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Registration No. 33-57792
811-7466
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM
N-8B-2
Post-Effective Amendment No. 10
VEL II ACCOUNT
OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
(Exact Name of Registrant)
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
440 Lincoln Street
Worcester MA 01653
(Address of Principal Executive Office)
Abigail M. Armstrong, Esq.
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)
___on (date) pursuant to paragraph (b)
_X_60 days after filing pursuant to paragraph (a) (1)
___on (date)pursuant to paragraph (a) (1)
___on (date) Pursuant to paragraph (a) (2) of Rule 485
___this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
FLEXIBLE PREMIUM VARIABLE LIFE
Pursuant to Reg. Section 270.24f-2 of the Investment Company Act of 1940 ("the
1940 Act"), Registrant hereby declares that an indefinite amount of its
securities is being registered under the Securities Act of 1933 ("the 1933
Act"). The 24f-2 Notice for the issuer's fiscal year ended December 31, 1997
will be filed on or before February 27, 1998.
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RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
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ITEM NO. OF
FORM N-8B-2 CAPTION IN PROSPECTUS
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<S> <C>
1..................Cover Page
2..................Cover Page
3..................Not Applicable
4..................Distribution
5..................The Company, The VEL II Account
6..................The VEL II Account
7..................Not Applicable
8..................Not Applicable
9..................Legal Proceedings
10.................Summary; Description of the Company, The VEL II Account, Allmerica
Investment Trust Variable Insurance Products Fund, Variable Insurance
Products Fund II, T. Rowe Price International Series, Inc. and Delaware
Group Premium Fund; The Policy; Policy Termination and Reinstatement; Other
Policy Provisions
11.................Summary; Allmerica Investment Trust; Variable Insurance Products Fund;
Variable Insurance Products Fund II; T. Rowe Price International Series,
Inc.; Delaware Group Premium Fund, Inc.; Investment Objectives and Policy
12.................Summary; Allmerica Investment Trust; Variable Insurance Products Fund;
Variable Insurance Products Fund II; T. Rowe Price International Series,
Inc.; Delaware Group Premium Fund, Inc.
13.................Summary; Allmerica Investment Trust; Variable Insurance Products Fund;
Variable Insurance Products Fund II; T. Rowe Price International Series,
Inc.; Delaware Group Premium Fund, Inc.; Investment Advisory
Services to the Trust; Investment Advisory Services to Variable
Insurance Products Fund; Investment Advisory Services to Variable
Insurance Products Fund II; Investment Advisory Services to T.
Rowe Price International Series, Inc.; Investment Advisory
Services to Delaware Group Premium Fund, Inc.; Charges and
Deductions
14.................Summary; Applying for a Policy
15.................Summary; Applying for a Policy; Premium Payments; Allocation of Net
Premiums
16.................The VEL II Account; Allmerica Investment Trust; Variable Insurance Products
Fund; Variable Insurance Products Fund II; T. Rowe Price International
Series, Inc.; Delaware Group Premium Fund, Inc.; Premium Payments;
Allocation of Net Premiums
17.................Summary; Policy Surrender; Partial Withdrawal; Charges and Deductions;
Policy Termination and Reinstatement
18.................The VEL II Account; Allmerica Investment Trust; Variable Insurance Products
Fund; Variable Insurance Products Fund II; T. Rowe Price International
Series, Inc.; Delaware Group Premium Fund, Inc.; Premium Payments
19.................Reports; Voting Rights
20.................Not Applicable
21.................Summary; Policy Loans; Other Policy Provisions
22.................Other Policy Provisions
23.................Not Required
</TABLE>
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<TABLE>
<S> <C>
24.................Other Policy Provisions
25.................The Company
26.................Not Applicable
27.................The Company
28.................Directors and Principal Officers of the Company
29.................The Company
30.................Not Applicable
31.................Not Applicable
32.................Not Applicable
33.................Not Applicable
34.................Not Applicable
35.................Distribution
36.................Not Applicable
37.................Not Applicable
38.................Summary; Distribution
39.................Summary; Distribution
40.................Not Applicable
41.................The Company, Distribution
42.................Not Applicable
43.................Not Applicable
44.................Premium Payments; Policy Value and Cash Surrender Value
45.................Not Applicable
46.................Policy Value and Cash Surrender Value; Federal Tax Considerations
47.................The Company
48.................Not Applicable
49.................Not Applicable
50.................The VEL II Account
51.................Cover Page; Summary; Charges and Deductions; The Policy; Policy Termination
and Reinstatement; Other Policy Provisions
52.................Addition, Deletion or Substitution of Investment
53.................Federal Tax Considerations
54.................Not Applicable
55.................Not Applicable
56.................Not Applicable
57.................Not Applicable
58.................Not Applicable
59.................Not Applicable
</TABLE>
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VEL 93 - AFLIAC
(2/13/98)
This Prospectus describes an individual flexible premium variable life insurance
policy ("Policy") offered by Allmerica Financial Life Insurance and Annuity
Company("Company") to applicants Age 85 years old and under.
The Policy permits you to allocate net premiums among up to 7 (effective May 11,
1998, up to 20) of 20 sub-accounts ("Sub-Accounts") of the VEL II Account, a
separate account of the Company, and a fixed-interest account ("General
Account") of the Company (collectively, "Accounts"). Each Sub-Account invests
its assets in a corresponding investment portfolio of Allmerica Investment Trust
("Trust"), Variable Insurance Products Fund ("Fidelity VIP"), Variable Insurance
Products Fund II ("Fidelity VIP II"), T. Rowe Price International Series, Inc.
("T. Rowe Price") or Delaware Group Premium Fund, Inc. ("DGPF"). The following
Underlying Funds are available under the Policy:
ALLMERICA INVESTMENT TRUST FIDELITY VIP
-------------------------- ------------
Select Aggressive Growth Fund Overseas Portfolio
Select Capital Appreciation Fund Equity-Income Portfolio
Select Value Opportunity Fund Growth Portfolio
Select Emerging Markets Fund High Income Portfolio
Select International Equity Fund
Select Growth Fund FIDELITY VIP II
Select Strategic Growth Fund ---------------
Growth Fund Asset Manager Portfolio
Equity Index Fund
Select Growth and Income Fund T. ROWE PRICE
Investment Grade Income Fund -------------
Government Bond Fund International Stock Portfolio
Money Market Fund
DGPF
----
International Equity Series
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OF THE
ALLMERICA INVESTMENT TRUST, VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE
PRODUCTS FUND II, T. ROWE PRICE INTERNATIONAL SERIES, INC., AND DELAWARE GROUP
PREMIUM FUND, INC. THE FIDELITY VIP HIGH INCOME PORTFOLIO MAY INVEST IN HIGHER
YIELDING, HIGHER RISK, LOWER RATED DEBT SECURITIES (SEE "INVESTMENT OBJECTIVES
AND POLICIES" IN THIS PROSPECTUS). INVESTORS SHOULD RETAIN A COPY OF THIS
PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE POLICY IS AN OBLIGATION OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY
COMPANY, AND IS DISTRIBUTED BY ALLMERICA INVESTMENTS, INC. THE POLICY IS NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK OR CREDIT
UNION. THE POLICY IS NOT INSURED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), OR ANY OTHER FEDERAL AGENCY. INVESTMENTS IN THE
POLICY ARE SUBJECT TO VARIOUS RISKS, INCLUDING THE FLUCTUATION OF VALUE AND
POSSIBLE LOSS OF PRINCIPAL.
1
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Prospectus Dated MAY 1, 1998
Worcester, Massachusetts 01653 (508) 855-1000
(Continued from cover page)
Each Underlying Fund has its own investment objectives. The accompanying
prospectuses of the Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF
describe the investment objectives and certain attendant risks of each
Underlying Fund.
There is no guaranteed minimum Policy Value. The value of a Policy will vary up
or down to reflect the investment experience of allocations to the Sub-Accounts
and the fixed rates of interest earned by allocations to the General Account.
The Policy Value also will be adjusted for other factors, including the amount
of charges imposed. A Policy will remain in effect so long as the Policy Value
less any surrender charges and less any outstanding debt is sufficient to pay
certain monthly charges imposed in connection with the Policy. The Policy Value
may decrease to the point where the Policy will lapse and provide no further
death benefit without additional premium payments, unless the optional
Guaranteed Death Benefit rider is in effect.
If the Policy is in effect at the death of the Insured, the Company will pay a
death benefit (the "Death Proceeds") to the Beneficiary. Prior to the Final
Premium Payment Date, the Death Proceeds equal the Sum Insured, less any debt,
partial withdrawals, and any due and unpaid charges. You may choose either Sum
Insured Option 1 (the Sum Insured is fixed in amount) or Sum Insured Option 2
(the Sum Insured includes the Policy Value in addition to a fixed insurance
amount). A Policyowner has the right to change the Sum Insured Option, subject
to certain conditions. A Guideline Minimum Sum Insured, equivalent to a
percentage of the Policy Value, will apply if greater than the Sum Insured
otherwise payable under Option 1 or Option 2.
In certain circumstances, the Policy may be considered a "modified endowment
contract." Under the Internal Revenue Code (the "Code"), any policy loan,
partial withdrawal or surrender from a modified endowment contract may be
subject to tax and tax penalties. See "FEDERAL TAX CONSIDERATIONS -- Modified
Endowment Contracts."
IT MAY NOT BE ADVANTAGEOUS TO PURCHASE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
AS A REPLACEMENT FOR YOUR CURRENT LIFE INSURANCE, OR IF YOU ALREADY OWN A
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY.
THE PURPOSE OF THE POLICY IS TO PROVIDE INSURANCE PROTECTION FOR THE
BENEFICIARY. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR
COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND. THE POLICY,
TOGETHER WITH ITS ATTACHED APPLICATION, CONSTITUTES THE ENTIRE AGREEMENT BETWEEN
YOU AND THE COMPANY.
2
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TABLE OF CONTENTS
SPECIAL TERMS
SUMMARY
PERFORMANCE INFORMATION
DESCRIPTION OF THE COMPANY, THE VEL II ACCOUNT AND THE UNDERLYING FUNDS
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT ADVISORY SERVICES
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
VOTING RIGHTS
THE POLICY
Applying For a Policy
Free-Look Period
Conversion Privileges
Premium Payments
Guaranteed Death Benefit Rider
Incentive Funding Discount
Paid-Up Insurance Option
Allocation of Net Premiums
Transfer Privilege
Death Proceeds
Sum Insured Options
Change in Sum Insured Option
Change in the Face Amount
Policy Value and Surrender Value
Death Proceeds Payment Options
Optional Insurance Benefits
Policy Surrender
Partial Withdrawal
CHARGES AND DEDUCTIONS
Tax Expense Charge
Monthly Deductions from the Policy Value
Charges Against Assets of the VEL II Account
Surrender Charge
Charges on Partial Withdrawal
Transfer Charges
Charge For Increase in the Face Amount
Other Administrative Charges
POLICY LOANS
Loan Interest
Repayment of Loans
Effect of Policy Loans
Policies Issued in Connection with TSA Plans
POLICY TERMINATION AND REINSTATEMENT
Termination
Reinstatement
OTHER POLICY PROVISIONS
Policyowner
Beneficiary
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Incontestability
Suicide
Age And Sex
Assignment
Postponement of Payments
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
DISTRIBUTION
SERVICES
REPORTS
LEGAL PROCEEDINGS
FURTHER INFORMATION
INDEPENDENT ACCOUNTANTS
FEDERAL TAX CONSIDERATIONS
The Company And The VEL II Account
Taxation of The Policy
Modified Endowment Contracts
MORE INFORMATION ABOUT THE GENERAL ACCOUNT
General Description
General Account Value
The Policy
FINANCIAL STATEMENTS
APPENDIX A - OPTIONAL BENEFITS
APPENDIX B - DEATH PROCEEDS PAYMENT OPTIONS
APPENDIX C - ILLUSTRATIONS OF SUM INSURED, POLICY VALUES
AND ACCUMULATED PREMIUMS
APPENDIX D - CALCULATION OF MAXIMUM SURRENDER CHARGES
4
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SPECIAL TERMS
Accumulation Unit: a measure of your interest in a Sub-Account.
Age: the Insured's age as of the nearest birthday measured from a Policy
anniversary.
Beneficiary: the person(s) designated by the Policyowner to receive the
insurance proceeds upon the death of the Insured.
Company: Allmerica Financial Life Insurance and Annuity Company.
Date of Issue: the date set forth in the Policy used to determine the Monthly
Payment Date, Policy months, Policy years, and Policy anniversaries.
Death Proceeds: Prior to the Final Premium Payment Date, the Death Proceeds
equal the amount calculated under the applicable Sum Insured Option (Option 1 or
Option 2), less Debt outstanding at the time of the Insured's death, partial
withdrawals, if any, partial withdrawal charges, and any due and unpaid Monthly
Deductions. After the Final Premium Payment Date, the Death Proceeds equal the
Surrender Value of the Policy, unless the optional Guaranteed Death Benefit
rider is in effect. If the rider is in effect, the Death Proceeds will be
greater of (a) the Face Amount as of the Final Premium Payment Date or (b) the
Policy Value as of the date due proof of death is received by the Company.
Debt: all unpaid Policy loans plus interest due or accrued on such loans.
Delivery Receipt: an acknowledgment, signed by the Policyowner and returned to
the Company's Principal Office, that the Policyowner has received the Policy and
the Notice of Withdrawal Rights.
Evidence of Insurability: information, including medical information
satisfactory to the Company, that is used to determine the Insured's Premium
Class.
Face Amount: the amount of insurance coverage applied for; the Face Amount
of each Policy is set forth in the specification pages of the Policy.
Final Premium Payment Date: the Policy anniversary nearest the Insured's 95th
birthday. The Final Premium Payment Date is the latest date on which a premium
payment may be made. After this date, the Death Proceeds equal the Surrender
Value of the Policy, unless the optional Guaranteed Death Benefit rider is in
effect.
General Account: all the assets of the Company other than those held in a
separate account.
Guideline Annual Premium: the annual amount of premium that would be payable
through the Final Premium Payment Date of a Policy for the specified Sum
Insured, if premiums were fixed by the Company as to both timing and amount, and
monthly cost of insurance charges were based on the 1980 Commissioners Standard
Ordinary Mortality Tables (Mortality Table B, Smoker or Non-Smoker, for unisex
Policies), net investment earnings at an annual effective rate of 5%, and fees
and charges as set forth in the Policy and any Policy riders. The Sum Insured
Option 1 Guideline Annual Premium is used when calculating the maximum surrender
charge.
Guideline Minimum Sum Insured: the minimum Sum Insured required to qualify the
Policy as "life insurance" under federal tax laws. The Guideline Minimum Sum
Insured varies by age; it is calculated by multiplying the Policy Value by a
percentage determined by the Insured's Age.
5
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Insurance Amount at Risk: the Sum Insured less the Policy Value.
Loan Value: the maximum amount that may be borrowed under the Policy.
Minimum Monthly Factor: a monthly premium amount calculated by the Company and
specified in your Policy. If you pay this amount, the Company guarantees that
your Policy will not lapse prior to the 49th Monthly Deduction after the Date of
Issue or the effective date of an increase in the Face Amount. Making payments
at least equal to the Minimum Monthly Factors, however, will not prevent the
Policy from lapsing if (a) Debt exceeds Policy Value less surrender charges, or
(b) debt, partial withdrawals and partial withdrawal charges have reduced
premium payments below an amount equal to the Minimum Monthly Factor multiplied
by the number of months since the Date of Issue or the effective date of an
increase.
Monthly Deduction: charges deducted monthly from the Policy Value of a Policy
prior to the Final Premium Payment Date. The charges include the monthly cost of
insurance, the monthly cost of any benefits provided by riders, and the monthly
administrative charge.
Monthly Payment Date: the date on which the Monthly Deduction is deducted from
the Policy Value.
Net Premium: an amount equal to the premium less a tax expense charge.
Policy Change: any change in the Face Amount, the addition or deletion of a
rider, or a change in the Sum Insured Option.
Policy Value: the total amount available for investment under a Policy at any
time. It is equal to the sum of (a) the value of the Accumulation Units credited
to a Policy in the Sub-Accounts, and (b) the accumulation in the
General Account credited to that Policy.
Policyowner: the person, persons or entity entitled to exercise the rights and
privileges under the Policy.
Premium Class: the risk classification that the Company assigns the Insured
based on the information in the application and any other Evidence of
Insurability considered by the Company. The Insured's Premium Class will affect
the cost of insurance charge and the amount of premium required to keep the
Policy in force.
Principal Office: the Company's office, located at 440 Lincoln Street,
Worcester, Massachusetts 01653.
Pro-Rata Allocation: In certain circumstances, you may specify from which
Sub-Account certain deductions will be made or to which Sub-Account the Policy
Value will be allocated. If you do not, the Company will allocate the deduction
or Policy Value among the General Account and the Sub-Accounts in the same
proportion that the Policy Value in the General Account (less Debt) and the
Policy Value in each Sub-Account bear to the total Policy Value on the date of
deduction or allocation.
Separate Account: A separate account consists of assets segregated from the
Company's other assets. The investment performance of the assets of each
separate account is determined separately from the other assets of the Company.
The assets of a separate account which are equal to the reserves and other
contract liabilities are not chargeable with liabilities arising out of any
other business which the Company may conduct.
Sub-Account: a division of the VEL II Account. Each Sub-Account invests
exclusively in the shares of a corresponding Fund of the Allmerica Investment
Trust, a corresponding Portfolio of the Variable Insurance Products Fund
("Fidelity VIP") or the Variable Insurance Products Fund II ("Fidelity VIP II"),
the T. Rowe Price International Stock Portfolio of T. Rowe Price International
Series ("T. Rowe Price") , Inc. or the
6
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International Equity Series of the Delaware Group Premium Fund, Inc. ("DGPF").
Sum Insured: the amount payable upon the death of the Insured, before the Final
Premium Payment Date, prior to deductions for Debt outstanding at the time of
the Insured's death, partial withdrawals and partial withdrawal charges, if any,
and any due and unpaid Monthly Deductions. The amount of the Sum Insured will
depend on the Sum Insured Option chosen, but always will be at least equal to
the Face Amount.
Surrender Value: the amount payable upon a full surrender of the Policy. It is
the Policy Value less any Debt and applicable surrender charges.
Underlying Funds (Funds): the Funds of the Allmerica Investment Trust, the
Portfolios of the Variable Insurance Products Fund and Variable Insurance
Products Fund II, the Portfolio of T. Rowe Price International Series, Inc., and
the Series of the Delaware Group Premium Fund, Inc. available under the Policy.
Valuation Date: a day on which the net asset value of the shares of any of the
Underlying Funds is determined and Accumulation Unit values of the Sub-Accounts
are determined. Valuation Dates currently occur on each day on which the New
York Stock Exchange is open for trading, and on such other days (other than a
day during which no payment, partial withdrawal, or surrender of a Policy is
received) when there is a sufficient degree of trading in an Underlying Fund's
securities such that the current net asset value of the Sub-Accounts may be
affected materially.
VEL II Account: a separate account of the Company to which the Policyowner may
make Net Premium allocations.
Written Request: a request in writing, by the Policyowner, satisfactory to the
Company.
You or Your: the Policyowner, as shown in the application or the latest change
filed with the Company.
7
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SUMMARY
The following is a summary of the flexible premium variable life insurance
policy sold by Allmerica Financial Life Insurance and Annuity Company. It
highlights key points from the Prospectus which follows. If you are considering
the purchase of this product, you should read the Prospectus carefully before
making a decision. It offers a more complete presentation of the topics
presented here, and will help you better understand the product.
- -------------------------------------------------------------------------------
Free-Look Period -- The Policy provides for an initial Free-Look Period. You may
cancel the Policy by mailing or delivering it to the Principal Office or to an
agent of the Company on or before the latest of:
o 45 days after the application for the Policy is signed,
o 10 days after you receive the Policy (or, if required by state law,
the longer period indicated in your Policy), or
o 10 days after the Company mails or personally delivers a Notice of
Withdrawal Rights to you.
Upon returning the Policy, you will receive a refund equal to the sum of:
(1) the difference between the premium, including fees and charges paid, and
any amount allocated to the VEL II Account, plus
(2) the value of the amounts allocated to the VEL II Account, plus
(3) any fees or charges imposed on the amounts allocated to the VEL II
Account.
The amount refunded in (1) above includes any premiums allocated to the General
Account. Where required by state law, however, the Company will refund the
entire amount of premiums paid. A free-look privilege also applies after a
requested increase in the Face Amount. See "THE POLICY," "Free-Look Period."
Conversion Privileges -- During the first 24 Policy months after the Date of
Issue, subject to certain restrictions, you may convert the Policy to a
non-variable flexible premium adjustable life insurance policy by simultaneously
transferring all accumulated value in the Sub-Accounts to the General Account
and instructing the Company to allocate all future premiums to the General
Account. A similar conversion privilege is in effect for 24 Policy months after
the date of an increase in the Face Amount. Where required by state law, and at
your request, the Company will issue a flexible premium adjustable life
insurance policy to you. The new policy will have the same Face Amount, issue
age, Date of Issue, and Premium Class as the original Policy. See "THE POLICY,"
"Conversion Privileges."
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ABOUT THE POLICY
The Policy allows you to make premium payments in any amount and frequency,
subject to certain limitations. As long as the Policy remains in force, it will
provide for:
o life insurance coverage on the named Insured,
o Policy Value,
o surrender rights and partial withdrawal rights,
o loan privileges, and
o in some cases, additional insurance benefits available by rider for
an additional charge.
8
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Life Insurance
The Policy is a life insurance contract with death benefits, Policy Value, and
other features traditionally associated with life insurance. The Policy is
"variable" because the Policy Value will increase or decrease depending on the
investment experience of the Sub-Accounts of the VEL II Account. Under some
circumstances, the Death Benefit may vary with the investment experience of the
Sub-Accounts.
Flexible Premium
The Policy is a "flexible premium" policy because, unlike traditional insurance
policies, there is no fixed schedule for premium payments. You may vary the
frequency and amount of future premium payments, subject to certain limits,
restrictions and conditions set by Company standards and federal tax laws.
Although you may establish a schedule of premium payments ("planned premium
payments"), failure to make the planned premium payments will not necessarily
cause the Policy to lapse. Because of the variable nature of the Policy, making
planned premium payments does not guarantee that the Policy will remain in
force. Thus, you may, but are not required to, pay additional premiums. However,
if the optional Guaranteed Death Benefit rider is in effect, certain minimum
premium payment tests must be met.
The Policy will remain in force until the Surrender Value is insufficient to
cover the next Monthly Deduction and loan interest accrued, if any, and a grace
period of 62 days has expired without adequate payment being made by you. During
the first 48 Policy months after the Date of Issue or the effective date of an
increase in the Face Amount, the Policy will not lapse if the total premiums
paid less the Debt, partial withdrawals and withdrawal charges are equal to or
exceed the sum of the Minimum Monthly Factors for the number of months the
Policy, increase, or a Policy Change which causes a change in the Minimum
Monthly Factor has been in force. Even during these periods, however, making
payments at least equal to the Minimum Monthly Factor will not prevent the
Policy from lapsing if the Debt equals or exceeds the Policy Value less
surrender charges.
Conditional Insurance
If at the time of application you make a payment equal to at least one Minimum
Monthly Factor for the Policy as applied for, the Company will provide
conditional insurance, equal to the amount of insurance applied for but not to
exceed $500,000. If the application is approved, the Policy will be issued as of
the date the terms of the conditional insurance are met. If you do not wish to
make any payment at the time of application, insurance coverage will not be in
force until delivery of the Policy and payment of sufficient premium to place
the insurance in force.
If any premiums are paid prior to the issuance of the Policy, such premiums will
be held in the Company's General Account. If your application is approved and
the Policy is issued and accepted, the initial premiums held in the General
Account will be credited with interest at a specified rate beginning not later
than the date of receipt of the premiums at the Principal Office. IF A POLICY IS
NOT ISSUED AND ACCEPTED, THE INITIAL PREMIUMS WILL BE RETURNED TO YOU WITHOUT
INTEREST.
Guaranteed Death Benefit Rider
This rider, which is available only at issue:
o guarantees that your Policy will not lapse regardless of the
investment performance of the Variable Account; and
o provides a guaranteed death benefit.
In order to maintain the rider, certain minimum premium payment tests must be
met on each policy anniversary and within 48 months following the Date of Issue
and/or the date of any increase in Face Amount. In addition, a one-time
administrative charge of $25 will be deducted from Policy Value when the rider
is elected. Certain transactions, including policy loans, partial withdrawals,
and changes in Sum Insured
9
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Options, can result in the termination of the rider. If this rider is
terminated, it cannot be reinstated.
Policies Issued in Connection with TSA Plans
The Policies may be issued in connection with Code Section 403(b) tax-sheltered
annuity plans ("TSA Plans") of certain public school systems and organizations
that are tax exempt under Section 501(c)(3) of the Code. A Policy issued in
connection with a TSA Plan will be endorsed to reflect the restrictions imposed
on assignment, premium payments, withdrawals, and surrender under Code Section
403(b). The Policyowner may terminate the endorsement at any time. However, the
termination of the endorsement may cause the Policy to fail to qualify under
Code Section 403(b). See "FEDERAL TAX CONSIDERATIONS - Policies Issued in
Connection with TSA Plans" and "POLICY LOANS - Policies Issued in Connection
with TSA Plans."
Minimum Monthly Factor
The Minimum Monthly Factor is a monthly premium amount calculated by the Company
and specified in your Policy. If you pay this amount, the Company guarantees
that the Policy will not lapse prior to the 49th Monthly Deduction after the
Date of Issue or the effective date of an increase in the Face Amount. At all
other times, however, payments of such premiums do not guarantee that the Policy
will remain in force, unless the Guaranteed Death Benefit rider is in effect.
See "THE POLICY," "Premium Payments." Moreover, even during the 48-month period,
if Debt exceeds the Policy Value less surrender charges, then making payments at
least equal to the Minimum Monthly Factor will not prevent the Policy from
lapsing. However, if the optional Guaranteed Death Benefit rider is in effect,
the Company (a) guarantees that the Policy will not lapse, regardless of the
investment performance of the Variable Account, and (b) provides a guaranteed
death benefit. See "THE POLICY," "Guaranteed Death Benefit Rider."
Allocation of Initial Premiums
Upon completion of issuance procedures, delivery of the Policy, and receipt of
any additional premiums, if you have paid less than $10,000 of initial Net
Premiums, such Net Premiums will be allocated to the Sub-Accounts according to
your instructions. If initial Net Premiums equal or exceed $10,000, or if the
Policy provides for planned premium payments during the first year equal to or
exceeding $10,000 annually, $5,000 semi-annually, $2,500 quarterly or $1,000
monthly, the entire Net Premium plus any interest earned will be allocated to
the Sub-Accounts upon return to the Company of a Delivery Receipt. See "THE
POLICY," "Applying For a Policy."
Net premiums may be allocated to one or more Sub-Accounts of the VEL II Account,
to the General Account, or to any combination of accounts. You bear the
investment risks of amounts allocated to the Sub-Accounts. Allocations may be
made to no more than seven Sub-Accounts (twenty, effective May 11, 1998) at any
one time. The minimum allocation is 1% of Net Premium. All allocations must be
in whole numbers and must total 100%. See "THE POLICY" "Allocation of Net
Premiums." Premiums allocated to the Company's General Account will earn a fixed
rate of interest. Net premiums and minimum interest are guaranteed by the
Company. For more information, see "MORE INFORMATION ABOUT THE GENERAL ACCOUNT."
Partial Withdrawals
After the first Policy year, you may make partial withdrawals in a minimum
amount of $500 from the Policy Value. Under Option 1, the Face Amount is reduced
by the amount of the partial withdrawal. A partial withdrawal will not be
allowed under Option 1 if it would reduce the Face Amount below $40,000.
A partial withdrawal transaction charge, which is described in "CHARGES AND
DEDUCTIONS," "Charges On Partial Withdrawal," will be assessed to reimburse the
Company for the cost of processing each partial withdrawal. A withdrawal charge
also may be imposed upon a partial withdrawal. Generally, amounts withdrawn
during each Policy year in excess of 10% of the Policy Value ("excess
withdrawal") are subject to the withdrawal charge. The withdrawal charge is
equal to 5% of the excess withdrawal up to the surrender
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charge on the date of withdrawal. If no surrender charge is applicable at the
time of withdrawal, no partial withdrawal charge will be deducted. The Policy's
outstanding surrender charge will be reduced by the amount of the partial
withdrawal charge deducted. See "THE POLICY," "Partial Withdrawal" and "CHARGES
AND DEDUCTIONS," "Charges On Partial Withdrawal."
Loan Privilege
You may borrow against the Policy Value. The total amount you may borrow is the
Loan Value. Loan Value in the first Policy year is 75% of an amount equal to the
Policy Value less surrender charge, Monthly Deductions, and interest on Debt to
the end of the Policy year. Thereafter, Loan Value is 90% of an amount equal to
the Policy Value less the surrender charge.
