>
Property type:
Office building....................... $265.1 $ 317.1
Residential........................... 66.6 95.4
Retail................................ 132.8 177.0
Industrial/warehouse.................. 107.2 124.8
Other................................. 66.8 91.0
Valuation allowances.................. (20.7) (34.5)
------ --------
Total................................... $617.8 $ 770.8
------ --------
------ --------
Geographic region:
South Atlantic........................ 173.4 227.0
Pacific............................... 152.8 154.4
East North Central.................... 102.0 119.2
Middle Atlantic....................... 73.8 112.6
West South Central.................... 34.9 41.6
New England........................... 46.9 50.9
Other................................. 54.7 99.6
Valuation allowances.................. (20.7) (34.5)
------ --------
Total................................... $617.8 $ 770.8
------ --------
------ --------
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
At December 31, 1997, scheduled mortgage loan maturities were as follows: 1998
- -- $136.4 million; 1999 -- $70.8 million; 2000 -- $129.2 million; 2001 -- $26.4
million; 2002 -- $29.9 million; and $174.8 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 consolidated balance sheets and
changes thereto are shown below.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED BALANCE AT
DECEMBER 31 BALANCE AT DECEMBER
(IN MILLIONS) JANUARY 1 ADDITIONS DEDUCTIONS 31
- ------------------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
1997
Mortgage loans........... $19.6 $ 2.5 $ 1.4 $20.7
Real estate.............. 14.9 6.0 20.9 --
----- --------- ----- -----
Total................ $34.5 $ 8.5 $22.3 $20.7
----- --------- ----- -----
----- --------- ----- -----
1996
Mortgage loans........... $33.8 $ 5.5 $19.7 $19.6
Real estate.............. 19.6 -- 4.7 14.9
----- --------- ----- -----
Total................ $53.4 $ 5.5 $24.4 $34.5
----- --------- ----- -----
----- --------- ----- -----
1995
Mortgage loans........... $47.2 $ 1.5 $14.9 $33.8
Real estate.............. 22.9 (0.6) 2.7 19.6
----- --------- ----- -----
Total................ $70.1 $ 0.9 $17.6 $53.4
----- --------- ----- -----
----- --------- ----- -----
</TABLE>
The carrying value of impaired loans was $30.5 million and $33.6 million, with
related reserves of $13.8 million and $11.9 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 $30.8 million, $50.4 million
and $117.9 million, with related interest income while such loans were impaired
of $3.2 million, $5.8 million and $9.3 million as of December 31, 1997, 1996 and
1995, respectively.
D. FUTURES CONTRACTS
The Company purchases long futures contracts and sells short futures contracts
on margin to hedge against interest rate fluctuations associated with the sale
of Guaranteed Investment Contracts ("GICs"). The Company is exposed to interest
rate risk from the time of sale of the GIC until the receipt of the deposit and
purchase of the underlying asset to back the liability. The Company's exposure
to credit risk under futures contracts is limited to the margin deposited with
the broker. The Company only trades futures contracts with nationally recognized
brokers, which the Company believes have adequate capital to ensure that there
is minimal danger of default. The Company does not require collateral or other
securities to support financial instruments with credit risk.
There were no futures contracts outstanding at December 31, 1997, and $(33.0)
million notional amount of short contracts at December 31, 1996. The notional
amounts of the contracts represent the extent of the
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Company's investment but not the future cash requirements, as the Company
generally settles open positions prior to maturity. The fair value of futures
contracts outstanding were $(32.4) million at December 31, 1996.
Gains and losses on hedge contracts related to interest rate fluctuations are
deferred and recognized in income over the period being hedged corresponding to
related guaranteed investment contracts. If instruments being hedged by futures
contracts are disposed, any unamortized gains or losses on such contracts are
included in the determination of the gain or loss from the disposition. There
were no deferred hedging gains (losses) in 1997. Deferred hedging gains were
$0.5 million and $5.6 million in 1996 and 1995, respectively. Gains and losses
on hedge contracts that are deemed ineffective by the Company are realized
immediately.
A reconciliation of the notional amount of futures contracts is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- --------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Contracts outstanding, beginning of year..... $(33.0) $ 74.7 $126.6
New contracts................................ (0.2) (1.1) 349.2
Contracts terminated......................... 33.2 (106.6) (401.1)
------ ------ ------
Contracts outstanding, end of year........... -- $(33.0) $ 74.7
------ ------ ------
------ ------ ------
</TABLE>
E. FOREIGN CURRENCY SWAP CONTRACTS
The Company enters into foreign currency swap contracts to hedge exposure to
currency risk on foreign fixed maturity investments. Interest and principal
related to foreign fixed maturity investments payable in foreign currencies, at
current exchange rates, are exchanged for the equivalent payment translated at a
specific currency exchange rate. The Company's maximum exposure to counterparty
credit risk is the difference between the foreign currency exchange rate, as
agreed upon in the swap contract, and the foreign currency spot rate on the date
of the exchange. The fair values of the foreign currency swap contracts
outstanding were $0.1 million and $(9.2) million at December 31, 1997 and 1996,
respectively. Changes in the fair value of contracts are reported in unrealized
gains or losses, consistent with the reporting for the underlying hedged
security. The Company does not require collateral or other security to support
financial instruments with credit risk.
The difference between amounts paid and received on foreign currency swap
contracts is reflected in the net investment income related to the underlying
assets and is not material in 1997, 1996 and 1995. Any gain or loss on the
termination of swap contracts is deferred and recognized with any gain or loss
on the hedged transaction. The Company had no deferred gains or losses on
foreign currency swap contracts.
A reconciliation of the notional amount of swap contracts is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- --------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Contracts outstanding, beginning of year..... $ 68.6 $104.6 $118.7
New contracts................................ 5.0 -- --
Contracts expired............................ (18.2) (36.0) --
Contracts terminated......................... -- -- (14.1)
------ ------ ------
Contracts outstanding, end of year........... $ 55.4 $ 68.6 $104.6
------ ------ ------
------ ------ ------
</TABLE>
Expected maturities of foreign currency swap contracts are $25.0 million in
1999, $11.6 million in 2000 and $18.8 million thereafter. There are no expected
maturities of foreign currency swap contracts in 1998, 2001 and 2002.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
F. INTEREST RATE SWAP CONTRACTS
The Company enters into interest rate swap contracts to hedge exposure to
interest rate fluctuations. Under these swap contracts, the Company agrees to
exchange, at specified intervals, the difference between fixed and floating
interest amounts calculated on an agreed-upon notional principal amount. As with
foreign currency swap contracts, the primary risk associated with these
transactions is the inability of the counterparty to meet its obligation. The
Company regularly assesses the financial strength of its counterparties and
generally enters into forward or swap agreements with counterparties rated "A"
or better by the nationally recognized rating agencies. Because the underlying
principal of swap contracts is not exchanged, the Company's maximum exposure to
counterparty credit risk is the difference in payments exchanged, which at
December 31, 1997 was not material to the Company. The Company does not require
collateral or other security to support financial instruments with credit risk.
The net amount receivable or payable is recognized over the life of the swap
contract as an adjustment to net investment income. The (decrease) or increase
in net investment income related to interest rate swap contracts was $(0.4)
million, $0.6 million and $0.7 million for the years ended December 31, 1997,
1996 and 1995, respectively. The fair values of interest rate swap contracts
outstanding were $(2.3) million at December 31, 1997. There were no interest
rate contracts outstanding at December 31, 1996. Changes in the fair value of
contracts are reported as an unrealized gain or loss, consistent with the
underlying hedged security. Any gain or loss on the termination of interest rate
swap contracts accounted for as hedges are deferred and recognized with the gain
or loss on the hedged transaction. The Company had no deferred gain or loss on
interest rate swap contracts in 1997 or 1996.
A reconciliation of the notional amount of interest rate and other swap
contracts is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- --------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Contracts outstanding, beginning of year..... $ 5.0 $ 17.5 $ 22.8
New contracts................................ 244.7 63.6 --
Contracts expired............................ (5.6) (17.5) (5.3)
------ ------ ------
Contracts outstanding, end of year........... $244.1 $ 63.6 $ 17.5
------ ------ ------
------ ------ ------
</TABLE>
Expected maturities of interest rate swap contracts outstanding at December 31,
1997 are as follows: $5.0 million in 1998, and $239.1 million in 2000 and
thereafter. There are no expected maturities of interest rate contracts in 1999.
G. OTHER SWAP CONTRACTS
The Company enters into security return-linked swap contracts and insurance
portfolio-linked swap contracts for investment purposes. Under the security
return-linked contracts, the Company agrees to exchange cash flows according to
the performance of a specified security or portfolio of securities. Under the
insurance portfolio-linked swap contracts, the Company agrees to exchange cash
flows according to the performance of a specified underwriter's portfolio of
insurance business. As with interest rate swap contracts, the primary risk
associated with these transactions is the inability of the counterparty to meet
its obligation. The Company regularly assesses the financial strength of its
counterparties and generally enters into forward or swap agreements with
counterparties rated "A" or better by the nationally recognized rating agencies.
Because the underlying principal of swap contracts is not exchanged, the
Company's maximum exposure to counterparty credit risk is the difference in
payments exchanged, which at December 31, 1997, were not material to the
Company. Swap contracts also subject the Company to market risk associated with
changes in interest rates. The Company does not require collateral or other
security to support financial instruments with credit risk.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The swap contracts are marked to market with any gain or loss recognized
currently. The net amount receivable or payable under these contracts is
recognized when the contracts are marked to market. The fair values of swap
contracts outstanding were $(0.1) million and $0.1 million at December 31, 1997
and 1996, respectively. The net decrease in realized investment gains related to
other swap contracts was $(1.6) million for the year ended December 31, 1997.
There were no realized investment gains on other swap contracts recognized in
1996 and 1995.
A reconciliation of the notional amount of other swap contracts is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- --------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Contracts outstanding, beginning of year..... $ 58.6 $ -- $ --
New contracts................................ 192.1 58.6 --
Contracts expired............................ (211.6) -- --
Contracts terminated......................... (24.1) -- --
------ ------ ------
Contracts outstanding, end of year........... $ 15.0 $ 58.6 $ --
------ ------ ------
------ ------ ------
</TABLE>
Expected maturities of other swap contracts outstanding at December 31, 1997 are
as follows: $10 million in 1999 and $5 million in 2001. There are no expected
maturities of such other swap contracts in 1998, 2000, or 2002.
H. OTHER
At December 31, 1997, FAFLIC had no concentration of investments in a single
investee exceeding 10% of shareholder's equity, except for investments with the
U.S. Treasury with a carrying value of $262.5 million.
4. INVESTMENT INCOME AND GAINS AND LOSSES
A. NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- --------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................. $541.9 $553.8 $555.1
Mortgage loans............................... 57.5 69.5 97.0
Equity securities............................ 10.6 11.1 13.2
Policy loans................................. 10.9 10.3 20.3
Real estate.................................. 20.1 40.8 48.7
Other long-term investments.................. 12.4 19.9 7.5
Short-term investments....................... 12.8 10.6 21.2
------ ------ ------
Gross investment income...................... 666.2 716.0 763.0
Less investment expenses..................... (24.4) (45.2) (52.5)
------ ------ ------
Net investment income........................ $641.8 $670.8 $710.5
------ ------ ------
------ ------ ------
</TABLE>
At December 31, 1997, mortgage loans on non-accrual status were $3.6 million
which were all restructured loans. There were no fixed maturities which were 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 investments, had no impact in 1997, and reduced net income by $0.5
million and $0.6 million in 1996 and 1995, respectively.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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 $40.3 million, $51.3 million and $98.9 million at December 31,
1997, 1996 and 1995, respectively. Interest income on restructured mortgage
loans that would have been recorded in accordance with the original terms of
such loans amounted to $3.9 million, $7.7 million and $11.1 million in 1997,
1996 and 1995, respectively. Actual interest income on these loans included in
net investment income aggregated $4.2 million, $4.5 million and $7.1 million in
1997, 1996 and 1995, respectively.
There were no fixed maturities or mortgage loans which were non-income producing
for the twelve months ended December 31, 1997.
Included in other long-term investments is income from limited partnerships of
$7.8 million, $13.7 million and $0.1 million in 1997, 1996 and 1995
respectively.
B. REALIZED INVESTMENT GAINS AND LOSSES
Realized gains (losses) on investments were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- --------------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Fixed maturities............................. $ 14.7 $ (9.7) $ (7.0)
Mortgage loans............................... (1.2) (2.4) 1.4
Equity securities............................ 53.6 54.8 16.2
Real estate.................................. 12.8 21.1 5.3
Other........................................ (3.4) 3.0 3.2
------ ------ ------
Net realized investment gains................ $ 76.5 $ 66.8 $ 19.1
------ ------ ------
------ ------ ------
</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. Fair values of
interest rate futures were not material at December 31, 1997 and 1996.
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.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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.
POLICY LOANS
The carrying amount reported in the consolidated balance sheets approximates
fair value since policy loans have no defined maturity dates and are inseparable
from the insurance contracts.
REINSURANCE RECEIVABLES
The carrying amount reported in the consolidated balance sheets approximates
fair value.
INVESTMENT CONTRACTS (WITHOUT MORTALITY FEATURES)
Fair values for the Company's liabilities under guaranteed investment type
contracts are estimated using discounted cash flow calculations using current
interest rates for similar contracts with maturities consistent with those
remaining for the contracts being valued. Other liabilities are based on
surrender values.
DEBT
The carrying value of short-term debt reported in the balance sheet approximates
fair value. The fair value of long-term debt was estimated using market quotes,
when available, and, when not available, discounted cash flow analyses.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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.................. $ 213.9 $ 213.9 $ 175.9 $ 175.9
Fixed maturities........................... 7,253.5 7,253.5 7,461.5 7,461.5
Equity securities.......................... 479.0 479.0 473.1 473.1
Mortgage loans............................. 567.5 597.0 650.1 675.7
Policy loans............................... 141.9 141.9 132.4 132.4
--------- -------- --------- --------
$ 8,655.8 $8,685.3 $ 8,893.0 $8,918.6
--------- -------- --------- --------
--------- -------- --------- --------
FINANCIAL LIABILITIES
Guaranteed investment contracts............ $ 985.2 $1,004.7 $ 1,101.3 $1,119.2
Supplemental contracts without life
contingencies............................ 22.4 22.4 23.1 23.1
Dividend accumulations..................... 87.8 87.8 87.3 87.3
Other individual contract deposit funds.... 57.9 55.7 76.9 74.3
Other group contract deposit funds......... 714.8 715.5 789.1 788.3
Individual annuity contracts............... 907.4 882.2 935.6 911.7
Short-term debt............................ 33.0 33.0 38.4 38.4
Long-term debt............................. 2.6 2.6 2.7 2.7
--------- -------- --------- --------
$ 2,811.1 $2,803.9 $ 3,054.4 $3,045.0
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
6. CLOSED BLOCK
Included in other income in the Consolidated Statement of Income for 1997 and
1996 is a net pre-tax contribution from the Closed Block of $9.1 million and
$8.6 million, respectively. Summarized financial information of the Closed Block
as of December 31, 1997 and 1996 and for the period ended December 31, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Assets
Fixed maturities, at fair value (amortized cost of $400.1 and $397.2, respectively).......... $ 412.9 $ 403.9
Mortgage loans............................................................................... 112.0 114.5
Policy loans................................................................................. 218.8 230.2
Cash and cash equivalents.................................................................... 25.1 24.1
Accrued investment income.................................................................... 14.1 14.3
Deferred policy acquisition costs............................................................ 18.2 21.1
Other assets................................................................................. 5.6 2.7
--------- ---------
Total assets............................................................................... $ 806.7 $ 810.8
--------- ---------
--------- ---------
Liabilities
Policy liabilities and accruals.............................................................. $ 875.1 $ 883.4
Other liabilities............................................................................ 10.4 16.0
--------- ---------
Total liabilities.......................................................................... $ 885.5 $ 899.4
--------- ---------
--------- ---------
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Revenues
Premiums..................................................................................... $ 58.3 $ 61.7
Net investment income........................................................................ 53.4 52.6
Realized investment loss..................................................................... 1.3 (0.7)
--------- ---------
Total revenues................................................................................. 113.0 113.6
--------- ---------
Benefits and expenses
Policy benefits.............................................................................. 100.5 101.2
Policy acquisition expenses.................................................................. 3.0 3.2
Other operating expenses..................................................................... 0.4 0.6
--------- ---------
Total benefits and expenses.................................................................... 103.9 105.0
--------- ---------
Contribution from the Closed Block............................................................. $ 9.1 $ 8.6
--------- ---------
--------- ---------
Cash flows
Cash flows from operating activities:
Contribution from the Closed Block......................................................... $ 9.1 $ 8.6
Initial cash transferred to the Closed Block............................................... -- --
Change in deferred policy acquisition costs, net........................................... 2.9 3.4
Change in premiums and other receivables................................................... -- 0.2
Change in policy liabilities and accruals.................................................. (11.6) (13.9)
Change in accrued investment income........................................................ 0.2 2.3
Deferred Taxes............................................................................. (5.1) 1.0
Change in other assets..................................................................... (2.9) (1.6)
Change in expenses and taxes payable....................................................... (2.0) 1.7
Other, net................................................................................. (1.2) 1.4
--------- ---------
Net cash (used in) provided by operating activities............................................ (10.6) 3.1
--------- ---------
Cash flows from investing activities:
Sales, maturities and repayments of investments............................................ 161.6 188.1
Purchases of investments................................................................... (161.4) (196.9)
Other, net................................................................................. 11.4 12.2
--------- ---------
Net cash provided by (used in) investing activities............................................ 11.6 3.4
--------- ---------
Net increase in cash and cash equivalents...................................................... 1.0 6.5
Cash and cash equivalents, beginning of year................................................... 24.1 17.6
--------- ---------
Cash and cash equivalents, end of year......................................................... $ 25.1 $ 24.1
--------- ---------
--------- ---------
</TABLE>
On October 16, 1995, there were no valuation allowances transferred to the
Closed Block on mortgage loans. There are no valuation allowances on mortgage
loans in the Closed Block at December 31, 1997 or 1996, respectively.
Many expenses related to Closed Block operations are charged to operations
outside the Closed Block; accordingly, the contribution from the Closed Block
does not represent the actual profitability of the Closed Block operations.
Operating costs and expenses outside of the Closed Block are, therefore,
disproportionate to the business outside the Closed Block.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. DEBT
Short- and long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996
- ------------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Short-Term
Commercial paper............................................................................... $ 33.0 $ 37.8
Other.......................................................................................... -- 0.6
--------- ---------
Total short-term debt............................................................................ $ 33.0 $ 38.4
--------- ---------
--------- ---------
Long-term debt................................................................................... $ 2.6 $ 2.7
--------- ---------
--------- ---------
</TABLE>
FAFLIC issues commercial paper primarily to manage imbalances between operating
cash flows and existing commitments. Commercial paper borrowing arrangements are
supported by various lines of credit. At December 31, 1997, the weighted average
interest rate for outstanding commercial paper was approximately 5.8%.
At December 31, 1997, AFC had approximately $140.0 million in committed lines of
credit provided by U.S. banks, of which $107.2 million was available for
borrowing. These lines of credit generally have terms of less than one year, and
require the Company to pay annual commitment fees limited to 0.07% of the
available credit. Interest that would be charged for usage of these lines of
credit is based upon negotiated arrangements.
During 1996, the Company utilized repurchase agreements to finance certain
investments. These repurchase agreements were settled by the end of 1996.
In October, 1995, AFC issued $200.0 million face amount of Senior Debentures for
proceeds of $197.2 million net of discounts and issuance costs. These securities
have an effective interest rate of 7.65%, and mature on October 16, 2025.
Interest is payable semiannually on October 15 and April 15 of each year. The
Senior Debentures are subject to certain restrictive covenants, including
limitations on issuance of or disposition of stock of restricted subsidiaries
and limitations on liens. AFC is in compliance with all covenants. The primary
source of cash for repayment of the debt by AFC is dividends from FAFLIC and
APY.
Interest expense was $3.6 million, $16.8 million and $4.3 million in 1997, 1996
and 1995, respectively. Interest paid on the credit agreement during 1997 was
approximately $2.8 million. Interest expense during 1996 also included $11.0
million related to interest payments on repurchase agreements. All interest
expense is recorded in other operating expenses.
8. 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 consolidated statements of income is shown below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Federal income tax expense (benefit)
Current............................................................................ $ 83.3 $ 96.8 $ 119.7
Deferred........................................................................... 14.2 (15.7) (37.0)
--------- --------- ---------
Total................................................................................ $ 97.5 $ 81.1 $ 82.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The federal income taxes attributable to the consolidated results of operations
are different from the amounts determined by multiplying income before federal
income taxes by the expected federal income tax rate. The sources of the
difference and the tax effects of each were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Expected federal income tax expense.................................................. $ 131.8 $ 122.3 $ 105.6
Tax-exempt interest................................................................ (37.9) (35.3) (32.2)
Differential earnings amount....................................................... - (10.2) (7.6)
Dividend received deduction........................................................ (3.2) (1.6) (4.0)
Changes in tax reserve estimates................................................... 7.8 4.7 19.3
Other, net......................................................................... (1.0) 1.2 1.6
--------- --------- ---------
Federal income tax expense........................................................... $ 97.5 $ 81.1 $ 82.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
Until conversion to a stock life insurance company, FAFLIC, as a mutual company,
reduced its deduction for policyholder dividends by the differential earnings
amount. This amount was computed, for each tax year, by multiplying the average
equity base of the FAFLIC/AFLIAC consolidated group, as determined for tax
purposes, by the estimate of an excess of an imputed earnings rate over the
average mutual life insurance companies' earnings rate. The differential
earnings amount for each tax year was subsequently recomputed when actual
earnings rates were published by the Internal Revenue Service (IRS). The
differential earnings amount included in 1996 related to an adjustment for the
1994 tax year based on the actual mutual life insurance companies' earnings rate
issued by the IRS in 1996. As a stock life company, FAFLIC is no longer required
to reduce its policyholder dividend deduction by the differential earnings
amount.
The deferred income tax liability (asset) represents the tax effects of
temporary differences attributable to the Company's consolidated federal tax
return group. As a result of the purchase discussed in Note 2, all companies
will file a single consolidated federal income tax return for tax years ending
on and after December 31, 1997. Deferred tax amounts presented for 1996 reflect
the combination of the former FAFLIC/ AFLIAC consolidated group with the former
APY consolidated group. Its components were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996
- --------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Deferred tax (assets) liabilities
AMT carryforwards.......................................................................... $ (15.6) $ (16.3)
Loss reserve discounting................................................................... (391.6) (355.1)
Deferred acquisition costs................................................................. 291.8 249.4
Employee benefit plans..................................................................... (48.0) (41.4)
Investments, net........................................................................... 175.4 128.5
Bad debt reserve........................................................................... (14.3) (26.2)
Other, net................................................................................. 15.2 (5.8)
--------- ---------
Deferred tax (asset) liability, net.......................................................... $ 12.9 $ (66.9)
--------- ---------
--------- ---------
</TABLE>
Gross deferred income tax assets totaled $469.5 million and $444.8 million at
December 31, 1997 and 1996, respectively. Gross deferred income tax liabilities
totaled $482.4 million and $377.9 million at December 31, 1997 and 1996,
respectively.
