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PROSPECTUS SUPPLEMENT
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
VEL II ACCOUNT
(Supplement to Prospectus Dated April 30, 1996 and Revised August 30, 1996)
* * *
In New York, the Policies offered by this prospectus 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 Internal Revenue Code ("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. In a 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. The
Company has requested, but has not yet 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.
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.
Supplement dated December 1, 1996