Policy loans will be allocated among the General Account and the Sub-Accounts in
accordance with your instructions. If no allocation is made by you, the Company
will make a Pro-Rata Allocation among the Accounts. In either case, Policy Value
equal to the Policy loan will be transferred from the appropriate Sub-Account(s)
to the General Account, and will earn monthly interest at an effective annual
rate of at least 6%. Therefore, a Policy loan may have a permanent impact on the
Policy Value even though it eventually is repaid. Although the loan amount is a
part of the Policy Value, the Death Proceeds will be reduced by the amount of
outstanding Debt at the time of death.
Policy loans will bear interest at a fixed rate of 8% per year, due and payable
in arrears at the end of each Policy year. If interest is not paid when due, it
will be added to the loan balance. Policy loans may be repaid at any time. You
must notify the Company if a payment is a loan repayment; otherwise, it will be
considered a premium payment. Any partial or full repayment of Debt by you will
be allocated to the General Account or Sub-Accounts in accordance with your
instructions. If you do not specify an allocation, the Company will allocate the
loan repayment in accordance with your most recent premium allocation
instructions. See "POLICY LOANS."
Preferred Loan Option -- A preferred loan option is available under the Policy.
The preferred loan option will be available upon written request. It may be
revoked by you at any time. If this option has been selected, after the tenth
policy anniversary, the Policy Value in the General Account equal to the loan
amount will be credited with interest at an effective annual yield of at least
7.5%. The Company's current position is to credit a rate of interest equal to
the rate being charged for the preferred loan.
There is some uncertainty as to the tax treatment of preferred loans. Consult a
qualified tax adviser (and see "FEDERAL TAX CONSIDERATIONS"). The Preferred Loan
Option is not available in all states.
Policies Issued in Connection with TSA Plans -- Loans from Policies issued in
connection with tax-sheltered annuity plans ("TSA Plans") of certain public
school systems and organizations that are tax exempt under Section 501(c)(3) of
the Code are subject to additional restrictions. See "POLICY LOANS," "Policies
Issued in Connection with TSA Plans."
Policy Lapse and Reinstatement
Except as otherwise provided in the optional Guaranteed Death Benefit rider, the
failure to make premium payments will not cause a Policy to lapse unless:
(a) the Surrender Value is insufficient to cover the next Monthly
Deduction plus loan interest accrued, if any; or
(b) Debt exceeds Policy Value less surrender charges.
A 62-day grace period applies to each situation.
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Even if the situation described in (a) above exists, the Policy will not lapse
if you meet the so-called "Minimum Monthly Factor" test. The Minimum Monthly
Factor test is only used to determine whether the Policy will enter the grace
period during the first 48 months or within 48 months following an increase in
the Face Amount. Under the Minimum Monthly Factor test, the Company determines
two amounts:
o the sum of the payments your have made, minus any Policy loans,
withdrawals and withdrawal charges.
o the amount of the Minimum Monthly Factor (the amount is shown on
page 5 of the Policy) multiplied by the number of months the Policy
has been in force or the number of months which have elapsed since
the last increase in the Face Amount.
The Company then compares the first amount to the second amount. The Policy will
not enter the grace period if the first amount is greater than the second
amount. If the Policy lapses, it may be reinstated within three years of the
date of default (but not later that the Final Premium Payment Date). In order to
reinstate, you must pay the reinstatement premium and provide satisfactory
Evidence of Insurability. The Company reserves the right to increase the Minimum
Monthly Factor upon reinstatement. See "POLICY TERMINATION AND REINSTATEMENT."
In addition, if the Guaranteed Death Benefit rider is in effect, the Company
guarantees that your Policy will not lapse regardless of the investment
performance of the Variable Account. However, the Policy may lapse under certain
circumstance. See "THE POLICY," "Guaranteed Death Benefit Rider."
Policy Value and Surrender Value
The Policy Value is the total amount available for investment under the Policy
at any time. It is the sum of the value of all Accumulation Units in the
Sub-Accounts of the VEL II Account and all accumulations in the General Account
of the Company credited to the Policy. The Policy Value reflects the amount and
frequency of Net Premiums paid, charges and deductions imposed under the Policy,
interest credited to accumulations in the General Account, investment
performance of the Sub-Account(s) to which Policy Value has been allocated, and
partial withdrawals. The Policy Value may be relevant to the computation of the
Death Proceeds. You bear the entire investment risk for amounts allocated to the
VEL II Account. The Company does not guarantee a minimum Policy Value.
The Surrender Value will be the Policy Value less any Debt and applicable
surrender charges. The Surrender Value is relevant, for example, to the
continuation of the Policy and in the computation of the amounts available upon
partial withdrawals, Policy loans or surrender.
Death Proceeds
The Policy provides for the payment of certain Death Proceeds to the named
Beneficiary upon the death of the Insured. Prior to the Final Premium Payment
Date, the Death Proceeds will be equal to the Sum Insured, reduced by any
outstanding Debt, partial withdrawals, partial withdrawal charges, and any
Monthly Deductions due and not yet deducted through the Policy month in which
the Insured dies.
Two Sum Insured Options are available. Under Option 1, the Sum Insured is the
greater of the Face Amount of the Policy or the Guideline Minimum Sum Insured.
Under Option 2, the Sum Insured is the greater of the Face Amount of the Policy
plus the Policy Value or the Guideline Minimum Sum Insured. The Guideline
Minimum Sum Insured is equivalent to a percentage (determined each month based
on the Insured's Age) of the Policy Value. On or after the Final Premium Payment
Date, the Death Proceeds will equal the Surrender Value, unless the optional
Guaranteed Death Benefit rider is in effect. See "THE POLICY," "Death Proceeds,"
"Guaranteed Death Benefit Rider."
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The Death Proceeds under the Policy may be received in a lump sum or under one
of the Payment Options described in the Policy. See "APPENDIX B -- DEATH
PROCEEDS PAYMENT OPTIONS."
Flexibility to Adjust Sum Insured
Subject to certain limitations, you may adjust the Sum Insured, and thus the
Death Proceeds, at any time prior to the Final Premium Payment Date, by
increasing or decreasing the Face Amount of the Policy. Any change in the Face
Amount will affect the monthly cost of insurance charges and the amount of the
surrender charge. If the Face Amount is decreased, a pro-rata surrender charge
may be imposed. The Policy Value is reduced by the amount of the charge. See
"THE POLICY," "Change In the Face Amount."
The minimum increase in Face Amount is $10,000 and any increase also may require
additional Evidence of Insurability satisfactory to the Company. The increase is
subject to a "free-look period" and, during the first 24 months after the
increase, to a conversion privilege. See "THE POLICY," "Free-Look Period" and
"Conversion Privileges."
Additional Insurance Benefits
You have the flexibility to add additional insurance benefits by rider.
These include the Waiver of Premium Rider, Accidental Death Benefit Rider,
Guaranteed Insurability Rider, Other Insured Rider, Children's Insurance
Rider, Exchange Option Rider, Living Benefits Rider and Guaranteed Death
Benefit Rider. See "APPENDIX A -- OPTIONAL BENEFITS."
The cost of these optional insurance benefits will be deducted from the Policy
Value as part of the Monthly Deduction. See "CHARGES AND DEDUCTIONS --Monthly
Deduction From the Policy Value."
POLICY FEES AND CHARGES
There are costs related to the insurance and investment features of the Policy.
Fees and charges to cover these costs are deducted in several ways.
Deductions from Each Premium
A tax expense charge will be deducted from each premium payment to compensate
the Company for premium taxes imposed by various states and local jurisdictions
and for federal taxes imposed for deferred acquisition costs ("DAC taxes"). The
tax expense charge is currently 3 1/2% but may be increased or decreased to
reflect changing tax rates. See "CHARGES AND DEDUCTIONS," "Tax Expense Charge."
Monthly Deductions from the Policy Value
On the Date of Issue and each Monthly Payment Date, certain charges ("Monthly
Deductions") will be deducted from the Policy Value. The Monthly Deduction
consists of a charge for cost of insurance, a charge for administrative
expenses, and a charge for the cost of any additional benefits provided by
rider. You may instruct the Company to deduct the Monthly Deduction from one
specific Sub-Account. If you do not, the Company will make a Pro-Rata Allocation
of the charge. No Monthly Deductions are made on or after the Final Premium
Payment Date. See "CHARGES AND DEDUCTIONS," "Monthly Deductions from the Policy
Value."
The monthly cost of insurance charge is determined by multiplying the Insurance
Amount at Risk for each Policy month by the applicable cost of insurance rate or
rates. The Insurance Amount at Risk will be affected by any decreases or
increases in the Face Amount.
A monthly administrative charge of $5 per month is made for administrative
expenses. The charge is designed to reimburse the Company for the costs
associated with issuing and administering the Policies, such as processing
premium payments, Policy loans and loan repayments, changes in Sum Insured
Option, and
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<PAGE>
death claims. These charges also help cover the cost of providing annual
statements and responding to Policyholder inquiries.
As noted above, certain additional insurance rider benefits are available under
the Policy for an additional monthly charge. See "APPENDIX A -- OPTIONAL
BENEFITS."
Deductions from the VEL II Account
A daily charge currently equivalent to an effective annual rate of 0.80% of the
average daily net asset value of each Sub-Account of the VEL II Account is
imposed to compensate the Company for its assumption of certain mortality and
expense risks and for administrative costs associated with the VEL II Account.
The rate is 0.65% for the mortality and expense risk and 0.15% for the VEL II
Account administrative charge. The administrative charge is eliminated after the
tenth Policy year. See "CHARGES AND DEDUCTIONS," "Charges Against Assets of the
VEL II Account."
The Underlying Funds also incur certain expenses which are reflected in the net
asset value of the Sub-Accounts. See "Investment Options -- Charges of the
Underlying Investment Companies ," below.
OTHER CHARGES (NON-PERIODIC)
Transaction Charge on Partial Withdrawals
A transaction charge is assessed at the time of each partial withdrawal to
reimburse the Company for the cost of processing the withdrawal. The transaction
charge is the smaller of 2% of the amount withdrawn or $25. In addition to the
partial withdrawal transaction charge, a withdrawal charge also may be made
under certain circumstances. See "CHARGES AND DEDUCTIONS," "Charges On Partial
Withdrawal."
Charge for Increase in the Face Amount
For each increase in the Face Amount, a charge of $40 will be deducted from the
Policy Value. This charge is designed to reimburse the Company for underwriting
and administrative costs associated with the increase. See "THE POLICY," "Change
In the Face Amount" and "CHARGES AND DEDUCTIONS," "Charge for Increase In the
Face Amount."
Transfer Charge
The first 12 transfers of Policy Value in a Policy year will be free of charge.
Thereafter, with certain exceptions, a transfer charge of $10 will be imposed
for each transfer request to reimburse the Company for the costs of processing
the transfer. See "THE POLICY," "Transfer Privilege" and "CHARGES AND
DEDUCTIONS," "Transfer Charges."
SURRENDER CHARGES
At any time that the Policy is in effect, a Policyowner may elect to surrender
the Policy and receive its Surrender Value. A surrender charge is calculated
upon issuance of the Policy and upon each increase in Face Amount. The duration
of the surrender charge is 15 years for issue Ages 0 through 50, grading down to
10 years for issue Ages 55 and above. The surrender charge is imposed only if,
during its duration, you request a full surrender or a decrease in the Face
Amount.
Surrender Charge on the Initial Face Amount
The maximum surrender charge calculated upon issuance of the Policy is equal to
the sum of (a) plus (b), where (a) is a deferred administrative charge, and (b)
is a deferred sales charge.
The deferred administrative charge is $8.50 per thousand dollars of the initial
Face Amount or of an increase in the Face Amount. The charge is designed to
reimburse the Company for administrative costs associated with
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<PAGE>
product research and development, underwriting, Policy administration,
decreasing the Face Amount, and surrendering a Policy. Because the maximum
surrender charge reduces by 0.5% or more per month (depending on issue Age)
after the 40th Policy month from the Date of Issue or the effective date of an
increase in the Face Amount, in certain situations some or all of the deferred
administrative charge may not be assessed upon surrender of the Policy. The
deferred sales charge is equal to 49% of premiums received up to a maximum
number of Guideline Annual Premiums that vary by issue Age. This maximum number
varies from 1.660714 (for Ages 0 through 55) to 0.948980 (for Age 85). See "THE
POLICY," "Surrender" and "CHARGES AND DEDUCTIONS," "Surrender Charge."
In accordance with state insurance regulations, the amount of the maximum
surrender charge will not exceed a specified amount per $1,000 of the initial
Face Amount, as indicated in "APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER
CHARGES."
If you surrender the Policy during the first two Policy years following the Date
of Issue, before making premium payments associated with the initial Face Amount
which are at least equal to one Guideline Annual Premium, the deferred
administrative charge will be $8.50 per thousand dollars of the initial Face
Amount, as described above. The deferred sales charge, however, will not exceed
29% of premiums received, up to one Guideline Annual Premium, plus 9% of
premiums received that are in excess of one Guideline Annual Premium, but less
than the maximum number of Guideline Annual Premiums subject to the deferred
sales charge. See "THE POLICY," "Policy Surrender" and "CHARGES AND DEDUCTIONS,"
"Surrender Charge."
Surrender Charges for Increases in the Face Amount
A separate surrender charge will apply to, and is calculated for, each increase
in the Face Amount. The maximum surrender charge for the increase is equal to
the sum of (a) plus (b), where (a) is the deferred administrative charge, and
(b) is a deferred sales charge. The deferred administrative charge is equal to
$8.50 per thousand dollars of increase . The deferred sales charge is equal to
49% of premiums associated with the increase, up to a maximum number of
Guideline Annual Premiums that varies by issue Age. This maximum number varies
from 1.660714 (for Ages 0 through 55) to 0.948980 (for Age 85).
In accordance with state insurance regulations, the amount of the surrender
charge will not exceed a specified amount per $1,000 of increase, as indicated
in "APPENDIX D - CALCULATION OF MAXIMUM SURRENDER CHARGES." This maximum
surrender charge remains level for the first 40 Policy months following the
increase, and reduces by 0.5% or more per month (depending on Age at increase)
thereafter. See "APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES." The
actual surrender charge with respect to the increase may be less than the
maximum. See "THE POLICY," "Policy Surrender" and "CHARGES AND DEDUCTIONS,"
"Surrender Charge."
Surrender Charges on Decreases in the Face Amount
In the event of a decrease in the Face Amount, the surrender charge imposed is
proportional to the charge that would apply to a full Policy surrender. See "THE
POLICY," "Policy Surrender" and "CHARGES AND DEDUCTIONS ," "Surrender Charge."
OTHER CHARGES
The Company reserves the right to impose a charge for the administrative costs
associated with changing the Net Premium allocation instructions, for changing
the allocation of any Monthly Deductions among the various Sub-Accounts, or for
a projection of values. No such charges currently are imposed, and any such
charge is guaranteed not to exceed $25. See "CHARGES AND DEDUCTIONS," "Other
Administrative Charges."
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<PAGE>
INVESTMENT OPTIONS
The Policy permits Net Premiums to be allocated either to the Company's General
Account or to the VEL II Account. The Allmerica Financial Life Insurance and
Annuity Company currently is comprised of 20 Sub-Accounts ("Sub-Accounts"). Each
Sub-Account invests exclusively in a corresponding Underlying Fund of the
Allmerica Investment Trust ("Trust") managed by Allmerica Investment Management
Company, Inc., Fidelity Variable Insurance Products Fund ("Fidelity VIP") and
Fidelity Variable Insurance Products Fund II ("Fidelity VIP II") managed by
Fidelity Management, T. Rowe Price International Series, Inc. ("T. Rowe Price")
managed by Rowe Price-Fleming International, Inc., with respect to the
International Stock Portfolio, or the Delaware Group Premium Fund, Inc. ("DGPF")
managed by Delaware International Advisers, Ltd. with respect to the
International Equity Series. The Policy permits you to transfer Policy Value
among the available Sub-Accounts and between the Sub-Accounts and the General
Account of the Company, subject to certain limitations described under "THE
POLICY," "Transfer Privilege. The Trust, Fidelity VIP, Fidelity VIP II, T. Rowe
Price and DGPF are open-end, diversified series management investment companies.
The following Underlying Funds are available under the Policy:
ALLMERICA INVESTMENT TRUST FIDELITY VIP
-------------------------- ------------
Select Aggressive Growth Fund Overseas Portfolio
Select Capital Appreciation Fund Equity-Income Portfolio
Select Value Opportunity Fund Growth Portfolio
Select Emerging Markets Fund High Income Portfolio
Select International Equity Fund
Select Growth Fund FIDELITY VIP II
----------------
Select Strategic Growth Fund Asset Manager Portfolio
Growth Fund
Equity Index Fund T. ROWE PRICE
-------------
Select Growth and Income Fund International Stock Portfolio
Investment Grade Income Fund
Government Bond Fund DGPF
----
Money Market Fund International Equity Series
Each of the Underlying Funds has its own investment objectives. Certain
Underlying Funds, however, have investment objectives similar to certain other
Underlying Funds. The value of each Sub-Account will vary daily depending upon
the performance of the Underlying Fund in which it invests. Each Sub-Account
reinvests dividends or capital gains distributions received from an Underlying
Fund in additional shares of that Underlying Fund. There can be no assurance
that the investment objectives of the Underlying Funds can be achieved.
Charges of the Underlying Funds
In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Underlying Funds. The levels of fees and
expenses vary among the Underlying Funds. The following table shows the expenses
of the Underlying Funds for 1997. For more information concerning fees and
expenses, see the prospectuses of the Underlying Funds.
In addition to the charges described above, certain fees and expenses are
deducted from the assets of the Underlying Funds. The levels of fees and
expenses vary among the Underlying Funds. The following table shows the expenses
of the Underlying Funds for 1997. For more information concerning fees and
expenses, see the prospectuses of the Underlying Funds.
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<PAGE>
<TABLE>
<CAPTION>
Other Fund
Expenses
After Any
Management Applicable Total Fund
Underlying Fund Fee Reimbursements Expenses
- --------------- --- -------------- --------
<S> <C> <C> <C>
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Emerging Markets Fund
Select International Equity Fund
DGPF International Equity Series
Fidelity VIP Overseas Portfolio
T. Rowe Price International Stock Portfolio
Select Growth Fund
Select Strategic Growth Fund
Growth Fund
Fidelity VIP Growth Portfolio
Equity Index Fund
Select Growth and Income Fund
Fidelity VIP Equity-Income Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP High Income Portfolio
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
</TABLE>
Under the Management Agreement with Allmerica Investment Trust, Allmerica
Investment Management Company, Inc. ("Manager") has declared a voluntary expense
limitation of 1.35% of average net assets for the Select Aggressive Growth Fund
and Select Capital Appreciation Fund, 1.50% for the Select International Equity
Fund, 1.20% for the Growth Fund, Select Growth Fund and Select Strategic Growth
Fund, 1.10% for the Select Growth and Income Fund, 1.00% for the Investment
Grade Income Fund and Government Bond Fund, and 0.60% for the Money Market Fund
and Equity Index Fund. The total operating expenses of the funds of the Trust
were less than their respective expense limitations throughout 1997. The
declaration of a voluntary expense limitations in any year does not bind the
Manager to declare future expense limitations with respect to these funds. The
Select Emerging Markets Fund and Select Strategic Growth Fund commenced
operations in February, 1998. Expenses shown are annualized and are based on
estimated amounts for the current fiscal year. Actual expenses may be greater or
less than shown. In addition, the Manager has agreed to voluntarily waive its
management fee to the extent that expenses of the Select Emerging Markets Fund
exceed 2.00% of the Fund's average daily assets, except that such waiver shall
not exceed the net amount of management fees earned by the Manager from the Fund
after subtracting fees paid by the Manager to Schroder Capital Management
International, Inc. for sub-advisory services.
The Select Value Opportunity Fund was formerly known as the "Small-Mid Cap Value
Fund." Expenses shown here are the 1997 annualized expenses of the former
Small-Mid Cap Value Fund. Under the Management Agreement with Allmerica
Investment Trust, the Manager has declared a voluntary expense limitation of
1.25% of average daily net assets and has agreed to limit management fees to an
annual rate of 90% of average daily net assets. These limitations may be
terminated at any time.
Select International Equity Fund, Select Growth Fund, and Select Growth and
Income Fund 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 1.20% for the Select
International Equity Fund, 0.92% for the Select Growth Fund and 0.80% for the
Select Growth and Income Fund.
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A portion of the brokerage commissions that certain funds pay was used to reduce
funds expenses. In addition, certain funds have entered into arrangements with
their custodian and transfer agent whereby interest earned on uninvested cash
balances was used to reduce custodian and transfer agent expenses. Including
these reductions, the total operating expenses presented in the table would have
been 0.56% for Fidelity VIP Equity-Income Portfolio, 0.67% for Fidelity VIP
Growth Portfolio, 0.92% for Fidelity VIP Overseas Portfolio and 0.73% for
Fidelity VIP II Asset Manager Portfolio.
Delaware International Advisers Ltd., the investment adviser for the
International Equity Series, has agreed to waive its management fee and
reimburse the International Equity Series to limit certain expenses to 8/10 of
1% of the corresponding net assets. This waiver has been in effect from the
commencement of the public offering for the Series and has been extended through
June 30, 1998. Without the expense limitation, in 1997 the total annual expenses
of the International Equity Series would have been ____%.
TAXATION OF THE POLICIES
The Policy generally is subject to the same federal income tax treatment as a
conventional fixed benefit life insurance Policy. Under current tax law, to the
extent there is no change in benefits and the policy is not a modified endowment
contract, the Policyowner will be taxed on Policy Value withdrawn from the
Policy only to the extent that the amount withdrawn exceeds the total premiums
paid. Withdrawals in excess of premiums paid will be treated as ordinary income.
During the first 15 Policy years, however, an "interest first" rule applies to
any distribution of cash that is required under Section 7702 of the Code because
of a reduction in benefits under the Policy. Death Proceeds under the Policy are
generally excludable from the gross income of the Beneficiary, but in some
circumstances the Death Proceeds or the Policy Value may be subject to federal
estate tax. See "FEDERAL TAX CONSIDERATIONS," "Taxation of the Policy."
A Policy may be considered a "modified endowment contract" if it fails a
"seven-pay " test at any time during the first seven Policy years or within
seven years of a material change in the Policy. The Policy fails to satisfy the
seven-pay test if the cumulative premiums paid under the Policy at any time
during the first seven Policy years or within seven years of a material change
in the Policy, exceed the sum of the net level premiums that would have been
paid had the Policy provided for paid-up future benefits after the payment of
seven level premiums. If the Policy is considered a modified endowment contract,
all distributions (including Policy loans, partial withdrawals, Policy
surrenders or assignments) will be taxed on an "income-first" basis. With
certain exceptions, an additional 10% penalty will be imposed on the portion of
any distribution that is includible in income. For more information, see
AFEDERAL TAX CONSEQUENCES," "Modified Endowment Contracts."
PERFORMANCE INFORMATION
The Policy first was offered to the public in 1993. The Company may advertise
"Total Return" and "Average Annual Total Return" performance information based
on Sub-Accounts that have been in existence (Tables IA and IB) and based on the
periods that the Underlying Funds have been in existence (Tables IIA and IIB).
The results for any period prior to the Policy being offered will be calculated
as if the Policy had been offered during that period of time, with all charges
assumed to be those applicable to the Sub-Accounts, the Underlying Funds, and
(in Table I) under a "representative" Policy that is surrendered at the end of
the applicable period. For more information on charges under the Policy, see
"CHARGES AND DEDUCTIONS."
In each Table below, "One-Year Total Return" refers to the total of the income
generated by a Sub-Account, based on certain charges and assumptions as
described in the respective tables, for the one-year period ended December 31,
1997. "Average Annual Total Return" is based on the same charges and
assumptions, but reflects
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<PAGE>
the hypothetical annually compounded return that would have produced the same
cumulative return if the Sub-Account's performance had been constant over the
entire period. Because average annual total returns tend to smooth out
variations in annual performance return, they are not the same as actual
year-by-year results.
Performance information may be compared, in reports and promotional literature,
to:
o Standard & Poor's 500 Composite Stock Price Index (S & P 500), Dow Jones
Industrial Average (DJIA), Shearson, Lehman Aggregate Bond Index, or other
unmanaged indices so that investors may compare results with those of a
group of unmanaged securities widely regarded by investors as
representative of the securities markets in general (unmanaged indices may
assume the reinvestment of dividends, but generally do not reflect
deductions for administrative and management costs and expenses); or
o other groups of variable life separate accounts or other investment
products tracked by Lipper Analytical Services, a widely used independent
research firm which ranks mutual funds and other investment products by
overall performance, investment objectives and assets, or tracked by other
services, companies, publications or persons, such as Morningstar, Inc.,
who rank such investment products on overall performance or other
criteria; or
o the Consumer Price Index (a measure for inflation) to assess the real rate
of return from an investment.
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 Services, Inc. ("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
Portfolios.
The Company may provide information on various topics of interest to
Policyowners and prospective Policyowners in sales literature, periodic
publications or other materials. These topics may include the relationship
between sectors of the economy and the economy as a whole and its effect on
various securities markets, investment strategies and techniques (such as value
investing, market timing, dollar-cost averaging, asset allocation, constant
ratio transfer and account rebalancing), the advantages and disadvantages of
investing in tax-deferred and taxable investments, customer profiles and
hypothetical purchase and investment scenarios, financial management and tax and
retirement planning, and investment alternatives to certificates of deposit and
other financial instruments.
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<PAGE>
TABLE I(A)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNT
Net of All Charges and Assuming Surrender of the Policy
The following performance information is based on the periods that the
Sub-Accounts have been in existence. The data is net of expenses of the
Underlying Funds, all Sub-Account charges, and all Policy charges (including
surrender charges) for a representative Policy. It is assumed that the Insured
is male, Age 36, standard (nonsmoker) Premium Class, that the Face Amount of the
Policy is $250,000, that an annual premium payment of $3,000 (approximately one
Guideline Annual Premium) was made at the beginning of each Policy year, that
ALL premiums were allocated to EACH Sub-Account individually, and that there was
a full surrender of the Policy at the end of the applicable period.
--------------------------------------------------------------------------
10 Years
or Life
One-Year of
Total 5 Sub-Account
Underlying Fund return Years (if less)
--------------------------------------------------------------------------
Select Emerging Markets Fund
Select International Equity Fund
DGPF International Equity Series
Fidelity VIP Overseas Portfolio
T. Rowe Price International Stock Portfolio
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Growth Fund
Growth Fund
Fidelity VIP Growth Portfolio
Equity Index Fund
Select Growth and Income Fund
Select Strategic Growth Fund
Fidelity VIP Equity-Income Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP High Income Portfolio
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
--------------------------------------------------------------------------
Performance information reflects only the performance of a hypothetical
investment during the particular time period on which the calculations are
based. One-year total return and average annual total return figures are based
on historical earnings and are not intended to indicate future performance.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Underlying Fund in which a Sub-Account invests and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future.
20
<PAGE>
TABLE I(B)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF SUB-ACCOUNTS
Excluding Monthly Policy Charges and Surrender Charges
The following performance information is based on the periods that the
Sub-Accounts have been in existence. The performance information is net of total
Underlying Fund expenses, all Sub-Account charges, and premium tax and expense
charges. The data does NOT reflect monthly charges under the Policy or surrender
charges. It is assumed that an annual premium payment of $3,000 (approximately
one Guideline Annual Premium) was made at the beginning of each Policy year and
that ALL premiums were allocated to EACH Sub-Account individually.
--------------------------------------------------------------------------
10 Years
or Life
One-Year of
Total 5 Sub-Account
Underlying Fund return Years (if less)
--------------------------------------------------------------------------
Select Emerging Markets Fund
Select International Equity Fund
DGPF International Equity Series
Fidelity VIP Overseas Portfolio
T. Rowe Price International Stock Portfolio
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Growth Fund
Growth Fund
Fidelity VIP Growth Portfolio
Equity Index Fund
Select Growth and Income Fund
Select Strategic Growth Fund
Fidelity VIP Equity-Income Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP High Income Portfolio
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
--------------------------------------------------------------------------
Performance information reflects only the performance of a hypothetical
investment during the particular time period on which the calculations are
based. One-year total return and average annual total return figures are based
on historical earnings and are not intended to indicate future performance.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Underlying Fund in which a Sub-Account invests and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future.
21
<PAGE>
TABLE II(A):
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF THE UNDERLYING FUNDS
Net of All Charges and Assuming Surrender of the Policy
The following performance information is based on the periods that the
Underlying Funds have been in existence. The data is net of expenses of the
Underlying Funds, all Sub-Account charges, and all Policy charges (including
surrender charges) for a representative Policy. It is assumed that the Insured
is male, Age 36, standard (nonsmoker) Premium Class, that the Face Amount of the
Policy is $250,000, that an annual premium payment of $3,000 (approximately one
Guideline Annual Premium) was made at the beginning of each Policy year, that
ALL premiums were allocated to EACH Sub-Account individually, and that there was
a full surrender of the Policy at the end of the applicable period.