The Company believes, based on the its recent earnings history and its future
expectations, that the Company's taxable income in future years will be
sufficient to realize all deferred tax assets. In determining the adequacy of
future income, management considered the future reversal of its existing
temporary differences and available tax planning strategies that could be
implemented, if necessary. At December 31, 1997, there are available alternative
minimum tax credit carryforwards of $15.6 million.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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 FAFLIC/ AFLIAC consolidated
group's federal income tax returns through 1991. The IRS has also examined the
former Allmerica P&C consolidated group's federal income tax returns through
1991. The Company has appealed certain adjustments proposed by the IRS with
respect to the federal income tax returns for 1989, 1990, and 1991 for both the
FAFLIC/AFLIAC consolidated group as well as the former Allmerica P&C
consolidated group. Also, certain adjustments proposed by the IRS with respect
to FAFLIC/AFLIAC's federal income tax returns for 1982 and 1983 remain
unresolved. If upheld, these adjustments would result in additional payments;
however, the Company will vigorously defend its position with respect to these
adjustments. In 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.
9. PENSION PLANS
FAFLIC provides retirement benefits to substantially all of its employees under
three separate defined benefit pension plans. Effective January 1, 1995, the
Company adopted a defined benefit cash balance formula, under which the Company
annually provides an allocation to each eligible employee based on a percentage
of that employee's salary, similar to a defined contribution plan arrangement.
The 1997 and 1996 allocations were based on 7.0% of each eligible employee's
salary. In addition to the cash balance allocation, certain transition group
employees, who have met specified age and service requirements as of December
31, 1994, are eligible for a grandfathered benefit based primarily on the
employees' years of service and compensation during their highest five
consecutive plan years of employment. The Company's policy for the plans is to
fund at least the minimum amount required by the Employee Retirement Income
Security Act of 1974.
Components of net pension expense were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the year....................................... $ 19.9 $ 19.0 $ 19.7
Interest accrued on projected benefit obligations..................................... 23.5 21.9 21.1
Actual return on assets............................................................... (64.0) (42.2) (89.3)
Net amortization and deferral......................................................... 29.0 9.3 66.1
--------- --------- ---------
Net pension expense................................................................... $ 8.4 $ 8.0 $ 17.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table summarizes the combined status of the three pension plans.
At December 31, 1997 and 1996 the plans' assets exceeded their projected benefit
obligations.
<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................................................................... $ 332.6 $ 308.9
Unvested benefit obligation.................................................................. 7.5 6.6
--------- ---------
Accumulated benefit obligation................................................................. $ 340.1 $ 315.5
--------- ---------
--------- ---------
Pension liability included in Consolidated Balance Sheets:
Projected benefit obligation................................................................. $ 370.4 $ 344.2
Plan assets at fair value.................................................................... 395.5 347.8
--------- ---------
Plan assets greater (less) than projected benefit obligation............................... 25.1 3.6
Unrecognized net (gain) loss from past experience............................................ (44.9) (9.1)
Unrecognized prior service benefit........................................................... (13.9) (11.5)
Unamortized transition asset................................................................. (26.2) (24.7)
--------- ---------
Net pension liability.......................................................................... $ (59.9) $ (41.7)
--------- ---------
--------- ---------
</TABLE>
As a result of AFC's purchase of the minority shares of APY, certain pension
liabilities were reduced by $11.7 million to reflect their fair value as of the
purchase date.
Determination of the projected benefit obligations was based on a weighted
average discount rate of 7.0% in 1997 and 1996 and the assumed long-term rate of
return on plan assets was 9.0%. The actuarial present value of the projected
benefit obligations was determined using assumed rates of increase in future
compensation levels ranging from 5.0% to 5.5%. Plan assets are invested
primarily in various separate accounts and the general account of FAFLIC. The
plans also hold stock of AFC.
The Company has three separate defined contribution 401(k) plans for its
employees. The Company matches employee elective 401(k) contributions, up to a
maximum percentage determined annually by the Board of Directors. During 1997
and 1996, the Company matched 50% of employees' contributions up to 6.0% of
eligible compensation. The total expenses related to these plans were $3.3
million and $5.5 million, in 1997 and 1996, respectively. In addition to these
plans, the Company has a defined contribution plan for substantially all of its
agents. The Plan expense in 1997 and 1996, was $2.8 million and $2.0 million,
respectively.
On January 1, 1998, substantially all of the aforementioned defined benefit and
defined contribution 401k plans were merged with the existing benefit plans of
FAFLIC. The transfer of benefit plans will not have a material impact on the
results of operations or financial position of the Company.
10. OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's pension plans, the Company currently provides
postretirement medical and death benefits to certain full-time employees and
dependents, under several plans sponsored by FAFLIC, Hanover, and Citizens.
Generally, employees become eligible at age 55 with at least 15 years of
service. Spousal coverage is generally provided for up to two years after death
of the retiree. Benefits include hospital, major medical, and a payment at death
equal to retirees' final compensation up to certain limits. Effective January 1,
1996, the Company revised these benefits so as to establish limits on future
benefit payments and to restrict eligibility to current employees. The medical
plans have varying copayments and deductibles, depending on the plan. These
plans are unfunded.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The plan changes, effective January 1, 1996, resulted in a negative plan
amendment (change in eligibility and medical benefits) of $26.8 million and
curtailment (no future increases in life insurance) of $5.3 million. The
negative plan amendment will be amortized as prior service cost over the average
number of years to full eligibility (approximately 9 years or $3.0 million per
year). Of the $5.3 million curtailment gain, $3.3 million has been deducted from
unrecognized loss and $2.0 million has been recorded as a reduction of the net
periodic postretirement benefit expense.
The plans' funded status reconciled with amounts recognized in the Company's
consolidated balance sheet were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996
- ---------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................................................... $ 40.7 $ 40.4
Fully eligible active plan participants..................................................... 7.0 7.5
Other active plan participants.............................................................. 24.1 24.4
--------- ---------
71.8 72.3
Plan assets at fair value..................................................................... -- --
--------- ---------
Accumulated postretirement benefit obligation in excess of plan assets........................ 71.8 72.3
Unrecognized prior service benefit............................................................ 15.3 23.8
Unrecognized loss............................................................................. (0.8) (5.0)
--------- ---------
Accrued postretirement benefit costs.......................................................... $ 86.3 $ 91.1
--------- ---------
--------- ---------
</TABLE>
The components of net periodic postretirement benefit expense were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- ---------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service cost............................................................................ $ 3.0 $ 3.2 $ 4.2
Interest cost........................................................................... 4.6 4.6 6.9
Amortization of gain.................................................................... (2.8) (2.8) (0.5)
--------- --------- ---------
Net periodic postretirement benefit expense............................................. $ 4.8 $ 5.0 $ 10.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
As a result of AFC's purchase of the minority shares of APY, certain
postretirement liabilities were reduced by $6.1 million to reflect their fair
value as of the purchase date.
For purposes of measuring the accumulated postretirement benefit obligation at
December 31, 1997, health care costs were assumed to increase 8.0% in 1998,
declining thereafter until the ultimate rate of 5.5% is reached in 2001 and
remains at that level thereafter. The health care cost trend rate assumption has
a significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation at December 31, 1997
by $4.9 million, and the aggregate of the service and interest cost components
of net periodic postretirement benefit expense for 1997 by $0.6 million.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% at December 31, 1997 and 1996.
As described in Note 9, all of the postretirement benefit plans of the Company
were merged with the existing plans of FAFLIC, effective January 1, 1998.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
11. DIVIDEND RESTRICTIONS
Massachusetts, Delaware, New Hampshire and Michigan have enacted laws governing
the payment of dividends to stockholders by insurers. These laws affect the
dividend paying ability of FAFLIC, AFLIAC, Hanover and Citizens, respectively.
Dividends from FAFLIC and APY (from Hanover) to AFC will be the primary source
of cash for repayment of the debt and capital securities by AFC and payment of
dividends to AFC stockholders.
Massachusetts' statute limits the dividends an insurer may pay in any twelve
month period, without the prior permission of the Commonwealth of Massachusetts
Insurance Commissioner, to the greater of (i) 10% of its statutory policyholder
surplus as of the preceding December 31 or (ii) the individual company's
statutory net gain from operations for the preceding calendar year (if such
insurer is a life company), or its net income for the preceding calendar year
(if such insurer is not a life company). In addition, under Massachusetts law,
no domestic insurer shall pay a dividend or make any distribution to its
shareholders from other than unassigned funds unless the Commissioner shall have
approved such dividend or distribution. No dividends were declared nor paid
during 1997,1996 or 1995. During 1998, FAFLIC could pay dividends of $196.3
million to AFC without prior approval of the Commissioner. On January 12, 1998
FAFLIC declared a dividend of $50 million to AFC of which $18 million was paid
in February, 1998.
Pursuant to Delaware's statute, the maximum amount of dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the Delaware Commissioner of Insurance, is limited to the
greater of (i) 10% of its policyholders' surplus as of the preceding December 31
or (ii) the individual company's statutory net gain from operations for the
preceding calendar year (if such insurer is a life company) or its net income
(not including realized capital gains) for the preceding calendar year (if such
insurer is not a life company). Any dividends to be paid by an insurer, whether
or not in excess of the aforementioned threshold, from a source other than
statutory earned surplus would also require the prior approval of the Delaware
Commissioner of Insurance. No dividends were paid by AFLIAC to FAFLIC during
1997, 1996 or 1995. During 1998, AFLIAC could pay dividends of $33.9 million to
FAFLIC without prior approval.
Pursuant to New Hampshire's statute, the maximum dividends and other
distributions that an insurer may pay in any twelve month period, without the
prior approval of the New Hampshire Insurance Commissioner, is limited to 10% of
such insurer's statutory policyholder surplus as of the preceding December 31.
Hanover declared dividends to Allmerica P&C totaling $120.0 million, 105.0
million and 40.0 million during 1997, 1996 and 1995, respectively. During 1998,
the maximum dividend and other distributions that could be paid to Allmerica P&C
by Hanover, without prior approval of the Insurance Commissioner, was
approximately $127.6 million.
Pursuant to Michigan's statute, the maximum dividends and other distributions
that an insurer may pay in any twelve month period, without prior approval of
the Michigan Insurance Commissioner, is limited to the greater of 10% of
policyholders' surplus as of December 31 of the immediately preceding year or
the statutory net income less realized gains, for the immediately preceding
calendar year. Citizens Insurance paid dividends to Citizens Corporation
totaling $6.3 million and $3.0 million during 1996 and 1995, respectively. No
dividends were paid by Citizens Insurance during 1997. During, 1998, Citizens
Insurance could pay dividends of $86.9 million to Citizens Corporation without
prior approval.
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
12. SEGMENT INFORMATION
The Company offers financial products and services in two major areas: Risk
Management and Retirement and Asset Accumulation. Within these broad areas, the
Company conducts business principally in five operating segments.
The Risk Management group includes two segments: Regional Property and Casualty
and Corporate Risk Management Services.
The Regional Property and Casualty segment includes property and casualty
insurance products, such as automobile insurance, homeowners insurance,
commercial multiple-peril insurance, and workers' compensation insurance. These
products are offered by Allmerica P&C through its operating subsidiaries,
Hanover and Citizens. Substantially all of the Regional Property and Casualty
segment's earnings are generated in Michigan and the Northeast (Connecticut,
Massachusetts, New York, New Jersey, New Hampshire, Rhode Island, Vermont and
Maine). The Corporate Risk Management Services segment includes group life and
health insurance products and services which assist employers in administering
employee benefit programs and in managing the related risks.
The Retirement and Asset Accumulation group includes three segments: Allmerica
Financial Services, Institutional Services and Allmerica Asset Management. The
Allmerica Financial Services segment includes variable annuities, variable
universal life-type, traditional and health insurance products distributed via
retail channels to individuals across the country. The Institutional Services
segment includes primarily group retirement products such as 401(k) plans,
tax-sheltered annuities and GIC contracts which are distributed to institutions
across the country via work-site marketing and other arrangements. Allmerica
Asset Management is a Registered Investment Advisor which provides investment
advisory services primarily to affiliates and to other institutions, such as
insurance companies and pension plans.
Summarized below is financial information with respect to business segments for
the year ended and as of December 31.
<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- --------------------------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Risk Management
Regional Property and Casualty......................................... $ 2,275.3 $ 2,196.6 $ 2,109.0
Corporate Risk Management.............................................. 396.3 361.5 328.5
---------- ---------- ----------
Subtotal............................................................... 2,671.6 2,558.1 2,437.5
Retirement and Asset Accumulation
Allmerica Financial Services........................................... 470.6 450.9 487.1
Institutional Services................................................. 243.4 270.7 330.2
Allmerica Asset Management............................................. 8.7 8.8 4.4
---------- ---------- ----------
Subtotal............................................................... 722.7 730.4 821.7
Eliminations............................................................. (10.1) (8.7) (4.4)
---------- ---------- ----------
Total...................................................................... $ 3,384.2 $ 3,279.8 $ 3,254.8
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- --------------------------------------------------------------------------- ---------- ---------- ----------
Income from continuing operations before income taxes:
<S> <C> <C> <C>
Risk Management
Regional Property and Casualty......................................... $ 206.4 $ 197.7 $ 206.3
Corporate Risk Management.............................................. 19.3 20.7 18.3
---------- ---------- ----------
Subtotal............................................................... 225.7 218.4 224.6
Retirement and Asset Accumulation
Allmerica Financial Services........................................... 87.4 76.9 35.2
Institutional Services................................................. 62.4 52.8 42.8
Allmerica Asset Management............................................. 1.4 1.1 2.3
---------- ---------- ----------
Subtotal............................................................... 151.2 130.8 80.3
---------- ---------- ----------
Total...................................................................... $ 376.9 $ 349.2 $ 304.9
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
Risk Management
Regional Property and Casualty......................................... $ 5,710.4 $ 5,703.9 $ 5,741.8
Corporate Risk Management.............................................. 568.8 522.1 458.9
---------- ---------- ----------
Subtotal............................................................... 6,279.2 6,226.0 6,200.7
Retirement and Asset Accumulation
Allmerica Financial Services........................................... 12,049.6 8,822.4 7,218.6
Institutional Services................................................. 4,158.5 3,886.7 4,280.9
Allmerica Asset Management............................................. 4.1 2.4 2.1
---------- ---------- ----------
Subtotal............................................................... 16,212.2 12,711.5 11,501.6
---------- ---------- ----------
Total...................................................................... $ 22,491.4 $ 18,937.5 $ 17,702.3
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
13. LEASE COMMITMENTS
Rental expenses for operating leases, principally with respect to buildings,
amounted to $33.6 million, $34.9 million and $36.4 million in 1997, 1996 and
1995, respectively. At December 31, 1997, future minimum rental payments under
non-cancelable operating leases were approximately $72.5 million, payable as
follows: 1998 -- $24.8 million; 1999 -- $19.8 million; 2000 -- $13.6 million;
2001 -- $7.9 million; and $6.4 million thereafter. It is expected that, in the
normal course of business, leases that expire will be renewed or replaced by
leases on other property and equipment; thus, it is anticipated that future
minimum lease commitments will not be less than the amounts shown for 1998.
14. REINSURANCE
In the normal course of business, the Company seeks to reduce the loss that may
arise from catastrophes or other 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, ACCOUNTING AND
REPORTING FOR REINSURANCE OF SHORT DURATION AND LONG DURATION CONTRACTS.
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
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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 Company is subject to concentration of risk with respect to reinsurance
ceded to various residual market mechanisms. As a condition to the ability to
conduct certain business in various states, the Company is required to
participate in various residual market mechanisms and pooling arrangements which
provide various insurance coverages to individuals or other entities that are
otherwise unable to purchase such coverage voluntarily provided by private
insurers. These market mechanisms and pooling arrangements include the
Massachusetts Commonwealth Automobile Reinsurers ("CAR"), the Maine Workers'
Compensation Residual Market Pool ("MWCRP") and the Michigan Catastrophic Claims
Association ("MCCA"). At December 31, 1997, CAR was the only reinsurer which
represented 10% or more of the Company's reinsurance business. As a servicing
carrier in Massachusetts, the Company cedes a significant portion of its private
passenger and commercial automobile premiums to CAR. Net premiums earned and
losses and loss adjustment expenses ceded to CAR in 1997, 1996 and 1995 were
$32.3 million and $28.2 million, $38.0 million and $21.8 million, and $49.1
million and $33.7 million, respectively.
The Company ceded to MCCA premiums earned and losses and loss adjustment
expenses in 1997, 1996 and 1995 of $9.8 million and $(0.8) million, $50.5
million and $(52.9) million, and $66.8 million and $62.9 million, respectively.
Because the MCCA is supported by assessments permitted by statute, and all
amounts billed by the Company to CAR, MWCRP and MCCA have been paid when due,
the Company believes that it has no significant exposure to uncollectible
reinsurance balances.
The effects of reinsurance were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Life and accident and health insurance premiums:
Direct....................................................................... $ 417.4 $ 389.1 $ 438.9
Assumed...................................................................... 110.7 87.8 71.0
Ceded........................................................................ (170.1) (138.9) (150.3)
--------- --------- ---------
Net premiums................................................................... $ 358.0 $ 338.0 $ 359.6
--------- --------- ---------
--------- --------- ---------
Property and casualty premiums written:
Direct....................................................................... $ 2,068.5 $ 2,039.7 $ 2,039.4
Assumed...................................................................... 103.1 108.7 125.0
Ceded........................................................................ (179.8) (234.0) (279.1)
--------- --------- ---------
Net premiums................................................................... $ 1,991.8 $ 1,914.4 $ 1,885.3
--------- --------- ---------
--------- --------- ---------
Property and casualty premiums earned:
Direct....................................................................... $ 2,046.2 $ 2,018.5 $ 2,021.7
Assumed...................................................................... 102.0 112.4 137.7
Ceded........................................................................ (195.1) (232.6) (296.2)
--------- --------- ---------
Net premiums................................................................... $ 1,953.1 $ 1,898.3 $ 1,863.2
--------- --------- ---------
--------- --------- ---------
Life insurance and other individual policy benefits, claims, losses and loss
adjustment expenses:
Direct....................................................................... $ 656.4 $ 606.5 $ 741.0
Assumed...................................................................... 61.6 44.9 38.5
Ceded........................................................................ (158.8) (77.8) (69.5)
--------- --------- ---------
Net policy benefits, claims, losses and loss adjustment expenses............... $ 559.2 $ 573.6 $ 710.0
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------------------------------------- --------- --------- ---------
Property and casualty benefits, claims, losses and loss adjustment expenses:
<S> <C> <C> <C>
Direct....................................................................... $ 1,464.9 $ 1,299.8 $ 1,383.3
Assumed...................................................................... 101.2 85.8 146.1
Ceded........................................................................ (120.6) (2.2) (229.1)
--------- --------- ---------
Net policy benefits, claims, losses, and loss adjustment expenses.............. $ 1,445.5 $ 1,383.4 $ 1,300.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
15. DEFERRED POLICY ACQUISITION COSTS
The following reflects changes to the deferred policy acquisition asset:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- ---------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year...................................................... $ 822.7 $ 735.7 $ 802.8
Acquisition expenses deferred................................................... 617.7 560.8 504.8
Amortized to expense during the year............................................ (476.0) (483.5) (470.3)
Adjustment to equity during the year............................................ (11.1) 9.7 (50.4)
Transferred to the Closed Block................................................. -- -- (24.8)
Adjustment for cession of term life insurance................................... -- -- (26.4)
Adjustment for cession of disability income insurance........................... (38.6) -- --
Adjustment for revision of universal and variable universal life insurance
mortality assumptions......................................................... 50.8 -- --
--------- --------- ---------
Balance at end of year............................................................ $ 965.5 $ 822.7 $ 735.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
At October 1, 1997, the Company revised the mortality assumptions for universal
life and variable universal life product lines. These revisions resulted in a
$50.8 million recapitalization of deferred policy acquisition costs.
16. LIABILITIES FOR OUTSTANDING CLAIMS, LOSSES AND LOSS ADJUSTMENT EXPENSES
The Company regularly updates its estimates of liabilities for outstanding
claims, losses and loss adjustment expenses as new information becomes available
and further events occur which may impact the resolution of unsettled claims for
its property and casualty and its accident and health lines of business. 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
$533.6 million, $471.7 million and $446.9 million at December 31, 1997, 1996 and
1995, respectively. Accident and health claim liabilities were re-estimated for
all prior years and were decreased by $0.2 million and $0.6 million in 1997 and
1996, respectively, and increased by $17.6 million in 1995. Unfavorable
development in the accident and health business during 1995 was primarily due to
reserve strengthening and adverse experience in the Company's individual
disability line of business. Effective October 1, 1997, the Company ceded
substantially all of its individual disability income line of business, under a
100% coinsurance agreement to Metropolitan Life Insurance Company. At December
31, 1997, the individual disability income reserves ceded under this agreement
were $249.0 million, representing 46.7% of the Company's total accident and
health reserves.
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table provides a reconciliation of the beginning and ending
property and casualty reserve for unpaid losses and loss adjustment expenses
(LAE):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Reserve for losses and LAE, beginning of the year.............................. $ 2,744.1 $ 2,896.0 $ 2,821.7
Incurred losses and LAE, net of reinsurance recoverable:
Provision for insured events of the current year............................. 1,564.1 1,513.3 1,427.3
Decrease in provision for insured events of prior years...................... (127.9) (141.4) (137.6)
--------- --------- ---------
Total incurred losses and LAE.................................................. 1,436.2 1,371.9 1,289.7
--------- --------- ---------
Payments, net of reinsurance recoverable:
Losses and LAE attributable to insured events of current year................ 775.1 759.6 652.2
Losses and LAE attributable to insured events of prior years................. 732.1 627.6 614.3
--------- --------- ---------
Total payments................................................................. 1,507.2 1,387.2 1,266.5
--------- --------- ---------
Change in reinsurance recoverable on unpaid losses............................. (50.2) (136.6) 51.1
--------- --------- ---------
Other(1) (7.5) -- --
--------- --------- ---------
Reserve for losses and LAE, end of year........................................ $ 2,615.4 $ 2,744.1 $ 2,896.0
--------- --------- ---------
--------- --------- ---------
</TABLE>
(1) Includes purchase accounting adjustments.
As part of an ongoing process, the property and casualty reserves have been
re-estimated for all prior accident years and were decreased by $127.9 million,
$141.4 million and $137.6 million in 1997, 1996 and 1995, respectively.