--------------------------------------------------------------------------
10 Years
or Life
One-Year of
Total 5 Sub-Account
Underlying Fund return Years (if less)
--------------------------------------------------------------------------
Select Emerging Markets Fund
Select International Equity Fund
DGPF International Equity Series
Fidelity VIP Overseas Portfolio
T. Rowe Price International Stock Portfolio
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Growth Fund
Growth Fund
Fidelity VIP Growth Portfolio
Equity Index Fund
Select Growth and Income Fund
Select Strategic Growth Fund
Fidelity VIP Equity-Income Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP High Income Portfolio
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
--------------------------------------------------------------------------
*If less than 10 years. The inception dates for the Underlying Funds are:
4/29/85 for Growth, Investment Grade and Money Market; 9/28/90 for Equity Index;
8/26/91 for Government Bond; 8/21/92 for Select Aggressive Growth, Select
Growth, and Select Growth and Income; 4/30/93 for Select Value Opportunity;
5/01/94 for Select International Equity; 4/28/95 for the Select Capital
Appreciation Fund; 10/09/86 for Fidelity VIP Equity-Income and Fidelity VIP
Growth; 9/19/85 for Fidelity VIP High Income; 1/28/87 for Fidelity VIP Overseas;
9/06/89 for Fidelity VIP II Asset Manager; 10/29/92 for DGPF International
Equity; and 3/31/94 for the T. Rowe Price International Stock.
Performance information reflects only the performance of a hypothetical
investment during the particular time period on which the calculations are
based. One-year total return and average annual total return figures are based
on historical earnings and are not intended to indicate future performance.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Underlying Fund in which a Sub-Account invests and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future.
22
<PAGE>
TABLE II(B)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING DECEMBER 31, 1997
SINCE INCEPTION OF THE UNDERLYING FUNDS
Excluding Monthly Policy Charges and Surrender Charges
The following performance information is based on the periods that the
Underlying Funds have been in existence. The performance information is net of
total Underlying Fund expenses, all Sub-Account charges, and premium tax and
expense charges. The data does NOT reflect monthly charges under the Policy or
surrender charges. It is assumed that an annual premium payment of $3,000
(approximately one Guideline Annual Premium) was made at the beginning of each
Policy year and that ALL premiums were allocated to EACH Sub-Account
individually.
--------------------------------------------------------------------------
10 Years
or Life
One-Year of
Total 5 Sub-Account
Underlying Fund return Years (if less)
--------------------------------------------------------------------------
Select Emerging Markets Fund
Select International Equity Fund
DGPF International Equity Series
Fidelity VIP Overseas Portfolio
T. Rowe Price International Stock Portfolio
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select Value Opportunity Fund
Select Growth Fund
Growth Fund
Fidelity VIP Growth Portfolio
Equity Index Fund
Select Growth and Income Fund
Select Strategic Growth Fund
Fidelity VIP Equity-Income Portfolio
Fidelity VIP II Asset Manager Portfolio
Fidelity VIP High Income Portfolio
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
--------------------------------------------------------------------------
*If less than 10 years. The inception dates for the Underlying Funds are:
4/29/85 for Growth, Investment Grade and Money Market; 9/28/90 for Equity Index;
8/26/91 for Government Bond; 8/21/92 for Select Aggressive Growth, Select
Growth, and Select Growth and Income; 4/30/93 for Select Value Opportunity;
5/01/94 for Select International Equity; 4/28/95 for the Select Capital
Appreciation Fund; 10/09/86 for Fidelity VIP Equity-Income and Fidelity VIP
Growth; 9/19/85 for Fidelity VIP High Income; 1/28/87 for Fidelity VIP Overseas;
9/06/89 for Fidelity VIP II Asset Manager; 10/29/92 for DGPF International
Equity; and 3/31/94 for the T. Rowe Price International Stock. The Select
Emerging Markets Fund and Select Strategic Growth Fund commenced operations in
February, 1998.
23
<PAGE>
A - 16
<PAGE>
Performance information reflects only the performance of a hypothetical
investment during the particular time period on which the calculations are
based. One-year total return and average annual total return figures are based
on historical earnings and are not intended to indicate future performance.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Underlying Fund in which a Sub-Account invests and the market conditions during
the given time period, and should not be considered as a representation of what
may be achieved in the future.
DESCRIPTION OF THE COMPANY, THE VEL II ACCOUNT
AND THE UNDERLYING FUNDS
THE COMPANY
The Company is a life insurance company organized under the laws of Delaware in
July 1974. Its Principal Office is located at 440 Lincoln Street, Worcester,
Massachusetts 01653, Telephone 508-855-1000. The Company is subject to the laws
of the state of Delaware governing insurance companies and to regulation by the
Commissioner of Insurance of Delaware. In addition, the Company is subject to
the insurance laws and regulations of other states and jurisdictions in which it
is licensed to operate.
Effective October 1, 1995, the Company changed its name from SMA Life Assurance
Company to Allmerica Financial Life Insurance and Annuity Company. The Company
is an indirect wholly owned subsidiary of First Allmerica Financial Life
Insurance Company ("First Allmerica") which, in turn, is a wholly owned
subsidiary of Allmerica Financial Corporation ("AFC"). First Allmerica,
originally organized under the laws of Massachusetts in 1844 as a mutual life
insurance company and known as State Mutual Life Assurance Company of America,
converted to a stock life insurance company and adopted its present name on
October 16, 1995. First Allmerica is the fifth oldest life insurance company in
America.
THE VEL II ACCOUNT
The VEL II Account was authorized by vote of the Board of Directors of the
Company on January 21, 1993. The VEL II Account is registered with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940 ("1940 Act"). Such registration does not involve
the supervision of its management or investment practices or policies of the VEL
II Account or the Company by the SEC.
The assets used to fund the variable portion of the Policy are set aside in the
VEL II Account, and are kept separate from the general assets of the Company.
Under Delaware law, assets equal to the reserves and other liabilities of the
VEL II Account may not be charged with any liabilities arising out of any other
business of the Company. The VEL II Account currently has 20 Sub-Accounts. Each
Sub-Account is administered and accounted for as part of the general business of
the Company, but the income, capital gains, or capital losses of each
Sub-Account are allocated to such Sub-Account, without regard to other income,
capital gains or capital losses of the Company, or the other Sub-Accounts. Each
Sub-Account invests exclusively in a corresponding Underlying Fund of one of the
following investment companies:
o Allmerica Investment Trust
o Variable Insurance Products Fund
o Variable Insurance Products Fund II
o T. Rowe Price International Series, Inc.
o Delaware Group Premium Fund, Inc.
24
<PAGE>
The assets of each Underlying Fund are held separate from the assets of the
other Underlying Funds. Each Underlying Fund operates as a separate investment
vehicle, and the income or losses of one Underlying Fund generally have no
effect on the investment performance of another Underlying Fund. Shares of each
Underlying Fund are not offered to the general public but solely to separate
accounts of life insurance companies, such as the VEL II Account.
Each Sub-Account has two subdivisions. One subdivision applies to a Policy
during the first ten Policy years, which are subject to the VEL II Account
administrative charge. See "CHARGES AND DEDUCTIONS," "Charges Against Assets of
the VEL II Account." Thereafter, such a Policy automatically is allocated to the
second subdivision to account for the elimination of the VEL II Account
administrative charge.
The Company reserves the right, subject to compliance with applicable law, to
change the names of the Sub-Accounts and VEL II Account.
ALLMERICA INVESTMENT TRUST
Allmerica Investment Trust (the "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 by the Company 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. Thirteen investment portfolios of the Trust
("Funds") are available under the Policy, each issuing a series of shares:
Select Aggressive Growth Fund, Select Capital Appreciation Fund, Select Value
Opportunity Fund, the Select Emerging Markets Fund, Select International Equity
Fund, Select Growth Fund, Select Strategic Growth Fund, Growth Fund, Equity
Index Fund, Select Growth and Income Fund, Investment Grade Income Fund,
Government Bond Fund and Money Market Fund.
Allmerica Investment serves as investment adviser of the Trust and has entered
into sub-advisory agreements with other investment managers ("Sub-Advisers") who
manage the investments of the Underlying Funds. See "INVESTMENT ADVISORY
SERVICES," "Investment Advisory Services to the Trust."
VARIABLE INSURANCE PRODUCTS FUND
Variable Insurance Products Fund ("Fidelity VIP"), managed by Fidelity
Management & Research Company ("Fidelity Management"), is an open-end,
diversified, management investment company organized as a Massachusetts business
trust on November 13, 1981, and registered with the SEC under the 1940 Act. Four
of its investment portfolios are available under the Policy: Fidelity VIP High
Income Portfolio, Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth
Portfolio and Fidelity VIP Overseas Portfolio.
Various Fidelity companies perform certain activities required to operate
Fidelity VIP. Fidelity Management is one of America's largest investment
management organizations, and has its principal business address at 82
Devonshire Street, Boston, Massachusetts. It is composed of a number of
different companies which provide a variety of financial services and products.
Fidelity Management is the original Fidelity company, founded in 1946. It
provides a number of mutual funds and other clients with investment research and
portfolio management services.
VARIABLE INSURANCE PRODUCTS FUND II
Variable Insurance Products Fund II ("Fidelity VIP II"), managed by Fidelity
Management (see discussion under "Variable Insurance Products Fund"), is an
open-end, diversified, management investment company
25
<PAGE>
organized as a Massachusetts business trust on March 21, 1988 and is registered
with the SEC under the 1940 Act. One of its investment portfolios is available
under the Policy: the Fidelity VIP II Asset Manager Portfolio.
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Series, Inc. ("T. Rowe Price"), managed by Rowe
Price-Fleming International, Inc. ("Price-Fleming"), is an open-end,
diversified, management investment company organized as a Maryland corporation
in 1994 and is registered with the SEC under the 1940 Act. One of its investment
portfolios is available under the Policy: the T. Rowe Price International Stock
Portfolio. See "Investment Advisory Services to T. Rowe Price."
DELAWARE GROUP PREMIUM FUND, INC.
Delaware Group Premium Fund, Inc. ("DGPF") is an open-end, diversified
management investment company registered with the SEC under the 1940 Act. Such
registration does not involve supervision by the SEC of the investments or
investment policy of DGPF or its separate investment series. DGPF was
established to provide a vehicle for the investment of assets of various
separate accounts supporting variable insurance policies. One investment
portfolio ("Series") is available under the Policy: the International Equity
Series. The Investment adviser for the International Equity Series is Delaware
International Advisers Ltd. ("Delaware International"). See "Investment Advisory
Services to DGPF."
INVESTMENT OBJECTIVES AND POLICIES
A summary of investment objectives of each of the Underlying Funds is set forth
below. The Underlying Funds are listed by general investment risk
characteristics. More detailed information regarding the investment objectives,
restrictions and risks, expenses paid by the Underlying Funds and other relevant
information regarding the underlying investment companies may be found in their
respective prospectuses, which accompany this Prospectus and should be read
carefully before investing. The statements of additional information of the
Underlying Funds are available upon request. There can be no assurance that the
investment objectives of the Underlying Funds can be achieved.
Select Aggressive Growth Fund -- The Select Aggressive Growth Fund of the Trust
seeks above-average capital appreciation by investing primarily in common stocks
of companies which are believed to have significant potential for capital
appreciation.
Select Capital Appreciation Fund -- The Select Capital Appreciation Fund of the
Trust seeks long-term growth of capital in a manner consistent with the
preservation of capital. Realization of income is not a significant investment
consideration and any income realized on the Fund's investments will be
incidental to its primary objective. The Fund invests primarily in common stock
of industries and companies which are believed to be experiencing favorable
demand for their products and services, and which operate in a favorable
competitive environment and regulatory climate.
Select Value Opportunity Fund - The Select Value Opportunity Fund of the Trust
seeks long-term growth of capital by investing primarily in a diversified
portfolio of common stocks of small and mid-size companies, whose securities at
the time of purchase are considered by the Sub-Adviser to be undervalued.
Select Emerging Markets Fund - The Select Emerging Markets Fund of the Trust
seeks long-term growth of capital by investing in the world's emerging markets.
The Fund may invest in high yielding, lower-rated fixed-income securities
(commonly referred to as "junk bonds") which are subject to greater risk than
investments in higher-rated securities.
26
<PAGE>
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.
DGPF International Equity Series -- The International Equity Series of DGPF
seeks long-term growth without undue risk to principal by investing primarily in
equity securities of foreign issuers providing the potential for capital
appreciation and income.
Fidelity VIP Overseas Portfolio -- The Overseas Portfolio of Fidelity VIP seeks
long-term growth of capital primarily through investments in foreign securities
and provides a means for aggressive investors to diversify their own portfolios
by participating in companies and economies outside of the United States.
T. Rowe Price International Stock Portfolio -- The T. Rowe Price International
Stock Portfolio seeks long-term growth of capital through investments primarily
in common stocks of established, non-U.S. companies.
Select Growth Fund -- The Select Growth Fund of the Trust seeks to achieve
long-term growth of capital by investing in a diversified portfolio consisting
primarily of common stocks selected on the basis of their long-term growth
potential.
Select Strategic Growth Fund - The Select Strategic Growth Fund of the Trust
seeks long-term growth of capital by investing primarily in common stocks of
established companies.
Growth Fund -- The Growth Fund of the Trust is invested in common stocks and
securities convertible into common stocks that are believed to represent
significant underlying value in relation to current market prices. The objective
of the Growth Fund is to achieve long-term growth of capital. Realization of
current investment income, if any, is incidental to this objective.
Fidelity VIP Growth Portfolio -- the Growth Portfolio of Fidelity VIP seeks to
achieve capital appreciation. The Portfolio normally purchases common stocks,
although its investments are not restricted to any one type of security. Capital
appreciation also may be found in other types of securities, including bonds and
preferred stocks.
Equity Index Fund -- The Equity Index Fund of the Trust seeks to provide
investment results that correspond to the aggregate price and yield performance
of a representative selection of United States publicly traded common stocks.
The Equity Index Fund seeks to achieve its objective by attempting to replicate
the aggregate price and yield performance of the Standard & Poor's Composite
Index of 500 Stocks.
Select Growth and Income Fund -- The Select Growth and Income Fund seeks a
combination of long-term growth of capital and current income. The Fund will
invest primarily in dividend-paying common stocks and securities convertible
into common stocks.
Fidelity VIP Equity-Income Portfolio -- The Equity-Income Portfolio of Fidelity
VIP seeks reasonable income by investing primarily in income-producing equity
securities. In choosing these securities, the Portfolio also will consider the
potential for capital appreciation. The Portfolio's goal is to achieve a yield
which exceeds the composite yield on the securities comprising the S & P 500.
The Portfolio may invest in high yielding, lower-rated fixed-income securities
(commonly referred to as "junk bonds") which are subject to greater risk than
investments in higher-rated securities. See the Fidelity VIP prospectus.
27
<PAGE>
Fidelity VIP II Asset Manager Portfolio -- The Asset Manager Portfolio of
Fidelity VIP II seeks high total return with reduced risk over the long term by
allocating its assets among domestic and foreign stocks, bonds and short-term
fixed-income instruments.
Fidelity VIP High Income Portfolio -- The High Income Portfolio of Fidelity VIP
seeks to obtain a high level of current income by investing primarily in
high-yielding, lower-rated fixed-income securities (commonly referred to as
"junk bonds"), while also considering growth of capital. These securities often
are considered to be speculative, and involve greater risk of default or price
changes than securities assigned a high quality rating.
Investment Grade Income Fund -- The Investment Grade Income Fund of the Trust is
invested in a diversified portfolio of fixed income securities with the
objective of seeking as high a level of total return (including both income and
capital appreciation) as is consistent with prudent investment management.
Government Bond Fund -- The Government Bond Fund of the Trust has the investment
objectives of seeking high income, preservation of capital and maintenance of
liquidity, primarily through investments in debt instruments issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, and in
related options, futures and repurchase agreements.
Money Market Fund -- The Money Market Fund of the Trust is invested in a
diversified portfolio of high-quality, short-term money market instruments with
the objective of obtaining maximum current income consistent with the
preservation of capital and liquidity.
Certain Underlying Funds have investment objectives and/or policies similar to
those of other Underlying Funds. Therefore, to choose the Sub-Accounts which
best will meet your needs and objectives, carefully read the prospectuses of the
Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF, along with this
Prospectus. In some states, insurance regulations may restrict the availability
of particular Sub-Accounts.
If required in your state, in the event of a material change in the investment
Policy of a Sub-Account or the Underlying Fund in which it invests, you will be
notified of the change. If you have Policy Value in that Sub-Account, the
Company will transfer it without charge on written request within sixty (60)
days of the later of (1) the effective date of such change in the investment
Policy, or (2) your receipt of the notice of the right to transfer. You may then
change the percentages of your premium and deduction allocations.
INVESTMENT ADVISORY SERVICES
Investment Advisory Services to the Trust
The overall responsibility for the supervision of the affairs of the Trust vests
in the Trustees. The Trustees have entered into a Management Agreement with
Allmerica Investment to handle the day-to-day affairs of the Trust. Allmerica
Investment, subject to review by the Trustees, is responsible for the general
management of the Funds. Allmerica Investment also performs certain
administrative and management services for the Trust, furnishes to the Trust all
necessary office space, facilities and equipment, and pays the compensation, if
any, of officers and Trustees who are affiliated with Allmerica Investment.
Allmerica Asset Management, Inc., an indirect wholly-owned subsidiary of
Allmerica Financial Corporation, is an affiliate of the Company.
Other than the expenses specifically assumed by Allmerica Investment under the
Management Agreement, all expenses incurred in the operation of the Trust are
borne by it, including fees and expenses associated with the registration and
qualification of the Trust's shares under the Securities Act of 1933 ("1933
Act"), other fees payable to the SEC, independent public accountant, legal and
custodian fees, association membership dues, taxes, interest, insurance
premiums, brokerage commissions, fees and expenses of the Trustees who are not
28
<PAGE>
affiliated with Allmerica Investment, expenses for proxies, prospectuses,
reports to shareholders, and other expenses.
For providing its services under the Management Agreement, Allmerica Investment
will receive a fee, computed daily at an annual rate based on the average daily
net asset value of each Fund as follows:
Select Aggressive Growth Fund First $100 million 1.00%
$100 - $250 million 0.90%
$250 - $500 million 0.85%
Over $500 million 0.85%
Select Capital Appreciation Fund First $100 million 1.00%
$100 - $250 million 0.90%
$250 - $500 million 0.85%
Over $500 million 0.85%
Select Value Opportunity Fund First $100 million 1.00%
Next $150 million 0.85%
Next $250 million 0.80%
Next $250 million 0.75%
Over $750 million 0.70%
Select Emerging Markets Fund * 1.35%
Select International Equity Fund First $100 million 1.00%
$100 - $250 million 0.90%
$250 - $500 million 0.85%
Over $500 million 0.85%
Select Growth Fund * 0.85%
Select Strategic Growth Fund * 0.85%
Growth Fund First $100 million 0.60%
$100 to $250 million 0.60%
$250 to $500 million 0.40%
Over $500 million 0.35%
Equity Index Fund First $50 million 0.35%
Next $200 million 0.30%
Over $250 million 0.25%
Select Growth and Income Fund First $100 million 0.75%
$100 - $250 million 0.70%
$250 - $500 million 0.65%
Over $500 million 0.65%
Investment Grade Income Fund First $50 million 0.50%
$50 - $100 million 0.45%
Over $100 million 0.40%
29
<PAGE>
Government Bond Fund * 0.50%
Money Market Fund First $50 million 0.35%
Next $200 million 0.25%
Over $250 million 0.20%
* For the Government Bond Fund, Select Emerging Markets Fund, the Select Growth
Fund, and the Select Strategic Growth Fund, the investment management fee does
not vary according to the level of assets in the Fund. Allmerica Investment's
fee computed for each Fund will be paid from the assets of such Fund.
Pursuant to the Management Agreement with the Trust, Allmerica Investment has
entered into agreements ("Sub-Adviser Agreements") with other investment
advisers ("Sub-Advisers") under which each Sub-Adviser manages the investments
of one or more of the Funds. Under the Sub-Adviser Agreements, the Sub-Advisers
are authorized to engage in portfolio transactions on behalf of the applicable
Fund, subject to such general or specific instructions as may be given by the
Trustees. The terms of a Sub-Adviser Agreement cannot be materially changed
without the approval of a majority in interest of the shareholders of the
affected Fund. Allmerica Investment is solely responsible for the payment of all
fees for investment management services to the Sub-Advisers.
Allmerica Investment's fee, computed for each Fund, will be paid from the assets
of such Fund. Pursuant to the Management Agreement with the Trust, Allmerica
Investment has entered into agreements ("Sub-Adviser Agreements") with other
investment advisers ("Sub-Advisers") under which each Sub-Adviser manages the
investments of one or more of the Funds. Under the Sub-Adviser Agreement, the
Sub-Adviser is authorized to engage in portfolio transactions on behalf of the
applicable Fund, subject to such general or specific instructions as may be
given by the Trustees. The terms of a Sub-Adviser Agreement cannot be materially
changed without the approval of a majority in interest of the shareholders of
the affected Fund. Allmerica Investment 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
fees paid to the Sub-Advisors by Allmerica Investment, and should be read in
conjunction with this Prospectus.
Investment Advisory Services to Fidelity VIP and Fidelity VIP II For managing
investments and business affairs, each Portfolio pays a monthly fee to Fidelity
Management. The prospectuses of Fidelity VIP and Fidelity VIP II contain
additional information concerning the Portfolios, including information about
additional expenses paid by the Portfolios, and should be read in conjunction
with this Prospectus.
The Fidelity VIP High Income Portfolio pays a monthly fee to Fidelity Management
at an annual fee rate made up of the sum of two components:
1. A group fee rate based on the monthly average net assets of all the mutual
funds advised by Fidelity Management. On an annual basis this rate cannot
rise above 0.37%, and drops as total assets in all these funds rise.
2. An individual fund fee rate of 0.45% of the Fidelity VIP High Income
Portfolio's average net assets throughout the month. One-twelfth of the
annual management fee rate is applied to net assets averaged over the most
recent month, resulting in a dollar amount which is the management fee for
that month.
The fee rates of the Fidelity VIP Equity-Income, Fidelity VIP Growth, Fidelity
VIP II Asset Manager and
30
<PAGE>
Fidelity VIP Overseas Portfolios each are made of two components:
1. A group fee rate based on the monthly average net assets of all of the
mutual funds advised by Fidelity Management. On an annual basis, this rate
cannot rise above 0.52%, and drops as total assets in all these mutual funds
rise.
2. An individual Portfolio fee rate of 0.20% for the Fidelity VIP Equity-Income
Portfolio, 0.30% for the Fidelity VIP Growth Portfolio, 0.25% for the
Fidelity VIP II Asset Manager Portfolio and 0.45% for the Fidelity VIP
Overseas Portfolio.
One-twelfth of the sum of these two rates is applied to the respective
Portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the fee for that month. Thus, the Fidelity VIP High Income
Portfolio may have a fee as high as 0.82% of its average net assets. The
Fidelity VIP Equity-Income Portfolio may have a fee as high as 0.72% of its
average net assets. The Fidelity VIP Growth Portfolio may have a fee as high as
0.82% of its average net assets. The Fidelity VIP II Asset Manager Portfolio may
have a fee as high as 0.77% of its average net assets. The Fidelity VIP Overseas
Portfolio may have a fee as high as 0.97% of its average net assets. The actual
fee rate may be less depending on the total assets in the funds advised by
Fidelity Management.
Investment Advisory Services to T. Rowe Price
The Investment Adviser for the International Stock Portfolio is Rowe
Price-Fleming International, Inc. ("Price-Fleming"). Price-Fleming, founded in
1979 as a joint venture between T. Rowe Price Associates, Inc. and Robert
Fleming Holdings, Limited, is one of America's largest international mutual fund
asset managers with approximately $____ billion under management in its offices
in Baltimore, London, Tokyo and Hong Kong. To cover investment management and
operating expenses, the T. Rowe Price International Stock Portfolio pays
Price-Fleming a single, all-inclusive fee of 1.05% of its average daily net
assets.
Investment Advisory Services to DGPF
Each Series of DGPF pays an investment adviser an annual fee for managing the
portfolios and making the investment decisions for the Series. The investment
adviser for the International Equity Series is Delaware International Advisers
Ltd. ("Delaware International"). The annual fee paid by the International Equity
Series to Delaware International is equal to 0.75% of the average daily net
assets of the Series.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
The Company reserves the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares that are held in the
Sub-Accounts or that the Sub-Accounts may purchase. If the shares of any
Underlying Fund are no longer available for investment or if in the Company's
judgment further investment in any Underlying Fund should become inappropriate
in view of the purposes of the VEL II Account or the affected Sub-Account, the
Company may redeem the shares of that Underlying Fund and substitute shares of
another registered open-end management company. The Company will not substitute
any shares attributable to a Policy interest in a Sub-Account without notice to
the Policyowner and prior approval of the SEC and state insurance authorities,
to the extent required by law. The VEL II Account may, to the extent permitted
by law, purchase other securities for other policies or permit a conversion
between policies upon request by a Policyowner.
The Company also reserves the right to establish additional Sub-Accounts of the
VEL II Account, each of which would invest in shares of a new Underlying Fund or
in shares of another investment company. 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
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conditions warrant. Any new Sub-Accounts may be made available to existing
Policyowners on a basis to be determined by the Company.
Shares of the Funds of the Trust also are issued to separate accounts of the
Company and its affiliates which issue variable annuity contracts ("mixed
funding"). Shares of the Portfolios of Fidelity VIP and Fidelity VIP II, the
Portfolio of T. Rowe Price and the Series of DGPF also are issued to other
unaffiliated insurance companies ("shared funding"). It is conceivable that in
the future such mixed funding or shared funding may be disadvantageous for
variable life Policyowners or variable annuity contract owners. Although the
Company and the Underlying Investment Companies currently do not foresee any
such disadvantages to either variable life insurance Policyowners or variable
annuity contract owners, the Company and the respective Trustees intend to
monitor events in order to identify any material conflicts and to determine what
action, if any, should be taken. If the Trustees were to conclude that separate
Funds should be established for variable life and variable annuity separate
accounts, the Company will bear the expenses.
If any of these substitutions or changes are made, the Company may endorse the
Policy to reflect the substitution or change, and will notify Policyowners of
all such changes. If the Company deems it to be in the best interest of
Policyowners, and subject to any approvals that may be required under applicable
law, the VEL II Account or any Sub-Account(s) may be operated as a management
company under the 1940 Act, may be deregistered under the 1940 Act if
registration is no longer required, or may be combined with other Sub-Accounts
or other separate accounts of the Company.
VOTING RIGHTS
To the extent required by law, the Company will vote Underlying Fund shares held
by each Sub-Account in accordance with instructions received from Policyowners
with Policy Value in such Sub-Account. If the 1940 Act or any rules thereunder
should be amended, or if the present interpretation of the 1940 Act or such
rules should change and, as a result the Company determines that it is permitted
to vote shares in its own right, whether or not such shares are attributable to
the Policy, the Company reserves the right to do so.
Each person having a voting interest will be provided with proxy materials of
the respective Underlying Fund, together with an appropriate form with which to
give voting instructions to the Company. Shares held in each Sub-Account for
which no timely instructions are received will be voted in proportion to the
instructions which have been received by the Company. The Company also will vote
shares held in the VEL II Account that it owns and which are not attributable to
the Policy in the same proportion.
The number of votes which a Policyowner has the right to instruct will be
determined by the Company as of the record date established for the Underlying
Fund. This number is determined by dividing each Policyowner's Policy Value in
the Sub-Account, if any, by the net asset value of one share in the
corresponding Underlying Fund in which the assets of the Sub-Account are
invested.
The Company may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as (1) to cause a change in the sub-classification or investment
objective of one or more of the Underlying Funds, or (2) to approve or
disapprove an investment advisory contract for the Underlying Funds. In
addition, the Company may disregard voting instructions in favor of any change
in the investment policies or in any investment adviser or principal underwriter
initiated by Policyowners or the Trustees. The Company's disapproval of any such
change must be reasonable and, in the case of a change in investment policies or
investment adviser, based on a good faith determination that such change would
be contrary to state law or otherwise is inappropriate in light of the
objectives and purposes of the Underlying Funds. In the event the Company does
disregard voting instructions, a summary of and the reasons for that action will
be included in the next periodic report to Policyowners.
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THE POLICY
APPLYING FOR A POLICY
A Policy cannot be issued until the underwriting procedure has been completed.
Upon receipt at its Principal Office of a completed application from a
prospective Policyowner, the Company will follow certain insurance underwriting
procedures designed to determine whether the proposed Insured is insurable. This
process may involve medical examinations, and may require that further
information be provided by the proposed Policyowner before a determination of
insurability can be made. The Company reserves the right to reject an
application which does not meet its underwriting guidelines, but in underwriting
insurance, the Company complies with all applicable federal and state
prohibitions concerning unfair discrimination.