The decrease in favorable development on prior years' reserves of $13.5 million
in 1997 results primarily from a $24.6 million decrease in favorable development
at Hanover to $58.4 million, partially offset by an $11.1 million increase in
favorable development at Citizens to $69.5 million. The decrease in Hanover's
favorable development of $24.6 million in 1997 reflects a decrease in favorable
development of $25.0 million, to $17.4 million in the personal automobile line,
as well as a decrease in favorable development of $8.5 million, to unfavorable
development of $2.8 million in the commercial multiple peril line. These
decreases were partially offset by an increase in favorable development in the
workers' compensation line of $11.5 million, to $28.8 million. The increase in
favorable development at Citizens in 1997 reflects improved severity in the
workers' compensation line where favorable development increased $13.9 million,
to $35.7 million and in the commercial multiple peril line where favorable
development increased $7.0 million to $4.3 million, partially offset by less
favorable development in the personal automobile line, where favorable
development decreased $10.5 million to $22.5 million in 1997.
The increase in favorable development on prior years' reserves of $3.8 million
in 1996 results primarily from an $11.4 million increase in favorable
development at Citizens. The increase in Citizens' favorable development of
$11.4 million in 1996 reflects improved severity in the personal automobile
line, where favorable development increased $28.6 million to $33.0 million in
1996, partially offset by less favorable development in the workers'
compensation line of $10.9 million Hanover's favorable development, including
voluntary and involuntary pools, decreased $7.7 million in 1996 to $82.9
million, primarily attributable to a decrease in favorable development in the
workers' compensation line of $19.8 million. Favorable development in the
personal automobile line also decreased $4.7 million, to $42.4 million in 1996.
These decreases were offset by increases in favorable development of $1.9
million and $5.6 million, to $12.6 million and $5.7 million, in the commercial
automobile and commercial multiple peril lines, respectively. Favorable
development in other lines increased by $8.8 million, primarily as a result of
environmental reserve strengthening in 1995. Favorable development in Hanover's
voluntary and involuntary pools increased $3.7 million to $4.1 million during
1996.
F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Citizens' favorable development in 1997 primarily reflects a modest shift over
the past few years of the workers' compensation business to Western and Northern
Michigan, which have demonstrated more favorable loss experience than Eastern
Michigan.
Citizens' favorable development in 1996 and 1995 primarily reflects the
initiatives taken by the Company to manage medical costs in both the automobile
and workers' compensation lines, as well as the impact of the Michigan Supreme
Court ruling on workers' compensation indemnity payments in 1995, which
decreases the maximum amount to be paid for indemnity cases on all existing and
future claims.
Hanover's favorable development from 1995 to 1997 primarily reflects favorable
legislation related to workers' compensation, improved safety features in
automobiles, improved driving habits and a moderation of medical costs and
inflation.
In 1995, Hanover's favorable development was primarily attributable to a
re-estimate of reserves with respect to certain types of workers' compensation
policies including large deductibles and excess of loss policies. In addition,
during 1995 Hanover refined its estimation of unallocated loss adjustment
expenses which increased favorable development in that year.
This favorable development reflects the Regional Property and Casualty
subsidiaries' reserving philosophy consistently applied over these periods.
Due to the nature of the business written by the Regional Property and Casualty
subsidiaries, the exposure to environmental liabilities is relatively small and
therefore their reserves are relatively small compared to other types of
liabilities. Loss and LAE reserves related to environmental damage and toxic
tort liability, included in the total reserve for losses and LAE were $53.1
million and $50.8 million, net of reinsurance of $15.7 million and $20.2 million
at the end of 1997 and 1996, respectively. The Regional Property and Casualty
subsidiaries do not specifically underwrite policies that include this coverage,
but as case law expands policy provisions and insurers' liability beyond the
intended coverage, the Regional Property and Casualty subsidiaries may be
required to defend such claims. Due to their unusual nature and absence of
historical claims data, reserves for these claims are not determined using
historical experience to project future losses. The Company estimated its
ultimate liability for these claims based upon currently known facts, reasonable
assumptions where the facts are not known, current law and methodologies
currently available. Although these claims are not material, their existence
gives rise to uncertainty and is discussed because of the possibility, however
remote, that they may become material. The Company believes that,
notwithstanding the evolution of case law expanding liability in environmental
claims, recorded reserves related to these claims for environmental liability
are adequate. In addition, the Company is not aware of any litigation or pending
claims that may result in additional material liabilities in excess of recorded
reserves. The environmental liability could be revised in the near term if the
estimates used in determining the liability are revised.
17. MINORITY INTEREST
The Company's interest in Allmerica P&C is represented by ownership of 65.8%,
59.5% and 58.3% of the outstanding shares of common stock at December 31, 1997,
1996 and 1995, respectively. Earnings and shareholder's equity attributable to
minority shareholders are included in minority interest in the consolidated
financial statements.
F-35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
18. 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 AFC 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 seek to be certified as a class. The case is in
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.
On June 23, 1995, the governor of Maine approved a legislative settlement for
the Maine Workers' Compensation Residual Market Pool deficit for the years 1988
through 1992. The settlement provides for an initial funding of $220.0 million
toward the deficit. The insurance carriers were liable for $65.0 million and
employers would contribute $110.0 million payable through surcharges on premiums
over the course of the next ten years. The major insurers are responsible for
90% of the $65.0 million. Hanover's allocated share of the settlement is
approximately $4.2 million, which was paid in December 1995. The remainder of
the deficit of $45.0 million will be paid by the Maine Guaranty Fund, payable in
quarterly contributions over ten years. A group of smaller carriers filed
litigation to appeal the settlement. Although the Company believes that adequate
reserves have been established for any additional liability, there can be no
assurance that the appeal will be resolved on a basis which is satisfactory to
the Company.
The Company has been named a defendant in various other 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 consolidated financial statements.
However, liabilities related to these proceedings could be established in the
near term if estimates of the ultimate resolution of these proceedings are
revised.
RESIDUAL MARKETS
The Company is required to participate in residual markets in various states.
The results of the residual markets are not subject to the predictability
associated with the Company's own managed business, and are significant to the
workers' compensation line of business and both the private passenger and
commercial automobile lines of business.
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
F-36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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.
19. STATUTORY FINANCIAL INFORMATION
The Company and its insurance subsidiaries are 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, postretirement benefit costs are based on
different assumptions and reflect a different method of adoption, 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 1995
- ------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Statutory net income (Combined)
Property and Casualty Companies.............................................. $ 190.3 $ 155.3 $ 155.3
Life and Health Companies.................................................... 191.2 133.3 134.3
Statutory Shareholder's Surplus (Combined)
Property and Casualty Companies.............................................. $ 1,279.8 $ 1,201.6 $ 1,128.4
Life and Health Companies.................................................... 1,221.3 1,120.1 965.6
</TABLE>
F-37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of First Allmerica Financial Life Insurance Company
and Policyowners of Separate Account I of First Allmerica Financial Life
Insurance Company
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of each of the Sub-Accounts
(Growth, Investment Grade Income, Money Market, Equity Index, Government
Bond, Select Aggressive Growth, and Select International Equity) constituting
Separate Account I of First Allmerica Financial Life Insurance Company at
December 31, 1997, the results of each of their operations and the changes in
each of their net assets for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of First Allmerica Financial Life Insurance 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 Trust, provide a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 25, 1998
<PAGE>
SEPARATE ACCOUNT I
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SELECT
INVESTMENT GOVERNMENT AGGRESSIVE
GROWTH GRADE INCOME MONEY MARKET EQUITY INDEX BOND GROWTH
----------- ------------ ------------ ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS (NOTES 3 AND 7):
Investments in shares of Allmerica
Investment Trust $ 2,057,105 $468,444 $873,257 $1,130,004 $321,929 $ 13,899
Receivable from First Allmerica
Financial Life Insurance Company
(Sponsor)........................ -- -- 64 -- -- --
----------- ------------ ------------ ---------------- ---------- ------------
Total assets..................... 2,057,105 468,444 873,321 1,130,004 321,929 13,899
LIABILITIES:
Payable to First Allmerica
Financial Life Insurance Company
(Sponsor)........................ -- -- -- 62 -- --
----------- ------------ ------------ ---------------- ---------- ------------
Net assets....................... $ 2,057,105 $468,444 $873,321 $1,129,942 $321,929 $ 13,899
----------- ------------ ------------ ---------------- ---------- ------------
----------- ------------ ------------ ---------------- ---------- ------------
Net asset distribution by category:
Qualified variable annuity
policies....................... $ 2,057,105 $468,444 $873,321 $1,129,942 $321,929 $ 13,899
----------- ------------ ------------ ---------------- ---------- ------------
----------- ------------ ------------ ---------------- ---------- ------------
Qualified units outstanding,
December 31, 1997................ 100,200 36,267 73,868 49,825 26,654 1,379
Net asset value per qualified unit,
December 31, 1997................ $ 20.5300 $12.9167 $11.8227 $ 22.6781 $12.0783 $ 10.0780
<CAPTION>
SELECT
INTERNATIONAL
EQUITY
------------
<S> <C>
ASSETS (NOTES 3 AND 7):
Investments in shares of Allmerica
Investment Trust $ 2,187
Receivable from First Allmerica
Financial Life Insurance Company
(Sponsor)........................ --
------------
Total assets..................... 2,187
LIABILITIES:
Payable to First Allmerica
Financial Life Insurance Company
(Sponsor)........................ --
------------
Net assets....................... $ 2,187
------------
------------
Net asset distribution by category:
Qualified variable annuity
policies....................... $ 2,187
------------
------------
Qualified units outstanding,
December 31, 1997................ 234
Net asset value per qualified unit,
December 31, 1997................ $ 9.3400
</TABLE>
The accompanying notes are an integral part of these financial statements.
SA-1
<PAGE>
SEPARATE ACCOUNT I
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INVESTMENT SELECT
GRADE MONEY GOVERNMENT AGGRESSIVE
GROWTH INCOME MARKET EQUITY INDEX BOND GROWTH*
----------- ----------- ----------- ---------------- ------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends........................ $ 26,736 $ 26,911 $ 49,154 $ 11,905 $ 17,632 $ --
----------- ----------- ----------- -------- ------- ------------
EXPENSES (NOTE 4):
Mortality and expense risk
fees........................... 16,254 3,527 8,437 7,901 2,662 15
Administrative expense fees...... 4,584 995 2,379 2,229 750 4
----------- ----------- ----------- -------- ------- ------------
Total expenses................. 20,838 4,522 10,816 10,130 3,412 19
----------- ----------- ----------- -------- ------- ------------
Net investment income (loss)... 5,898 22,389 38,338 1,775 14,220 (19)
----------- ----------- ----------- -------- ------- ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain distributions from
portfolio sponsors............. 328,691 -- -- 30,386 -- 930
Net realized gain (loss) from
sales of investments........... 37,140 (267) -- 15,982 (30) --
----------- ----------- ----------- -------- ------- ------------
Net realized gain (loss)....... 365,831 (267) -- 46,368 (30) 930
Net unrealized gain (loss)....... (30,716) 10,464 -- 156,118 2,966 (1,192)
----------- ----------- ----------- -------- ------- ------------
Net realized and unrealized
gain (loss)................... 335,115 10,197 -- 202,486 2,936 (262)
----------- ----------- ----------- -------- ------- ------------
Net increase (decrease) in net
assets from operations........ $ 341,013 $ 32,586 $ 38,338 $ 204,261 $ 17,156 $ (281)
----------- ----------- ----------- -------- ------- ------------
----------- ----------- ----------- -------- ------- ------------
<CAPTION>
SELECT
INTERNATIONAL
EQUITY**
------------
<S> <C>
INVESTMENT INCOME:
Dividends........................ $ 43
---
EXPENSES (NOTE 4):
Mortality and expense risk
fees........................... 1
Administrative expense fees...... 1
---
Total expenses................. 2
---
Net investment income (loss)... 41
---
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Realized gain distributions from
portfolio sponsors............. 62
Net realized gain (loss) from
sales of investments........... --
---
Net realized gain (loss)....... 62
Net unrealized gain (loss)....... (84)
---
Net realized and unrealized
gain (loss)................... (22)
---
Net increase (decrease) in net
assets from operations........ $ 19
---
---
</TABLE>
* For the period from 9/9/97 (date of initial investment) to 12/31/97.
** For the period from 12/3/97 (date of initial investment) to 12/31/97.
The accompanying notes are an integral part of these financial statements.
SA-2
<PAGE>
SEPARATE ACCOUNT I
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
INVESTMENT
GROWTH GRADE INCOME MONEY MARKET EQUITY INDEX
--------------------- --------------------- --------------------- ------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)... $ 5,898 $ 18,266 $ 22,389 $ 10,123 $ 38,338 $ 12,693 $ 1,775
Net realized gain (loss)....... 365,831 112,877 (267) (832) - - 46,368
Net unrealized gain (loss)..... (30,716) 28,811 10,464 (4,754) - - 156,118
--------- --------- --------- --------- --------- --------- ------------
Net increase (decrease) in net
assets from operations....... 341,013 159,954 32,586 4,537 38,338 12,693 204,261
--------- --------- --------- --------- --------- --------- ------------
FROM CAPITAL TRANSACTIONS (NOTE
5):
Net deposits................... 726,709 440,513 245,375 79,703 265,506 507,585 597,583
Terminations................... (195,703) (157,891) (19,191) (62,428) (171,679) (87,579) (24,344)
Other transfers from (to) the
General Account of First
Allmerica Financial Life
Insurance Company
(Sponsor).................... (4,345) 30,795 6,682 21,654 4,227 64 (9,179)
--------- --------- --------- --------- --------- --------- ------------
Net increase (decrease) in net
assets from capital
transactions................. 526,661 313,417 232,866 38,929 98,054 420,070 564,060
--------- --------- --------- --------- --------- --------- ------------
Net increase (decrease) in net
assets....................... 867,674 473,371 265,452 43,466 136,392 432,763 768,321
NET ASSETS:
Beginning of period.............. 1,189,431 716,060 202,992 159,526 736,929 304,166 361,621
--------- --------- --------- --------- --------- --------- ------------
End of period.................... $2,057,105 $1,189,431 $ 468,444 $ 202,992 $ 873,321 $ 736,929 $ 1,129,942
--------- --------- --------- --------- --------- --------- ------------
--------- --------- --------- --------- --------- --------- ------------
<CAPTION>
SELECT
GOVERNMENT BOND SELECT INTERNATIONAL
--------------------- AGGRESSIVE EQUITY
GROWTH ------------
YEAR ENDED -------------------- PERIOD FROM
DECEMBER 31, PERIOD FROM 12/3/97** TO
1996 1997 1996 9/9/97** TO 12/31/97 12/31/97
--------- --------- --------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income (loss)... $ 1,749 $ 14,220 $ 6,903 $ (19) $ 41
Net realized gain (loss)....... 13,727 (30) (1,068) 930 62
Net unrealized gain (loss)..... 35,112 2,966 (2,633) (1,192) (84)
--------- --------- --------- -------- ------
Net increase (decrease) in net
assets from operations....... 50,588 17,156 3,202 (281) 19
--------- --------- --------- -------- ------
FROM CAPITAL TRANSACTIONS (NOTE
5):
Net deposits................... 192,147 143,390 102,744 14,191 2,151
Terminations................... (47,767) (9,555) (74,845) -- --
Other transfers from (to) the
General Account of First
Allmerica Financial Life
Insurance Company
(Sponsor).................... 38,928 (332) (32,749) (11) 17
--------- --------- --------- -------- ------
Net increase (decrease) in net
assets from capital
transactions................. 183,308 133,503 (4,850) 14,180 2,168
--------- --------- --------- -------- ------
Net increase (decrease) in net
assets....................... 233,896 150,659 (1,648) 13,899 2,187
NET ASSETS:
Beginning of period.............. 127,725 171,270 172,918 - -
--------- --------- --------- -------- ------
End of period.................... $ 361,621 $ 321,929 $ 171,270 $ 13,899 $ 2,187
--------- --------- --------- -------- ------
--------- --------- --------- -------- ------
</TABLE>
** Date of initial investment.
The accompanying notes are an integral part of these financial statements.
SA-3
<PAGE>
SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Separate Account I (SA-I) is a separate investment account of First
Allmerica Financial Life Insurance Company (the Company), established on October
1, 1992 for the purpose of separating from the general assets of the Company
those assets used to fund certain variable annuity policies issued by the
Company. The Company is a wholly-owned subsidiary of Allmerica Financial
Corporation (AFC). Under applicable insurance law, the assets and liabilities of
SA-I are clearly identified and distinguished from the other assets and
liabilities of the Company. SA-I cannot be charged with liabilities arising out
of any other business of the Company.
SA-I is registered as a unit investment trust under the Investment Company
Act of 1940, as amended (the 1940 Act). SA-I currently offers seven
Sub-Accounts. Each Sub-Account invests exclusively in a corresponding investment
portfolio of the Allmerica Investment Trust (the Trust) managed by Allmerica
Investment Management Company, Inc., a wholly-owned subsidiary of the Company.
The Trust is an open-end, diversified management investment company registered
under the 1940 Act.
Certain prior year balances have been reclassified to conform with current
year presentation.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS -- Security transactions are recorded on the trade date.
Investments in shares of the Trust are stated at the net asset value per share
of the respective investment portfolio of the Trust. 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 the Trust 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. The Company anticipates no tax liability
resulting from the operations of SA-I. Therefore, no provision for income taxes
has been charged against SA-I.
NOTE 3 -- INVESTMENTS
The number of shares owned, aggregate cost, and net asset value per share of
each Sub-Account's investment in the Trust 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>
Growth................................ 851,451 $2,008,310 $ 2.416
Investment Grade Income............... 421,262 461,499 1.112
Money Market.......................... 873,257 873,257 1.000
Equity Index.......................... 410,463 920,994 2.753
Government Bond....................... 307,478 321,938 1.047
Select Aggressive Growth.............. 6,247 15,091 2.225
Select International Equity........... 1,631 2,271 1.341
</TABLE>
SA-4
<PAGE>
SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- RELATED PARTY TRANSACTIONS
The Company makes a charge of .90% per annum based on the average daily net
assets of each Sub-Account at each valuation date for mortality and expense
risks. The Company also charges each Sub-Account .25% 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.
An IRA account fee is currently deducted on the policy anniversary date and
upon full surrender of the IRA account. The IRA account fee is $25. For IRA
accounts established after April 30, 1993, the IRA account fee will be waived in
the following circumstances: if the contribution establishing the IRA account
was at least $15,000, the IRA account fee will be waived on the first
anniversary deduction; if the accumulated value is $15,000 or greater, as of
December 31 of the calendar year previous to any subsequent anniversary
deduction, the IRA account fee will be waived on such subsequent anniversary
deduction. For the year ended December 31, 1997 and 1996, there were no IRA
account fees deducted from accumulated value in SA-I.
Allmerica Investments, Inc., (Allmerica Investments), a wholly-owned
subsidiary of the Company, is principal underwriter and general distributor of
SA-I, and does not receive any compensation for sales of the IRA policies.
Commissions are paid to registered representatives of Allmerica Investments by
the Company.
NOTE 5 -- POLICYOWNERS AND SPONSOR TRANSACTIONS
Transactions from policyowners and sponsor were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996
---------------------- ----------------------
UNITS* AMOUNT UNITS AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Growth
Issuance of Units............................... 46,227 $ 726,709 3,189 $ 487,919
Redemption of Units............................. (17,701) (200,048) (1,149) (174,502)
--------- ----------- --------- -----------
Net increase.................................. 28,526 $ 526,661 2,040 $ 313,417
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Investment Grade Income
Issuance of Units............................... 22,924 $ 245,375 871 $ 101,265
Redemption of Units............................. (3,661) (12,509) (539) (62,336)
--------- ----------- --------- -----------
Net increase.................................. 19,263 $ 232,866 332 $ 38,929
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Money Market
Issuance of Units............................... 39,577 $ 265,508 5,070 $ 570,947
Redemption of Units............................. (30,687) (167,454) (1,365) (150,877)
--------- ----------- --------- -----------
Net increase.................................. 8,890 $ 98,054 3,705 $ 420,070
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Equity Index
Issuance of Units............................... 33,787 $ 597,583 1,504 $ 228,554
Redemption of Units............................. (4,836) (33,523) (308) (45,246)
--------- ----------- --------- -----------
Net increase.................................. 28,951 $ 564,060 1,196 $ 183,308
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Government Bond
Issuance of Units............................... 12,470 $ 143,390 982 $ 110,613
Redemption of Units............................. (830) (9,887) (1,032) (115,463)
--------- ----------- --------- -----------
Net increase (decrease)....................... 11,640 $ 133,503 (50) $ (4,850)
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
SA-5
<PAGE>
SEPARATE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- POLICYOWNERS AND SPONSOR TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996
---------------------- ----------------------
UNITS* AMOUNT UNITS AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Select Aggressive Growth
Issuance of Units............................... 1,379 $ 14,180 -- $ --
Redemption of Units............................. -- -- -- --
--------- ----------- --------- -----------
Net increase.................................. 1,379 $ 14,180 -- $ --
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Select International Equity
Issuance of Units............................... 234 $ 2,168 -- $ --
Redemption of Units............................. -- -- -- --
--------- ----------- --------- -----------
Net increase.................................. 234 $ 2,168 -- $ --
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
* Reflects 10 for 1 split of units effective July 10, 1997.
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 SA-I satisfies the current requirements of
the regulations, and it intends that SA-I will continue to meet such
requirements.
NOTE 7 -- PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of the Trust shares by SA-I during
the year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO PURCHASES SALES
- -------------------------------------------------- ------------ ------------
<S> <C> <C>
Growth.......................................... $ 1,209,216 $ 347,966
Investment Grade Income......................... 302,536 47,281
Money Market.................................... 513,992 377,664
Equity Index.................................... 719,556 123,273
Government Bond................................. 160,784 13,061
Select Aggressive Growth........................ 15,109 18
Select International Equity..................... 2,273 2
------------ ------------
Totals............................................ $ 2,923,466 $ 909,265
------------ ------------
------------ ------------
</TABLE>
SA-6
<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 First Allmerica Life Insurance Company
Financial Statements for Separate Account I of First Allmerica Financial
Life Insurance Company
Financial Statements Included in Part C
None
(b) EXHIBITS
EXHIBIT 1 Vote of Board of Directors Authorizing Establishment of
Registrant dated August 20, 1991 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) Sales Agreements are filed herewith.
(c) General Agent's Agreement is filed herewith.
(d) Career Agent Agreement is filed herewith.
(e) Registered Representative's Agreement is filed herewith.
EXHIBIT 4 Specimen Generic Contract and Certificate Forms are filed
herewith.
EXHIBIT 5 Specimen Application Form is filed herewith.
EXHIBIT 6 The Depositor's Articles of Incorporation and Bylaws, as
amended to reflect its name change, were previously filed on
October 12, 1995 in Post-Effective Amendment No. 7 and are
incorporated by reference herein.
EXHIBIT 7 Not Applicable.
EXHIBIT 8 Fidelity Service Agreement was previously filed on April 30,
1996 in Post-Effective Amendment No. 8 and is incorporated by
reference herein.
EXHIBIT 9 Opinion of Counsel is filed herewith.
EXHIBIT 10 Consent of Independent Accountants is filed herewith.
EXHIBIT 11 None.
<PAGE>
EXHIBIT 12 None.
EXHIBIT 13 Not Applicable.
EXHIBIT 14 Not Applicable.
EXHIBIT 15 Participation Agreement between the Company and Allmerica
Investment Trust is filed herewith.