Conditional Insurance Agreement
It is possible to obtain life insurance protection during the underwriting
process through a Conditional Insurance Agreement. If at the time of application
you make a payment equal to at least one "Minimum Monthly Factor" for the Policy
as applied for, the Company will provide fixed conditional insurance in the
amount of insurance applied for up to a maximum of $500,000, pending
underwriting approval. This coverage generally will continue for a maximum of 90
days from the date of the application or the completion of a medical exam,
should one be required. In no event will any insurance proceeds be paid under
the Conditional Insurance Agreement if death is by suicide.
If the application is approved, the Policy will be issued as of the date the
terms of the Conditional Insurance Agreement were met. If no Conditional
Insurance Agreement is in effect because the prospective Policyowner does not
wish to make any payment until the Policy is issued or has paid an initial
premium that is not sufficient to place the Policy in force, upon delivery of
the Policy the Company will require payment of sufficient premium to place the
insurance in force.
Premiums Held in the General Account Pending Underwriting Approval
Pending completion of insurance underwriting and Policy issuance procedures, the
initial premium will be held in the Company's General Account. If the
application is approved and the Policy is issued and accepted by you, the
initial premium held in the General Account will be credited with interest at a
specified rate, beginning not later than the date of receipt of the premium at
the Principal Office. IF A POLICY IS NOT ISSUED, THE PREMIUMS WILL BE RETURNED
TO YOU WITHOUT INTEREST.
If the Policy is issued to the trustee of an employee benefit plan, the amounts
held in the Company's General Account will be allocated to the Sub-Accounts
according to the Policyowner's instructions when the Delivery Receipt is
returned to the Principal Office. For all other Policyowners, the date we
transfer the initial net premium from the General Account to the selected
Sub-Accounts depends on the premium amount. If the initial net premiums are less
than $10,000, the amounts held in the General Account will be allocated to the
selected Sub-Accounts not later than three days after underwriting approval of
the Policy. If the initial net premiums equal or exceed $10,000, or if the
Policy provides for planned premium payments during the first year equal to or
exceeding $10,000 annually, $5,000 semi-annually, $2,500 quarterly or $1,000
monthly, the entire Net Premium, plus any interest earned, will remain in the
General Account until return of the Policy's Delivery Receipt to the Principal
Office. The entire amount held in the General Account for allocation to the VEL
II Account then will be allocated to the Sub-Accounts according to your
instructions.
FREE-LOOK PERIOD
The Policy provides for an initial "Free-Look" period. You may cancel the Policy
by mailing or delivering the
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Policy to the Principal Office or an agent of the Company on or before the
latest of :
o 45 days after the application for the Policy is signed, or
o 10 days after you receive the Policy (or longer if required by state law),
or
o 10 days after the Company mails or personally delivers a notice of
withdrawal rights to you.
When you return the Policy, the Company will mail within seven days a refund
equal to the sum of:
(1) the difference between the premiums, including fees and charges paid, and
any amounts allocated to the VEL II Account, plus
(2) the value of the amounts allocated to the VEL II Account, plus
(3) any fees or charges imposed on the amounts allocated to the VEL II Account.
The amount refunded in (1) above includes any premiums allocated to the General
Account. Where required by state law, the refund will equal the premiums paid.
The refund of any premium paid by check, however, may be delayed until the check
has cleared your bank.
Free Look with Face Amount Increases -- After an increase in the Face Amount,
the Company will mail or personally deliver a notice of a "Free Look" with
respect to the increase. You will have the right to cancel the increase before
the latest of:
o 45 days after the application for the increase is signed, or
o 10 days after you receive the new specification pages issued for the
increase (or longer if required by state law), or
o 10 days after the Company mails or delivers a notice of withdrawal rights
to you.
Upon canceling the increase, you will receive a credit to your Policy Value of
charges which would not have been deducted but for the increase. The amount to
be credited will be refunded if you so request. The Company also will waive any
surrender charge calculated for the increase.
CONVERSION PRIVILEGES
Once during the first 24 months after the Date of Issue or after the effective
date of an increase in Face Amount (assuming the Policy is in force), you may
convert your Policy without Evidence of Insurability to a flexible premium
adjustable life insurance policy with fixed and guaranteed minimum benefits.
Assuming that there have been no increases in the initial Face Amount, you can
accomplish this within 24 months after the Date of Issue by transferring,
without charge, the Policy Value in the VEL II Account to the General Account
and by simultaneously changing your premium allocation instructions to allocate
future premium payments to the General Account. Within 24 months after the
effective date of each increase, you can transfer, without charge, all or part
of the Policy Value in the VEL II Account to the General Account and
simultaneously change your premium allocation instructions to allocate all or
part of future premium payments to the General Account.
Where required by state law, at your request the Company will issue a flexible
premium adjustable life insurance Policy to you. The new Policy will have the
same Face Amount, Issue Age, Dates of Issue, and Premium Class as the original
Policy.
PREMIUM PAYMENTS
Premium payments are payable to the Company, and may be mailed to the Principal
Office or paid through one of the Company's authorized agents. All premium
payments after the initial premium payment are credited to the VEL II Account or
the General Account as of date of receipt at the Principal Office.
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Premium Flexibility
Unlike conventional insurance policies, the Policy does not obligate you to pay
premiums in accordance with a rigid and inflexible premium schedule. You may
establish a schedule of planned premiums which will be billed by the Company at
regular intervals. Failure to pay planned premiums will not itself cause the
Policy to lapse. However, if the optional Guaranteed Death Benefit rider is in
effect, certain minimum premium payment tests must be met.
You also may make unscheduled premium payments at any time prior to the Final
Premium Payment Date or skip planned premium payments, subject to the maximum
and minimum premium limitations described below.
You also may elect to pay premiums by means of a monthly automatic payment
("MAP") procedure. Under a MAP procedure, amounts will be deducted each month,
generally on the Monthly Payment Date, from your checking account and applied as
a premium under a Policy. The minimum payment permitted under a MAP procedure is
$50.
Premiums are not limited as to frequency and number. No premium payment may be
less than $100, however, without the Company's consent. Moreover, premium
payments must be sufficient to provide a positive Surrender Value at the end of
each Policy month, or the Policy may lapse. See "POLICY TERMINATION AND
REINSTATEMENT."
Minimum Monthly Factor
If, in the first 48 Policy months following issue or an increase in the Face
Amount, you make premium payments, less debt, partial withdrawals and partial
withdrawal charges, at least equal to the sum of the Minimum Monthly Factor for
the number of months the Policy, increase in Face Amount, or Policy Change which
causes a change in the Minimum Monthly Factor has been in force, the Policy is
guaranteed not to lapse during that period. EXCEPT FOR THE 48 POLICY MONTHS
AFTER THE DATE OF ISSUE, OR THE EFFECTIVE DATE OF AN INCREASE IN THE FACE
AMOUNT, MAKING MONTHLY PAYMENTS AT LEAST EQUAL TO THE MINIMUM MONTHLY FACTOR
DOES NOT GUARANTEE THAT THE POLICY WILL REMAIN IN FORCE.
In no event may the total of all premiums paid exceed the current maximum
premium limitations set forth in the Policy which are required by federal tax
laws. These maximum premium limitations will change whenever there is any change
in the Face Amount, the addition or deletion of a rider, or a change in the Sum
Insured Option. If a premium is paid which would result in total premiums
exceeding the current maximum premium limitations, the Company will accept only
that portion of the premiums which shall make total premiums equal the maximum.
Any part of the premiums in excess of that amount will be returned, and no
further premiums will be accepted until allowed by the current maximum premium
limitation prescribed by IRS rules. Notwithstanding the current maximum premium
limitations, however, the Company will accept a premium which is needed in order
to prevent a lapse of the Policy during a Policy year. See "POLICY TERMINATION
AND REINSTATEMENT."
INCENTIVE FUNDING DISCOUNT
We will lower the cost of insurance charges by 5% during any Policy year for
which you qualify for an incentive funding discount. To qualify, total premiums
paid under the Policy, less any debt, withdrawals and withdrawal charges, and
transfers from other policies issued by the Company, must exceed 90% of the
guideline level premiums (as defined in Section 7702 of the Code) accumulated
from the Date of Issue to the date of qualification. The incentive funding
discount is not available in all states.
The amount needed to qualify for the incentive funding discount is determined on
the Date of Issue for the first
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Policy year and on each Policy anniversary for each subsequent Policy year. If
the Company receives the proceeds from a Policy issued by an unaffiliated
company to be exchanged for the Policy, however, the qualification for the
incentive funding discount for the first Policy year will be determined on the
date the proceeds are received by the Company, and only insurance charges
becoming due after the date such proceeds are received will be eligible for the
incentive funding discount.
GUARANTEED DEATH BENEFIT RIDER
An optional Guaranteed Death Benefit Rider is available only at issue of the
Policy. If this rider is in effect, the Company:
o guarantees that your Policy will not lapse regardless of the investment
performance of the Variable Account and
o provides a guaranteed death benefit.
In order to maintain the Guaranteed Death Benefit rider, certain minimum premium
payment tests must be met on each Policy anniversary and within 48 months
following the Date of Issue and/or the date of any increase in Face Amount, as
described below. In addition, a one-time administrative charge of $25 will be
deducted from Policy Value when the rider is elected. Certain transactions,
including Policy Loans, partial withdrawals, and changes in Sum Insured Options,
can result in the termination of the rider. If this rider is terminated, it
cannot be reinstated.
Guaranteed Death Benefit Tests
While the Guaranteed Death Benefit Rider is in effect, the Policy will not lapse
if the following two tests are met:
1. Within 48 months following the Date of Issue of the Policy or of any
increase in the Face Amount, the sum of the premiums paid, less any debt,
partial withdrawals and withdrawal charges, must be greater than the
Minimum Monthly Factors (if any) multiplied by the number of months which
have elapsed since the Date of Issue or the effective date of increase;
and
2. On each Policy anniversary, (a) must exceed (b), where, since the Date of
Issue:
(a) is the sum of your premiums, less any withdrawals, partial withdrawal
charges and debt which is classified as a preferred loan; and
(b) is the sum of the minimum guaranteed death benefit premiums, as shown
on the specifications page of the Policy.
Guaranteed Death Benefit
If the Guaranteed Death Benefit Rider is in effect on the Final Premium Payment
Date, guaranteed Death Proceeds will be provided as long as the rider is in
force. The Death Proceeds will be the greater of:
o the Face Amount as of the Final Premium Payment Date; or
o the Policy Value as of the date due proof of death is received by the
Company.
Termination of the Guaranteed Death Benefit Rider
The Guaranteed Death Benefit rider will end and may not be reinstated on the
first to occur of the following:
o foreclosure of a Policy Loan; or
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o the date on which the sum of your payments does not meet or exceed the
applicable Guaranteed Death Benefit test (above); or
o any Policy change that results in a negative guideline level premium; or
o the effective date of a change from Sum Insured Option 2 to Sum Insured
Option I, if such change occurs within 5 policy years of the Final Premium
Payment Date; or
o a request for a partial withdrawal or preferred loan is made after the
Final Premium Payment Date.
It is possible that the Policy Value will not be sufficient to keep the Policy
in force on the first Monthly Payment Date following the date the rider
terminates. The net amount payable to keep the Policy in force will never exceed
the surrender charge plus three Monthly Deductions.
PAID-UP INSURANCE OPTION
Upon written request, a Policyowner may exercise a paid-up insurance option.
Paid-up life insurance is fixed insurance, usually having a reduced Face Amount,
for the lifetime of the insured with no further premiums due. If the Policyowner
elects this option, certain Policyowner rights and benefits may be limited.
The paid-up fixed insurance will be in the amount that the Surrender Value of
the Policy can purchase for a net single premium at the Insured's age and
underwriting class on the date this option is elected. The Company will transfer
any Policy Value in the VEL II Account to the General Account on the date it
receives the written request to elect the option. If the Surrender Value exceeds
the net single premium necessary for the fixed insurance, the Company will pay
the excess to the Policyowner. The net single premium is based on the
Commissioners 1980 Standard Ordinary Mortality Tables, Smoker or Non-Smoker
(Table B for unisex policies) with increases in the tables for non-standard
risks. Interest will not be less than 4.5%.
IF THE PAID-UP INSURANCE OPTION IS ELECTED, THE FOLLOWING POLICYOWNER RIGHTS AND
BENEFITS WILL BE AFFECTED:
o As described above, the paid-up insurance benefit is computed differently
from the net death benefit, and the death benefit options will not apply.
o The Company will transfer the Policy Value in the VEL II Account to the
General Account on the date it receives the written request to elect the
option. The Company will not allow transfers of Policy Value from the
General Account back to the VEL II Account.
o The Policyowner may not make further premium payments.
o The Policyowner may not increase or decrease the Face Amount or make
partial withdrawals.
o Riders will continue only with the Company's consent.
After electing paid-up fixed insurance, the Policyowner may make Policy loans or
surrender the Policy for its net cash value. The cash value is equal to the net
single premium for paid-up insurance at the Insured's attained age. The net cash
value is the cash value less any outstanding loans.
ALLOCATION OF NET PREMIUMS
The Net Premium equals the premium paid less the 3 1/2% tax expense charge. In
the application for a Policy, you indicate the initial allocation of Net
Premiums among the General Account and the Sub-Accounts of the VEL II Account.
You may allocate premiums to one or more Sub-Accounts, but may not have Policy
Value in more than seven (twenty, effective May 11, 1998) Sub-Accounts at any
one time. The minimum amount which may be allocated to a Sub-Account is 1% of
Net Premium paid. Allocation percentages must be in whole numbers (for example,
33 1/3% may not be chosen) and must total 100%.
Future Changes Allowed
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You may change the allocation of future Net Premiums at any time pursuant to
written or telephone request. An allocation change will be effective as of the
date of receipt of the notice at the Principal Office. If allocation changes by
telephone are elected by the Policyowner, a properly completed authorization
form must be on file before telephone requests will be honored. The Policy of
the Company and its agents and affiliates is that they will not be responsible
for losses resulting from acting upon telephone requests reasonably believed to
be genuine. The Company will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine; otherwise, the Company may
be liable for any losses due to unauthorized or fraudulent instructions.
The procedures the Company follows for telephone transactions include requiring
callers to identify themselves by name, and to identify the Policyowner by name,
date of birth and social security number. All transfer instructions by telephone
are tape recorded.
Investment Risk
The Policy Value in the Sub-Accounts will vary with their investment experience;
you bear this investment risk. The investment performance may affect the Death
Proceeds as well. Policyowners periodically should review their allocations of
premiums and Policy Value in light of market conditions and overall financial
planning requirements.
TRANSFER PRIVILEGE
Subject to the Company's then current rules, you may at any time transfer the
Policy Value among the Sub-Accounts or between a Sub-Account and the General
Account. However, the Policy Value held in the General Account to secure a
Policy loan may not be transferred.
All requests for transfers must be made to the Principal Office. The amount
transferred will be based on the Policy Value in the Account(s) next computed
after receipt of the transfer order. The Company will make transfers pursuant to
written or telephone request. As discussed in "THE POLICY -- Allocation of Net
Premiums," a properly completed authorization form must be on file at the
Principal Office before telephone requests will be honored.
Currently, transfers involving the General Account are permitted only if:
o there has been at least a 90-day period since the last transfer from the
General Account, and
o the amount transferred from the General Account in each transfer does not
exceed the lesser of $100,000 or 25% of the Accumulated Value under the
Policy.
These rules are subject to change by the Company.
Dollar-Cost Averaging Option and Automatic Rebalancing Option You may have
automatic transfers of at least $100 a month made on a periodic basis:
o from the Sub-Accounts which invest in the Money Market Fund and Government
Bond Fund of the Trust, respectively, to one or more of the other
Sub-Accounts ("Dollar-Cost Averaging Option"), or
o to reallocate Policy Value among the Sub-Accounts ("Automatic Rebalancing
Option").
Automatic transfers may be made on a monthly, bi-monthly, quarterly, semi-annual
or annual schedule. Generally, all transfers will be processed on the 15th of
each scheduled month. If the 15th is not a business day, however, or is the
Monthly Payment Date, the automatic transfer will be processed on the next
business day. The Dollar-Cost Averaging Option and the Automatic Rebalancing
Option may not be in effect at the same time.
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Transfer Privilege Subject to Possible Limits
The transfer privilege is subject to the Company's consent. The Company reserves
the right to impose limitations on transfers including, but not limited to:
o the minimum amount that may be transferred,
o the minimum amount that may remain in a Sub-Account following a transfer
from that Sub-Account,
o the minimum period of time between transfers involving the General
Account, and
o the maximum amount that may be transferred each time from the General
Account.
Currently, the first 12 transfers in a Policy year will be free of any charge.
Thereafter, a $10 transfer charge will be deducted from the amount transferred
for each transfer in that Policy year. The Company may increase or decrease this
charge, but it is guaranteed never to exceed $25. The first automatic transfer
counts as one transfer towards the 12 free transfers allowed in each Policy
year; each subsequent automatic transfer is without charge and does not reduce
the remaining number of transfers which may be made free of charge. Any
transfers made with respect to a conversion privilege, Policy loan or material
change in investment Policy will not count towards the 12 free transfers.
DEATH PROCEEDS
As long as the Policy remains in force (see "POLICY TERMINATION AND
REINSTATEMENT"), upon due proof of the Insured's death, the Company will pay the
Death Proceeds of the Policy to the named Beneficiary. The Company normally will
pay the Death Proceeds within seven days of receiving due proof of the Insured's
death, but the Company may delay payments under certain circumstances. See
"OTHER POLICY PROVISIONS" "Postponement Of Payments." The Death Proceeds may be
received by the Beneficiary in cash or under one or more of the payment options
set forth in the Policy. See "APPENDIX B --DEATH PROCEEDS PAYMENT OPTIONS."
Prior to the Final Premium Payment Date, the Death Proceeds are equal to:
o the Sum Insured provided under Option 1 or Option 2, whichever is elected
and in effect on the date of death; plus
o any additional insurance on the Insured's life that is provided by rider;
minus
o any outstanding Debt, any partial withdrawals and partial withdrawal
charges, and any Monthly Deductions due and unpaid through the Policy
month in which the Insured dies.
After the Final Premium Payment Date, the Death Proceeds equal the Surrender
Value of the Policy, unless the Guaranteed Death Benefit rider is in effect. If
the Guaranteed Death Benefit rider is in effect, the Death Proceed equal the
greater of the Face Amount or Surrender Value. The amount of Death Proceeds
payable will be determined as of the date of the Company's receipt of due proof
of the Insured's death.
SUM INSURED OPTIONS
The Policy provides two Sum Insured Options: Option 1 and Option 2, as described
below. You designate the desired Sum Insured Option in the application. You may
change the Option once per Policy year by written request. There is no charge
for a change in Option.
Under Option 1, the Sum Insured is equal to the greater of the Face Amount of
insurance or the Guideline Minimum Sum Insured. Under Option 2, the Sum Insured
is equal to the greater of the Face Amount of insurance plus the Policy Value or
the Guideline Minimum Sum Insured.
Guideline Minimum Sum Insured
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To remain qualified as "life insurance" for federal tax purposes, federal tax
law requires that policies have a minimum amount of pure life insurance
protection in relation to the size of the Policy Value. The Guideline Minimum
Sum Insured is used to determine compliance with this requirement. So long as
the Policy qualifies as a life insurance contract, the insurance proceeds will
be excluded from the gross income of the Beneficiary.
Guideline Minimum Sum Insured Table
Age of Insured Percentage of
on Date of Death Policy Value
---------------- ------------
40 and under........................250%
45..................................215%
50..................................185%
55..................................150%
60..................................130%
65..................................120%
70..................................115%
75..................................105%
80..................................105%
85..................................105%
90..................................105%
95 and above........................100%
For the Ages not listed, the progression between the listed Ages is linear.
Under both Option 1 and Option 2, the Sum Insured provides insurance protection.
Under Option 1, the Sum Insured remains level unless the applicable percentage
of Policy Value under the Guideline Minimum Sum Insured exceeds the Face Amount,
in which case the Sum Insured will vary as the Policy Value varies. Under Option
2, the Sum Insured varies as the Policy Value changes.
For any Face Amount, the amount of the Sum Insured (and the Death Proceeds) will
be greater under Option 2 than under Option 1. This is because the Policy Value
is added to the specified Face Amount and included in the Death Proceeds only
under Option 2. Under Option 2, however, the cost of insurance included in the
Monthly Deduction will be greater, and the rate at which Policy Value will
accumulate will be slower (assuming the same specified Face Amount and the same
actual premiums paid). See "CHARGES AND DEDUCTIONS" "Monthly Deduction From
Policy Value."
If you desire to have premium payments and investment performance reflected in
the amount of the Sum Insured, you should choose Option 2. If you desire premium
payments and investment performance reflected to the maximum extent in the
Policy Value, you should select Option 1.
Illustrations
For the purposes of the following illustrations, assume that the Insured is
under the Age of 40 and that there is no outstanding Debt.
Illustration of Option 1 -- Under Option 1, the Face Amount of the Policy
generally will equal the Sum Insured. If at any time, however, the Policy Value
multiplied by the applicable percentage is less than the Face Amount, the Sum
Insured will equal the Face Amount of the Policy.
For example, a Policy with a $50,000 Face Amount will generally have a Sum
Insured equal to $50,000. Because the Sum Insured must be equal to or greater
than 250% of Policy Value, however, if at any time the
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Policy Value exceeds $20,000, the Sum Insured will exceed the $50,000 Face
Amount. In this example, each additional dollar of Policy Value above $20,000
will increase the Sum Insured by $2.50. For example, a Policy with a Policy
Value of $35,000 will have a Guideline Minimum Sum Insured of $87,500 ($35,000 x
2.50); Policy Value of $40,000 will produce a Guideline Minimum Sum Insured of
$100,000 ($40,000 x 2.50); and Policy Value of $50,000 will produce a Guideline
Minimum Sum Insured of $125,000 ($50,000 x 2.50).
Similarly, so long as Policy Value exceeds $20,000, each dollar taken out of
Policy Value will reduce the Sum Insured by $2.50. If, for example, the Policy
Value is reduced from $25,000 to $20,000 (because of partial withdrawals,
charges or negative investment performance), the Sum Insured will be reduced
from $62,500 to $50,000.
The applicable percentage becomes lower as the Insured's Age increases. If the
Insured's Age in the above example were, for example, 50 (rather than between 0
and 40), the applicable percentage would be 185%. The Sum Insured would not
exceed the $50,000 Face Amount unless the Policy Value exceeded $27,027 (rather
than $20,000), and each dollar then added to or taken from Policy Value would
change the Sum Insured by $1.85.
Illustration of Option 2 -- Under Option 2, the Sum Insured is generally equal
to the Face Amount of the Policy plus the Policy Value. The Sum Insured under
Option 2, however, always will be the greater of :
o the Face Amount plus Policy Value; or
o the Policy Value multiplied by the applicable percentage from the
Guideline Minimum Sum Insured table.
For example, a Policy with a Face Amount of $50,000 and with Policy Value of
$5,000 will produce a Sum Insured of $55,000 ($50,000 + $5,000). Policy Value of
$10,000 will produce a Sum Insured of $60,000 ($50,000 + $10,000); Policy Value
of $25,000 will produce a Sum Insured of $75,000 ($50,000 + $25,000).
According to the Guideline Minimum Sum Insured table, however, the Sum Insured
for the example must be at least 250% of the Policy Value. Therefore, if the
Policy Value is greater than $33,333, 250% of that amount will be the required
Sum Insured, which will be greater than the Face Amount plus Policy Value. In
this example, each additional dollar of Policy Value above $33,333 will increase
the Sum Insured by $2.50. For example, if the Policy Value is $35,000, the
Guideline Minimum Sum Insured will be $87,500 ($35,000 x 2.50); Policy Value of
$40,000 will produce a Guideline Minimum Sum Insured of $100,000 ($40,000 x
2.50); and Policy Value of $50,000 will produce a Guideline Minimum Sum Insured
of $125,000 ($50,000 x 2.50).
Similarly, if the Policy Value exceeds $33,333, each dollar taken out of the
Policy Value will reduce the Sum Insured by $2.50. If, for example, the Policy
Value is reduced from $45,000 to $40,000 because of partial withdrawals, charges
or negative investment performance, the Sum Insured will be reduced from
$112,500 to $100,000. If at any time, however, Policy Value multiplied by the
applicable percentage is less than the Face Amount plus Policy Value, then the
Sum Insured will be the current Face Amount plus the Policy Value.
The applicable percentage becomes lower as the Insured's Age increases. If the
Insured's Age in the above example were 50, the Sum Insured must be at least
1.85 times the Policy Value. The amount of the Sum Insured would be the sum of
the Policy Value plus $50,000 unless the Policy Value exceeded $58,824 (rather
than $33,000). Each dollar added to or subtracted from the Policy would change
the Sum Insured by $1.85.
CHANGE IN SUM INSURED OPTION
Generally, the Sum Insured Option in effect may be changed once each Policy year
by sending a written request for change to the Principal Office. Changing Sum
Insured Options will not require Evidence of Insurability. The effective date of
any such change will be the Monthly Payment Date on or following the date of
receipt of
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the request. No charges will be imposed on changes in Sum Insured Options.
Change from Option 1 to Option 2
If the Sum Insured Option is changed from Option 1 to Option 2, the Face Amount
will be decreased to equal the Sum Insured less the Policy Value on the
effective date of the change. This change may not be made if it would result in
a Face Amount of less than $40,000. A change from Option 1 to Option 2 will not
alter the amount of the Sum Insured at the time of the change, but will affect
the determination of the Sum Insured from that point on. Because the Policy
Value will be added to the new specified Face Amount, the Sum Insured will vary
with the Policy Value. Under Option 2, the Insurance Amount at Risk always will
equal the Face Amount unless the Guideline Minimum Sum Insured is in effect. The
cost of insurance also may be higher or lower than it otherwise would have been
without the change in Sum Insured Option. See "CHARGES AND DEDUCTIONS," "Monthly
Deduction from the Policy Value."
Change from Option 2 to Option 1
If the Sum Insured Option is changed from Option 2 to Option 1, the Face Amount
will be increased to equal the Sum Insured which would have been payable under
Option 2 on the effective date of the change (i.e., the Face Amount immediately
prior to the change plus the Policy Value on the date of the change). The amount
of the Sum Insured will not be altered at the time of the change. The change in
option, however, will affect the determination of the Sum Insured from that
point on, since the Policy Value no longer will be added to the Face Amount in
determining the Sum Insured; the Sum Insured will equal the new Face Amount (or,
if higher, the Guideline Minimum Sum Insured). The cost of insurance may be
higher or lower than it otherwise would have been since any increases or
decreases in Policy Value will reduce or increase, respectively, the Insurance
Amount at Risk under Option 1. Assuming a positive net investment return with
respect to any amounts in the VEL II Account, changing the Sum Insured Option
from Option 2 to Option 1 will reduce the Insurance Amount at Risk and therefore
the cost of insurance charge for all subsequent Monthly Deductions, compared to
what such charge would have been if no such change were made.
A change in Sum Insured Option may result in total premiums paid exceeding the
then-current maximum premium limitation determined by IRS Rules. In such event,
the Company will pay the excess to the Policyowner. See "THE POLICY "Premium
Payments."
CHANGE IN THE FACE AMOUNT
Subject to certain limitations, you may increase or decrease the specified Face
Amount of a Policy at any time by submitting a Written Request to the Company.
Any increase or decrease in the specified Face Amount requested by you will
become effective on the Monthly Payment Date on or next following the date of
receipt of the request at the Principal Office or, if Evidence of Insurability
is required, the date of approval of the request.
Increases in the Face Amount
Along with the Written Request for an increase, you must submit satisfactory
Evidence of Insurability. The consent of the Insured also is required whenever
the Face Amount is increased. A request for an increase in the Face Amount may
not be less than $10,000. You may not increase the Face Amount after the Insured
reaches Age 85. An increase must be accompanied by an additional premium if the
Surrender Value is less than $50 plus an amount equal to the sum of two Minimum
Monthly Factors.
On the effective date of each increase in the Face Amount, a transaction charge
of $40 will be deducted from the Policy Value for administrative costs. The
effective date of the increase will be the first Monthly Payment Date on or
following the date all of the conditions for the increase are met.
An increase in the Face Amount generally will affect the Insurance Amount at
Risk, and may affect the portion
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of the Insurance Amount at Risk included in various Premium Classes (if more
than one Premium Class applies), both of which may affect the monthly cost of
insurance charges. A surrender charge also will be calculated for the increase.
See "CHARGES AND DEDUCTIONS" "Monthly Deductions From the Policy Value"
"Surrender Charge."