EXHIBIT 16 Consent of Newly Elected Directors was previously filed on
April 30, 1996 in Post-Effective Amendment No. 8 and is
incorporated by reference herein.
ITEM 25. DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
The principal business address of all the following Directors and
Officers is:
440 Lincoln Street
Worcester, Massachusetts 01553
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
NAME AND POSITION PRINCIPAL OCCUPATION(S) DURING
WITH COMPANY PAST FIVE YEARS
----------------- ------------------------------
Bruce C. Anderson Director of First Allmerica since 1996;
Director and Vice President Vice President, First Allmerica since 1984
Abigail M. Armstrong Secretary of First Allmerica since 1996;
Secretary and Counsel Counsel, First Allmerica since 1991
Robert E. Bruce Director and Chief Information Officer of
Director, Vice President and First Allmerica since 1997; Vice President
Chief Information Officer of First Allmerica since 1995; Corporate
Manager, Digital Equipment Corporation
1979 to 1995
John P. Kavanaugh Director and Chief Investment Officer of
Director, Vice President and First Allmerica since 1996; Vice President,
Chief Investment Officer First Allmerica since 1991
John F. Kelly Director of First Allmerica since 1996;
Director, Senior Vice President, Senior Vice President, First Allmerica
General Counsel and Assistant since 1986; General Counsel, First
Secretary Allmerica since 1981; Assistant Secretary,
First Allmerica since 1991
J. Barry May Director of First Allmerica since 1996;
Director 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 1996;
Director Director of Citizens Insurance Company of
America since 1992; President since 1994,
and CEO since 1996; Vice President, First
Allmerica 1982 to 1994 and Chief Investment
Officer, First Allmerica 1986 to 1994
John F. O'Brien Director, Chairman of the Board, President
Director, Chairman of the and Chief Executive Officer, First
Board, President and Chief Allmerica since 1989
Executive Officer
<PAGE>
Edward J. Parry, III Director and Chief Financial Officer of
Director, Vice President, First Allmerica since 1996; Vice President
Chief Financial Officer and and Treasurer, First Allmerica since 1993;
Treasurer Assistant Vice President, 1992 to 1993
Richard M. Reilly Director of First Allmerica since 1996;
Director and Vice President 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 1996;
Director and Vice President Vice President, First Allmerica since
1990; Chief Financial Officer, First
Allmerica 1990 to 1996
Phillip E. Soule Director of First Allmerica since 1996;
Director and Vice President Vice President, First Allmerica since 1987
ITEM 26. PERSONS UNDER COMMON CONTROL WITH REGISTRANT
See attached organizational chart.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
NAME ADDRESS TYPE OF BUSINESS
---- ------- ----------------
AAM Equity Fund 440 Lincoln Street Massachusetts
Worcester MA 01653 Grantor Trust
AFC Capital Trust I 440 Lincoln Street Statutory Business
Worcester MA 01653 Trust
Allmerica Asset 440 Lincoln Street Investment advisory
Management Limited Worcester MA 01653 services
Allmerica Asset 440 Lincoln Street Investment advisory
Management, Inc. Worcester MA 01653 services
Allmerica Benefits, 440 Lincoln Street Non-insurance
Inc. Worcester MA 01653 medical services
Allmerica Equity 440 Lincoln Street Massachusetts
Index Pool Worcester MA 01653 Grantor Trust
Allmerica Financial 100 North Parkway Multi-line property
Alliance Insurance Worcester MA 01605 and casualty insurance
Company
Allmerica Financial 100 North Parkway Multi-line property
Benefit Insurance Worcester MA 01605 and casualty insurance
Company
Allmerica Financial 440 Lincoln Street Holding Company
Corporation Worcester MA 01653
Allmerica Financial 440 Lincoln Street Insurance Broker
Insurance Brokers, Worcester MA 01653
Inc.
Allmerica Financial 440 Lincoln Street Life insurance, accident
Life Insurance and Worcester MA 01653 and health insurance,
Annuity Company annuities, variable
(formerly known as SMA annuities and variable
Life Assurance Company) life insurance
Allmerica Financial 440 Lincoln Street Insurance Agency
Services Insurance Worcester MA 01653
Agency, Inc.
Allmerica Funding 440 Lincoln Street Special purpose funding
Corp. Worcester MA 01653 vehicle for commercial paper
<PAGE>
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 440 Lincoln Street Accounting, marketing
Institutional Worcester MA 01653 and shareholder
Services, Inc. services for investment
(formerly known as companies
440 Financial Group
of Worcester, Inc.)
Allmerica 440 Lincoln Street Investment advisory
Investment Worcester MA 01653 services
Management Company,
Inc.
Allmerica 440 Lincoln Street Securities, retail
Investments, Inc. Worcester MA 01653 broker-dealer
Allmerica Investment 440 Lincoln Street Investment Company
Trust Worcester MA 01653
Allmerica Plus 440 Lincoln Street Insurance Agency
Insurance Agency, Worcester MA 01653
Inc.
Allmerica Property & 440 Lincoln Street Holding Company
Casualty Companies, Worcester MA 01653
Inc.
Allmerica Securities 440 Lincoln Street Investment Company
Trust Worcester MA 01653
Allmerica Services 440 Lincoln Street Internal
Corporation Worcester MA 01653 administrative
services provider to
Allmerica Financial
Corporation entities
Allmerica Trust 440 Lincoln Street Limited purpose
Company, N.A. Worcester MA 01653 national 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 440 Lincoln Street Real estate
Limited Partnership Worcester MA 01653 partnership
Citizens Corporation 440 Lincoln Street Holding Company
Worcester MA 01653
Citizens Insurance 645 West Grand River Multi-line property
Company of America Howell MI 48843 and casualty
insurance
Citizens Insurance 333 Pierce Road Multi-line property
Company of Illinois Itasca IL 60143 and casualty
insurance
Citizens Insurance 3950 Priority Way South Multi-line property
Company of the Drive, Suite 200 and casualty
Midwest Indianapolis IN 46280 insurance
Citizens Insurance 8101 N. High Street Multi-line property
Company of Ohio P.O. Box 342250 and casualty
Columbus OH 43234 insurance
<PAGE>
Citizens Management, 645 West Grand River Services management
Inc. Howell MI 48843 company
First Allmerica 440 Lincoln Street Life, pension, annuity,
Financial Life Worcester MA 01653 accident and health
Insurance Company insurance company
(formerly State Mutual
Life Assurance Company
of America)
First Sterling 440 Lincoln Street Holding Company
Limited Worcester MA 01653
First Sterling 440 Lincoln Street Reinsurance Company
Reinsurance Company Worcester MA 01653
Limited
Greendale Special 440 Lincoln Street Massachusetts
Placements Fund Worcester MA 01653 Grantor Trust
The Hanover American 100 North Parkway Multi-line property
Insurance Company Worcester MA 01605 and casualty insurance
The Hanover 100 North Parkway Multi-line property
Insurance Company Worcester MA 01605 and casualty insurance
Hanover Texas 801 East Campbell Road Attorney-in-fact for
Insurance Richardson TX 75081 Hanover Lloyd's
Management Company, Insurance Company
Inc.
Hanover Lloyd's 801 East Campbell Road Multi-line property
Insurance Company Richardson TX 75081 and casualty insurance
Linder Skokie Real 440 Lincoln Street Real estate
Estate Corporation Worcester MA 01653 holding company
Lloyds Credit 440 Lincoln Street Premium financing
Corporation Worcester MA 01653 service franchises
Logan Wells Water 603 Heron Drive Water Company serving
Company, Inc. Bridgeport NJ 08014 land development
investment
Massachusetts Bay 100 North Parkway Multi-line property
Insurance Company Worcester MA 01605 and casualty insurance
SMA Financial Corp. 440 Lincoln Street Holding Company
Worcester MA 01653
Somerset Square, 440 Lincoln Street Real estate holding
Inc. Worcester MA 01653 company
Sterling Risk 440 Lincoln Street Risk management services
Management Services, Worcester MA 01653
Inc.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 27, 1998, the Separate Account had 182 Policy Owners.
ITEM 28. INDEMNIFICATION
To the fullest extent permissible under Massachusetts General Laws, no
director shall be personally liable to the Company or any policyholder for
monetary damages for any breach of fiduciary duty as a director,
notwithstanding any provision of law to the contrary; provided, however,
that this provision shall not eliminate or limit the liability of a
director:
<PAGE>
1. for and breach of the director's duty of loyalty to the Company or
its policyholders;
2. for acts or omissions not in good faith, or which involve intentional
misconduct or a knowing violation of law;
3. for liability, if any, imposed on directors of mutual insurance
companies pursuant to M.G.L.A. c. 156B Section 61 or M.G.L.A. c.156B
Section 62;
4. for any transactions from which the director derived an improper
personal benefit.
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 ("SEC"), such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses
incurred or paid by a Director, Officer or Controlling Person of
Registrant in the successful defense of any action, suit or proceeding)
is asserted by such Director, Officer or Controlling Person in
connection with the securities being registered, Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the 1933 Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Allmerica Investments, Inc. also acts as principal underwriter for
the following:
* VEL Account, VEL II Account, Inheiritage Account, Separate
Accounts VA-A, VA-B, VA-C, VA-G, VA-H, VA-K, Allmerica Select
Separate Account II, Group VEL Account, Separate Account KG,
Separate Account KGC, Fulcrum Separate Account, Fulcrum
Variable Life Separate Account, Allmerica Select Separate
Account of Allmerica Financial Life Insurance and Annuity
Company
* Inheiritage Account, VEL II Account, Separate Account I,
Separate Account VA-K, Separate Account VA-P, Group VEL
Account, Separate Account KG, Separate Account KGC, Fulcrum
Separate Account, Fulcrum Variable Life Separate Account, and
Allmerica Select Separate Account of First Allmerica Financial
Life Insurance Company.
* Allmerica Investment Trust
(b) The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is:
440 Lincoln Street
Worcester, Massachusetts 01653
NAME POSITION OR OFFICE WITH UNDERWRITER
---- -----------------------------------
Abigail M. Armstrong Secretary and Counsel
Emil J. Aberizk, Jr. Vice President
<PAGE>
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 1940 Act and Rules 31a-1 to 31a-3 thereunder are maintained
by the Company at 440 Lincoln Street, Worcester, Massachusetts.
ITEM 31. MANAGEMENT SERVICES
The Company provides daily unit value calculations and related services
for the Company's variable 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 SEC such supplementary and periodic
information, documents, and reports as may be prescribed by any
rule or regulation of the SEC heretofore or hereafter duly adopted
pursuant to authority conferred in that section.
(b) The registrant hereby undertakes to include in the prospectus a
postcard that the applicant can remove to send for a Statement of
Additional Information.
(c) The registrant hereby undertakes to deliver a Statement of
Additional Information promptly upon written or oral request,
according to the requirements of Form N-4.
(d) Insofar as indemnification for liability arising under the 1933 Act
may be permitted to Directors,
<PAGE>
Officers and Controlling Persons of Registrant under any
registration statement, underwriting agreement or otherwise,
Registrant has been advised that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the 1933
Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a Director,
Officer or Controlling Person of Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
Director, Officer or Controlling Person in connection with the
securities being registered, Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the
final adjudication of such issue.
(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 First Allmerica Financial Life Insurance
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 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/withdrawal restrictions imposed by the Program and by
Section 403(b)(11) to the attention of potential participants.
4. A signed statement acknowledging the participant's understanding of
(I) the restrictions on 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 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 I OF
FIRST ALLMERICA FINANCIAL LIFE INSURANCE 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, President and April 15, 1998
- ------------------------ Chief Executive Officer
John F. O'Brien
/s/ Bruce C. Anderson Director and Vice
- ------------------------ President
Bruce C. Anderson
/s/ Robert E. Bruce Director, Vice President
- ------------------------ and Chief Information
Robert E. Bruce Officer
/s/ John P. Kavanaugh Director, Vice President
- ------------------------ and Chief Investment
John P. Kavanaugh Officer
/s/ John F. Kelly Director, Senior Vice
- ------------------------ President and
John F. Kelly General Counsel
/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
Edward J. Parry, III and Treasurer
/s/ Richard M. Reilly Director and Vice
- ------------------------ President
Richard M. Reilly
/s/ Eric A. Simonsen Director and Vice
- ------------------------ President
Eric A. Simonsen
/s/ Phillip E. Soule Director and Vice
- ------------------------ President
Phillip E. Soule
<PAGE>
EXHIBIT TABLE
Exhibit 1 Resolution
Exhibit 3(a) Underwriting and Administrative Services Agreement
Exhibit 3(b) Sales Agreements
Exhibit 3(c) General Agent's Agreement
Exhibit 3(d) Career Agent Agreement
Exhibit 3(e) Registered Representative's Agreement
Exhibit 4 Generic Contract and Certificate Forms
Exhibit 5 Application Form
Exhibit 9 Opinion of Counsel
Exhibit 10 Consent of Independent Accountants
Exhibit 15 Participation Agreement between the Company and Allmerica
Investment Trust
<PAGE>
STATE MUTUAL LIFE ASSURANCE COMPANY OF AMERICA
Worcester, Massachusetts
************
The following is taken from the minutes of a regular meeting of the Board of
Directors of State Mutual Life Assurance Company of America held on August 20,
1991, a quorum present:
"On motion duly made and seconded, it was:
"Voted:
"1. That pursuant to the provisions of Section 132G of Massachusetts General
Laws, Chapter 175, appropriate officers of the Company are authorized to
establish from time to time and to maintain individual customer and
pooled separate accounts independent of the Company's general investment
account. Such separate accounts shall be in addition to those
previously authorized by the Board and shall be established and
maintained subject to the following:
"(a) Separate accounts may be established from time to time in order
to provide equity or other investment choices to certain contract
holders of the Company who elect to participate therein.
"(b) Contract holders who elect to participate shall be issued group
or individual annuity contracts or other policies or contracts
("contracts"), which contracts (other than contracts described in
paragraph (c) below) shall provide that benefits or contractual
payments shall vary, in whole or in part, so as to reflect the
investment results of the separate account or accounts in which
amounts received in connection with such contract have been
placed.
"(c) In addition to contracts described in paragraph (b), separate
account contracts may provide that benefits shall be payable in
fixed amounts and that contract values shall be guaranteed by the
Company as to principal amount or such separate account
contracts may provide a guarantee by the Company of principal and
a stated rate of interest.
"(d) The Company may, with respect to any separate account it
establishes and registers with the Securities and Exchange
Commission, provide to contract holders with interests in any
such separate account appropriate voting rights with respect to
the management of such separate account and the investment of
assets therein.
<PAGE>
"(e) As is the case with respect to all separate accounts previously
established by the Company, the portion of the assets of each
separate account established by the Company equal to the separate
account reserves and other contract liabilities shall not be
chargeable with liabilities arising out of any other business the
Company may conduct.
"(f) The establishment of a separate account shall be reported to the
Board or Executive Committee.
"2. That appropriate officers of the Company are authorized to determine
investment objectives and appropriate underwriting criteria, investment
management policies and other requirements necessary or desirable for
the operation and management of the Company's separate accounts.
"3. That appropriate officers of the Company are authorized to initially
fund separate accounts established by the Company on such basis as they
deem appropriate, with the amounts and sources of such funding to be
reported to the Company's Investment Committee.
"4. That appropriate officers of the Company are authorized to contract with
an independent investment manager to manage one or more of the Company's
separate accounts directly, or indirectly through agreement with a
Company affiliate or subsidiary, or in any other manner they determine
to be appropriate."
A true copy, attest: /s/ Elaine D. Marcoux
---------------------
Assistant Secretary
<PAGE>
UNDERWRITING AND
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT made this 26th day of November, 1997 between and among First Allmerica
Financial Life Insurance Company, a Massachusetts 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
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<PAGE>
reports that are to be transmitted to persons having voting rights with
respect to the Accounts.
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.
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<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.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE
COMPANY
By: /s/ David J. Mueller
-------------------------------------
Title: Vice President
ALLMERICA INVESTMENTS, INC.
By: /s/ Thomas P. Cunningham
-------------------------------------
Title: Vice President
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<PAGE>
Appendix A
SEPARATE ACCOUNTS OF FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
AS OF SEPTEMBER 1, 1997
VEL II Account
Inheiritage Account
Group VEL Account
Separate Account I
Separate Account VA-K
Separate Account VA-P
Allmerica Select Separate Account
Separate Account KG
Separate Account KGC
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<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
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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
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<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.
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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
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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
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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
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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.
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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.
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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.
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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
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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
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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.
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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.
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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.
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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.
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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
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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.
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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:______________________________
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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.
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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>
FIRST ALLMERICA FINANCIAL LIFE 440 Lincoln Street
INSURANCE COMPANY Worcester, MA 01653 CAREER AGENT AGREEMENT
- --------------------------------------------------------------------------------
First Allmerica Financial Life Insurance 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.
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<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.
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<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
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<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.
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<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;
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<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
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<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
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<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.
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<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 its life insurance affiliate, Allmerica
Financial Life Insurance and Annuity Company, 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.
First Allmerica Financial Life Insurance Company
By:
--------------------------------------------------
Vice President
--------------------------------------------------
Career Agent
Approved:
--------------------------------------------------
General Agent
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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>
Draft 4/13/92
(herein called the Company)
ISSUES THIS CONTRACT
No. GA-1234
TO
The ABC Company
(herein called the Policyholder)
to provide the retirement annuity and other benefits described herein.
This contract is issued in consideration of the application of the
Policyholder, and the payment of the contributions provided for herein.
This contract is delivered in and governed by the laws of the State of
ABC.
The provisions on the following pages are a part of the contract.
Effective Date of contract, February 1, 1992.
Executed at Worcester, Massachusetts, February 1, 1992.
|S| Richard J. Baker |S| John F. O'Brien
Secretary President
GROUP VARIABLE ANNUITY CONTRACT
WITH ALLOCATED FUND ACCOUNTS
AND SEPARATE ACCOUNTS
PARTICIPATING
PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT
GUARANTEED AS TO DOLLAR AMOUNT.
GA-IRA-2.00-92 Contributory
<PAGE>
TABLE OF CONTENTS
Page
Part I - Definitions .................................................. 1
Part II - IRA Accounts and Beneficiaries ............................... 3
Part III - Contributions ................................................ 4
Part IV - General Account Interest ..................................... 6
Part V - Separate Account Unit Values ................................. 7
Part VI - IRA Account Transfers ........................................ 9
Part VII - IRA Account Fees and Contract Guarantees ..................... 10
Part VIII - IRA Account Surrenders and Partial Redemptions ............... 11
Part IX - Death Benefits ............................................... 12
Part X - Annuity Options .............................................. 13
Part XI - General Provisions ........................................... 17
Part XII - Annuity Option Tables ........................................ 22
<PAGE>
PART I
DEFINITIONS
1.01 "Accumulation Unit" means the measure by which a Participant-
Owner's interest in a Separate Account is determined prior to the
Annuity Date.
1.02 "Accumulated Value" means the value of an IRA Account on any
Valuation Date prior to the Annuity Date. The value of an IRA
Account on any Valuation Date is equal to the sum of the value of
all Accumulation Units plus the value of all General Account
accumulations then credited to the IRA Account.
1.03 "Annuity Date" means the date on which annuity payments are to
begin. If a Participant-Owner does not elect an Optional Annuity
Date, annuity payments will begin on the date elected by the
Participant-Owner in his IRA Account application.
1.04 "Beneficiary" means the person or institution designated in writing
on a form furnished by or satisfactory to the Company to receive
any death benefit payable under the contract upon the Participant
Owner's or other designated person's death.
1.05 "Certificate" means the individual certificate issued to each
Participant-Owner describing the benefits to which he is entitled
under this contract. In the event of any change in the contract
affecting the benefits of a Participant-Owner, a new certificate or
certificate rider will be issued to the Participant-Owner. The
certificate in no way modifies or voids any of the provisions of
this contract and shall not constitute a part of this contract.
1.06 "Code" means the Internal Revenue Code of 1986, as amended.
1.07 "Company" means State Mutual Life Assurance Company of America.
1.08 "Funds" means the Growth Fund, Income Appreciation Fund, Money
Market Fund, Equity Index Fund and Government Bond Fund of SMA
Investment Trust and such other Funds as may be made available by
the Company from time to time. Any additional Funds shall be added
to this contract by an endorsement.
1.09 "General Account" means the investment account established and
maintained by the Company for its assets which are not allocated to
a Separate Account. All contributions made by Participant-Owners
which are allocated to a General Account Sub-Account are part of
the Company's General Account.
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<PAGE>
1.10 "Home Office" means the Company's office located at 440 Lincoln
Street, Worcester, Massachusetts 01605.
1.11 "IRA Account" means an account established under the contract for a
Participant-Owner in accordance with Section 408(b) of the Code.
1.12 "Participant-Owner" means an employee or former employee of the
Policyholder who makes contributions under the contract in
accordance with its provisions.
1.13 "Separate Account" means the Company's Separate Account I and such
other of the Company's Separate Accounts that may be offered as an
investment choice to Participant-Owners from time to time. Any
additional Separate Accounts shall be added to this contract by an
endorsement.
1.14 "Sub-Account" means either a General Account or Separate Account
Sub-Account.
General Account Sub-Accounts shall be established from time to time
by the Company for purposes of crediting interest to Net
Contributions allocated to the General Account. Each General
Account Sub-Account shall have a stated interest rate guaranteed
until a specific maturity date, as described in Section 4.02.
Interest rates and maturity dates shall be specified by the
Company.
Separate Account Sub-Account means each subdivision of a Separate
Account. The assets of each Separate Account Sub-Account are
invested exclusively in shares of the corresponding Fund of SMA
Investment Trust or other corresponding Fund made available by the
Company.
1.15 "Surrender Value" means the Accumulated Value of an IRA Account
less any applicable surrender charges (as specified on page 11),
and IRA Account fee (as specified on page 9).
1.16 "Valuation Date" means the time as of which the Accumulated Values
of all IRA Accounts are determined. Valuation Dates occur at the
close of business on each day on which the New York Stock Exchange
is open for trading. The Company reserves the right to change the
time which it designates as the Valuation Date. The Company also
reserves the right to change the frequency of Valuation Dates.
1.17 "Valuation Period" means the interval between two consecutive
Valuation Dates.
1.18 "Written Request" or "Written Notice" means a request or notice in
writing satisfactory to the Company and filed at its Home Office.
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<PAGE>
With the consent of the Company, IRA Account investment transfers,
contribution allocation instructions and other specified
transactions that may be made by Written Request may also be made
by Participant-Owners by telephone request. A properly completed
authorization form must be on file at the Company's Home Office
before telephone instructions will be honored.
PART II
IRA ACCOUNTS AND BENEFICIARIES
2.01 IRA Accounts. Each IRA Account established under the contract is
intended to be an individual retirement annuity qualified under
Code Section 408(b) and Regulations thereunder. Each IRA Account
is for the exclusive benefit of the Participant-Owner,
Participant Owner's Beneficiary and, in the case of an IRA
Account established for a Participant-Owner's spouse, such spouse
and such spouse's Beneficiary. Each IRA Account established under
the contract shall meet the following requirements:
(a) Each Participant-Owner is the owner of his IRA Account.
(b) Only cash or checks will be accepted as a contribution to an
IRA Account.
(c) Contributions shall be subject to the limitations set forth
in Part III.
(d) IRA Accounts may not be transferred by the Participant-Owner.
(e) No part of the Participant-Owner's interest in his IRA
Account can be forfeited.
(f) A Participant-Owner may not make any loans under his IRA
Account. An IRA Account cannot be pledged, assigned or
otherwise used to secure a loan.
(g) Payments must be made or commenced not later than the April 1
following the taxable year in which the Participant-Owner
attains age 70 1/2. Distributions shall be made in accordance
with the requirements of Code Section 401(a)(9) and
Regulations thereunder.
(h) IRA Account death benefits must be paid as provided in Part
IX.
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<PAGE>
2.02 IRA Account Beneficiary. Each IRA Account Beneficiary is as named
in the IRA Account application unless changed in accord with the
terms of this contract. All death benefits prodded by this
contract will be divided equally among the surviving
Beneficiaries, unless the Participant-Owner directs otherwise.
Unless the Participant-Owner directs otherwise, the interest of a
Beneficiary who dies before the Participant-Owner 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 estate of the
Participant-Owner.
A Participant-Owner may declare the choice of any Beneficiary to be
irrevocable.
2.03 Change of Beneficiary. A Participant-Owner may change any
Beneficiary, except an irrevocable one, any time while his IRA
Account is in force. Such change may be made only by Written
Request. When the Company receives the request, the change will
take place as of the date it was signed, even if the
Participant-Owner 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.
PART III
CONTRIBUTIONS
3.01 Initial Contributions. Establishment of IRA Accounts. A
Participant-Owner who receives a distribution from a qualified
retirement plan sponsored or maintained by the Policyholder which
is eligible for rollover treatment (as described in Code Section
402(a)(5), 402(a)(6) or 403(a)(4)) may establish an IRA Account
by making a contribution under this contract in an amount not to
exceed the taxable portion of such distribution. Provided, that
for a rollover IRA Account to be established the initial
contribution must be at least $3,500 (or such smaller amount as
meets the Company's then current minimum requirement for the
initial contribution).
A Participant-Owner who has established an IRA Account by means
of a rollover contribution as described above may establish an
additional IRA Account for his spouse. Such spousal IRA shall be
established and maintained in accordance with Code Sections
219(c) and 408(b). If a spousal IRA Account is established, the
spouse shall be treated as a Participant-Owner for purposes of
this contract.
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<PAGE>
Unless a Participant-Owner requests otherwise in writing, separate
IRA Accounts shall be maintained for (1) rollover contributions and
(2) annual deductible and non-deductible contributions made by the
Participant-Owner.
3.02 Additional Contributions. After an IRA Account has been
established, and while the IRA Account is in force, a Participant-
Owner may make additional contributions, as described below:
(a) No additional contribution of less than $1,000 (or such
smaller amount as meets the Company's then minimum
contribution requirement) will be accepted by the Company.
(b) Except for additional rollover contributions or spousal IRA
contributions described in (c) and (d) below, for any taxable
year of the Participant-Owner, the Participant-Owner may make
deductible or nondeductible contributions that, in total, do
not exceed the lesser of $2,000 or 100% of the
Participant-Owner's Compensation for the taxable year.
"Compensation" means compensation as defined in Code Section
219(f) and Regulations thereunder. Compensation includes
income from employment, fees and net earnings from
self-employment and alimony but does not include such items
as investment income, rent or royalties.
(c) A Participant-Owner may make an additional rollover
contribution as defined in Code Section 402(a)(5), 402(a)(6),
402(a)(7), 403(a)(4), 403(b)(8), or 408(d)(3).
(d) If a spousal IRA Account has been established, for any
taxable year a Participant-Owner may contribute up to
$2,250 in total to his and his spousal IRA Accounts;
provided, however, that except for additional rollover
contributions described in (c) above, a maximum
contribution of $2,000 may be made to any one IRA Account
for a taxable year.
3.03 Contribution Requirements. All contributions are payable at the
Company's Home Office. The initial contribution will be credited
to an IRA Account as of the date that both the properly completed
application for the IRA Account and the initial payment are
received by the Company at its Home Office. If the application is
incomplete, or does not specify how payments are to be allocated,
the initial contribution will be returned within five business
days. After an IRA Account has been established, additional
payments intended to be allocated to the General Account must be
received by the Company no later than 1:00 p.m. Eastern time in
order to be credited to an IRA Account on the date of receipt.
Additional payments received after that time intended to be
allocated to the General Account will be credited to the IRA
Account the next business day. Additional payments intended to be
allocated to a Separate Account
-5-
<PAGE>
Sub-Account will be credited to an IRA Account at the unit value
computed as of the Valuation Date that the payment is received at
the Company's Home Office.
Each contribution shall be accompanied by a form provided by or
satisfactory to the Company which shall indicate the type of
contribution being made, the taxable year for which the
contribution is intended (if applicable) and investment allocation
instructions.
Contributions described in Section 3.02(b) or (d) must be received
by the Company by April 15 of the year immediately following the
calendar year to which the contributions are attributable.
3.04 Net Contributions. Each Net Contribution is equal to the gross
contribution received by the Company less the amount of any premium
tax which must be paid by the Company as a result of the payment
being credited to an IRA Account.
Net Contributions will be allocated to the General Account or
applied to purchase Separate Account Accumulation Units, as
directed by the Participant-Owner. In the case of an allocation
to a Separate Account Sub-Account, the number of Accumulation
Units to be credited to an IRA Account will be determined as
provided in Section 5.01.
3.05 Net Contribution Allocations. Net Contributions will be allocated
on a percentage basis among the General Account and/or the
Separate Account Sub-Accounts as specified in writing by the
Participant-Owner; provided, however, that if a Net Contribution
is to be allocated between two or more Sub-Accounts, at least
$500 must be allocated to each Account. If the percentage
allocation elected by the Participant-Owner would result in an
allocation of less than $500 to any one Sub-Account, the Company
reserves the right to allocate such amount in accordance with
Company rules and procedures.
By Written Request, at any time the Participant-Owner may change
the allocation of future Net Contributions.
PART IV
GENERAL ACCOUNT INTEREST
4.01 Crediting of Interest. Interest will be credited daily to Net
Contributions allocated to each General Account Sub-Account.
Interest will be credited from the Valuation Date the Net
Contribution is credited to the Sub-Account to the Valuation Date
preceding the date the Net Contribution is distributed from the
Sub-Account. Interest will be calculated on a simple interest
method, based on the ending daily balances in the Sub-Account, with
interest compounded annually.
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<PAGE>
4.02 Establishment of Sub-Accounts: Interest Rates. Sub-Accounts will
be established on the first day of each calendar month for Net
Contributions to be allocated to the General Account during the
month. The interest guarantee or guarantees applicable to Net
Contributions to be allocated during a month will be determined
in advance by the Company and will apply for the deposit period
and thereafter until the Sub-Account maturity date. Until changed
by the Company, Sub-Account maturity dates will occur three years
following the last day of the deposit period (i.e., the last day
of the calendar month. All Sub-Account effective dates, deposit
periods, interest guarantees and maturity dates will be specified
by the Company at least 30 days prior to the Sub-Account
effective date. Although the Company currently intends to follow
the rules outlined above, the Company reserves the right to
change prospectively the frequency of Sub-Account effective
dates, to change the length of deposit periods and to change the
period of interest guarantees. Provided, that the interest rate
applicable to Net Contributions allocated to the General Account
will be guaranteed for a period of at least one year and in no
event will such interest rate be less than an interest rate of 4
1/2% compounded annually for the first five years; 4% compounded
annually for the next five years; and 3 1/2% compounded annually
thereafter.
4.03 Application of Accumulated Values on Sub-Account Maturities. At
least 30 days prior to the maturity date of a General Account
Sub-Account, the Company will notify affected Participant-Owners
in writing of the interest guarantee and new maturity date that
will be established for Sub-Account Accumulated Values upon the
Sub-Account maturity date. Unless a Participant-Owner directs
otherwise, IRA Account amounts allocated to a matured Sub-Account
will be allocated to the General Account Sub-Account effective on
the day following the Sub-Account maturity date. Any such
direction must be in writing and must be received by the Company
at least 5 business days prior to the Sub-Account maturity date.
PART V
SEPARATE ACCOUNT UNIT VALUES
5.01 Accumulation Unit Values. Accumulation Units will be credited to
IRA Accounts for benefits funded by a Separate Account
Sub-Account. The number of Accumulation Units to be credited to
an IRA Account at the time any Net Contribution is to be
allocated will be equal to the portion of the Net Contribution to
be allocated, as specified by the Participant-Owner, divided by
the dollar value of the applicable Sub-Account Accumulation Unit
as of the Valuation Date such payment is allocated.
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<PAGE>
The dollar value of a Sub-Account Accumulation Unit as of any
Valuation Date will be determined by multiplying the dollar value
of such 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.
On any Valuation Date prior to the Annuity Date, the Accumulated
Value of the portion of an IRA Account allocated to a Separate
Account Sub-Account will be the sum of the value of all such
Sub-Account Accumulation Units then credited to the IRA Account.
5.02 Adjusted Gross Investment Rate. The Adjusted Gross Investment Rate
of a Separate Account 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.
5.03 Net Investment Rate and Net Investment Factor. The Net Investment
Rate of a Separate Account Sub-Account for any Valuation Period
shall be equal to the Sub-Account Adjusted Gross Investment Rate
for such Valuation Period decreased by (a) a factor equivalent to
.0090 per annum for mortality and expense risks and (b) a factor
equivalent to .0025 per annum for administrative charges
associated with the Sub-Account. Such factors may be increased or
decreased by the Board of Directors of the Company, but in no
event shall they exceed the maximum stated in the Guarantees
provision.
The Net Investment Factor of a Separate Account Sub-Account is
1.000000 plus the Sub-Account Net Investment Rate.
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<PAGE>
PART VI
6.01 IRA Account Transfers. Prior to the Annuity Date, a
Participant-Owner may request in writing that:
(a) all or a portion of his IRA Account allocated to the General
Account be transferred to one or more Separate Account
Sub-Account(s);
(b) all or a portion of his IRA Account allocated to a Separate
Account Sub-Account be transferred to the General Account; or
(c) all or a portion of his IRA Account allocated to one Separate
Account Sub-Account be transferred to one or more other
Separate Account Sub-Account(s).
6.02 Transfer Date. Subject to the restrictions described herein, all
transfers shall be made on the Valuation Date coincident with, or
next following, the date a Written Request for such transfer is
received by the Company.
6.03 Transfer Restrictions. Transfers from a General Account
Sub-Account may be made without restriction on the Sub-Account
maturity date. During each calendar year a Participant-Owner may
make up to four additional transfers .Such transfers ma be made
from Separate Account Sub-Accounts or from General Account
Sub-Accounts prior to their maturity date. Provided, that the
maximum dollar amount that may be transferred during a calendar
year from General Account Sub-Accounts prior to their maturity
date is 20% of the value on the preceding December 31 of the
portion of the Participant-Owner's IRA Account Accumulated Value
that was allocated to the General Account. Transfers from
non-matured General Account Sub-Accounts will be on a LIFO
(Last-in-First-out) basis (i.e., transfers will be first made
from the most recently established Sub-Account).
Transfers from General Account and Separate Account Sub-Accounts
must be in a minimum amount of $500, or the entire portion of the
Participant-Owner's IRA Account allocated to the Sub-Account, if
less.
6.04 Minimum Balances. If a transfer would reduce the value of the
portion of a Participant-Owner's IRA Account allocated to a General
Account or Separate Account Sub-Account to less than $1,000, the
Company reserves the right to include the remaining value allocated
to the Sub-Account in the total to be transferred.
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<PAGE>
PART VII
IRA ACCOUNT FEES AND CONTRACT GUARANTEES
7.01 IRA Account Fees. While an IRA Account is in force and prior to
the Annuity Date, the Company will deduct an annual IRA Account
fee. The amount of the fee will be $25. This fee will be deducted
on the last Valuation Date of the month in which occurs the
anniversary date of the establishment of the IRA Account and also
on the date the IRA Account is surrendered. The fee will be
deducted pro rata from each General Account and Separate Account
Sub-Account to which IRA Account Net Contributions are currently
allocated. Provided, however, that the fee will be reduced or
eliminated, as necessary, to the extent its full deduction would
result in amounts allocated to a General Account Sub-Account
being credited with interest at a rate lower than the minimum
rate specified in Section 4.02.
7.02 Contract Guarantees. Except to the extent the contract may be
amended in accordance with Section 11.02, the Company makes the
following guarantees for IRA Accounts established under this
contract:
(a) The factors deducted from the Adjusted Gross Investment Rate
of a Separate Account Sub-Account to obtain its Net
Investment Rate will not exceed the equivalent of (i) .90%
per annum for mortality and expense risks and (ii) .25% per
annum for administrative charges.
(b) The IRA Account Fee and Surrender Charge will not exceed the
amount specified in this contract.
(c) The interest rate for Net Contributions allocated to the
General Account will be guaranteed for at least one year and
will never be at a rate less than the applicable minimum rate
specified in Section 4.02.
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.
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<PAGE>
PART VIII
IRA ACCOUNT SURRENDERS AND PARTIAL REDEMPTIONS
8.01 IRA Account Surrender Privilege. At any time prior to the Annuity
Date, a Participant-Owner may, by Written Request, surrender his
IRA Account for its Surrender Value. The Surrender Value will be
based on the Accumulated Value of the IRA Account on the
Valuation Date coincident with or next following the date the
Company receives the Written Request. When surrendered, an IRA
Account is terminated. After termination, the Company will have
no further liability for the IRA Account.
The Surrender Value for the portion of an IRA Account 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 the portion of an IRA Account allocated
to the General Account shall norm be aid 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 1/2% per
year.
8.02 IRA Account Partial Redemption Privilege. A Participant-Owner may,
by Written Request, redeem a part of the Accumulated Value of his
IRA Account, subject to the terms of this provision. This privilege
may be exercised before the Annuity Date and before the
Participant-Owner's death.
The amount of each Partial Redemption must be at least $500. No
Partial Redemption will be permitted if less than $1,000 would
remain credited to the IRA Account 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,
in the case of a redemption from a Separate Account, the type of
Accumulation Units to be canceled. Partial Redemptions from the
General Account will be on a LIFO (Last-In-First-Out) basis (i.e.,
redemptions shall first be made from the most recently established
General Account Sub-Account). If a Partial Redemption is requested,
the dollar amount of the request will be paid to the
Participant-Owner. In addition, the amount of any applicable
Redemption Charge will be deducted from the Accumulated Value. The
time limits of the Surrender Privilege Provision will apply to
Partial Redemptions.
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<PAGE>
8.03 Life Expectancy Distribution Benefit Redemptions. To the extent
permitted under Company rules, for each calendar year life
expectancy distributions (LED) may made to Participant-Owners and
their Beneficiaries. If the LED amount distributed from an IRA
Account during the calendar year does not exceed the minimum amount
required to be distributed to satisfy the requirements of Code
Section 401(a)(9), as determined by the an under its current life
expectancy distribution rules, such amount shall not be subject to
any redemption charge. Additional amounts withdrawn pursuant to an
LED election may also be withdrawn without charge; provided,
however, that amounts withdrawn during a calendar year from the
General Account on other than a Sub-Account maturity date pursuant
to an LED election shall be subject to the redemption charge
described in Section 8.04 to the extent that the aggregate amount
of such withdrawals made during the calendar year exceeds the
greater of (1) the minimum required to be paid to satisfy the
requirements of Code Section 401(a)(9), as determined in
accordance with the Company's life expectancy distribution rules,
or (2) 20% of the portion of the IRA Account Accumulated Value
allocated to the General Account on the preceding December 31.
8.04 IRA Account Surrender and Redemption Charge. Except for LED
distributions described in Section 8.03, if a Participant-Owner
surrenders his IRA Account or makes a Partial Redemption, a charge
of 4% will be made on the amount withdrawn from a General Account
Sub-Account on other than its maturity date. Provided, that the
total charges for Partial Redemptions and Surrender will not exceed
8% of the gross contributions allocated to the IRA Account.
8.05 Company's Right to Terminate. If no contributions have been
credited to an IRA Account for a period of three years, the
Company reserves the right to terminate the IRA Account for its
remaining Accumulated Value at any time its Accumulated Value is
less than $1,000.
PART IX
DEATH BENEFITS
9.01 Benefit Upon Death of Participant-Owner. If a Participant-Owner
dies prior to the Annuity Date while his IRA Account is in force,
the Company will pay a death benefit equal to the Accumulated
Value of the IRA Account as of the Valuation Date coincident with
or next following the date of receipt by the Company at its Home
Office of due proof of the Participant-Owner's death.
Unless the Participant-Owner has chosen a Death Benefit Annuity in
accordance with Section 10.03, if the Participant-Owner dies prior
to the Annuity Date, the death benefit will be paid to the
Participant-Owner's 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 Home Office.
-12-
<PAGE>
However, at the Written Request of the Beneficiary, the death
benefit may be used to provide an annuity for the Beneficiary. Such
an annuity will be provided in accordance with the Annuity Options
provisions of this contract.
If a Participant-Owner dies on or after the Annuity Date and before
all guaranteed annuity payments have been made, any remaining
payments will be made to the Participant-Owner's Beneficiary. If
there is more than one Beneficiary, the death benefit will be paid
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 the date of receipt by the Company at its Home
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.
9.02 Additional Option for Spouse Beneficiary. If a Participant-Owner
dies prior to the Annuity Date while his IRA Account is in force
leaving his spouse as Beneficiary, at the Written Request of the
spouse Beneficiary, and with the consent of the Company:
(a) the death benefit will not be paid on the Participant-Owner's
death; however, all or a portion of the death benefit may be
withdrawn without charge within one year of the date on which
notice of death is received at the Company's Home Office;
(b) the spouse will become Owner of the Participant-Owner's IRA
Account; and
(c) as Owner, the spouse will be entitled to all rights and
benefits provided to Participant-Owners under this contract.
PART X
ANNUITY OPTIONS
10.01 Annuity Benefit. A Participant-Owner may choose the form of annuity
benefit to commence on the Participant-Owner's Annuity Date. The
benefit will be limited to the Annuity Options set forth below, and
any other option offered by the Company for this class of contracts.
If the Participant-Owner does not choose an option, Option I will
apply.
Each Participant-Owner's Certificate will be endorsed on the Annuity
Date. The endorsement will set forth the annuity benefits payable to
the Participant-Owner.
10.02 Funding of Annuity Options. All Annuity Options are funded through
the General Account.
-13-
<PAGE>
10.03 Death Benefit Annuity. A Participant-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 contract.
If a Participant-Owner dies before the Annuity Date without
specifying an Annuity Option for the Beneficiary, the Beneficiary
may choose an option.
A corporate or fiduciary Beneficiary may choose only Option V.
10.04 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 contract. The proof must be satisfactory to the Company,
and must be received at its Home 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 contract.
10.05 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
Participant-Owner. A single payment of the death benefit will be
made to the Beneficiary.
10.06 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.
10.07 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 is chosen at any time - the Surrender Value.
(b) If Option I, II, III, IV-A, IV-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
Accumulated Value.
The amount applied under an Annuity Option will be based on the IRA
Account Accumulated Value on a Valuation Date not more than four
weeks (uniformly applied) preceding the Annuity Date.
-14-
<PAGE>
10.08 Monthly Payments. The amount of the first payment under Options I
through III will be determined on the basis of:
(a) the age nearest birthday of the payee on the Annuity Date;
and
(b) the Annuity Value applied under the Option.
The amount of the first monthly payment under Options IV-A and IV-B
will be determined on the basis of:
(a) the ages nearest birthday of the payees on the Annuity Date;
and
(b) the Annuity Value applied under the Option.
The amount of the first payment under Option V 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,
IVA, IVB and V will be in the same amount as the first payment;
except that under Option IVB, 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.
10.09 Annuity Purchase 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 contracts; or
(b) the rate set forth in Part XII of the contract for the
applicable Annuity Option.
The premium rates set forth in Part XII for annuities involving a
life contingency are equal to 102% of the premium rates
calculated using the 1983 Group Annuity Mortality Table with
Projection H (ages set back four years) assuming calendar year of
birth of 1930, and with interest at 5% per annum.
The premium rates set forth in Part XII for Option V are equal to
102% of the premium rates calculated using 5% interest per annum if
the period certain is for 10 years or longer; 4% if the period
certain is at least 5 years but less than 10 years; and 3% if the
period certain is less than 5 years.
-15-
<PAGE>
10.11 Brief Description of Annuity Options.
OPTION I - 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.
OPTION II- LIFE ANNUITY
Monthly payments during the life of the payee.
OPTION III - UNIT REFUND 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).
OPTION IV-A - JOINT AND SURVIVOR LIFE ANNUITY
Monthly payments jointly to two payees during their joint lives.
One of the payees must be the Participant-Owner. If this option
is chosen after the Participant-Owner 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.
OPTION IV-B - JOINT AND TWO-THIRDS SURVIVOR LIFE ANNUITY
Monthly payments jointly to two payees during their joint lives.
One of the payees must be the Participant-Owner. If this option
is chosen after the Participant-Owner 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.
OPTION V - ANNUITY CERTAIN
Monthly payments for a number of years. The number of years
selected may be from 1 to 30.
-16-
<PAGE>
PART XI
GENERAL PROVISIONS
11.01 Entire Contract. This contract and the application of the
Policyholder, if any, a copy of which is attached to and made a
part of this contract, and the individual IRA Account
applications of the Participant-Owners constitute the entire
contract between the parties. All statements made by the
Policyholder or by the Participant-Owners shall be deemed
representations and not warranties and no such statement shall be
used in any contest unless it is contained in a written signed
application nor, if such statement was made by a
Participant-Owner, unless a copy of the application containing
such statement is, or has been, furnished to such
Participant-Owner or to his Beneficiary.
Only the President or a Vice President of the Company has power to
amend this contract, and no amendment will be effective unless it
is in writing.
11.02 Contract Amendments. The Company may amend the provisions of the
contract with advance written notice of 90 days to the Policyholder
and affected Participant-Owners. Provided, however, that no
amendment will affect:
(a) the amount or terms of any annuity purchased prior to the
effective date of the amendment; or
(b) the interest credited to or guaranteed with respect to a
General Account Sub-Account prior to the maturity date of
such Sub-Account.
Any amendment to the guarantees provided in Section 7.02 shall
apply only to IRA Accounts established under the contract after
the amendment effective date.
Amendments made by the Company to this contract shall be consistent
with amendments made by the Company under all contracts of this
class.
The consent of any Participant-Owner or Beneficiary will not be
required for any amendment to this contract.
Notwithstanding the foregoing, the Company may amend the contract
and any Certificate issued thereunder at any time without the
consent of any person to comply with applicable federal and state
laws, regulations and rulings. Such amendments will be effective as
required.