After increasing the Face Amount, you will have the right (1) during a Free-Look
Period, to have the increase canceled and the charges which would not have been
deducted but for the increase will be credited to the Policy, and (2) during the
first 24 months following the increase, to transfer any or all Policy Value to
the General Account free of charge. See "THE Policy," "Free-Look Period" and
"Conversion Privileges." A refund of charges which would not have been deducted
but for the increase will be made at your request.
Decreases in the Face Amount
The minimum amount for a decrease in the Face Amount is $10,000. The Face Amount
in force after any decrease may not be less than $50,000. If, following a
decrease in the Face Amount, the Policy would not comply with the maximum
premium limitation applicable under the IRS Rules, the decrease may be limited
or Policy Value may be returned to the Policyowner (at your election) to the
extent necessary to meet the requirements. A return of Policy Value may result
in tax liability to you.
A decrease in the Face Amount will affect the total Insurance Amount at Risk and
the portion of the Insurance Amount at Risk covered by various Premium Classes,
both of which may affect a Policyowner's monthly cost of insurance charges. See
"CHARGES AND DEDUCTIONS," "Monthly Deductions From the Policy Value." For
purposes of determining the cost of insurance charge, any decrease in the Face
Amount will reduce the Face Amount in the following order:
o the Face Amount provided by the most recent increase;
o the next most recent increases successively;
o and the initial Face Amount.
This order also will be used to determine whether a surrender charge will be
deducted and in what amount. If you request a decrease in the Face Amount, the
amount of any surrender charge deducted will reduce the current Policy Value.
You may specify one Sub-Account from which the surrender charge will be
deducted. If no specification is provided, the Company will make a Pro-Rata
Allocation. The current surrender charge will be reduced by the amount deducted.
See "CHARGES AND DEDUCTIONS" "Surrender Charge."
POLICY VALUE AND SURRENDER VALUE
The Policy Value is the total amount available for investment, and is equal to
the sum of:
o your accumulation in the General Account, plus
o the value of the Accumulation Units in the Sub-Accounts.
The Policy Value is used in determining the Surrender Value (the Policy Value
less any Debt and applicable surrender charges). See "THE POLICY," "Policy
Surrender." There is no guaranteed minimum Policy Value. Because the Policy
Value on any date depends upon a number of variables, it cannot be
predetermined.
The Policy Value and the Surrender Value will reflect the frequency and amount
of Net Premiums paid, interest credited to accumulations in the General Account,
the investment performance of the chosen Sub-Accounts, any partial withdrawals,
any loans, any loan repayments, any loan interest paid or credited, and any
charges assessed in connection with the Policy.
Calculation of Policy Value
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The Policy Value is determined first on the Date of Issue and thereafter on each
Valuation Date. On the Date of Issue, the Policy Value will be the Net Premiums
received, plus any interest earned during the period when premiums are held in
the General Account (before being transferred to the VEL II Account; see "THE
POLICY," "Applying For A Policy") less any Monthly Deductions due. On each
Valuation Date after the Date of Issue the Policy Value will be:
o the aggregate of the values in each of the Sub-Accounts on the Valuation
Date, determined for each Sub-Account by multiplying the value of an
Accumulation Unit in that Sub-Account on that date by the number of such
Accumulations Units allocated to the Policy; plus
o the value in the General Account (including any amounts transferred to the
General Account with respect to a loan).
Thus, the Policy Value is determined by multiplying the number of Accumulation
Units in each Sub-Account by the value of the applicable Accumulation Units on
the particular Valuation Date, adding the products, and adding the amount of the
accumulations in the General Account, if any.
The Accumulation Unit
Each Net Premium is allocated to the Sub-Account(s) selected by you. Allocations
to the Sub-Accounts are credited to the Policy in the form of Accumulation
Units. Accumulation Units are credited separately for each Sub-Account.
The number of Accumulation Units of each Sub-Account credited to the Policy is
equal to the portion of the Net Premium allocated to the Sub-Account, divided by
the dollar value of the applicable Accumulation Unit as of the Valuation Date
the payment is received at the Principal Office. The number of Accumulation
Units will remain fixed unless changed by a subsequent split of Accumulation
Unit value, transfer, partial withdrawal or Policy surrender. In addition, if
the Company is deducting the Monthly Deduction or other charges from a
Sub-Account, each such deduction will result in cancellation of a number of
Accumulation Units equal in value to the amount deducted.
The dollar value of an Accumulation Unit of each Sub-Account varies from
Valuation Date to Valuation Date based on the investment experience of that
Sub-Account. That experience, in turn, will reflect the investment performance,
expenses and charges of the respective Underlying Fund. The value of an
Accumulation Unit was set at $1.00 on the first Valuation Date for each
Sub-Account. The dollar value of an Accumulation Unit on a given Valuation Date
is determined by multiplying the dollar value of the corresponding Accumulation
Unit as of the immediately preceding Valuation Date by the appropriate net
investment factor.
Net Investment Factor
The net investment factor measures the investment performance of a Sub-Account
of the VEL II Account during the Valuation Period just ended. The net investment
factor for each Sub-Account is equal to 1.0000 plus the number arrived at by
dividing (a) by (b) and subtracting (c) and (d) from the result, where:
(a) is the investment income of that Sub-Account for the Valuation Period,
plus capital gains, realized or unrealized, credited during the Valuation
Period; minus capital losses, realized or unrealized, charged during the
Valuation Period; adjusted for provisions made for taxes, if any;
(b) is the value of that Sub-Account's assets at the beginning of the
Valuation Period;
(c) is a charge for each day in the Valuation Period equal, on an annual
basis, to 0.65% of the daily net asset value of that Sub-Account for
mortality and expense risks. This charge may be increased or decreased by
the Company, but may not exceed 0.90%; and
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(d) is the VEL II Account administrative charge for each day in the Valuation
Period equal, on an annual basis, to 0.15% of the daily net asset value of
that Sub-Account. The administrative charge may be increased or decreased
by the Company, but may not exceed 0.25%. This charge is applicable only
during the first ten Policy years.
The net investment factor may be greater or less than one. Therefore, the value
of an Accumulation Unit may increase or decrease. You bear the investment risk.
Allocations to the General Account are not converted into Accumulation Units,
but are credited interest at a rate periodically set by the Company. See "MORE
INFORMATION ABOUT THE GENERAL ACCOUNT."
DEATH PROCEEDS PAYMENT OPTIONS
During the Insured's lifetime, you may arrange for the Death Proceeds to be paid
in a single sum or under one or more of the available payment options. The
payment options currently available are described in Appendix B, "DEATH PROCEEDS
PAYMENT OPTIONS." These choices also are available at the Final Premium Payment
Date and if the Policy is surrendered. The Company may make more payment options
available in the future.
If no election is made, the Company will pay the Death Proceeds in a single sum.
When the Death Proceeds are payable in a single sum, the Beneficiary may, within
one year of the Insured's death, select one or more of the payment options if no
payments have yet been made.
OPTIONAL INSURANCE BENEFITS
Subject to certain requirements, one or more of the optional insurance benefits
described in APPENDIX A , "OPTIONAL BENEFITS" may be added to a Policy by rider.
The cost of any optional insurance benefits will be deducted as part of the
Monthly Deductions. See "CHARGES AND DEDUCTIONS," "Monthly Deductions From the
Policy Value."
POLICY SURRENDER
You may surrender the Policy at any time and receive its Surrender Value. The
Surrender Value is equal to:
o the Policy Value, minus
o any Debt and applicable surrender charges.
The Surrender Value will be calculated as the Valuation Date on which a written
request for surrender is received at the Principal Office. A surrender charge is
calculated upon issuance of the Policy and from the effective date of any
increase in the Face Amount. The duration of the surrender charge is 15 years
for issue Ages 0 through 50, grading down to 10 years for issue Ages 55 and
above. See "CHARGES AND DEDUCTIONS," " Surrender Charge."
The proceeds on surrender may be paid in a single lump sum or under one of the
payment options described in APPENDIX B, "DEATH PROCEEDS PAYMENT OPTIONS."
Normally, the Company will pay the Surrender Value within seven days following
the Company's receipt of the surrender request, but the Company may delay
payment under the circumstances described in "OTHER POLICY PROVISIONS,"
"Postponement Of Payments."
The surrender rights of Policyowners who are participants under Section 403(b)
plans or who are participants in the Texas Optional Retirement Program (Texas
ORP) are restricted; see "FEDERAL TAX
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CONSIDERATIONS" "Policies Issued in Connection with TSA Plans."
For important tax consequences which may result from surrender, see "FEDERAL TAX
CONSIDERATIONS."
PARTIAL WITHDRAWALS
Any time after the first Policy year, you may withdraw a portion of the
Surrender Value of your Policy, subject to the limits stated below, upon written
request filed at the Principal Office. The written request must indicate the
dollar amount you wish to receive and the Accounts from which such amount is to
be withdrawn. You may allocate the amount withdrawn among the Sub-Accounts and
the General Account. If you do not provide allocation instructions, the Company
will make a Pro-Rata Allocation. Each partial withdrawal must be in a minimum
amount of $500.
Under Option 1, the Face Amount is reduced by the amount of the withdrawal, and
a withdrawal will not be allowed if it would reduce the Face Amount below
$40,000.
A withdrawal from a Sub-Account will result in the cancellation of the number of
Accumulation Units equivalent in value to the amount withdrawn. The amount
withdrawn equals the amount requested by you plus the transaction charge and any
applicable partial withdrawal charge as described under "CHARGES AND
DEDUCTIONS," "Charges On Partial Withdrawal." Normally, the Company will pay the
amount of the partial withdrawal within seven days following the Company's
receipt of the partial withdrawal request, but the Company may delay payment
under certain circumstances described in "OTHER POLICY PROVISIONS," "
Postponement of Payments."
The withdrawal rights of Policyowners who are participants under Section 403(b)
plans or who are participants in the Texas Optional Retirement Program (Texas
ORP) are restricted; see "FEDERAL TAX CONSIDERATIONS - Policies Issued in
Connection with TSA Plans. For important tax consequences which may result from
partial withdrawals, see "FEDERAL TAX CONSIDERATIONS."
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate the Company
for providing the insurance benefits set forth in the Policy and any additional
benefits added by rider, administering the Policy, incurring distribution
expenses, and assuming certain risks in connection with the Policy. Each of the
charges identified as an administrative charge is intended to reimburse the
Company for actual administrative costs incurred, and is not intended to result
in a profit to the Company.
The Company may waive or reduce the premium tax charge, administrative charges,
surrender charge, or 5% partial withdrawal charge, and will not pay commissions
on Policies, where the Insured is within the following class of individuals:
All employees of First Allmerica and its affiliates and subsidiaries located
at First Allmerica's home office (or at off-site locations if such employees
are on First Allmerica's home office payroll); all directors of First
Allmerica and its affiliates and subsidiaries; all retired employees of
First Allmerica and its affiliates and subsidiaries eligible under First
Allmerica Companies' Pension Plan or any successor plan; all General Agents,
agents and field staff of First Allmerica; and all spouses, children,
siblings, parents and grandparents of any individuals identified above, who
reside in the same household.
TAX EXPENSE CHARGE
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Currently, a deduction of 3 1/2% of premiums for state and local premium taxes
and federal taxes imposed for deferred acquisition costs ("DAC taxes") is made
from each premium payment. The premium payment, less the tax expense charge,
equals the Net Premium. The total charge is a combined state and local premium
tax deduction of 2 1/2% of premiums and a DAC tax deduction of 1% of premiums.
While the premium tax of 2 1/2% is deducted from each premium payment, some
jurisdictions may not impose premium taxes. Premium taxes vary from state to
state, ranging from zero to 4.0%, and the 2 1/2% rate attributable to premiums
for state and local premium taxes approximates the average expenses to the
Company associated with the premium taxes. The 2 1/2% charge may be higher or
lower than the actual premium tax imposed by the applicable jurisdiction. The
Company, however, does not expect to make a profit from this charge.
The 1% rate attributable to premiums for DAC taxes approximates the Company's
expenses in paying federal taxes for deferred acquisition costs associated with
the Policy. The Company reserves the right to increase or decrease the DAC tax
charge to reflect changes in the Company's expenses for premium taxes and DAC
taxes.
MONTHLY DEDUCTION FROM THE POLICY VALUE
Prior to the Final Premium Payment Date, a Monthly Deduction from the Policy
Value will be made to cover a charge for the cost of insurance, a charge for any
optional insurance benefits added by rider, and a monthly administrative charge.
The cost of insurance charge and the monthly administrative charge is discussed
below. The Monthly Deduction on or following the effective date of a requested
increase in the Face Amount also will include a $40 administrative charge for
the increase. See "THE POLICY," "Change In the Face Amount."
Prior to the Final Premium Payment Date, the Monthly Deduction will be deducted
as of each Monthly Payment Date commencing with the Date of Issue of the Policy.
It will be allocated to one Sub-Account according to your instructions or, if no
allocation is specified, the Company will make a Pro-Rata Allocation. If the
Sub-Account you specify does not have sufficient funds to cover the Monthly
Deduction, the Company will deduct the charge for that month as if no
specification were made. If, however, on subsequent Monthly Payment Dates there
is sufficient Policy Value in the Sub-Account you specified, the Monthly
Deduction will be deducted from that Sub-Account. No Monthly Deductions will be
made on or after the Final Premium Payment Date.
Cost of Insurance
This charge is designed to compensate the Company for the anticipated cost of
providing Death Proceeds to Beneficiaries of those Insureds who die prior to the
Final Premium Payment Date. The cost of insurance is determined on a monthly
basis, and is determined separately for the initial Face Amount, for each
subsequent increase in the Face Amount, and for riders. Because the cost of
insurance depends upon a number of variables, it can vary from month to month.
Calculation of the Charge -- If you select Sum Insured Option 2, the monthly
cost of insurance charge for the initial Face Amount generally will equal the
applicable cost of insurance rate multiplied by the initial Face Amount. If you
select Sum Insured Option 1, however, the applicable cost of insurance rate will
be multiplied by the initial Face Amount less the Policy Value (minus charges
for rider benefits) at the beginning of the Policy month. Thus, the cost of
insurance charge may be greater for Policyowners who have selected Sum Insured
Option 2 than for those who have selected Sum Insured Option 1 ( assuming the
same Face Amount in each case and assuming that the Guideline Minimum Sum
Insured is not in effect). In other words, since the Sum Insured under Option 1
remains constant while the Sum Insured under Option 2 varies with the Policy
Value, any Policy Value increases will reduce the insurance charge under Option
1 but not under Option 2.
If you select Sum Insured Option 2, the monthly insurance charge for each
increase in Face Amount (other than
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an increase caused by a change in Sum Insured Option) will be equal to the cost
of insurance rate applicable to that increase multiplied by the increase in the
Face Amount. If you select Sum Insured Option 1, the applicable cost of
insurance rate will be multiplied by the increase in the Face Amount reduced by
any Policy Value (minus rider charges) in excess of the initial Face Amount at
the beginning of the Policy month.
Effect of the Guideline Minimum Sum Insured -- If the Guideline Minimum Sum
Insured is in effect under either Option, a monthly cost of insurance charge
also will be calculated for that additional portion of the Sum Insured which is
required to comply with the Guideline rules. This charge will be calculated by :
o multiplying the cost of insurance rate applicable to the initial Face
Amount times the Guideline Minimum Sum Insured (Policy Value times the
applicable percentage), minus
o the greater of the Face Amount or the Policy Value (if you selected
Sum Insured Option 1)
OR
o the Face Amount plus the Policy Value (if you selected Sum Insured
Option 2).
When the Guideline Minimum Sum Insured is in effect, the cost of insurance
charge for the initial Face Amount and for any increases will be calculated as
set forth above. The monthly cost of insurance charge also will be adjusted for
any decreases in the Face Amount. See "THE POLICY," "Change In the Face Amount."
Cost of Insurance Rates -- Cost of insurance rates are based on male, female or
a blended unisex rate table, Age and Premium Class of the Insured, the effective
date of an increase or date of rider, as applicable, the amount of premiums paid
less Debt, any partial withdrawals and withdrawal charges, risk classification
and the Incentive Funding Discount, if applicable. For those Policies issued on
a unisex basis in certain states or in certain cases, sex-distinct rates do not
apply.
The cost of insurance rates are determined at the beginning of each Policy year
for the initial Face Amount. The cost of insurance rates for an increase in the
Face Amount or rider are determined annually on the anniversary of the effective
date of each increase or rider. The cost of insurance rates generally increase
as the Insured's Age increases. The actual monthly cost of insurance rates will
be based on the Company's expectations as to future mortality experience. They
will not, however, be greater than the guaranteed cost of insurance rates set
forth in the Policy. These guaranteed rates are based on the 1980 Commissioners
Standard Ordinary Mortality Tables (Mortality Table B, Smoker or Non-Smoker, for
unisex Policies) and the Insured's sex and Age. The Tables used for this purpose
set forth different mortality estimates for males and females and for smokers
and non-smokers. Any change in the cost of insurance rates will apply to all
persons of the same insuring Age, sex and Premium Class whose Policies have been
in force for the same length of time.
The Premium Class of an Insured will affect the cost of insurance rates. The
Company currently places Insureds into preferred Premium Classes, standard
Premium Classes and substandard Premium Classes. In an otherwise identical
Policy, an Insured in the preferred Premium Class will have a lower cost of
insurance than an Insured in a standard Premium Class who, in turn, will have a
lower cost of insurance than an Insured in a substandard Premium Class with a
higher mortality risk.
Premium Classes also are divided into two categories: smokers and non-smokers.
Non-smoking Insureds will incur lower cost of insurance rates than Insureds who
are classified as smokers but who are otherwise in the same Premium Class. Any
Insured with an Age at issuance under 18 will be classified initially as regular
or substandard. The Insured then will be classified as a smoker at Age 18 unless
the Insured provides satisfactory evidence that the Insured is a non-smoker. The
Company will provide notice to you of the opportunity for the Insured to be
classified as a non-smoker when the Insured reaches Age 18.
The cost of insurance rate is determined separately for the initial Face Amount
and for the amount of any
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increase in the Face Amount. For each increase in the Face Amount you request,
at a time when the Insured is in a less favorable Premium Class than previously,
a correspondingly higher cost of insurance rate will apply only to that portion
of the Insurance Amount at Risk for the increase. For the initial Face Amount
and any prior increases, the Company will use the Premium Class previously
applicable. On the other hand, if the Insured's Premium Class improves on an
increase, the lower cost of insurance rate generally will apply to the entire
Insurance Amount at Risk.
Monthly Administrative Charges
Prior to the Final Premium Payment Date, a monthly administrative charge of $5
per month will be deducted from the Policy Value. This charge will be used to
compensate the Company for expenses incurred in the administration of the
Policy, and will compensate the Company for first-year underwriting and other
start-up expenses incurred in connection with the Policy. These expenses include
the cost of processing applications, conducting medical examinations,
determining insurability and the Insured's Premium Class, and establishing
Policy records. The Company does not expect to derive a profit from these
charges.
CHARGES AGAINST ASSETS OF THE VEL II ACCOUNT
The Company assesses each Sub-Account with a charge for mortality and expense
risks assumed by the Company, and a charge for administrative expenses of the
VEL II Account.
Mortality and Expense Risk Charge
The Company currently makes a charge on an annual basis of 0.65% of the daily
net asset value in each Sub-Account. This charge is for the mortality risk and
expense risk which the Company assumes in relation to the variable portion of
the Policy. The total charges may be increased or decreased by the Board of
Directors of the Company once each year, subject to compliance with applicable
state and federal requirements, but it may not exceed 0.90% on an annual basis.
The mortality risk assumed by the Company is that Insureds may live for a
shorter time than anticipated, and that the Company therefore will pay an
aggregate amount of Death Proceeds greater than anticipated. The expense risk
assumed is that the expenses incurred in issuing and administering the Policy
will exceed the amounts realized from the administrative charges provided in the
Policy. If the charge for mortality and expense risks is not sufficient to cover
actual mortality experience and expenses, the Company will absorb the losses. If
costs are less than the amounts provided, the difference will be a profit to the
Company. To the extent this charge results in a current profit to the Company,
such profit will be available for use by the Company for, among other things,
the payment of distribution, sales and other expenses. Since mortality and
expense risks involve future contingencies which are not subject to precise
determination in advance, it is not feasible to identify specifically the
portion of the charge which is applicable to each.
Administrative Charge
During the first ten Policy years, the Company assesses a charge on an annual
basis of 0.15% of the daily net asset value in each Sub-Account. The charge is
assessed to help defray administrative expenses actually incurred in the
administration of the VEL II Account and the Sub-Accounts. The administrative
functions and expenses assumed by the Company in connection with the VEL II
Account and the Sub-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, expenses of preparing and typesetting prospectuses, and the cost of
printing prospectuses not allocable to sales expense, filing and other fees. No
VEL II Account administrative charge is imposed after the tenth Policy year. The
charge may be increased or decreased by the Board of Directors of the Company,
subject to compliance with applicable state and federal requirements, but it may
not exceed 0.25% on an annual basis
Other Charges and Expenses Because the
Sub-Accounts purchase shares of the Underlying Funds, the value of the
Accumulation Units of the
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Sub-Accounts will reflect the investment advisory fee and other expenses
incurred by the Underlying Funds. The prospectuses and statements of additional
information of the Trust, Fidelity VIP, Fidelity VIP II, T. Rowe Price and DGPF
contain additional information concerning such fees and expenses.
Currently, no charges are made against the Sub-Accounts for federal or state
income taxes. Should the Company determine that taxes will be imposed, the
Company may make deductions from the Sub-Account to pay such taxes. See "FEDERAL
TAX CONSIDERATIONS." The imposition of such taxes would result in a reduction of
the Policy Value in the Sub-Accounts.
SURRENDER CHARGE
The Policy provides for a contingent surrender charge. A separate surrender
charge is calculated upon the issuance of the Policy and for each increase in
the Face Amount. A surrender charge may be deducted if you request a full
surrender of the Policy or a decrease in the Face Amount.
The surrender charge is comprised of a contingent deferred administrative charge
and a contingent deferred sales charge. The contingent deferred administrative
charge compensates the Company for expenses incurred in administering the
Policy. The contingent deferred sales charge compensates the Company for
expenses relating to the distribution of the Policy, including agents'
commissions, advertising and the printing of the prospectus and sales
literature.
The duration of the surrender charge is 15 years from the Date of Issue or from
the effective date of any increase in the Face Amount for issue Ages 0 through
50, grading down to 10 years for issue Ages 55 and above.
The maximum surrender charge calculated upon issuance of the Policy is equal to
the sum of (a) plus (b) where:
(a) is a deferred administrative charge equal to $8.50 per thousand dollars of
the initial Face Amount ,and
(b) is a deferred sales charge of 49% of premiums received, up to a maximum
number of Guideline Annual Premiums subject to the deferred sales charge
that varies by issue Age from 1.660714 (for Ages 0 through 55) to 0.948980
(for Age 80).
In accordance with limitations under state insurance regulations, the amount of
the maximum surrender charge will not exceed a specified amount per $1,000
initial face Amount, as indicated in "APPENDIX D CALCULATION OF MAXIMUM
SURRENDER CHARGES." The maximum surrender charge continues in a level amount for
40 Policy months, and reduces by 0.5% or more per month (depending on issue Age)
thereafter, as described in "APPENDIX D CALCULATION OF MAXIMUM SURRENDER
CHARGES." This reduction in the maximum surrender charge will reduce the
deferred sales charge and the deferred administrative charge proportionately.
Maximum Surrender Charge During First Two Policy Years
If you surrender the Policy during the first two Policy years following the Date
of Issue before making premium payments associated with the initial Face Amount
which are at least equal to one Guideline Annual Premium, the deferred
administrative charge will be $8.50 per thousand dollars of the initial Face
Amount, as described above, but the deferred sales charge will not exceed 29% of
premiums received, up to one Guideline Annual Premium, plus 9% of premiums
received in excess of one Guideline Annual Premium, but less than the maximum
number of Guideline Annual Premiums subject to the deferred sales charge. See
"APPENDIX D -- CALCULATION OF MAXIMUM SURRENDER CHARGES."
Separate Surrender Charge for Each Face Amount Increase
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A separate surrender charge will apply to and is calculated for each increase in
the Face Amount. The surrender charge for the increase is in addition to that
for the initial Face Amount. The maximum surrender charge for the increase is
equal to the sum of (a) plus (b), where (a) is equal to $8.50 per thousand
dollars of increase, and (b) is a deferred sales charge of 49% of premiums
associated with the increase, up to a maximum number of Guideline Annual
Premiums (for the increase) subject to the deferred sales charge that varies by
Age (at the time of increase) from 1.660714 (for Ages 0 through 55) to 0.948980
(for Age 80).
In accordance with limitations under state insurance regulations, the amount of
the Surrender charge will not exceed a specified amount per $1,000 of increase,
as indicated in "APPENDIX D--CALCULATION OF MAXIMUM SURRENDER CHARGES." As is
true for the initial Face Amount, (a) is a deferred administrative charge, and
(b) is a deferred sales charge. The maximum surrender charge for the increase
continues in a level amount for 40 Policy months, and reduces by 0.5% or more
per month (depending on Age) thereafter, as provided in "APPENDIX D--CALCULATION
OF MAXIMUM SURRENDER CHARGES."
Reduced Charge During First Two Years Following Increase -- During the first two
Policy years following an increase in the Face Amount before making premium
payments associated with the increase in the Face Amount which are at least
equal to one Guideline Annual Premium, the deferred administrative charge will
be $8.50 per thousand dollars of the Face Amount increase, as described above,
but the deferred sales charge imposed will be less than the maximum described
above. Upon such a Surrender, the deferred sales charge will not exceed 29% of
premiums associated with the increase, up to one Guideline Annual Premium (for
the increase), plus 9% of premiums associated with the increase in excess of one
Guideline Annual Premium, but less than the maximum number of Guideline Annual
Premiums (for the increase) subject to the deferred sales charge. See "APPENDIX
D--CALCULATION OF MAXIMUM SURRENDER CHARGES." The premiums associated with the
increase are determined as described below.
Additional premium payments may not be required to fund a requested increase in
the Face Amount. Therefore, a special rule, which is based on relative Guideline
Annual Premium payments, applies to allocate a portion of the existing Policy
Value to the increase, and to allocate subsequent premium payments between the
initial Policy and the increase. For example, suppose the Guideline Annual
Premium is equal to $1,500 before an increase, and is equal to $2,000 as a
result of the increase. The Policy Value on the effective date of the increase
would be allocated 75% ($1,500/$2,000) to the initial Face Amount and 25% to the
increase. All future premiums also would be allocated 75% to the initial Face
Amount and 25% to the increase. Thus, existing Policy Value associated with the
increase will equal the portion of the Policy Value allocated to the increase on
the effective date of the increase, before any deductions are made. Premiums
associated with the increase will equal the portion of the premium payments
actually made on or after the effective date of the increase which are allocated
to the increase.
See "APPENDIX D--CALCULATION OF MAXIMUM SURRENDER CHARGES," for examples
illustrating the calculation of the maximum Surrender charge for the initial
Face Amount and for any increases, as well as for the surrender charge based on
actual premiums paid or associated with any increases.
POSSIBLE SURRENDER CHARGE ON A FACE AMOUNT DECREASE
A surrender charge may be deducted on a decrease in the Face Amount. In the
event of a decrease, the surrender charge deducted is a fraction of the charge
that would apply to a full surrender of the Policy. The fraction will be
determined by dividing the amount of the decrease by the current Face Amount and
multiplying the result by the surrender charge. If more than one surrender
charge is in effect (i.e., pursuant to one or more increases in the Face Amount
of a Policy), the surrender charge will be applied in the following order:
o the most recent increase;
o the next most recent increases successively, and
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o the initial Face Amount.
Where a decrease causes a partial reduction in an increase or in the initial
Face Amount, a proportionate share of the surrender charge for that increase or
for the initial Face Amount will be deducted.
CHARGES ON PARTIAL WITHDRAWAL
Partial withdrawals of Surrender Value may be made after the first Policy year.
The minimum withdrawal is $500. Under Option 1, the Face Amount is reduced by
the amount of the partial withdrawal, and a partial withdrawal will not be
allowed if it would reduce the Face Amount below $40,000.
A transaction charge, which is the smaller of 2% of the amount withdrawn or $25,
will be assessed on each partial withdrawal to reimburse the Company for the
cost of processing the withdrawal. The Company does not expect to make a profit
on this charge.
A partial withdrawal charge also may be deducted from the Policy Value. For each
partial withdrawal you may withdraw an amount equal to 10% of the Policy Value
on the date the written withdrawal request is received by the Company less the
total of any prior withdrawals in that Policy year which were not subject to the
Partial Withdrawal charge, without incurring a partial withdrawal charge. Any
partial withdrawal in excess of this amount ("excess withdrawal") will be
subject to the partial withdrawal charge. The partial withdrawal charge is equal
to 5% of the excess withdrawal up to the amount of the surrender charge(s) on
the date of withdrawal. This right is not cumulative from Policy year to Policy
year. For example, if only 8% of Policy Value were withdrawn in Policy year two,
the amount you could withdraw in subsequent Policy years would not be increased
by the amount you did not withdraw in the second Policy year.