11.03 Right to Revoke IRA Account. A Participant-Owner may revoke his
IRA Account at any time between the date of his Account
application and the date 10 days after receipt of his Certificate
and receive a refund of the greater of (1) his entire
contribution; or (2) the IRA Account Accumulated Value plus any
amounts deducted from the Account or by SMA
-17-
<PAGE>
Investment Trust for taxes, charges or fees. If a
Participant-Owner has elected that all or a portion of his
initial contribution be allocated to a Separate Account, the
Company will not make such Separate Account Allocation until the
Valuation Date that is 15 days from the date the IRA Account is
established. During such 15-day period such portion of the
initial contribution shall be allocated to the Money Market
Sub-Account. At the end of the 15-day period, such portion, plus
earnings, will be transferred to the appropriate Separate Account
Sub-Account.
In order to revoke an IRA Account, the Participant-Owner must
mail or deliver the Certificate (if it has already been received)
to the Home Office of the Company or to any local agency of the
Company. Mailing or delivery must occur on or before 10 days
after receipt of the Certificate for revocation to be effective.
11.04 Incontestability. This contract will be incontestable after one
year from its date of issue. No statement made by any
Participant-Owner shall be used in contesting the validity of his
IRA Account after such Account has been in force prior to contest
for a period of one year nor unless it is in a written
application signed by him.
11.05 Non-Assignability. This contract may not be assigned without the
written consent of the Company.
11.06 Protection of Proceeds. To the extent permitted by law, no payment
due or to become due a person under this contract or under any
Certificate issued hereunder may be assigned, nor shall any such
payment be subject to any creditor's claims.
11.07 Misstatement of Age. If a payee's age is misstated, the Company
will adjust all benefits under this contract 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.
11.08 Optional Annuity Date. A Participant-Owner may elect to change the
Annuity Date to an Optional Annuity Date. The Optional Annuity Date
may be changed at any time upon request. The Optional Annuity Date
must be the first day of any month:
(a) before the Participant-Owner's 85th birthday; and
(b) on or after the Participant-Owner's 50th birthday.
Any election to change the Annuity Date must be made by Written
Request.
The Written Request must be received at the Company's Home Office
at least one month before the Annuity Date.
-18-
<PAGE>
11.09 Reports. The Company will furnish a report to each Participant-
Owner containing:
(a) a statement of the Accumulated Value of the portion of his
IRA Account allocated to the General Account;
(b) a statement of the number of Separate Account Accumulation
Units allocated to his IRA Account;
(c) the value of each Separate Account Accumulation Unit; and
(d) such other information as may be required by applicable laws,
rules and regulations.
This information shall be furnished when required by applicable
laws, rules and regulations.
11.10 Addition, Deletion, or Substitution of Separate Account
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 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 any shares attributable to a
Participant-Owner's interest in a Separate Account Sub-Account
without notice to the Participant-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
contracts, or from permitting a conversion between series or
classes of policies or contracts on the basis of requests made by
owners.
The Company reserves the right to establish additional Separate
Account Sub-Accounts and to make such Sub-Accounts available to
any class or series of policies or contracts 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 Separate Account
Sub-Accounts and to transfer the assets of one or more Separate
Account Sub-Accounts to any other Separate Account 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 contractholders, the Separate Account or any
Separate Account Sub-Account(s) may be operated as a management
company under the Investment Company Act
-19-
<PAGE>
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.
11.11 Change of Name. Subject to compliance with applicable law, the
Company reserves the right to change the names of the Separate
Account or the Separate Account Sub-Accounts.
11.12 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.
11.13 Splitting of Units. The Company reserves the right to split the
value of an Accumulation Unit, if such action is deemed to be in
the best interest of the Participant-Owners 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 contract or
upon the Participant-Owner, any Beneficiary, or the Company. A
split may be effected either to increase or decrease the number
of units.
11.14 Insulation of Separate Accounts. The investment performance of
the assets of a Separate Account is determined separately from
the other assets of the Company. The assets of a Separate Account
equal to the reserves and other contract liabilities with respect
to such Account shall not be chargeable with liabilities arising
out of any other business which the Company may conduct.
11.15 Meaning of Words used in Contract. Whenever any words are used
herein in the masculine gender, they shall be construed as though
they were used in the feminine or neuter gender in all cases
where they would so apply. Whenever any words are used herein in
the singular form, they shall be construed as though they were
also used in the plural form in all cases where they would so
apply.
11.16 Separate Account Voting Rights. Each Participant-Owner is
entitled to vote at meetings of contract owners of those Separate
Account Sub-Accounts to which the Participant-Owner currently has
allocated a portion of his IRA Account Accumulated Value. The
number of votes which a Participant-Owner may cast 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.
Proper written notice of such meetings as required by law, shall be
given to each Participant-Owner.
-20-
<PAGE>
Participant-Owners entitled to vote and the number of votes which
each may cast shall be determined as of a record date within ninety
days of the date of the meeting. To be entitled to vote, a
Participant-Owner must be a Participant-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.
11.17 Policyholder's Participation in Divisible Surplus. While this
Contract remains in force, the Company will annually ascertain and
credit to each IRA Account any divisible surplus allocable to such
Account. Annuities purchased under this contract are
non-participating.
-21-
<PAGE>
Part XII
==============================Annuity Option Tables============================
Showing Amount of First Monthly Annuity Benefit Payment
For Each $1,000 of Annuity Value Applied
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Age
Nearest
Birthday OPTION I OPTION II OPTION III
- -------------------------------------------------------------------------------
Life Annuity
with 120 Monthly Unit Refund
Payments Life Life
Guaranteed Annuity Annuity
---------------------------------------------------------
<S> <C> <C> <C>
50 $ 5.06 $ 5.10 $ 5.00
51 5.11 5.16 5.05
52 5.17 5.22 5.10
53 5.23 5.29 5.16
54 5.29 5.36 5.22
55 5.36 5.43 5.28
56 5.43 5.50 5.34
57 5.50 5.58 5.41
58 5.58 5.67 5.49
59 5.66 5.76 5.56
60 5.74 5.85 5.64
61 5.83 5.96 5.72
62 5.93 6.07 5.80
63 6.03 6.18 5.92
64 6.13 6.31 6.01
65 6.24 6.44 6.11
66 6.36 6.59 6.21
67 6.48 6.74 6.36
68 6.60 6.91 6.47
69 6.73 7.09 6.59
70 6.87 7.28 6.71
71 7.01 7.48 6.91
72 7.15 7.69 7.05
73 7.30 7.91 7.19
74 7.46 8.15 7.33
75 7.61 8.41 7.59
</TABLE>
- -------------------------------------------------------------------------------
-22-
<PAGE>
========================Annuity Option Tables (Continued)======================
Showing Amount of First Monthly Annuity Benefit Payment For Each $1,000 of
Annuity Value Applied
- -------------------------------------------------------------------------------
OPTION IV-A
Joint and Survivor
Life Annuity
Older Age
<TABLE>
<CAPTION>
----------------------------------------------------------------------
50 55 60 65 70 75 80
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Y 50 $ 4.65 $ 4.73 $ 4.82 $ 4.89 $ 4.95 $ 5.00 $ 5.03
0
U 55 4.85 4.97 5.08 5.18 5.25 5.31
N
G 60 5.13 5.29 5.44 5.57 5.66
E
R 65 5.52 5.74 5.94 6.10
A 70 6.06 6.36 6.64
G
E 75 6.81 7.24
80 7.87
- -------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
OPTION IV-B
Joint and Two Thirds Survivor
Life Annuity
Older Age
<TABLE>
<CAPTION>
----------------------------------------------------------------------
50 55 60 65 70 75 80
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Y 50 $ 4.94 $ 5.07 $ 5.22 $ 5.40 $ 5.60 $ 5.82 $ 6.06
0
U 55 5.22 5.39 5.59 5.83 6.08 6.35
N
G 60 5.59 5.83 6.10 6.39 6.70
E
R 65 6.10 6.43 6.78 7.16
A 70 6.82 7.25 7.73
G
E 75 7.80 8.40
80 9.17
- -------------------------------------------------------------------------------
</TABLE>
-23-
<PAGE>
========================Annuity Option Tables (Continued)======================
Showing Amount of First Monthly Annuity Benefit Payment For Each $1,000 of
Annuity Value Applied
<TABLE>
<CAPTION>
------------------------------------------------------
OPTION V
------------------------------------------------------
Annuity Certain
Number of for a specified
Years Certain Number of Years
------------------------------------------------------
<S> <C>
1 $ 82.78
2 42.00
3 28.41
4 21.62
5 17.96
6 15.25
7 13.32
8 11.87
9 10.75
10 10.30
11 9.57
12 8.97
13 8.47
14 8.03
15 7.66
16 7.34
17 7.05
18 6.80
19 6.58
20 6.38
21 6.20
22 6.04
23 5.90
24 5.76
25 5.64
26 5.53
27 5.43
28 5.34
29 5.25
30 5.17
------------------------------------------------------
</TABLE>
-24-
<PAGE>
Draft 4/13/92
(herein called the Company)
HEREBY CERTIFIES that the retirement annuity and other benefits
described herein will be provided for the Participant-Owner and his
Beneficiary, in accordance with and subject to the conditions and provisions
of the Company's Group Annuity Contract No. GA-1234.
-------
Participant-Owner: John A. Doe
-----------
Annuity Date: First Day of March , 2006
--------------
(month) (year)
Certificate Number: 001-620
-------
Date of Participation: May 1, 1992
-----------
The provisions described on the subsequent pages of this Certificate are
made a part of this Certificate. This Certificate does not modify any of the
provisions of the Contract either in its present form or as later amended.
RIGHT TO REVOKE IRA ACCOUNT: The Participant-Owner may revoke his IRA
Account established under the contract at any time between the date of his
Account application and the date 10 days after receipt of this Certificate
and receive a refund of the greater of (1) his entire contribution; or (2)
his IRA Account Accumulated Value plus any amounts deducted from the Account
or by SMA Investment Trust for taxes, charges or fees. If the Owner has
elected that all or a portion of his initial contribution be allocated to a
Separate Account, the Company will not make such Separate Account allocation
until the Valuation Date that is 15 days from the date his IRA Account is
established. During such 15-day period such portion of the initial
contribution shall be allocated to the Money Market Sub-Account. At the end
of the 15-day period, such portion, plus earnings, will be transferred to the
appropriate Separate Account Sub-Account.
In order to revoke an IRA Account, the Participant-Owner must mail or
deliver this Certificate (if it has already been received) to the Home Office
of the Company or to any local agency of the Company. Mailing or delivery
must occur on or before 10 days after receipt of the Certificate for
revocation to be effective.
PAYMENTS AND VALUES PROVIDED BY THE CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO
DOLLAR AMOUNT.
|S| Richard J. Baker |S| John F. O'Brien
Secretary President
GAC-IRA-2.00-92
<PAGE>
(Endorsements)
(Back of Cover Page)
<PAGE>
TABLE OF CONTENTS
-----------------
Page
Part I - Definitions .................................................... 1
Part II - IRA Accounts and Beneficiaries ................................. 3
Part III - Contributions .................................................. 4
Part IV - General Account Interest ....................................... 6
Part V - Separate Account Unit Values ................................... 7
Part VI - IRA Account Transfers .......................................... 8
Part VII - IRA Account Fees and Contract Guarantees ....................... 9
Part VIII - IRA Account Surrenders and Partial Redemptions ................. 10
Part IX - Death Benefits ................................................. 11
Part X - Annuity Options ................................................ 12
Part XI - General Provisions ............................................. 15
Part XII - Annuity Option Tables .......................................... 19
<PAGE>
PART I
DEFINITIONS
1.01 "Accumulation Unit" means the measure by which the Owner's interest
in a Separate Account is determined prior to the Annuity Date.
1.02 "Accumulated Value" means the value of the Owner's IRA Account on
any Valuation Date prior to the Annuity Date. The value of an IRA
Account on any Valuation Date is equal to the sum of the value of
all Accumulation Units plus the value of all General Account
accumulations then credited to the IRA Account.
1.03 "Annuity Date" means the date on which annuity payments are to
begin. If the Owner does not elect an Optional Annuity Date,
annuity payments will begin on the Annuity Date specified on the
face page of this Certificate.
1.04 "Beneficiary" means the person or institution designated in writing
on a form furnished by or satisfactory to the Company to receive
any death benefit payable under the Contract upon the Owner's or
other designated person's death.
1.05 "Code" means the Internal Revenue Code of 1986, as amended.
1.06 "Company" means State Mutual Life Assurance Company of America.
1.07 "Funds" means the Growth Fund, Income Appreciation Fund, Money
Market Fund, Equity Index Fund and Government Bond Fund of SMA
Investment Trust and such other Funds as may be made available by
the Company from time to time. Any additional Funds shall be added
to this Certificate by an endorsement.
1.08 "General Account" means the investment account established and
maintained by the Company for its assets which are not allocated to
a Separate Account. All contributions made by the Owner which are
allocated to a General Account Sub-Account are part of the
Company's General Account.
1.09 "Group Annuity Contract" or "Contract" means the Company's Group
Annuity Contract specified on the face page of this Certificate.
1.10 "Home Office" means the Company's office located at 440 Lincoln
Street, Worcester, Massachusetts 01605.
-1-
<PAGE>
1.11 "IRA Account" means the account established under the Contract for
the Owner in accordance with Section 408(b) of the Code.
1.12 "Participant-Owner" or "Owner" means the individual specified on
the face page hereof.
1.13 "Separate Account" means the Company's Separate Account I and such
other of the Company's Separate Accounts that may be offered as an
investment choice under the Contract to the Owner from time to
time. Any additional Separate Accounts shall be added to this
Certificate by an endorsement.
1.14 "Sub-Account" means either a General Account or Separate Account
Sub-Account.
General Account Sub-Accounts shall be established from time to time
by the Company under the Contract for purposes of crediting
interest to Net Contributions allocated to the General Account.
Each General Account Sub-Account shall have a stated interest rate
guaranteed until a specific maturity date, as described in
Section 4.02. Interest rates and maturity dates shall be specified
by the Company.
Separate Account Sub-Account means each subdivision of a Separate
Account. The assets of each Separate Account Sub-Account are
invested exclusively in shares of the corresponding Fund of SMA
Investment Trust or other corresponding Fund made available by the
Company.
1.15 "Surrender Value" means the Accumulated Value of the IRA Account
less any applicable surrender charges (as specified on page 11),
and IRA Account fee (as specified on page 9).
1.16 "Valuation Date" means the time as of which the Accumulated Value
of the IRA Account is determined. Valuation Dates occur at the
close of business on each day on which the New York Stock
Exchange is open for trading. The Company reserves the right to
change the time which it designates as the Valuation Date. The
Company also reserves the right to change the frequency of
Valuation Dates.
1.17 "Valuation Period" means the interval between two consecutive
Valuation Dates.
1.18 "Written Request" or "Written Notice" means a request or notice in
writing satisfactory to the Company and filed at its Home Office.
With the consent of the Company, IRA Account investment transfers,
contribution allocation instructions and other specified
transactions that may be made by Written Request may also be made
by the Owner by telephone request. A properly completed
authorization form must be on file at the Company's Home Office
before telephone instructions will be honored.
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PART II
IRA ACCOUNTS AND BENEFICIARIES
2.01 IRA Accounts. Each IRA Account established under the Contract is
intended to be an individual retirement annuity qualified under
Code Section 408(b) and Regulations thereunder. Each IRA Account
is for the exclusive benefit of the Owner, the Owner's
Beneficiary and, in the case of an IRA Account established for an
Owner's spouse, such spouse and such spouse's Beneficiary. Each
IRA Account established under the Contract shall meet the
following requirements:
(a) Each Participant-Owner is the owner of his IRA Account.
(b) Only cash or checks will be accepted as a contribution to an
IRA Account.
(c) Contributions shall be subject to the limitations set forth
in Part III.
(d) IRA Accounts may not be transferred by the Owner.
(e) No part of the Owner's interest in his IRA Account can be
forfeited.
(f) An Owner may not make any loans under his IRA Account. An IRA
Account cannot be pledged, assigned or otherwise used to
secure a loan.
(g) Payments must be made or commenced not later than the April 1
following the taxable year in which the Owner attains age 70
1/2. Distributions shall be made in accordance with the
requirements of Code Section 401(a)(9) and Regulations
thereunder.
(h) Death benefits must be paid as provided in Part IX.
2.02 IRA Account Beneficiary. Each IRA Account Beneficiary is as named
in the IRA Account application unless changed in accord with the
terms of the Contract. All death benefits provided under the
Contract 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 Owner 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 estate of the Owner.
An Owner may declare the choice of any Beneficiary to be
irrevocable.
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2.03 Change of Beneficiary. The Owner may change any Beneficiary,
except an irrevocable one, any time while the IRA Account is in
force. Such change may be made only by Written Request. When the
Company receives the request, the change will take place as of
the date it was signed, even if the Owner 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.
PART III
CONTRIBUTIONS
3.01 Initial Contributions, Establishment of IRA Accounts. An employee
or former employee of the Policyholder who receives a
distribution from a qualified retirement plan maintained by the
Policyholder which is eligible for rollover treatment (as
described in Code Section 402(a)(5), 402(a)(6) or 403(a)(4)) may
establish an IRA Account by making a contribution under the
Contract in an amount not to exceed the taxable portion of such
distribution. To establish an IRA Account, the initial
contribution must be at least $3,500 (or such smaller amount as
meets the Company's then current minimum requirement for the
initial contribution).
An Owner may establish an additional IRA Account for his spouse.
Such spousal IRA shall be established and maintained in
accordance with Code Sections 219(c) and 408(b). If a spousal IRA
Account is established, the spouse shall be treated as an Owner
for purposes of the Contract. Any such spouse shall be issued a
separate Certificate.
Unless an Owner requests otherwise in writing, separate IRA
Accounts shall be maintained under the Contract for (1) rollover
contributions and (2) annual deductible and non-deductible
contributions made by the Owner. A separate Certificate shall be
issued for each separate IRA Account maintained for the Owner.
3.02 Additional Contributions. After an IRA Account has been
established, and while the IRA Account is in force, an Owner may
make additional contributions, as described below:
(a) No additional contribution of less than $1,000 (or such
smaller amount as meets the Company's then minimum
contribution requirement) will be accepted by the Company.
(b) Except for additional rollover contributions or spousal IRA
contributions described in (c) and (d) below, for any
taxable year of the Owner, the Owner may make deductible or
nondeductible contributions that, in total, do not exceed
the lesser of $2,000 or 100% of the Owner's Compensation
for the taxable year. "Compensation" means compensation as
defined in Code Section 219(f) and Regulations thereunder.
Compensation includes
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income from employment, fees and net earnings from
self-employment and alimony but does not include such items
as investment income, rent or royalties.
(c) An Owner may make an additional rollover contribution as
defined in Code Section 402(a)(5), 402(a)(6), 402(a)(7),
403(a)(4), 403(b)(8), or 408(d)(3).
(d) If a spousal IRA Account has been established, for any
taxable year an Owner may contribute up to $2,250 in total
to his and his spousal IRA Accounts; provided, however,
that except for additional rollover contributions described
in (c) above, a maximum contribution of $2,000 may be made
to any one IRA Account for a taxable year.
3.03 Contribution Requirements. All contributions are payable at the
Company's Home Office. The initial contribution will be credited
to an IRA Account as of the date that both the properly completed
application for the IRA Account and the initial payment are
received by the Company at its Home Office. If the application is
incomplete, or does not specify how payments are to be allocated,
the initial contribution will be returned within five business
days. After an IRA Account has been established, additional
payments intended to be allocated to the General Account must be
received by the Company no later than 1:00 p.m. Eastern time in
order to be credited to the IRA Account on the date of receipt.
Additional payments received after that time intended to be
allocated to the General Account will be credited to the IRA
Account the next business day. Additional payments intended to be
allocated to a Separate Account Sub-Account will be credited to
an IRA Account at the unit value computed as of the Valuation
Date that the payment is received at the Company's Home Office.
Each contribution shall be accompanied by a form provided by or
satisfactory to the Company which shall indicate the type of
contribution being made, the taxable year for which the
contribution is intended (if applicable) and investment
allocation instructions.
Contributions described in Section 3.02(b) or (d) must be received
by the Company by April 15 of the year following the calendar year
to which the contributions are attributable.
3.04 Net Contributions. Each Net Contribution is equal to the gross
contribution received from the Owner less the amount of any premium
tax which must be paid by the Company as a result of the payment
being credited to the Contract.
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Net Contributions will be allocated to the General Account or
applied to purchase Separate Account Accumulation Units, as
directed by the Owner. In the case of an allocation to a Separate
Account Sub-Account, the number of Accumulation Units to be
credited to the IRA Account will be determined as provided in
Section 5.01.
3.05 Net Contributions Allocations. Net Contributions will be
allocated on a percentage basis among the General Account and/or
the Separate Account Sub-Accounts as specified in writing by the
Owner, provided, however, that if a Net Contribution is to be
allocated between two or more Sub-Accounts, at least $500 must be
allocated to each Account. If the percentage allocation elected
by the Owner would result in an allocation of less than $500 to
any one Sub-Account, the Company reserves the right to allocate
such amount in accordance with Company rules and procedures.
By Written Request, at any time the Owner may change the allocation
of future Net Contributions.
PART IV
GENERAL ACCOUNT INTEREST
4.01 Crediting of Interest. Interest will be credited daily to Net
Contributions allocated to each General Account Sub-Account.
Interest will be credited from the Valuation Date the Net
Contribution is credited to the Sub-Account to the Valuation Date
preceding the date the Net Contribution is distributed from the
Sub-Account. Interest will be calculated on a simple interest
method, based on the ending daily balances in the Sub-Account, with
interest compounded annually.
4.02 Establishment of Sub-Accounts; Interest Rates. Sub-Accounts will be
established on the first day of each calendar month for Net
Contributions to be allocated to the General Account during the
month. The interest guarantee or guarantees applicable to Net
Contributions to be allocated during a month will be determined in
advance by the Company and will apply for the deposit period and
thereafter until the Sub-Account maturity date. Until changed by the
Company, Sub-Account maturity dates will occur three years following
the last day of the deposit period (i.e., the last day of the
calendar month). All Sub-Account effective dates, deposit periods,
interest guarantees and maturity dates will be specified by the
Company at least 30 days prior to the Sub-Account effective date.
Although the Company currently intends to follow the rules outlined
above, the Company reserves the right to change prospectively the
frequency of Sub-Account effective dates, to change the length of
deposit periods and to change the period of interest guarantees.
Provided, that the interest rate applicable to Net Contributions
allocated to the General Account will be guaranteed for a period of
at least one year and in no
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event will such interest rate be less than an interest rate of
4 1/2% compounded annually for the first five years; 4% compounded
annually for the next five years; and 3 1/2% compounded annually
thereafter.
4.03 Application of Accumulated Values on Sub-Account Maturities. At
least 30 days prior to the maturity date of a General Account
Sub-Account, the Company will notify the Owner, if affected, in
writing of the interest guarantee and new maturity date that will
be established for Sub-Account Accumulated Values upon the
Sub-Account maturity date. Unless the Owner directs otherwise,
amounts allocated to a matured Sub-Account will be allocated to
the General Account Sub-Account effective on the day following
the Sub-Account maturity date. Any such direction must be in
writing and must be received by the Company at least 5 business
days prior to the Sub-Account maturity date.