The Policy's outstanding surrender charge will be reduced by the amount of the
partial withdrawal charge deducted by proportionately reducing the deferred
sales charge component and the deferred administrative charge component. The
partial withdrawal charge deducted will decrease existing surrender charges in
the following order:
o first, the surrender charge for the most recent increase in the Face
Amount;
o second, the surrender charge for the next most recent increases
successively;
o last, the surrender charge for the initial Face Amount.
TRANSFER CHARGES
The first 12 transfers in a Policy year will be free of charge. Thereafter, a
transfer charge of $10 will be imposed for each transfer request to reimburse
the Company for the administrative costs incurred in processing the transfer
request. The Company reserves the right to increase the charge, but it never
will exceed $25. The Company also reserves the right to change the number of
free transfers allowed in a Policy Year. See "THE POLICY ," "Transfer
Privilege."
You may have automatic transfers of at least $100 a month made on a periodic
basis:
o from the Sub-Accounts which invest in the Money Market Fund and Government
Bond Fund of the Trust to one or more of the other Sub-Accounts; or
o to reallocate Policy Value among the Sub-Accounts.
The first automatic transfer counts as one transfer towards the 12 free
transfers allowed in each Policy year. Each subsequent automatic transfer is
without charge and does not reduce the remaining number of transfers
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which may be made without charge.
If you utilize the Conversion Privilege, Loan Privilege or reallocate Policy
Value within 20 days of the Date of Issue of the Policy, any resulting transfer
of Policy Value from the Sub-Accounts to the General Account will be free of
charge, and in addition to the 12 free transfers in a Policy year. See "THE
Policy," "Conversion Privileges," and "Policy LOANS."
CHARGE FOR INCREASE IN THE FACE AMOUNT
For each increase in the Face Amount you request, a transaction charge of $40
will be deducted from Policy Value to reimburse the Company for administrative
costs associated with the increase. This charge is guaranteed not to increase
and the Company does not expect to make a profit on this charge.
OTHER ADMINISTRATIVE CHARGES
The Company reserves the right to impose a charge for the administrative costs
incurred for changing the Net Premium allocation instructions, for changing the
allocation of any Monthly Deductions among the various Sub-Accounts, or for a
projection of values. No such charges are currently imposed and any such charge
is guaranteed not to exceed $25.
POLICY LOANS
You may borrow against the Policy Value. Policy loans may be obtained by request
to the Company on the sole security of the Policy. The total amount which may be
borrowed is the Loan Value.
In the first Policy year, the Loan Value is 75% of Policy Value reduced by
applicable surrender charges, as well as Monthly Deductions and interest on Debt
to the end of the Policy year. The Loan Value in the second Policy year and
thereafter is 90% of an amount equal to the Policy Value reduced by applicable
surrender charges. There is no minimum limit on the amount of the loan.
The loan amount normally will be paid within seven days after the Company
receives the loan request at the Principal Office, but the Company may delay
payments under certain circumstances. See "OTHER POLICY PROVISIONS"
"Postponement Of Payments."
A Policy loan may be allocated among the General Account and one or more
Sub-Accounts. If you do not make an allocation, the Company will make a Pro-Rata
Allocation based on the amounts in the Accounts on the date the Company receives
the loan request. The Policy Value in each Sub-Account equal to the Policy loan
allocated to such Sub-Account will be transferred to the General Account, and
the number of Accumulation Units equal to the Policy Value so transferred will
be canceled. This will reduce the Policy Value in these Sub-Accounts. These
transactions are not treated as transfers for purposes of the transfer charge.
The Policy loan rights of Policyowners who are participants under Section 403(b)
plans are restricted; see "FEDERAL TAX CONSIDERATIONS - Policies Issued in
Connection with TSA Plans.
LOAN INTEREST
Loan Amount Earns Interest in General Account
As long as the Policy is in force, the Policy Value in the General Account equal
to the loan amount will be
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credited with interest at an effective annual yield of at least 6.00% per year.
Preferred Loan Option -- A preferred loan option is available under the Policy.
The preferred loan option will be available upon written request. It may be
revoked by you at any time. If this option has been selected, after the tenth
Policy anniversary the Policy Value in the General Account that is equal to the
loan amount will be credited with interest at an effective annual yield of at
least 7.5%. Our current position is to credit a rate of interest equal to the
rate being charged for the preferred loan.
There is some uncertainty as to the tax treatment of preferred loans. Consult a
qualified tax adviser (and see "FEDERAL TAX CONSIDERATIONS"). The Preferred Loan
Option is not available in all states.
Loan Interest Charged
Outstanding Policy loans are charged interest. Interest accrues daily and is
payable in arrears at the annual rate of 8%. Interest is due and payable at the
end of each Policy year or on a pro-rata basis for such shorter period as the
loan may exist. Interest not paid when due will be added to the loan amount and
will bear interest at the same rate. If the new loan amount exceeds the Policy
Value in the General Account after the due and unpaid interest is added to the
loan amount, the Company will the transfer Policy Value equal to that excess
loan amount from the Policy Value in each Sub-Account to the General Account as
security for the excess loan amount. The Company will allocate the amount
transferred among the Sub-Accounts in the same proportion that the Policy Value
in each Sub-Account bears to the total Policy Value in all Sub-Accounts.
REPAYMENT OF LOANS
Loans may be repaid at any time prior to the lapse of the Policy. Upon repayment
of the Debt, the portion of the Policy Value that is in the General Account
securing the loan repaid will be allocated to the various Accounts and increase
the Policy Value in such accounts in accordance with your instructions. If you
do not make a repayment allocation, the Company will allocate Policy Value in
accordance with your most recent premium allocation instructions; provided,
however, that loan repayments allocated to the Variable Account cannot exceed
the Policy Value previously transferred from the VEL II Account to secure the
Debt.
If Debt exceeds the Policy Value less the surrender charge, the Policy will
terminate. A notice of such pending termination will be mailed to the last known
address of you and any assignee. If you do not make sufficient payment within 62
days after this notice is mailed, the Policy will terminate with no value. See
"POLICY TERMINATION AND REINSTATEMENT."
EFFECT OF POLICY LOANS
Although Policy loans may be repaid at any time prior to the lapse of the
Policy, Policy loans will permanently affect the Policy Value and Surrender
Value, and may permanently affect the Death Proceeds. The effect could be
favorable or unfavorable, depending upon whether the investment performance of
the Sub-Account(s) is less than or greater than the interest credited to the
Policy Value in the General Account attributable to the loan. Moreover,
outstanding Policy loans and the accrued interest will be deducted from the
proceeds payable upon the death of the Insured or surrender.
POLICIES ISSUED IN CONNECTION WITH TSA PLANS
Policies loans are permitted in accordance with the terms of the Policy.
However, if a Policy loan does not comply with the requirements of Code Section
72(p), the Policyowner's TSA plan may become disqualified and Policy values may
be includible in current income. Policy loans must meet the following additional
requirements:
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o Loans must be repaid within five (5) years, except when the loan is used
to acquire any dwelling unit which within a reasonable time is to be used
as the Policyowner's principal residence.
o All Policy loans must be amortized on a level basis with loan repayments
being made not less frequently than quarterly.
o The sum of all outstanding loan balances for all loans from all the
Policyowner's TSA plans may not exceed the lesser of:
o $50,000 reduced by the excess (if any) of
o the highest outstanding balance of loans from all of the
Policyowner's TSA plans during the one-year period preceding the
date of the loan, minus
o the outstanding balance of loans from the Policyowner's TSA
plans on the date on which such loan was made
OR
o 50% of the Policyowner's non-forfeitable accrued benefit in all of
his/her TSA plans, but not less than $10,000.
See "FEDERAL TAX CONSIDERATIONS" - Policies Issued in Connection with TSA Plans.
POLICY TERMINATION AND REINSTATEMENT
TERMINATION
The failure to make premium payments will not cause the Policy to lapse unless:
(a) the Surrender Value is insufficient to cover the next Monthly Deduction
plus loan interest accrued; or
(b) the Debt exceeds the Policy Value less surrender charges.
If one of these situations occurs, the Policy will be in default. You then will
have a grace period of 62 days, measured from the date of default, to make
sufficient payments to prevent termination. On the date of default, the Company
will send a notice to you and to any assignee of record. The notice will state
the amount of premium due and the date on which it is due.
Failure to make a sufficient payment within the grace period will result in
termination of the Policy. If the Insured dies during the grace period, the
Death Proceeds still will be payable, but any Monthly Deductions due and unpaid
through the Policy month in which the Insured dies, and any other overdue
charge, will be deducted from the Death Proceeds.
Limited 48-Month Guarantee
Except for the situation described in (b) above, the Policy is guaranteed not to
lapse during the first 48 months after the Date of Issue or the effective date
of an increase in the Face Amount if you make a minimum amount of premium
payments. The minimum amount paid, minus the Debt, partial withdrawals and
partial withdrawal charges, must be at least equal to the sum of the Minimum
Monthly Factors for the number of months the Policy, increase, or a Policy
Change which causes a change in the Minimum Monthly Factor has been in force. A
Policy change which may cause a change in the amount of the Minimum Monthly
Factor is a change in the Face Amount or the addition or deletion of a rider.
Except for the first 48 months after the Date of Issue or the effective date of
an increase, payments equal to the Minimum Monthly Factor do not guarantee that
the Policy will remain in force. However, see "THE POLICY" "Guaranteed Death
Benefit Rider."
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REINSTATEMENT
If the Policy has not been surrendered and the Insured is alive, the terminated
Policy may be reinstated any time within three years after the date of default
and before the Final Premium Payment Date. The reinstatement will be effective
on the Monthly Payment Date following the date you submit the following to the
Company:
o a written application for reinstatement,
o Evidence of Insurability showing that the Insured is insurable according
to the Company's underwriting rules, and
o a premium that, after the deduction of the tax expense charge, is large
enough to cover the minimum amount payable, as described below.
Minimum Amount Payable
If reinstatement is requested when fewer than 48 Monthly Deductions have been
made since the Date of Issue or the effective date of an increase in the Face
Amount, you must pay the lesser of the amount shown in A or B. Under A, the
minimum amount payable is the Minimum Monthly Factor for the three-month period
beginning on the date of reinstatement. Under B, the minimum amount payable is
the sum of:
o the amount by which the surrender charge as of the date of reinstatement
exceeds the Policy Value on the date of default, plus
o Monthly Deductions for the three-month period beginning on the date of
reinstatement.
If reinstatement is requested after 48 Monthly Deductions have been made since
the Date of Issue of the Policy or any increase in the Face Amount, you must pay
the amount shown in B above. The Company reserves the right to increase the
Minimum Monthly Factor upon reinstatement.
Surrender Charge
The surrender charge on the date of reinstatement is the surrender charge which
would have been in effect had the Policy remained in force from the Date of
Issue. The Policy Value less Debt on the date of default will be restored to the
Policy to the extent it does not exceed the surrender charge on the date of
reinstatement. Any Policy Value less the Debt as of the date of default which
exceeds the surrender charge on the date of reinstatement will not be restored.
Policy Value on Reinstatement The Policy Value on the date of reinstatement is:
o the Net Premium paid to reinstate the Policy increased by interest from
the date the payment was received at the Principal Office, plus
o an amount equal to the Policy Value less Debt on the date of default to
the extent it does not exceed the surrender charge on the date of
reinstatement, minus
o the Monthly Deduction due on the date of reinstatement.
You may not reinstate any Debt outstanding on the date of default or
foreclosure.
OTHER POLICY PROVISIONS
The following Policy provisions may vary in certain states in order to comply
with requirements of the insurance laws, regulations and insurance regulatory
agencies in those states.
POLICYOWNER
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The Policyowner is the Insured unless another Policyowner has been named in the
application for the Policy. The Policyowner generally is entitled to exercise
all rights under the Policy while the Insured is alive, subject to the consent
of any irrevocable Beneficiary (the consent of a revocable Beneficiary is not
required). The consent of the Insured is required whenever the Face Amount of
insurance is increased.
BENEFICIARY
The Beneficiary is the person or persons to whom the insurance proceeds are
payable upon the Insured's death. Unless otherwise stated in the Policy, the
Beneficiary has no rights in the Policy before the death of the Insured. While
the Insured is alive, you may change any Beneficiary unless you have declared a
Beneficiary to be irrevocable. If no Beneficiary is alive when the Insured dies,
the Policyowner (or the Policyowner's estate) will be the Beneficiary. If more
than one Beneficiary is alive when the Insured dies, they will be paid in equal
shares, unless you have chosen otherwise. Where there is more than one
Beneficiary, the interest of a Beneficiary who dies before the Insured will pass
to surviving Beneficiaries proportionally, unless otherwise requested.
INCONTESTABILITY
The Company will not contest the validity of the Policy after it has been in
force during the Insured's lifetime for two years from the Date of Issue. The
Company will not contest the validity of any increase in the Face Amount after
such increase or rider has been in force during the Insured's lifetime for two
years from its effective date.
SUICIDE
The Death Proceeds will not be paid if the Insured commits suicide, while sane
or insane, within two years from the Date of Issue. Instead, the Company will
pay the Beneficiary an amount equal to all premiums paid for the Policy, without
interest, and less any outstanding Debt and any partial withdrawals. If the
Insured commits suicide, while sane or insane, generally within two years from
the effective date of any increase in the Sum Insured, the Company's liability
with respect to such increase will be limited to a refund of the cost thereof.
The Beneficiary will receive the administrative charges and insurance charges
paid for such increase.
AGE AND SEX
If the Insured's Age or sex as stated in the application for the Policy is not
correct, benefits under the Policy will be adjusted to reflect the correct Age
and sex, if death occurs prior to the Final Premium Payment Date. The adjusted
benefit will be that which the most recent cost of insurance charge would have
purchased for the correct Age and sex. In no event will the Sum Insured be
reduced to less than the Guideline Minimum Sum Insured. In the case of a Policy
issued on a unisex basis, this provision as it relates to misstatement of sex
does not apply.
ASSIGNMENT
The Policyowner may assign the Policy as collateral or make an absolute
assignment of the Policy. All rights under the Policy will be transferred to the
extent of the assignee's interest. The consent of the assignee may be required
in order to make changes in premium allocations, to make transfers, or to
exercise other rights under the Policy. The Company is not bound by an
assignment or release thereof, unless it is in writing and is recorded at the
Principal Office. When recorded, the assignment will take effect as of the date
the Written Request was signed. Any rights created by the assignment will be
subject to any payments made or actions taken by the Company before the
assignment is recorded. The Company is not responsible for determining the
validity of any assignment or release.
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POSTPONEMENT OF PAYMENTS
Payments of any amount due from the VEL II Account upon surrender, partial
withdrawals, or death of the Insured, as well as payments of a Policy loan and
transfers, may be postponed whenever: (I) the New York Stock Exchange is closed
other than customary weekend and holiday closings, or trading on the New York
Stock Exchange is restricted as determined by the SEC or (2i) an emergency
exists, as determined by the SEC, as a result of which disposal of securities is
not reasonably practicable or it is not reasonably practicable to determine the
value of the VEL II Account's net assets. Payments under the Policy of any
amounts derived from the premiums paid by check may be delayed until such time
as the check has cleared your bank.
The Company also reserves the right to defer payment of any amount due from the
General Account upon surrender, partial withdrawal or death of the Insured, as
well as payments of Policy loans and transfers from the General Account, for a
period not to exceed six months.
DIRECTORS AND PRINCIPAL OFFICERS OF THE COMPANY
Principal Occupation(s) During
Name and Position Past Five Years
- ----------------- -------------------------------
Bruce C. Anderson Director of First Allmerica since
Director 1996; Vice President, First
Allmerica since 1984
Abigail M. Armstrong Secretary of First Allmerica since
Secretary and Counsel 1996; Counsel, First Allmerica
since 1991
Robert E. Bruce Director and Chief Information
Director Officer of First Allmerica since
1997; Vice President of First
Allmerica since 1995; Corporate
Manager, Digital Equipment
Corporation 1979 to 1995
John P. Kavanaugh Director and Chief Investment Officer
Director, Vice President and of First Allmerica since
Chief Investment Officer 1996; Vice President, First
Allmerica since 1991
John F. Kelly Director of First Allmerica since
Director, Vice President and 1996; Senior Vice President,
General Counsel General Counsel and Assistant
Secretary, First Allmerica since 1991
J. Barry May Director of First Allmerica since
Director 1996; Director and President, The
Hanover Insurance Company since
1996; Vice President, The Hanover
Insurance Company, 1993 to
1996; General Manager, The Hanover
Insurance Company 1989 to 1993
James R. McAuliffe Director of First Allmerica since
Director 1996; President and CEO, Citizens
Insurance Company of America since
1994; Vice President 1982 to 1994 and
Chief Investment Officer, First
Allmerica 1986 to 1994
John F. O'Brien Director, Chairman of the Board,
Director and Chairman of the Board President and Chief Executive
Officer, First Allmerica since 1989
Edward J. Parry, III Director and Chief Financial Officer
Director, Vice President and of First Allmerica since
Chief Financial Officer 1996; Vice President and
Treasurer, First Allmerica since 1993
Richard M. Reilly Director of First Allmerica since
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Director, President and 1996; Vice President, First
Chief Executive Officer Allmerica since 1990; Director,
Allmerica Investments, Inc. since
1990; Director and President,
Allmerica Investment Management
Company, Inc. since 1990
Eric A. Simonsen Director of First Allmerica since
Director and Vice President 1996; Vice President, First
Allmerica since 1990; Chief
Financial Officer, First Allmerica
1990 to 1996
Phillip E. Soule Director of First Allmerica since
Director 1996; Vice President, First
Allmerica since 1987
DISTRIBUTION
Allmerica Investments, Inc., a subsidiary of First Allmerica, acts as the
principal underwriter of the Policy pursuant to a Sales and Administrative
Services Agreement with the Company and the VEL II Account. Allmerica
Investments, Inc. is registered with the SEC as a broker-dealer, and is a member
of the National Association of Securities Dealers, Inc. ("NASD"). The Policy is
sold by agents of the Company who are registered representatives of Allmerica
Investments, Inc., or of certain independent broker-dealers which are members of
the NASD.
The Company pays commissions to registered representatives who sell the Policy
based on a commission schedule. After issue of the Policy or an increase in the
Face Amount, commissions generally will equal 50% of the first-year premiums up
to a basic premium amount established by the Company. Thereafter, commissions
generally will equal 4% of any additional premiums. Certain registered
representatives, including registered representatives enrolled in the Company's
training program for new agents, may receive additional first-year and renewal
commissions and training reimbursements. General Agents of the Company and
certain registered representatives also may be eligible to receive expense
reimbursements based on the amount of earned commissions. General Agents may
also receive overriding commissions, which will not exceed 10% of first-year, or
14% of renewal premiums.
The Company intends to recoup the commission and other sales expense through a
combination of the deferred sales charge component of the anticipated surrender
and partial withdrawal charges, and the investment earnings on amounts allocated
to accumulate on a fixed basis in excess of the interest credited on fixed
accumulations by the Company. There is no additional charge to Policyowners or
to the VEL II Account. Any surrender charge assessed on a Policy will be
retained by the Company except for amounts it may pay to Allmerica Investments,
Inc. for services it performs and expenses it may incur as principal underwriter
and general distributor.
SERVICES
The Company receives fees from the investment advisers or other service
providers of certain Underlying Funds in return for providing certain services
to Policyowners. Currently, the Company receives service fees with respect to
the Fidelity VIP Overseas Portfolio, Fidelity VIP Equity-Income Portfolio,
Fideltiy VIP Growth Portfolio, Fidelity VIP High Income Portfolio, and Fidelity
VIP II Asset Manager Portfolio, at an annual rate of 0.10% of the aggregate net
asset value, respectively, of the shares of such Underlying Funds held by the
VEL II Account. With respect to the T. Rowe Price International Stock Portfolio,
the Company receives service fees an annual rate of 0.15% per annum of the
aggregate net asset value of shares held by the VEL II Account. The Company may
in the future render services for which it will receive compensation from the
investment advisers or other service providers of other Underlying Funds.
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REPORTS
The Company will maintain the records relating to the VEL II Account. Statements
of significant transactions such as premium payments, changes in specified Face
Amount, changes in Sum Insured Option, transfers among Sub-Accounts and the
General Account, partial withdrawals, increases in loan amount by you, loan
repayments, lapse, termination for any reason, and reinstatement will be sent to
you promptly. An annual statement also will be sent to you within 30 days after
a Policy anniversary. The annual statement will summarize all of the above
transactions and deductions of charges during the Policy year. It also will set
forth the status of the Death Proceeds, Policy Value, Surrender Value, amounts
in the Sub-Accounts and General Account, and any Policy loan(s). In addition,
you will be sent periodic reports containing financial statements and other
information for the VEL II Account and the Underlying Funds as required by the
1940 Act.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the VEL II Account is a party,
or to which the assets of the VEL II Account are subject. The Company is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the VEL II Account.
FURTHER INFORMATION
A Registration Statement under the 1933 Act relating to this offering has been
filed with the SEC. Certain portions of the Registration Statement and
amendments have been omitted from this Prospectus pursuant to the rules and
regulations of the SEC. Statements contained in this Prospectus concerning the
Policy and other legal documents are summaries. The complete documents and
omitted information may be obtained from the SEC's principal office in
Washington, D.C., upon payment of the SEC's prescribed fees.
INDEPENDENT ACCOUNTANTS
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 of the VEL
II Account as of December 31, 1997 and for the periods in 1997 and 1996
indicated, included in this Prospectus constituting part of the Registration
Statement, have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of the Company included herein should be considered
only as bearing on the ability of the Company to meet its obligations under the
Policy.
FEDERAL TAX CONSIDERATIONS
The effect of federal income taxes on the value of the Policy, on loans,
withdrawals, or surrenders, on death benefit payments, and on the economic
benefit to you or the Beneficiary depends upon a variety of factors. The
following discussion is based upon the Company's understanding of the present
federal income tax laws as they currently are interpreted. From time to time
legislation is proposed which, if passed, could significantly, adversely and
possibly retroactively affect the taxation of the Policy. No representation is
made regarding the
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likelihood of continuation of current federal income tax laws or of current
interpretations by the IRS. Moreover, no attempt has been made to consider any
applicable state or other tax laws.
It should be recognized that the following summary of federal income tax aspects
of amounts received under the Policy is not exhaustive, does not purport to
cover all situations, and is not intended as tax advice. Specifically, the
discussion below does not address certain tax provisions that may be applicable
if the Policyowner is a corporation or the Trustee of an employee benefit plan.
A qualified tax adviser always should be consulted with regard to the
application of law to individual circumstances.
THE COMPANY AND THE VEL II ACCOUNT
The Company is taxed as a life insurance company under Subchapter L of the Code
and files a consolidated tax return with its parent and affiliates. The Company
does not expect to incur any income tax upon the earnings or realized capital
gains attributable to the VEL II Account. Based on this, no charge is made for
federal income taxes which may be attributable to the VEL II Account.
Periodically, the Company will review the question of a charge to the VEL II
Account for federal income taxes. Such a charge may be made in future years for
any federal income taxes incurred by the Company. This might become necessary if
the tax treatment of the Company ultimately is determined to be other than what
the Company believes it to be, if there are changes made in the federal income
tax treatment of variable life insurance at the Company level, or if there is a
change in the Company's tax status. Any such charge would be designed to cover
the federal income taxes attributable to the investment results of the VEL II
Account.
Under current laws the Company also may incur state and local taxes (in addition
to premium taxes) in several states. At present these taxes are not significant.
If there is a material change in applicable state or local tax laws, charges may
be made for such taxes paid, or reserves for such taxes, attributable to the VEL
II Account.
TAXATION OF THE POLICY
The Company believes that the Policy described in this Prospectus will be
considered a life insurance contract under Section 7702 of the Code, which
generally provides for the taxation of life insurance policies and places
limitations on the relationship of the Policy Value to the Insurance Amount at
Risk. As a result, the Death Proceeds payable are excludable from the gross
income of the Beneficiary. Moreover, any increase in the Policy Value is not
taxable until received by the Policyowner or the Policyowner's designee. But see
"MODIFIED ENDOWMENT CONTRACTS."
The Code also requires that the investment of each Sub-Account be adequately
diversified in accordance with Treasury regulations in order to be treated as a
life insurance Policy for tax purposes. Although the Company does not have
control over the investments of the Underlying Funds, the Company believes that
the Underlying Funds currently meet the Treasury's diversification requirements,
and the Company will monitor continued compliance with these requirements. In
connection with the issuance of previous regulations relating to diversification
requirements, the Treasury Department announced that such regulations do not
provide guidance concerning the extent to which Policyowners may direct their
investments to particular divisions of a separate account. Regulations in this
regard may be issued in the future. It is possible that if and when regulations
are issued, the Policy may need to be modified to comply with such regulations.
For these reasons, the Policy or the Company's administrative rules may be
modified as necessary to prevent a Policyowner from being considered the owner
of the assets of the VEL II Account.
Depending upon the circumstances, a surrender, partial withdrawal, change in the
Sum Insured Option, change
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in the Face Amount, lapse with Policy loan outstanding or assignment of the
Policy may have tax consequences. In particular, under specified conditions, a
distribution under the Policy during the first fifteen years from Date of Issue
that reduces future benefits under the Policy will be taxed to the Policyowner
as ordinary income to the extent of any investment earnings in the Policy.
Federal, state and local income, estate, inheritance, and other tax consequences
of ownership or receipt of Policy proceeds depend on the circumstances of each
Insured, Policyowner or Beneficiary.
Policy Loans
The Company believes that non-preferred loans received under the Policy will be
treated as an indebtedness of the Policyowner for federal income tax purposes.
Under current law, these loans will not constitute income for the Policyowner
while the Policy is in force (but see "Modified Endowment Policies"). There is a
risk, however, that a preferred loan may be characterized by the IRS as a
withdrawal and taxed accordingly. At the present time, the IRS has not issued
any guidance on whether loans with the attributes of a preferred loan should be
treated differently than a non-preferred loan. This lack of specific guidance
makes the tax treatment of preferred loans uncertain. In the event IRS
guidelines are issued in the future, you may revoke your request for a preferred
loan.
Section 264 of the Code restricts the deduction of interest on Policy loans.
Consumer interest paid on Policy loans under an individually owned Policy is not
tax deductible. No tax deduction for interest is allowed on Policy loans
exceeding $50,000 in aggregate, if the Insured is an officer or employee of, or
is financially interested in, any business carried on by the taxpayer.
Policies Issued in Connection with TSA Plans
The Policies may be issued in connection with tax-sheltered annuity plans ("TSA
Plans") of certain public school systems and organizations that are tax exempt
under Section 501(c)(3) of the Code.
Under the provisions of Section 403(b) of the Code, payments made for annuity
policies purchased for employees under TSA Plans are excludable from the gross
income of such employees, to the extent that the aggregate purchase payments in
any year do not exceed the maximum contribution permitted under the Code. The
Company has received a Private Letter Ruling with respect to the status of the
Policies as providing "incidental life insurance" when issued in connection with
TSA Plans. In the Private Letter Ruling, the IRS has taken the position that the
purchase of a life insurance Policy by the employer as part of a TSA Plan will
not violate the "incidental benefit" rules of Section 403(b) and the regulations
thereunder. The Private Letter Ruling also stated that the use of current or
accumulated contributions to purchase a life insurance Policy will not result in
current taxation of the premium payments for the life insurance Policy, except
for the current cost of the life insurance protection.
A Policy qualifying under Section 403(b) of the Code must provide that
withdrawals or other distributions attributable to salary reduction
contributions (including earnings) may not begin before the employee attains age
59 1/2, separates from service, dies, or becomes disabled. In the case of
hardship, a Policyowner may withdraw amounts contributed by salary reduction,
but not the earnings on such amounts. Even though a distribution may be
permitted under these rules (e.g., for hardship or after separation from
service), it may nonetheless be subject to a 10% penalty tax as a premature
distribution, in addition to income tax.
Policy loans are generally permitted in accordance with the terms of the Policy.
However, if a Policy loan does not comply with the requirements of Code Section
72(p), the Policyowner's TSA plan may become disqualified and Policy values may
be includible in current income.
MODIFIED ENDOWMENT CONTRACTS
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The Technical and Miscellaneous Revenue Act of 1988 ("the 1988 Act") adversely
affects the tax treatment of distributions under so-called "modified endowment
contracts." Under the 1988 Act, any life insurance Policy, including the Policy
offered by this Prospectus, that fails to satisfy a "seven-pay" test is
considered a modified endowment contract. The Policy would fail to satisfy the
seven-pay test if the cumulative premiums paid under the Policy at any time
during the first seven Policy years (or within seven years of a material change
in the Policy) exceed the sum of the net level premiums that would have been
paid, had the Policy provided for paid-up future benefits after the payment of
seven level premiums.