PART V
SEPARATE ACCOUNT UNIT VALUES
5.01 Accumulation Unit Values. Accumulation Units will be credited to
the IRA Account for benefits funded by a Separate Account
Sub-Account. The number of Accumulation Units to be credited to
the IRA Account at the time any Net Contribution is to be
allocated will be equal to the portion of the Net Contribution to
be allocated, as specified by the Owner, divided by the dollar
value of the applicable Sub-Account Accumulation Unit as of the
Valuation Date such payment is allocated.
The dollar value of a Sub-Account Accumulation Unit as of any
Valuation Date will be determined by multiplying the dollar value
of such 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.
On any Valuation Date prior to the Annuity Date, the Accumulated
Value of the portion of the IRA Account allocated to a Separate
Account Sub-Account will be the sum of the value of all such
Sub-Account Accumulation Units then credited to the IRA Account.
5.02 Adjusted Gross Investment Rate. The Adjusted Gross Investment Rate
of a Separate Account 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
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(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.
5.03 Net Investment Rate and Net Investment Factor. The Net Investment
Rate of a Separate Account Sub-Account for any Valuation Period
shall be equal to the Sub-Account Adjusted Gross Investment Rate
for such Valuation Period decreased by (a) a factor equivalent to
.0090 per annum for mortality and expense risks and (b) a factor
equivalent to .0025 per annum for administrative charges
associated with the Sub-Account. Such factors may be increased or
decreased by the Board of Directors of the Company, but in no
event shall they exceed the maximum stated in the Guarantees
provision.
The Net Investment Factor of a Separate Account Sub-Account is
1.000000 plus the Sub-Account Net Investment Rate.
PART VI
IRA ACCOUNT TRANSFERS
6.01 IRA Account Transfers. Prior to the Annuity Date, the Owner may
request in writing that:
(a) all or a portion of his IRA Account allocated to the General
Account be transferred to one or more Separate Account
Sub-Account(s);
(b) all or a portion of his IRA Account allocated to a Separate
Account Sub-Account be transferred to the General Account;
or
(c) all or a portion of his IRA Account allocated to one
Separate Account Sub-Account be transferred to one or more
other Separate Account Sub-Account(s).
6.02 Transfer Date. Subject to the restrictions described herein, all
transfers shall be made on the Valuation Date coincident with, or
next following, the date a Written Request for such transfer is
received by the Company.
6.03 Transfer Restrictions. Transfers from a General Account
Sub-Account may be made without restriction on the Sub-Account
maturity date. During each calendar year the Owner may make up to
four additional transfers. Such transfers may be made from
Separate Account Sub-Accounts or from General Account
Sub-Accounts prior to their maturity date. Provided, that the
maximum dollar amount that may be transferred during a calendar
year from General Account Sub-Accounts prior to their maturity
date is 20% of the value on the preceding December 31 of the
portion of the IRA Account Accumulated Value that
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was allocated to the General Account. Transfers from non-matured
General Account Sub-Accounts will be on a LIFO (Last-in-First-out)
basis (i.e., transfers will be first made from the most recently
established Sub-Account).
Transfers from General Account and Separate Account Sub-Accounts
must be in a minimum amount of $500, or the entire portion of the
IRA Account allocated to the Sub-Account, if less.
6.04 Minimum Balances. If a transfer would reduce the value of the
portion of the IRA Account allocated to a General Account or
Separate Account Sub-Account to less than $1,000, the Company
reserves the right to include the remaining value allocated to the
Sub-Account in the total to be transferred.
PART VII
IRA ACCOUNT FEES AND CONTRACT GUARANTEES
7.01 IRA Account Fees. While the IRA Account is in force and prior to
the Annuity Date, the Company will deduct an annual IRA Account
fee. The amount of the fee will be $25. This fee will be deducted
on the last Valuation Date of the month in which occurs the
anniversary date of the establishment of the IRA Account and also
on the date the IRA Account is surrendered. The fee will be
deducted pro rata from each General Account and Separate Account
Sub-Account to which IRA Account Net Contributions are currently
allocated. Provided, however, that the fee will be reduced or
eliminated, as necessary, to the extent its full deduction would
result in amounts allocated to a General Account Sub-Account
being credited with interest at a rate lower than the minimum
rate specified in Section 4.02.
7.02 Contract Guarantees. The Company makes the following guarantees for
IRA Accounts established under the Contract:
(a) The factors deducted from the Adjusted Gross Investment Rate
of a Separate Account Sub-Account to obtain its Net
Investment Rate will not exceed the equivalent of (i) .90%
per annum for mortality and expense risks and (ii) .25% per
annum for administrative charges.
(b) The IRA Account Fee and Surrender Charge will not exceed the
amount specified in this Certificate.
(c) The interest rate for Net Contributions allocated to the
General Account will be guaranteed for at least one year and
will never be at a rate less than the applicable minimum
rate specified in Section 4.02.
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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.
PART VIII
IRA ACCOUNT SURRENDERS AND PARTIAL REDEMPTIONS
8.01 Surrender Privilege. At any time prior to the Annuity Date, the
Owner may, by Written Request, surrender his IRA Account for its
Surrender Value. The Surrender Value will be based on the
Accumulated Value of the IRA Account on the Valuation Date
coincident with or next following the date the Company receives the
Written Request. When surrendered, the IRA Account is terminated.
After termination, the Company will have no further liability for
the IRA Account.
The Surrender Value for the portion of the IRA Account 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 the portion of the IRA Account 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 1/2% per year.
8.02 Partial Redemption Privilege. The Owner may, by Written Request,
redeem a part of the Accumulated Value of the IRA Account, subject
to the terms of this provision. This privilege may be exercised
before the Annuity Date and before the Owner's death.
The amount of each Partial Redemption must be at least $500. No
Partial Redemption will be permitted if less than $1,000 would
remain credited to the IRA Account 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,
in the case of a redemption from a Separate Account, the type of
Accumulation Units to be canceled. Partial Redemptions from the
General Account will be on a LIFO (Last-In-First-Out) basis (i.e.,
redemptions shall first be made from the most recently established
General Account Sub-Account). If a Partial Redemption is requested,
the
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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. The time limits of the
Surrender Privilege Provision will apply to Partial Redemptions.
8.03 Life Expectancy Distribution Benefit Redemptions. To the extent
permitted under Company rules, for each calendar year life
expectancy distributions (LED) may be made to the Owner and his
Beneficiary. If the LED amount distributed from the IRA Account
during the calendar year does not exceed the minimum amount
required to be distributed to satisfy the requirements of Code
Section 401(a)(9), as determined by the Company under its current
life expectancy distribution rules, such amount shall not be
subject to any redemption charge. Additional amounts withdrawn
pursuant to an LED election may also be withdrawn without charge;
provided that amounts withdrawn during a calendar year from the
General Account on other than a Sub-Account maturity date
pursuant to an LED election shall be subject to the redemption
charge described in Section 8.04 to the extent that the aggregate
amount of such withdrawals made during the calendar year exceeds
the greater of (1) the minimum required to be paid to satisfy the
requirements of Code Section 401(a)(9), as determined in
accordance with the Company's life expectancy distribution rules,
or (2) 20% of the portion of the IRA Account Accumulated Value
allocated to the General Account on the preceding December 31.
8.04 IRA Account Surrender and Redemption Charge. Except for LED
distributions described in Section 8.03, if the Owner surrenders
the IRA Account or makes a Partial Redemption, a charge of 4%
will be made on the amount withdrawn from a General Account
Sub-Account on other than its maturity date. Provided, that the
total charges for Partial Redemptions and Surrender will not
exceed 8% of the gross contributions allocated to the IRA Account.
8.05 Company's Right to Terminate. If no contributions have been
credited to an IRA Account for a period of three years, the
Company reserves the right to terminate the IRA Account for its
remaining Accumulated Value at any time its Accumulated Value is
less than $1,000.
PART IX
DEATH BENEFITS
9.01 Benefit Upon Death of Owner. If the Owner dies prior to the
Annuity Date while the IRA Account is in force, the Company will
pay a death benefit equal to the Accumulated Value of the IRA
Account as of the Valuation Date coincident with or next
following the date of receipt by the Company at its Home Office
of due proof of the Owner's death.
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Unless the Owner has chosen a Death Benefit Annuity in accordance
with Section 10.03, if the Owner dies prior to the Annuity Date,
the death benefit will be paid to the Owner's 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 Home Office. However,
at the Written Request of the Beneficiary, the death benefit may
be used to provide an annuity for the Beneficiary. Such an
annuity will be provided in accordance with the Annuity Options
provisions of the Contract, as described in Part X.
If the Owner dies on or after the Annuity Date and before all
guaranteed annuity payments have been made, any remaining
payments will be made to the Beneficiary. If there is more than
one Beneficiary, the death benefit will be paid 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 the date of receipt by the Company at its Home 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.
9.02 Additional Option for Spouse Beneficiary. If the Owner dies prior
to the Annuity Date while the IRA Account is in force leaving his
spouse as Beneficiary, at the Written Request of the spouse
Beneficiary, and with the consent of the Company:
(a) the death benefit will not be paid on the Owner's death;
however, all or a portion of the death benefit may be
withdrawn without charge within one year of the date on
which notice of death is received at the Company's Home
Office;
(b) the spouse will become Owner of the IRA Account; and
(c) as Owner, the spouse will be entitled to all rights and
benefits provided to Owners under the Contract.
PART X
ANNUITY OPTIONS
10.01 Annuity Benefit. The Owner may choose the form of annuity benefit
to commence on the Owner's Annuity Date. The benefit will be
limited to the Annuity Options described below, and any other
option offered by the Company under the Contract.
If the Owner does not choose an option, Option I will apply.
This Certificate will be endorsed on the Annuity Date. The
endorsement will set forth the annuity benefits payable to the
Owner.
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10.02 Funding of Annuity Options. All Annuity Options are funded through
the General Account.
10.03 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
the Contract.
If the Owner dies before the Annuity Date without specifying an
Annuity Option for the Beneficiary, the Beneficiary may choose an
option.
A corporate or fiduciary Beneficiary may choose only Option V.
10.04 Proof of Age and Survival of Payee. Proof of the payee's date of
birth is required before payment of any annuity benefits. The proof
must be satisfactory to the Company, and must be received at its
Home 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.
10.05 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.
10.06 Payment Period. Annuity payments shall cease with the last payment
due prior to the date of death of the payee (or surviving payee in
the case of joint payees) or with the later completion of all
guaranteed payments, as the case may be.
10.07 Annuity Date. The Annuity Value to be applied under an Annuity
Option will be the amount described below; any premium taxes
payable by the Company as a result of the Annuity Option selection:
(a) If Option V is chosen - the Surrender Value.
(b) If Option I, II, III, IV-A, IV-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 - the Accumulated
Value.
The amount applied under an Annuity Option will be based on the IRA
Account Accumulated Value on a Valuation Date not more than four
weeks (uniformly applied) preceding the Annuity Date.
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10.08 Monthly Payments. The amount of the first payment under Options I
through III will be determined on the basis of:
(a) the age nearest birthday of the payee on the Annuity Date;
and
(b) the Annuity Value applied under the Option.
The amount of the first monthly payment under Options IV-A and IV-B
will be determined on the basis of:
(a) the ages nearest birthday of the payees on the Annuity Date;
and
(b) the Annuity Value applied under the Option.
The amount of the first payment under Option V 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,
IVA, IVB and V will be in the same amount as the first payment;
except that under Option IVB, 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.
10.09 Annuity Purchase 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 the Contract; or
(b) the rate set forth in Part XII of this Certificate for the
applicable Annuity Option.
10.10 Brief Description of Annuity Options.
OPTION I - 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.
OPTION II- LIFE ANNUITY
Monthly payments during the life of the payee..
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OPTION III - UNIT REFUND 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).
OPTION IV-A - JOINT AND SURVIVOR LIFE ANNUITY
Monthly payments jointly to two payees during their joint lives.
One of the payees must be the Owner. If this option is chosen
after the Owner 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.
OPTION IV-B - JOINT AND TWO-THIRDS SURVIVOR LIFE ANNUITY
Monthly payments jointly to two payees during their joint lives.
One of the payees must be the Owner. If this option is chosen
after the Owner 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.
OPTION V - ANNUITY CERTAIN
Monthly payments for a number of years. The number of years
selected may be from 1 to 30.
PART XI
GENERAL PROVISIONS
11.01 Contract Amendments. The Company may amend the provisions of the
Contract with advance written notice of 90 days to the Policyholder
and affected Owners. Provided, however, that no the guarantees
provided in Section 7.02 may not be amended or deleted and no
amendment will affect:
(a) the amount or terms of any annuity purchased prior to the
effective date of the amendment; or
-15-
<PAGE>
(b) the interest credited to or guaranteed with respect to a
General Account Sub-Account prior to the maturity date of
such Sub-Account.
The consent of any Owner or Beneficiary will not be required for
any amendment to the Contract.
Notwithstanding the foregoing, the Company may amend the Contract
and this Certificate at any time without the consent of the Owner
or any person to comply with applicable federal and state laws,
regulations and rulings. Such amendments will be effective as
required.
11.02 Protection of Proceeds. To the extent permitted by law, no payment
due or to become due a person under the Contract or under this
Certificate may be assigned, nor shall any such payment be subject
to any creditor's claims.
11.03 Misstatement of Age. If a payee's age is misstated, the Company
will adjust all annuity benefits 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.
11.04 Optional Annuity Date. The Owner may elect to change the Annuity
Date to an Optional Annuity Date. The Optional Annuity Date may be
changed at any time upon request. The Optional Annuity Date must be
the first day of any month:
(a) before the Owner's 85th birthday; and
(b) on or after the Owner's 50th birthday.
Any election to change the Annuity Date must be made by Written
Request.
The Written Request must be received at the Company's Home Office
at least one month before the Annuity Date.
11.05 Reports. The Company will furnish a report to the Owner
containing a statement of value of his IRA Account; and such
other information as may be required by applicable laws, rules
and regulations.
This information shall be furnished when required by applicable
laws, rules and regulations.
-16-
<PAGE>
11.06 Addition, Deletion, or Substitution of Separate Account
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 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 any shares attributable to an
Owner's interest in a Separate Account 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 contracts, or
from permitting a conversion between series or classes of
policies or contracts on the basis of requests made by owners.
The Company reserves the right to establish additional Separate
Account Sub-Accounts and to make such Sub-Accounts available to
any class or series of policies or contracts 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 Separate Account
Sub-Accounts and to transfer the assets of one or more Separate
Account Sub-Accounts to any other Separate Account 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 contract holders, the Separate Account or any
Separate Account 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.
11.07 Change of Name. Subject to compliance with applicable law, the
Company reserves the right to change the names of the Separate
Account or the Separate Account Sub-Accounts.
11.08 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.
11.09 Splitting of Units. The Company reserves the right to split the
value of an Accumulation Unit, if such action is deemed to be in
the best interest of the Owners and the Company. In effecting any
such split of unit value, strict equity will be preserved and
such split will have no material effect
-17-
<PAGE>
upon the benefits, provisions or investment return of the Contract
or upon the Owner, any Beneficiary, or the Company. A split may be
effected either to increase or decrease the number of units.
11.10 Insulation of Separate Accounts. The investment performance of
the assets of a Separate Account is determined separately from
the other assets of the Company. The assets of a Separate Account
equal to the reserves and other contract liabilities with respect
to such Account shall not be chargeable with liabilities arising
out of any other business which the Company may conduct.
11.11 Meaning of Words used in Certificate. Whenever any words are used
herein in the masculine gender, they shall be construed as though
they were used in the feminine or neuter gender in all cases where
they would so apply. Whenever any words are used herein in the
singular form, they shall be construed as though they were also
used in the plural form in all cases where they would so apply.
11.12 Separate Account Voting Rights. The Owner is entitled to vote at
meetings of contract owners of those Separate Account Sub-Accounts
to which the Owner currently has allocated a portion of the IRA
Account Accumulated Value. The number of votes which the Owner may
cast 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.
Proper written notice of such meetings as required by law, shall be
given the Owner.
Owners entitled to vote and the number of votes which each may cast
shall be determined as of a record date within ninety days of the
date of the meeting. To be entitled to vote, the Owner 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.
-18-
<PAGE>
Part XII
==============================Annuity Option Tables============================
Showing Amount of First Monthly Annuity Benefit Payment
For Each $1,000 of Annuity Value Applied
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Age
Nearest
Birthday OPTION I OPTION II OPTION III
----------------------------------------------------------------------------
Life Annuity
with 120 Monthly Unit Refund
Payments Life Life
Guaranteed Annuity Annuity
----------------------------------------------------------
<S> <C> <C> <C>
50 $ 5.06 $ 5.10 $ 5.00
51 5.11 5.16 5.05
52 5.17 5.22 5.10
53 5.23 5.29 5.16
54 5.29 5.36 5.22
55 5.36 5.43 5.28
56 5.43 5.50 5.34
57 5.50 5.58 5.41
58 5.58 5.67 5.49
59 5.66 5.76 5.56
60 5.74 5.85 5.64
61 5.83 5.96 5.72
62 5.93 6.07 5.80
63 6.03 6.18 5.92
64 6.13 6.31 6.01
65 6.24 6.44 6.11
66 6.36 6.59 6.21
67 6.48 6.74 6.36
68 6.60 6.91 6.47
69 6.73 7.09 6.59
70 6.87 7.28 6.71
71 7.01 7.48 6.91
72 7.15 7.69 7.05
73 7.30 7.91 7.19
74 7.46 8.15 7.33
75 7.61 8.41 7.59
----------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
========================Annuity Option Tables (Continued)======================
Showing Amount of First Monthly Annuity Benefit Payment For Each $1,000 of
Annuity Value Applied
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
OPTION IV-A
Joint and Survivor
Life Annuity
Older Age
-----------------------------------------------------------------------
50 55 60 65 70 75 80
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Y 50 $ 4.65 $ 4.73 $ 4.82 $ 4.89 $ 4.95 $ 5.00 $ 5.03
0
U 55 4.85 4.97 5.08 5.18 5.25 5.31
N
G 60 5.13 5.29 5.44 5.57 5.66
E
R 65 5.52 5.74 5.94 6.10
A 70 6.06 6.36 6.64
G
E 75 6.81 7.24
80 7.87
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPTION IV-B
Joint and Two Thirds Survivor
Life Annuity
Older Age
-----------------------------------------------------------------------
50 55 60 65 70 75 80
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Y 50 $ 4.94 $ 5.07 $ 5.22 $ 5.40 $ 5.60 $ 5.82 $ 6.06
0
U 55 5.22 5.39 5.59 5.83 6.08 6.35
N
G 60 5.59 5.83 6.10 6.39 6.70
E
R 65 6.10 6.43 6.78 7.16
A 70 6.82 7.25 7.73
G
E 75 7.80 8.40
80 9.17
- --------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE>
========================Annuity Option Tables (Continued)======================
Showing Amount of First Monthly Annuity Benefit Payment For Each $1,000 of
Annuity Value Applied
<TABLE>
<CAPTION>
------------------------------------------------------
OPTION V
------------------------------------------------------
Annuity Certain
Number of for a specified
Years Certain Number of Years
------------------------------------------------------
<S> <C>
1 $ 82.78
2 42.00
3 28.41
4 21.62
5 17.96
6 15.25
7 13.32
8 11.87
9 10.75
10 10.30
11 9.57
12 8.97
13 8.47
14 8.03
15 7.66
16 7.34
17 7.05
18 6.80
19 6.58
20 6.38
21 6.20
22 6.04
23 5.90
24 5.76
25 5.64
26 5.53
27 5.43
28 5.34
29 5.25
30 5.17
------------------------------------------------------
</TABLE>
-21-
<PAGE>
APPLICATION FOR IRA ACCOUNT
- ---------------------------
Send to:
State Mutual Life Assurance Company of America
Group IRA Unit
Station C-76-C
440 Lincoln Street
Worcester MA 01605
===============================================================================
PLEASE PRINT CLEARLY IN INK
- -------------------------------------------------------------------------------
1. a) Name of Applicant
- -------------------------------------------------------------------------------
FIRST - M.I. - LAST
__________________________________________
- -------------------------------------------------------------------------------
b) BIRTHDATE c) SOCIAL SECURITY NO.
Mo. Day Yr.
___ ___ ___ __________________
- -------------------------------------------------------------------------------
d) ADDRESS
No. & Street Apt.
_______________________________________________________________
- -------------------------------------------------------------------------------
City State Zip
____________________________ _____ _______
- -------------------------------------------------------------------------------
2. a) Name of Employer/Former Employer
__________________________________
- -------------------------------------------------------------------------------
b) Group Annuity Contract No.:
GA-
----------------------
- -------------------------------------------------------------------------------
3. BENEFICIARY RELATIONSHIP
TO APPLICANT
a) PRIMARY
_____________ _____________
b) CONTINGENT
_____________ _____________
- -------------------------------------------------------------------------------
4. ALLOCATION OF PAYMENTS
- -------------------------------------------------------------------------------
_______ % General Account (Fixed Interest)
_______ % Growth Fund
_______ % Income Appreciation Fund
_______ % Money Market Fund
_______ % Equity Index Fund
_______ % Government Bond Fund
- -------------------------------------------------------------------------------
5. Type of IRA Account applied for:
_____ Rollover IRA
_____ Regular IRA
_____ Spousal IRA
- -------------------------------------------------------------------------------
6. Amount of Initial Contribution $________________
|_| Rollover all available funds
- -------------------------------------------------------------------------------
7. ANNUITY DATE
<PAGE>
|_| First of month after age _____ 65 _____ 70
|_| First of ________|________
Mo. Yr.
- -------------------------------------------------------------------------------
8. ANNUITY OPTION (complete one only)
______ Selection Deferred ______ Option Number
- -------------------------------------------------------------------------------
9. Remarks:
|_| Please send me a copy of the "Statement of Additional Information"
described in the prospectus.
- -------------------------------------------------------------------------------
It is understood and agreed that: (1) the above information is true and
complete to the best of my knowledge; (2) the Applicant acknowledges receipt
of a current prospectus describing the benefits provided under the Group
Variable Annuity Contract under which the IRA Account will be established,
and (3) no person is authorized to modify the terms of the prospectus, this
application or the Group Variable Annuity Contract.
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.
SIGNED AT (CITY AND STATE) DATE FULL SIGNATURE OF APPLICANT
____________________________ _______ _______________________________________
FORM GAC-IRA-APP-2-92
<PAGE>
Form GA-IRA-APP-2-92
APPLICATION FOR GROUP
ANNUITY CONTRACT
Send to:
State Mutual Life Assurance
Company of America
Group IRA Unit
Station C-76-C
440 Lincoln Street
Worcester, MA 01605
- -------------------------------------------------------------------------------
1. Applicant:
2. Address:
3. Applicant hereby applies to State Mutual Life Assurance Company of
America (State Mutual) for a Group Variable Annuity Contract to fund
individual retirement annuity benefits for eligible employees and former
employees of the Applicant.
4. The Applicant agrees that the coverage for which application is hereby
made shall become effective when:
(a) this application is received and approved by State Mutual at its
Home Office in Worcester, Massachusetts; and
(b) the Contract is issued by State Mutual.
5. The Applicant understands that State Mutual has established and is
maintaining a securities lending program for securities allocated to its
Separate Accounts.
6. The Applicant acknowledges receipt of a current prospectus.
7. THE APPLICANT UNDERSTANDS AND ACKNOWLEDGES THAT ANNUITY PAYMENTS AND
OTHER VALUES, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A SEPARATE
ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
Dated at.................this.........day of.................19................
......................................
(Name of Applicant)
By......................................
(Title)
Form GA-IRA-APP-2-92
<PAGE>
April 15, 1998
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester MA 01653
RE: SEPARATE ACCOUNT I (GROUP IRA) OF FIRST
ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
FILE #'S: 33-47858 AND 811-6666
Gentlemen:
In my capacity as Counsel of First Allmerica Financial Life Insurance Company
(the "Company"), I have participated in the preparation of the Post-Effective
Amendment to the Registration Statement for Separate Account I on Form N-4
under the Securities Act of 1933 and the Investment Company Act of 1940, with
respect to the Company's group variable annuity certificates.
I am of the following opinion:
1. Separate Account I is a separate account of the Company validly existing
pursuant to the Massachusetts Insurance Code and the regulations issued
thereunder.
2. The assets held in Separate Account I are not chargeable with liabilities
arising out of any other business the Company may conduct.
3. The group variable annuity certificates, when issued in accordance with
the Prospectus contained in the Post-Effective Amendment to the
Registration Statement and upon compliance with applicable local law,
will be legal and binding obligations of the Company in accordance with
their terms and when sold will be legally issued, fully paid and
non-assessable.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to this
Post-Effective Amendment to the Registration Statement of Separate Account I
filed 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. 10 to the Registration
Statement of the Separate Account I of First Allmerica Financial Life
Insurance Company on Form N-4 of our report dated February 3, 1998, relating
to the financial statements of First Allmerica Financial Life Insurance
Company, and our report dated March 25, 1998, relating to the financial
statements of the Separate Account I of First Allmerica Financial Life
Insurance Company, both of which appear in such Statement of Additional
Information. We also consent to the reference to us under the heading
"Experts" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
April 23, 1998
<PAGE>
PARTICIPATION AGREEMENT
AMONG
ALLMERICA INVESTMENT TRUST
ALLMERICA INVESTMENT MANAGEMENT COMPANY, INC.
AND
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
DATED AS OF
FEBRUARY 25, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I Purchase of Fund Shares 4
ARTICLE II Representations and Warranties 5
ARTICLE III Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 6
ARTICLE IV Sales Material and Information 8
ARTICLE V Fees and Expenses 9
ARTICLE VI Diversification 9
ARTICLE VII Potential Conflicts 10
ARTICLE VIII Indemnification 11
ARTICLE IX Applicable Law 15
ARTICLE X Termination 15
ARTICLE XI Notices 17
ARTICLE XII Miscellaneous 17
SCHEDULE A Separate Accounts and Variable Products A-1
SCHEDULE B Portfolios of Allmerica Investment Trust B-1
SCHEDULE C Proxy Voting Procedures C-1
2
<PAGE>
THIS AGREEMENT, made and entered into as of the 25th day of February, 1998 by
and among: FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY (hereinafter the
"Company"), a Massachusetts corporation, on its own behalf and on behalf of each
separate account of the Company set forth on Schedule A hereto, as may be
amended from time to time (each such account hereinafter referred to as the
"Account"); ALLMERICA INVESTMENT TRUST, an unincorporated Massachusetts business
trust (hereinafter the "Fund"), and ALLMERICA INVESTMENT MANAGEMENT COMPANY,
INC. (hereinafter the "Adviser"), a Massachusetts corporation
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or collectively as
"Variable Products") and (ii) the investment vehicle for certain qualified
pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Products enter into participation agreements with
the Fund and the Adviser (the "Participating Insurance Companies");
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets (each such series hereinafter referred to as a "Portfolio"), any
one or more of which may be made available under this Agreement, as may be
amended from time to time by mutual agreement of the parties hereto; and
WHEREAS, the Fund has applied for an order from the Securities and Exchange
Commission, granting Participating Insurance Companies and Variable Insurance
Product separate accounts exemptions from the provisions of Sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended
(hereinafter the "1940 Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by separate accounts of both affiliated and unaffiliated life insurance
companies and Qualified Plans (hereinafter the "Shared Funding Exemptive
Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws and manages each of the certain portfolios of the Fund and retains
Sub-Advisers for the daily investment and reinvestment of the assets of each
portfolio; and
WHEREAS, Allmerica Investments, Inc. (the "Distributor") is registered as a
broker/dealer under the Securities Exchange Act of 1934, as amended (hereinafter
the "1934 Act"), is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, the Company has registered or will register certain Variable
Products under the 1933 Act; and
3
<PAGE>
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, to set aside and invest assets attributable to the
aforesaid Variable Products, and the Company has registered or will register
each Account as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase, on behalf of each Account, shares
in the Portfolios set forth in Schedule B attached to this Agreement, to fund
certain of the aforesaid Variable Insurance Products and the Fund is authorized
to sell such shares to each such Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the parties
hereto agree as follows:
ARTICLE I. PURCHASE OF FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Fund and shall execute orders placed for each Account on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
such order. For purposes of this Section 1.1, the Company shall be the designee
of the Fund for receipt of such orders from each Account and receipt by such
designee of an order prior to the close of regular trading on the New York Stock
Exchange ("NYSE") shall constitute receipt by the Fund; provided that the Fund
receives notice of such order by 10:00 a.m. Eastern time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund, so long as this Agreement is in effect, agrees to make its
shares available indefinitely for purchase at the applicable net asset value per
share by the Company and its Accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the Securities and Exchange Commission
and the Fund shall use reasonable efforts to calculate such net asset value on
each day which the New York Stock Exchange is open for trading. Notwithstanding
the foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may
refuse to permit the Fund to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.3. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts and to certain
Qualified Plans. No shares of any Portfolio will be sold to the general public.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee of a
request prior to the close of regular trading on the NYSE shall constitute
receipt by the Fund, provided that the Fund receives notice of such request for
redemption on the next following Business Day.
4
<PAGE>
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus.
1.6. The Company shall pay for Fund shares no later than the next Business
Day after an order to purchase Fund shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Variable Products are or
will be registered under the 1933 Act; that the Variable Products will be issued
and sold in compliance in all material respects with all applicable federal and
state laws, and that the sale of the Variable Products shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law, that it has legally and validly
established each Account as a segregated asset account under Section 2932 of the
Delaware Insurance Code, and that it has registered or, prior to any issuance
or sale of the Variable Products, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Variable Products.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the Commonwealth of
Massachusetts and all applicable federal and state securities laws, and that the
Fund is and shall make every effort to remain registered under the 1940 Act.
The Fund shall amend the registration statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Fund.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision)
5
<PAGE>
and that it will notify the Company promptly upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Variable Products are currently
treated as life insurance policies or annuity contracts under applicable
provisions of the Code, that it will make every effort to maintain such
treatment, and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Variable Products have ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have its board of Trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.8. The Adviser represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
compliance in all material respects with the laws of its state of domicile and
any applicable state and federal securities laws.
2.9. The Fund represents and warrants that its Trustees, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule 17g-(1)
of the 1940 Act or related provisions as may be promulgated from time to time.
The aforesaid blanket fidelity bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount not less $5 million. The aforesaid,
which includes coverage for larceny and embezzlement, shall be issued by a
reputable bonding company. The Company agrees to make all reasonable efforts to
see that this bond or another bond containing these provisions is always in
effect, and agrees to notify the Fund and the Distributor promptly in writing in
the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1. The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus and statement of additional
information as the Company may reasonably request. If requested by the Company,
in lieu of providing printed copies, the Fund shall provide camera-ready film or
computer diskettes containing the Fund's prospectus and statement of additional
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information, and such other assistance as is reasonably necessary in order for
the Company once each year (or more frequently if the prospectus and/or
statement of additional information for the Fund is amended during the year) to
have the prospectus for the Variable Products and the Fund's prospectus printed
together in one document, and to have the statement of additional information
for the Fund and the statement of additional information for the Variable
Products printed together in one document. Alternatively, the Company may print
the Fund's prospectus and/or its statement of additional information in
combination with other fund companies' prospectuses and statements of additional
information.
3.2. Except as provided in this Section 3.2., all expenses of printing and
distributing Fund prospectuses and statements of additional information shall be
the expense of the Company. For any prospectuses and statements of additional
information provided by the Company to the existing owners of Variable Products
who currently own shares of one or more of the Fund's Portfolios, in order to
update disclosure as required by the 1933 Act and/or the 1940 Act, the cost of
printing shall be borne by the Fund. If the Company chooses to receive
camera-ready film or computer diskettes in lieu of receiving printed copies of
the Fund's prospectus, the Fund will reimburse the Company in an amount equal to
the product of x and y where x is the number of such prospectuses distributed to
owners of the Variable Products who currently own shares of one or more of the
Fund's Portfolios, and y is the Fund's per unit cost of typesetting and printing
the Fund's prospectus. The same procedures shall be followed with respect to
the Fund's statement of additional information. The Company agrees to provide
the Fund or its designee with such information as may be reasonably requested by
the Fund to assure that the Fund's expenses do not include the cost of printing
any prospectuses or statements of additional information other than those
actually distributed to existing owners of the Variable Products.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Company or such other person as the Fund may designate, as
agreed upon by the parties.
3.4. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and statements of additional information, which are covered in
section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distribution to contract owners. The Fund or its designee shall
bear the cost of printing, duplicating, and mailing of these documents to
current contract owners, and the Company shall bear the cost for such documents
used for purposes other than distribution to current contract owners.
3.5. If and to the extent required by law the Company shall:
(i) solicit voting instructions from contract owners;
(ii) vote the Fund shares in accordance with instructions received
from contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Portfolio for
which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. The Fund and the Company shall follow the procedures, and
shall have the corresponding
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responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies, if any.
3.6. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, including Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of trustees and with whatever rules the Commission
may promulgate with respect thereto.
3.7. The Fund shall use reasonable efforts to provide Fund prospectuses,
reports to shareholders, proxy materials and other Fund communications (or
camera-ready equivalents) to the Company sufficiently in advance of the
Company's mailing dates to enable the Company to complete, at reasonable cost,
the printing, assembling and/or distribution of the communications in accordance
with applicable laws and regulations.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or the Adviser(s) is named, at least fifteen Business
Days prior to its use. No such material shall be used if the Fund or its
designee reasonably objects to such use within fifteen Business Days after
receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Variable Products other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its separate account(s)
is named at least fifteen Business Days prior to its use. No such material
shall be used if the Company or its designee reasonably objects to such use
within fifteen Business Days after receipt of such material.
4.4. The Fund and the Adviser shall not give any information or make any
representations on behalf of the Company or concerning the Company, each
Account, or the Variable Products, other than the information or representations
contained in a registration statement or prospectus for the Variable Products,
as such registration statement and prospectus may be amended or supplemented
from time to time, or in published reports for each Account which are in the
public domain or approved by the Company for distribution to contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature
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and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Fund or its shares, which are relevant to the Company or the Variable Products.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in the Fund under the Variable Products.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund shall pay no fee or other compensation to the Company under
this Agreement, except that if the Fund or any Portfolio adopts and implements a
plan pursuant to Rule 12b-1 to finance distribution expenses, then the
Distributor may make payments to the Company or to the distributor for the
Variable Products if and in amounts agreed to by the Distributor in writing.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, other than expenses assumed by the Adviser under the
Management Agreement between the Fund and the Adviser or by another party. The
Fund shall see to it that all its shares are registered and authorized for
issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Fund, in accordance with applicable state laws prior to
their sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Variable Products
in such a manner as to ensure that the Variable Products will be treated as
variable contracts under the Code and the regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund will at all times
comply with Section 817(h) of the Code and Treasury Regulation 1.817-5,
relating to the diversification requirements for variable annuity, endowment,
or life insurance contracts and any amendments or other modifications to such
Section or Regulations. In the event of a breach of this Article VI by the
Fund, it will take all reasonable steps (a) to notify Company of such breach
and (b) to adequately diversify the Fund so as to achieve compliance within
the grace period afforded by Regulation 1.817-5.
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<PAGE>
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by Variable Insurance Product owners; or (f) a decision by a
Participating Insurance Company to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. Each of the Company and the Adviser will report any potential or
existing conflicts of which it is aware to the Board. Each of the Company and
the Adviser will assist the Board in carrying out its responsibilities under SEC
rules and regulations. The Adviser, and the participating insurance companies
and participating qualified plans will at least annually submit to the Board
such reports, materials, or data as the Board may reasonably request so that the
Board may fully carry out the obligations imposed upon by the conditions
contained in the Shared Funding Exemptive Order, and said reports, materials,
and data will be submitted more frequently if deemed appropriate by the Board.
7.3. If it is determined by a majority of the Board, or a majority of its
members, who are not "interested persons" of the Fund, the Adviser or the
Company as that term is defined in the 1940 Act (hereinafter "disinterested
members"), that a material irreconcilable conflict exists, the Company and other
Participating Insurance Companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the disinterested
directors), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question whether such segregation should be implemented to a vote of all
affected contract owners and, as appropriate, segregating the assets of any
appropriate group (I.E., annuity contract owners, life insurance policy owners,
or variable contract owners of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the affected contract
owners the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the
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Company will withdraw the affected Account's investment in the Fund and
terminate this Agreement with respect to such Account within six months after
the Board informs the Company in writing that it has determined that such
decision has created an irreconcilable material conflict; provided, however,
that such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the disinterested members of the Board. Until the end of the foregoing six
month period, the Distributor and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.5 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Variable Products. The Company shall not be required by Section 7.3 to
establish a new funding medium for the Variable Products if an offer to do so
has been declined by vote of a majority of contract owners materially adversely
affected by the irreconcilable material conflict.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding,
or if the Fund obtains a Shared Exemptive Order which requires provisions that
are materially different from the provisions of this Agreement, then (a) the
Fund and/or the Participating Insurance Companies, as appropriate, shall take
such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as
amended, and Rule 6e-3, as adopted, or to the terms of the Shared Exemptive
Order, to the extent applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
8.1(a) The Company agrees to indemnify and hold harmless the Fund and the
Adviser, each of their respective officers, employees, and Trustees or
Directors, and each person, if any, who controls the Fund or the Adviser within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually, "Indemnified Party," for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Variable Products and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement or
prospectus for the Variable Products or contained in the Variable Products
or sales literature for the Variable Products (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund for use in
the registration statement or prospectus for the Variable Products or in
the Variable Products or sales literature (or any amendment or
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<PAGE>
supplement) or otherwise for use in connection with the sale of the
Variable Products or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature of the Fund not supplied by the Company, or
persons under its control and other than statements or representations
authorized by the Fund or an Adviser) or unlawful conduct of the Company or
persons under its control, with respect to the sale or distribution of the
Variable Products or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or
result from any other material breach of this Agreement by the Company, as
limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
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8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Variable Products or the
operation of the Fund.
8.2. INDEMNIFICATION BY THE ADVISER
8.2(a). The Adviser agrees, with respect to each Portfolio that it manages,
to indemnify and hold harmless the Company, each of its directors, officers, and
employees, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually, "Indemnified Party," for purposes of this Section 8.2) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of shares of the Portfolio
that it manages or the Variable Products and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Fund by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or in sales literature
(or any amendment or supplement) or otherwise for use in connection with
the sale of the Variable Products or Portfolio shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Variable Products not supplied by
the Fund or persons under its control and other than statements or
representations authorized by the Company) or unlawful conduct of the Fund,
Adviser(s) or Distributor or persons under their control, with respect to
the sale or distribution of the Variable Products or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Variable Products, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Adviser in this Agreement or arise out of or
result from any other material breach of this Agreement by the Adviser; as
limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
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8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Variable Products or
the operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (hereinafter
collectively, the "Indemnified Parties" and individually, "Indemnified Party,"
for purposes of this Section 8.3) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Fund) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof), litigation or settlements result from
the gross negligence, bad faith or willful misconduct of the Board or any member
thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement; or
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund, as
limited and in accordance with the provisions of Sections 8.3(b) and
8.3(a);
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as may arise from such Indemnified
Party's gross negligence, bad faith, or willful misconduct the performance of
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such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company agrees promptly to notify the Fund of the commencement
of any litigation or proceedings against it or any of its respective officers or
directors in connection with this Agreement, the issuance or sale of the
Variable Products, with respect to the operation of either Account, or the sale
or acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
10.1(a) termination by any party for any reason by at least sixty (60)
days advance written notice delivered to the other parties; or
10.1(b) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio based upon the Company's determination
that shares of such Portfolio are not reasonably available to meet the
requirements of the Variable Products; or
10.1(c) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event any of the Portfolio's shares
are not registered, issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares as the underlying
investment media of the Variable Products issued or to be issued by the Company;
or
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10.1(d) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio ceases to
qualify as a Regulated Investment Company under Subchapter M of the Code or
under any successor or similar provision, or if the Company reasonably believes
that the Fund may fail to so qualify; or
10.1(e) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such Portfolio fails to
meet the diversification requirements specified in Article VI hereof; or
10.1(f) termination by the Fund by written notice to the Company if the
Fund shall determine, in its sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a material adverse change
in its business, operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity, or
10.1(g) termination by the Company by written notice to the Fund and the
Adviser, if the Company shall determine, in its sole judgment exercised in good
faith, that either the Fund or the Adviser has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse publicity; or
10.2. Notwithstanding any termination of this Agreement, the Fund shall,
at the option of the Company, continue to make available additional shares of
the Fund pursuant to the terms and conditions of this Agreement, for all
Variable Products in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Variable Products").
Specifically, without limitation, the owners of the Existing Variable Products
shall be permitted to direct reallocation of investments in the Portfolios of
the Fund, redemption of investments in the Portfolios of the Fund and/or
investment in the Portfolios of the Fund upon the making of additional purchase
payments under the Existing Variable Products. The parties agree that this
Section 10.2 shall not apply to any termination under Article VII and the effect
of such Article VII termination shall be governed by Article VII of this
Agreement.
10.3. The provisions of Article VIII Indemnification shall survive any
termination of this Agreement pursuant to this Article X Termination.
10.4. The Company shall not redeem Fund shares attributable to the
Variable Products (as distinct from Fund shares attributable to the Company's
assets held in the Account) except (i) as necessary to implement contract owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the Securities and Exchange Commission pursuant to
Section 26(b) of the 1940 Act. Upon request, the Company will promptly furnish
to the Fund the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund) to the effect that any redemption pursuant
to clause (ii) above is a Legally Required Redemption. Furthermore, except in
cases where permitted under the terms of the Variable Products, the Company
shall not prevent contract owners from allocating payments to a Portfolio that
was otherwise available under the Variable Products without first giving the
Fund 90 days prior written notice of its intention to do so.
16
<PAGE>
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when hand delivered or sent by
registered or certified mail to the other party at the address of such party set
forth below or at such other address as such party may from time to time specify
in writing to the other party.
If to the Fund:
Allmerica Investment Trust
440 Lincoln Street
Worcester, MA 01653
Attention: George M. Boyd, Esq.
If to Adviser:
Allmerica Investment Management Company, Inc.
440 Lincoln Street
Worcester, MA 01653
Attention: Abigail M. Armstrong, Esq.
If to the Company:
First Allmerica Financial Life Insurance Company
440 Lincoln Street
Worcester, Massachusetts 01653
Attention: Richard M. Reilly, President
ARTICLE XII. MISCELLANEOUS
12.1. A copy of the Fund's Agreement and Declaration of Trust, as may be
amended from time to time, is on file with the Secretary of the Commonwealth of
Massachusetts. Notice is hereby given that this instrument is executed by the
Fund's Trustees as Trustees and not individually, and the Fund's obligations
under this Agreement are not binding upon any of the Trustees or Shareholders of
the Fund, but are binding only upon the assets and property of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Variable Products and all information reasonably identified
as confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
17
<PAGE>
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company controlled by or
under common control with the Adviser, if such assignee is duly licensed and
registered to perform the obligations of the Adviser under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified above.
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
By: /s/ Joseph W. MacDougall, Jr.
---------------------------------------
NAME: Joseph W. MacDougall, Jr.
TITLE: Vice President
ALLMERICA INVESTMENT TRUST
By: /s/ Thomas P. Cunningham
---------------------------------------
NAME: Thomas P. Cunningham
TITLE: Vice President & Treasurer
ALLMERICA INVESTMENT MANAGEMENT COMPANY, INC.
By: /s/ Richard F. Betzler, Jr.
---------------------------------------
NAME: Richard F. Betzler, Jr.
TITLE: Vice President
18
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND VARIABLE PRODUCTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
VARIABLE LIFE PRODUCTS
SEPARATE ACCOUNT PRODUCT NAME 1933 ACT # 1940 ACT #
- ---------------- ------------ ---------- ----------
<S> <C> <C> <C>
VEL II VEL ('93) 33-71056 811-8130
Inheiritage Inheiritage 33-74184 811-8304
Select Inheiritage
Group VEL Group VEL 33-06383 811-7663
<CAPTION>
VARIABLE ANNUITY PRODUCTS
SEPARATE ACCOUNT PRODUCT NAME 1933 ACT # 1940 ACT #
- ---------------- ------------ ---------- ----------
<S> <C> <C> <C>
VA-K ExecAnnuity Plus 93 33-71052 811-8814
Allmerica Advantage
Allmerica Select Separate Account Allmerica Select Resource I 33-71058 811-8116
Allmerica Select Resource II
Separate Account I Variable Annuities 33-47858 811-6666
- ----------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
SCHEDULE B
PORTFOLIOS OF
ALLMERICA INVESTMENT TRUST
Select Emerging Markets Fund
Select International Equity Fund
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Strategic Growth Fund
Select Growth Fund
Growth Fund
Equity Index Fund
Select Growth and Income Fund
Select Income Fund
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
B-1
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
- - The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Variable Products and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
- - Promptly after the Record Date, the Company will perform a "tape run," or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described above. The Company will use its best efforts to call in the
number of Customers to the Fund, as soon as possible, but no later than
two weeks after the Record Date.
- - The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting instruction
solicitation material. The Fund will provide the last Annual Report to the
Company pursuant to the terms of Section 3.43 of the Agreement to which
this Schedule relates.
- - The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
- name (legal name as found on account registration)
- address
- fund or account number
- coding to state number of units
- individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
C-1
<PAGE>
- - During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
- Voting Instruction Card(s)
- One proxy notice and statement (one document)
- return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
- "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
- cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
- - The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
- - Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but NOT including,) the
meeting, counting backwards.
- - Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
- - Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
- - If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
- - There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
C-2
<PAGE>
- - The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of SHARES.) The Fund must review
and approve tabulation format.
- - Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
- - A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
- - The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
- - All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
C-3