If the Policy is considered a modified endowment contract, all distributions
under the Policy will be taxed on an "income-first" basis. Most distributions
received by the Policyowner directly or indirectly (including loans,
withdrawals, surrenders, or the assignment or pledge of any portion of the
Policy Value) will be includible in gross income to the extent that the cash
Surrender Value of the Policy exceeds the Policyowner's investment in the
Policy. Any additional amounts will be treated as a return of capital to the
extent of the Policyowner's basis in the Policy. With certain exceptions, an
additional 10% tax will be imposed on the portion of any distribution that is
includible in income. All modified endowment contracts issued by the same
insurance company to the same Policyowner during any 12-month period will be
treated as a single modified endowment contract in determining taxable
distributions.
Currently, each Policy is reviewed when premiums are received to determine if it
satisfies the seven-pay test. If the Policy does not satisfy the seven-pay test,
the Company will notify the Policyowner of the option of requesting a refund of
the excess premium. The refund process must be completed within 60 days after
the Policy anniversary, or the Policy will be classified permanently as a
modified endowment contract.
MORE INFORMATION ABOUT THE GENERAL ACCOUNT
As discussed earlier, you may allocate Net Premiums and transfer Policy Value to
the General Account. Because of exemption and exclusionary provisions in the
securities law, any amount in the General Account generally is not subject to
regulation under the provisions of the 1933 Act or the 1940 Act. Accordingly,
the disclosures in this Section have not been reviewed by the SEC. Disclosures
regarding the fixed portion of the Policy and the General Account may, however,
be subject to certain generally applicable provisions of the federal securities
laws concerning the accuracy and completeness of statements made in
prospectuses.
GENERAL DESCRIPTION
The General Account of the Company is made up of all of the general assets of
the Company other than those allocated to any separate account. Allocations to
the General Account become part of the assets of the Company and are used to
support insurance and annuity obligations. Subject to applicable law, the
Company has sole discretion over the investment of assets of the General
Account.
A portion or all of Net Premiums may be allocated or transferred to accumulate
at a fixed rate of interest in the General Account. Such net amounts are
guaranteed by the Company as to principal and a minimum rate of interest. The
allocation or transfer of funds to the General Account does not entitle you to
share in the investment experience of the General Account.
GENERAL ACCOUNT VALUES
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The Company bears the full investment risk for amounts allocated to the General
Account, and guarantees that interest credited to each Policyowner's Policy
Value in the General Account will not be less than an annual rate of 4%
("Guaranteed Minimum Rate").
The Company may, AT ITS SOLE DISCRETION, credit a higher rate of interest
("excess interest"), although it is not obligated to credit interest in excess
of 4% per year, and might not do so. The excess interest rate, if any, in effect
on the date a premium is received at the Principal Office, however, is
guaranteed on that premium for one year, unless the Policy Value associated with
the premium becomes security for a Policy loan. AFTER SUCH INITIAL ONE-YEAR
GUARANTEE OF INTEREST ON NET PREMIUM, ANY INTEREST CREDITED ON THE POLICY'S
ACCUMULATED VALUE IN THE GENERAL ACCOUNT IN EXCESS OF THE GUARANTEED MINIMUM
RATE PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF THE COMPANY. THE
POLICYOWNER ASSUMES THE RISK THAT INTEREST CREDITED MAY NOT EXCEED THE
GUARANTEED MINIMUM RATE.
Even if excess interest is credited to accumulated value in the General Account,
no excess interest will be credited to that portion of the Policy Value which is
equal to the Debt. Such Policy Value, however, will be credited interest at an
effective annual yield of at least 6%.
The Company guarantees that, on each Monthly Payment Date, the Policy Value in
the General Account will be the amount of the Net Premiums allocated or the
Policy Value transferred to the General Account, plus interest at an annual rate
of 4% per year, plus any excess interest which the Company credits, less the sum
of all Policy charges allocable to the General Account and any amounts deducted
from the General Account in connection with loans, partial withdrawals,
surrenders or transfers.
THE POLICY
This Prospectus describes a flexible premium variable life insurance Policy and
is intended generally to serve as a disclosure document only for the aspects of
the Policy relating to the VEL II Account. For complete details regarding the
General Account, see the Policy itself.
Surrenders and Partial Withdrawals
If a Policy is surrendered or if a partial withdrawal is made, a surrender
charge or partial withdrawal charge, as applicable, may be imposed. In the event
of a decrease in the Face Amount, the surrender charge deducted is a fraction of
the charge that would apply to a full surrender of the Policy. Partial
withdrawals are made on a last-in/first-out basis from the Policy Value
allocated to the General Account.
Transfers
The first 12 transfers in a Policy year are free of charge. Thereafter, a $10
transfer charge will be deducted for each transfer in that Policy year. The
transfer privilege is subject to the consent of the Company and to the Company's
then current rules.
Policy loans also may be made from the Policy Value in the General Account.
Delay of Payments
Transfers, surrenders, partial withdrawals, Death Proceeds and Policy loans
payable from the General Account may be delayed up to six months. If payment is
delayed for 30 days (10 days in New York) or more, however, the Company will pay
interest at least equal to an effective annual yield of 3 1/2% per year for the
period of deferment. Amounts from the General Account used to pay premiums on
policies with the Company will not be
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delayed.
FINANCIAL STATEMENTS
Financial Statements for the Company and the VEL II Account are included in this
Prospectus beginning immediately after this section. The financial statements of
the Company should be considered only as bearing on the ability of the Company
to meet its obligations under the Policy. They should not be considered as
bearing on the investment performance of the assets held in the VEL II Account.
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APPENDIX A
OPTIONAL BENEFITS
This Appendix is intended to provide only a very brief overview of additional
insurance benefits available by rider. For more information, contact your agent.
The following supplemental benefits are available for issue under the Policy for
an additional charge.
WAIVER OF PREMIUM RIDER
This rider provides that during periods of total disability, continuing
more than four months, the Company will add to the Policy Value each month
an amount selected by you or the amount needed to pay the Policy charges.
This value will be used to keep the Policy in force. This benefit is
subject to the Company's maximum issue benefits. Its cost will change
yearly.
GUARANTEED INSURABILITY RIDER
This rider guarantees that insurance may be added at various option dates
without Evidence of Insurability. This benefit may be exercised on the
option dates even if the Insured is disabled.
OTHER INSURED RIDER
This rider provides a term insurance benefit for up to five Insureds. At
present this benefit is only available for the spouse and children of the
primary Insured. The rider includes a feature that allows the "other
Insured" to convert the coverage to a flexible premium adjustable life
insurance Policy.
CHILDREN'S INSURANCE RIDER
This rider provides coverage for eligible minor children. It also covers
future children, including adopted children and stepchildren.
ACCIDENTAL DEATH BENEFIT RIDER
This rider pays an additional benefit for death resulting from a covered
accident prior to the Policy anniversary nearest the Insured's Age 70.
EXCHANGE OPTION RIDER
This rider allows you to use the Policy to insure a different person,
subject to Company guidelines.
LIVING BENEFITS RIDER
This rider permits part of the proceeds of the Policy to be available
before death if the Insured becomes terminally ill or is permanently
confined to a nursing home.
GUARANTEED DEATH BENEFIT RIDER
This rider, which is available only at issue, (a) guarantees that your
policy will not lapse regardless of the Performance of the Separate
Account and (b) provides a guaranteed net death benefit. See "THE
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POLICY" "Guaranteed Death Benefit Rider."
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APPENDIX B
DEATH PROCEEDS PAYMENT OPTIONS
PAYMENT OPTIONS
Upon written request, the Surrender Value or all or part of the Death Proceeds
may be placed under one or more of the payment options below or any other option
offered by the Company. If you do not make an election, the Company will pay the
benefits in a single sum. A certificate will be provided to the payee describing
the payment option selected. If a payment option is selected, the Beneficiary
may pay to the Company any amount that otherwise would be deducted from the Sum
Insured.
The amounts payable under a payment option for each $1,000 value applied will be
the greater of:
o the rate per $1,000 of value applied based on the Company's non-guaranteed
current payment option rates for the Policy, or
o the rate in the Policy for the applicable payment option.
The following payment options currently are available. The amounts payable under
these options are paid from the General Account. None is based on the investment
experience of the VEL II Account.
Option A: Payments for a Specified Number of Years. The Company will make
equal payments for any selected number of years (not greater than
30). Payments may be made annually, semi-annually, quarterly or
monthly.
Option B: Lifetime Monthly Payments. Payments are based on the payee's age on
the date the first payment will be made. One of three variations may
be chosen. Depending upon this choice, payments will end:
o upon the death of the payee, with no further payments due
(Life Annuity), or
o upon the death of the payee, but not before the sum of the
payments made first equals or exceeds the amount applied under
this option (Life Annuity with Installment Refund), or
o upon the death of the payee, but not before a selected period (5,
10 or 20 years) has elapsed (Life Annuity with Period Certain).
Option C: Interest Payments. The Company will pay interest at a rate
determined by the Company each year, but which will not be less than
3 2%. Payments may be made annually, semi-annually, quarterly or
monthly. Payments will end when the amount left with the Company has
been withdrawn. Payments will not continue, however, after the death
of the payee. Any unpaid balance plus accrued interest will be paid
in a lump sum.
Option D: Payments for a Specified Amount. Payments will be made until the
unpaid balance is exhausted. Interest will be credited to the unpaid
balance. The rate of interest will be determined by the Company each
year, but will not be less than 3 1/2%. Payments may be made
annually, semi-annually, quarterly or monthly. The payment level
selected must provide for the payment each year of at least 8% of
the amount applied.
Option E: Lifetime Monthly Payments for Two Payees. One of three variations
may be chosen. After the death of one payee, payments will continue
to the survivor:
o in the same amount as the original amount;
o or in an amount equal to 2/3 of the original amount; or
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o in an amount equal to 1/2 of the original amount.
Payments are based on the payees' ages on the date the first payment
is due. Payments will end upon the death of the surviving payee.
SELECTION OF PAYMENT OPTIONS
The amount applied under any one option for any one payee must be at least
$5,000. The periodic payment for any one payee must be at least $50. Subject to
your and/or the Beneficiary's provision, any option selection may be changed
before the Death Proceeds become payable. If you make no selection, the
Beneficiary may select an option when the Death Proceeds becomes payable.
If the amount of monthly income payments under Option B(3) for the attained age
of the payee are the same for different periods certain, the Company will deem
an election to have been made for the longest period certain which could have
been elected for such age and amount.
You may give the Beneficiary the right to change from Option C or D to any other
option at any time. If the payee selects Option C or D when the Policy becomes a
claim, the right may be reserved to change to any other option. The payee who
elects to change options must be a payee under the option selected.
ADDITIONAL DEPOSITS
An additional deposit may be made to any proceeds when they are applied under
Option B or E. A charge not to exceed 3% will be made. The Company may limit the
amount of this deposit.
RIGHTS AND LIMITATIONS
A payee does not have the right to assign any amount payable under any option. A
payee does not have the right to commute any amount payable under Option B or E.
A payee will have the right to commute any amount payable under Option A only if
the right is reserved in the written request selecting the option. If the right
to commute is exercised, the commuted values will be computed at the interest
rates used to calculate the benefits. The amount left under Option C, and any
unpaid balance under Option D, may be withdrawn by the payee only as set forth
in the written request selecting the option.
A corporation or fiduciary payee may select only option A, C or D. Such
selection will be subject to the consent of the Company.
PAYMENT DATES
The first payment under any option, except Option C, will be due on the date the
Policy matures by death or otherwise, unless another date is designated.
Payments under Option C begin at the end of the first payment period.
The last payment under any option will be made as stated in the description of
that option. Should a payee under Option B or E die prior to the due date of the
second monthly payment, however, the amount applied less the first monthly
payment will be paid in a lump sum or under any option other than Option E. A
lump sum payment will be made to the surviving payee under Option E or the
succeeding payee under Option B.
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APPENDIX C
ILLUSTRATIONS OF SUM INSURED, POLICY VALUES
AND ACCUMULATED PREMIUMS
The following tables illustrate the way in which the Policy's Sum Insured and
Policy Value could vary over an extended period of time.
ASSUMPTIONS
The tables illustrate a Policy issued to a male, Age 30, under a standard
Premium Class and qualifying for the non-smoker discount, and a Policy issued
to a male, Age 45, under a standard Premium Class and qualifying for the
non-smoker discount. In each case, one table illustrate the guaranteed cost of
insurance rates and the other table illustrates the current cost of insurance
rates as presently in effect.
The tables assume that no Policy loans have been made, that you have not
requested an increase or decrease in the initial Face Amount, that no partial
withdrawals have been made, and that no transfers above 12 have been made in
any Policy year (so that no transaction or transfer charges have been
incurred).
The tables assume that all premiums are allocated to and remain in the VEL II
Account for the entire period shown. The tables are based on hypothetical
gross investment rates of return for the Underlying Fund (i.e., investment
income and capital gains and losses, realized or unrealized) equivalent to
constant gross (after tax) annual rates of 0%, 6%, and 12%. The second column
of the tables show the amount which would accumulate if an amount equal to the
Guideline Annual Premium were invested to earn interest (after taxes) at 5%,
compounded annually.
The Policy Values and Death Proceeds would be different from those shown if
the gross annual investment rates of return averaged 0%, 6%, and 12% over a
period of years, but fluctuated above or below such averages for individual
Policy years. The values also would be different depending on the allocation
of the Policy's total Policy Value among the Sub-Accounts of the VEL II
Account, if the actual rates of return averaged 0%, 6% or 12%, but the rates
of each Underlying Fund varied above and below such averages.
Deductions for Charges
The amounts shown for the Death Proceeds and the Policy Values take into
account the deduction from premium for the tax expense charge, the Monthly
Deduction from Policy Value, and the daily charge against the VEL II Account
for mortality and expense risks and the VEL II Account administrative charge
for the first ten Policy years. In the Current Cost of Insurance tables, the
VEL II Account charges are equivalent to an effective annual rate of 0.80% of
the average daily value of the assets in the VEL II Account in the first ten
Policy Years, and 0.65% thereafter. In the Guaranteed Cost of Insurance
Charges tables, the VEL II Account charges are equivalent to an effective
annual rate of 1.15% of the average daily value of the assets in the VEL II
Account in the first ten Policy Years, and 0.90% thereafter.
Expenses of the Underlying Funds
The amounts shown in the tables also take into account the Underlying Fund
advisory fees and operating expenses, which are assumed to be at an annual
rate of 0.85% of the average daily net assets of the Underlying Fund. The
actual fees and expenses of each Underlying Fund vary, and, in 1997, ranged
from an annual rate of ____% to an annual rate of ___% of average daily net
assets. The fees and expenses associated with the Policy may be more or less
than ____% in the aggregate, depending upon how you make allocations of the
Policy Value among the Sub-Accounts.
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Under its Management Agreement with the Trust, Allmerica Investments has
declared a voluntary expense limitation of 1.50% of average net average assets
for the Select International Equity Fund, 1.20% for the Growth Fund, 1.00% for
the Investment Grade Income Fund, 0.60% for the Money Market Fund, 0.60% for the
Equity Index Fund, 1.00% for the Government Bond Fund, 1.35% for the Select
Capital Appreciation Fund and the Select Aggressive Growth Fund, 1.20% for the
Select Growth Fund and Select Strategic Growth Fund, and 1.10% for the Select
Growth and Income Fund. In 1997 the expenses of the Funds of the Trust did not
exceed the expense limitations. The Select Emerging Markets Fund and Select
Strategic Growth Fund commenced operations in February, 1998. The Manager has
agreed to voluntarily waive its management fee to the extent that expenses of
the Select Emerging Markets Fund exceed 2.00% of the Fund's average daily
assets, except that such waiver shall not exceed the net amount of management
fees earned by the Manager from the Fund after subtracting fees paid by the
Manager to Schroder Capital Management International, Inc. for sub-advisory
services. The Select Value Opportunity Fund was formerly known as the "Small-Mid
Cap Value Fund." The Manager has declared a voluntary expense limitation of
1.25% of average daily net assets and has agreed to limit management fees to an
annual rate of 90% of average daily net assets. These limitations may be
terminated at any time.
Delaware International has voluntarily agreed to waive its management fees and
reimburse the International Equity Series to limit certain expenses to 8/10 of
1% of the average daily net assets. Without the expense limitation, in 1997 the
total annual expenses of the International Equity Series would have been ____%.
Net Annual Rates of Investment
Taking into account the mortality and expense risk charge and the VEL II Account
administrative charge and the assumed 0.85% charge for Underlying Fund advisory
fees and operating expenses, the gross annual rates of investment return of 0%,
6% and 12% in the Current Cost of Insurance Tables correspond to net annual
rates of -1.65%, 4.35%, 10.35%, respectively, during the first ten Policy years
and -1.50%, 4.50% and 10.50%, respectively, thereafter.
Taking into account the mortality and expense risk charge and the VEL II Account
administrative charge and the assumed 0.85% charge for Underlying Fund advisory
fees and operating expenses, the gross annual rates of investment return of 0%,
6% and 12% in the Guaranteed Cost of Insurance Tables correspond to net annual
rates of -2.00%, 4.00%, 10.00%, respectively, during the first ten Policy years
and -1.75%, 4.25% and 10.25%, respectively, thereafter.
The hypothetical returns shown in the table do not reflect any charges for
income taxes against the VEL II Account since no charges are currently made. If
in the future, however, such charges are made in order to produce illustrated
death benefits and cash values, the gross annual investment rate of return would
have to exceed 0%, 6% or 12% by a sufficient amount to cover the tax charges.
Upon request, the Company will provide a comparable illustration based upon the
proposed Insured's Age, sex, and underwriting classification, and the requested
Face Amount, Sum Insured Option, and riders.
To choose the Sub-Accounts which best will meet your needs and objectives,
carefully read the prospectuses of the Trust, Fidelity VIP, Fidelity VIP II, T.
Rowe Price and DGPF along with this Prospectus.
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Allmerica Financial Life Insurance and Annuity Company
VARI-EXCEPTIONAL LIFE POLICY
Male Non-Smoker Age 30
Specified Face Amount = $75,000
Sum Insured Option 2
<TABLE>
<CAPTION>
CURRENT COST OF INSURANCE CHARGES
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
Paid Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest ----------------------- ----------------------- -----------------------
Policy At 5% Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 283 1,178 76,178 359 1,254 76,254 435 1,331 76,331
2 3,013 1,312 2,333 77,333 1,538 2,559 77,559 1,774 2,795 77,795
3 4,634 2,398 3,465 78,465 2,850 3,917 78,917 3,339 4,407 79,407
4 6,336 3,549 4,574 79,574 4,305 5,329 80,329 5,156 6,180 81,180
5 8,123 4,699 5,659 80,659 5,837 6,797 81,797 7,171 8,132 83,132
6 9,999 5,825 6,721 81,721 7,427 8,324 83,324 9,383 10,280 85,280
7 11,969 6,927 7,759 82,759 9,077 9,910 84,910 11,810 12,643 87,643
8 14,037 8,000 8,768 83,768 10,784 11,553 86,553 14,470 15,238 90,238
9 16,209 9,049 9,753 84,753 12,555 13,260 88,260 17,390 18,094 93,094
10 18,490 10,062 10,703 85,703 14,381 15,021 90,021 20,585 21,226 96,226
11 20,884 11,161 11,673 86,673 16,390 16,903 91,903 24,222 24,735 99,735
12 23,398 12,237 12,621 87,621 18,476 18,860 93,860 28,219 28,603 103,603
13 26,038 13,287 13,544 88,544 20,638 20,895 95,895 32,610 32,866 107,866
14 28,810 14,312 14,440 89,440 22,880 23,008 98,008 37,436 37,564 112,564
15 31,720 15,309 15,309 90,309 25,201 25,201 100,201 42,740 42,740 117,740
16 34,777 16,147 16,147 91,147 27,476 27,476 102,476 48,441 48,441 123,441
17 37,985 16,950 16,950 91,950 29,829 29,829 104,829 54,715 54,715 129,715
18 41,355 17,714 17,714 92,714 32,261 32,261 107,261 61,621 61,621 136,621
19 44,892 18,440 18,440 93,440 34,775 34,775 109,775 69,223 69,223 144,223
20 48,607 19,126 19,126 94,126 37,371 37,371 112,371 77,592 77,592 152,592
Age 60 97,665 23,624 23,624 98,624 68,489 68,489 143,489 225,810 225,810 302,586
Age 65 132,771 23,633 23,633 98,633 87,621 87,621 162,621 374,826 374,826 457,288
Age 70 177,576 21,275 21,275 96,275 108,731 108,731 183,731 615,951 615,951 714,503
Age 75 234,759 15,583 15,583 90,583 131,003 131,003 206,003 1,007,907 1,007,907 1,082,907
</TABLE>
(1) Assumes a $1,400 premium is paid at the beginning of each Policy year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause the Policy to lapse because of insufficient Policy Value
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE VALUE
OF UNITS, CASH VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGES 0%, 6%, AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A - 7
<PAGE>
Allmerica Financial Life Insurance and Annuity Company
VARI-EXCEPTIONAL LIFE POLICY
Male Non-Smoker Age 30
Specified Face Amount = $75,000
Sum Insured Option 2
<TABLE>
<CAPTION>
CURRENT COST OF INSURANCE CHARGES
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
Paid Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest ----------------------- ----------------------- -----------------------
Policy At 5% Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,470 262 1,158 76,158 338 1,233 76,233 414 1,309 76,309
2 3,013 1,269 2,290 77,290 1,492 2,514 77,514 1,725 2,747 77,747
3 4,634 2,330 3,398 78,398 2,776 3,843 78,843 3,258 4,326 79,326
4 6,336 3,455 4,479 79,479 4,197 5,222 80,222 5,034 6,058 81,058
5 8,123 4,574 5,535 80,535 5,690 6,651 81,651 6,999 7,960 82,960
6 9,999 5,667 6,563 81,563 7,234 8,131 83,131 9,149 10,045 85,045
7 11,969 6,733 7,565 82,565 8,832 9,664 84,664 11,500 12,333 87,333
8 14,037 7,770 8,539 83,539 10,482 11,250 86,250 14,072 14,840 89,840
9 16,209 8,780 9,484 84,484 12,186 12,891 87,891 16,884 17,589 92,589
10 18,490 9,760 10,400 85,400 13,946 14,586 89,586 19,961 20,601 95,601
11 20,884 10,803 11,316 86,316 15,865 16,377 91,377 23,446 23,958 98,958
12 23,398 11,818 12,202 87,202 17,846 18,230 93,230 27,260 27,644 102,644
13 26,038 12,803 13,059 88,059 19,892 20,149 95,149 31,438 31,694 106,694
14 28,810 13,758 13,886 88,886 22,004 22,132 97,132 36,014 36,142 111,142
15 31,720 14,682 14,682 89,682 24,184 24,184 99,184 41,030 41,030 116,030
16 34,777 15,446 15,446 90,446 26,304 26,304 101,304 46,398 46,398 121,398
17 37,985 16,177 16,177 91,177 28,493 28,493 103,493 52,296 52,296 127,296
18 41,355 16,873 16,873 91,873 30,752 30,752 105,752 58,775 58,775 133,775
19 44,892 17,533 17,533 92,533 33,084 33,084 108,084 65,893 65,893 140,893
20 48,607 18,156 18,156 93,156 35,488 35,488 110,488 73,713 73,713 148,713
Age 60 97,665 21,524 21,524 96,524 63,150 63,150 138,150 209,388 209,388 284,388
Age 65 132,771 20,153 20,153 95,153 78,566 78,566 153,566 342,324 342,324 417,635
Age 70 177,576 15,057 15,057 90,057 93,126 93,126 168,126 553,120 553,120 641,619
Age 75 234,759 3,935 3,935 78,935 103,642 103,642 178,642 887,453 887,453 962,453
</TABLE>
(1) Assumes a $1,400 premium is paid at the beginning of each Policy year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause the Policy to lapse because of insufficient Policy Value
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE VALUE
OF UNITS, CASH VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGES 0%, 6%, AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A - 8
<PAGE>
Allmerica Financial Life Insurance and Annuity Company
VARI-EXCEPTIONAL LIFE POLICY
Male Non-Smoker Age 45
Specified Face Amount = $250,000
Sum Insured Option 1
<TABLE>
<CAPTION>
CURRENT COST OF INSURANCE CHARGES
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
Paid Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest ----------------------- ----------------------- -----------------------
Policy At 5% Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 0 3,200 250,000 75 3,418 250,000 293 3,636 250,000
2 9,041 2,566 6,301 250,000 3,203 6,937 250,000 3,866 7,601 250,000
3 13,903 3,384 9,287 250,000 4,644 10,546 250,000 6,011 11,913 250,000
4 19,008 6,494 12,161 250,000 8,584 14,251 250,000 10,945 16,612 250,000
5 24,368 9,609 14,921 250,000 12,740 18,052 250,000 16,424 21,736 250,000
6 29,996 12,594 17,552 250,000 16,981 21,939 250,000 22,359 27,317 250,000
7 35,906 15,464 20,068 250,000 21,325 25,929 250,000 28,815 33,419 250,000
8 42,112 18,216 22,466 250,000 25,775 30,024 250,000 35,848 40,098 250,000
9 48,627 20,851 24,747 250,000 30,335 34,231 250,000 43,524 47,420 250,000
10 55,469 23,355 26,897 250,000 35,000 38,542 250,000 51,904 55,446 250,000
11 62,652 26,251 29,084 250,000 40,312 43,145 250,000 61,627 64,460 250,000
12 70,195 29,021 31,146 250,000 45,758 47,883 250,000 72,264 74,389 250,000
13 78,114 31,648 33,064 250,000 51,331 52,748 250,000 83,911 85,328 250,000
14 86,430 34,120 34,828 250,000 57,030 57,739 250,000 96,687 97,395 250,000
15 95,161 36,422 36,422 250,000 62,852 62,852 250,000 110,720 110,720 250,000
16 104,330 37,861 37,861 250,000 68,112 68,112 250,000 125,477 125,477 250,000
17 113,956 39,125 39,125 250,000 73,515 73,515 250,000 141,838 141,838 250,000
18 124,064 40,195 40,195 250,000 79,058 79,058 250,000 160,007 160,007 250,000
19 134,677 41,027 41,027 250,000 84,722 84,722 250,000 180,212 180,212 250,000
20 145,821 41,647 41,647 250,000 90,544 90,544 250,000 202,749 202,749 250,000
Age 60 95,161 36,422 36,422 250,000 62,852 62,852 250,000 110,720 110,720 250,000
Age 65 145,821 41,647 41,647 250,000 90,544 90,544 250,000 202,749 202,749 250,000
Age 70 210,477 40,696 40,696 250,000 122,197 122,197 250,000 355,914 355,914 412,861
Age 75 292,995 30,366 30,366 250,000 159,685 159,685 250,000 605,316 605,316 647,688
</TABLE>
(1) Assumes a $4,200 premium is paid at the beginning of each Policy year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause the Policy to lapse because of insufficient Policy Value
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE VALUE
OF UNITS, CASH VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGES 0%, 6%, AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A - 9
<PAGE>
Allmerica Financial Life Insurance and Annuity Company
VARI-EXCEPTIONAL LIFE POLICY
Male Non-Smoker Age 45
Specified Face Amount = $250,000
Sum Insured Option 1
<TABLE>
<CAPTION>
CURRENT COST OF INSURANCE CHARGES
Premiums Hypothetical 0% Hypothetical 6% Hypothetical 12%
Paid Plus Gross Investment Return Gross Investment Return Gross Investment Return
Interest ----------------------- ----------------------- -----------------------
Policy At 5% Surrender Policy Death Surrender Policy Death Surrender Policy Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
---- -------- ----- ----- ------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 4,410 0 3,102 250,000 0 3,317 250,000 190 3,533 250,000
2 9,041 2,352 6,087 250,000 2,976 6,711 250,000 3,627 7,362 250,000
3 13,903 3,051 8,953 250,000 4,279 10,182 250,000 5,614 11,516 250,000
4 19,008 6,033 11,700 250,000 8,064 13,731 250,000 10,360 16,027 250,000
5 24,368 9,008 14,321 250,000 12,041 17,353 250,000 15,612 20,924 250,000
6 29,996 11,857 16,815 250,000 16,092 21,051 250,000 21,290 26,248 250,000
7 35,906 14,567 19,171 250,000 20,209 24,813 250,000 27,426 32,030 250,000
8 42,112 17,127 21,377 250,000 24,381 28,631 250,000 34,060 38,310 250,000
9 48,627 19,527 23,423 250,000 28,601 32,497 250,000 41,237 45,133 250,000
10 55,469 21,752 25,293 250,000 32,856 36,398 250,000 49,005 52,546 250,000
11 62,652 24,215 27,049 250,000 37,592 40,425 250,000 57,918 60,751 250,000
12 70,195 26,483 28,608 250,000 42,360 44,484 250,000 67,584 69,709 250,000
13 78,114 28,548 29,965 250,000 47,157 48,573 250,000 78,095 79,512 250,000
14 86,430 30,399 31,107 250,000 51,978 52,686 250,000 89,552 90,260 250,000
15 95,161 32,013 32,013 250,000 56,808 56,808 250,000 102,063 102,063 250,000
16 104,330 32,658 32,658 250,000 60,924 60,924 250,000 115,051 115,051 250,000
17 113,956 33,018 33,018 250,000 65,019 65,019 250,000 129,377 129,377 250.000
18 124,064 33,055 33,055 250,000 69,068 69,068 250,000 145,217 145,217 250,000
19 134,677 32,723 32,723 250,000 73,042 73,042 250,000 162,780 162,780 250,000
20 145,821 31,972 31,972 250,000 76,910 76,910 250,000 182,323 182,323 250,000
Age 60 95,161 32,013 32,013 250,000 56,808 56,808 250,000 102,063 102,063 250,000
Age 65 142,821 31,972 31,972 250,000 76,910 76,910 250,000 182,323 182,323 250,000
Age 70 210,477 20,174 20,174 250,000 93,746 93,746 250,000 316,131 316,131 366,712
Age 75 292,995 0 0 0 101,672 101,672 250,000 529,651 529,651 566,726
</TABLE>
(1) Assumes a $4,200 premium is paid at the beginning of each Policy year.
Values will be different if premiums are paid with a different frequency or
in different amounts.
(2) Assumes that no Policy loan has been made. Excessive loans or withdrawals
may cause the Policy to lapse because of insufficient Policy Value
THE HYPOTHETICAL INVESTMENT RATES OF RETURN ARE ILLUSTRATIVE ONLY, AND SHOULD
NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN, AND WILL DEPEND
ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY A POLICYOWNER
AND THE DIFFERENT INVESTMENT RATES OF RETURN FOR THE UNDERLYING FUNDS. THE VALUE
OF UNITS, CASH VALUE, AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM
THOSE SHOWN IF THE ACTUAL RATES OF INVESTMENT RETURN AVERAGES 0%, 6%, AND 12%
OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE AND BELOW THOSE AVERAGES FOR
INDIVIDUAL POLICY YEARS, OR IF ANY PREMIUMS WERE ALLOCATED OR CASH VALUE
TRANSFERRED TO THE FIXED ACCOUNT. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
A - 10
<PAGE>
APPENDIX D
CALCULATION OF MAXIMUM SURRENDER CHARGES
A separate surrender charge is calculated upon issuance of the Policy and upon
each increase in the Face Amount. The maximum surrender charge is equal to the
sum of (a) plus (b), where (a) is a deferred administrative charge equal to
$8.50 per $1,000 of the initial Face Amount (or Face Amount increase), and (b)
is a deferred sales charge of 49% of premiums received up to a maximum number of
Guideline Annual Premiums (GAPs) subject to the deferred sales charge that
varies by issue Age or Age at time of increase as applicable:
Applicable Age Maximum GAPs Applicable Age Maximum GAPs
-------------- ------------ -------------- ------------
0-55 1.660714 68 1.290612
56 1.632245 69 1.262143
57 1.603776 70 1.233673
58 1.575306 71 1.205204
59 1.546837 72 1.176735
60 1.518367 73 1.148265
61 1.489898 74 1.119796
62 1.461429 75 1.091327
63 1.432959 76 1.062857
64 1.404490 77 1.034388
65 1.376020 78 1.005918
66 1.347551 79 0.977449
67 1.319082 80 0.948980
A further limitation is imposed based on the Standard Nonforfeiture Law of each
state. The maximum surrender charges upon issuance of the Policy and upon each
increase in the Face Amount are shown in the table below. During the first two
Policy years following issue or an increase in the Face Amount, the actual
surrender charge may be less than the maximum. See "CHARGES AND DEDUCTIONS,"
"Surrender Charge."
The maximum surrender charge initially remains level and then grades down
according to the following schedule:
Ages
0-50 The maximum surrender charge remains level for the first 40 Policy
months, reduces by 0.5% for the next 80 Policy months, then decreases
by 1% per month to zero at the end of 180 Policy months (15 Policy
years).
51 and The maximum surrender charge remains level for 40 Policy months
above and decreases per month by the percentages below:
age 51 - 0.78% per month for 128 months
age 52 - 0.86% per month for 116 months
age 53 - 0.96% per month for 104 months
age 54 - 1.09% per month for 92 months
age 55 and over - 1.25% per month for 80 months
A - 11
<PAGE>
The Factors used in calculating the maximum surrender charges vary with the
issue Age, sex and Premium Class (Smoker) as indicated in the table below.
MAXIMUM SURRENDER CHARGE PER $1,000 FACE AMOUNT
Age of Male Female
issue or Non- Male Non- Female
increase Smoker Smoker Smoker Smoker
-------- ------ ------ ------ ------
0 8.63 7.68
1 8.63 7.70
2 8.78 7.81
3 8.94 7.93
4 9.10 8.05
5 9.27 8.18
6 9.46 8.32
7 9.65 8.47
8 9.86 8.62
9 10.08 8.78
10 10.31 8.95
11 10.55 9.13
12 10.81 9.32
13 11.07 9.51
14 11.34 9.71
15 11.62 9.92
16 11.89 10.14
17 12.16 10.36
18 10.65 12.44 9.73 10.59
19 10.87 12.73 9.93 10.83
20 11.10 13.02 10.15 11.09
21 11.34 13.33 10.37 11.35
22 11.59 13.66 10.60 11.63
23 11.85 14.01 10.85 11.92
24 12.14 14.38 11.10 12.22
25 12.44 14.77 11.37 12.54
26 12.75 15.19 11.66 12.88
27 13.09 15.64 11.95 13.23
28 13.45 16.11 12.26 13.60
29 13.83 16.62 12.59 13.99
30 14.23 17.15 12.93 14.40
31 14.66 17.72 13.29 14.83
32 15.10 18.32 13.67 15.28
33 15.58 18.96 14.07 15.75
34 16.08 19.63 14.49 16.25
35 16.60 20.35 14.93 16.77
A - 12
<PAGE>
MAXIMUM SURRENDER CHARGE PER $1,000 FACE AMOUNT (continued)
Age of Male Female
issue or Non- Male Non- Female
increase Smoker Smoker Smoker Smoker
-------- ------ ------ ------ ------
36 17.16 21.10 15.39 17.33
37 17.75 21.89 15.88 17.91
38 18.37 22.73 16.39 18.51
39 19.02 23.55 16.93 19.15
40 19.71 24.28 17.50 19.81
41 20.44 25.04 18.09 20.51
42 21.20 25.85 18.71 21.23
43 22.02 26.71 19.36 21.98
44 22.87 27.61 20.04 22.77
45 23.61 28.56 20.76 23.56
46 24.36 29.57 21.52 24.23
47 25.15 30.63 22.33 24.94
48 26.00 31.16 23.14 24.69
49 26.90 32.95 23.83 26.47
50 27.85 34.21 24.57 27.31
51 28.87 35.56 25.35 28.18
52 29.96 36.99 26.17 29.11
53 31.12 38.25 27.05 30.09
54 32.56 38.25 27.95 31.12
55 33.67 38.25 28.97 32.21
56 34.62 38.25 29.65 32.94
57 35.61 38.25 30.36 33.70
58 36.65 38.25 31.11 34.49
59 37.73 38.25 31.90 35.33
60 38.25 38.25 32.74 36.23
A - 13
<PAGE>
MAXIMUM SURRENDER CHARGE PER $1,000 FACE AMOUNT (continued)
Age of Male Female
issue or Non- Male Non- Female
increase Smoker Smoker Smoker Smoker
-------- ------ ------ ------ ------
61 38.25 38.25 33.63 37.18
62 38.25 38.25 34.57 38.18
63 38.25 38.25 35.56 38.25
64 38.25 38.25 36.60 38.25
65 38.25 38.25 37.68 38.25
66 38.25 38.25 38.25 38.25
67 38.25 38.25 38.25 38.25
68 38.25 38.25 38.25 38.25
69 38.25 38.25 38.25 38.25
70 38.25 38.25 38.25 38.25
71 38.25 38.25 38.25 38.25
72 38.25 38.25 38.25 38.25
73 38.25 38.25 38.25 38.25
74 38.25 38.25 38.25 38.25
75 38.25 38.25 38.25 38.25
76 38.25 38.25 38.25 38.25
77 38.25 38.25 38.25 38.25
78 38.25 38.25 38.25 38.25
79 38.25 38.25 38.25 38.25
80 38.25 38.25 38.25 38.25
EXAMPLES
For the purposes of these examples, assume that a male, Age 35, non-smoker,
purchases a $100,000 Policy. In this example the Guideline Annual Premium
("GAP") equals $1,118.22. His maximum surrender charge is calculated as follows:
(a) Deferred administrative charge $850.00
($8.50/$1,000 of Face Amount)
(b) Deferred sales charge $909.95
(49% x 1.660714 GAPs)
---------
TOTAL $1,759.95
Maximum surrender charge per table on page 84 (16.60 x 100) $1,660.00
A - 14
<PAGE>
During the first two Policy years after the Date of Issue, the actual surrender
charge is the smaller of the maximum surrender charge and the following sum:
(a) Deferred administrative charge $850.00
($8.50/$1,000 of Face Amount)
(b) Deferred sales charge Varies
(not to exceed 29% of Premiums received,
up to one GAP, plus 9% of premiums
received in excess of one GAP, but
less than the maximum number of GAPs
subject to the deferred sales charge)
---------
Sum of (a) and (b)
The maximum surrender charge is $1,660. All premiums are associated with the
initial Face Amount unless the Face Amount is increased.
Example 1:
Assume the Policyowner surrenders the Policy in the tenth Policy month, having
paid total premiums of $900. The actual surrender charge would be $1,111.
Example 2:
Assume the Policyowner surrenders the Policy in the 120th month. After the 40th
Policy month, the maximum surrender charge decreases by 0.5% per month ($8.30
per month in this example). In this example, the maximum surrender charge would
be $996.
A - 15
<PAGE>
PART II
UNDERTAKINGS AND REPRESENTATIONS
UNDERTAKING TO FILE REPORTS
- ---------------------------
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the 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.
RULE 484 UNDERTAKING
- --------------------
Article VIII of Registrant's Bylaws provides: Each Director and each Officer of
the Corporation, whether or not in office, (and his executors or
administrators), shall be indemnified or reimbursed by the Corporation against
all expenses actually and necessarily incurred by him in the defense or
reasonable settlement of any action, suit, or proceeding in which he is made a
party by reason of his being or having been a Director or Officer of the
Corporation, including any sums paid in settlement or to discharge judgment,
except in relation to matters as to which he shall be finally adjudged in such
action, suit, or proceeding to be liable for negligence or misconduct in the
performance of his duties as such Director or Officer; and the foregoing right
of indemnification or reimbursement shall not affect any other rights to which
he may be entitled under the Articles of Incorporation, any statute, bylaw,
agreement, vote of stockholders, or otherwise.
Insofar as indemnification for liability arising under the 1933 Act may be
permitted to Directors, Officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the 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 the Registrant of expenses incurred or paid by a Director, Officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Director, Officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public Policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
REPRESENTATIONS PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF 1940
- -------------------------------------------------------------------------------
The Company hereby represents that the aggregate fees and charges under the
Policy are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the Company.
REPRESENTATIONS CONCERNING WITHDRAWAL RESTRICTIONS ON SECTION 403(b) PLANS AND
- ------------------------------------------------------------------------------
UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM.
- --------------------------------------------
The Company and its registered separate accounts which fund annuity contracts
issued in connection with Section 403(b) plans have relied (a) on Rule 6c-7
under the 1940 Act with respect to withdrawal restrictions under the Texas
Optional Retirement Program ("Program") and (b) 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). The variable life insurance Policies issued by the
Registrant may be issued in connection with Section 403(b) plans ("plans"), and
would be subject to the same
<PAGE>
restrictions on redeemability which are applicable to annuity contracts
issued to such Plans. While the Company and the Registrant are relying on
the exemptions provided by Rule 6e-3(T) in connection with the issuance of
the Policies in connection with the Plans, the Company and the Registrant
represent that they will take the following steps in connection with the
issuance of the Policies to Section 403(b) plans:
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
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>
CONTENTS OF THE REGISTRATION STATEMENT
This registration statement amendment comprises the following papers and
documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
The prospectus consisting of ____ pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484 under the Securities Act of 1933.
Representations under Section 26(e) of the 1940 Act
Representations Concerning Withdrawal Restrictions on Section 403(b) Plans and
under the Texas Optional Retirement Program
The signatures.
Written consents of the following persons:
1. Actuarial Consent
2. Opinion of Counsel
3. Consent of Independent Accountants
The following exhibits:
1. Exhibit 1 (Exhibits required by paragraph A of the instructions to
Form N-8B-2)
(1) Certified copy of Resolutions of the Board of Directors of the
Company of January 21, 1993 establishing the VEL II Account is
filed herewith.
Not Applicable.
(3) (a) Form of Sales and Administrative Services Agreement between
the Company and Allmerica Investments, Inc. previously was
filed on February 1, 1993 and is incorporated herein by
reference.
(b) Sales Agreement between Allmerica Investments, Inc. and G.R.
Phelps & Co., Inc. previously was filed on February 27, 1995
and is incorporated herein by reference.
(4) Not Applicable.
(5) Form of the Policy and initial Policy endorsements previously
were filed by the Company on February 1, 1993 in the initial
registration statement. The following endorsements were
previously filed in Post-Effective Amendment No. 8 on February
27, 1997 and are incorporated herein by reference:
- Paid up Life Insurance Option Endorsement
- Preferred Loan Endorsement
- 403(b) Life Insurance Policy Endorsement
-
- The Guaranteed Death Benefit Rider is filed herewith
(6) Organizational documents of the Company previously were filed by
the Company on April 1, 1991 in Registration No. 33-39702, and
are incorporated herein by reference.
<PAGE>
(7) Not Applicable.
(8) (a) Form of Participation Agreement with Allmerica Investment
Trust previously was filed by the Company on June 3, 1987
in Registration Statement No. 33-14672, and is incorporated
herein by reference.
(b) Form of Participation Agreement with Variable Insurance
Products Fund and Variable Insurance Products Fund II
previously was filed by the Company on June 3, 1987 in
Registration Statement No. 33-14672, and is incorporated
herein by reference.
(c) Form of Participation Agreement with Delaware Group Premium
Fund, Inc. previously was filed by the Company on December
27, 1991 in Registration Statement No. 33-44830, and is
incorporated herein by reference.
(d) Form of Participation Agreement with T. Rowe Price
International Series, Inc. previously was filed on May 1,
1995, and is incorporated herein by reference.
(e) Fidelity Service Agreement as of November 1, 1995 was
previously was filed on April 30, 1996 in Post-Effective
Amendment No. 6, and is incorporated herein by reference. An
Amendment to the Fidelity Service Agreement, effective as of
January 1, 1997 was previously filed in Post-Effective
Amendment No. 9 and is incorporated by reference herein. A
Proposed Form of Fidelity Service Contract was previously
filed in Post-Effective Amendment No. 9 and is incorporated
by reference herein.
(f) Proposed Form of Service Agreement with Rowe Price-Fleming
International, Inc. was previously filed in Post-Effective
Amendment No. 9 and is incorporated by reference herein.
(9) Not Applicable.
(10) Form of Application previously was filed by the Company on
February 1, 1993 in the initial registration statement, and is
incorporated by reference.
2. Form of the Policy and Policy riders are included in Exhibit 1 above.
3. Opinion of Counsel is filed herewith.
4. Not Applicable.
5. Not Applicable.
6. Actuarial Consent is filed herewith.
7. Procedures Memorandum pursuant to Rule 6e-3(T)(b)(12)(iii) under the
1940 Act, which includes conversion procedures pursuant to Rule
6e-3(T)(b)(13)(v)(B), previously was filed on May 24, 1993, and is
incorporated herein by reference.
8. Consent of Independent Accountants will be filed in April, 1998 as an
Exhibit to the 485(b) filing.
<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 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
the10th day of February, 1998.
VEL II ACCOUNT OF
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ ABIGAIL M. ARMSTRONG
--------------------------------
Abigail M. Armstrong, Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ John F. O'Brien Director and Chairman of February 10, 1998
- ------------------------- the Board
John F. O'Brien
/s/ Bruce C. Anderson Director
- -------------------------
Bruce C. Anderson
/s/ Robert E. Bruce Director
- -------------------------
Robert E. Bruce
/s/ John P. Kavanaugh Director, Vice President and
- ------------------------- Chief Investment Officer
John P. Kavanaugh
/s/ John F. Kelly Director, Vice President and
- ------------------------- General Counsel
John F. Kelly
/s/ J. Barry May Director
- -------------------------
J. Barry May
/s/ James R. McAuliffe Director
- -------------------------
James R. McAuliffe
/s/ Edward J. Parry III Director, Vice President and
- ------------------------- Chief Financial Officer
Edward J. Parry III
/s/ Richard M. Reilly Director, President and
- ------------------------ Chief Executive Officer
Richard M. Reilly
/s/ Eric A. Simonsen Director and Vice President
- ------------------------
Eric A. Simonsen
/s/ Phillip E. Soule Director
- ------------------------
Phillip E. Soule
<PAGE>
FORM S-6 EXHIBIT TABLE
Exhibit 1 (1) Certified Copy of Resolutions
Exhibit 1 (5) Guaranteed Death Benefit Rider
Exhibit 3 Opinion of Counsel
Exhibit 6 Actuarial Consent
<PAGE>
EXHIBIT 1 (1)
Worcester, Massachusetts January 21, 1993
In accordance with Article IV, Section 6 of the Bylaws of SMA Life Assurance
Company, the following was consented to by all the members of the Board of
Directors of the Company:
VOTED: That the Company establish a separate account pursuant to the
provisions of Article Third (b) and (c) of its Certificate of
Incorporation and as authorized by Section 2932 of the Delaware
Insurance Code, such separate account to be designated the VEL II
Account ("Separate Account"); and
That the Separate Account shall be established for the purpose of
providing for the issuance by the Company of such variable life
contracts or other contracts ("Contracts") as may be designated from
time to time and shall constitute a separate account into which are
allocated amounts paid to or held by the Company under such Contracts;
and
That the fundamental investment policy of the Separate Account shall be
to invest or reinvest its assets in securities issued by investment
companies registered under the Investment Company Act of 1940; and
That investment divisions be and hereby are established within the
Separate Account to which net payments under the Contracts may be
allocated in accordance with instructions received from contractholders,
and that the President be and hereby is authorized to increase or
decrease the number of investment divisions in the Separate Account as
he deems necessary or appropriate; and
That the income, gains and losses, whether or not realized, from assets
allocated to the Separate Account shall, in accordance with the
Contracts, be credited to or charged against the Separate Account
without regard to other income, gains or losses of the Company; and
That the income, gains and losses, whether or not realized, from assets
allocated to each investment division of the Separate Account shall, in
accordance with the Contracts, be credited to or charged against such
investment division of the Separate Account without regard to other
income, gains or losses of any other investment division of the Separate
Account; and
That each such investment division shall invest only in the shares of a
single investment company or a single mutual fund portfolio of an
investment company organized as a series fund pursuant to the Investment
Company Act of 1940; and
That each investment division may be comprised of two or more sub-
divisions to account for different asset charges that may be applied
under the Contract or under different classes of Contracts; and
That the appropriate officers of the Company be and they hereby are
authorized to deposit such amounts in the Separate Account or in each
investment division thereof as may be necessary or appropriate to
facilitate the commencement of the Separate Account operations; and
That the appropriate officers of the Company be and they hereby are
authorized to transfer funds from time to time between the Company's
general account and the Separate Account as deemed necessary or
appropriate and consistent with the terms of the Contracts; and
<PAGE>
Page 2
That the appropriate officers of the Company be and they hereby are
authorized to change the name or designation of the Separate Account to
such other name or designation as they may deem necessary or
appropriate; and
That the appropriate officers of the Company, with such assistance from
the Company's auditors, legal counsel and independent consultants, or
others as they may require, be and they hereby are authorized and
directed to take all action necessary to: (a) register the Separate
Account as a unit investment trust under the Investment Company Act of
1940, as amended; (b) register the Contracts in such amounts, which may
be an indefinite amount, as the appropriate officers of the Company
shall from time to time deem appropriate under the Securities Act of
1933; and (c) take all other actions which are necessary in connection
with the offering of said Contracts for sale and the operation of the
Separate Account in order to comply with the Investment Company Act of
1940, the Securities Exchange Act of 1934, the Securities Act of 1933,
and other applicable federal laws, including the filing of any
amendments to registration statements, any undertakings, and any
applications for exemptions from the Investment Company Act of 1940 or
other applicable federal laws as the appropriate officers of the Company
shall deem necessary or appropriate; and
That the President, any Vice President, Secretary and Counsel or
Assistant Secretary and Counsel, and each of them with full power to
act without the others, hereby are severally authorized and empowered
to prepare, execute and cause to be filed with the Securities and
Exchange Commission on behalf of the Separate Account, and by the
Company as sponsor and depositor, a Form of Notification of
Registration Statement under the Securities Act of 1933 registering
the Contracts, and any and all amendments to the foregoing on behalf
of the Separate Account and the Company and on behalf of and as
attorneys for the principal executive officer and/or the principal
financial officer and/or the principal accounting officer and/or any
other officer of the Company; and
That the Secretary and Counsel is hereby appointed as agent for
service under any such registration statement and is duly authorized
to receive communications and notices from the Securities and
Exchange Commission with respect thereto; and
That the appropriate officers of the Company be and they hereby are
authorized on behalf of the Separate Account and on behalf of the
Company to take any and all action that they may deem necessary or
advisable in order to sell the Contracts, including any
registrations, filings and qualifications of the Company, its
officers, agents and employees, and the Contracts under the insurance
and security laws of any other states of the United States of America
or other jurisdictions, and in connection therewith to prepare,
execute, deliver and file all such applications, reports, covenants,
resolutions, applications for exemptions, consents to service of
process and other papers and instruments as may be required under
such laws, and to take any and all further action which said officers
or counsel of the Company may deem necessary or desirable (including
entering into whatever agreements and contracts may be necessary) in
order to maintain such registrations or qualifications for as long as
said officers or counsel deem it to be in the best interests of the
Separate Account and the Company; and
That the President, any Vice President, and the Secretary and Counsel
of the Company be and hereby are authorized in the names and on
behalf of the Separate Account and the Company to execute and file
irrevocable written consents on the part of the Separate Account and
of the Company to be used in such states wherein such consents to
service of process may be requisite under the insurance or security
laws therein, in connection with said registration or qualification
of Contract, and to appoint the appropriate state official, or such
other person as may be allowed by said insurance or securities laws,
agent of the Separate Account and of the Company for the purpose of
receiving and accepting process; and
<PAGE>
Page 3
That the President of the Company be and hereby is authorized to
establish procedures under which the Company will institute
procedures for providing voting rights for owners of such Contracts
with respect to securities owned by the Separate Account; and
That the President of the Company is hereby authorized to execute
such agreement or agreements as deemed necessary and appropriate (i)
with Allmerica Investments, Inc., or other qualified entity under
which Allmerica Investments, Inc., or other such entity, will be
appointed principal underwriter and distributor for the Contracts,
and (ii) with one or more qualified banks or other qualified entities
to provide administrative and/or custodial services in connection
with the establishment and maintenance of the Separate Account and
the design, issuance and administration of the Contracts; and
That, since it is expected that the Separate Account will invest in
the securities issued by one or more investment companies, the
appropriate officers of the Company are hereby authorized to execute
whatever agreement or agreements as may be necessary or appropriate
to enable such investments to be made; and
That the appropriate officers of the Company, and each of them, are
hereby authorized to execute and deliver all such documents and
papers and to do or cause to be done all such acts and things as they
may deem necessary or desirable to carry out the foregoing votes and
the intent and purposes thereof.
* * *
/s/ Abigail M. Armstrong
----------------------------------------
Abigail M. Armstrong
Secretary
<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
GUARANTEED DEATH BENEFIT RIDER
This rider is a part of the policy to which it is attached if it is listed in
the specifications page. The rider is issued in consideration of the payment
of the premium. The amount of the premium for this rider is shown in the
specifications page.
While this rider is in effect, the policy will not lapse if the following tests
are met:
1. Within 48 months following the date of issue of the policy and
the date of issue of any increase in the face amount, the sum of
the premiums paid less any debt, partial withdrawals and withdrawal
charges must be greater than the minimum monthly factor (if any)
multiplied by the number of months which have elapsed since that
date; and
2. On each policy anniversary, (a) must exceed (b) where, since the date this
policy was issued:
(a) is the sum of your premiums less any partial withdrawals, partial
withdrawal charges and debt which is classified as a preferred loan;
and
(b) is the sum of the minimum guaranteed death benefit premiums. The
minimum guaranteed death benefit premium amount is shown on the
specifications page or on a new specifications page in the event of a
policy change. The minimum guaranteed death benefit premium will be
prorated in any year in which there is a policy change.
If the policy value is less than the surrender charge on a monthly payment
date, the monthly deduction will be made from the policy value. If the policy
value is less than the monthly deduction, the entire policy value will be
applied to the monthly deduction.
If this rider is in effect on the final premium payment date, a death benefit
will be provided while this rider remains in force. The death benefit will be
the face amount as of the final premium payment date or the policy value as of
the date due proof of death is received by the Company, whichever is greater.
Monthly insurance charges will not be deducted after the final premium payment
date if the policy qualifies for the Guaranteed Death Benefit.
The Guaranteed Death Benefit will end and may not be reinstated on the first to
occur of the following:
1. Foreclosure of a policy loan; or
2. The date on which the sum of your payments does not meet or exceed the
applicable Guaranteed Death Benefit test; or
3. Any policy change that results in a negative guideline level premium;
or
4. The effective date of a change from Sum Insured Option 2 to Sum
Insured Option 1 if such change occurs within 5 policy years of the
final premium payment date; or
5. A request for a partial withdrawal or preferred loan is made after the
final premium payment date.
<PAGE>
FORM 1091-97
It is possible that the policy value will not be sufficient to keep the policy
in force on the first monthly payment date following the date this rider
terminates. The net amount payable to keep the policy in force will never
exceed the surrender charge plus three monthly deductions.
IN WITNESS WHEREOF, the Company has, by its President and Secretary, executed
this rider at Worcester, Massachusetts on the date of issue of this rider.
/s/Richard M. Reilly /a/Abigail M. Armstrong
President Secretary
<PAGE>
EXHIBIT 3
February 12, 1998
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester MA 01653
RE: VEL II ACCOUNT OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FILE NO.'S: 33-57792 AND 811-7466
Gentlemen:
In my capacity as Counsel of Allmerica Financial Life Insurance and Annuity
Company (the "Company"), I have participated in the preparation of this
Post-Effective Amendment to the Registration Statement for the VEL II Account
on Form S-6 under the Securities Act of 1933 with respect to the Company's
individual flexible premium variable life insurance policies.
I am of the following opinion:
1. The VEL II Account is a separate account of the Company validly existing
pursuant to the Delaware Insurance Code and the regulations issued
thereunder.
2. The assets held in the VEL II Account equal to the reserves and other
Policy liabilities of the Policies which are supported by the VEL II
Account are not chargeable with liabilities arising out of any other
business the Company may conduct.
3. The individual flexible premium variable life insurance policies, when
issued in accordance with the Prospectus contained in the Registration
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 the VEL II Account
on Form S-6 filed under the Securities Act of 1933.
Very truly yours,
/s/ Sheila B. St. Hilaire
Sheila B. St. Hilaire
Assistant Vice President and Counsel
<PAGE>
EXHIBIT 6
February 12, 1998
Allmerica Financial Life Insurance and Annuity Company
440 Lincoln Street
Worcester, MA 01653
RE: VEL II ACCOUNT OF ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FILE NO.'S: 33-57792 AND 811-7466
Gentlemen:
This opinion is furnished in connection with the filing by Allmerica Financial
Life Insurance and Annuity Company of the post-effective amendment to the
Registration Statement on Form S-6 of its flexible premium variable life
insurance policies (Policies) allocated to the VEL II Account under the
Securities Act of 1933. The Prospectus included in the Post-Effective Amendment
to the Registration Statement on Form S-6 describes the Policies. I am familiar
with and have provided actuarial advice concerning the preparation of the
post-effective amendment to the Registration Statement, including exhibits.
In my professional opinion, the illustration of death benefits and cash values
included in Appendix C of the prospectus, based on the assumptions stated in the
illustrations, are consistent with the provisions of the Policy. The rate
structure of the Policies has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear more
favorable to a prospective purchaser of a Policy for a person age 30 or a person
age 45 than to prospective purchasers of Policies for people at other ages or
underwriting classes. I am also of the opinion that the aggregate fees and
charges under the Policy are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by the Company
I hereby consent to the use of this opinion as an exhibit to the amendment of
the Registration Statement.
Sincerely,
/s/ William M. Mawdsley
William M. Mawdsley, FSA, MAAA
Vice President and Actuary
